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IN THE MATTER OF: BLUE COAST FINANCIAL GROUP, INC. (collectively, "Respondents") * * * * * * * * * * * * |
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NOTICE OF INTENT TO ISSUE NOTICE OF RIGHT TO HEARING DOCKET NO. CSF-2008-859-B |
I. PRELIMINARY STATEMENT
| 1. | The Banking Commissioner (“Commissioner”) is charged with the administration of Chapter 672c of the Connecticut General Statutes, the Connecticut Business Opportunity Investment Act (“Act”). |
| 2. | Pursuant to Section 36b-71(a) of the Act, the Commissioner, through the Securities and Business Investments Division (“Division”) of the Department of Banking (“Department”), has conducted an investigation into the activities of Respondents to determine if they have violated, are violating or are about to violate any provision of the Act. |
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Section 36b-71(a) of the Act provides, in pertinent part: Subject to the provisions of the Freedom of Information Act, as defined in section 1-200, the commissioner may: (1) Make such public or private investigations within or outside of this state as he deems necessary to determine whether any person has violated or is about to violate any provision of sections 36b-60 to 36b-80, inclusive, . . . or to aid in the enforcement of said sections . . . . | |
| 3. |
The Commissioner has the authority to issue a stop order denying effectiveness to a business opportunity registration pursuant to Section 36b-68(a) of the Act, which provides, in pertinent part:
The commissioner may issue a stop order denying effectiveness to . . . any business opportunity registration if he finds: . . . (3) that the registration of the business opportunity is incomplete in any material respect but is not abandoned pursuant to subsection (e) of this section or contains any statement which was, in the light of the circumstances under which it was made, false or misleading with respect to any material fact; or (4) that any provision of sections 36b-60 to 36b-80, inclusive, . . . has been wilfully violated by any person. |
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Section 36b-68(c) of the Act provides, in pertinent part: No stop order may be entered under this section except as provided in subsection (b) of this section without: (1) Appropriate prior notice to the applicant . . . of a business opportunity; (2) opportunity for a hearing; and (3) the issuance of written findings of fact and conclusions of law by the commissioner. | |
| 4. |
As a result of the investigation by the Division, the Commissioner has the authority to issue a cease and desist order against Respondents pursuant to Section 36b-72(a) of the Act, which provides, in pertinent part: Whenever it appears to the commissioner, after an investigation, that any person or persons have violated, are violating or are about to violate any of the provisions of sections 36b-60 to 36b-80, inclusive, . . . or that a further . . . offer to sell would constitute a violation of said sections, . . . the commissioner may order the person or persons to cease and desist from the violations of the provisions of said sections . . . or from further . . . offering to sell business opportunities constituting or which would constitute a violation of the provisions of said sections . . . . After any such order is issued, the person or persons named in such order may, within fourteen days after receipt of the order, file a written request for a hearing. Such hearing shall be held in accordance with the provisions of chapter 54. |
| 5. |
As a result of the investigation by the Division, the Commissioner has the authority to impose a fine on Respondents pursuant to Section 36b-72(b) of the Act, which provides, in pertinent part: (1) Whenever the commissioner finds as the result of an investigation that any person or persons have violated any of the provisions of sections 36b-60 to 36b-80, inclusive, . . . the commissioner may send a notice to such person or persons by certified mail, return receipt requested, or by any express delivery carrier that provides a dated delivery receipt. Any such notice shall include: (A) A reference to the title, chapter, regulation, rule or order alleged to have been violated; (B) a short and plain statement of the matter asserted or charged; (C) the maximum fine that may be imposed for such violation; and (D) the time and place for the hearing. Such hearing shall be fixed for a date not earlier than fourteen days after the notice is mailed. |
II. RESPONDENTS
| 6. | Blue Coast is, and at all times relevant hereto was, an Arizona corporation with its principal place of business at 2929 North Power Road, Suite C100, Mesa, Arizona 85215. |
| 7. | S. Hull is, and at all relevant times hereto was, Director and CEO of Blue Coast, whose address last known to the Commissioner is 2929 North Power Road, Suite C100, Mesa, Arizona 85215. |
| 8. | L. Hull is, and at all relevant times hereto was, Director and President of Blue Coast, whose address last known to the Commissioner is 2929 North Power Road, Suite C100, Mesa, Arizona 85215. |
III. STATEMENT OF FACTS
| 9. | From at least April 2002 until 2005, S. Hull was president of Taxback, LLC (“Taxback”), an entity engaged in offering tax review and recovery business opportunities. From at least 2003 until 2006, S. Hull was also president of Taxback Opportunities, LLC (“Opportunities”), an entity also engaged in offering tax review and recovery business opportunities. |
| 10. | From at least October 2002 until October 2006, L. Hull was president of Opportunities. |
| 11. | On January 10, 2005, the Commissioner issued an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing against Taxback (“January Order”), which became permanent as of January 29, 2005. |
| 12. | On January 10, 2005, the Commissioner issued a Notice of Intent to Issue Stop Order Revoking Effectiveness of a Business Opportunity Registration, Notice of Intent to Fine and Notice of Right to Hearing against Opportunities (“Opportunities Notice”). |
| 13. | On June 7, 2005, the Commissioner entered a Consent Order (“Consent Order”) with respect to both Taxback and Opportunities to resolve the January Order and the Opportunities Notice. |
| 14. | Respondents sell products, equipment, supplies or services to enable purchaser-investors to start a business that facilitates audits of workers compensation insurance premiums for the purpose of uncovering errors and overcharges (“Blue Coast Business”). Respondents represent that purchaser-investors will receive a percentage of the total premium refunded to clients as a result of such audits. The Blue Coast Business includes, but is not limited to, personalized websites, brochures, presentation packages, business cards, training manuals, a contact database and marketing appointments. Respondents represent to purchaser-investors on Blue Coast’s website, at www.bluecoastfinancial.biz, that, inter alia, “Blue Coast is a Registered Business Opportunity” with “Unlimited Income Potential with Commissions and Ongoing Residuals”, that Blue Coast will provide a “State-of-the-Art Customer Relationship Management System” and “Marketing-in-a-Box Systems,” and that Blue Coast will train a purchaser-investor’s sales force. |
| 15. | Respondents, through the website, offer the Blue Coast Business, and do not include a disclaimer on the Blue Coast website that such business is not being offered to residents of the state of Connecticut. |
| 16. | On January 16, 2007, Jim Bell of Business Development Centers, a consultant for Blue Coast, filed with the Commissioner an initial application to register the Blue Coast Business as a business opportunity (“Initial Application”), which included a disclosure document intended for distribution to potential Connecticut purchaser-investors (“Initial Disclosure Document”). |
| 17. | On May 4, 2007, the Commissioner issued a Notice of Intent to Issue Stop Order Denying Effectiveness to a Business Opportunity Registration and Notice of Right to Hearing against Blue Coast (collectively “Notice”). The Notice alleged, inter alia, that the Initial Disclosure Document failed to sufficiently summarize the risk factors of the investment, failed to sufficiently disclose the complete business experience of the principals of Blue Coast, and failed to sufficiently disclose prior regulatory actions taken against Blue Coast and the principals of Blue Coast. |
| 18. | On May 5, 2008, after a hearing, the Commissioner issued Findings of Fact, Conclusions of Law and Stop Order Denying Effectiveness to a Business Opportunity Registration (“Stop Order”) against Blue Coast. In the Stop Order, the Commissioner found, inter alia, that Blue Coast’s application for registration was incomplete in a material respect in that the Initial Disclosure Document failed to sufficiently summarize the risk factors of the investment, failed to sufficiently disclose the complete business experience of the principals of Blue Coast, and failed to sufficiently disclose prior regulatory actions taken against Blue Coast and the principals of Blue Coast by the states of Washington and Connecticut. The Commissioner also found that Blue Coast’s affirmative statement in the Initial Disclosure Document that the officers of Blue Coast were not subject to any currently effective state or federal agency or court injunctive or restrictive order was false and misleading to a reasonable purchaser-investor and constituted a false or misleading statement with respect to a material fact. |
| 19. | On June 23, 2008, Blue Coast filed with the Commissioner a second application to register the Blue Coast Business as a business opportunity (“Registration”), which included a disclosure document intended for distribution to potential Connecticut purchaser-investors (“Second Disclosure Document”). The Commissioner has not deemed the Registration abandoned pursuant to Section 36b-68(e) of the Act, nor has the Registration been declared effective by order of the Commissioner in accordance with Section 36b-62(d) of the Act. |
| 20. | The Second Disclosure Document fails to adequately disclose for the past five years the nature and types of business in which S. Hull, L. Hull, Shelee Loughmiller, Vice President of Training, and Brian Felderstein, Vice President of Broker Development, were engaged, as well as the names of their employers, current addresses and titles, as required by Section 36b-63(b)(2) of the Act. |
| 21. | The Second Disclosure Document fails to adequately disclose the business experience of Blue Coast’s predecessor, including the length of time the predecessor has conducted a business of the type to be operated by the purchaser-investor, the length of time the predecessor has offered for sale or sold a business opportunity for such business or the length of time the predecessor has offered for sale or sold business opportunities in any other line of business, and a description of such other line of business, as required by Section 36b-63(b)(3) of the Act. |
| 22. | The Second Disclosure Document misstates the facts surrounding the January Order, the Opportunities Notice and the Consent Order by: (a) failing to disclose that the January Order and Opportunities Notice were separate legal proceedings; (b) stating that a single sale of an unregistered business opportunity occurred when, in fact, the January Order and the Consent Order state that “at least” one sale occurred; (c) failing to disclose that the January Order was made permanent; (d) stating that both Taxback and Opportunities moved to vacate and modify the Commissioner’s order when, in fact, only Taxback had done so; and (e) stating that the parties entered into the Consent Order agreeing that only a single business opportunity had been sold in Connecticut prior to registration, but failed to disclose that the Consent Order stated that Opportunities had also violated Section 36b-65(f) of the Act, as well as the Commissioner’s August 9, 2004, Order Granting Effectiveness to Business Opportunity Registration and Setting Forth Post-Effective Filing Requirements, by failing to immediately notify the Commissioner of a material change in the information contained in its application to register its business opportunity. |
| 23. | The Second Disclosure Document fails to disclose whether the initial payment made by a purchaser-investor is returnable and, if such payment is returnable, the circumstances under which the initial payment is returnable, as required by Section 36b-63(b)(7) of the Act. |
| 24. | The Second Disclosure Document fails to disclose with respect to the business opportunity agreement and any related agreements: (a) the conditions under which the purchaser-investor may renew or extend the agreement; (b) the conditions under which the seller may refuse to renew or extend; (c) the obligations, including lease or sublease obligations, of the purchaser-investor after termination of the business opportunity by the seller or the purchaser-investor; (d) the conditions under which the seller may repurchase; (e) any consideration payable to the seller if the purchaser-investor elects to sell or assign its rights; and (f) the conditions under which the seller and the purchaser-investor may each modify the agreement, as required by Section 36b-63(b)(15) of the Act. |
| 25. | The Second Disclosure Document fails to provide a financial statement updated as of a date not more than four months prior to the filing of the Registration, as required by Section 36b 63(b)(24) of the Act. |
| 26. | The Second Disclosure Document fails to adequately disclose the employment of Brian Felderstein, Vice President of Broker Development, with FOS, LLC, as required by Section 36b 63(b)(26) of the Act. |
| 27. |
The Second Disclosure Document fails to adequately summarize the principal factors that make the business opportunity one of high risk or of a speculative nature, as required by Section 36b 63(b)(27) of the Act, including those particular to the nature of the Blue Coast Business, such as the competitiveness of the industry, the likelihood of failing to uncover errors and overcharges and the dependence of the business on qualified individuals to conduct the premium audits. |
IV. STATUTORY BASIS FOR NOTICE OF INTENT TO ISSUE STOP ORDER DENYING EFFECTIVENESS TO A BUSINESS OPPORTUNITY REGISTRATION, ORDER TO CEASE AND DESIST AND NOTICE OF INTENT TO FINE
| 28. | Paragraphs 1 through 27, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 29. | Blue Coast Business constitutes a “business opportunity” as defined in Section 36b-61(6) of the Act, in that it involves “the sale or . . . offer for sale . . . of any products, equipment, supplies or services which are sold or offered for sale to the purchaser-investor for the purpose of enabling the purchaser-investor to start a business, and in which the seller represents . . . (D) that the seller will provide a sales program or marketing program to the purchaser-investor . . .”. |
| 30. | Paragraphs 1 through 29, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 31. | Blue Coast has filed an application for registration which is incomplete in a material respect, but has not been deemed abandoned by the Commissioner, or contains statements which, in light of the circumstances under which they were made, are false or misleading with respect to material facts, as more fully described in paragraphs 19 through 27, inclusive. Such filing of an application for registration forms a basis for a stop order denying effectiveness to a business opportunity registration under Section 36b 68(a)(3) of the Act. |
c. Wilful Violation of Section 36b-67(1) of the Act - Offer of an Unregistered Business Opportunity
| 32. | Paragraphs 1 through 31, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 33. | Section 36b-67 of the Act provides, in pertinent part, that “[n]o person shall in connection with the sale or offer for sale of a business opportunity: (1) Sell or offer for sale a business opportunity in this state or from this state unless it has first been registered with the commissioner and declared effective by the commissioner in accordance with the provisions of section 36b-62”. |
| 34. | Respondents offered the Blue Coast Business in Connecticut, as more fully described in paragraphs 14 and 15. The offer of such a business opportunity in Connecticut absent registration and absent the Commissioner having declared the business opportunity effective constitutes a wilful violation of Section 36b-67(1) of the Act, which forms a basis for a stop order denying effectiveness to a business opportunity registration under Section 36b 68(a)(4) of the Act, an order to cease and desist to be issued against Respondents under Section 36b-72(a) of the Act and the imposition of a fine against Respondents under Section 36b-72(b) of the Act. |
V. NOTICE OF INTENT TO ISSUE A STOP ORDER DENYING
EFFECTIVENESS TO A BUSINESS OPPORTUNITY REGISTRATION
AND NOTICE OF RIGHT TO HEARING
AS A RESULT OF THE INVESTIGATION BY THE DIVISION, THE COMMISSIONER HAS REASON TO BELIEVE that Blue Coast’s application for registration of a business opportunity in Connecticut is incomplete in a material respect or contains statements that are false or misleading with respect to material facts and that Blue Coast has wilfully violated Section 36b-67(1) of the Act.
NOW THEREFORE, notice is hereby given to Blue Coast that the Commissioner intends to issue a stop order denying effectiveness to its business opportunity registration, subject to Blue Coast’s right to request a hearing on the allegations set forth above. A hearing will be granted to Blue Coast if a written request for a hearing is received by the Department of Banking, Legal Division, 260 Constitution Plaza, Hartford, Connecticut 06103-1800, within fourteen (14) days following its receipt of this Notice. The enclosed Appearance and Request for Hearing Form must be completed and mailed to the above address. If Blue Coast will not be represented by an attorney at the hearing, please complete the Appearance and Request for Hearing Form as “pro se”. Once a written request for a hearing is received, the Commissioner may issue a notification of hearing and designation of hearing officer that acknowledges receipt of a request for a hearing, designates a presiding officer and sets the date of the hearing in accordance with Section 4-177 of the Connecticut General Statutes and Section 36a-1-21 of the Regulations of Connecticut State Agencies. If a hearing is requested, the hearing will be held on January 8, 2009, at 9 a.m., at the Department of Banking, 260 Constitution Plaza, Hartford, Connecticut.
The hearing will be held in accordance with the provisions of Chapter 54 of the Connecticut General Statutes. At such hearing, Blue Coast will have the right to appear and present evidence, rebuttal evidence and argument on all issues of fact and law to be considered by the Commissioner.
If no hearing is requested within the time prescribed, the Commissioner shall issue a stop order denying effectiveness to Blue Coast’s registration of a business opportunity in Connecticut.
VI. ORDER TO CEASE AND DESIST AND NOTICE OF RIGHT TO HEARING
AS A RESULT OF THE INVESTIGATION BY THE DIVISION, THE COMMISSIONER FINDS that Blue Coast Financial Group, Inc., Shawn Hull and Lindsay Hull have violated Section 36b 67(1) of the Act, and that further offers to sell business opportunities in Connecticut would constitute violations of Section 36b-67(1) of the Act.
THE COMMISSIONER THEREFORE ORDERS that Blue Coast Financial Group, Inc., Shawn Hull and Lindsay Hull CEASE AND DESIST from directly or indirectly violating the provisions of the Act and from the further offer to sell business opportunities constituting or which would constitute a violation of the provisions of the Act, including, without limitation, offering unregistered business opportunities in Connecticut.
THE COMMISSIONER FURTHER ORDERS that, pursuant to Section 36b-72(a) of the Act, Blue Coast Financial Group, Inc., Shawn Hull and Lindsay Hull will be afforded an opportunity for a hearing on the allegations set forth above.
A hearing will be granted to Blue Coast Financial Group, Inc., Shawn Hull and Lindsay Hull if a written request for a hearing is received by the Department of Banking, Legal Division, 260 Constitution Plaza, Hartford, Connecticut 06103 1800 within fourteen (14) days following each Respondents receipt of this Order. The enclosed Appearance and Request for Hearing Form must be completed and mailed to the above address. If Blue Coast Financial Group, Inc., Shawn Hull or Lindsay Hull will not be represented by an attorney at the hearing, please complete the Appearance and Request for Hearing Form as “pro se.” Once a written request for a hearing is received, the Commissioner may issue a notification of hearing and designation of hearing officer that acknowledges receipt of a request for a hearing, designates a presiding officer and sets the date of the hearing in accordance with Section 4 177 of the Connecticut General Statutes and Section 36a-1-21 of the Regulations of Connecticut State Agencies. If a hearing is requested, the hearing will be held on January 8, 2009, at 9 a.m., at the Department of Banking, 260 Constitution Plaza, Hartford, Connecticut.
The hearing will be held in accordance with the provisions of Chapter 54 of the Connecticut General Statutes. At such hearing, Blue Coast Financial Group, Inc., Shawn Hull and Lindsay Hull will have the right to appear and present evidence, rebuttal evidence and argument on all issues of fact and law to be considered by the Commissioner. This Order shall remain in effect and become permanent if Blue Coast Financial Group, Inc., Shawn Hull and Lindsay Hull do not request a hearing within the prescribed time period.
VII. NOTICE OF INTENT TO FINE RESPONDENTS AND NOTICE OF HEARING
WHEREAS, the Commissioner finds as a result of an investigation by the Division that Respondents have violated Section 36b-67(1) of the Act;
WHEREAS, the Commissioner believes that the imposition of a fine upon Respondents would be in the public interest and consistent with the purposes fairly intended by the policy and provisions of the Act;
AND WHEREAS, notice is hereby given to Respondents that Section 36b-72(b)(2) of the Act authorizes the Commissioner to impose a fine not to exceed One Hundred Thousand Dollars ($100,000) per violation. The Commissioner intends to impose a maximum fine against Blue Coast of One Hundred Thousand Dollars ($100,000), a maximum fine against S. Hull of One Hundred Thousand Dollars ($100,000) and a maximum fine against L. Hull of One Hundred Thousand Dollars ($100,000).
NOW THEREFORE, a hearing will be held in accordance with Section 36b-72(b)(2) of the Act and Chapter 54 of the Connecticut General Statutes;
The hearing will be held on January 8, 2009, at 9 a.m., at the Department of Banking, 260 Constitution Plaza, Hartford, Connecticut.
At the hearing, Respondents will have the right to appear and present evidence, rebuttal evidence and argument on all issues of fact and law relating to the allegations stated herein. If any Respondent fails to appear at such hearing, the Commissioner may order that the maximum fine be imposed upon such Respondent.
Dated at Hartford, Connecticut
this 5th day of November 2008. ________/s/________
Howard F. Pitkin
Banking Commissioner
CERTIFICATION
I hereby certify that on this 5th day of November 2008, the foregoing Notice of Intent to Issue Stop Order Denying Effectiveness to a Business Opportunity Registration and Notice of Right to Hearing, Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing was sent by certified mail, return receipt requested, to Blue Coast Financial Group, Inc., 2929 North Power Road, Suite C100, Mesa, Arizona 85215, certified mail no. 7009 3400 0009 0180 2765; Shawn Hull, 2929 North Power Road, Suite C100, Mesa, Arizona 85215, certified mail no. 7009 3400 0009 0180 2772; Lindsay Hull, 2929 North Power Road, Suite C100, Mesa, Arizona 85215, certified mail no. 7009 3400 0009 0180 2789; and Richard W. Farrell, Esq., 4900 Falls of Neuse Road, Suite 212, Raleigh, North Carolina 27609, certified mail no. 7009 3400 0009 0180 2840.
________/s/_________
Jesse B. Silverman
Prosecuting Attorney