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IN THE MATTER OF: ERNEST P. LAMONICA DIGITAL ENTERTAINMENT CORP. PACIFIC RIM INVESTMENT (Collectively "Respondents") * * * * * * * * * * * * * * * * * |
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ORDER TO CEASE AND DESIST NOTICE OF INTENT TO FINE AND NOTICE OF RIGHT TO HEARING DOCKET NOS. CF-2006-7111-S |
I. PRELIMINARY STATEMENT
| 1. | The Banking Commissioner (“Commissioner”) is charged with the administration of Chapter 672a of the Connecticut General Statutes, the Connecticut Uniform Securities Act (“Act”), and the regulations promulgated thereunder (Sections 36b-31-2 to 36b-31-33, inclusive, of the Regulations of Connecticut State Agencies) (“Regulations”). |
| 2. | Pursuant to Section 36b-26(a) of the Act, the Commissioner, through the Securities and Business Investments Division (“Division”) of the Department of Banking, has conducted an investigation into the activities of Respondents to determine if they have violated, are violating or are about to violate provisions of the Act or Regulations. Section 36b-26(a) of the Act provides, in pertinent part: |
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The commissioner, in his discretion, may, subject to the provisions of the Freedom of Information Act . . . (1) [m]ake 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-2 to 36b-33, inclusive, or any regulation or order thereunder . . . . | |
| 3. | As a result of the investigation by the Division, the Commissioner has reason to believe that Respondents have violated certain provisions of the Act. |
| 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-27(a) of the Act, as amended by Public Act 05-177, which provides, in pertinent part: |
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Whenever it appears to the commissioner after an investigation that any person has violated, is violating or is about to violate any of the provisions of sections 36b-2 to 36b-33, inclusive, . . . or that the further sale or offer to sell securities would constitute a violation of said sections . . . the commissioner may, in the commissioner’s discretion, order (1) the person . . . to cease and desist from the violations . . . of the provisions of said sections . . . or from the further sale or offer to sell securities constituting or which would constitute a violation of the provisions of said sections . . . . After such an order is issued, the person named in the order may, within fourteen days after receipt of the order, file a written request for a hearing. Any 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-27(d) of the Act, which prior to October 1, 2003, provided, in pertinent part: |
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(1) Whenever the commissioner finds as the result of an investigation that any person has violated any of the provisions of sections 36b-2 to 36b-33, inclusive, . . . the commissioner may send a notice to (A) such person . . . by registered mail, return receipt requested . . . . Any such notice shall include: (i) A reference to the title, chapter, regulation, rule or order alleged to have been violated; (ii) a short and plain statement of the matter asserted or charged; (iii) the maximum fine that may be imposed for such violation; and (iv) the time and place for the hearing. Any such hearing shall be fixed for a date not earlier than fourteen days after the notice is mailed.
(2) The commissioner shall hold a hearing upon the charges made unless such person fails to appear at the hearing. Any such hearing shall be held in accordance with the provisions of chapter 54. After the hearing if the commissioner finds that the person has violated . . . any of the provisions of sections 36b-2 to 36b-33, inclusive, . . . the commissioner may, in the commissioner’s discretion and in addition to any other remedy authorized by said sections, order that a fine not exceeding one hundred thousand dollars per violation be imposed upon such person. If such person fails to appear at the hearing, the commissioner may, as the facts require, order that a fine not exceeding one hundred thousand dollars per violation be imposed upon such person. The commissioner shall send a copy of any order issued pursuant to this subsection by registered mail, return receipt requested . . . to any person named in such order. | |
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Section 36b-27(d) of the Act, as amended by Public Act 05-177, provides, in pertinent part: | |
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(1) Whenever the commissioner finds as the result of an investigation that any person has violated any of the provisions of sections 36b-2 to 36b-33, inclusive, . . . the commissioner may send a notice to (A) such person . . . by registered mail, return receipt requested . . . . Any such notice shall include: (i) A reference to the title, chapter, regulation, rule or order alleged to have been violated; (ii) a short and plain statement of the matter asserted or charged; (iii) the maximum fine that may be imposed for such violation; and (iv) the time and place for the hearing. Any such hearing shall be fixed for a date not earlier than fourteen days after the notice is mailed. (2) The commissioner shall hold a hearing upon the charges made unless such person fails to appear at the hearing. Any such hearing shall be held in accordance with the provisions of chapter 54. After the hearing if the commissioner finds that the person has violated . . . any of the provisions of sections 36b-2 to 36b-33, inclusive, . . . the commissioner may, in the commissioner’s discretion and in addition to any other remedy authorized by said sections, order that a fine not exceeding one hundred thousand dollars per violation be imposed upon such person. If such person fails to appear at the hearing, the commissioner may, as the facts require, order that a fine not exceeding one hundred thousand dollars per violation be imposed upon such person. The commissioner shall send a copy of any order issued pursuant to this subsection by registered mail, return receipt requested . . . to any person named in such order. | |
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II. RESPONDENTS | |
| 6. | Respondent Ernest P. Lamonica (“Lamonica”) is an individual whose address last known to the Commissioner is 6200 Meadowood #131, Reno, Nevada 89502; Respondent Digital Entertainment Corp. (“Digital”) is a Nevada corporation with its last known address as 3702 South Virginia Street, #G-12, Reno, Nevada 89502; and Respondent Pacific Rim Investment Partners (“Pacific Rim”) is a Nevada corporation with its last known address as 3702 South Virginia Street, #G-12, Reno, Nevada 89502. |
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III. STATEMENT OF FACTS | |
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7. |
At all times relevant hereto, Lamonica was President and CEO of Digital and Pacific Rim. |
| 8. | From at least September 1996 to the present, Digital was an issuer of securities in the form of stock and notes (“Digital Securities”). |
| 9. | From at least May 2005 to the present, Pacific Rim was an issuer of securities in the form of stock (“Pacific Rim Securities”). |
| 10. | On several occasions between September 1996 and September 2003, Lamonica, on behalf of Digital, offered and sold Digital Securities to at least one Connecticut investor for a total of approximately $50,000. In addition, in approximately May 2005, Lamonica, on behalf of Pacific Rim, offered and sold Pacific Rim Securities to at least one Connecticut investor. |
| 11. | On July 30, 1998, the Superintendent of Securities of the State of Iowa issued a Cease and Desist Order against Lamonica and Digital for violating the Iowa Uniform Securities Act by engaging in acts, practices or courses of business which operated as a fraud or deceit upon a person in connection with the offer or sale of Digital Securities in Iowa. |
| 12. | On September 23, 1999, an order issued by the Tennessee Department of Commerce instructing Lamonica and Digital to cease and desist from violating the Tennessee Securities Act of 1980 became a Final Order. The Final Order stated that Lamonica and Digital had employed a device, scheme or artifice to defraud and had made untrue statements of material fact or omitted to state material facts necessary in order to make statements made, in light of the circumstances under which they were made, not misleading with respect to the sale of Digital Securities in Tennessee. |
| 13. | At no time relevant hereto was Lamonica registered in Connecticut as an agent of Digital or Pacific Rim, nor was Lamonica an associated person representing a broker-dealer in effecting transactions described in subdivisions (2) and (3) of Section 15(h) of the Securities Exchange Act of 1934, nor was he excluded from the definition of “agent” under Section 36b-3(1) of the Act. |
| 14. | The Digital Securities and Pacific Rim Securities that were offered and sold by Respondents were not registered in Connecticut under Section 36b-16 of the Act, nor were they exempt from registration under Section 36b-21 of the Act, nor were they covered securities. |
| 15. | At no time relevant hereto did Lamonica and Digital disclose in connection with the offer and sale of Digital Securities to the Connecticut investor that cease and desist orders had been issued against Lamonica and Digital for fraudulent activities in connection with the offer or sale of Digital Securities. |
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IV. STATUTORY BASIS FOR ORDER TO CEASE AND DESIST AND ORDER IMPOSING FINE AGAINST RESPONDENTS | |
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a. Violation of Section 36b-4(a)(2) of the Act – Omission of Material Facts in the Offer and Sale of a Security | |
| 16. | Paragraphs 1 through 15, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 17. | Lamonica’s and Digital’s failure to disclose to the Connecticut investor that the cease and desist orders had been issued against Lamonica and Digital, as more fully described in paragraphs 11, 12 and 15, constitutes, in connection with the offer, sale or purchase of a security, omitting to state material facts necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading. Such conduct was in violation of Section 36b-4(a)(2) of the Act, which constitutes a basis for an order to cease and desist to be issued against Lamonica and Digital under Section 36b-27(a) of the Act, as amended. Such conduct, in addition, constitutes a basis for the imposition of a fine against Lamonica and Digital for one violation under Section 36b-27(d) of the Act prior to October 1, 2003. |
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b. Violation of Section 36b-6(a) of the Act – Unregistered Agent Activity | |
| 18. | Paragraphs 1 through 17, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 19. | Lamonica acted as an agent of issuer on at least two occasions, as more fully described in paragraphs 8 through 10, inclusive, absent registration, as more fully described in paragraph 13. Such conduct constitutes two violations of Section 36b-6(a) of the Act, which constitutes a basis for an order to cease and desist to be issued against Lamonica under Section 36b-27(a) of the Act, as amended, and for the imposition of a fine against Lamonica for one violation under Section 36b-27(d) of the Act prior to October 1, 2003, and for one violation under Section 36b-27(d) of the Act, as amended. |
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c. Violation of Section 36b-16 of the Act – Offer and Sale of Unregistered Securities by an Agent | |
| 20. | Paragraphs 1 through 19, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 21. | Respondents offered and sold unregistered securities to at least one Connecticut investor, as more fully described in paragraphs 8 through 10, inclusive, which securities were not registered in Connecticut under the Act, as more fully described in paragraph 14. The offer and sale of such securities absent registration constitutes a violation of Section 36b-16 of the Act. Such violation constitutes a basis for an order to cease and desist to be issued against Respondents under Section 36b-27(a) of the Act, as amended, and for the imposition of a fine against Lamonica for one violation under Section 36b-27(d) of the Act prior to October 1, 2003, and one violation under Section 36b-27(d) of the Act, as amended; against Digital for one violation under Section 36b-27(d) of the Act prior to October 1, 2003; and against Pacific Rim for one violation under Section 36b-27(d) of the Act, as amended. |
V. ORDER TO CEASE AND DESIST AND NOTICE OF RIGHT TO HEARING
AS A RESULT OF THE INVESTIGATION BY THE DIVISION, THE COMMISSIONER FINDS
that, with respect to the activity described herein, Ernest P. Lamonica has violated Sections 36b-4(a)(2), 36b-6(a) and 36b-16 of the Act; Digital Entertainment Corp. has violated Sections 36b-4(a)(2) and 36b-16 of the Act; and Pacific Rim Investment Partners has violated Section 36b-16 of the Act;THE COMMISSIONER FURTHER FINDS that the issuance of this Order is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policies and provisions of the Act.
THE COMMISSIONER THEREFORE ORDERS that: Ernest P. Lamonica CEASE AND DESIST from directly or indirectly violating the provisions of the Act, including without limitation: (1) omitting to state material facts necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, (2) acting as an agent of issuer in Connecticut absent registration, and (3) offering and selling unregistered securities; Digital Entertainment Corp. CEASE AND DESIST from directly or indirectly violating the provisions of the Act, including without limitation: (1) omitting to state material facts necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, and (2) offering and selling unregistered securities; and Pacific Rim Investment Partners CEASE AND DESIST from directly or indirectly violating the provisions of the Act, including without limitation, offering and selling unregistered securities;
THE COMMISSIONER FURTHER ORDERS that, pursuant to Section 36b-27(a) of the Act, as amended, Ernest P. Lamonica, Digital Entertainment Corp., and Pacific Rim Investment Partners will be afforded an opportunity for a hearing on the allegations set forth above.
A hearing will be granted to Ernest P. Lamonica, Digital Entertainment Corp., and Pacific Rim Investment Partners 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 your receipt of this Order. The enclosed Appearance and Request for Hearing Form must be completed and mailed to the above address. If Ernest P. Lamonica, Digital Entertainment Corp., and Pacific Rim Investment Partners 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 April 4, 2006, at 10 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, Ernest P. Lamonica, Digital Entertainment Corp., and Pacific Rim Investment Partners 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 against Ernest P. Lamonica if he does not request a hearing within the prescribed time period, against Digital Entertainment Corp. if it does not request a hearing within the prescribed time period, and against Pacific Rim Investment Partners if it does not request a hearing within the prescribed time period.
VI. NOTICE OF INTENT TO FINE RESPONDENTS AND NOTICE OF HEARING
WHEREAS, the Commissioner finds as a result of an investigation by the Division that Lamonica committed one violation of Section 36b-4(a)(2), two violations of Section 36b-6(a), and two violations of Section 36b-16 of the Act; Digital committed one violation of Section 36b-4(a)(2) of the Act and one violation of Section 36b-16 of the Act; and Pacific Rim committed one violation of Section 36b-16 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 Lamonica, Digital and Pacific Rim that the Commissioner intends to impose a fine not to exceed Ten Thousand Dollars ($10,000) per violation that occurred prior to October 1, 2003, and One Hundred Thousand Dollars ($100,000) per violation that occurred subsequent to October 1, 2003, for a maximum fine of Two Hundred Thirty Thousand Dollars ($230,000) on Lamonica, a maximum fine of Twenty Thousand Dollars ($20,000) on Digital and a maximum fine of One Hundred Thousand Dollars ($100,000) on Pacific Rim.
NOW THEREFORE, a hearing will be held in accordance with Section 36b-27(d)(2) of the Act, as amended, and Chapter 54 of the Connecticut General Statutes.
The hearing will be held on April 4, 2006, at 10 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.
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 Lamonica, Digital and Pacific Rim that the Commissioner intends to impose a fine not to exceed Ten Thousand Dollars ($10,000) per violation that occurred prior to October 1, 2003, and One Hundred Thousand Dollars ($100,000) per violation that occurred subsequent to October 1, 2003, for a maximum fine of Two Hundred Thirty Thousand Dollars ($230,000) on Lamonica, a maximum fine of Twenty Thousand Dollars ($20,000) on Digital and a maximum fine of One Hundred Thousand Dollars ($100,000) on Pacific Rim.
NOW THEREFORE, a hearing will be held in accordance with Section 36b-27(d)(2) of the Act, as amended, and Chapter 54 of the Connecticut General Statutes.
The hearing will be held on April 4, 2006, at 10 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 9th day of February 2006. ________/s/_________
John P. Burke
Banking Commissioner
CERTIFICATION
I hereby certify that on this 10th day of February 2006, the foregoing Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing was sent by registered mail, return receipt requested, to Ernest P. Lamonica, 6200 Meadowood #131, Reno, Nevada 89502, registered mail no. RB028032811US; Digital Entertainment Corp., 3702 South Virginia Street, #G-12, Reno, Nevada 89502, registered mail no. RB028032825US; and Pacific Rim Investment Partners, 3702 South Virginia Street, #G-12, Reno, Nevada 89502, registered mail no. RB028032839US.
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Stacey Serrano Sarlo
Prosecuting Attorney