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IN THE MATTER OF: HCH CYPRESS, LLC (Collectively "Respondents") * * * * * * * * * * * * * * * * * * |
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ORDER TO CEASE AND DESIST NOTICE OF INTENT TO FINE AND NOTICE OF RIGHT TO HEARING DOCKET NO. CF-2007-7134-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 2006 Supplement to the General Statutes, 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 2006 Supplement to the General Statutes provides, in pertinent part:
The commissioner 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 the commissioner deems necessary to determine whether any person has violated, is violating 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 2006 Supplement to the General Statutes, which provides, in pertinent part:
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 2006 Supplement to the General Statutes, which provides, in pertinent part:
(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. |
HCH is a Connecticut limited liability company with its principal place of business at c/o Five Mile Group, 694 Boston Post Road, Darien, Connecticut 06820. |
| 7. | Kabbash is a managing member of HCH and a Connecticut resident whose address last known to the Commissioner is 325 Riversville Road, Greenwich, Connecticut 06831. |
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III. STATEMENT OF FACTS | |
| 8. |
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| 9. | On or about October 28, 2002, Kabbash, from Connecticut, offered a New York resident (“NY Investor #1”) an interest in a limited liability company that was to become HCH for the purposes of funding the acquisition of hospitals and ambulatory surgical centers. The investment made by NY Investor #1 in the HCH Interests was structured as a loan to, inter alia, Kabbash. As evidence of that investment, NY Investor #1 received a promissory note, signed by Kabbash, which set forth the terms of the investment. |
| 10. | In connection with the offer and sale of the HCH Interests and the promissory note, Kabbash failed to disclose verbally or in writing, inter alia, any risk factors related to the investment or any financial information on HCH and the relevant work history of the managing members of HCH. Finally, in connection with the offer of the HCH Interests and the promissory note, Kabbash told NY Investor #1 that proceeds of the investment would be used to finance the acquisition of hospitals and ambulatory surgical centers when, in fact, the investment funds were used to pay Kabbash’s personal expenses. |
| 11. | On or about December 23, 2002, Kabbash, from Connecticut and on behalf of HCH, effected a sale of an HCH Interest to another New York resident (“NY Investor #2”) for the purposes of funding the acquisitions of hospitals and ambulatory surgical centers. |
| 12. | In connection with the purchase of the HCH Interest, NY Investor #2 received, inter alia, an agreement detailing the terms of the investment, which included a guaranteed buy-back provision after 90 days and a signed operating agreement that set forth the amount of initial capital contributions, members’ percentage interests and other terms of the investment. Kabbash, the agreement and the signed operating agreement, however, failed to disclose, inter alia, any risk factors, any financial information on HCH and the relevant work history of the managing members of HCH. Finally, in connection with the purchase of the HCH Interest, Kabbash told NY Investor #2 that proceeds of the investment would be used to finance the acquisition of hospitals and ambulatory surgical centers when, in fact, the investment funds were used for Kabbash’s personal expenses. |
| 13. | To date, no funds have been returned by HCH or Kabbash to either New York Investor #1 or New York Investor #2. |
| 14. | The promissory note that was offered and sold by Kabbash was never registered in Connecticut as required by Section 36b-16 of the Act, nor was it exempt from registration under Section 36b-21 of the 2006 Supplement to the General Statutes, nor was it a covered security. |
| 15. |
The HCH Interests that were offered and sold by Respondents were never registered in Connecticut as required by Section 36b-16 of the Act, nor were they exempt from registration under Section 36b-21 of the 2006 Supplement to the General Statutes, nor were they covered securities.
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IV. STATUTORY BASIS FOR ORDER TO CEASE AND DESIST AND
ORDER IMPOSING FINE AGAINST RESPONDENTS a. Violation of Section 36b-16 of the Act – Offer and Sale of Unregistered Securities | |
| 16. | Paragraphs 1 through 15, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 17. | Kabbash offered and sold unregistered securities to at least one investor, as more fully described in paragraphs 9 and 10, 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, which forms a basis for an order to cease and desist to be issued against Kabbash under Section 36b-27(a) of the 2006 Supplement to the General Statutes, and for the imposition of a fine against Kabbash under Section 36b-27(d) of the 2006 Supplement to the General Statutes. |
| 18. |
Respondents both offered and sold unregistered securities to at least one investor, as more fully described in paragraphs 11 and 12, which securities were not registered in Connecticut under the Act, as more fully described in paragraph 15. The offer and sale of such securities absent registration constitutes a violation of Section 36b-16 of the Act, which forms a basis for an order to cease and desist to be issued against Respondents under Section 36b-27(a) of the 2006 Supplement to the General Statutes, and for the imposition of a fine against Respondents under Section 36b-27(d) of the 2006 Supplement to the General Statutes.
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b. Violation of Section 36b-4(a) of the Act – Fraud in the Offer and Sale of a Security | |
| 19. | Paragraphs 1 through 18, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 20. | The conduct of Kabbash, as more fully described in paragraphs 9 and 10, constitutes, in connection with the offer, sale or purchase of a security, employing a device, scheme or artifice to defraud, making of an untrue statement of material facts or 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, or engaging in an act, practice or course of business which operates as a fraud or deceit upon any person. Such conduct constitutes a violation of Section 36b-4(a) of the Act, which forms a basis for an order to cease and desist to be issued against Kabbash under Section 36b-27(a) of the 2006 Supplement to the General Statutes, and for the imposition of a fine against Kabbash under Section 36b-27(d) of the 2006 Supplement to the General Statutes. |
| 21. |
The conduct of both Respondents, as more fully described in paragraphs 11 and 12, constitutes, in connection with the offer, sale or purchase of a security, employing a device, scheme or artifice to defraud, making of an untrue statement of material facts or 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, or engaging in an act, practice or course of business which operates as a fraud or deceit upon any person. Such conduct constitutes a violation of Section 36b-4(a) of the Act, which forms a basis for an order to cease and desist to be issued against Respondents under Section 36b-27(a) of the 2006 Supplement to the General Statutes, and for the imposition of a fine against Respondents under Section 36b-27(d) of the 2006 Supplement to the General Statutes.
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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, HCH Cypress, LLC and Bradley W. Kabbash have violated Sections 36b-16 and 36b-4(a) 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 HCH Cypress, LLC and Bradley W. Kabbash CEASE AND DESIST from directly or indirectly violating the provisions of the Act, including, without limitation: (1) offering and selling unregistered securities; and (2) in connection with the offer, sale or purchase of a security, employing any device, scheme or artifice to defraud, making of any untrue statements of material facts or 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, or engaging in any act, practice or course of business which operates as a fraud or deceit upon any person;
THE COMMISSIONER FURTHER ORDERS that, pursuant to Section 36b-27(a) of the 2006 Supplement to the General Statutes, HCH Cypress, LLC and Bradley W. Kabbash will be afforded an opportunity for a hearing on the allegations set forth above.
A hearing will be granted to HCH Cypress, LLC and Bradley W. Kabbash 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 Respondent’s receipt of this Order. The enclosed Appearance and Request for Hearing Form must be completed and mailed to the above address. If HCH Cypress, LLC and Bradley W. Kabbash 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 March 8, 2007, 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, HCH Cypress, LLC and Bradley W. Kabbash 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 HCH Cypress, LLC if it does not request a hearing within the prescribed time period, and against Bradley W. Kabbash if he 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 HCH committed one violation of Section 36b-16 of the Act and one violation of Section 36b-4(a) of the Act and Kabbash committed two violations of Section 36b-16 of the Act and two violations of Section 36b-4(a) 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 the Commissioner intends to impose a fine not to exceed One Hundred Thousand Dollars ($100,000) per violation, or a maximum fine of Two Hundred Thousand Dollars ($200,000) on HCH and a maximum fine of Four Hundred Thousand Dollars ($400,000) on Kabbash.
NOW THEREFORE, a hearing will be held in accordance with Section 36b-27(d)(2) of the 2006 Supplement to the General Statutes and Chapter 54 of the Connecticut General Statutes.
The hearing will be held on March 8, 2007, 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 11th day of January 2007. ________/s/_________
Howard F. Pitkin
Banking Commissioner
CERTIFICATION
I hereby certify that on this 12th day of January 2007, 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 HCH Cypress, LLC, c/o Five Mile Group, 694 Boston Post Road, Darien, Connecticut 06820, registered mail no. RB028033397US; and to Bradley W. Kabbash, 325 Riversville Road, Greenwich, Connecticut 06831, registered mail no. RB028033406US, and 1249 Park Avenue, Apartment 13B, New York, New York 10029, registered mail no. RB028033471US.
________/s/_________
Jesse B. Silverman
Prosecuting Attorney