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IN THE MATTER OF: KEY RESOURCE GROUP, LLC RUSSELL KILGARIFF MICHAEL J. MCNAUL MARK T. DUBOISE MIKE BAY GEORGE PHILLIPS GREG HUNTER RONALD FOLKINGA MARK DEATON (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-2007-7073-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:
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 Act, as amended by Public Act 07-91, 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, (2) any other person that directly or indirectly controls such person and that is, was or would be a cause of the violation of such sections . . . due to an act or omission such other person knew or should have known would contribute to such violation . . . 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:
(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-2 to 36b-33, inclusive, . . . the commissioner may send a notice to such person or persons by registered mail, return receipt requested . . . . 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.
(2) The commissioner shall hold a hearing upon the charges made unless such person or persons fail to appear at the hearing. Said hearing shall be held in accordance with the provisions of chapter 54. After the hearing if the commissioner finds that the person or persons have 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 ten thousand dollars per violation be imposed upon such person or persons. If such person or persons fail to appear at the hearing, the commissioner may, as the facts require, order that a fine not exceeding ten thousand dollars per violation be imposed upon such person or persons. The commissioner shall send a copy of any order issued pursuant to this subsection by registered mail, return receipt requested, . . . to any person or persons named in such order. Section 36b-27(d) of the Act currently 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, (B) any other person that directly or indirectly controls such person and that was a cause of the violation of said sections . . . due to an act or omission such other person knew or should have known would contribute to such violation . . . 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. |
Key Resource Group is a Kansas limited liability company with its principal place of business last known to the Commissioner at 155 North Market, Suite 900, Wichita, Kansas 67202. |
| 7. | Lucas was a managing member and control person of Key Resource Group and a Kansas resident whose address last known to the Commissioner is 155 North Market, Suite 900, Wichita, Kansas 67202. |
| 8. |
Kilgariff was a managing member and control person of Key Resource Group and a Kansas resident whose address last known to the Commissioner is 155 North Market, Suite 900, Wichita, Kansas 67202. |
| 9. |
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| 10. | Duboise was an agent of Key Resource Group and is a California resident whose address last known to the Commissioner is 4676 Lakeview Avenue, Suite 113, Yorba Linda, California 92886. |
| 11. | Bay was an agent of Key Resource Group and is a California resident whose address last known to the Commissioner is 39201 Ingraham Street, Building 11, Apartment 111, San Diego, California 92019. |
| 12. | Phillips was an agent of Key Resource Group and is a California resident whose address last known to the Commissioner is 17555 Ventura Boulevard, Suite 200, Encino, California 91316. |
| 13. | Hunter was an agent of Key Resource Group and is a California resident whose address last known to the Commissioner is 4676 Lakeview Avenue, Suite 113, Yorba Linda, California 92886. |
| 14. | Folkinga was an agent of Key Resource Group and is an Idaho resident whose address last known to the Commissioner is 2514 East 3810 North, Twin Falls, Idaho 83301. |
| 15. |
Deaton was an agent of Key Resource Group and is an Idaho resident whose address last known to the Commissioner is 1025 Shoshone Street North, Twin Falls, Idaho 83301.
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III. STATEMENT OF FACTS | |
| 16. | From at least November 2001 to the present, Key Resource Group was an issuer of securities in the form of fractional, undivided interests in oil and gas rights (“Key Interests”). |
| 17. | On or about November 13, 2001, Duboise, on behalf of Key Resource Group, effected a sale of a Key Interest to a Connecticut investor (“Investor #1”) for $10,000, for the purpose of funding the further production of natural gas and new drill locations in the exploration of oil and gas. In connection with the purchase of the Key Interest, Investor #1 received a subscription agreement and an operating agreement that both set forth the terms of the investment. Both the subscription agreement and the operating agreement failed to disclose, inter alia, any financial information about the performance of prior interests in oil and gas rights in which Key Resource Group was the operator; any risk factors; that none of the agents were registered to sell securities in the state of Connecticut; and that sales agents were paid as much as 50% of the investment amount as a commission, which commission payment had the effect of reducing, by as much as half, the amount of the investor’s investment that actually could be used for operational purposes. |
| 18. |
On or about November 26, 2001, Duboise, on behalf of Key Resource Group, effected a sale of a Key Interest to a second Connecticut investor (“Investor #2”) for $20,000 for the purpose of funding the further production of natural gas and new drill locations in exploration of oil and gas. In connection with the purchase of the Key Interest, Investor #2 received a subscription agreement and an Operating Agreement that both set forth the terms of the investment. Both the Subscription Agreement and the operating agreement failed to disclose, inter alia, any financial information about the performance of prior interests in oil and gas rights in which Key Resource Group was the operator; any risk factors; that none of the agents were registered to sell securities in the state of Connecticut; and that sales agents were paid as much as 50% of the investment amount as a commission, which commission payment had the effect of reducing, by as much as half, the amount of the investor’s investment that actually could be used for operational purposes. |
| 19. | On or about December 12, 2001, Duboise, on behalf of Key Resource Group, effected a sale of a Key Interest to a third Connecticut investor (“Investor #3”) for $10,000 for the purpose of funding the further production of natural gas and new drill locations in the exploration of oil and gas. In connection with the purchase of the Key Interest, Investor #3 received a subscription agreement and an operating agreement that both set forth the terms of the investment. Both the subscription agreement and the operating agreement failed to disclose, inter alia, any financial information about the performance of prior interests in oil and gas rights in which Key Resource Group was the operator; any risk factors; that none of the agents were registered to sell securities in the state of Connecticut; and that sales agents were paid as much as 50% of the investment amount as a commission, which commission payment had the effect of reducing, by as much as half, the amount of the investor’s investment that actually could be used for operational purposes. |
| 20. | The Key Interests that were offered and sold by Key Resource Group and Duboise 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 Act. |
| 21. |
From at least September 30, 2002 to the present, Key Resource Group was also an issuer of securities in the form of interests in joint ventures (“Key Joint Ventures”) in individual gas and oil development projects. Each of the Key Joint Ventures are virtually identical in their structure, purpose and operation and represent that they acquire interests in oil and gas wells and arrange for or conduct drilling and operation of those wells. |
| 22. | On or about September 30, 2002, and October 8 and November 10, 2003, Bay, on behalf of Key Resource Group, effected three separate sales of Key Joint Ventures to a Connecticut investor (“Investor #4”): $15,000 for investment in the Pawnee Barber II Joint Venture; $25,000 for investment in the Cheyenne 6 Joint Venture #2; and $25,000 for investment in the Cheyenne 6 Joint Venture #3. In connection with each of the purchases of the Key Joint Ventures, Investor #4 received, inter alia, a questionnaire, a joint venture agreement, an application agreement, and an execution page and power of attorney for the joint venture agreement (collectively “Joint Venture Offering Documents”) that set forth the terms of the investment. The Joint Venture Offering Documents failed to disclose, inter alia, any financial information about the performance of prior interests in oil and gas rights in which Key Resource Group was the operator; any risk factors; that none of the agents were registered to sell securities in the state of Connecticut; and that sales agents were paid as much as 50% of the investment amount as a commission, which commission payment had the effect of reducing, by as much as half, the amount of the investor’s investment that actually could be used for operational purposes. |
| 23. | On May 8, 2002, the Pennsylvania Securities Commission issued a Summary Order to Cease and Desist against, amongst others, Duboise to cease and desist from offering and selling unregistered securities in Pennsylvania. |
| 24. | On January 22, 2003, the Washington Department of Financial Institutions issued a Summary Order to Cease and Desist against, amongst others, Duboise to halt the offer and sale of unregistered securities in Washington. |
| 25. | On or about August 14, 2003, Duboise, on behalf of Key Resource Group, effected a sale of a Key Joint Venture for $6,750 in the Tri-County Joint Venture to Investor #1. In connection with the purchase of the Key Joint Venture, Investor #1 received, inter alia, the Joint Venture Offering Documents. The Joint Venture Offering Documents failed to disclose, inter alia, any financial information about the performance of prior interests in oil and gas rights in which Key Resource Group was the operator; any risk factors; that none of the agents were registered to sell securities in the state of Connecticut; that sales agents were paid as much as 50% of the investment amount as a commission, which commission payment had the effect of reducing, by as much as half, the amount of the investor’s investment that actually could be used for operational purposes; or the Pennsylvania or Washington orders issued against Duboise, as more fully described in paragraphs 23 and 24. |
| 26. | On or about December 24, 2003, Phillips, on behalf of Key Resource Group, effected a sale of a Key Joint Venture for $12,500 in the Rush County 6 Joint Venture to a Connecticut investor (“Investor #5”). In connection with the purchase of the Key Joint Venture, Investor #5 received, inter alia, the Joint Venture Offering Documents. The Joint Venture Offering Documents failed to disclose, inter alia, any financial information about the performance of prior interests in oil and gas rights in which Key Resource Group was the operator; any risk factors; that none of the agents were registered to sell securities in the state of Connecticut; and that sales agents were paid as much as 50% of the investment amount as a commission, which commission payment had the effect of reducing, by as much as half, the amount of the investor’s investment that actually could be used for operational purposes. |
| 27. | On or about January 5 and 6, 2004, Hunter, on behalf of Key Resource Group, effected two sales for $11,250 each of a Key Joint Venture in the Heartland Joint Venture to two Connecticut investors (“Investor #6” and “Investor #7”). In connection with the purchase of the Key Joint Venture, both Investor #6 and Investor #7 received, inter alia, the Joint Venture Offering Documents. The Joint Venture Offering Documents failed to disclose, inter alia, any financial information about the performance of prior interests in oil and gas rights in which Key Resource Group was the operator; any risk factors; that none of the agents were registered to sell securities in the state of Connecticut; and that sales agents were paid as much as 50% of the investment amount as a commission, which commission payment had the effect of reducing, by as much as half, the amount of the investor’s investment that actually could be used for operational purposes. |
| 28. | On or about April 5, 2004, Hunter, on behalf of Key Resource Group, effected a sale of a Key Joint Venture for $11,250 in the Heartland #2 Joint Venture to Investor #7. In connection with the purchase of the Key Joint Venture, Investor #7 received, inter alia, the Joint Venture Offering Documents. The Joint Venture Offering Documents failed to disclose, inter alia, any financial information about the performance of prior interests in oil and gas rights in which Key Resource Group was the operator; any risk factors; that none of the agents were registered to sell securities in the state of Connecticut; and that sales agents were paid as much as 50% of the investment amount as a commission, which commission payment had the effect of reducing, by as much as half, the amount of the investor’s investment that actually could be used for operational purposes. |
| 29. | On or about January 8 and February 23, 2004, Deaton and Folkinga, on behalf of Key Resource Group, effected the sale of two Key Joint Ventures for $45,000 and $45,000, respectively, in the Heartland Joint Venture to a Connecticut investor (“Investor #8”). In connection with the purchases of the Key Joint Ventures, Investor #8 received, inter alia, the Joint Venture Offering Documents. The Joint Venture Offering Documents failed to disclose, inter alia, any financial information about the performance of prior interests in oil and gas rights in which Key Resource Group was the operator; any risk factors; that none of the agents were registered to sell securities in the state of Connecticut; and that sales agents were paid as much as 50% of the investment amount as a commission, which commission payment had the effect of reducing, by as much as half, the amount of the investor’s investment that actually could be used for operational purposes. |
| 30. | The Key Joint Ventures that were offered and sold by Key Resource Group, Duboise, Bay, Phillips, Hunter, Folkinga and Deaton 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 Act. |
| 31. |
Duboise, Bay, Phillips, Hunter, Folkinga and Deaton have never been registered in Connecticut as required by Section 36b-6 of the Act as an agent of Key Resource Group, nor were any of them an associated person.
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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
| 32. | Paragraphs 1 through 31, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 33. |
Respondents offered and sold securities to at least eight Connecticut investors, as more fully described in paragraphs 16 through 22, inclusive, and 25 through 30, inclusive, which securities were not registered in Connecticut under the Act, as more fully described in paragraphs 20 and 30. The offer and sale of such securities absent registration constitutes violations of Section 36b-16 of the Act, which forms a basis for an order to cease and desist to be issued against each Respondent under Section 36b-27(a) of the Act, as amended, and for the imposition of a fine against (i) Key Resource Group for five violations under Section 36b-27(d) of the Act prior to October 1, 2003, and 16 violations under Section 36b-27(d) of the Act as it currently exists; (ii) Lucas for five violations under Section 36b-27(d) of the Act prior to October 1, 2003, and eight violations under Section 36b-27(d) of the Act as it currently exists; (iii) Kilgariff for five violations under Section 36b-27(d) of the Act prior to October 1, 2003, and eight violations under Section 36b-27(d) of the Act as it currently exists; (iv) McNaul for five violations under Section 36b-27(d) of the Act prior to October 1, 2003, and eight violations under Section 36b-27(d) of the Act as it currently exists; (v) Duboise for four violations under Section 36b-27(d) of the Act prior to October 1, 2003; (vi) Bay for one violation under Section 36b-27(d) of the Act prior to October 1, 2003, and two violations under Section 36b-27(d) of the Act as it currently exists; (vii) Phillips for one violation under Section 36b-27(d) of the Act as it currently exists; (viii) Hunter for three violations under Section 36b-27(d) of the Act as it currently exists; (ix) Folkinga for two violations under Section 36b-27(d) of the Act as it currently exists; and (x) Deaton for two violations under Section 36b-27(d) of the Act as it currently exists. Section 36b-27(d) of the Act, prior to October 1, 2003, authorized the Commissioner to impose a fine upon Respondents in an amount not to exceed Ten Thousand Dollars ($10,000) per violation, and Section 36b-27(d) of the Act currently authorizes the Commissioner to impose a fine upon Respondents in an amount not to exceed One Hundred Thousand Dollars ($100,000) per violation. The Commissioner intends to impose a fine upon (i) Key Resource Group not to exceed Eight Hundred Twenty-five Thousand Dollars ($825,000); (ii) Lucas not to exceed Four Hundred Twenty-five Thousand Dollars ($425,000); (iii) Kilgariff not to exceed Four Hundred Twenty-five Thousand Dollars ($425,000); (iv) McNaul not to exceed Four Hundred Twenty-five Thousand Dollars ($425,000); (v) Duboise not to exceed Twenty Thousand Dollars ($20,000); (vi) Bay not to exceed One Hundred Five Thousand Dollars ($105,000); (vii) Phillips not to exceed Fifty Thousand Dollars ($50,000); (viii) Hunter not to exceed One Hundred Fifty Thousand Dollars ($150,000); (ix) Folkinga not to exceed One Hundred Thousand Dollars ($100,000); and (x) Deaton not to exceed One Hundred Thousand Dollars ($100,000). Such fines are subject to each Respondent’s right to a hearing on the allegations set forth above.
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b. Violation of Section 36b-4(a) of the Act –
Fraud in Connection with the Offer and Sale of any Security
| 34. | Paragraphs 1 through 33, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 35. |
The conduct of Respondents, as more fully described in paragraphs 16 through 22, inclusive, and 25 through 30, inclusive, constitutes, in connection with the offer, sale or purchase of any security, directly or indirectly, employing any device, scheme or artifice to defraud or omitting to state a material fact 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. 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 each Respondent under Section 36b-27(a) of the Act, as amended, and for the imposition of a fine against (i) Key Resource Group for five violations under Section 36b-27(d) of the Act prior to October 1, 2003, and 16 violations under Section 36b-27(d) of the Act as it currently exists; (ii) Lucas for five violations under Section 36b-27(d) of the Act prior to October 1, 2003, and eight violations under Section 36b-27(d) of the Act as it currently exists; (iii) Kilgariff for five violations under Section 36b-27(d) of the Act prior to October 1, 2003, and eight violations under Section 36b-27(d) of the Act as it currently exists; (iv) McNaul for five violations under Section 36b-27(d) of the Act prior to October 1, 2003, and eight violations under Section 36b-27(d) of the Act as it currently exists; (v) Duboise for four violations under Section 36b-27(d) of the Act prior to October 1, 2003; (vi) Bay for one violation under Section 36b-27(d) of the Act prior to October 1, 2003, and two violations under Section 36b-27(d) of the Act as it currently exists; (vii) Phillips for one violation under Section 36b-27(d) of the Act as it currently exists; (viii) Hunter for three violations under Section 36b-27(d) of the Act as it currently exists; (ix) Folkinga for two violations under Section 36b-27(d) of the Act as it currently exists; and (x) Deaton for two violations under Section 36b-27(d) of the Act as it currently exists. Section 36b-27(d) of the Act prior to October 1, 2003, authorized the Commissioner to impose a fine upon Respondents in an amount not to exceed Ten Thousand Dollars ($10,000) per violation, and Section 36b-27(d) of the Act currently authorizes the Commissioner to impose a fine upon Respondents in an amount not to exceed One Hundred Thousand Dollars ($100,000) per violation. The Commissioner intends to impose a fine upon (i) Key Resource Group not to exceed Eight Hundred Twenty-five Thousand Dollars ($825,000); (ii) Lucas not to exceed Four Hundred Twenty-five Thousand Dollars ($425,000); (iii) Kilgariff not to exceed Four Hundred Twenty-five Thousand Dollars ($425,000); (iv) McNaul not to exceed Four Hundred Twenty-five Thousand Dollars ($425,000); (v) Duboise not to exceed Twenty Thousand Dollars ($20,000); (vi) Bay not to exceed One Hundred Five Thousand Dollars ($105,000); (vii) Phillips not to exceed Fifty Thousand Dollars ($50,000); (viii) Hunter not to exceed One Hundred Fifty Thousand Dollars ($150,000); (ix) Folkinga not to exceed One Hundred Thousand Dollars ($100,000); and (x) Deaton not to exceed One Hundred Thousand Dollars ($100,000). Such fines are subject to each Respondent’s right to a hearing on the allegations set forth above.
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c. Violation of Section 36b-6 of the Act – Unregistered Agent Activity
36.
Paragraphs 1 through 35, inclusive, are incorporated and made a part hereof as if more fully set forth herein.
37.
Duboise, Bay, Phillips, Hunter, Folkinga and Deaton acted as an agent of issuer, as more fully described in paragraphs 17 through 19, inclusive, 22 and 25 through 29, inclusive, absent registration, as more fully described in paragraph 31. Such conduct constitutes a violation of Section 36b-6(a) of the Act, which forms a basis for an order to cease and desist to be issued against Duboise, Bay, Phillips, Hunter, Folkinga and Deaton under Section 36b-27(a) of the Act, as amended, and for the imposition of a fine against (i) Duboise for four violations under Section 36b-27(d) of the Act prior to October 1, 2003; (ii) Bay for one violation under Section 36b-27(d) of the Act prior to October 1, 2003, and two violations under Section 36b-27(d) of the Act as it currently exists; (iii) Phillips for one violation under Section 36b-27(d) of the Act as it currently exists; (iv) Hunter for three violations under Section 36b-27(d) of the Act as it currently exists; (v) Folkinga for two violations under Section 36b-27(d) of the Act as it currently exists; and (vi) Deaton for two violations under Section 36b-27(d) of the Act as it currently exists. Section 36b-27(d) of the Act, prior to October 1, 2003, authorized the Commissioner to impose a fine upon Duboise and Bay in and amount to exceed Ten Thousand Dollars ($10,000) per violations, and Section 36b-27(d) of the Act currently authorizes the Commissioner to impose a fine upon Bay, Phillips, Hunter, Folkinga and Deaton in an amount not to exceed One Hundred Thousand Dollars ($100,000) per violation. The Commissioner intends to impose a fine upon (i) Duboise not to exceed Twenty Thousand Dollars ($20,000); (ii) Bay not to exceed One Hundred Five Thousand Dollars ($105,000); (iii) Phillips not to exceed Fifty Thousand Dollars ($50,000); (vi) Hunter not to exceed One Hundred Fifty Thousand Dollars ($150,000); (v) Folkinga not to exceed One Hundred Thousand Dollars ($100,000); and (vi) Deaton not to exceed One Hundred Thousand Dollars ($100,000). Such fines are subject to each Respondent’s right to a hearing on the allegations set forth above.
38.
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, Key Resource Group, LLC, Dale C. Lucas, Russell Kilgariff and Michael J. McNaul have violated Sections 36b-16, 36b-4(a) and 36b-6(b) of the Act, and Mark T. Duboise, Mike Bay, George Phillips, Greg Hunter, Ronald Folkinga and Mark Deaton have violated Sections 36b-16, 36b-4(a) and 36b-6(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 Key Resource Group, LLC, Dale C. Lucas, Russell Kilgariff and Michael J. McNaul CEASE AND DESIST from directly or indirectly violating the provisions of the Act, including without limitation, (1) offering and selling unregistered securities; (2) in connection with the offer, sale or purchase of any security, employing any device, scheme or artifice to defraud 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; and (3) employing an agent absent registration; and Mark T. Duboise, Mike Bay, George Phillips, Greg Hunter, Ronald Folkinga and Mark Deaton CEASE AND DESIST from directly or indirectly violating the provisions of the Act, including without limitation, (1) offering and selling unregistered securities; (2) in connection with the offer, sale or purchase of any security, employing any device, scheme or artifice to defraud 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; and (3) acting as an agent of issuer absent registration;
THE COMMISSIONER FURTHER ORDERS that, pursuant to Section 36b-27(a) of the Act, as amended, Key Resource Group, LLC, Dale C. Lucas, Russell Kilgariff, Michael J. McNaul, Mark T. Duboise, Mike Bay, George Phillips, Greg Hunter, Ronald Folkinga and Mark Deaton will be afforded an opportunity for a hearing on the allegations set forth above.
A hearing will be granted to Key Resource Group, LLC, Dale C. Lucas, Russell Kilgariff, Michael J. McNaul, Mark T. Duboise, Mike Bay, George Phillips, Greg Hunter, Ronald Folkinga and Mark Deaton 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 Key Resource Group, LLC, Dale C. Lucas, Russell Kilgariff, Michael J. McNaul, Mark T. Duboise, Mike Bay, George Phillips, Greg Hunter, Ronald Folkinga or Mark Deaton 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 February 4, 2008, 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, Key Resource Group, LLC, Dale C. Lucas, Russell Kilgariff, Michael J. McNaul, Mark T. Duboise, Mike Bay, George Phillips, Greg Hunter, Ronald Folkinga and Mark Deaton 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 Key Resource Group LLC, Dale C. Lucas, Russell Kilgariff, Michael J. McNaul, Mark T. Duboise, Mike Bay, George Phillips, Greg Hunter, Ronald Folkinga and Mark Deaton, individually, if they do 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, with respect to the activity described herein, Key Resource Group, LLC, Dale C. Lucas, Russell Kilgariff and Michael J. McNaul have violated Sections 36b-16, 36b-4(a) and 36b-6(b) of the Act, and Mark T. Duboise, Mike Bay, George Phillips, Greg Hunter, Ronald Folkinga and Mark Deaton have violated Sections 36b-16, 36b-4(a) and 36b-6(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 may impose a fine upon (i) Key Resource Group not to exceed Two Million Four Hundred Seventy-five Thousand Dollars ($2,475,000); (ii) Lucas not to exceed One Million Two Hundred Seventy-five Thousand Dollars ($1,275,000); (iii) Kilgariff not to exceed One Million Two Hundred Seventy-five Thousand Dollars ($1,275,000); (iv) McNaul not to exceed One Million Two Hundred Seventy-five Thousand Dollars ($1,275,000); (v) Duboise not to exceed Sixty Thousand Dollars ($60,000); (vi) Bay not to exceed Three Hundred Fifteen Thousand Dollars ($315,000); (vii) Phillips not to exceed One Hundred Fifty Thousand Dollars ($150,000); (viii) Hunter not to exceed Four Hundred Fifty Thousand Dollars ($450,000); (ix) Folkinga not to exceed Three Hundred Thousand Dollars ($300,000); and (x) Deaton not to exceed Three Hundred Thousand Dollars ($300,000).
NOW THEREFORE, a hearing will be held in accordance with Section 36b-27(d)(2) of the Act and Chapter 54 of the Connecticut General Statutes.
The hearing will be held on February 4, 2008, 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 10th day of December 2007. ________/s/_________
Howard F. Pitkin
Banking Commissioner
CERTIFICATION
I hereby certify that on this 11th day of December 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 Key Resource Group, LLC, 155 North Market, Suite 900, Wichita, Kansas 67202, registered mail no. RB028034168US; Dale C. Lucas, 155 North Market, Suite 900, Wichita, Kansas 67202, registered mail no. RB028034171US; Russell Kilgariff, 155 North Market, Suite 900, Wichita, Kansas 67202, registered mail no. RB028034185US; Michael J. McNaul, 155 North Market, Suite 900, Wichita, Kansas 67202, registered mail no. RB028034199US; Mark T. Duboise, 4676 Lakeview Avenue, Suite 113, Yorba Linda, California 92886, registered mail no. RB028034208US; Mike Bay, 39201 Ingraham Street, Building 11, Apartment 111, San Diego, California 92019, registered mail no. RB028034211US; George Phillips, 17555 Ventura Boulevard, Suite 200, Encino, California 91316, registered mail no. RB028038225US; Greg Hunter, 4676 Lakeview Avenue, Suite 113, Yorba Linda, California 92886, registered mail no. RB028034239US; Ronald Folkinga, 2514 East 3810 North, Twin Falls, Idaho 83301, registered mail no. RB028034242US; and Mark Deaton, 1025 Shoshone Street North, Twin Falls, Idaho 83301, registered mail no. RB028034256US;
________/s/_________
Jesse B. Silverman
Prosecuting Attorney