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IN THE MATTER OF: MORAN CAPITAL FREDERICK AUGUSTUS MORAN (collectively "Respondents") * * * * * * * * * * * * * * * * * |
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FINDINGS OF FACT, DOCKET NO. ND-2007-7293-S |
I. FINDINGS OF FACT
| 1) | On March 13, 2007, Howard F. Pitkin, Banking Commissioner of the State of Connecticut (“Commissioner”), issued a Notice of Intent to Deny Registration as Investment Adviser and Notice of Right to Hearing (collectively “Investment Adviser Notice”) against Respondent Moran Capital Management, Inc. (“Moran Capital”). (Ex. 7.) | ||||||||||||
| 2) | The Investment Adviser Notice was sent by registered mail, return receipt requested, to Moran Capital Management, Inc., 48 Route 6, Suite G01, Yorktown Heights, New York 10598, registered mail no. RB028033834US. (Ex. 7.) | ||||||||||||
| 3) |
The Investment Adviser Notice asserted that:
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| 4) | The Investment Adviser Notice asserted that Moran Capital’s response in the negative when asked whether “any domestic . . . court . . . [has] in the past ten years, enjoined you or any advisory affiliate in connection with any investment-related activity” is a statement which was, in light of the circumstances under which it was made, false or misleading with respect to a material fact. Such false or misleading statement constitutes grounds for denial of the Investment Adviser Application pursuant to Section 36b-15(a)(2)(A) of the Connecticut General Statutes. (Ex. 7.) | ||||||||||||
| 5) | The Investment Adviser Notice asserted that the April 4, 1997, decision by the United States District Court for the Southern District of New York to permanently enjoin Moran from violating, inter alia, various sections of the Investment Advisers Act and the Exchange Act involves an officer of Moran Capital being permanently enjoined by a court of competent jurisdiction from engaging in or continuing any conduct or practice involving an aspect of the securities business. Such permanent enjoinment constitutes grounds for denial of the Investment Adviser Application pursuant to Section 36b-15(a)(2)(D) of the Connecticut General Statutes. (Ex. 7.) | ||||||||||||
| 6) | The Investment Adviser Notice stated that Moran Capital’s Investment Adviser Application shall be denied, subject to its right to request a hearing on the allegations set forth in the Investment Adviser Notice. (Ex. 7.) | ||||||||||||
| 7) | The Investment Adviser Notice stated that a hearing would be granted to Moran Capital if a written request for a hearing was received by the Department of Banking (“Department”), Legal Division, 260 Constitution Plaza, Hartford, Connecticut 06103-1800, within fourteen (14) days following its receipt of the Investment Adviser Notice. (Ex. 7.) | ||||||||||||
| 8) | On March 13, 2007, the Commissioner issued a Notice of Intent to Deny Registration as Investment Adviser Agent and Notice of Right to Hearing against Moran (collectively “Investment Adviser Agent Notice”). (Ex. 8.) | ||||||||||||
| 9) | The Investment Adviser Agent Notice was sent by registered mail, return receipt requested, to Frederick Augustus Moran, 25 Doubling Road, Greenwich, Connecticut 06830, registered mail no. RB028033865US; and Moran Capital Management, Inc., 48 Route 6, Suite G01, Yorktown Heights, New York 10598, registered mail no. RB028033879US. (Ex. 8.) | ||||||||||||
| 10) |
The Investment Adviser Agent Notice asserted that:
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| 11) | The Investment Adviser Agent Notice asserted that the April 4, 1997, decision by the United States District Court for the Southern District of New York to permanently enjoin Moran from violating, inter alia, various sections of the Investment Advisers Act and the Exchange Act constitutes being permanently enjoined by a court of competent jurisdiction from engaging in or continuing any conduct or practice involving an aspect of the securities business. Such permanent enjoinment constitutes grounds for denial of the Investment Adviser Agent Application pursuant to Section 36b-15(a)(2)(D) of the Connecticut General Statutes. (Ex. 8.) | ||||||||||||
| 12) | The Investment Adviser Agent Notice stated that Moran’s Investment Adviser Agent Application shall be denied, subject to his right to request a hearing on the allegations set forth in the Investment Adviser Agent Notice. (Ex. 8.) | ||||||||||||
| 13) | The Investment Adviser Agent Notice stated that a hearing would be granted to Moran if a written request for a hearing was received by the Department, Legal Division, 260 Constitution Plaza, Hartford, Connecticut 06103-1800, within fourteen (14) days following his receipt of the Investment Adviser Agent Notice. (Ex. 7.) | ||||||||||||
| 14) | On April 10, 2007, Attorney Thomas J. Williams filed an Appearance and Request for Hearing on behalf of Moran Capital, In the Matter of: Moran Capital Management, Inc. (Tr. at 4-5; Ex. 3.) | ||||||||||||
| 15) | On April 10, 2007, Attorney Thomas J. Williams filed an Appearance and Request for Hearing on behalf of Moran, In the Matter of: Frederick Augustus Moran. (Tr. at 4-5; Ex. 4.) | ||||||||||||
| 16) | On April 16, 2007, the Commissioner issued a Notification of Hearing and Designation of Hearing Officer In the Matter of: Moran Capital. (Exs. 1, 6.) | ||||||||||||
| 17) | On April 16, 2007, the Commissioner issued a Notification of Hearing and Designation of Hearing Officer In the Matter of: Moran. (Exs. 2, 5.) | ||||||||||||
| 18) | Pursuant to the Notification of Hearing and Designation of Hearing Officer In the Matter of: Moran Capital, Paul A. Bobruff, was appointed as Hearing Officer with respect to the Investment Adviser Notice. (Exs. 1, 6.) | ||||||||||||
| 19) | Pursuant to the Notification of Hearing and Designation of Hearing Officer In the Matter of: Moran, Paul A. Bobruff, was appointed as Hearing Officer with respect to the Investment Adviser Agent Notice. (Exs. 2, 5.) | ||||||||||||
| 20) | On April 30, 2007, a telephone conference was held among Attorney Williams, Jesse B. Silverman, Prosecuting Attorney for the Department, and Hearing Officer Bobruff, during which the parties agreed that the hearings regarding the Investment Adviser Notice and Investment Adviser Agent Notice scheduled for May 2, 2007, involved related questions of law and fact and should be consolidated. (Tr. at 4-5.) | ||||||||||||
| 21) | On May 2, 2007, pursuant to Section 36a-1-28 of the Regulations of Connecticut State Agencies, the hearings regarding the Investment Adviser Notice and Investment Adviser Agent Notice were consolidated by Hearing Officer Bobruff. (Tr. at 5.) | ||||||||||||
| 22) | On May 2, 2007, a consolidated hearing was held at the Department on the allegations set forth in the Investment Adviser Notice and Investment Adviser Agent Notice. (Tr. at 4-5.) | ||||||||||||
| 23) | Attorney Williams appeared at the hearing on behalf on Moran Capital and Moran. (Tr. at 6.) | ||||||||||||
| 24) | Attorney Silverman appeared at the hearing on behalf of the Department. (Tr. at 6.) | ||||||||||||
| 25) | Moran Capital is a corporation whose most recent principal place of business on file with the Department is 48 Route 6, Suite G01, Yorktown Heights, New York 10598. (Exs. 9, 11.) | ||||||||||||
| 26) | Moran is an individual whose most recent mailing address on file with the Department is 25 Doubling Road, Greenwich, Connecticut 06830. (Exs. 9, 11.) | ||||||||||||
| 27) | Moran is Chairman, President and Chief Investment Officer of Moran Capital. (Exs. 11, 12.) | ||||||||||||
| 28) | Moran holds a Juris Doctor (J.D.) degree from Columbia Law School and received his MBA from Columbia School of Business in 1968. (Tr. at 81.) | ||||||||||||
| 29) | On April 2, 1996, the United States District Court for the Southern District of New York issued an Opinion, Findings of Fact, and Conclusions of Law in the matter of SEC v. Moran et al., Case No. 95 Civ. 4472 (BN). (Exs. 10; 12; 13 [this decision is reported at 922 F. Supp. 867 (D.N.Y. 1996)].) | ||||||||||||
| 30) | On November 1, 1996, the United States District Court for the Southern District of New York issued an Opinion, Findings of Fact, and Conclusions of Law in the matter of SEC v. Moran et al., Case No. 95 Civ. 4472 (BN), a decision on fines, disgorgement and enjoinment. (Exs. 10; 12; 13 [this decision is reported at 944 F. Supp. 286 (D.N.Y. 1996)].) | ||||||||||||
| 31) | On April 4, 1997, the United States District Court for the Southern District of New York entered a Final Judgment of Permanent Injunction and Other Equitable Relief against Moran in the matter of SEC v. Moran et al., Case No. 95 Civ. 4472 (BN). The court’s order permanently restrained and enjoined Moran from (1) violating the antifraud provisions in Section 206(2) of the Investment Advisers Act; (2) violating Section 204 of the Investment Advisers Act and Rule 204-1(b)(1) thereunder by, inter alia, failing promptly to file an amendment on Form ADV correcting such information if the information contained in response to Items 1-5, 8, 11, 13A, 13B, 14A and 14B of Part 1 of any application for registration as an investment adviser or any amendment thereto filed by Moran became inaccurate; (3) violating Section 207 of the Investment Advisers Act; and (4) violating Section 15(b) of the Exchange Act and Rule 15b3-1 thereunder. (Tr. at 82, 85, 104-105; Ex. 13.) | ||||||||||||
| 32) | On January 16, 2003, former Banking Commissioner John P. Burke issued an Order Governing Registration Filings through the Investment Adviser Registration Depository for Investment Adviser Agents and Investment Advisory Firms (“Order Governing Registration Filings”). (Tr. at 62-64; Ex. 14.) | ||||||||||||
| 33) | The Order Governing Registration Filings ordered “[e]ffective April 1, 2003, and for purposes of Sections 36b-7, 36b-12(a), 36b-12(b), 36b-13(a) and 36b-13(b) of the . . . [Connecticut General Statutes] and Section 36b-31-14e(a) of the Regulations [of Connecticut State Agencies], investment adviser agents and investment advisers required to be registered under Section 36b-6(c) of the . . . [Connecticut General Statutes] shall make their Connecticut registration filings, including renewals, amendments and associated regulatory filing fees, through the . . . [Investment Adviser Registration Depository (“IARD”)]” and that “[t]his order shall remain in effect until modified, superseded or vacated by the Commissioner or other lawful authority.” (Tr. at 63; Ex. 14.) | ||||||||||||
| 34) | On December 8, 2005, Moran Capital filed the Investment Adviser Application electronically with the Commissioner through the National Association of Securities Dealers computerized Central Registration Depository/Investment Adviser Registration Depository (“CRD/IARD Systems”). (Ex. 12.) | ||||||||||||
| 35) | Item 11(H)(1) of the Investment Adviser Application asked whether “any domestic . . . court . . . [has] (a) in the past ten years, enjoined you or any advisory affiliate in connection with any investment-related activity”. (Tr. at 88-89, 106; Ex. 12 [italics omitted].) | ||||||||||||
| 36) | The Investment Adviser Application defines “advisory affiliate” as “all of your officers, partners, or directors (or any person performing similar functions) . . . .” (Ex. 12 [italics omitted].) | ||||||||||||
| 37) | Moran, as Chairman, President and Chief Investment Officer of Moran Capital, is an advisory affiliate of Moran Capital as defined in the Investment Adviser Application. (Tr. at 106; Ex. 12.) | ||||||||||||
| 38) | Moran Capital responded to Item 11(H)(1)(a) of the Investment Adviser Application in the negative. (Tr. at 88-89, 106; Ex. 12.) | ||||||||||||
| 39) | Moran completed the Investment Adviser Application on behalf of Moran Capital and signed and attested to the accuracy of the information contained in the Investment Adviser Application. (Tr. at 88-90, 94, 106; Ex. 12.) | ||||||||||||
| 40) | The April 4, 1997, United States District Court for the Southern District of New York final judgment which permanently restrained and enjoined Moran was an order of a domestic court which in the past ten years had enjoined an advisory affiliate of Moran Capital in connection with investment-related activity. (Tr. at 82, 85, 104-105; Ex. 13.) | ||||||||||||
| 41) | Item 11(H)(1) of the Investment Adviser Application asked whether “any domestic . . . court . . . [has] (b) ever found that you or any advisory affiliate were involved in a violation of investment-related statutes or regulations”. (Ex. 12 [italics omitted].) | ||||||||||||
| 42) | Moran Capital responded to Item 11(H)(1)(b) of the Investment Adviser Application in the positive. (Ex. 12.) | ||||||||||||
| 43) | Moran Capital responded to Item 12 on the Civil Judicial Action Disclosure Reporting Page (ADV) of the Investment Adviser Application that the resolution date of the civil action was “04/02/1996”, explaining that “this is the date that the court issued its decision on the findings. On 11/01/1996, it issued its decision on fines, disgorgement, and enjoinment.” (Ex. 12.) | ||||||||||||
| 44) | On December 8, 2005, Moran filed the Investment Adviser Agent Application electronically with the Commissioner through the CRD/IARD Systems. (Ex. 10.) | ||||||||||||
| 45) | Moran signed and attested to the accuracy of the information contained in the Investment Adviser Agent Application. (Ex. 10.) | ||||||||||||
| 46) | Item 14H(1) of the Investment Adviser Agent Application asked whether “(a) any domestic . . . court [has] ever . . . enjoined you in connection with any investment-related activity” or “(b) found that you were involved in a violation of any investment-related statute(s) or regulation(s)”. (Ex. 10 [italics omitted].) | ||||||||||||
| 47) | Moran responded to Item 14H(1)(a) and (b) of the Investment Adviser Agent Application in the positive, and on the Civil Judicial Disclosure Reporting Page of the Investment Adviser Agent Application responded that the resolution date was “04/02/1996”, explaining that “this is the date that the court issued its decision on the findings. On 11/01/1996, it issued its decision on fines, disgorgement and injunction.” (Ex. 10.) | ||||||||||||
| 48) | Respondents did not disclose on the Investment Adviser Application or the Investment Adviser Agent Application that on April 4, 1997, the United States District Court for the Southern District of New York entered a Final Judgment of Permanent Injunction and Other Equitable Relief against Moran in a civil action brought by the SEC (SEC v. Frederick Augustus Moran et al., Case No. 95 Civ. 4472 (BN)). (Exs. 10, 12.) | ||||||||||||
| 49) | By letter dated May 15, 2006, the former Commissioner, through the Securities and Business and Investments Division (“Division”) of the Department, sent Respondents a letter providing them with an opportunity to demonstrate in writing why their applications for Connecticut registration as an investment adviser and an investment adviser agent, respectively, should not be denied, restricted or conditioned based upon the permanent injunction and statutory violations described in the letter (“Compliance Letter”). (Tr. at 99-100; Ex. F.) | ||||||||||||
| 50) | By letter dated May 30, 2006, Respondents responded to the Compliance Letter stating, in part, that “I incorrectly answered Item 11.H.(1)(a) [of the Investment Adviser Application] in the negative, incorrectly believing that more than 10 years had passed since the Court’s decision. I have corrected this error in Moran Capital Management’s ADV Part I May 30, 2006 Amendment.” (Tr. at 101-102; Ex. G.) | ||||||||||||
| 51) | By letter dated December 6, 2006, sent by overnight carrier, Moran Capital notified Kevin Maher, Manager in the Division (“Maher”), that “Moran Capital Management, Inc. hereby withdraws its application to become a registered investment advisor [sic] in the State of Connecticut.” (Tr. at 45-47, 58, 95-97; Ex. B.) | ||||||||||||
| 52) | On December 14, 2006, Moran Capital filed the Investment Adviser Notice of Withdrawal electronically with the Commissioner through the CRD/IARD Systems. (Ex. 11.) | ||||||||||||
| 53) | On December 29, 2006, Maher notified Attorney Williams by e-mail that no Form U-5, Uniform Termination Notice for Securities Industry Registration U-5 Amendment, had been submitted for Moran’s Investment Adviser Agent Application with Moran Capital. (Tr. at 50-51, 53-54, 61; Ex. C.) | ||||||||||||
| 54) | By letter dated December 29, 2006, sent by overnight carrier, Moran Capital notified Maher that “Frederick A. Moran hereby withdraws his application to become an IA Agent in the State of Connecticut.” (Tr. at 45-46, 95; Ex. A.) | ||||||||||||
| 55) | Moran did not file a separate withdrawal of the Investment Adviser Agent Application because he believed that that the Investment Adviser Notice of Withdrawal also would have withdrawn the Investment Adviser Agent Application. (Tr. at 97.) | ||||||||||||
| 56) | The CRD/IARD systems usually do not accept filings approximately the last seven to ten days of December. (Tr. at 52; Ex. C.) | ||||||||||||
| 57) | On January 10, 2007, Moran filed Form U-5, Uniform Termination Notice for Securities Industry Registration U-5 Amendment, electronically with the Commissioner through the CRD/IARD Systems (“Investment Adviser Agent Notice of Withdrawal”). (Tr. at 40; Ex. 9.) |
CONCLUSIONS OF LAW
Section 36b-15(a) of the Connecticut General Statutes states, in pertinent part, that:
The commissioner may, by order, deny . . . any registration . . . if the commissioner finds that (1) the order is in the public interest, and (2) the applicant . . . or, in the case of a[n] . . . investment adviser, any partner, officer, or director . . . (A) [h]as filed an application for registration which as of its effective date . . . contained any statement which was, in light of the circumstances under which it was made, false or misleading with respect to any material fact . . . ; [or] (D) is permanently or temporarily enjoined by any court of competent jurisdiction from engaging in or continuing any conduct or practice involving any aspect of the securities or commodities business . . . .
Section 36b-15(e)(1) of the Connecticut General Statutes states, in pertinent part, that:
[W]ithdrawal of an application for registration as a[n] . . . investment adviser or investment adviser agent, becomes effective ninety days after receipt of . . . a notice of intent to withdraw such application for registration . . . unless . . . a proceeding to deny . . . is instituted within ninety days after the . . . notice is filed. If a proceeding is . . . instituted, withdrawal becomes effective at such time and upon such conditions as the commissioner by order determines. If no proceeding is pending or instituted and withdrawal automatically becomes effective, the commissioner may nevertheless institute a denial . . . proceeding under subsection (a) of this section within one year after withdrawal became effective.
I. MORAN CAPITAL
A. JURISDICTION
The record establishes that Moran Capital electronically filed the Investment Adviser Application with the Commissioner on December 8, 2005, through the CRD/IARD Systems. The record further establishes that on December 14, 2006, Moran Capital filed the Investment Adviser Notice of Withdrawal electronically with the Commissioner through the CRD/IARD Systems. On March 13, 2007, the Commissioner issued the Investment Adviser Notice within 90 days of the Investment Adviser Notice of Withdrawal.
Moran Capital asserts that its letter dated December 6, 2006, sent by overnight carrier to Maher, constitutes a notice of intent to withdraw its Investment Adviser Application pursuant to Section 36b-15(e)(1) of the Connecticut General Statutes and, therefore, Moran Capital’s withdrawal was effective 90 days after receipt. Moran Capital further asserts that the Department can not institute a denial proceeding beyond this 90-day period when Moran Capital’s withdrawal was effective. The Order Governing Registration Filings requires investment adviser agents and investment advisers required to be registered under Section 36b-6(c) of the Connecticut General Statutes to make their Connecticut registration filings, including renewals, amendments and associated regulatory filing fees, through the IARD. Moran’s December 6, 2006, letter was not filed through the IARD in accordance with the Order Governing Registration Filings. Therefore, the December 6, 2006, letter was not an effective notice of Moran Capital’s intent to withdraw its Investment Adviser Application pursuant to Section 36b-15(e)(1) of the Connecticut General Statutes because it was not filed in accordance with the Order Governing Registration Filings. In addition, notwithstanding the submission of the December 6, 2006 letter, Section 36b-15(e)(1) of the Connecticut General Statutes provides that “[i]f no proceeding is pending or instituted and withdrawal automatically becomes effective, the commissioner may nevertheless institute a denial . . . proceeding under subsection (a) of this section within one year after withdrawal became effective.” Thus, even if Moran Capital’s withdrawal of the Investment Adviser Application became effective 90 days after the Department received the December 6, 2006, letter and the withdrawal became effective prior to March 13, 2007, Section 36b-15(e)(1) authorizes the Commissioner to institute a denial proceeding under Section 36b-15(a) within one year after the withdrawal became effective. Therefore, this denial proceeding pursuant to Section 36b-15(a) of the Connecticut General Statutes is authorized pursuant to Section 36b-15(e)(1) of the Connecticut General Statutes, because it was instituted within 90 days of the Investment Adviser Notice of Withdrawal and well within one year after the date Moran Capital asserts withdrawal became effective.
B. STATUTORY BASIS FOR DENIAL OF REGISTRATION AS INVESTMENT ADVISER
1. False or Misleading Statements in an Application
The Department has alleged that Moran Capital’s response in the negative to Item 11(H)(1) of the Investment Adviser Application, when asked whether “any domestic . . . court . . . [has] (a) in the past ten years, enjoined you or any advisory affiliate in connection with any investment-related activity”, is a statement which was, in light of the circumstances under which it was made, false or misleading with respect to a material fact. Moran Capital acknowledges that it responded to Item 11(H)(1)(a) of the Investment Adviser Application in the negative. Moran Capital also acknowledges that on April 4, 1997, the United States District Court for the Southern District of New York entered a Final Judgment of Permanent Injunction and Other Equitable Relief against Moran in a civil action brought by the SEC. The record discloses that Moran signed and attested to the accuracy of the information contained in the Investment Adviser Application.
Moran contends that he disclosed the injunction later in the Investment Adviser Application and on the Investment Adviser Agent Application, and that there would have been nothing else to say if he had checked Item 11(H)(1)(a) of the Investment Adviser Application in the affirmative, because it was all provided right there. (Tr. at 89-90, 93, 98, 106). Respondents also contend that the negative response to Item 11(H)(1)(a) of the Investment Adviser Application is only an inadvertent error and not material. Specifically, during the hearing Moran testified that he inadvertently marked Item 11(H)(1)(a) of the Investment Adviser Application incorrectly, and that he did not go back and check it and that it was a foolish mistake. (Tr. at 89-90, 93, 106.) Moran’s testimony differs from the reason Respondents gave to the Department by letter dated May 30, 2006, in which Moran stated that “I incorrectly answered Item 11.H(1)(a) [of the Investment Adviser Application] in the negative, incorrectly believing that more than 10 years had passed since the Court’s decision.”
Moran’s assertions regarding the reasons for answering Item 11(H)(1)(a) of the Investment Adviser Application incorrectly are similar to his assertions in SEC v. Moran, 922 F. Supp. 867 (D.N.Y. 1996), that his omission on the Form ADV and Form BD in that case were technical failures, an argument the court found unpersuasive. As the court noted, “[i]n point of fact, the SEC has stated that Form ADV and amendments to it are: ‘a basic and vital part in our administration of the . . . [Investment Advisers Act of 1940], and it is essential in the public interest that the information required by the application form be supplied completely and accurately. The application form obligates the applicant to verify that all statements contained in it are true, correct and complete to the best knowledge of the person executing the form’.” Id. at 899, quoting In the Matter of Justin Federman Stone, 41 S.E.C. 717, 723 (1963).
The record establishes that the April 4, 1997, court order which permanently restrained and enjoined Moran was an order of a domestic court which in the past ten years had enjoined an advisory affiliate of Moran Capital in connection with investment-related activity. Therefore Moran, who is Chairman, President and Chief Investment Officer of Moran Capital, filed an application for registration on behalf of Moran Capital which, as of its effective date, contained a statement that was, in light of the circumstances under which it was made, false or misleading. Therefore, the only issue remaining is whether such negative response constitutes a statement with respect to a “material fact” within the meaning of Section 36b-15(a)(2)(A) of the Connecticut General Statutes.
The term “material” is defined as “[o]f such a nature that knowledge of the item would affect a person’s decision-making”. Black’s Law Dictionary 998 (8th ed. 2004). “In the context of the securities laws, for a fact to be material ‘there must be a substantial likelihood that the disclosure of the omitted fact, would have been viewed by the reasonable investor as having significantly altered the “total” mix of information available.’ TSC Indus v. Northway, Inc., 426 U.S. 438, 449, 48 L. Ed. 2d 757, 96 S. Ct. 2126 (1976); Nelson v. Paramount Communications, Inc., 872 F. Supp. 1242, 1245 (S.D.N.Y. 1994). The Supreme Court has noted that the materiality of information will [be] greatly dependant on the facts of the particular case. Basic, Inc. v. Levinson, 485 U.S. 224, 239-40, 99 L. Ed. 2d 194, 108 S. Ct. 978 (1988).” SEC v. Moran, at 899. Lower courts apply this definition of materiality to other parts of the securities laws as well, including in determining whether information that was not disclosed on Form ADV, Uniform Application for Investment Adviser Registration was material. See, e.g., Id.
Applying this standard to Moran Capital’s negative response to Item 11(H)(1)(a) of the Investment Adviser Application, when Moran was subject to the April 4, 1997, permanent enjoinment, Moran Capital’s statement was clearly “material” and constitutes a statement which was, in light of the circumstances under which it was made, false or misleading with respect to a material fact. The response was false and the disclosure of such permanent enjoinment would have materially altered the review of the Investment Adviser Application because it constitutes a basis for denial of the Investment Adviser Application pursuant to Section 36b-15(a)(2)(D) of the Connecticut General Statutes. The record establishes that Moran Capital’s false or misleading statement constitutes grounds for denial of the Investment Adviser Application pursuant to Section 36b-15(a)(2)(A) of the Connecticut General Statutes.
2. Permanent Enjoinment
The Department has alleged that the decision by the United States District Court for the Southern District of New York to permanently enjoin Moran from violating, inter alia, various sections of the Investment Advisers Act and the Exchange Act involves an officer of Moran Capital being permanently enjoined by a court of competent jurisdiction from engaging in or continuing any conduct or practice involving an aspect of the securities business, and that such permanent enjoinment constitutes grounds for denial of the Investment Adviser Application pursuant to Section 36b-15(a)(2)(D) of the Connecticut General Statutes.
The record establishes that the decision by the United States District Court for the Southern District of New York to permanently enjoin Moran from violating, inter alia, various sections of the Investment Advisers Act and the Exchange Act involves an officer of Moran Capital being permanently enjoined by a court of competent jurisdiction from engaging in or continuing any conduct or practice involving an aspect of the securities business. Section 36b-15(a) of the Connecticut General Statutes provides that “the commissioner may, by order, deny . . . any registration . . . if the commissioner finds that (1) the order is in the public interest, and (2) the applicant . . . or, in the case of a[n] . . . investment adviser, any partner, officer, or director . . . (D) is permanently or temporarily enjoined by any court of competent jurisdiction from engaging in or continuing any conduct or practice involving any aspect of the securities or commodities business.” Therefore, such permanent enjoinment constitutes grounds for denial of the Investment Adviser Application pursuant to Section 36b-15(a)(2)(D) of the Connecticut General Statutes.
II. MORAN
A. JURISDICTION
The record establishes that Moran electronically filed the Investment Adviser Agent Application with the Commissioner on December 8, 2005 through the CRD/IARD Systems. The record further establishes that on January 10, 2007, Moran filed the Investment Adviser Agent Notice of Withdrawal electronically with the Commissioner through the CRD/IARD Systems. On March 13, 2007, the Commissioner issued the Investment Adviser Agent Notice within 90 days of the Investment Adviser Agent Notice of Withdrawal.
Moran asserts that the action against him is barred based on the assertion that Moran Capital’s Investment Adviser Application was effectively withdrawn and, therefore, there is no basis for proceeding against Moran. As previously noted, even if Moran Capital’s withdrawal of the Investment Adviser Application became effective 90 days after the Department received the December 6, 2006, letter and the withdrawal became effective prior to March 13, 2007, Section 36b-15(e)(1) authorizes the Commissioner to institute a denial proceeding under Section 36b-15(a) against an investment adviser or investment adviser agent within one year after withdrawal became effective. In addition, the Investment Adviser Agent Notice was issued on March 13, 2007, by the Commissioner, which was within 90 days of both the letter dated December 29, 2006, and the Investment Adviser Agent Notice of Withdrawal on January 10, 2007, and clearly was within one year after withdrawal became effective. Therefore, this denial proceeding pursuant to Section 36b-15(a) is authorized pursuant to Section 36b-15(e)(1) because it was instituted within 90 days after the Investment Adviser Agent Notice of Withdrawal was filed and well within one year after the date Moran asserts withdrawal became effective.
B. STATUTORY BASIS FOR DENIAL OF REGISTRATION
AS INVESTMENT ADVISER AGENT
Permanent Enjoinment
The Department has alleged that the decision by the United States District Court for the Southern District of New York to permanently enjoin Moran from violating, inter alia, various sections of the Investment Advisers Act and the Exchange Act constitutes being permanently enjoined by a court of competent jurisdiction from engaging in or continuing any conduct or practice involving an aspect of the securities business, and that such permanent enjoinment constitutes grounds for denial of the Investment Adviser Agent Application pursuant to Section 36b-15(a)(2)(D) of the Connecticut General Statutes.
The record establishes that the decision by the United States District Court for the Southern District of New York to permanently enjoin Moran from violating, inter alia, various sections of the Investment Advisers Act and the Exchange Act constitutes being permanently enjoined by a court of competent jurisdiction from engaging in or continuing any conduct or practice involving an aspect of the securities business. Section 36b-15(a) of the Connecticut General Statutes provides that “the commissioner may, by order, deny . . . any registration . . . if the commissioner finds that (1) the order is in the public interest, and (2) the applicant . . . or, in the case of a[n] . . . investment adviser, any partner, officer, or director . . . (D) is permanently or temporarily enjoined by any court of competent jurisdiction from engaging in or continuing any conduct or practice involving any aspect of the securities or commodities business.” Therefore, such permanent enjoinment constitutes grounds for the denial of the Investment Adviser Agent Application pursuant to Section 36b-15(a)(2)(D) of the Connecticut General Statutes.
III. NOTICE AND PUBLIC INTEREST
Section 36b-15(f) of the Connecticut General Statutes states, in pertinent part, that:
No order may be entered under this section except as provided in subsection (c) of this section without (1) appropriate prior notice to the applicant . . . , (2) opportunity for hearing, and (3) written findings of fact and conclusions of law.
Section 4-177 of the Connecticut General Statutes states, in pertinent part, that:
(a) In a contested case, all parties shall be afforded an opportunity for hearing after reasonable notice.
(b) The notice shall be in writing and shall include: (1) A statement of the time, place, and nature of the hearing; (2) a statement of the legal authority and jurisdiction under which the hearing is to be held; (3) a reference to the particular sections of the statutes and regulations involved; and (4) a short and plain statement of the matters asserted.
The Notices issued by the Commissioner, as described in paragraphs 1 through 13 of the Findings of Fact, complied with Sections 36b-15(f) and Section 4-177 of the Connecticut General Statutes.
Section 36b-15(a) of the Connecticut General Statutes states, in pertinent part, that:
The commissioner may, by order, deny . . . any registration . . . if the commissioner finds that (1) the order is in the public interest . . . .
Section 36b-31(a) of the Connecticut General Statutes, states, in pertinent part, that:
The commissioner may from time to time make . . . such . . . orders as are necessary to carry out the provisions of sections 36b-2 to 36b-33, inclusive.
Section 36b-31(b) of the Connecticut General Statutes states, in pertinent part, that:
No . . . order may be made . . . unless the commissioner finds that the action is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of sections 36b-2 to 36b-33, inclusive.
| 1) | The record establishes that: (a) Moran Capital’s false or misleading statement constitutes grounds for denial of the Investment Adviser Application pursuant to Section 36b-15(a)(2)(A) of the Connecticut General Statutes; (b) the permanent enjoinment issued against Moran constitutes grounds for denial of the Investment Adviser Application pursuant to Section 36b-15(a)(2)(D) of the Connecticut General Statutes; and (c) the permanent enjoinment issued against Moran constitutes grounds for denial of the Investment Adviser Agent Application pursuant to Section 36b-15(a)(2)(D) of the Connecticut General Statutes. |
| 2) | The record supports the issuance of an order to deny Moran Capital’s Investment Adviser Application. |
| 3) | The record supports the issuance of an order to deny Moran’s Investment Adviser Agent Application. |
| 4) | The record supports a finding that this action is necessary or appropriate in the public interest or for the protection of investors consistent with the purposes fairly intended by the policy and provisions of Sections 36b-2 to 36b-33, inclusive, of the Connecticut General Statutes. |
| 5) | The record supports a finding that an order denying registration as an investment adviser and an order denying registration as an investment adviser agent is in the public interest pursuant to Section 36b-15(a) of the Connecticut General Statutes. |
ORDER
Having read the record, I HEREBY ORDER:
| 1) | Pursuant to Sections 36b-15(a)(2)(A) and 36b-15(a)(2)(D) of the Connecticut General Statutes, that Moran Capital Management, Inc.’s application for registration as an investment adviser be DENIED; |
| 2) | Pursuant to Section 36b-15(a)(2)(D) of the Connecticut General Statutes, Frederick Augustus Moran’s application for registration as an investment adviser agent be DENIED; and |
| 3) | That the Order shall become effective when mailed. |
Dated at Hartford, Connecticut
this 27th day of July 2007. ________/s/_________
Howard F. Pitkin
Banking Commissioner
This Order was mailed by certified mail,
return receipt requested, to Attorney for
Respondents on July 30, 2007.
Thomas J. Williams, Esq. Certified Mail No. 7099 3400 0009 0180 3120
399 East Putnam Avenue
Cos Cob, CT 06807