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NICHOLAS ALEXANDER SMIRNOW
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ORDER TO CEASE AND DESIST NOTICE OF INTENT TO FINE AND NOTICE OF RIGHT TO HEARING DOCKET NO. CF-2010-7588-S |
I. PRELIMINARY STATEMENT
| 1. | The Banking Commissioner (“Commissioner”) is charged with the administration of Chapter 672a of the General Statutes of Connecticut, 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 Nicholas Alexander Smirnow a/k/a Nick Smirnow d/b/a P-2-P Network and d/b/a Pathway-2-Prosperity (“Respondent”) to determine if he had violated, was violating or was about to violate provisions of the Act or the Regulations (“Investigation”). Section 36b-26(a) of the Act provides, in pertinent part:
The commissioner may, subject to the provisions of the Freedom of Information Act . . . [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, the Commissioner has reason to believe that Respondent has violated certain provisions of the Act. |
| 4. |
As a result of the Investigation, the Commissioner has the authority to issue a cease and desist order to Respondent pursuant to Section 36b-27(a) of the 2010 Supplement to the General Statutes (“2010 Supplement”), 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 any regulation, rule or order adopted or issued under said sections, or that the further sale or offer to sell securities would constitute a violation of said sections or any such regulation, rule or order . . . 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 or any such regulation, rule or order, due to an act or omission such other person knew or should have known would contribute to such violation, or (3) any other person that has materially aided, is materially aiding or is about to materially aid in such violation, to cease and desist from the violations or the causing of or aiding in the violations of the provisions of said sections or of the regulations, rules or orders thereunder, or from the further sale or offer to sell securities constituting or which would constitute a violation of the provisions of said sections or of the regulations, rules or orders thereunder . . . and to take or refrain from taking such action that in the opinion of the commissioner will effectuate the purposes of sections 36b-2 to 36b-33, inclusive. 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, the Commissioner has the authority to impose a fine on Respondent pursuant to Section 36b-27(d) of the of the 2010 Supplement, 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, or any regulation, rule or order adopted or issued under said sections, 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 or any such regulation, rule or order, due to an act or omission such other person knew or should have known would contribute to such violation, or (C) any other person that has materially aided in such violation, by registered . . . mail, return receipt requested . . . . The notice shall be deemed received by the person on the earlier of the date of actual receipt or the date seven days after the date on which such notice was mailed or sent. 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; (iv) a statement indicating that such person may file a written request for a hearing on the matters asserted not later than fourteen days after receipt of the notice; and (v) the time and place for the hearing.
(2) If a hearing is requested within the time specified in the notice, 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, caused a violation or materially aided in the violation of any of the provisions of sections 36b-2 to 36b-33, inclusive, or any regulation, rule or order adopted or issued under said sections, 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. RESPONDENT | |
| 6. |
Nicholas Alexander Smirnow a/k/a Nick Smirnow (“Smirnow”) is an individual whose last addresses known to the Commissioner are 2635 Hwy. #117, P.O. Box 66, Baysville, Ontario, Canada POB 1AO; and 1013 Fairy Falls Road, Baysville, Ontario, Canada POB 1AO. |
| 7. | Respondent Smirnow does or has done business under the names “P-2-P Network” and “Pathway-2-Prosperity.” |
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III. STATEMENT OF FACTS | |
| 8. |
From at least 2008, Respondent Smirnow d/b/a P-2-P Network and Pathway-2-Prosperity has offered, through the website https://www.pathway-2-prosperity.net, a high yield investment program (“P2P Program”). The website described the P2P Program as:
[A] long term ‘private’ retirement Club, generating profits from various offline activities. Profits from our own ‘Personal & Private Portfolio’ are shared with Members and also spread across various stable long term projects & ventures, to guarantee our ‘Club’s’ stability for the long term.
. . . “P-2-P Network” is a retirement strategy based on allowing ordinary individuals access to higher returns by using all the resources available to global investors. We diminish the risks normally associated with these types of programs by pooling your funds and spreading our investments across a diverse range of global opportunities!! . . .
We have an investment portfolio that covers low and medium risk ventures. (Emphasis in original.) |
| 9. | To be a member of the P2P Program, an investor had to be referred by another member. Although membership in the P2P Program did not require a membership fee, the referring member could receive related referral commissions. |
| 10. | To obtain more detailed information about the P2P Program, potential investors were required to register online. The registration process did not seek any information concerning the investor’s level of investment experience, sophistication or financial resources. |
| 11. | The minimum investment amount to participate in the P2P Program was $100 USD, and the maximum investment amount was $25,000 USD. |
| 12. | According to the website representations, the P2P Program offered four separate investment plans: 1) a 7 Day Plan whereby members would “earn a Net Profit/Dividend of 1.5% daily for the 7 days, on top of your initial Deposit”, resulting in a return of 10.5% over and above the initial deposit; 2) a 15 Day Plan whereby members would “earn a Net Profit/Dividend of 1.75% daily for the 15 days, on top of your initial Deposit”, resulting in a return of 26.25% over and above the initial deposit; 3) a 30 Day Plan whereby members would “earn a Net Profit/Dividend of 2% daily for the 30 days, on top of your initial Deposit”, resulting in a return of 60% over and above the initial deposit; and 4) a 60 Day Plan whereby members would “earn a Net Profit/Dividend of 2.67% daily for the 60 days, on top of your initial Deposit”, resulting in a return of 160.2% over and above the initial deposit. |
| 13. | No meaningful explanation was offered on the website or otherwise concerning how the P2P Program achieved the represented returns for each investment Plan level. |
| 14. | According to the website representations, the P2P Program “guarantee[d] every external deposit you make into ‘P-2-P Network’!!” |
| 15. | No meaningful explanation was offered on the website or otherwise concerning the basis for the P2P Program’s claim that investor principal was guaranteed against loss. |
| 16. |
The Respondent did not disclose to P2P Program members exactly how member funds would be invested or the composition of Respondent’s personal and private portfolio. Rather, the website only stated that:
The funds you place in “P-2-P Network” simply “piggy-back” on our own “Personal & Private Portfolio” and real returns/dividends are paid . . . We have been asked what OUR OWN “Personal & Private Portfolio” consists of, or even what we are ALREADY currently involved in . . . . . FIRST of all people, it is what it is . . . . . OUR OWN “Extremely PERSONAL & 100% PRIVATE Portfolio”!! However, this DOES vary, as it largely depends on what is available at any given moment in time!?! . . . MOST IMPORTANTLY, the MAJORITY of what we are involved with is “OFFSHORE” . . . . . and this is PRIMARILY for EVERYONES’ BENEFIT INCLUDING OURS’!?! It is ALWAYS FULLY our choice as the people we trust with our cash have specific instructions to “produce the highest return in the safest environment” . . . . . and the “SMALL PRIVATE GROUP OF INDIVIDUALS” that we are involved with are ALL “EXPERTS” in their own fields!!! (Emphasis in original.) |
| 17. | The Respondent did not disclose to P2P Program members the identities of those managing P2P Program funds or any background information on P-2-P Network, Pathway-2-Prosperity or Respondent Smirnow. The Frequently Asked Questions portion of the website only contained this response: “[Question] Why is your identity hidden? [Answer] We do not expose ourselves to possible harm/risk resulting from people, companies or organizations who do not share the strong moral foundation we do.” |
| 18. | From at least 2008, in reliance upon the representations made on the Respondent’s website, one or more Connecticut residents invested in the P2P Program run by Respondent Smirnow under the names P-2-P Network and Pathway-2-Prosperity. |
| 19. | The membership interests that were offered and sold by Respondent to the Connecticut investors constitute “securities” as defined in Section 36b-3(19) of the Act. At no time were such securities registered in Connecticut under the Act, nor had an exemptive claim or claim of covered security status been filed with the Commissioner for such securities under Section 36b-21 of the Act. |
| 20. | One or more Connecticut investors were unsuccessful in receiving a return of principal or accrued “Net Profits/Dividends” on their investment in the P2P Plan. |
IV. STATUTORY BASIS FOR ORDER TO CEASE AND DESIST AND
ORDER IMPOSING FINE AGAINST RESPONDENT
a. Violation of Section 36b-16 of the Act –
Offer and Sale of Unregistered Securities
| 21. | Paragraphs 1 through 20, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 22. |
Respondent Smirnow d/b/a P-2-P Network and Pathway-2-Prosperity offered and sold securities to at least one Connecticut investor, as more fully described in paragraphs 18 through 20, inclusive, which securities were not registered in Connecticut under the Act, as more fully described in paragraph 19. 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 to Respondent under Section 36b-27(a) of the 2010 Supplement, and for the imposition of a fine against Respondent under Section 36b-27(d) of the 2010 Supplement. |
b. Violation of Section 36b-4(a) of the Act –
Fraud in Connection with the Offer and Sale of any Security
| 23. | Paragraphs 1 through 22, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 24. |
The conduct of Respondent Smirnow d/b/a P-2-P Network and Pathway-2-Prosperity, as more fully described in paragraphs 8 through 18, inclusive, constitutes, in connection with the offer, sale or purchase of any security, directly or indirectly, employing any device, scheme or artifice to defraud; 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; and 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 to Respondent under Section 36b-27(a) of the 2010 Supplement, and for the imposition of a fine against Respondent under Section 36b-27(d) of the 2010 Supplement. |
V. ORDER TO CEASE AND DESIST, NOTICE OF INTENT TO FINE AND NOTICE OF RIGHT TO HEARING
WHEREAS, as a result of the Investigation, the Commissioner finds that, with respect to the activity described herein, Respondent has violated Sections 36b-16 and 36b-4(a) of the Act;
WHEREAS, the Commissioner further finds that the issuance of this Order to Cease and Desist and the imposition of a fine 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;
WHEREAS, notice is hereby given to Respondent that the Commissioner intends to impose a fine not to exceed One Hundred Thousand Dollars ($100,000) per violation;
AND WHEREAS, pursuant to Section 36b-27 of the 2010 Supplement, Respondent will be afforded an opportunity for a hearing on the allegations set forth above.
THE COMMISSIONER THEREFORE ORDERS that Nicholas Alexander Smirnow a/k/a Nick Smirnow d/b/a P-2-P Network and d/b/a Pathway-2-Prosperity CEASE AND DESIST from directly or indirectly violating the provisions of the Act and the Regulations thereunder, including without limitation, (1) offering and selling unregistered securities, and (2) in connection with the offer, sale or purchase of any security, employing devices, schemes or artifices to defraud, making 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 acts, practices or courses of business which operate as a fraud or deceit upon any person.
THE COMMISSIONER FURTHER ORDERS that a hearing will be granted to Respondent if a written request for a hearing is received by the Department of Banking, 260 Constitution Plaza, Hartford, Connecticut 06103-1800, within fourteen (14) days following Respondent’s receipt of this Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing. The enclosed Appearance and Request for Hearing Form must be completed and mailed to the above address. If Respondent 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 General Statutes of Connecticut and Section 36a-1-21 of the Regulations of Connecticut State Agencies. If a hearing is requested, the hearing will be held on April 14, 2010, 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 General Statutes of Connecticut. At such hearing, Respondent will have the right to appear and present evidence, rebuttal evidence and argument on all issues of fact and law to be considered by the Commissioner. If Respondent fails to request a hearing or fails to appear at such hearing, the Commissioner may order that the maximum fine be imposed upon Respondent.
This Order to Cease and Desist shall remain in effect and become permanent against Respondent if a hearing is not requested within the prescribed time period or he fails to appear at such hearing.
| Dated at Hartford, Connecticut, | _________/s/_______ | |
| this 26th day of February, 2010. | Howard F. Pitkin | |
| Banking Commissioner |
CERTIFICATION
I hereby certify that on this 1st day of March 2010, 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 Nicholas Alexander Smirnow a/k/a/ Nick Smirnow d/b/a P-2-P Network and Pathway-2-Prosperity, at 2635 Highway #117, P.O. Box 66, Baysville, Ontario, Canada POB 1AO, registered mail no. RB027869651US; and 1013 Fairy Falls Road, Baysville, Ontario, Canada POB 1AO registered mail no. RB027869665US.
________/s/_________
Paul A. Bobruff
Prosecuting Attorney