FINDINGS OF FACT

I.  Violation of Section 36b-16 of the Act -
Offer and Sale of Unregistered Securities

Section 36b-16 of the Act provides that:

Section 36b-3(19) of the Act defines the term “security” to mean, in pertinent part:

The record establishes that Respondents sold to at least one Connecticut investor an interest of a limited partner in a limited partnership that was later documented as a TDA Note, which is a “security” as defined in Section 36b-3(19) of the Act.  Such security was not registered in Connecticut under the Act as required by Section 36b-16 of the Act, nor was it exempt from registration under Section 36b-21 of the Act, nor was it a covered security.  The record further establishes that the offer and sale of such security absent registration constitutes a violation of Section 36b-16 of the Act.

II.  Violation of Section 36b-6 of the Act -
Unregistered Agent Activity

Section 36b-6 of the Act provides, in pertinent part, that:

The record establishes that DeSteph acted as an agent of issuer on at least one occasion absent the required registration, which constitutes a violation of Section 36b-6(a) of the Act, and that TDA employed DeSteph as an agent of issuer on at least one occasion absent the required registration, which constitutes a violation of Section 36b-6(b) of the Act.

III.  Violation of Section 36b-4(a) of the Act -
Fraud in Connection with the Offer and Sale of any Security

Section 36b-4(a) of the Act provides that:

The record establishes that Respondents failed to disclose, inter alia, any risk factors related to the investment, any financial information on TDA or DeSteph, that TDA and DeSteph would not make a single monthly payment or that DeSteph would use the Investor’s money to pay for his personal and household expenses.  Further, the Investor was promised a monthly installment payment of $412.50, minus $12 per month service charge for 60 monthly payments on her investment; a share in the profits of TDA on a pro rata basis at the time the TDA Note was to be paid and a return of the entire balance owed on or before January 10, 2008, which amounts were never paid.  The record further establishes that the conduct of Respondents constitutes, in connection with the offer, sale or purchase of any security, employing a device, scheme or artifice to defraud, making of untrue statements of material facts 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 an act, practice or course of business which operates as a fraud or deceit upon a person.  Such conduct constitutes a violation of Section 36b-4(a) of the Act.

IV.  Authority to Issue Order to Cease and Desist and Impose Fine

Section 36b-27(a) of the Act provides, in pertinent part:

Section 36b-27(d) of the Act, prior to October 1, 2003, provided, in pertinent part, that:

Section 36b-27(d) of the Act at the time the Amended Notice was issued provided, in pertinent part, that:

V.  Notice and Public Interest

Section 4-177 of the Connecticut General Statutes provides, in pertinent part, that:

The Amended Notice issued by the Commissioner complied with the then applicable Section 36b 27(d) of the Act and Section 4-177 of the Connecticut General Statutes.

Section 36b-31(a) of the Act provides, in pertinent part, that:

Section 36b-31(b) of the Act provides, in pertinent part, that:

Section 36b-31(b) of the Act requires that the Commissioner find that an order 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 33b-33, inclusive.  Although the Commissioner is not required to make all these findings to make an order, since Section 36b-31(b) is clearly in the disjunctive, all of these elements are present in this case.  While the term “public interest” is not defined in the Act, courts have determined that words of wide generality, like “public interest”, must take their meaning from the substantive provisions and purposes of the legislation and the words must be interpreted in the context of the regulatory scheme, see NAACP v. Federal Power Comm’n, 425 U.S. 662 (1975); N.Y. Central Sec. Corp. v. United States, 287 U.S. 12 (1932); and “it is for the legislature to determine what is in the public interest . . .”.  Brosnan v. Sacred Heart Univ., 1997 Conn. Super. Lexis 2815, *47 (1997) (internal quotation marks omitted) (quoting West v. Egan, 18 Conn. Supp. 447, 450 (1953)).  “‘[T]he primary purpose behind [CUSA] was to institute comprehensive registration requirements and thereby improve surveillance of securities trading.’  (Internal quotation marks omitted.)  State v. Andresen, 256 Conn. 313, 329, 773 A.2d 328 (2001).  ‘[S]tate securities laws, or “blue sky laws,” are remedial statutes . . . see also Securities & Exchange Commission v. C.M. Joiner Leasing Corp., 320 U.S. 344, 353, 64 S.Ct. 120, 88 L.Ed. 88 (1943) (noting that state securities laws have “dominating purpose to prevent and punish fraudulent floating of securities”); Connecticut National Bank v. Giacomi, 233 Conn. 304, 320, 659 A.2d 1166 (1995) (noting that state securities laws contain antifraud provisions, require registration of brokers and sellers of securities and registration of securities themselves); People v. Landes, 84 N.Y.2d 655, 660, 645 N.E.2d 716, 621 N.Y.S.2d 283 (1994) (“purpose of [New York securities] statute is remedial: to protect the public from fraudulent exploitation in the offering and sale of securities”).  In 1977, the Connecticut legislature formally adopted the Uniform Securities Act (Uniform Act).”  (Citation omitted; footnote omitted; internal quotation marks omitted.)  State v. Andresen, supra, 256 Conn. at 322-23.”  Papic, 2007 Conn. Super. LEXIS 820.  Thus, the “public interest” as it relates to the purposes of the Act includes requiring registration of securities and protecting the public from fraudulent exploitation in the offering and sale of securities, which are both key elements in the network of safeguards the legislature has enacted to protect the public investor.

In this case, Respondents’ actions in violation of the Act involved disregarding a regulatory prohibition on offering and selling an unregistered security, and in connection with the offer and sale of such unregistered security, directly or indirectly, making an untrue statement of material fact or omitting to state a material fact necessary in order to make the statement made, in light of the circumstances under which they are made, not misleading in Respondents’ written and oral communications with the Investor, and failure to provide material facts regarding Respondents’ intended use of the money.  In addition, Respondents disregarded regulatory prohibitions on acting as an unregistered agent and employing an unregistered agent.  Consequently, the Commissioner to find that based upon the nature of Respondents’ actions in violation of the Act, the facts require the imposition of a fine against (1) Respondent TDA for TDA’s violations of Sections 36b-16, 36b-6(b) and 36b-4(a) of the Act in an amount equal to the maximum permitted by Section 36a-27(d) of the Act in effect prior to October 1, 2003, and (2) Respondent DeSteph for DeSteph’s violations of Sections 36b-16, 36b-6(a) and 36b-4(a) of the Act in an amount equal to the maximum permitted by Section 36a-27(d) of the Act in effect prior to October 1, 2003.

The Commissioner finds that the issuance of an order to cease and desist and imposition of a fine against Respondents is necessary and appropriate in the public interest and 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, of the Act.

ORDER

Having read the record, I hereby ORDER, pursuant to Section 36b-27(a) of the Act, the then applicable Section 36b-27(d) of the Act and Section 36b-27(d)(2) of the Act prior to October 1, 2003, that:

TDA Advantage Trust 
1 Dustin Lane
Jaffrey, NH 03452
Registered Mail No. RB028037147US

Thomas F. DeSteph 
1 Dustin Lane
Jaffrey, NH 03452
Registered Mail No. RB028037147US

Administrative Orders and Settlements