Source: https://portal.ct.gov/DOB/Enforcement/Securities-Orders-2/Poppin-Kettle-Franchising-et-al--Findings--Order
Timestamp: 2019-04-19 09:12:41+00:00

Document:
The Banking Commissioner (“Commissioner”) is charged with the administration of Chapter 672c, Sections 36b-60 to 36b-80, inclusive, of the Connecticut General Statutes, the Connecticut Business Opportunity Investment Act (“Act”).
The above-referenced matter was initiated upon charges brought by the Commissioner to issue a permanent order to cease and desist against Poppin Kettle Franchising, Inc. (“Poppin Kettle”), Chris T. Gregoris a/k/a Christos T. Gregoris a/k/a Christopher Gregoris (“Gregoris”) and YoFresh Yogurts Franchising, Inc. (“YoFresh Yogurts”) and impose a fine upon each Respondent. On June 12, 2014, the Commissioner issued an Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing against Respondents (“Notice”).
The Notice alleges that Respondents offered and/or sold Poppin Kettle and YoFresh Yogurts business opportunities absent registration under the Act, in violation of Section 36b-67(1) of the Act and that the conduct of Poppin Kettle and Gregoris constitutes, in connection with the offer or sale of a business opportunity, directly or indirectly 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, in violation of Section 36b-67(6) of the Act.
On July 8, 2014, Respondents requested a hearing. After due notice, a hearing was held at the Department of Banking (“Department”) on September 17, 2014. The hearing was conducted in accordance with Chapter 54 of the Connecticut General Statutes, the “Uniform Administrative Procedure Act”, and the Department’s contested case regulations, Sections 36a-1-19 to 36a-1-57, inclusive, of the Regulations of Connecticut State Agencies.
The Commissioner is charged with the administration of Chapter 672c, Sections 36b-60 to 36b-80, inclusive, of the Connecticut General Statutes, the Connecticut Business Opportunity Investment Act. The Commissioner’s authority includes the power to issue orders to cease and desist against Poppin Kettle, Gregoris and YoFresh Yogurts, individually, pursuant to Section 36b-72(a) of the Act, and impose fines upon Poppin Kettle, Gregoris and YoFresh Yogurts, individually, pursuant to Section 36b-72(b) of the Act.
The applicable standard of proof in Connecticut administrative cases, including those involving fraud and severe sanctions, is the preponderance of the evidence standard. Goldstar Medical Services v. Department of Social Services, 288 Conn. 790, 819 (2008). “[I]t is the exclusive province of the trier of fact to make determinations of credibility, crediting some, all, or none of a given witness’ testimony . . . . [A]n agency [is not] required to use in any particular fashion any of the materials presented to it as long as the conduct of the hearing is fundamentally fair.” Id. at 830 (internal citations omitted).
1. The Department alleges that Respondents offered and/or sold Poppin Kettle and YoFresh Yogurts business opportunities absent registration, in violation of Section 36b-67(1) of the Act.
No person shall in connection with the sale or offer for sale of a business opportunity: (1) Sell or offer for sale a business opportunity in this state or from this state unless it has first been registered with the commissioner and declared effective by the commissioner in accordance with the provisions of section 36b-62 . . . .
At the outset, it must be determined whether Poppin Kettle and YoFresh Yogurts constituted business opportunities under the Act. In particular, the Notice alleges that Poppin Kettle and YoFresh Yogurts constituted business opportunities as a result of Gregoris, Poppin Kettle and YoFresh Yogurts representing that they would provide purchaser-investors with a sales program or a marketing program within the meaning of Section 36b-61(2)(D) of the Act.
“Business opportunity” means the sale or lease, or offer for sale or lease, of any product, equipment, supply or service which is sold or offered for sale to the purchaser-investor for the purpose of enabling the purchaser-investor to start a business, and in which the seller represents that: . . . (D) the seller will provide a sales program or marketing program to the purchaser-investor, provided sections 36b-60 to 36b-80, inclusive, shall not apply to the sale of a marketing program made in conjunction with the licensing of a registered trademark or service mark . . . .
The evidence demonstrates that, indeed, sellers of Poppin Kettle provided purchaser-investors with advertising materials, training and operational assistance.
6.1 Operational Manual. We will loan you one copy of our confidential operations and training manual (“Operations Manual”). You shall operate the Franchised Business in strict compliance with the Operations Manual . . . .
6.4 Pre-opening Advertising. We will help you select media purchases for and to schedule your grand opening campaign. We will provide graphic designs, layouts and written copy for advertisements which you may use . . . .
6.5 Opening Assistance. One of our representatives will be present prior to and/or following the opening of your Franchised Business to assist you in pre-opening and post-opening matters. This representative will stay . . . to assist you with the hiring and training of your employees, inspect the placement and testing of your equipment and decor items, assist you with inventory ordering and preparation, execution of services and assisting you with the initial operation of your Franchised Business.
6.6 Ongoing Assistance. We will provide you continuing consultation and advice as we deem necessary and appropriate regarding the management and operation of the Franchised Business. . . .
7.7.4 You agree to conduct the Franchised Business in accordance with the Training Manual. You shall immediately train and instruct your employees in accordance with the Training Manual, and shall continue such training and instruction as long as each employee is employed. The Training Manuals shall set forth the practices, procedures and methods to be utilized in your Franchised Business, and we may require you to conform your practices with national programs which we have designed and promulgated as part of our Franchise System. . . .
8.1 Initial Training Program. You and (2) of your key employees shall attend, and complete to our satisfaction, our initial training program . . . . The required training lasts up to 7 days and shall consist of training in merchandising, cleaning of equipment, preparation of goods, product assembly, recipes, office procedures, advertising, inventory control, basic techniques of management and skills. . . .
Dept. Ex. 8; see also, Tr. at 47.
In addition, the Craigslist advertisement for Poppin Kettle offers in-store training and the Connecticut Resident testified that he received training, support and ongoing assistance in connection with his purchase of Poppin Kettle. Likewise, the Craigslist advertisement for YoFresh Yogurts offered in-store training. As a result, sellers of both Poppin Kettle and YoFresh Yogurts represented that sales programs or marketing programs would be provided to purchaser-investors, constituting “business opportunities” within the meaning of Section 36b-61(2)(D).
Next, it must be determined whether offers or sales of Poppin Kettle and YoFresh Yogurts occurred within the meaning of Section 36b-67(1) of the Act. The terms “sale” and “offer” are further defined by the Act.
Both Poppin Kettle and YoFresh Yogurts business opportunities were offered via the Internet on Craigslist, and one Poppin Kettle business opportunity was sold to the Connecticut Resident. Gregoris clearly participated in the sale of Poppin Kettle by assisting in the development of its website, discussing the business opportunity with the Connecticut Resident and executing the Franchise Agreement. The record is less clear about Gregoris’ involvement in the offer of YoFresh Yogurts. Neither business opportunity was registered in Connecticut and no evidence was produced supporting a claim of exemption or exclusion. As a result, Poppin Kettle, Gregoris and YoFresh Yogurts offered business opportunities in violation of Section 36b-67(1) of the Act and Gregoris and Poppin Kettle sold a business opportunity in violation of Section 36b-67(1) of the Act.
2. The Department alleges that the conduct of Poppin Kettle and Gregoris, constitutes, in connection with the offer or sale of a business opportunity, directly or indirectly 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, in violation of Section 36b-67(6) of the Act.
No person shall in connection with the sale or offer for sale of a business opportunity: … (6) directly or indirectly …(B) make any untrue statement of a material fact or omit 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 . . . .
In particular, the Department alleged that Poppin Kettle failed to provide the Connecticut Resident with the disclosure statement containing the disclosures required by Section 36b-63 of the Act, including key information on the franchise, the seller and its principals and affiliates, risks associated with the purchase of the business opportunity, financial information on the seller, and relevant employment, disciplinary and litigation histories of the seller and its principals. The Department also alleged that Poppin Kettle and Gregoris failed to disclose to the Connecticut Resident, among other things, that Gregoris was a control person of Java, which was the subject of a Cease and Desist Order entered by the Commissioner on June 23, 2008, for violations of the Act; that on October 8, 2008, the Commissioner imposed a $30,000 fine against Java for the same violations of the Acts and that such fine remains unpaid.
Under federal securities law, a “material” fact is a fact that a reasonable investor might have considered important in the making of the investment decision. See Affiliated Ute Citizens v. United States, 406 U.S. 128, 153-154, (1972); Gruber v. Prudential-Bache Securities, Inc., 679 F. Supp. 165, 176 (D. Conn. 1987). A fact is material if there is a substantial likelihood that its disclosure would have been considered significant by a reasonable investor. Basic, Inc. v. Levinson, 485 U.S. 224, Fed. Sec. L. Rep. (CCH) 93,645, pp. 97,945-97,947 (1988); TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, Fed. Sec. L. Rep. (CCH) 95,615, pp. 90,069-90,070 (1976). . . .
[A] material fact is “misleading” if it adversely affects the reliability of other statements. See Ross v. A.H. Robins Co., Inc., Fed. Sec. L. Rep. (CCH) 96,388, p. 93,353. (S.D.N.Y. 1978).
Matter of: Silver Shots, 1995 WL 803386 (1995), at *5-6.
Applying this standard in the Matter of: Silver Shots, the Commissioner found, among other items, that the failure to disclose risk factors to purchaser-investors constituted an omission of a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading for purposes of Section 36b-67(6) of the Act.
Federal securities law also advises that failure to disclose information required to be disclosed by law gives rise to omissions of material facts. See, e.g., Morgan Stanley Information Fund Securities Litigation, 592 F.3d 347 (2010). Poppin Kettle and Gregoris omitted information required to be disclosed pursuant to Section 36b-63, such as Gregoris’ previous experience with Java, the 2008 Order to Cease and Desist and Order Imposing Fine issued by the Commissioner against Java and a “risk factors” section.
(2) The business experience during the past five years of each of the seller’s current directors, executive officers, trustees, general partners, general managers, and any other persons charged with responsibility for the seller’s business activities, including but not limited to, the chief operating officer and the financial, marketing, training and service officers. . . .
(27) A section entitled “risk factors” containing a series of short concise captioned paragraphs summarizing the principal factors which make the business opportunity one of high risk or of a speculative nature. Such factors shall include, but not be limited to: . . . any adverse background information regarding executive officers and directors of the seller, including prior business failures . . . .
By failing to disclose this required information, Poppin Kettle and Gregoris omitted material facts necessary in order to make statements made, in the light of the circumstances under which they were made, not misleading, in violation of Section 36b-67(6) of the Act.
(a) Whenever it appears to the commissioner, after an investigation, that any person or persons have violated, are violating or are about to violate any of the provisions of sections 36b-60 to 36b-80, inclusive, or any regulation, rule or order adopted or issued under said sections or that a further sale or offer to sell would constitute a violation of said sections, or any such regulation, rule or order, the commissioner may order the person or persons to cease and desist from the violations of the provisions of said sections or any such regulations, rules or orders or from further sale or offering to sell business opportunities constituting or which would constitute a violation of the provisions of said sections or any such regulations, rules or orders. After any such order is issued, the person or persons named in such order may, within fourteen days after receipt of the order, file a written request for a hearing. Such hearing shall be held in accordance with the provisions of chapter 54.
(b) (1) Whenever the commissioner finds as the result of an investigation that any person has violated any of the provisions of sections 36b-60 to 36b-80, inclusive, or any regulation, rule or order adopted or issued under said sections, the commissioner may send a notice to such person by certified mail, return receipt requested, or by any express delivery carrier that provides a dated delivery receipt. 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: (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; (D) 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 (E) 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. 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-60 to 36b-80, inclusive, or any regulation, rule or order adopted or issued under said sections, the commissioner may, 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 certified mail, return receipt requested, or by any express delivery carrier that provides a dated delivery receipt, to any person named in such order.
The Notice issued by the Commissioner complied with Sections 36b-72(a) and 36b-72(b) of the Act and Section 4-177 of the Connecticut General Statutes.
The Business Opportunity Investment Act was “enacted with the purpose of preventing the misrepresentations and fraudulent practices involved in business opportunity investment sales and the financial losses and hardships to investors which result therefrom.” Woolf, The Connecticut Business Opportunity Investment Act, 54 Conn.B.J. 415, 415 (1980). Its requirements include . . . disclosure of information to prospective purchasers to enable them to make a rational purchase decision . . . .
Eye Associates, P.C. v. IncomRx Sys. Ltd. P’ship, 912 F.2d 23, 25-26 (2d Cir. 1990).
Without full disclosure and knowledge of Poppin Kettle’s risk factors and Gregoris’ previous business experience, the Connecticut Resident was unable to make an informed purchase decision. The failure by Poppin Kettle and Gregoris to comply with the Act’s disclosure obligations and the failure by Poppin Kettle, YoFresh Yogurts and Gregoris to register business opportunities that were offered or sold in Connecticut represent conduct deserving to be deterred and duly sanctioned.
Therefore, I conclude that it is necessary and appropriate in the public interest and for the protection of purchaser-investors and consistent with the purposes fairly intended by the policy and provisions of Sections 36b-60 to 36b-80, inclusive, of the Act to enter the following order.
6. This Order shall become effective when mailed.

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