Source: https://portal.ct.gov/DOB/Enforcement/Securities-Orders-2/Discala-Omniview-Findings-and-Order
Timestamp: 2019-04-21 22:17:59+00:00

Document:
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”).
The above-referenced matter was initiated upon charges brought by the Commissioner to issue a permanent order to cease and desist, impose a fine and issue an order of restitution against each Respondent. On August 17, 2016, the Commissioner issued an Order to Cease and Desist, Order to Make Restitution, Notice of Intent to Fine and Notice of Right to Hearing against Advisors and Discala (“Notice”). On February 17, 2017, the Commissioner issued an Amended and Restated Order to Cease and Desist, Amended and Restated Order to Make Restitution, Amended and Restated Notice of Intent to Fine and Notice of Right to Hearing against Respondents (“Amended Notice”).
The Amended Notice alleges that: (1) Advisors and Capital transacted business as a broker-dealer in or from Connecticut absent registration, in violation of Section 36b-6(a) of the Act; (2) Discala transacted business as a broker-dealer agent of Advisors and/or Capital in or from Connecticut absent registration, in violation of Section 36b-6(a) of the Act; (3) Respondents offered and sold securities in or from Connecticut to at least one investor, which securities were not registered in Connecticut under the Act, in violation of Section 36b-16 of the Act; and (4) the conduct of Respondents constitutes, in connection with the offer, sale or purchase of any security, directly or indirectly employing a device, scheme or artifice to defraud, making an untrue statement of a material fact 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 or would operate as a fraud or deceit upon any person, in violation of Section 36b-4(a) of the Act.
On September 29, 2016, Respondents requested a hearing. After due notice, a hearing was held at the Department of Banking (“Department”) on April 27, 2017. 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.
Having read the entire record, including testimony of the witnesses and documentary evidence, I make the following findings of fact and conclusions of law based on the preponderance of evidence in the record.
73. Monies were transferred from Capital’s bank accounts at Chase Bank and Bank of America into Discala and Dounya’s personal bank accounts. (Tr. at 116-117).
The Commissioner is charged with the administration of Chapter 672a of the Connecticut General Statutes, the Connecticut Uniform Securities Act, and the regulations promulgated thereunder, Sections 36b-31-2 to 36b-31-33, inclusive, of the Regulations of Connecticut State Agencies. The Commissioner’s authority includes the power to issue an order to cease and desist against each Respondent pursuant to Section 36b-27(a) of the Act, impose a fine upon each Respondent pursuant to Section 36b-27(d) of the Act, and to issue an order of restitution upon each Respondent pursuant to Section 36b-27(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).
“Review of an administrative agency decision requires a court to determine whether there is substantial evidence in the administrative record to support the agency’s findings of basic fact and whether the conclusions drawn from those facts are reasonable.” Id. at 833. “An administrative finding is supported by substantial evidence if the record affords a substantial basis of fact from which the fact in issue can be reasonably inferred.” Id. “[T]here is no distinction between direct and circumstantial evidence so far as probative force is concerned. . . . In fact, circumstantial evidence may be more certain, satisfying and persuasive than direct evidence.” Id. at 834 (internal citations omitted).
The Department alleges that Advisors and Capital each transacted business as a broker-dealer in or from Connecticut absent registration, in violation of Section 36b-6(a) of the Act.
No person shall transact business in this state as a broker-dealer unless such person is registered under sections 36b-2 to 36b-34, inclusive.
[A]ny person engaged in the business of effecting transactions in securities for the account of others or for such person’s own account.
[A]ny note, stock . . . preorganization certificate or subscription, transferable share, investment contract . . . or, in general, any interest or instrument commonly known as a “security”, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.
The evidence establishes that Capital transacted business as a broker-dealer in or from Connecticut absent registration, in violation of Section 36b-6(a) of the Act. In particular, Capital entered into various purchase agreements with the Hagens during 2014 in which it agreed to sell shares of Crackpot stock and participation interests in Scanbuy shares. The purchase agreements evidenced the sale of securities, as defined by Section 36b-3(19) of the Act, and in furtherance of such agreements, the Hagens provided $55,000 by wire transfer to Capital. Bryan testified that such funds were provided to Capital for investment purposes and that he had expected to receive shares of Crackpot and Scanbuy in return, but never did. The record also reflects that Capital was never registered as a broker-dealer under the Act. As a result, Capital transacted business as a broker-dealer in Connecticut, in violation of Section 36b-6(a) of the Act.
There was limited evidence produced during the hearing concerning the activities performed by Advisors, therefore, the record fails to establish that Advisors transacted business as a broker-dealer in Connecticut, in violation of Section 36b-6(a) of the Act.
The Department alleges that Discala transacted business as a broker-dealer agent of Advisors and/or Capital in Connecticut absent registration, in violation of Section 36b-6(a) of the Act.
No individual shall transact business as an agent in this state unless such individual is (1) registered as an agent of the broker-dealer . . . .
“Agent” means any individual, other than a broker-dealer, who represents a broker-dealer or issuer in effecting or attempting to effect purchases or sales of securities. . . . A general partner, officer or director of a broker-dealer or issuer, or a person occupying a similar status or performing similar functions, is an agent only if such person otherwise comes within the definition and any compensation that such person receives is directly or indirectly related to purchases or sales of securities.
As discussed above, Capital transacted business as a broker-dealer in Connecticut by effecting transactions in securities of Crackpot and Scanbuy with the Hagens. At all times, Discala was the individual who represented Capital and executed the stock purchase agreements on behalf of Capital with the Hagens. Discala also had extensive negotiations with Crackpot and Scanbuy concerning their capital raise. Further, the record reflects that Discala was never registered under the Act and was indirectly compensated for such activities by withdrawing monies from Capital’s bank accounts for his personal use. As a result, Discala transacted business as a broker-dealer agent of Capital, in violation of Section 36b-6(a) of the Act. The record fails to establish that Discala transacted business as a broker-dealer agent of Advisors in Connecticut in violation of Section 36b-6(a) of the Act.
The Department alleges that Respondents offered and sold securities in or from Connecticut to at least one investor, which securities were not registered in Connecticut under the Act, in violation of Section 36b-16 of the Act.
No person shall offer or sell any security in this state unless (1) it is registered under sections 36b-2 to 36b-34, inclusive, (2) the security or transaction is exempted under section 36b-21, or (3) the security is a covered security provided such person complies with any applicable requirements in subsections (c), (d) and (e) of section 36b-21.
The record reflects that from March to June 2014, the Hagens provided $55,000 to Capital to purchase securities of Crackpot and Scanbuy. The purchase agreements evidencing the sale of Crackpot and Scanbuy were executed by Discala.
The sale of such securities by Capital, through Discala, violated Section 36b-16 of the Act. In particular, neither Crackpot nor Scanbuy were registered under the Act, nor were notice filings made under the Act. While a Form D filing 3 was made on behalf of Scanbuy with the Securities and Exchange Commission, a claim of exemption from the registration requirements under the Act must be made and proven by the Respondents. See State v. Andresen, 256 Conn. 313, 329–30 (2001). 4 Further, Section 36b-21(g) of the Act provides, in pertinent part, that “the burden of proving an exemption, preemption, exclusion or an exception from a definition is upon the person claiming it”. No evidence was produced by Respondents supporting a claim of exemption or exclusion in connection with their sales of Crackpot and Scanbuy. Accordingly, such conduct constitutes a violation of Section 36b-16 of the Act by Discala and Capital.
The record fails to establish that Advisors offered or sold securities in Connecticut, in violation of Section 36b-16 of the Act.
The Department alleges that the conduct of Respondents constitutes, in connection with the offer, sale or purchase of any security, directly or indirectly employing a device, scheme or artifice to defraud, making an untrue statement of a material fact 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 any person, in violation of Section 36b-4(a) of the Act.
No person shall, in connection with the offer, sale or purchase of any security, directly or indirectly: (1) Employ any device, scheme or artifice to defraud; (2) 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; or (3) engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.
Section 36b-3(8) of the Act states that “fraud”, “deceit” and “defraud” “are not limited to common-law deceit”.
• In connection with the offer and sale of the Scanbuy shares, Respondents failed to disclose any financial information about the investment, the registration status of the Scanbuy shares, that Advisors and Capital were not registered broker-dealers in Connecticut, that Discala was not a registered broker-dealer agent in Connecticut, and risk factors related to the investment.
The Department alleges that Respondents failed to disclose certain information in connection with the offer and sale of Crackpot and Scanbuy shares, in violation of Section 36b-4(a) of the Act. Since the first prong of Section 36b-4(a) of the Act may be interpreted to require intent by the violator and Respondents’ intent was not discussed during the hearing, 6 this section will be limited to an analysis of whether their conduct violated Section 36b-4(a)(2) or 36b-4(a)(3) of the Act. However, once again, the record fails to establish actions by Advisors that violated Section 36b-4(a) of the Act. While the Advisors website touted the financial expertise of Discala, it is unclear to what extent Advisors played a role in the offer and sale of securities to the Hagens. The record also fails to reflect how the Advisors website appeared at the time of the securities transactions by the Hagens in 2014.
At the outset, it must be noted that in order for untrue statements or omissions to occur in violation of Section 36b-4(a)(2) of the Act, there must be affirmative statements made by Capital and Discala. However, from the record it appears that very few statements, if any, were made by Discala and Capital in connection with the Hagens’ purchase of Crackpot and Scanbuy securities. Bryan repeatedly stated that he became interested in the Crackpot and Scanbuy investments from communications with his best friend, Pritchard. Bryan also admitted to researching the companies himself and never having a conversation with Discala. With no statements being made about Crackpot or Scanbuy by Capital and Discala in connection with their offer or sale, there can be no untrue statements and no omissions of material facts to have made prior statements misleading.
Absent statements made by Discala and Capital in connection with the offer and sale of Crackpot and Scanbuy, we must determine whether Discala and Captial’s [sic] failure to make various statements concerning the registration status and financial condition of the investments constituted engaging in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person, in violation of Section 36b-4(a)(3) of the Act. Although Connecticut courts have deemed certain activity violative of Section 36b-4(a)(3) of the Act, see e.g. Papic v. Burke, 2007 Conn. Super. LEXIS 820 (Conn. Super. Ct. March 22, 2007) aff’d 113 Conn. App. 198 (2009), there is limited Connecticut case law construing such phrase.
Likewise, the Hagens were deceived by the actions and inactions of Capital and Discala. The Hagens entered into stock purchase agreements having no idea that Discala and Capital were unregistered persons offering unregistered securities in violation of Connecticut securities laws. The Hagens also had no idea there was a risk that they may not receive shares of Crackpot and Scanbuy. Moreover, Discala, as the CEO of Capital and Advisors, was in a unique position of authority and knowledge regarding the Scanbuy and Crackpot transactions. 8 Rather than ensuring full disclosure of potentially adverse information to the Hagens, Discala and Capital facilitated the concealment of such information for their own benefit and gain. As a result, Discala and Capital violated Section 36b-4(a)(3) of the Act.
(a) 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-34, inclusive, . . . the commissioner may, in the commissioner’s discretion, order (1) the person . . . to cease and desist from the violations . . . 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.
(b) Whenever it appears to the commissioner, after an investigation, that any person has violated any of the provisions of sections 36b-2 to 36b 34, inclusive, . . . the commissioner may, in addition to any other remedy under this section, order the person to (1) make restitution of any sums shown to have been obtained in violation of any of the provisions of said sections . . . plus interest at the legal rate set forth in section 37-1 . . . . After such an order is issued, the person named in the order may, not later than 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. . . .
(d) (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-34, inclusive, . . . the commissioner may send a notice to (A) such person . . . by registered or 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: (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 . . . any of the provisions of sections 36b 2 to 36b-34, 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 or certified mail, return receipt requested, or by any express delivery carrier that provides a dated delivery receipt, to any person named in such order.
No evidence of mitigating circumstances was provided during the hearing.
(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 Notice and Amended Notice issued by the Commissioner complied with subsections (a), (b) and (d) of Section 36b-27 of the Act and Section 4-177 of the Connecticut General Statutes.
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-34, inclusive. . . .
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 36b-34, inclusive. In this case, the activities of Discala and Capital, in violation of the Act, involved failing to register as a broker-dealer and broker-dealer agent, in violation of Section 36b-6(a) of the Act, selling unregistered securities, in violation of Section 36b-16 of the Act and engaging in an act, practice or course of business that operated as a fraud or deceit, in violation of Section 36b-4(a) of the Act. Prohibition of such practices is consistent with the purpose of the Act as as [sic] discussed by the Connecticut Legislature in 1977. “Securities laws generally contain three basic elements—registration of brokers and salesmen, antifraud provisions and registration of securities . . . .” Connecticut Nat. Bank v. Giacomi, 233 Conn. 304, 320, 659 A.2d 1166, 1173 (1995). In addition, the issuance of an order to cease and desist and order imposing fine against Discala and Capital should serve to deter future harm to Connecticut residents and, for those Connecticut residents who have already suffered financial loss as a result of their conduct, an order to make restitution will serve to lessen such losses.
I conclude that it 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-34, inclusive, of the Act to enter the following order.
No later than forty-five (45) days after the date this Order is mailed, Omni View Capital LLC and Abraxas J. Discala a/k/a AJ Discala, jointly and severally, shall provide sufficient evidence of such reimbursement to Lynn McKenna-Krumins, Division Director, Securities and Business Investments Division, at Lynn.McKenna-Krumins at ct.gov.
This Order shall become effective when mailed.
and hand delivered to Paul A. Bobruff, Esq.
Parenthetical references relate to exhibits entered into the hearing record by the Hearing Officer (“HO Ex.”) or the Department (“DOB Ex.”). Transcript (“Tr.”) pages reflect where an exhibit was entered into the record or where relevant testimony was given.
Citations to the Act reflect the most recent statutory text applicable during the time period of underlying conduct.
Regulation D Rule 506 offerings are considered covered securities pursuant to Section 18(b)(4) of the Securities Act of 1933.
This provision as originally drafted, was modeled on Section 17(a) of the Federal Securities Act of 1933. “Section 36b-4 corresponds to § 101 of the Uniform Securities Act of 1956 (Uniform Securities Act).” Demiraj v. Uljaj, 137 Conn. App. 800, 806 (2012). “Section 101 of the Uniform Act was modeled on Rule 10b-5 of the Securities and Exchange Commission (SEC), which, in turn, was modeled on § 17(a) of the federal Securities Act of 1933. L. Loss, Commentary on the Uniform Securities Act (1976) official comment to § 101, p. 6.” Connecticut Nat. Bank v. Giacomi, 233 Conn. 304, 321 (1995).
In construing similar language in Section 17(a) of the Securities Act, the U.S. Supreme Court stated, “[t]he language of § 17(a) strongly suggests that Congress contemplated a scienter requirement under § 17(a)(1), but not under § 17(a)(2) or § 17(a)(3). The language of § 17(a)(1), which makes it unlawful ‘to employ any device, scheme, or artifice to defraud,’ plainly evinces an intent on the part of Congress to proscribe only knowing or intentional misconduct. Even if it be assumed that the term ‘defraud’ is ambiguous, given its varied meanings at law and in equity, the terms ‘device,’ ‘scheme,’ and ‘artifice’ all connote knowing or intentional practices”. Aaron v. Sec. & Exch. Comm’n, 446 U.S. 680, 695, 96 (1980).
“[B]ecause the Connecticut Uniform Securities Act, General Statutes §§ 36b-2 to 36b-33, is a substantial adoption of the major provisions of the 1956 Uniform Securities Act, we may look to interpretations of that act in interpreting analogous language in our own statutes.” Lehn v. Dailey, 77 Conn. App. 621, 631-632 (2003) (internal citations omitted).
For example, in construing duties of disclosure under Rule 10b-5, courts have considered “the relationship between the plaintiff and defendant, the parties’ relative access to the information to be disclosed, the benefit derived by the defendant from the purchase or sale, defendant’s awareness of plaintiff’s reliance on defendant in making its investment decisions, and defendant’s role in initiating the purchase or sale”. First Virginia Bankshares v. Benson, 559 F.2d 1307, 1314 (5th Cir. 1977) (internal citations omitted).

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