Gary C. Suhadolnik Deborah L. Dye Joyce New Legislation ... · Deborah L. Dye Joyce ... Public...

Ohio Securities Bulletin 2000:4 1

Bob TaftGovernor of Ohio

Gary C. SuhadolnikDirector of Commerce

Deborah L. Dye JoyceCommissioner of Securities

A QUARTERLY PUBLICATION OF THE OHIO DIVISION OF SECURITIES

OHIO SECURITIES BULLETIN

COMMERCEDEPARTMENT OF

OHIO

DIVISION OF

SECURITIES

Ohio Securities Bulletin

Issue 2000:4

Table of Contents

New Legislation Tackles Viatical Sales ......... 1

H.B. 551’s “Non-Viatical” Changes tothe Ohio Securities Act ................................ 1

Public Notice ............................................... 4

Division Committee Reports ....................... 5

NASAA Guideline Applications ................... 7

Enforcement Section Reports ...................... 7

Criminal Actions and Updates ................... 17

Final Order Summaries .............................. 18

Licensing Statistics ..................................... 18

Registration Statistics ................................. 19

Capital Formation Statistics ....................... 19

http://www.securities.state.oh.us

H.B. 551’s “Non-Viatical” Changes to the Ohio Securities Act

In the Fall of 1998, the Ohio Divisionof Securities (“Division”) published a state-ment detailing its analysis of viatical settle-ments as securities under Ohio law. TheDivision generally announced that it be-lieved viatical settlements to be “investmentcontracts,” and therefore securities, subject tothe regulatory scheme of the Ohio SecuritiesAct. In the Spring of 2000, House Bill(“H.B.”) 551, sponsored by Rep. AmySalerno, was introduced before the HouseCivil and Commercial Law Committee ofthe 123rd Ohio General Assembly. H.B.551, also known as the Ohio Viatical Act,amended Chapter 1707 to include “life settle-ment interests” in the definition of securitiesand added the new Chapter 3916 to Ohio’sinsurance code to adopt the Viatical Settle-ments Model Act. This article will be limitedto a discussion of the amendments to Chap-ter 1707 as a result of H.B. 551 and how thesechanges impact the Division’s regulatory ap-proach to viatical settlements.

The Division’s Fall 1998 statementregarding the treatment of viatical settle-ments under Ohio Securities law was in

response to numerous inquiries being re-ceived by the Division seeking regulatoryguidance on the sale of viatical settlements inOhio. Given the nature and scope of theinquiries, the Division realized there wasconsiderable confusion regarding how thesales of viatical settlements are regulated inOhio. The Division published its analysis inOhio Securities Bulletin 98:3 and thereafterposted its position on the Division’s web site.The announcement stated that viatical settle-ments are subject to the regulatory scheme ofthe Ohio Securities Act by reason of satisfyingthe investment contract analysis announcedin State v. George, 50 Ohio App. 2d 297(1975). The announcement achieved twopurposes: reducing the confusion associatedwith the applicability of the Ohio SecuritiesAct to the sale of viatical settlements in Ohioand placing the viatical and securities indus-tries on notice that persons who sell viaticalsettlements must comply with the registra-tion, licensing and anti-fraud provisions ofthe Ohio Securities Act.

H.B. 551 goes a step further in elimi-nating the confusion associated with viatical

New Legislation Tackles Viatical Sales

by Thomas E. Geyer

In addition to clarifying the over-sight of viatical transactions, H.B. 551also makes a number of important func-tional and technical changes to the OhioSecurities Act. Several of the changes re-write sections of the Act in “plain En-glish.” Another important change allowsthe Division to enact rules on a expeditedbasis to keep the Act consistent withchanges made to the federal securities laws.Following is a description of H.B. 551’s“non-viatical” changes to the Act.

R.C. 1707.02(E), Exemption for“Exchange-Listed” Securities. The billamends R.C.1707.02(E) by replacing ex-isting language with the language con-tained in the definition of “covered secu-rity” in section 18(b)(1) of the SecuritiesAct of 1933. This change aligns the Ohioexemption for “exchange-listed” securitieswith the “exchange-listed” category of cov-ered securities.1 Prior to the change, R.C.1707.02(E) was similar to section 18(b)(1)of the 1933 Act except that section 18(b)(1)extended to securities “equal in seniority,”while R.C. 1707.02(E) extended only to

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The Ohio Department of Commerce is an equal opportunity employer and service provider.

by Matt Fornshell

Ohio Securities Bulletin 2000:42

Receptionist ...................... 644-7381 Enforcement .............. 466-6140Broker-Dealer ................... 466-3466 Registration ............... 466-3440Records ............................. 466-3001 Webmaster ................ 644-8401

All listings are area code (614)

The Ohio Securities Bulletin is a quarterly publication of the Ohio Department of Commerce,Division of Securities. The primary purpose of the Bulletin is to (i) provide commentary on timely ortimeless issues pertaining to securities law and regulation in Ohio, (ii) provide legislative updates, (iii)report the activities of the enforcement section, (iv) set forth registration and licensing statistics and (v)provide public notice of various proceedings.

The Division encourages members of the securities community to submit for publication articles on timelyor timeless issues pertaining to securities law and regulation in Ohio. If you are interested in submitting anarticle, contact the Editor for editorial guidelines and publication deadlines. The Division reserves the right toedit articles submitted for publication.

Portions of the Ohio Securities Bulletin may be reproduced without permission if properacknowledgement is given.

OHIO SECURITIES BULLETINDesiree T. Shannon, Esq., Editor

Ohio Division of Securities77 South High Street, 22nd Floor • Columbus, Ohio 43215

http://www.securities.state.oh.us

settlements by introducing the term “lifesettlement interest” into the definition of asecurity at R.C. 1707.01(B). “Life Settle-ment Interest” is thereafter defined at R.C.1707.01(NN) as:

(T)he entire interest or any fractionalinterest in an insurance policy or certificate ofinsurance, or in an insurance benefit undersuch a policy or certificate, that is the subjectof a life settlement contract.

For purposes of this Division, “LifeSettlement Contract” means an agreementfor the purchase, sale, assignment, transfer,devise or bequest of any portion of the deathbenefit or ownership of any life insurancepolicy or contract, in return for considerationor any other thing of value that is less than theexpected death benefit of the life insurancepolicy or contract. “Life Settlement Con-tract” includes a viatical settlement contractas defined in Section 3916.01 of the RevisedCode….1

The result of H.B. 551 is that it elimi-nates the necessity of engaging in the invest-ment contract analysis and clearly vests regu-latory authority over the “security” side ofviatical settlements in the Division.

R.C. 1707.01(NN) also includes sixexceptions from the definition of “Life Settle-ment Contract”:

• a loan by an insurer under the terms of a lifeinsurance policy, including, but not lim-ited to, a loan secured by the cash value ofthe policy;

• an agreement with a bank that takes anassignment of a life insurance policy ascollateral for a loan;

• the provision of accelerated benefits asdefined in Section 3915.21 of the RevisedCode;

• any agreement between an insurer andreinsurer;

• an agreement by an individual to purchasean existing life insurance policy or contractfrom the original owner of the policy orcontract, if the individual does not enterinto more than one life settlement contractper calendar year; and

• the initial purchase of an insurance policyor certificate of insurance from its ownerby a viatical settlement provider, as definedin Section 3916.01 of the Revised Code,that is licensed under Chapter 3916. of theRevised Code.2

Governor Taft signed the legislationon January 4, 2001, and it becomes effectiveOctober 5, 2001. The legislation provides fordual regulatory authority over the sale ofviatical settlements in Ohio, authority that isbifurcated between the Ohio Division ofSecurities and the Ohio Department of In-surance. By explicitly including the term “lifesettlement interest” in the definition of secu-rity the Ohio General Assembly has effec-tively eliminated any confusion relating tothe applicability of the Ohio Securities Act tothe sale of viatical settlements in Ohio.

Endnotes1 Viatical Settlement Contract is also de-

fined at R.C. 3916.01(L) as part of theViatical Settlements Model Act.

2 R.C. 3916.01(M)(1) defines a ViaticalSettlement Provider as a “person, otherthan a viator, that enters into or effectu-ates a viatical settlement contract.” R.C.3916.01(M)(2) includes eight exceptions

to the definition of Viatical SettlementProvider:

• a bank, savings bank, savings and loanassociation, credit union, or other finan-cial institution that takes an assignmentof a life insurance policy or certificate ascollateral for a loan;

• the issuer of life insurance policy orcertificate providing accelerated benefitsas defined in Section 3915.21 of theRevised Code and pursuant to the con-tract;

• an individual who enters into or effectu-ates not more than one agreement in anycalendar year for the transfer of life in-surance policies of certificates for anyvalue less than the expected death ben-efit;

• an authorized or eligible insurer thatprovides stop loss coverage to a viaticalsettlement provider, purchaser, financ-ing entity, special purpose entity, or re-lated provider trust;

• a financing entity;• special purpose entity;• a related provider trust; and• a viatical settlement purchaser.

Editor’s Note: Mr. Fornshell is the Attor-ney-Inspector, and head of the EnforcementSection at the Ohio Division of Securities.

New Legislationcontinued from page 1


securities “senior to.”2 After the change,R.C. 1707.02(E) is substantively identicalto section 18(b)(1)3, and extends exemptsecurity status to securities (and securitiesequal in seniority or senior to such securi-ties) listed, or authorized for listing, on theNew York Stock Exchange, the AmericanStock Exchange, the NASDAQ NationalMarket System, and exchanges, tiers andsystems listed in SEC rule 146(b).

Effective May 25, 2000, the Divisionadded an administrative rule recognizing thatsecurities listed on Tier I of the Pacific Ex-change, Tier I of the Philadelphia StockExchange and the Chicago Board OptionsExchange are exempt securities pursuant toR.C. 1707.02(E).4 This rule, which incorpo-rates SEC rule 146(b) into Ohio law, remainsin effect after the amendment of R.C.1707.02(E).

R.C. 1707.11, Consent to Service ofProcess. H.B. 551 re-writes the Ohio Secu-rities Act’s consent to service of process re-quirement in “plain English” and organizesthe section by using lettered paragraphs andnumbered sub-paragraphs.

New paragraph (A) lists the personsthat must file a consent. Specifically, eachperson that is not organized under Ohio law,is not licensed under R.C. 1703.03, or doesnot have its principal place of business inOhio must file a consent in connection with:

• filings under R.C.1707.03(Q), (W), (X)and (Y);

• applications for registration by descrip-tion, qualification or coordination;

• notice filings for securities or investmentadvisory activities; and

• applications for securities dealer or invest-ment adviser licensure.

New paragraph (B) restates the con-tents of the consent:

• a designation of the Secretary of State asagent for service;5

• a statement that an action may be com-menced in the county where the actionarises or where the plaintiff resides; and

• a stipulation that service on the Secretary ofState is valid and binding.

R.C. 1707.151 (investment adviser licenseapplication and issuance). Similar to one ofthe changes made to R.C. 1707.15, the re-quired listing of the nature of the applicant’sbusiness and address for the ten years prior tothe application has been deleted.

R.C. 1707.20(F), Parity Authority.H.B. 551 adds new paragraph (F) to R.C.1707.20. Essentially, this new paragraphpermits the Division to promulgate, on anexpedited basis, rules to keep the Ohio secu-rities laws consistent with federal securitieslaw. This “parity authority” provides that inthe event there is a change to the SecuritiesAct of 1933, the Securities Exchange Act of1934, the Investment Company Act of 1940,the Investment Advisers Act of 1940, or rules,releases or statements thereunder, or rules,regulations or guidelines of the NASD, andthe change affects any matter within thescope of R.C. 1707, the Division may by rulepromulgate a similar provision on an expe-dited basis.

R.C. 1707.23(C), Service of Subpoe-nas. The bill amends R.C. 1707.23(C) toallow for personal service of subpoenas inaddition to service by certified mail.

R.C. 1707.432 through 1707.439,Securities Litigation Standards. H.B. 511repeals R.C. 1707.432 through 1707.438,which established certain standards for “pri-vate civil actions” arising from the sale ofsecurities. The sections were enacted in 1996as a part of the 121st General Assembly’s H.B.350, also known as the “Tort Reform Bill.”The Ohio Supreme Court declared the TortReform Bill unconstitutional in 1999.8 R.C.1707.432 through 1707.438 were invali-dated at that time, and H.B. 551 cleans up theOhio Securities Act by deleting them. Inaddition, H.B. 551 repeals R.C. 1707.439,which had been added in 19999 to clarify thatactions for rescission under R.C. 1707.43were not subject to the litigation standards setout in R.C. 1707.432 through 1707.438.

R.C. 1707.44(C)(1), Prohibition onSale of Unregistered, Nonexempt Securities.Finally, the bill corrects a typographical errorin R.C. 1707.44(C)(1) by replacing the “and”between “1707.04” and “1707.34” with “or.”

New paragraph (C) restates the proce-dure for making service of process. Newparagraph (D) permits the Division to pro-vide by rule for the electronic filing of aconsent to service of process.6

The changes to R.C. 1707.11 do noteffect the forms currently used to file a con-sent with the Division: uniform form U-2(and form U-2A if necessary), and Divisionforms 11, BD-11 and IA-11.

R.C. 1707.15, Application for andIssuance of Dealer’s License. The bill re-writes R.C. 1707.15 in “plain English,” andmakes the section parallel to R.C. 1707.151(application for and issuance of investmentadviser license).

In new paragraph (A), the require-ment that the application be “verified byoath” has been eliminated, which recognizesthat applications may be filed electronically.7

New paragraph (B) simplifies the consent toservice of process requirement by making across-reference to new R.C. 1707.11. TheDivision’s authority to investigate an appli-cant is restated in new paragraph (C). Previ-ous paragraph (D), which required the namesand addresses of all salespersons, and previousparagraph (E), which required a listing of thenature of the applicant’s business and addressfor the ten years prior to the application, havebeen deleted. New paragraph (D) clarifiesthat a natural person must pass an examina-tion on behalf of a dealer, and that that personwill serve as the designated principal of a non-natural person dealer. New paragraph (E)restates that dealers shall employ as salesper-sons only those salespersons who are licensedby the Division. New paragraph (F) restatesthat the Division shall issue a license upon afinding a “good business repute,” compliancewith the application requirements, and thepayment of required fees.

R.C. 1707.151, Application for andIssuance of Investment Adviser License. Thebill simplifies the consent to service of processrequirement by combining previous para-graphs (B) and (C) into new paragraph (B),which simply cross-references new R.C.1707.11.

R.C. 1707.16, Application for andIssuance of Salesperson License. The bill re-writes R.C. 1707.16 in “plain English,” andmakes the section parallel to R.C. 1707.15(dealer license application and issuance) and

H.B. 551continued from page 1

continued on page 4


Endnotes

1 Some practitioners take the position thatsince State law securities registration re-quirements are preempted with respect to“covered securities,” a State is withoutauthority to recognize a securities registra-tion exemption for such securities. Withall due respect to that position, the Divi-sion believes that including in the OhioSecurities Act a recognition of the exemptstatus of “exchange-listed” securities is use-ful to make clear that such securities areexempt from the Ohio securities registra-tion requirements.

2 See “Covered Securities Under the OhioSecurities Act,” Ohio Securities Bulletin96:4.

3 New 1707.02(E) varies from section18(b)(1) only in that the Ohio law allowsthe Division to designate additional ex-changes or tiers as conveying exempt secu-rity status.

4 O.A.C. 1301:6-3-02(A). The designationof such securities as exempt securities isconditioned on such exchanges’ listing stan-dards, or segments or tiers thereof, con-tinuing to be substantially similar to thoseof the NYSE, AMEX, or the NASDAQ/NMS. O.A.C. 1301:6-3-02(B).

5 Nothing prohibits a person from using acommercial service as statutory agent inaddition to the designation of the Secretaryof State.

6 The following new paragraph (L) will beadded to O.A.C. 1301:6-3-01 effectiveFebruary 1, 2001: “Filed with the divi-sion” as used in sections 1707.141 and1707.15 of the Revised Code and “filingwith the division” as used in section

PUBLIC NOTICE

At 10:00 a.m. on April 10, 2001, the Ohio Division of Securities will hold a public hearing regardingthe Division’s intent to amend Ohio Administrative Rules 1301:6-3-01, 1301:6-3-02, 1301:6-3-03, and1301:6-3-14. The hearing will be held in the offices of the Division located at 77 South High Street, 22ndFloor, Columbus, Ohio 43215.

Copies of the proposed amendments may be obtained by contacting the Ohio Division of Securitiesat the above address or by calling the Division at (614) 644-7381. Copies of the proposed amendments mayalso be obtained from the Division’s Internet homepage located at www.securities.state.oh.us. Each of theproposed amendments and new rules is summarized in the following:

OAC 1301:6-3-01(L) The proposed amendment changes the word “database” to “depository”. Thepurpose of the proposed paragraph amendment is a technical correction of terminology.

OAC 1301:6-3-02 The proposed amendment changes references contained in paragraph (D)(1)(e)and (D)(1)(f). The purpose of the proposed amendment is to correct internal cross-references withinparagraph (D).

OAC 1301:6-3-03 The proposed amendment amends references contained in paragraphs (E)(9)(b)(iv)and (E)(9)(b)(v). The purpose of the proposed amendment is to correct internal cross-references withinparagraph (E).

OAC 1301:6-3-14 The proposed amendment changes a reference contained in paragraph (A)(1) to“paragraph (D) of rule 1301:6-3-02”. The purpose of the proposed amendment is to correct a cross-reference to rule 1301:6-3-02 of the Administrative Code.

H.B. 551continued from page 3

1707.151 and 1707.161 of the RevisedCode, shall include information submit-ted to the Central Registration Depositoryand the Investment Adviser RegistrationDatabase maintained by the National As-sociation of Securities Dealers, Inc.

7 Id.8 State ex rel. Ohio Academy of Trial Lawyers

v. Sheward, 86 Ohio St. 3d 451 (1999).See also “Tort Reform Decision InvalidatesSecurities Litigation Standards,” Ohio Se-curities Bulletin 99:3.

9 See “Sub. H.B. 6 Authorizes Electronic Prox-ies and Makes Technical Changes to 1707,”Ohio Securities Bulletin 99:2.

Mr. Geyer is an Assistant Director of theOhio Department of Commerce. He served asCommissioner of Securities from 1996 to2000.


Licensing and TechnologyAdvisory Committee Minutes

On November 9, 2000, Dale Jewelland Caryn Francis co-chaired the com-mittee meeting which was attended byfour industry representatives. Topics ofdiscussion that were reviewed included:(i) the status of the ongoing licensure ofinvestment advisers and investment ad-viser representatives, (ii) status and pro-cedures associated with the Division ex-amination of investment advisers, (iii)prevalent deficiencies uncovered duringDivision examinations of InvestmentAdvisers, and (iv) the implementationand impact of IARD. The Chairpersonsalso fielded questions from the attendingindustry representatives concerning theinterpretation of statutes and rules underthe Ohio Securities Act that are relatedto investment advisers.

Enforcement AdvisoryCommittee Meetings

The meeting commenced with adiscussion of recent securities litigationand possible legislative initiatives. Thequestion was raised concerning theDivision’s ability to levy fines againstviolators of the Ohio Securities Act. Sev-eral years ago, information was preparedon this issue, however, the Division didnot adopt any provisions at the time.The Division indicated that informationregarding fines is currently being col-lected for review.

The Committee discussed reviewof licensing procedures and the differ-ences between the states.

The Committee also discussedviatical settlements and whether a sepa-rate form or application was necessary.One member indicated it would be goodto be able to register on a pooled basis sothat no separate disclosures would beneeded. It was noted that the Division isnot currently working on such a form atthis time. It was further noted that, inthe past, a few viatical settlement offer-ings have used registration by coordina-tion.

Lastly, the Committee briefly dis-cussed investor awareness relating topromissory notes and the Division’s Pros-ecutors’ Conference held in September2000.

Minutes of the Registration andExemption Advisory Committee

The registration and exemption ad-visory committee held its open meetingon November 9, 2000 after the 2000Ohio Securities Conference. Attendeesdiscussed two proposed exemptions. Thefirst exemption corresponds to SecuritiesAct Rules 801 and 802. The backgroundfor these exemptions is explained in SECRelease No. 33-7759. The exemption isavailable to foreign private issuers whohave 10% of their existing security hold-ers in the United States. The Committeediscussed that the exemption is availablefor securities offered in business combi-nations or rights offerings. A limitedfiling (Forms CB and FX) is requiredwith the Securities and Exchange Com-mission. A legend is required on theoffering materials that caution the inves-tor as to disclosure requirements, finan-cial statements and the ability to enforcetheir rights under U.S. securities laws.The securities are restricted from resaleunder Rule 144. Rule 801 contains aprovision that states the issuer does notneed to offer the securities to residents instates that require registration or qualifi-cation. Similarly, Rule 802 states thatthe foreign private issuer must register oroffer the same cash alternative if a staterequires registration. The SEC Release33-7759 disclosed that foreign issuerswould preclude U.S. security holdersfrom these offerings due to complianceconcerns. A substantial probability ex-ists that other exemptions may be avail-able particularly for Rule 802. The Di-vision also notes that the percentage ornumber of security holders in Ohio maybe deminimus. The Division advisedattendees that the North American Secu-rities Administrators Association ap-

proved a companion exemption to theUniform Securities Act.

The second proposed exemptiondiscussed by the Committee would assistCanadian broker/dealers executing trans-actions with Canadian residents who aretemporarily in Ohio. The backgroundfor the provision corresponds to initia-tives by the North American SecuritiesAdministrators Association dating backto 1995, the Canadian provinces and therecent SEC Release No. 33-7860. At thetime of the meeting a dealer licensingexception and securities exemption hadbeen proposed to allow Canadian bro-ker/dealers who are in good standing toexecute transactions with Canadian “resi-dents” who are customers of the Cana-dian dealer and are “temporarily” in Ohio.Committee members requested assur-ances that the purchaser of the securitieswill continue to have the protection ofthe securities laws of their homejurisdiction.(Since the committee meet-ing, the proposed rule became effectiveFebruary 1, 2001.) The Ohio draft issimilar to the Pennsylvania version. AllCanadian provinces have a form of areciprocal arrangement for Ohio custom-ers and their broker/dealers.

The Division discussed the reply tothe SEC on the revisions to NASD Cor-porate Financing Rule 2710. The Divi-sion noted its objections to the removalof the 10% numerical limitation. Thiscurrent provision is reasonable to theDivision and serves as an adequate ceil-ing to the number of securities receivedas underwriting compensation. Otherrevisions of concern to the Division in-cluded NASD changes that permit anunderwriter to receive an option or war-rant that can be exercised on terms morefavorable than the terms offered to thepublic. The Division believes that if theNASD revisions are applicable only to“covered securities” under the SecuritiesAct of 1933, its concerns for the review ofregistration applications will be allevi-ated.

The Division advised members thatwork is in progress by NASAA for coor-dinated review of certain direct partici-

Division Committee Reports

continued on page 6


pation placement offerings. Coordinatedreview is a compilation of multiple statecomment letters by one or two lead states.Applicants would receive fewer commentletters as “lead states” compile commentsand submit the comment letter repre-senting multiple states. An applicant’scontact will be the lead state. A with-drawal represents a withdrawal in mul-tiple states. Attendees expressed concernabout not having direct contact with theexaminer who issued the particular com-ment. Attendees also expressed concernabout the review and authority to permitan offering to proceed forward withoutthe approval of the state of Ohio. TheDivision advised members that the OhioDivision of Securities, if participating,will continue to review replies and amend-ments by the applicant and advise the“lead state” if the applicant has resolvedthe comments of the Division. TheDivision’s adoption of the NASAA State-ments of Policy for direct participationplacements make this coordinated re-view possible. A coordinated review ap-plication is an election and not manda-tory to any applicant. The Division willcontinue to apprise attendees upon fur-ther procedures of coordinated equityreview and the development of coordi-nated review for direct participationplacements.

Other issues included communi-cations with the Division. Attendeeshave favorable comments with regards tothe Ohio Securities Bulletin and the website of the Division. Attendees continueto prefer the printed version of the OhioSecurities Bulletin. Attendees would ap-preciate notification of changes to theweb site of the Division by electronicmail communication. Additional assis-tance would include Westlaw and/orLexis citations to the enforcement casesummaries. The Division requested com-ments if directory type information, in-cluding e-mail addresses, would assistpractitioners. The Division is increasinge-mail communications with regards to

minor comments on applications such asconfirmation of effectiveness or addi-tional fee requests. Finally, the Divisionnoted that the web site permits commu-nications for exemptions, registration andother issues by clicking on the appropri-ate link.

Takeover AdvisoryCommittee Minutes

The Takeover Advisory Commit-tee of the Ohio Division of Securitiesheld its annual meeting on November 9,2000, following the 2000 Ohio Securi-ties Conference. Edward Schrag, Jr.,Chairperson David Zagore, ThomasGeyer and Michael Miglets attended themeeting.

Following the Securities and Ex-change Commission’s adoption of Regu-lation M-A and the Form TO on January24, 2000, the Committee and the Divi-sion began an extensive review of Ohio’sControl Bid Statute, R.C. 1707.041 to1707.043, to determine if statutory orrule amendments were required. TheDivision’s position on the commence-ment of a tender offer and an overview ofRegulation M-A were included in Issue99:4 of the Ohio Securities Bulletin.

After reviewing current statutoryprovisions and Division procedures, theDivision suggested an amendment toR.C. 1707.041(A)(2)(g) that would per-mit the Division to promulgate an ad-ministrative rule to determine when fi-nancial statements are not material or topermit the filing of less than three yearsof financial statements. Currently,R.C.1707.041(A)(2)(g) requires a bidder toinclude financial statements for the threemost recent fiscal years with a control bidfiling. Under Regulation M-A, financialstatements are not material when:

1) only cash consideration is of-fered; and

2) the offer is not subject to anyfinancing condition; and either

3) the bid is for all of the targetcompany’s securities; or,

4) the bidder is a public report-ing company that files electroni-cally on EDGAR.

In certain instances, the Securitiesand Exchange Commission may also al-low public reporting companies to sub-mit only two years of financial state-ments for tender offers. Without anamendment of R.C. 1707.041(A)(2)(g),the Division does not have the option towaive or reduce the filing requirementfor the bidder’s financial statements whenthe financial condition of the bidder isnot material.

Currently the Division has beenrequesting financial statements from allbidders. If the financial statements arenot material, the Division has allowed itsfive-day review to run without issuing asuspension order. A statutory amend-ment and adoption of a rule on the ma-teriality of financial statements will pro-vide guidance to bidders and counsel.

The Committee concurred that inan all cash bid for all of the targetcompany’s securities, where there is suf-ficient financing, financial statements ofthe bidder clearly are not material to thetarget company’s shareholders. In a cashbid for all of the target company’s secu-rities, the Committee recommended theDivision continue its focus on the creditfacility of the bidder. It was noted thatprivately-held bidders making cash ten-der offers with credit facilities could berequired to submit financial statementsunder R.C. 1707.041(A)(2)(g) thatwould otherwise not be required to bedisclosed.

The Committee recommended thatthe Division include a proposed amend-ment to R.C. 1707.041(A)(2)(g) in anyOhio Securities Act amendments introducedin 2001. If the statutory amendment isenacted, the Committee agreed that theDivision’s administrative rule should beconsistent with Regulation M-A.

Division Committee Reportscontinued from page 5


The Division has adopted various statements of policy or guidelines issued by the North American Securities AdministratorsAssociation (“NASAA Guidelines”) for use in the review of registration applications. The NASAA Guidelines provide standards for anissuer’s compliance with sections 1707.09, 1707.091, and 1707.13 of the Ohio Revised Code, which contain certain requirementsincluding the requirement that offerings not be sold on “grossly unfair terms” or in any manner tending to deceive or defraud.

It is advisable to review the applicable guidelines prior to filing an application with the Division. Adherence to the applicableguidelines and submission of appropriate cross-reference sheets (see Ohio Administrative Code rule 1301:6-3-09(A)(3)) will result in atimely review by the Division with fewer compliance concerns. Counsel or issuers are encouraged to contact the Division with anyquestions regarding the guidelines.

The following is a complete list of the NASAA Guidelines that are applied by the Division:

• Statement of Policy to the Registration of Asset-Backed Securities

• Guidelines to Offerings of Church Bonds

• Guidelines to the Registration of Commodity Pool Programs

• Guidelines to the Registration of Equipment Programs

• Guidelines for General Obligation Financing by a Religious Denomination or Church Extension Fund

• Guidelines to the Registration of Direct Participation Mortgage Programs

• Guidelines to the Registration of Oil and Gas Programs

• Omnibus Guidelines to the Registration of Programs for which statements of policy have not been adopted by the North

American Securities Administrators Association

• Statement of Policy to the Registration of Real Estate Investment Trusts

• Guidelines to the Registration of Real Estate Programs

NASAA Guideline Applications

Enforcement Section ReportsBrian S. Wade, Ambassador

Group

On November 6, 2000, the Divi-sion issued Division Order No. 00-403,a Cease and Desist Order, against BrainS. Wade, and the Ambassador Group.The Respondents are located in Ohio.

On September 28, 2000, the Di-vision issued a Notice of Opportunityfor Hearing, Division Order No. 00-337, to Brain S. Wade and AmbassadorGroup. The Division alleged that theRespondents had violated the provisionsof Ohio Revised Code Sections1707.44(C)(1) and 1707.44(B)(4) byselling unregistered securities and mak-ing false representations of material andrelevant facts in the sale of securities.These allegations stem from the sale ofunregistered evidences of indebtedness,which the Respondents falsely repre-sented as Certificates of Deposits with aten percent guaranteed annual interest.The Order notified the Respondents of

their right to an administrative hearing.The Respondents failed to timely re-quest an administrative hearing. There-fore, the Division issued Cease and De-sist Order No. 00-403.

John Churman

On December 7, 2000, the Divi-sion issued Division Order No. 00-470,a Cease and Desist Order, against JohnChurman. The Respondent is an Ohioresident.

On November 6, 2000, the Divi-sion issued a Notice of Opportunity forHearing, Division Order No. 00-402,to John Churman. The Division allegedthat the Respondent had violated OhioRevised Code Section 1707.44(C)(1)and 1707.44(A)(1) by selling unregis-tered securities and by selling securitieswithout a securities dealer license. Theallegations stem from Respondent’s salesof membership interests in Hotel Con-nect, a limited liability company. The

securities were not registered or exemptedfrom registration with the Division. TheOrder notified the Respondent of hisright to an administrative hearing. TheRespondent failed to timely request anadministrative hearing. Therefore, theDivision issued Cease and Desist OrderNo. 00-470.

Gary Friedman

On December 26, 2000, the Divi-sion issued Division Order No. 00-484,a Cease and Desist Order, against GaryFriedman. The Respondent is an Ohioresident.

On November 21, 2000, the Divi-sion issued a Notice of Opportunity forHearing, Division Order No. 00-433, toGary Friedman. The Division allegedthat the Respondent had violated provi-sions of Ohio Revised Code Section1707.44(C)(1) and Ohio AdministrativeCode Rule 1303:6-3-19(A)(19), respec-tively, by selling unregistered securities

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right to an administrative hearing. TheRespondent failed to timely request anadministrative hearing. Therefore, theDivision issued Cease and Desist OrderNo. 00-362.

Dennis Gagliardi

On November 1, 2000, the Divi-sion issued Division Order No. 00-391,a Cease and Desist Order, against Den-nis Gagliardi. The Respondent is anOhio resident.

On September 26, 2000, the Divi-sion issued a Notice of Opportunity forHearing, Division Order No. 00-315, toDennis Gagliardi. The Division allegedthat the Respondent had violated provi-sions of Ohio Revised Code Section1707.44(C)(1) by selling unregisteredsecurities. The Division’s allegations stemfrom Respondent’s sale of a promissorynote in Sun Broadcasting Systems, Inc.of Palm Springs, California. The prom-issory note was not registered or exemptedfrom registration with the Division. TheOrder notified the Respondent of hisright to an administrative hearing. TheRespondent failed to timely request anadministrative hearing. Therefore, theDivision issued Cease and Desist OrderNo. 00-391.

Joseph Walker

On November 1, 2000, the Divi-sion issued Division Order No. 00-393,a Cease and Desist Order, against JosephWalker. The Respondent is an Ohioresident.

On September 27, 2000, the Divi-sion issued a Notice of Opportunity forHearing, Division Order No. 00-325, toJoseph Walker. The Division allegedthat the Respondent had violated provi-sions of Ohio Revised Code Section1707.44(C)(1) by selling unregisteredsecurities. The Division’s allegations stemfrom Respondent’s sale of a promissorynote in Sun Broadcasting Systems, Inc.of Palm Springs, California. The prom-issory note was not registered or claimedfrom exemption with the Division. TheOrder notified the Respondent of hisright to an administrative hearing. TheRespondent failed to timely request an

administrative hearing. Therefore, theDivision issued Cease and Desist OrderNo. 00-393.

Jeff Riggans

On December 7, 2000, the Divi-sion issued Division Order No. 00-469,a Cease and Desist Order, against JeffRiggans. The Respondent is an Ohioresident.

On October 16, 2000, the Divi-sion issued a Notice of Opportunity forHearing, Division Order No. 00-361, toJeff Riggans. The Division alleged thatthe Respondent had violated provisionsof Ohio Revised Code Section1707.44(C)(1) by selling unregisteredsecurities. The Division’s allegations stemfrom Respondent’s sale of a promissorynote in Sun Broadcasting Systems, Inc.of Palm Springs, California. The prom-issory note was not registered or exemptedfrom registration with the Division. TheOrder notified the Respondent of hisright to an administrative hearing. TheRespondent failed to timely request anadministrative hearing. Therefore, theDivision issued Cease and Desist OrderNo. 00-469.

Papa Holdings, Inc.; JonathanPapa

On September 1, 2000, the Divi-sion issued Division Order No. 00-262,a Cease and Desist Order, against PapaHoldings, Inc. and Jonathan Papa. TheRespondents last known location was inCalifornia.

On May 16, 2000, the Divisionissued to the Respondents a Notice ofOpportunity for Hearing, Division Or-der No. 00-115, in accordance with Re-vised Code Chapter 119. The Orderalleged that the Respondents had vio-lated Revised Code sections1707.44(B)(4), 1707.44(C)(1) and1707.44(G). These sections prohibitmaking false representations of materialand relevant facts in the sale of securities,selling securities without proper regis-tration or claim of exemption from reg-istration and failing to disclose materialand relevant facts in the sale of securities,respectively. These allegations stem from

totaling $2,034,694.78 and by effectingsecurities transactions not recorded onthe regular books and records of thedealer that the salesman represented atthe time of sale. The Division furtheralleged that the Respondent’s Ohio in-vestor adviser representative licenseshould be revoked pursuant to R.C.1707.19(A)(1), 1707.19(A)(4),1707.19(D) and 1707.23(D).

The Divisions allegations stemfrom Respondent’s sales to Ohio inves-tors of promissory notes in AmeriTechPetroleum, Inc. of Addison, Texas; SouthMountain Resort and Spa, Inc. of Char-lotte, North Carolina; Serengeti Dia-monds U.S.A., Inc. of Boca Raton,Florida; Sebastian International Enter-prises, Inc. of Longwood, Florida;Taormina of Roma, Italy; Lomas de laBarra Development, Inc. of Boca Raton,Florida, and Sun Broadcasting Systems,Inc. of Palm Springs, California. Thepromissory notes were not registered orexempted from registration with the Di-vision.

The Division notified the Respon-dent of his right to an administrativehearing. The Respondent failed to timelyrequest an administrative hearing. There-fore, the Division issued Cease and De-sist Order No. 00-484.

John Guarnieri

On November 20, 2000, the Divi-sion issued Division Order No. 00-431,a Cease and Desist Order, against JohnGuarnieri. The Respondent is an Ohioresident.

On October 16, 2000, the Divi-sion issued a Notice of Opportunity forHearing, Division Order No. 00-362, toJohn Guarnieri. The Division allegedthat the Respondent had violated provi-sions of Ohio Revised Code Section1707.44(C)(1) by selling unregisteredsecurities. The Division’s allegations stemfrom Respondent’s sale of a promissorynote in Sun Broadcasting Systems, Inc.of Palm Springs, California. The prom-issory note was not registered or exemptedfrom registration with the Division. TheOrder notified the Respondent of his

Enforcement Section Reportscontinued from page 7


the sale of unregistered securities to Ohioresidents. The Order also notified theRespondents of their right to an admin-istrative hearing. The Respondents failedto timely request an administrative hear-ing. Therefore, the Division issued Ceaseand Desist Order No. 00-262.

Ronald Flynn

On October 4, 2000, the Divisionissued Division Order No. 00-349, aCease and Desist Order, against RonaldFlynn. The Respondent’s last knownlocation was in California.

On July 17, 2000, the Divisionissued to the Respondent a Notice ofOpportunity for Hearing, Division Or-der No. 00-188, in accordance with Re-vised Code Chapter 119. The Orderalleged that the Respondent had violatedRevised Code section 1707.44(C)(1).This section prohibits selling securitieswithout proper registration or claim ofexemption from registration. The alle-gations stem from the solicitation of anOhio resident by the Respondent to in-vest in his company, Phillynn Produc-tions, which constitutes an investmentcontract and an unregistered security.The Order also notified Respondent ofhis right to an administrative hearing.The Respondent failed to timely requestan administrative hearing. Therefore,the Division issued Cease and DesistOrder No. 00-243.

Gregory Oliver

On October 16, 2000, the Divi-sion issued Division Order No. 00-363,a Cease and Desist Order, against Gre-gory Oliver. The Respondent is locatedin Ohio.

On September 15, 2000, the Divi-sion issued to the Respondent a Noticeof Opportunity for Hearing, DivisionOrder No. 00-286, in accordance withRevised Code Chapter 119. The Orderalleged that the Respondent had violatedRevised Code section 1707.44(C)(1) andOhio Administrative Code section1301:6-3-19(A)(19). These sections pro-hibit selling securities without properregistration or claim of exemption fromregistration and prohibit the selling ofsecurities that are not recorded on the

regular books or records of the dealerwhich the salesperson represents, respec-tively. The allegations stem from the saleof promissory notes issued by CankoEnvironmental Technologies, Inc. andAmeritech Petroleum, Inc. to Ohio resi-dents by the Respondent. The Orderalso notified the Respondent of his rightto an administrative hearing. The Re-spondent failed to timely request an ad-ministrative hearing. Therefore, theDivision issued Cease and Desist OrderNo. 00-363.

Ronald Wackler

On October 30, 2000, the Divi-sion issued Division Order No. 00-386,a Cease and Desist Order, against RonaldWackler. The Respondent is located inOhio.

On September 29, 2000, the Divi-sion issued to the Respondent a Noticeof Opportunity for Hearing, DivisionOrder No. 00-335, in accordance withRevised Code Chapter 119. The Orderalleged that the Respondent had violatedRevised Code sections 1707.44(C)(1) and1707.44(G). These sections prohibitselling securities without proper regis-tration or claim of exemption from reg-istration and prohibit failing to disclosematerial and relevant facts in the sale ofsecurities, respectively. The allegationsstem from the sale of promissory notesissued by Canko Environmental Tech-nologies, Inc. to Ohio residents by theRespondent. The Order also notifiedthe Respondent of his right to an admin-istrative hearing. The Respondent failedto timely request an administrative hear-ing. Therefore, the Division issued Ceaseand Desist Order No. 00-386.

James Arndts

On October 23, 2000, the Divi-sion issued Division Order No. 00-383,a Cease and Desist Order, against JamesArndts. The Respondent is located inOhio.

On September 22, 2000, the Divi-sion issued to the Respondent a Noticeof Opportunity for Hearing, DivisionOrder No. 00-306, in accordance withRevised Code Chapter 119. The Orderalleged that the Respondent had violated

Revised Code section 1707.44(C)(1).This section prohibits selling securitieswithout proper registration or claim ofexemption from registration. The alle-gations stem from the sale of promissorynotes issued by Canko EnvironmentalTechnologies, Inc. to Ohio residents bythe Respondent. The Order also noti-fied the Respondent of his right to anadministrative hearing. The Respon-dent failed to timely request an adminis-trative hearing. Therefore, the Divisionissued Cease and Desist Order No. 00-383.

David Paul Ramseyer

On October 16, 2000, the OhioDivision of Securities issued DivisionOrder No. 00-365, a Cease and DesistOrder, against David Paul Ramseyer ofSmithville, Ohio.

The Division’s investigation foundthat Ramseyer sold unregistered mutualfund shares in The Cyprus Funds, Inc.(Cyprus Funds) mutual fund, a foreignmutual fund company whose address wasin Belmopan, Belize, and was purport-edly incorporated in Belize, to Ohio resi-dents. The Cyprus Funds processingcenter was located in Canton, Ohio. TheDivision also found that Ramseyer mis-represented to investors the risks andsuitability of investing in shares in theCyprus Funds as investments suitable forretirement funds, and stated that it was asafe investment, however, it involved ahigh degree of risk and was not suitablefor investing retirement funds.

Finally, the Division found thatRamseyer, did not disclose to investorsan injunction issued against him in 1996in an action brought by the State ofVirginia Corporation Commission, Di-vision of Securities and Retail Franchis-ing, in which he was permanently en-joined from future securities violationsunder the Virginia Securities Act.

The Order finds that the securitieswere not registered with the Division, orexempt from such registration, in viola-tion of R.C. section 1707.44(C)(1).There were also omissions of materialfact by Ramseyer, in violation of R.C.1707.44(G), and false representations in

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the sale of the mutual fund shares, inviolation of R.C. 1707.44(B)(4).

Terrence A. Bentivegna

On October 23, 2000, the OhioDivision of Securities issued DivisionOrder No. 00-381, a Cease and DesistOrder, against Terrence A. Bentivegnaof Canton, Ohio.

The Division’s investigation foundthat Bentivegna sold unregistered mu-tual fund shares in The Cyprus Funds,Inc. (Cyprus Funds) mutual fund, a for-eign mutual fund company whose ad-dress was in Belmopan, Belize, and waspurportedly incorporated in Belize, toOhio residents. The Cyprus Funds pro-cessing center was located in Canton,Ohio. The Division found thatBentivegna sold these securities whilelicensed with First Securities Group, Inc.

The Order finds that the securitieswere not registered with the Division, orexempt from such registration, in viola-tion of R.C. section 1707.44(C)(1).

Cyprus Funds, Inc.

On November 2, 2000, the OhioDivision of Securities issued DivisionOrder No. 00-396, a Cease and DesistOrder with a Consent Agreement, againstThe Cyprus Funds, Inc. (Cyprus Funds)which was founded by Eric V. Bartoli,whose last known address in Ohio was inMarshallville.

The Division’s investigation foundthat unregistered mutual fund shares andfixed interest rate investments were soldto Ohio residents in The Cyprus Funds,Inc. mutual fund, a foreign mutual fundcompany whose address was in Belmopan,Belize, and was purportedly incorporatedin Belize. The Cyprus Funds processingcenter was located in Canton, Ohio. TheDivision also found that the CyprusFunds failed to properly disclose to in-vestors in the offering documents thatthe shares and fixed interest rate invest-ments were not registered with the Divi-sion or exempt from such registration.

The Securities and Exchange Com-mission obtained a Temporary Restrain-ing Order in U.S. District Court for theSouthern District of Florida from U.S.District Judge Edward B. Davis, againstthe Cyprus Funds and the officers anddirectors of the fund on September 3,1999, for federal securities law violationsthat included massive fraud, involvingthe sale of securities to Ohio and otherinvestors. U.S. District Judge Davis ap-pointed a receiver, and also issued a freezeof the Cyprus Funds’ assets and those ofthe other defendants. On September 3,1999, a Preliminary Injunction was is-sued by U.S. District Judge Davis, thatalso indefinitely continued the freeze ofassets.

The Division obtained a signedConsent Agreement with the Court Ap-pointed Receiver for the Cyprus Funds.The Cease and Desist Order finds thatthe securities were not registered withthe Division, or exempt from such regis-tration, in violation of R.C. section1707.44(C)(1). There were also omis-sions of material fact by the CyprusFunds, in violation of R.C. 1707.44(G).

Jeffrey D. Saxton

On November 3, 2000, the OhioDivision of Securities issued DivisionOrder No. 00-398, a Cease and DesistOrder, against Jeffrey D. Saxton of Elyria,Ohio.

The Division’s investigation foundthat Saxton sold unregistered mutual fundshares in The Cyprus Funds, Inc. (CyprusFunds) mutual fund, a foreign mutualfund company whose address was inBelmopan, Belize, and was purportedlyincorporated in Belize, to Ohio residents.The Cyprus Funds processing center waslocated in Canton, Ohio. The Divisionfound that Saxton sold these securitieswhile licensed with First SecuritiesGroup, Inc.

The Order finds that the securitieswere not registered with the Division, orexempt from such registration, in viola-tion of R.C. section 1707.44(C)(1).

Mary A. Kirschling

On November 14, 2000, the OhioDivision of Securities issued Division

Order No. 00-420, a Cease and DesistOrder, against Mary A. Kirschling ofBerea, Ohio.

The Division’s investigation foundthat Kirschling sold unregistered fixedinterest rate investments in The CyprusFunds, Inc. (Cyprus Funds) mutual fund,a foreign mutual fund company whoseaddress was in Belmopan, Belize, andwas purportedly incorporated in Belize,to Ohio residents. The Cyprus Fundsprocessing center was located in Canton,Ohio. The Division also found thatKirschling misrepresented to investorsthe risks and suitability of investing infixed interest rate investments in theCyprus Funds as investments suitable forretirement funds, and stated that it was asafe investment. However, it involved ahigh degree of risk and was not suitablefor investing retirement funds.

Finally, the Division found thatKirschling failed to properly disclose toinvestors that the fixed interest rate in-vestments were not registered with theDivision or exempt from such registra-tion.

The Order finds that the securitieswere not registered with the Division, orexempt from such registration, in viola-tion of R.C. section 1707.44(C)(1).There were also omissions of materialfact by Kirschling, in violation of R.C.1707.44(G), and false representations inthe sale of the mutual fund fixed interestrate investments, in violation of R.C.1707.44(B)(4).

Peter J. Esposito

On November 17, 2000, the OhioDivision of Securities issued DivisionOrder No. 00-428, a Cease and DesistOrder, against Peter J. Esposito of NorthRidgeville, Ohio.

The Division’s investigation foundthat Esposito sold unregistered mutualfund shares and fixed interest rate invest-ments in The Cyprus Funds, Inc. (CyprusFunds) mutual fund, a foreign mutualfund company whose address was inBelmopan, Belize, and was purportedlyincorporated in Belize, to Ohio residents.The Cyprus Funds processing center waslocated in Canton, Ohio. Esposito wasalso a Director of the Cyprus Funds.



The Division also found thatEsposito misrepresented to investors therisks and suitability of investing in sharesand fixed interest rate investments in theCyprus Funds as investments suitable forretirement funds, and stated that it was asafe investment. However, it involved ahigh degree of risk and was not suitablefor investing retirement funds.

Finally, the Division found thatEsposito and the offering documentsfailed to properly disclose to investorsthat the shares and fixed interest rateinvestments were not registered with theDivision or exempt from such registra-tion.

The Order finds that the securitieswere not registered with the Division, orexempt from such registration, in viola-tion of R.C. section 1707.44(C)(1).There were also omissions of materialfact by Esposito, in violation of R.C.1707.44(G), and false representations inthe sale of the mutual fund shares andfixed interest rate investments, in viola-tion of R.C. 1707.44(B)(4).

Douglas R. Shisler

On November 27, 2000, the OhioDivision of Securities issued DivisionOrder No. 00-445, a Cease and DesistOrder, against Douglas R. Shisler ofDoylestown, Ohio.

The Division’s investigation foundthat Shisler sold unregistered mutual fundshares and fixed interest rate investmentsin The Cyprus Funds, Inc. (CyprusFunds) mutual fund, a foreign mutualfund company whose address was inBelmopan, Belize, and was purportedlyincorporated in Belize, to Ohio residents.The Cyprus Funds processing center waslocated in Canton, Ohio. Shisler wasalso a Director of the Cyprus Funds.

The Division also found thatShisler misrepresented to investors therisks and suitability of investing in sharesand fixed interest rate investments in theCyprus Funds as investments suitable forretirement funds, and stated that it was asafe investment. However, it involved ahigh degree of risk and was not suitablefor investing retirement funds.

Finally, the Division found thatShisler and the offering documents failed

to properly disclose to investors that theshares and fixed interest rate investmentswere not registered with the Division orexempt from such registration.

The Order finds that the securitieswere not registered with the Division, orexempt from such registration, in viola-tion of R.C. section 1707.44(C)(1).There were also omissions of materialfact by Shisler, in violation of R.C.1707.44(G), and false representations inthe sale of the mutual fund shares andfixed interest rate investments, in viola-tion of R.C. 1707.44(B)(4).

Paragon Capital Group, Inc.

On November 30, 2000, the OhioDivision of Securities issued DivisionOrder No. 00-453, a Cease and DesistOrder with Consent Agreement, againstParagon Capital Group, Inc. (Paragon),which is located in Boca Raton, Florida.

The Division’s investigation foundthat Paragon sold unregistered viaticalsettlement contracts in The Reliance Pro-gram, Inc., totaling approximately$290,740 to fifteen Ohio investors,through an Ohio sales representative withwhich the company had a written salesagreement. The Division found thatParagon acted as an unlicensed securitiesdealer.

The Division also found that thesales information stated that the invest-ment was “always safe” and the premi-ums on the viators’ policies would bepaid by The Reliance Program, Inc. TheDivision found during its investigationthat the premium payment was not madeon one viatical policy, in which Ohioinvestors had invested and litigation isongoing. The Division found that falsestatements were made in the offeringdocuments regarding the safety of theinvestment and the payments of premi-ums.

The president of Paragon, DonaldI. Goldstein, entered into a ConsentAgreement, on behalf of Paragon, withthe Division. The Cease and DesistOrder finds that the viatical settlementcontracts were not registered with theDivision, or exempt from such registra-tion, in violation of R.C. section1707.44(C)(1). There were also omis-

sions of material fact by Paragon, inviolation of R.C. 1707.44(G), and Para-gon acted as an unlicensed securitiesdealer, in violation of R.C. 1707.44(A).

The Reliance Program, Inc.;Donald I. Goldstein

On November 30, 2000, the OhioDivision of Securities issued DivisionOrder No. 00-454, a Cease and DesistOrder with Consent Agreement, againstThe Reliance Program, Inc. (Reliance)and its president, Donald I. Goldstein,both of Atlanta, Georgia.

The Division’s investigation foundthat Reliance and Goldstein sold unreg-istered viatical settlement contracts to-taling approximately $290,740 to fifteenOhio investors, through an Ohio salesrepresentative with which an affiliatedcompany, Paragon Capital Group, Inc.,had a written sales agreement. The Divi-sion found that Ohio investors werepromised a total return of 30% at the endof 36 months.

Goldstein entered into a ConsentAgreement, both for himself and on be-half of Reliance, with the Division. TheCease and Desist Order finds that theviatical settlement contracts were notregistered with the Division, or exemptfrom such registration, in violation ofR.C. section 1707.44(C)(1).

James L. Binge

On December 5, 2000, the OhioDivision of Securities issued DivisionOrder No. 00-458, a Cease and DesistOrder, against James L. Binge of CanalFulton, Ohio.

The Division’s investigation foundthat Binge sold unregistered mutual fundshares and fixed interest rate investmentsin The Cyprus Funds, Inc. (CyprusFunds) mutual fund, a foreign mutualfund company whose address was inBelmopan, Belize, and was purportedlyincorporated in Belize, to Ohio residents.The Cyprus Funds processing center waslocated in Canton, Ohio. The Divisionfound that Binge sold these securitieswhile licensed with First Securities



Group, Inc. Binge was also a Director ofthe Cyprus Funds.

The Division also found that Bingemisrepresented to investors the risks andsuitability of investing in shares and fixedinterest rate investments in the CyprusFunds as investments suitable for retire-ment funds, and stated that it was a safeinvestment. However, it involved a highdegree of risk and was not suitable forinvesting retirement funds. Finally, theDivision found that Binge and the offer-ing documents failed to properly discloseto investors that the shares and fixedinterest rate investments were not regis-tered with the Division or exempt fromsuch registration.

The Order finds that the securitieswere not registered with the Division, orexempt from such registration, in viola-tion of R.C. section 1707.44(C)(1).There were also omissions of materialfact by Binge, in violation of R.C.1707.44(G), and false representations inthe sale of the mutual fund shares andfixed interest rate investments, in viola-tion of R.C. 1707.44(B)(4). In addition,Binge sold the securities in which inves-tors were not suitable based upon theirinvestment objectives, and financial situ-ation and needs, in violation of OhioAdministrative Code 1301:6-3-19(A)(5).

Gibralter Energy Company andRichard Mason

On September 12, 2000, the Divi-sion issued a Notice of Opportunity forHearing to Gibralter Energy Companyand Richard Mason (“Respondents”), Or-der number 00-279. The order allegedthat the Respondents omitted materialinformation during the sale of unregis-tered securities to Ohio investors. TheRespondents did not request an adminis-trative hearing, and thereafter, the Divi-sion issued Cease and Desist Order 00-358 to the Respondents.

Millionairemail.Com, Inc.

On November 20, 2000, the Divi-sion and Millionairemail.Com, Inc. en-tered into an agreed Cease and Desist

Order, Order Number 00-432. Theorder found that Millionairemail.Com,Inc. omitted material information dur-ing the sale of unregistered stock to Ohioinvestors.

Matthew Lane Painter

On August 31, 2000, the Divisionissued Division Order 00-260, a Ceaseand Desist Order, against Matthew LanePainter. Respondent is an Ohio resi-dent.

On July 21, 2000, The Divisionissued a Notice of Opportunity for Hear-ing to Respondent pursuant to OhioRevised Code Chapter 119. The Divi-sion alleged that Respondent had vio-lated Revised Code Sections1707.44(A)(1), 1707.44(C)(1),1707.44(B)(4) and 1707.44(G), andAdministrative Code Section 1301:6-3-19(A)(19), respectively, by selling with-out a securities license unregistered secu-rities, making false representations in thesale of securities, failing to disclose mate-rial facts in conjunction with the sales ofsecurities, thereby engaging in acts whichare declared illegal, defined as fraudulentor prohibited, and by effecting a securi-ties transaction not recorded on the regu-lar books and records of the dealer thatthe salesman represented at the time ofsale.

The Division’s allegations stemfrom Respondent’s sales of promissorynotes in Tee to Green Golf Parks, Inc. ofBuffalo, New York and partnership in-terests in Driving Force I, RLLP, anassociated entity. Bonds issued by Tan-gent Insurance Company of Antigua,BWI, purportedly guaranteed the notes.Respondent did not have a license to sellsecurities at the time he sold the promis-sory notes. Neither the notes nor thepartnership interests were registered orclaimed from exemption with the Divi-sion of Securities. Moreover, Respon-dent failed to disclose risk of loss, com-missions, the financial condition of thecompany, or its relationship to LegendSports against which the state of Floridahad issued a Cease and Desist Order andhad filed a Complaint alleging multipleviolations of Florida securities laws inthe U.S. District Court, Middle Districtof Florida.

The Division notified the Respon-dent of his right to an administrativehearing pursuant to Chapter 119 of theRevised Code. Respondent failed totimely request an administrative hear-ing. Therefore, the Division issued itsCease and Desist Order, Order No. 00-260.

Michael Lane Painter

On October 23, 2000, the Divi-sion issued Division Order 00-382, aCease and Desist Order, against MichaelLane Painter. Respondent is an Ohioresident.

On August 30, 2000, The Divi-sion issued a Notice of Opportunity forHearing to Respondent pursuant to OhioRevised Code Chapter 119. The Divi-sion alleged that Respondent had vio-lated Revised Code sections1707.44(A)(1), 1707.44(C)(1),1707.44(B)(4) and 1707.44(G) respec-tively, by selling without a securities li-cense unregistered securities, making falserepresentations in the sale of securities,and by failing to disclose material facts inconjunction with the sales of securities,thereby engaging in acts which are de-clared illegal, defined as fraudulent orprohibited.

The Division’s allegations stemfrom Respondent’s sales of promissorynotes in Tee to Green Golf Parks, Inc. ofBuffalo, New York and partnership in-terests in Driving Force I, RLLP, anassociated entity . Bonds issued by Tan-gent Insurance Company of Antigua,BWI, purportedly guaranteed the notes.Respondent did not have a license to sellsecurities at the time he sold the promis-sory notes. Neither the notes nor thepartnership interests were registered orclaimed from exemption with the Divi-sion of Securities. Moreover, Respon-dent failed to disclose risk of loss, com-missions, the financial condition of thecompany, or its relationship to LegendSports against which the state of Floridahad issued a Cease and Desist Order andhad filed a Complaint alleging multipleviolations of Florida securities laws inthe U.S. District Court, Middle Districtof Florida.




Joseph White, III

On October 2, 2000, the Divisionissued Division Order 00-338, a con-sented Cease and Desist Order and Sus-pension of Ohio Securities License,against Joseph White, III. Respondent isan Ohio resident.

On June 9, 2000, The Divisionissued a Notice of Opportunity for Hear-ing Suspension of Ohio Securities Sales-man License No. 2779627 and Notice ofIntent to Revoke Ohio Securities Sales-man License 2779627 to Respondentpursuant to Ohio Revised Code Chapter119. The Division alleged that Respon-dent had violated Revised Code sections1707.44(C)(1) and Administrative Codesection 1301:6-3-19(A)(19), respectively,by selling unregistered securities and byeffecting a securities transaction not re-corded on the regular books and recordsof the dealer that the salesman repre-sented at the time of sale.

The Division’s allegations stemfrom Respondent’s sales of promissorynotes in Tee to Green Golf Parks, Inc. ofBuffalo, New York to Ohio investors.The notes were not registered or claimedfrom exemption with the Division ofSecurities.

The Division notified the Respon-dent of his right to an administrativehearing pursuant to Chapter 119 of theRevised Code. Respondent requested anadministrative hearing, but he later with-drew his request. The Respondent andthe Division entered into a Consent agree-ment whereby Respondent agreed to aten day suspension of his securities sales-man license, and the Division issued itsCease and Desist Order and Suspensionof Ohio Securities Salesman License No.2779627, Order No. 00-338.

John F. Peters, II

On November 30, 2000, the Divi-sion issued Division Order 00-455, aconsented Cease and Desist Order andSuspension of Ohio Securities License,against John F. Peters, II. Respondent isan Ohio resident.

On July 19, 2000, The Divisionissued a Notice of Opportunity for Hear-ing Suspension of Ohio Securities Sales-man License No. 1311252 and Notice ofIntent to Suspend Ohio Securities Sales-man License 1311252 to Respondentpursuant to Ohio Revised Code Chapter119. The Division alleged that Respon-dent had violated Revised Code sections1707.44(C)(1) and Administrative Codesection 1301:6-3-19(A)(19), respectively,by selling unregistered securities and byeffecting a securities transaction not re-corded on the regular books and recordsof the dealer that the salesman repre-sented at the time of sale.

The Division’s allegations stemfrom Respondent’s sales of promissorynotes in Tee to Green Golf Parks, Inc. ofBuffalo, New York to Ohio investors.The notes were not registered or claimedfrom exemption with the Division ofSecurities.

The Division notified the Respon-dent of his right to an administrativehearing pursuant to Chapter 119 of theRevised Code. Respondent requested anadministrative hearing, but he later with-drew his request. The Respondent andthe Division entered into a Consent agree-ment whereby Respondent agreed to athirty day suspension of his securitiessalesman license, and the Division issuedits Cease and Desist Order and Suspen-sion of Ohio Securities Salesman LicenseNo. 1311252, Order No. 00-455.

Robert Lee Scott

On October 20, 2000, the Divi-sion issued Division Order 00-376, aCease and Desist Order, against RobertLee Scott. Respondent is an Ohio resi-dent.

On September 19, 2000, The Di-vision issued a Notice of Opportunityfor Hearing to Respondent pursuant to

Ohio Revised Code Chapter 119. TheDivision alleged that Respondent hadviolated Revised Code sections1707.44(A)(1) and 1707.44(C)(1), re-spectively, by selling without a securitieslicense unregistered securities.

The Division’s allegations stemfrom Respondent’s sales of promissorynotes in Ameritech Petroleum, Inc. ofAbilene, Texas. Respondent did not havea license to sell securities, and the noteswere not registered or claimed from ex-emption with the Division of Securities.


William H. Keller; Bill KellerMinistries; B.K. Media;

Liveprayer.com

On November 8, 2000, the Divi-sion issued a final Cease and Desist Or-der to William H. Keller, Bill KellerMinistries, B.K. Media, andLiveprayer.com, all located in St. Peters-burg, Florida.

The Division issued a Notice ofOpportunity for Hearing, Division Or-der No. 00-264, to Respondents pursu-ant to Revised Code Chapter 119 onAugust 28, 2000. The Division allegedthat Respondents violated Revised Codesection 1707.44(C)(1) by soliciting anOhio resident to purchase securities thatwere not registered by description, coor-dination or qualification, nor exemptfrom registration, and for failing to dis-close material facts in connection withthe solicitation or sale of securities. TheDivision also notified Respondent of itsright to an adjudicative hearing pursuantto Chapter 119 of the Revised Code. Ahearing was not requested and a finalOrder to Cease and Desist was issued onNovember 8, 2000.

contined on page 14


Grant Bettingen, Inc.

On December 26, 2000, the Divi-sion issued a Cease and Desist Order andFinal Order to Deny Application forSecurities Dealer License, Division Or-der No. 00-487, to Grant Bettingen,Inc., of Irvine, California.

On November 22, 2000, the Divi-sion issued a Notice of Opportunity forHearing and Notice of Intent to DenyApplication for Securities Dealer License,Division Order No. 00-436, to Respon-dent pursuant to Revised Code Chapter119. The Division alleged that Respon-dent violated Revised Code section1707.44(A)(1) by selling securities toOhio residents as an unlicensed dealer.The Division also notified Respondentof its right to an adjudicative hearingpursuant to Chapter 119 of the RevisedCode. A hearing was not requested anda final Cease and Desist Order DenyingRespondent’s application for securitiesdealer license was issued on December26, 2000.

David L. Sherman

On December 26, 2000, the Divi-sion issued a Cease and Desist Order,Division Order No. 00486, to David L.Sherman of Ansonia, Ohio.

On November 24, 2000, the Divi-sion issued a Notice of Opportunity forHearing to Sherman pursuant to RevisedCode Chapter 119. The Division al-leged that Sherman violated Revised Codesections 1707.44(B)(4), 1707.44(C)(1),and Ohio Administrative Code rule1301:6-3-19(A)(1) by selling unregis-tered promissory notes of Caffe DivaGroup Ltd., Sebastian International En-terprises Inc., South Mountain Resortand Spa Inc., and World Vision Enter-tainment Inc., making misrepresentationsin connection with the sale of promis-sory notes, and selling promissory noteswithout the knowledge or permission ofhis employing broker-dealers. The Divi-sion also notified Sherman of his right toan adjudicative hearing pursuant toChapter 119 of the Revised Code.

Sherman did not request a hearing and afinal Order to Cease and Desist was is-sued on December 26, 2000.

Kevin Robert Ostrowski

On December 19, 2000, the Divi-sion issued Division Order No. 00-479,a Cease and Desist Order, against KevinRobert Ostrowski. Respondent is anOhio resident.

On July 17, 2000, the Divisionissued a Notice of Opportunity for Hear-ing, Division Order No. 00-429, to KevinRobert Ostrowski. The Division allegedthat the Respondent had violated theprovisions of Revised Code sections1707.44(C)(1) and 1707.44(A)(1), re-spectively, by selling unregistered securi-ties and by selling securities without be-ing licensed as a dealer. The Division’sallegations stem from the Respondent’ssale of promissory notes of Lomas de laBarra Development, Inc. and Pacific AirTransport, Inc. The Division notifiedthe Respondent of his right to an admin-istrative hearing pursuant to Chapter 119of the Revised Code. Respondent failedto timely request an adjudicatory hear-ing pursuant to Chapter 119 of the OhioRevised Code. Therefore, the Divisionissued Cease and Desist Order No. 00-479.

Daniel David Hoar

On December 4, 2000, the Divi-sion issued Division Order No. 00-456,a Cease and Desist Order and Revoca-tion of Ohio Securities Salesperson Li-cense, against Daniel David Hoar. Re-spondent is an Ohio resident.

On November 1, 2000, the Divi-sion issued a Notice of Opportunity forHearing, Division Order No. 00-394, toDaniel David Hoar. The Division al-leged that the Respondent had violatedthe provisions of Revised Code sections1707.44(C)(1), 1707.44(B)(3) and OhioAdministrative Code Rule 1301:6-3-19(A)(19), by selling unregistered secu-rities, “selling away” and making a falsestatement on a U-4. The Division’sallegations stem from the Respondent’ssale of promissory notes of SerengetiDiamonds USA, Inc. and Lomas de la

Barra Development, Inc. The Divisionnotified the Respondent of his right toan administrative hearing pursuant toChapter 119 of the Revised Code. Re-spondent failed to timely request an ad-judicatory hearing pursuant to Chapter119 of the Ohio Revised Code. There-fore, the Division issued Cease and De-sist and Revocation of Ohio SecuritiesSalesperson License, Division Order No.00-456.

American Currency ExchangeLLC; Mickey B. Walker

On December 5, 2000, the Divi-sion issued Division Order No. 00-457,a Cease and Desist Order, against Ameri-can Currency Exchange LLC. and MickeyB. Walker. Respondents’ business ad-dress is in Atlanta, Georgia.

On April 4, 2000, the Divisionissued a Notice of Opportunity for Hear-ing, Division Order No. 00-088, toAmerican Currency Exchange LLC andMickey B. Walker. The Division allegedthat the Respondents had violated theprovisions of Revised Code sections1707.44(A)(1) and 1707.44(C)(1), byselling unregistered securities, and byselling securities without a securities sales-person or dealer license. The Division’sallegations stem from the Respondents’sale of foreign currency options. TheDivision notified the Respondents oftheir right to an administrative hearingpursuant to Chapter 119 of the RevisedCode. Respondents failed to timely re-quest an adjudicatory hearing pursuantto Chapter 119 of the Ohio RevisedCode. Therefore, the Division issuedCease and Desist Order No. 00-457.

Gary Nelson Burg

On December 19, 2000, the Divi-sion issued Division Order No. 00-430,a Cease and Desist Order, against GaryNelson Burg. Respondent is an Ohioresident.

On October 17, 2000, the Divi-sion issued a Notice of Opportunity forHearing, Division Order No. 00-367, toGary Nelson Burg. The Division allegedthat the Respondent had violated theprovisions of Revised Code sections



1707.44(C)(1) and Ohio AdministrativeCode 1301:6-3-19(A)(19), by selling un-registered securities and by “selling away“.The Division’s allegations stem from theRespondent’s sale of promissory notes ofSerengeti Diamonds USA, Inc., Lomasde la Barra Development, Inc., RawhideSelect, Inc. and Interational Real EstateInvestment group, Ltd. The Divisionnotified the Respondent of his rights toan administrative hearing pursuant toChapter 119 of the Revised Code. Re-spondent failed to timely request an ad-judicatory hearing pursuant to Chapter119 of the Ohio Revised Code. There-fore, the Division issued Cease and De-sist Order No. 00-430.

Tony Lee Fessler

On November 16, 2000, the Divi-sion issued Division Order No. 00-405,an Agreed Suspension of Ohio SecuritiesSalesperson License, against Tony LeeFessler. Respondent is licensed with AXAAdvisors, LLC. The Division found thatthe Respondent had violated the provi-sions of Revised Code sections1707.44(C)(1) and Ohio AdministrativeCode Rule 1301:6-3-19(A)(19), respec-tively, by selling unregistered securitiesand by “selling away.” The Division’sfindings stem from the Respondent’s saleof promissory notes of Serengeti Dia-monds USA, Inc. Respondent was sus-pended for 30 days, beginning Novem-ber 1, 2000.

Gary Wayne Ogle

On October 23, 2000, the Divi-sion issued Division Order No. 00-379,a Cease and Desist Order against GaryWayne Ogle. Respondent is an Ohioresident.

On September 20, 2000, the Divi-sion issued a Notice of Opportunity forHearing, Division Order No. 00-303, toGary Wayne Ogle. The Division allegedthat the Respondent had violated theprovisions of Revised Code Section1707.44(C)(1) and Ohio AdministrativeCode section 1301:6-3-19(A)(19), byselling unregistered securities and by “sell-ing away.” The Division’s allegationsstem from the Respondent’s sale of prom-

issory notes of Serengeti Diamonds USA,Inc. The Division notified the Respon-dent of his right to an administrativehearing pursuant to Chapter 119 of theRevised Code. Respondent failed totimely request an adjudicatory hearingpursuant to Chapter 119 of the OhioRevised Code. Therefore, the Divisionissued its Cease and Desist Order No.00-379.

Charles William Hessey

On October 23, 2000, the Divi-sion issued Division Order No. 00-380,a Cease and Desist Order, against CharlesWilliam Hessey. Respondent is an Ohioresident.

On September 20, 2000, the Divi-sion issued a Notice of Opportunity forHearing, Division Order No. 00-301, toCharles William Hessey. The Divisionalleged that the Respondent had violatedthe provisions of Revised Code Section1707.44(C)(1) by selling unregisteredsecurities. The Division’s allegations stemfrom the Respondent’s sale of a promis-sory note of Serengeti Diamonds USA,Inc. The Division notified the Respon-dent of his right to an administrativehearing pursuant to Chapter 119 of theRevised Code. Respondent failed totimely request an adjudicatory hearingpursuant to Chapter 119 of the OhioRevised Code. Therefore, the Divisionissued its Cease and Desist Order No.00-380.

Claude Edward Smith;Spectrum Financial Services

On October 23, 2000, the Divi-sion issued Division Order No. 00-390,a Cease and Desist Order, against ClaudeEdward Smith and Spectrum FinancialServices. Respondents’ business addressis in Ohio.

On September 28, 2000, the Divi-sion issued a Notice of Opportunity forHearing, Division Order No. 00-328, toClaude Edward Smith and Spectrum Fi-nancial Services. The Division allegedthat the Respondents had violated theprovisions of Revised Code Section1707.44(C)(1) and 1707.44(A)(1) byselling unregistered securities, and by

selling securities without being licensedas a dealer or salesperson. The Division’sallegations stem from the Respondents’sale of promissory notes of SerengetiDiamonds USA, Inc. and Sun Broad-casting Systems, Inc. The Division noti-fied the Respondents of their right to anadministrative hearing pursuant to Chap-ter 119 of the Revised Code. Respon-dents failed to timely request an adjudi-catory hearing pursuant to Chapter 119of the Ohio Revised Code. Therefore,the Division issued its Cease and DesistOrder No. 00-390.

Jeffrey Lynn Roberts

On October 20, 2000, the Divi-sion issued Division Order No. 00-371,a Cease and Desist Order, against JeffreyLynn Roberts. Respondent is an Ohioresident.

On September 12, 2000, the Divi-sion issued a Notice of Opportunity forHearing, Division Order No. 00-278, toJeffrey Lynn Roberts. The Division al-leged that the Respondent had violatedthe provisions of Revised Code Section1707.44(C)(1), 1707.44(A)(1) and OhioAdministrative Code Section 1301:6-3-19(A)(19) by selling unregistered securi-ties, selling securities without being li-censed as a dealer and by “selling away.”The Division’s allegations stem from theRespondent’s sale of promissory notes ofSerengeti Diamonds USA, Inc. andWorld Vision Entertainment, Inc. TheDivision notified the Respondent of hisright to an administrative hearing pursu-ant to Chapter 119 of the Revised Code.Respondent failed to timely request anadjudicatory hearing pursuant to Chap-ter 119 of the Ohio Revised Code. There-fore, the Division issued its Cease andDesist Order No. 00-371.

George Elmer Keffer

On October 20, 2000, the Divi-sion issued Division Order No. 00-372,a Cease and Desist Order, against GeorgeElmer Keffer. Respondent is an Ohioresident.

On September 15, 2000, the Divi-sion issued a Notice of Opportunity for



Hearing, Division Order No. 00-288, toGeorge Elmer Keffer. The Division al-leged that the Respondent had violatedthe provisions of Revised Code Section1707.44(C)(1) and 1707.44(A)(1), byselling unregistered securities and by sell-ing securities without being licensed as adealer. The Division’s allegations stemfrom the Respondent’s sale of promis-sory notes of Serengeti Diamonds USA,Inc. and Lomas de la Barra Develop-ment, Inc. The Division notified theRespondent of his right to an adminis-trative hearing pursuant to Chapter 119of the Revised Code. Respondent failedto timely request an adjudicatory hear-ing pursuant to Chapter 119 of the OhioRevised Code. Therefore, the Divisionissued its Cease and Desist Order No.00-372.

Bruce Earl Gearhart

On October 20, 2000, the Divi-sion issued Division Order No. 00-373,a Cease and Desist Order, against BruceEarl Gearhart. Respondent is an Ohioresident.

On September 15, 2000, the Divi-sion issued a Notice of Opportunity forHearing, Division Order No. 00-287, toBruce Earl Gearhart. The Division al-leged that the Respondent had violatedthe provisions of Revised Code Section1707.44(C)(1) and 1707.44(A)(1), byselling unregistered securities and by sell-ing securities without being licensed as adealer. The Division’s allegations stemfrom the Respondent’s sale of promis-sory notes of Serengeti Diamonds USA,Inc. and Sun Broadcasting Systems, Inc.The Division notified the Respondent ofhis right to an administrative hearingpursuant to Chapter 119 of the RevisedCode. Respondent failed to timely re-quest an adjudicatory hearing pursuantto Chapter 119 of the Ohio RevisedCode. Therefore, the Division issued itsCease and Desist, Order No. 00-373.

Eugene Kelly Adams

On October 20, 2000, the Divi-sion issued Division Order No. 00-375,

a Cease and Desist Order, against Eu-gene Kelly Adams. Respondent is anOhio resident.

On September 13, 2000, the Divi-sion issued a Notice of Opportunity forHearing, Division Order No. 00-280, toEugene Kelly Adams. The Division al-leged that the Respondent had violatedthe provisions of Revised Code Section1707.44(C)(1) and 1707.44(A)(1), byselling unregistered securities and by sell-ing securities without being licensed as adealer. The Division’s allegations stemfrom the Respondent’s sale of promis-sory notes of Serengeti Diamonds USA,Inc. and Lomas de la Barra Develop-ment, Inc. The Division notified theRespondent of his right to an adminis-trative hearing pursuant to Chapter 119of the Revised Code. Respondent failedto timely request an adjudicatory hear-ing pursuant to Chapter 119 of the OhioRevised Code. Therefore, the Divisionissued its Cease and Desist Order No.00-375.

Joseph Anthony Vargo

On October 23, 2000, the Divi-sion issued Division Order No. 00-377,a Cease and Desist Order, against JosephAnthony Vargo. Respondent is an Ohioresident.

On September 20, 2000, the Divi-sion issued a Notice of Opportunity forHearing, Division Order No. 00-302, toJoseph Anthony Vargo. The Divisionalleged that the Respondent had violatedthe provisions of Revised Code Section1707.44(C)(1) and 1707.44(A)(1), byselling unregistered securities and by sell-ing securities without being licensed as adealer. The Division’s allegations stemfrom the Respondent’s sale of promis-sory notes and debentures of SerengetiDiamonds USA, Inc., Lomas de la BarraDevelopment, Inc., Rawhide Select, Inc.and International Real Estate InvestmentGroup, Ltd. The Division notified theRespondent of his right to an adminis-trative hearing pursuant to Chapter 119of the Revised Code. Respondent failedto timely request an adjudicatory hear-ing pursuant to Chapter 119 of the OhioRevised Code. Therefore, the Divisionissued its Cease and Desist Order No.00-377.


Steve Ira Root

On October 20, 2000, the Divi-sion issued Division Order No. 00-378,a Cease and Desist Order, against SteveIra Root. Respondent is an Ohio resi-dent.

On September 13, 2000, the Divi-sion issued a Notice of Opportunity forHearing, Division Order No. 00-297, toSteve Ira Root. The Division allegedthat the Respondent had violated theprovisions of Revised Code Section1707.44(C)(1) and 1707.44(A)(1), byselling unregistered securities and by sell-ing securities without being licensed as adealer. The Division’s allegations stemfrom the Respondent’s sale of promis-sory notes of Serengeti Diamonds USA,Inc., Millenium 2100, Inc., SebastianInternational Enterprises, Inc., Holly-wood on Air, Inc. and Millenicom, Inc.The Division notified the Respondent ofhis right to an administrative hearingpursuant to Chapter 119 of the RevisedCode. Respondent failed to timely re-quest an adjudicatory hearing pursuantto Chapter 119 of the Ohio RevisedCode. Therefore, the Division issued itsCease and Desist Order No. 00-378.

Universal ElectricPower Corporation

On December 4, 2000, the Divi-sion issued Division Order No. 00-353,a Cease and Desist Order by ConsentAgreement, against Universal ElectricPower Corporation. Respondent’s busi-ness address is in Akron, Ohio. TheDivision found that the Respondent hadviolated the provisions of Revised Codesections 1707.44(C)(1), 1707.44(G) and1707.44(B)(4), by selling unregisteredsecurities, making false representationsin connection with the sale of securitiesand by failing to disclose material facts inconnection with the sale of securities.The Division’s findings stem from theRespondent’s sale of stock. In connec-tion with this Order, Respondent agreedto make a rescission offer no later thanJune 30, 2001.


Stein Abbott & Co., Inc.

On July 5, 2000, the Division is-sued Division Order No. 00-170, a con-sented Cease and Desist Order, againstStein Abbott & Co., Inc. Respondent islocated in Hasbrouck Heights, New Jer-sey.

On June 8, 2000, the Divisionissued a Notice of Opportunity for Hear-ing, Division Order No. 00-139, to Re-spondent pursuant to Revised CodeChapter 119. The Division alleged thatRespondent violated Revised Code sec-tion 1707.44(A)(1) by selling securitiesto Ohio residents prior to approval of itsOhio broker-dealer application. TheDivision also notified Respondent of itsright to an adjudicatory hearing pursu-ant to Chapter 119 of the Revised Code.Respondent entered into a ConsentAgreement and submitted an Undertak-ing to the Division in which it agreed tooffer rescission to affected investors.Thereafter, a Cease and Order was issuedin conjunction with these agreementsand Respondent was subsequently li-censed as a broker-dealer in Ohio.

Norman E. Facter

On September 28, 2000, the Divi-sion issued Division Order No. 00-330against Norman E. Facter, a dentist lo-cated in Beachwood, Ohio.

On August 28, 2000, the Divisionissued a Notice of Opportunity for Hear-ing, Division Order No. 00-251, to Facterpursuant to Revised Code Chapter 119.The Division alleged that Facter violatedRevised Code section 1707.44(C)(1) byselling securities that were not registeredby description, coordination or qualifi-cation, nor exempt from registration.The Division also notified Respondentof his right to an adjudicatory hearingpursuant to chapter 119 of the RevisedCode. Respondent did not request ahearing and a final Cease and DesistOrder was issued on September 28, 2000.

Criminal Updates

Paul D. Morrison

On February 14, 2000 Paul D.Morrison was sentenced in GuernseyCounty after pleading guilty to one countof selling securities without a license.Morrison received a suspended 12-monthprison term, 30 days in the county jail,community control for five years, and a$2,500 fine. Morrison also agreed torepay $260,000 lost by mostly elderlyvictims. Morrison worked for The Ster-ling Group based in Las Vegas. He soldshares of late-night television advertisingtime and promissory notes issued by Leg-end Sports Inc. to Ohio residents. (Foradditional information on this case, seeBulletin No. 99-4).

Kevin Roser

On April 12, 2000 Kevin Roserwas sentenced to two years incarcerationand ordered to pay restitution in FranklinCounty Common Pleas Court. On Feb-ruary 1, 2000, Roser plead guilty to sixcounts of felony securities law violations.The violations resulted from Roser’s ac-tivities in connection with Ohio Busi-ness Consultants and University Busi-nesses Incorporated. Roser had beenindicted on 15 counts in April 1996. Hewas arraigned shortly thereafter, but thenfled. Last year he was arrested in SummitCounty on different charges, and cur-rently is incarcerated at the PickawayCorrectional Institution. (For additionalinformation on this case, see Bulletin No.00:2).

Jeffrey Saxton

On August 2, 2000 a supplementalindictment was filed against JeffreySaxton in Lorain County, Ohio for vio-lations of the Ohio Securities Act, alongwith one count of violating the OhioCorrupt Activities Act. The securitiesviolations consisted of three counts ofselling unregistered securities and threecounts of making false representations.The charges relate to his participation inthe sale of securities of The Cyprus Fund,Inc. mutual fund. (See Enforcement Sec-tion Reports in this issue of the Bulletin foradministrative action taken against Saxtonand The Cyprus Fund, Inc.)

Stephen Arndts

Stephen Arndts plead guilty to aBill of Information in MontgomeryCounty on November 15, 2000 to fivefelony counts of selling unregistered se-curities and five felony counts of sellingsecurities without a license. Arndts’ plearesulted from his sales of promissory notesof World Vision Entertainment to Ohioresidents. Arndts was sentanced to a 60-day work release program and five yearsprobation. He must sumit a plan forrestitution in the amount of $324,017.

Delmar Gerald Lach

On August 30, 2000, DelmarGerald Lach was indicted by a ClermontCounty grand jury on 55 felony counts,including 53 counts of violating the OhioSecurities Act, one count of violating thePyramid Sales Act, and one count ofviolating the Ohio Corrupt ActivitiesAct. The indictment also included aforfeiture specification. The Divisionhad obtained a preliminary Injunctionagainst Lach regarding securities salesback in June of 2000. (See Bulletin IssueNo. 00-2). The court has stayed the civilproceedings pending the outcome of thecriminal case.


Final Order Summaries

The following is a summary of recent final orders issued by the Division in response to salesperson and investment advisor representativelicense applications.

PARTY DECISION ORDER ALLEGATIONSSENT/NO. H.O. RECOMM.

CALHOON FINANCIAL PLANNING, INC. DENIED 10/17/00 R.C. 1707.19(A)00-368 No Hearing Requested

MICHAEL ANTHONY POLLACCIA DENIED 11/2/00 OAC 1301:6-3-19(D)(9), R.C. 1707.19(A)(1)00-399 No Hearing Requested

ANTHONY ANDREW BISCEGLIE DENIED 11/2/00 OAC 1301:6-3-19(D)(9)00-401 R.C. 1707.19(A)(1)

No Hearing Requested

REED FREYERMUTH DENIED 11/27/00 OAC 1301:6-3-19(D), R.C. 1707.19,00-438 R.C.1707.16

Findings Approved

DAVID CHARLES BARON, JR. DENIED 11/27/00 OAC 1301:6-3-19(D), R.C. 1707.19,00-439 R.C.1707.16

Findings Approved

ERIC PETER WESCHKE DENIED 11/27/00 OAC 1301:6-3-19(D), R.C. 1707.19,00-440 R.C.1707.16

Findings Approved

Licensing Statistics

License Type YTD 2000

Dealer 2,541

Salesmen 122,353

Investment Adviser 1,279

Investment Adviser Representative 6,891


Registration Statistics

The following table sets forth the number ofregistration, exemption, and notice filings receivedby the Division during the fourth quarter of 2000,compared to the number of filings received duringthe fourth quarter of 1999. Likewise, the tablecompares the year-to-date filings for 2000 and 1999.

*Statistics for the number of 3(Q) filings submitted prior toMarch 18, 1999 contain those pursuant to both Rule 506and Section 4(2) of the Securities Act of 1933, whereasfilings after March 18, 1999 will be represented by twodifferent sections: RC 1707.03(Q) for Section 4(2) filings,and RC 1707.03(X) for Rule 506 offerings.** Investment company notice filings.***Offerings of covered securities not otherwise covered byanother statutory provision in the Ohio Securities Act.

Capital Formation Statistics*Because the Division's mission includes enhancing

capital formation, the Division tabulates the aggregatedollar amount of securities to be sold in Ohio pursuant tofilings made with the Division. As indicated in the notesto the table, the aggregate dollar amount includes a valueof $1,000,000 for each "indefinite" investment companyfiling. However, the table does not reflect the value ofsecurities sold pursuant to "self-executing exemptions"like the "exchange listed" exemption in R.C. 1707.02(E)and the "limited offering" exemption in R.C. 1707.03(O).Nonetheless, the Division believes that the statistics setout in the table are representative of the amount of capitalformation taking place in Ohio.

*Categories reflect amount of securities registered , offered, oreligible to be sold in Ohio by issuers.**Investment companies may seek to sell an indefiniteamount of securities by submitting maximum fees. Basedon the maximum filing fee of $1100, an indefinite filingrepresents the sale of a minimum of $1,000,000 worth ofsecurities, with no maximum. For purposes of calculatingan aggregate capital formation amount, each indefinitefiling has been assigned a value of $1,000,000.

Filing Type 4th Qtr ‘00 YTD 2000 4th Qtr ‘99 YTD 1999

1707.03(Q)* 46 199 60 525

1707.03(W) 10 29 13 41

1707.03(X) 385 1575 362 1037

1707.03(Y) 7 15 1 12

1707.04 0 1 0 0

1707.041 1 1 1 7

1707.06 22 102 15 115

1707.09 8 54 25 64

1707.091 30 116 36 157

1707.092(A)** 1128 4766 1166 4446

1707.092(C)*** 0 1 1 2

1707.39 2 16 1 6

1707.391 17 109 26 127

Total 1656 6984 1707 6539

Filing Type Fourth Qtr 2000 YTD 2000

Exemptions

Form 3(Q) 107,564,128 472,150,707

Form 3(W) 21,874,000 64,098,000

Form 3(X) 59,202,890,629 269,238,499,510

Form 3(Y) 7,960,900 22,861,900

Registrations

Form .06 206,926,182 1,271,477,852

Form .09 252,950,000 886,407,274

Form .091 1,194,985,279 12,759,819,253

Form .092(C) 0 0

Investment Companies

Definite 310,557,800 626,893,960

Indefinite** 659,000,000 2,804,000,000

TOTAL $61,964,708,918 $288,146,208,456


OHIO SECURITIES BULLETIN

Ohio Division of Securities77 South High Street22nd FloorColumbus, Ohio 43215

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