Ohio Securities Bulletin 2000:2 1

Bob Taft

Governor of Ohio

Gary C. Suhadolnik

Director of Commerce

Deborah L. Dye Joyce

Commissioner of Securities

A QUARTERLY PUBLICATION OF THE OHIO DIVISION OF SECURITIES

OHIO SECURITIES BULLETIN

COMMERCEDEPARTMENT OF

OHIO

DIVISION OF

SECURITIES

Ohio Securities Bulletin

Issue 2000:2

Table of Contents

The Division of Securities is an Equal Opportunity Employer and Service Provider

Farewell to Commissioner Geyer ................. 1

Division Briefs ............................................. 1

Reason to Know: When Investors’Knowledge of Facts Giving RisetoViolations of the Ohio SecuritiesAct Limit the Right to Recission. ................. 2

Public Notice ............................................... 5

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

Criminal Actions and Updates ..................... 9

Final Order Summaries .............................. 10

Registration Statistics ................................. 11

Capital Formation Statistics ....................... 11

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

It is with mixed emotions that theDivision bids farewell to CommissionerGeyer, who has been recently appointed asAssistant Director of the Department ofCommerce. During his four years asCommissioner, Tom oversaw significantchanges and innovations in Ohio’ssecurities industry including state oversightof investment advisers, the implementationof OASIS, Ohio’s web-based electronicfiling system for investment companynotice filings, ERNIE, a searchable databaseon the Division’s web site, and a significantleap into investor education and outreachincluding the Division’s annualparticipation in Savings and InvestingEducational seminars for the public.

Tom was a strong and valuedparticipant in the North American

Securities Administrators’ Association, andprovided testimony and other presentationsto the United States Congress, the OhioGeneral Assembly, and the Securities andExchange Commission. He had writtenwork appearing in more than twentypublications during his tenure, along withnumerous editorials and news releases inOhio publications.

His presence, experience, andknowledge will be sorely missed at theDivision, but the Division’s employees wishhim well in his new position as AssistantDirector of the Ohio Department ofCommerce. Debbie Dye Joyce, previouslyRegistration Supervisor for the Division,has been appointed to replaceCommissioner Geyer.

Farewell to Commissioner Geyer

Ohio Division of Securities andOther Regulators Unite to

Squelch Note Fraud

The Division announced on June 1,2000 that it has joined other state securitiesregulators and the Securities and ExchangeCommission in a major crackdown onfraudulent sales of promissory notes. Thisaction cumulates state and federal securitiesregulators’ efforts over the last few monthsin cracking down on note fraud. TheDivision has taken administrative andcriminal action against persons and entitiesselling these notes (See the EnforcementSection Reports and Criminal Updatesections in this issue of the Bulletin forinformation on specific actions).

Regulators in 28 states have takenactions against hundreds of individualsand entities involved in suspect note sales.The U.S. Securities and ExchangeCommission has filed charges in 13enforcement actions against 38 individualsand 22 entities involved in the fraudulentsale of promissory notes. Many of the

Division Briefsinvestors involved in these cases wereelderly. The Division has also noted thatmany individuals selling these notes wereinsurance agents who know little about thecompanies promoting the notes beyondwhat the companies themselves have toldthe agents. Many agents don’t realize theyneed to be licensed by the Division to sellthe notes. Also many of the companiesallegedly promoting the notes don’t exist,or the insurance companies that bond themdon’t exist, making investing in thesecompanies an exceedingly risky proposition.

Thomas E. Geyer, the formerCommissioner of Securities, stated thatsenior citizens seeking refuge from lowinterest returns on their investments providefertile breeding ground for promissory notepredators. “Investors are attracted to thistype of investment because it has an aura ofsafety with a higher-than-market rate ofreturn. Investors must never forget thefirst rule of finance: the higher the reward,the higher the risk. In today’s market

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Ohio Securities Bulletin 2000:22

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

By Desiree T. ShannonLike most states, Ohio allows

investors a private right of action to reclaimmoney invested in securities that are thesubject matter of sales made in violation ofthe Ohio Securities Act. R.C. 1707.43states that sales made in violation of Chapter1707 are voidable at the election of thepurchaser and that the seller, along withthose participating in or aiding the seller,are jointly and severally liable to thepurchaser in an action at law. However,the statute goes on to say that

(n)o action for the recovery of thepurchase price as provided for inthis section, and no other action forany recovery based upon or arisingout of a sale or contract for salemade in violation of Chapter 1707of the Revised Code, shall be broughtmore than two years after the plaintiffknow, or had reason to know, of thefacts by reason of which the actions ofthe person or director were unlawful,or more than four years from thedate of such sale or contract for sale,whichever is the shorter period.(Emphasis added).

The time restrictions outlined aboveserve as a statute of limitations for bringingrecission actions based on R.C. 1707.43.Investors seeking recission either have twoor four years to file claims against thesecurities sellers who wronged them,depending upon the plaintiff-investor’sknowlege of facts that should have alertedhim or her to unlawful activity.

The two-year statutory time limit ismost problematic, because its calculation ispredicated upon the plaintiff-investordiscovering the facts that gave rise to theunlawful sales. If the investor fails to bringa recission action against the seller withintwo years of obtaining knowledge of factualcircumstances giving rise to unlawful acts,or, more significantly, had reason to knowof them, he loses his right to invoke theremedy. Ohio’s state courts, as well asfederal courts attempting to interpretsimilar time limits found in analogousfederal statutes, have generated case law

addressing this issue that outlines whattypes of factual situations might put areasonable investor on notice when a sellerhas incurred a violation of securities laws.

Knowledge of Facts IndicatingUnregistered or Unlicensed Sale

of Securities

Individuals and entities who violatesecurities laws, both at the state or federallevel, frequently incur these violationsbecause they are either selling securitieswithout benefit of licensure, or have notregistered their securities in accordancewith state or federal laws. Indeed, manysellers are emboldened enough to disclosethe fact that the securities they sell are notregistered in accordance with state or federallaw. Would so blatant an admission ofsales not conforming to requirements setdown by the law be enough to alert thereasonable investor that unlawful activityis afoot? An Ohio appellate court ruled inJ J Enterprises v. Hawk Energy Co.,(January 28, 1987) Ninth Appellate District

Case No. CA-12589, that where aprospectus notes that the securities beingsold are not registered, an investor ishenceforth on notice of the existence offacts surrounding the transaction indicatingthe unlawful sales of securities. In this case,the plaintiff received a prospectus that notedon its cover page that the offered securitieswere not registered. The court noted thatthe two-year statute began to run when theinvestor received the prospectus shortlyafter the sale. Id. at pp.5,6. The case alsoapplied the two-year limitation to the issueas to when the investor was charged withknowing the seller was unlicensed. Thecourt treated this issue as a separate violationin which the investor might have qualifiedfor the R.C. 1707.43 recisssion remedy(the court ultimately decided that theinvestor missed the two-year statute oflimitation on both the registration and theunlicensed sales issue). Id.

Again, it should be noted that J.J.Enterprises v. Hawk Energy Co. treatedunlicensed sales and unregistered sales asseparate grounds for applying the two-yearstatute of limitations. An investor’s

Reason to Know: When Investors’ Knowledge of Facts Giving Rise to Violationof the Ohio Securities Act Limit the Right to Recission.

Ohio Securities Bulletin 2000:2 3

there’s no such thing as a “guaranteed” 10or 15 percent return”

Editor’s note: for more in-depth articlesregarding promissory notes, please see OhioSecurities Bulletin Issue 00-1.

Division Obtains PreliminaryInjunction Against D. Gerald

Lach and Companies

A Clermont County Common PleasCourt judge issued a preliminary injunctionon June 7, 2000 that prohibits D. GeraldLach and several companies he operatesfrom illegally selling securities. Judge JerryMcBride issued the preliminary injunctionwith the defendants’ consent. Companiesaffiliated to Lach and who are subject to theinjunction include Community ConcernedCitizens, Inc., Storehouse: Malachi 3:10,Inc., Cincinnati Regional Initiative,

Western Regional Authority, MidwestRegional Authority, Inc. and Golden AgeDevelopment Corporation. The Divisionhad alleged that Lach sold securities thatwere not properly registered or exemptfrom registration under Ohio law, and thathe misrepresented the value, expectedreturns and risks associated with thesecurities.

Judge McBride had issued atemporary restraining order against thedefendants in May. About 300 people hadinvested in the defendant companies. Lachwas recorded at an investment meeting thispast January soliciting people to pay moneyto Storehouse: Malachi 3:10 in exchangefor stock in Midwest Regional Authority.The Division also had evidence that Lachmisrepresented to investors that stock insome of his companies would be listedwithin a few weeks on the NASDAQ StockMarket, when in fact he had not madeapplication for the stocks to be listed. Whenthe preliminary injunction was granted,Acting Securities Commissioner DeborahL. Dye Joyce commented that she was

knowledge of facts surrounding the sale ofsecurities that might alert him or her to theseller’s unlawful activity relating to eitherof these issues could trigger the running ofthe two-year time limit. But an investor’sknowledge of facts regarding unlawfulactivity surrounding one violation will notgive rise to the assumption that he or shehas knowledge of another violation. InCrater v. International Resources, Inc., 92Ohio App. 3rd 18 (1993), the court notedthat, where a recission action involved twodistinct causes of action—unregistered salesand unlicensed sales in violation of R.C.1707.44 (A) and R.C. 1707.44 (C)(1)—their limitations periods run separately.Therefore, information in a prospectusalerting the investor that she was purchasingunregistered securities would not necessarilyhave alerted her to the fact that the sellerwas not licensed to sell securities, thusallowing her to meet the statutory deadlinefor filing a claim on that issue, regardless ofwhether a claim for unregistered sales wouldhave met the deadline.Id at p. 24. Theseparate cause of action/separate statute oflimitations rule could also apply in caseswhere there are individual claims ofunregistered securities and fraud. In

Seuffert v. Mobile Health Scan, Inc., 1989Ohio App. Lexis 3586, Ohio’s EighthAppellate District noted that “knowledgeof possible fraud with regard to the securityin question does not provide the plaintiffwith reason to know that the security isunregistered...”

Courts have addressed other factualsituations dealing with the issue ofunregistered securities (and the unlicensedsales thereof) pursuant to the OhioSecurities Act that impact the applicationof the statute of limitations for purposes ofrecission. Official action by the Divisiondeclaring a seller’s activities as unlawfulcan give an investor reason to know of factsthat would indicate unlawful acts. Thisoccurs in situations where the OhioDivision of Securities has issued a Ceaseand Desist Order and requires an issuerwho has violated the Ohio Securities Actto send a letter offering investors recission.The letter operates as notice of unlawfulacts and will impute knowlege of such toan investor seeking recission, thuscommencing the two-year run of the statuteof limitations. St. Clair v. StructuredShelters, 1985 Ohio App. Lexis 9469.Ohio’s Tenth Appellate District has ruled

that a shareholder who also serves as anofficer of an issuing corporation will notautomatically be assumed to possessknowledge of facts that would alert him orher to unlawful acts regarding the sale ofsecurities. Eastman v. BenchmarkMaterials, Inc., 34 Ohio App. 259 (1986).

Knowlege of Facts Involving Fraud

Cases involving fraud, mis-representation and omission are muchdicier to analyze in respect to the types offact patterns that would charge an investorwith enough knowledge that wouldcommence the running of the statute oflimitations. Investors in Ohio’s EighthAppellate District had best beware whenthey buy securities which are accompaniedby investment literature warning of thesecurities’ high risks. The court in Kondratv. Morris, (January 16, 1997) 8th AppellateDist. Case No. CV-282903, held that theplaintiff-investors’ recission claim basedpartially on misrepresentation in the saleof securities was time-barred under R.C.1707.43 The court noted that the plaintiffs

Division Briefs“very pleased that Judge McBride issuedthe preliminary injunction in order toprotect the hundreds of individuals whohave invested approximately two milliondollars in these companies.”

Infinity Group PrincipalsIndicted

A federal grand jury in Clevelandindicted Geoffrey Benson, Susan Benson,Geoffrey O’Connor and Jennifer Bordelon,the former principals of The Infinity GroupCompany, on several federal felony charges.The defendants were indicted on 21 felonycounts, including federal tax violations,wire fraud and mail fraud. The Divisionhad executed a search warrant against thecompany in April 1998 in response to thesale of trust units in a “prime bank”program. The Securities and ExchangeCommission eventually obtained aninjunction against the company.

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Ohio Securities Bulletin 2000:24

were basing their misrepresentation claimmostly on the fact that they had been toldthey would receive a 2-to-1 ratio of returnon their investment. Id. at p.9. The courtnoted that, despite these representations,the plaintiff was given written materialsthat clearly outlined the risky nature of theinvestment at the time of purchase, andthat this notice was enough to commencethe statute’s two-year run. Id. (Since thecourt determined that the plaintiffs hadpurchased the securities more than fouryears before filing their claim, they couldnot have recovered anyway). Id. at p. 12.

A review of federal court cases, whichinvolve statutes that impose time limitssimilar to the one found in R.C. 1707.43,show courts’ difficulty in deciding whatkinds of factual situations constitutereasonable notice to investors that fraudwas present when they purchased theirsecurities. Many federal actions relating tofraud are brought under the SEC’s Rule10b-5, which has a corresponding statuteof limitations of one year, with a three-yearstatute of repose. A review of these cases isuseful even in instances where courts haveused federal statute of limitations insteadof borrowing state statutes such as R.C.1707.43. Generally, in cases whereplaintiffs bring a cause of action that isimplied under a federal statute which hasits own statute of limitations, the federaltime limit should be used. Otherwise, it isallowable for federal courts to invoke thewell-established practice of “borrowing”the analogous local state statute in applyinga statute of limitations for such claims.Lampf, Pleva, Lipkind, Purpis & Petigrowv. Gilbertson., 501 U.S. 350 (1991).Whether a federal court is using a statestatute of limitations such as the one foundin Ohio’s Chapter 1707, or a similar federalstatute, it is useful to consider guidelinesset down by federal courts regarding whatmay be deemed notice of unlawful activity.Since the federal statutes of limitation areso similar to that of Ohio’s, and federalcourts may need to “borrow” Ohio’s statutebeacause an analagous federal statute isunavailable, outcomes in federal courtscould be highly indicative of futureinterpretations of Ohio statute oflimitations found in R.C. 1707.43.

Despite the difficulty of definingwhen an investor has reason to know ofunlawful violations, federal courts havemanaged to set down some general rules.In analyzing a federal statute that places aone-year time limit on filing claims fromthe time fraud is discovered, Ohio’sSouthern District, in considering a motionfor summary judgment for plaintiff-investors, has held that “(g)enerally thequestion of when a party discoveredfraudulent conduct or when he shouldhave discovered it by exercising diligence isa factual inquiry.” Roger v. LehmanBrothers Kuhn Loeb, Inc., 604 F. Supp.

222 (S.D. Ohio 1984).Despite this, other federal courts have

not been reticent to pass on the factssurrounding investors’ claims. The U.S.Court of Appeals, Second Circuit did so inthe case of In re Ames Department Stores,Inc. Note Litigation, 991 F. 2d 968 (2ndCir. 1993). The court held that the one-year federal statute of limitations underconsideration in the case would beginrunning when the investor receivedconstructive notice of possible fraud: “wherethe circumstances are such to suggest to aperson of ordinary intelligence theprobability that he has been defrauded.”(Here the court was quoting another federalcase, Armstrong v. McAlpin, 699 F.2d 79(2nd Cir. 1983)). The suit was based onmisleading financial projections that wereincluded in investors’ prospectuses. Thecourt decided that the plaintiff-investorswould not have known the informationthey received was misleading until it wasannounced that the company had sustainedsignificant losses for the previous year (thedefendant allegedly had internal data thatwould have shown it was losing money atthe time the plaintiff-investors purchasednotes issued by the company). The courtnoted mere “storm warnings” that thecompany was in trouble, such as mediaspeculation about the company’s positionor negative assessments by analysts of theacquisition underpinning the offering, werenot enough to alert investors to possiblefraud. The Seventh Circuit also weighed inwith an opinion regarding the significanceof “storm warnings” found in prospectuses.In utilizing California’s statute oflimitations in deciding the case of Ecksteinv. Balcor Film Investors, 8 F.3rd 112 (7th

Cir. 1993) the court noted that suchwarnings only put investors on notice that“things may not go as hoped in the future;they do not put investors on notice thatstatements made in the prospectus areuntrue at the time, or that important factshave been left out.” Id. at 1127.

The Second Circuit in another caseconsidered inherent investment knowledgepossessed by “sophisticated” or accreditedinvestors. The court held that such investorswere on constructive notice that the limitedpartnerships they purchased were high riskand designed more as tax shelters ratherthan investments for profit. The courtnoted that the prospectuses provided to theinvestors, along with their knowledge andsophistication, would have disclosed asmuch. Block v. First Blood Associates, 988F. 2d 344 (2nd Cir. 1993).

A line of Seventh Circuit cases hasadopted the concept of “inquiry notice” inevaluating federal statutes of limitationsapplicable to securities claims which assumenotice of a violation on the part of investors.This doctrine holds that the federal statuteof limitations applicable to Rule 10b-5actions “begins to run not when the fraudoccurs, and not when the fraud isdiscovered, but when....the plaintiff learns,or should have learned through the exerciseof ordinary diligence in the protection ofone’s legal rights, enough facts to enablehim by such further investigation as thefacts would induce in a reasonable personto sue within a year.” Law v. MedcoResearch, Inc, 113 F. 3rd 781,785 (7thCir. 1997). Thus in the case of WhirlpoolFinancial Corporation v. GN Holdings,Inc., 67 F. 3rd 605 (7th Cir. 1995), thecourt determined that the plaintiff-investor’s fraud claim was time-barredbecause it failed to act earlier in investigatingsignificant discrepancies between financialreports and the private placementmemorandum initially provided by theissuer. The court noted that a “reasonableinvestor would have believed fraud was apossible explanation” for the discrepancies.Id. at p. 610.

A fine-tuning of the doctrine of“inquiry notice” necessitates that courtstake into consideration the timing ofinvestors’ notice that they might be victimsof fraud. In the case of Fujisawa

Reason to Knowcontinued from page 3

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Ohio Securities Bulletin 2000:2 5

PUBLIC NOTICE

At 10:00 a.m. on Wednesday, October 18, 2000, the Ohio Division of Securities will hold a public hearing regarding theDivision’s intent to amend Ohio Administrative Rules 1301:6-3-01, 1301:6-3-06, 1301:6-3-09, 1301:6-3-093, 1301:6-3-14,1301:6-3-15, 1301:6-3-151, 1301:6-3-16, 1301:6-3-161, and 1301:6-3-48. The hearing will be held in the offices of theDivision located at 77 South High Street, 22nd Floor, Columbus, Ohio 43215.

Copies of the proposed amendments may be obtained by contacting the Ohio Division of Securities at the above address or bycalling the Division at (614) 644-7381. Copies of the proposed amendments may also be obtained from the Division’s Internethomepage located at www.securities.state.oh.us. Each of the proposed amendments and new rules is summarized in thefollowing:

OAC 1301:6-3-01 The proposed amendment adds a cross-reference in paragraph (A) to OAC 1301:6-3-15(E).

The purpose of the proposed rule is to correct the oversight of the missing reference.

OAC 1301:6-3-06 The proposed amendment deletes both the provisions of paragraph (D)(12) and the reference inparagraph (A) to the Form OG.

The purpose of the proposed amendment is to eliminate a reference to an obsolete form and duplicative review requirements.

OAC 1301:6-3-09 The proposed amendment deletes substantive restrictions on investment companies. References tospecific NASAA guidelines used by the Division are being deleted so that the resulting language indicates that the Division willuse any NASAA guidelines for review.

The purpose of the proposed amendment is to delete investment company guidelines that were preempted by federal legislationin 1996, and to streamline language regarding the Division’s use of NASAA guidelines for review.

OAC 1301:6-3-093 The proposed amendment would delete the CCD+ format noted in paragraph (E) and replace it withCCD format.

The purpose of the proposed amendment is to correct the nature of the formatted information required on an ACH credittransfer received for payment of fees on electronic filings.

OAC 1301:6-3-14 The proposed amendment adds bank holding company to the type of securities bought and sold by thedealer with regard to the availability of the exemption in this section.

The purpose of the proposed amendment is to clarify when a dealer may have the exemption in this rule available.

OAC 1301:6-3-15 Paragraph (A) changes are for clarity; paragraph (C) changes reorder certain provisions and update otherprovisions; changes to paragraphs (D), (E), and (G) are for the purposes of updating; the proposed change to paragraph (J) deletesreference to Form 16B that will be no longer used, and changes a 30 day period to a 60 day time period; deletion of paragraph(K) is due to its obsolescence; paragraphs (L) and (M) are renamed; and, new paragraph (M) was originally paragraph (D)(5).

The purpose of the proposed amendments is to update the rule and to make certain provisions more readily understandable.

OAC 1301:6-3-151 Paragraph (B) is being amended to add more specificity to the CFP and PFS designation requirements;paragraph (K) changes extend the length of time from 30 to 60 days.

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Ohio Securities Bulletin 2000:26

The purpose of the proposed amendment to paragraph (B) is for clarity. The purpose of the proposed amendment toparagraph (K) is to allow the Division more time to cancel an investment adviser representative’s license during pendingenforcement actions.

OAC 1301:6-3-16 The proposed amendments to paragraph (A) reorder the NASD examinations by series number;paragraphs (B) and (C) changes delete the use of the Form 16.

The purpose of the proposed amendments is to clarify the requirements for licensure and to bring better order to the rule.

OAC 1301:6-3-161 The proposed amendment to paragraph (B) pertains to the CFP and PFS designations.

The purpose of the proposed amendments is to clarify certain designations available to establish minimum competency forlicensure.

OAC 1301:6-3-48 The proposed amendment to this rule is to add a new paragraph (C) to allow enforcement records tobe retained for five years form the date the enforcement file is closed.

The purpose of the proposed rule is to lengthen the period of time for which enforcement records must be retained.

PUBLIC NOTICE(Continued)

Pharmaceutical Company, Ltd. v. Kapoor,115 F. 3rd 1332 (7th Cir. 1997), the courtnoted that a fraud victim’s status in regardto possessing inquiry notice “may dependon the victim’s access to the informationthat he will need in order to be able to pleada reasonably well substantiated andadequately particularized case of securitiesfraud...the better his access, the less time heneeds.” Id. at p. 1335. Thus the courtdeemed the plaintiff, which argued that ithad no notice of fraud until the FDA beganto investigate the defendant regardingmatters relating to the fraud, was on inquirynotice even before the FDA’s inquiry. The

court reasoned that the plaintiff had “betteraccess to the relevant documents than theFDA and a greater incentive...to find inthem evidence that (defendant) hadconcealed information...” Id.

ConclusionIn conclusion, an investor

considering bringing an action under R.C.1707.43 for recission must take care thattheir claim is not doomed because of theydid not file their claim within the two-yearstatute of limitations, assuming the investoris in a situation where it is triggered in thefirst place (as opposed to the longer four-

year period of repose). Of course, investorsshould carefully review offering materialsfor red flags before they purchase securities.If an investor has knowledge of any factsthat would indicate unlawful activity, he orshe should immediately investigate andevaluate them as evidence that mightsupport a recission claim. Otherwise, acourt could impose the time-honored “yousnooze, you lose” doctrine on theunfortunate investor.

Ms. Shannon is an Enforcement StaffAttorney with the Ohio Division of Securitiesand Editor of the Ohio Securities Bulletin.This article was reprinted from Ohio SecuritiesBulletin 98:1.

Reason to Knowcontinued from page 4

Ohio Securities Bulletin 2000:2 7

PUTNAM, LOVELL,DEGUARDIOLA &THORNTON INC.

On February 4, 2000, the Divisionissued Division Order No. 00-019, a Ceaseand Desist with Consent Agreement,against Putnam, Lovell, Deguardiola &Thornton Inc. The Respondent’s businessaddress is in California.

On August 14, 1998, the Divisionissued its Notice of Opportunity forHearing, Division Order No. 98-330,pursuant to Ohio Revised Code Chapter119. The Division alleged that theRespondent violated Revised Code Section1707.44(A)(1) which prohibits theunlicensed sale of securities. The Orderalso notified the respondent of theDivision’s intent to issue a Cease and DesistOrder against it. Upon issuance of theOrder, the Division and the Respondententered into a Consent Agreement whichwas accompanied by the issuance of a Ceaseand Desist Order, Order No. 00-019. Theagreement requires the Respondent toconsent, stipulate and agree to terms setforth in the Notice of Opportunity forHearing and to issuance of a Cease andDesist Order. The agreement requires theRespondent to offer rescission to purchasersin all sales that were not in compliance withthe Ohio Securities Act from August 20,1997 to March 20, 1998, and through andincluding the date of the issuance of thelicense. Also the agreement requires theRespondent to waive appeal rights in thismatter.

RICK AUSTIN; LION’S SHAREENTERTAINMENT, INC.;

HELIUM 3; THE THINGUMAJIGS;GHOST STORY; WHAT YOU

DON’T KNOW CAN KILL YOU;TYCOONS; BUSINESS SENSE;

CUPIDS CAMERA; HOMESHOWCASE

On February 9, 2000, the Divisionissued Division Order No. 00-025, a FinalOrder to Cease and Desist Order, against

Rick Austin; Lion’s Share Entertainment;Inc., Helium 3; The Thingumajigs; GhostStory; What You Don’t Know Can KillYou; Tycoons: Business Sense: CupidsCamera and Home Showcase.Respondents’ business address is in Florida.

On November 10, 1998, theDivision issued its Notice of Opportunityfor Hearing, Orders No. 98-476 againstRich Austin; Order No. 98-477 againstLion’s Share Entertainment, Inc.; andOrder No. 98-478 against Helium 3, theThingumajigs, Ghost Story, What YouDon’t Know Can Kill You, Tycoons,Business Sense, Cupids Camera and HomesShowcase. The Division alleged theRespondents violated Ohio Revised CodeSections 1707.44(B)(4), 1707.44(C)(1)and 1707.44(G). These sections prohibit,respectively, making false representationsin the sale of securities; selling securitieswithout proper registration or claim ofexemption from registration and sellingsecurities while knowingly engaging in anyact or practice which is declared illegal,defined as fraudulent or prohibited underthe provisions of Chapter 1707 of theRevised Code. The Order also notified theRespondents of the Division’s intent toissue a Final Order to Cease and Desist.Upon receiving service of the Order, theRespondents requested an administrativehearing pursuant to Revised Code Chapter119 on the matters set forth in the Noticeof Opportunity for Hearing. A Hearingwas granted and the Hearing Officer foundin the Division’s favor. Further service wasunsuccessful. Therefore, the Division issueda Final Order to Cease and Desist, OrderNo. 00-025, which incorporated theallegations stated in Orders No. 98-476,98-477 and 98-478.

SMITH, BROWN &GROOVERS, INC.

On March 17, 2000, the Divisionissued Division Order No. 00-068, a Ceaseand Desist Order with Consent Agreement,against Smith, Brown & Groover, Inc.The Respondent’s business address is inGeorgia.

On March 1, 2000, the Divisionissued Division Order No. 00-054, a Noticeof Opportunity for Hearing, to theRespondent. The Order alleged that theRespondent had violated Revised CodeSections 1707.14 and 1707.44(A)(1) whichprohibits the unlicensed sale of securitiespursuant to Revised Code Chapter 119.The Order also notified the Respondent ofits right to an adjudicative hearing. Uponissuance of the Order, the Division and theRespondent entered into a ConsentAgreement which was accompanied by theissuance of a Cease and Desist Order, OrderNo. 00-068. The agreement requires theRespondent to consent, stipulate and agreeto terms set forth in the Notice ofOpportunity for Hearing and to theissuance of a Cease and Desist Order. Theagreement requires the Respondent to offerrescission to purchasers in all sales thatwere not in compliance with the OhioSecurities Act from June 2, 1997 to June 3,1999, and through and including the dateof the issuance of the license. Also, theagreement requires the Respondent to waiveappeal rights in this matter.

LANIER WIRELESSPARTNERS; FELYCE B.

PARKER

On March 23, 2000, the Divisionissued Division Order No. 00-074, a Ceaseand Desist Order, against Lanier WirelessPartners and Felyce B. Parker. TheRespondents’ business address is in Georgia.

On September 17, 1999, theDivision issued to the Respondents a Noticeof Opportunity for Hearing, Order No.99-379. The Division alleged thatRespondents violated 1707.44(C)(1) byselling unregistered securities. Theallegations stem from the sale of viaticalsettlements to an Ohio resident. TheDivision also notified the Respondents oftheir right to an adjudicatory hearingpursuant to Chapter 119 of the RevisedCode. The Respondents did not timelyrequest an adjudicative hearing. Therefore,the Division issued its Cease and DesistOrder, Order No. 00-074.

Enforcement Section Reports

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Ohio Securities Bulletin 2000:28

ROBERT LEE SCOTT

On March 28, 2000, the Divisionissued Division Order No. 00-079, a Ceaseand Desist Order, against Robert Lee Scott.The Respondent is an Ohio resident.

On February 25, 2000, the Divisionissued to the Respondent a Notice ofOpportunity for Hearing, Order No. 00-050. The Division alleged that theRespondent violated Revised Code sections1707.44(A), 1707.44(C)(1), and1707.44(G). These sections, respectively,prohibit the unlicensed sale of securities,unregistered sale of securities and knowinglyengaging in fraudulent practices inconjunction with the sale of securities,specifically, by failing to disclose materialfacts in conjunction with the sale ofsecurities. The allegations stem from thesell of promissory notes that were in defaultto at least thirty Ohio residents. The Orderalso notified the Respondent of his right toan administrative hearing pursuant toRevised Code Chapter 119. TheRespondent did not timely request ahearing. Therefore, the Division issued itsCease and Desist Order, No. 00-079.

BERNARD J. VITANGELI

On March 30, 2000, the Divisionissued Division Order No. 00-081, a Ceaseand Desist Order, against Bernard J.Vitangeli, an Ohio resident.

On February 28, 2000, the Divisionissued to the Respondent a Notice ofOpportunity for Hearing, Order No. 00-052. The Division alleged that Respondentviolated Revised Code 1707.44(A) and1707.44(C)(1). These sections prohibit,respectively, the unlicensed sale of securitiesand the unregistered sale of securities. Theallegations stem from the sell of promissorynotes that were in default to at least twentyOhio residents. The Order also notifiedthe Respondent of his right to anadministrative hearing pursuant to RevisedCode Chapter 119. The Respondent failedto timely request an administrative hearing.Therefore, the Division issued its Ceaseand Desist Order, Order No. 00-081.

E-INTERTAINMENT.COM,INC.; JEFFERY A. PEARSON

AND JAMES L. BALDI

On March 31, 2000, the Divisionissued Division Order No. 00-087, a Ceaseand Desist Order, against E-Intertainment.Com, Inc.; Jeffery A. Pearsonand James L. Baldi. The Respondents’business addresses are located in Florida.

On February 24, 2000, the Divisionissued and subsequently served theRespondents a Notice of Opportunity forHearing, Order No. 00-046. The Divisionalleged that the Respondents violatedRevised Code section 1707.44(C)(1),which prohibits the unregistered sale ofsecurities. The Division’s allegations stemfrom the Respondents’ solicitation andoffers of sale of unregistered securities on aweb site. These offers were made to Ohioresidents. The Order also notified theRespondents of their right to anadministrative hearing pursuant to RevisedCode Chapter 119. The Respondents failedto timely request an adjudicative hearing.Therefore, the Division issued its Ceaseand Desist Order No. 00-087.

FOREIGN CURRENCYINTERNATIONAL; JAYSONKLINE AND JOHN REECE

On April 6, 2000, the Division issuedDivision Order No. 00-092, a Cease andDesist Order, against Foreign CurrencyInternational; Jayson Kline and John Reece.The Respondents’ business address is inGeorgia.

On November 16, 1999, theDivision issued to the Respondents a Noticeof Opportunity for Hearing, Order No.99-467. The Division alleged that theRespondents violated Revised Codesections 1707.44(A)(1), 1707.44(C)(1) and1707.44(B)(4). These provisions prohibit,respectively, the unlicensed sale of securities,unregistered sale of securities and sellingsecurities while knowingly making falserepresentations regarding material andrelevant facts. The Division’s allegationsstem from the sell of foreign currencyoptions to Ohio residents. The Order alsonotified the Respondents of their right toan adjudicative hearing pursuant to Revised

Code Chapter 119. The Respondentstimely requested an adjudicative hearing aspermitted by Division Order No. 99-467and voluntarily withdrew their request.Therefore, the Division issued its Ceaseand Desist Order, No. 00-092.

JAMES CHMIELOWICZ

On April 26, 2000, the Divisionissued Division Order No. 00-103, a Ceaseand Desist Order, against JamesChmielowicz, an Ohio resident.

On March 24, 2000, the Divisionissued to the Respondent a Notice ofOpportunity for Hearing, Order No. 00-076, in accordance with Revised CodeChapter 119. The Division alleged thatthe Respondent had violated Revised Codesection 1707.44(C)(1) by sellingunregistered securities. The Division’sallegations stem from the Respondent’ssale of unregistered promissory notes toOhio residents. The Division also notifiedthe Respondent of his right to anadministrative hearing pursuant to RevisedCode Chapter 119. The Respondent didnot timely request an administrativehearing. Therefore, the Division issued itsCease and Desist Order, No. 00-103.

SIERRA WEST UNITINVESTMENT TRUST; DON

RYAN; GREG HURT

On May 2, 2000, the Division issuedDivision Order No. 00-104, a Cease andDesist Order, against Sierra West UnitInvestment Trust, Don Ryan and GregHurt. Respondents’ business address is inCalifornia.

On January 7, 2000, the Divisionissued to the Respondent a Notice ofOpportunity for Hearing, Order No. 00-005, pursuant to Revised Code Chapter119. The Division alleged that theRespondents had violated Revised Codesection 1707.44(C)(1) by selling securitiesthat had not been registered with theDivision. The Division’s allegations stemfrom the sale of trust units in oil and gaswells to Ohio residents. The Respondentsdid not timely request an administrativehearing as permitted by Chapter 119 of theOhio Revised Code. Therefore, the

Enforcement Reportscontinued from page 7

Ohio Securities Bulletin 2000:2 9

Division issued its Cease and Desist Order,No. 00-104.

1:30, INC. DBA PARMAPIEROGIES; MARY

POLDRUHI

On May 12, 2000, the Divisionissued Division Order No. 00-111, a FinalOrder to Cease and Desist, against 1:30,Inc. DBA Parma Pierogies and MaryPoldruhi. The Respondents reside in Ohio.

On December 4, 1998, the Divisionissued to the Respondents a Notice ofOpportunity for Hearing, Order No. 98-519. The Notice Order alleged that theRespondents violated Ohio Revised Codesections 1707.44(C)(1) and 1707.44(G),respectively, by selling unregisteredsecurities and failing to disclose materialfacts in conjunction with the sale ofsecurities, thereby engaging in acts whichare declared fraudulent by Chapter 1707.The Order also notified Respondents oftheir right to an administrative hearingpursuant to Revised Code Chapter 119.The allegations stem from the sale ofcommon stock to Ohio residents. Thestocks were not registered or claimed fromexemption with the Division of Securities.Upon receipt of the Order, the Respondentstimely requested an administrative hearing.A hearing was granted and the HearingOfficer found in the Division’s favor. TheHearing Officer’s Report andRecommendation was confirmed andapproved. Therefore, the Division issued aFinal Order to Cease and Desist, OrderNo. 00-111.

WOLVERINE ENERGY, L.L.C.and WOLVERINE ENERGY

1998-1999DEVELOPMENT PROGRAM

On June 8, 2000, the Division issuedDivision Order No. 00-138, a Cease andDesist Order, against Wolverine EnergyL.L.C., and Wolverine Energy 1998-1999Development Program. The Respondents’business address is in Michigan.

On February 9, 2000, the Divisionissued to the Respondents a Notice of

Opportunity for Hearing, Order No. 00-030 in accordance with Revised CodeChapter 119. The Order alleged that theRespondent violated Ohio Revised CodeSection 1707.44(C)(1) by selling securitiesthat were not registered with the Division.The allegations stem from the sale ofsubscription agreement interests to Ohioresidents. The Order also informed theRespondents of their right to an adjudicativehearing. Upon issuance of the Order, theRespondents and the Division enteredinto a Consent Agreement which wasaccompanied by the issuance a Cease andDesist Order, Order No. 00-038. TheAgreement requires the Respondentsconsent, stipulate and agree to the findings,conclusions, and orders set forth in theagreement. The agreement requires thatthe Respondents agree to the Cease andDesist Order. The agreement also requiresthe Respondents to waive appeal rights inthis matter.

DON FEDERICO MERSIEL

On June 12, 2000, the Divisionissued Division Order No. 00-144, a Ceaseand Desist Order, against Don FedericoMersiel. The Respondent is a resident ofOhio.

On January 18, 2000, the Divisionissued to the Respondent a Notice ofOpportunity for Hearing, Order No. 00-011, in accordance with Revised CodeChapter 119. The Order alleged that theRespondent had violated Revised Code1707.44(A)(1), which prohibits theunlicensed sale of securities. The Orderalso alleged that the Respondent hadviolated Ohio Revised Code sections1707.44(B)(4), 1707.44(C)(1) and1707.44(G). These sections prohibit,respectively, making false representationsin the sale of securities; selling securitieswithout proper registration or claim ofexemption from registration and sellingsecurities while knowingly engaging in anyact or practice which is declared illegal,defined as fraudulent or prohibited underthe provisions of Chapter 1707 of theRevised Code. These allegations stem fromthe unlicensed sale of promissory notes toOhio residents. The Order also notifiedthe Respondent of his rights to anadministrative hearing. The Respondent

failed to timely request an administrativehearing. Therefore, the Division issued itsCease and Desist Order No. 00-144.

DONALD ERWIN JONES

On June 12, 2000, the Divisionissued Division Order No. 00-145, a Ceaseand Desist Order, against Donald ErwinJones. The Respondent is an Ohio resident.

On January 7, 2000, the Divisionissued to the Respondent a Notice ofOpportunity for Hearing, Order No. 00-003, in accordance with Revised CodeChapter 119. The Order alleged that theRespondent violated RevisedCode1707.44(C)(1), as well as OhioAdministrative Code Rule 1301:6-3-19(A)(19), respectively, by selling securitiesthat were not registered with the Division,nor exempt from registration and byeffecting a securities transaction notrecorded on the regular books and recordsof the dealer that the salesman represents.The Division’s allegations stem from thesale of promissory notes to Ohio investors.The Order also stated that the Respondenthad the right to request an adjudicativehearing on the matter pursuant to Chapter119 of the Revised Code. The Respondentdid not request and adjudicative hearing.Therefore, the Division issued its Ceaseand Desist Order, Order No. 00-145.

Criminal Actions and Updates

A Lake County grand jury indictedAnthony Thomas Newman, a Mentor,Ohio insurance agent, on January 28, 2000.Newman was indicted on three counts ofthe sale of unregistered securities and threecounts of selling securities while unlicensedto do so. Newman was charged with sellingunregistered promissory notes to threeinvestors totaling $230,000 in First LendersIndemnity Corporation (FLIC), a companythat subsequently went into bankruptcy.Two of the promissory notes sold byNewman totaled $100,000 each, and twoof the investors were elderly. The Divisionhad issued a Cease and Desist Order againstFLIC on May 10, 1999 for sellingunregistered promissory notes and failingto disclose material facts to Ohio investors.

continued on page 12

Ohio Securities Bulletin 2000:210

Final Order Summaries

The following is a summary of recent final orders issued by the Division in response to salesman and investment advisor representative licenseapplications.

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

Gardner, Christopher Denied 3/14/2000 OAC 1301:6-3-19(D)(6) and (9)00-064 1707.19(A)(1)

No hearing requested

Williams, John D.,Jr. Granted 4/19/2000 ORC 1707.16 and 1707.1900-098 OAC 1301:6-3-19(D)(7) and (9)

Findings approved

Smith, Ronald Louis Denied 4/28/2000 ORC 1707.161 and 1707.1900-102 OAC 1301:6-3-19(D)(7) and (9)

1707.19(A)(5) and 1707.44(B)(3)Findings disapproved

Anello, Steven A. Denied 5/9/2000 1301:6-3-19(D)(6) and (9)00-109 1707.19(A)(1)

No hearing requested

Park, Michael Jin Yong Denied 5/10/2000 1301:6-3-19(D)(3),(7)(8) and (9)110-110 1707.19(A)(1)

No hearing requested

Bellak, Mitchell, Jr. Denied 5/12/2000 ORC 1707.16 and 1707.1900-114 OAC 1301:6-3-19(D)(9)

Findings approved

License Type YTD 2000 YTD 1999

Dealer 2,505 2,287

Salesmen 107,059 92,226

Investment Adviser 1,185

Investment Adviser Representative 6,107

Licensing Statistics

Ohio Securities Bulletin 2000:2 11

Filing Type 2nd Qtr ’00 YTD 2000 2nd Qtr ’99 YTD 1999

1707.03(Q)* 43 116 075 433

1707.03(W) 05 014 004 019

1707.03(X) 420 848 293 350

1707.03(Y) 01 002 004 005

1707.04 000 000 000 000

1707.041 000 000 002 002

1707.06 32 056 025 073

1707.09 21 033 017 031

1707.091 31 060 033 084

1707.092(A)* 1197 2520 1165 2258

1707.092(C)** 00 000 000 000

1707.39 00 006 003 004

1707.391 30 064 030 060

Total 1783 3719 1651 3276

Registration StatisticsThe following table sets forth the number ofregistration, exemption, and notice filings receivedby the Division during the second quarter of 2000,compared to the number of filings received duringthe second 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 to March18, 1999 contain those pursuant to both Rule 506 and Section4(2) of the Securities Act of 1933, whereas filings after March 18,1999 will be represented by two different sections: RC 1707.03(Q)for Section 4(2) filings, and RC 1707.03(X) for Rule 506offerings.** Investment company notice filings.***Offerings of covered securities not otherwise covered by anotherstatutory 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.

Filing Type Second Qtr 2000 YTD 2000

Exemptions

Form 3(Q) $68,238,039 $221,178,366

Form 3(W) 12,600,000 29,539,000

Form 3(X) 41,484,254,297 80,334,400,361

Form 3(Y) 1,000,000 2,088,000

Registrations

Form .06 289,033,900 718,117,588

Form .09 35,600,000 88,950,024

Form .091 872,656,744 4,842,284,248

Form .092(C) 00 00

Investment Companies

Definite 96,867,500 212,297,500

Indefinite** 720,000,000 1,510,000,000

TOTAL $43,580,250,480 $87,958,855,087

*Categories reflect amount of securities registered , offered, or eligibleto be sold in Ohio by issuers.**Investment companies may seek to sell an indefinite amount ofsecurities by submitting maximum fees. Based on the maximumfiling fee of $1100, an indefinite filing represents the sale of aminimum of $1,000,000 worth of securities, with no maximum.For purposes of calculating an aggregate capital formation amount,each indefinite filing has been assigned a value of $1,000,000.

Ohio Securities Bulletin 2000:212

Bulk Rate

U.S. Postage

PAID

Columbus, Ohio

Permit No. 5455

OHIO SECURITIES BULLETIN

Ohio Division of Securities

77 South High Street

22nd Floor

Columbus, Ohio 43215

On February 1, 2000, Kevin Roserpled guilty to six felony violations of theOhio Securities Act. The violations resultedfrom Roser’s activities in connection withOhio Business Consultants and UniversityBusinesses 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 currentlyis incarcerated at the Pickaway CorrectionalInstitution.

Hamilton County Common PleasCourt Judge Ruehlman accepted a pleaagreement from James Powell, on January10, 2000, wherein Powell pled guilty tothree counts of the sale of unregisteredsecurities. Powell was sentenced to oneand a half years on one felony count ofselling unregistered securities, and one yearon each on the other counts of sellingunregistered securities. The sentenced wasthen suspended and Powell was placed onprobation for five years. Powell was also

ordered to pay restitution of $315,000 tothe victims. Powell’s sentence will bereinstated if he does not make restitution.

On March 2, 2000, Don F. Mersielplead guilty to a Bill of Information inScioto County that charged him with sixcounts of the attempted selling ofunregistered securities. A pre-sentenceinvestigation will be conducted in the nearfuture. The Division issued a Cease andDesist Order to Mersiel on June 12, 2000,for selling promissory notes issued by Teeto Green Golf Parks and AmeritechPetroleum.

Stephen F. Hickey was indicted inFranklin County in October 1999 on theftand securities fraud counts in connectionwith the sale of two promissory notestotaling $35,000. Following theindictment, a warrant was issued for hisarrest. Hickey was picked up in July, 2000on that outstanding warrant. The securitiessales subject to the indictment involved acompany Hickey owned called MonticelloVentures.

Enforcement Reports

continued from page 9

Executive Conference and

Trainng Center

Vern Riffe Center

77 South High Street

Columbus, Ohio

The Ohio Securities Conference is

returning to an all-securities law format.

The meetings of the Ohio Division of

Securities Advisory Committees will be

held in conjunction with this Conference.

In September, a Conference Brochure

with detailed information and

registration instructions will be sent to

all Ohio Subscribers to the Ohio

Securities Bulletin.

NOVEMBER 9, 2000