Desteph v. Dep't of Banking

52 Conn.Supp. 550

72 A.3d 470

Thomas DESTEPH

v.DEPARTMENT OF BANKING.^*

No. CV–10–5015042–S.

Superior Court of Connecticut, Judicial District of New Britain.

Feb. 29, 2012.

Thomas F. DeSteph, pro se, the plaintiff.

Patrick T. Ring, assistant attorney general, for the defendant.

COHN, J.

The plaintiff, Thomas DeSteph, appeals ¹ from a June 4, 2010 final decision of the defendant Howard F. Pitkin, commissioner of banking/department of banking (the commissioner or the department). The final decision made permanent a prior cease and desist order issued to the plaintiff relating to sale of securities in violation of the Connecticut Uniform Securities Act (CUSA), General Statutes § 36b–2 et seq., and regulations promulgated thereunder, and imposed a fine of $30,000 for three violations of the act.

The plaintiff was notified on April 8, 2009, and again on July 16, 2009, that he was alleged by the department to have committed three violations of CUSA and that he had a right to a hearing on these charges. The hearing was held on September 21, 2009, before a department hearing officer who subsequently issued a proposed decision. On June 4, 2010, the commissioner of the department adopted the hearing officer's proposed final decision. The final decision (Return of Record, ROR, pp. 501–503) makes the following relevant findings:

51. DeSteph is an individual whose address is 1 Dustin Lane, Jaffrey, New Hampshire 03452.

52. For all relevant periods, DeSteph owned and managed TDA, as well as The DeSteph Agency, an insurance and financial planner which claims that it uses innovative financial and insurance solutions that have pleased the most discerning clients and claims to be proficient in arranging or brokering such investments as tax-deferred annuities, individual retirement accounts, long-term care insurance policies, life insurance and group benefits.

53. Prior to April, 2003, DeSteph was referred by a mutual friend to a Connecticut investor (Investor) to provide investment advice in relation to an inheritance of One Hundred Thousand Dollars ($100,000) that the Investor had recently received from her mother's estate.

54. DeSteph, on behalf of TDA, offered the Investor an interest in a limited partnership that was later documented as a TDA Note, claiming that such investment would earn 6.15% with monthly payouts of Five Hundred Twelve and 50/100 Dollars ($512.50) on her investment of One Hundred Thousand Dollars ($100,000).

[52 Conn.Supp. 553]55. On or about March 10, 2003, DeSteph, on behalf of TDA, effected the sale of the investment to the Investor in the amount of One Hundred Thousand Dollars ($100,000).

56. When the Investor actually received the TDA Note, it provided that TDA promised to: (a) pay Four Hundred Twelve and 50/100 Dollars ($412.50) per month, not the Five Hundred Twelve and 50/100 Dollars ($512.50) previously promised, less Twelve Dollars ($12) per month service charge for 60 months; (b) share in the profits of TDA on a prorated basis at the time the note is paid; and (c) return the entire balanced owed on or before January 10, 2008, unless the Investor reinvests in the TDA Advantage Trust Club in increments of five year agreements.

57. The Investor did not receive any of the promised monthly payments or share in the profits of the TDA Advantage Trust or the entire balance owed on or before January 10, 2008.

58. The Investor did not receive any payment from DeSteph on or before January 10, 2008, as was provided for in the TDA Note.

59. DeSteph failed to disclose, inter alia, any risk factors related to the investment, any financial information on TDA or DeSteph, that TDA and DeSteph would not make a single monthly payment or that DeSteph would use the Investor's money to pay for his personal and household expenses.

60. As of September 21, 2009, no funds had been returned to the Investor by TDA or DeSteph.

61. The TDA Note that was offered and sold by DeSteph was never registered in Connecticut, nor was it exempt from registration, nor was it a covered security.

[52 Conn.Supp. 554]62. DeSteph has never been registered in Connecticut as an agent of TDA, nor was he an associated person.

Based on these findings, the commissioner made the conclusions as follows:

First, under CUSA § 36b–16, a person is forbidden to offer a security unless it is registered or exempt from registration. A “security” is defined under General Statutes § 36b–3 (19) to include a “note.” Since the security in this case was not registered or exempt from registration, and was sold by the plaintiff, the plaintiff violated § 36b–16.

Secondly, CUSA § 36b–6 forbids a person from transacting business as an agent unless the person is registered as an agent of the issuer. Here, the plaintiff on at least one occasion acted as an agent of an issuer, TDA, without the required registration. Therefore, the plaintiff violated § 36b–6.

Finally, CUSA § 36b–4 (a) prohibits a person in connection with the offer or sale of a security from employing any scheme or artifice to defraud or to make any untrue statement of material fact or engage in any act that operates as a fraud or deceit upon any person. Here, the plaintiff did not disclose risk factors related to the investment, did not make any payments on the security and used the invested funds for personal expenses. Such conduct violated § 36b–4 (a).

Based on these violations, the commissioner, acting pursuant to CUSA § 36b–27 (a) and (d), issued a permanent cease and desist order against the plaintiff and fines totaling $30,000 for three violations of CUSA.² The plaintiff has appealed to this court from the commissioner's final decision.

The Appellate Court has set the standard of review in an appeal to the Superior Court from a final decision under CUSA. “Judicial review of [an administrative agency's] action is governed by the [Uniform Administrative Procedure Act,³General Statutes § 4–166 et seq.] ... and the scope of that review is very restricted.... With regard to questions of fact, it is neither the function of the trial court nor of this court to retry the case or to substitute its judgment for that of the administrative agency.... Judicial review of the conclusions of law reached administratively is also limited. The court's ultimate duty is only to decide whether, in light of the evidence, the [agency] has acted unreasonably, arbitrarily, illegally, or in abuse of its discretion.... Although the interpretation of statutes is ultimately a question of law ... it is the well established practice of this court to accord great deference to the construction given [a] statute by the agency charged with its enforcement.... Conclusions of law reached by the administrative agency must stand if the court determines that they resulted from a correct application of the law to the facts found and could reasonably and logically follow from such facts.” (Internal quotation marks omitted.) Papic v. Burke, 113 Conn.App. 198, 204–205, 965 A.2d 633 (2009); see generally Goldstar Medical Services, Inc. v. Dept. of Social Services, 288 Conn. 790, 800, 955 A.2d 15 (2008).

To the degree that the plaintiff contends that the department has not correctly interpreted CUSA, our Supreme Court has stated: “It is well established that an administrative agency's decision under the [UAPA], with respect to the construction of a statute is not entitled to special deference when ... that determination has not previously been subjected to judicial scrutiny [or to] ... a governmental agency's time-tested interpretation.... Instead, well settled principles of statutory interpretation govern our review.... Under these principles, we seek to determine, in a reasoned manner, the meaning of the statutory language as applied to the facts of the case, including the question of whether the language actually does apply.... The sources to which we may look to make this determination are limited by the legislature's plain meaning rule. See General Statutes § 1–2z.” (Brackets omitted; internal quotation marks omitted; citations omitted.) University of Connecticut v. Freedom of Information Commission, 303 Conn. 724, 733, 36 A.3d 663 (2012).

The first contention raised by the plaintiff is set forth in his brief from pages 5–13. He argues to the court that the department hearing officer and the commissioner ignored the “actual evidence” that his issuance of the TDA note was given, in the context of a romantic relationship with the “issuer,” to memorialize an understanding between them. The court, however, in keeping with the standard of review outline above, may not retry the matter. The hearing officer's findings (adopted by the commissioner) are different from those proposed by the plaintiff, and are based upon substantial evidence in the record.⁴ In addition, the hearing officer chose to believe the presentation of facts and the investor-witness. “Credibility of witnesses is a matter within the province of the administrative agency.” Spitz v. Board of Examiners of Psychologists, 127 Conn.App. 108, 119, 12 A.3d 1080 (2011).

The plaintiff further argues that the department was barred from commencing the enforcement action against him by a statute of limitations, apparently drawn from the federal securities laws, and the doctrine of laches. The Appellate Court has stated that statutes of limitations are not binding on state entities, “unless by express terms or necessary implication such appears to have been the clear intention of the legislature, and the rights of the government are not to be impaired by a statute unless its terms are clear and explicit, and admit of no other construction.” (Emphasis in original; internal quotation marks omitted.) Joyell v. Commissioner of Education, 45 Conn.App. 476, 485, 696 A.2d 1039, cert. denied, 243 Conn. 910, 701 A.2d 330 (1997). Joyell also holds that laches does not apply to the state. Id.⁵ That ruling applies to this case where the department is acting in the public interest...