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U.S. Securities and Exchange Commission

UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION

SECURITIES EXCHANGE ACT OF 1934
Release No. 50034 / July 16, 2004

Admin. Proc. File No. 3-11550


In the Matter of

Connecticut Capital Markets, L.L.C., and Richard L. Klass,

Respondents.



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ORDER INSTITUTING PUBLICADMINISTRATIVE PROCEEDINGS, PURSUANT TO SECTION 15(b) OF THE SECURITIES EXCHANGE ACT OF 1934, MAKING FINDINGS AND IMPOSING REMEDIAL SANCTIONS

I.

The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted pursuant to Section 15(b) of the Securities Exchange Act of 1934 ("Exchange Act") against Connecticut Capital Markets, L.L.C. ("Connecticut Capital") and Richard L. Klass ("Klass") (collectively referred to as "Respondents").

II.

In anticipation of the institution of these proceedings, Respondents have each submitted an Offer of Settlement (the "Offers") which the Commission has determined to accept. Solely for the purpose of these proceedings, and any other proceeding brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over them and the subject matter of these proceedings, which are admitted, Respondents consent to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions (the "Order"), as set forth below.

III.

On the basis of this Order and Respondents' Offers, the Commission finds1 that:

Respondents

1. Connecticut Capital is a broker-dealer registered with the Commission pursuant to Section 15(b) of the Exchange Act. Connecticut Capital provides investment banking, research and financial consulting services to a number of small to mid-sized companies. Connecticut Capital's main office is in Greenwich, Connecticut.

2. Klass, age 56, is the principal of Connecticut Capital. Klass was responsible for adopting Connecticut Capital's compliance and supervisory procedures and directly supervising the firm's Managing Director of Research (the "Research Analyst"). Klass holds Series 7, 24, 27, and 63 securities licenses. Klass and Connecticut Capital have provided investment banking, research and other financial consulting services to a number of publicly traded companies since 1999.

Other Relevant Entity

3. CyberCare, Inc. ("CyberCare"), a Florida corporation based in Boynton Beach, Florida, is a technology-assisted health management company. CyberCare's common stock, which is registered with the Commission pursuant to Section 12(j) of the Exchange Act, was quoted on the Nasdaq National Market from at least April 2000 to August 2002. CyberCare's common stock has since been delisted from the Nasdaq and is currently quoted on the Pink Sheets.

Facts

4. In January 2000, the Research Analyst created a research report for CyberCare. The research report, which was issued on January 25, 2000, recommended CyberCare as a "strong buy." The research report highlighted orders for CyberCare's products from various public and private entities and claimed that these orders would result in CyberCare's sale of several thousand of its products. The research report also put a twelve-month price target on CyberCare's stock of $52 per share. At the time the research report was issued, CyberCare's stock was quoted at approximately $11.25 per share on the Nasdaq.

5. Although the research report appeared to be created by an independent research analyst for general circulation, it failed to disclose that the Research Analyst was simultaneously employed and paid by a public relations firm engaged by CyberCare to promote the company. As part of his duties at this public relations firm, the Research Analyst assisted CyberCare with, among other things, the creation of press releases and investor presentations. In fact, the Research Analyst maintained an office at the public relations firm, and spent all of his time working from that office from at least December 1999 to May 2000 (the "relevant time period"). The Research Analyst's simultaneous employment at Connecticut Capital and CyberCare's public relations firm created a conflict of interest that was not disclosed to investors.

6. In addition, the product orders highlighted in the Research Analyst's research report were fictitious or grossly exaggerated, and the research report's price target was ultimately based on these fictitious and exaggerated orders.

7. After the January 25, 2000 research report was published, Connecticut Capital sent it to its clients and potential clients. In addition, CyberCare included the research report in marketing materials and on its website.

8. The Research Analyst's conduct violated Sections 17(a) and 17(b) of the Securities Act of 1933 ("Securities Act") and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.

9. During the relevant time period, Klass was the Connecticut Capital supervisor responsible for establishing and applying compliance and supervisory procedures. Klass failed to create and enforce such procedures concerning the creation and review of research reports disseminated to the public. In particular, Klass failed to adopt procedures to ensure that research reports did not contain material omissions or misrepresentations.

10. Klass also failed to create and enforce written supervisory procedures for Connecticut Capital concerning outside business activities of its associated members. Klass knew that the Research Analyst was employed by a public relations firm retained by CyberCare at the time that the Research Analyst created the research report. The Research Analyst's relationship with CyberCare and its public relations firm seriously undermined the Research Analyst's objectivity. Despite this knowledge, Klass failed to undertake any steps to ensure that the research report did not omit any material information or contain any false or misleading information.

11. In addition, as the Research Analyst's direct supervisor, Klass failed to review the Research Analyst's correspondence file in accordance with Connecticut Capital's existing supervisory procedures. Had Klass done so, he would have discovered the Research Analyst's involvement in the creation of CyberCare's press releases and investor presentations.

Connecticut Capital's Failure to Supervise

12. Section 15(b)(4)(E) of the Exchange Act provides for the imposition of a sanction against a broker or dealer who "has failed reasonably to supervise, with a view to preventing violations of the securities laws, another person who commits such a violation, if such other person is subject to his supervision." See Matter of Smith Barney, Harris Upham & Co., Inc., Exchange Act Release No. 21813, 32 SEC Docket 999, 1004 (March 5, 1985). Section 15(b)(6)(A)(i) parallels Section 15(b)(4)(E) and provides for the imposition of sanctions against persons associated with a broker or dealer.

13. Connecticut Capital failed reasonably to supervise the Research Analyst with a view to preventing his violations of the federal securities laws. Connecticut Capital had no procedures or systems in place to monitor the Research Analyst's outside business activities for potential or actual conflicts of interest with his role as an analyst, or to review the research reports the Research Analyst created. As a result, the Research Analyst wrote, and Connecticut Capital issued, a research report that failed to disclose that the Research Analyst was being paid by CyberCare's public relations firm to provide services to CyberCare, and which contained material misstatements regarding several purported orders for CyberCare's products.

Klass' Failure to Supervise

14. Section 15(b)(6) of the Exchange Act, incorporating by reference Section 15(b)(4)(E) of the Exchange Act, authorizes the Commission to sanction a person associated with a broker or dealer if it finds that it is in the public interest to do so and that the person "failed reasonably to supervise, with a view to preventing violations of the [federal securities laws], another person who commits such a violation, if such other person is subject to his supervision."

15. Supervision is an essential function of the broker-dealer. "It is critical for investor protection that a broker establish and enforce effective procedures to supervise its employees." Matter of Donald T. Sheldon, Exchange Act Release No. 31475, 52 SEC Docket 3826, 3855, aff'd, Sheldon v. SEC, 45 F.3d 1515 (11th Cir. 1995). The Commission has emphasized that the "responsibility of broker-dealers to supervise their employees by means of effective, established procedures is a critical component in the federal investor protection scheme regulating the securities markets." Matter of Smith Barney, Harris Upham & Co., Exchange Act Release No. 21813, 32 SEC Docket 999, 1010 (Mar. 5, 1985). Further, a supervisor must respond reasonably when confronted with indications suggesting that a registered representative may be engaging in improper activity. See Matter of Nicholas A. Boccella, Exchange Act Release 26574, 42 SEC Docket 1388 (Feb. 27, 1989). "Even where the knowledge of supervisors is limited to 'red flags' or 'suggestions' of irregularity, they cannot discharge their supervisory obligations simply by relying on the unverified representations of employees." Matter of John H. Gutfreund, Exchange Act Release No. 31554, 51 SEC Docket 93, 108 (Dec. 3, 1992).

16. Klass, Connecticut Capital's supervisory principal, failed to establish and implement supervisory or compliance policies and procedures at Connecticut Capital regarding review of research reports and outside business activities of its associated persons, which might have detected or prevented the Research Analyst's violations of the securities laws. Klass was aware of, but failed to act upon, information that the Research Analyst had potential or actual conflicts of interest as a result of his employment by a public relations firm hired by CyberCare. In particular, when Klass became aware that the Research Analyst worked for CyberCare's public relations firm while concurrently creating the research report, he failed to undertake any steps with a view towards adequately preventing violations of the federal securities laws. Moreover, as the Research Analyst's direct supervisor, Klass failed adequately to enforce existing procedures regarding the review of the Research Analyst's correspondence file.

17. As a result of the conduct described above, Connecticut Capital and Klass failed reasonably to supervise the Research Analyst, a person subject to their supervision within the meaning of Section 15(b) of the Exchange Act, with a view toward preventing the Research Analyst's violations of Sections 17(a) and 17(b) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.

IV.

In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions specified in Respondents' Offers.

Accordingly, it is hereby ORDERED that:

A. Connecticut Capital shall be, and hereby is, censured.

B. Pursuant to Section 15(b)(6) of the Exchange Act, Klass be, and hereby is, suspended from association with any broker-dealer for a period of six (6) months, effective on the second Monday following the entry of this Order, and from serving in a supervisory capacity with any broker or dealer for a period of six (6) months following the six (6) month suspension.

C. Connecticut Capital shall, within 30 days of the entry of this Order, pay disgorgement and prejudgment interest in the total amount of $59,110.36 to the United States Treasury. Such payment shall be: (a) by United States postal money order, certified check, bank cashier's check or bank money order; (b) payable to the Securities and Exchange Commission; (c) hand-delivered or mailed to the Office of Financial Management, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Alexandria, Stop O-3, VA 22312; and (d) submitted under cover letter which identifies Connecticut Capital as a respondent in these proceedings, the file number of this proceeding, a copy of which cover letter and money order or check shall be sent to Glenn S. Gordon, Associate Regional Director, Southeast Regional Office, Securities and Exchange Commission, 801 Brickell Avenue, Suite 1800, Miami, FL 33131.

D. It is further ordered that Connecticut Capital shall, within 30 days of the entry of this Order, pay a civil money penalty in the amount of $200,000.00 to the United States Treasury. Such payment shall be: (a) by United States postal money order, certified check, bank cashier's check or bank money order; (b) payable to the Securities and Exchange Commission; (c) hand-delivered or mailed to the Office of Financial Management, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Alexandria, Stop O-3, VA 22312; and (d) submitted under cover letter which identifies Connecticut Capital as a respondent in these proceedings, the file number of this proceeding, a copy of which cover letter and money order or check shall be sent to Glenn S. Gordon, Associate Regional Director, Southeast Regional Office, Securities and Exchange Commission, 801 Brickell Avenue, Suite 1800, Miami, FL 33131. Such civil money penalty may be distributed pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002 ("Fair Fund distribution"). Regardless of whether any such Fair Fund distribution is made, amounts ordered to be paid as civil money penalties pursuant to this Order shall be treated as penalties paid to the government for all purposes, including tax purposes.

E. It is further ordered that Klass shall, within 30 days of the entry of this Order, pay disgorgement and prejudgment interest in the total amount of $41,377.23 to the United States Treasury. Such payment shall be: (a) by United States postal money order, certified check, bank cashier's check or bank money order; (b) payable to the Securities and Exchange Commission; (c) hand-delivered or mailed to the Office of Financial Management, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Alexandria, Stop O-3, VA 22312; and (d) submitted under cover letter which identifies Connecticut Capital as a respondent in these proceedings, the file number of this proceeding, a copy of which cover letter and money order or check shall be sent to Glenn S. Gordon, Associate Regional Director, Southeast Regional Office, Securities and Exchange Commission, 801 Brickell Avenue, Suite 1800, Miami, FL 33131.

F. It is further ordered that Klass shall, within 30 days of the entry of this Order, pay a civil money penalty of $50,000.00 to the United States Treasury. Such payment shall be: (a) by United States postal money order, certified check, bank cashier's check or bank money order; (b) payable to the Securities and Exchange Commission; (c) hand-delivered or mailed to the Office of Financial Management, Securities and Exchange Commission, Operations Center, 6432 General Green Way, Alexandria, Stop O-3, VA 22312; and (d) submitted under cover letter which identifies Connecticut Capital as a respondent in these proceedings, the file number of this proceeding, a copy of which cover letter and money order or check shall be sent to Glenn S. Gordon, Associate Regional Director, Southeast Regional Office, Securities and Exchange Commission, 801 Brickell Avenue, Suite 1800, Miami, FL 33131. Such civil money penalty may be distributed pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002 ("Fair Fund distribution"). Regardless of whether any such Fair Fund distribution is made, amounts ordered to be paid as civil money penalties pursuant to this Order shall be treated as penalties paid to the government for all purposes, including tax purposes.

By the Commission.

Jonathan G. Katz
Secretary

See also the Order in this matter


Endnotes


http://www.sec.gov/litigation/admin/34-50034.htm


Modified: 07/16/2004