Papic v. Burke

• Decision Date: 17 March 2009
• Docket Number: No. 28698.,28698.
• Citation: 113 Conn.App. 198,965 A.2d 633
• Court: Connecticut Court of Appeals
• Parties: Eddie PAPIC v. John P. BURKE, Banking Commissioner, et al.

965 A.2d 633

113 Conn.App. 198

Eddie PAPIC v. John P. BURKE, Banking Commissioner, et al.

No. 28698.

Appellate Court of Connecticut.

Argued December 1, 2008.

Decided March 17, 2009.

Eddie Papic, pro se, the appellant (plaintiff).

William J. Prensky, assistant attorney general, with whom, on the brief, was Richard Blumenthal, attorney general, for the appellees (defendants).

BISHOP, GRUENDEL and ROBINSON, Js.

GRUENDEL, J.

The pro se plaintiff, Eddie Papic, appeals from the judgment of the trial court dismissing his appeal from the "findings of fact, conclusions of law and order" (order) of the defendant, the banking commissioner.¹ In that order, the defendant found that, in connection with the offer, sale or purchase of a security, the plaintiff (1) omitted to state material facts necessary to make statements not misleading in violation of General Statutes § 36b-4(a)(2), (2) made untrue statements of material fact also in violation of § 36b-4(a)(2) (3) engaged in fraudulent practices or courses of business in violation of General Statutes § 36b-4(a)(3), and (4) failed to register as an investment adviser agent in violation of General Statutes (Rev. to 2003) § 36b-6 (c). The Superior Court affirmed that decision. On appeal to this court, the plaintiff claims that (1) federal law preempts the defendant's authority to penalize him for fraud and misrepresentation, (2) the defendant improperly found that the plaintiff violated §§ 36b-4 (a) and 36b-6 (c), and (3) the plaintiff was deprived of due process of law. We affirm the judgment of the trial court.

The record reveals the following relevant facts. In September, 2000, the plaintiff and a colleague, Wilder Carnes, set out to create an investment fund. Their endeavors resulted in the creation of Criterion Investment Fund I L.P. (fund), a hedge fund based in Connecticut and organized as a limited partnership. Criterion Investment Capital LLC (LLC) was the fund's general partner and was managed by the plaintiff and Carnes. In December, 2000, the fund began offering limited interests in the partnership to investors, and issued a confidential offering circular (circular) for the stated purpose of permitting prospective investors to evaluate the offering and the fund. The circular and its associated documentation were reviewed by counsel, who did not raise any concerns with regard to the disclosures contained therein.

The circular indicated that the minimum investment in the fund was $500,000 and that each investor must have a net worth of more than $1 million. Although the circular also indicated that the LLC could waive these minimum requirements in individual cases, not a single investment in the fund met the $500,000 requirement, and two investors did not meet the minimum net worth requirement. The circular also indicated that the fund would invest principally in equity securities, but by December, 2001, all of the fund's trades were in options. The circular further provided that the LLC would furnish each investor with an annual report containing audited financial statements and quarterly reports on the status of the fund. The LLC never transmitted any such reports to its investors. Finally, the circular indicated that the plaintiff and Carnes were the managers of the LLC and were the "portfolio managers primarily responsible for the day-to-day management of the [fund]." As such, the circular contained their biographies. The plaintiff wrote his biography, which did not contain any reference to a personal bankruptcy or a chapter 7 discharge in bankruptcy² that he received on March 31, 1998.

Armed with the circular, the plaintiff solicited Edward Segan as a potential investor during the summer of 2001. He provided Segan with a copy of the circular, a performance document indicating a year to date return of 5.62 percent and a sample account statement. On the basis of these documents and the plaintiff's representations, Segan invested $152,724.01 in the fund on December 10, 2001, becoming the last limited partner to join the fund. After Segan joined the fund, the plaintiff informed him that his funds would not be invested until 2002. Despite this representation, the plaintiff invested Segan's funds on December 10, 2001, and by January 1, 2002, Segan's investment had decreased in value to $10,947. After Segan provided the plaintiff with his initial investment, he never received any written reports from the plaintiff, the LLC or the fund. When Segan inquired of the plaintiff in January, 2002, regarding the value of his investment, the plaintiff informed him that it had decreased approximately 10 percent in value, despite an actual decrease of approximately 95 percent. In May, 2002, Segan filed a complaint with the defendant.

In response to Segan's complaint, on February 5, 2004, the defendant issued a document to the plaintiff entitled "Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing." In that document, the defendant charged the plaintiff with violations of § 36b-4(a)(2) for omitting to state material facts and for making untrue statements of material facts, with violations of § 36b-4(a)(3)³ for engaging in fraudulent practices or courses of business and with a violation of § 36b-6 (c)⁴ for engaging in unregistered investment adviser agent activity.

The defendant held a hearing between November 18, 2004, and February 24, 2005, and on August 8, 2005, issued the order that serves as the basis for the present appeal.⁵ With regard to omitting material facts, the defendant charged the plaintiff with failure to inform Connecticut investors that (1) the plaintiff had filed for personal bankruptcy, (2) no investor had invested the minimum of $500,000, (3) the fund was trading principally in options, (4) two investors did not have a net worth exceeding $1 million and (5) the LLC did not transmit annual and quarterly reports to the fund's investors. In the order, the defendant found that the plaintiff had violated § 36b-4(a)(2) on each of these charges except the third, regarding trading principally in options. With regard to making untrue statements of material fact, the defendant charged the plaintiff with making four untrue statements of material facts in connection with the offer, sale or purchase of a security, also in violation of § 36b-4(a)(2), by (1) providing Segan with the sample account statement, (2) providing Segan with the performance document indicating a return of 5.62 percent, (3) assuring Segan that his funds would not be invested until January, 2002, when his funds were actually invested on December 10, 2001, and (4) informing Segan that his funds had decreased 10 percent in value despite an actual decrease of more than 95 percent. In his order, the defendant found that only the latter two of these constituted violations of § 36b-4(a)(2). With regard to engaging in fraudulent practices or courses of business, the defendant charged the plaintiff with violations of § 36b-4(a)(3) for each of the same activities that formed the bases of the charges under § 36b-4(a)(2) with the exception of failure to disclose the plaintiff's bankruptcy. In his order, the defendant found that each of the plaintiff's charged activities constituted violations of § 36b-4(a)(3) except for (1) the charge involving the sample account statement and performance document, and (2) the charge of investing principally in options and indicating that the fund's objective was to achieve superior long-term capital appreciation with moderate risk. Finally, the defendant's order found that the plaintiff violated § 36b-6 (c) by transacting business as an unregistered investment adviser agent.

In summary, the defendant found four violations of § 36b-4(a)(2) for omissions of material fact in the offer and sale of a security, two violations of § 36b-4(a)(2) for making untrue statements of material fact in the offer and sale of a security, three violations of § 36b-4(a)(3) for engaging in a fraudulent practice or course of business,⁶ and one violation of § 36b-6 (c) for transacting business as an investment adviser agent and failing to register as such. As a result, the defendant ordered the plaintiff to cease and desist from violating §§ 36b-4(a)(2) and (3), and 36b-6(c). He further ordered the plaintiff to pay a civil penalty of $40,000. The plaintiff appealed to the Superior Court, which affirmed the decision of the defendant and dismissed the appeal. This appeal followed.

We begin by setting forth our standard of review for appeals from the defendant's administrative decisions. "Judicial review of [an administrative agency's] action is governed by the [Uniform Administrative Procedure Act, General 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....

"General Statutes § 4-183(j), which describes the scope of judicial review of administrative decisions, provides in relevant part: The court shall affirm the decision of the agency unless the court finds that substantial rights of the person appealing have been prejudiced...