Russillo's, LLC and Brandon Scott Russell, Study notes of Law

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STATEMENT OF CHARGES AND NOTICE OF INTENT TO ENTER AN ORDER TO CEASE AND DESIST AND TO CHARGE COSTS 1 DEPARTMENT OF FINANCIAL INSTITUTIONS Securities Division PO Box 9033 Olympia, WA 98507-9033 360-902-8760 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 STATE OF WASHINGTON DEPARTMENT OF FINANCIAL INSTITUTIONS SECURITIES DIVISION IN THE MATTER OF DETERMINING Whether there has been a violation of the Securities Act of Washington by: Russillo’s, LLC and Brandon Scott Russell, Respondents ) ) ) ) ) ) ) ) Order Number S-10-022-10-SC01 STATEMENT OF CHARGES AND NOTICE OF INTENT TO ENTER AN ORDER TO CEASE AND DESIST AND TO CHARGE COSTS THE STATE OF WASHINGTON TO: Russillo’s, LLC Brandon Russell STATEMENT OF CHARGES Please take notice that the Securities Administrator of the State of Washington has reason to believe that Respondents, Russillo’s, LLC and Brandon Scott Russell, have each violated the Securities Act of Washington and that their violations justify the entry of an order of the Securities Administrator under RCW 21.20.390 to cease and desist from such violations and to charge costs. The Securities Administrator finds as follows: TENTATIVE FINDINGS OF FACT Respondents 1. Russillo’s, LLC (“Russillo’s”) is a Washington limited liability company that was formed on December 16, 2005. Russillo’s had its principal place of business in Yakima, Washington. Russillo’s was formed to own and to develop and operate a chain of themed Italian restaurants featuring pizza and gelato. STATEMENT OF CHARGES AND NOTICE OF INTENT TO ENTER AN ORDER TO CEASE AND DESIST AND TO CHARGE COSTS 2 DEPARTMENT OF FINANCIAL INSTITUTIONS Securities Division PO Box 9033 Olympia, WA 98507-9033 360-902-8760 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 2. Brandon Scott Russell (“Russell”) was the president and a managing member of Russillo’s, LLC from at least 2005 through 2007. Nature of the Offering 3. During 2006 and 2007, Respondents, Russillo’s and Russell, each offered and sold more than $150,000 worth of Class “B” limited liability company membership investments in Russillo’s to approximately twenty investors who resided in the state of Washington. Respondents each represented to investors that the Class B memberships were non-voting membership interests that would earn 25% of the gross profits from Russillo’s. Respondents each represented that the Class “A” membership interests would also earn 25% of the gross profits from Russillo’s and, as a Class A member, Russell would receive his share of the company’s gross profits. Respondents each represented to investors that the remaining 50% of the company’s gross profits would be reinvested in Russillo’s. Respondents each failed to disclose to investors how the gross profit would be calculated or when the profit distributions would be paid. 4. The Class B investor funds were pooled together and were used to pay Russillo’s business expenses. Most of the investors who purchased Class B memberships did not actively participate in the management of Russillo’s. The Class B investors did not have any control over the use of their invested funds and they relied upon Respondents, Russillo’s and Russell, to operate the business and to generate a return on their investment. 5. Generally, the Class B membership investments were sold to Russillo’s restaurant customers. During 2006 and 2007, Russillo’s had two restaurant locations. In at least one of STATEMENT OF CHARGES AND NOTICE OF INTENT TO ENTER AN ORDER TO CEASE AND DESIST AND TO CHARGE COSTS 5 DEPARTMENT OF FINANCIAL INSTITUTIONS Securities Division PO Box 9033 Olympia, WA 98507-9033 360-902-8760 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 investment, including unprofitability, competition, inadequate capitalization, and general economic and business conditions. Registration Status 11. Russillo’s is not currently registered to sell its securities in the state of Washington and has not previously been so registered. 12. Russell has never been registered as a securities broker-dealer or a securities salesperson in the State of Washington. Based upon the Tentative Findings of Fact, the following Conclusions of Law are made: CONCLUSIONS OF LAW I. The offer or sale of the limited liability company investments described in the Tentative Findings of Fact constitutes the offer or sale of a security, as defined in RCW 21.20.005(10) and (12), whether in the form of an investment contract, risk capital, or participation in a profit- sharing agreement. II. As described in the Tentative Findings of Fact, Respondents, Russillo’s and Russell, each violated RCW 21.20.140 by offering and selling said securities because no registration for such offer or sale is on file with the Securities Administrator. III. As described in the Tentative Findings of Fact, Russell has violated RCW 21.20.040 by offering and selling said securities while not registered as a securities broker-dealer or securities salesperson. STATEMENT OF CHARGES AND NOTICE OF INTENT TO ENTER AN ORDER TO CEASE AND DESIST AND TO CHARGE COSTS 6 DEPARTMENT OF FINANCIAL INSTITUTIONS Securities Division PO Box 9033 Olympia, WA 98507-9033 360-902-8760 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 IV. As described in the Tentative Findings of Fact, Respondents, Russillo’s and Russell, each violated RCW 21.20.010 because, when offering and selling said securities, Respondents each made untrue statements of a material fact or omitted to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading. NOTICE OF INTENT TO ORDER RESPONDENTS TO CEASE AND DESIST Based on the above Tentative Findings of Fact and Conclusions of Law, the Securities Administrator intends to order, pursuant to RCW 21.20.390, that Russillo’s, LLC and Brandon Scott Russell, and their agents and employees, each shall cease and desist from any violation of RCW 21.20.010, RCW 21.20.040, and RCW 21.20.140. NOTICE OF INTENT TO CHARGE COSTS Pursuant to RCW 21.20.390, and based upon the above Tentative Findings of Fact and Conclusions of Law, the Securities Administrator intends to order that Brandon Scott Russell shall be liable for and shall pay costs of $2,500. AUTHORITY AND PROCEDURE This Statement of Charges is entered pursuant to the provisions of chapter 21.20 RCW, the Securities Act of Washington, and is subject to the provisions of chapter 34.05 RCW. The respondents, Russillo’s, LLC and Brandon Scott Russell, may each make a written request for a hearing as set forth in the NOTICE OF OPPORTUNITY TO DEFEND AND OPPORTUNITY FOR HEARING accompanying this order. STATEMENT OF CHARGES AND NOTICE OF INTENT TO ENTER AN ORDER TO CEASE AND DESIST AND TO CHARGE COSTS 7 DEPARTMENT OF FINANCIAL INSTITUTIONS Securities Division PO Box 9033 Olympia, WA 98507-9033 360-902-8760 If a respondent fails to make a timely hearing request, the Securities Administrator intends to adopt the above Tentative Findings of Fact and Conclusions of Law as final and to enter a permanent order as to that respondent and to charge any costs sought against that respondent. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Dated this 5th day of May, 2010 SUZANNE SARASON Chief of Enforcement Presented by: Janet So Enforcement Attorney