STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

OFFICE OF COMPTROLLER DEPARTMENT ) OF BANKING AND FINANCE, )

)

Petitioner, )

)

vs. ) CASE NO. 79-2378

) FORBES, WALSH, KELLY AND COMPANY, ) INC., and CARL F. BAILEY, JR., )

)

Respondents. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its undersigned Hearing Officer, Michael Pearce Dodson, held a final hearing on March 7, 1980, in Orlando, Florida. The following appearances were entered:

APPEARANCES

For Petitioner: Philip J. Snyderburn, Esquire

Director, Division of Securities Office of the Comptroler

The Capitol, Suite 1402 Tallahassee, Florida 32301

For Respondent: Patrick T. Christiansen, Esquire

AKERMAN SENTERFITT & EIDSON

17th Floor, CNA Building Post Office Box 231 Orlando, Florida 32802

These proceedings began on October 17, 1979, when the Petitioner, Department of Banking and Finance (Department) issued an order suspending the registration of Respondents, Forges, Walsh & Kelly (FWK) and Carl F. Bailey, Jr. under the provisions of Chapter 517.12(11)(a), Florida Statutes, (Supp. 1978), subject to a request for an administrative hearing. That request was subsequently made by Respondents on October 24, 1979. The case was forwarded to the Division of Administrative Hearings for the assignment of a Hearing Officer to conduct a final hearing. That hearing was noticed for and held on March 7, 1980.

The issues in this case are framed by the Petitioner's order suspending registration and by Respondent's statements of issues in dispute. By the time of the final hearing, the dispute had been distilled down to a consideration of what kind of a penalty, if any, should be imposed on Respondents' for placing customer securities orders without first having their applications to sell securities approved under the Florida Securities Act. Paragraph 9 of the Order, relating to advertising the Orlando office, was "dismissed" by the Department at the final hearing. Just prior to the hearing both parties offered a stipulation

of fact which was received as evidence. The Petitioner presented no further evidence or witnesses. Respondents offered Exhibits 1-6, which were received into evidence and presented as their witnesses; Mr. Robert E. Kelly, Mr. Carl F. Bailey, Jr., Mr. A.J. Rusterholtz and Mr. Richard W. Baker.

After the hearing, Respondents submitted a Proposed Recommended Order including Findings of Fact. Careful consideration has been given to each of the Respondents' proposed findings of fact. To the extent that they are not contained in this order, they have been rejected as being either not supported by competent substantial evidence or as irrelevant and immaterial to the issues for determination here.

FINDINGS OF FACT

1. Forbes, Walsh & Kelly is a New York corporation licensed to deal in securities under the laws of New York. The company through its secretary, Mr. Robert E. Kelly, contacted the Division of Securities on March 2 and 21, 1979 concerning the procedure for registering to be a securities dealer in Florida.

   
   

2. After receiving the appropriate application forms and a copy of the relevant Florida Statutes, Forbes, Walsh & Kelly filed its application on March 26, 1979, to be licensed in Florida as a securities dealer.

   
   

3. On April 2, 1979, FWK was notified that its application as a dealer was being held in abeyance, pending receipt of the corporate by-laws, a branch office application, and other materials.

   
   

4. Subsequently, on April 20, 1979, FWK applied for a branch office license with Respondent, Carl F. Bailey, Jr. to be the company's "principal" and branch manager in Florida.

   
   

5. Between March 26, 1979 and June 26, 1979, while Mr. Carl F. Bailey was not licensed as a securities salesman and while FWK was not registered as a securities dealer, FWK through Bailey executed approximately 774 security sales transactions on behalf of their customers.

   
   

6. On June 27, 1979, the Division told FWK that its registration as a security broker-dealer had been approved. At the same time notice was also given that the application for a branch office in Orlando was approved as was the transfer of Carl F. Bailey's registration as a salesman for FWK.

   
   

7. Between March 26, 1979 and August 14, 1979, in the course of its business, FWK through Carl F. Bailey "introduced" approximately 263 security transactions on a fully disclosed basis to Robb, Peck, McCooey & company, Inc., which though registered as a securities dealer in New York was not at that time so registered in Florida.

   
   

8. Aside from the instant order of suspension, neither Carl F. Bailey, Jr. nor FWK has ever been charged with previously violating the Florida Securities Act.

   
   

9. FWK and Carl F. Bailey, Jr., have at least two very satisfied customers, Mr. A.J. Rusterholtz and Mr. Richard W. Baker. They testified in support of Respondents at the final hearing.

   
   

10. No evidence was presented to show that either Carl F. Bailey or FWK ever made any inquiry with the Division about when they would be eligible to

    engage in securities transactions in Florida after submitting their applications for registration.

    
    

11. FWK through its Orlando branch office serves approximately 500 securities customers, many of whom are in direct daily contact with the office.

    
    

    CONCLUSIONS OF LAW

    
    

12. The Division of Administrative Hearings has jurisdiction over the subject matter and the parties of this case. Section 120.57(1) and Section 120.65, Florida Statutes (1979). The caption of this cause was restyled because the Department is the moving party even though FWK and Mr. Bailey requested the hearing.

    
    

13. The Florida Securities Act, Chapter 517, , Florida Statutes (Supp. 1978)1 requires that every salesman and dealer in securities in Florida must register with the Department of Banking and Finance. Section 517.12(1), Florida Statutes (Supp. 1978).

    
    

14. A "dealer" is defined as:

    
    

    . . . any person, other than a salesman, re- gistered under this part, who engages either for all or part of his time, directly or in- directly, as broker or principal in the business of offering, buying, selling or other- wise dealing or trading insecurities issued by another person. Section 517.021(6), Florida Statutes (Supp. 1978).

    
    

    Forbes, Walsh & Kelly is a dealer under Florida law and Mr. Carl F. Bailey, Jr. is a salesman as defined at Section 517.021(14), Florida Statutes (Supp. 1978).

    
    

15. FWK through its agent Carl F. Bailey, Jr. sold securities in Florida prior to the time, June 26, 1979, that its registration was approved by the Department. A registration is not effective upon the filing of an application, but only after approval by the Department of Banking and Finance. This is made clear by Section 517.12(10), Florida Statutes (Supp. 1978), which states:

    
    

    If the department shall find that the applicant is of good report and character and has com- plied with the provisions of this section and the rules made pursuant hereto, it shall re- gister the applicant.

    
    

    Respondent, FWK's assumption that its registration was effective from the date of its application is without foundation.

    
    

16. Because is sold securities for 65 days in Florida before its registration was approved, FWK has violated the provisions of Section 517.12, Florida Statutes (Supp. 1978).

    
    

17. Mr. Carl F. Bailey, Jr. as the branch manager of the FWK office in Orlando is an "associated Person", Section 517.021(3), Florida Statutes (Supp. 1978). As such, he too has violated the terms of Section 517.12, Florida Statutes (Supp. 1978) by selling securities for 65 days without being properly registered.

18. For the above violations the Department of Banking and Finance can impose those penalties provided for in Section 517.161, Florida Statutes (Supp. 1978) including revocation, denial or suspension of the registration of a dealer or salesman. The Department's order suspending registration suggest a penalty of a 65-day suspension. This time period reflects the time when FWK and a "free ride" by selling securities without first being approved for registration in Florida.

    
    

19. Several factors in this case deserve consideration in determining an appropriate penalty. Because of the constant contact which securities customers expect to have with their broker, a suspension for any length of time will be a serious economic hardship for both FWK and Carl F. Bailey, Jr. The violation of Section 517.12 has not resulted in any loss or damage to any of FLK's customers. Several customers are very pleased with the service which FWK provides them. Furthermore, there is no indication that FWK began selling securities prematurely in bad faith. The company has not previously been charged with violating any securities laws, either in Florida or in New York. These factors favor a mitigated penalty.

    
    

20. There are some factors which weigh against mitigation. FWK was on notice before March 26, 1979, that it would not be registered until its application was approved. The application materials furnished to the company contained a copy of the Florida Securities Act, including Section 517.12, Florida Statutes (Supp. 1978). There is no evidence that the company, even though it had several telephone conversations with the Department, ever inquired about when it would be eligible to begin selling securities.

    
    

21. FWK has argued that because no harm was done to any of its customers, it should receive no penalty. That argument misses the point of a registration requirement. Registration is a preventative measure designed to limit the chance that harm from unqualified dealers will come to the investing public. It is not a remedial requirement for harm once done. The only way to insure that other potential securities dealers will not sell first and register later is to impose a penalty solely for not registering.

    
    

22. Since FWK had the benefit of a 65-day period of registration -free selling, it is fair that the Company return those 65 days to the citizens of Florida by having its license suspended for that period. The same reasoning applies to Respondent, Carl F. Bailey, Jr.

RECOMMENDATION

In light of the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED:

That the registration of Forbes, Walsh, Kelly & Company, Inc., as a dealer and to operate a branch office and the registration of Carl F. Bailey, Jr., as an associated salesman, with Forbes, Walsh, Kelly & Company, Inc. be suspended for a period of 65 business days from the effective date of the Department's final order.

DONE AND ORDERED in Tallahassee, Leon County, Florida, this 5th day of October, 1980, in Tallahassee, Florida.

MICHAEL P. DODSON

Hearing Officer

Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301

(904) 488-9675

COPIES FURNISHED:

Philip J. Snyderburn, Esquire Director, Division of Securities Office of Comptroller

The Capitol, Suite 1402 Tallahassee, Florida 32301

Patrick T. Christiansen, Esquire AKERMAN SENTERFITT & EIDSON

17th Floor, CNA Building Post Office Box 231 Orlando, Florida 32802

Docket for Case No: 79-002378

Orders for Case No: 79-002378