STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

MELVIN WILLIAM WOERZ, )

)

Petitioner, )

)

vs. ) CASE No. 86-1785

) DEPARTMENT OF BANKING AND FINANCE, ) DIVISION OF SECURITIES, )

)

Respondent, )

)

RECOMMENDED ORDER

Pursuant to notice, a hearing was held in this cause, on August 25, 1986, in Orlando, Florida, before Diane A. Grubbs, a Hearing Officer with the Division of Administrative Hearings.

APPEARANCES

For Petitioner: Robert W. Kieffer, Esquire

Post Office Box 2021 Orlando, Florida 32801

For Respondent: Robert K. Good, Esquire

Office of the Comptroller

400 West Robinson Street, Suite 501 Orlando, Florida 32801

ISSUE

Whether petitioner's application for registration as a principal with Monvest Securities, Inc., should be granted by the Department of Banking and Finance, Division of Securities (Department).

BACKGROUND

On April 21, 1986, the Department entered an order denying petitioner's application for registration as a principal with Monvest Securities, Inc., based on the following allegations: (1) that petitioner sold or offered for sale securities without being effectively registered as an associated person with the Department; (2) that petitioner held himself out to the investing public as a security broker and offered for sale securities to the investing public without being effectively registered as a dealer with the Department; (3) that petitioner falsely represented that he was licensed or registered with the Department and with the NASD on January 1, 1986, when in fact he was not so registered; and (4) that petitioner made material false statements on his application by failing to disclose that he was employed by Wall Street West, by failing to correctly disclose the dates that he worked for R. H. Stewart and

Company, and by affirming on his application that he would comply with Florida law when at the time he signed the application he was already in violation of Florida law.

The order concluded that petitioner's application should be denied pursuant to Section 517.161(1)(a), Florida Statutes, in that respondent had violated several provisions of Chapter 517, Florida Statutes, and the rules promulgated thereunder. The order also stated that the application would be denied pursuant to Rule 3E-600.04(3)(a), Florida Administrative Code, which requires that a branch office of a registered dealer be registered with the Department prior to engaging in business therefrom, because petitioner's application seeks registration with the Department to engage in the business of a principal at an unregistered branch office.

On May 13, 1986, Melvin Woerz petitioned for an administrative hearing.

Petitioner alleged that he had never intentionally misrepresented his position with regard to his licensure or registration with the state; that he never offered securities for sale without being registered with the state as an associated person or dealer; that he had always attempted to comply with the laws of the State of Florida and the rules and regulations promulgated by the Department; and that he had never intentionally violated any of the rules or regulations of the Department or the laws of the State of Florida. The petition also alleges that the procedure for registration employed by the Department makes it almost impossible for petitioner or any other applicant to learn when his application has actually been submitted to the State of Florida or the Central Registration Depository of the National Association of Security Dealers.

At the beginning of the hearing, petitioner admitted several of the factual allegations set forth in the order denying his application. Specifically, petitioner admitted paragraphs 2, 4, 5, 9, 10, 13, and 16. He also admitted paragraphs 12 and 14, except as to the dates stated. Petitioner also admitted to paragraph 1, except did not admit that petitioner personally filed the application.

Petitioner presented the testimony of Michael Blaker, a Financial Examiner/Analyst II with the Department, and Arthur J. Besch, an associate with Woerz at R. H. Stewart and Allied Capital. Petitioner also testified on his own behalf. Petitioner's exhibits 1-7 were admitted into evidence. The Department presented the testimony of Michael Blaker, and respondent's exhibits 1-6 were admitted into evidence.

Both parties timely filed proposed Findings of Fact and Conclusions of Law, and a ruling on each proposed finding of fact has been made in the Appendix to this Recommended Order.

FINDINGS OF FACT

1. The petitioner was registered with the Department as an associated person pursuant to Chapter 517, as follows:

   
   

   DATE COMPANY

   9/22/82 to 9/19/83 Blinder, Robinson & Co. 11/23/83 to 6/26/84 First Interwest Securities Co. 9/4/84 to 12/27/84 Wall Street West, Inc.

   3/11/85 to 10/3/85 R. H. Stewart & Co., Inc. 9/25/85 to 12/3/85 Allied Capital Group, Inc.

2. Petitioner has not been registered with the Department in any capacity since December 3, 1985.

   
   

3. The Department uses the forms adopted and approved by the National Association of Securities Dealers (N.A.S.D.) and filed with the Central Registration Depository (C.R.D.). Customarily, the registration application, Form U-4, is filled out by the applicant and given to the Broker-Dealer with whom the applicant is to be licensed. The Broker-Dealer then completes the form with the information concerning that Broker-Dealer and sends the completed form to the C.R.D. After Form U-4 has been filed with the C.R.D., the information is transmitted to the Department. The Broker-Dealer is advised when the applicant has been approved, and the Broker-Dealer informs the applicant that he can begin selling securities. It generally takes between one and two weeks for an applicant to be approved. No license or other paper is transmitted to the applicant from the Department to inform the applicant of his registration. However, the applicant can telephone the Department and determine his status.

   
   

4. When an individual leaves the employ of a Broker-Dealer, the Broker- Dealer is required to send a Form U-5 to the C.R.D. within 30 days of termination. The individual never receives a copy of this form from either the

   C.R.D. or the Department or knows when it has been sent or received. Again, the associated person relies on the Broker-Dealer to advise him of his status.

   
   

5. There is a procedure whereby an individual registered with one Broker- Dealer can transfer to another Broker-Dealer. This procedure, known as T.A.T., allows the individual to sell securities for 30 days while his application for registration with the new Broker-Dealer is pending. However, this procedure applies only to individuals who transfer their affiliation. It does not apply to individuals who terminate their affiliation with one company and then apply for registration with another company.

   
   

6. Petitioner's registration as an associated person with Allied Capital terminated on December 3, 1985, and petitioner was advised by Allied Capital of his termination around December 1, 1985. Petitioner was terminated by Allied Capital due to insufficient business.

   
   

7. On or about December 16, 1985, petitioner traveled to New York and spoke with representatives of Monvest Securities, Inc. (Monvest), regarding his registration through that company to open a branch office in Apopka, Florida. The same day he filled out a portion of a Form U-4 and gave it to the company for them to complete and send on to the C.R.D. Monvest also agreed to prepare the necessary documents to register the branch office in Apopka. Generally, the Broker-Dealer submits the application for the branch office.

   
   

8. The application was submitted by Monvest on January 8, 1986. According to the application, petitioner was to be employed with Monvest in their office at 116-C East 5th Street, Apopka, Florida. There is no branch office of Monvest registered with the Department at that address.

   
   

9. Petitioner stated in the employment history section of the application that from September of 1984 through November of 1984 he was unemployed. However, from September 4, 1984, until December 27, 1984, petitioner was registered as an associated person with Wall Street West. Petitioner made this error because he merely copied the employment history section from the previous application submitted for registration with Allied Capital. However, there was

   not a satisfactory explanation given as to why Wall Street West was omitted from the employment history listed on the Allied Capital application.

10. Petitioner also stated in his employment history that he worked for R.

    H. Stewart & Company as a branch manager from December 1984 until August 1984. Petitioner was actually registered with R. H. Stewart from March 11, 1985 until October 3, 1985. However, because of the way the registration and termination systems work, it is not surprising that an individual's employment dates might be somewhat different from the dates of his official registration.

    
    

11. When petitioner filled out the application form and left it with Monvest, he though that the application would be routinely processed, as all his others had been, and that approval would be forthcoming.

    
    

12. In the meantime, petitioner had been involved in another business venture known as Global 2000 along with two other individuals. The group retained a law firm in Miami versed in securities regulations which prepared a document called "Confidential Private Placement Memorandum, Global 2000, Inc., and Global 2000 Securities Company" and a "Supplement to Private Offering". Petitioner is a principal in Global 2000, Inc., and Global 2000 Securities Company (collectively known as the Global 2000 Group). The number of investors in the Global 2000 Group is limited to no more than thirty-five, and the total offering is less than $500,000.00. Petitioner testified that the offering was a "Regulation D" offering, and therefore formal registration was not required. At the time of the hearing, petitioner was unaware of any sale of Global 2000 Group stock.

    
    

13. On January 1, 1986, the Global 2000 Group published a "Supplement to Private Offering Memorandum, Global 2000, Inc., and Global 2000 Securities Corporation." The supplement had been sent to the printers on or about December 1, 1986, but was dated January 1, 1986. The last page of this supplement contains a picture of Woerz and the following:

    
    

    Melvin W. Woerz President

    Global 2000 Securities Company

    
    

    (Age 55) Licensed General Securities Principal and Registered Representative with the Division of Securities, Department of Banking and Finance, State of Florida; Securities and Exchange Commission, Washington, D.C.;

    NASD (National Association of Securities Dealers . . .

    In the bottom right corner of this page was the following: Global 2000 Securities Company

    116-C East Fifth Street

    Apopka, Florida 32708

    1-800-782-7710

    
    

    This supplement was sent to all individuals who received the Private Placement Memorandum for Global 2000, Inc., and ten or fifteen other individuals. The Private Placement Memorandum and supplement were mailed shortly after January 1, 1986. At the time the supplement was mailed, petitioner was not registered with the Department nor was Global 2000 Securities Company.

14. On or about January 22, 1986, petitioner mailed to forty or fifty individuals copies of a three page publication entitled "Our Recommendations." This publication advocates the purchase of various over the counter securities. The bottom of page three of this publication reads as follows:

    
    

    WE ARE WAITING TO HEAR FROM YOU!!! TAKE CARE

    MEL WOERZ AND ART BESCH SECURITIES BROKERS

    116-C East Fifth Street Apopka, Florida 32703

    
    

    PHONE:

    (305) 886-2288 COLLECT (800) 782-7710 IN FLORIDA

    (800) 423-0219 OUTSIDE FLORIDA

    
    

15. There was no Broker-Dealer registered with the Department by the name of Mel Woerz and Art Besch.

    
    

16. When "Our Recommendations" was mailed, petitioner was not sure whether his application for registration with Monvest had been approved in Florida. However, since Monvest had notified petitioner of his approval in six states, but not Florida, petitioner should have known that his application had not yet been approved in Florida.

    
    

17. "Our Recommendations" was sent to prior clients of petitioner and Art Besch. Both Besch and petitioner stated that the intent of the communication was merely to keep in touch with their customers while awaiting approval. Petitioner has not sold any securities since leaving Allied Capital.

    
    

18. On the application filed with the Department, petitioner agreed "to abide by, comply with, and adhere to all the provisions, conditions, and covenants of the statutes . . . and rules and regulationns of the states. "

    
    

    CONCLUSIONS OF LAW

    
    

19. The Division of Administrative Hearings has jurisdiction over the parties to and the subject matter of this proceeding. Section 120.57(1), Florida Statutes.

20. Section 517.161, Florida Statutes, provides in relevant part: "Section 517.161. Revocation, denial or

    suspension of registration of dealer,

    investment adviser, or associated person.

    1. Registration under 517.12 may be denied . . . if the Department determines thatsuchapplicant . . .

       1. Has violated any provision of this chapter or any rule or order made under this chapter;

       2. Has a made a material false statement

          in the application for registration;

          (d) Has made a misrepresentation or false statement to, or concealed any essential or material fact from, any person in the sale of a security to such a person;

          
          

21. Section 517.12, Florida Statutes, provides in pertinent part as follows:

    
    

    1. No dealer, associated person, or issue of securities shall sell or offer for sale any securities in or from offices in this state

       . . . unless the person has been registered with the department pursuant to the provisions of this section. . . .

       (5) No dealer or investment advisor shall conduct business from a branch office within

       the state unless the branch office is registered with the department pursuant to the provisions of this section."

       
       

22. Section 517.311, Florida Statutes, provides in relevant part as follows:

    
    

    1. It is unlawful for any person registered or required to be registered under any section of this chapter to misrepresent that such person has been sponsored, recommended, or approved,

       or that his abilities or qualifications have in any respect been passed upon, by the state or any agency or officer of the state or by the United

       States or any agency or officer of the United States.

    2. It is unlawful and a violation of this chapter for any person in connection with the offer or sale of any investment to obtain money or property by means of:

    (b) A misrepresentation that such a person is sponsored, recommended, or approved, or that such a person's abilities or qualifications have in any respect been passed upon, by the state or any agency or officer of the state or by the United States or any agency or officer of the United States.

    
    

23. In its Order Denying Application for Registration as a Principal, the Department alleges that petitioner violated Section 517.12(1), Florida Statutes, by making at least two sales of securities between March 6, 1985, and March 18, 1985, during which time petitioner was not registered with the Department. However, no competent evidence was presented at the hearing that petitioner sold any securities at any time when he was not registered.

    
    

24. The Department's order also alleges that petitioner violated Section 517.12(1), Florida Statutes, by issuing the publication "Our Recommendations," which designates petitioner and Art Besch as "Security Brokers," recommends

    certain securities as good buys, and states "We Are Waiting to Hear From You!!!" By sending the publication "Our Recommendations" to his clients, petitioner offered securities for sale from an office in this state in violation of Section 517.12(1) in that petitioner was not registered with the Department at the time the publication was mailed.

    
    

25. By stating that he was a "Licensed General Securities Principal and Registered Representative with the Division of Securities, Department of Banking and Finance, State of Florida," in the supplement to the private offering memorandum, when he was not registered with the Department on the date given on the supplement or the date mailed, petitioner violated Section 517.311, Florida Statutes. Further, petitioner was aware at the time of the printing of the document that his registration with Allied Capital was being terminated, and, at that time, he had not yet even applied for registration with Monvest.

    
    

26. In that petitioner violated Section 517.12(1) and Section 517.311, Florida Statutes, his application for registration may be denied pursuant to Section 517.161(1)(a), Florida Statutes. Further, his application may be denied pursuant to Section 517.161(1)(b), Florida Statutes, in that he omitted from his employment history the fact that he was ever employed by Wall Street West. Indeed, he stated in his application that he was unemployed during the period time that he actually was employed by Wall Street West. However, the fact that petitioner listed dates of employment with R. H. Stewart that were a few months different from the dates that he was actually registered with R. H. Stewart is not a material false statement. Further, petitioner did not make a material false statement by signing the statement on the application that "in consideration of . . . states receiving and considering my application, I submit myself to the jurisdiction of such states . . . and hereby certify that I agree to abide by, comply with, and adhere to all the provisions, conditions and covenants of the statutes, constitutions . . . and rules and regulations of the states

    
    

27. There was no evidence that petitioner conducted or engaged in business from an unregistered branch office in violation of Section 517.12(5), Florida Statutes, and Rule 3E-600.04(3)(a), Florida Administrative Code. Section 517.021(6), Florida Statutes, defines "branch office" as "any office of a dealer or investment adviser located in this state, other than the principal office of the dealer or investment adviser. There was no evidence that petitioner was engaging in busines as an agent of Monvest or any other dealer that had a principal office elsewhere. In his publication "Our Recommendations," petitioner called himself a "securities broker," thus holding himself out as a dealer rather than as an associated person. However, petitioner's application lists as his place of employment a branch office of Monvest that is not registered with the Department. Section 517.12 requires that a branch office be registered and that the office of the associated person be designated. In that the application designates a branch office that is not registered, petitioner's application should be denied by the Department for failure to comply with Section 517.12, Florida Statutes. Section 517.12(11), Florida Statutes.

    
    

28. The petitioner's application may not be denied pursuant to Section 517.161(1)(d), Florida Statutes, because that section requires the sale of a security to the person to whom the misrepresentation or false statement was made. There was no evidence presented that petitioner sold any securities to anyone during the period of time that he was not registered.

RECOMMENDATION

Based on the foregoing findings of fact and conclusions of law, it is

RECOMMENDED that a final order be entered denying petitioner's application for registration pursuant to Section 517.161(1)(a), Florida Statutes, in that petitioner has violated Sections 517.12(1) and 517.311(2), Florida Statutes, and pursuant to Section 517.161(1)(b), Florida Statutes, in that petitioner's application contains a material false statement. It is also recommended that petitioner's application be denied because it designates as petitioner's place of employment a branch office that has not been registered.

DONE and ORDERED this 15th day of October 1986 in Tallahassee, Florida.

DIANE A. GRUBBS

Hearing Officer

Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

FILED with the Clerk of the Division of Administrative Hearings this 15th day of October 1988.

APPENDIX TO RECOMMENDED ORDER IN CASE No. 86-1785

Petitoner's Proposed Findings of Fact and Conclusions of Law

1 & 2. Accepted in Paragraph 3.

1. Accepted in Paragraph 7.

2. Accepted in Paragraph 3.

3. Accepted in Paragraph 4.

4. Accepted in Paragraph 3.

5. Accepted in Paragraph 5.

8 & 9. Accepted that petitioner's employment history did not correlate with his registration in Paragraph 10. Remainder rejected as unnecessary.

10-12. Rejected as unnecessary.

1. Accepted as stated in Paragraph 6.

2. Accepted in Paragraph 1.

3. Accepted, Paragraph 7. 16-18. Accepted in Paragraph 8.

19. Accepted in Paragraph 11.

20-22. Accepted generally in Paragraphs 12 and 13, last sentence and date of mailing rejected as not supported by competent evidence.

1. Accepted generally in Paragraph 14.

2. Accepted generally in Paragraph 17'.

3. Accepted in Paragraph 15.

4. Accepted in Paragraph 1.

5. First sentence accepted in Paragraph 9, second sentence rejected for reason stated in Paragraph 9, last sentence rejected as irrelevant and not supported by credible evidence.

Respondent's Proposed Findings of Fact and Conclusions of Law

1-3. Accepted in Paragraph 8, except date changed to January 8th because that is when Monvest signed application.

1. Accepted in Paragraph 1.

2. Accepted generally in Paragraph 13.

6 & 7. Accepted in Paragraph 1.

COPIES FURNISHED:

Robert W. Kieffer, Esquire Post Office Box 2021 Orlando, Florida 32801

Robert K. Good, Esquire Office of the Comptroller

400 W. Robinson Street Suite 501

Orlando, Florida 32801

Honorable Gerald Lewis, Comptroller Department of Banking and Finance The Capitol

Tallahassee, Florida 32301

Charles Stutts, Esquire General Counsel

Department of Banking and Finance The Capitol

Tallahassee, Florida 32301

Docket for Case No: 86-001785

Orders for Case No: 86-001785