THOMAS P. BOGGS, )
vs. ) CASE No. 87-1528
DEPARTMENT OF BANKING AND ) FINANCE, DIVISION OF SECURITIES ) AND INVESTOR PROTECTION, )
Respondent. )
Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, W. Matthew Stevenson, held a formal hearing in this cause on August 19, 1987, in Fort Lauderdale, Florida. The following appearances were entered.
For Petitioner: Thomas P. Boggs
For Respondent: Charles E. Scarlett, Esquire
On November 25, 1986, the Petitioner submitted an application to Respondent, Department of Banking and Finance, Division of Securities and Investor Protection, for registration as an associated person of First Investment Securities, Inc. By letter dated January 9, 1987, the Respondent denied Petitioner's application. The Petitioner timely requested a formal administrative hearing pursuant to Chapter 120, Florida Statutes. Prior to the formal hearing on Petitioner's application being scheduled, on March 9, 1987, Petitioner submitted another application to Respondent for registration as an associated person with MCG Portfolio Management Corporation. By letter dated April 9, 1987, the Respondent denied Petitioner's application for the same reasons stated in the first denial letter of January 9, 1987. In particular, the Respondent alleged that Petitioner, in violation of several provisions of Section 517.12, Florida Statutes:
At the formal hearing, the Petitioner stated that he was only concerned with the denial of the second application with MCG Portfolio Management Corporation. The Respondent indicated that because the denial of both applications were for the same reasons, he did not object and affirmatively agreed that the subject matter of the formal hearing should be the second application even though the petition for administrative hearing addressed the first application only. The Petitioner testified in his own behalf and presented the testimony of George T. Bloukos, executive vice president of MCG Portfolio Management Corporation. Petitioner's Exhibits 1 and 2 were duly offered and admitted into evidence. Ruling was reserved as to Petitioner's Exhibit 3 but after due consideration, Petitioner's Exhibit 3 is admitted into evidence. Respondent's Exhibits 1, 2, 3 and 4 were duly offered and admitted into evidence. The Petitioner submitted a post-hearing letter which contained numerous un-numbered paragraphs discussing law, fact and argument simultaneously. Because it was impracticable to extract and separate the Petitioner's proposed findings of fact from legal argument and conclusions in any meaningful way, no specific rulings are made thereon. However, all of the Petitioner's pertinent assertions are addressed in the body of this Recommended Order. The Respondent submitted no post-hearing proposed findings of fact.
Based upon my observation of the witnesses, and their demeanor while testifying, the documentary evidence received and the entire record compiled herein, I hereby make the following findings of fact:
The Petitioner, Thomas Patrick Boggs, resides in Ft. Lauderdale, Florida, and is employed with MCG Portfolio Management Corporation.
On March 9, 1987, the Petitioner submitted an application for registration as an associated person with MCG Portfolio Management Corporation pursuant to the "Florida Securities and Investor Protection Act," Chapter 517, Florida Statutes. By letter dated April 9, 1987, the Respondent, Department of Banking and Finance, Division of Securities and Investor Protection, denied the Petitioner's application based on the incidents discussed in paragraphs three
(3) to nine (9) below.
Petitioner was arrested on August 8, 1975, in the State of Virginia for the alleged offense of passing a bad check to a service station. The charges were dropped when the Petitioner made payment on the check.
In a letter dated July 24, 1978, the New York Stock Exchange ("NYSE") admonished Petitioner for failing to disclose his 1975 arrest for petty larceny on a Form U-4 (Uniform Application for Securities and Commodities Industry Representative and/or Agent).
The NYSE took note of Petitioner's "explanation that [he] failed to report the offense because [he] considered the problem minor and that the charge against [him] was subsequently dropped." The letter to Petitioner went on to state that "[t]he Exchange hereby admonishes you for your conduct and cautions you that any future misconduct may result in formal disciplinary action. "
In a letter dated March 20, 1981, the NYSE admonished Petitioner for failing to respond correctly to a question on a Form U-4 dated May 7, 1980. Question 50(a) of the Form U-4 read as follows: "In your previous business connections or employment, have you ever been . . . a subject of a major complaint or legal proceeding?" The Petitioner responded "no" to question 50(a), although he had been named as a party defendant in a lawsuit commenced in March 1980 by a customer of Drexel, Burnham, Lambert Incorporated where he was employed as a registered representative from January to May 1980.
In a letter dated March 20, 1981, the NYSE took consideration of Petitioner's "explanation that [he] interpreted Question 50(a) as referring to [his] business connections and employment prior to entering the securities business, and that [he] had disclosed the litigation to Dean Witter personnel during [his] initial interview for employment." The NYSE's letter to Petitioner went on to state that "the Exchange hereby admonishes you for your conduct and cautions you that any misconduct on your part in the future will very likely lead the Exchange to take formal disciplinary action against you."
On September 25, 1985, a suit was filed against Petitioner in the United States District Court for the Northern District of Georgia. The suit, Bernard, et al v. First Continental Resources, Inc.; T. Patrick Boggs (Petitioner); David Meeks; and First Continental Drilling Associates, a Nevada Limited Partnership (Civil Action No. 85-182), alleged fraud, breach of contract, breach of fiduciary duty, and negligence in connection with the sale of securities. First Continental Resources, Inc., was the corporation general partner of First Continental Drilling Associates. Petitioner was the individual general partner for First Continental Drilling Associates and President/Chief Operating Officer and Director of First Continental Resources, Inc. Petitioner was a controlling person of First Continental Resources, Inc., and First Continental Drilling Associates as that term is used in Section 15 of the Securities Act of 1933 and Section 20 of the Securities Exchange Act of 1934.
The plaintiffs in the lawsuit sought compensatory damages of approximately $800,000, treble damages, and punitive damages of $20 million. The Petitioner and the other defendants failed to defend the suit and the Court entered an Order of Default against Petitioner on March 31, 1986. On May 31, 1986, the defendants obtained a judgment against Petitioner and all defendants for approximately $2.3 million.
The Petitioner testified that he had a meritorious defense to the Bernard lawsuit but failed to present it because of lack of funds for legal representation. The Petitioner testified that he was in fact a victim of fraud along with the plaintiffs, perpetrated by some of the co-defendants in the lawsuit.
George Bloukos, Executive Vice President of MCG Portfolio Management Corporation, has known the Petitioner since March of 1987 when Petitioner first sought employment with his company. Since that time, the Petitioner has been employed with MCG in a clerical-like capacity, pending resolution of his registration application. Bloukos has worked in the securities and investments profession for approximately thirty (30) years. Based on Bloukos' observation of
Petitioner, the Petitioner has shown himself to be a person of good character, good business ethics and a conscientious worker. Bloukos believes that Petitioner is a trustworthy individual who would be an asset to his company and to the securities and investments profession.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties to, and the subject matter of, these proceedings. Section 120.57(1), Florida Statutes.
The Respondent, Department of Banking and Finance, is charged with the responsibility of regulating and licensing professionals in the securities industry in the State of Florida pursuant to the Florida Securities and Investor Protection Act, Chapter 517, Florida Statutes.
An "associated person" is defined as, among other things, a person, other than a dealer, employed, appointed, or authorized by a dealer or issuer to sell securities in any manner or act as an investment adviser. See Section 517.021(4), Florida Statutes.
An applicant for registration as an "associated person" who is of good repute and character and has complied with the provisions of Section 517.12 (Registration of dealers, associated persons, investment advisers, and branch offices) Florida Statutes, and the rules made pursuant thereto, is entitled to registration by the Department of Banking and Finance.
Registration under Section 517.12, Florida Statutes may be denied by the Department of Banking and Finance if the department determines that the applicant is guilty of, or has violated, any of the provisions specified in Section 517.161(1)(a)-(k), Florida Statutes.
In its letter of denial dated April 9, 1987, the Respondent stated that:
Based upon the judgment against you in the Bernard suit, the department has determined that your application may
be denied pursuant to the provisions of Sections 517.161(c),(d)(e) and (j), Florida Statutes, in that a judgment has been entered against you in a civil action which alleged fraud and mis- representations in connection with the sale of securities.
Additionally, the Department has determined that your application may be denied pursuant to the provisions of Sections 517.161(1)(h) and (k), Florida Statutes. The Department has determined that as a result of your being admonished by the NYSE on two different occasions for misrepresenting your dis- ciplinary history; your being arrested for petty larceny; and your having an outstanding judgment against you for approximately
$2.3 million as a result of your fraudulent activity in the securities industry,
that you are both of bad business repute and unworthy to transact the business of associated person.
Section 517.161, Florida Statutes, provides in relevant part as follows:
517.161 Revocation, denial, or suspension of registration of dealer, investment adviser, or associated person.-
(1) Registration under S. 517.12 may be denied or any registration granted may be revoked or suspended by the department if the department determines that such applicant or registrant:
* * * *
Has been guilty of a fraudulent act
in connection with any sale of securities, has been or is engaged or is about to engage in making fictitious or pretended sales or purchases of any such securities, or has been or is engaged or is about to
engage in any practice or sale of securities which is fraudulent or in violation of the law;
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 person;
Has failed to account to persons in- terested for all money and property received;
* * * *
(h) Has demonstrated his unworthiness to transact the business of dealer, investment adviser, or associated person;
* * * *
Has been convicted of, or entered a plea of nolo contendere to, a crime against the laws of this state or any other state or of the United States involving moral
turpitude or fraudulent or dishonest dealing, or has had a final judgment entered against him in a civil action upon grounds of fraud, embezzlement, misrepresentation, or deceit; or
Is of bad business repute.
Based solely upon the default judgment entered against Petitioner in the Bernard civil suit, the record does not establish that the Petitioner has been guilty of fraud and misrepresentations in the sale of securities or failure to account for money received in violation of Sections 517.161(1)(c), (d) and (e). However, the default judgment does establish that the Petitioner has had a final judgment entered against him in a civil action upon grounds of fraud, embezzlement, misrepresentation or deceit in violation of Section 517.161(1)(j).
A judgment by default is based on an omission by the defaulting party to take a necessary step in the action within the proper time. Under the
federal rules and in Florida, the omission generally consists of a failure to appear in the action or to plead or otherwise defend. See Rule 55, Federal Rules of Civil Procedure and Rule 1.500, Florida Rules of Civil Procedure. By allowing a default to be entered against him, the defaulting party admits the truth of all well-pleaded facts and acquiescences in the relief sought. Harless
v. Kuhn 403 So.2d 423 (Fla. 1981); Bowman v. Kingsland Development, Inc., 432 So.2d 660 (Fla. App. 5 Dist. 1983). Thus, because of the default judgment entered in The Bernard suit, the Petitioner has had a final judgment entered against him upon grounds of fraud and misrepresentation.
Nevertheless, the default judgment in the Bernard suit does not establish, for the purpose of this action, that Petitioner was in fact guilty of fraud and/or misrepresentation. For the purposes of res judicata, a judgment entered upon default is just as conclusive as one which was hotly contested.
See Cabinet Craft Inc. v. A.G. Spanos Enterprises, Inc., 348 So.2d 920 (Fla. App. 2 Dist. 1977). But, the substantiative admissions occasioned by a default is binding only as to the parties involved in the original litigation and does not, absence other independent evidence, establish the truth of the underlying allegations in a separate and different proceeding. See Fla. Jur. 2d, Judgments and Decrees Sec. 284; see also 47 Am. Jur. 2d, Judgments Sec. 1198.
The Respondent further alleges that Petitioner is both of bad business repute and unworthy to transact the business of associated person as a result of the two admonishments by the NYSE, the arrest for petty larceny and the outstanding judgment. The Petitioner successfully established that he is not "of bad business repute" with the testimony of George Bloukos, the executive vice president of an investment firm with which the Petitioner has worked for the past six months. Bloukos stated that in his opinion, the Petitioner is a trustworthy, honest and hard-working businessman. "Reputation" may be established by opinion testimony. See Section 90.405(1), Florida Statutes. There was no other reputation testimony presented by either side. Thus, the preponderance of the evidence established that, despite the two admonishments by the NYSE, the 1975 arrest for petty larceny as a result of a bad check and the outstanding judgment, the Petitioner still enjoys a good business reputation.
Nevertheless, the Petitioner failed to meet his burden of proof in establishing that he is worthy to transact the business of associated person in view of the outstanding judgment entered against him on the grounds of fraud and misrepresentation directly relating to securities transactions. The Petitioner's testimony to the effect that he had a meritorious defense to the lawsuit but failed to present it because of lack of funds for legal representation is given very little weight considering the importance of the matter and the Petitioner's level of business sophistication.
In summary, the Respondent has the authority to deny the Petitioner's registration as an associated person pursuant to Section 517.12, Florida Statutes. However, in view of the fact that the Petitioner presently enjoys a good business reputation and is striving to once again establish himself as a person worthy to transact the business of associated person, he should be given the opportunity to re-apply for licensure after a reasonable period from the date of the final order.
RECOMMENDED that the Petitioner's application for registration as an associated person be DENIED.
DONE and ORDERED this 7th day of October, 1987 in Tallahassee, Leon County, Florida.
W. MATTHEW STEVENSON Hearing Officer
FILED with the Clerk of the Division of Administrative Hearings this 7th day of October, 1987.
Charles E. Scarlett, Esq. Office of the Comptroller Suite 1302, The Capitol
Charles L. Stutts, Esq. General Counsel Department of Banking &
Tallahassee, FL 32399 Finance Plaza Level, The Capitol Tallahassee, FL 32399-0350
Thomas P. Boggs c/o George Bloukos
MCG Portfolio Management Corp. 5301 North Federal Highway Suite 170
Hon. Gerald Lewis Comptroller
