Judges: J. D. PARRISH
Agency: Department of Financial Services
Latest Update: Dec. 22, 1988
Summary: The central issue in this case is whether Petitioners' applications for registration should be approved or denied.Petitioner's past shows lack of trustworthiness individually and therefore corporation must also be denied censures and second suspension established.
88-2493.PDFSTATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
KC SECURITIES, INC., TED C. ) KATA and MARY S. KATA, )
)
Petitioners, )
)
vs. ) CASE NO. 88-2493
)
OFFICE OF COMPTROLLER, )
)
Respondent. )
)
RECOMMENDED ORDER
Pursuant to notice, a final hearing in the above-styled matter was held on September 6, 1988, in Fort Lauderdale, Florida, before Joyous D. Parrish, a duly designated Hearing Officer of the Division of Administrative Hearings. The parties were represented at the hearing as follows:
APPEARANCES
For Petitioner: Thomas N. Holloway
2101 West Commercial Boulevard Suite 5300
Fort Lauderdale, Florida 33306
For Respondent: Charles E. Scarlett
Assistant General Counsel Office of the Comptroller
Department of Banking and Finance Legal Section, The Capitol Tallahassee, Florida 32399
BACKGROUND AND PROCEDURAL MATTERS
This case began on April 15, 1988, when the Office of the Comptroller, Division of Securities and Investor Protection (Division) gave notice to Petitioners that their applications for registration had been denied.
Specifically, KC Securities, Inc. (KC) had sought registration as a broker/dealer, Ted C. Kata had applied for registration as KC's president and principal, and Mary S. Kata had requested registration as an associate with KC. The denials of the applications were based upon an alleged history of past disciplinary actions within the securities industry which the Division claimed constituted prima facie evidence of the applicants' unworthiness to engage in the securities business. On May 6, 1988, Petitioners filed a petition and formal request for hearing and the case was forwarded to the Division of Administrative Hearings for formal proceedings on May 20, 1988.
At the hearing Petitioners presented the testimony of Leonard Simons, George E. Brown, Christopher C. Constable, Ted Kata, and nary Kata. Respondent presented the testimony of Don Saxon. The following exhibits were admitted into
evidence: Petitioner's exhibits lettered A through G and FF; Respondent's exhibits numbered 1-4, and 6-15.
After the hearing the parties requested and received fifteen days within which to file their proposed recommended orders. The proposed recommended orders filed by the parties have been considered in the preparation of this order. Specific rulings on the proposed findings of fact are included in the attached appendix.
ISSUE
The central issue in this case is whether Petitioners' applications for registration should be approved or denied.
FINDINGS OF FACT
Based upon the testimony of the witnesses and the documentary evidence received at the hearing, I make the following findings of fact:
On January 26, 1988, KC Securities, Inc. (KC) filed an application for broker-dealer registration. Ted Casey Kata was identified as the president and principal owner of KC. Question 7E. of the application asked:
Has any self-regulatory organization or commodities exchange ever:
* * *
(2) found the applicant or a control affiliate to have been involved in a violation of its rules?
The answer KC gave to question 7E.(2) was "yes".
Question 7G. of the KC application asked:
Is the applicant or a control affiliate now the subject of any proceeding that could result in a "yes" answer to parts A-F of this item?
The answer KC gave to question 7G. was "yes."
The "control affiliates" whose conduct caused KC to answer in the affirmative to the questions noted above are Ted C. Kata and Mary S. Kata. KC has not previously been registered as a broker-dealer.
Petitioner, Mary S. Kata, filed an application for securities industry registration and requested registration as a general securities principal, financial and operations principal, and municipal securities principal. According to the application, Mary S. Kata has been unemployed since October, 1985. Previously, Mary S. Kata was the financial principal for TK Securities. Prior to working for TK, Mrs. Kata worked for Cooper Investments, Inc. and Southeast Securities of Florida, Inc. Mrs. Kata later amended her request to seek registration as an associate with KC.
Petitioner, Ted C. Kata, filed an application requesting registration as a general securities principal and a municipal securities principal. According to the application, Ted C. Kata has been unemployed since October,
1985. Previously, Mr. Kata had owned and been the principal for TK Securities, he had managed Cooper Investments, Inc., and had owned and managed Southeast Securities of Florida, Inc.
The National Association of Securities Dealers, Inc. (NASD) is a self- regulatory organization comprised of securities dealers of which Ted C. Kata and Mary S. Kata were members.
Ted C. Kata, entered the securities business as a registered associate in 1965. In 1973, he purchased a general securities business known as First Broward Securities, Inc. Later, Mr. Kata changed the name of First Broward to Southeast Securities of Florida, Inc. (Southeast).
On March 3, 1976, Ted C. Kata, as registered principal of Southeast, and Southeast were censured and fined by NASD based upon a violation of Article III, Sections 1 and 32 of the NASD Rules of Fair Practice. This violation was based upon Southeast's failure to obtain and maintain a blanket fidelity bond as prescribed by NASD requirements. The amount of the fine assessed against Mr. Kata was $400 plus costs in the amount of $20. Mr. Kata considered this a minor infraction but took steps to correct the situation and did obtain the required bond.
On November 17, 1978, the NASD filed a complaint against Southeast and Ted C. Kata, the registered principal. This complaint alleged Southeast and Kata had violated several provisions of Article III of the Rules of Fair Practice which were set forth in six separate causes. After hearing on the issues, NASD entered findings which determined Kata had operated in a deceptive manner, had presented a false accounting of the firm's income and capital, and had taken excessive mark-ups. As a result, Mr. Kata was censured and fined $500 and was required to pay costs totaling $1,636. Mr. Kata paid this fine but felt that the investigators had not understood the true facts of the case.
On October 9, 1986, the NASD filed a complaint against TK Securities, In., Ted C. Kata and Ruth Elaine Berry. Mr. Kata was charged as the sole general securities principal for TK. This complaint alleged violations related to a failure to maintain sufficient net capital, failure to make and keep current records, and failure to file a correct FOCUS report. In accepting an offer of settlement, the NASD censured Mr. Kata and fined him in the amount of
$1000. Again, Mr. Kata paid the fine as required.
In the latter part of 1985, James Stibal sued Ted C. Kata and alleged, among other complaints, that Mr. Kata had represented the Stibals in their stock transactions and that Mr. Kata had made numerous false or misleading statements to induce the Stibals to invest. According to Mr. Kata this case was settled when he agreed to pay approximately $22,000 to the Stibals.
On December 14, 1987, the Securities and EXCHANGE Commission (SEC) took action against Mary S. Kata. The SEC had charged that Mrs. Kata had willfully aided and abetted violations of the Securities EXCHANGE Act by failing to make and keep current books and records for a company for which she served as the financial principal. The settlement, offered by Mrs. Kata and accepted by the SEC, suspended Mrs. Kata for a period of six months from association in a proprietary or supervisory capacity with any broker, dealer, municipal securities dealer, investment company or investment advisor.
It should be noted that the acts complained of against Mrs. Kata in the SEC action and the acts complained of by the NASD against Mr. Kata and Berry
resulted from errors allegedly committed at TK. According to Mr. and Mrs. Kata, TK was sold two months prior to the incidents which gave rise to these complaints. The Katas maintained that the acts complained of occurred while Mrs. Berry was operating TK. However, the record is clear that Mr. Kata remained as the principal for TK and Mrs. Kata remained as the financial principal for TK during all periods in question. In fact, the Katas remained employed at TK despite the change in ownership. Further, Mr. Kata continued to advise Mrs. Berry and the staff from time to time on matters regarding the business.
Approximately two months after the sale of TK, the company went into liquidation by the Securities and Investor Protection Corporation (SIPC). During the liquidation period, Mrs. Kata assisted the trustee to locate and process records.
Leonard Simons has known Ted C. Kata since 1968. Mr. Kata handled Mr. Simons' investment account for a number of years. Mr. Simons found that his sales and purchases were promptly confirmed, that he was always paid correctly, and that Mr. Kata's brokerage rates were competitive. If given the opportunity, Mr. Simons would trade with Mr. Kata again. Mr. Simons was unaware of the NASD actions against Mr. Kata.
George Brown has known Ted C. Kata since 1964. Mr. Brown and Mr. Kata studied to become NASD members at the same time, and Mr. Brown subsequently worked both with and for Mr. Kata. Mr. Brown stated that Mr. Kata has always confirmed trades accurately and promptly, has always been fair and considerate, and brought to the attention of salesmen in his employ the applicable rules and regulations. Mr. Brown intends to register with Mr. Kata again if the applicant is approved and considers Mr. Kata worthy to be in the securities business.
Christopher Constable has known Ted C. Kata since 1972. Mr. Constable worked for Mr. Kata as an associate of all of the brokerage firms for which Kata served as principal for the period 1973-1985. Mr. Kata required that Mr. Constable and the other sales associates review all new rules and regulations. Mr. Constable knows of no complaints from customers while he was associated with Mr. Kata. Mr. Constable believes Mrs. Kata to be an excellent bookkeeper and believes both Katas to be worthy to engage in the securities business. Mr. Constable was not aware of the NASD actions against Mr. Kata.
Don Saxon is the director of the Division of Securities and Investor Protection. According to Mr. Saxon, the NASD actions against Mr. Kata are the type which would result in revocation of registration since the violations were related to failures in books and records keeping, illegal markups, and since the Katas were principals of the company which went into SIPC liquidation.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties and the subject matter of these proceedings.
Section 517.161, Florida Statutes, provides, in pertinent part:
Registration under s. 517.12 may be denied or any registration granted may be revoked, restricted, or suspended by the department if the department determines that such applicant or registrant:
* * *
Has demonstrated his unworthiness to transact the business of dealer, investment adviser, or associated person;
Has exercised management or policy control over or owned 10 percent or more of the securities of any dealer or investment adviser that has been declared bankrupt, or had a trustee appointed under the Securities Protection Act; or is, in the case of a dealer or investment adviser, insolvent;
* * *
(4) It shall be sufficient cause for denial of an application or revocation of registration, in the case of a partnership, corporation, or unincorporated association, if any member of the partnership or any officer, director, or ultimate equitable owner as defined in s. 607.004 of the corporation or association has been guilty of an act or omission which would be cause for denying or revoking the registration of an individual dealer, investment adviser, or associated person.
Rule 3E-600.011, Florida Administrative Code, provides, in pertinent part:
Prima facie evidence of unworthiness to transact the business of a dealer, investment adviser, principal, or agent in the State of Florida shall include, but shall not be limited to:
* * *
(2) Any injunction, suspension, prohibition, revocation, denial or administrative order by any state or federal agency, national securities exchange, or national securities association, involving a violation of any federal or state securities laws or rule or regulation promulgated thereunder, and any injunction or adverse administrative order by a state or federal agency regulating banking, insurance, finance or small loan companies, real estate, mortgage brokers, or other related or similar industries, or any court
of competent jurisdiction.
In this case the individual Petitioners have been disciplined on several occasions. While each sanction alone does not represent a serious public problem, collectively the NASD censures and the SEC suspension constitute prima facie evidence of a lack of worthiness to engage in the securities business as principals.
The corporate applicant seeks registration with Ted C. Kata as its principal and owner. Accordingly, since the principal is unworthy, the corporation's registration must be denied. Similarly, since Mary S. Kata seeks
registration with the corporation, her request for associate status must also be denied. Since Mr. Kata cannot qualify as a principal, the other applicants relating to the Kata application must also fail.
The record in this case established that Mr. Kata has been named in three NASD complaints. These complaints found, either after hearing or by settlement, that Mr. Kata had violated provisions of the Rules of Fair Practice. Mr. Kata was fined and paid costs incidental to each of these complaints. Further, while Mr. Kata maintained he had received no customer complaints, the record is clear that at least one customer, Stibal, sued Mr. Kata for alleged misrepresentations and fraudulent actions. This lawsuit was subsequently settled by Mr. Kata for approximately $22,000.
The record further established that a company for which the Katas served as principals was required to go into SIPC liquidation. The Katas remained as principals after the sale of the business and the contract governing the sale contemplated that they would continue to profit from the transactions made by the company. The responsibility for the risk inherent in selling the company but remaining as principal rested with Mr. Kata. In retrospect, he would probably concede he made a poor judgment.
None of the individuals who spoke in support of the Katas were familiar with the sanctions taken against them. Nor were the individuals aware of the facts relating to the violations. The problems experienced by the Katas stemmed from their shortcomings as principals which necessarily requires a high degree of worthiness.
RECOMMENDATION
Based on the foregoing, it is RECOMMENDED:
That the Department of Banking and Finance, Division of Securities and Investor Protection, Office of the Comptroller enter a final order denying the registration applications of the Petitioners.
DONE and RECOMMENDED this 22nd day of December, 1988, in Tallahassee, Leon County, Florida.
JOYOUS D. PARRISH
Hearing Officer
Division of Administrative Hearings The Oakland Building
2009 Apalachee Parkway
Tallahassee, Florida 32301
(904) 488-9675
Filed with the Clerk of the Division of Administrative Hearings this 22nd day of December, 1988.
APPENDIX TO RECOMMENDED ORDER, CASE NO. 88-2493
RULINGS ON THE PROPOSED FINDINGS OF FACT SUBMITTED BY PETITIONERS:
Paragraphs 1 through 9 are accepted.
With regard to paragraph 10, the first sentence is accepted. The remainder of paragraph 10 is rejected as contrary to the weight of the evidence, irrelevant or immaterial to the findings made herein. No conclusion is reached as to whether Mrs. Berry exercised control over TK after the sale since the Katas remained as principals with the company.
With regard to paragraph 11, that TK went into liquidation approximately two months after the sale is accepted. All other conclusions reached in paragraph 11 are rejected as contrary to the weight of the evidence, irrelevant or immaterial to the findings made herein.
Paragraphs 12 and 13 are accepted.
Paragraph 14 is rejected as contrary to the weight of the evidence, irrelevant or immaterial to the findings made herein. The evidence established that at all periods in question, before the sale of TK and until its liquidation, that Mrs. Kata was the financial principal for the company.
Paragraph 15 is accepted.
Paragraph 16 is accepted.
The first two sentences of paragraph 17 are accepted. The third sentence is rejected as contrary to the weight of the evidence. Mr. Kata remained as principal for TK after its sale, he continued to work there, and he advised staff regarding business matters. Whether he or Mrs. Berry exercised final control over the business is immaterial since Mr. Kata was the sole registered principal. There is no conclusion that the shortcomings were committed after the sale.
Paragraphs 18-20 are accented.
Paragraphs 21-22 are rejected as hearsay or not supported by the record.
Paragraphs 23 and 24 are accepted.
Paragraphs 25 and 26 are rejected as a recitation of testimony not findings of fact. Mr. Kata may not have agreed with the ultimate findings reached by the NASD; however, the censure was issued as found in the findings of fact.
With regard to paragraph 27, see the findings of fact, otherwise rejected as contrary to the weight of the evidence.
Paragraphs 28-33 are accepted but are irrelevant or immaterial to the conclusions reached herein.
Paragraph 34 is accepted to the extent that it describes the NASD action taken against Kata. Those portions of the paragraph which suggest Kata did not have control over the company after its sale are rejected as contrary to the weight of the evidence, irrelevant or immaterial. Kata remained as principal for the company after the sale and continued to advise the staff.
That he might have allowed the new owner to exercise poor judgment does not excuse Kata of all liability.
Paragraph 35 is rejected as contrary to the weight of the evidence, irrelevant or immaterial.
Paragraph 36 is accepted only to the extent that it describes the penalty Kata agreed to accept. The action was resolved without hearing.
Paragraph 37 is rejected as immaterial and irrelevant.
The first sentence of paragraph 38 is accepted. The second sentence is rejected since the record is clear that the total of the fines and costs associated with the NASD actions exceeded the amount of the fines alone, consequently, it would be erroneous to consider only the fine portion. To his credit, Mr. Kata paid all amounts owed by him for the various violations.
Paragraph 39 is accepted only to the extent that it finds that TK went into liquidation two months after the sale. The rest of the paragraph is rejected as speculation, unsupported by the record, or contrary to the weight of credible evidence presented.
Paragraph 40 is accepted.
Paragraph 41 is accepted but is irrelevant and immaterial to the conclusions reached herein. Mr. Kata's self-serving testimony both as to the denials of all wrongdoing and the reasons for either agreeing to pay fines or settlements has not been credited.
Paragraph 42 is accepted.
Paragraph 43 is accepted.
Paragraphs 44 and 45 are rejected as self-serving comment, Mr. Kata's testimony having not been credited.
Paragraph 46 is accepted but is irrelevant to the conclusions reached herein.
Paragraph 47 is accepted to the extent it relates charges against Mrs. Kata; however, it should be noted that Mrs. Kata was the financial principal for her husband during the periods in which he was censured for problems relating to bookkeeping.
Paragraph 48 is accepted but is irrelevant and immaterial to the conclusions reached herein; Mrs. Kata's self-serving comments have not been credited.
Paragraph 49 is accepted.
Paragraph 50 is accepted.
Paragraph 51 is accepted.
Paragraph 52 is rejected; Mrs. Kata remained as financial principal for the company after its sale. Whether she should have discovered the errors or whether she could have discovered the errors is immaterial. The sale does not excuse the responsibility for the errors of the company. Thus, paragraph 52 is immaterial, irrelevant or contrary to the weight of credible evidence submitted.
Paragraph 53 is rejected as speculation but in any event, if true, would be irrelevant or immaterial to the conclusions reached.
Paragraph 54 is accepted but, again, is irrelevant or immaterial to the conclusions reached.
Paragraph 55 is rejected; see comment to p. 53.
Paragraph 56 is rejected as contrary to the weight of the evidence; Mrs. Kata remained as a principal throughout all periods.
Paragraphs 57-68 are accepted.
Paragraph 69 is accepted to the extent that it expresses one witness' perception. However, that witness' testimony conflicted with another's and was given little weight in light of the self-interest and long-term friendship involved.
Paragraphs 70-80 are accepted.
Paragraph 81 is rejected as argumentative, irrelevant or immaterial to the issues in this case.
Paragraph 82 is rejected as contrary to the record.
Paragraph 83, the first sentence is accepted. The remainder of paragraph 83 is rejected as contrary to the record.
Paragraphs 84-86 are rejected as contrary to the record.
Paragraph 87 is rejected as argumentative, irrelevant or immaterial.
Paragraph 88 is rejected as argumentative, irrelevant or immaterial.
Paragraph 89 is rejected as contrary to the record in its entirety.
Paragraph 90 is rejected as argumentative.
Paragraph 91 is rejected as a recitation of testimony, argument, or irrelevant.
Paragraphs 92-93 are rejected as argument, irrelevant, or immaterial. Whether the Division may properly rely on a rule which establishes prima facie evidence of unworthiness for registration has not been challenged. Such a challenge would have been pursuant to Section 120.56, Florida Statutes. These Petitioners have challenged the denial of their registration pursuant to 120.57, Florida Statutes, and the rule by which they are governed is presumed valid for purposes of this review.
RULINGS ON RESPONDENT'S PROPOSED FINDINGS OF FACT:
1. Paragraphs 1-26 are accepted.
COPIES FURNISHED:
Thomas N. Holloway
2101 W. Commercial Boulevard Suite 5300
Fort Lauderdale, Florida 33306
Charles E. Scarlett Assistant General Counsel Office of the Comptroller
Department of Banking and Finance Legal Section, The Capitol Tallahassee, Florida 32399
Hon. Gerald Lewis Comptroller, State of Florida The Capitol
Tallahassee, Florida 32399-0350
Charles L. Stutts General Counsel Plaza Level
The Capitol
Tallahassee, Florida 32399-0350
Docket for Case No: 88-002493
Orders for Case No: 88-002493
| Issue Date |
Document |
Summary |
|
Feb. 06, 1989 |
Agency Final Order
|
|
|
Dec. 22, 1988 |
Recommended Order
|
Petitioner's past shows lack of trustworthiness individually and therefore corporation must also be denied censures and second suspension established.
|
