STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

STATE OF FLORIDA, DEPARTMENT ) OF BANKING AND FINANCE, )

DIVISION OF SECURITIES, )

)

Petitioner, )

)

vs. ) CASE NO. 89-4558

)

HANOVER FARMS, INC., )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, a final hearing in the above-styled matter was held on January 10, 1990, in Miami, Florida, before Joyous D. Parrish, a designated Hearing 0fficer of the Division of Administrative Hearings. The parties were represented at the hearing as follows:

APPEARANCES

For Petitioner: Robert K. Good

Assistant General Counsel Office of the Comptroller

400 West Robinson Street Suite 501

Orlando, Florida 32801

For Respondent: Howard W. Mazloff

LAW OFFICES OF

HOWARD W. MAZLOF:, P.A.

Dadeland Towers South, Suite 425 9400 South Dadeland Boulevard Miami, Florida 33156

STATEMENT OF THE ISSUES

The central issue in this case is whether the Respondent is guilty of the violations alleged in the order to cease and desist dated June 6, 1989, as amended by the allegations set forth in the motion filed December 29, 1989; and, if so, what penalty should be imposed.

PRELIMINARY STATEMENT

This case began on June 6, 1989, when the Department of Banking and Finance, Division of Securities (Department) issued an order to cease and desist which alleged that the Respondent, Hanover Farms, Inc., had violated provisions of chapter 517, Florida Statutes. Specifically, the Department alleged Respondent, a company not registered to sell securities, had offered for sale securities which had not been registered for sale in Florida. The alleged

securities consisted of an investment program for greyhound racing dogs whereby the investor purchased an interest in a litter of greyhounds which were to be raised, trained and raced. Investors in the litter would share the profits derived from the dogs' winnings. The cost of the investment was estimated to be between $3500 and $5500.

The Respondent filed a reply to the order to cease and desist which disputed the allegations that the interest sold constituted a "security," denied that the company had acted as alleged, and that the matter, if true, was barred by the two year statute of limitations set forth in Section 95.11(4? (e) , Florida Statutes. The Respondent requested a hearing on the issues and demanded attorney's fees pursuant to Section 57.111, Florida Statutes. The case was forwarded to the Division of Administrative Hearings for formal proceedings on August 23, 1989.

The case was originally scheduled for hearing for November 14, 1989; however, due to a conflict, the Department requested a continuance which was granted by order entered October 19, 1989. The case was rescheduled for January 10, 1990.

At the hearing, the Department offered the deposition testimony of Christopher Desnoyer's together with exhibits numbered 1 through 8 which were admitted into evidence. The Respondent presented the testimony of Neil Pincus, a former principal associated with Hanover Farms, Inc., who served as that company's vice president. The parties' prehearing stipulation was also received.

After the hearing, the Respondent filed a motion to strike portions of the testimony of Christopher Desnoyers. A memorandum in support its motion to dismiss based upon a two year statute of limitation and additional argument as to whether or not the sale of greyhound interests constituted a "security" within the meaning of the pertinent statutes were also filed. The Department filed a response to the motion to dismiss and the request to strike. Rulings on these motions, together with Respondent's request for attorneys fees, are addressed in an order issued concurrent with this recommended order.

The Department also filed a proposed recommended order. Specific rulings on the proposed findings of fact are included in the attached appendix. A transcript of the proceedings has not been filed.

FINDINGS OF FACT

Based upon the prehearing stipulation, the testimony of the witnesses and the documentary evidence received at the hearing, the following findings of fact are made:

1. At all times material to the allegations in this case, Respondent was not registered to sell securities under the provisions of Section 517.12, Florida Statutes, nor did Respondent register securities under those provisions.

   
   

2. Respondent was incorporated and doing business within the State of Florida during the period 1984 through 1986. At that time, Neil Pincus served as vice president of the company.

3. On July 27, 1984, an advertisement ran in The Tampa Tribune which contained the following language:

   
   

   OWN A RACING GREYHOUND

   Visit The Farm

   Hanover Farms is offering a total purchase plan. You get title to your greyhound, boarding, training, racing services provided. Low investments with tax advantages. If you're ready to step into the winner's circle call for appointment and transportation from the Quality Inn, Longwood (Or1and) to the nearby farm.

   305-862-4000

   
   

4. The same or similar advertisements ran in other news periodicals for a time, including (on July 15, 1985) the Tallahassee Democrat and a number of out-of-state newspapers.

   
   

5. In response to one such advertisement, Christopher Desnoyers, a resident of Massachusetts, requested additional information regarding Respondent's investment program. Mr. Desnoyers received materials from Respondent which outlined the program. Such materials provided, in pertinent part:

   
   

   The Greyhound Ownership Program is unique in the Greyhound Industry. Here's how it works. Our greyhound experts and trainers select from the available supply of young, unraced greyhounds, just those few outstanding greyhounds which qualify under our strict standards for breeding, conformation and racing ability. We then offer the greyhound for purchase under our Greyhound Ownership Program. A staff of veterinarians, trainers, handlers, analysts and managers will ensure that each greyhound purchased receives the finest state-of-the art care and training.

   * * *

   After completing the qualifying training, at your direction, Hanover Farms will lease your greyhound for racing or you may select a kennel of your choice. You will receive a percentage of all purses won by your greyhound. In addition, you will receive the owners portion of all stud, breeding and syndication fees.

   
   

6. In addition to the foregoing, Respondent mailed Mr. Desnoyers materials regarding a specific litter of greyhound puppies. That material provided, in pertinent part:

   
   

   MC'S Grandmaster Litter Syndication... Participate in the ownership of a litter of eight.

   A beautiful litter of eight pups (7 females, 1 male) out of Spumescent Queen by

   MC's Grandmaster is being offered to the first eight people committing for a unit in this outstanding breeding.

   Each individual will purchase one or more units in this litter at a cost of $5,000.00 per unit. The greyhounds will race under the control of Hanover Farms. Every unitholder will name a greyhound for each unit purchased. The prefix "Hanover" will be in each name, therefore the unitholder may select a name with no more than eight (8) characters.

   Each unit will represent a 1/8th interest in the entire litter, thereby enabling

   unitholders to share in the return on all the successes of the greyhounds in his litter.

   In addition, a 40 % commission Bill be paid to owners, rather than the standard 35 %.

   
   

7. All materials furnished by Respondent to Mr. Desnoyers stressed the profitability of winning greyhounds and the successes Respondent had experienced IA past racing. Of the two programs outlined in paragraphs 5 and 6, Mr. Desnoyers advised Respondent that he would purchase an interest in the Grandmaster syndication. Accordingly, he remitted a $3000 deposit and pledged to pay the balance of $2000 within 60 days. An agreement between Respondent and Mr. Desnoyers was executed on July 22, 1986.

   
   

8. Contrary to Mr. Desnoyer's intention, that agreement provided for the purchase of an individual greyhound as described in paragraph 5. Mr. Desnoyers did not, however, despite full payment, receive a greyhound from the Grandmaster litter. Contract notwithstanding, Respondent advised Mr. Desnoyers that his participation in the syndication would be as described in paragraph 6.

   Moreover, since th( litter was whelped March 1, 1986, it was not anticipated that the greyhounds would begin racing until some 16 to 20 months from that date. For the interim period, it was intended that Respondent would retain possession of the Grandmaster litter, would obtain appropriate registration for them, would assure proper training for the dogs, and would place them with a suitable kennel for racing at the designated time.

   
   

9. Unfortunately, Respondent received television coverage which resulted in significant financial damage to its program. According to Mr. Pincus, a CNN defamatory account of Respondent's business ultimately caused it to go out of business in 1986. Consequently, Respondent sent Mr. Desnoyers correspondence which provided, in part:

   
   

   As you may know, a program recently appeared on television that caused great damage to Hanover Farms, Inc. It is the opinion of management that certain statements made in the telecast were false and defamatory. We are consulting our attorneys concerning appropriate litigation.

   As a result of the defamation, we are unable to continue to feed, board, raise and train your greyhound. The MC Grandmaster litter program has been converted to individual ownership. Your greyhound is

   located at Kenneth L. Griffins' (sic) Greyhound Farm, Route 1, Box 246 W., Morriston, Florida. 32668. The telephone number is (904) 528-3772. Contact Kenneth Griffin directly and arrange for him to complete your greyhound training.

   We regret the necessity of doing this however, we are victims of a situation beyond our control.

   
   

10. Mr. Desnoyers did not receive one of the Grandmaster puppies.

    
    

    CONCLUSIONS OF LAW

    
    

11. The Division of Administrative Hearings has jurisdiction over the parties and the subject matter of these proceedings.

    
    

12. Section 517.07, Florida Statutes, provides, in part:

    
    

    No securities except of a class exempt under any of the provisions of S. 517.051 or unless sold in any transaction exempt under any of the provisions of S. 517.061 shall be sold or offered for sale within this state unless such securities have been registered- as hereinafter defined, and unless prior to each sale the purchaser is furnished with a prospectus meeting the requirements of rules adopted by the department. The department shall issue a permit when such registration has been granted by the department.

    
    

13. Section 517.12, Florida Statutes, provides, in part:

    
    

    1. No dealer, associated person, or issuer of securities shall sell or offer for sale any securities in or from offices in this state, or sell securities in this state to persons of this state from offices outside this state, by mail or otherwise, unless the person has been registered with the department pursuant to the provisions of this section.

1. Section 517.221, Florida Statutes, provides, in part:

   
   

   1. The department may issue and serve upon a person a cease and desist order whenever the department has reason to believe that such person is violating, has violated, or is about to violate any provision of this chapter, any rule or order promulgated by the department, or any written agreement entered into with the department.

      * * *

      (3) The department may impose and collect administrative fine against any person found to have violated any provision of this chapter, any rule or order promulgated by the department, or any written agreement entered into with the department in an amount not to exceed $5,000 for each such violation. All fines collected hereunder shall be deposited as received in the Anti-Fraud Trust Fund.

      
      

2. Section 517.021(18), Florida Statutes (1985) provided, in pertinent part:

   
   

   "Security" includes any of the following:

   * * *

   1. Any transferable share, investment contract, or beneficial interest in title to property, profits, or earnings.

   2. An interest in or under a profit- sharing or participation agreement or scheme.

   
   

3. In the case at issue the Department has established that the Respondent was involved in the sale of a security. The investment program in which Mr. Desnoyers participated required an initial payment of $5000, it required eight investors or eight units purchased by one or more investors (in this case there were eight participants), the purpose of the investment was to share in the eventual profits or proceeds of all the greyhounds within the program. Respondent emphasized the profitability of this type of investment. Finally, the success of the venture was totally dependant upon the acts and success of Respondent in its part in the raising, training, and racing of the litter. Based upon the foregoing, having considered the transaction in its entirety, having determined that it met the so-called "three- prong test" which the parties have stipulated is the appropriate measure to evaluate whether or not the program is an investment contract, it is concluded that the Department has established that the Respondent's Grandmaster litter program was an investment contract. See Levine v. I.R.E. Properties, Inc., 344 So.2d 938 (3rd DCA 1977) and O'Neill v. State of Florida, 336 So.2d 699 (4th DCA 1976). Consequently, both Respondent and the security interest should have been registered.

RECOMMENDATION

Based on the foregoing, it is RECOMMENDED:

That the Department of Banking and Finance, Division of Securities enter a final order requiring the Respondent to cease and desist from the sale of unregistered securities.

DONE and ENTERED this 29th day of May, 1990, in Tallahassee, Leon County, Florida.

JOYOUS D. PARRISH

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 30th day of May, 1990.

APPENDIX TO CASE NO. 89-4558

RULINGS ON THE PROPOSED FINDINGS OF FACT SUBMITTED BY THE DEPARTMENT:

1. Paragraphs 1 through 7 are accepted.

2. The first sentence of paragraph 8 is accepted. The remainder of the paragraph is rejected as contrary to the weight of the evidence.

3. Paragraph 9 is accepted.

4. Paragraph 10 is rejected as hearsay or irrelevant.

5. The substantive fact of paragraph 11 is accepted.

6. Paragraphs 12 through 21 are accepted.

RULINGS ON THE PROPOSED FINDINGS OF FACT SUBMITTED BY THE RESPONDENT:

1. None submitted.

COPIES FURNISHED:

Howard W. Mazloff LAW OFFICES OF

HOWARD W. MAZLOFF, P.A.

Dadeland Towers South, Suite 425 9400 South Dadeland Boulevard Miami, Florida 33156

Robert K. Good

Assistant General Counsel Office of the Comptroller

400 West Robinson Street Suite 501

Orlando, Florida 32801

Hon. Gerald Lewis Comptroller, State of Florida The Capitol

Tallahassee, Florida 32399-0350

William G. Reeves General Counsel

Department of Banking and Finance The Capitol, Plaza Level, Rm. 1302 Tallahassee, Florida 32399-0350

Docket for Case No: 89-004558

Orders for Case No: 89-004558