STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

ROBERT C. PERLMAN, )

)

Petitioner, )

vs. ) CASE NO. 90-6606

)

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

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, James E. Bradwell, held a formal hearing in this case on January 14, 1991, in Tallahassee, Florida.

APPEARANCES

For Petitioner: Edward W. Dougherty, Jr., Esquire

MANG RETT & COLLETTE, P.A.

Post Office Box 11127 Tallahassee, Florida 32302-3127

For Respondent: R. Beth Atchison, Esquire

Assistant General Counsel Office of the Comptroller The Capitol, Suite 1302

Tallahassee, Florida 32399-0350 STATEMENT OF THE ISSUE

Whether or not Petitioner's application for registration as an associated person of First Gateway Securities, Inc. should be approved.

PRELIMINARY STATEMENT

By letter dated September 21, 1990, Respondent, Department of Banking and Finance (Department or Respondent), issued a letter of denial in response to Petitioner, Robert C. Perlman's application for registration as an associated person of First Gateway Securities, Inc. on the grounds that Petitioner offered for sale or sold securities on behalf of First Gateway prior to being registered with the Department. Petitioner timely challenged the Department's denial and requested a formal hearing pursuant to Chapter 120, Florida Statutes. At the outset of the hearing, Respondent filed a motion for official recognition of Chapter 517, Florida Statutes, and the rules under which the Department operates. The Department's motion for official recognition was granted.

Respondent also filed a motion in limine to prevent the deposition testimony of

Jeffrey J. Heet from being introduced into evidence. Upon argument of counsel, the Department's motion was denied. Respondent's exhibits 1-6 were offered and received in evidence at the hearing.

The Department presented the testimony of Jana Synatschk, a financial specialist who examines and reviews the books and records of security dealers in and around the Tampa area. Respondent testified on his behalf and presented the deposition testimony of Jeffrey J. Heet.

The parties were allowed through February 11, 1991, to submit memoranda supportive of their respective positions. The parties filed proposed memoranda which were considered in preparation of this Recommended Order. Proposed findings which are not incorporated herein are the subject of specific rulings in an Appendix.

Based upon my observation of the witnesses and their demeanor while testifying, documentary evidence received and the entire record compiled herein, I hereby make the following relevant factual findings:

FINDINGS OF FACT

1. Prior to February 16, 1990, Petitioner was registered as an associated person with Jonathan Alan Securities (Jonathan Alan). On February 16, 1990, Petitioner resigned from his association with Jonathan Alan and on March 12, 1990, Petitioner's registration became effective with First Gateway Securities, Inc. Most of Jonathan Alan's personnel resigned and became affiliated with First Gateway.

   
   

2. Petitioner's application for registration as an associated person with First Gateway is at issue in this proceeding. Petitioner was not registered with any security firm from February 17 through March 11, 1990.

   
   

3. On September 21, 1990, Respondent issued a preliminary denial of Petitioner's application on the stated grounds that: (1) Petitioner executed at least 14 trades on behalf of First Gateway Securities, Inc. between February 27, 1990 and March 8, 1990, when Petitioner was not yet registered with First Gateway, and (2) Petitioner executed one or more trades with customers after the termination of his registration with Jonathan Alan.

   
   

4. Ms. Jana Synatschk, a financial specialist with Respondent, reviewed the books and records of the Tampa branch office of First Gateway on or about May 8, 1990. During the examination, Ms. Synatschk reviewed order tickets, confirmations, purchase/sell blotters and commission blotters. She observed that Petitioner's registered representative and/or account executive number while associated with First Gateway was 328C. It is undisputed that 328C was Petitioner's registered representative number while at First Gateway. The house account number for First Gateway was 328A, and the account number for the branch manager, Mr. Bolnick, was 328B.

   
   

5. Ms. Synatschk also reviewed a monthly commission worksheet prepared by Petitioner and confirmations and order tickets of the trades on the commission worksheet from First Gateway. Specifically, Ms. Synatschk reviewed 14 trades which are listed on the commission worksheet belonging to Petitioner. The order tickets and confirmations demonstrate that the trades in question were executed between February 27, 1990 and March 1, 1990.

6. Ms. Synatschk found two problems or "red flags" which suggested that, in her opinion, the 14 trades referred to herein which were listed on the commission worksheet or "blotter" were trades executed by Petitioner when he was unregistered. Based on her prior experience of previous examinations of security offices, Ms. Synatschk has noted a pattern that if there has been activity by an unregistered broker, there may be a notation as to whom the trade belongs on the order ticket. In this case, the initials "B.P." appears on the tag number on some of the suspect order tickets. She therefore concluded that Petitioner was to get the credit for the sale. Likewise, Ms. Synatschk's review of the order tickets confirmed that while the registered representative number belonging to the house account were orders for either Leonard Bolnick or Petitioner, all the confirmations bear the house account number. She has observed that, in the usual situation, a house account is an account where trades that are executed in error are cleared and that many times a securities agency will use a house account to mask unregistered activity by its sales personnel.

   
   

7. There is no standard way brokerage houses handle a situation where a registered representative has been previously registered, has an associated person application pending with Respondent, is not yet registered but has a "book of business". Usually, the securities firm will maintain a record of which registered representative accounts are involved in trades executed while the not yet registered representative's application is pending.

   
   

8. Prior to relocating from Jonathan Alan, Petitioner contacted certain clients advising of his relocation to be associated with First Gateway. During the pendency of his application, he wrote a letter confirming that their trades would be carried by the account number that they had at Jonathan Alan. He also advised them of their new account at First Gateway. Petitioner assured them that their pending orders would be executed at the agreed upon price.

   Petitioner also confirmed that if his relicensing process was not completed in time to consummate their order as taken, it would be handled by another licensed broker in his new firm (First Gateway).

   
   

9. Petitioner had approximately 12 or 13 pending orders for securities at the time that he left Jonathan Alan. Petitioner gave this information to Mr. Bolnick who instructed a clerk to complete new order tickets for First Gateway by recopying the information from the Jonathan Alan tickets with the exception of the account number which would be different at First Gateway. Petitioner assisted the clerk in the recopying/completion of some of the tickets. Petitioner did not direct anyone to complete the order tickets.

   
   

10. The normal procedure at First Gateway of placing orders after the order tickets were completed was for Mr. Bolnick to telephone the order to First Gateway's headquarters. Mr. Bolnick would time-stamp the order ticket when he received a call from First Gateway confirming the trade and giving the broker expecting to receive compensation, a copy of the time-stamped ticket. Bolnick in fact called the orders in to First Gateway although Petitioner reviewed, for the first time, copies of the time-stamped order tickets when he obtained them from discovery documents obtained by the Department.

    
    

11. Jeffrey Heet has been executive vice-president of First Gateway (Tampa) since October 1988 and was registered to sell securities in Florida prior to February 1990.

12. In March 1990, Mr. Heet became aware that there were some trades pending when Petitioner came on board with First Gateway from Jonathan Alan. Approximately 12 such accounts were brought to First Gateway by Petitioner.

    Heet immediately inquired of Petitioner what procedure should be utilized with those pending orders since Petitioner was not yet registered with First Gateway. Petitioner advised Heet that the business had already been done at Jonathan Alan but that the accounts were being transferred to First Gateway. The accounts were frozen at Jonathan Alan until they were transferred onto the books of First Gateway's clearing firm, RPR Clearing.

    
    

13. The pending orders were executed by a registered representative at First Gateway and were coded as house accounts. Petitioner was advised that he would not receive commission on the trades.

    
    

14. One exception to the pending orders from Jonathan Alan occurred on the morning of March 6, 1990 when Petitioner was approached by a Mr. Widerberg, a tenant whose office was located in the complex where First Gateway was situated, and Widerberg inquired about "Heartsoft" stock. On the morning of March 6, 1990, Petitioner provided Mr. Widerberg a prospectus on Heartsoft and on either that day or the following day, Mr. Widerberg again approached Petitioner asking to buy some Heartsoft stock. Petitioner advised him that he was not yet registered and therefore could not transact the order for him. However, he advised Mr. Widerberg that he would take the necessary data and relay it to a registered representative, in this case, Mr. Bolnick, to complete once he arrived in the office. When Mr. Bolnick arrived, Petitioner gave Bolnick the purchase order which was executed by Bolnick.

    
    

15. Petitioner was not paid for any of the trades executed between February 27 and March 9, 1990, during which time his application was pending.

    
    

16. However, Petitioner received two checks from either Mr. Leonard Bolnick or the Dempsey Corporation as compensation. The first check was an enlistment bonus for affiliating with First Gateway and the second check was a commission check for transactions commencing March 12, 1990 and ending March 23, 1990.

    
    

17. By way of background, Petitioner began his career as an insurance agent when he was employed by Metropolitan Life Insurance Company during 1965. Petitioner has been licensed as a registered representative to sell securities in Florida since 1973 while he was employed with Metropolitan. Petitioner is now an independent insurance agent licensed with a number of companies. He is also a member of the "Million Dollar Roundtable" and has received a national quality award. Such awards require a high consistency sales rate and less than one percent of all licensed insurance agents have received such awards.

    
    

18. Petitioner currently holds life insurance, health insurance, variable annuities, property and casualty insurance licenses with the Florida Department of Insurance. He holds general agent, principal and "blue sky" security licenses with the National Association of Security Dealers. Petitioner is licensed in seven states, including, California, Colorado, the District of Columbia, Illinois, Kansas and Missouri.

    
    

19. During Petitioner's approximate 25-year career in the insurance and securities industry, he has never had any customer complaints filed with any Department of Insurance, the National Association of Security Dealers or any

    State or Federal regulatory body. Petitioner has not been the subject of any regulatory action in either industry nor has any formal adverse disciplinary action ever been entered against him.

    
    

    CONCLUSIONS OF LAW

    
    

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

    
    

21. The parties were duly noticed pursuant to Chapter 120, Florida Statutes.

    
    

22. The authority of the Respondent is derived from Chapter 517, Florida Statutes.

    
    

23. Section 517.12(1), Florida Statutes, provides:

    
    

    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.

       
       

24. Section 517.161(1), Florida Statutes, provides that the department is authorized to deny any registrations ... [and any registrations] may be revoked, restricted or suspended if the department determines that such applicant or registrant:

    
    

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

    
    

25. Petitioner has demonstrated his entitlement to be registered as an associated person with First Gateway Securities, Inc., Petitioner has credibly demonstrated that during the relevant time frame, he was not selling or offering for sale securities when he was not registered. There was no showing that Petitioner violated any provisions of Chapter 517, Florida Statutes. Although Respondent has presented a prima facie case and had created suspicions around some of the trades which took place during the pendency of Petitioner's application, he demonstrated that the most that he did during the pendency of his application was the performance of ministerial and/or clerical duties and that he did not consummate any contract of sale or disposed of any investment, security or interest in any security for value. Significantly, it was noted that Petitioner met with all of his customers and contacted them on behalf of Jonathan Alan Securities to sell or dispose of securities on the First Gateway order tickets prior to the termination of his relationship with Jonathan Alan. The original of the order tickets were provided and they were never executed as Petitioner testified. Petitioner's undisputed testimony is that the branch manager, Leonard Bolnick, directed the completion of the order tickets which would normally be executed by telephone. Jeffrey Heet, the vice-president of First Gateway (Tampa) corroborated the fact that Mr. Bolnick in fact executed the orders here in question. Respecting the Widerberg transaction, this was an unsolicited situation and Petitioner merely relayed the required information to a registered representative to be executed. At most, this was an isolated

incident and it does not rise to the level of being a sale which occurred at Petitioner's direction while he was unregistered. Finally, Petitioner presented credible evidence indicative of his long and illustrious career as a registered representative dealing in securities without any disciplinary problem with regulators of the securities industry.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that Respondent enter a Final Order granting Petitioner's application for registration as an associated person with First Gateway Securities, Inc. 1/

RECOMMENDED this 29th day of March, 1991, in Tallahassee, Leon County, Florida.

JAMES E. BRADWELL

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 29th day of March, 1991.

ENDNOTES

1/ This recommendation is, of course, subject to Petitioner's demonstration that he satisfies or otherwise meet all other eligibility requirements for registration as an associated person which are not at issue herein.

COPIES FURNISHED:

Edward W. Dougherty, Jr., Esquire MANG RETT & COLLETTE, P.A.

Post Office Box 1127 Tallahassee, Florida 32302-3127

R. Beth Atchison, Esquire Assistant General Counsel Office of the Comptroller The Capitol, Suite 1302

Tallahassee, Florida 32399-0350

William G. Reeves, Esquire General Counsel

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

Honorable Gerald A. Lewis Comptroller of Florida The Capitol, Plaza Level

Tallahassee, Florida 32399-0350

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS:

All parties have the right to submit written exceptions to this Recommended Order. All agencies allow each party at least 10 days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should contact the agency that will issue the final order in this case concerning agency rules on the deadline for filing exceptions to this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the final order in this case.

Docket for Case No: 90-006606

Orders for Case No: 90-006606