STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
DEPARTMENT OF BANKING AND )
FINANCE, )
)
Petitioner, )
)
vs. ) CASE NO. 90-6774
) 90-6775
) 90-6776
WILLIAM J. BAUM, JOSEPH C. ) CANOUSE, and EUGENE L. BERGELT, )
)
Respondent. )
)
RECOMMENDED ORDER
This matter was heard by William R. Dorsey, Jr., the Hearing Officer designated by the Division of Administrative Hearings, in West Palm Beach, Florida, on August 28 and September 23, 1991, and in Tallahassee, Florida, on December 11, 1991.
APPEARANCES
For Petitioner: Deborah Guller, Esquire
Ofer M. Amir, Qualified Representative Office of the Comptroller
Suite 211
111 Georgia Avenue
West Palm Beach, Florida 33401
For Respondents: William Baum, pro se
Joseph C. Canouse, pro se Eugene L. Bergelt, pro se Suite 160
950 Broken Sound Parkway, N.W. Boca Raton, Florida 33487
STATEMENT OF THE ISSUES
Each of the Respondents have been charged with violations of the Florida Securities and investor Protection Act, Chapter 517, Florida Statutes. The following violations were described in the Administrative Complaint dated August 30, 1990:
Whether Respondent Baum, in his capacity as a Branch Manager for the Boca Raton branch
office of First Eagle, Inc., offered for sale and sold securities from an unregistered
branch office. Complaint, Paragraph 20A
Whether Respondent Baum, in his capacity as a Branch Manager for the Boca Raton branch office, offered for sale and sold from the branch securities which were neither exempt from registration nor registered with the State of Florida. Complaint, Paragraph 20B
Whether, while serving as branch manager,
Respondents Baum, Canouse and Bergelt failed to have a registered options principal in the Boca Raton branch office for First Eagle, Inc., but permitted options trades, which the Department alleges is a violation of Rule 6E- 600.013(1)(p), Florida Administrative Code, and Article III, Section 33, Appendix E, Section 20(c), of the National Association of Securities Dealers Rules of Fair Practice.
Complaint, Pagagraphs 20F, 21F
Whether Respondent Baum, in his capacity as Branch Manager of the Boca Raton branch office of First Eagle, Inc., failed to maintain statements for the customers' accounts which involved option transactions
in violation of Rule 6E-600.013(1)(p), Florida Administrative Code, and Section 33, Appendix E, Section 17(b), of the National Association of Securities Dealers Rules of Fair Practice. Complaint, Pagagraph 20G.
Whether all Respondents functioned as the Branch Manager and in that capacity permitted the sale of securities by unregistered
persons and concealed trading by unregistered persons in violation of Section 517.301, Florida Statutes. Complaint, Paragraph 21A
Whether the Respondents failed to conduct their business so as to provide an audit
trail for all of their transactions, in violation of Rule 6E-600.014(7), Florida Administrative Code. Complaint, Paragraph 21C
Whether the Respondents engaged in and concealed the activity of splitting commissions between registered and unregistered sales persons in violation of Section 517.301(1)(c), Florida Statutes, and Rule 3E-600.13(2)(f), Florida Administrative Code. Complaint, Paragraph 21D
Whether the Respondents failed to observe just and equitable principles of trade in violation of Rule 6E-600.013(1)(p), Florida Administrative Code, and Article III, Section I, of the National Association of Securities Dealers Rules of Fair Practice. Complaint, Paragraph 21E.
PRELIMINARY STATEMENT
The Florida Department of Banking and Finance, Division of Securities and Investor Protection (Department) filed on August 30, 1991, an Administrative Complaint with a Notice of Intent to Enter a Cease and Desist Order and Notice of Rights against First Eagle, Inc., a securities dealer, and a large number of people associated with First Eagle. All three Respondents were named in that complaint, which included charges that examinations of the affairs of the Boca Raton branch of First Eagle for the period December 28, 1988, through January 3, 1989, and in May 1989 revealed violations of the Florida Securities and Investor Protectior Act (Securities Code) Rnd the implementing rules adopted by the Department, and professional standards adopted in those rules. Charges against the other Respondents were severed, and have been brought to conclusion without the necessity of formal hearings.
The Department's investigation was part of a nationwide task force coordinated by the National Association of Securities Administrators which had targeted for investigation the operations of brokerage firms specializing in low cost penny stocks.
The Respondents requested a formal hearing on October 4, 1990, and denied the allegations of the Complaint. In particular, all Respondents argued that they were not in a position to control the activities of First Eagle, or the corporation's business practices or procedures. All three Respondents have been unable to become registered in the securities industry either in Florida, or in any other jurisdiction due to the pendency of this Florida disciplinary proceeding. At the final hearing the Department presented the testimony of David McInnes, Jerome Jordan, Jerry Sawyer and JoAnne Blain. The Department offered Exhibits 1-18 which were admitted into evidence. All Respondents testified in their own behalf. They offered Exhibits 1-9 into evidence.
A transcript of the hearing was prepared. Proposed recommended orders were first due on November 15, 1991, but due to a motion by the Department to reopen the record, which was granted, a further hearing was held on December 11, 1991. Amended recommended orders were filed by December 23, 1991. Rulings on proposed findings of fact are made in the Appendix to this Recommended Order. Due to the complex nature of the securities code and its implementing rules, most of the issues raise mixed questions of law and fact.
FINDINGS OF FACT
The brokerage firm which employed all Respondents, First Eagle, Inc., is a Colorado corporation formed in 1985 and headquartered in Englewood, a suburb of Denver. First Eagle cleared its trades through a larger brokerage house, Emmet A. Larkin, Company, Inc., of San Francisco. First Eagle became registered with the State of Florida on July 22, 1986. Many of its branches were franchises but the Boca Raton office was owned and controlled by First Eagle directly. The Boca Raton branch became registered with the National Association of Securities Dealers on July 27, 1987. Its application for registration did not become effective with the Department until November 4, 1987, although records of the Department show the application for registration- was submitted to the Department on September 27, 1987, received by the Department on October 2, 1987, and listed Arlen J. Hasty as the branch manager (Department Composite Exhibit 1, Certificate 396-91).
Branch Management
William J. Baum (Baum) initially was employed to sell securities at the Boca Raton Branch on August 13, 1987. He registered as a general securities principal of First Eagle on October 15, 1987, and became branch manager of the Boca Raton branch on October 24, 1987, a little more than 60 days after his employment. He remained branch manager through October 1990. Baum had no idea the branch's registration with the Department had not become effective when he became its manager. 1/ His inquiry about licensure shortly after his promotion resulted in action by the Denver home office to check into and finalize registration for his branch, which apparently the Department approved based on the application First Eagle had submitted on September 27, 1987. (Department Composite Exhibit 1, Certificate 396-91)
Some aspects of the office were run with surprising informality. The Boca Raton branch had no operations bank account for a long time. The home office in Denver would wire money to Baum's personal checking account and he would pay bills and commissions due salespersons in the Bo~ca Raton office from that personal account. Client moneys paid for securities were deposited somewhere other than in Boca Raton, perhaps in Denver or San Francisco.
The Boca Raton branch conducted no trades, but sent order tickets to Denver for review, approval and execution. New stock or options accounts were not opened directly in Boca Raton. The forms were filled out and Baum or another supervisor signed them after checking them for completeness and sent them to Denver for acceptance. (Tr. 293) A portion of the business conducted in Boca Raton was generated by advertisements First Eagle placed in the " Penny Stock News" bearing an 800 toll free telephone number for potential customers to call. A switching system distributed those calls from all over the nation to a number of First Eagle offices, including the Boca Raton office. Many of the calls were from persons residing outside Florida.
Joseph C. Canouse (Canouse) was employed at the Boca Raton Office. The Department contends that he was also the branch manager of the Boca Raton branch office. The evidence offered on this contention is rejected as unpersuasive. Canouse did, however, perform some supervisory functions as the office manager and was registered as a general securities principal. He was one of about 20 brokers who were employed as a group at the Boca Raton office after they left another penny stock firm, F.D. Roberts. It is not surprising that with an influx of that size additional supervisors were needed. The Department's rules recognize that several persons in a branch office may register as principals. Rule 3E-600.004(2)(b), Florida Administrative Code (1991). What the Department relies on to claim Canouse was branch manager are 1) a First Eagle New Account Data Sheet Canouse signed for customer Stamatopaulos on April 10, 1989, 2) a personal option account application for one of the brokers in the office, Mr. Basso, which Canouse signed March 5, 1989, on lines which were designated for signature by a branch manager, and 3) a list of registered representatives employed at the Boca Raton office which Canouse signed, on May 1989, that listed him both as office manager and branch manager. These forms are not persuasive evidence that Canouse ever was the senior person at the office, or that he was acting as branch manager. Baum freely acknowledges he was the branch manager, and Baum was listed as branch manager on First Eagle's filings with the Department. Baum signed the vast majority of forms designed to be signed by the branch manager. Many First Eagle forms were signed by a supervisor as a check for completeness before they were forwarded to Denver. The Department's evidence is not persuasive that Canouse held himself out to the public as senior
manager of the Boca Raton branch, that the forms Canouse signed were required, as a matter of law, to be signed only by the branch manager, or that he actually functioned as branch manager.
Eugene L. Bergelt, Jr. (Bergelt), was employed at First Eagle from March 16, 1989, through August 1990. He registered with the Department as an associated person of First Eagle on May 1, 1989, and was present at the Boca Raton Office fewer than 15 business days prior to the Department's second examination of the Boca Raton branch beginning on May 15, 1989. He functioned as the office's sales manager, training sales people, and supervising the installation of a new telephone system and the location of the office. He was never trained as a branch manager, nor did he function as one. Senior officers of First Eagle had offered Bergelt the opportunity to become branch manager, and given him a contract to work at First Eagle but it never went into effect. He never sold any stock at First Eagle, and had nothing to do with the supervision of books and records or trades of stock or options. The testimony of JoAnne Blain was persuasive on this point. Baum was the only branch manager. Bergelt did, however, insist that First Eagle open a bank account for the branch. The corporate resolution for First Eagle opening that account lists Bergelt as an authorized signatory on the account, and lists his title as "Manager. " He was not the branch manager for the Boca Raton branch, however.
Sales at an Unregistered Branch
Baum offered for sale and sold securities from an unregistered branch office because orders for trades were taken before November 4, 1987, but he did not know that the office's registration was not effective when he became branch manager on October 24, 1987. Baum had no responsibility at First Eagle to register offices at any time before he was appointed branch manager. The registrations were handled by Compliance Officer, Rob Valerius, at the First Eagle Corporate Office in Denver, Colorado. Bauin's inquiry led to the completion of the registration for the office by the Department based on the application the Department had received on October 2, 1987. No action was taken against Baum or First Eagle at that time. The Department has failed to prove that Baum is responsible for violation of the statutory requirement that no dealer or investment advisor conduct business from a branch office unless the branch has been registered with the Department, Section 517.12(5), Florida Statutes (1987). While First Eagle, the dealer, and senior officers in Denver may be subject to discipline, Baum is not. An application for registration had been received by the Department on October 2, 1987, and the record does not explain what caused the delay in the effective date of registration which was based on that application. Sale of Unregistered Securities
The Department's next charge against Baum is that he is responsible personally or as office manager for the sale of securities of Shogun Oil, Ltd., to customers, when Shogun Oil had not been registered in Florida, and was not exempt from registration requirements under Florida or federal law. Shogun Oil was incorporated in 1981 and held a license on a patented process to extract high pour point oil and heavy oil reservoirs, and held options on developed and undeveloped oil and gas leases.
The Boca Raton office engaged in 17 transactions involving Shogun Oil, as follows:
Purchase Customer Trade Date or Sale
P | Edward Kelley | 11/23/87 | ||||
S | Frank Shannon | 11/16/87 | ||||
S | Julias Takacs | 12/24/87 | ||||
P | Joseph Schenk | 12/22/87 | ||||
S | Rosalie Murinko | 11/22/87 | ||||
S | Robert Abdella | 11/28/88 | ||||
S | Howard Fishman | 11/28/88 | ||||
S | John Chapman | 11/22/88 | ||||
S | Michael Queen | 10/13/? [proof | unclear | as | to | year] |
S | Michael Lehrer | 10/18/? [proof | unclear | as | to | year] |
S | Joseph Schenk | 10/24/? [proof | unclear | as | to | year] |
P | William Sanders | 03/15/88 | ||||
P | Mavaj Amarnani | 12/12/87 | ||||
P | Eric Erickson | 01/30/? [proof | unclear | as | to | date] |
P | Stanley Kufera | 12/10/87 | ||||
P | Ernest May | 11/30/87 | ||||
S | Ernest Nolkemper | 09/?/87 [proof | unclear | as | to | date] |
The first problem with the Department's allegation is that it lumps together customer purchases and sales Selling shares of Shogun Oil for clients who already owned them did not violate Section Sl7.061(17)(a), Florida Statutes. Those sales were exempt from registration under Section 517.016(3), Florida Statutes (1989).
Baum was not responsible for determining whether stock in the inventory of First Eagle, Inc., was exempt from the registration provisions of Florida law. The compliance officer at the home office of First Eagle had that responsibility.
Shogun Oil, Ltd., was listed in a recognized securities manual, Moody's OTC Unlisted Manual and News Report Service (Moody's), on October 28, 1987. At hearing, the Department presented the testimony of an examiner who had consulted the Moody's manual and the Standard and Poors Manual in an attempt to determine whether the exemption from registration found in Section 517.016(17)(a)5., Florida Statutes (1989), applied to shares sold to customers by the Boca Raton office. The witness had been unable to find an entry for Shogun Oil, Ltd. An entry was published in Moody's, however.
The fact of publication in a recognized manual does not make all the sales exempt. The exemption only applies when 1) a company's entry in the qualifying manual contains a balance sheet which is dated not more than 18 months prior to the date of the sale of the securities, and 2) the balance sheet published is accompanied by a profit and loss statement for a period of not less than two years next prior to the date of the balance sheet, or for the same period as the balance sheet if the company has not been in existence for two years. This information must have been published in the qualifying securities manual for a period of not less than 90 days prior to the sale of the securities. The listing in Moody's on October 28, 1987, would mean that no sales of Shogun Oil stock to clients could take place which would qualify for the Florida exemption until 90 days after the publication date, which would be January 26, 1988. Because the profit and loss statement published in Moody's
(i.e., the statement of revenue and expenses) did not cover a period of two years prior to the balance sheet, the exemption from registration for sale of those securities to clients of First Eagle did not apply. Why the Department's own examiner thought the securities had' been exempt from registration for some period of time (Tr. 108, 143) is difficult to understand, but underscores the complexity of these determinations. Perhaps another exemption applied at some earlier time, but the examiner's testimony was not specific on this point. The sales did not meet the requirement for exemption from registration.
The Boca Raton office concentrated on the sale of securities exempt from registration. All other securities First Eagle employees sold actually qualified for exemptions from registration, which provides a reasonable basis for a branch manager such as Baum to believe that his firm was properly following the Florida securities laws. 2/ While Baum was in error in engaging in the sales of shares in Shogun Oil, that violation is more properly attributable to the compliance division of First Eagle than to Baum personally. The Department presented no evidence to show that there is an affirmative duty on retail securities brokers to independently verify the exemption status of securities in the inventory of their employer at the time each transaction takes place. Baum's reliance on the compliance division of the Denver home office was reasonable. Moreover, there is no evidence of any consumer complaints or consumer losses arising from those sales. /3 The violations proven are fairly characterized as technical violations.
Registered Options Principal
At no time was any employee at the Boca Raton branch office of First Eagle, Inc., a registered options principal. Twelve options transactions were initiated at the Boca Raton Branch Office of First Eagle, Inc., between June and December of 1988. A registered options principal in Denver received and approved applications for options accounts and orders for options trades.
Article III, Section 33, Appendix E, Section 20(c), of the Rules of Fair Practice of the National Association of Securities Dealers, states:
Branch Offices.
No branch office of a member
shall transact an options business unless the principal supervisor of such branch office accepting options transactions has been qualified either as a Registered Options Principal or Limited Principal-General Securities Sales Supervisor; provided that this requirement shall not apply to branches in which no more than three registered representatives are located, so long as the options activity of such branch office are appropriately supervised by either a Registered Options Principal or a Limited Principal-General Securities Sales Supervisor.
The Boca Raton office had more than three registered representatives. It is a violation of the rules of the Department for a dealer to violate "any rule of a
. . . national securities association of which it is a member. . . ." Rule 6E- 600.013(1)(p), Florida Administrative Code (1991).
There are two problems of proof associated with this claim by the Department. First, the Department never offered into evidence during the hearing the text of Rule 6E- 600.013 or sought its official recognition in the manner described in Section 120.61, Florida Statutes (1991), by supplying a copy of the rule to the Respondents and providing them the opportunity to claim that the the text of the rule officially recognized was incorrect. Compare Section 90.202(9), Florida Statutes (1991). Rule 3E-600.013 was amended in August 1991, and there is simply no way to tell from consulting the bound codification of the rules published by the Department of State whether the text of the rule as it exists today is the same text which existed at the time the acts occurred which are the subject of the Department's administrative complaint.
The second problem is that the list of prohibited business practices found in Rule 6E-600.013(1), Florida Administrative Code (1991), are acts forbidden to "a dealer." There is no definition of "dealer" in the rule, or in Rule Chapters 3E-600 or 6E-200, Florida Administrative Code (1991). Assuming for the sake of argument that "dealer" should have the definition found in the Securities Code, the term "dealer" does not include "an associated person registered under this chapter." Section 517.021(9)(a)1, Florida Statutes (1989). Thus, the "dealer" would be First Eagle, Inc. Mr. Baum was a registered representative who was appropriately registered and thus an "associated person" under Section 517.021(4)(a) and (b) , Florida Statutes (1989), for he was a branch manager, and was a natural person who was controlled by the dealer as an employee, whose function was not merely that of a clerical employee. This conclusion is also consistent with the definition of "branch office" found in Section 517.021(6), Florida Statutes (1989), which means "any office of a dealer
. . . owned or controlled by the dealer. . ." (Emphasis supplied) The Department failed to prove that Baum was a dealer, and therefore he would not be guilty of violating Rule 3E-600.013(1)(p) as that rule is now framed by the Department, because those prohibitions run against dealers. Even if Baum is considered to be a dealer, to violate that rule the Department would have to show that Baum himself was a member of a national securities association. The rule actually contemplates that dealers are not natural persons, for it forbids violation of rules of a securities association "of which it [the dealer] is a member." (Id. The most the Department showed was that Baum was registered through the National Association of Securities Dealers. Consequently, whether or not the Rules of Fair Practice of the National Association of Securities Dealers would require that First Eagle conduct no options business from its Boca Raton office until that branch office had a registered options principal or a limited principal/general securities sales supervisor, the text of the prohibition found in the rule the Department has charged Baum with violating does not reach Mr. Baum. If the Department chooses to do so, it could, of course amend its rule to capture such conduct in the future.
Similarly, the Department's allegation against Baum that he violated Section 33, Appendix E, Section 17(b) of the Rules of Fair Practice of the National Association of Securities Dealers, and is therefore guilty of a separate violation of Rule 6E-600.013(1)(p), Florida Administrative Code, also fails. The files of the Boca Raton office of First Eagle, Inc., were missing account statements for customers Kres and Sanders. It is not clear that enough time had elapsed for account statements, which are generated the month following the trade by the clearing firm, to be sent to Denver and from Denver to Boca Raton by the time of the audit. The Kres trade was done on October 7, the Sanders trades on November 14 and 29. The audit was done in late December 1988. Any violation of the Rules of Fair Practice would only show a violation for which the dealer, First Eagle, Inc., could be disciplined. The text of the rule
does not encompass any acts by Baum which may violate the Rules of Fair Practice of the National Association of Securities Dealers. Sales and Concealment of Sales by Unregistered Persons.
Examiners suspected that retail brokers or, as First Eagle called them, registered representatives, handled calls from individuals who resided in states in which those representatives were not themselves registered. 4/ As a result, the trades could have been recorded falsely as the trades of registered representatives in the Boca Raton office who already had been registered appropriately in the states where the customer resided. The commissions would be deducted from the amounts due to the appropriately licensed registered representative, and paid to the registered representative who first received the order for the trade. For example, in a transaction for customer John George, who resided in Maryland and who called the Boca Raton office, registered representative JoAnne Blain had Mr. Baum place the order for a trade. Baum was registered in Maryland, Blain was not. Baum spoke to Mr. George himself before he took the order. (Tr. 268) The transaction was approved by Baum, who signed the trade ticket as branch manager. The commission was credited to Baum, but he paid the $500 to Blain who, by the time of the commission payment, was registered in Maryland.
Similarly, on a sale on January 6, 1989, to customer Rahimie, who resided in Texas, a commission of $250 was generated on Baum's commission report as the registered representative of record. Kevin Hale was not registered in Texas then, Mr. Baum was. After the January commissions were run, Baum reduced his commission by $250 and paid it to Hale. The evidence is persuasive that Mr. Baum paid Mr. Hale for a commission generated by the Rahimie trade. The Department failed to prove that Baum did not speak to Mr. Rahimie. The Department never contacted any of the customers to determine who was the broker for their trades. There is insufficient evidence to confirm the examiner's suspicion that the records showing Baum as the broker who took the order for the Rahimie trade are falsified. If it was handled in the same way as the George transaction, Mr. Baum did speak to Mr. Rahimie and take his order for a trade. The evidence is not persuasive that Baum permitted sales of securities by unregistered persons, or concealed trades by unregistered persons.
The Department's proof attempting to establish similar practices on the Deeter, Narkiewicz and Shannon accounts was unpersuasive. It was very vague and nothing tied any commissions apparently due to Baum or any other broker to payments to other brokers who were not registered to handle trades in those clients' states of residence. (Tr. 328-29) Audit Trail
The Department maintains that all Respondents, in their capacity as branch manager, violated their duty to maintain the books and records of the Boca Raton branch office in a manner sufficient to provide an audit trail of all business transactions of the dealer, in violation Rule 3E-600.014, Florida Administrative Code. Ignoring for the moment the failure of the Department of prove the text of that rule at the relevant time, the current version of the rule contains a provision that says:
(7) No provision of this rule, unless specifically designated otherwise as a required form, shall be deemed to require the preparation, maintenance, - or preservation of a dealer's or investment advisory's books and records in a particular form or system provided that whatever form or system
utilized by such dealer's or investment advisory's course of business is sufficient to provide an audit trail of all business transactions.
This charge was not sustained. While there were transactions recorded on the blotter for the Boca Raton office which appeared more than once, and this should not have happened, that redundancy does not mean that the records of the branch office were not sufficient to provide an audit trail of all business transactions. The examiners for the Department were able to realize that transactions had duplicate entries. None were missing. The rule does not create a nondelegable duty upon a branch manager to ensure the accuracy of each entry on a daily trading blotter under pain of discipline. Moreover, the examiners testified that matching order tickets and confirmations sufficed as an audit trail instead of maintaining a blotter. Time-stamped order tickets for the First Eagle Boca Raton office were matched with confirmations. (Tr. 256) Taken together, the blotter and the matched orders and confirmations show the trading activity of the branch. It certainly would have been better for there to be no error or duplication in the blotter records of First Eagle, but the discovery of errors does not make out a per se violation of the rule.
Once again, the text available imposes a duty on the dealer, not on the branch manager, Mr. Baum. Nothing in the rule imposes any duty on Canouse and Bergelt, neither of whom were the dealer or branch manager. Just and Eauitable Principles of Trade
The Department maintains that the Respondents violated Article III, Section I, of the Rules of Fair Practice of the National Association of Securities Dealers, which states:
A member, in the conduct in his business shall observe high standards of commercial honor and just and equitable principles of trade.
The Department maintains that the managers at First Eagle violated this rule because for the period the auditors examined, the books showed more customer buy orders than sell orders, both in number and in dollar volume. They also noticed that salespersons would receive larger commissions on consumer purchases than on sales, where the salespeople received a flat sum of approximately $60 for placing the sell order. There may have been some penny stock firms which would not permit its sales representatives to take a customer order to sell a security unless the broker already had another client who wished to buy that security, but First Eagle did not operate that way. It is not surprising that if a salesperson handled a sale, they would attempt to interest the customer in purchasing some other security with the sale's proceeds, in the hope of making a commission on that purchase. There is simply no credible evidence to support the finding the Department proposed (proposed finding 56) that "brokers used high pressure techniques to force customers to reinvest their funds." The Department's examiners were of the opinion that the possibility of greater commissions on customer purchase than customer sales "creates an inequality" (Tr. 337), and that "emphasis would be on customer buy orders rather than sell orders." (Tr. 217)
It is an impermissible leap to find the branch manager guilty of violation of the duty to uphold just and equitable principles of trade on the basis of these opinions of the examiners. Additionally, the applicable rule of the Department, Rule 3E-600.013(1)(p), Florida Administrative Code, places the duty on a dealer not to violate "any rule of the National Securities Exchange or National Securities Association of which it is a member. . . ." Neither Baum, Bergelt, nor Canouse were "dealers" so they could not violate that rule of the Department, even if the method of doing business which the examiners criticized fairly could be characterized as a violation of Article III, Section I, of the Rules of Fair Practice. At most, discipline could be imposed against First Eagle, Inc., but the opinion evidence here fails to establish any misconduct by anyone
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over this matter. Section 120.57(1), Florida Statutes (1991).
It is a violation of Section 517.12(5), Florida Statutes (1989), for a dealer to conduct business from a branch office within this state unless the branch office is registered with the Department pursuant to the provisions of the Securities Code.
Neither Baum, Canouse, or Bergelt were dealers, and consequently they could violate that statute. Moreover, the only person who was the branch manager who might have been responsibility for such a violation was Baum. Before he became branch manager, First Eagle had submitted an application for registration of the Boca Raton branch, which the Department received on October 2, 1987. It is that application for registration which the Department ultimately approved, although not until November 4, 1987. Baum had no reason to know that the registration had not become effective when he became branch manager on October 24, 1987. If anyone should be disciplined for this failure, it is First Eagle, or its senior officers in Denver, not Baum.
With respect to the sale of unregistered securities, Baum had good reason to believe that all of the securities handled by the branch office were exempt from the registration requirements of the Securities Code. The only transactions which might violate the registration requirement were those of Shogun Oil, because they did not meet the requirements for exemption from registration found in Section 517.016(17)(a)(5), Florida Statutes (1987). No client was shown to have suffered any loss, or even to have complained about the purchase of those shares. A technical violation may have been established, but it is not one for which any significant discipline should be imposed upon Baum. There was no evidence that Baum had an independent duty to verify whether the shares sold at the Boca Raton office were actually entitled to an exemption from the registration requirements of the Securities Code. The Department's own examiner thought that some of the sales were exempt, though in its proposed order the Department now asserts none were exempt, and that contention appears to be correct. For all other securities cleared by the compliance department of the First Eagle home office for sale by the Boca Raton branch, those securities were entitled to exemptions from registration.
The Department cannot make out a violation of Rule 3E-600.013(1)(p), Florida Administrative Code, by any of the Respondents, for that rule places requirements only on dealers, and they are not dealers. 5/ Consequently, none of the Respondents are subject to discipline for violation of Article III, Section 33, Appendix E, Section 20(c) of the Rules of Fair Practice of the
National Association of Securities Dealers, which require that a branch office of a member dealer not transact options business unless the principal supervisor of the branch office is qualified as a registered options principal or limited principal/general securities sales supervisor. Similarly, none of the Respondents are guilty of violation of Section 33, Appendix E, Section 17(b) of the Rules of Fair Practice of the National Association of Securities Dealers with respect to records required to be maintained for option trades. The violations are chargeable against First Eagle, Inc., the dealer. The absence of the three monthly account statements in the Boca Raton file for the Kres and Sanders accounts and absence of the written options agreement in the Kres file are not serious deficiencies.
Neither are any of the Respondents guilty of a violation of Article III, Section I of the Rules of Fair Practice of the National Association of Securities Dealers, which requires members to observe high standards of commercial honor and just and equitable principles of trade. They are not dealers and could not violate Rule 3E-600.013(1)(p). In addition, the Department's argument that the method used to compensate salespersons violated that rather general Rule of Fair Practice is unconvincing. If the Department wished to make such practices illegal, it should have made that plain to licensees through rulemaking, which would provide fair notice of the Department's position, or the Department should have produced evidence at the final hearing to show that any competent licensee would know that the conduct the agency complains about was improper. McDonald v. Department of Professional Regulation, 582 So.2d 660, 670 (Fla. 1st DCA 1991); Purvis v. Department of Professional Regulation, 461 So.2d 134, 137 (Fla. 1st DCA 1984). Opinion evidence of examiners criticizing the firm's commission schedule does not make out a case of violation of the duty to observe just and equitable principles of trade.
The Department did prove that in two cases Baum arranged to pay commissions to salespersons who first spoke to customers before he took orders for trades, because the first salespersons were not registered to conduct securities transactions in states where the customers resided. The evidence does not prove, however, that Baum, the registered representative whose number appears on the order for the trade, did not also speak with each customer to take the order. In the case of Mr. George, both JoAnne Blain and Mr. Baum spoke to Mr. George, and Baum placed the order. In the Rahimie case, the evidence does not demonstrate whether or not Mr. Baum spoke to Mr. Rahimie when the trade was placed, but the burden is on the Department to prove the falsity of the record. It did not do so. If the transaction was handled like the George transaction, Baum did speak to Mr. Rahimie before the order was taken. The question arises whether the payment of a commission to JoAnne Blain for the George transaction or to Kevin Hale for the Rahimie transaction is a violation of the Securities Code or of implementing rules. The Administrative Complaint alleges that in doing so, Mr. Baum violated duties placed on him as an agent by Rule 3E-600.103(2)(f), Florida Administrative Code. The current provision of that rule forbids:
Dividing or otherwise splitting commissions, profits or other compensation with [sic] the purchase or sale of securities in this state with any person not also licensed as an agent for the same dealer, or for a dealer under direct or in indirect common control.
The persons to whom Baum paid the commissions, Ms. Blain and Mr. Hale, were persons also registered as agents for the same dealer, First Eagle. The text of the rule does not prohibit splitting commissions per se. It appears Baum paid the entire commission to these salespersons, not that he split commissions. The rule does not make it improper for Mr. Baum to pay or split a commission with another salesperson in the office when both Baum and that other sales person spoke to a client, but only Baum was registered to sell securities in the state where the client resides. If the Department wishes to forbid such arrangements, it may by adopting a rule which says so. But such a disciplinary standard would only have prospective effect.
Agents such as the Respondents here are forbidden by Rule 3E- 600.013(2)(g) from engaging in certain actions which dealers are forbidden to engage in, and among those forbidden acts are the violation of any rule of a national securities exchange or of a national securities association of which the dealer is a member with respect to any customer, transaction, or business in this state. Rule 6E-600.013(1)(p), Florida Administrative Code. Had the Department charged any of the Respondents with violation of Rule 6E- 600.013(2)(g) it might have been able to demonstrate that the Respondents had violated Rule 6E-600.013(1)(p). But no such charge was made, and the Hearing Officer cannot treat the Department's Administrative Complaint as if it made such a charge. Willner v. Department of Professional Regulation, 563 So.2d 805 (Fla. 1st DCA 1990), rev. den., 576 So.2d 295 (Fla. 1991); Davis v. Department of Professional Regulation, 457 So.2d 1074 (Fla. 1st DCA 1984).
Why the Department discusses at length in its proposed order branch manager liability under the federal Exchange Act is not clear. The Respondents were not charged with violation of the federal act in the administrative complaint, or with violation of Section 517.161(1)(h), Florida Statutes (1989), or Rule 3E-600.014(6), Florida Administrative Code. The discussions concerning these sources of law are irrelevant.
Penalty
No violations by Canouse or Bergelt have been proven, and no penalty should be imposed.
With respect to Mr. Baum, for the reasons stated in Finding 7, no penalty should be imposed on him for the sale of securities from the Boca Raton branch before its registration became effective.
With respect to the sale of unregistered securities (Shogun Oil), no serious penalty should be imposed for the reasons stated in Findings 12 and 13. For the seven sales of Shogun Oil to customers, a fine of $50 per sale should be imposed, for a total fine of $350.
Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that all charges against Respondents Canouse and Bergelt be
dismissed, and that Baum be found guilty of the sale of securities not registered or entitled to exemption from registration, and that a fine of $350 be imposed.
DONE AND ENTERED in Tallahassee, Leon County, Florida, this 20th day of March 1992.
WILLIAM R. D0RSEY,
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 23rd day of March 1992.
ENDNOTES
1/ Current Rule 3E-600.004(3)(a), Florida Administrative Code (1991), gives the impression that a branch office registration filed on Department forms and accompanied by the fee prescribed would be effective on filing, not at some later date. Whether that was true in October 1987 cannot be determined from the current codification of the rules.
2/ Those other securities exempt from registration requirements were shares of Airborne Records, Cardiff Financial, R. Prime Aerospace, With Design in Mind, Diversified Management Acquisitions, Inc., Trinity Towne, Parle International and Contel Acquisitions.
3/ This does not mean that a loss or complaint is required for the Department to prove a violation.
4/ All the registered representatives in the Boca Raton branch were properly registered with the Department in Florida.
5/ As noted in Finding 16, the Department never proved the text of the rules cited in its Administrative Complaint as the bases for discipline by placing copies of those rules in evidence or by following the statutory procedure for official recognition. It is not possible to know whether the text in the current codification of the rules was the authoritative text in 1987- 1989. See Finding 16, Section 120.61, Florida Statutes (1991), and Poirier v. Department of Health and Rehabilitative Services, 351 So.2d 50, 54 (Fla. 1st DCA 1977).
APPENDICES D0AH CASES 90-6774, 90-6775 and 90-6776
Rulings of findings proposed by the Department:
1. Rejected as unnecessary.
2 & 3. Adopted in Finding 1.
Rejected as unnecessary.
Adopted in Finding 2.
Rejected, see Finding 5,
Adopted in Finding 6.
Adopted in Finding 7.
Adopted in Finding 12.
Adopted in Finding 14.
True, as of the time of the examination by Mr. McInnis, but see Finding 18 for additional relevant information.
Rejected because there is insufficient proof that anyone permitted the sale of securities by unregistered persons. The most that can be said is that when out-of-state residents' calls were fed to the Boca Raton office, registered representatives not registered in the state where the caller resided handed the call off to another registered representative who was registered in that state. Apparently it was the practice in the Boca Raton office to pay commissions on trades for such calls to the registered representative who had first received the call.
13a-c. rejected as unsupported by citations to the record. See Rule 221- 6.031(3), Florida Administrative Code.
13d. Adopted in Finding 22.
Rejected, see Findings 16, 19 and 20.
Rejected, see Findings 24-26.
Rulings on findings proposed the Respondents.
1 & 2. Adopted in Finding 1.
Rejected as unnecessary.
Rejected as implicit in Finding 3.
Generally adopted in Finding 2, although the date of registration was August 13, 1987.
Adopted in Finding 2.
Adopted in Finding 5.
Adopted in Finding 6.
Rejected as unnecessary.
Adopted in Finding 7.
Adopted in Findings 10 and 13.
Rejected, see Findings 11-13.
Rejected because the offers for the sale of shares of Shogun Oil were made in Florida. It is not significant that the trade was executed in Denver.
14-16. Rejected as unnecessary.
17 & 18. Adopted or implicit in Finding 4. 19-21. Adopted or discussed in Finding 18.
Rejected as unnecessary.
Adopted in Finding 19.
Adopted in Finding 20.
25-27. Rejected as unnecessary.
28 & 29. Adopted in Finding 22.
30 & 31. Rejected as unnecessary.
Adopted in Finding 19.
Rejected as to Baum, see Findings 19 and 20 accepted as to Canouse and Bergelt.
34 & 35 Rejected as unnecessary.
36 & 37. Adopted in Finding 4.
Rejected because the evidence of option trades was persuasive, based on the daily blotters.
39-41. Rejected as unnecessary.
COPIES FURNISHED:
Deborah Guller, Esquire
Ofer M. Amir, Qualified Representative Office of the Comptroller
Suite 211
111 Georgia Avenue
West Palm Beach, Florida 33401
William Baum Suite 160
950 Broken Sound Parkway, N.W. Boca Raton, Florida 33487
Joseph C. Canouse Suite 160
950 Broken Sound Parkway, N.W. Boca Raton, Florida 33487
Eugene L. Bergelt Suite 160
950 Broken Sound Parkway, N.W. Boca Raton, Florida 33487
The Honorable Gerald Lewis Comptroller State of Florida The Capitol, Plaza Level Tallahassee, Florida 32399-0350
STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
DEPARTMENT OF BANKING AND )
FINANCE, )
)
Petitioner, )
)
vs. ) CASE NO. 90-6774
) 90-6775
) 90-6776
WILLIAM J. BAUM, JOSEPH C. ) CANOUSE, and EUGENE L. BERGELT, )
)
Respondent. )
)
ORDER AMENDING RECOMMENDED ORDER
The Recommended Order issued March 20, 1992, is hereby amended as to page 18, paragraph 22 and page 20, paragraph 25 a copy of which is attached hereto. DONE AND ORDERED in Tallahassee, Leon County, Florida, this 24th of March 1992.
WILLIAM R. D0RSEY,
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 24th day of March 1992.
COPIES FURNISHED:
Deborah Guller, Esquire
Ofer M. Amir, Qualified Representative Office of the Comptroller
Suite 211
Ill Georgia Avenue
West Palm Beach, Florida 33401
William Baum Suite 160
950 Broken Sound Parkway, N.W. Boca Raton, Florida 33487
Joseph C. Canouse Suite 160
950 Broken Sound Parkway, N.W. Boca Raton, Florida 33487
Eugene L. Bergelt 7737 Lamirada Drive
Boca Raton, Florida 33433
The Honorable Gerald Lewis Comptroller
State of Florida
The Capitol, Plaza Level Tallahassee, Florida 32399-0350
did speak to Mr. Rahimie and take his order for a trade. The evidence is not persuasive that Baum permitted sales of securities by unregistered persons, or concealed trades by unregistered persons.
The Department's proof attempting to establish similar practices on the Deeter, Narkiewicz and Shannon accounts was unpersuasive. It was very vague and nothing tied any commissions apparently due to Baum or any other broker to payments to other brokers who were not registered to handle trades in those clients' states of residence. (Tr. 328-29) Audit Trail
The Department maintains that all Respondents, in their capacity as branch manager, violated their duty to maintain the books and records of the Boca Raton branch office in a manner sufficient to provide an audit trail of all business transactions of the dealer, in violation Rule 3E-600.0l4, Florida Administrative Code. Ignoring for the moment the failure of the Department to prove the text of that rule at the relevant time, the current version of the rule contains a provision that says:
(7) No provision of this rule, unless specifically designated otherwise as a required form, shall be deemed to require the preparation, maintenance, or preservation of a dealer's or investment advisory's books and records in a particular form or system, provided that whatever form or system utilized by such dealer's or investment advisory's course of business is sufficient to provide an audit trail of all business
transactions. This charge was not sustained. While there were transactions recorded on the blotter for the Boca Raton office which appeared
* * *
The Department maintains that the managers at First Eagle violated this rule because for the period the auditors examined, the books showed more customer buy orders than sell orders, both in number and in dollar volume. They also noticed that salespersons would receive larger commissions on consumer purchases than on sales, where the salespeople received a flat sum of approximately $60 for placing the sell order. There may their have been some penny stock firms which would not permit their [its] sales representatives to take a customer order to sell a security unless the broker already had another client who wished to buy that security, but First Eagle did not operate that
way. It is not surprising that [if a salesperson] when salespersons handled a sale, they would attempt to interest the customer in purchasing some other security with the sale's proceeds, in the hope of making a commission on that purchase. There is simply no credible evidence to support the finding the Department proposed (proposed finding 56) that "brokers used high pressure techniques to force customers to reinvest their funds." The Department's examiners were of the opinion that the possibility of greater commissions on customer purchase than customer sales "creates an inequality" (Tr. 337), and that "emphasis would be on customer buy orders rather than sell orders." (Tr. 217)
It is an impermissible leap to find the branch manager guilty of violation of the duty to uphold just and equitable principles of trade on the basis of these opinions of the examiners. Additionally, the applicable rule of the Department, Rule 3E-600.013(1)(p), Florida Administrative Code,
STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
DEPARTMENT OF BANKING AND FINANCE, )
)
Petitioner, )
)
vs. ) CASE NOs. 90-6774
) 90-6775
WILLIAM J. BAUM, JOSEPH C. ) 90-6776
CANOUSE, and EUGENE L. BERGELT, )
)
Respondents. )
)
AMENDED RECOMMENDED ORDER
This matter was heard by William R. Dorsey, Jr., the Hearing Officer designated by the Division of Administrative Hearings, in West Palm Beach, Florida, on August 28 and September 23, 1991, and in Tallahassee, Florida, on December 11, 1991.
APPEARANCES
For Petitioner: Deborah Guller, Esquire
Ofer M. Amir, Qualified Representative
Office of the Comptroller Suite 211
111 Georgia Avenue
West Palm Beach, Florida 33401
For Respondents: William Baum, pro se
Joseph C. Canouse, pro se Eugene L. Bergelt, pro se Suite 160
950 Broken Sound Parkway, N.W. Boca Raton, Florida 33487
STATEMENT OF THE ISSUES
Each of the Respondents have been charged with violations of the Florida Securities and Investor Protection Act, Chapter 517, Florida Statutes. The following violations were described in the Administrative Complaint dated August 30, 1990:
Whether Respondent Baum, in his capacity as a Branch Manager for the Boca Raton branch office of First Eagle, Inc., offered for sale and sold securities from an unregistered branch office. Complaint, Paragraph 20A
Whether Respondent Baum, in his capacity as a Branch Manager for the Boca Raton branch office, offered for sale and sold from the branch securities which were neither exempt from registration nor registered with the State of Florida. Complaint, Paragraph 20B
Whether, while serving as branch manager, Respondents Baum, Canouse and Bergelt failed to have a registered options principal in the Boca Raton branch office for First Eagle, Inc., but permitted options trades, which the Department alleges is a violation of Rule 6E- 600.013(1)(p), Florida Administrative Code, and Article III, Section 33, Appendix E, Section 20(c), of the National Association of Securities Dealers Rules of Fair Practice. Complaint, Pagagraphs 20F, 21F
Whether Respondent Baum, in his capacity as Branch Manager of the Boca Raton branch office of First Eagle, Inc., failed to maintain statements for the customers' accounts which involved option transactions in violation of Rule 6E-600.013(1)(p), Florida Administrative Code, and Section 33, Appendix E, Section 17(b), of the National Association of Securities Dealers Rules of Fair Practice. Complaint, Pagagraph 20G
Whether all Respondents functioned as the Branch Manager and in that capacity permitted the sale of securities by unregistered persons and concealed trading by unregistered persons in violation of
Section 517.301, Florida Statutes. Complaint, Paragraph 21A
Whether the Respondents failed to conduct their business so as to provide an audit trail for all of their transactions, in violation of Rule 6E-600.014(7), Florida Administrative Code. Complaint, Paragraph 21C
Whether the Respondents engaged in and concealed the activity of splitting commissions between registered and unregistered sales persons in violation of Section 517.301(1)(c), Florida Statutes, and Rule 3E-600.13(2)(f), Florida Administrative Code. Complaint, Paragraph 21D
Whether the Respondents failed to observe just and equitable principles of trade in violation of Rule 6E-600.013(1)(p), Florida Administrative Code, and Article III, Section I, of the National Association of Securities Dealers Rules of Fair Practice. Complaint, Paragraph 21E
PRELIMINARY STATEMENT
The Florida Department of Banking and Finance, Division of Securities and Investor Protection (Department) filed on August 30, 1991, an Administrative Complaint with a Notice of Intent to Enter a Cease and Desist Order and Notice of Rights against First Eagle, Inc., a securities dealer, and a large number of people associated with First Eagle. All three Respondents were named in that complaint, which included charges that examinations of the affairs of the Boca Raton branch of First Eagle for the period December 28, 1988, through January 3, 1989, and in May 1989 revealed violations of the Florida Securities and Investor Protection Act (Securities Code) and the implementing rules adopted by the Department, and professional standards adopted in those rules. Charges against the other Respondents were severed, and have been brought to conclusion without the necessity of formal hearings.
The Department's investigation was part of a nationwide task force coordinated by the National Association of Securities Administrators which had targeted for investigation the operations of brokerage firms specializing in low cost "penny stocks."
The Respondents requested a formal hearing on October 4, 1990, and denied the allegations of the Complaint. In particular, all Respondents argued that they were not in a position to control the activities of First Eagle, or the corporation's business practices or procedures. All three Respondents have been unable to become registered in the securities industry either in Florida, or in any other jurisdiction due to the pendency of this Florida disciplinary proceeding.
At the final hearing the Department presented the testimony of David McInnes, Jerome Jordan, Jerry Sawyer and JoAnne Blain. The Department offered Exhibits 1-18 which were admitted into evidence. All Respondents testified in their own behalf. They offered Exhibits 1-9 into evidence.
A transcript of the hearing was prepared. Proposed recommended orders were first due on November 15, 1991, but due to a motion by the Department to reopen the record, which was granted, a further hearing was held on December 11, 1991. Amended recommended orders were filed by December 23, 1991. Rulings on proposed findings of fact are made in the Appendix to this Recommended Order. Due to the complex nature of the securities code and its implementing rules, most of the issues raise mixed questions of law and fact.
FINDINGS OF FACT
The brokerage firm which employed all Respondents, First Eagle, Inc., is a Colorado corporation formed in 1985 and headquartered in Englewood, a suburb of Denver. First Eagle cleared its trades through a larger brokerage house, Emmet A. Larkin, Company, Inc., of San Francisco. First Eagle became registered with the State of Florida on July 22, 1986. Many of its branches were franchises but the Boca Raton office was owned and controlled by First Eagle directly. The Boca Raton branch became registered with the National Association of Securities Dealers on July 27, 1987. Its application for registration did not become effective with the Department until November 4, 1987, although records of the Department show the application for registration was submitted to the Department on September 27, 1987, received by the Department on October 2, 1987, and listed Arlen J. Hasty as the branch manager (Department Composite Exhibit 1, Certificate 396-91).
Branch Management
William J. Baum (Baum) initially was employed to sell securities at the Boca Raton Branch on August 13, 1987. He registered as a general securities principal of First Eagle on October 15, 1987, and became branch manager of the Boca Raton branch on October 24, 1987, a little more than 60 days after his employment. He remained branch manager through October 1990. Baum had no idea the branch's registration with the Department had not become effective when he became its manager. 1/ His inquiry about licensure shortly after his promotion resulted in action by the Denver home office to check into and finalize registration for his branch, which apparently the Department approved based on the application First Eagle had submitted on September 27, 1987. (Department Composite Exhibit 1, Certificate 396-91).
Some aspects of the office were run with surprising informality. The Boca Raton branch had no operations bank account for a long time. The home office in Denver would wire money to Baum's personal checking account and he would pay bills and commissions due salespersons in the Boca Raton office from that personal account. Client moneys paid for securities were deposited somewhere other than in Boca Raton, perhaps in Denver or San Francisco.
The Boca Raton branch conducted no trades, but sent order tickets to Denver for review, approval and execution. New stock or options accounts were not opened directly in Boca Raton. The forms were filled out and Baum or another supervisor signed them after checking them for completeness and sent them to Denver for acceptance. (Tr. 293) A portion of the business conducted in Boca Raton was generated by advertisements First Eagle placed in the "Penny Stock News" bearing an 800 toll free telephone number for potential customers to call. A switching system distributed those calls from all over the nation to a number of First Eagle offices, including the Boca Raton office. Many of the calls were from persons residing outside Florida.
Joseph C. Canouse (Canouse) was employed at the Boca Raton Office. The Department contends that he was also the branch manager of the Boca Raton
branch office. The evidence offered on this contention is rejected as unpersuasive. Canouse did, however, perform some supervisory functions as the office manager and was registered as a general securities principal. He was one of about 20 brokers who were employed as a group at the Boca Raton office after they left another penny stock firm, F.D. Roberts. It is not surprising that with an influx of that size additional supervisors were needed. The Department's rules recognize that several persons in a branch office may register as principals. Rule 3E-600.004(2)(b), Florida Administrative Code (1991). What the Department relies on to claim Canouse was branch manager are
1) a First Eagle New Account Data Sheet Canouse signed for customer Stamatopaulos on April 10, 1989, 2) a personal option account application for one of the brokers in the office, Mr. Basso, which Canouse signed March 5, 1989, on lines which were designated for signature by a branch manager, and 3) a list of registered representatives employed at the Boca Raton office which Canouse signed on May 15, 1989, that listed him both as office manager and branch manager. These forms are not persuasive evidence that Canouse ever was the senior person at the office, or that he was acting as branch manager. Baum freely acknowledges he was the branch manager, and Baum was listed as branch manager on First Eagle's filings with the Department. Baum signed the vast majority of forms designed to be signed by the branch manager. Many First Eagle forms were signed by a supervisor as a check for completeness before they were forwarded to Denver. The Department's evidence is not persuasive that Canouse held himself out to the public as senior manager of the Boca Raton branch, that the forms Canouse signed were required, as a matter of law, to be signed only by the branch manager, or that he actually functioned as branch manager.
Eugene L. Bergelt, Jr. (Bergelt), was employed at First Eagle from March 16, 1989, through August 1990. He registered with the Department as an associated person of First Eagle on May 1, 1989, and was present at the Boca Raton Office fewer than 15 business days prior to the Department's second examination of the Boca Raton branch beginning on May 15, 1989. He functioned as the office's sales manager, training sales people, and supervising the installation of a new telephone system and the relocation of the office. He was never trained as a branch manager, nor did he function as one. Senior officers of First Eagle had offered Bergelt the opportunity to become branch manager, and given him a contract to work at First Eagle but it never went into effect. He never sold any stock at First Eagle, and had nothing to do with the supervision of books and records or trades of stock or options. The testimony of JoAnne Blain was persuasive on this point. Baum was the only branch manager. Bergelt did, however, insist that First Eagle open a bank account for the branch. The corporate resolution for First Eagle opening that account lists Bergelt as an authorized signatory on the account, and lists his title as "Manager." He was not the branch manager for the Boca Raton branch, however.
Sales at an Unregistered Branch
Baum offered for sale and sold securities from an unregistered branch office because orders for trades were taken before November 4, 1987, but he did not know that the office's registration was not effective when he became branch manager on October 24, 1987. Baum had no responsibility at First Eagle to register offices at any time before he was appointed branch manager. The registrations were handled by Compliance Officer, Rob Valerius, at the First Eagle Corporate Office in Denver, Colorado. Baum's inquiry led to the completion of registration for the office by the Department based on the application the Department had received on October 2, 1987. No action was taken
against Baum or First Eagle at that time. The Department has failed to prove that Baum is responsible for violation of the statutory requirement that no dealer or investment advisor conduct business from a branch office unless the branch has been registered with the Department, Section 517.12(5), Florida Statutes (1987). While First Eagle, the dealer, and senior officers in Denver may be subject to discipline, Baum is not. An application for registration had been received by the Department on October 2, 1987, and the record does not explain what caused the delay in the effective date of registration which was based on that application.
Sale of Unregistered Securities
The Department's next charge against Baum is that he is responsible personally or as office manager for the sale of securities of Shogun Oil, Ltd., to customers, when Shogun Oil had not been registered in Florida, and was not exempt from registration requirements under Florida or federal law. Shogun Oil was incorporated in 1981 and held a license on a patented process to extract high pour point oil and heavy oil reservoirs, and held options on developed and undeveloped oil and gas leases.
The Boca Raton office engaged in 17 transactions involving Shogun Oil, as follows:
Purchase Customer Trade Date or Sale
P Edward Kelley 11/23/87
S Frank Shannon 11/16/87
S Julias Takacs 12/24/87
P Joseph Schenk 12/22/87
S Rosalie Murinko 11/22/87
S Robert Abdella 11/28/88
S Howard Fishman 11/28/88
S John Chapman 11/22/88
S Michael Queen 10/13/? [proof unclear as to year] S Michael Lehrer 10/18/? [proof unclear as to year] S Joseph Schenk 10/24/? [proof unclear as to year] P William Sanders 03/15/88
P Mavaj Amarnani 12/12/87
P Eric Erickson 01/30/? [proof unclear as to date] P Stanley Kufera 12/10/87
P Ernest May 11/30/87
S Ernest Nolkemper 09/?/87 [proof unclear as to date]
The first problem with the Department's allegation is that it lumps together customer purchases and sales. Selling shares of Shogun Oil for clients who already owned them did not violate Section 517.061(17)(a), Florida Statutes. Those sales were exempt from registration under Section 517.016(3), Florida Statutes (1989).
Baum was not responsible for determining whether stock in the inventory of First Eagle, Inc., was exempt from the registration provisions of Florida law. The compliance officer at the home office of First Eagle had that responsibility.
Shogun Oil, Ltd., was listed in a recognized securities manual, Moody's OTC Unlisted Manual and News Report Service (Moody's), on October 28, 1987. At hearing, the Department presented the testimony of an examiner who had consulted the Moody's manual and the Standard and Poors Manual in an attempt to determine whether the exemption from registration found in Section 517.016(17)(a)(5), Florida Statutes (1989), applied to shares sold to customers by the Boca Raton office. The witness had been unable to find an entry for Shogun Oil, Ltd. An entry was published in Moody's, however.
The fact of publication in a recognized manual does not make all the sales exempt. The exemption only applies when 1) a company's entry in the qualifying manual contains a balance sheet which is dated not more than 18 months prior to the date of the sale of the securities, and 2) the balance sheet published is accompanied by a profit and loss statement for a period of not less than two years next prior to the date of the balance sheet, or for the same period as the balance sheet if the company has not been in existence for two years. This information must have been published in the qualifying securities manual for a period of not less than 90 days prior to the sale of the securities. The listing in Moody's on October 28, 1987, would mean that no sales of Shogun Oil stock to clients could take place which would qualify for the Florida exemption until 90 days after the publication date, which would be January 26, 1988. Because the profit and loss statement published in Moody's (i.e., the statement of revenue and expenses) did not cover a period of two years prior to the balance sheet, the exemption from registration for sale of those securities to clients of First Eagle did not apply. Why the Department's own examiner thought the securities had been exempt from registration for some period of time (Tr. 108, 143) is difficult to understand, but underscores the complexity of these determinations. Perhaps another exemption applied at some earlier time, but the examiner's testimony was not specific on this point. The sales did not meet the requirement for exemption from registration.
The Boca Raton office concentrated on the sale of securities exempt from registration. All other securities First Eagle employees sold actually qualified for exemptions from registration, which provides a reasonable basis for a branch manager such as Baum to believe that his firm was properly following the Florida securities laws. 2/ While Baum was in error in engaging in the sales of shares in Shogun Oil, that violation is more properly attributable to the compliance division of First Eagle than to Baum personally. The Department presented no evidence to show that there is an affirmative duty on retail securities brokers to independently verify the exemption status of securities in the inventory of their employer at the time each transaction takes place. Baum's reliance on the compliance division of the Denver home office was reasonable. Moreover, there is no evidence of any consumer complaints or consumer losses arising from those sales. 3/ The violations proven are fairly characterized as technical violations.
Registered Options Principal
At no time was any employee at the Boca Raton branch office of First Eagle, Inc., a registered options principal. Twelve options transactions were initiated at the Boca Raton Branch Office of First Eagle, Inc., between June and December of 1988. A registered options principal in Denver received and approved applications for options accounts and orders for options trades.
Article III, Section 33, Appendix E, Section 20(c), of the Rules of Fair Practice of the National Association of Securities Dealers, states:
Branch Offices. No branch office of a member shall transact an options business unless the principal supervisor of such branch office accepting options transactions has been qualified either as a Registered Options Principal or Limited Principal-General Securities Sales Supervisor; provided that this requirement shall not apply to branches in which no more than three registered representatives are located, so long as the options activity of such branch office are appropriately supervised by either a Registered Options Principal or a Limited Principal-General Securities Sales Supervisor.
The Boca Raton office had more than three registered representatives. It is a violation of the rules of the Department for a dealer to violate "any rule of a
. . . national securities association of which it is a member. . . ." Rule 6E- 600.013(1)(p), Florida Administrative Code (1991).
There are two problems of proof associated with this claim by the Department. First, the Department never offered into evidence during the hearing the text of Rule 6E-600.013 or sought its official recognition in the manner described in Section 120.61, Florida Statutes (1991), by supplying a copy of the rule to the Respondents and providing them the opportunity to claim that the text of the rule to be officially recognized was incorrect. Compare Section 90.202(9), Florida Statutes (1991). Rule 3E-600.013 was amended in August 1991, and there is simply no way to tell from consulting the bound codification of the rules published by the Department of State whether the text of the rule as it exists today is the same text which existed at the time the acts occurred which are the subject of the Department's administrative complaint.
The second problem is that the list of prohibited business practices found in Rule 6E-600.013(1), Florida Administrative Code (1991), are acts forbidden to "a dealer." There is no definition of "dealer" in the rule, or in Rule Chapters 3E-600 or 6E-200, Florida Administrative Code (1991). Assuming for the sake of argument that "dealer" should have the definition found in the Securities Code, the term "dealer" does not include "an associated person registered under this chapter." Section 517.021(9)(a)1, Florida Statutes (1989). Thus, the "dealer" would be First Eagle, Inc. Mr. Baum was a registered representative who was appropriately registered and thus an "associated person" under Section 517.021(4)(a) and (b), Florida Statutes (1989), for he was a branch manager, and was a natural person who was controlled by the dealer as an employee, whose function was not merely that of a clerical employee. This conclusion is also consistent with the definition of "branch office" found in Section 517.021(6), Florida Statutes (1989), which means "any office of a dealer . . . owned or controlled by the dealer. . ." (Emphasis supplied) The Department failed to prove that Baum was a dealer, and therefore he would not be guilty of violating Rule 3E-600.013(1)(p) as that rule is now framed by the Department, because those prohibitions run against dealers. Even if Baum is considered to be a dealer, to violate that rule the Department would have to show that Baum himself was a member of a national securities association. The rule actually contemplates that dealers are not natural persons, for it forbids violation of rules of a securities association "of which
it [the dealer] is a member." (Id.) The most the Department showed was that Baum was registered through the National Association of Securities Dealers. Consequently, whether or not the Rules of Fair Practice of the National Association of Securities Dealers would require that First Eagle conduct no options business from its Boca Raton office until that branch office had a registered options principal or a limited principal/general securities sales supervisor, the text of the prohibition found in the rule the Department has charged Baum with violating does not reach Mr. Baum. If the Department chooses to do so, it could, of course amend its rule to capture such conduct in the future.
Similarly, the Department's allegation against Baum that he violated Section 33, Appendix E, Section 17(b) of the Rules of Fair Practice of the National Association of Securities Dealers, and is therefore guilty of a separate violation of Rule 6E-600.013(1)(p), Florida Administrative Code, also fails. The files of the Boca Raton office of First Eagle, Inc., were missing account statements for customers Kres and Sanders. It is not clear that enough time had elapsed for account statements, which are generated the month following the trade by the clearing firm, to be sent to Denver and from Denver to Boca Raton by the time of the audit. The Kres trade was done on October 7, the Sanders trades on November 14 and 29. The audit was done in late December 1988. Any violation of the Rules of Fair Practice would only show a violation for which the dealer, First Eagle, Inc., could be disciplined. The text of the rule does not encompass any acts by Baum which may violate the Rules of Fair Practice of the National Association of Securities Dealers.
Sales and Concealment of Sales by Unregistered Persons
Examiners suspected that retail brokers or, as First Eagle called them, registered representatives, handled calls from individuals who resided in states in which those representatives were not themselves registered. 4/ As a result, the trades could have been recorded falsely as the trades of registered representatives in the Boca Raton office who already had been registered appropriately in the states where the customer resided. The commissions would be deducted from the amounts due to the appropriately licensed registered representative, and paid to the registered representative who first received the order for the trade. For example, in a transaction for customer John George, who resided in Maryland and who called the Boca Raton office, registered representative JoAnne Blain had Mr. Baum place the order for a trade. Baum was registered in Maryland, Blain was not. Baum spoke to Mr. George himself before he took the order. (Tr. 268) The transaction was approved by Baum, who signed the trade ticket as branch manager. The commission was credited to Baum, but he paid the $500 to Blain who, by the time of the commission payment, was registered in Maryland.
Similarly, on a sale on January 6, 1989, to customer Rahimie, who resided in Texas, a commission of $250 was generated on Baum's commission report as the registered representative of record. Kevin Hale was not registered in Texas then, Mr. Baum was. After the January commissions were run, Baum reduced his commission by $250 and paid it to Hale. The evidence is persuasive that Mr. Baum paid Mr. Hale for a commission generated by the Rahimie trade. The Department failed to prove that Baum did not speak to Mr. Rahimie. The Department never contacted any of the customers to determine who was the broker for their trades. There is insufficient evidence to confirm the examiner's suspicion that the records showing Baum as the broker who took the order for the Rahimie trade are falsified. If it was handled in the same way as the George
transaction, Mr. Baum did speak to Mr. Rahimie and take his order for a trade. The evidence is not persuasive that Baum permitted sales of securities by unregistered persons, or concealed trades by unregistered persons.
The Department's proof attempting to establish similar practices on the Deeter, Narkiewicz and Shannon accounts was unpersuasive. It was very vague and nothing tied any commissions apparently due to Baum or any other broker to payments to other brokers who were not registered to handle trades in those clients' states of residence. (Tr. 328-29)
Audit Trail
The Department maintains that all Respondents, in their capacity as branch manager, violated their duty to maintain the books and records of the Boca Raton branch office in a manner sufficient to provide an audit trail of all business transactions of the dealer, in violation Rule 3E-600.014, Florida Administrative Code. Ignoring for the moment the failure of the Department of prove the text of that rule at the relevant time, the current version of the rule contains a provision that says:
(7) No provision of this rule, unless specifically designated otherwise as a required form, shall be deemed to require the preparation, maintenance, or preservation of a dealer's or investment advisory's books and records in a particular
form or system, provided that whatever form or system utilized by such dealer's or investment advisory's course of business is sufficient to provide an audit trail of all business transactions.
This charge was not sustained. While there were transactions recorded on the blotter for the Boca Raton office which appeared more than once, and this should not have happened, that redundancy does not mean that the records of the branch office were not sufficient to provide an audit trail of all business transactions. The examiners for the Department were able to realize that transactions had duplicate entries. None were missing. The rule does not create a nondelegable duty upon a branch manager to ensure the accuracy of each entry on a daily trading blotter under pain of discipline. Moreover, the examiners testified that matching order tickets and confirmations sufficed as an audit trail instead of maintaining a blotter. Time-stamped order tickets for the First Eagle Boca Raton office were matched with confirmations. (Tr. 256) Taken together, the blotter and the matched orders and confirmations show the trading activity of the branch. It certainly would have been better for there to be no error or duplication in the blotter records of First Eagle, but the discovery of errors does not make out a per se violation of the rule.
Once again, the text of the rule imposes a duty on the dealer, not on the branch manager, Mr. Baum. Nothing in the rule imposes any duty on Canouse and Bergelt, neither of whom were the dealer or branch manager.
Just and Equitable Principles of Trade
The Department maintains that the Respondents violated Article III, Section I, of the Rules of Fair Practice of the National Association of Securities Dealers, which states:
A member, in the conduct in his business shall observe high standards of commercial honor and just and equitable principles of trade.
The Department maintains that the managers at First Eagle violated this rule because for the period the auditors examined, the books showed more customer buy orders than sell orders, both in number and in dollar volume. They also noticed that salespersons would receive larger commissions on consumer purchases than on sales, where the salespeople received a flat sum of approximately $60 for placing the sell order. There may have been some penny stock firms which would not permit its sales representatives to take a customer order to sell a security unless the broker already had another client who wished to buy that security, but First Eagle did not operate that way. It is not surprising that if a salesperson handled a sale, they would attempt to interest the customer in purchasing some other security with the sale's proceeds, in the hope of making a commission on that purchase. There is simply no credible evidence to support the finding the Department proposed (proposed finding 56) that "brokers used high pressure techniques to force customers to reinvest their funds." The Department's examiners were of the opinion that the possibility of greater commissions on customer purchase than customer sales "creates an inequality" (Tr. 337), and that "emphasis would be on customer buy orders rather than sell orders." (Tr. 217)
It is an impermissible leap to find the branch manager guilty of violation of the duty to uphold just and equitable principles of trade on the basis of these opinions of the examiners. Additionally, the applicable rule of the Department, Rule 3E-600.013(1)(p), Florida Administrative Code, places the duty on a dealer not to violate "any rule of the National Securities Exchange or National Securities Association of which it is a member. . . ." Neither Baum, Bergelt, nor Canouse were "dealers" so they could not violate that rule of the Department, even if the method of doing business which the examiners criticized fairly could be characterized as a violation of Article III, Section I, of the Rules of Fair Practice. At most, discipline could be imposed against First Eagle, Inc., but the opinion evidence here fails to establish any misconduct by anyone.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over this matter. Section 120.57(1), Florida Statutes (1991).
It is a violation of Section 517.12(5), Florida Statutes (1989), for a dealer to conduct business from a branch office within this state unless the branch office is registered with the Department pursuant to the provisions of the Securities Code.
Neither Baum, Canouse, or Bergelt were dealers, and consequently they could violate that statute. Moreover, the only person who was the branch manager who might have been responsibility for such a violation was Baum. Before he became branch manager, First Eagle had submitted an application for registration of the Boca Raton branch, which the Department received on October 2, 1987. It is that application for registration which the Department
ultimately approved, although not until November 4, 1987. Baum had no reason to know that the registration had not become effective when he became branch manager on October 24, 1987. If anyone should be disciplined for this failure, it is First Eagle, or its senior officers in Denver, not Baum.
With respect to the sale of unregistered securities, Baum had good reason to believe that all of the securities handled by the branch office were exempt from the registration requirements of the Securities Code. The only transactions which might violate the registration requirement were those of Shogun Oil, because they did not meet the requirements for exemption from registration found in Section 517.016(17)(a)(5), Florida Statutes (1987). No client was shown to have suffered any loss, or even to have complained about the purchase of those shares. A technical violation may have been established, but it is not one for which any significant discipline should be imposed upon Baum. There was no evidence that Baum had an independent duty to verify whether the shares sold at the Boca Raton office were actually entitled to an exemption from the registration requirements of the Securities Code. The Department's own examiner thought that some of the sales were exempt, though in its proposed order the Department now asserts none were exempt, and that contention appears to be correct. For all other securities cleared by the compliance department of the First Eagle home office for sale by the Boca Raton branch, those securities were entitled to exemptions from registration.
The Department cannot make out a violation of Rule 3E-600.013(1)(p), Florida Administrative Code, by any of the Respondents, for that rule places requirements only on dealers, and they are not dealers.5 Consequently, none of the Respondents are subject to discipline for violation of Article III, Section 33, Appendix E, Section 20(c) of the Rules of Fair Practice of the National Association of Securities Dealers, which require that a branch office of a member dealer not transact options business unless the principal supervisor of the branch office is qualified as a registered options principal or limited principal/general securities sales supervisor. Similarly, none of the Respondents are guilty of violation of Section 33, Appendix E, Section 17(b) of the Rules of Fair Practice of the National Association of Securities Dealers with respect to records required to be maintained for option trades. The violations are chargeable against First Eagle, Inc., the dealer. The absence of the three monthly account statements in the Boca Raton file for the Kres and Sanders accounts and absence of the written options agreement in the Kres file are not serious deficiencies.
Neither are any of the Respondents guilty of a violation of Article III, Section I of the Rules of Fair Practice of the National Association of Securities Dealers, which requires members to observe high standards of commercial honor and just and equitable principles of trade. They are not dealers and could not violate Rule 3E-600.013(1)(p). In addition, the Department's argument that the method used to compensate salespersons violated that rather general Rule of Fair Practice is unconvincing. If the Department wished to make such practices illegal, it should have made that plain to licensees through rulemaking, which would provide fair notice of the Department's position, or the Department should have produced evidence at the final hearing to show that any competent licensee would know that the conduct the agency complains about was improper. McDonald v. Department of Professional Regulation, 582 So.2d 660, 670 (Fla. 1st DCA 1991); Purvis v. Department of Professional Regulation, 461 So.2d 134, 137 (Fla. 1st DCA 1984). Opinion evidence of examiners criticizing the firm's commission schedule does not make out a case of violation of the duty to observe just and equitable principles of trade.
The Department did prove that in two cases Baum arranged to pay commissions to salespersons who first spoke to customers before he took orders for trades, because the first salespersons were not registered to conduct securities transactions in states where the customers resided. The evidence does not prove, however, that Baum, the registered representative whose number appears on the order for the trade, did not also speak with each customer to take the order. In the case of Mr. George, both JoAnne Blain and Mr. Baum spoke to Mr. George, and Baum placed the order. In the Rahimie case, the evidence does not demonstrate whether or not Mr. Baum spoke to Mr. Rahimie when the trade was placed, but the burden is on the Department to prove the falsity of the record. It did not do so. If the transaction was handled like the George transaction, Baum did speak to Mr. Rahimie before the order was taken. The question arises whether the payment of a commission to JoAnne Blain for the George transaction or to Kevin Hale for the Rahimie transaction is a violation of the Securities Code or of implementing rules. The Administrative Complaint alleges that in doing so, Mr. Baum violated duties placed on him as an agent by Rule 3E-600.103(2)(f), Florida Administrative Code. The current provision of that rule forbids:
Dividing or otherwise splitting commissions, profits or other compensation with [sic] the purchase or sale of securities in this state with any person not also licensed as an agent for the same dealer, or for a dealer under direct or in indirect common control.
The persons to whom Baum paid the commissions, Ms. Blain and Mr. Hale, were persons also registered as agents for the same dealer, First Eagle. The text of the rule does not prohibit splitting commissions per se. It appears Baum paid the entire commission to these salespersons, not that he split commissions. The rule does not make it improper for Mr. Baum to pay or split a commission with another salesperson in the office when both Baum and that other sales person spoke to a client, but only Baum was registered to sell securities in the state where the client resides. If the Department wishes to forbid such arrangements, it may by adopting a rule which says so. But such a disciplinary standard would only have prospective effect.
Agents such as the Respondents here are forbidden by Rule 3E- 600.013(2)(g) from engaging in certain actions which dealers are forbidden to engage in, and among those forbidden acts are the violation of any rule of a national securities exchange or of a national securities association of which the dealer is a member with respect to any customer, transaction, or business in this state. Rule 6E-600.013(1)(p), Florida Administrative Code. Had the Department charged any of the Respondents with violation of Rule 6E- 600.013(2)(g) it might have been able to demonstrate that the Respondents had violated Rule 6E-600.013(1)(p). But no such charge was made, and the Hearing Officer cannot treat the Department's Administrative Complaint as if it made such a charge. Willner v. Department of Professional Regulation, 563 So.2d 805 (Fla. 1st DCA 1990), rev. den., 576 So.2d 295 (Fla. 1991); Davis v. Department of Professional Regulation, 457 So.2d 1074 (Fla. 1st DCA 1984).
Why the Department discusses at length in its proposed order branch manager liability under the federal Exchange Act is not clear. The Respondents were not charged with violation of the federal act in the administrative
complaint, or with violation of Section 517.161(1)(h), Florida Statutes (1989), or Rule 3E-600.014(6), Florida Administrative Code. The discussions concerning these sources of law are irrelevant.
Penalty
No violations by Canouse or Bergelt have been proven, and no penalty should be imposed.
With respect to Mr. Baum, for the reasons stated in Finding 7, no penalty should be imposed on him for the sale of securities from the Boca Raton branch before its registration became effective.
With respect to the sale of unregistered securities (Shogun Oil), no serious penalty should be imposed for the reasons stated in Findings 12 and 13. For the seven sales of Shogun Oil to customers, a fine of $50 per sale should be imposed, for a total fine of $350.
RECOMMENDATION
Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that all charges against Respondents Canouse and Bergelt be
dismissed, and that Baum be found guilty of the sale of securities not
registered or entitled to exemption from registration, and that a fine of $350 be imposed.
DONE AND ENTERED in Tallahassee, Leon County, Florida, this 24th day of March 1992.
WILLIAM R. DORSEY, JR.
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 24th day of March 1992.
ENDNOTES
1/ Current Rule 3E-600.004(3)(a), Florida Administrative Code (1991), gives the impression that a branch office registration filed on Department forms and accompanied by the fee prescribed would be effective on filing, not at some later date. Whether that was true in October 1987 cannot be determined from the current codification of the rules.
2/ Those other securities exempt form registration requirements were shares of Airborne Records, Cardiff Financial, E. Prime Aerospace, With Design in Mind, Diversified Management Acquisitions, Inc., Trinity towne, Parle International and Contel Acquisitions.
3/ This does not mean that a loss or complaint is reequired for the Department to prove a violation.
4/ All the registered representatives in the Boca Raton branch were properly registered with the Department in Florida.
5/ As noted in Finding 16, the Department never proved the text of the rules cited in its Administrative complaint as the bases for discipline by placing copies of those rules in evidence or by following the statutory procedure for official recognition. It is not possible to know whether the text in the current codification of the rules was the authoritative text in 1987-1989. See Finding 16, Section 120.61, Florida Statutes (1991), and Poirier v. Department of Health and Rehabilitative Services, 351 So.2d 50, 54 (Fla. 1st DCA 1977)
APPENDIX TO RECOMMENDED ORDER
DOAH CASE NOS. 90-6774, 90-6775 and 90-6776
Rulings of findings proposed by the Department:
1. Rejected as unnecessary.
2 & 3. Adopted in Finding 1.
Rejected as unnecessary.
Adopted in Finding 2.
Rejected, see Finding 5.
Adopted in Finding 6.
Adopted in Finding 7.
Adopted in Finding 12.
Adopted in Finding 14.
True, as of the time of the examination by Mr. McInnis, but see Finding 18 for additional relevant information.
Rejected because there is insufficient proof that anyone permitted the sale of securities by unregistered persons. The most that can be said is that when out- of-state residents' calls were fed to the Boca Raton office, registered representatives not registered in the state where the caller resided handed the call off to another registered representative who was registered in that state. Apparently it was the practice in the Boca Raton office to pay commissions on trades for such calls to the registered representative who had first received the call.
13a-c. Rejected as unsupported by citations to the record. See Rule 22I-6.031(3), Florida Administrative Code.
13d. Adopted in Finding 22.
Rejected, see Findings 16, 19 and 20.
Rejected, see Findings 24-26.
Rulings on findings proposed the Respondents.
1 & 2. Adopted in Finding 1.
Rejected as unnecessary.
Rejected as implicit in Finding 3.
Generally adopted in Finding 2, although the date of registration was August 13, 1987.
Adopted in Finding 2.
Adopted in Finding 5.
Adopted in Finding 6.
Rejected as unnecessary.
Adopted in Finding 7.
Adopted in Findings 10 and 13.
Rejected, see Findings 11-13.
Rejected because the offers for the sale of shares of Shogun Oil were made in Florida. It is not significant that the trade was executed in Denver.
14-16. Rejected as unnecessary.
17 & 18. Adopted or implicit in Finding 4. 19-21. Adopted or discussed in Finding 18.
Rejected as unnecessary.
Adopted in Finding 19.
Adopted in Finding 20. 25-27. Rejected as unnecessary.
28 & 29. Adopted in Finding 22.
30 & 31. Rejected as unnecessary.
Adopted in Finding 19.
Rejected as to Baum, see Findings 19 and 20 accepted as to Canouse and Bergelt.
34 & 35. Rejected as unnecessary.
36 & 37. Adopted in Finding 4.
38. Rejected because the evidence of option trades was persuasive, based on the daily blotters.
39-41. Rejected as unnecessary.
COPIES FURNISHED:
Deborah Guller, Esquire Ofer M. Amir, Qualified
Representative
Office of the Comptroller Suite 211
111 Georgia Avenue
West Palm Beach, Florida 33401
William Baum Suite 160
950 Broken Sound Parkway, N.W. Boca Raton, Florida 33487
Joseph C. Canouse Suite 160
950 Broken Sound Parkway, N.W. Boca Raton, Florida 33487
Eugene L. Bergelt Suite 160
950 Broken Sound Parkway, N.W. Boca Raton, Florida 33487
The Honorable Gerald Lewis Comptroller
State 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.
=================================================================
AGENCY FINAL ORDER
=================================================================
STATE OF FLORIDA DEPARTMENT OF BANKING AND FINANCE
DIVISION OF SECURITIES AND INVESTOR PROTECTION
DEPARTMENT OF BANKING AND FINANCE,
Petitioner, Administrative Proceeding No. 1234g, h, i-S-2/90
vs.
WILLIAM BAUM, DOAH Case Nos. 90-6774,
JOSEPH E. CANOUSE, and 90-6775, and 90-6776 EUGENE L. BERGELT,
Respondents.
/
FINAL ORDER
This matter has come before the undersigned as Head of the Department of Banking and Finance, Division of Securities and Investor Protection ("Department"), for the entry of a Final Order in the above referenced proceeding. On March 24, 1992, a Hearing Officer from the Division of Administrative Hearings submitted his Amended Recommended Order ("Recommended Order") in this proceeding, a copy of which is attached hereto as Exhibit A. On April 6, 1992, the Department timely filed its Exceptions to the Hearing Officer's Recommended Order, a copy of which is attached hereto as Exhibit B. The Respondents have not filed any exceptions to the Recommended Order, nor have they filed any response to the Department's exceptions.
BACKGROUND
This matter arose when the Department filed an Administrative Complaint on August 30, 1990 against First Eagle, Inc. and a number of people associated with that securities dealer. Each of the above named Respondents were charged in the Complaint with violating the provisions of Chapter 517, Florida Statutes, and the rules promulgated thereunder. The Respondents requested a formal hearing on October 4, 1990, and this matter was transferred to the Division of Administrative Hearings for the assignment of a Hearing Officer to conduct the formal hearing. A formal hearing was held in West Palm Beach, Florida on August
28 and September 23, 1991, and in Tallahassee, Florida, on December 11, 1991. On March 24, 1992, the Hearing Officer submitted his Recommended Order in which he recommended that all charges against Respondents Canouse and Bergelt be dismissed, and that Baum be found guilty of the sale of securities not registered or entitled to exemption from registration, and that a fine of
$350.00 be imposed. On April 6, 1992, the Department timely filed its exceptions to the Recommended Order.
RULINGS ON EXCEPTIONS TO FINDINGS OF FACT
Exception No. 1: The Department's first exception is to footnote No. 1 in Finding of Fact No. 2 of the Recommended Order wherein the Hearing Officer stated:
Current Rule 3E-600.004(3)(a), Florida Administrative Code (1991), gives the impression that a branch office registration filed on Department forms and accompanied
by the fee prescribed would be effective
on filing, not at some later date. Whether that was true in October 1987 cannot be determined from the current codification
of the rules.
The Department contends that this statement is an erroneous interpretation of an agency rule which completely ignores the Department's authority to review applications for licensure pursuant to Section 517.12, Florida Statutes, and would, if allowed to stand, render the Department's regulatory function "nugatory."
Pursuant to Section 120.57(1)(b)10., Florida Statutes, the Department has the authori y to reject a Hearing Officer's conclusions of law and interpretation of administrative rules. Since the Hearing Officer has incorrectly interpreted Rule 3E-600.004(3), Florida Administrative Code, the Department's exception to above quoted statement is hereby accepted and footnote No. 1 in Finding of Fact No. 2 of the Recommended Order is accordingly rejected.
Exception No. 2 and No. 3: The Department's second and third exception is to Finding of Fact No. 4 wherein the Hearing Officer found that "[t]he Boca Raton branch conducted no trades, but sent order tickets to Denver for review, approval and execution. New stock or options accounts were not opened directly in Boca Raton. The forms were filled out and Baum or another supervisor signed them after checking them for completeness and sent them to Denver for acceptance." The Department contends that acceptance of the Hearing Officer's conclusion would result in unregistered persons and branch offices conducting business in every state under the pretense that their main office is licensed.
Section 517.12, Florida Statutes, provides in part:
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 to persons in 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.
(5) No dealer or investment adviser shall conduct business from a branch office within this state unless the branch office is registered with the department pursuant
to the provisions of this section.
Section 517.021, Florida Statutes, defines the terms "offer to sell" and "sale" as follows:
(12) "Offer to sell," "offer for sale," or "offer" means any attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security, or an investment or interest in an investment, for value.
(16) "Sale" or "sell" means any contract of sale or disposition of any investment, security, or interest in a security,
for value....
Finding of Fact No. 4 involves both factual findings and conclusions of law. Section 517.12(1), Florida Statutes, proscribes the "sale" or "offer for sale" of any securities unless the dealer, associated person, or issuer is registered with the Department Section 517.12(1), Florida Statutes, does not use the terms "conduct," "execute," or "trade." While it may be true that the Boca Rattan office did not actually "conduct" or "execute" securities trades, that office did engage in the offering and selling of securities as defined by Sections 517.021(12) and (16), Florida Statutes. The Boca Raton office solicited customers, filled out new account forms, and wrote up order tickets for the purchase or sale of securities. To the extent that the Hearing Officer's conclusion in Finding of Fact No. 4 implies that the Boca Raton office was not in violation of Sections 517.12, Florida Statutes, that conclusion is rejected as clearly erroneous and not Supported by competent, Substantial evidence.
Exception No. 4: The Department'5 fourth exception is to Finding of Fact No. 5 wherein the Hearing Officer found that the Department's evidence that Joseph Canouse was a branch manager of the Boca Raton branch office was unpersuasive. The Department contends that competent, substantial evidence was presented at hearing to support findings that Mr. Canouse was a branch manager.
In Heifetz v. Department of Business Regulation, 475 So.2d 1277 (Fla. 1st DCA 1985), the district court of appeal explained the respective roles of hearing officers and state agencies in deciding factual issues as follows:
Factual issues susceptible of ordinary methods of proof that are not infused with policy considerations are the prerogative of the hearing officer as the finder of fact. McDonald v.
Department of Banking and Finance, 346 So.2d 569 (Fla. 1st DCA 1977). It is the hearing officer's function to consider all the evidence presented, resolve conflicts, judge credibility of witnesses, draw Permissible infer- ences from the evidence, and reach ultimate findings of fact based on competent, substantial evidence.
State Beverage Department v. Ernal, Inc., 115 So.2d 566 (Fla. 3rd DCA 1959). If,
as is often the case, the evidence presented supports two inconsistent findings, it is the hearing officer's role to decide the issue one way or the other. The agency may not reject the hearing officer's finding unless there is no competent, substantial evidence from which the finding could reasonably be inferred. The agency is not authorized to weigh the evidence pre- sented, judge credibility of witnesses, or otherwise interpret the evidence to fit its desired ultimate conclusion.
Id. at 1281
Having reviewed the transcript of hearing, the exhibits and pleadings in this matter, it cannot be determined that there is no competent, substantial evidence to support the Hearing Officer's finding. Although evidence was presented at the hearing to show that Mr. Canouse did act as branch manager, the Hearing Officer weighed that evidence and determined that it was unpersuasive.
Since there is some competent, Substantial evidence in the record to support the Hearing Officer's finding, this finding cannot be rejected by the undersigned, and the Department's fourth exception is accordingly rejected. Heifetz, supra.
Exception No. 5: The Department's fifth exception is to Finding of Fact No. 7 wherein the Hearing Officer found that William Baum could not be held liable for violations of Section 517.12(5), Florida Statutes, because he did not "know" that the branch office's registration was not effective when he became branch manager on October 24, 1987, that he had "no responsibi1ity at First Eagle to register offices at any time before he was appointed branch manager, and that registration were handled by the compliance officer at the First Eagle office in Denver, Colorado.
Finding of Fact No. 7 involves both factual findings and conclusions of law. While it may be true that Mr. Baum did not "know" that the branch office was not registered with the Department on the day he was hired to be the branch
manager, this does not exonerate him from violating Section 517.12, Florida Statutes. Section 517.12(8), Florida Statues, makes "any principal, manager, supervisor, or person exercising similar functions responsible for the acts of the associated persons affiliated with a dealer or investment adviser." There was no dispute that Mr. Baum was the branch manager of the Boca Raton office as of October 24, 1987. By agreeing to accept the position of branch manager of the Boca Raton office, Mr. Baum also accepted the responsibility to ensure that the branch office was operating in accordance with the provisions of Chapter 517, Florida Statutes, and the rules promulgated thereunder. The Hearing Officer's finding that Mr. Baum could not be held liable for the operation of the branch office prior to the effective date of registration with the Department is hereby rejected as an erroneous conclusion of law. Scienter, or knowledge, is not required to make out a violation of Section 517.12, Florida Statutes. State v. Houghtaling, 181 So.2d 636 (Fla. 1965).
The Hearing Officer also found that the branch office application was received by the Department on October 2, 1987, and that the record did not explain what caused the delay in the effective date of registration which was based on that application. This finding is also rejected based upon the Hearing Officer's erroneous interpretation of Rule 3E-600.004(3), Florida Administrative Code, as previously discussed in the ruling on the Department's first exception.
Exception No. 6: The Department's sixth exception is to Finding of Fact Nos. 10 and 13. 1/ The Department contends that the Hearing Officer erred in finding that Mr. Baum "was not responsible for determining whether stock in the inventory of First Eagle, Inc. was exempt from the registration provisions of Florida law. The compliance officer at the home office of First Eagle had that responsibility. " The Department contends that the Hearing Officer also erred in concluding that the Department failed to show a duty on the part of branch managers to ensure an exemption from registration exists prior to the offer or sale of an unregistered security and that the liability for this type of violation is attributable to the compliance officer in the Denver office.
Although labelled a "finding of fact," the Hearing Officer's determination that liability for the sale of unregistered securities lies with the compliance department of First Eagle in Denver is, in reality, a "conclusion of law." The Hearing Officer's conclusion that the Department failed to show a duty on the part of a branch manager to ensure that an exemption from the registration requirements exists is contrary to the law and is hereby rejected. Section 517.171, Florida Statutes, provides:
It shall not be necessary to negate any
of the exemptions provided in this chapter in any complaint, information, indictment, or other writ or proceeding brought under this chapter; and the burden of establishing the right to any exemption shall be upon
the party claiming the benefit of such exemption. [e.s.]
The Department was not required to prove that there is an affirmative duty on associated persons to independently verify the exemption status of securities that they are offering for sale or selling. Section 517.171, Florida Statutes, places the burden of proof on the person claiming the benefit of any such exemption. The Respondents failed to provide any competent, substantial evidence
that the Shogun Oil, Ltd. securities were entitled to an exemption, and the Hearing Officer found that those securities did not qualify for exemption in Finding of Fact No. 12.
The Department rejects the conclusions in Finding of Fact No. 10 as a clearly erroneous interpretation of the provisions of Section 517.221, Florida Statutes. Moreover, the Department rejects the Hearing Officer's conclusions in Finding of Fact No. 13 that the sale of unregistered Securities by the Boca Raton office was "more properly attributable to the compliance division of First Eagle than to Baum personally" and that "Baum's reliance on the compliance division of the Denver home office was reasonable." As stated earlier, there was no dispute that Mr. Baum was the branch manager of the Boca Raton office.
As the branch manager, he was responsible for the operation and supervision of the activities of that office which would include verifying the exemption status of securities that were being offered and sold by that office.
Exception No. 7 and 8: The Department's seventh and eighth exceptions are also to Finding of Fact No 13 wherein the Hearing Officer stated that there was no evidence of any consumer complaints or consumer losses arising out of the sale of unregistered securities and that such violations Section 517.07, Florida Statutes, are "fairly characterized as technical violations." The Department asserts that evidence of consumer complaints or consumer losses is not a prerequisite to finding a violation of Section 517.07, Florida Statutes, and that the sale of an unregistered security is not a technical violation.
Section 517.07, Florida Statutes, states 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. [e.s.]
Section 517.171, Florida Statutes, provides:
It shall not be necessary to negate any
of the exemptions provided in this chapter in any complaint, information, indictment, or other writ or proceedings brought under this chapter; and the burden of establishing the right to any exemption shall be upon
the party claiming the benefit of such exemption. [e.s.]
Section 517.211, Florida Statutes, provides in part:
(1) Every sale made in violation of either
s. 517.07 or s.517.12 may be rescinded at the election of the purchaser; and the person making the sale and every director, officer, partner, or agent of or for the seller, if the director, officer, partner, or agent has personally participated or aided in making the sale, is iointly and severally liable to the purchaser in an action for rescission, if the purchaser still owns the security, or for damages, if the purchaser has sold the security....
Section 517.302, Florida Statutes, provides in part:
(1) Whoever violates any of the provisions of this chapter is guilty of a felony of the third degree, punishable as provided
in s. 775.082, s. 775.083, or s. 775.084.
The Department accepts the seventh and eighth exceptions filed by the Department and rejects the Hearing Officer's findings in Paragraph 13 of the Recommended Order as clearly erroneous interpretations of the above cited provisions of Chapter 517, Florida Statutes. Section 517.07, Florida Statutes, clearly proscribes the sale or offer of securities in this state unless such securities have been registered with the Department or unless such securities are exempt pursuant to Section 517.051 or Section 517.061, Florida Statutes.
Section 517.171, Florida Statutes, clearly and unequivocably places the burden of establishing an exemption from the provisions of Section 517.07, Florida Statutes, on the person claiming the benefit of such exemption. Section 517.211, Florida Statutes, provides for rescission and an action for damages for purchasers of securities that have been offered or sold in violation of the registration provisions of Sections 517.07 and 517.12, Florida Statutes.
Moreover, Section 517.302, Florida Statutes, makes any violation of the provisions of Chapter 517, Florida Statutes, a felony of the third degree. In Skurnick v. Alnsworth, 591 So.2d 904 (Fla. 1991), the Florida Supreme Court stated that "[t]he intent of section 517.12 is to protect purchasers and, if that section has been violated, damages are automatic in accordance with the provisions of section 517.211". It seems ludicrous that the Legislature would provide civil remedies and criminal sanctions for a "technical" violation of law. The Hearing Officer's conclusions in Finding of Fact No. 13 that the sale of unregistered securities is a "technical" violation is clearly erroneous and is hereby rejected. Likewise, the Hearing Officer's finding that there was no evidence of any consumer complaints or consumer losses arising from the sale of unregistered securities is also rejected as irrelevant to the determination whether unregistered securities were sold.
Exception No. 9: The Department's ninth exception is to Finding of Fact No. 19 of the Recommended Order. The Department takes exception to the Hearing Officer's finding that "in a transaction for customer John George, who resided in Maryland and who called the Boca Raton office, registered representative JoAnne Blain had Mr. Baum place the order for the trade," The Department contends that the Hearing Officer's finding that Mr. George telephoned First Eagle is clearly erroneous.
Having reviewed the transcript of hearing, the exhibits and pleadings in this matter, it cannot be determined that there is no competent, substantial evidence to support the Hearing Officer's finding. There is conflicting evidence in the record as to whether Mr. George telephoned the Boca Raton office or was solicited by that office. Accordingly, under Heifetz, this finding cannot be rejected by the undersigned and this portion of the Department's exception is rejected.
The Department's ninth exception also contends that the Hearing Officer's finding that Ms. Blain was registered in the State of Maryland at the time Mr. Baum paid her the commission for the George transaction (which commission was originally credited to Mr. Baum) is irrelevant and that the effect of this finding would Sanction the dividing or otherwise splitting of commissions between associated persons. The Department agrees and accepts the Department's exception to that extent. This violation will be considered in increasing the penalty as more particularly set forth hereinafter.
To the extent that the Hearing Officer's finding would authorize the splitting of commissions between associated persons, this finding is rejected as a clearly erroneous interpretation of the provisions of Rule 3E-600.013(2)(f), Florida Administrative Code. This matter is further addressed in the rejection of Paragraph 7 of the Hearing Officer's Conclusions of Law, infra.
Exception No. 10: The Department's tenth exception is to Finding of Fact No. 20 of the Recommended Order. The Department contends that even if the Department failed to prove that Mr. Braum spoke to customer, Mr. Rahamie, the Hearing Officer's finding that Mr. Baum reduced his commission on the Rahamie trade by $250.00 and paid it to Kevin Hale would constitute a violation of Rule 3E-600.013(2)(f), Florida Administrative Code. The Department agrees and the Department's exception is accepted. This violation will be considered in increasing the penalty as more specifically stated hereafter.
To the extent that the Hearing Officer's finding would sanction the splitting of commissions between associated persons, this finding is rejected as a clearly erroneous interpretation of the provisions of Rule 3E-600.013(2)(f), Florida Administrative Code.
Exception No. 11 and 12: The Department's eleventh and twelfth exceptions are to Finding of Fact No. 21 of the Recommended Order wherein the Hearing Officer found that the Department's proof in attempting to show similar practices in splitting commissions on the Deeter, Narkiewicz and Shannon accounts was unpersuasive, The Department contends that it presented evidence to support findings that commissions were paid to unregistered persons and that Mr. Baum tried to conceal such payments.
Having reviewed the transcript of hearing, the exhibits and pleadings in this matter, it cannot be determined that there is no competent, substantial evidence to Support the Hearing Officer's finding. Although the Department presented the testimony of JoAnn Blain as well as other documentary evidence on these issues, the Hearing Officer weighed that evidence and determined that it was unpersuasive. Accordingly, this finding cannot be rejected by the undersigned and the Department's exception is rejected. Heifetz, Supra.
RULINGS ON EXCEPTIONS TO CONCLUSIONS OF LAW
Exception No. 13: The Department's thirteenth exception is to Conclusion of Law No. 10 of the Recommended Order where the Hearing Officer concluded that no violations by Mr. Canouse or Mr. Bergelt were proven and recommended that no penalty be imposed. The Department's exception is that the finding that Canouse was not a branch manager goes against the weight of the evidence.
For the reasons stated in the ruling on Exception No. 4, the Department's exception is rejected.
Exception No. 14: The Department's fourteenth exception is to Conclusion of Law No. 11 of the Recommended Order wherein the Hearing Officer recommended that no penalty be imposed against Mr. Baum for the sale of securities from the Boca Raton branch office before its registration became effective. The Hearing Officer's recommendation is apparently based upon his mistaken impression that the offer or sale of unregistered securities is considered a "technical" violation of Section 517.07, Florida Statutes.
For the reasons stated in the ruling on the Department's seventh and eighth exceptions, this exception is accepted and the Hearing Officer's recommendation that no penalty be imposed against Mr. Baum for the sale of securities from the Boca Raton branch office of First Eagle prior to the effective date of its registration is rejected.
Exception No. 15: The Department's fifteenth exception is to Conclusion of Law No. 12 of the Recommended Order wherein the Hearing Officer concluded that no serious penalty should be imposed for the seven sales of Shogun Oil, Ltd. securities and recommended the imposition of a fine of $50.00 per sale. This exception is addressed in the "Penalty" section of this Final Order, infra.
RULINGS ON OTHER ISSUES
With respect to the Hearing Officer's findings in Paragraphs 16 and 22 of the Findings of Fact that the Department failed to offer into evidence the text of Rule 3E-600.013 and 3E-600.014 or sought official recognition of those rules, it is interesting to note that none of the Respondents ever objected to or questioned the text of the rule with which they were charged with violating. It is equally interesting to note that the Hearing Officer had no problem in finding the text of those rules since he accurately quoted the relevant text in Finding of Fact Nos. 15, 22 and 26. Likewise, the Hearing Officer had no problem in finding and quoting the provisions of Article III, Section 1, and Article III, Section 33, Appendix E, Section 20(c) of the Rules of Fair Practice of the National Association of Securities Dealers, Inc.
With regard to the Hearing Officer's finding in Paragraph 17 of the Findings of Fact that there is no definition of the term "dealer" in Rule Chapters 3E-600 or 3E-200, 2/ this finding is rejected since the term dealer is specifically defined in Rule 3E-200.001(11), Florida Administrative Code.
In Paragraph 3 of the Conclusions of Law, the Hearing Officer concluded that "Baum had no reason to know that the registration had not become effective when he became branch manager on October 24, 1987. If anyone should be disciplined for this failure, it is First Eagle, or its senior officers in Denver, not Baum." This Conclusion of Law is rejected for the same reasons stated in the ruling on Exception No. 5 herein.
In Paragraph 4 of the Conclusions of Law, the Hearing Officer concluded that: "No client was shown to have suffered any loss, or even to have complained about the purchase of those shares. A technical violation may have been established, but it is not one for which any significant discipline should be imposed upon Baum. There was no evidence that Baum had an independent duty to verify whether the shares sold at the Boca Raton office were actually entitled to an exemption from the registration requirements of the Securities Code."
This Conclusion of Law is rejected for the same reasons stated in the rulings on Exceptions Nos. 6, 7 and 8 herein. The Hearing Officer's conclusion that the sale of unregistered securities is a "technical" violation of the provisions of Section 517.07, Florida Statutes, is rejected as clearly erroneous in light of the civil remedies and criminal sanctions created by the Legislature in Sections
517.221 and 517.302, Florida Statutes.
In Paragraph 7 of the Conclusions of Law, the Hearing Officer, after quoting the text of Rule 3E-600.013(2)(f), Florida Administrative Code, concluded that: "The persons to whom Baum paid the commissions, Ms. Blain and Mr. Hale, were persons also registered as agents for the same dealer, First Eagle. The text of the rule does not prohibit splitting commissions per se. It appears that Baum paid the entire commission to these salespersons, not that he split commissions. The rule does not make it improper for Mr. Baum to pay or split a commission with another salesperson in the office when both Baum and that other sales person spoke to a client, but only Baum was registered to sell securities in the state where the client resides. If the Department wishes to forbid such arrangements, it may by adopting a rule which says so. But such a disciplinary standard would only have prospective effect." The foregoing Conclusion of Law is hereby rejected as an erroneous interpretation of Rule 3E- 600.013(2) (f), Florida Administrative Code. Rule 3E-600.013(2) (f), Florida Administrative Code, defines "dividing or otherwise splitting commissions" to be a demonstration of unworthiness by an agent for purposes of Section 5l7.161(1)(h), Florida Statutes. To adopt the Hearing Officer's interpretation would authorize a person who is not registered in a particular state to engage in the offer or sale of securities by utilizing another registered person's number on the order ticket and having the commission held by the firm until the unregistered person becomes registered in that state. This would have the effect of allowing unregistered persons to circumvent the registration provisions of this state as well as other states.
PENALTY
The correct penalty in this case to be imposed against Mr. Baum is twofold:
Entry of a cease and desist order for violations of Section 517.12, Florida Statutes, for operating an unregistered branch office; and (2) a fine in the amount of $5,000.00 for the sale of unregistered securities.
In light of the foregoing rulings and modifications to the Hearing Officer's Recommended Order, the Department is inclined to increase the recommended penalties against Mr. Baum (See Criminal Justice Standards and Training Commission v. Bradley, 17 F.L.W. 5193 (Fla. 1992) for the following reasons:
The repeated violations of Section 517.07, Florida Statutes, for the sales of unregistered securities are not "technical" violations but of a serious nature;
There were at least seven sales of unregistered securities as found by the Hearing Officer, each constituting a serious violation, by itself, by Mr. Baum;
Mr. Baum, under a correct interpretation of the law, allowed the branch office of which he was the manager to operate from October 24, 1987 until November 4, 1987 without being registered with the Department in violation of Section 517.12, Florida Statutes;
The Findings of Fact as found by the Hearing Officer in Paragraphs 19 and 20 of the Recommended Order and applied to a correct interpretation of Rule 3E-600.013(2)(f), Florida Administrative Code, regarding splitting commissions established that the rule was violated by Mr. Baum;
The Department, at the hearing, in its proposed recommended order, and in its exceptions to the Recommended Order proposed that a $5,000.00 fine be imposed, as well as the entry of a cease and desist order. Such a penalty is well within the ranges afforded by Section 517.221, Florida Statutes.
CONCLUSION
Having ruled on all of the exceptions filed by the parties, and having reviewed the complete record of this proceeding, it is accordingly ORDERED:
The Hearing Officer's Findings of Fact and Conclusions of Law are adopted except as modified or rejected herein;
The administrative charges against Respondents, Joseph E. Canouse and Eugene L. I3ergelt, are hereby DISMISSED;
Respondent, William J. Baum, is hereby ordered to CEASE and DESIST from violating the provisions of Chapter 517, Florida Statutes, and the rules promulgated thereunder; and
Respondent, William J. Baum, is hereby ordered to pay a fine in the amount of Five Thousand Dollars ($5,000.00) within thirty (30) days from entry of this Final Order, payable by cashiers check or money order, made payable to the Anti-Fraud Trust Fund, and sent to Don B. Saxon, Director, Division of Securities, The Capitol, Tallahassee, Florida 32399-0350.
DONE and ORDERED this 22nd day of June, 1992, in Tallahassee, Leon County, Florida.
Gerald Lewis, as Comptroller and Head of the Department of Banking and Finance
ENDNOTE
1/ Although the Department's Exception No. 6 refers to Finding of Fact No. 12, it is obvious from the context of the exception that the Department excepts to Finding of Fact No. 13 and that the reference to Finding of Fact No. 12 is a typographical error.
2/ Although the Hearing Officer refers to Rule Chapter 6E-200, Florida Administrative Code, it is assumed that he meant to refer to Rule Chapter 3E-200 since Rule Chapter 6 contains the rules of the Department of Education.
Copies furnished to:
Don B. Saxon, Director Division of Securities
Deborah Guller
Assistant General Counsel
NOTICE OF RIGHT TO JUDICIAL REVIEW
A PARTY WHO IS ADVERSELY AFFECTED BY THIS FINAL ORDER IS ENTITLED TO JUDICIAL REVIEW PURSUANT TO SECTION 120.68, FLORIDA STATUTES. REVIEW PROCEEDINGS ARE GOVERNED BY THE FLORIDA RULES OF APPELLATE PROCEDURE. SUCH PROCEEDINGS ARE COMMENCED BY FILING ONE COPY OF A NOTICE OF APPEAL WITH THE AGENCY CLERK OF THE DEPARTMENT OF BANKING AND FINANCE, SUITE 1302, THE CAPITOL, TALLAHASSEE, FLORIDA 32399-0350, AND A SECOND COPY ACCOMPANIED BY THE FILING FEES PRESCRIBED BY LAW, WITH THE DISTRICT COURT OF APPEAL, FIRST DISTRICT, 300 MARTIN L. KING, JR., BOULEVARD, TALLAHASSEE, FLORIDA 32399-1850, OR IN THE DISTRICT COURT OF APPEAL IN THE APPELLATE DISTRICT WHERE THE PARTY RESIDES.
THE NOTICE OF APPEAL MUST BE FILED WITHIN 30 DAYS OF RENDITION OF THE ORDER TO BE REVIEWED.
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that a true and correct copy of the foregoing Final Order was sent by regular U. S. Mail to Mr. William Baum, Mr. Joseph C. Canouse, and Mr. Eugene L. Bergelt, Suite 160, 950 Broken Sound Parkway, N.W., Boca Raton, Florida 33487; and to Clerk, Division of Administrative Hearings, The DeSoto Building, 1230 Apalachee Parkway, Tallahassee, Florida 32399-1550, this 23rd day of June, 1992.
H. Richard Bisbee Deputy General Counsel
Department of Banking and Finance
EXHIBIT B TO AGENCY FINAL ORDER
STATE OF FLORIDA DEPARTMENT OF BANKING AND FINANCE
DIVISION OF FINANCE
IN RE: | DOAH CASE NO. |
WILLIAM BAUM, | 90-6774 |
JOSEPH E. CANOUSE and | 90-6775 |
EUGENE L. BERGELT, | 90-6776 |
Respondents.
/
EXCEPTIONS TO THE HEARING OFFICER'S RECOMMENDED ORDER
The Petitioner, State of Florida, Department of Banking and Finance, Division of Securities and Investor Protection, pursuant to Section 28-5.404 files the following Exceptions to the Recommended Order filed with the Clerk of the Division of Administrative Hearings on the 24th day of March, 1992:
The Department takes issue and makes exception to footnote number one
contained in Finding of Fact number two (2), wherein the Hearing Officer held that a branch office is registered with the Department effective upon filing of its application for licensure when accompanied with the prescribed fee. Such interpretation does not provide for the review of said application for registration and would render the Department's regulatory function nugatory.
The Department takes issue and makes exception to Finding of Fact number four (4) wherein the Hearing Officer determines that "the Boca Raton branch conducted no trades, but sent order tickets to Denver for review, approval and execution." Said conclusion undermines the whole scheme and purpose of the Florida Securities and Investor Protection Act, Chapter 517, Florida Statutes, and the rules promulgated thereunder. "To construe this statute as suggested... would make the language [of Section 517.12] meaningless." Skurnick v. Ainsworth, 591 So. 2d 904, 906 (Fla. 1991)
Acceptance of the Hearing Officer's conclusion in Finding of Fact number four (4) would result in unregistered persons and branch offices conducting business in every state under the pretense and authority that their main office is licensed and registered and the employees of the main office are registered as broker/dealers. The whole scheme of the Florida Securities and Investor Protection Act, Chapter 517, Florida Statutes, is to insure protection of investors by requiring individuals and companies that sell to Florida residents or conduct business from offices in the State of Florida to register, and comply with Florida laws. Said requirements are not just pedantic, but rather help to ensure investor protection through compliance. The perpetuation of client contact, preparation and maintenance of books and records, order forms and trade tickets in conjunction with acceptance of customer orders constitutes trading activities, therefore, necessitating registration in the State of Florida by branch offices, branch officers, branch managers and individual agents who are conducting the trades, even if they send the order tickets to offices that are registered in other states.
"Offer to sell, "offer for sale," or "offer" means any attempt or offer to dispose of, or
solicitation of an offer to buy, a security or interest in a security, or an investment or interest in an investment, for value.
* * *
(16) "Sale or "sell" means any contract of sale or disposition of any investment, security, or interest
in a security, for value. With respect to a security or interest in a security, the term defined in this subsection does not include preliminary negotiations or agreements between an issuer or any person on whose behalf an offering is to be made and any under- writer or among underwriters who are or are to be in privity of contract with an issuer. Any security given or delivered with, or as a bonus on account of,
any purchase of securities or any other thing shall be conclusively presumed to constitute a part of the subject of such purchase and to have been offered and sold for value. Every sale or offer of a warrant or right to purchase or subscribe to another security
of the same or another issuer, as well as every
sale or offer of a security which gives the holder a present or future right or privilege to convert into another security or another issuer, is consider to include an offer of the other security.
Section 517.021, Florida Statutes.
The Department takes issue and makes exception to Findings of Fact number five (5), wherein the Hearing Officer found that the Department's evidence that Joseph Canouse was a branch manager of the Boca Raton branch office was unpersuasive. The Department presented competent, substantial evidence on the record to support findings that Canouse was a branch manager, including Canouse's own admission that he was one. The only evidence presented to rebutt the Department's evidence showing that Canouse was a manager was Canouse's selfserving testimony that he was not a manager. As to Baum's testimony that he was the branch manager, it is possible to have more than one branch manager of a branch office. Additionally, a document prepared by Respondents for First Eagle was signed by Baum and Canouse. Baum signed as "Operations" and Canouse signed as "Branch Manager". (Exh. 5, Hearing of Dec. Il, 1991). Canouse responded to the first set of admissions with a "yes" answer to a question as to whether he was a branch manager. Canouse even initialed his "yes" answer to the question as to whether he was a branch manager of the Boca Raton office of First Eagle (Transcript p. 15, Dec. 11, 1991 hearing). Although characterized as unpersuasive by the Hearing Officer, the fact that Canouse signed as the branch manager on a minimum of four occasions and his admission renders the Hearing Officer's conclusion as to unpersuasiveness as going against the weight of evidence. Furthermore, the Hearing Officer's statement regarding whether Canouse held himself out to the public as a branch manager is irrelevant. The law does not require a person to hold oneself out to the public as a manager before they incur liability. The fact remains that he admitted the fact and signed numerous times in that capacity.
The Department takes issue and makes exception to Findings of Fact number seven (7). The Hearing Officer held that the Boca Raton branch office of First Eagle, Inc., was in operation prior to its registration date with the State of Florida. However, the Hearing Officer has determined that Baum had no "intent" to have an unregistered branch office. A violation of Section 517.12(5), Florida Statutes, is not dependant upon intent. State v. Houghtaling,
181 So. 2d 636 (Fla. 1965). Furthermore, the Hearing Officer states that the Department did not prove that Baum was a dealer or investment adviser, and therefore Baum does not have liability for a violation of Section of 517.12(5), Florida Statutes. Proof that Baum was an "investment adviser" or "dealer" is not determinative. This interpretation of Chapter 517, Florida Statutes, by the Hearing Officer denudes the Florida Securities and Investor Protection Act of any authority or meaning. Beyond the plain meaning of Section 517.12(5), who other than a Branch Manager would be responsible for the branch office, especially when the main office is out of state? Looking again at Skurnick, supra, the Florida Supreme Court held that the "intent of Section 517.12 is to protect purchasers and, if that Section has been violated, damages are automatic...." Id., at 906. Although the Skurnick Court was not addressing subsection (5), the clear intent of the whole of Chapter 517 is consumer protection. The registration of a branch office is required to ensure that the branch, its manager(s), agents and other employees operate within the regulatory scheme.
The Department takes issue and makes exception to Finding of Fact number twelve (12). The Hearing Officer held that the Department failed to show a duty on the part of branch manager(s) to ensure an exemption from registration exists prior to the sale or offer for sale of an unregistered security. Section 517.07, Florida Statutes, states that any security sold or offered for sale must either be registered with the Department or qualified for an exemption pursuant to Florida law. The Hearing Officer held that securities of Shogun Oil, Ltd., were sold or offered for sale from the Boca branch office and that securities of Shogun Oil, Ltd., were not registered pursuant to Section 517.07, Florida Statutes. However, the Hearing Officer held that liability for this type of violation is attributable to the Compliance Department rather than the branch manager or individual agents. Such contention is not supported by any case law or statutory provision and therefore is clearly erroneous. Section 517.171, Florida Statutes, places the burden of proof on the party claiming the exemption. Respondents failed to prove that Shoguri Oil, Ltd., securities were exempt from registration requirements. In fact, the Hearing Officer held that the securities were not exempt from registration requirements. (See Recommended Order Finding of Fact No. 12). Any affirmative defense must be asserted and proved by Respondents by a preponderance of the evidence. Agrico Chemical Co.
State Department of Environmental Regulation, 365 So. 2d 759 (Fla. 1st DCA 1979), Cert. den. 376 So. 2d 74. Respondents failed to present any evidence establishing that Shogun Oil Ltd., qualified for an exemption.
Regarding the Hearing Officer's conclusions in number nine (9) of his Findings of Fact, not all of the transactions mentioned by the Hearing Officer were sales on behalf of customers who already owned shares of Shogun
Oil, Ltd.; some of those transactions were purchases by customers of First Eagle, Inc., and therefore, the following transactions fall clearly within the prohibition of Section 517.07, Florida Statutes:
Edward Kelley Joseph Schenk William Sanders Mavaj Amarnani Eric Erickson Stanley Kuf era Ernest May
Furthermore, the Hearing Officer's comment, in paragraph thirteen
of the Findings of Fact, that the Department did not present any evidence to show there was an affirmative duty on retail securities brokers to independently verify the exemption status of securities in their inventory, is clearly erroneous in light of Section 517.171, Florida Statutes.
The Department takes issue and makes exception to Finding of Fact number thirteen (13) in that the Hearing Officer suggests that there is no evidence of any consumer complaints or consumer losses arising out of the sales of Shogun Oil, Ltd. Evidence of consumer complaints or consumer losses is not a prerequisite to the violation of law requiring that a security be registered with the State of Florida or exempt from said registration prior to its sale or offer to sell.
The Department takes issues and makes exception to the last sentence in paragraph thirteen (13) of the Hearing Officer's Recommended Order. The Department strongly asserts that selling an unregistered security is not a technical violation. Any such ruling by the Hearing Officer is clearly erroneous.
The Department takes exception to paragraph nineteen (19) of the Hearing Officer's Recommended Order. The Hearing Officer held that in the transaction for customer John George, a resident of Maryland, that John George called the Boca Raton office and spoke to registered representative Joanne Blain, and that Baum placed an order for a trade. Baum was registered in Maryland and Blain was not. The evidence, however, shows that the branch office solicited this client. (Composite Exhibit 6, John George, New Customer Account Form). Furthermore, Blain testified that she was not sure if George was a referral or a call in (Transcript p. 268). Therefore, the Hearing Officer's ruling that George telephoned First Eagle is clearly erroneous. The Hearing Officer held that Baum spoke to George himself before he took the order, that the transaction was approved by Baum, who signed the trade ticket as branch manager. The Hearing Officer held, however, that the commission that was credited to Baum was paid to Blain, who, by the time of the commission payment, ha been registered in Maryland. Under these facts the Hearing Officer ruled that its permissible for Baum to split the commission with Blain. The Hearing Officer held that at the time Blain had contact with George, that Blain was not registered in Maryland. The fact that Blain was registered in Maryland at the time she was paid for that transaction is irrelevant and does not negate any prior bad act.
The Department takes exception to paragraph twenty (20) of the Hearing Officer's Recommended Order. The Hearing Officer held that as to customer Rahimie, a Texas resident, a commission of $250.00 was generated on Baum's commission report as he was the registered representative of record. First
Eagle Registered Representative Kevin Hale was not registered in Texas at the time, but the evidence showed that Baum paid Hale a commission on the trade. The Hearing Officer even held that Baum reduced his commission by $250.00 and paid it to Hale. The Hearing Officer held that although this evidence is persuasive that Baum is not guilty of splitting commissions with Hale because the Department failed to prove that Baum did not speak to customer Rahimie.
TheDepartment submits that even if Baum spoke to Rahimie, splitting a commission with Hale, who was not registered in Texas at the time of that transaction, is a violation of Chapter 517, Florida Statutes.
The Department takes issue and makes exception to paragraph twenty- one (21) of the Hearing Officer's Recommended Order. The Hearing Officer held that evidence of unregistered trades and the concealment thereof on the Deeter, Narkiewicz and Shannon account was unpersuasive. The Department presented the testimony of two of its examiners and Joanne Blain, a registered representative of First Eagle. In addition to the examiner's testimony, Ms. Blain testified that she did not trade on the Deeter transaction. (Transcript p. 262-64, 8/28/91 Hearing). In fact, Blain testified that she did not sign the customer buy form, even though her name was signed on the form. Blain also testified that someone other than herself signed the Narkiewicz and Shannon customer order forms (Transcript p. 264-67). Both Narkiewicz and Shannon are California residents. Blain was registered in California (Transcript p. 266). Baum bears responsibility for the unregistered sales activity and for the concealment thereof. In addition to Blain's testimony, the Department presented evidence that Baum paid broker's commissions for trades made while they were unregistered. Specifically, on the commission reports generated by the clearing firm, which were admitted into evidence at the hearing, money from Baum's commission went to various brokers, including Blain, among others. (State Composite Exh. 6). At the Hearing, the Department demonstrated that the handwriting on the commission run distributing the money, belonged to Baum. (Transcrip p. 80-82, State's Exh. 13). To conceal the payment even further, Baum computerized his own commission run reflecting the total amount of commissions including those paid in violation of law. (State's Composite Exh. 6).
Blain testified that Robert Shannon was not her custom- er and that she did not sign her name to the new customer order form. Furthermore, Blain stated the registered representative number assigned to her, No. 705, was on the document signed by Bill Baum in his capacity as the branch manager. (Transcript
p. 265-66, 8/28/91 Hearing). Testimony indicates that the Shannon account was transferred to the Representative who was assigned Registered Representative No. 717 (Transcript 266-267, 8/28/91 Hearing). Evidence collaborates this testimony (Composite Exh. 6, 8/28/91 Hearing). The examiner testified, and the evidence shows, that Registered Representative number 717 belonged to Mike Landry (Transcript 187-88, Composite Exh. 8/28/91 Hearing), an agent of First Eagle. The testimony of the examiner, further collaborates supported by evidence (Transcript p. 180-89, 8/28/91 Hearing), demonstrates that Baum signed as branch manager the new customer order forms that were falsified as to the Registered Representative who traded and as to the signature. Baum therefore sanctioned concealment of trading by unregistered persons.
The Department takes issue and makes exception to the Conclusion of Law number ten (10) of the Hearing Officer's Recommended Order. As previously argued by the Department, the Finding of Fact that Canouse was not a branch manager goes against the weight of the evidence. (See paragraph 4).
The Department takes issue and makes exception to Conclusion of Law number eleven (11) of the Hearing Officer's Recommended Order. As previously argued by the Department in paragraph 5 above, intent is not a necessary element of selling or offering for sale a security from an unregistered branch office. Therefore, the Hearing Officer is holding that there should be no penalty for said activity is clearly erroneous. The sale or offering for sale of securities from an unregistered branch office is not merely a "technical" violation of Florida law. Consequently, anyone found to have violated Chapter 517, Florida Statutes, by selling or offering for sale securities from an unregistered branch office should be penalized by the imposition of a fine, suspension of registration or revocation of registration.
The Department takes issue and makes exception to Conclusion of Law number twelve (12) of the Hearing Officer's Recommended Order in that the recommended fine for the sale of unregistered, non-exempt securities is not commensurate with the extent of the violation. The maximum penalty for each violation of Chapter 517, is $5,000.00; imposition of a $50.00 fine per violation is a mere mockery of the Department's authority.
WHEREFORE, the undersigned respectfully requests that the above referenced Recommended Order be amended to reflect the noted exceptions.
Deborah Guller Ofer M. Amir
Assistant General Counsels Office of Comptroller
111 Georgia Avenue, Suite 211 West Palm Beach, FL 33401 (407) 837-5054
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that a true and correct copy of the foregoing was sent by U.S. Mail on the 6th day of April, 1992 to Joseph Canouse at 3280 Spanish Moss Terrace #A108, Lauderhill, Florida 33319; to William Baum, Suite 160, 950 Broken Sound Parkway, NW, Boca Raton, Florida 33487; to Eugene L. Bergelt, Suite 160, 950 Broken Sound Parkway, NW, Boca Raton, Florida 33487 and by overnight mail to Mary Howell, Clerk, and Legal Division, Department of Banking and Finance, the Capitol, Tallahassee, Florida 32399-0350.
Deborah Guller
| Issue Date | Proceedings |
|---|---|
| Jun. 23, 1992 | Final Order filed. |
| Mar. 24, 1992 | Recommended Order sent out. CASE CLOSED. Hearing held August 28 andSeptember 23, 1991. |
| Dec. 24, 1991 | Respondent's Amended Proposed Findings of Fact, Conclusions of Law, and Recommended Order filed. |
| Dec. 24, 1991 | Respondent's Amended Proposed Findings of Fact, Conclusions of Law, and Recommended Order filed. |
| Dec. 20, 1991 | Petitioner's Amended Proposed Findings of Fact, Conclusions of Law and Recommended Order filed. |
| Dec. 19, 1991 | (Continuation) Transcript filed. |
| Dec. 12, 1991 | Order Closing Record sent out. |
| Dec. 11, 1991 | CASE STATUS: Hearing Held. |
| Dec. 05, 1991 | Order on Post-Hearing Motions sent out. |
| Nov. 21, 1991 | Petitioner's Proposed Findings of Fact, Conclusions of Law and Recommended Order filed. |
| Nov. 21, 1991 | (Respondent) Notice of Opposition to State's Motion toCorrect the Record filed. |
| Nov. 18, 1991 | (Respondent) Recommended Order filed. |
| Nov. 15, 1991 | (Respondents) Recommended Order filed. |
| Nov. 08, 1991 | (Petitioner) Motion to Strike Unsworn Testimony and Exhibits From theRecord filed. |
| Nov. 04, 1991 | Evidence for Sho Gun Oil filed. (From William J. Baum) |
| Nov. 01, 1991 | (Petitioner) Notice of Opposition to Respondents' Motion to Dismiss Administrative Complaint; Notice of Opposition to Respondent Bergelt's Motion to Dismiss Administrative Complaint w/Exhibit-A filed. |
| Oct. 28, 1991 | (Respondents) Motion to Re-Open Evidence w/Stipulated Final Order & Stipulation and Consent Order + cover ltr filed. |
| Oct. 28, 1991 | (Petiitoner) Motion to Correct the Record filed. |
| Oct. 25, 1991 | (Petitioner) Notice of Opposition to Respondents Moton to Re-Open Evidence w/(3) attached ltrs filed. |
| Oct. 24, 1991 | Transcript (4 Vols) w/Exhibits filed. |
| Sep. 18, 1991 | Order (Hearing will Reconvene on September 23, 1991: 10:00 am: West Palm Beach) sent out. |
| Aug. 22, 1991 | Amended Notice of Hearing sent out. (hearing set for Aug. 28, 1991; 9:30am; WPB). |
| Aug. 22, 1991 | Order of Unconsolidation sent out. (90-6774, 90-6775 & 90-6776 consolidated). |
| Aug. 22, 1991 | Case No/s: 90-6774, 90-6775 & 90-6776 unconsolidated. |
| Aug. 21, 1991 | Order Granting Relief From Admission sent out. |
| Aug. 13, 1991 | Letter to WRD from William Baum (re: Petitioning the court to strike from the records any admission; request for list of witnesse & a request that the court subpoena the N.A.S.D.) filed. |
| May 23, 1991 | Letter to WRD from William Baum (re; Termination of attorney representation) filed. |
| May 16, 1991 | Order on Motion to Withdraw sent out. (for 90-6774, 90-6775 & 90-6776only) |
| May 10, 1991 | Motion For Leave to Withdraw As Counsel filed. (From R. Michael Underwood) |
| Apr. 26, 1991 | (Petitioner) Motion to Compel Discovery filed. |
| Feb. 11, 1991 | Order Consolidating Case No. 90-7366 sent out. Consolidated Cases are: 90-6769, 90-6770, 90-6771, 90-6772, 90-6773, 90-6774, 90-6775, 90-6776, 90-6836, 90-6837, 90-7366 and 91-0137 |
| Jan. 15, 1991 | Order Consolidating Case Nos. 90-6769, 90-6771, 90-6772, 90-6773 and Granting Continuance (Hearing is cancelled) sent out. Consolidated Cases are: 90-6769, 90-6770, 90-6771, 90-6772, 90-6773, 90-6774, 90-6775,90-6776, 90-6836, 90- 6837 and 91-0137 |
| Jan. 14, 1991 | Notice of Corrected Administrative Complaint; Administrative Complaint With Notice of Intent to Enter Cease and Desist Order and Notice of Rights filed. (From D. Guller) |
| Jan. 14, 1991 | (Respodnent) Motion for Continuance filed. (From Deborah Guller) |
| Dec. 31, 1990 | Petitioners First Interrogatories (unanswered) filed. |
| Dec. 10, 1990 | Order of Consolidation and Notice of Hearing (Feb. 11-13, 1991: 9:30 am: Tallahassee) sent out. Consolidated case are: 90-6770, 90-6774, 90-6775, 90-6776, 90-6836 and 90-6837 |
| Nov. 19, 1990 | (Petitioner) Response to Initial Order filed. (From D. Guller) |
| Nov. 06, 1990 | Initial Order issued. |
| Oct. 25, 1990 | Agency referral letter; Administrative Complaint With Notice of Intent to Enter Cease and Desist Order and Notice of Rights; Petition for Formal Hearing; (respondent) Motion to Dismiss filed. |
| Issue Date | Document | Summary |
|---|---|---|
| Jun. 22, 1992 | Agency Final Order | |
| Mar. 24, 1992 | Recommended Order | Respondent fined for selling unregistered, non-exempt securities. |
