STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF BANKING AND FINANCE, )

)

Petitioner, )

)

vs. ) CASE NO. 91-5753

)

WILLIAM J. BAUM and )

JOSEPH C. CANOUSE, )

)

Respondents. )

)

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, Claude B. Arrington, held a formal hearing in the above-styled case on November 6-7, 1991 in West Palm Beach, Florida.

APPEARANCES

For Petitioner: R. Beth Atchison, Esquire

Assistant General Counsel Office of the Comptroller The Capitol

Suite 1302 Tallahassee, Florida

32399-0350

For Respondent: Joseph C. Canouse, pro se

3280 Spanish Moss Terrace Suite A-108

Lauderhill, Florida 33319

William J. Baum, pro se 1000 Crystal Way, #1000 H

Delray Beach, Florida 33444 STATEMENT OF THE ISSUE

Whether the Respondents committed the offenses set forth in the Administrative Complaint and, if so, the penalties that should be imposed.

PRELIMINARY STATEMENT

First Eagle, Inc., is a foreign corporation with its principal place of business located in Englewood, Colorado. At all times pertinent hereto, First Eagle was registered with Petitioner as a securities broker/dealer in the State of Florida pursuant to the provisions of Chapter 517, Florida Statutes (1989). 1/ First Eagle had two branch offices in Florida, one at Boca Raton and the other at Longwood. At all times pertinent to these proceedings, Respondent Baum

was the branch manager of First Eagle's Boca Raton office and Respondent Canouse was the branch manager of First Eagles's Longwood office.

In late 1989, Petitioner adopted a rule that is Florida's counterpart to the so-called "Cold Call Rule" adopted by the Securities and Exchange Commission (SEC). Both the Florida Rule and the SEC Rule became effective January 1, 1990, and both require that certain disclosures be made to certain persons trading in designated securities (penny stocks) and that a determination be made as to the suitability of those customers to deal in designated securities.

On March 19, 1990, a surprise examination was made by Petitioner at First Eagle's Boca Raton office. This examination was conducted by Jerome Jordan, an experienced investigator employed by Petitioner. On March 22, 1990, an unannounced examination was made by Petitioner at First Eagle's Longwood office. This examination was conducted by Michael Blaker, an experienced investigator employed by Petitioner. Both examinations were conducted in cooperation with other regulatory agencies as part of an nationwide investigation to determine the level of compliance with the SEC Cold Call Rule and Florida's counterpart.

Following those examinations, Petitioner filed an administrative complaint that contained factual allegations and which charged Respondent Baum and Respondent Canouse with having violated Florida's Cold Call Rule and, consequently, with having violated certain statutory provisions regulating the securities industry in Florida. This administrative complaint, which was subsequently amended, also named other respondents, namely, First Eagle, Inc. (the corporate entity), Barry Fortner (an alleged corporate officer), Gregory Simonds (an alleged corporate officer), Terry Bixler (an alleged corporate officer and director), Robert C. Valerius (the alleged corporate compliance officer), and Eugene Bergelt (an alleged manager at the Boca Raton office).

Respondents denied the allegations of the administrative complaint, and the matter was referred to the Division of Administrative Hearings for formal hearing. The case was assigned to Hearing Officer William R. Dorsey. Pursuant to motion by Petitioner, Hearing Officer Dorsey entered an order on October 31, 1991, which dismissed Mr. Bergelt as a Respondent to this proceeding. On October 31, 1991, Hearing Officer Dorsey entered an order which severed the charges pertaining to Respondents First Eagle, Fortner, Simonds, and Valerius, and which rescheduled the formal hearing that had been set on the charges pertaining to those respondents. Pursuant to motion by Petitioner, Hearing Officer Dorsey entered an order on December 12, 1991, which dismissed Mr. Bixler as a Respondent to this proceeding. The formal hearing for Respondents Baum and Canouse remained scheduled for formal hearing on November 6 and 7, 1991.

Due to Mr. Dorsey's unavailability, the matter as it pertains only to Respondent Baum and to Respondent Canouse was transferred to the undersigned Hearing Officer for formal hearing, which was conducted as scheduled on November

6 and 7, 1991. Prior to the formal hearing Official Recognition was taken of the following: Sections 517.021; 517.12(8); 517.121; 517.221; 517.161; 517.301, Florida Statutes, and of Rules 3E-600.012; 3E-600.013; and 3E-600.014, Florida Administrative Code. Petitioner presented the testimony of William F. Reilly, Jr., Michael Blaker, and Jerome Jordan. Mr. Reilly is Chief of Petitioner's Bureau of Examinations. Petitioner had 9 exhibits marked for identification. Petitioner Exhibits 1, 2, and 3 were not offered into evidence. Petitioner Exhibits 4, 5, 6, and 9 were accepted into evidence. Petitioner Exhibits 7 and

8 contain subparts that were marked numerically (which unfortunately tends to create confusion). All subparts of Petitioner Exhibit 8 were moved and accepted into evidence. Petitioner Exhibit 7 consists of five numbered subparts plus a subpart identified as the "narrative". Subparts 1, 2, and 4 of Petitioner

Exhibit 7 were moved and accepted into evidence. The only portion of subpart 3 of Petitioner Exhibit 7 that was moved and accepted into evidence was the suitability and transaction agreement executed by Leon Greenstein. The remainder of Petitioner Exhibit 7 was not moved into evidence by Petitioner. (Among the exhibits offered by Respondents and accepted into evidence was the "narrative" portion of Petitioner Exhibit 7.)

Respondents presented the testimony of Respondent Baum and recalled Mr.

Blaker for additional testimony. Respondents presented seven exhibits, one of which was rejected (Respondent Exhibit 2). The remainder of Respondents' exhibits were accepted into evidence.

A transcript of the proceedings has been filed. 2/ At the request of the Respondents, the time for filing post-hearing submissions was extended to permit Respondents to file an amended post-hearing submittal beyond the ten days following the filing of the transcript. Rulings on the parties' proposed findings of fact may be found in the Appendix to this Recommended Order.

FINDINGS OF FACT

1. The Office of the Comptroller, Department of Banking and Finance, Division of Securities and Investor Protection (Petitioner) is authorized and charged with the responsibility to administer and enforce the provisions of Chapter 517, Florida Statutes, and the administrative rules promulgated thereunder.

   
   

2. At all times pertinent hereto, First Eagle, Inc. was a foreign corporation with its principal place of business located in Englewood, Colorado, and was registered with Petitioner as a securities broker/dealer in the State of Florida. First Eagle had two branch offices in Florida, one at Boca Raton and the other at Longwood. These two branch offices were supervised by the First Eagle home office. Each branch office had a branch manager.

   
   

3. At all times pertinent hereto, Respondent Baum was the branch manager of First Eagle's Boca Raton branch office and Respondent Canouse was the branch manager of its Longwood office. Respondent Baum was registered with Petitioner as an agent with First Eagle between August 13, 1989, and September 4, 1990. At the time of the formal hearing, Respondent Baum was not registered with Petitioner. Respondent Canouse was registered with Petitioner as an agent with First Eagle between March 21, 1989, and May 31, 1990. At the time of the formal hearing, Respondent Canouse was not registered with Petitioner.

   
   

4. On January 1, 1990, Rule 3E-600.012, Florida Administrative Code, referred to as Florida's Cold Call Rule, and its federal counterpart went into effect. Both rules pertain to the sale of designated securities (generally referred to as "penny stocks") and both require that certain information be taken from certain customers and that certain disclosures be made to those customers. Both rules require that a determination be made as to the customer's suitability to trade in designated securities, and that a written agreement evidencing the terms and conditions of the trade be received before the transaction is consummated. Florida's Cold Call Rule does not specify what person or officer within the selling organization is to make the suitability determination, nor does it set forth the criteria by which the determination is to be made.

5. The following is required by the Rule 3E-600.012(5), Florida Administrative Code, before any dealer or associated person may sell or effect the purchase of the type transactions pertinent to this proceeding:

   
   

   (5) It shall be unlawful and a violation of Section 517.301(1), F.S. for any dealer or associated person to sell any equity security or to effect the purchase of such security unless ... prior to the transaction the

   seller has approved the customer's account for such transaction in accordance with the procedures set forth in subparagraph (5)(b) and has received from the customer a written agreement to the transaction setting forth the identity and quantity of the securities covered by this paragraph.

   * * *

   (b) In order to approve a customer's account for any transaction covered by this section, the seller shall:

   1. Obtain information from the customer concerning the customer's financial situation, investment experience, and investment objectives;

   2. Reasonably determine, based upon the information required in subparagraph (5)(b), and upon any other information known by the seller that the transaction in the security covered by paragraph (5) is suitable for the customer and that the customer (or the customer's independent adviser in the transaction) has sufficient knowledge and experience in financial matters that the customer (or the customer's independent adviser in the transaction) may reasonably be expected to be capable of evaluating the risks of the transaction covered by this section.

   3. Deliver to the customer a written statement setting forth: the basis on which the seller made the determination required by subparagraph (5)(b)2.; stating in highlighted format that it is unlawful for the seller to effect a transaction in such security unless the seller has received, prior to the transaction, a written agreement to the transaction from the customer; stating in highlighted format immediately preceding the customer signature line that the seller is required by law to provide the customer with the written statement and that the customer should not sign and return the written statement to the seller if it does not accurately reflect the customer's financial situation, investment experience, and investment objectives; and

   4. Obtain from the customer a manually signed and dated copy of the written statement required by subparagraph (5)(b)3.

   
   

6. Failure to comply with Florida's Cold Call Rule is, pursuant to Rule 3E-600.012(5), Florida Administrative Code, a violation of Section 517.301(1), Florida Statutes. 3/

   
   

7. The suitability form and the procedures to be followed by First Eagle offices in attempting to comply with the Florida and federal Cold Call Rules were prepared at the corporate level. Respondent Baum was not an officer of First Eagle, and he had no control or authority over policies or procedures adopted at the corporate level. Respondent Canouse was not an officer of First Eagle, and he had no control or authority over policies or procedures adopted at the corporate level. Neither Respondent Baum or Respondent Canouse participated in developing the forms and the procedures used by First Eagle to comply with Florida's Cold Call Rule. Robert Valerius was the corporate officer at the home office of First Eagle who had the responsibility for ensuring that the Boca Raton and the Longwood branch offices complied with Florida's Cold Call Rule.

   
   

8. The suitability form used by First Eagle and its branch offices requested that the customer give information by checking the appropriate response and provided, in pertinent part, as follows:

   
   

   If the information below is true and correct, First Eagle, Inc. deems you suitable to purchase designated securities.

   INVESTMENT OBJECTIVES:

   Income Growth

   Safety of Principal Speculation

   Tax exempt income Other

   PREVIOUS FINANCIAL EXPERIENCE:

   Yes No

   Name of broker/dealer Type of experience

   FINANCIAL SITUATION:

   Estimated annual income Estimated net worth

   I have sufficient knowledge and experience to evaluate the risk in purchasing designated securities. I am purchasing approximately

   shares of stock, ( ) Common, ( ) Units, ( ) Warrants.

   
   

9. Both the Florida Cold Call Rule and its federal counterpart were enacted to protect investors and to prevent fraud that could be occasioned because of the high risks associated with dealing in these type transactions and because of the limited information about these type securities available to investors.

   
   

10. The testimony of William F. Reilly, Jr., clearly establishes that the Petitioner considers a branch manager responsible for ensuring that transactions occurring under his supervision in the branch office comply with Florida's Cold Call Rule, as well as all other Florida laws and rules pertaining to the buying and selling of securities. Mr. Reilly testified that Petitioner relies on

    Article III, Section 27 of the Rules of Fair Practice adopted by the National Association of Securities Dealers (NASD) that regulate the conduct of its members, 4/ as its authority for imposing this responsibility on branch managers. Petitioner has pointed to no rule or statute that impose this duty on a branch manager. The duties and responsibilities separately imposed by First Eagle on Respondent Baum and Respondent Canouse as to the Florida Cold Call Rule were not established. 5/

    
    

11. The documentation required by Florida's Cold Call Rule must be obtained prior to the sale. Similarly, the suitability determination required by Florida's Cold Call Rule must be made prior to the sale. The form adopted by First Eagle and used by the Boca Raton branch office and the Longwood branch office did not provide for an independent suitability determination that the individual customer could appropriately deal in designated securities. Instead, the form permitted the customer to make his or her own determination.

    
    

12. On March 19, 1990, a surprise examination was made by Petitioner at First Eagle's Boca Raton office. This examination was conducted by Jerome Jordan, an experienced investigator employed by Petitioner. On March 22, 1990, an unannounced examination was made by Petitioner at First Eagle's Longwood office. This examination was conducted by Michael Blaker, an experienced investigator employed by Petitioner. Both examinations were conducted in cooperation with other regulatory agencies as part of a nationwide investigation to determine the level of compliance with the SEC Cold Call Rule and Florida's counterpart.

    
    

13. Between January 1, 1990, and March 19, 1990, persons working in the Boca Raton office under Respondent Baum's supervision offered for sale, sold, and effected the purchase of designated securities to individual customers in 18 transactions prior to obtaining the documentation required by the Cold Call Rule and without making a proper suitability determination. Respondent Baum caused order tickets to be forwarded to First Eagle headquarters, which was a necessary step in the completion of the purchase of these designated securities. There was no evidence that a suitability determination was made for these transactions as required by Florida's Cold Call Rule by Mr. Baum, by Mr. Valerius, or by any other person associated with First Eagle.

    
    

14. Between January 1, 1990, and March 22, 1990, persons working in the Longwood office under Respondent Canouse's supervision offered for sale, sold, and effected the purchase of designated securities to individual customers in 26 transactions prior to obtaining the documentation required by the Cold Call Rule and without making a proper suitability determination. Respondent Canouse caused order tickets to be forwarded to First Eagle headquarters, which was a necessary step in the completion of the purchase of these designated securities. There was no evidence that a suitability determination was made for these transactions as required by Florida's Cold Call Rule by Mr. Canouse, by Mr. Valerius, or by any other person associated with First Eagle.

    
    

    CONCLUSIONS OF LAW

    
    

15. The Division of Administrative Hearings has jurisdiction over this matter. Section 120.57(1), Florida Statutes.

    
    

16. Petitioner has the burden of proving by clear and convincing evidence the allegations against Respondent. See Ferris v. Turlington, 510 So. 2d 292 (Fla. 1987); Evans Packing Co. v. Department of Agriculture and Consumer Services, 550 So.2d 112 (Fla. 1st DCA 1989). Evans Packing, supra, 550 So. 2d

    112, 116, fn. 5, provides the following pertinent to the clear and convincing evidence standard:

    
    

    That standard has been described as follows:

    [C]lear and convincing evidence requires that the evidence must be found to be credible; the facts to which the witnesses testify must be distinctly remembered; the evidence must be precise and explicit and the witnesses must

    be lacking in confusion as to the facts in issue. The evidence must be of such weight that it produces in the mind of the trier of fact the firm belief of (sic) conviction, without hesitancy, as to the truth of the allegations sought to be established.

    Slomowitz v. Walker, 429 So.2d 797, 800 (Fla.

    4th DCA 1983).

    
    

17. Section 517.021, Florida Statutes, provides the following definitions pertinent to this proceeding:

    
    

    (4) "Associated person" means any of the following:

    (a) Any ... branch manager ...

    * * *

    (c) Any natural person ... appointed or authorized by a dealer ... to sell securities in any manner ...

    * * *

    (6) "Branch office" means any office of a dealer ... located in this state, other than the principal office of the dealer ... which nonprincipal office is owned or controlled by the dealer ... for the purpose of conducting a securities business.

    * * *

    (8) "Control" including the terms "controlling", "controlled by," and "under common control with," means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person, whether through the ownership of voting securities, or otherwise.

    * * *

    (16) "Sale" or "sell" means any contract of sale or disposition of an investment,

    security, or interest in a security for value.

    ...

    
    

18. Petitioner established by clear and convincing evidence that Respondent Baum and Respondent Canouse were the managers of the Boca Raton and Longwood branch offices, respectively. Petitioner's position that these Respondents are held to standards adopted by the NASD as Rules of Fair Practice for the members of that association is rejected because there was no evidence that these Respondents were members of NASD.

19. The Florida Cold Call Rule applies to "... any dealer or associated person" who sells or effects the purchase of the designated securities without complying with the rule. A branch managers is clearly an "associated person" as that term is defined by Section 517.021(2), Florida Statutes.

    
    

20. The rule is not limited to the salesman who deals directly with the customer or to the dealer who employs the salesman. The rule requires that all persons who meet the definition as an "associated person" and who either "sells or effects the purchase of" designated securities comply with the rule. Petitioner established that each Respondent, as an associated person, effected the purchase of designated securities within the meaning of the Florida Cold Call Rule by causing order tickets involving designated securities to be forwarded to First Eagle headquarters for the consummation of the purchase. Petitioner also established that each Respondent failed to comply with the Florida Cold Call Rule as alleged in the Amended Administrative Complaint effecting the purchase of these designated securities without making a suitability determination as required by Florida's Cold Call Rule. 6/

    
    

21. Section 517.221, Florida Statutes, provides, in pertinent part, as follows:

    
    

    1. The department may issue and serve upon a person a cease and desist order whenever

       the department has reason to believe that such person is violating, has violated, or is about to violate any provision of this chapter, any rule or order promulgated by the department, or any written agreement entered into with

       the department.

       * * *

       (3) The department may impose and collect an administrative fine against any person found to have violated any provision of this chapter, any rule or order promulgated by the department, or any written agreement entered into with the department in an amount not to exceed $5,000 for each such violation. ...

       
       

22. In determining the penalty that is to be imposed, it is appropriate to consider that these Respondents were dealing with a new rule that has engendered some confusion as to the responsibilities imposed by it, that they were following the instructions of their corporate officers in attempting to comply with the rule, and that there was no evidence that any of the investors involved suffered as a result of the failure to comply with the rule. It is also appropriate to consider that these Respondents are no longer registered with Petitioner and that the pendency of this proceeding has effectively prevented them from becoming registered.

    
    

23. Petitioner has, in its Proposed Recommended Order, asserted that a fine in the amount of $5,000.00 be assessed against each Respondent and that the cease and desist order be incorporated as part of the final order. Since neither Respondent is registered with the Petitioner, a cease and desist order appears unnecessary. In light of the financial hardship this administrative proceeding has caused these Respondents, the relative severity of this offense, and the absence of harm to the public, it is concluded that the Petitioner's recommendation that a fine in the amount of $5,000.00 be imposed against each Respondent is inappropriate.

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered which finds that Respondent Baum

and Respondent Canouse violated the provisions of Rule 3E-600.012(5)(b), Florida Administrative Code, and which issues a letter of reprimand to each of them for such violation.

DONE AND ORDERED this 26th day of March, 1992, in Tallahassee, Leon County, Florida.

CLAUDE B. ARRINGTON

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 26th day of March, 1992.

ENDNOTES

1/ All statutory references contained herein are, unless otherwise specified, to Florida Statutes (1989).

2/ The transcript that was filed in this matter is replete with errors.

3/ Section 517.301(1), Florida Statutes, provides, in pertinent part, as follows:

1. It is unlawful and a violation of the provisions of this chapter for a person:

   1. In connection with the offer, sale, or purchase of any investment or security ... :

      1. To employ any device, scheme, or artifice to defraud;

      2. To obtain money or property by means of any untrue statement of a material fact or any omission to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or

      3. To engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon a person.

      
      

      4/ Although Mr. Reilly testified as to the contents of Article III, Section 27, Petitioner never requested that the NASD Rules of Fair Play be officially noticed and no copy of the same was provided the undersigned. Upon review of the NASD manual containing the Rules of Fair Play, it is apparent that the rules are for members of NASD. While it is permissible to infer that First Eagle was a member of NASD, there was no evidence that either Respondent Baum or Respondent Canouse was a member of NASD. (The provisions of Rule 3E- 600.013(2)(g), Florida Administrative Code, do not make the NASD Rules

      applicable to non-member employees of a member dealer.) It is also apparent that Article III, Section 27 does not set forth the duties and responsibilities of a branch manager as believed by Mr. Reilly. Therefore, it is concluded that the NASD Rules of Fair Practice cannot be used as a basis to hold these Respondents responsible for compliance with the Florida Cold Call Rule.

      
      

      5/ As reflected in a subsequent finding of fact, Petitioner did establish that each Respondent was responsible for forwarding order tickets to the home office for the consummation of the transaction.

      
      

      6/ Petitioner contends that the information necessary for making the suitability determination required by Rule 3E-600.012(5)(b)1., Florida Administrative Code, and the written statement required by Rule 3E- 600.012(5)(b)2., Florida Administrative Code, must be contained in two separate forms. This contention is rejected as being an additional requirement of the Florida Cold Call Rule that is not revealed by a plain reading of the Rule.

      
      

      APPENDIX TO RECOMMENDED ORDER

      
      

      The following rulings are made on the proposed findings of fact submitted on behalf of the Petitioner.

      
      

      1. The proposed findings of fact in paragraphs 1, 5, 8, 9, 10, 11, 12, 14, and

         15 are adopted in material part by the Recommended Order.

      2. The proposed findings of fact in paragraphs 2, 3, 4, 6, and 7 are rejected as findings of fact because they are unnecessary to the conclusions reached. Most of these proposed findings of fact are incorporated in the preliminary statement.

      3. The proposed findings of fact in the first sentence of paragraph 13 are rejected because the evidence did not establish that Respondent Canouse personally offered or sold the designated securities in these transactions. The findings are subordinate to the findings that transactions occurred through the Longwood branch involving designated securities by those over whom Respondent Canouse had supervisory responsibilities and that the documentation required by the Florida Cold Call Rule was not obtained prior to the transaction.

      4. The proposed findings of fact in the first sentence of paragraph 16 are rejected because the evidence did not establish that Respondent Baum personally offered or sold the designated securities in these transactions. The findings are subordinate to the findings that transactions occurred through the Boca Raton branch involving designated securities by those over whom Respondent Baum had supervisory responsibilities and that the documentation required by the Florida Cold Call Rule was not obtained prior to the transaction.

      5. The proposed findings of fact in paragraphs 17, 18, and 19 are rejected as being subordinate to the findings made.

      
      

      The following rulings are made on the proposed findings of fact submitted on behalf of the Respondent.

      
      

      1. The proposed findings of fact in paragraphs 1, 2, 3, 4, 5, and 27 are adopted in material part by the Recommended Order.

      2. The proposed findings of fact in paragraphs 6, 12, and 15 are rejected as being unsubstantiated by the evidence.

      3. The proposed findings of fact in paragraphs 7 and 8 are rejected as being conclusions of law.

      4. The proposed findings of fact in paragraphs 10, 19, 21, 23, and 24 are rejected as being unnecessary to the conclusions reached.

      5. The proposed findings of fact in paragraph 11 are rejected as being unnecessary to the conclusions reached since the validity of the rule is not being challenged.

      6. The proposed findings of fact in paragraphs 13, 14, 16, and 22 are rejected as being contrary to the findings made.

      7. The proposed findings of fact in paragraphs 17, 18, and 20 are rejected as being unsubstantiated by the record.

      8. The proposed findings of fact in paragraphs 25 and 26 are rejected as being subordinate to the findings made.

      
      

      COPIES FURNISHED:

      
      

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

         Tallahassee, Florida 32399-0350

         
         

         Joseph C. Canouse

         3280 Spanish Moss Terrace Suite A-108

         Lauderhill, Florida 33319

         
         

         William J. Baum

         1000 Crystal Way, #1000 H Delray Beach, Florida 33444

         
         

         Honorable Gerald Lewis, Comptroller Department of Banking and Finance The Capitol, Plaza Level Tallahassee, Florida 32399-0350

         
         

         William G. Reeves, General Counsel Department of Banking and Finance Room 1302

         The Capitol

         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

         
         

         IN RE:

         
         

         DEPARTMENT OF BANKING AND FINANCE

         
         

         Petitioner,

         vs CASE NO. 1376e-S-10/90

         1376f-S-10/90

         WILLIAM J. BAUM AND DOAH CASE NO. 91-5753 JOSEPH C. CANOUSE

         
         

         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 upon a review of the entire record of this proceeding.

         
         

         On March 26, 1992, a Hearing Officer from the Division of Administrative Hearings submitted his recommended order ("Recommended Order") in this proceeding, a copy of which is attached hereto as Exhibit A. An Order was entered upon request extending the time period for filing exceptions an additional fifteen days. On April 24, 1992, the Department filed its exceptions to the Recommended Order, a copy of which is attached hereto as Exhibit B. The Respondent, Joseph C. Canouse ("Canouse"), on April 27, 1992 filed with the Department a copy of his exceptions to the Recommended Order, a copy of which is attached hereto as Exhibit C.

         
         

         BACKGROUND

         
         

         This matter arose when the Department filed an administrative complaint on December 20, 1990 against First Eagle, Inc. and a number of people associated with this securities dealer, including the above named Respondents. Each of the above named Respondents were charged in the complaint with violating the provisions of Rule 3E-600.012, Florida Administrative Code ("Cold Call Rule").

         The Respondents requested a formal hearing on February 5, 1991 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 November 6-7, 1991. On March 26, 1992, the Hearing Officer submitted his Recommended Order in which he recommended that a Final Order be entered finding Respondents William J. Baum ("Baum") and Canouse to have violated the provisions of Rule 3E-600.012(5)(b), Florida Administrative Code, and ordering the issuance of a letter of reprimand to each of them for

         such violation. As previously mentioned, both the Department and Respondent Canouse have filed exceptions to the Recommended Order.

         
         

         RULING ON EXCEPTIONS BY THE DEPARTMENT

         
         

         1. The Department accepts Petitioner's first exception to what is actually a conclusion of law, though under the Findings of Fact heading of the Recommended Order. Branch Managers are responsible for the conduct of associated persons pursuant to Section 517.12(8), Florida Statutes. To the extent the Hearing Officer's statements differs from this interpretation, it is rejected.

            
            

         2. The Department accepts Petitioner's second exception. The Hearing Officer's footnote #4, page 10 of the Recommended Order is rejected as irrelevant and immaterial to the issues presented in this case. Further, Article III, Section 27, NASD Rules of Fair Practice provide that the member must establish, maintain, and enforce written procedures in order to appropriately supervise the conduct of its associated persons so as to maintain compliance with applicable securities laws. A partner, officer, or manager in each office must carry out these written supervisory procedures. To the extent the Hearing Officer has misinterpreted these provisions, such statements are rejected.

            
            

         3. The Department accepts Petitioner's third exception. While in a license revocation/suspension proceeding, the appropriate burden of proof which must be met is that of a "clear and convincing standard", e.g. Ferris v. Turlington, 510 So.2d 292 (Fla. 1987), where lessor sanctions such as a Cease and Desist Order and a fine are set to be imposed as in the case at Bar the Department suggests that the appropriate standard of proof is "preponderance of the evidence". See American Insurance Association v. Department of Insurance,

            518 So.2d 1342 (Fla 1st DCA 1987). Allen v. School Board, 517 So.2d 568 (Fla 3rd DCA 1990). Since the Hearing Officer found violations under the higher burden of proof, this exception, while granted, is not material to the outcome of this particular case.

            
            

         4. The Petitioner takes exception to the Hearing Officer's footnote number six in Conclusion of Law number six which rejected Petitioner's contention that rule 3E-600.012(5)(b)3, Florida Administrative Code, requires two separate forms. Rule 3E-600.012(5)(b) provides as follows:

            
            

   2. In order to approve a customer's account for any transaction covered by the section, the seller shall:

* * *

(3) Deliver to the customer a written statement setting forth: the basis on which the seller made the determination required by subparagraph (5)(b)2.; stating in highlighted format that it is unlawful for the seller to effect a transaction in such security unless the seller has received, prior to the transaction, a written agreement to the transaction from the customer; stating in highlighted format immediately preceding the customer signature line that the seller is required by law to provide the customer with the written statement and that the customer

should not sign and return the written statement to the seller if it does not accurately reflect the customer's financial situation, investment experience and investment objectives; and [emphasis added]

* * *

Where the language of a statute is plain and unambiguous Courts may not depart from the plain language effected by the statute. State ex rel. Florida Jai Alai, Inc. v. State Racing Commission, 112 So.2d 825 (Fla. 1959).

Similarly, where the language of an administrative rule is plain and unambiguous, a Hearing Officer may not depart from the plain meaning of the rule. Boca Raton Artificial Kidney Center, Inc. v. Department of Health and Rehabilitative Services, 493 So.2d 1055 (Fla. 1st DCA 1986). The plain language of Rule 3E-600.012(5)(b)3, Florida Administrative Code requires that the seller provide the customer with a written statement which includes among other things, a statement that the customer must receive a written agreement, prior to the transaction. Additionally, testimony of a Department employee at the hearing indicated that the Department interprets the rule as requiring the seller to provide two separate documents to the customer. (Transcript at pages 36, 55, 56, 57). The agency's interpretation of a statute must stand if it is not unreasonable or outside the range of possible interpretations. Motel 6 Operating

L.P. v. Dept. of Business Regulation, 560 So.2d 1322 (Fla. 1st DCA 1990). Although Motel 6 specifically applies to an agency's interpretation of a statute, a natural correlation resulting from Motel 6 is that the Department's interpretation of its own rules must stand unless unreasonable or outside the range of possible interpretations. Consequently, Petitioner's fourth exception is accepted.

1. (mislabeled #6) Additionally, the Petitioner makes exception to the first sentence of the Hearing Officer's eighth Conclusion of law in which the Hearing Officer provides that lack of investor harm should be considered in determining the appropriate penalty. The Department accepts the sixth exception to the Hearing Officer's Conclusion of Law. The Department has no obligation to state with particularity the reasons the Department is rejecting a Hearing Officer's Conclusion of Law. Harloff v. City of Sarasota, 575 So.2d 1324 (Fla. 2nd DCA 1991). However, to make the record clear, the Conclusion of Law, referenced above, is improper because there is no requirement under Florida's cold call rule that an investor suffer harm. The Hearing Officer's statement is a misinterpretation of the rule and is therefore rejected.

   
   

2. (mislabeled #7) The Department accepts Petitioner's sixth exception. Section 517.221(1), Florida Statutes, authorizes the Department to issue and serve a Cease and Desist Order upon any person when, in relevant part, the Department believes such person is violating Chapter 517, Florida Statutes, and the Rules promulgated thereto. No requirement exists that the Cease and Desist Order only be filed against registered persons; rather, the law provides for sanctions to be imposed in accordance with Section 517.221(3), Florida Statutes against any person who may have violated Chapter 517, Florida Statutes, and the Rules promulgated thereto. To the extent the Hearing Officer's interpretation differs, it is rejected. See also "Penalty" section infra.

RULING ON EXCEPTIONS OF RESPONDENT CANOUSE

First Exception: The Respondent's first exception states that Finding of Fact number 9 is "purely based on conjuncture and opinion. It is furthermore irrelevant, immaterial and objectionable to this case." This exception to the

Hearing Officer's Recommended Order is herein rejected. It is the Hearing Officer's not the Agency or the Respondent's function to evaluate the evidence in reaching ultimate findings of fact. Heifetz vs. Department of Business Regulation, 475 So.2d 1277, 1281 (Fla. 1st DCA 1985). Since there is competent, substantial evidence in the record with which the Hearing Officer reached his finding of fact, the Department concurs with it and the Respondent's first exception is rejected.

Second Exception: Respondent's second exception apparently argues the invalidity of Article III, Section 27 of the Rules of Fair Practice adopted by the National Association of Securities Dealers (NASD). No evidence appears in the record establishing any alleged legal invalidity of the aforesaid rule.

Since there is no competent substantial evidence in the record to support the assertion of the Respondent, this exception is rejected.

Third Exception: Respondent's exception number three excepts to Finding of Fact number 11 wherein the Respondent asserts that both "the Florida Rule and SEC Rule fail to establish "who" is to make the suitability determination."

This exception is rejected to the extent that it is a mischaracterization and misinterpretation of both the Florida Rule and SEC Rule. The Hearing Officer has correctly noted in Conclusion of Law number 5 and 6 the responsibilities of both dealers and associated persons for complying with Rule 3E-600.012, Florida Administrative Code. Since the Hearing Officer has correctly interpreted the subject rules as to the issue of who has responsibility for compliance therewith (to which interpretation this Department concurs), Respondent's exception number three is herein rejected as an incorrect interpretation.

Fourth Exception: Respondent's fourth exception is to Finding of Fact number 12 of the Recommended Order. The gist of Respondent's exception appears to be that although the SEC has adopted a cold call rule identical to the Department's and conducted an investigation into Respondent's activities, the SEC has not pursued an action against Respondent for violating the SEC cold call rule. Respondent's fourth exception is rejected since the matters raised are not relevant to the issues raised in this proceeding.

Fifth Exception: Respondent's fifth exception is to Finding of Fact NO.

1. Respondent asserts that the testimony of the Department's examiners at the hearing did not support the Hearing Officer's finding in Paragraph 14. Respondent's fifth exception is rejected. Having reviewed the transcript of the proceeding, the exhibits and pleadings, it is determined that there is competent, substantial evidence in the record to support the Hearing Officer's findings.

   
   

   PENALTY

   
   

   The correct penalty in this case to be imposed against Baum and Canouse include the entry of a Cease and Desist Order pursuant to Section 517.221, Florida Statutes, for violations of Rule 3E-600.012(5), Florida Administrative Code and the issuance of a reprimand for such violations.

   
   

   In light of the foregoing rulings and modifications to the Hearing Officer's Recommended Order, the Department is increasing the recommended penalty against both respondents by adding an order to Cease and Desist from violating Rule 3E-600.012(5), Florida Administrative Code, (See Criminal Justice Standards & Training Commission v. Bradley, 17 F.L.W. 5193 (Fla. 1992) for the following reasons:

   1. Section 517.221, Florida Statutes permits the Department to seek and enter a Cease and Desist Order against any person found to have violated Chapter 517, Florida Statutes and the rules promulgated thereunder; there exists no legal basis restricting the statutes application to "registrants only" as the Hearing Officer has so found;

      
      

   2. Baum was found to have engaged in not one but eighteen repeated violations of rule (See Petitioner's Exhibit 8; Finding of Fact number 13, Hearing Officer's Recommended Order; transcript, day one, page 163, lines 12-14).

      
      

   3. Canouse was found to have engaged in not one, but twenty-six repeated transactions involving violations of the rule (See Petitioner's Exhibit 7; Finding of Fact 14, Hearing Officer's Recommended Order; Transcript, day one, page 131, lines 24-25).

CONCLUSIONS

Having ruled on all the exceptions filed by the parties, and having reviewed the complete record of this proceeding and all Exhibits thereto, it is accordingly ORDERED:

1. The Hearing Officer's Findings of Fact and Conclusions of Law are adopted except as modified or rejected herein;

   
   

2. The Respondents William J. Baum and Joseph C. Canouse are hereby ordered to cease and desist from violating the provisions of Rule 3E-600.012(5), Florida Administrative Code;

   
   

3. That Respondents William J. Baum and Joseph C. Canouse are herein REPRIMANDED for their violations of Rule 3E-600.12(5), Florida Administrative Code;

DONE and ORDERED this 24th day of June, 1992.

GERALD LEWIS, as Comptroller and Head of the Department of Banking and Finance, Division of Securities

COPIES FURNISHED:

Don Saxon, Director Division Securities and Investor Protection

R. Beth Atchision 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 BANKING AND FINANCE, SUITE 1302, THE CAPITOL, TALLAHASSEE, FLORIDA 32399-0350 AND A SECOND COPY, ACCOMPANIED BY FILING FEES PRESCRIBED BY LAW, WITH THE DISTRICT COURT OF APPEAL, FIRST DISTRICT, 300 MARTIN LUTHER KING, JR. BLVD., 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, 1000 Crystal Way, #1000H, Delray Beach, Florida 33444, and Joseph C. Canouse, 3280 Spanish Moss Terrace, Suite A-108, Lauderhill, Florida 33319, this day of June, 1992.

H. Richard Bisbee Deputy General Counsel Office of Comptroller The Capitol, Suite 1302

Tallahassee, Florida 32399

(904) 488-9896

Florida Bar No.

Docket for Case No: 91-005753

Orders for Case No: 91-005753