STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

POWELL & SATTERFIELD, INC., and ) MICHAEL L. TOGNETTI, )

)

Petitioner, )

)

vs. ) CASE NO. 91-6912

) DEPARTMENT OF BANKING AND FINANCE, )

)

Respondent. )

)

RECOMMENDED ORDER

Upon due notice, this cause came on for formal hearing on March 30 and 31, 1992, in Tallahassee, Florida, before Ella Jane P. Davis, a duly assigned Hearing Officer of the Division of Administrative Hearings.

APPEARANCES

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

Mang, Rett & Collette, P.A. 660 East Jefferson Street Tallahassee, Florida 32302

For Respondent: J. Ashley Peacock

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

Tallahassee, Florida 32399-0350 STATEMENT OF ISSUES

1. Whether or not Petitioners are entitled to license/registration due to Respondent agency's failure to grant or deny the application within 90 days.

   
   

2. Whether or not Powell and Satterfield Inc.'s application for registration as a broker/dealer and Trognetti's application for associated person/principal for Powell & Satterfield, Inc., should be granted.

   
   

   PRELIMINARY STATEMENT

   
   

   By letter dated September 6, 1991, Respondent notified Petitioners that their application for registration as a broker/dealer and as an associated person was denied pursuant to Section 517.161(1)(h)(3), and (4) F.S., based upon the agency's determination that the disciplinary history of the firm and of the firm's officers, directors, and owners within the securities industry constituted prima facie evidence of unworthiness of the applicants to transact securities business in Florida.

   On October 16, 1991, the Department received an Amended Petition for Formal Administrative Proceeding and the matter was referred to the Division of Administrative Hearings.

   
   

   This case finally proceeded to formal hearing upon the Second Amended Petition.

   
   

   Official recognition has been taken of the following matters:

   
   

   1. Chapter 517, F.S.;

   
   

   2. Rule 3E-600.011, F.A.C.

   
   

   1. Final Order dated October 30, 1991, in Louis Feldman v. Department of Banking and Finance, Case No. 1346-S-8/90;

      
      

   2. Final Order dated April 7, 1991 in Lawrence Grolemund v. Department of Banking and Finance, Case No. 1326-S-8/90; and;

      
      

   3. Pages 109 through 116 of the September 1991 National Association of Securities Dealers, Inc. Manual, entitled "History and Organization of the NASD."

   
   

   Petitioners presented the testimony of Lee Talheimer, former Securities Commissioner for the State of Arkansas; William Tedford, Senior Vice President, Stephens Inc., of Little Rock, Arkansas; John P. Maxwell, III, Financial Examiner and Analyst I, Division of Securities, Department of Banking and Finance; William W. Satterfield, President, Powell & Satterfield, Inc., Scott

   A. Welch, Financial Operations Prinicpal, Powell & Satterfield, Inc.; Michael

   L. Tognetti, Sales Manager and Chief Operating Officer, Powell & Satterfield, Inc.; and Richard A. Torti, Owner, Director, and Chairman of the Board, Powell & Satterfield, Inc. Petitioner's Exhibits 1 through 20 were admitted in evidence.

   
   

   Respondent presented the oral testimony of Keith Hinrichs, Assistant Director, District 5, National Association of Securities Dealers, Inc., and Tamara K. Cain, Assistant Director, Division of Securities, Department of Banking and Finance. Respondent's Exhibits 1 through 8 were admitted in evidence.

   
   

   A transcript of the hearing was filed on April 24, 1992. All timely-filed proposed findings of fact have been ruled on in the appendix hereto, pursuant to Section 120.59(2), F.S.

   
   

   FINDINGS OF FACT

   
   

   1. Respondent, Department of Banking and Finance, is the state agency charged with the administration and enforcement of Chapter 517, F.S., the Florida Securities and Investor Protection Act, and the rules promulgated thereunder.

      
      

   2. On March 11, 1991, Petitioners submitted a Form BD, Uniform Application for Broker-Dealer Registration, seeking registration as a broker/dealer for Powell & Satterfield, Inc., in Florida.

      
      

   3. Petitioners' application freely disclosed that it had been the subject of at least five administrative orders issued by the National Association of

      Securities Dealers (NASD) for violations of the NASD Rules of Fair Practice, and one administrative order issued by the State of Arkansas Securities Department for violations of Arkansas state securities law.

      
      

   4. On or before March 14, 1991, the agency had a printout from the Central Registration Depository of NASD summarizing the corporate Petitioner's disciplinary history with it. On the basis of that printout alone, Respondent agency would have felt justified in denying P&S' application for Florida licensure. However, the agency has uniformly required certified copies of prior discipline matters before reaching its final decision when there is a possibility that an application will be denied for disciplinary history and the applicant gives no indication that the application will be withdrawn.

      Therefore, by letter dated April 10, 1991, Respondent requested that Powell and Satterfield, Inc. obtain certified copies of the disciplinary actions taken against the firm.

      
      

   5. On May 3, 1991, NASD notified Respondent that it does not certify documents, so the Department excused Petitioner's submitting certified copies. Therefore, all of the documentation requested by the April 10, 1991 deficiency letter was received by May 28, 1991 except a certified copy of the Arkansas order which was not submitted until June 10, 1991.

      
      

   6. On June 10, 1991, Respondent received the last certified document, the 1988 Arkansas Consent Order, as requested by the aforementioned April 10, 1991 letter.

      
      

   7. Respondent's receipt of the 1988 Arkansas Consent Order began the 90 day processing period of the application pursuant to Section 120.60, F.S., making the 90th day for action on Petitioners' application September 6, 1991.

      
      

   8. On September 6, 1991, Respondent denied Petitioners' application for registration as a broker/dealer based upon the Respondent's determination that the five regulatory actions taken by the NASD and one disciplinary action taken by the State of Arkansas against the firm and the officers, owners, and directors of the firm constituted prima facie evidence of unworthiness to transact the business of a broker/dealer. In doing so, the agency interpreted and relied on Section 517.161(1)(h) and (4) F.S. and Rule 3E-600.011(2), F.A.C.

      
      

   9. Respondent also denied Petitioner, Michael L. Tognetti's application for registration as an associated person/principal. In so doing, the agency interpreted and relied on Section 517.161(1)(h) and (3) F.S.

      
      

   10. The National Association of Securities Dealers (NASD) is a national securities association.

       
       

   11. The NASD is registered with the federal Securities and Exchange Commission (SEC) as a national securities association pursuant to Section 15A of the Securities Exchange Act of 1934.

       
       

   12. Under the Maloney Act (Section 15A of the SEC Act of 1934), the NASD is required to promulgate and enforce rules, including the Rules of Fair Practice.

       
       

   13. The NASD's Rules of Fair Practice are promulgated and adopted pursuant to the Securities and Exchange Act of 1934.

       
       

   14. The 1934 SEC Act provides that the SEC may review any disciplinary action imposed by the NASD, may abrogate any rule of the NASD, disapprove any

       change in the rules proposed by the NASD, and suspend or revoke its registration with the SEC if the NASD has failed to enforce compliance with its own rules.

       
       

   15. In its August 1986 Letter of Acceptance, Waiver, and Consent Number NEW-497-AWC of the District Business Conduct Committee for District 5 (NEW-497- AWC), the NASD found that Powell and Satterfield, Inc. (P&S), Satterfield, and

       John H. O'Donnell violated Article III, Section 1 of the Rules of Fair Practice. As a result of those findings, the NASD censured and fined P&S, Satterfield, and O'Donnell in the amount of $1,000.00, jointly and severally, in NEW-497-AWC.

       
       

   16. In NEW-497-AWC, the NASD's District Business Conduct Committee for District 5 found that for the month ending periods of December 31, 1984, P&S, acting through Satterfield and O'Donnell, in contravention of SEC Rule 15c3-1, engaged in a securities business when its net capital was below the required minimum as prescribed by said rule and that for the month ending period of July 31, 1985, P&S, acting through Satterfield and O'Donnell, in contravention of SEC Rule 15c3-1, engaged in a securities business when its net capital was below the required minimum as prescribed by said rule.

       
       

   17. The net capital violations on those occasions were caused by the requirement that physical delivery of large quantities of mortgage backed securities be made on the same day of the month. In some cases, due to the amount of paperwork, certain certificates were not timely delivered to P&S and consequently P&S could not timely deliver them to the customers. When this happened, P&S was required to reduce the value of the securities if the market value declined and to take an arbitrary reduction in value of 5% called a "haircut." By the time P&S realized the "haircuts" were causing a net capital problem, the securities in each case had been physically delivered and the problem was solved. The actual time period for which the firm was in violation of the minimum net capital requirement was the last three to five days of December 1984 and July 1985. P&S thereafter took steps to prevent a reoccurrence of similar net capital problems by becoming an introducing broker for whom a larger clearing corporation would carry its accounts and absorb any net capital reductions due to delayed deliveries.

       
       

   18. In its 1990 Letter of Acceptance, Waiver and Consent Number NEW-750-AWC (NEW-750-AWC), the NASD's District Business Conduct Committee for District 5 found that Petitioner corporation P&S, William W. Satterfield, Joseph A. Powell and Scott A. Welch violated Article III, Section 1 of the Rules of Fair Practice because Petitioner P&S' Annual Audit Report for the fiscal year ending June 30, 1989, was due on August 31, 1989, as required by SEC Rule 17a-5(d)(5), and P&S, acting through Satterfield and Welch, had filed P&S' Annual Audit Report late, on September 28, 1989, in contravention of SEC Rule 17a-5; because during the period from June 22, 1989 to on or about August 30, 1989, P&S did not enter on its books and records certain liabilities arising from a lawsuit against the firm that had settled on June 22, 1989, in violation of SEC Rule 17a-3; because on August 30, 1989, the independent auditors, Baird, Kurtz & Dobson, opined that payables totalling $34,000.00, representing legal fees from the aforesaid lawsuit needed to be identified on the firm's books and records as liabilities incurred by the firm; and because on June 30, 1989, July 31, 1989, and August 31, 1989, P&S, acting through Satterfield, Powell, and Welch, conducted a securities business while its net capital was below the minimum prescribed by SEC Rule 15c3-1. As a result of NEW-750-AWC's findings, the NASD censured and fined P&S, Satterfield, Powell, and Welch, in the amount of $5,000, jointly and severally.

   19. By way of further explanation, part of the resolution of NEW-750-AWC amounts to P&S, acting through Satterfield, Powell, and Welch having failed and/or neglected to file the corporate Annual Audit Report due on August 31, 1989 until it was late by 28 days on September 28, 1989. P&S had settled its lawsuit on June 22, 1989 but did not add its $34,000 legal fees paid therefor (for a total of $40,161.59) to its liabilities records until told to do so by independent auditors. All of this resulted in the corporation being below its prescribed net capital minimum for a period of time. P&S had initially relied on the early July 1989 advice of the same independent auditors, Baird, Kurtz & Dodson, to the effect that P&S should record the lawsuit liabilities of June 22, 1989 on the books of P&S' parent company. On August 30, 1989, Baird, Kurtz & Dodson changed its opinion and determined that the settlement liability should have been recorded on the books and records of P&S instead. This change in the independent auditors' opinion resulted in P&S' net capital violation, the failure to record violation, and the late filing (September 28, 1989) of P&S' annual report.

       
       

   20. In its August 1988 Letter of Acceptance, Waiver, and Consent Number NEW-601-AWC the NASD District Business Conduct Committee for District 5 (NEW- 601-AWC), found that P&S, Satterfield, and Michael W. Compton, Sr. had violated Sections 1 and 27 of the Rules of Fair Practice because from December 28, 1987, to April 13, 1988, Mr. Compton had acted as the qualifying Financial and Operations Principal for P&S without first requalifying under the terms of an NASD Offer of Settlement unassociated with any of the five NASD orders at issue here. Pursuant to that negotiated settlement, Mr. Compton had been required to re-qualify as a Financial and Operations Principal by passing the Series 27 examination before serving again as Registered Financial and Operations Principal. During the period of December 28, 1987 to April 13, 1988, Mr. Compton was not registered with NASD as a Financial and Operations Principal for P&S because he had not passed the required examination during the period specified in the prior agreement/order pertaining to him. The NASD consequently, found that from December 28, 1987 to April 13, 1988, P&S had a duty to supervise the activities of Mr. Compton and failed or neglected to adequately do so, allowing him to serve in a capacity for which he was not registered. For this, NASD only censured P&S and Satterfield, jointly and severally, in NEW-601-AWC.

       
       

   21. By way of further explaining the foregoing findings of the NASD, it is here found that Michael Compton began his employment with P&S as a registered financial principal. In December 1987, P&S was notified that Mr. Compton had been sanctioned by the NASD and was required to retake the financial principal examination. There was subsequent confusion as to what the NASD letter meant when it said Compton had to requalify before serving as financial principal again since he was already currently serving as financial principal for P&S. It is unrefuted that the firm relied on representations by Mr. Compton that upon his application to take the examination, the NASD had advised him that he was already qualified and could not take the examination and that he had ninety days to retake the test. As it later turned out, Mr. Compton should have taken and passed the examination in the specified time period. P&S relied on Mr. Compton's stating that he had relied on further information from NASD. In retrospect, P&S' and Satterfield's reliance was too trusting and constituted a lack of appropriate supervision, so they consented to the NASD order and accepted the relatively light penalty of censure.

       
       

   22. Given the firm's relationship with Mr. Compton, the reliance on him in this matter was not demonstrated to be unusual, conspiratorial, or deceptive. Also, nothing in NEW-601 indicates that Michael Compton violated any other rule

       while he acted as financial principal for P&S. At all times material, William Satterfield also was a qualified financial principal. No P&S customer suffered and no other irregularity arose because of Mr. Compton's situation, but because he had signed the monthly financial reports for the firm, the firm had "qualified" under his auspices, and thus the firm, P&S, was technically "unqualified" during this period of time.

       
       

   23. The foregoing was an offense more in the nature of "inadvertence" than "fraud." Once fully explained, it does not reflect upon P&S or Satterfield so as to render the corporation and its principals "unworthy" to transact security business.

       
       

   24. On December 28, 1988, the State of Arkansas, P&S, Satterfield, and Jack Shults Lewis, Jr., executed a Consent Order, Number 88-26-S, whereby P&S and Lewis were required to comply with certain sanctions and undertakings. This Arkansas Consent Order resulted from an examination of the books and records of P&S conducted by the staff of the Arkansas Securities Department. That examination revealed violations of Arkansas securities law.

       
       

   25. During a period from June 30, 1988 to October 31, 1988, agents for P&S recommended to, and executed on behalf of, a building and loan association customer seven transactions involving purchases of certain securities, namely, Federal National Mortgage Association (FNMA) interest-only stripped mortgage- backed securities and also zero coupon bonds issued by the Federal Home Loan Mortgage Corporation (FHLMC), Student Loan Marketing Association (SLMA), and FNMA. The building and loan customer had an approximate net worth of

       $2,909,000.00. The transactions effected by the agents of P&S for the building and loan customer reached totals ranging from approximately $3,600,000.00 to approximately $4,000,000.00 during the period from September 20, 1988 to October 31, 1988. From August 10, 1988 to October 31, 1988, agents of P&S executed transactions in which the customer's average equity in the account was

       $3,281,900.96, which was equal to 113% of the customer's net worth. The prices paid by the customer exceeded the current market price for the relevant securities by amounts ranging from 4.956% to 8.620%.

       
       

   26. Before entering into transactions with this customer, neither P&S, nor Satterfield, nor Lewis, nor any P&S agents obtained from the customer current financial statements. Before entering into transactions with the customer, neither P&S, nor Satterfield, nor Lewis, nor any P&S agents obtained a copy of corporate resolutions authorizing the customer's agent to enter into certain transactions on its behalf or indicating the investment goals of the customer, the type of account to be created (i.e., investment, trading, etc.), or the types of products authorized to be purchased. During this period, P&S, acting through Satterfield and Lewis, had a duty to properly supervise its agents, and the Consent Order found, among other things, that P&S, acting through Satterfield and Lewis, failed to take reasonable measures to properly supervise its agents.

       
       

   27. The Arkansas Consent Order required P&S to engage an independent consultant acceptable to the Arkansas Securities Commission to perform a compliance audit and make recommendations for the revision of compliance and supervisory policies. In compliance therewith, P&S engaged the law firm of Arnold, Grolmeyer & Haley as the independent consultant, which engagement was approved by the Arkansas Securities Commission. The audit was performed and a new compliance manual was ultimately generated by the consultant. The compliance manual established more formal compliance procedures within P&S and included the Arkansas Commissioners' markup guidelines in the front.

   28. In order to mitigate the excessive markup on the purchases, P&S did not charge the customers any commission or markup on the seven transactions even though an additional commission is usually charged on the sale.

       
       

   29. Jack Lewis was a registered principal and sales manager with P&S responsible for approving the securities transactions which were found to have excessive markups. He was permitted to resign from the firm at the end of 1988. Although questioning by Respondent's counsel at formal hearing suggested that this may have been on overly lenient reaction of P&S, the record evidence does not demonstrate any obligation of P&S to prosecute or discharge Lewis.

       
       

   30. On August 7, 1989, the District Business Conduct Committee for District

       5 of the NASD filed Complaint Number NEW-712 against P&S, Satterfield, Powell, and others. On August 9, 1989, the District Business Conduct Committee for District 5 of the NASD filed Complaint Number NEW-713 against P&S, Satterfield, Powell, and others. NASD Complaint Numbers NEW-712 and NEW-713 were consolidated.

       
       

   31. In its February 1991 Decision and Order of Acceptance of Offer of Settlement for Complaint Numbers NEW-712 and NEW 713, also referred to in the record as "the February 1991 Decision," the NASD found that P&S violated Article III, Sections 1 and 4 of the Rules of Fair Practice in Complaint Number NEW-712; that Satterfield and Powell violated Article III, Sections 1 and 27 of the Rules of Fair Practice in Complaint Number NEW-712; and that P&S, Satterfield, and Powell violated Article III, Section 1 and 27 of the Rules of Fair Practice in Complaint Number NEW-713. However, the allegations of violations of named federal laws in both those complaints, which included allegations of fraud, were dismissed in that February 1991 Decision (See the Conclusions of Law). As a result of these findings, the NASD censured and fined P&S, Satterfield, Powell, and others in the amount of $25,000.00, jointly and severally. This consolidated February 1991 Decision was accepted by the NASD and was final on February 20, 1991.

       
       

   32. The foregoing violations of the Rules of Fair Practice involved executing approximately twelve (12) securities purchase and sale transactions at prices that included excessive markups or markdowns and selling certain government securities to customers through Allan M. Tucker and entering into repurchase agreements with those customers without recording those agreements or the effect of those agreements on the records of P&S and resulting in confirmations which did not disclose the repurchase agreement. Further, the securities were sold at prices not reasonably related to the current market price and were unsuitable for the customers.

       
       

   33. The State of Arkansas had previously reviewed all of the same transactions but the twelve markup violations found by the NASD included the seven found by the State of Arkansas plus five additional violations. (See, Findings of Fact 24-29 and 35) The markups on transactions 11 and 12 are not accurately represented or excessive because they represent only a portion of the entire transactions. These transactions were purchases of call options made in conjunction with the purchase of bonds. The total markup percentage on these transactions was actually less than one half of one percent.

       
       

   34. Alan M. Tucker a/k/a Matt Tucker came to work for P&S in 1974, did a good job, and worked his way up to becoming a part owner of the firm and supervisor of the trading and sales department. However, Matt Tucker began secretly purchasing securities through the firm without the knowledge of the

       other owners. When he lost money, he camouflaged his losses by "parking" the securities. "Parking," under certain conditions, is acceptable in the securities trade, but Mr. Tucker did not take any of the legitimate precautions. He "parked" the securities secretly with banks where his father-in-law, a college friend, and his wife's cousin were executives. Tucker sold the bonds to these banks at the firm's original cost, which was higher than market value, and promised to buy them back at the same price. In some cases, the agreement was oral and in other cases it was set forth in a one sentence letter, but Tucker never placed copies of the letters in the P&S correspondence files, so other firm members were unaware of what was going on. Thus, Tucker hid the losses incurred on the bonds and gave his customers a pretty good short term yield on their investments. However, after awhile, repurchase was out of the question because of the quantity of "parking" involved, and Tucker began to have his agreements called. From the evidence as a whole, it may be inferred that the close personal friends and in-laws whom Tucker drew into his net were careful to keep their dealings with Tucker clandestine, at least until Tucker's losses threatened to go sour and reflect on themselves and their financial institution employers as well as on Tucker. This situation, although not identical, is analogous to buying stocks on margin. Interestingly and aptly, the securities industry nicknames a repurchase agreement a "repo".

       
       

   35. When the first wave, as it were, of Tucker's repurchase agreements came to the attention of Joesph Powell and William Satterfield, P&S required Tucker to give up his supervisory position with P&S and to execute a note evidencing his debt to the firm for all losses incurred by the firm. The original plan was for Tucker to continue with P&S as a salesman. However, there were some securities still being held by a customer pursuant to even more repurchase agreements. These securities were discovered when Tucker attempted to repurchase the bonds and sell them to another customer. By the time this last transaction was discovered by P&S' principals, Matt Tucker had already left the office of the company. He never returned or made good his indebtedness. The information concerning the repurchase agreement transactions was initially provided by P&S principals to the SEC through an SEC examiner already present in P&S' office on routine matters. The SEC examiner reviewed the information, and the SEC took no direct action on its own initiative. P&S honored the repurchase agreements at a substantial monetary loss to the firm and its principals.

       
       

   36. Since the last administrative order against it, P&S has taken on new personnnel and has reorganized its procedures along preventive lines.

       
       

   37. Richard Torti is a director, Chairman of the Board, and Chief Executive Officer (C.E.O.) of the company. He has a Bachelors of Business Administration in investment and a Masters of Business Administration in finance from Memphis State University. He holds series five, seven, eight, twenty-four, fifty-two, and fifty-three registrations with the NASD and is registered in Arkansas. Mr. Torti has never been the subject of any regulatory action.

       
       

   38. Mr. Torti purchased forty percent (40%) of P&S' stock in August, 1990. Simultaneously, a voting trust of twelve percent (12%) of P&S stock was established with Mr. Torti as trustee, so that he has the right to vote fifty- two percent (52%) of the stock of P&S. Further, he has the right to appoint three (3) of the firm's five (5) directors.

       
       

   39. William Satterfield is president, director, manager of underwriting, and compliance officer for P&S. He graduated from Princeton University in 1956 with a Bachelors degree in economics. He has been licensed to sell securities since 1961. He currently holds a registration as a commodities representative,

       a general securities representative, a general securities principal, and a financial principal. He is currently registered in the State of Arkansas and has never been denied registration in any state or jurisdiction.

       
       

   40. William Satterfield was elected by NASD member firms to serve a three

3. year term on the District 5 Business Conduct Committee in 1982 and served on the nominating committee during 1987. He also chaired a committee for the Arkansas Securities Commissioner which made recommendations for guidelines for markups on government agency securities. He has had an excellent reputation in the securities business both before and after his various administrative disciplines.

1. Mr. Satterfield, Joseph Powell, and Scott Welch appear to be the last remaining firm members whose previous discipline records causes Respondent a current concern. Mr Satterfield is now supervised by Mr. Torti, the new C.E.O. of P&S. Mr. Satterfield was not supervised by anyone before Mr. Torti came to the firm. Joseph Powell has no corporate supervisory or management duties because of serious health problems.

   
   

2. Mr. Scott Welch was hired in August 1988, as the financial operations principal for P&S. He is a CPA. He received his B.A. degree in accounting from the University of Arkansas and was employed by Price Waterhouse for four years and Frost & Company for two years before coming to work at P&S. Part of the reason Mr. Welch was hired was to shape up the internal controls of the company. Initially, he was requested to put in place a procedure to find out if there were any more Matt Tucker repurchase agreements (repos) outstanding. He sent out a positive confirmation letter to every customer of Matt Tucker verifying that they had no repurchase agreements and none were found.

   
   

3. After completing the positive repurchase confirmation project, Mr. Welch evaluated the internal controls of P&S and determined that they were inadequate. He then put into effect a system whereby the head trader, the sales manager, and Mr. Satterfield would sign trade tickets. He also set up a computerized blotter system so that the management of the company could compare trades at any given time. Finally, he developed a checklist for the back office to use to evaluate trade tickets.

   
   

4. Since the internal controls were completely put in place, there have been five regulatory examinations of P&S, four by the NASD and one by the State of Arkansas. Three of the NASD audits were full audits of sales practices and financial audits. One was a financial operations audit only. The Arkansas examination included both sales and operations audits. No actions were taken as a result of these audits (See Finding of Fact 50).

   
   

5. The monthly and annual focus reports filed with the NASD and SEC show a trend toward increase of net capital. P&S' net capital in January of 1991 was

   $99,000. On December 31, 1991, the net capital was $385,000. The minimum net capital requirement for P&S is $25,000.

   
   

6. Michael Tognetti is sales manager, Chief Operating Officer, and a director of P&S. He has been registered to sell securities since 1984. He holds a series three, seven (general sales), twenty-four (principal), fifty- three (MSRB principal), and sixty-three (Blue Sky) registrations in thirty-two

   1. states. He came to work with P&S in August, 1990, after all events giving rise to any administrative disciplinary order had occurred. No evidence of Mr. Tognetti's personal unworthiness to transact securities business, separate and apart from P&S, was demonstrated.

7. When Richard Torti and Michael Tognetti came to the firm in August, 1990, there were 8 to 10 employees at P&S, but there are currently 100-120 employees at P&S.

   
   

8. Mr. Torti formed a management team to review and strengthen policies and procedures in the firm. The firm has one supervisor to every ten or fifteen salesmen. Every order must be approved by a supervisor. The order must then be submitted to the trading manager for approval. Mr. Tognetti then reviews and signs every trade ticket. The compliance department reviews the trade blotter once a month. Scott Welch, Chief Financial Officer, also reviews the trade blotter once a month, reviewing each trade to determine if a trade is off market or if there is an excessive markup.

   
   

9. Every three months, pursuant to the procedures manual, the supervisor reviews each account of his salesmen for activity and cross checks it with the objectives on the new account statement to make sure that no drastic changes in the type of investing has occurred.

   
   

10. There have been three regulatory audits of P&S since August, 1990, two by the NASD and one by the Arkansas Securities Department and the exit interviews from those audits indicated that the company was operating satisfactorily (See Finding of Fact 44).

    
    

11. P&S, as a broker-dealer, is regulated by all the states wherein it is registered, the NASD, and the SEC. The rules in the securities industry are so numerous and complex that if a broker-dealer is in the industry for any substantial length of time, some violations are likely to occur. Considering P&S' longevity and the lack of severity of the penalties imposed, the disciplinary history of P&S is considered a good history in the industry.

    
    

12. P&S has an excellent reputation in the securities industry.

    
    

13. The NASD had the option to suspend or revoke the registration of P&S in the cases which resulted in its five orders at issue but did not do so.

    
    

14. P&S remains, and has consistently been, a member in good standing of the NASD.

    
    

15. P&S was registered in Florida from September 1987, to December 31, 1989, and there were no actions taken against it or its principals by the State of Florida.

    
    

16. P&S is currently registered in 33 states. Fourteen of those states have granted P&S registration since March 2, 1991, the last administrative order at issue in this case. Of those recent fourteen licensures granted, the states and dates of licensure are as follows: Alabama, March 13, 1991; New Jersey, April 8, 1991; Illinois, April 16, 1991; Michigan, April 23, 1991; Kansas, June 7, 1991; Mississippi, July 22, 1991; Connecticut, September 16, 1991; Kentucky, September 17, 1991; Massachusetts, December 19, 1991; Nevada, February 5, 1992; Alaska, February 11, 1992; Arizona, February 11, 1992;

    Iowa, February 11, 1991; and Wyoming, February 11, 1992.

    
    

    CONCLUSIONS OF LAW

    
    

17. The Division of Administrative Hearings has jurisdiction of the parties and subject matter of this cause. See, Section 120.57(1), F.S.

18. Section 517.161(1), F.S., provides in part:

    
    

    1. Registration under Section 517.12, may be denied or any registration granted may be revoked, restricted, or suspended by the department if the department determines that such applicant or registrant:

       * * *

       (h) Has demonstrated his unworthiness to transact the business of dealer, investment advisor, or associated person.

       
       

19. Rule 3E-600.011, F.A.C., provides in part:

    
    

    Prima Facie evidence of unworthiness to transact the business of a dealer, investment adviser, principal, or associated person in the State of Florida shall include, but shall not be limited to:

    * * *

    1. Any injunction, suspension, prohibition, revocation, denial, judgment, or administrative order by any court of competent jurisdiction, administrative law judge, or by any state or federal agency, national

       securities, commodities, or option association, involving a violation of any federal or state securities or commodities law or any rule or regulation promulgated thereunder, and any injunction or adverse administrative order by a state or federal agency regulating banking, insurance, finance or small loan companies, real estate, mortgage brokers, or other

       related or similar industries.

       
       

20. Section 517.161(3), F.S., provides that:

    
    

    1. In the event the department determines to deny an application or revoke a registration, it shall enter a final order with its findings on the register of dealers and associated persons; and denial, suspension, or revocation of the registration of a dealer or investment advisor shall also deny, suspend, or revoke the registration of all his associated persons.

       
       

21. Section 517.161(4), F.S., provides in part that:

    
    

    1. It shall be sufficient cause for denial of an application or revocation of registration, in the case of a partnership, corporation, or unincorporated association, if any member of the partnership or any

    officer, director, or ultimate equitable owner of the corporation or association has

    committed any act or omission which would be cause for denying, revoking, restricting or suspending the registration of an individual dealer, investment adviser, or associated person.

    
    

22. Section 517.12, F.S., provides in pertinent part:

    
    

    1. A dealer, associated person, investment adviser, or branch office, in order to obtain registration, must file with the department a written application, in a form which the Department may be rule prescribe, verified under oath. . . .

    2. The application shall also contain such information as the department may require about the applicant; any partner, officer, or director of the applicant or any person having a similar status or performing similar functions; any person directly or indirectly controlling the applicant; or any employee of a dealer or of an investment adviser rendering investment advisory services. . .

    The department may require information about any such applicant or person concerning such matters as:

    * * *

    (b) Any injunction or administrative order by a state or federal agency, national securities change, or national securities

    association involving a security or any aspect of the securities business and any injunction or administrative order by a state or federal agency regulating banking, insurance, finance, or small loan companies, real estate, mortgage brokers, or other related or similar industries, which injunctions or administrative orders relate to such person.

    
    

23. Section 120.60, F.S., provides in part:

    
    

    (2) When an application for license is made as required by law, the agency shall conduct the proceedings required with reasonable dispatch and with due regard to the rights and privileges of all affected parties or aggrieved person. Within 30 days after receipt of an application for a license, the agency shall examine the application, notify the applicant of any apparent errors or omissions, and request any additional information the agency is permitted by law to require. . . . Every application for license shall be approved or denied within 90 days after receipt of the original application or receipt of the timely requested additional information or correction of errors or

    omissions unless a shorter period of time for agency action is provided by law.

    
    

24. Petitioners have raised as a peripheral challenge to Respondent's denial of licensure that Respondent agency did not consider much beyond the NASD rulings and the Arkansas order and certainly nothing in the traditional sense of "mitigation". This is not a material issue in the instant de novo Section 120.57(1) F.S. proceeding under the prima facie test established by rule and case law. See, Castleman v. Office of the Comptroller, 538 So. 2d 1365 (Fla. 1st DCA 1989); State Dept. of Banking and Finance v. Evans, 540 So. 2d 884 (Fla. 1st DCA 1989).

    
    

25. As to material issues, Petitioners first alleged that their application should be deemed granted as a matter of law because it was not denied within ninety days of the date upon which Petitioners provided all additional lawfully requested information sought by the agency, the primary complaint being that the agency had no "authority" to request "certified" documentation of Petitioner P&S' disciplinary history. Second, Petitioners' assert that the NASD orders herein do not constitute prima facie evidence because they do not find violations of rules or regulations adopted under federal law. Third, Petitioners also alleged that they are not "unworthy" even if the NASD orders at issue do constitute prima facie evidence of unworthiness.

    
    

26. With regard to Petitioners' first and threshold issue, it is here determined that the Respondent timely processed the Petitioners' application after receipt of the last of the previously requested certified documents pursuant to Section 517.12(7) and 120.60(2), F.S., and the Petitioner is not entitled to a "deemer" license by "neglect" or inactivity of the agency, pursuant to Section 120.60, F.S. The agency's insistence on certified documentation to supplement the Petitioners' bare application and the agency's records check so that the agency could make an informed decision as to who is qualified to be registered/licensed and who is not so qualified was not unreasonable. The agency's request was clearly stated and timely. Requiring Petitioners to supply certified documentation served several purposes and is the fairest procedure for all applicants rather than having the agency rely on printouts from third persons. The agency request was within its broad agency authority, as was the agency's waiver of the request for certified copies of the NASD orders when it was shown to be impossible for Petitioner to obtain them. The agency's denial was timely after the agency received the last requested certified document, the certified Arkansas Consent Order.

    
    

27. Contrary to Petitioners' second theory, it is clearly the law in Florida that a violation of NASD rules and regulations constitutes prima facie evidence of unworthiness. See, Feldman v. Dept. of Banking and Finance, DOAH Case No. 90-7342 (RO entered 9/17/91; FO entered 10/30/91) and Grolemund v. Dept. of Banking and Finance, DOAH Case No. 90-5880 (RO entered 2/21/91; FO entered 4/7/91). Those cases make no distinction between federal fraud charges under the SEC Act and any other NASD rule, nor has any reason been shown to do so here. Federal law requires NASD to promulgate and enforce rules, including the Rules of Fair Practice, and those rules are adopted pursuant to federal law. NASD is clearly a "national securities association", as contemplated by the Florida rule. NASD's registration with SEC may be revoked if the NASD fails to enforce compliance with its own rules.

    
    

28. The significance of the dismissal of various federal fraud charges against Petitioners which were brought under a named federal statute is not lost on the undersigned. However, given the significance of the SEC and Maloney

    Acts, the NASD Rules of Fair Practice would seem to be "rules or regulations promulgated under federal securities laws" as contemplated by the Florida rule.

    
    

29. In any case, the adverse administrative order by the State of Arkansas alone would have been prima facie grounds under the Florida rule for denial of the application.

    
    

30. Furthermore, the Florida rule also specifically includes the broad and well-entrenched phrase "includes but not limited" language.

    
    

31. The remaining issue is governed by dictates of the First District Court of Appeal in Castleman v. Office of the Comptroller, Department of Banking and Finance, supra., wherein it was held

    
    

    The hearing officer erred in excluding evidence offered by Castleman regarding the facts underlying the Tennessee and Arkansas disciplinary orders. ... The applicable statutes and rules contemplate that an applicant previously disciplined pursuant to administrative orders may explain and mitigate the circumstances of those transactions in an effort to demonstrate that he is not now a person of bad business repute and unworthy to transact securities business. [Emphasis supplied]

    
    

32. It was Petitioners' burden in the instant case to refute the prima facie evidence of unworhiness as established by the disciplinary orders. That burden has been met.

    
    

33. Petitioners have explained their past offenses and gone further to show that changes in their internal procedures and corporate hierarchy constitute reasonable preventative measures to avoid repeating the same or similar offenses and situations. As a result, they have demonstrated that they are not now persons of bad business repute and unworthy to transact securities business.

    
    

34. Castleman, supra is persuasive that it is the "worthiness" or lack thereof of an applicant "now" (at the time of the de novo formal hearing) which is to be assessed.

    
    

35. The first NASD order in NEW-497 involved a failure to maintain net capital for a few days in 1984 and 1985 (Findings of Fact 15-17) P&S did not have another net capital violation until five years later when the net capital problem set forth in NASD order NEW-750 occurred. This was a different type of net capital problem than the first time (Findings of Fact 18-19). In both cases, the P&S' violations were short lived, fully disclosed, and immediately corrected. Also, P&S' net capital has increased so substantially it is unlikely any net capital violation will reoccur, and the firm has been completely restructured so that there are checks and counterchecks to prevent any of the previous violations.

    
    

36. NEW-601 involved only censure for not making sure the firm's financial principal had retaken his test as part of his personal discipline (Findings of Fact 20-23).

37. Of greater significance is the series of violations involving excessive markups, excessive price, suitability, and recording, which are covered in the NASD NEW 712/713 and State of Arkansas orders. These violations occurred in 1988 (Findings of Fact 24-35). They were, without question, a "scam," but the individuals directly involved in those transactions (Tucker and Lewis) are no longer with P&S. Further, P&S, which was the victim of the scam as much as anybody, has taken elaborate and far-reaching steps to prevent any similar situation from reoccurring.

    
    

38. According to all witnesses knowledgeable in this area, the securities industry is so highly regulated that most firms with extended stays in the industry have disciplinary histories, and the disciplinary history of P&S is a relatively good history by industry standards. The conduct set forth in the disciplinary administrative orders, as explained and mitigated by the evidence adduced at formal hearing, is insufficient to render P&S and Trognetti "unworthy" to be registered as broker/dealers.

    
    

39. P&S' new arrangements and remedial efforts have been reviewed since the last disciplinary order by at least 14 states, all of which have granted registration approval.

    
    

40. The agency has correctly cited certain applicable case law which minimizes the importance of the fact that no customer has ever lost any money as a result of the acts and situations which caused P&S to be disciplined originally. However, since the ultimate thrust of all state regulation of the securities business is to protect the public, the absence of any harm to the public is worthy of at least some consideration. Therefore, that element also has been weighed in the balance with all other factual matters.

    
    

41. It is determined that the registration/license should be granted.

RECOMMENDATION

Upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department of Banking and Finance enter a final order

1. Approving P&S as worthy and granting licensure;

   
   

2. Approving Michael L. Trognetti as worthy and granting licensure; and

   
   

3. Imposing on the licenses/registrations any special conditions the agency, in its discretion and expertise, deems appropriate to ensure that P&S' current internal system of checks and counterchecks, as expressed in its current manual or as expressed in an up-dated equivalent internal system of checks and balances, shall continue in full force and effect as long as P&S remains licensed in the State of Florida.

DONE and ENTERED this 23rd day of June, 1992, in Tallahassee, Florida.

ELLA JANE P. DAVIS

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 June, 1992.

APPENDIX TO RECOMMENDED ORDER

The following constitute specific rulings pursuant to Section 120.59(2)

F.S. upon the parties' respective proposed findings of fact (PFOF): Petitioners' PFOF

Petitioners' proposed findings of fact begin on page 7, the material before that constitutes preliminary material and legal argument for which a ruling pursuant to Section 120.59(2) F.S. is not required.

1-2, 4,

20-31, 34-37

39-62 Accepted, but not necessarily adopted verbatim

3, 5, 8 Accepted as modified to more correctly reflect the record as a whole See FOF 4-5, 8-9.

6, 18-19 Rejected as subordinate, unnecessary, and cumulative to the facts as found.

7 Accepted that this is one reason given, but not the sole reason, and not accepted because not determinative by itself of any material issue.

9-10,

12-13 Rejected as immaterial for purposes of this de novo proceeding.

11 The first sentence is rejected as a conclusion of law; the second sentence is accepted as restated in FOF 31 upon authority of law. See conclusions of law.

14 Rejected as immaterial and misleading See FOF 10-14.

15-17 Rejected upon the record as a whole and those matters of which official recognition has been taken, and upon authority of the law cited in the recommended order; also, parts are subordinate, unnecessary, or cumulative

32-33 Accepted in part and rejected in part. What is rejected is restated in FOF 31 upon authority of law. See conclusions of law.

38 Sentence one is accepted; sentence two is rejected as immaterial.

63 Accepted in principal but rejected as stated because as stated it is a conclusion of law.

Respondent's PFOF:

1-32,

53, Accepted, but not necessarily adopted verbatim 33-52,

54-56 Accepted as modified to more correctly reflect the record as a whole, to eliminate legal argument, and to eliminate subordinate, unnecessary, and cumulative material.

COPIES FURNISHED:

Edward A. Dougherty, Jr., Esquire Mang, Rett & Collette, P.A.

660 E. Jefferson Street

P. O. Box 11127 Tallahassee, Florida 32302

1. Ashley Peacock Assisant General Counsel Office of the Comptroller

   Department of Banking and Finance Suite 1302, The Capitol Tallahassee, Florida 32399-0350

   
   

   Honorable Gerald Lewis Comptroller, State of Florida The Capitol, Plaza Level Tallahassee, Florida 32399-0350

   
   

   William G. Reeves, General Counsel 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

   
   

   POWELL & SATTERFIELD, INC., and MICHAEL L. TOGNETTI,

   
   

   Petitioners, Administrative Proceeding No. 1549-5-8/91

   vs. DOAH Case No. 91-6912

   
   

   DEPARTMENT OF BANKING AND FINANCE,

   
   

   Respondent.

   /

   
   

   FINAL ORDER

   
   

   The State of Florida Department of Banking and Finance, Division of Securities and Investor Protection (hereinafter referred to as the ("Department") and Powell & Satterfield, Inc., and Michael L. Tognetti (hereinafter referred to as the "Petitioners") have entered into a Stipulation last dated October 19, 1992, which is attached hereto and hereby incorporated by reference, resolving this administrative proceeding. Accordingly, it is ORDERED that:

   
   

   1. The Stipulation and Consent Agreement last dated October 19, 1992, entered into between the Department and Petitioners is attached hereto and incorporated herein by reference as if set forth at length; and

      
      

   2. Petitioners and the Department shall comply with the terms and conditions of said Stipulation entered in this cause.

DONE and ORDERED this 23rd day of October, 1992, in Tallahassee, Leon County, Florida.

GERALD LEWIS, as Comptroller of the State of Florida and Head of the Department of Banking and Finance

Copies furnished to: Don B. Saxon, Director

Division of Securities and

Investor Protection

1. Ashley Peacock Assistant General Counsel Office of the Comptroller

   
   

   NOTICE OF RIGHTS 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 COMMENCED BY FILING ONE COPY OF A NOTICE OF APPEAL WITH THE AGENCY CLERK OF THE DEPARTMENT OF BANKING AND FINANCE AND A SECOND COPY, ACCOMPANIED BY FILING FEES PRESCRIBED BY LAW, WITH THE DISTRICT COURT OF APPEAL, FIRST DISTRICT, OR WITH 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

   
   

   HEREBY CERTIFY that a true copy of the foregoing Final Order was sent by regular U.S. Mail to Donald A. Rett, Esquire, Attorney for Petitioners, Mang, Rett & Collette, P.A.. 660 E. Jefferson Street, Post Office Box 11127, Tallahassee, Florida 32302-3217 this 23rd day of October, 1992.

   
   

   
   

   J. ASHLEY PEACOCK Assistant General Counsel Office of the Comptroller The Capitol, Suite 1302

   Tallahassee, Florida 32399-0350

   (904) 488-9896

   
   

   Attachment to Agency Final Order STATE OF FLORIDA

   DEPARTMENT OF BANKING AND FINANCE DIVISION OF SECURITIES AND INVESTOR PROTECTION

   
   

   POWELL & SATTERFIELD, INC., AND MICHAEL L. TOGNETTI,

   
   

   Petitioners, Administrative Proceeding No. 1549-S-8/91

   vs. DOAH Case No. 91-6912

   
   

   DEPARTMENT OF BANKING AND FINANCE,

   
   

   Respondent.

   /

   STIPULATION AND CONSENT AGREEMENT

   
   

   The STATE OF FLORIDA DEPARTMENT OF BANKING AND FINANCE, DIVISION OF

   SECURITIES AND INVESTOR PROTECTION, (hereinafter referred to as the "Department"), and Powell & Satterfield, Inc., and Michael L. Tognetti, (hereinafter collectively referred to as the "Petitioners"), in consideration of the mutual promises contained herein and other good and valuable consideration, hereby agree to enter into this Stipulation and Consent Agreement on the last date executed below as follows:

   
   

   1. On or about March 11, 1991, Petitioner Powell & Satterfield, Inc. (hereinafter referred to as "P&S, Inc.") and Petitioner Michael L. Tognetti (hereinafter referred to as "Tognetti") filed with the Department an application for registration as a broker/dealer and as an associated person, respectively.

      
      

   2. On or about September 6, 1991, the Department timely issued a letter, docket number 91.236.DOS, which notified Petitioners of the Department's intention to deny their application for registration as a broker/dealer and as an associated person, (hereinafter referred to as the "Notice of Intent"), based upon the Department's determination that the disciplinary history of the firm and of the firm's officers, directors, and owners within the securities industry constituted prima facie evidence of unworthiness of the applicants to transact securities business in Florida, pursuant to Section 517.161(1)(h),(3) and (4), Florida Statutes.

      
      

   3. On or about October 16, 1991, Petitioners requested a formal administrative hearing pursuant to Section 120.57(1), Florida Statutes. The Department forwarded the petition to the Division of Administrative Hearings for the assignment of a Hearing Officer to conduct a hearing.

      
      

   4. On March 30 and 31, 1992, the formal administrative hearing was held in this matter in Tallahassee, Florida.

      
      

   5. (a) On or about May 18, 1992, the Department was notified by the State of Massachusetts that Massachusetts had recently commenced revocation proceedings against P&S, Inc.

      
      

      1. The proceedings referenced in paragraph 5(a) above, were commenced by the State of Massachusetts based upon allegations by Massachusetts that P&S, Inc. had conducted business in Massachusetts prior to its lawful registration with Massachusetts.

         
         

      2. The State of Massachusetts informed the Department of at least one account which was opened with P&S, Inc. from the State of Florida, which was active between September, 1990 and September 1991.

      
      

   6. On or about June 15, 1992, the Department requested information from P&S, Inc. concerning whether or not P&S, Inc. conducted business in the State of Florida without lawful registration.

      
      

   7. On or about June 23, 1992, Hearing Officer Ella Jane P. Davis issued her Recommended Order in this matter.

      
      

   8. On or about July 8, 1992, the Department filed exceptions to the Recommended Order.

   9. The Parties, by Stipulations dated August 5, 1992 and September 1, 1992, have agreed to extend the statutory time period for issuance of a Final Order up to and including October 7, 1992.

      
      

   10. (a) On or about July 20, 1992, P&S, Inc. provided the Department with a portion of the requested information referenced in paragraph six (6) above.

       
       

       (b) Said information, referenced in paragraph 10 (a) above, revealed that P&S, Inc. had conducted securities business in the State of Florida without lawful registration.

       
       

   11. The Department has jurisdiction over Petitioners pursuant to Chapter 517, Florida Statutes.

       
       

   12. In the interest of compromise and settlement and in the consideration of the Department's forbearance from initiating further administrative action, the Department and Petitioners agree to resolve this matter without the necessity of further administrative proceedings, upon the following conditions:

       
       

       1. The Department will grant Petitioners' request to withdraw their application for registration as a broker/dealer and as an associated person for Powell & Satterfield, Inc., pursuant to Section 517.161(5), Florida Statutes, and Rule 3E- 301-001(6), Florida Administrative Code. The Department will also withdraw its September 6, 1991 letter of denial. Upon entry of the Final Order in this cause, the denial letter shall be deemed withdrawn.

          
          

       2. Petitioners neither admit nor deny the allegations contained in the September 6, 1991 letter of denial, but consent to the entry of the Final Order in the form attached hereto as Exhibit "A" to conclude this proceeding as to Petitioners.

          
          

       3. Without Petitioners admitting or denying the following, the Department hereby finds that Petitioners have violated Chapter 517, Florida Statutes, by conducting business in the State of Florida without lawful registration from September 1990 through April 1992.

          
          

       4. In consideration of the foregoing, Petitioners, upon the withdrawal of their application for registration as a broker/dealer and as an associated person for P&S, Inc., shall not apply for any registration with the State of Florida under the provisions of Chapter 517, Florida Statutes, for a period of five (5) years effective from the date of entry of the Final Order in this matter. After this five (5) year period, P&S, Inc. may reapply for registration with the Department, only if P&S, Inc. has not been the subject of an action which is reportable on the form BD as required by applicable state, federal, and NASD laws, rules, and procedures.

          
          

       5. Petitioners agree to pay an administrative fine in the amount of Seventy-nine Thousand Three Hundred and Fifty Dollars ($79,350.00). Said fine shall be payable in four (4) payments of Nineteen Thousand Eight Hundred and Thirty-seven dollars and fifty cents ($19,837.50) each, with the first payment due upon the entry of the Final Order in this matter, and consecutive payments of the same amount on November 15, 1992; December 15, 1992; and January 15,

       1993. Each payment shall be made payable to the Anti-Fraud Trust Fund, and sent to Don B. Saxon, Director, Division of Securities and Investor Protection, The Capitol, Tallahassee, Florida, 32399-0350.

   13. This Stipulation and Consent Agreement is being executed solely for the purpose of resolving and settling the dispute directly arising from the Department's September 6, 1991 Notice of Intent, the issuance of the Recommended Order by the Hearing Officer, and the subsequent investigation by the Department which revealed the conduct of securities business without lawful registration by P & S, Inc. Nothing herein shall be construed to waive or restrict the Department's right in a future proceeding to undertake any action under the provisions of Chapter 517, Florida Statutes, or any civil or criminal prosecution, arising out of any facts and circumstances, even those set forth in the Department's September 6, 1991 Notice of Intent, should facts or information not presently known or available to the Department warrant the Department to take such action. Furthermore, nothing herein shall be construed to waive or restrict the Department's authority to impose conditions or limitations on any future registration which may be granted to Petitioners by the Department. Any administrative action shall be initiated and conducted in accordance with the provisions of Chapters 120 and 517, Florida Statutes.

       
       

   14. Petitioners jointly and severally recognize, acknowledge, concur and stipulate that failure to comply with any of the terms, conditions or obligations of this Stipulation and Final Order shall result in Petitioners being deemed to be in violation of an order made under the provisions of Chapter 517, Florida Statutes. Nothing contained herein shall be construed as limiting Petitioners' rights to contest any finding or determination made by the Department concerning an alleged failure by Petitioners to comply with any of the terms and provisions of this Stipulation or Final Order resulting therefrom.

       
       

   15. Petitioners agree that the accompanying Final Order, which will incorporate this Stipulation, shall constitute final agency action by the Department, for which the Department may seek enforcement pursuant to Chapters

       517 and 120, Florida Statutes. Petitioners further voluntarily and knowingly waive: (a) any right to receipt of a notice of rights pursuant to Chapters 517 and 120, Florida Statutes; (b) any right to an administrative hearing or issuance of a recommended order as provided by Chapter 120, Florida Statutes, or Chapters 3-7, 28, or 22, Florida Administrative Code; (c) any right to separately stated findings of fact and conclusions of law; (d) any rights to contest in any judicial or administrative forum the validity of any term, condition, obligation, or duty created by the Stipulation or Final Order; and

       (e) any rights to object to or to challenge in any judicial proceeding, including, but not limited to, an appeal pursuant to Section 120.68, Florida Statutes, any aspect, provisions, or requirement of the Stipulation or Final Order, based upon its content, procedure, issuance, or timeliness.

       
       

   16. The Department and Petitioners agree that if any provision of this Stipulation or the application to any person or circumstances is held invalid, the invalidity shall not affect the provisions of the Stipulation or the application of the Final Order which can be given effect without the invalid provisions or application and to this end, the provisions of this Stipulation are declared severable.

       
       

   17. Each party herein shall be solely responsible for their costs and attorney's fees incurred up to entry of the Final Order in this matter.

       
       

   18. Petitioners waive and hereby release the Department and its agents, representatives, and employees from any cause of action that they now have or may have in the future, arising out of the Department's examination, or licensing denial, including, but not limited to, any actions for libel, slander, violation of a constitutionally protected right, intentional tortuous

       interference with an advantageous contractual relationship and the like. The Department agrees to accept this release and waiver without acknowledging or admitting that any such cause of action does or may exist, and, on the contrary, expressly denies that any such cause of action exists.

       
       

   19. The parties herein acknowledge that they have read this Stipulation and Consent Agreement and fully understand the rights, obligations, terms, conditions, duties and responsibilities with respect to its contents and are acting upon the advise of good and competent counsel.

       
       

   20. The undersigned hereby acknowledge and agree to the terms and conditions of the foregoing Stipulation and Consent Agreement and Final Order by written consent on the last date indicated below.

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

BY: 10-19-92

DON B. SAXON, DIRECTOR DATE POWELL & SATTERFIELD, INC.

BY: 10-7-92

President, Powell & Satterfield DATE Inc.

MICHAEL L. TOGNETTI

BY: 10-7-92

Michael Tognetti DATE

Copies furnished to: Don B. Saxon, Director

Division of Securities and Investor Protection

J. Ashley Peacock Assistant General Counsel Office of the Comptroller

Docket for Case No: 91-006912

Orders for Case No: 91-006912