STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF BANKING AND ) FINANCE, DIVISION OF )

SECURITIES AND INVESTOR )

PROTECTION, )

)

Petitioner, )

)

vs. ) CASE NO. 95-2411

)

K. D. TRINH INVESTMENTS, ) INC., et al., )

)

Respondents. )

)

RECOMMENDED ORDER

Robert E. Meale, Administrative Law Judge of the Division of Administrative Hearings, conducted the final hearing in Port Charlotte, Florida, on March 24, 1997.

APPEARANCES

For Petitioner: Susan Steinberg Sandler

Assistant General Counsel Office of Comptroller

West Central Florida Regional Office 1313 Tampa Street, Suite 615

Tampa, Florida 33602-3394 For Respondents: no appearance

STATEMENT OF THE ISSUES

The issues are whether Respondents K. D. Trinh Investments, Inc., Strong Financial Services, Inc., and Loren Reynolds sold unregistered securities in Florida, in violation of Sections

517.07 and 517.12, Florida Statutes, and engaged in fraudulent transactions with concealment and falsification of facts, in

violation of Section 517.301(1)(a), Florida Statutes. If so, an additional issue is what penalty should be imposed.

PRELIMINARY STATEMENT

On March 24, 1995, Petitioner filed an Immediate Final Order to Cease and Desist and Notice of Rights and Administrative Complaint to Enter a Cease and Desist Order, Imposing Penalties and Notice of Rights against several Respondents.

In the undated Administrative Complaint to Enter Cease and Desist Order, Imposing Penalties and Notice of Rights, Petitioner alleged that Respondent K. D. Trinh Investments, Inc., a Canadian company, financed its business by selling unregistered securities in the form of short-term interest-bearing notes due at the earlier of 90 days after demand or nine months from the date of the loan and paying a return of 16 points over the prime rate in effect at the time of the loan.

The Administrative Complaint alleges that Respondent Strong Financial Services, Inc. and its principal, Respondent Loren Reynolds, were never registered with the Division of Securities and Investor Protection pursuant to Chapter 517, Florida Statutes. The Administrative Complaint alleges that Respondent Loren Reynolds sold the above-described notes to Florida investors in the State of Florida. The Administrative Complaint does not allege whether Respondent Loren Reynolds did so in the course of his employment with Respondent Strong Financial Services, Inc.

The Administrative Complaint alleges that, on March 14, 1986, Respondent Alexander Legault, the president of Respondent

K. D. Trinh Investments, Inc., was indicted in federal court in New Orleans for conspiracy, wire fraud, and mail fraud and was undergoing deportation from Canada as a result of his apprehension following the issuance of a traffic citation against him in March 1993.

The Administrative Complaint alleges that Respondents K. D. Trinh Investments, Inc. and Loren Reynolds failed to inform investors, including Robert F. Thomson and Thomas P. Hall, that Legault was under indictment for fraud and had fled to Canada to avoid prosecution. In mid-1994, Mr. Thomson and Mr. Hall allegedly invested $25,000 and $30,000 respectively in the above- described notes, although not through Respondent Strong Financial Services, Inc. or Loren Reynolds. As to these Respondents, the Administrative Complaint alleges only that Respondent Loren Reynolds did not inform Mr. Hall of the indictment of Respondent Alexander Legault.

Count I of the Administrative Complaint alleges that all of the Respondents are guilty of selling or offering to sell unregistered and unlicensed securities in Florida to Florida investors, in violation of Sections 517.161 and 517.221. Count II alleges that all of the Respondents are guilty of violations of Sections 517.07 and 517.12 due to the failure of Respondent K.

D. Trinh Investments, Inc. to register its securities. Count III

alleges that all of the Respondents made material omissions to investors by failing to disclose the indictment of Respondent Alexander Legault, thus violating Section 517.301(1)(a) concerning fraudulent transactions and falsification and concealment of facts.

The Administrative Complaint seeks an order requiring each Respondent to cease and desist its violations, imposing fines of not more than $5000 per violation, and revoking or suspending all licenses held by Respondents under Section 517.161.

Petitioner entered a default order against two Respondents, Bernard Wendt and Alexander Legault. The remaining Respondents demanded a formal hearing.

On August 23, 1995, Petitioner filed an Amended Administrative Complaint. The Amended Administrative Complaint alleges that, since early 1995, Respondent Strong Financial Services, Inc. has been the sole owner of Respondent K. D. Trinh Investments, Inc. and that Respondent Loren Reynolds, acting personally and as an agent of Respondent Strong Financial Services, Inc., has been receiving investors’ money and depositing it into a bank account entitled, “Strong Financial Services, Inc. Controller of K. D. Trinh Investment’s [sic].”

The Amended Administrative Complaint alleges that Respondent Reynolds, in his personal and representative capacities, has removed the investor money from the bank account and spent it on personal items, such as jewelry, college, stereo equipment, and

other personal items. The Amended Administrative Complaint alleges that Respondent Reynolds used Respondent Strong Financial Services, Inc. as a conduit in the sale and offer of sale of unregistered securities.

The case was abated at the request of all the parties, except Respondent Michael DeMots, for over one year pending completion of a criminal investigation by the Office of the Statewide Prosecution. Prior to the final hearing, Petitioner settled its claims against all of the remaining Respondents except Respondents K. C. Trinh Investments, Inc., Strong Financial Services, Inc., and Loren Reynolds.

At the hearing, Petitioner announced that it was seeking only a cease and desist order against the remaining three Respondents.

Petitioner called five witnesses and offered into evidence

15 exhibits, which were all admitted. Respondents did not appear.

The court reporter filed the transcript on April 21, 1997. Petitioner filed a proposed recommended order on April 30, 1997

FINDINGS OF FACT

1. Respondent K. D. Trinh Investments, Inc. (Trinh) has never been registered with the Division of Securities and Investor Protection (Division) as a dealer or investment advisor and its securities have never been registered with the Division pursuant to Chapter 517, Florida Statutes.

2. Neither Respondent Strong Financial Services, Inc. (Strong) nor Respondent Loren Reynolds (Reynolds) has ever been registered with the Division as a dealer or investment advisor.

3. Respondent Alexander Legault (Legault) was the president and general manager of Trinh at all material times.

4. On March 14, 1986, a grand jury in the Eastern District of Louisiana, United States District Court, returned an indictment against Legault for wire fraud, mail fraud, and conspiracy to commit wire and mail fraud. The indictment alleges that Legault attempted to defraud several institutions in connection with a food brokerage scheme.

5. The investments in the present case also involve food brokerage operations, according to the information supplied potential investors.

6. In March 1994, Charles Mortimer of Lake Mary, Florida, attended a seminar in Leesburg, Florida, devoted to three investment opportunities. Mr. Mortimer learned of the seminar through mail flyers or newspaper announcements.

7. Mr. Mortimer expressed interest at the seminar in a cremation society and the Trinh notes. Reynolds appeared at the seminar and presented these investment opportunities.

8. The next month, Mr. Mortimer met Reynolds in Lady Lake, Florida, and Reynolds sold Mr. Mortimer one of the Trinh notes. Mr. Mortimer thereafter purchased through Reynolds several more notes for a total investment of $55,000.

9. At no time prior to making these investments did Reynolds disclose to Mr. Mortimer that Legault was under indictment in New Orleans for criminal fraud and was avoiding prosecution in Canada. Mr. Mortimer would not have invested in the Trinh notes had he known this material fact.

10. However, the record does not indicate whether Reynolds knew that Legault was under indictment or had escaped to Canada. Nor does the record reveal sufficient background information to support the finding that Reynolds reasonably should have known this fact.

11. Mr. Mortimer received a total of $600 on this investment. He has lost the remaining $54,400.

12. Earl Wilson learned of Trinh through Reynolds, who was Mr. Wilson’s tax advisor in 1994 and had been since 1986. Reynolds recommended that Mr. Wilson and his wife should invest a recent inheritance in Trinh notes.

13. Between his initial investment in 1994 and his final investment on April 25, 1995, Mr. Wilson and his wife invested a little over $200,000 in Trinh notes. They lost the entire investment.

14. William Dinges first learned of Trinh at a seminar that he attended in 1993. He purchased a $140,000 note in 1995. He lost his entire investment.

    CONCLUSIONS OF LAW

15. The Division of Administrative Hearings has jurisdiction over the subject matter. Section 120.57(1), Florida Statutes. (All references to Sections are to Florida Statutes.)

16. Section 517.021(6)(a)1 defines a “dealer” as a person “who engages . . . as a broker or principal in business of offering, . . . selling, or otherwise dealing . . . in securities issued by another person.”

17. Section 517.021(6)(a)2 defines a “dealer” as any “issuer who through persons directly compensated or controlled by the issuer engages . . . in the business of offering or selling securities which are or are proposed to be issued by the issuer.”

18. Section 517.021(17)(a) defines a “security” as a “note.”

19. Section 517.07 prohibits the sale or offer for sale in Florida of unregistered securities.

20. Section 517.12(1) prohibits an unregistered dealer or unregistered issuer from selling or offering for sale any securities in Florida.

21. Section 517.221(1) authorizes Petitioner to issue a cease and desist order when a person is violating or has violated any provision of Chapter 517.

22. Section 517.301(1)(a) prohibits, in the sale or offer for sale of securities, any person to use a device or scheme to defraud, obtain money through an omission to disclose a material

    fact, or engage in a transaction that works a fraud upon a person.

23. Petitioner must prove the material allegations by clear and convincing evidence. Department of Banking and Finance v. Osborne Stern and Company, Inc., 670 So. 2d 932 (Fla. 1996) and Ferris v. Turlington, 510 So. 2d 292 (Fla. 1987).

24. Petitioner has proved that the Trinh notes are securities; that Trinh, Strong, and Reynolds were unregistered at the time of the sale or offer of sale of the Trinh notes; and that the Trinh notes were unregistered at the time of the sale or offer of sale.

25. Petitioner has proved that Reynolds sold and offered for sale the Trinh notes in Florida to Florida residents.

26. Petitioner has proved that Trinh sold and offered for sale the Trinh notes in Florida to Florida residents.

27. Petitioner has proved that Reynolds was a dealer in selling and offering for sale the Trinh notes in Florida to Florida residents.

28. Petitioner has proved that Trinh was a dealer in the sale and offer for sale of the Trinh notes.

29. Petitioner has not proved the relationship between Strong and either Reynolds or Trinh. Petitioner has not proved that Reynolds was a representative of Strong and, if so, whether he was serving in that capacity while selling and offering for sale the Trinh notes. The evidence does not describe the

    involvement, if any, of Strong to the scheme operated by Trinh and Reynolds.

30. Petitioner has proved that Trinh fraudulently failed to disclose a material fact to Mr. Mortimer. However, Petitioner has not proved that Reynolds or Strong knew or should have known of Legault’s indictment, so the evidence fails to show that they concealed a material fact.

RECOMMENDATION

It is

RECOMMENDED that the Department of Banking and Finance enter a final order ordering Respondents K. D. Trinh Investments, Inc. and Loren Reynolds to cease and desist from any further violations of Chapter 517 and dismissing the amended administrative complaint against Respondent Strong Financial Services, Inc.

ENTERED in Tallahassee, Florida, on June 4, 1997.

ROBERT E. MEALE

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(904) 488-9675 SUNCOM 278-9675

Fax Filing (904) 921-6847

Filed with the Clerk of the Division of Administrative Hearings on June 4, 1997.

COPIES FURNISHED:

Susan Steinberg Sandler Assistant General Counsel Office of Comptroller

West Central Florida Regional Office 1313 Tampa Street, Suite 615

Tampa, Florida 33602-3394

K. D. Trinh Investments, Inc. 1194 Hanna Street East Windsor, Ontario

Canada N8X2P4

Loren Reynolds

Strong Financial Services, Inc.

241 B Ridgewood Avenue Holly Hill, Florida 32117

Harry Hooper General Counsel

Department of Banking and Finance Room 1302, The Capitol Tallahassee, Florida 32399-0500

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within 15 days from the date of this recommended order. Any exceptions to this recommended order must be filed with the agency that will issue the final order in this case.

Docket for Case No: 95-002411

Orders for Case No: 95-002411