STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
VICTOR ALAN LESSINGER, | ) | |||
) | ||||
Petitioner, | ) | |||
) | ||||
vs. | ) ) | Case | No. | 08-3102 |
OFFICE OF FINANCIAL REGULATION, | ) ) | |||
Respondent. | ) | |||
| ) |
RECOMMENDED ORDER
Pursuant to notice, Lawrence P. Stevenson, Administrative Law Judge, Division of Administrative Hearings, conducted
a formal hearing in the above-styled case on September 23 and 24, 2008, in Lakeland, Florida.
APPEARANCES
For Petitioner: Alan M. Wolper, Qualified Representative
Elizabeth J. Campbell, Esquire Locke, Lord, Bissell & Liddell LLP The Proscenium, Suite 1900
1170 Peachtree Street Northeast Atlanta, Georgia 30309
For Respondent: Jennifer Hrdlicka, Esquire
Robert Vandiver, Esquire Office of Financial Regulation
The Fletcher Building, Suite 526
200 East Gaines Street Tallahassee, Florida 32399
STATEMENT OF THE ISSUE
At issue in this proceeding is whether Petitioner is entitled to registration as an associated person of Brookstone
Securities, Inc. ("Brookstone"), either by virtue of the default provision of Subsection 120.60(1), Florida Statutes, or by virtue of the substantive merits of his application.
PRELIMINARY STATEMENT
On May 5, 2008, Respondent, Office of Financial Regulation, ("OFR") issued a Notice of Intent to Deny Application for Registration ("Notice") to Petitioner, Victor A. Lessinger. The Notice stated that Mr. Lessinger's application was denied pursuant to the provisions of Subsections 517.161(1)(a), (h), and (m), Florida Statutes (2008).1 The grounds for denial, as alleged in the Notice, were that Mr. Lessinger had failed to timely update his registration to include a Notice of Intent to Deny issued by the State of Ohio's Division of Securities on October 5, 2007; that he had been the subject of "decisions, findings, injunctions, and prohibitions" within the meaning of Subsection 517.161(1)(m), Florida Statutes; and that his overall disciplinary history demonstrated unworthiness to transact the business of an associated person in the State of Florida.
By way of a letter from his counsel dated June 11, 2008, Mr. Lessinger disputed the allegations of the Notice and requested a formal administrative hearing. On June 25, 2008, the OFR referred the matter to the Division of Administrative Hearings ("DOAH") for the assignment of an administrative law judge and the conduct of a formal administrative hearing
pursuant to Subsection 120.57(1), Florida Statutes. By order dated July 11, 2008, the case was scheduled for hearing on September 23 and 24, 2008.
On August 22, 2008, Petitioner filed a motion to permit an out-of-state attorney, Alan M. Wolper, to appear as a qualified representative at the hearing. Without objection, the motion was granted by order dated August 28, 2008.
At the hearing, the parties stipulated to the admission of Joint Exhibits A through CC. Petitioner testified on his own behalf and presented the testimony of David Locy, president and former chief compliance officer of Brookstone; Michael Classie, branch manager and broker supervisor at Brookstone's Coral Gables office; and Antony Turbeville, the owner and director of Brookstone. Petitioner's Exhibits 1 through 3 were admitted into evidence.
Respondent presented the testimony of Pamela Epting, chief of OFR's regulatory review bureau; and Richard White, director of OFR's division of securities.
The three-volume hearing transcript was filed at DOAH on October 6, 2008. The parties timely filed their Proposed Recommended Orders on October 16, 2008.
FINDINGS OF FACT
Based on the oral and documentary evidence adduced at the final hearing and the entire record in this proceeding, the following findings of fact are made:
The Parties
The Office of Financial Regulation, a part of the Financial Services Commission, is the state agency charged with regulation of the securities industry. § 20.121(3)(a)2., Fla. Stat. Chapter 517, Florida Statutes, is the "Florida Securities and Investor Protection Act." § 517.011, Fla. Stat. Pursuant to Section 517.012, Florida Statutes, OFR is responsible for the registration of persons associated with broker-dealers.
Victor Alan Lessinger is 62 years old. He has been involved in the securities industry since 1976. He was registered with the State of Florida as an associated person from April 23, 1991, until October 31, 1994. He was later registered as an associated person with the State of Florida from June 5, 1997, through April 29, 2006, with the exception of the eight-day period between January 23, 2002, and
February 1, 2002.
This eight-day lapse was caused by Mr. Lessinger's changing jobs, which necessitated that he re-apply for registration. An associated person must be registered through the broker-dealer that employs him.
From February 2005 until April 2006, Mr. Lessinger was a broker associated with Archer Alexander Securities Corporation, and was registered as such with the State of Florida. Archer Alexander went out of business in April 2006, and Mr. Lessinger accepted an offer of employment from Brookstone, a company based in Lakeland. Mr. Lessinger was to work as an associated person in Brookstone's Coral Springs branch.
The Application Process and the Notice
On July 5, 2007, Mr. Lessinger submitted his application for registration as an associated person with Brookstone to OFR through Web CRD, the central licensing and registration system for the U.S. securities industry operated by the Financial Industry Regulatory Authority ("FINRA").2
Mr. Lessinger's initial application for registration as an associated person with Brookstone disclosed the following disciplinary events: a 1993 Consent Order that Mr. Lessinger entered into with the relevant authorities in the State of Maine; a 1998 "Division Order" from the State of Ohio denying Mr. Lessinger's application for a securities salesman license; a 2000 letter of acceptance, waiver and consent ("AWC") issued by the National Association of Securities Dealers ("NASD"), the predecessor to FINRA; a 2002 arbitration award issued by NASD Dispute Resolution, Inc.; and two related actions taken by the
Securities and Exchange Commission ("SEC") in 2005. The 2000 AWC letter, the 2002 arbitration award, and the 2005 SEC actions all related to incidents and/or transactions that occurred in 1999.
By letter dated July 18, 2007, Justin Mills, a financial analyst for OFR, notified Mr. Lessinger as follows:
In order for the application to be deemed complete, it will be necessary to provide this office with a complete response to the following [sic] a copy of the complete Form U-4, as amended, and all documents pertaining to disciplinary matters, whether disclosable on the U-4 or not.[3] Documentation submitted must be certified by the issuer of such documents. Additionally, explain in detail the status of each pending action, and for each final action, summarize the action and the disposition.
Specifically, but not limited to the following:
* Certified copies of any regulatory actions by any state or federal regulator, or any self-regulatory organization, including but not limited to, the complaint, answer or reply, and final order or sanction. Certified documentation must be certified by the appropriate agency. Also, provide a brief narrative describing the causes that lead [sic] to the actions.
Pursuant to Rule 69W-301.002(3), Florida Administrative Code, additional information shall be submitted within sixty (60) days after a request has been made by the Office. Failure to provide all the information may result in the application being denied.
Mr. Lessinger responded with a package of documents and a cover letter dated July 23, 2007. OFR received the package and letter from Mr. Lessinger on July 24, 2007.
On October 9, 2007, Ryan Stokes, a financial analyst supervisor for OFR, sent an e-mail to David Locy, then the executive vice president and compliance officer of Brookstone. Mr. Stokes requested the following documents in order to complete Mr. Lessinger's application:
Certified copies of the complaint, Lessinger's answer/reply, and resolution for the actions taken by the SEC, State of Maine, State of Pennsylvania,[4] NASD, and State of Ohio.
Certified copies of the statement of claim, Lessinger's response, settlement/arbitration panel's decision, and proof of payment of any awards/settlement for the arbitrations filed by Joseph Orlando and Muriel Hecht.
Certified copy of the petition for bankruptcy and a discharge of bankruptcy.
If any of the documents are unavailable due to age, a statement from the appropriate regulator/court to that effect, will suffice.
At the hearing, Pamela Epting, chief of OFR's regulatory review bureau, testified that an e-mail such as that sent by Mr. Stokes is not OFR's usual method of doing business. OFR typically sends only an initial deficiency letter such as that sent by Mr. Mills on July 18, 2007. Richard White,
director of OFR's division of securities, described Mr. Stokes' e-mail as a "courtesy" that provided Mr. Lessinger "with a reminder and greater detail as to what had not yet been provided."
Mr. Lessinger responded with a package of documents and a cover letter dated November 5, 2007, which were received by OFR on November 6, 2007. The cover letter stated as follows, in relevant part:
As requested, I am enclosing certified copies of all of the following:
SEC, State of Maine (with additional prior correspondence), NASD.
Joseph Orlando and Muriel Hecht (there were no payments made since Orlando was dismissed in its entirety with regard to me and Hecht was absolved as a result of my bankruptcy).
Certified copy of the Petition for Bankruptcy and Discharge.
I believe the State of Pennsylvania will be submitting directly to your office.
I have not yet received the certification from the State of Ohio yet [sic]. I have enclosed the original Division Order which is signed and sealed by the Commissioner of Securities. If needed, I will forward the certification as soon as I receive the documents. . . .
OFR did not respond in writing to Mr. Lessinger's November 5, 2007, submission. At some point in December 2007 or January 2008, Ms. Epting spoke to Mr. Locy by telephone. She
told Mr. Locy that the agency intended to deny Mr. Lessinger's application and offered him an opportunity to withdraw the application in lieu of outright denial.
In an e-mail to Ms. Epting dated February 4, 2008, Alan Wolper, attorney for Brookstone and Mr. Lessinger, wrote that his clients had decided not to withdraw the application, "notwithstanding the fact that you have indicated OFR's intent to deny that application." Mr. Wolper requested that Ms. Epting send a written notice of intent to deny, stating the particular grounds for the denial of Mr. Lessinger's application.
At some point after writing the February 4, 2008, e-mail, Mr. Wolper wrote a letter to OFR asserting that
Mr. Lessinger's registration should be deemed granted by default due to CFR's failure either to notify Mr. Lessinger of the application's incompleteness within 30 days of his
November 5, 2007, submission or to act upon the completed application within 90 days of the November 5, 2007, submission, as required by Subsection 120.60(1), Florida Statutes.
In a letter dated April 23, 2008, OFR assistant general counsel Jennifer Hrdlicka responded to Mr. Wolper with the assertion that the statutory default provision had not been triggered because Mr. Lessinger had yet to submit a completed application:
Mr. Lessinger's application is still deficient. He has not provided to the Office the information requested in its
July 18, 2007, letter to him. Still missing from his application are:
Certified copies of the complaint, Lessinger's answer/reply, and resolution for the actions taken by the SEC;
Certified copies of the resolution for the actions taken by the State of Ohio; and
Certified copies of the statement of claim, Lessinger's response, settlement/arbitration panel's decision, and proof of payment of any awards/settlement for the arbitrations filed by Joseph Orlando.
Mr. Lessinger did submit a certified copy of the Notice of Intent to Deny Application for Securities Salesman License from the State of Ohio, dated July 9, 1997. However, he did not submit any document, certified or not, regarding the resolution from that Notice of Intent of July 9, 1997, such as a Final Order.
* * *
Mr. Lessinger was timely notified of deficiencies in his application on
July 18, 2007, thirteen days after submittal of his application and well within the thirty (30) day period set by the Administrative Procedures [sic] Act and the Office's corresponding Rule [Florida Administrative Code Rule 69W-301.002]. Your interpretation of Florida's Administrative Procedure Act and the Office's Rules contemplates an additional thirty day
time period from Mr. Lessinger's
November 6, 2007, submittal of additional information; this is a mistaken interpretation of Florida statutes.
Mr. Lessinger's application was not
considered complete on December 5, 2007. In fact, he has not yet delivered to the Office all requested information and so his application is currently not considered complete. His application will not be considered complete until such time as all requested information is received by the Office. . . . (Emphasis added.)
On April 30, 2008, Mr. Lessinger submitted to
Ms. Epting an affidavit attesting that the additional documents requested by Mr. Stokes on October 9, 2007, had been submitted to the agency on November 6, 2007.
At the hearing, OFR continued to assert that
Mr. Lessinger's November 6, 2007, submission did not contain all the information requested by Mr. Stokes. OFR submitted into evidence a sheaf of documents purporting to be Mr. Lessinger's November 6, 2007, submission. The documents had been unstapled for copying and re-stapled, and bore no consistent marks of date stamping or numbering that would allow a fact finder to conclude with confidence that the documents had been maintained in the form they were submitted by Mr. Lessinger. Ms. Epting could testify only as to OFR's general practice in maintaining its files, not as to the manner in which this particular file had been maintained.
At the hearing, Mr. Lessinger stated under oath that he had provided OFR with every document it had asked for with the exception of the final order in the 1998 Ohio denial of his
application. Mr. Lessinger conceded that he had only provided OFR with the notice of intent to deny in that case. Ms. Epting testified that OFR obtained the final order directly from the State of Ohio some time during the Spring of 2008.
The only other item that OFR asserted was missing from the November 6, 2007, submission was a certified copy of the SEC's 2005 order barring Mr. Lessinger from association in a supervisory capacity with any broker or dealer for a period of two years. Mr. Lessinger's November 6, 2007, submission contained what appeared to be a non-certified copy of the order. The faint image of a seal is visible on the last page, with
Mr. Lessinger's notation: "Raised seal unable to make darker." Ms. Epting testified that Mr. Lessinger submitted a certified copy of the order some time around May 2008. It is found that Mr. Lessinger submitted a certified copy of the SEC's 2005 order with his November 6, 2007, submission.
On May 5, 2008, OFR issued the Notice to Mr. Lessinger. In the Notice, OFR identified a third
"completeness" issue that Ms. Epting testified she discovered only during her inquiry to the State of Ohio regarding the final order in the 1998 denial. As to this issue, the Notice recited as follows under heading, "Statement of Facts":
On October 3, 2007, the State of Ohio, Department of Commerce, Division of Securities, issued a Notice of Intent to
Deny Application for Securities Salesperson License for Lessinger, Order No. 07-387. On April 7, 2008, the State of Ohio, Division of Securities issued a Final Order against Lessinger Denying the Application for a Securities Salesperson License, Order No.
08-052. The Final Order states that on October 15, 2007, Lessinger requested an adjudicative hearing of the Notice of Intent to Deny; the Final Order further states that such a hearing was held on
December 18, 2007, and on January 23, 2008, the Hearing Examiners Report and Recommendation was issued, upholding the Division's Notice of Intent. The Final Order states that the Division found that Lessinger was not of "good business repute" as that term is used in Ohio Revised Code 1707.19(A)(1) and Ohio Administrative Code 1301:6-3-19(D)(2),(6),(7),(9), and (D)(11)
. . ." Notice was not given to the Office of these administrative actions by the State of Ohio. Lessinger did not update his Form U-4 until April 23, 2008, and subsequent to the Office's inquiry as to this matter; further, his update to his Form U-4 is misleading in that it cites that the date of initiation of this matter was
April 7, 2008.
Under the heading "Conclusions of Law," the Notice states that Mr. Lessinger's failure to update his Form U-4 constitutes a violation of Florida Administrative Code Rule 69W-600.002(1)(c)5 and therefore a basis for denial pursuant to
Subsection 517.161(1)(a), Florida Statutes, which provides that violation of any rule promulgated pursuant to Chapter 517 constitutes grounds for denial of registration.
The parties agreed that Mr. Lessinger's application file at OFR was complete at the time of the hearing.
The Notice cited additional grounds for denial based on Subsections 517.161(1)(h) and (m), Florida Statutes, which provide:
(1) Registration under s. 517.12 may be denied or any registration granted may be revoked, restricted, or suspended by the office if the office determines that such applicant or registrant:
* * *
(h) Has demonstrated unworthiness to transact the business of dealer, investment adviser, or associated person;
* * *
(m) Has been the subject of any decision, finding, 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 exchange, or 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, or any rule or regulation of any national securities, commodities, or options exchange or national securities, commodities, or options association, or has been the subject of 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 lenders, money transmitters, or other related or similar industries. For purposes of this subsection, the office may not deny registration to any applicant who has been continuously registered with the office for 5 years from the entry of such decision, finding, injunction, suspension,
prohibition, revocation, denial, judgment, or administrative order provided such decision, finding, injunction, suspension, prohibition, revocation, denial, judgment, or administrative order has been timely reported to the office pursuant to the commission's rules. . . .
As the basis for OFR's conclusions that Mr. Lessinger had demonstrated "unworthiness" as described in Subsection 517.161(1)(h), Florida Statutes, and that Mr. Lessinger was the subject of decisions, findings, injunctions and/or prohibitions as set forth in Subsection 517.161(1)(m), Florida Statutes, the Notice cited the 1993 Maine consent order, the 1998 Ohio final order denying Mr. Lessinger's application for a securities salesman license, the 2000 AWC letter from NASD, the 2002 arbitration award issued by NASD Dispute Resolution, Inc., the 2005 SEC actions, and the April 7, 2008, Ohio final order denying Mr. Lessinger's application for a salesperson's license. Petitioner's Disciplinary History
During his career, Mr. Lessinger has been employed in various capacities: as a broker/registered representative, a supervisor, and a general securities principal. He has lived and worked in Florida since 1997.
From November 1976 through October 1994, Mr. Lessinger was employed by First Investors Corporation ("First Investors") in New York, working his way up to senior vice president and director of the company. On December 20, 1993, Mr. Lessinger
entered into a Consent Agreement with the Attorney General of the State of Maine, "for the sole purpose of effecting a settlement of the civil action against Lessinger," First Investors and other individual defendants commenced by the Attorney General and the Maine Securities Administrator in 1991. Mr. Lessinger did not admit or deny that his conduct violated the Revised Maine Securities Act.
The Consent Agreement does not provide the details of the grounds for the civil action. Mr. Lessinger testified that First Investors sold mutual funds, one of which was a junk bond fund that lost a great deal of money for investors in the late 1980s. First Investors had an office in Maine, and the Attorney General instituted a civil action against First Investors and certain supervisory personnel, including Mr. Lessinger, for failure to disclose to investors the risk inherent in these bond funds. Mr. Lessinger had no customers in Maine and did not personally sell the junk bond fund to any of his clients.
Under the Consent Agreement, Mr. Lessinger agreed not to apply for a license as a sales representative in Maine for a period of one year. Mr. Lessinger also agreed to pay the sum of
$50,000 to the State of Maine; First Investors paid the money for Mr. Lessinger. He eventually reapplied and was approved as a sales representative in the State of Maine.
In mid-1997, Mr. Lessinger moved from New York to Boca Raton, becoming president of Preferred Securities Group, Inc. ("Preferred"). Mr. Lessinger was obliged to seek licensure in the states in which Preferred had brokers, which included Ohio. In March 1998, the State of Ohio, Department of Commerce, Division of Securities issued a "Division Order" denying
Mr. Lessinger's application for securities salesman license. The Division Order found that Mr. Lessinger was not of "good business repute" under the Ohio statutory and rule provisions named in the quotation portion of Finding of Fact 20, supra.
The only factual basis stated for the Division Order's "good business repute" finding was the 1993 Consent Agreement with the State of Maine.
On November 16, 2000, Mr. Lessinger entered into the NASD AWC letter along with Preferred and Kenneth Hynd, Preferred's financial operations principal ("FINOP"). The recipients of the AWC letter agreed that the letter would become part of their permanent disciplinary record and may be considered in any future actions brought by NASD against them. They also agreed to the following:
We may not take any action or make or permit to be made any public statement, including in regulatory filings or otherwise, denying, directly or indirectly, any allegation in this AWC or create the impression that the AWC is without factual basis. Nothing in this provision affects our testimonial
obligations or right to take legal positions in litigation in which the NASD is not a party.
Only one of the allegations that prompted the AWC letter directly involved Mr. Lessinger. Without admitting or denying the alleged violation, Mr. Lessinger and Preferred consented to the entry of the following finding by NASD Regulation, Inc.:
During the period from about March 22, 1999, until about April 21, 1999, Respondent [Preferred], acting through Respondent Lessinger, allowed an inactive registered representative to effect three securities transactions for customers, in violation of NASD Membership and Registration Rule 1120 and Conduct Rule 2110.
Mr. Lessinger and Preferred also consented to the entry of a $3,000 fine, imposed jointly and severally.
Mr. Lessinger paid the fine.
Mr. Lessinger testified that the representative who effected the improper transactions was in Preferred's Pompano Beach branch office, which was open only from March to
June 1999. The manager on premises had not notified
Mr. Lessinger that a registered representative in the office was deemed "inactive" for failure to complete mandatory continuing education.
On April 30, 2002, a NASD Dispute Resolution, Inc.6 arbitration panel issued an award against Mr. Lessinger in a
case that had been filed by a former Preferred customer against Preferred, Mr. Lessinger, and three other individuals associated with the firm, including the owner, Anthony Rotonde, and two brokers. The initial statement of claim in the matter was filed in 1999. The claims included misrepresentation, unsuitability, breach of fiduciary duty, failure to supervise, violations of Section 517.301, Florida Statutes, and common law fraud and negligence.
Mr. Lessinger was not the broker of record for the complaining customer and never had anything directly to do with her account. He did not know her. She had been a client of the two brokers for several years. As president of the company,
Mr. Lessinger was ultimately responsible for supervision of the brokers, though he was not their direct supervisor.
Preferred, Mr. Rotonde, and Mr. Lessinger were found jointly and severally liable on the claims of suitability and failure to supervise and were required to pay damages of
$42,294.90, plus interest, costs, and attorneys' fees.
The liability for attorneys' fees was expressly based on Sections 517.301 and 517.211, Florida Statutes. Section 517.301, Florida Statutes, generally prohibits fraud and deception in connection with the rendering of investment advice or in connection with securities transactions. Section 517.211, Florida Statutes, sets forth the remedies available for unlawful
sales, including those in violation of Section 517.301, Florida Statutes. Subsection 517.211(6), Florida Statutes, provides for attorneys' fees to the prevailing party unless the court finds that the award of such fees would be unjust.
After the arbitration award, Preferred went out of business. Mr. Rotonde was a non-licensed owner and simply walked away from the matter. Thus, Mr. Lessinger was left on the hook for the entire arbitration award. He was unable to pay it, and was forced to declare bankruptcy.
In April 2004, Mr. Lessinger was named in a civil action filed by the SEC in the United States District Court for the Southern District of Florida. The SEC alleged that Preferred's Pompano Beach office was opened in March 1999 to operate as a boiler room for a "pump and dump" operation involving a penny stock, Orex Gold Mines Corporation ("Orex").
Orex claimed to be in the business of extracting gold from iron ore by means of an environmentally safe process. The SEC alleged that Orex was in fact a shell corporation owned by a "recidivist securities law violator and disbarred attorney." Though its promotional video, literature, and website touted Orex as an active, established company with gold mines, employees, and a revolutionary gold extraction process, Orex in fact owned no mines or mining equipment and had never commercially tested its claimed extraction process.
As to Mr. Lessinger, the SEC's complaint alleged as follows:
According to Preferred's written supervisory procedures, the form prohibited the solicitation of "penny stocks" as defined under Exchange Act Rule 3a51-1, and restricted the purchase of penny stocks unless it received an unsolicited letter, signed by the investor, requesting to purchase a particular penny stock. Despite the firm's prohibition against soliciting transactions in penny stocks, Lessinger authorized the Pompano Beach branch office's request to solicit transactions in Orex. Prior to authorizing the firm's solicitation of Orex, Lessinger simply reviewed the Orex brochure, the Orex private placement memo, and an Orex press release. He did not conduct any independent research or assessment regarding Orex's officers, assets, or prospects for success. Orex quickly accounted for a high percentage of the overall transactions conducted by Preferred's Pompano Beach branch.
Although Lessinger retained responsibility for reviewing, authorizing, and approving customers' transactions in Orex stock, and although he was the senior official of Preferred and functioned as a compliance officer, he failed to exercise appropriate supervision and to take the necessary steps to ensure that Preferred, and the personnel operating out of Preferred's Pompano Beach branch in particular, complied with applicable procedures, securities laws and regulations in connection with transactions in Orex stock.
The brokers in the Pompano Beach branch sold more than
$3 million in Orex stock between March and July 1999 through fraudulent representations regarding the company, forgery of
penny stock disclosure forms, bait and switch tactics, refusal to execute sell orders, or delaying sell orders until a buyer for the shares could be found. The stock ballooned to a value of $7.81 in late May 1999. By late July, it was trading for pennies per share.
To his credit, Mr. Lessinger closed the Pompano Beach branch of Preferred after a site visit in June offered him a glimpse of the office's actual operations. However, had
Mr. Lessinger showed more curiosity at the outset, or had he merely enforced the company policy against soliciting penny stock sales, the situation in Pompano Beach might never have developed.
On September 7, 2005, the court entered final judgment as to Mr. Lessinger. He was permanently restrained and enjoined from: violating the fraud provisions of the Securities Exchange Act of 1934; violating the NASD Conduct Rule regarding supervision of the activities of registered representatives and associated persons; and participating in any offering involving penny stocks. He was also ordered to pay a civil penalty of
$20,000.
On September 23, 2005, the SEC also issued an Administrative Order making findings and imposing remedial sanctions in connection with the Orex matter. The order barred Mr. Lessinger from association in a supervisory capacity with
any broker or dealer for two years, with a right to reapply at end of the two-year period.
The SEC's Administrative Order left Mr. Lessinger free to continue to act as a registered representative. However, the two SEC actions rendered Mr. Lessinger statutorily disqualified from membership in the securities industry under FINRA rules.
To remain active in the industry, Mr. Lessinger was required to go through the MC-400, or "Membership Continuance," process with FINRA.
The Form MC-400 must be filed by a member firm on behalf of the disqualified person. In this case, Archer Alexander Securities, Mr. Lessinger's employer at the time of his disqualification, filed the MC-400 application on his behalf. However, Archer Alexander went out of business before the application could be considered.
Mr. Lessinger was hired by Brookstone in April 2006.
Brookstone filed a Form MC-400 with FINRA on Mr. Lessinger's behalf on May 15, 2006.
Brookstone is owned by Antony Turbeville, a certified financial planner who has been licensed in the securities industry since 1987. Mr. Turbeville has never been the subject of disciplinary actions by the SEC, NASD, or the State of Florida.
David Locy is currently the president of Brookstone.
At the time Brookstone filed the MC-400 application for Mr. Lessinger, Mr. Locy was Brookstone's chief compliance
officer. He has been a certified public accountant since 1974, licensed in the securities industry since 2003, and has never been the subject of regulatory or disciplinary action by any professional or licensing entity.
Michael Classie is the branch manager and supervisor of Brookstone's Coral Springs office, where Mr. Lessinger works.7 He has been licensed to sell securities since 1995 and has never been the subject of disciplinary actions by the SEC, NASD, or the State of Florida.
In its MC-400 application, Brookstone stated that Mr. Lessinger did not seek licensure as a supervisor or control person, and that Brookstone would not allow him to work in a supervisory capacity. Brookstone agreed that Mr. Lessinger would work only as a registered representative, and then only under highly controlled supervisory conditions.
FINRA's Department of Member Regulation, which conducts the initial review of all MC-400 applications, recommended that Brookstone's application on behalf of Mr. Lessinger should be denied.
By order dated December 13, 2006, following an evidentiary hearing, FINRA's National Adjudicatory Council
("NAC") disagreed with the recommendation of the Department of Member Regulation and granted the application, subject to approval by the SEC.
The NAC's order provided as follows:
After considering all of the facts, we approve Lessinger as a general securities representative with Brookstone, supervised by Classie and Locy, and subject to the following terms and conditions of employment:
Classie and Locy will review, initial, and date all of Lessinger's order tickets on a daily basis;
Classie will review all of Lessinger's incoming correspondence daily and will review all of Lessinger's outgoing correspondence prior to its being sent. Lessinger will print out a daily log of faxes from the fax machine for Classie to review;
Classie and Locy will review every new account form for Lessinger and, if approved, sign such form;
Classie will be in the office with Lessinger at least four times per week from 8:00 a.m. until 5:00 p.m. If Classie is not in the office, Lessinger will be prohibited from effecting trades on the computer and will, instead, call them in to Locy for approval;
Locy will make random unannounced office visits to Lessinger's home office at least once during each calendar quarter;
Brookstone will amend its written supervisory procedures to state that Classie is the primary responsible supervisor for
Lessinger, and that Locy is the backup supervisor;
Lessinger will provide a list of all sales contacts to Classie, including the nature of the contacts, on a daily basis;
Classie will review Lessinger's written sales contacts and investigate any irregular activity;
Locy will conduct five random telephone calls per quarter to Lessinger's customers to verify information or ascertain the customers' level of satisifaction;
Lessinger will not participate in any manner, directly or indirectly, in the purchase, sale, recommendation, or solicitation of penny stocks (this is defined in the Court Judgment as "any equity security that has a price of less than five dollars, except as provided in Rule 3a5-1 under the Exchange Act [17 C.F.R. 240.3a51-1]");
Classie must certify quarterly (March 31st, June 30th, September 30th, and December 31st) to the Compliance Department that Lessinger and Classie are in compliance with all of the above conditions of heightened supervision; and
For the duration of Lessinger's statutory disqualification, Brookstone must obtain prior approval from Member Regulation if it wishes to change Lessinger's responsible supervisor from Classie to another person.
On June 29, 2007, the SEC issued a letter approving the NAC's decision to permit Mr. Lessinger to register with Brookstone as a registered representative under the heightened supervisory restrictions set out in the NAC's order.
Brookstone and Mr. Lessinger have agreed that they will abide by the same list of heightened supervisory restrictions should the State of Florida approve the application at issue in this proceeding.8
As noted at Findings of Fact 20 and 21, supra, the Notice alleged that Mr. Lessinger failed to timely update his Form U-4 to disclose receipt of a Notice of Intent to Deny Application for Securities Salesperson from the State of Ohio, Department of Commerce, Division of Securities ("Ohio Notice") dated October 5, 2007.
The Ohio Notice stated that on July 9, 2007,
Mr. Lessinger had applied for a securities salesperson license via submission of his Form U-4, and that his application disclosed the September 23, 2005, SEC order, the April 2004 filing of the SEC complaint in the United States District Court for the Southern District of Florida, the 2000 NASD AWC letter, the NASD Dispute Resolution arbitration award, the 1998 Ohio application denial, and the Maine Consent Agreement. Based on these disclosures, the Ohio Division of Securities alleged that Mr. Lessinger was not of "good business repute" according to Ohio statutes and rules, and stated its intent to issue an order denying Mr. Lessinger's application for a salesperson's license.
The Ohio Notice provided that Mr. Lessinger had 30 days in which to request an administrative hearing contesting
the agency's intended denial of his application. Mr. Lessinger timely filed the appropriate documents contesting the Ohio Notice and requesting an evidentiary hearing.
Immediately after receiving the Ohio Notice,
Mr. Lessinger brought it to the attention of Mr. Locy, then Brookstone's chief compliance officer, in order to determine whether his Form U-4 should be amended. Only Brookstone, as the broker/dealer employing Mr. Lessinger, had authority to amend his Form U-4. Mr. Lessinger did not have independent access to the Web CRD database and thus had no ability to amend the document on his own.
Mr. Locy considered the situation and decided that the Ohio Notice did not require an amendment to Mr. Lessinger's
Form U-4. Because Mr. Lessinger had appealed the intended denial of his Ohio application, Mr. Locy concluded that that matter was not reportable until the Ohio action ripened into a final order. Mr. Lessinger deferred to Mr. Locy's greater expertise regarding compliance issues.
Though Mr. Lessinger could not amend his Form U-4, there was no obstacle to Mr. Lessinger's directly informing OFR of the Ohio Notice. However, there was also no evidence that Mr. Lessinger attempted to conceal the existence of the Ohio Notice, or was anything other than forthright in his dealings with employers and regulatory authorities. The credible
evidence established that he simply relied on the opinion of Mr. Locy.
The State of Ohio issued a final order denying
Mr. Lessinger's application on April 7, 2008. Upon receipt of the final order, Mr. Lessinger promptly notified his employer, and Brookstone updated Mr. Lessinger's Form U-4 on
April 23, 2008, to reflect the actions of the Ohio regulators.
At the hearing, Mr. Lessinger emphasized that he seeks only to act as a registered representative. Most of his clients are retirees invested in fixed-income mutual funds. They are conservative to moderate in their risk tolerance. Mr. Lessinger does not trade in their accounts on margin, and does not have discretion to make trades without express client authorization.
Mr. Lessinger gets new customers through referrals.
He makes no cold calls to prospective customers.
Mr. Lessinger has never been the subject of a complaint by one of his own customers, and had never been disciplined for any actions he has taken as a registered representative. All of the disciplinary proceedings involving Mr. Lessinger concerned his actions in a supervisory capacity.
Mr. Lessinger has forsworn any intention to ever again act in a supervisory capacity in the securities industry.
Mr. Turbeville and Mr. Locy were emphatic that Mr. Lessinger would not be permitted to act in a supervisory capacity at Brookstone.
Mr. Classie convincingly testified that he would closely monitor Mr. Lessinger's actions in accordance with the NAC order, and understood that failure to do so could place his own registration in jeopardy.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the subject matter of this proceeding and of the parties thereto, pursuant to Section 120.569 and Subsection 120.57(1), Florida Statutes.
Petitioner has the burden of establishing his entitlement to the licensure sought in this proceeding by a preponderance of the evidence. See Department of Banking and Finance, Division of Securities and Investor Protection v. Osborne Stern and Co., 670 So. 2d 932, 934 (Fla. 1996); and Ferris v. Turlington, 510 So. 2d 292 (Fla. 1987); Subsection 120.57(1)(j), Florida Statutes.
Licensure by default
At the outset, Petitioner claims entitlement to licensure by default due to OFR's failure to comply with the timing and notification requirements of Section 120.60, Florida Statutes, the relevant provisions of which provide:
(1) Upon receipt of an application for a license, an agency shall examine the application and, within 30 days after such receipt, notify the applicant of any apparent errors or omissions and request any additional information the agency is permitted by law to require. An agency shall not deny a license for failure to correct an error or omission or to supply additional information unless the agency timely notified the applicant within this
30-day period. An application shall be considered complete upon receipt of all requested information and correction of any error or omission for which the applicant was timely notified or when the time for such notification has expired. Every application for a license shall be approved or denied within 90 days after receipt of a completed application unless a shorter period of time for agency action is provided by law. The 90-day time period shall be tolled by the initiation of a proceeding under ss. 120.569 and 120.57. Any application for a license that is not approved or denied within the 90-day or shorter time period, within 15 days after conclusion of a public hearing held on the application, or within 45 days after a recommended order is submitted to the agency and the parties, whichever action and timeframe is latest and applicable, is considered approved unless the recommended order recommends that the agency deny the license. Subject to the satisfactory completion of an examination if required as a prerequisite to licensure, any license that is considered approved shall be issued and may include such reasonable conditions as are authorized by law. Any applicant for licensure seeking to claim licensure by default under this subsection shall notify the agency clerk of the licensing agency, in writing, of the intent to rely upon the default license provision of this subsection, and shall not take any action
based upon the default license until after receipt of such notice by the agency clerk.
* * *
(3) Each applicant shall be given written notice either personally or by mail that the agency intends to grant or deny, or has granted or denied, the application for license. The notice must state with particularity the grounds or basis for the issuance or denial of the license, except when issuance is a ministerial act. Unless waived, a copy of the notice shall be delivered or mailed to each party's attorney of record and to each person who has requested notice of agency action. Each notice shall inform the recipient of the basis for the agency decision, shall inform the recipient of any administrative hearing pursuant to ss. 120.569 and 120.57 or judicial review pursuant to s. 120.68 which may be available, shall indicate the procedure which must be followed, and shall state the applicable time limits. The issuing agency shall certify the date the notice was mailed or delivered, and the notice and the certification shall be filed with the agency clerk. (Emphasis added.)
Mr. Lessinger contends that the underscored portions of Subsections 120.60(1) and (3), Florida Statutes, read together, mean that OFR is required to grant his registration application because it did not provide Mr. Lessinger with written notice of its intent to deny his application within the 90-day time limit. Mr. Lessinger argues that his application became "complete" within the meaning of the statute on November 5, 2007, when OFR received the additional information it had requested in the October 9, 2007, e-mail from Mr. Stokes to
Mr. Locy. If OFR believed the application remained incomplete even after it received Mr. Lessinger's November 5, 2007, submissions, the agency had 30 days within which to notify
Mr. Lessinger of that fact, pursuant to Subsection 120.60(1), Florida Statutes.
OFR responds that the underscored portions of Subsections 120.60(1) and (3), Florida Statutes, should not be read together. Subsection (1) requires approval or denial within 90 days of receipt of a completed application, and subsection (3) requires written notice that an application has been approved or denied, but these provisions do not require written notice within 90 days. In other words, oral notice within the 90-day period is sufficient to avoid licensure by default, though the time limits for the applicant to request an administrative hearing are not triggered until the agency provides written notice of its intended action.
OFR's reading of Section 120.60, Florida Statutes, is supported by case law. In Sumner v. Department of Professional Regulation, 555 So. 2d 919 (Fla. 1st DCA 1990), the court held that the 90-day "deemer" provision in what is now Subsection 120.60(1), Florida Statutes, "does not incorporate the written notice requirements of section 120.60(3) so that the Board was required to file its written notice of intent to deny within ninety days after receipt of Sumner's application. If the
legislature had intended to specifically require written notice within ninety days, it would have been a simple matter to have inserted the limitation in the statute." 555 So. 2d at 921.
See also Department of Transportation v. Calusa Trace
Development Corp., 571 So. 2d 543, 546 (Fla. 2d DCA 1990). It is concluded that Ms. Epting's oral communication to Mr. Locy of the agency's intent to deny the application was sufficient to avoid the issuance of a default license pursuant to the "deemer" provision of Subsection 120.60(1), Florida Statutes.
Further supporting OFR's position regarding licensure by default is Mr. Lessinger's own admission that his
November 6, 2007, submission did not contain each and every document requested by Mr. Stokes. The final order in the 1998 Ohio denial of Mr. Lessinger's application was obtained by
Ms. Epting directly from the State of Ohio on some unspecified date in the Spring of 2008. It is concluded that
Mr. Lessinger's application was not technically "complete" as of November 6, 2007, and therefore the 90-day period did not commence on that date.9
Failure to Update the Form U-4
The Notice states that Mr. Lessinger's failure to update his Form U-4 constitutes a violation of Florida Administrative Code Rule 69W-600.002(1)(c) and is therefore a basis for denial pursuant to Subsection 517.161(1)(a), Florida
Statutes, which provides that violation of any rule promulgated pursuant to Chapter 517 constitutes grounds for denial of registration.
OFR contends that Mr. Lessinger's failure to update his Form U-4 to show the Ohio Notice violated the cited rule, the relevant text of which is set forth at endnote 4, supra. OFR argues that Question 14G(1) of the Form U-4 required
Mr. Lessinger to amend the Form U-4 with information concerning the Ohio Notice.
Question 14 of the Form U-4 is titled "Disclosure Questions." Questions 14C through 14G are titled "Regulatory Action Disclosure," and require the applicant to answer a series of "yes/no" questions regarding his interactions with various regulatory entities, then to submit complete details as to any "yes" answers. Question 14G(1) provides:
Have you been notified, in writing, that you are now the subject of any:
(1) regulatory complaint or proceeding that could result in a "yes" answer to any part of 14C, D, or E? (If yes, complete the Regulatory Action Disclosure Reporting Page.)
The instructions to the Form U-4 provide definitions for certain terms used in the Form U-4. The term "proceeding" is defined as follows, in relevant part:
Proceeding includes a formal administrative or civil action initiated by a governmental
agency, self-regulatory organization or foreign financial regulatory authority, a felony criminal indictment or information (or equivalent formal charge), or a misdemeanor criminal information (or equivalent formal charge), but does not include an arrest or similar charge effected in the absence of a formal criminal indictment or information (or equivalent formal charge). . . .
Question 14D(1) provides:
Has any other Federal regulatory agency[10] or any state regulatory agency or foreign financial regulatory authority ever:
found[11] you to have made a false statement or omission or been dishonest, unfair or unethical?
found you to have been involved in a violation of investment-related regulation(s) or statute(s)?
found you to have been a cause of an investment-related business having its authorization to do business denied, suspended, revoked or restricted?
entered an order[12] against you in connection with an investment-related activity?
denied, suspended, or revoked your registration or license or otherwise, by order, prevented you from associating with an investment-related business or restricted your activities?
OFR reasons that the Ohio Notice notified Mr. Lessinger that he was the subject of a regulatory
"proceeding" that could result in a "yes" answer to Question 14D(1). OFR's reasoning is correct, if the Ohio Notice
constituted notice of a "proceeding" as that term is defined in the instructions to the Form U-4.
Mr. Lessinger argues that the Ohio Notice does not provide notice of a "proceeding" because the underlying license application process was not "a formal administrative . . . action initiated by a governmental agency." Mr. Lessinger initiated the Ohio licensing process by filing his application. The definition of the term "proceeding" contemplates actions initiated by governments or regulatory authorities in response to wrongdoing by the applicant, not the mere denial of a license application.
OFR argues that Question 14D(1)(e) plainly requires a "yes" answer when a licensure application has been denied.
Mr. Lessinger and Brookstone clearly understood that the final order issued by the State of Ohio on April 7, 2008, required that the Form U-4 be updated. The Ohio Notice notified
Mr. Lessinger that he "could" in the future be required to answer "yes" to Question 14D(1)(e). The proposed denial of
Mr. Lessinger's application was itself an administrative action initiated by the State of Ohio. Therefore, Mr. Lessinger was required to answer "yes" to Question 14G(1) and disclose the Ohio Notice.
Though the correct interpretation of the Form U-4's questions and definitions is not transparently evident, OFR's
view that Mr. Lessinger should have disclosed the Ohio Notice is more reasonable than Mr. Lessinger's, in that OFR's interpretation better explains the interplay between Questions 14G(1) and 14D(1)(e).
Mr. Lessinger's view, relying on the expertise of
Mr. Locy, was that the Form U-4 did not have to be amended until the Ohio Notice became final agency action. Mr. Locy's opinion on the matter was not so unreasonable that Mr. Lessinger should be held to account for his failure to challenge it. Neither
Mr. Lessinger nor Brookstone was engaged in any effort to conceal the existence of the Ohio Notice. Their good faith was evidenced by the prompt reporting of the matter after the issuance of the final order by the State of Ohio.
Section 517.161(1)(a), Florida Statutes, provides:
Registration under s. 517.12 may be denied or any registration granted may be revoked, restricted, or suspended by the office if the office determines that such applicant or registrant:
Has violated any provision of this chapter or any rule or order made under this chapter. . . .
Mr. Lessinger technically violated Florida Administrative Code Rule 69W-600.002(1)(c) by failing to update his Form U-4 within 30 days of receiving the Ohio Notice. However, it is concluded that OFR should find that this violation was unintentional, de minimus, and committed through
Mr. Lessinger's good faith deference to the presumed expertise of his employer's chief compliance officer.13 Taking into account all the circumstances, the agency should exercise its discretion under Subsection 517.161(1)(a), Florida Statutes, and decline to deny Mr. Lessinger's registration on this ground.
§§ 517.161(1)(h) and (m), Fla. Stat.
A petition for a formal hearing under Sections 120.569 and 120.57, Florida Statutes, commences a de novo proceeding. Formal administrative proceedings "are intended to formulate final agency action, not to review action taken earlier and preliminarily." McDonald v. Department of Banking and Finance, 346 So. 2d 569, 584 (Fla. 1st DCA 1977).
For purposes of the review of Mr. Lessinger's disciplinary history as outlined in his application, the issues regarding when and how that application achieved completion fall by the wayside because the parties have agreed that the application was complete at the time of the hearing.14
Mr. Lessinger bears the burden of presenting evidence of his fitness for registration. OFR bears the burden of presenting evidence that Mr. Lessinger violated Section 517.161, Florida Statutes, and is thus unfit for registration. The ultimate burden of persuasion remains upon Mr. Lessinger. Osborne Stern, 670 So. at 934.
Subsection 517.12(11), Florida Statutes, provides that
OFR shall register an applicant if it "finds that the applicant is of good repute and character and has complied with the provisions of this chapter and the rules made pursuant hereto." Subsection 517.12(7), Florida Statutes, permits OFR to require the applicant to provide information about such matters as:
Any injunction or administrative order by a state or federal agency, national securities exchange, 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.
His or her conviction of, or plea of nolo contendere to, a criminal offense or his or her commission of any acts which would be grounds for refusal of an application under s. 517.161.
Subsection 517.161(1)(h), Florida Statutes, set forth in full at Finding of Fact 23, supra, provides that OFR may deny registration if it determines that the applicant has demonstrated unworthiness to transact the business of dealer, investment advisor, or associated person.
Subsection 517.161(1)(m), Florida Statutes, set forth in full at Finding of Fact 23, supra, provides in relevant part that OFR may deny registration if it determines that the applicant has been the subject of disciplinary action by listed
authorities for violations of securities laws, rules, or regulations.
As noted at Finding of Fact 24, supra, Mr. Lessinger's disciplinary history is the basis for OFR's conclusion that
Mr. Lessinger has demonstrated "unworthiness" as described in Subsection 517.161(1)(h), Florida Statutes, and that
Mr. Lessinger has been the subject of decisions, findings, injunctions and/or prohibitions as set forth in Subsection 517.161(1)(m), Florida Statutes.
As to the criteria stated in Subsection 517.161(1)(m), Florida Statutes, Mr. Lessinger argues that his disciplinary history should not act as a bar to his registration in Florida. As to the 1993 Maine Consent Agreement, he reasons that such an agreement makes no adjudication on the merits of the case, but is entered into for the sole purpose of terminating the proceeding in an amicable and economical fashion. In the Consent Agreement, Mr. Lessinger did not admit to any violations of Maine law. The agreement adjudicated no issue of fact or law. Mr. Lessinger is correct that the Maine Consent Agreement does not constitute a "decision, finding, injunction, suspension, prohibition, revocation, denial, judgment, or administrative order" pursuant to Subsection 517.161(1)(m), Florida Statutes.
As to the 1998 Ohio Division Order denying his
application on the finding that he was not of "good business repute," Mr. Lessinger notes that the factual basis for the Division Order is restricted to the Maine Consent Agreement. With some reason, Mr. Lessinger argues that if the Consent Agreement itself does not establish a basis for denial under Subsection 517.161(1)(m), Florida Statutes, then the derivative Division Order cannot be held to establish grounds for denial under that provision.
Unlike the Consent Agreement, the Division Order does constitute an administrative order by a state agency. However, it is not an order "involving a violation" of any of the types of statutes, rules and regulations listed in Subsection 517.161(1)(m), Florida Statutes.15 Again, Mr. Lessinger's application of the statute to the facts is correct.
As to the 2000 NASD AWC letter, Mr. Lessinger contends that it has the same effect as the Maine Consent Agreement, in that AWCs are used by NASD to settle disputed matters without adjudicating the merits of the dispute. Thus, the AWC is not a decision, finding, judgment, or administrative order by a court, a state or federal agency, or a national securities exchange, and cannot serve as a basis for denying Mr. Lessinger's application pursuant to Subsection 517.161(1)(m), Florida Statutes.
However, the very text of the AWC establishes that it
is something more than a mere settlement agreement. The AWC made a specific finding against Mr. Lessinger regarding his allowing an inactive registered representative to effect three securities transactions for customers. Though the terms of the AWC did not require Mr. Lessinger to admit to the finding, they did require that Mr. Lessinger not deny the allegation or create the impression that the allegation was without factual basis.
Contrary to Mr. Lessinger's contention, it is held that the AWC letter is a finding by a national securities association, and that it may form the basis for denying Mr. Lessinger's application under Subsection 517.161(1)(m), Florida Statutes.
As to the 2002 arbitration award, Mr. Lessinger argues that NASD Dispute Resolution, Inc., is a private entity, that its awards do not constitute an adjudication of fact or law, and that the award issued against Mr. Lessinger did not present any formal findings that he violated any federal or state statute, rule or regulation pertaining to securities.
OFR points out that NASD arbitration panels are a function of the self-regulatory authority of NASD and are governed by administrative rules approved by the SEC. Further, the Federal Arbitration Act, 9 U.S.C. §§ 1-16, provides for federal court review of arbitration awards. See 9 U.S.C. § 10. The courts are expected to give "great deference to arbitration awards." Roberson v. Charles Schwab and Co., Inc.,
339 F. Supp. 2d 1337, 1340 (S.D. Fla. 2003), quoting First Preservation Capital, Inc. v. Smith Barney, Harris Upham & Co., Inc., 939 F. Supp. 1559, 1563 (S.D. Fla. 1996). At least one prior DOAH decision has found that NASD arbitration awards "fall squarely within the proscriptive parameters of Section 517.161, Florida Statutes. . . ." Currency Trading International, Inc. v. Department of Banking and Finance, Case No. 94-5428
(DOAH November 1, 1995)(Conclusion of Law 56).
OFR also points out that the arbitration award did find a violation of Florida law: the attorneys' fee award was made pursuant to Sections 517.301 and 517.211, Florida Statutes. Section 517.301, Florida Statutes, sets forth the substantive offenses subsumed under the general category of fraudulent securities transactions. Section 517.211, Florida Statutes, provides the remedies for those offenses, as follows in relevant part:
Any person purchasing or selling a security in violation of s.517.301, and every director, officer, partner, or agent of or for the purchaser or seller, if the director, officer, partner, or agent has personally participated or aided in making the sale or purchase, is jointly and severally liable to the person selling the security to or purchasing the security from such person in an action for rescission, if the plaintiff still owns the security, or for damages, if the plaintiff has sold the security.
* * *
(6) In any action brought under this section, including an appeal, the court shall award reasonable attorneys' fees to the prevailing party unless the court finds that the award of such fees would be unjust.
OFR concludes that the attorneys' fee award necessarily indicated that the Preferred customer prevailed on the claim that Mr. Lessinger and his co-respondents violated Section 517.301, Florida Statutes. OFR's arguments are convincing. It is held that the arbitration award by NASD Dispute Resolution, Inc., may form the basis for denying
Mr. Lessinger's application under Subsection 517.161(1)(m), Florida Statutes.
Mr. Lessinger concedes that the 2005 SEC actions do constitute the entry of a judgment and an administrative order against him, appropriate for consideration under Subsection 517.161(1)(m), Florida Statutes. However, Mr. Lessinger also notes that the SEC has not barred Mr. Lessinger from acting as a registered representative.
As noted at Finding of Fact 24, supra, the Notice cited the same grounds for "unworthiness" pursuant to Subsection 517.161(1)(h), Florida Statutes, as it cited for Subsection 517.161(1)(m), Florida Statutes. OFR's position is that
Mr. Lessinger's disciplinary history as set forth in the Notice established his unworthiness to transact business as an associated person in the State of Florida, and that he provided
insufficient evidence at the final hearing to persuade the agency that it would be in the public interest to change its initial position and grant the registration.
Mr. Lessinger points to several mitigating factors for the agency's consideration. First, though the various disciplinary proceedings extended into 2005, the misconduct underlying the SEC orders, the NASD arbitration award, and the AWC letter occurred in 1999. The alleged misconduct underlying the Maine Consent Agreement occurred in 1991. Thus, for the better part of the last decade, Mr. Lessinger has been working in the securities industry without incident.
Mr. Lessinger notes that both regulatory denials by the State of Ohio were derivative of other disciplinary actions and were not based on independent violations of securities laws or regulations.
Mr. Lessinger notes that all of the disciplinary actions previously taken against him were related solely to his negligent conduct as a supervisor while he was acting as a general securities principal. In the most serious case,
Mr. Lessinger immediately shut down the Orex pump and dump operation as soon as he found out about it. None of the alleged misconduct related to Mr. Lessinger's actions as a registered
representative in regard to his own customers. No customer has
ever filed a direct complaint against Mr. Lessinger.
Mr. Lessinger has expressed a willingness to condition his Florida registration on restrictions similar to those required by the December 13, 2006, NAC order.
Mr. Lessinger is 62 years old. He testified that his only desire is to act as a registered representative and provide services to his long-time clients. He has no desire or intention to supervise anyone for the remainder of his career.
The owner and president of Brookstone testified that Mr. Lessinger will under no circumstances be allowed to act as a supervisor. Mr. Classie, who would act as Mr. Lessinger's direct supervisor, testified that he has no intention of jeopardizing his own license by allowing Mr. Lessinger to deviate from any restrictions imposed in connection with his Florida registration.
OFR presented evidence sufficient to establish a prima facie case that Mr. Lessinger is unworthy to transact the business of an associated person pursuant to Subsection 517.161(1)(h), Florida Statutes, and that Mr. Lessinger has been the subject of disciplinary action meeting the standard of Subsection 517.161(1)(m), Florida Statutes, as regards the 2000 AWC letter, the 2002 arbitration award, and the 2005 SEC actions.
In response, Mr. Lessinger has demonstrated that he
has been involved in no controversial activities since 1999, that he has never been the subject of discipline for his conduct as a registered person, and that he seeks only to act as a registered person under the heightened restrictions set forth in the NAC order. With full knowledge of Mr. Lessinger's disciplinary history, FINRA and the SEC have deemed him fit to conduct business as a registered representative under the heightened supervisory restrictions of the NAC order. Under those conditions, Mr. Lessinger is no danger to the trading public.
Mr. Lessinger's application for registration should be granted, subject to such heightened supervisory restrictions as OFR shall deem prudent.
Based on the foregoing Findings of Fact and Conclusions of Law, it is
RECOMMENDED that the Office of Financial Regulation enter a final order granting Petitioner's application for registration as an associated person with Brookstone Securities, subject to such heightened supervisory restrictions as the Office of Financial Regulation shall deem prudent.
DONE AND ENTERED this 15th day of December, in Tallahassee, Leon County, Florida.
S
LAWRENCE P. STEVENSON
Administrative Law Judge
Division of Administrative Hearings The DeSoto Building
1230 Apalachee Parkway
Tallahassee, Florida 32399-3060
(850) 488-9675 SUNCOM 278-9675
Fax Filing (850) 921-6847 www.doah.state.fl.us
Filed with the Clerk of the Division of Administrative Hearings this 15th day of December, 2008.
ENDNOTES
1/ Unless otherwise noted, all statutory references are to the 2008 edition of the Florida Statutes.
2/ FINRA is a national securities association registered with the SEC pursuant to Section 15A of the Securities Exchange Act of 1934, codified at 15 U.S.C. sec. 78o-3. The SEC is authorized to review any disciplinary action imposed by FINRA.
3/ Form U-4 is the FINRA Uniform Application for Securities Industry Registration or Transfer. In Florida, a completed
Form U-4 constitutes the initial application for registration as an associated person. Fla. Admin. Code R. 69W-600.002(1)(a).
4/ The parties have stipulated that no actions taken by the State of Pennsylvania form the basis of OFR's denial of
Mr. Lessinger's application.
5/ The cited rule provision states, in relevant part:
If the information contained in any Form U-4 becomes inaccurate for any reason before or after the associated person becomes registered, the associated person through
the dealer or investment adviser, as applicable, shall be responsible for correcting the inaccurate information within thirty (30) days. If the information being updated relates to the applicant's or registrant's disciplinary history, in addition to updating the Form U-4, the associated person through the dealer or investment adviser shall also provide the Office of Financial Regulation with notice and copies of each civil, criminal or administrative action initiated against the associated person as provided in Rule
69W-600.010, F.A.C. . . .
6/ NASD is a private, not-for-profit provider of financial regulatory services. Virtually all securities firms in the United States are members of NASD, which registers member firms, establishes rules to govern their conduct, examines them for compliance, and disciplines those that fail to comply.
See "NASD Arbitration of Securities Disputes" by Donald R. McNeil, Esq. at http://library.findlaw.com/2004/Jan/7/133242.html.
NASD Dispute Resolution, Inc. is a wholly owned subsidiary of NASD, established to conduct arbitrations and mediations between investors and their securities firms, and is not itself a national securities association.
7/ Pending approval of the application at issue in this proceeding, Mr. Lessinger is performing clerical duties in the Coral Springs office.
8/ Mr. Locy is no longer the chief compliance officer. The oversight duties assigned to Mr. Locy by the NAC order would be taken on by Mark Mercier, Brookstone's current chief compliance officer.
9/ In an argument rendered moot by the above conclusions, OFR also contends that Mr. Lessinger is mistaken in his assertion that the October 9, 2007, e-mail from Mr. Stokes constituted an "errors or omissions" notice pursuant to Section 120.60(1), Florida Statutes. OFR argues that the plain language of Section 120.60(1), Florida Statutes, contemplates the first thirty days within which an agency receives an application. The phrase "within 30 days after such receipt" indicates the initial application, not multiple "receipts" in a possibly endless back-
and-forth process between agency and applicant. OFR argues that the statute does not impose upon it a repetitive obligation to notify an applicant each time an applicant's submissions fail to complete the application. Though not confirmed by case law, OFR's reading of the statute is reasonable and practical. It was under no obligation to "continuously send reminders to an applicant that the agency's prior request remains incomplete." Whether the agency's voluntary provision of a second "error or omission" notice to an applicant may be waved off as a mere "courtesy" as claimed by OFR need not be decided in this case because the licensure by default has been held unwarranted on other grounds.
10/ Question 14C references the SEC and the Commodity Futures Trading Commission.
11/ The term "found" is defined to include "adverse final actions, including consent decrees in which the respondent has neither admitted nor denied the findings, but does not include agreements, deficiency letters, examination reports, memoranda of understanding, letters of caution, admonishments, and similar informal resolutions of matters."
12/ The term "order" is defined to mean "a written directive issued pursuant to statutory authority and procedures, including orders of denial, suspension, or revocation; does not include special stipulations, undertakings or agreements relating to payments, limitations on activity or other restrictions unless they are included in an order."
13/ OFR cites case law to the effect that "good faith belief" in the lawfulness of one's actions is no defense because Section 517.12, Florida Statutes, contains no scienter element. See, e.g., Santacroce v. Department of Banking and Finance, 608
So. 2d 134, 136 (Fla. 4th DCA 1992). OFR is correct that the law does not require it to accept Mr. Lessinger's reliance on the opinion of Mr. Locy. The undersigned recommends that OFR exercise its discretion in Mr. Lessinger's favor as to this issue.
14/ In its proposed recommended order, OFR argues that the purpose of this proceeding is to review its Notice for competent substantial evidence to support the preliminary decision to deny Mr. Lessinger's application, and suggests that Mr. Lessinger must demonstrate that OFR abused its discretion in its initial denial of his application. OFR quotes Osborne Stern, 670 So. 2d at 933: "It is well-established that a factual finding by an
administrative agency will not be disturbed on appeal if it is supported by 'substantial evidence.'" OFR correctly states the appellate standard of review of an agency final order. However, the appellate standard is inapplicable in this de novo administrative proceeding.
15/ On this point, OFR makes an odd argument: "Section 517.161(1)(m), Florida Statutes, only requires that the action or event involve a violation of any securities related law or rule. It is not necessary under subsection (m) that anyone violate anything. Contrary to petitioner's assertion otherwise, the statute does not demand a violation of a law or rule but only that it involve [sic]." To support the quoted argument, OFR references the cross-examination testimony of Mr. White regarding the Maine Consent Agreement:
I mean, the state would not have brought this action if they didn't have some -- if they didn't believe something had been violated. They wouldn't have had the grounds to bring this action. So they -- I mean, I believe that it involves the -- involving a violation of any state -- federal or state securities or commodities law.
OFR's point seems to be that the Consent Agreement was sufficient ground to deny Mr. Lessinger's application under Section 517.161(1)(m), Florida Statutes, because it "involved" some violation of law that had been alleged by the State of Maine earlier in the process, never mind that the State of Maine ultimately decided not to press the matter to trial. "He must have done something, or the state wouldn't have made the allegation" is hardly a proper standard for denial of
Mr. Lessinger's registration under Section 517.161(1)(m), Florida Statutes.
COPIES FURNISHED:
Don B. Saxon, Commissioner Office of Financial Regulation
200 E. Gaines Street Tallahassee, Florida 32399-0350
Robert Beitler, General Counsel Department of Financial Services
200 E. Gaines Street, Suite 526 Tallahassee, Florida 32399-0350
Jennifer Lynn Hrdlicka, Esquire Office of Financial Regulation
200 East Gaines Street Tallahassee, Florida 32399
Elizabeth Joy Campbell, Esquire Locke, Lord, Bissell & Liddell LLP
1170 Peachtree Street Northeast, Suite 1900
Atlanta, Georgia 30309
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 should be filed with the agency that will issue the final order in this case.
| Issue Date | Document | Summary |
|---|---|---|
| Dec. 15, 2008 | Recommended Order | Though his disciplinary history was cause for legitimate concern, Petitioner should be granted registration as an associated person, subject to strict supervisory restrictions. |
