STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

STATE OF FLORIDA, ) DEPARTMENT OF BANKING AND FINANCE, ) DIVISION OF SECURITIES, )

)

Petitioner, )

)

vs. ) CASE NO. 75-2054

)

EDGAR A. DOVE, )

)

Respondent. )

)

RECOMMENDED ORDER

A hearing was held in the above-captioned matter, after due notice to the parties, at St. Petersburg, Florida, on February 25, 1976, before the undersigned Hearing Officer.

APPEARANCES

For Petitioner: Fred O. Drake, III

Assistant General Counsel Office of the Comptroller The Capitol

Tallahassee, Florida 32304

For Respondent: H. Gordon Brown, P.A.

301 West Camino Gardens Boulevard, Suite B Post Office Box 1079

Boca Raton, Florida 33432 ISSUE PRESENTED

Respondent's alleged violations of Sections 517.07, 517.16(1)(a), 517.16(1)(d), Florida Statutes.

At the hearing counsel for Petitioner moved to amend the Administrative Complaint and Charges and its Notice of Intent to Revoke or Suspend registration to reflect that Petitioner seeks to deny Respondent's application for registration as a securities salesman and to delete any intent to revoke or suspend registration. The Motion was granted.

FINDINGS OF FACT

1. Respondent is an applicant to register as a securities salesman with Realty Income Securities, Inc., said application having been submitted to the Division of Securities on February 2, 1975 and is currently pending (Testimony of Dove).

2. During the period of approximately February through - September, 1973, Respondent, a registered mortgage broker, was employed by Financial Resources Corporation of Fort Lauderdale, Florida, in the sale of promissory notes secured ostensibly by first mortgages upon land located in Highlands County, Florida. These notes and security documents were issued by Equitable Development Corporation of Miami Beach, Florida. The notes were payable to "investors" at

   14 percent interest per year, payable monthly for several years at which time the full principal balance would become due. The mortgage deeds recited that Equitable Development Corporation held the land which secured the notes in fee simple, free and clear of all encumbrances except real estate taxes. The mortgage deeds further recited that Equitable reserved the right to convey the land to a purchaser under an installment land contract subject to the lien of the mortgage and would deliver to the National Industrial Bank of Miami, an escrow agent, a copy of any such agreement for deed and a quit-claim deed which would be held in escrow. They also provided a procedure by which under any default of Equitable, the escrow agent would deliver the escrow documents to the investor (Testimony of Dove, Petitioner's Composite Exhibit 1).

   
   

3. Respondent's association with Financial Resources Corporation came about as a result of a visit by Mr. Robert Rinehart, President of the firm, who explained the mortgage sales program to him and stated that the security instruments were indeed first mortgages. Additionally, Rinehart supplied Respondent with brochures, letters, and documents containing questions and answers concerning the program and the protection afforded thereby to investors. Respondent personally viewed the property in question at Highland Park Estates and observed that over a hundred homes had been constructed which were of a value from $14,000 to $40,000. He also observed that docks had been built on the lake in the project area and that almost all of the roads had been paved.

   He was shown the MIA appraisal on the property which stated that Rinehart's representations as to property values were accurate. Equitable further represented to him that the notes in question were exempt securities in that they came within the provisions of Section 517.06(7), F.S., concerning the issuance or sale of notes secured by a specific lien upon real property created by mortgage or security agreement. In fact, Respondent became so convinced of the merits of these transactions that he had his mother invest twenty thousand dollars in the program (Testimony of Respondent, Watts; Respondent's Exhibits 1,2).

   
   

4. In September 1973, Respondent formed Florida Income Resources Corporation, a mortgage brokerage firm. He did not sell any of the Equitable notes for a period of some months and, prior to commencing sale of them through his firm in the Spring of 1974, his attorney looked over the various aspects of the Equitable program and advised him that everything seemed "open and above board." Respondent thereafter on April 9 and August 1, 1974 sold to William H. Mott secured promissory notes of Equitable Development Corporation in the amounts of $2,000 and $2,250 respectively (Testimony of Respondent, Zawadsky; Petitioner's Composite Exhibit 1).

   
   

5. During the period of these sales, letters of Albert George Segal, attorney, were being sent to investors advising them that he had examined the title to the real property purchased and that it was free and clear of encumbrances and constituted valid first mortgages (Respondent's Exhibit 3, Stipulation).

   
   

6. Administrative proceedings were brought against Respondent by the Division of Finance involving sales of the notes in question resulting in a settlement by stipulation whereby Respondent did not acknowledge any wrongdoing,

   but agreed to a suspension of his mortgage broker's registration for two years. Respondent's firm secured no appraisals or title searches on the property involved in the sales to Mott (Testimony of Respondent).

   
   

   CONCLUSIONS OF LAW

   
   

7. Petitioner seeks to deny Respondent's application for registration as a securities salesman. The application was submitted under the provisions of Section 517.12, Florida Statutes, and Petitioner seeks denial under the authority of Sections 517.16(1)(a) and (d) which read as follows:

   
   

   517.16 Revocation or suspension of dealers' and salesmen's registration.-

   1. Registration under Sec. 517.12 may be refused or any registration granted may be revoked or suspended by the department if after a reasonable notice and a hearing the department determines that such applicant or registrant so registered:

      1. Has violated any provision of this chapter or any regulation made hereunder;

   * * *

   (d) Has made any misrepresentation or false statement to, or concealed any essential or material fact from, any person in the sale of a security to such person; . . .

   
   

8. Respondent's alleged violation of Section 517.16(1)(a) is predicated upon a violation of Section 517.07 which prohibits the sale of non-exempt securities within the state unless they have been registered as provided in that section. Petitioner offered no proof in support of this allegation. Although Exhibit C to its Administrative Complaint aid Charges is a certificate from the Office of Comptroller, State of Florida, dated October 28, 1975, to the effect that the records of the Division of Securities reveal that "the securities of the Equitable Development Corporation are not currently registered," the said certificate does not establish that any such securities were not registered in 1974 at the time Respondent made his sales to Mott. Accordingly, even if it could be determined that the notes in question were non-exempt securities, there has been no showing that they were not registered when sold, and a violation based upon non-registration therefore has not been established.

   
   

9. The alleged violation of Section 517.16(1)(d) apparently is based upon Respondent's sale of the two notes to Mott under a theory expressed in paragraph

10 of the Administrative Complaint and charges which reads:

"10. Further, said notes were sold with the understanding that they were secured by first mortgages. This, in fact, is not the case."

No evidence was submitted at the hearing to establish that the notes in question were not secured by first mortgages. Assuming arguendo that such evidence had been presented, there was no evidence submitted which would establish that Respondent made any knowing misrepresentations or false statements to Mr. Mott, or intentionally concealed any essential or material facts from him. The totality of the evidence shows that Respondent was acting in good faith under the assumption that the notes in question were secured by valid first mortgages,

therefore, it is concluded that a violation of Section 517.16(1) has not been established.

RECOMMENDATION

That the allegations be dismissed and that Respondent Edgar A Dove be registered as a securities salesman if he otherwise meets the qualifications set forth in Section 517.12, Florida Statutes and Chapter 3E-30, Florida Administrative Code.

DONE and ENTERED this 15th day of March, 1976, in Tallahassee, Florida.

THOMAS C. OLDHAM

Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304

(904) 488-9675

COPIES FURNISHED:

Fred O. Drake, III Assistant General Counsel Office of the Comptroller The Capitol

Tallahassee, Florida 32304

H. Gordon Brown, P.A.

301 W. Camino Gardens Boulevard Suite B

P.O. Box 1079

Boca Raton, Florida 33432

Docket for Case No: 75-002054

Orders for Case No: 75-002054