STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
ROBERT EARL SWAIN )
)
Petitioner, )
)
vs. ) Case No. 85-3575
) DIVISION OF SECURITIES, OFFICE ) OF THE COMPTROLLER, STATE OF ) FLORIDA, )
)
Respondent. )
)
RECOMMENDED ORDER
Pursuant to notice the Division of Administrative Hearings, by its duly designated Hearing Officer, K. N. Ayers, held a public hearing in the above-style cause on May 22, 1986, at Tampa, Florida.
APPEARANCES
For Petitioner: Daniel J. Wiser, Esquire
10300 Biscayne Boulevard
Miami, Florida 33161
For Respondent: Robert C. Sprenkle, Jr., Esquire
Office of the Comptroller Regional Service Center
1313 Tampa Street, Suite 713
Tampa, Florida 33602
By Petition .or Formal Proceedings dated October 4, 1985, Robert Earl Swain, Petitioner, by and through his attorney, contests the denial of his application for registration as a principal and agent under Chapter 517 Florida Statutes by the Division of Securities, Office of the Comptroller, Respondent. Petitioner's application for registration was denied because on April 97, 19°3, Petitioner was fined and censured by the National Association of Securities Dealers (NASD) in the amount of $12,000 violations of NASD and Securities and Exchange Commission (SEC) rules and regulations; on February 21, 1980 Swain was fined &500 and censured by NASD for rule violation involving net capital requirements; and on December 30, 1982 he was issued a Summary
Order Denying Exemption from Registration and a Cease and Desist Order by Massachusetts securities laws.
The issue in these proceedings is whether the actions taken by NASD and the State of Massachusetts demonstrate that Petitioner is unworthy to transact the business of clearer, investment advisor, or associated person.
At the hearing, twenty-one exhibits were admitted into evidence, Respondent called one witness to establish its prima facie case, and thereafter petitioner called four witnesses including himself to rebut the prima .facie case of unworthiness established by, the exhibits. Respondent withdrew the allegations contained in paragraph 5 of Exhibit 21.
Proposed findings have been submitted by the parties. The various actions taken against petitioner by the NASD and the State of Massachusetts are contained in the exhibits, which both parties stipulated into evidence. Petitioner's testimony to events surrounding those actions was unrebutted. Accordingly, there is no dispute regarding the operable facts here involved. Proposed findings submitted by the parties which are not included herein were deemed immaterial to the conclusions reached.
FINDINGS OF FACT
On February 21, 1980, petitioner, as president and chief executive officer of Crown Financial Services was fined $500 and censured by NASD for violating SEC, NASD and Municipal Securities Rulemaking Board regulations. Crown Financial, a holding company under the direction and control of Petitioner, became a member of the NASD in 1977. At the time Crown Financial employed the services of a large accounting firm, knowledgeable of NASD regulations, to set up their accounts so as to comply with NASD regulations. During the first audit of crown Financial by NASD in 1979-80 it was noted that Crown was including accounts receivable from subsidiaries as cash which was contrary to NASD regulations and Crown and Petitioner were fined and censured for this infraction. Crediting such receivables as cash was the procedure established by the accounting firm hired by Crown Financial Services.
On December 30, 1982 the Massachusetts Securities Division issued a Summary Order Denying Exemption from Registration and a temporary Cease and Desist Order naming Petitioner and others based upon the offering of limited partnerships in Energy Exchange Corporation which had been founded by Petitioner. Although Petitioner founded Energy Exchange in February 1981 and was its president and chief operations officer, he resigned from these positions in November
30, 1982 shortly after Energy Exchange went public. Thereafter, Swain remained an outside director and was unaware of management decisions, one of which involved the issuance of questionable (or fraudulent) securities in December 1982, which led to the actions taken by the Massachusetts Securities Division. Petitioner was unaware these securities were issued until he read of the Massachusetts Securities Division's actions in the newspaper and he had nothing to do with their issuance.
On April 23, 1983, NASD fined and censured Swain in the amount of $12, 000 as a result of limited partnerships set up by Crown Financial Corporation of which Swain was Chief Operations Officer and principal owner. The violation alleged Crown Financial was engaged in a continuous and integrated offering in connection with the development of four condominiums were built (and to which limited partnerships were sold) he was unaware any other parcel of property nearby was or would be for sale, and that each of these developments was independent of the other and in no wise integrated alleged. An investigation by the Securities and Exchange Commission disclosed no integrated operation. Petitioner concluded it was prudent to enter into a consent order without admitting any violation and pay the fine rather than go to the expense of defending against the allegations.
Civil actions alleged to have been brought against Petitioner and which were listed as another basis for denying registration were contained in paragraph 5 of the Exhibit 21. At the hearing Respondent stipulated to a dismissal of these grounds as a basis for denying registration.
Despite the charges by NASD Petitioner' s registration with NASD remains in good standing.
Petitioner produce one witness who is registered with Respondent and with NASD who testified that fines and censures for violation of NASD regulations are an every day occurrence with NASD. This witness ,was recently found in violation of NASD regulations because he had included accounts receivable for more than 30 days as assets. According to NASD regulations these accounts receivable or more than 30 days cannot be included as an asset although the vast majority will be paid.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties to, and the subject matter of, these proceedings.
Section 517.161(1) Florida Statutes provides in pertinent part:
Registration under 517.12 may be denied
Or any registration granted may be revoked Or suspended by the Department if the Department determines that such Registrant:
Has violated any provision of this chapter or any rule or orders made under this chapter.
(h) Has demonstrated his unworthiness, to transact the business of dealer, investment advisor, or associated person.
Rule 3E-6OO.11 Florida Administrative Code provides in part:
Prima facie evidence of unworthiness to transact the business of a dealer, investment advisor, Principal, or agent in
the State of Florida Shall include, but shall not be limited to:
Any in junction, suspension, prohibition, revocation, denial, or administrative order by any state or Federal agency, national securities exchange, or national securities association, involving a violation of any federal or state securities law or any rule or regulation promulgated thereunder, and any in junction or adverse administrative order by a state or federal agency regulation banking, insurance, finance or small loan companies, real estate, mortgage brokers, or other related or similar industries, or any court of competent jurisdiction.
By showing that federal and state agencies have entered administrative orders against Petitioner, Respondent has established a prima facie case that Petitioner is unworthy for registration as a principal or agent.
Prima facie is defined in Black's Law Dictionary Revised Fourth Edition (1968) as:
At first sight; on the first appearance; On the face of it; so far as can be judged From the first disclosure; presumably; a Fact presumed to be true unless disproved By some evidence to the contrary
Prima facie case is defined as:
Such as will suffice until contradicted and overcome by other evidence. A case which has proceeded upon sufficient proof to that stage where it will support finding if evidence to contrary is disregarded
Petitioner's evidence was unrebutted that he exercised due care in employing an apparently qualified accounting firm to set up Crown Financial's books, that Crown followed the procedures prescribed by this accounting firm, and these procedures were ultimately found to be incorrect. This does not demonstrate unworthiness.
Similarly, Petitioner's evidence regarding the serial nature of his acquisition of land in Punta Gorda, on which the condominiums were built and the limited partnerships sold, was not rebutted. This evidence indicates that, contrary to the allegations made by NASD, Petitioner did not form the limited partnerships as an integrated offering. By paying the &12,000 fine in a stipulated settlement Petitioner admitted no wrongdoing and no violation of NASO regulations. The fact that the SEC investigation concluded there was no integration further supports Petitioner's contention.
With respect to the Massachusetts Security Division Summary Order the evidence was unrebutted that, at the time of the act complained of, Petitioner was no longer an officer of the corporation and was unaware that the corporation planned to issue the fraudulent securities.
In each of these instances where Petitioner was punished or issued sanctions by a federal or state regulator he has presented evidence to mitigate the seriousness of each allegation which formed the basis for the regulatory action taken. None of these incidents standing alone constitutes evidence that Petitioner is unworthy to transact the business of a dealer, investment advisor, principal or agent in Florida. Nor do the three actions taken by regulators against Swain constitute clear evidence of unworthiness in the light of the facts surrounding those incidents.
From the foregoing it is concluded that by documentary evidence Respondent established a prima facie case of Swain's unworthiness to be licensed in Florida as a principal or agent but that this prima facie case has been rebutted by Swain is qualified for licensure as a principal or agent in Florida. It is:
RECOMMENDED that Robert Earl Swain be issued a license as a principal or agent pursuant to Chapter 517 Florida Statutes.
ENTERED this 30th day of June, 1986, in Tallahassee, Florida.
K. N. AYERS, Hearing Officer Division of Administrative Hearings The Oakland Building
2009 Apalachee Parkway
Tallahassee, Florida 32399
(904) 488-9675
Filed with the Clerk of the Division of Administrative Hearings this 30th day of June, 1986.
COPIES FURNISHED:
Mr. E. C. Anderson Director
Division of Securities The Crown Building
Tallahassee, Florida 32301
Daniel J. wiser, Esquire LaCapra & Wiser
108700 Biscayne Boulevard
Miami, Florida 33161
Robert C. Sprenkle, Jr., Esquire Office of the Comptroller Regional Service Center
1393 Tampa Street, Suite 713
Tampa, Florida 33602
================================================================= AGENCY FINAL ORDER
=================================================================
STATE OF FLORIDA DEPARTMENT OF BANKING AND FINANCE
DIVISION OF SECURITIES
IN RE:
ROBERT EARL SWAIN)
Application for Registration Administrative Proceeding under Section 517.12, F.S.,) Number: 85-29-DOS
DOAH Case Number: 85-3575
Petitioner.
/
FINAL ORDER
The State of Florida Department of Banking and Finance, Division of Securities (hereinafter referred to as the "Department") being authorized and directed to administer the provisions of the Florida Securities and Investor Protection Act, Chapter 517, Florida Statutes, (hereinafter the "Act") after due consideration of the subject matter hereof, especially after careful review and consideration of the record of the proceedings had in this matter on May 22, 1986, before the Division of Administrative Bearings, which review included all documents introduced into the record and all testimony presented as shown by the transcript of said proceedings as required by Section 120.57(1)(d)9, Florida Statutes, does hereby reject the findings of fact as determined by the Hearing Officer in his Recommended Order dated June 30, 1986, on the grounds that such findings of fact were not based on competent substantial evidence and does further reject the conclusions of law as set forth by the Hearing Officer in his Recommended Order on the grounds that the same are erroneous and a misinterpretation of the law and the Rules of the Department, and the Department does further deny the application of ROBERT EARL SWAIN (hereinafter "Petitioner") for registration as a principal and agent under the Act. The grounds for issuance of this Order of Denial are as follows:
FINDINGS OF FACT
As set forth herein references are made to the Exhibits introduced into evidence at the Administrative Hearings conducted on May 22, 1986, in this matter in the same manner as that in
which such documents were introduced, i.e. Ex-l, Ex-2, etc. Reference T-1, T-3, etc. are to the appropriate pages of the Transcript of those proceedings as prepared by Betty M. Laurio, Court Reporter, consisting of 56 pages. All such exhibits, the transcript of the proceedings, the Department's initial Order of Denial dated September 11, 1985 and the Recommended Order of the Hearing Officer dated June 30, 1986, are incorporated herein and made a part hereof although not attached hereto and although not set forth herein at length. Each of the parties hereto has been furnished in the past, copies of all such material.
On or about May 6, 1985, the Department received from Petitioner a U-4 application (Ex-l9) to be registered as a principal and agent under the provisions of Chapter 517, Florida Statutes, with Hillsborough Capital Corporation located at 501 E. Kennedy Boulevard, 1900, Tampa, Florida 33602. The application was deemed completed by the Department on June 12, 1985.
By Order dated September 11, 1985, the Department denied the application of Petitioner (Ex-21). Thereafter Petitioner requested and was granted an Administrative Hearing under the provisions of Section 120.57(1), Florida Statutes. K.N. Ayers was the duly appointed Hearing Officer and he conducted a public hearing in Tampa, Florida on May 22, 1986. On June 30, 1986, Mr. Ayers duly issued his Recommended Order in which he stated that Petitioner had rebutted the Department's prima facie case and that the license application should therefore be granted.
At the administrative hearing the following documents were introduced into evidence (T-4):
Ex. | 1 | (12-6-79) | Waiver of | Rights |
Ex. | 2. | (12-6-79) | Letter of | Admission |
Ex. | 3. (12-6-79) | Mitigating Information | ||
Ex. | 4. (2-29-80) | Letter Accepting Settlement | ||
Ex. | 5. (3-7-80) | Letter Transmitting Check | ||
Ex. | 6. (10-1-81) | U-4 Application | ||
Ex. | 7. (11-25-81) | Schauer to Boyce Letter | ||
Ex. | 8. (12-22-81) | Boyce to Schauer Letter | ||
Ex. | 9. (1-11-82) | Schauer to Boyce Letter |
Ex. | 10. (5-13-82) | NASD Complaint Nos Box-485 |
Ex. | 11. (6-11-82) | Answer to Complaint |
Ex. | 12. (9-27-82) | Waiver of Rights |
Ex. | 13. (10-27-82) | U-4 Application |
Ex. | 14. (3-10-83) | Massachusetts Summary Order |
Ex. | 15. (6-9-83) | Massachusetts Final Order |
Ex. | 16. (3-16-83) | Houriban To Wright Letter |
Ex. | 17. (3-14-83) | Houriban To Unger Letter |
Ex. | 18. (4-27-83) | N.A.S.D. Decision and Order |
Ex. | 19. (5-3-85) | U-4 Application |
Ex. | 20. (5-24-85) | Bresnahan to C.R.D. Letter |
In addition, a copy of the Department's Order of Denial dated September 11, 1985, was introduced as Ex. 21 (T-26, lines 24 and
25 and T-27, lines 1 thru 5) (T-36, line 13 thru 25). Apparently the files of the Hearing Officer did not contain this Order and he did not have a copy at the hearing.
During the administrative hearing testimony was taken from the following witnesses:
On behalf of the Department, David Marcus Hickmen (T-5)
On behalf of the Petitioner
Robert Earl Swain (T-14) Jean Page (T-38)
Frank Carlton (T-42) Jack Bresnahan (T-46)
The original Order of Denial (Ex-21) issued by the Department set forth in paragraphs 2, 3, 4 and 5, four specific factual findings which the Department concluded were sufficient evidence that the Petitioner had in the past violated various rules and regulations of federal and state security regulators for which he should be denied a license in Florida. At the hearing, the Department dropped the charges set forth in
paragraph 5. (T-11 at line 6). Paragraphs 2, 3, and 4 of the initial Order of the Department set forth the following violations by the Petitioner:
"2. On April 27, 1983, the National Associa- tion of Security Dealers (NASD) fined and censured Mr. Swain in the amount of $12,000 for violations of NASD, and Security and Exchange Commission (SEC) rules and regulations. The NASD determined that Swain had violated Article III, Section 1 of the Rules of Fair Practice in that he had sold unregistered securities in contravention of Section 5 of the Securities Act of 1933. He also failed to maintain required net capital, withdrew commissions and other expenses from investors prior to amassing the stated minimums disclosed in the offering circulars and failed to safeguard investor monies by either depositing said funds in a separate bank account as agent or trustee, or delivering the investor funds to the bank agreed upon to serve as escrow agent. The NASD also found that Mr. Swain had continued to sell shares in a limited partnership beyond a stipulated termination date.
On December 30, 1982, the Massachusetts Securities Division issued a SUMMARY ORDER DENYING EXEMPTION FROM REGISTRATION TEMPORARY CEASE AND DESIST ORDER AND NOTICE OF RIGHTS TO HEARING naming Robert Swain and others for failure to disclose in offering circulars for Energy Exchange Private Drilling Partnership and Private Drilling Program that Swain was involved in pending litigation, including four private lawsuits in Massachusetts, the NASD action of February 21, 1980 fining and censuring Mr. Swain and Crown Financial Corporation and the NASD pending action against Mr. Swain and Crown Financial which had been filed on May 13, 1982. The Summary Order was made final upon the issuance of a FINAL ORDER dated July 9, 1983, by the Massa- chusetts Securities Division.
On February 21, 1980, Mr. Swain and Crown Financial Services were fined and censured jointly and severally $500 by the NASD for violating SEC, NASD and Municipal Securities
Rulemaking Board (MSRB) regulations. The NASD determined that the respondents had failed to comply with SEC Rule 15c-3-1 by not maintaining the minimum required net capital from 1-31-78 to 7-31-79; failed to comply with SEC Rule 17a3(a)(11) and 17a-4(b)(5) by not preparing and maintaining net capital and aggregate indebtedness computations; failed to comply with Article-III, Section 1 of the Rules of Fair Practice by not filing two advertisements for review with the NASD which were run in local newspapers during 1978; failed to comply with SEC Rule 17f-2 in that the firm did not have eight of their required personnel fingerprinted; failed to comply with MSRB Rules A-12 and A-14 in that the firm did not pay the initial $100-assessment due 10 days after the first transaction and the annual $100 assessment due 2-15-79; failed to comply with Schedule C of the By Laws, in that the firm did not have a qualified registered representative options principal while executing options trades and failed to comply with MSRB Rules G-10 and G-
27 in that a review of the firm's written
supervisory procedures disclosed that Respondents did not address the subject of municipal securities.
The various documents introduced into evidence by stipulation of the parties (T-10) consisted of several U-4 applications previously filed by the Petitioner, including the one here under review (Ex-6, 13 and 19). The remaining Exhibits dealt specifically with the recitation of the various violations by Petitioner as set forth in paragraph 6 above. As to the first NASD censure and fine of $500 as set forth in paragraph 4 of the Department's initial Order the documents consisted of the following:
Exhibit number 1, is an acknowledgment by the Petitioner of his receipt of a complete explanation of his rights, a waiver of those rights, and an acknowledgment of seven separate and identified violations by Petitioner of the rules and regulations of the NASD and the SEC.
Exhibit number 2, is a letter of admis- sion, signed by Petitioner individually and as President of Crown Financial Corporation
admitting the seven separate and identified violations.
Exhibit number 3, is a self serving letter by the Petitioner made to mitigate the seven separately identified violations.
Exhibits number 4, clearly indicates that NASD did not consider the Petitioner's letter of mitigation but did accept as conclusive the findings of the seven identified violations and fined the Petitioner $500 for those violations.
Exhibit number 5, indicates no conditions or reservations from the Petitioner and contains a photo-copy of his check in payment of the fine imposed for the seven enumerated violations.
As to the second NASD censure and fine of $12,000 in 1983 as set forth in paragraph 2 of the Department's initial Order the documents consisted of the following:
Exhibit number 10, is the complaint filed by NASD enumerating 4 separately stated counts describing numerous violations of NASD rules and violations of the Securities Act of 1933, and the Rules of the Securities and Exchange Act.
Exhibit number 12, is an acknowledgment and waiver of rights signed by both the Petitioner and his legal counsel.
Exhibit number 18, is the Decision and Order of Acceptance of the Petitioner's offer of Settlement, wherein the Petitioner offered to settle those proceedings, consented to the findings of the Business conduct Committee and accepted those facts charging the separate and distinct violations of the NASD.
As to the Massachusetts Cease and Desist Order in 1982 as set forth in paragraph 3 of the Department's initial Order, the documents consisted of the following:
Exhibit number 14, is the temporary Cease and Desist Order enumerating numerous violations of Chapter 110A of the Massa- chusetts General Laws.
Exhibit number 15, is the Final Order indicating that the Petitioner after having been advised of his rights, and while represented by legal counsel consented to and voluntarily accepted the Final Order without
a trial or hearing on the enumerated violations.
The testimony of David Marcus Hickmen (T-5 thru 12) related to his duties for the Department in reviewing the application of the Petitioner, obtaining information from the National Association of Securities Dealers and the State of Massachusetts, etc. and in making his recommendation to the legal section that the application be denied.
The testimony of Mr. Swain, as the Petitioner, (T-14 thru 38) was primarily an explanation in mitigation of the charges as set forth by the Department in its initial Order of Denial as quoted in paragraph 6 above. Specifically Mr. Swain admitted that he had entered into a settlement agreement with NASD and had paid a $12,000 fine (T-20) as set forth in paragraph
of the Department's initial Order and as quoted above in paragraph 6 (See also T-47). Mr. Swain further admitted that he had been the subject of a Cease and Desist Order issued by the State of Massachusetts as set forth in paragraph 3 of the Department's initial Order of Denial as quoted in paragraph 6 above. (T-37) (See also testimony of Mr. Swain at T-21, beginning at line 16). Finally, Mr. Swain admitted that he had been fined $500 and censured by the NASD as set forth in paragraph 3 of the Department's initial Order as cited in paragraph 6 above (T-37) (See also testimony of Mr. Swain at T-28 beginning at line 1.)
By way of mitigation, Mr. Swain testified that the first $12,000 fine he paid to NASD was the result of a misunderstanding by NASD as to the relationship between four limited partnership offerings that Swain and his company had sold to the public in connection with four condominium projects Mr. Swain had promoted in Ft. Meyers, Florida. Mr. Swain testified that there was no integration. This testimony is directly contrary to the findings of the NASD in its Final Order imposing a fine of $12,000 (Ex-18). The particular complaint filed by NASD which resulted in this fine also dealt with other and more serious problems than mere compliance with the integration rule as related by Mr. Swain. This complaint also stated that Mr. Swain and his company had failed to maintain net capital requirements in contravention of Rule 15c3-1 of the SEC and that they had withdrawn commissions and failed to safeguard investors funds in violation of Rule 15c2-4 of the SEC. No explanation or mitigation of these other charges was offered by Mr. Swain.
As to the Massachusetts Cease and Desist Order, Mr. Swain offered in mitigation thereof that he was no longer active with Energy Exchange Corporation after November of 1982 (T-22). However, Mr. Swain testified that he resigned as chief executive officer of this company on November 1, 1982, but remained as a Director and Chairman of the Board for a couple of months thereafter (T-22 at lines 16 thru 20). He then testified that
the public offering of this stock was concluded in October of 1982. (T-23) The Massachusetts Order (Ex. 14 & 15) was based on an offering circular or prospectus filed with the Massachusetts authorities on December 8, 1982. From the detailed description of the activities of Energy Exchange Corporation as outlined by the State of Massachusetts in its Order it is not credible to believe that Mr. Swain did not know of the activities of this company, did not participate therein and did not benefit therefrom. Furthermore, Mr. Swain, as a Director of the company, must be charged with imputed knowledge of the company's affairs. He cannot simply ignore his duties and responsibilities in this respect. Contrary to the obvious conclusion of the Hearing Officer, the Massachusett's Cease and Desist Order was properly issued and Mr. Swain was a proper party to that Order.
The $500 fine paid by Mr. Swain to the NASD in 1980 as set forth in paragraph 2 of the Department's initial Order cited in paragraph 6 above, is summarily dismissed by Mr. Swain in his testimony (T-28, et seq.) as nothing more than an error by his accountants in booking procedure resulting in violations of the net capital requirements of the SEC. However, the Letter of Waiver and Consent (Ex-2) signed by Mr. Swain specifically listed seven separate violations of the federal rules and regulations, only two of which were related to net-capital requirements. Mr. Swain's testimony does not discuss these other violations which were specifically admitted by Mr. Swain, personally, as evidenced by his signature on the Letter of Admission, Waiver and Consent furnished the Hearing Officer as part of Ex-l. It would therefore appear that Mr. Swain's testimony is nothing more than a self-serving declaration that these violations were minor, of no particular significance and were done in reliance on someone else. The Hearing Officer has apparently accepted such testimony without correlating it to the facts as set forth in the Letter of Admission signed by Mr. Swain.
The next witness called by Petitioner was Jean Mildred Page who testified concerning the investigation conducted by NASD and the SEC resulting in the fine of $500 set forth in paragraph
3 of the Department's initial Order quoted in paragraph 6 above (T-39 thru T-42). Her testimony relates solely to the net- capital violations and does nothing more than confirm Mr. Swain's earlier testimony that the net-capital violations resulted from improper bookkeeping procedures. She was not asked and did not address the other violations as found by NASD resulting in the
$500 fine.
Petitioner called Frank Carlton who testified concerning the Massachusetts Cease and Desist Order (T-42 thru T-46). The substance of Mr. Carlton's testimony was to corroborate the earlier testimony of Mr. Swain to the effect that he left Energy
Exchange in November, 1982 and that Mr. Swain thereafter had nothing to do with that company except as an outside director.
The final witness called by Petitioner was Jack Bresnahan the owner of Hillsborough Capital Corporation with whom Petitioner would be affiliated as a principal if his application were granted (T-46 thru T-52). Except to vouch for Mr. Swain's
conviviality, the testimony of Mr. Bresnahan is primarily heresay (T-50, line 5) and consequently of little probative value.
9
In final argument Mr. Swain's counsel states that the SEC did not find that integration had occurred (T-53, line 22). Apparently this statement is in reference to the $12,000 fine imposed by the NASD. This statement is directly contrary to the findings of the NASD as set forth in its Order (Ex-18) and is not supported by any testimony of any NASD representative. In fact, the only contrary testimony is that of Mr. Swain which is obviously self-serving and highly suspect and cannot be used to rebut the Department's prima facie case as determined by the Hearing Officer.
At the conclusion of the Hearing the parties were given ten days within which to submit proposed recommended orders after submission of the transcript (T-52).- Apparently each party did submit proposed orders which were considered by the Hearing Officer and deemed immaterial. See page 2 of the Hearing Officer's Recommended Order. As of the date hereof neither party has filed any exceptions to the Hearing Officer's Recommended Order.
Summarizing the testimony and the evidence, it is clear that the Petitioner was cited twice for violations of the federal securities laws and regulations by the NASD. Furthermore, it is equally clear that the securities regulators of the State of Massachusetts issued a Cease and Desist Order to which Petitioner was a party. Petitioner admitted these facts. In the NASD violations Petitioner consented to the findings by NASD that violations had occurred. As to the Massachusetts Order, Petitioner merely denied all knowledge of it. At no time did he make any effort to have the Order corrected or vacated. At no time did Petitioner ever question the propriety or legality of these Orders after they had been issued, yet the sum and substance of his testimony is that the Orders should never have been issued. Fundamentally, Petitioner attempted to collaterally attack these Orders by his own prejudiced testimony and to a limited extent by that of his friends and employers. There was absolutely no testimony that these Orders did not exist or that such Orders did not apply to Petitioner. The conclusion of the Hearing Officer, that Petitioner had rebutted the Department's prima facie case, is simply not supported by any competent substantial evidence.
CONCLUSION OF LAW
The application for licensure filed by Petitioner was done so under the provisions of Section 517.12(1), Florida Stat-
utes, which is a part of the Florida Securities and Investor Protection Act, Chapter 517, Florida Statutes (Hereinafter the "Act"). Section 517.03, of the Act provides that the Department of Banking and Finance shall administer and provide for the civil enforcement of the Act. This Department therefore has jurisdiction of these proceedings and this Order is proper as an administrative function of the Department.
It has long been a maxim of Florida law that he who asserts the affirmative of a proposition must sustain the burden of proving that assertion. This maxim is carried over into the Model Rules of Procedure of the Division of Administrative Hearing. Rule 28-6.08(3), Florida Administrative Code provides:
Any hearing on the denial of a license shall be conducted in accordance with Section 120.57, and unless otherwise provided by law the applicant shall have the burden of establishing entitlement to the license.
This was a hearing concerning the denial of a license by the Department. The Petitioner therefore had the burden of proving his entitlement to the license.
Under the full faith and credit clause of the Constitu- tion of the United States (US Const. Art IV, Section 1) a judgment or decree rendered by a court of one state is binding and conclusive as to the merits adjudicated in the courts of another state. Irving Trust Co. v. Kaplan, 155 Fla. 120, 20 So 2d. 351 (Fla. 1944); It is improper to permit an alteration or re-examination of the judgment or decree, or of the grounds upon which it is based. Warren v. Warren, 73 Fla. 764, 75 So. 35 (Fla. 1917); Klee v. Cola, 401 So. 2d. 871 (Fla. 4 DCA 1981). These principles of law have also been applied to the decisions and adjudication of administrative agencies and other quasi- judicial bodies. Calder Race Course, Inc. v. Von Wert, 387 So. 2d 492 (Fla. 1st DCA 1980); Doheny v. Grove Isle, Ltd., 442 So. 2d 966 (Fla. 1st DCA 1982); Board of Trustees of Inter, Imp. Trust Fund v. Roy, 444 So. 2d 1110 (Fla. 4 DCA 1984); U.S. Fidelity & Guar. Co. v. Odom, 444 So. 2d 78 (Fla. 5 DCA 1984). Under the doctrines of res judicata and estoppel by judgment all of the testimony of Petitioner and his witnesses which attacked the validity of the Orders and decisions of the NASD and the State of Massachusetts was improper and should have been disregarded by the Hearing Officer as irrelevant and immaterial, leaving no substantial, credible evidence available to controvert the prima facie case established by the Department.
Ancillary to the doctrines that one cannot collaterally attack a duly rendered decision of another court or
administrative agency are the two exceptions that such a duly rendered decision may be collaterally attacked on the grounds of fraud in obtaining the judgment or lack of jurisdiction by the court or agency which rendered the judgment or Order. Markham v. Nisbet, 60 So. 2d 393 (Fla. 1952); Lanigan v. Lanigan, 78 So. 2d
92 (Fla. 1955). There was no testimony in this particular matter which could in any way be classified as an attack upon the NASD Orders or the Massachusetts Cease and Desist Order based on fraud or lack of jurisdiction. As to the jurisdiction of the NASD to render its Order, Petitioner specifically admitted such jurisdiction in those proceedings. (Ex-2 and Ex-12). The Department concludes that Petitioner has failed to establish that the prior Orders of the NASD and the State of Massachusetts were obtained fraudently or that these agencies lacked jurisdiction.
Section 517.161, Florida Statutes, of the Act specifies the grounds upon which the Department may exercise its discretion in granting or denying a license. This section provides in part as follows:
Registration under Section 517.12 may be denied or any registration granted may be revoked or suspended by the Department if the Department determines that such registrant:
Has violated any provision of this chapter or any rule or orders made under this chapter.
* * *
(h) Has demonstrated his unworthiness to transact the business of dealer, investment advisor, or associated person. There was no allegation or testimony that the Department had abused its discretion in denying the application of Petitioner. The Hearing Officer specifically found that the Department had established a prima facie right to do so. The Department concludes that the initial Order of Denial was within the discretionary powers of the Department and was properly issued.
Under the provisions of Section 517.03, Florida Stat- utes, of the Act the Department is authorized and empowered to adopt, promulgate, amend and repeal all rules necessary or conve- nient for the carrying out of the duties, obligations and powers conferred upon the Department under the Act. The Department has adopted and promulgated Rule 3E-600.11, Florida Administrative
Code which provides in pertinent part as follows:
Prima facie evidence of unworthiness to transact the business of a dealer, investment advisor, principal, or agent in the State of Florida shall include, but shall not be limited to:
(2) Any injunction, suspension, prohibition, revocation, denial, or administrative order by any state or federal agency, national securities exchange, or national securities association, involving a violation of any federal or state securities law or any rule or regulation promulgated thereunder, and any injunction or adverse administrative order by a state or federal agency regulating banking, insurance, finance or small loan companies, real estate, mortgage brokers, or other related or similar industries, or any court of competent jurisdiction.
No evidence or allegation was made that this Rule was not in full force and effect or that the adoption of such rule exceeded the statutory discretionary powers of the Department. No allegation was made and no evidence was introduced contesting the fact that the NASD is a federal regulatory agency duly charged with enforcement and supervisions of security dealers and brokers under federal law. The Department concludes that the-initial Order of Denial issued by the Department established a prima facie case of unworthiness for which Petitioner's application was properly denied.
FINAL ORDER
Based on the foregoing findings of fact and conclusions of law it is determined by the Department that the Petitioner has, over a period of years, violated the federal and Massachusetts securities laws as evidenced by the two NASD Orders and the Massachusetts Order. It should be noted that the federal viola- tions also constitute violations under Florida law for which the application could have been denied under Section 517.161(1)(2). As stated by the Hearing Officer the Department has proven, by introduction of the Exhibits, a prima facie case of unworthiness against Petitioner. The evidence introduced by Petitioner went solely to attack the basis on which the Orders had been granted. Under the doctrines of res judicata and estoppel by judgment, such evidence was improper and should have been discounted by the Hearing Officer. Other than such an improper collateral attack on the NASD and Massachusetts Order there was no competent, substantial evidence that the Department had abused its
discretion in denying the application of Petitioner. Therefore, there was no competent, substantial evidence which in any manner rebutted the prima facie case established by the Department.
IT IS THEREFORE determined and ordered that the application of ROBERT EARL SWAIN to be registered with the Department as a principal and agent with Hillsborough Capital Corporation of Tampa, Florida, is hereby denied subject only to the Notice of Rights attached hereto and made a part hereof.
DONE AND ORDERED at Tallahassee, Florida, this 11th day of August, 1986.
GERALD LEWIS as Comptroller of the State of Florida and Head
of the Department of Banking and Finance
COPIES FURNISHED:
K.N. Ayers, Hearing Officer Division of Administrative Hearings The Oakland Building
2009 Apalachee Parkway
Tallahassee, Florida 32301
Daniel J. Wiser, Esquire LaCapra & Wiser
10800 Biscayne Boulevard
Miami, Florida 33161 Attorney for Petitioner
Don Saxon, Director Division of Securities
420 East Jefferson St. The Executive Center
Tallahassee, Florida 32301
Robert C. Sprenkle, Jr., Esquire Office of the Comptroller Regional Service Center
1313 Tampa Street, Suite 713
Tampa, Florida 32316
NOTICE OF RIGHT WITH REGARD TO FINAL ORDER OF DENIAL
NOTICE OF HEREBY PROVIDED in accordance with Section 120.59(4), Florida Statutes (1985 Supp.), that judicial review of the accompanying Final Order of Denial may be sought within thirty (30) days of its rendition in accordance with Rule 9.110, Florida Rules of Appellate Procedure, and Section 120.68, Florida Statutes, by filing a Notice of Appeal with the Clerk of the Florida Department of Banking and Finance, Suite 1302, The Capitol, Tallahassee, Florida 32301, and filing a copy thereof with prescribed filing fees with the Clerk of the District Court of Appeal, Second District, 801 E. Twiggs Street, Suite 600, Tampa, Florida 33602.
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that true and correct copies of the foregoing NOTICE OF RIGHTS WITH REGARD TO FINAL ORDER OF DENIAL
were provided to Daniel J. Wiser, Attorney for Petitioner, 10800 Biscayne Boulevard, Miami, Florida, 33161, this 11th day of August, 1986.
Walter W. Wood
Deputy General Counsel Office of the Comptroller The Capitol, Suite 1302 Tallahassee, Florida 32301
(904) 488-9896
| Issue Date | Proceedings |
|---|---|
| Jun. 30, 1986 | Recommended Order (hearing held , 2013). CASE CLOSED. |
| Issue Date | Document | Summary |
|---|---|---|
| Aug. 11, 1986 | Agency Final Order | |
| Jun. 30, 1986 | Recommended Order | Petitioner rebutted prima facie evidence of unworthiness based on disciplinary action by National Association of Securities Dealers and other state regulators. |
