STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

FRANK EDWARD BLANCO, )

)

Petitioner, )

)

vs. ) Case No. 85-4313

)

DEPARTMENT OF BANKING AND )

FINANCE, STATE OF FLORIDA, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, William J. Kendrick, held a public hearing in the above styled case on April 30, 1986, in Fort Lauderdale, Florida.

APPEARANCE

For Petitioner: George Moxon, Esquire

1512 East Broward Boulevard, Suite 203 Fort Lauderdale, Florida 33301

For Respondent: Charles E. Scarlett, Esquire

Assistant General Counsel Office of the Comptroller The Capitol, Suite 1302 Tallahassee, Florida 32301

PRELIMINARY STATEMENT

The issue raised by these proceedings is whether Petitioner's application for registration as an associated person with Rothschild Equity Management Group, Inc., under Section 517.12, Florida Statutes, should be approved.

At final hearing Petitioner testified on his own behalf and called Mark Solomon as a witness. Petitioner's Exhibits 1-4 were received into evidence. Respondent called William F. Reilly, Jr., as a witness and Respondent's Exhibits 1-6 were

received into evidence.

The transcript of hearing was filed on June 3, 1986. The parties waived the requirement set forth in Rule 28-5.402, F.A.C., that a recommended order be entered within 30 days after the transcript is filed. Rule 22I-6.31(2), F.A.C.

Petitioner and Respondent have submitted proposed findings of fact and conclusions of law, and they have been reviewed and considered. A ruling has been made on each proposed finding of fact in the appendix to this Recommended Order.

FINDINGS OF FACT

The Application

1. On June 28, 1985, Petitioner, Frank Edward B1anco (Blanco), filed an application with Respondent, Department of Banking and Finance (Department), for registration as an associated person with Rothschild Equity Management Group, Inc. Pertinent to this proceeding, the application provided:

   
   

   Have you ever:

   
   

   1. been the subject of a major complaint or legal proceeding?

      
      

      E. been the subject of any order, judgment, decree or other sanction of a foreign court, foreign exchange, or foreign governmental or regulatory agency?

      
      

      * * *

      
      

      While associated in any capacity in the securities, commodities, investment advisory, real estate, banking or insurance industry or any other business have you ever:

      
      

      * * *

      
      

      C. had any temporary or permanent injunction or administrative order entered against you or any broker, dealer, investment advisor, municipal securities dealer, bank or commodities firm with which

      you were associated in any capacity at the time such injunction was entered?

      
      

      Blanco answered "yes" to each of the foregoing questions, and in response to his obligation to provide "complete details" advised that he had been named in a cease and desist order by the State of Missouri while associated with Precious Metals International, Inc., (PMI), and a cease and desist order by the State of Florida, Department of Banking and Finance, arising from his association with First Petroleum Corporation of America (First Petroleum).

      
      

2. On August 12, 1985, Blanco filed an amendment to his application, and in so doing advised the Department that he had agreed to enter into "what is the equivalent of a Consent Decree" in the case of the Commodity Futures Trading Commission and the State of Florida, Department of Banking and Finance v. Precious Metals International, Inc., Executive Control Corporation, and Frank Blanco, et al, then pending in the United States District Court, Southern District of Florida.

   
   

3. By Order of October 5, 1985, the Department denied Blanco's application for registration as an associated person predicated, inter alia, or Blanco's failure to disclose an injunction entered against him in the case of Federal Trade Commission v. First Petroleum, Blanco, et al, United States District Court, Southern District of Florida, Case No. 82-2744- CIV, and his unworthiness to transact business as an associated person. Blanco filed a timely request for a formal hearing.

   
   

   The Background

   
   

4. Mr. Blanco was employed from September 198 to November 1982 by First Petroleum as a salesman and, ultimately, Executive Vice President (sales manager and recruiter). From December 1983 to December 1984 he was the president and sales manager of Precious Metals International, Inc. (PHI), and from December 1984 to January 1985 the "Director of Consulting" for Executive Control Corporation (the "administrative branch" for PMI).

   
   

5. By complaint for injunctive and other relief filed in the United States District Court, Southern District of Florida, Case No. 82-2744-CIV, the Federal Trade Commission sued First Petroleum, Blanco, and others (Defendants) for violations of Section 5(a) of the Federal Trade Commission Act (FTC Act), 15

   U.S.C. 45(a), regarding unfair or deceptive acts or practices. Specifically, the complaint alleged that Defendants

   misrepresented certain material facts in their solicitation of the sale of filing, evaluation and advisory services to consumers in connection with the Federal Simultaneous Oil and Gas Leasing System (SIMOL System). On April 6, 1983, the court entered a "Stipulated Final Order and Judgment."1 In its order, the court found:

   
   

   1. Defendants First Petroleum Corporation of America,... Frank E. Blanco,... ("defendants") may have misrepresented their past success in obtaining oil and gas mineral rights in the Federal Simultaneous Oil and Gas Leasing System (SIMOL System), the level of competition for such rights, and the value of rights obtained through the program;

      
      

   2. Defendants may have deceptively failed to disclose in oral sales presentations and written sales materials the true number parcels of land for which they obtained oil and gas leasing rights for their customers and the true number of attempts to obtain such rights.

   
   

   The Court enjoined the defendants from misrepresenting, orally or in writing, the past or likely future success of defendants' customers in obtaining oil or gas lease rights through the SIMOL System or any program which makes such rights available to the public; misrepresenting, orally or in writing, the number of competing applications for lease rights that are filed, or are likely to be filed; representing orally or in writing, that parcels defendants select for their clients contain oil or gas; or making any false or deceptive claims concerning past or likely future earnings of defendants' customers. The court also ordered that the defendants, jointly or severally, contribute to an escrow account established by the Federal Trade Commission the sum of $125,000 as redress for customers who may have been injured by the alleged deceptive practices. Blanco paid $25,000 into the escrow account.

   
   

6. By complaint for injunctive and other relief filed in the United States District Court, Southern District of Florida, Case No. 85-6705-CIV, the Commodity Futures Trading Commission (CFTC) and the State of Florida, Department of Banking and

   
   

   
   

   1

   Finance, sued Precious Metals International, Inc. (PMI), Executive Control Corporation (ECC), Blanco, and others (Defendants) for the use of unfair, misleading, false and deceptive sales practices in the sale of "physical deferred payment" contracts for precious metals, and the unlawful operation of a "boiler room" within the State of Florida. On September 27, 1985, the court entered a final judgment and permanent injunction with the Defendants' consent, but without any adjudication on the merits and without the Defendants admitting or denying the allegations of the complaint. In its final judgment, the court found that the defendants, "without admitting or denying" had violated Section 4(a) of the Commodity Exchange Act, in that they had solicited orders in connection with contracts for the purchase and sale of commodities for future delivery without such transactions having been conducted on or subject to the rules of a board of trade designated by the CFTC as a "contract market", without such contracts having been executed or consummated through a member of such "contract market", and without such contracts having been evidenced by a record in writing showing the date, the parties, their addresses, the property, its price and terms of delivery. The court also found that the defendants, "without admitting or denying" had violated Section 4(b) of the Commodity Exchange Act, in that they had cheated, defrauded, and willfully deceived, or had attempted to cheat, defraud or deceive, customers in connection with contracts for the purchase and sale of commodities for future delivery. Finally, the court found that the defendants, "without admitting or denying" had also violated Section 517.301 and 517.312, Florida Statutes, by operating a boiler room selling commodities future contracts or "investments" as defined in Section 517.021(11), Florida Statutes, and by making various oral and written untrue and misleading representations which defendants knew or should have known were untrue and misleading.2 The court enjoined the defendants, including Blanco, from the future commission of the aforesaid offenses; appointed a receiver for PMI and ECC to take control of their assets, wind-up their business operations, remove the individual defendants from control and management of PHI and ECC, and to satisfy the claims of customers; and ordered Blanco to disgorge $28,000, payable $10,000 within 30 days of the entry of judgment and $1,500 per month for one year. Blanco has made the payments required by the court's order.

   
   

7. On March 25, 1985, In the matter of Precious Metals International, Inc., Frank Blanco and Merrill Porte,

   
   

   
   

   2

   (Respondents), file No. CD-85-7, the State of Missouri, Secretary of State, Division of Securities, entered an order to cease and desist against Respondents. In its order, the Commissioner of Securities found that Respondents had violated section 409.201, 409.301, 409.101 and 409.408 of the Missouri Statutes by engaging in broker-dealer and agent activities within the state without being properly registered; by selling unregistered securities in a fraudulent manner; and by failing to file a statement of exemption with the Commissioner.

   Respondents were ordered to cease and desist from the offer or sale of unregistered or exempt securities in violation of section 409.301, Missouri Statutes.

   
   

   BLANCO'S RESPONSE

   
   

8. Blanco asserts that his failure to disclose the final order entered in Federal Trade Commission v. First Petroleum, Blanco, et al, on his application to the Department was inadvertent. Blanco claims he "inadvertently thought" it was part of the cease and desist order entered by the State of Florida, Department of Banking and Finance, against First Petroleum. Blanco's assertion is inherently improbable. The cease and desist order entered by the Department was, as Blanco knew, reversed on appeal. Blanco paid $25,000 under the final order entered in the Federal Trade Commission case. These matters were hardly subject to confusion.

   
   

9. An evaluation of Blanco's proof in this case is glaring in its absence of substance. With respect to the injunctions rendered against him in the Federal Trade Commission v. First Petroleum, Blanco, et al, and the Commodity Futures Trading Commission v. PMI, B1anco, et al, cases, Blanco offered no evidence concerning the validity of the charges, the propriety of the injunctions, or any exculpatory or mitigative proof. Regarding the Missouri case, Blanco averred that it arose because of misrepresentations made by PMI salesman Merrill Ponte (Ponte).3 At the time in question, however, Blanco was the president and sales manager of PMI, and responsible for assuring that sales personnel did not make misrepresentations. Blanco offered no proof that he was unaware of Ponte's activities, or that Ponte's activities were unauthorized.4

   
   

   CONCLUSIONS OF LAW

   
   

10. The Division of Administrative Hearings has

    
    

    3

    4

    jurisdiction over the parties to, and the subject matter of, these proceedings.

    
    

11. Pertinent to these proceedings, Section 517.16(1), Florida Statutes, provides:

    
    

    Registration under S. 517.12 may be denied

    ... by the department if the department determines that such applicant...:

    
    

    1. Has violated any provision of this chapter or any rule or order made under this chapter;

       
       

       * * *

       
       

    2. Has made a material false statement in the application for registration;

    
    

    * * *

    
    

    (h) has demonstrated his unworthiness to transact business of dealer, investment adviser, or associated person....

    
    

12. Rule 3E-600.11, Florida Administrative Code, provides:

    
    

    Prima Facie evidence of unworthiness to transact the business of a dealer, investment adviser, 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....

    
    

13. Blanco's failure to disclose the Federal Trade Commission v. First Petroleum, Blanco, et al, suit, constituted a material false statement in his application for registration, in violation of Section 517.161(1)(b), Florida Statutes.

    
    

14. The injunctions rendered against Blanco in the Federal Trade Commission v. First Petroleum, Blanco, et al, and Commodity Futures Trading Commission v. PMI, Blanco, et al , suits, and the cease and desist order entered by the State of Missouri, established, prima facie, Blanco's unworthiness to transact business as an associated person. Blanco failed to rebut the Department's prima facie case.

Based on the foregoing Findings of Fact and Conclusions of Law, it is

RECOMMENDED that a Final Order be entered denying Petitioner's application for registration as an associated person with Rothschild Equity Management Group, Inc.

DONE and ENTERED this 18th day of July, 1986, in Tallahassee, Florida.

WILLIAM J. KENDRICK

Hearing Officer

Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32301

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 18th day of July, 1986.

ENDNOTES

1/ Mr. Blanco agreed to the form of the order as entered.

2/ The court also found the defendants in violation of Section 517.275, Florida Statutes, for having violated Sections 4(a) and

(b) of the Commodity Exchange Act.

3/ Blanco also averred that he was unaware of the Missouri case until the cease and desist order was entered. Blanco's assertion is unpersuasive. At the time in question, Blanco was the president and sales manager for the firm. PMI underwrote Ponte's defense.

4/ In reaching this conclusion the testimony of Mark Soloman, attorney for Mr. Ponte, has not been overlooked. Mr. Soloman's testimony has not been credited, however, since it is patently uncorroborated hearsay.

COPIES FURNISHED:

Charles E. Scarlett, Esquire Assistant General Counsel Office of the Comptroller The Capitol, Suite 1302 Tallahassee, Florida 32301

George Moxon, Esquire

1512 East Broward, Suite 203 Fort Lauderdale, Florida 33301

Honorable Gerald Lewis Comptroller, State of Florida The Capitol

Tallahassee, Florida 32301

Wendy M. Mitchler, Esquire Assistant General Counsel Office of the Comptroller The Capitol, Suite 1302 Tallahassee, Florida 32301

Frank Edward Blanco 20420 S.W. 49th Court

Ft. Lauderdale, Florida 33332

APPENDIX

Petitioner's proposed findings of fact are addressed as follows:

1. Addressed in paragraph 3.

   
   

2. Addressed in paragraph 5 & 8.

   
   

3. Addressed in paragraph 2.

   
   

4. Addressed in paragraph 7 and 10.

   
   

5. Addressed in paragraph 9 and the Conclusions of Law.

Respondent's proposed findings of fact are addressed as follows: 1-2. Addressed in paragraphs 1 & 13.

3-4. Addressed in paragraph 4.

5-7. Addressed in paragraph 5.

8-10. Addressed in paragraph 1-2.

11-12. Addressed in paragraph 4.

13-14. Addressed in paragraph 6.

15. Addressed in paragraph 7.

Docket for Case No: 85-004313

Orders for Case No: 85-004313