STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

OFFICE OF COMPTROLLER, DEPARTMENT ) OF BANKING AND FINANCE, )

)

Petitioner, )

)

vs. ) CASE NO. 87-4368

)

ROBERT F. POTTS, )

)

Respondent. )

)

RECOMMENDED ORDER

Final hearing in this matter was held in Orlando, Florida on January 28, 1988, before Mary Clark, Hearing Officer of the Division of Administrative Hearings.

The parties were represented as follows:

For Petitioner: Elise M. Greenbaum, Esquire

Office of the Comptroller

400 West Robinson Street, Suite 501 Orlando, Florida 32801

For Respondent: Jed Berman, Esquire

Infantino & Berman Post Office Drawer 30

Winter Park, Florida 32790-0030 BACKGROUND AND PROCEDURAL MATTERS

This proceeding commenced with Petitioner's Notice of Intention to Suspend and Revoke and Administrative Charges and Complaint, filed on August 7, 1987, seeking to revoke or suspend Robert F. Potts' mortgage broker's license for various violations of Chapter 494, F.S.

Robert F. Potts (Potts) filed his response to the charges on September 2, 1987, and requested a formal hearing pursuant to Section 120.57(1) F.S.

On November 5, 1987, Potts filed a Suggestion of Bankruptcy, providing notice that he had filed a Petition for Relief under Chapter 7, Title 11, United States Code, in the U. S. Bankruptcy Court for the Middle District of Florida, Case No. 87-02823-BKC-6P7. Potts requested that this administrative proceeding be stayed pursuant to Title 11, U. S. Code, Section 362(a)

A telephone conference hearing was conducted on January 4, 1988, to determine whether the instant proceeding should be stayed. The parties were represented by counsel of record. At the conclusion of argument, Potts' request for stay was denied, based on statutory exceptions to Section 362 (a).

Title 11, U. S. Code, Section 362(b)(4) provides that the filing of a bankruptcy petition will not operate as a stay of:

(4)...the commence enter continuation of an action or proceeding by a governmental unit to enforce such governmental unit's police or regulatory power;

This professional license disciplinary action constitutes the continuation of an action by the agency to enforce its police or regulatory power. The complaint seeks revocation or suspension of Potts' license, not a fine nor a money judgment.

The hearing proceeded, as scheduled, on January 8th. At the commencement of the final hearing Potts' counsel moved for dismissal of the Petition, noting that the statute under which Potts was charged was repealed effective September 1, 1986. Both parties argued their positions and the motion was taken under advisement. A ruling on the motion is found in my conclusions of law herein.

Petitioner presented the testimony of seven witnesses, including a financial investigator employed by the agency. Fifteen exhibits were introduced; exhibit number 3 was withdrawn and the remaining exhibits were admitted.

Respondent testified in his own behalf and presented no other witnesses nor exhibits.

After the hearing, Petitioner submitted a proposed recommended order. Specific rulings on the proposed findings of fact are found in the attached appendix.

ISSUES

The following issues are presented for disposition in this proceeding:

1. The effect, if any, of the repeal of Section 494.05, F.S. prior to the filing of the administrative complaint.

   
   

2. Whether Respondent committed the violations of Chapter 494, F.S., with which he is charged.

   
   

3. What disciplinary action, if any, should be taken against Respondents mortgage broker's license.

FINDINGS OF FACT

1. Robert F. Potts is a licensed mortgage broker, having been issued license number HB0011700 by the Department of Banking and Finance (Department). At the time of hearing his license was in inactive status.

   
   

2. Potts incorporated Florida Mortgage Equity Corporation (FMEC) in December 1983. Prior to that time he had worked as a mortgage broker for several companies, including State Capitol Corporation.

   
   

3. When employed by State Capital Corporation Potts solicited investors for "equal dignity mortgages". State Capital's investment program offered eighteen percent interest per annum for a fixed period, generally five years.

4. The Department investigated State Capital Corporation in 1982, and filed suit against the corporation, its officers, directors and several named employees, charging them with violations of the Securities Act and Mortgage Brokerage Act. The case was resolved with stipulations for final judgment, and Final Judgment was entered on April 11, 1983.

   
   

   Potts was not part of the investigation or suit. He left State Capital in late 1983 because he felt uneasy with the company.

   
   

5. Around the time he left State Capital and incorporated FMEC, Potts solicited individuals with whom he had dealt at State Capital. /1 He sent a form letter on FMEC stationary, including the notation, "Robert F. Potts Licensed Mortgage Broker", as part of the printed letterhead. The letter informed potential investors of his new venture:

   * * *

   As you can see, the company is Florida Mortgage Equity Corporation, address and phone listed below. I [sic] pay you an interest check monthly, based on the rate of 18%. All investments are secured with property which is located in the Central Florida area. The terms of investment and amounts are to be discussed individually along with other pertinent information. (emphasis added)

   * * * (Petitioner's Exhibit 11)

6. When individuals invested in FMEC, they were given a "Trust Account Deposit Receipt", reflecting the amount of deposit and stating that the deposited funds were to be used for purchase of a bond earning 18% for a fixed term, generally five years. The trust deposit receipt also stated that the investor would receive the following documents in approximately forty-five (45) days:

   
   

   1. - A copy of the Florida Mortgage Equity Corporation Bond.

   2. - Verification of full insurance on all corporate properties.

   3. - Copy of Appraisal on all corporate properties.

   4. - Copy of Financial Statement on Florida Mortgage Equity Corporation.

      
      

      (Petitioner's Exhibit #12)

      
      

7. Approximately thirty investors invested in excess of $381,000 in FMEC. (Admitted in Response to Notice dated September 2, 1987.) With the exception of a Potts family friend and one individual referred by another investor, all FMEC's investors were people with whom Potts had recently had business through his mortgage broker activities at State Capital.

   
   

8. Five of the investors testified at the final hearing. None had extensive investment experience and most were elderly retired individuals. None received the documents listed in the trust account deposit receipt except for

   the bond, but they were unconcerned so long as the monthly interest payments were being sent. When one investor inquired about the documents, he was asked to wait until Potts got a computer and could get up to date. He never asked again.

   
   

9. Although the FMEC letterhead and Potts' business cards indicated that he was a licensed mortgage broker, Potts was not actually selling mortgages through that company, in contrast to his activity through State Capital. This distinction was lost on his unsophisticated investors, as the schemes both promised the same high yield for the same fixed period. The term, "mortgage", was a prominent part of the company name. He touted his status as a licensee, and the investors had seen his mortgage license when he visited their homes under the auspices of State Capital. To these individuals, Potts' promises of security were backed by his professional license.

   
   

10. Potts' activity with FMEC consisted in soliciting funds from investors. These funds were then invested in a separate corporation, Roundtree Development Corporation.

    
    

    In return for its investments in Roundtree, FMEC received an unsecured corporate bond paying eighteen percent interest. The interest was paid back to FMEC's investors. In addition, Potts received a ten percent commission from Roundtree.

    
    

11. Potts met Michael Deriemaecker, the president and sole director of Roundtree, in 1982 or early 1983. He learned that Deriemaecker was successfully involved in condominium conversions. After a series of casual meetings over a period of months, Potts decided to "join forces," in his words, with Deriemaecker. Potts never considered placing his investors' money in another investment. Potts felt that Deriemaecker was honest and successful in his ventures and Potts did not consider himself knowledgeable in real estate.

    
    

    Roundtree purchased the properties and conducted the actual work of development and renovation; hired and paid the contractors and completed the projects. Potts, through FMEC, raised the funds.

    
    

12. Potts mentioned Roundtree Development Company to some investors, but did not explain to them the relationship between the two companies. The investors understood that their funds were being used for certain real estate projects. At least one investor, J. Daniel Johnson, thought he was supposed to get a mortgage for his investment. Another investor, Evelyn Foley, did not know the difference between a mortgage and a bond but had a clear understanding that her funds were going to be invested in nursing homes, condominiums and apartment buildings - property that was being liquidated - and that the property would be repaired and sold at a profit.

    
    

13. The Department's investigation of Potts and FMEC included a review of subpoenaed bank records. These were incomplete, according to Investigator Alice Hampton, as some of the bank's microfilm was faulty. Ms. Hampton determined from the available bank records that approximately $169,450 was disbursed to Roundtree Development Corporation from investor monies in FMEC's accounts from 1983 to 1986. Bonds supplied to Ms. Hampton by Potts' attorney in response to a subpoena indicated that Roundtree/Deriemaecker received $285,000 from FMEC from September 1983 through October 1984. In an interview with Ms. Hampton, Deriemaecker said that Roundtree received approximately $236,000 from Potts/FMEC. At the hearing, Potts said he did not know exactly how much he loaned Deriemaecher.

14. Michael Deriemaecher did not testify at the hearing. However, the account of his interview on April 14, 1987, found in Ms. Hampton's Report of Investigation (Petitioner's Exhibit #9), is consistent with, and corroborates Potts' testimony with regard to the relationship of the two companies, the use of the funds, and the fact that Roundtree stopped making payments to FMEC in January 1985, when a series of projects failed.

    
    

15. By April 1986, all interest payments by FMEC to its investors ceased. No payments have been made since that time on principal or interest.

    
    

16. Potts' claim that his investors assumed the risk of a risky venture and they got what they bargained for, both oversimplifies and misconstrues the facts.

    
    

17. He was aware of the circumstances of the individuals he solicited; he had been to their homes as an employee of State Capital and knew of their financial status, their ignorance and their demonstrated eagerness to supplement their retirement incomes.

    
    

18. He falsely promised that the investments would be secured, when they were not; he withheld material particulars of the relationship between FMEC and Roundtree; and he misused the funds of his investors by his improvident and reckless release of their money to Roundtree.

    
    

    CONCLUSIONS OF LAW

    
    

19. The Division of Administrative Hearings has jurisdiction over the parties and subject matter of this proceeding pursuant to Section 120.57(1), Florida Statutes.

    
    

20. The Department has the authority to administer and enforce the provisions of Chapter 494, F.S., the Mortgage Brokerage Act. This authority includes the responsibility to discipline the licenses of individuals who violate provisions of the act.

    
    

21. The Department's Administrative Complaint, styled "Notice of Intention to Suspend or Revoke and Administrative Charges and Complaint", dated August 7, 1987, charges Potts violated the following provisions of Section 494.05 (1985):

    
    

    494.05 Denial, suspension, or revocation of licenses. --

    1. The department may, upon its motion,

       or upon the verified complaint in writing of any person, investigate the actions of any person engaged in the business or acting in the capacity of a licensee under this act, within this state. The license of a licensee may be suspended for a period not exceeding 2 years, or until compliance with a lawful order imposed in the final order of suspension, or both, upon a finding of facts showing that the licensee has been guilty of any of the following:

       1. Making any false promise likely to influence, persuade, or induce; or pursuing a course of misrepresentation or false promise

          through agents or solicitors, or advertising or otherwise.

       2. Misrepresentation circumvention, or concealment by the licensee through whatever subterfuge or device of any of the material particulars or the nature thereof, regarding a transaction to which he is a party, and of injury of another party thereto.

       3. Failure to disburse funds in accordance with his agreements.

       * * *

       1. Failure to place, immediately upon receipt, any money, fund, deposit, check, or draft, entrusted to him by any person dealing with him as a broker, in escrow with an escrow agent located and doing business in this state, pursuant to a written agreement, or, to deposit said funds in a trust or escrow bank account maintained by him with some bank located and doing business in this state, wherein said funds shall be kept until the mortgage is recorded or the mortgage -- brokerage fee has been earned on the basis that the lender's commitment has been received by the mortgage broker according to the same terms and conditions contained in the. brokerage agreement or otherwise accepted in writing by the mortgagor. The disbursement procedures herein prescribed shall not supersede the requirements of Section 494.04(6).

          * * *

    2. The license of a licensee may be revoked if the application for the license is found to contain a material misstatement; if the licensee demonstrates by a course of conduct negligence or incompetence in performing any act for which he is required to hold a license under this act; if the licensee misuses or misappropriates moneys, or any other property of any kind whatsoever, entrusted to his care in such a manner as to cause harm to a borrower or lender; if the licensee for a second time shall be found guilty of any misconduct which warrants his suspension under subsection (1); or if

    a payment of any amount form the Mortgage - Broker Guaranty fund is made in settlement of a claim pursuant to Section 494.044 for an act committed by the licensee.

    * * *

    
    

22. Sections 494.02(2) and (3), F.S. (1985) define mortgage loan and mortgage broker:

    "Mortgage loan" means any loan secured by a mortgage on real property or any loan secured by collateral which has a mortgage lien interest in real property.

    
    

    "Mortgage broker" means any person not exempt under Section 494.03 who for compensation or gain, or in the expectation of compensation or gain, either directly or indirectly makes, negotiates, acquires, sells, or arranges for, or offers to make negotiate, acquire, sell, or arrange for, a mortgage loan or mortgage loan commitment. This subsection shall not apply to transactions involving the sale or purchase of notes or bonds secured by mortgages which are subject to registration by the Department.

    
    

23. Section 494.05, F.S. was repealed by Chapter 86-68 Laws of Florida, Section 29, effective September 1, 1986, approximately one year before the administrative complaint was filed. The subsections at issue here were substantially reenacted by Chapter 86-68, Laws of Florida, as the following:

    
    

    1. Grounds for disciplinary action.--

       1. The following acts shall constitute grounds for which the disciplinary action specified in Section 494.052 may be taken:

    1. Fraud, misrepresentation, deceit, negligence, or incompetence in any mortgage financing transaction;

    2. A material misstatement of fact on an initial or renewal application;

    (e) Failure to place, immediately upon receipt, any money, fund, deposit, check, or draft entrusted to him by a person dealing with him as a broker, in escrow with an escrow agent located and doing business in this state, pursuant to a written agreement, or to deposit said funds in a trust or escrow account maintained by him with a bank or savings and loan association located and doing business in this state, wherein said funds shall be kept until disbursement thereof is properly authorized;

    1. Failure to disburse funds in accordance with agreements;

    2. Any breach of trust funds of escrow funds, or any misuse, misapplication, or misappropriation of personal property, such as any money, fund, deposit, check, draft, mortgage, or

    other document or thing of value, entrusted to his care to which he had no current property right at the time of entrustment regardless of actual injury to any person;

    * * *

    
    

24. Potts was properly charged with violations of section 494.05 F.S. as that was the law in effect at the time the alleged violations occurred.

    
    

25. The prosecution is not barred, notwithstanding the 1986 repeal, and Respondent's motion to dismiss is denied. An amendment and re-enactment of a statute constitutes a continuation of those provisions which are carried into the new act and permits a prosecution under the original act irrespective of its nominal repeal. Galloway v. Department of Professional Regulation, 421 So. 2nd

    573 (Fla. 3rd DCA 1982).

    
    

26. As reflected in the portions of subsections 494.05 and 494.055, above, the legislature intends the discipline of individuals who misuse their licenses as mortgage brokers.

    
    

    Potts did not in fact directly or indirectly make or sell mortgage loans while operating FMEC. See the definition of "Mortgage Broker" in paragraph 4 above. However, he induced his investors by the false promise reflected in his solicitation letter that their investment would be secured by property. The name of his company and the prominent display of his status as a mortgage broker were part of the scheme of inducement. He used his mortgage, broker's license to obtain the funds and it would be manifestly unjust for him to escape discipline of an admittedly deliberate failure to obtain for his investors the mortgage security that his license permitted him to produce.

    
    

27. Petitioner failed to prove by clear and convincing evidence that Potts violated subsection 494.05(1)(f), F.S. (1985), in his handling of the trust account. The bank records produced at hearing were incomplete and in some instances, improperly copied and assembled. (transcript, pp 47-52, 72-81)

RECOMMENDATION

Based on the foregoing, it is, hereby RECOMMENDED:

That Robert F. Potts be found guilty of violations of Section 494.05(1)(a), (b), and (c) and 494.05(2), F.S. (1985) and that his mortgage broker's license be revoked.

DONE and RECOMMENDED this 21st day of April, 1988, in Tallahassee, Florida.

MARY CLARK

Hearing Officer

Division of Administrative Hearings The Oakland Building

2009 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 21st day of April, 1988.

ENDNOTE

1/ Although the company was incorporated on December 2, 1983, an FMEC corporate bond and trust account deposit receipt are dated November 30, 1983. (Petitioner's exhibit #12)

APPENDIX TO RECOMMENDED ORDER, CASE NO. 87-4368

The following constitute specific rulings on the findings of fact proposed by Petitioner. Respondent did not submit proposed findings.

1. Adopted in paragraph 1.

2-3. Adopted in substance in paragraph 2.

1. Adopted in paragraph 4.

2. Rejected as cumulative.

3. Adopted in paragraphs 7 and 9.

4. Adopted in paragraph 3.

5. Rejected as inconsistent with the evidence. Since at least one corporate bond is dated November 1983, solicitations must have started before then.

6. Adopted in paragraph 5.

7. Rejected as unnecessary. 12-14. Rejected as unnecessary.

1. Adopted in paragraph 6.

2. Rejected as unnecessary and immaterial.

3. Adopted in substance in paragraph 8.

4. Rejected as unnecessary

5. Adopted in paragraph 15.

6. Rejected as unnecessary.

7. Adopted in part in paragraph 12, otherwise rejected as cumulative and unnecessary.

8. Adopted in paragraph 12.

9. Adopted in substance in paragraph 9. 24-25. Rejected as cumulative.

26. Adopted in paragraph 8.

27-32. Adopted in part in paragraph 13, otherwise rejected as unnecessary.

The incompleteness of the bank records and manner in which they were assembled largely discredited the testimony regarding the various accounts.

33-39. Rejected as summary of testimony rather than findings of fact.

40. Rejected as cumulative.

41-42. Rejected as summary of Respondent's testimony, rather than findings of fact.

COPIES FURNISHED:

Elise M. Greenbaum, Esquire Assistant General Counsel Office of the Comptroller

400 West Robinson Street, Suite 501 Orlando, Florida 32801-1799

Jed Berman, Esquire Post Office Drawer 30

Winter Park, Florida 32790

Honorable Gerald Lewis Comptroller, State of Florida The Capitol

Tallahassee, Florida 32399-0350

Charles L. Stutts, Esquire General Counsel

Department of Banking and Finance Plaza Level, The Capitol Tallahassee, Florida 32399-0350

Docket for Case No: 87-004368

Orders for Case No: 87-004368