STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
ROBERT M. KATZ )
)
Petitioner, )
)
vs. ) CASE NO. 88-3935
) STATE OF FLORIDA, DEPARTMENT OF ) BANKING AND FINANCE, DIVISION OF ) SECURITIES AND INVESTOR )
PROTECTION, )
)
Respondent. )
)
RECOMMENDED ORDER
Pursuant to notice, a formal hearing was conducted in this case in Ft.
Lauderdale, Florida on April 4, 1989, before J. Stephen Menton, a duly designated Hearing Officer of the Division of Administrative Hearings.
APPEARANCES
For Petitioner: Jan Douglas Atlas, Esquire
Natalie Z. Aizpuru, Esquire ATLAS, PEARLMAN & TROP, P.A.
Suite 300
700 S.E. Third Avenue Ft. Lauderdale, FL 33316
For Respondent: Carmen L. Leon, Esquire
Assistant General Counsel Office of the Comptroller
401 W. Second Ave., Suite 708-N Miami, Florida 33128-1796
Tamara Cain, Esquire Office of the Comptroller The Capitol - Tallahassee, FL 32399-0350
STATEMENT OF THE ISSUES
At issue in this proceeding is whether the application of Petitioner for registration as an associated person with J.T. Moran and Company, Inc.should be approved by the Florida Department of Banking and Finance.
PRELIMINARY STATEMENT
On November 20, 1987, Petitioner filed with the Department a Form U-4 Application for registration as an associated person with J. T. Moran and Company. By letter dated July 1, 1988, the Department denied Petitioner's
application. The Petitioner timely requested a formal administrative hearing pursuant to Chapter 120, Florida Statutes, and the hearing was held as noted above on April 4, 1989. At the Final Hearing, the Petitioner testified on his own behalf and called Alice Ditman, Howard Feinmel and Albert Danenburg, as witnesses. Petitioner's Exhibits 1, 3 and 4 were received into evidence.
Ruling was reserved regarding Petitioner's Exhibit 2.
Petitioner's Exhibit 2 is a letter dated January 17, 1989 purportedly from Paul Michelin regarding Petitioner's responsibilities with Michelin and Company. At the hearing, Petitioner's Exhibit 2 was marked for identification purposes only and the parties were given an opportunity to submit legal memoranda regarding its admissibility. After reviewing the record of the proceedings, arguments submitted by counsel and being otherwise advised in the premises, the undersigned concludes that Petitioner has failed to provide an adequate factual predicate to establish the authenticity of this document and, therefore, it is not admitted.
Respondent presented the testimony of Jeffrey Zwitter and Michael Blaker.
Respondent's Exhibits 1-5 and 7-14 were admitted into evidence. Ruling was reserved with respect to Respondent's Exhibit 6 which is a deposition of Paul Michelin taken on March 25, 1986 in connection with an unrelated civil law suit between Petitioner and Delta Airlines. At the hearing, the deposition was marked for identification purposes only and the parties were given an opportunity to submit legal argument regarding its admissibility into evidence. After reviewing the record of the proceedings, arguments submitted by counsel and being otherwise advised in the premises, the undersigned concludes that Respondent's Exhibit No. 6 constitutes hearsay and does not fall within any recognized exception under the Florida Rules of Evidence. Thus, the deposition testimony alone cannot support a finding of fact. However, it can be used to supplement or corroborate other competent testimony. Harris v. Game and Fresh Water Fish Commission, 495 So.2d. 806, (Fla. 1st DCA, 1986)
The transcript of the Final Hearing was filed with the Division of Administrative Hearings on May 1, 1989. Both parties timely filed proposed recommended orders and the parties' proposed findings of fact have been addressed in the Appendix to this Recommended Order. In addition, both parties timely filed legal memoranda which have been reviewed and considered in the preparation of this Recommended Order.
FINDINGS OF FACT
Based upon my observation of the witnesses, their demeanor while testifying, the documentary evidence received and the entire record compiled herein, I make the following findings of fact:
Petitioner, who turned 46 years old on May 25, 1989, first became involved in the securities industry in approximately January of 1983 when he began working with the firm of Huberman, Margaretten and Straus, Inc.(HMS). Petitioner was registered with the Department as an associated person with HMS from May, 1983 until January, 1984.
Petitioner's involvement in the securities industry evolved from discussions that he had with Paul Michelin. After some preliminary conversations, Mr. Michelin (who was a partner at HMS and had been involved in the securities industry for over twenty years) hired Petitioner to work as an account executive at HMS. Prior to starting work at HMS in 1983, Petitioner had
been employed in unrelated industries and had never sold securities or worked in a position of responsibility for a securities firm.
During his employment at HMS, Petitioner was supervised and trained by Paul Michelin.
In approximately January of 1984, Paul Michelin left HMS and started his own broker-dealer firm, Michelin and Company.
Petitioner was hired by Paul Michelin to work at that company beginning in January of 1984. Petitioner was registered with the Department as an associated person with Michelin and Company effective February 28, 1984.
Paul Michelin owned all of the stock of the company. He oversaw and was responsible for the day to day operations of Michelin and Company throughout the entire time period relevant to these proceedings. Paul Michelin also had ultimate and sole responsibility for hiring and firing at Michelin and Company.
There is conflicting evidence as to Petitioner's job title and responsibilities when he first joined Michelin and Company. At the hearing, Petitioner testified that he was originally hired as an account executive and did not become a vice president until sometime around May or June of 1984. However, in early 1986, Petitioner filed a lawsuit against Michelin and Company for commissions and money supposedly due. In pleadings filed on behalf of Petitioner in that lawsuit, allegations were made that Petitioner was hired as a vice president of Michelin and Company in January of 1984 and his job responsibilities included a role in the management of the company. After reviewing the testimony and the documents received into evidence, the undersigned finds that Petitioner did not actually become a vice-president of the company until May or June of 1984.
Petitioner passed the Series 24 examination that was given in May of 1984 and his registration with the Department was upgraded to principal effective July 26, 1984. Petitioner did not supervise any other brokers at Michelin and Company prior to passing the Series 24 exam.
During the time period involved in this case, there were at least four other individuals employed by Michelin and Company who were principals and held the title of vice president.
At some point in time, Petitioner became president of Michelin and Company. There is conflicting testimony as to when Petitioner actually was made President of the company. At the hearing, Petitioner and several other witnesses testified that he was not made president until April of 1985. In the pleadings filed by Petitioner against Michelin and Company, there is an allegation that Petitioner assumed this position in October of 1984. After hearing the testimony of the witnesses and reviewing the evidence submitted, the undersigned accepts the testimony of Petitioner that he did not become president of the company until April of 1985.
When Petitioner became president of the company, his job responsibilities did not significantly change with the assumption of this office. While Petitioner handled some administrative and managerial duties for the company, Paul Michelin became Chairman of the Board for the company and continued to be involved on a day to day basis and remained responsible for the overall operations of the company.
During the entire time the company was in operation Paul Michelin was primarily responsible for generating business, determining which stocks Michelin and Company would make a market in, deciding whether the company would underwrite particular issues and coordinating due diligence on specific offerings. Paul Michelin advised the sales force of the selling price of everything sold by Michelin and Company.
Throughout the entire period that he was employed at Michelin and Company, Petitioner reported to Paul Michelin. There is no evidence that Petitioner was ever involved in directing due diligence on behalf of the company, determining underwriting criteria or requirements, deciding which stocks the company would make a market in, or deciding when the company would take a market to issue.
Petitioner did not have the authority to hire or fire brokers or staff employees at Michelin and Company.
Petitioner assisted in recruiting some brokers to the firm and received an override on the commissions produced by some of those brokers Petitioner supervised some of these other brokers, including, on occasion, reviewing their order tickets. Petitioner occasionally provided the sales staff with general advice on sales techniques and motivation. However, there is no evidence that Petitioner ever instructed or directed sales personnel to push any particular stock nor is there any evidence that Petitioner knowingly advised sales personnel to sell unregistered securities.
Beginning in March or April of 1984, Michelin and Company started selling "convertible notes" of a company called Mikrotek. The Mikrotek "convertible notes" constituted securities under Chapter 517 Florida Statutes and were required to be registered prior to sale pursuant to S. 517.017, Florida Statutes.
Paul Michelin was instrumental in the structuring of the Mikrotek transaction and the offering of the notes for sale by Michelin and Company.
Petitioner was not involved in structuring the Mikrotek transaction. While Petitioner had some managerial and administrative responsibilities with Michelin and Company at the time the Mikrotek convertible notes were sold, his involvement was administrative in nature and did not include review or decision- making authority with respect to the structuring of the Mikrotek transaction.
Michelin and Company's involvement with the Mikrotek transaction was originated by Paul Michelin. Paul Michelin brought the president of Adeck Technology to Michelin and Company to explain the Mikrotek deal to the employees of Michelin and Company.
The president of Adeck Technology explained to the Michelin and Company employees that his company was in need of raising capital and, therefore, would be offering for sale the convertible notes of a European subsidiary or affiliate referred to as Mikrotek.
Paul Michelin provided additional information regarding the Mikrotek transaction to Petitioner and other brokers with the company and advised them that the convertible notes were exempt from registration.
There is no evidence that Petitioner knew the notes had to be registered at the time that he was selling them.
Petitioner accepted Paul Michelin's representations that the convertible notes did not need to be registered. Petitioner did not learn that the notes had to be registered until some time after October, 1985.
Even as late as January, 1986 when the Department began investigating the sale of Mikrotek notes by Michelin and Company, Paul Michelin took the position that the notes did not need to be registered.
Petitioner and other brokers with Michelin and Company conducted personal due diligence regarding the Nikrotek transaction prior to selling the notes. However, their due diligence was limited in scope because the transaction was being structured by and was the responsibility of Paul Michelin.
The due diligence conducted by Petitioner and the other brokers included a visit to the Adeck Plant in West Palm Beach where they were provided with more details regarding the nature of the investment.
The visit to the Adeck Plant revealed an ongoing business operation and did not provide any indication of an intended scheme to defraud investors
Paul Michelin advised Petitioner and the other brokers at Michelin and Company as to the denominations of and anticipated conversion rates for the notes.
During a period of time from August of 1984 through February of 1985, Petitioner sold the convertible notes of Mikrotek to twelve (12) purchasers The following is a list of investors to whom Petitioner sold the notes:
Investor Amount
Emmanuel Weinberger $10,000/ 10,000 shares ($1.00 per share) John Silvestri 21,000/ 21,000 shares ($1.00 per share) John Silvestri, Jr. 20,000/ 10,000 shares ($2.00 per share)
Ester Palley Sol Palley | 5,500/ 11,000/ | 10,000 shares 20,000 shares | ($0.55 ($0.55 | per per | share) share) | |
Arthur & Ann Katz | 2,750/ | 5,000 | shares | ($0.55 | per | share) |
Mark Krowda | 3,500/ | 3,500 | shares | ($1.00 | per | share) |
Ed Dinkins | 1,000/ | 1,000 | shares | ($1.00 | per | share) |
Geraldine Faley Robert Brasington | 5,500/ 12,250/ | 10,000 shares 16,750 shares | ($0.55 ($0.73 | per per | share) share) | |
Robert Daniels | 1,375/ | 2,500 | shares | ($0.55 | per | share) |
Maxine Daniels | 1,375/ | 2,500 | shares | ($0.55 | per | share) |
94,000/112,250 shares | ||||||
The sales of the notes by Petitioner were made on the following dates: Investor Date of Sale
Emmanuel Weinberger November, 1984
John Silvestri September, 1984
John Silvestri, Jr. February, 1985
Ester Palley August, 1984
Sol Palley August, 1984
Arthur & Ann Katz August, 1984
Mark Krowda October, 1984
Ed Dinkins October, 1984
Geraldine Faley August, 1984
Robert Brasington September, 1984
Robert Daniels August, 1984
Maxine Daniels August, 1984
Included among the purchasers to whom Petitioner sold the notes were his own mother and father.
Petitioner was not president of Michelin and Company at the time he sold the Mikrotek convertible notes.
Paul Michelin and the president of Adeck Technology periodically provided the Michelin employees with updated information on the Mikrotek transaction during the period the notes were being sold. At no time was Petitioner advised that the notes had to be registered.
Petitioner did not provide any of the purchasers of the Notes with an offering circular, prospectus or any other document constituting full and fair disclosure nor did he advise them that they were entitled to receive such a document.
In connection with the sale of the convertible notes of Mikrotek, Petitioner did not inform the purchasers that they had a right to rescission under Florida law.
In connection with the sale of the convertible notes of Mikrotek, Petitioner represented to the purchasers that Mikrotek intended to do a public offering of stock at a price range of $2 - $5 a share and the convertible notes could be converted and registered at that time and sold at the public offering price. At the time he made these representations, Petitioner believed them to be true.
There was never a public offering of Mikrotek stock and, therefore, investors were not able to convert the notes to stock.
Mikrotek was unable to repay the notes.
In September of 1986, the Department filed an Administrative Complaint for Revocation of Registration seeking to revoke Michelin and Company's registration. Petitioner was not employed by Michelin and Company and was, not registered with the Department at the time the complaint was filed and, therefore, Petitioner was not named in the Administrative Complaint.
While the allegations of the Administrative Complaint filed against Michelin and Company focused largely on the sale of Mikrotek convertible notes, several other transactions were also cited. However, no evidence was introduced with respect to those transactions. Aside from the sale of the Mikrotek convertible notes, there is no indication that Petitioner was ever involved in any other sales of securities in violation of Chapter 517, Florida Statutes.
Ultimately, all of the investors who purchased Mikrotek convertible notes through Michelin and Company were repaid their investment by Paul Michelin from his personal funds.
Or August 2, 1985, Petitioner and his wife were involved in a plane crash in Dallas, Texas. Petitioner was compelled to spend a considerable portion of the following months in Dallas with his wife. As a result,
Petitioner was severely restricted in his ability to conduct his business in a regular manner. Not surprisingly, strains developed in his relationship with Michelin and Company.
A dispute arose as to whether Petitioner was receiving all of the commissions and payments due him. This dispute resulted in a lawsuit brought by Petitioner against Michelin and Company, Paul Michelin and others in January of 1986. Shortly thereafter, Petitioner was terminated from employment with Michelin and Company. A Form U-5 termination notice regarding Petitioner was submitted by Michelin and Company to the Department on January 26, 1986 and Petitioner has not been registered to sell securities in Florida since that time.
On November 20, 1987, Petitioner filed with the Department a Form U-4 Application for registration as an associated person with J. T. Moran and Company. By letter dated July 1, 1988, the Department denied Petitioner's application.
The denial letter sent by the Department references a customer complaint received by the Department regarding Petitioner and a civil lawsuit filed against Petitioner. Both of these matters arise from the sale of Mikrotek convertible notes.
The customer complaint referenced in the denial letter was filed by John Silvestri (Silvestri) who was a client of Petitioner.
In November of 1985, Silvestri filed a complaint with the Department alleging that Petitioner had forged the signature of Silvestri and his son to two letters of authorization to purchase Mikrotek convertible notes. Prior to filing this complaint, Silvestri had arranged to receive a check from Mikrotek in the amount of the investment. However, that check bounced and Silvestri then contacted Petitioner seeking assistance in obtaining a refund of the amount invested in Mikrotek notes in the name of Silvestri and his son.
At the time Silvestri contacted him, Petitioner was in Dallas with his wife who had been critically injured in the plane crash on August 2, 1985. Because of his personal crisis, Petitioner advised Silvestri that he could not assist him at that time and told Silvestri that he should contact Paul Michelin. Silvestri had problems getting in touch with Paul Michelin and could not get prompt or sufficient assistance. At that point, Silvestri filed his complaint with the Department.
There is no evidence to substantiate the allegations that Petitioner forged Silvestri's or any other customer's signature on authorization letters
Although approximately $12,000 was withheld from Petitioner'S last paycheck from Michelin and Company, those withheld funds cannot be directly traced to the payments made to Mr. Silvestri or any other customer.
Ultimately, Silvestri, like the other purchasers of Mikrotek convertible notes, received a refund from Paul Michelin for the full amount of the investment.
While the allegations against Petitioner by Silvestri are very serious, the allegations have never been proven and there is no indication that Silvestri was treated any differently than the other purchasers of the Mikrotek notes in the settlements made by Paul Michelin with the purchasers of the notes.
The civil action referred to in the denial letter was filed in October of 1985 by Warren Gersham, David Kaplan, Jeffrey Weiner, and Delia Weiner (the "Plaintiffs) in the Circuit Court for Broward County, Florida. The complaint in that action alleges that Michelin and Company, through Petitioner and others, sold the Plaintiffs unregistered securities in violation of federal and Florida law and that such securities were acquired by the Plaintiffs as a result of negligence and/or misrepresentations committed by Petitioner and the other defendants.
The Plaintiffs were actually customers of another broker of Michelin and Company and Petitioner did not sell any Mikrotek notes to them. In fact, there is no evidence that Petitioner had any contact with any of these Plaintiffs regarding the notes.
The lawsuit was ultimately settled as a result of payments made by Paul Michelin. The Plaintiffs in that action were treated the same as the other purchasers of Mikrotek notes.
No other customer complaints relating to Petitioner have been received by the Department.
All of the grounds cited by the Department in support of its denial of Petitioner's application were predicated upon Petitioner's involvement in the sale of the Mikrotek convertible notes.
Although at some point in time Petitioner was named president of the company, he did not assume this position until after the company had begun selling the notes and there is no evidence indicating that his involvement in the Mikrotek transaction was significantly greater than that of other brokers who have subsequently been registered by the Department.
At least three other brokers who were employed by Michelin and Company and who sold Mikrotek convertible notes to investors have subsequently become registered with the Department. At least two of those other brokers were officers with Michelin and Company including Jeffrey Zwitter who was a witness for the Department at the hearing and was a vice president with Michelin and Company beginning in December, 1985. A second former Michelin broker who has subsequently been registered by the Department is Jack Leathers who was a vice president of sales for Michelin and Company and who, on some occasions when Paul Michelin was out of the office, supervised the office.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties to and the subject matter of these proceedings. Section 120.57(1), Florida Statutes.
The Department is charged with the responsibility of regulating and licensing professionals in the securities industry in the State of Florida pursuant to the Florida Securities and Investor Protection Act, Chapter 517, Florida Statutes.
An "associated person" is defined as, among other things, a person, other than a dealer, employed, appointed, or authorized by a dealer or issuer to sell securities in any manner or act as an investment advisor. See Section 517.021(4), Florida Statutes.
An applicant for registration as an "associated person" who is of good repute and character and has complied with the provisions of Section 517.12 Florida Statutes, (registration of dealers, associated persons, investment advisors, and branch officers) and the rules made pursuant thereto is entitled to registration by the Department.
Registration under Section 517.12, Florida Statutes may be denied by the Department if the Department determines that the applicant is guilty of or has violated any of the provisions specified in Section 517.161(1) (a)-(k), Florida Statutes.
In a Section 120.57 proceeding challenging the denial of registration, the burden to prove eligibility is upon the Petitioner. That burden is by a preponderance of evidence. See Rule 28-6.08, Florida Administrative Code; Department of Transportation v. J.W.C. Company, Inc., 396 So.2d 778 (Fla. 1st DCA 1981)
Section 517.161, Florida Statutes, sets forth the grounds for which registration as an associated person may be denied. Relevant to this case are subsections (1), (a), (c), (d), (h), of that statute which set forth the grounds upon which the Department based its decision to deny registration to Petitioner in this case. These provisions state:
517.161 Revocation, Denial or Suspension of Registration of Dealer,
Investment Advisor, Associated Person or Branch Office:
(1) Registration under s.517.12 may be denied or any registration granted
may be revoked, restricted or suspended by the Department if the Department determines that such applicant or registrant:
(a) Has violated any provision of
this chapter or any rule or order made under this chapter.
* * *
Has been guilty of a
fraudulent act in connection with any sale of securities, has been or is engaged or is about to engage in making fictitious or pretended sales for purchases or any such securities, or has been or is engaged or is about to engage in any practice or sale of securities which is fraudulent or in violation of the law;
Has made a misrepresentation
or false statement to, or concealed any essential or material fact from any person in the sale of a security to such person;
* * *
(h) Has demonstrated his
unworthiness to transact the business of dealer, investment advisor, or associated person;....
The Department has explicated subsection (h) of Section 517.161 in Rule 3E-600.011, Florida Administrative Code, which provides, in pertinent part:
Prima facie evidence of unworthiness to transact a business of a dealer investment advisor, principal, or agent in the State of Florida shall include, but shall "not be limited to:
* * *
(3) Evidence of the applicant or registrant previously or presently engaging in any of the practices outlined in Rule 3E-600.013.
Rule 3E-600.013, Florida Administrative Code, provides in relevant part as follows:
3E-600.013 Prohibited Business Practices
The following are deemed demonstrations of unworthiness by a dealer under Section 517.161(1)(h), Florida Statutes, without limiting that term to the practices specified herein:
* * *
(n) Executing orders for the purchase by a customer of securities
not registered under Section 517.018, Florida Statutes, unless the securities are exempted under Section 517.051, Florida Statutes or the transaction is exempted under Section 517.061, Florida Statutes.
* * *
(q) Failing to furnish to a customer purchasing securities in an offering, no later than the date of
confirmation of the transaction, either a final prospectus or a preliminary prospectus in an additional document, which together include all information set forth in the final prospectus;
* * *
In denying Petitioner's application, the Department relied upon Section 517.161(1) (h), Florida Statutes, and indicated that, as a result of Petitioner's involvement in the sale of the Mikrotek notes and because of the customer complaints discussed above, the Department had determined Petitioner was unworthy to transact the business of a dealer, investment, advisor, or associated person. The Department also concluded that Petitioner engaged in the
sale of unregistered securities and the sale of the securities was accomplished through untrue statements of material fact and/or omissions to state material facts necessary to make such statements not misleading. Thus, Petitioner's application was also denied pursuant to Section 517.161(1)(d), Florida Statutes. Based upon the same set of facts, the Department also determined that the sale of the notes was a violation of Section 517.07, Florida Statutes, and that Petitioner violated Section 517.301(1) (a), Florida Statutes, because he executed sales of securities which were fraudulent or in violation of the law, and/or he made a misrepresentation or false statement or concealed material facts in connection with the sales of securities. As a result, the Department denied Petitioner's application on the authority of Section 517.161(1) (a) and (c), Florida Statutes.
Section 517.301(1) (a), Florida Statutes, provides:
It is unlawful and a violation of the provisions of this chapter for a person:
In connection with the offer, sale, or purchase of any investment or security
To employ any device, scheme, or artifice to defraud;
To obtain money or property by means of any untrue statement of a
material fact or any omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or
To engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon a person.
Section 517.07, Florida Statutes, provides in relevant part as follows:
517.07 Registration of Securities-
No securities except of a class exempt under any of the provisions of s.
517.051 or unless sold in any transaction exempt under any of the provisions of S. 517.061 shall be sold or offered for sale within this state unless such securities have bean registered, as hereinafter defined, and unless prior to each sale the purchaser is furnished with a prospectus meeting the requirements of rules adopted by the Department.
In this case, there is no question that the Petitioner sold the convertible notes of Mikrotek to twelve customers between August and November, 1984 while employed with Michelin and Company.
The proof established that Petitioner, contrary to the provisions of Section 517.07, Florida Statutes, offered for sale securities which were not registered under Section 517.081, Florida Statutes, and which were not exempt from registration pursuant to Section 517.051 or Section 517.061, Florida Statutes.
Petitioner argues that some degree of willfulness, knowledge, or intent must be considered as necessary elements when applying Section 517.161, Section 517.301, and Section 517.07. However, the Supreme Court of Florida has held that scienter or knowledge is not necessary to find a violation of Section
517.07. State v. Houqhtalinq, 181 So.2d 636 (Fla., 1965). Thus, a seller can be held strictly liable for the sale of unregistered securities. As a result, it must be concluded that Petitioner violated Section 517.07 by selling unregistered securities.
Dicta in Merrill Lynch, Pierce, Fenner and Smith v. Byrne 320 So.2d
436 (Fla. 3rd DCA 1975) suggests that scienter is not an element of an offense under Section 517.301(1) (a), Florida Statutes. In Silverberg v. Paine, Webber, Jackson and Curtis, Inc., 710 F.2d 678 (11th Cir 1983) a federal appellate court followed this dicta. However, both of,these opinions specifically addressed only the second of the three offenses specified in Section 517.301(1) (a). With respect to the first and third offenses, the Third District Court of Appeal in Florida pointed out "scienter may well be an essential element in statutes where fraud and deceit are made the essence of an action". Byrne, 320 So.2d at 440. Indeed, it is difficult to imagine how scienter could not be an element of fraud and deceit such as described in the offenses specified in Section 517.301(1) (a)1 and 3.
The evidence in this case establishes that Petitioners violated Section 517.301(1) (a)2, Florida Statutes, in that he obtained money from customers without advising them that the securities he was selling were not registered. However, the facts show that Petitioner had no guilty knowledge or intent. Thus, because there was no scienter, the Petitioner has not violated Section 517.301(1)(a)1 or 3 or Section 517.161(1)(c), Florida Statutes, all of which include fraud and deceit as the essence of the violations.
The Department relies upon the violation of Section 517.07 and Section 517.301(1)(a)2 for denial of registration to Petitioner pursuant to Section 517.161(1) (a). However, these are violations on which the Comptroller may base a denial of an application for registration under 517.161(1) (a) if the violations prevent the applicant from proving his "good repute and character" Castleman v. Office of the Comptroller, 538 So 2d 1365 (Fla. 1st DCA 1989)
78 The Department further alleges that Petitioner is both of bad business repute and unworthy to transact the business of an associated person as a result of the Mikrotek transaction. However, the only evidence submitted revolves around the Mikrotek transaction and that evidence indicates that Petitioner relied upon Paul Michelin for structuring the Mikrotek transaction, and that Petitioner was not aware that the convertible notes had to be registered. It is unlikely that Petitioner would have sold Mikrotek notes to his own parents unless he believed the transaction was a legitimate, good investment. His limited involvement in the Mikrotek transaction was not of sufficient magnitude to establish that he was of such bad business repute and so unworthy to transact the business of an associated person that he should be permanently banned from engaging in his chosen profession. While neither party presented extensive testimony regarding Petitioner's reputation, based upon the evidence presented and the demeanor of the witnesses, it is concluded the preponderance of the
evidence established that, despite Petitioner's sale of the Mikrotek notes, Petitioner still enjoys a good business reputation.
The definition of the term "prima facie evidence of unworthiness" in Rule 3E-600.11, Florida Administrative Code, is broad enough to encompass the sale of unregistered securities by Petitioner as discussed above. However, when the nature of the transaction and Petitioner's involvement therein is considered, the prima facie evidence has been overcome by other evidence of Petitioner's worthiness to transact business as an associated person. Notwithstanding the violations of Sections 517.07 and 517.301(1) (a)2, Florida Statutes, Petitioner was able to prove that he is "of good repute and character", so as to entitle him to registration as an associated person with
J.T. Moran and Company subject to certain restrictions.
The Department justifiably views the sale of unregistered securities as a serious matter. The Department's diligence in seeking to protect the investing public is to be commended. However, the Department has approved the registration of several other brokers who sold Mikrotek convertible notes. The Department apparently determined that because Petitioner was a principal and, at some point in time, was President of Michelin and Company, he should be precluded from registration. However, at least two other principals/or officers of Michelin and Company have been registered with the Department subsequent to the Mikrotek transaction. Moreover, irrespective of the position held by Petitioner, it is clear that the Mikrotek transaction was structured by Paul Michelin and others without any direct input or assistance from Petitioner. Petitioner was relatively new to the securities industry and was clearly dependent upon his mentor, Paul Michelin. He has no prior disciplinary history and the only complaints that have been filed against him are those discussed above related to the Mikrotek transaction.
In sum, Petitioner's involvement in the Mikrotek transaction did not demonstrate a degree of control, knowledge, scienter or recklessness sufficient to totally preclude him from the securities industry. It is important to note that Paul Michelin arranged for the refund of the full amount invested by each of the purchasers of Mikrotek notes.
While Petitioner should have been more diligent and careful with respect to the sale of the Mikrotek notes, he has already paid a considerable price for his involvement in that he has been effectively suspended from engaging in the securities business for more than eighteen months.
Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered in this case granting the
application of Petitioner for registration as an associated person with J.T. Moran and Company, provided Petitioner agrees to receive strict supervision in his capacity as an associated person for a period of one year from the date of his registration, agrees not to exercise discretionary authority in any customer account, agrees not to act in a supervisory capacity for a period of one year from the date of his registration and agrees not to engage in any prohibited practice, as that term is defined by Rule 3E-600.13, Florida Administrative Code
DONE AND ENTERED this 21st day of June, 1989, in Tallahassee, Leon County, Florida.
J. STEPHEN MENTON Hearing Officer
Division of Administrative Hearings The DeSoto Building
1230 Apalachee Parkway
Tallahassee, Florida 32399-1550
(904) 488-9675
Filed with the Clerk of the Division of Administrative Hearings this 21st day of June, 1989.
APPENDIX TO THE RECOMMENDED ORDER IN CASE NO. 88-3935
The parties have submitted proposed findings of fact. It has been noted below which proposed findings of fact have been generally accepted and the paragraph number(s) in the Recommended Order where they have been accepted, if any. Those proposed findings of fact which have been rejected and the reason for their rejection have also been noted.
The Petitioner's Proposed Findings of Fact
Proposed Finding Paragraph Number in Recommended Order of Fact Number of Acceptance or Reason for Rejection
1,2 45
3,4 Included in the Preliminary Statement
5(a) 1 However, the evidence established that Petitioner began working at Huberman in January of 1983.
2
4
6
5
5
1 and 2
(h) 29
(i) 35 and 36
(j) 10
(k) 11
(l) 13
(m) 40
(n) 40
(o) 46 and 58
(p) 57
Included in the Preliminary Statement
Included in the Preliminary Statement
Included in the Preliminary Statement
Included in the Preliminary Statement
Adopted in part in Findings of Fact 8, otherwise rejected as irrelevant
11 6,12,13
12 Rejected as phrased because the "relevant period" is not defined. However, this subject is covered, in part, in Findings of Fact 5.
13 16
1. However, the evidence established that Petitioner began working at Huberman in January of 1983.
1 and 2
16 2
17 2
18 3
19 3
20 4
21 5
22 1,2 and 5
23 5
24 7
25 Rejected because the time period is not defined and it is unclear what is meant by "with Paul Michelin the entire period of time." However, Findings of Fact 2-5 cover related issues.
26 2
Rejected as being over-broad and non- specific. However, Findings of Fact 23 relates to this issue.
Rejected as irrelevant and because it is simply a recitation of testimony and not a finding of fact.
Rejected as irrelevant and because it is simply a recitation of testimony and not a finding of fact.
Rejected as irrelevant and because it is simply a recitation of testimony and not a finding of fact.
Rejected as irrelevant and because it is simply a recitation of testimony and not a finding of fact.
Rejected because "ran" is not defined. However, Findings of Fact 6,11 and 12 cover related issues.
Rejected because "ran" is not defined. However, Findings of Fact 6,11 and 12 cover related issues.
Rejected as irrelevant and because it is simply a recitation of testimony and not a finding of fact.
35 12
36 12
37 12
Rejected as simply a recitation of testimony and not a finding of fact.
Rejected as simply a recitation of testimony and not a finding of fact.
Rejected as irrelevant.
41 | Rejected | as irrelevant and over-broad. |
42 | 12 | |
43 | 6 | |
44 | 11 | |
45 | Rejected | as irrelevant. |
46 | Rejected | as irrelevant. |
47 | Rejected | as irrelevant. |
48 | Rejected | as simply a recitation of |
testimony and not a finding of fact.
49 Rejected as subordinate.
50 13
51 7
The first sentence is adopted in Findings of Fact 11. However, the remainder is rejected as unsupported by competent substantial evidence.
Adopted in part in Findings of Fact 15. However, the portions of this proposal which are not set forth in Findings of Fact 15 are rejected as unsupported by competent substantial evidence.
54 10
55 11
56 11
57 11
Rejected as irrelevant and unsupported by competent substantial evidence.
Rejected because the term "control" is not defined. However, this subject is covered, in part, in Findings of Fact 13.
Rejected because the term "managerial duties" is not defined. However, this subject is covered, in part, in Findings of Fact 11.
Rejected as unsupported by competent substantial evidence.
Rejected as unsupported by competent substantial evidence.
Rejected as irrelevant.
64 14
65 Rejected as irrelevant.
66 13
67 13
Adopted in part in Findings of Fact 8. However, the portions of this proposal which are not set forth in Findings of Fact 8 are rejected as unsupported by competent substantial evidence.
Rejected because the term "sales meeting" is not defined. This subject is covered, in part, in Findings of Fact 15.
70 15
71 15
72 11
73 9
Rejected as simply a recitation of testimony and not a finding of fact.
Rejected as unsupported by competent substantial evidence.
Substantially adopted in Findings of Fact 46.
77 16
78 29
79 Substantially adopted in Findings of Fact 29. However, there was at least one sale made in February of 1985.
80-81 Rejected as unsupported by competent substantial evidence. A response to a request for admission is not evidence.
82 18 and 33.
Rejected as unsupported by competent substantial evidence.
Rejected because the term "control" is not defined. However, this subject is covered, in part, in Findings of Fact 33.
85 18
86 19
87 20
88 21 and 34
89 25
90 Rejected as vague and ambiguous. This subject is covered, in part, in Findings of Fact 21 and 28.
91 21
Adopted in part in Findings of Fact 22 and 23. However, the portions of this proposal which are not set forth in Findings of Fact 22 and 23 are rejected as unsupported by competent substantial evidence.
Rejected as unnecessary. Findings of Fact 21-24 are related to this subject.
94-100 Rejected as irrelevant and because they are simply a recitation of testimony and not findings of fact. Findings of Fact 22-24 are related to this subject.
101 23
Rejected as simply argument on the evidence.
Rejected because it is simply a recitation of testimony and not a finding of fact. In addition, this proposal mischaracterizes the testimony.
104 42
105 48-49
106 Substantially adopted in Findings of Fact 50. However, the portions of this proposal which are not set forth in Findings of Fact 50 are rejected as
unsupported by competent substantial evidence.
107 50
108-110 Rejected as irrelevant and because they are simply a recitation of testimony and not findings of fact. Findings of Fact 50 and 53 are related to this subject.
Rejected as irrelevant and unnecessary.
Adopted in part in Findings of Fact 48-
49. However, the portions of this proposal which are not set forth in Findings of Fact 48-49 are rejected as unsupported by competent substantial evidence.
Adopted in part in Findings of Fact 51-
53. However, the portions of this proposal which are not set forth in Findings of Fact 51-53 are rejected as unsupported by competent substantial evidence.
Rejected as irrelevant and because it is simply a recitation of testimony and not a finding of fact
Rejected as over-broad.
116 54
117 Rejected as simply argument on the evidence. Findings of Fact 55-56 are related to this subject.
118-121 Rejected as simply a recitation of testimony and not findings of fact. Findings of Fact 55-56 are related to this subject.
122 56
Rejected as irrelevant. However, Findings of Fact 56 is related to this subject.
Rejected as over-broad.
125 57
126 46
127-128 Adopted in part in Findings of Fact 60.
However, the portions of these proposals which are not set forth in Findings of Fact 60 are rejected as unsupported by competent substantial evidence.
129-130 Rejected as irrelevant and because they are simply a recitation of testimony and not findings of fact.
131-133 Adopted in part in Findings of Fact 60.
However, the portions of these proposals which are not set forth in Findings of Fact 60 are rejected as unsupported by competent substantial evidence.
134-135 40
136 57
137 45
138 44
139-148 Rejected as simply argument on the evidence.
149-153 Rejected as irrelevant.
Rejected as unsupported by competent substantial evidence.
Rejected as irrelevant.
156-159 Rejected as over-broad. The Respondent's Proposed Findings of Fact
Proposed Finding Paragraph Number in Recommended
of Fact Number Order of Acceptance or Reason for Rejection
1,2 45
3 1 However, the evidence established that Petitioner began working at Huberman in January of 1983.
4 5
5 8
Adopted in part in Findings of Fact
3 and 15. However, the portions of this proposal which are contrary to or not set forth in Findings of Fact
3 and 15 (including, but not limited to, the date Petitioner became a vice president) are rejected as unsupported by competent substantial evidence.
Subordinate to Findings of Fact 10. The portions of this proposal which are contrary to or not set forth in Findings of Fact 10 (including, but not limited to, the date Petitioner became president) are rejected as unsupported by competent substantial evidence.
Adopted in part in Findings of Fact
15. However, the portions of this proposal which are not set forth in Findings of Fact 15 are rejected as unsupported by competent substantial evidence.
Substantially adopted in Findings of Fact 29, but Findings of Fact 10 and
33 establish that Petitioner was not president at the time the notes were sold.
Adopted in part in Findings of Fact
37. However, the portions of this proposal which are not set forth in Findings of Fact 37 are rejected as unsupported by competent substantial evidence.
11-14 Adopted in part in Findings of Fact
35 and 36. However, the portions of this proposal which are not set forth in Findings of Fact 35 and 36 are rejected as unsupported by competent substantial evidence.
Rejected as unsupported by competent substantial evidence.
Subordinate to Findings of Fact 47- 53.
Adopted in part in Findings of Fact 54-56. However, the portions of this proposal which are not set forth in Findings of Fact 54-56 are rejected as unsupported by competent substantial evidence.
Subordinate to Findings of Fact 43-
44. Except as set forth in Findings of Fact 43 and 44, the reasons for Petitioner's termination are uncorroborated hearsay.
Adopted in part in Findings of Fact 40- 41. However, the portions of this proposal which are not set forth in Findings of Fact 40-41 are rejected as unsupported by competent substantial evidence.
COPIES FURNISHED:
Jan Douglas Atlas, Esquire Natalie Z. Aizpuru, Esquire Suite 300
700 S.R. Third Avenue Ft. Lauderdale, FL 33316
Carmen L. Leon
Assistant General Counsel Office of the Comptroller
401 W. Second Avenue, Suite 708-N Miami, FL 33128-1796
Tamara Cain, Esquire Office of the Comptroller The Capitol
Tallahassee, FL 32399-0350
| Issue Date | Proceedings |
|---|---|
| Jun. 21, 1989 | Recommended Order (hearing held , 2013). CASE CLOSED. |
| Issue Date | Document | Summary |
|---|---|---|
| Jun. 21, 1989 | Recommended Order | Petitioner sold unregistered securities; however no evidence of scienter; owner of firm controlled deal; licensure should be granted with conditions |
