STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DONALD J. PILINKO )

)

Petitioner, )

)

vs. ) CASE No. 89-2195

)

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

)

Respondent. )

)

RECOMMENDED ORDER

Notice was provided and on August 1, 1989, in Jacksonville, Florida, a formal hearing was held in this case. Authority for the conduct of the hearing is set forth in Section 120.57(1) Florida Statutes. Charles C. Adams was the Hearing Officer.

APPEARANCES

FOR PETITIONER: Douglas D. Chunn, Esquire

Smith & Hulsey Suite 1800

Florida National Bank Tower Post Office Box 53315

Jacksonville, Florida 32201-3315

FOR RESPONDENT: Belinda G. Noah, Esquire

Assistant General Counsel Department of Banking and Finance The Capitol, Suite 1302 Tallahassee, Florida 32399

STATEMENT OF THE ISSUES

The issues in this case concern the question of whether Petitioner is entitled to be registered as an associated person with Integrated Resources Equity Corporation pursuant to applicable provisions within Chapter 517, Florida statutes and Chapter 3E-600, Florida Administrative Code.

PRELIMINARY STATEMENT

This Recommended Order is being entered following the receipt and review of the transcript as filed with the Division Administrative Hearings on August 9, 1989.

Respondent, through counsel, had requested leave to file it's Proposed Recommended Order on August 25, 1989 beyond the normal ten (10) day period prescribed in Rule 221-6.031, Florida Administrative Code. This request was not

opposed by counsel for Petitioner. The proposed Recommended Orders of both parties were filed on August 28, 1989. Under the circumstances, the requirement for entering a Recommended Order within (30) thirty days of the filing of transcript was waived.

The Proposed Recommended Orders in their suggested fact finding are discussed in an Appendix to this Recommended Order.

The Petitioner at the commencement of the final hearing moved for a default license or registration based upon the argument that the Respondent had failed to timely consider his application for registration in accordance with Section 120.60, Florida Statutes. Having examined the evidence on this point the motion was denied. The case was then heard on the merits, on the basis of the evidence in support of and in opposition to the registration.

FINDINGS OF FACT

1. Petitioner in attempting to gain employment with Integrated Resources Equity Corporation as an associated person was required to be licensed by Respondent. In working for that company he hoped to be registered in Florida, Georgia and Virginia. His prospective employer submitted his application on September 28, 1988.

   
   

2. The nature of the application process as it took place on September 28, 1988, was that Integrated Resources Equity Corporation in behalf of Petitioner, filed the application with the National Association of Securities Dealers (NASD). There was no direct filing with the State of Florida at that point. Respondent became aware of pendency of this application following approval by NASD. This knowledge of the circumstance was by a computer transmission through the Central Registration Depository (CRD). The approval date by NASD was October 11, 1988, and on that date Respondent was made aware of Petitioner's application for registration as an associated person in the State of Florida.

   
   

3. On October 25, 1988, Respondent requested additional information from the sponsoring employer, Integrated Resources Equity Corporation, concerning Petitioner. A copy of this correspondence may be found as Respondent's exhibit No. 1 admitted it into evidence. In pertinent part it states:

   
   

   In order for the application to be deemed complete, it will be necessary to provide this office with a copy of the complete Form U-4 as amended, and all documents pertaining to disciplinary matters. Documentation submitted must be certified by the issuer of such documents. Additionally, explain the status of each pending action, and for each final action summarized the disposition.

   Pursuant to Rule 3E-301.002(3), Florida Administrative Code, additional information shall be submitted within sixty (60) days after a request has been made by the Department. Failure to provide all the information may result in the application being denied.

   In accordance with Section 120.60, Florida Statutes, and Rule 3E-301.004, Florida Administrative Code, the application for

   licensing shall be approved or denied within

   (90) ninety days of receipt of this timely requested additional information.

   
   

4. The key items within the October 25, 1988 correspondence were the need for a completed Form U-4, as amended, and documents pertaining to disciplinary matters with the statement that the documentation be certified by the issuer, meaning the agency that took the action of discipline. Further, it was necessary to explain the status of any pending action related to discipline and to summarize the disposition for each disciplinary action that had been concluded. This letter warned the applicant that the additional information needed to be submitted within (60) sixty days and that the failure to provide it might result in the application being denied.

   
   

5. The paragraph subsequent to that statement informed the applicant that a decision would be reached within (90) ninety days of receipt of the requested additional information.

   
   

6. Certain information was submitted by Integrated Resources Equity Corporation in response to the request for additional information. One of those items is under the cover letter of Roger Pacheco, Compliance Assistant, Compliance Department, Integrated Resources Equity Corporation. This is by correspondence of November 2, 1988, received by the Respondent on November 3, 1988. In this correspondence particular emphasis is placed upon a disclosure by the Petitioner concerning the employment with Barnett Bank and his dealings with a client. That client was John F. Shaw. The correspondence of Mr. Pacheco indicated the enclosure of the Form U-4 attachment with the letter of explanation from Petitioner and a letter from Mr. Shaw. It was stated in Mr. Pacheco's correspondence that he was hopeful that the provision of that information would clarify disclosures in the Form U-4 under the headings 22 H.(1) and 22 N.(2). The letter went on to describe how the Petitioner and his managing executive, a Mr. James Howard, expressed their apologies for any oversight concerning the Shaw matter. The Pacheco letter indicated that he believed that all supporting documentation had been forwarded to the NASD's CRD system. Mrs. Pacheco invited the Respondent to contact him if further information was needed.

   
   

7. The attachments to the correspondence of November 2, 1988, from Mr. Pacheco were consisted of the Form U-4, a fingerprint sheet for the Petitioner, correspondence of September 13, 1988, from James A. Howard to John F. Shaw asking for Mr. Shaw to relate his recollection of the transaction between Mr. Shaw and the Petitioner, the letter of September 13, 1988, from Mr. Shaw and information dated September 15, 1988, bearing a signature of Petitioner, following a series of explanations to questions 22H.(1) and 22N.(2)

   
   

8. Within the Form U-4 was also an item 22A.(3) in which it was stated, "In October, 1971, I plead guilty to a charge of possession of marijuana. I was given a one-year probation which was dully served. I was then informed by the court that said sentence was served and that I would not be subject to any discriminatory practices in connection with this matter."

   
   

9. Contrary to the request of October 25, 1988, no supporting documentation certified by the criminal justice system in which the marijuana case had been considered was offered by the Pacheco correspondence of November 2, 1988, and its attachments. Notwithstanding the overture of Mr. Pacheco to provide additional information if requested, which theoretically could include the necessary certified documentation from that criminal justice system, it was

   not incumbent upon the Respondent to make a further request beyond the October 25, 1988 letter when it gave clear instructions to Integrated Resource Equity Corporation concerning the need for submission of certified documents pertaining to the marijuana case.

   
   

10. Petitioner's exhibit No. 1 admitted into evidence is the Pacheco letter and its attachments.

    
    

11. On November 7, 1988, Lisa A. Mahon, Assistant Manager, Broker/Dealer and Registration Services, Integrated Resources Equity Corporation wrote to the Respondent. This correspondence, as was the case with the correspondence of Roger Pacheco, was written to Mr. Wharton Smith, Securities Analysts/Examiner with Respondent. This correspondence of Ms. Mahon was in response to the October 25, 1988 letter of the Respondent and enclosed the Form U-4 which was the same Form U-4 text as had been provided by Mr. Pacheco on November 2, 1988. The letter of November 7, 1988 and its attachments may be found as Petitioner's exhibit No. 3 admitted into evidence.

    
    

12. The Mahon correspondence was received by the Respondent on November 8, 1988. It indicated that from the point of the Integrated Resources Equity Corporation, no other documents or disciplinary history were available and stated that if further information was needed that Mr. Smith should not hesitate to contact her. Again, the statement that no other documents on disciplinary history are available and that the Respondent might take it upon itself to request further information beyond its instructions of October 25, 1988, concerning the disciplinary history of Petitioner, to include the criminal law marijuana case, does not place the onus on Respondent to do anything further. Petitioner was still obligated to provide necessary documentation by certification of the criminal law case. He has yet to do that.

    
    

13. Petitioner had been registered in Florida with Dean Witter, Stuart James, and E. F. Hutton following the 1971 marijuana case. However, Respondent in view of problems of the securities industry, has changed it's standards for registering applicants and there are instances where people are being denied in contemporary times that would have been approved in the past without any change in the disciplinary history, from past to present, based upon the fact that disciplinary history was not reviewed and considered in approving the application in the past.

    
    

14. On December 7, 1988, Respondent received the Form U-5 from Barnett Bank concerning the Petitioner's dismissal related to the Shaw matter.

    
    

15. Although the marijuana case in terms of necessary certified documentation from the criminal law system had not been spoken to in the application process by information provided by the Petitioner or his sponsoring employer and as such the application was incomplete and subject to denial, Respondent chose instead to examine the Shaw matter and having reviewed the details of that situation used that circumstance as the reason to deny the application. The Notice of Denial was sent out on March 8, 1989. A copy may be found as Petitioners exhibit No. 2 admitted into evidence. It constitutes the total explanation of Respondent's reason for denial of the Request for Registration.

    
    

16. In his application, which bears the signature of Donald J. Pilinko both in the Form U-4 and the detailed explanation with signature of Donald J. Pilinko, both of which are found in Petitioners exhibit No. 1, the Shaw matter is described as a situation in which Mr. Shaw issued a check in Petitioner's

    name rather than in the name of Barnett Bond Service. Petitioner states in these documents that he had requested Mr. Shaw to do the latter. This check in the amount of $3,180.00 was reportedly to contend with the possible difference in the price of the sell proceeds and the buy order's net amount due in the sell of 318 units of Unit Investment Trust (UITs). The documents go on to describe how Petitioner, rather than leaving the check overnight in an unsecured area, deposited the check. It was placed in Petitioner's checking account with the intention of returning the funds to the client, according to Petitioner. The documents in Petitioner's application describe how he realized that a mistake was made in depositing the Shaw check into his personal account.

    
    

17. The letter within the Petitioner's exhibit No. 1 attributable to John Shaw does not describe why Mr. Shaw wrote the check to the Petitioner instead of Barnett Bond Service.

    
    

18. In investigating the Shaw transaction, Leigh Somers, Vice President, Barnett Banks Incorporated, interviewed Petitioner. In the course of this interview Petitioner told Somers that he had taken the check in the amount of

    $3,180.00 from Mr. Shaw and that he had instructed Mr. Shaw to make the check payable to him. This is in stark contrast to the matters set forth in the application attributable to Petitioner. The remarks made to Mr. Somers are more credible in view of the other evidence presented. It is found that Petitioner told Mr. Shaw to make the check payable to Petitioner and not to Barnett Bank Bond Service.

    
    

19. Petitioner admitted to Mr. Somers that the money he received was deposited in his personal checking account in the amount of $2,000.00 with

    $1,180.00 being received back as cash. These remarks are corroborated by Respondents's exhibit No. 2 admitted into evidence which is a replica of the Shaw check, a cash out ticket for $1,180.00 and a $2,000.00 deposit into the checking account of the Petitioner. Petitioner admitted to Somers that he had used the $2,000.00 deposited to pay bills. In particular it was used for payment of a clothing store that he owed money to. Petitioner told Somers that he knew it was wrong to put the Shaw check in his account; however, he stated that he had enough funds in his account to cover any personal bills that he was going to pay. Somers asked him for an explanation of what he meant by those remarks. At that point Petitioner took a check out of his pocket made from a Mr. Jolley. A replica of that check may be found as Respondent's exhibit No. 3 admitted into evidence. This Mr. Ernest T. Jolley was Petitioner's father-in- law. In the conversation with Mr. Somers, Petitioner then admitted that he had forged Mr. Jolley's name on the check. The photocopy of the check was made after this admitted forgery. The original was given back to the Petitioner and he tore it up. He told Somers that Mr. Jolley was unaware of the check; however, that he would have approved of Petitioner writing the check and signing Mr. Jolley's name to it. Somers asked Petitioner if he would mind if Somers telephoned Jolley while they sat there in the room. Petitioner stated that Mr. Jolley was an older man and would probably be confused if Somers called him and asked if Petitioner had authority to write the check. That ended the conversation regarding the check and Mr. Jolley was not called.

    
    

20. Respondent's exhibit No 4 is a series of bank statements over various months associated with the Petitioner. It shows the bank balance in the account of $510.94 on March 1, 1988, the day before the Shaw check was written and

    $2,000.00 deposited into the account.

21. Mr. Shaw expected to have the $3,180.00 which he paid to Petitioner used to consummate the UITs transaction, as needed. He did not expect that the Petitioner would convert that money to his own use.

    
    

22. Susan Pritchard, Compliance Examiner within the NASD, testified at the hearing. As she describes it, NASD's purpose is to enforce rules and regulations of that organization that pertain to broker dealers and registered representatives. Petitioner would fall into that latter category. As established by Ms. Pritchard, among the rules of the NASD would be Article III, Section 19 of the Rules of Fair Practice. This provision does not allow the misappropriation of funds of clients such as was the case with Petitioner's action in the Shaw matter. Moreover, as Michael Blaker, Area Financial Manager for the Respondent, testified, Respondent perceives the fact of an individual who is licensed in Florida in the securities industry who takes a customer's money and places in his own account as being a very serious matter, whether or not restitution was made. There are no circumstances in which that conduct should be allowed as he understands the Respondent's policy on this issue. This statement of the policy is accepted as an accurate portrayal of the Respondent's attitude about taking customer's money and placing into the private account of the registrant, as was done here.

    
    

23. Petitioner did not appear at the hearing nor otherwise offer any meaningful explanation for his misconduct with his client, Mr. Shaw, nor has any evidence of rehabilitation beyond that transaction been provided.

    
    

    CONCLUSIONS OF LAW

    
    

24. The Division of Administrative Hearings has jurisdiction over the subject matter and parties to this action in accordance with Section 120.57(1), Florida Statutes.

    
    

25. For reasons as discussed in the fact finding Petitioner is not entitled to a default permit as envisioned in Section 120.60, Florida Statutes. The application was never complete concerning his marijuana case in terms of certified documents pertaining to that criminal law matter. As a consequence, the Respondent agency was not required to reply to the application within (90) ninety days of receipt of the application. The fact that the agency ultimately exercised discretion in denying this application and based that denial upon the Shaw transaction, without regard for the marijuana case, does not change this outcome. Having failed to respond to the omissions request related to the marijuana, the (90) ninety day requirement for responding to the application for registration did not pertain. Nothing in the language of Section 120.60, Florida Statutes, leads to the conclusion that the omitted information pertaining to the marijuana must form the basis for denying the application for the (90) ninety day requirement to have effectively been waived by this Petitioner.

    
    

26. Section 517.161(1)(a), Florida Statutes, allows the Respondent to deny the registration of an associated person if that person has violated any provisions of the chapter or any rule or order under the chapter. In this connection as alluded to in the letter of denial, Petitioner in his dealings with Mr. Shaw violated Section 517.301(1)(a)., Florida Statutes, in that. Petitioner misused Mr. Shaw's money in a circumstance which Mr. Shaw expected that money to be used, if at all, to consummate the UITs transaction.

    Petitioner omitted telling Mr. Shaw that that money would be used for Petitioner's personal needs.

27. Petitioner may also be denied his registration as an associated person for violation of 517.161(1)(a) , Florida Statutes, if he has demonstrated unworthiness to transact the business of an associated person. His activities with his client Mr. Shaw as set forth in the Findings of Fact describe such unworthiness as a general conclusion. Additionally, that conduct coincides with the definition of unworthiness set out in Rule 3E-600.011(3), Florida Administrative Code, in that the treatment of Mr. Shaw is evidence of the applicant previously engaging in a business practice prohibited by Rule 3E- 600.013, Florida Administrative Code. More particularly, as announced in Rule 3E-600.013(2)(b), Florida Administrative Code, Petitioner acted as custodian for Mr. Shaw's money. He also violated Rule 3E-600.013(1)(p) by violating NASD article III, Section 19 prohibiting the misappropriation of Mr. Shaw's funds. All are proof of his unworthiness to transaction the business of an associated person. Finally, in doing so, he violated Rule 3E-600.013(2)(g), Florida Administrative Code.

    
    

28. All the provisions that have been discussed were referred to in the course of the Notice of Denial of the application for registration. Consequently, Petitioner was duly noticed of the reasons for the denial and could make preparation to address those concerns.

    
    

29. In summary, Petitioner's application was not complete and in substance his application should be rejected for failure to overcome the general conclusion of unworthiness and the prima facie showing of his unworthiness by rule criteria and the misleading statements identified with the Shaw transaction. His trustworthiness was successfully put to question by the Respondent through its prima facie showing. The Petitioner in turn offered no meaningful explanation of his conduct with Mr. Shaw and offered no proof of rehabilitation beyond that point.

RECOMMENDATION

Therefore, it is, recommended that a Final Order be entered which denies Petitioner's application to be registered as an associated person with Integrated Resources Equity Corporation.

DONE AND ENTERED this 3rd of October, 1989, in Tallahassee, Leon County, Florida.

CHARLES C. ADAMS

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 3rd day of October, 1989.

APPENDIX

Case No. 89-2195

The following discussion is given concerning the Proposed facts of the parties.

PETITIONER'S FACTS

Paragraphs 1-6 are subordinate to facts found with the exception that the portrayal the October 25, 1988 letter of the Respondent requesting all available documents relating to the Petitioner's disciplinary history is a mistake. The letter request all documents pertaining to disciplinary matters. This is taken to mean that if it is necessary for the Petitioner to go to other sources to obtain those documents it is incumbent upon him to do so.

Paragraphs 7-9 are subordinate to facts found. Paragraph 10 is contrary to facts found.

In paragraph 11, while it is true that the Respondent has no procedures for notifying an applicant his application is incomplete, this does not relieve the applicant of submitting a complete application. If the applicant becomes concerned about the application he or she could be reasonably expected to inquire.

Paragraph 12 is subordinate to facts found. Paragraph 13 is contrary to facts found.

Paragraph 14-16 are acknowledged. However, those facts are not necessary to the resolution of the dispute.

Paragraph 17 is a suggestion that the sole purpose that Petitioner had in mind for Mr. Shaw leaving funds was to cover a shortage of the price of the sell proceeds and the buyers orders' net amount due is not correct. He also had in mind using Mr. Shaw's funds for his own benefit.

In paragraph 18 Mr. Shaw did not understand that the purpose of giving would benefit Petitioner.

Paragraph 19 is contrary to facts found.

Paragraph 20 in terms of any reimbursement to Mr. Shaw does not excuse the Petitioner's conduct.

Paragraphs 21-22 are subordinate to facts found. Paragraph 23 is contrary to facts found.

RESPONDENT'S FACTS

Paragraphs 1-2 are subordinate to facts found.

Paragraphs 3-4 are not necessary to the resolution of the dispute.

Paragraph 5 is spoken to in the Recommended Order under the heading of Preliminary Matters. As is paragraph 6.

Paragraphs 7-15 constitute a recapitulation of testimony by witnesses at the hearing and is not fact finding per se. Nonetheless, the facts that are alluded to in the remarks attributable to those witnesses have been reported in the fact finding in the Recommended Order.

Paragraphs 16-19 are subordinate to facts found with the exception that the testimony was to the effect that the $2,000.00 deposited into the checking account was used to pay personal bills.

Paragraph 20 is subordinate to facts found.

Paragraph 21 is not necessary to resolution of the dispute. Paragraphs 22-26 are subordinate to facts found.

Paragraph 27 is subordinate to facts found in the first sentence, the remaining sentences are not necessary to the resolution of the dispute.

Paragraph 28 is subordinate to facts found with the exception of reference to Article III Section 1, which in fact was referenced at the hearing as Article III Section 19.

Paragraphs 29-31 are not necessary to the resolution of the dispute.

COPIES FURNISHED:

Douglas D. Chunn, Esquire Smith & Hulsey

Suite 1800

Florida National Bank Tower

P. O. Box 53315

Jacksonville, Florida 32201-3315

Belinda G. Noah, Esquire Department of Banking and Finance The Capitol, Suite 1302 Tallahassee, Florida 32399-0350

Honorable Gerald Lewis Comptroller

The Capitol

Tallahassee, Florida 32399-0350

Charles L. Stutts, Esquire Department of Banking and Finance The Capitol, Suite 1302 Tallahassee, Florida 32399-0350

Docket for Case No: 89-002195

Orders for Case No: 89-002195