STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

RICHARD B. GRAIBUS, )

)

Petitioner, )

)

vs. ) CASE NO. 89-4927

)

DEPARTMENT OF BANKING AND ) FINANCE, DIVISION OF SECURITIES ) AND INVESTOR PROTECTIONS, )

)

Respondents. )

)

RECOMMENDED ORDER

A hearing was held in this case in Tallahassee, Florida on November 13, 1989, before Arnold H. Pollock, a Hearing Officer with the Division of Administrative Hearings.

APPEARANCES

For the Petitioner: Edward W. Dougherty, Esquire

660 East Jefferson Street Tallahassee, Florida 32301

For the Respondent: N. Catherine Green, Esquire

Paul C. Stadler, Jr., Esquire Office of the Comptroller

The Capitol, Suite 1302 Tallahassee, Florida 32308

STATEMENT OF THE ISSUES

The issue for consideration in this case is whether Petitioner should be granted registration as an associated person by the Department of Banking and Finance, or whether his application should be denied because of alleged misconduct outlined in the letter of denial.

PRELIMINARY STATEMENT

By letter dated March 3, 1989, Don B. Saxon, Director of the Division of Securities in the Office of the Comptroller, State of Florida notified Petitioner herein that his application for registration as an associated person of Finnet Securities, Inc. had been denied because of the Department's determination that his disciplinary history within the securities industry constituted prima facie evidence of his unworthiness to transact the business as such. Thereafter, on July 16, 1989, counsel for Mr. Graibus submitted a Petition for Formal Administrative Proceedings based on the Division's denial and on September 6, 1989, the file was forwarded to the Division of Administrative Hearings for appointment of a Hearing Officer.

By Notice of Hearing dated September 26, 1989, the hearing was set to be held in Tallahassee on November 13 and 14, 1989 and the hearing was held as scheduled.

At the hearing, Respondent presented the testimony of Kenneth J. Lee, a Financial Analyst with the Division of Securities; and Tamara Cain, Assistant Director of the Division of Securities and Investor Protection.

It also introduced Respondent's Exhibits A through O. Respondent's Exhibit P for Identification was marked but not admitted.

Petitioner testified in his own behalf and presented the testimony of Peter Maftieu, a registered securities dealer. He also introduced Petitioner's Exhibits 1 through 3. Petitioner's Exhibit 4 for Identification was marked but not admitted. Subsequent to the hearing, a transcript was filed and both parties submitted Proposed Findings of Fact which have been ruled upon in the Appendix to this Recommended Order.

FINDINGS OF FACT

1. At all times pertinent to the issues herein, the Petitioner, Richard Graibus, was either a registered associated person associated with a security firm or an applicant for registration as an associated person in Florida, and the Respondent, Department of Banking and Finance, Division of Securities and Investor Protection, (Department), was and is the state agency charged with the responsibility of regulating the sale of securities in this state.

   
   

2. On August 19, 1988, Mr. Graibus filed an application to be an associated person of Finnet Securities, Inc., (Finnet), with the Department. On March 3, 1989, by letter, the Department notified Mr. Graibus of its intent to deny his application on the basis that prior disciplinary action taken against him by other states was prima facie evidence of his unworthiness to act as a securities dealer in Florida. Specifically, the bases for denial were:

   
   

   1. A Minnesota Cease and Desist Order in December, 1977.

   2. A Securities and Exchange commission suspension order in May, 1983.

   3. The denial of Petitioner's application for registration as an associated person with J. W. Gant and Associates by 10 states.

   4. Three judgements against Petitioner.

   5. His termination for cause from employment with American Western Securities.

      
      

3. Petitioner was employed by American Western Securities in Denver, Colorado from November, 1977 to July 1980 when he left feeling a change would be beneficial to his career. No evidence was presented to support the Department's allegation that Petitioner was terminated for cause from that period of employment and that allegation is found to be unsupported.

   
   

4. In December, 1977, the State of Minnesota issued a Cease and Desist Order against Petitioner alleging that he offered to sell, and did sell, unregistered securities while neither he, the firm, nor the securities were registered in that state as required by state law. Petitioner did not dispute

   the allegations of fact outlined in the Minnesota Order. The actual sale was made to a father and son who Petitioner had inherited as customers from his stepfather. The trades were unsolicited and were approved by petitioner's supervison who had many years experience in the securities trade.

   
   

5. On May 23, 1983, the Securities and Exchange Commission, (SEC), found that Mr. Graibus had, at an unspecified time, wilfully violated and aided and abetted in violations of the anti-fraud and anti-manipulation provisions of the United States security law, and had failed to reasonably supervise others under his control to prevent violations of the same law. Petitioner engaged in

   cross trading, manipulation of stock prices, and fraudulent representations to customers regarding two stocks. These findings were incorporated in a Findings and Order Imposing Remedial Sanctions which were drafted and adopted from an offer of settlement submitted by Mr. Graibus.

   
   

6. In its Order, the SEC took the following disciplinary action:

   
   

   1. It suspended Petitioner from association with any broker/dealer for 60 days;

   2. It barred Petitioner from acting in a supervisory capacity as a principal, officer, director or employee for 12 months; and

   3. It stipulated that Petitioner was not to act in a supervisory position without prior approval from the Commission, after the expiration of the previously mentioned 12 month period.

      
      

7. Mr. Graibus has twice previously been granted registration as an associated person in Florida. Specifically, on May 9, 1984, he was approved as an associated person with Chesley and Dunn; and on January 28, 1985, he was approved as an associated person with J. W. Gant and Associates. In both cases, the Department had knowledge of the Minnesota Order and the SEC action since Petitioner disclosed both on each application.

   
   

8. In 1984, while Petitioner was a principle of the brokerage firm of Chesley and Dunn, Inc., the Securities and Exchange Commission revoked the firm's registration for violations of various net capital and financial reporting regulations. There was no charge against the Petitioner. As a result of his association with this firm, and his having signed notes on behalf of the firm in his personal capacity, Mr. Graibus incurred a substantial liability for obligations of the firm, which are memorialized by three default judgements against him. The initial loan totaled $150,000.00. While manager of the firm's Sarasota office, Petitioner also invested approximately $175,000.00 of his own money which was lost. All his private obligations were fully disclosed to prospective creditors when he borrowed the money for the firm.

   
   

9. In 1985, Mr. Graibus submitted applications to several states for registration as an associated person with J. W. Gant and Associates. These applications fully disclosed the entry of the Minnesota Order and the results of the SEC action. His applications were approved in twenty-two states, but as a result of the aforementioned SEC action, were denied by the states of Pennsylvania, Nebraska, Ohio, and Tennessee. He protested the denial by Tennessee and on November 22, 1985, that state entered a Final Order confirming its denial of his application for registration, finding that he

   had failed to disclose the adverse finality of the Minnesota Cease and Desist Order claiming Instead that the order had been resolved by corporate counsel. This comment is also made- in Mr. Graibus's Gant application in Florida which granted his application. Mr. Graibus did not protest the entry of the Final Order In Tennessee.

   
   

10. Mr. Peter Maftieu is a registered securities dealer in four separate classifications. He has worked for J. W. Gant and Chesley and Dunn since January, 1983. Petitioner trained him when he first started in the industry. Incorporated as a fundamental part of Petitioner's training [pg was the insistence on full disclosure of material facts to clients and the need to insure that he, as a salesman, educated himself as to his client's situation by a full and detailed questioning to insure the securities recommended were

    suitable for and consistent with the client's needs. As a part of his training, Petitioner showed Mr. Maftieu the SEC and Minnesota orders as examples of what can happen if there is not full compliance with the rules.

    
    

11. Due to increasing instances of misconduct within the securities industry in this state, none of which was shown to relate to Petitioner, in 1985 the Florida Comptroller created a task force to study the problem and come up with recommendations for efforts to combat fraud in the securities industry in Florida. In March, 1986, the task force submitted its report which, in part, recommended that the Department tighten up its review of applications for registration as securities dealers to eliminate or disqualify applicants with a disciplinary record within the industry. As a result of this recommendation, the Department altered its policy in exercising its discretionary approval authority.

    
    

12. Petitioner has, for many years now, practiced full disclosure in the conduct of his business and it has been in excess of six years since the last findings of any violations of securities laws, rules or regulations by Petitioner. Nonetheless, in this case, the Department's denial of Mr. Graibus' application, which was based on his disciplinary history in other states, was consistent with its policy against granting registration to "unworthy" persons, as outlined in the Department's rules, and the intent of the Legislature as outlined in Section 517.1205, Florida Statutes.

    
    

    CONCLUSIONS OF LAW

    
    

13. The Division of Administrative Hearings has jurisdiction over the parties and the subject matter in this case. Section 120.57(1), Florida Statutes.

    
    

14. The Department has indicated its intent to deny Petitioner registration as an exercise of its statutorily granted discretion based on it's conclusion that he is unworthy to transact securities business in this state. Section 517.161(1)(h), Florida Statutes.

15. In Rule 3E-600.011. F.A.C., the Department has determined that:

    
    

    Prima Facie evidence of unworthiness to transact the business of a dealer, investment adviser, principal, or agent in the State of Florida shall include but shall not be limited to:

    (2) Any injunction, suspension, prohibition, revocation, denial or administrative order by any state or federal agency, national securities exchange, or national securities association, involving a violation of any federal or state securities law or any rule or regulation promulgated thereunder, and any injunction or adverse administrative order by a state or federal agency regulating banking, insurance, finance or small loan companies, real estate, mortgage brokers, or' other related or similar industries, or any court of competent jurisdiction.

    
    

16. The breadth of the listing of agencies related to investment and, finance, the actions of which are considered pertinent to an applicant's qualifications, clearly demonstrates that the officials charged with regulating the securities industry in this state have taken their responsibilities to protect the investing public seriously. This conclusions is supported by a review of the legislative intent regarding registration of associated persons outlined in Section 517.1205, Florida Statutes, which provides that whereas an agency might find an applicant of good repute and character from evidence presented, that finding "is precluded by a determination that the applicant may be denied registration on grounds provided by law."

    
    

17. Petitioner claims that the Tennessee, Ohio and Nebraska denials, based as they were upon the SEC action, do not involve violations of a federal or state law. That argument is without merit. The SEC order was based upon Petitioner's manipulative and possibly fraudulent misconduct and serves as a signal beacon for the wary regulator who not only may but must consider it.

    
    

18. The evidence clearly demonstrates that any misconduct in which the Petitioner may have, at one time, been involved, terminated years ago, and that for the better part of the past decade, he has, working within the industry, comported himself in an acceptable fashion. Notwithstanding this, however, Section 517.1205, Florida Statutes, provides, in pari materia:

    
    

    ...the historical practice of the Department of Banking and Finance, reflected in its rules, that requires a new application for registration from a previously registered associated person when that person seeks to be associated with a new securities dealer or investment adviser is hereby ratified and approved as consistent with legislative intent.

19. The state granted Petitioner registration with Chesley in 1983 with knowledge of the Minnesota action and with J. W. Gant in 1984, with knowledge of that and the SEC action. It now intends to deny on the "additional evidence" of the judgements and the fact that several states denied him registration with

    J. W. Gant based on the same information. Though this may not appear to some to be "additional" information, the determination of "additional supporting evidence" was made as a result of the Department's change of policy in 1985.

    
    

20. Though the Petitioner was guilty of wrongdoing in the past, this activity took place at least seven years ago and since that time he has not been shown to be guilty of any impropriety. The three judgements were not related to any misconduct by Petitioner but to his guarantee of his firm's obligations. The denials by Nebraska, Ohio and Tennessee were for activity known to the Department at the time it granted him his prior registrations. It cannot be said that either reason constitutes additional misconduct.

    
    

21. While the Department has established a prima facie case of unworthiness, this prima facie evidence has been countered by' Petitioner's uncontradicted testimony that he has not been involved in any

wrongdoing since 1983. It is clear that Petitioner has satisfied his burden to establish his worthiness for registration, and that the Department has presented no bona fide "additional supporting evidence" to the contrary.

RECOMMENDATION

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

RECOMMENDED that Petitioner's application for registration as an associated person with Finnet Securities, Inc., be granted.

RECOMMENDED this 5th day of January, 1990, in Tallahassee, Florida.

ARNOLD H. POLLOCK

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 5th day of January, 1990.

COPIES FURNISHED:

Edward W. Dougherty, Jr., Esquire Mang, Rett & Collette, P.A.

660 D. Jefferson St. Post Office Box 11127

Tallahassee, Florida 32301-3127

M. Catherine Green, Esquire Paul C. Stadler, Esquire

Department of Banking and Finance Suite 1302

The Capitol

Tallahassee, Florida 32399-0350

Hon. Gerald Lewis Comptroller

State of Florida The Capitol

Tallahassee, Florida 32399-0350

Charles L. Stutts General Counsel

Department of Banking and Finance Suite 1302

The Capitol

Tallahassee, Florida 32399-0350

Docket for Case No: 89-004927

Orders for Case No: 89-004927