STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEERFIELD SECURITIES, INC., and ) EDWARD T. STREHLAU, )

)

Petitioner, )

)

vs. ) CASE NO. 90-1612

)

DEPARTMENT OF BANKING AND )

FINANCE, )

)

Respondent. )

)

RECOMMENDED ORDER

A hearing was held in this case in Sarasota, Florida on September 5, 1990 before Arnold H. Pollock, a Hearing Officer with the Division of Administrative Hearings.

APPEARANCES

For Petitioner: Edward T. Strehlau, pro se

13122 Woodington Drive

Houston, Texas 77038

For Respondent: R. Beth Atchison, Esquire

Office of the Comptroller The Capitol, Suite 1302

Tallahassee, Florida 32399-0350 STATEMENT OF THE ISSUES

The issue for consideration herein was whether the Petitioners should be granted registration as a dealer and associated person/principal, respectively, for securities in the State of Florida.

PRELIMINARY STATEMENT

By letter dated November 30, 1989, from the Director, Division of Securities and Investor Protection, Office of the Comptroller, State of Florida, Petitioner, Edward T. Strehlau was advised that the application he had filed for registration of Deerfield Securities, Inc., as a dealer, and for registration of himself as an associated person/principal of Deerfield, had been denied.

Thereafter, by Petition dated January 10, 1990, Mr. Strehlau requested a formal hearing on the denial and by letter dated March 9, 1990, the file was forwarded to the Division of Administrative Hearings for appointment of a Hearing Officer. After response by the parties to the Division's Initial Order, the undersigned, by Notice of Hearing dated April 3, 1990, set the case for hearing on September 5, 1990 in Sarasota at which time it was held as scheduled.

At the hearing, Mr. Strehlau testified in his own behalf and on behalf of Deerfield Securities, Inc. The Respondent Department presented the testimony of Tamara Cain, Assistant Director of the Department's Division of Securities and Investor Protection. Petitioner introduced Petitioner's Exhibits A through K, and Respondent introduced its Exhibits 1 through 11.

Subsequent to the hearing, Respondent submitted Proposed Findings of Fact which have been approved and are incorporated herein as appropriate in this Recommended Order. Petitioner did not submit either Proposed Findings of Fact or argument.

FINDINGS OF FACT

1. By Prehearing Stipulation entered into by the parties on August 30, 1990, the parties agreed, and it is so found, that:

   
   

   1. Petitioner, Edward T. Strehlau, is President and control person of Deerfield Securities, Inc.

   2. On or about February 3, 1989, Petitioners filed an application, (Form BD), for registration as a broker/dealer, which was signed by Mr. Strehlau.

   3. On or about March 15, 1989, Petitioners filed with the Division an amendment to that Form BD.

   4. On or about April 19, June 22, and

      July 20, 1989, Petitioners filed additional amendments to the Form BD initially signed and submitted on behalf of the Petitioners by

      Mr. Strehlau.

   5. All of the Forms BD and amendments filed by Petitioner, Strehlau, with the Division were represented by him as true and complete.

   6. On February 3, 1989, Petitioner, Strehlau, also filed the Articles of Incorporation of Deerfield Securities, Inc., with the Florida Secretary of State. These Articles listed Edward T. Strehlau, Patericia O'Dell, William Manger, and Patricia Strehlau as Directors.

   7. The Division of Securities requires the filing of the Articles of Incorporation along with the dorm BD. This requirement is outlined in Section 517.12, Florida Statutes.

   8. Neither William Manger nor Patricia Strehlau were listed as Directors of Deerfield Securities, Inc., on the Form BD or on any amendments thereto which were filed with the Division.

   9. Mr. Manger is the subject of a complaint relating to securities violations committed by Eiffel Securities, Inc., Mr. Manger, a

      Mr. Riddle, and a Mr. Ashbee, in the State of Tennessee.

   10. On or about February 23, 1989, Mr. Strehlau, as President of Deerfield, withdrew the application for registration of Deerfield Securities, Inc., as a broker dealer with the State of Tennessee, and further agreed not to reapply for registration as a broker/dealer in that State, and not to sell Deerfield Investments, Inc.'s investment units in Tennessee.

   11. Deerfield Securities, Inc. is a wholly owned subsidiary of Deerfield Investments, Inc. Edward T. Strehlau is a control person and President of Deerfield Investments, Inc. The principal place of business of Deerfield Securities, Inc. is Sarasota, Florida.

   12. William Manger, at all times pertinent hereto, was President and a control person of the aforementioned Eiffel Securities, Inc., a Tennessee corporation. Petitioner, Edward T. Strehlau, was a control person of Eiffel Securities, Inc., during the period June 1, 1988 through September 21, 1988. Eiffel Securities, Inc. was a wholly owned subsidiary of Tennessee Investments Marketing Enterprises, (TIME), and Edward T. Strehlau was vice-president of TIME between June, 1988 and September, 1988.

   13. On February 3, 1989, Petitioner Strehlau paid $200.00 in filing fees for Deerfield Securities, Inc. with the Florida Division of Securities.

   14. On February 10, 1989, The Division of Securities notified Deerfield of several deficiencies in its application for registration as a securities dealer. These deficiencies included a requirement for:

       1. the officer or partner names of the parent firm;

       2. registration as a foreign corporation or a legal opinion indicating no need therefor;+

       3. a clearing agreement from a dealer in Florida signed by both firms;

       4. Articles of Incorporation or partnership agreement;

       5. proof of securities effectiveness and compliance with SIPC (Securities Investors Protection Corporation).

   15. Thereafter, on February 27, March 16, April 20, June 22, and July 18, 1989,

       Mr. Strehlau sent letters to the Division of Securities in which he attempted to convince the Division of his compliance with the requirements set forth in the February 10, 1989 deficiencies letter.

2. The Petitioner's efforts, however, were not supported by facts in some particulars. For example, the clearing agreement with OTRA, to be signed by both parties, was signed only by Petitioner Strehlau as President of Deerfield Securities, Inc., and attested by Patericia O'Dell of the firm. No signature from any responsible party of OTRA appears on the document. By letter dated December 2, 1988, Mr. Strehlau submitted this unilaterally executed clearing agreement.

   
   

3. By letter dated February 22, 1989, the vice- president for finance of the SIPC attested that Deerfield Securities, Inc. was, as of that date, registered with the Securities and Exchange Commission, (SEC), as a securities broker under Section 15(b), of the 1934 Securities Investor Protection Act, and by operation of that Act, the corporation would be a member of SIPC unless its business consisted exclusively of various activities which are not pertinent to this hearing. It would appear, therefore, that Deerfield Securities, Inc. was, at the time of application at least, a member of SIPC.

   
   

4. It is also found, however, that the application for registration submitted by Mr. Strehlau on behalf of himself and Deerfield Securities, Inc. contained what appears to be a material misrepresentation of fact in that it did not list Mr. Manger and Mrs. Strehlau as Directors. Mr. Manger had a disciplinary history in the industry in Tennessee and his omission was material.

   
   

5. Article VI of Deerfield Securities' Articles of Incorporation filed with the Florida's Secretary of State's office listed Mr. Manger as one of the original Directors of Deerfield Securities, Inc. as of February 3, 1989. However, when Mr. Strehlau submitted the application for registration for Deerfield, (Form BD), neither that form nor any of the subsequent amendments listed Manger as a Director or affiliated person even though the form required that all Directors be listed. Mr. Strehlau contends that Manger and Mrs. Strehlau were omitted because neither were to take an active part in the management of Deerfield's operations. The Division, however, considered the omission to be a false material statement since the Directors of an applicant are considered to be pertinent to its operation. In this, the Division is correct.

   
   

6. The Division also took the position that the pending Tennessee disciplinary action against Mr. Manger was significant. It surmised that Manger, seeing he could not be licensed in Florida on his own, was attempting to achieve this end through Mr. Strehlau, and the Department was concerned there was still a relationship between Manger and Deerfield. There is no evidence, direct or otherwise, to support that suspicion.

   
   

7. When an application form is sent to an applicant, upon the applicant's request, an instruction sheet is sent with it which outlines the basic requirements for filing. These instructions are not, however, all inclusive or controlling. The statutes and Rules of the Department, pertinent to criteria for application and registration, constitute the ultimate guidelines over who is approved for registration. When Division analysts review an application, they check it against a requirements check list to insure that all requirements are met. If required information is not included with the application, the Division must notify the applicant of the omitted information within 30 days. If the requested information is received within 60 days, the Division then has an additional 90 days in which to rule on the application. If the omitted information is not timely received, however, the Division can deny the application for incompleteness or approve it if appropriate. On the other hand, when all required information is received timely, if the Division does not act

   on the application within 90 days, the application is automatically approved and if a discrepancy is thereafter noted, corrective action must be through disciplinary action rather than denial.

   
   

8. The Division's denial action here was based on two grounds. The first was the failure to list Mr. Manger as a Director on the original Form BD or any of the amendments thereto. The second was Mr. Manger's prior and pending disciplinary record. Even if the pending action were not considered, the Division would still have denied the Petitioner, Deerfield's, application based on the prior, completed disciplinary actions against Mr. Manger in Tennessee.

   
   

9. Petitioner claims that the Division did not request a second time those items listed on the initial deficiency letter and which were not thereafter provided by him. It is the Division's policy that once the initial deficiency letter is sent, calling for additional information, if the applicant submits only a part of those items identified, it will not send out another notification reminding the applicant of the still- missing items. It is not required that such follow-up notification be sent. If, however, the applicant calls and inquires if its application is complete, the Division will advise the applicant which of the previously noted deficiencies have not yet been corrected. Here, no such inquiry by the Petitioner was made.

   
   

10. In this case, the Division took the position that Petitioner's application was never complete since there was no clearing agreement signed by the required parties prior to approval. Further, Mr. Strehlau's application as a principal failed to include a proper copy of his personal disciplinary history regarding a dismissed charge of felonious pointing a fire arm in Oklahoma in 1981. Under Florida law, every securities dealership must have a registered principal and Mr. Strehlau was to fill that capacity for Deerfield. Since his application could not be deemed complete because of the failure to provide all the required information, neither could Deerfield's be deemed complete.

    
    

11. The State of Florida will not approve the application of a broker/securities dealer without approval of the National Association of Securities Dealers, (NASD). It is normal practice for NASD and Florida approval to be at the same time. There is an attempt at coordination, but Florida cannot approve a dealer for registration without the approval of the SEC and NASD. As of March 8, 1989, the state had been advised that NASD was prepared to approve Deerfield Securities, Inc., though it had some reservations about the firm which were insufficient to support denial. Even had NASD granted approval, however, NASD registration and membership does not guarantee Florida registration. The standards for registration are different.

    
    

12. No doubt Mr. Strehlau made many phone calls to the Division in an effort to get approval of these applications. Without question he submitted numerous amendments to the Form BD in an effort to provide that information that the Division asked for in a timely and proper manner. His claims that neither Mr. Manger nor Mrs. Strehlau were listed as Directors on any of the forms because they were not involved in the operation of the business, and that had it been intended for them to work in an operational capacity, they would have been listed are not persuasive, however. Notwithstanding his argument that if the Division had any questions about that, it should have inquired, clearly, that is not the Division's responsibility to do.

    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. Section 517.161, Florida Statutes, provides, in pertinent part:

    
    

    (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 determined that such applicant or registrant:

    * * *

    (b) Has made a material false statement in the application for registration.

    * * *

    (h) Has demonstrated his

    unworthiness to transact the business of dealer, investment advisor, or associated person.

    * * *

    (4) It shall be sufficient cause for denial of an application or revocation or registration if any officer,

    director, .... has been guilty of an act or omission, which would be cause for denying or revoking [that person's] registration....

    * * *

    1. Registration under S. 517.12 may be denied or any registration granted may be suspended or restricted if an applicant or registrant is charged, in a pending enforcement action or pending criminal prosecution, with any conduct that would authorize denial or revocation under subsection (1).

       1. Any denial of registration ordered under this subsection shall be without prejudice to the applicant's ability to reapply for registration.

    * * *

    1. For purposes of this subsection:

       1. "Enforcement action" means any judicial proceeding or any

          administrative proceeding where such [proceeding] is brought by an agency of the United States or of any state to enforce or restrain violation of any state or federal law, or any disciplinary proceeding maintained by the National Association of Securities Dealers, the

          National Futures Association, the New York Stock Exchange, or any other similar self-regulatory organization.

       2. An enforcement action is

          pending at any time after notice to the applicant or registrant of such action and is terminated at any time after entry of final judgement or decree in the case of judicial proceedings, final agency action in the case of administrative proceedings, and final disposition by a self-regulatory organization in the case of disciplinary proceedings.

       3. A criminal prosecution is pending at any time after criminal

    charges are failed and is terminated at any time after conviction, acquittal, or dismissal.

    
    

15. The Department has implemented the provisions of the legislation cited above at Rule 3E-600.11, F.A.C., which states, in pertinent part:

    
    

    Prima facie evidence of unworthiness to transact 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, probation, revocation, denial or administrative order by a 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 ....

    
    

16. The Department relies for its denial of registration on its conclusion that both Deerfield Securities, Inc. and Edward T. Strehlau have demonstrated their unworthiness to transact securities business in Florida because an individual listed as a director of the corporation, Mr. Manger, has been the subject of completed and pending disciplinary action involving securities dealings in Tennessee. The Department also concludes that the failure to list Mr. Manger as Director of the corporation on the Form BD or the amendments thereto constitutes a material misrepresentation in light of the fact that the application form requires a certification that all information provided thereon is true and complete.

    
    

17. The Department properly contends that Mr. Strehlau, acting as President of Deerfield Securities, Inc., and the individual who prepared and filed the application forms and amendments, had full opportunity to prepare or amend the forms to have them conform to the information regarding officers and directors which was contained in the Articles of Incorporation filed with the Secretary of State, and to, thereafter, fully disclose all information regarding Mr. Manger and his difficulties with the State of Tennessee. The failure to do this constitutes unworthiness which the Department has appropriately determined.

18. The Department also takes the position that the Petitioners' assertion that the Department failed to comply with the 90 day time period required in Rule 3E-301.004, F.A.C. for action on the application, was waived. It claims, in the alternative, that it identified the deficiencies discovered in the application form in a timely manner and requested additional information, some of which Petitioner failed to fully submit. It is clear that the latter approach is more appropriate, and there can be little doubt, based on the facts, that Mr. Strehlau failed to provide all the information required of him on behalf of his own application and that of Deerfield Securities. Therefore, the

    90 day time period for action had not begun to run.

    
    

19. Under the provisions of Section 517.171, Florida Statues, and the Rule 28-6.003, F.A.C., Petitioner has the burden to establish its entitlement to the license in question. The evidence clearly indicates Petitioner has failed to carry this burden satisfactorily. It shows that a material misstatement was made in the application forms which was not corrected in a timely fashion by Petitioner, and that Petitioner failed to submit all the required documentation required and identified by the Department in its deficiency letter of February 10, 1989.

    
    

20. Under the terms of the statute and rules in issue here, the Department has the authority to deny the application if it is satisfied that Petitioner is not qualified or an appropriate candidate for approval. Here, this is clearly the case.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of Law, it is, therefore recommended that the application of Deerfield Securities, Inc. to be registered as a broker/dealer, and the application of Edward T. Strehlau to be registered as an associated person/principal of Deerfield Securities, Inc., in Florida be denied.

RECOMMENDED this 5th day of October, 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 October, 1990.

COPIES FURNISHED:

Edward T. Strehlau, pro se 13122 Woodington Drive

Houston, Texas 77038

R. Beth Atchison, Esquire Office of the Comptroller The Capitol, Suite 1302

Tallahassee, Florida 32399-0350

The Honorable Gerald Lewis Comptroller, State of Florida The Capitol

Tallahassee, Florida 32399-0350

William G. Reeves General Counsel The Capitol

Plaza Level, Room 1302 Tallahassee, Florida 32399-0350

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to this Recommended Order. All agencies allow each party at least 10 days in which to submit written exceptions. You should consult with the agency that will issue the final order in this case concerning their rules on the deadline for filing exceptions to this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the final order in this case.

Docket for Case No: 90-001612

Orders for Case No: 90-001612