STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

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

)

Petitioner, )

)

vs. ) CASE NO. 90-2509

)

ROBERT MICALIZIO, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, Mary Clark, held a formal hearing in the above- styled case on February 19, 1991, in Orlando, Florida.

APPEARANCES

For Petitioner: Robert K. Good

Assistant General Counsel Office of the Comptroller Hurston South Tower, #S225

400 West Robinson Street Orlando, Florida 32801

For Respondent: Gina Micalizio

237 Quayside Circle Maitland, Florida 32751

STATEMENT OF THE ISSUES

An Administrative Complaint and cease and desist order was filed by the Department of Banking and Finance on March 29, 1990, against Respondent and thirty-one other persons, alleging various violations of Chapter 517, F.S., the "Florida Securities and Investor Protection Act".

The only allegation of wrongdoing by Robert Micalizio is that he offered or sold an unregistered security in violation of Section 517.07, F.S. He admits contacting investors, but claims those contacts were to obtain indications of interest (IOI) which are not proscribed.

The issue for resolution in this proceeding is whether Respondent committed the alleged violation and if so, what discipline is appropriate.

PRELIMINARY STATEMENT

Robert Micalizio received his copy of the Administrative Complaint on April 2, 1990, and made a timely request for a formal hearing.

The hearing was scheduled, but was continued twice at the request of the parties, for good cause.

At the hearing, Petitioner presented the testimony of William Furnas (by telephone, without objection), Dorothy Gerjovich, Donna Mezger and Richard White. Four exhibits were offered and received in evidence.

Respondent testified in his own behalf and presented three exhibits, received in evidence.

After the hearing a transcript was prepared and the parties submitted proposed recommended orders and memoranda of law. Specific rulings on the proposed findings of fact are found in the attached appendix.

FINDINGS OF FACT

The following facts are reflected in the parties' prehearing stipulation filed on February 11, 1991, and required no proof at hearing:

1. Robert Micalizio was registered with the Department as an associated person of Thomas James Associates, Inc., from on or about February 1, 1987 until the termination of his registration with Thomas James Associates, Inc., on or about June 16th, 1989. During all times Robert Micalizio was registered with the Department, he was simultaneously registered with the National Association of Securities Dealers. He is currently employed as an associated person at Advantage Capital Corporation.

   
   

2. Thomas James Associates, Inc., offered to the public, units, shares, and warrants of Electronic Assembly Services, Inc., from their offices in Florida. Electronic Assembly Services, Inc., was a "firm commitment" securities offering underwritten by Thomas James Associates, Inc. A unit of Electronic Assembly Services, Inc., consisted of four (4) shares of common stock plus two

   (2) common stock purchase warrants and was sold to the public for two dollars ($2.00) per unit. The units, shares, and warrants of Electronic Assembly Services, Inc., were securities as that term is defined by Section 517.021, Florida Statutes.

   
   

3. The effective date of the offering (that is the date at which the units could first legally be sold) was July 6th, 1988.

   
   

4. The initial public offering of Electronic Assembly Services, Inc., consisted of 1.5 million units which were offered to the public at two dollars ($2.00) per unit.

   
   

5. The total number of units sold of Electronic Assembly Services, Inc., by Robert Micalizio was eleven thousand one hundred and fifty (11,150) for a total price to the customer of twenty two thousand three hundred dollars ($22,300.00). The commissions received by Robert Micalizio on these sales were approximately six hundred and thirty-nine dollars ($639.00).

   
   

   These facts are adduced from the evidence presented at hearing, including the weighing of credibility of the witnesses:

6. Robert Micalizio is 29 years old, and his association with Thomas James was his first job in the securities field.

   
   

   Nonetheless, prior to obtaining his Series 7 Registration with the State of Florida and with the National Association of Securities Dealers (NASD), in order to sell stocks, bonds and mutual funds, he had to take and pass a test covering rules and regulations of the Security & Exchange Commission (SEC) and other matters. He also studied Florida laws governing the sale of securities. Rule 3E-600.005, F.A.C., in effect at the time Micalizio became registered, requires every applicant for registration to execute and submit a notarized affidavit attesting to the applicant's knowledge and review of the Florida Security Act.

   
   

   His training on how to handle clients and make sales was from salesmen at Thomas James.

   
   

7. On or before June 21, 1988, Robert Micalizio contacted William Furnas about the purchase of units of Electronic Assembly Services, Inc. Furnas already had an account with Thomas James and had dealt with Micalizio before on other securities offerings.

   
   

   During that conversation Furnas placed an order for 750 units, at $2.00 a unit. He mailed his check for $1,500.00 on the 21st or 22nd to Thomas James Associates (check #1109, dated June 21, 1988).

   
   

   William Furnas does not remember whether Micalizio told him the securities were unregistered, but he was not told that he could cancel his order.

   
   

8. Furnas' check appears on the Thomas James Associates office log as received on June 23rd.

   
   

9. Because the Electronic Assembly Services offering was oversold, the company allotted only 575 units to William Furnas. The remainder of the

   $1,500.00 was used to purchase another security from Mr. Micalizio.

   
   

   William Furnas received his prospectus on Electronic Assembly Services sometime after July 13, 1988, when he received confirmation of his purchase.

   
   

10. On June 21 or 22, 1988, Robert Micalizio contacted Dorothy Gerjovich, by telephone, at her home in Orlando. He asked her to purchase units of Electronic Assembly Services, telling her that it was a good company.

    
    

    She agreed to the purchase, and he told her how much she owed. He did not tell her she could cancel the transaction; nor did he tell her the securities were not registered.

    
    

    She wrote her check for $1,000.00 on June 22, 1988, and mailed it to Thomas James Associates, where it was logged as received on June 27, 1988.

    
    

    Sometime after mailing her check, Dorothy Gerjovich received her prospectus for Electronic Assembly Services.

    
    

11. Although he does not acknowledge the date of sale, Robert Micalizio acknowledges selling Electronic Assembly Services units to Glen R. and Margaret Callin. A check from them in the amount of $1,200.00 dated June 24, 1988, and marked "for ELAS", was logged in at Thomas James Associates on June 27th.

12. The check log was obtained by Donna Mezger, an examiner for the Department of Banking and Finance, Division of Securities, during her investigation of Thomas James Associates, Inc. It was given to her by a clerk at Thomas James upon her request when she first came to do her investigation. It is required to be maintained by SEC regulations and by the Division of Securities.

    
    

13. Under normal circumstances, a security is registered with the Florida Department of Banking and Finance or the SEC, or both agencies. The agency review prior to registration is to determine whether the offering is fair, just and equitable and whether there is proper disclosure of material information in the prospectus.

    
    

    Unless and until the offering is registered, the statutory protection of the investor is not available.

    
    

14. An "indication of interest" (IOI) is a process by which broker/dealers and associated persons try to determine how much interest there is in a public offering that is about to come to market.

    
    

    Many firms do firm commitment underwritings; that is, they agree to purchase securities from an issuer and resell them to the public. The IOI allows the broker/dealer to determine how much demand there is for the security he is getting ready to sell so that he can anticipate the risk.

    
    

15. Generally an IOI is done by contacting customers and explaining the offering to them and sending them a preliminary prospectus for review. This prospectus is called a "red herring" because of the red language on the cover, alerting the customer that it is preliminary only. The preliminary prospectus is authorized during the waiting period between filing the registration statement and the time it is declared effective. The customer may indicate to the firm whether they are interested and how many shares they might purchase after the offering is determined effective.

    
    

16. It is appropriate and legal for a broker or associate to take IOI's, as opposed to making an offer or sale, prior to the effective date of registration. The Department of Banking and Finance has an established policy of looking at whether the money has been accepted in determining whether there has been a "sale" of securities.

    
    

    There is no statutory definition of "indication of interest", but there are SEC statements of policy describing it.

    
    

17. Robert Micalizio had a grasp of what an IOI is. At some point in the course of his employment with Thomas James he was instructed that an IOI is a firm commitment. He disagreed with this as he knew that the regulations provided that an IOI could be cancelled before a stock starts trading publicly.

    
    

18. Robert Micalizio's statements regarding what he told his customers were contradictory and disingenuous. In a sworn affidavit given to Donna Mezger in which he was allowed to make changes, he stated that he told customers that an IOI is a firm commitment because that is what he was told to say. He also stated that he considered his customers as astute investors, and since it was not in a script anywhere, he would tell them they could cancel an IOI only if they asked. At hearing, he said that he always told clients that an IOI could be cancelled at anytime.

    It is clear that he did not tell William Furnas or Dorothy Gerjovich that they could cancel their June 1988 orders for Electronics Assembly Services units.

    
    

    It is also clear that these customers correctly assumed they were making purchases of securities, not simply indications of interest, when Micalizio contacted them prior to the effective date of registration. He knew that they were making that assumption, according to his statement to Donna Mezger.

    
    

19. Petitioner has no written disciplinary guidelines, but in similar cases involving sales of unregistered securities has imposed a suspension, fine, and a registration agreement restricting the registrant's practice and requiring supervision by his employer.

    
    

    CONCLUSIONS OF LAW

    
    

20. The Division of Administrative Hearings has jurisdiction in this proceeding pursuant to Section 120.57(1), F.S.

    
    

21. Section 517.07, F.S., provides:

    
    

    No securities except of a class exempt under any of the provisions of Section 517.051 or unless sold in any transaction exempt under any of the provisions of Section 517.061 shall be sold or offered for sale within this state unless such securities have been 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.

    
    

    * * *

    
    

22. See also Rule 3E-600.013(1)(h), F.A.C. designating the execution of orders for purchase of unregistered securities as a "prohibited business practice".

    
    

23. The parties have stipulated that none of the exemptions under Section

    517.051 or 517.061, F.S., apply to the sale of the units of Electronic Assembly Services, Inc.

    
    

    Offer to sell", "offer for sale", or "offer" means any attempt or offer to dispose of,

    or solicitation of an offer to buy, a security or interest in a security, or an investment or interest in an investment, for value.

    
    

    Section 517.021(15), F.S.

    
    

    "Sale" or "sell" means any contract of sale

    or disposition of any investment, security, or interest in a security, for value. With respect to a security or interest in a security, the term defined in this subsection does not include preliminary negotiations or agreements between an issuer or any person on

    whose behalf an offering is to be made and any underwriter or among underwriters who are or

    are to be in privity of contract with an issuer.

    
    

    Section 517.021(20), F.S.

    
    

    * * *

    
    

24. Section 517.161(1), F.S., provides that the registration of a dealer, associated person, investment advisor, and branch office may be denied, revoked, restricted, or suspended by the department if the department determines that the registrant has violated any provision of Chapter 517, F.S., or any rule or order under that chapter.

    
    

25. Section 517.221, F.S., similarly provides that the department may issue cease and desist orders and impose and collect administrative fines, not to exceed $5,000.00 per violation, for any violation of Chapter 517, F.S., or rule or order issued under that chapter.

    
    

26. Suspension or revocation of a professional license requires proof of the allegations of a complaint by evidence that is clear and convincing. Ferris

    v. Turlington, 510 So 2d 292 (Fla. 1987).

    
    

27. Petitioner met its burden of proof. The testimony of Respondent's customers established the nature of his pre-registration contacts. These were not mere indications of interest, but rather were sales or offers to sell as defined above, and constituted violations of Section 517.07, F.S. These customer's checks and their testimony corroborated the evidence found in the firm's log that the securities were bought and paid for prior to the effective date of registration.

    
    

28. Respondent's suggestion that those checks could have been for other purchases or could simply have been sent to an open account, to be applied later, is not substantiated by any credible evidence. The fact that William Furnas' $1,500.00 was applied, in part, to purchase another security does not negate the fact of the preregistration sale. It indicates, as do the "Buy" orders in Respondent's exhibit #3, that the offering was oversold.

    
    

29. Counsel for Petitioner is seeking revocation of Respondent's license. This is a first offense by a young and inexperienced registrant who was superficially knowledgeable but too willing to follow the illegal direction of his employer. There is no evidence of actual fraud by Mr. Micalizio.

    
    

30. The lesser penalty established by the department as its unwritten policy in cases such as this is more appropriate, except for the supervisory requirements of the registration agreement. Mr. Micalizio's violations were not the result of lack of supervision, but rather the wrong kind of supervision.

RECOMMENDATION

Based on the foregoing, it is hereby, recommended that a final order be entered finding Robert Micalizio guilty of violating Section 517.07, F.S., suspending his registration for two years and imposing an administrative fine of

$639.00, the amount of commissions he earned on the unregistered sales.

RECOMMENDED this 17th day of April, 1991, in Tallahassee, Leon County, Florida.

MARY CLARK

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 17th day of April, 1991.

APPENDIX TO RECOMMENDED ORDER, CASE NO. 90-2509

The following constitute specific rulings on the findings of fact proposed by the parties:

Petitioner's Proposed Findings

1. and 2. Adopted in statement of the issues and preliminary statement.

1. Adopted in paragraph 1.

   
   

2. and 5. Adopted in paragraph 2.

1. Adopted in paragraph 3.

   
   

2. Adopted in paragraph 5.

   
   

3. and 9. Adopted in paragraph 7.

1. Adopted in paragraph 9.

   
   

2. - 13. Adopted in paragraph 10.

14. and 15. Adopted in paragraph 11.

1. Adopted in paragraph 12.

   
   

2. and 18. Rejected as unnecessary.

1. Adopted in paragraphs 8, 10 and 11.

   
   

2. and 21. Adopted in paragraph 13.

1. Rejected as immaterial.

   
   

2. Adopted in paragraph 14.

   
   

3. Adopted in paragraphs 15 and 16.

4. and 26. Rejected as unnecessary.

27. - 30. Adopted in substance in paragraph 18.

31. Adopted in paragraph 19.

Respondent's Proposed Findings of Fact

1. Adopted in paragraph 1.

   
   

2. Adopted in paragraph 16.

   
   

3. Adopted in paragraph 14.

   
   

4. Adopted in paragraph 15.

   
   

5. Adopted in paragraph 6.

   
   

6. Rejected as contrary to the weight of evidence.

   
   

7. Rejected as unnecessary and immaterial. The manner by which Respondent designated the transaction, the notation itself, does not prove the transaction was an IOI. More credible evidence established that it was not.

   
   

8. Adopted in paragraph 14.

   
   

9. Rejected as unnecessary.

   
   

10. and 11. Rejected as contrary to the weight of evidence.

1. Rejected as unnecessary (as to not telling customers the stock was registered). The fact that he told customers that the IOI could be cancelled would tend to prove that even Respondent considered the Furnas and Gerjovich contacts as something more than an IOI, since he did not tell them the order could be cancelled.

   
   

2. - 18. Rejected as immaterial.

1. Adopted in paragraph 7, as to Furnas. Otherwise rejected as unsubstantiated by clear, competent evidence.

   
   

2. Adopted in paragraph 9.

   
   

3. Rejected as contrary to the evidence. There is no written policy, but a policy has been established through a series of cases dealing with discipline in a uniform manner.

   
   

4. Adopted in paragraph 16.

   
   

5. Rejected as unnecessary. There are plain definitions of "offer to sell" and "sale", and if the transactions meet those definitions, as these did, they are not mere IOIs.

COPIES FURNISHED:

Robert K. Good

Asst. General Counsel Office of the Comptroller Hurston South Tower, #S225

400 W. Robinson Street Orlando, FL 32801

Gina Micalizio

237 Quayside Circle Maitland, FL 32751

Hon. Gerald Lewis, Comptroller Dept. of Banking and Finance The Capitol, Plaza Level Tallahassee, FL 32399-0350

William G. Reeves, General Counsel Dept. of Banking and Finance

The Capitol

Plaza Level, Rm. 1302 Tallahassee, FL 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. Some agencies allow a larger period within which to submit written exceptions. You should contact the agency that will issue the final order in this case concerning agency 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: 90-002509

Orders for Case No: 90-002509