STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

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

)

Petitioner, )

)

vs. ) Case No. 01-3761

)

THOMAS NILE ANTHONY, JR., )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, a final hearing was held in this case on December 10, 2001, by video teleconference between West Palm Beach and Tallahassee, Florida, before Claude B. Arrington, a duly-designated Administrative Law Judge of the Division of Administrative Hearings.

APPEARANCES

For Petitioner: Diane E. Leeds, Esquire

Department of Banking and Finance Office of the Comptroller

111 South Sapodilla Avenue Suite 211

West Palm Beach, Florida 33401-5293 For Respondent: No appearance

STATEMENT OF THE ISSUES

Whether Respondent committed the offenses alleged in the Administrative Complaint and the penalties, if any, that should be imposed.

PRELIMINARY STATEMENT

At the times pertinent to this proceeding, Respondent was the manager of a branch office of a brokerage office.

Petitioner filed a pleading styled Administrative Complaint for Entry of Cease and Desist Order Imposing Sanctions and Notice of Rights (Administrative Complaint), against Respondent and

19 other-named individuals. The other-named Respondents settled this proceeding prior to the final hearing.

The Administrative Complaint set forth what is referred to as Background information and Findings of Fact. Based on that Background information and Findings of Fact, Petitioner reached the following “Conclusions of Law” pertaining to Respondent:

Respondent violated F.A.C. 3E- 600.013(1)(p)(2)(g) (sic), NASD Conduct Rule 3010, Section 517.161(1)(a), Florida Statutes, in that he failed to supervise the branch office.

Respondent violated Section 517.121(1), Florida Statutes, 3E-600.14(10) [sic] and 3E-600.13(1)(p)(2)(g) (sic), F.A.C., NASD

Complaint, Investigations and Sanctions Rule 8110, and NASD Conduct Rule 3010(a) in that he failed to maintain and follow written supervisory procedures.

Respondent (and all other named Respondents except one) violated Section 517.07(1), Florida Statutes, and therefore Section 517.161(1)(a), Florida Statutes, and 3E-600.013(1)(n) and (2)(g), F.A.C. in that

they offered to sell and in fact sold, totaling 266 sales, of unregistered securities as enumerated in the Administrative Complaint. [1]

Respondent violated 3E-600.014(1) in that Merit did not keep and maintain a record of

each cash and margin account indicating the name and address of the beneficial owner of such account as required by 17 CFR 240.17a- 3(9) and 17 CFR 240.17a-4(c).[2]

The Administrative Complaint reflects that Petitioner intends to enter a Final Order to Cease and Desist pursuant to Section 517.221(1), Florida Statutes; impose administrative fines pursuant to Section 517.221(3), Florida Statutes; and revoke, suspend, or restrict Respondent’s registration pursuant to Section 517.161(1)(a), Florida Statutes.

Respondent timely requested a formal administrative hearing to challenge the proposed disciplinary action, the matter was referred to the Division of Administrative Hearings, and this proceeding followed.

At the final hearing, Petitioner presented the testimony of Michael Ward and Annette Beresford and offered two exhibits, each of which was accepted into evidence. Respondent made no appearance at the final hearing.

No transcript of the proceedings was filed. Petitioner filed a Proposed Recommended Order, which has been duly- considered by the undersigned in the preparation of this Recommended Order. Respondent did not file a proposed recommended order.

FINDINGS OF FACT

1. Petitioner is an agency of the State of Florida charged with the responsibility and duty to administer Chapter 517, Florida Statutes, which is known as the Florida Securities and Investor Protection Act.

2. On August 15, 1997 and September 9, 1997, Petitioner conducted an audit of the branch office of Merit Capital Associates, Inc., located in Boca Raton, Florida, and known as the H. K. Laurence Branch (the branch office). The branch office was an office of supervisory jurisdiction that required the presence of a branch manager.

3. On April 28, 1997, Merit Capital executed a form entitled "Branch Registration Form" that registered the branch office with Petitioner and designated Respondent as the branch manager. Respondent accepted that designation on April 29, 1997. On April 30, 1997, the form was filed with Petitioner.

4. In August and September 1997, Petitioner conducted an examination of the branch office. Michael Ward, whose job title is Senior Financial Investigator, was in charge of the examination. Annette Beresford, whose job title is Financial Specialist, assisted Mr. Ward. Both Mr. Ward and Ms. Beresford are full-time employees of Petitioner with appropriate training and experience.

5. Respondent failed to properly register with the National Association of Securities Dealers (NASD) to act as a branch manager. Respondent was required by NASD rules to register as a principal because he had supervisory responsibilities. His only registration was as a salesperson.

6. NASD Conduct Rule 3010, a rule adopted by NASD, sets forth standards for the supervision of branch offices. Pursuant to Rule 3E-600.013, Florida Administrative Code, Respondent, as the designated branch manager, was required to comply with the minimum supervisory standards set forth in NASD Conduct

   Rule 3010. Respondent did not meet those minimum supervisory standards while serving as the manager of the branch office. The following establish Respondent’s failure to supervise.

   Respondent did not provide NASD manuals to the registered representatives (salespersons) at the branch, he did not maintain Merit Capital's supervisory manuals at the branch, and he did not require that salespersons comply with Merit Capital's written policies and procedures. Respondent failed to maintain NASD and Florida registrations of salespersons at his branch.

   During the period April 29 through July 9, 1997, representatives of Merit Capital under Respondent's supervision at the branch office sold to members of the public shares of stock in a company known as Certified Diabetic Services, Inc., and shares of stock in a company known as Arcoplate Corporation.

   Respondent had supervisory responsibility for these transactions involving the sale of these two stocks. At the times pertinent to this proceeding, the stock of Certified Diabetic Services, Inc., and the stock of Arcoplate Corporation were not registered as required by Section 517.07(1), Florida Statutes, and they were not exempt from registration. Respondent should not have permitted the salespersons under his supervisory jurisdiction to sell unregistered stock

7. During the period March 11 through July 9, 1997, Respondent was personally responsible for three transactions involving the sale of stock in Certified Diabetic Services, Inc., at a time when the stock was not registered as required by Section 517.07(1), Florida Statutes, and was not exempt from registration.

   CONCLUSIONS OF LAW

   
   

8. The Division of Administrative Hearings has jurisdiction of the parties to and the subject of this proceeding. Section 120.57(1), Florida Statutes.

9. Petitioner has the burden of proving by clear and convincing evidence the allegations against Respondent. See Ferris v. Turlington, 510 So. 2d 292 (Fla. 1987); Evans Packing Co. v. Department of Agriculture and Consumer Services, 550

   So. 2d 112 (Fla. 1st DCA 1989); and Inquiry Concerning a Judge, 645 So. 2d 398 (Fla. 1994).

10. Section 517.161(1)(a), Florida Statutes, provides, in pertinent part, as follows:

    1. Registration under s. 517.12 may be denied or any registration may be revoked, restricted, or suspended by the department if the department determines that such applicant or registrant:

       1. Has violated any provision of this chapter or any rule or order under this chapter.

          
          

11. Section 517.121, Florida Statutes, provides, in pertinent part, as follows:

    1. The department may issue and serve upon a person a cease and desist order whenever the department has reason to believe that such person is violating, has violated, or is about to violate any provision of this chapter, any rule or order promulgated by the department, or any written agreement entered into with the department.

       
       

       * * *

       
       

       (3) The department may impose and collect an administrative fine against any person found to have violated any provision of this chapter, any rule or any written agreement entered into with the department in an amount not to exceed $5,000 for each such violation. All fines collected hereunder shall be deposited as received in the Anti- Fraud Trust Fund.

       
       

12. Section 517.07(1), Florida Statutes, provides, in pertinent part, as follows:

    1. It is unlawful and a violation of this chapter for any person to sell or offer to sell a security within this state unless

       the security is exempt under s. 517.051, is sold in a transaction exempt under s.

       517.061, or is registered pursuant to this chapter.

       
       

13. Petitioner proved by clear and convincing evidence that Respondent failed to supervise the branch office after accepting the designation as the branch office's branch manager. That failure constitutes a violation of NASD Conduct Rule 3010, which set forth standards for the supervision of branch offices, and Rule 3E-600.013, Florida Administrative Code, which requires compliance with those standards. Those violations constitute a violation of Section 517.161(1)(a), Florida Statutes.

14. Petitioner also proved by clear and convincing evidence that Respondent failed to maintain and follow written supervisory procedures. That violation is subsumed in Petitioner's general allegation that Respondent failed to manage the branch office and no additional penalty will be recommended for that violation.

15. Petitioner proved by clear and convincing evidence that Respondent sold unregistered securities in violation of Section 517.07(1), Florida Statutes.

16. Petitioner has cited no disciplinary guidelines pertinent to this proceeding.

17. Petitioner persuasively argued that the failure to supervise a branch office of a brokerage office is a serious violation of its rules.

18. Selling unregistered stock may or may not be a serious violation. Here, there was no evidence as to whether any member of the public suffered because Respondent sold unregistered shares of Certified Diabetic Services, Inc., in three separate transactions.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner enter a final order finding Respondent guilty of failing to supervise the branch office and of selling unregistered securities. The final order should revoke Respondent’s registration under Section 517.12, Florida Statutes, and order him to cease and desist violations of Chapter 517, and the rules promulgated thereunder. The final order should also impose an Administrative Fine against Respondent in the amount of $5,000 for the failure to supervise. The final order should also impose an Administrative Fine against Respondent in the amount of $1,500 for the three transactions involving the sale of shares of unregistered stock.

DONE AND ORDERED this 22nd day of January, 2002, in Tallahassee, Leon County, Florida.

CLAUDE B. ARRINGTON

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(850) 488-9675 SUNCOM 278-9675

Fax Filing (850) 921-6847 www.doah.state.fl.us

Filed with the Clerk of the Division of Administrative Hearings this 22nd day of January, 2002.

ENDNOTES

1/ The Administrative Complaint charged Respondent with selling unregistered stock. In its Proposed Recommended Order, Petitioner proposed that Respondent be held responsible for all sales of unregistered stock by all representatives under his supervision. Although Petitioner charged Respondent with failure to supervise, that allegation was bottomed on specific factual allegations and did not include the theory espoused in its Proposed Recommended Order. The theory that Respondent is responsible for all transactions at the branch office of unregistered stock set forth by Petitioner in its Proposed Recommended Order was not properly pled in the Administrative Complaint and will not be incorporated in this Recommended Order.

2/ Petitioner did not introduce evidence as to this allegation at the final hearing, and it did not address this issue in its Proposed Recommended Order. The undersigned has treated this issue as having been abandoned by Petitioner.

COPIES FURNISHED:

Thomas Nile Anthony, Jr. 4833 Pamela Drive

Abilene, Texas 79606

Diane E. Leeds, Esquire Department of Banking and Finance Office of the Comptroller

111 South Sapodilla Avenue Suite 211

West Palm Beach, Florida 33401-5293

Honorable Robert F. Milligan Department of Banking and Finance Office of the Comptroller

The Capitol, Plaza Level 09 Tallahassee, Florida 32399-0350

Robert Beitler, General Counsel Department of Banking and Finance Fletcher Building, Suite 526

101 East Gaines Street Tallahassee, Florida 32399-0350

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the Final Order in this case.

1 The Administrative Complaint charged Respondent with selling unregistered stock. In its Proposed Recommended Order, Petitioner proposed that Respondent be held responsible for all sales of unregistered stock by all representatives under his supervision. Although Petitioner charged Respondent with failure to supervise, that allegation was bottomed on specific factual allegations and did not include the theory espoused in its Proposed Recommended Order. The theory that Respondent is responsible for all transactions at the branch office of unregistered stock set forth by Petitioner in its Proposed Recommended Order was not properly pled in the Administrative Complaint and will not be incorporated in this Recommended Order.

2 Petitioner did not introduce evidence as to this allegation at the final

hearing, and it did not address this issue in its Proposed Recommended Order. The undersigned has treated this issue as having been abandoned by Petitioner.

Docket for Case No: 01-003761

Orders for Case No: 01-003761