STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

MICHAEL SILVERSTEIN, )

)

Petitioner, )

)

vs. )

) FLORIDA REAL ESTATE COMMISSION, )

)

Respondent. )

Case No. 06-1144

)

RECOMMENDED ORDER

This case came before Administrative Law Judge John G. Van Laningham for final hearing by video teleconference on June 5, 2006, at sites in Tallahassee and West Palm Beach, Florida.

APPEARANCES

For Petitioner: John L. Bryan, Jr., Esquire

Scott, Harris, Bryan, Barra & Jorgensen, P.A.

4400 PGA Boulevard, Suite 800 Palm Beach Gardens, Florida 33410

For Respondent: Thomas Barnhart, Esquire

Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida 32399

STATEMENT OF THE ISSUE

The issue in this case is whether Petitioner's application for licensure as a real estate salesperson should be granted even though, in 2003, NASD imposed discipline against Petitioner

pursuant to a settlement agreement wherein Petitioner neither admitted nor denied allegations that he had been involved in improper trading activities.

PRELIMINARY STATEMENT

By a Notice of Intent to Deny dated February 15, 2006, Respondent Florida Real Estate Commission informed Petitioner Michael Silverstein that it had decided not to grant his application for licensure as a real estate sales associate. Mr. Silverstein timely requested a formal hearing, and on

March 31, 2006, the Commission referred the matter to the Division of Administrative Hearings, where an Administrative Law Judge was assigned to conduct a formal hearing.

The hearing took place on June 5, 2006, as scheduled, with both parties present. Mr. Silverstein testified on his own behalf and called one character witness, Rabbi Michael Simon.

He also offered Petitioner's Exhibits 1 through 4, which were received in evidence. The Commission called no witnesses. The undersigned admitted Respondent's Exhibits 1 and 2 into evidence.

The final hearing was recorded but not transcribed.

Proposed Recommended Orders were due on June 15, 2006, and each party timely filed one. These submissions were considered in the preparation of this Recommended Order.

Unless otherwise indicated, citations to the Florida Statutes refer to the 2005 Florida Statutes.

FINDINGS OF FACT

1. Respondent Florida Real Estate Commission ("FREC") is the agency responsible for licensing real estate brokers and salespersons in the State of Florida.

2. In September 2005, Petitioner Michael Silverstein ("Silverstein") applied for licensure as a real estate sales associate.

3. In his application, Silverstein disclosed that in 2003, NASD——a private-sector securities regulator——had imposed discipline against him, pursuant to a settlement agreement known formally as a Letter of Acceptance, Waiver and Consent ("AWC"), for allegedly having engaged in improper trading activities.

4. The disciplinary matter had arisen out of certain bids that Silverstein had made to buy shares, for his own account, in Chromatic Color Sciences International, Inc. ("CCSI"), a company whose fortunes (and stock price), Silverstein had believed, were due to rise. The bids in question——of which there were 29——had taken place over a two-month period between December 31, 1999, and February 29, 2000. At that time, Silverstein and a partner had owned a brokerage firm called Your Discount Broker, Inc. ("YDB").

5. Each of the 29 bids had been placed within 30 seconds or so of the close of the trading day on which the bid was made. Each bid had exceeded the day's previous highest bid for CCSI, by an amount ranging from about three cents to 20 cents per share. NASD had alleged that the bids were not bona fide offers to purchase (five had resulted in a consummated sale) but rather artifices made in furtherance of a "manipulative, deceptive, and/or fraudulent" scheme undertaken to artificially inflate the value (on paper, at least) of Silverstein's investment in CCSI.1 NASD had accused Silverstein, his partner, and YDB of violating NASD Conduct Rules 2110 and 2120.2

6. Ultimately, in June 2003, Silverstein and the two other respondents had entered into the aforementioned AWC, wherein, "without admitting or denying the allegations, and solely for the purposes of [the then-pending] proceeding and any other proceeding [that might later be] brought by or on behalf of NASD, or to which NASD [might be] a party," they had agreed to the imposition of specified penalties. The stipulated sanctions against Silverstein were a fine of $75,000, which he had paid, and a "suspension from association with any member firm for a period of two months," which Silverstein had served, as agreed, from July 7, 2003, through September 6, 2003.

7. After Silverstein had served his suspension, NASD had reinstated his registrations, allowing Silverstein once again to

   engage in securities transactions under NASD's oversight. Later, the New York Stock Exchange ("NYSE") had granted Silverstein a license. As of the final hearing in this case, Silverstein still held his securities licenses, although he was not then active in the industry.

8. Placing a bid near the close of the trading day was not, of itself, a violation of any NASD rule.3 Likewise, merely offering to pay more for a particular company's shares than any other investor previously had offered on a given day was not a disciplinable act under any NASD rule. Silverstein's conduct in relation to the 29 bids for which NASD disciplined him was wrongful, therefore, only if undertaken with bad intent.

9. At hearing in this case, Silverstein denied any intent to manipulate the value of CCSI's shares. The only evidence opposing Silverstein's testimony is the AWC, which is, to be sure, some proof of wrongdoing, because Silverstein agreed therein to be punished. On the other hand, in entering into the AWC, Silverstein was not required expressly to admit wrongdoing, and he did not do so. Further, the undersigned credits Silverstein's unrebutted testimony that he agreed to accept punishment, not because he believed he was guilty of violating NASD rules, but because, at the time, YDB was being acquired by another company, and the deal could not be completed until the NASD matter had been resolved.

10. In addition, there was no evidence about the volume of trading that typically occurred, during the relevant time period, within minutes or seconds of the trading day's close. The undersigned therefore cannot make any rational determination, based on the evidence in the record, as to whether Silverstein's 29 last-minute bids were highly unusual (and hence especially suspicious), relatively routine, or something in-between. There was, as well, no evidence concerning either the volume of trading that was then occurring in connection with CCSI shares, or the prices at which that company's shares were trading during the relevant period, making it impossible for the undersigned reasonably to draw any inferences from the dollar-amounts of Silverstein's bids. In short, there is no persuasive circumstantial evidence (besides the AWC itself) from which the undersigned might infer that Silverstein acted with fraudulent or dishonest intent when he made the 29 bids.

11. At bottom, the evidence in the instant record is simply insufficient to persuade the undersigned that Silverstein's conduct in relation to the 29 bids for which NASD disciplined him was, in fact, manipulative, deceptive, or fraudulent.

12. The undersigned is convinced, however, that, apart from the AWC, Silverstein's past (so far as the evidence shows)

    is spotless. He has maintained a reputation in his community for truth and honesty, which NASD's disciplinary action failed to sully. Silverstein's conduct after February 29, 2000 (when he stopped making last-minute bids) has been good, even exemplary. Indeed, FREC itself concedes (and the undersigned finds) that Silverstein "is a well-respected member of his community." Resp. Prop. Rec. Order at 4.

13. In view of Silverstein's good conduct and reputation; the facts that NASD and the NYSE presently consider him fit to work in the securities industry; and the fact the that last allegedly improper bid was placed more than six years ago, the undersigned determines as a matter of ultimate fact that granting Silverstein a license to work as a real estate sales associate will not likely endanger the public generally or

    investors specifically.

    
    

    CONCLUSIONS OF LAW

    
    

14. The Division of Administrative Hearings has personal and subject matter jurisdiction in this proceeding pursuant to Sections 120.569 and 120.57(1), Florida Statutes.

15. As an applicant for licensure, Silverstein bore the burden at hearing of going forward initially with proof of his qualifications; he also was required to shoulder the ultimate burden of persuasion. See Department of Banking & Fin., Div. of

    Sec. & Investor Protection v. Osborne Stern & Co., 670 So. 2d 932, 934 (Fla. 1996).

16. Section 475.17(1)(a), Florida Statutes——under which Silverstein presented his application to FREC——prescribes the qualifications for licensure as follows:

    An applicant for licensure who is a natural person must be at least 18 years of age; hold a high school diploma or its equivalent; be honest, truthful, trustworthy, and of good character; and have a good reputation for fair dealing. An applicant for an active broker's license or a sales associate's license must be competent and qualified to make real estate transactions and conduct negotiations therefor with safety to investors and to those with whom the applicant may undertake a relationship of trust and confidence. If the applicant has been denied registration or a license or has been disbarred, or the applicant's registration or license to practice or conduct any regulated profession, business, or vocation has been revoked or suspended, by this or any other state, any nation, or any possession or district of the United States, or any court or lawful agency thereof, because of any conduct or practices which would have warranted a like result under this chapter, or if the applicant has been guilty of conduct or practices in this state or elsewhere which would have been grounds for revoking or suspending her or his license under this chapter had the applicant then been registered, the applicant shall be deemed not to be qualified unless, because of lapse of time and subsequent good conduct and reputation, or other reason deemed sufficient, it appears to the commission that the interest of the public and investors will not likely be endangered by the granting of registration. The

    commission may adopt rules requiring an applicant for licensure to provide written information to the commission regarding the applicant's good character.

    
    

    (Emphasis added.)

    
    

17. In addition to maintaining that Silverstein's disciplinary record is disqualifying pursuant to the foregoing statute, FREC here urges that denial of Silverstein's application is authorized under Section 475.25, which provides in pertinent part as follows:

    1. The commission may deny an application for licensure, registration, or permit, or renewal thereof; may place a licensee, registrant, or permittee on probation; may suspend a license, registration, or permit for a period not exceeding 10 years; may revoke a license, registration, or permit; may impose an administrative fine not to exceed $1,000 for each count or separate offense; and may issue a reprimand, and any or all of the foregoing, if it finds that the licensee, registrant, permittee, or applicant:

       
       

       * * *

       
       

       (s) Has had a registration suspended, revoked, or otherwise acted against in any jurisdiction. The record of the disciplinary action certified or authenticated in such form as to be admissible in evidence under the laws of the state shall be admissible as prima facie evidence of such disciplinary action.

       
       

18. In its Notice of Intent to Deny, FREC further found, on the basis of the NASD sanctions, that denial of Silverstein's

    application was warranted pursuant to Sections 475.25(1)(b) and 475.25(1)(o), Florida Statutes.4 To be operative, however, each of these provisions requires a previous finding or findings of "guilt". And Silverstein was never adjudicated guilty in the NASD matter; the parties' settlement (the AWC) relieved NASD of the burden of proving its allegations, without requiring Silverstein to admit them. Thus, Sections 475.25(1)(b) and 475.25(1)(o) are inapposite. (Moreover, FREC did not press these points, either at hearing, or in its Proposed Recommended Order (in which no mention was made of the statutes referenced in this paragraph). The undersigned therefore concludes, in the alternative, that the agency has abandoned these grounds.)

19. As for the prior discipline, there is no dispute that NASD suspended Silverstein's registration with that organization (for 60 days) and imposed a fine of $75,000 against him. NASD is not, however, a state, nation, possession or district of the United States, court, or governmental agency. See Whitehall Wellington Invs., Inc. v. NASD, 2000 U.S. Dist. LEXIS 18607, *2 (S.D.Fla. Dec. 7, 2000)("NASD is a non-governmental agency"). Therefore, according to the plain and unambiguous language of Section 475.17(1)(a), Florida Statutes, Silverstein cannot be deemed unqualified for licensure solely because of the NASD proceeding.

20. Whether NASD, as a private-sector corporation, constitutes a body whose prior disciplinary action against an applicant's third-party "registration" implicates Section 475.25(1)(s) is another matter. For this statute, unlike Section 475.17(1)(a), does not expressly restrict its operation to discipline imposed by governments and public-sector agencies, rendering Section 475.25(1)(s) ambiguous in relation to the present situation.

21. It is commonly known that many voluntary private- sector organizations reserve the right to discipline or expel any member who violates a rule or rules of the organization. To take one example, the Florida Association of Realtors, a private, voluntary trade association, is empowered to discipline its members for violating the National Association of Realtors' Code of Ethics. If, based on evidence presented at a hearing, a hearing panel determines that a member-realtor has committed an ethics violation, the guilty party may be reprimanded, fined, suspended from membership, or thrown out of the association.5

22. Yet, the rules of a private organization such as the Florida Association of Realtors, however sensible and commendable they might be, are designed primarily to advance and protect the organization's interests——which are not necessarily coterminous, or even consistent, with the interests of the public (though of course they might be). Governments and their

    agencies, in contrast, are accountable to all the people and hence (should) strive to adopt statues and rules that advance and protect the public's interests. Given that the general public has little or no say in the internal operations and affairs of private organizations, it might be unreasonable to interpret Section 475.25(1)(s) as authorizing FREC to deny an application for licensure, or discipline a licensee, solely on the basis of the individual's having been sanctioned by a private organization.6

23. As mentioned earlier, NASD is not a governmental agency. It is a private, non-profit corporation, organized under the laws of Delaware. See Lang v. French, 154 F.3d 217,

    219 (5th Cir. 1998). To be sure, NASD exercises regulatory and disciplinary jurisdiction over its members, but it is not a public body. For the reasons discussed above, there exists a serious, nontrivial argument that discipline imposed by NASD does not fall within Section 475.25(1)(s).

24. The argument, however, is not airtight. Though a private entity, NASD nevertheless has been delegated substantial governmental power in the area of securities regulation, in consequence of its registration, with the Securities and Exchange Commission ("SEC"), as a national securities association under the Exchange Act. See Merrill Lynch, Pierce,

    Fenner & Smith, Inc. v. National Association of Securities Dealers, Inc., 616 F.2d 1363, 1367 (5th Cir. 1980). Further,

    Congress has specified certain procedural safeguards for NASD disciplinary hearings. The association is required to "bring specific charges, notify such member or person of, and give him an opportunity to defend against, such charges, and keep a record." 15 U.S.C. § 78o -3(h)(1). Any disciplinary sanction must be supported by a statement setting forth the act or practice which constituted the violation, the specific provision violated, the sanction imposed, and the reasons supporting its imposition. Id. In addition, the procedure of NASD disciplinary hearings is subject to close scrutiny by the SEC. The SEC must be satisfied that NASD rules provide a "fair procedure" for disciplinary hearings. 15 U.S.C. §§ 78o -3(b)(8), 78s(b)(1), (2).

    
    

    Id. Accordingly, NASD is distinguishable from the run of trade associations, perhaps materially so. Arguably, therefore, discipline imposed by NASD is cognizable under Section 475.25(1)(s), Florida Statutes.

25. Because the question is close and neither party has addressed it,7 the undersigned will assume without deciding, solely for the purposes of this Recommended Order, that Silverstein's record of discipline before NASD provides FREC a ground under Section 475.25(1)(s) to deny his application for licensure.

26. That said, it is concluded that FREC should not deny Silverstein's application on the basis of the AWC because of the

several mitigating factors summarized in paragraphs 12 and 13 above. See Fla. Admin. Code R. 61J2-24.001(4)(a)(authorizing consideration of mitigating circumstances in imposing or recommending a penalty). To repeat for emphasis, the undersigned concludes that, notwithstanding the NASD matter, which arose out of events that occurred more than six years ago, Silverstein's good conduct and reputation for honesty in his community convincingly establish that granting him a real estate license will not endanger the public.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that FREC enter a final order granting Silverstein's application for licensure as a real estate sales associate.

DONE AND ENTERED this 26th day of June, 2006, in Tallahassee, Leon County, Florida.

S

JOHN G. VAN LANINGHAM

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 26th day of June, 2006.

ENDNOTES

1/ Evidently, YDB's clearing firm valued a company's shares based on the "National Best Bid," a figure which reflects the day's highest offer for a particular stock, regardless whether that offer resulted in a consummated transaction. Thus, allegedly, Silverstein's 29 last-minute bids were made solely for the wrongful purpose of pumping up the National Best Bid for CCSI, in turn causing YDB's clearing firm to increase the value of the CCSI shares that Silverstein then held, thereby ultimately reducing Silverstein's margin exposure (by increasing the equity in his account).

2/ Rule 2110 provides that, in conducting his business, a "member . . . shall observe high standards of commercial honor and just and equitable principles of trade." Rule 2120 prohibits a member from using "any manipulative, deceptive or other fraudulent device or contrivance" as a means of effecting a securities transaction.

3/ Parenthetically, moreover, a rule prohibiting trading within, say, 10 minutes of the closing bell (and there was no evidence of such) simply would shorten the trading day by 10 minutes; the "pre-close" cutoff would be, then, the effective close of the trading day——and bids made within 30 seconds before this effective close would be permissible.

4/ Section 475.25(1)(b) allows FREC to deny an application for licensure if the applicant "[h]as been guilty of fraud, misrepresentation, concealment, false promises, false pretenses, dishonest dealing by trick, scheme, or device, culpable negligence, or breach of trust in any business transaction in this state or any other state, nation, or territory[.]" Section 475.25(1)(o) authorizes denial if the applicant

[h]as been found guilty, for a second time, of any misconduct that warrants her or his suspension or has been found guilty of a course of conduct or practices which show that she or he is so incompetent, negligent, dishonest, or untruthful that the money, property, transactions, and rights of investors, or those with whom she or he may sustain a confidential relation, may not safely be entrusted to her or him.

5/ Information about disciplinary proceedings before associations of realtors is available online at

<http://www.realtor.org/>.

6/ Interpreting Section 475.25(1)(s) to include prior, private- sector discipline also would raise a "slippery-slope" problem.

That is, if Section 475.25(1)(s) were construed to comprehend private discipline by, e.g., a trade association, then the statute might also be urged, according to similar reasoning, to embrace disciplinary actions taken by, for example, a church or private club.

7/ As the principal legal support for FREC's intended action, Section 475.25(1)(s) was placed squarely in issue. Therefore, the undersigned, as an independent, quasi-judicial officer, is obligated to interpret and apply this governing statute according to his understanding thereof——even if his understanding of the law differs from the views of both parties. This is, after all, "a de novo proceeding intended to formulate agency action, and not to review action taken earlier and

preliminarily." Beverly Enterprises-Florida, Inc. v. Department of Health and Rehabilitative Services, 573 So. 2d 19, 23 (Fla.

1st DCA 1990); Szkolny v. State Awards Committee, 395 So. 2d 1290, 1293-94 (Fla. 1st DCA 1981)("Section 120.57(1) proceedings do not perform a review function; rather, this procedure is utilized to formulate agency action."). Moreover, the undersigned has a duty, as a participant in the decision-making process, to make an independent recommendation, based on the evidentiary record and applicable law, regarding the form and substance of final agency action in the cause. See Gulf Coast Home Health Services of Florida, Inc. v. Department of Health and Rehabilitative Services, 513 So. 2d 704, 706 (Fla. 1st DCA 1987)("In Section 120.57(1) proceedings, the hearing officer 'independently serves the public interest by providing a forum to expose, inform and challenge agency policy and discretion.'"). Nevertheless, it is sometimes preferable, as a prudential matter, merely to identify an issue than to raise and resolve one, especially where, as here, avoiding a conclusion will not change the outcome.

COPIES FURNISHED:

John L. Bryan, Jr., Esquire Scott, Harris, Bryan, Barra &

Jorgensen, P.A.

4400 PGA Boulevard, Suite 800 Palm Beach Gardens, Florida 33410

Thomas Barnhart, Esquire Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida 32399

Nancy B. Hogan, Chairman Real Estate Commission Department of Business and

Professional Regulation

400 West Robinson Street, Suite 801N Orlando, Florida 32801

Josefina Tamayo, General Counsel Department of Business and

Professional Regulation Northwood Centre

1940 North Monroe Street Tallahassee, Florida 32399-0792

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.

Docket for Case No: 06-001144

Orders for Case No: 06-001144