The Issue At issue in this proceeding is whether Petitioner is entitled to registration as an associated person of Brookstone Securities, Inc. ("Brookstone"), either by virtue of the default provision of Subsection 120.60(1), Florida Statutes, or by virtue of the substantive merits of his application.
Findings Of Fact Based on the oral and documentary evidence adduced at the final hearing and the entire record in this proceeding, the following findings of fact are made: The Parties The Office of Financial Regulation, a part of the Financial Services Commission, is the state agency charged with regulation of the securities industry. § 20.121(3)(a)2., Fla. Stat. Chapter 517, Florida Statutes, is the "Florida Securities and Investor Protection Act." § 517.011, Fla. Stat. Pursuant to Section 517.012, Florida Statutes, OFR is responsible for the registration of persons associated with broker-dealers. Victor Alan Lessinger is 62 years old. He has been involved in the securities industry since 1976. He was registered with the State of Florida as an associated person from April 23, 1991, until October 31, 1994. He was later registered as an associated person with the State of Florida from June 5, 1997, through April 29, 2006, with the exception of the eight-day period between January 23, 2002, and February 1, 2002. This eight-day lapse was caused by Mr. Lessinger's changing jobs, which necessitated that he re-apply for registration. An associated person must be registered through the broker-dealer that employs him. From February 2005 until April 2006, Mr. Lessinger was a broker associated with Archer Alexander Securities Corporation, and was registered as such with the State of Florida. Archer Alexander went out of business in April 2006, and Mr. Lessinger accepted an offer of employment from Brookstone, a company based in Lakeland. Mr. Lessinger was to work as an associated person in Brookstone's Coral Springs branch. The Application Process and the Notice On July 5, 2007, Mr. Lessinger submitted his application for registration as an associated person with Brookstone to OFR through Web CRD, the central licensing and registration system for the U.S. securities industry operated by the Financial Industry Regulatory Authority ("FINRA").2 Mr. Lessinger's initial application for registration as an associated person with Brookstone disclosed the following disciplinary events: a 1993 Consent Order that Mr. Lessinger entered into with the relevant authorities in the State of Maine; a 1998 "Division Order" from the State of Ohio denying Mr. Lessinger's application for a securities salesman license; a 2000 letter of acceptance, waiver and consent ("AWC") issued by the National Association of Securities Dealers ("NASD"), the predecessor to FINRA; a 2002 arbitration award issued by NASD Dispute Resolution, Inc.; and two related actions taken by the Securities and Exchange Commission ("SEC") in 2005. The 2000 AWC letter, the 2002 arbitration award, and the 2005 SEC actions all related to incidents and/or transactions that occurred in 1999. By letter dated July 18, 2007, Justin Mills, a financial analyst for OFR, notified Mr. Lessinger as follows: In order for the application to be deemed complete, it will be necessary to provide this office with a complete response to the following [sic] a copy of the complete Form U-4, as amended, and all documents pertaining to disciplinary matters, whether disclosable on the U-4 or not.[3] Documentation submitted must be certified by the issuer of such documents. Additionally, explain in detail the status of each pending action, and for each final action, summarize the action and the disposition. Specifically, but not limited to the following: * Certified copies of any regulatory actions by any state or federal regulator, or any self-regulatory organization, including but not limited to, the complaint, answer or reply, and final order or sanction. Certified documentation must be certified by the appropriate agency. Also, provide a brief narrative describing the causes that lead [sic] to the actions. Pursuant to Rule 69W-301.002(3), Florida Administrative Code, additional information shall be submitted within sixty (60) days after a request has been made by the Office. Failure to provide all the information may result in the application being denied. Mr. Lessinger responded with a package of documents and a cover letter dated July 23, 2007. OFR received the package and letter from Mr. Lessinger on July 24, 2007. On October 9, 2007, Ryan Stokes, a financial analyst supervisor for OFR, sent an e-mail to David Locy, then the executive vice president and compliance officer of Brookstone. Mr. Stokes requested the following documents in order to complete Mr. Lessinger's application: Certified copies of the complaint, Lessinger's answer/reply, and resolution for the actions taken by the SEC, State of Maine, State of Pennsylvania,[4] NASD, and State of Ohio. Certified copies of the statement of claim, Lessinger's response, settlement/arbitration panel's decision, and proof of payment of any awards/settlement for the arbitrations filed by Joseph Orlando and Muriel Hecht. Certified copy of the petition for bankruptcy and a discharge of bankruptcy. If any of the documents are unavailable due to age, a statement from the appropriate regulator/court to that effect, will suffice. At the hearing, Pamela Epting, chief of OFR's regulatory review bureau, testified that an e-mail such as that sent by Mr. Stokes is not OFR's usual method of doing business. OFR typically sends only an initial deficiency letter such as that sent by Mr. Mills on July 18, 2007. Richard White, director of OFR's division of securities, described Mr. Stokes' e-mail as a "courtesy" that provided Mr. Lessinger "with a reminder and greater detail as to what had not yet been provided." Mr. Lessinger responded with a package of documents and a cover letter dated November 5, 2007, which were received by OFR on November 6, 2007. The cover letter stated as follows, in relevant part: As requested, I am enclosing certified copies of all of the following: SEC, State of Maine (with additional prior correspondence), NASD. Joseph Orlando and Muriel Hecht (there were no payments made since Orlando was dismissed in its entirety with regard to me and Hecht was absolved as a result of my bankruptcy). Certified copy of the Petition for Bankruptcy and Discharge. I believe the State of Pennsylvania will be submitting directly to your office. I have not yet received the certification from the State of Ohio yet [sic]. I have enclosed the original Division Order which is signed and sealed by the Commissioner of Securities. If needed, I will forward the certification as soon as I receive the documents. . . . OFR did not respond in writing to Mr. Lessinger's November 5, 2007, submission. At some point in December 2007 or January 2008, Ms. Epting spoke to Mr. Locy by telephone. She told Mr. Locy that the agency intended to deny Mr. Lessinger's application and offered him an opportunity to withdraw the application in lieu of outright denial. In an e-mail to Ms. Epting dated February 4, 2008, Alan Wolper, attorney for Brookstone and Mr. Lessinger, wrote that his clients had decided not to withdraw the application, "notwithstanding the fact that you have indicated OFR's intent to deny that application." Mr. Wolper requested that Ms. Epting send a written notice of intent to deny, stating the particular grounds for the denial of Mr. Lessinger's application. At some point after writing the February 4, 2008, e-mail, Mr. Wolper wrote a letter to OFR asserting that Mr. Lessinger's registration should be deemed granted by default due to CFR's failure either to notify Mr. Lessinger of the application's incompleteness within 30 days of his November 5, 2007, submission or to act upon the completed application within 90 days of the November 5, 2007, submission, as required by Subsection 120.60(1), Florida Statutes. In a letter dated April 23, 2008, OFR assistant general counsel Jennifer Hrdlicka responded to Mr. Wolper with the assertion that the statutory default provision had not been triggered because Mr. Lessinger had yet to submit a completed application: Mr. Lessinger's application is still deficient. He has not provided to the Office the information requested in its July 18, 2007, letter to him. Still missing from his application are: Certified copies of the complaint, Lessinger's answer/reply, and resolution for the actions taken by the SEC; Certified copies of the resolution for the actions taken by the State of Ohio; and Certified copies of the statement of claim, Lessinger's response, settlement/arbitration panel's decision, and proof of payment of any awards/settlement for the arbitrations filed by Joseph Orlando. Mr. Lessinger did submit a certified copy of the Notice of Intent to Deny Application for Securities Salesman License from the State of Ohio, dated July 9, 1997. However, he did not submit any document, certified or not, regarding the resolution from that Notice of Intent of July 9, 1997, such as a Final Order. * * * Mr. Lessinger was timely notified of deficiencies in his application on July 18, 2007, thirteen days after submittal of his application and well within the thirty (30) day period set by the Administrative Procedures [sic] Act and the Office's corresponding Rule [Florida Administrative Code Rule 69W-301.002]. Your interpretation of Florida's Administrative Procedure Act and the Office's Rules contemplates an additional thirty day time period from Mr. Lessinger's November 6, 2007, submittal of additional information; this is a mistaken interpretation of Florida statutes. Mr. Lessinger's application was not considered complete on December 5, 2007. In fact, he has not yet delivered to the Office all requested information and so his application is currently not considered complete. His application will not be considered complete until such time as all requested information is received by the Office. . . . (Emphasis added.) On April 30, 2008, Mr. Lessinger submitted to Ms. Epting an affidavit attesting that the additional documents requested by Mr. Stokes on October 9, 2007, had been submitted to the agency on November 6, 2007. At the hearing, OFR continued to assert that Mr. Lessinger's November 6, 2007, submission did not contain all the information requested by Mr. Stokes. OFR submitted into evidence a sheaf of documents purporting to be Mr. Lessinger's November 6, 2007, submission. The documents had been unstapled for copying and re-stapled, and bore no consistent marks of date stamping or numbering that would allow a fact finder to conclude with confidence that the documents had been maintained in the form they were submitted by Mr. Lessinger. Ms. Epting could testify only as to OFR's general practice in maintaining its files, not as to the manner in which this particular file had been maintained. At the hearing, Mr. Lessinger stated under oath that he had provided OFR with every document it had asked for with the exception of the final order in the 1998 Ohio denial of his application. Mr. Lessinger conceded that he had only provided OFR with the notice of intent to deny in that case. Ms. Epting testified that OFR obtained the final order directly from the State of Ohio some time during the Spring of 2008. The only other item that OFR asserted was missing from the November 6, 2007, submission was a certified copy of the SEC's 2005 order barring Mr. Lessinger from association in a supervisory capacity with any broker or dealer for a period of two years. Mr. Lessinger's November 6, 2007, submission contained what appeared to be a non-certified copy of the order. The faint image of a seal is visible on the last page, with Mr. Lessinger's notation: "Raised seal unable to make darker." Ms. Epting testified that Mr. Lessinger submitted a certified copy of the order some time around May 2008. It is found that Mr. Lessinger submitted a certified copy of the SEC's 2005 order with his November 6, 2007, submission. On May 5, 2008, OFR issued the Notice to Mr. Lessinger. In the Notice, OFR identified a third "completeness" issue that Ms. Epting testified she discovered only during her inquiry to the State of Ohio regarding the final order in the 1998 denial. As to this issue, the Notice recited as follows under heading, "Statement of Facts": On October 3, 2007, the State of Ohio, Department of Commerce, Division of Securities, issued a Notice of Intent to Deny Application for Securities Salesperson License for Lessinger, Order No. 07-387. On April 7, 2008, the State of Ohio, Division of Securities issued a Final Order against Lessinger Denying the Application for a Securities Salesperson License, Order No. 08-052. The Final Order states that on October 15, 2007, Lessinger requested an adjudicative hearing of the Notice of Intent to Deny; the Final Order further states that such a hearing was held on December 18, 2007, and on January 23, 2008, the Hearing Examiners Report and Recommendation was issued, upholding the Division's Notice of Intent. The Final Order states that the Division found that Lessinger was not of "good business repute" as that term is used in Ohio Revised Code 1707.19(A)(1) and Ohio Administrative Code 1301:6-3-19(D)(2),(6),(7),(9), and (D)(11) . . ." Notice was not given to the Office of these administrative actions by the State of Ohio. Lessinger did not update his Form U-4 until April 23, 2008, and subsequent to the Office's inquiry as to this matter; further, his update to his Form U-4 is misleading in that it cites that the date of initiation of this matter was April 7, 2008. Under the heading "Conclusions of Law," the Notice states that Mr. Lessinger's failure to update his Form U-4 constitutes a violation of Florida Administrative Code Rule 69W-600.002(1)(c)5 and therefore a basis for denial pursuant to Subsection 517.161(1)(a), Florida Statutes, which provides that violation of any rule promulgated pursuant to Chapter 517 constitutes grounds for denial of registration. The parties agreed that Mr. Lessinger's application file at OFR was complete at the time of the hearing. The Notice cited additional grounds for denial based on Subsections 517.161(1)(h) and (m), Florida Statutes, which provide: (1) Registration under s. 517.12 may be denied or any registration granted may be revoked, restricted, or suspended by the office if the office determines that such applicant or registrant: * * * (h) Has demonstrated unworthiness to transact the business of dealer, investment adviser, or associated person; * * * (m) Has been the subject of any decision, finding, injunction, suspension, prohibition, revocation, denial, judgment, or administrative order by any court of competent jurisdiction, administrative law judge, or by any state or federal agency, national securities, commodities, or option exchange, or national securities, commodities, or option association, involving a violation of any federal or state securities or commodities law or any rule or regulation promulgated thereunder, or any rule or regulation of any national securities, commodities, or options exchange or national securities, commodities, or options association, or has been the subject of 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 lenders, money transmitters, or other related or similar industries. For purposes of this subsection, the office may not deny registration to any applicant who has been continuously registered with the office for 5 years from the entry of such decision, finding, injunction, suspension, prohibition, revocation, denial, judgment, or administrative order provided such decision, finding, injunction, suspension, prohibition, revocation, denial, judgment, or administrative order has been timely reported to the office pursuant to the commission's rules. . . . As the basis for OFR's conclusions that Mr. Lessinger had demonstrated "unworthiness" as described in Subsection 517.161(1)(h), Florida Statutes, and that Mr. Lessinger was the subject of decisions, findings, injunctions and/or prohibitions as set forth in Subsection 517.161(1)(m), Florida Statutes, the Notice cited the 1993 Maine consent order, the 1998 Ohio final order denying Mr. Lessinger's application for a securities salesman license, the 2000 AWC letter from NASD, the 2002 arbitration award issued by NASD Dispute Resolution, Inc., the 2005 SEC actions, and the April 7, 2008, Ohio final order denying Mr. Lessinger's application for a salesperson's license. Petitioner's Disciplinary History During his career, Mr. Lessinger has been employed in various capacities: as a broker/registered representative, a supervisor, and a general securities principal. He has lived and worked in Florida since 1997. From November 1976 through October 1994, Mr. Lessinger was employed by First Investors Corporation ("First Investors") in New York, working his way up to senior vice president and director of the company. On December 20, 1993, Mr. Lessinger entered into a Consent Agreement with the Attorney General of the State of Maine, "for the sole purpose of effecting a settlement of the civil action against Lessinger," First Investors and other individual defendants commenced by the Attorney General and the Maine Securities Administrator in 1991. Mr. Lessinger did not admit or deny that his conduct violated the Revised Maine Securities Act. The Consent Agreement does not provide the details of the grounds for the civil action. Mr. Lessinger testified that First Investors sold mutual funds, one of which was a junk bond fund that lost a great deal of money for investors in the late 1980s. First Investors had an office in Maine, and the Attorney General instituted a civil action against First Investors and certain supervisory personnel, including Mr. Lessinger, for failure to disclose to investors the risk inherent in these bond funds. Mr. Lessinger had no customers in Maine and did not personally sell the junk bond fund to any of his clients. Under the Consent Agreement, Mr. Lessinger agreed not to apply for a license as a sales representative in Maine for a period of one year. Mr. Lessinger also agreed to pay the sum of $50,000 to the State of Maine; First Investors paid the money for Mr. Lessinger. He eventually reapplied and was approved as a sales representative in the State of Maine. In mid-1997, Mr. Lessinger moved from New York to Boca Raton, becoming president of Preferred Securities Group, Inc. ("Preferred"). Mr. Lessinger was obliged to seek licensure in the states in which Preferred had brokers, which included Ohio. In March 1998, the State of Ohio, Department of Commerce, Division of Securities issued a "Division Order" denying Mr. Lessinger's application for securities salesman license. The Division Order found that Mr. Lessinger was not of "good business repute" under the Ohio statutory and rule provisions named in the quotation portion of Finding of Fact 20, supra. The only factual basis stated for the Division Order's "good business repute" finding was the 1993 Consent Agreement with the State of Maine. On November 16, 2000, Mr. Lessinger entered into the NASD AWC letter along with Preferred and Kenneth Hynd, Preferred's financial operations principal ("FINOP"). The recipients of the AWC letter agreed that the letter would become part of their permanent disciplinary record and may be considered in any future actions brought by NASD against them. They also agreed to the following: We may not take any action or make or permit to be made any public statement, including in regulatory filings or otherwise, denying, directly or indirectly, any allegation in this AWC or create the impression that the AWC is without factual basis. Nothing in this provision affects our testimonial obligations or right to take legal positions in litigation in which the NASD is not a party. Only one of the allegations that prompted the AWC letter directly involved Mr. Lessinger. Without admitting or denying the alleged violation, Mr. Lessinger and Preferred consented to the entry of the following finding by NASD Regulation, Inc.: During the period from about March 22, 1999, until about April 21, 1999, Respondent [Preferred], acting through Respondent Lessinger, allowed an inactive registered representative to effect three securities transactions for customers, in violation of NASD Membership and Registration Rule 1120 and Conduct Rule 2110. Mr. Lessinger and Preferred also consented to the entry of a $3,000 fine, imposed jointly and severally. Mr. Lessinger paid the fine. Mr. Lessinger testified that the representative who effected the improper transactions was in Preferred's Pompano Beach branch office, which was open only from March to June 1999. The manager on premises had not notified Mr. Lessinger that a registered representative in the office was deemed "inactive" for failure to complete mandatory continuing education. On April 30, 2002, a NASD Dispute Resolution, Inc.6 arbitration panel issued an award against Mr. Lessinger in a case that had been filed by a former Preferred customer against Preferred, Mr. Lessinger, and three other individuals associated with the firm, including the owner, Anthony Rotonde, and two brokers. The initial statement of claim in the matter was filed in 1999. The claims included misrepresentation, unsuitability, breach of fiduciary duty, failure to supervise, violations of Section 517.301, Florida Statutes, and common law fraud and negligence. Mr. Lessinger was not the broker of record for the complaining customer and never had anything directly to do with her account. He did not know her. She had been a client of the two brokers for several years. As president of the company, Mr. Lessinger was ultimately responsible for supervision of the brokers, though he was not their direct supervisor. Preferred, Mr. Rotonde, and Mr. Lessinger were found jointly and severally liable on the claims of suitability and failure to supervise and were required to pay damages of $42,294.90, plus interest, costs, and attorneys' fees. The liability for attorneys' fees was expressly based on Sections 517.301 and 517.211, Florida Statutes. Section 517.301, Florida Statutes, generally prohibits fraud and deception in connection with the rendering of investment advice or in connection with securities transactions. Section 517.211, Florida Statutes, sets forth the remedies available for unlawful sales, including those in violation of Section 517.301, Florida Statutes. Subsection 517.211(6), Florida Statutes, provides for attorneys' fees to the prevailing party unless the court finds that the award of such fees would be unjust. After the arbitration award, Preferred went out of business. Mr. Rotonde was a non-licensed owner and simply walked away from the matter. Thus, Mr. Lessinger was left on the hook for the entire arbitration award. He was unable to pay it, and was forced to declare bankruptcy. In April 2004, Mr. Lessinger was named in a civil action filed by the SEC in the United States District Court for the Southern District of Florida. The SEC alleged that Preferred's Pompano Beach office was opened in March 1999 to operate as a boiler room for a "pump and dump" operation involving a penny stock, Orex Gold Mines Corporation ("Orex"). Orex claimed to be in the business of extracting gold from iron ore by means of an environmentally safe process. The SEC alleged that Orex was in fact a shell corporation owned by a "recidivist securities law violator and disbarred attorney." Though its promotional video, literature, and website touted Orex as an active, established company with gold mines, employees, and a revolutionary gold extraction process, Orex in fact owned no mines or mining equipment and had never commercially tested its claimed extraction process. As to Mr. Lessinger, the SEC's complaint alleged as follows: According to Preferred's written supervisory procedures, the form prohibited the solicitation of "penny stocks" as defined under Exchange Act Rule 3a51-1, and restricted the purchase of penny stocks unless it received an unsolicited letter, signed by the investor, requesting to purchase a particular penny stock. Despite the firm's prohibition against soliciting transactions in penny stocks, Lessinger authorized the Pompano Beach branch office's request to solicit transactions in Orex. Prior to authorizing the firm's solicitation of Orex, Lessinger simply reviewed the Orex brochure, the Orex private placement memo, and an Orex press release. He did not conduct any independent research or assessment regarding Orex's officers, assets, or prospects for success. Orex quickly accounted for a high percentage of the overall transactions conducted by Preferred's Pompano Beach branch. Although Lessinger retained responsibility for reviewing, authorizing, and approving customers' transactions in Orex stock, and although he was the senior official of Preferred and functioned as a compliance officer, he failed to exercise appropriate supervision and to take the necessary steps to ensure that Preferred, and the personnel operating out of Preferred's Pompano Beach branch in particular, complied with applicable procedures, securities laws and regulations in connection with transactions in Orex stock. The brokers in the Pompano Beach branch sold more than $3 million in Orex stock between March and July 1999 through fraudulent representations regarding the company, forgery of penny stock disclosure forms, bait and switch tactics, refusal to execute sell orders, or delaying sell orders until a buyer for the shares could be found. The stock ballooned to a value of $7.81 in late May 1999. By late July, it was trading for pennies per share. To his credit, Mr. Lessinger closed the Pompano Beach branch of Preferred after a site visit in June offered him a glimpse of the office's actual operations. However, had Mr. Lessinger showed more curiosity at the outset, or had he merely enforced the company policy against soliciting penny stock sales, the situation in Pompano Beach might never have developed. On September 7, 2005, the court entered final judgment as to Mr. Lessinger. He was permanently restrained and enjoined from: violating the fraud provisions of the Securities Exchange Act of 1934; violating the NASD Conduct Rule regarding supervision of the activities of registered representatives and associated persons; and participating in any offering involving penny stocks. He was also ordered to pay a civil penalty of $20,000. On September 23, 2005, the SEC also issued an Administrative Order making findings and imposing remedial sanctions in connection with the Orex matter. The order barred Mr. Lessinger from association in a supervisory capacity with any broker or dealer for two years, with a right to reapply at end of the two-year period. The SEC's Administrative Order left Mr. Lessinger free to continue to act as a registered representative. However, the two SEC actions rendered Mr. Lessinger statutorily disqualified from membership in the securities industry under FINRA rules. To remain active in the industry, Mr. Lessinger was required to go through the MC-400, or "Membership Continuance," process with FINRA. The Form MC-400 must be filed by a member firm on behalf of the disqualified person. In this case, Archer Alexander Securities, Mr. Lessinger's employer at the time of his disqualification, filed the MC-400 application on his behalf. However, Archer Alexander went out of business before the application could be considered. Mr. Lessinger was hired by Brookstone in April 2006. Brookstone filed a Form MC-400 with FINRA on Mr. Lessinger's behalf on May 15, 2006. Brookstone is owned by Antony Turbeville, a certified financial planner who has been licensed in the securities industry since 1987. Mr. Turbeville has never been the subject of disciplinary actions by the SEC, NASD, or the State of Florida. David Locy is currently the president of Brookstone. At the time Brookstone filed the MC-400 application for Mr. Lessinger, Mr. Locy was Brookstone's chief compliance officer. He has been a certified public accountant since 1974, licensed in the securities industry since 2003, and has never been the subject of regulatory or disciplinary action by any professional or licensing entity. Michael Classie is the branch manager and supervisor of Brookstone's Coral Springs office, where Mr. Lessinger works.7 He has been licensed to sell securities since 1995 and has never been the subject of disciplinary actions by the SEC, NASD, or the State of Florida. In its MC-400 application, Brookstone stated that Mr. Lessinger did not seek licensure as a supervisor or control person, and that Brookstone would not allow him to work in a supervisory capacity. Brookstone agreed that Mr. Lessinger would work only as a registered representative, and then only under highly controlled supervisory conditions. FINRA's Department of Member Regulation, which conducts the initial review of all MC-400 applications, recommended that Brookstone's application on behalf of Mr. Lessinger should be denied. By order dated December 13, 2006, following an evidentiary hearing, FINRA's National Adjudicatory Council ("NAC") disagreed with the recommendation of the Department of Member Regulation and granted the application, subject to approval by the SEC. The NAC's order provided as follows: After considering all of the facts, we approve Lessinger as a general securities representative with Brookstone, supervised by Classie and Locy, and subject to the following terms and conditions of employment: Classie and Locy will review, initial, and date all of Lessinger's order tickets on a daily basis; Classie will review all of Lessinger's incoming correspondence daily and will review all of Lessinger's outgoing correspondence prior to its being sent. Lessinger will print out a daily log of faxes from the fax machine for Classie to review; Classie and Locy will review every new account form for Lessinger and, if approved, sign such form; Classie will be in the office with Lessinger at least four times per week from 8:00 a.m. until 5:00 p.m. If Classie is not in the office, Lessinger will be prohibited from effecting trades on the computer and will, instead, call them in to Locy for approval; Locy will make random unannounced office visits to Lessinger's home office at least once during each calendar quarter; Brookstone will amend its written supervisory procedures to state that Classie is the primary responsible supervisor for Lessinger, and that Locy is the backup supervisor; Lessinger will provide a list of all sales contacts to Classie, including the nature of the contacts, on a daily basis; Classie will review Lessinger's written sales contacts and investigate any irregular activity; Locy will conduct five random telephone calls per quarter to Lessinger's customers to verify information or ascertain the customers' level of satisifaction; Lessinger will not participate in any manner, directly or indirectly, in the purchase, sale, recommendation, or solicitation of penny stocks (this is defined in the Court Judgment as "any equity security that has a price of less than five dollars, except as provided in Rule 3a5-1 under the Exchange Act [17 C.F.R. 240.3a51-1]"); Classie must certify quarterly (March 31st, June 30th, September 30th, and December 31st) to the Compliance Department that Lessinger and Classie are in compliance with all of the above conditions of heightened supervision; and For the duration of Lessinger's statutory disqualification, Brookstone must obtain prior approval from Member Regulation if it wishes to change Lessinger's responsible supervisor from Classie to another person. On June 29, 2007, the SEC issued a letter approving the NAC's decision to permit Mr. Lessinger to register with Brookstone as a registered representative under the heightened supervisory restrictions set out in the NAC's order. Brookstone and Mr. Lessinger have agreed that they will abide by the same list of heightened supervisory restrictions should the State of Florida approve the application at issue in this proceeding.8 As noted at Findings of Fact 20 and 21, supra, the Notice alleged that Mr. Lessinger failed to timely update his Form U-4 to disclose receipt of a Notice of Intent to Deny Application for Securities Salesperson from the State of Ohio, Department of Commerce, Division of Securities ("Ohio Notice") dated October 5, 2007. The Ohio Notice stated that on July 9, 2007, Mr. Lessinger had applied for a securities salesperson license via submission of his Form U-4, and that his application disclosed the September 23, 2005, SEC order, the April 2004 filing of the SEC complaint in the United States District Court for the Southern District of Florida, the 2000 NASD AWC letter, the NASD Dispute Resolution arbitration award, the 1998 Ohio application denial, and the Maine Consent Agreement. Based on these disclosures, the Ohio Division of Securities alleged that Mr. Lessinger was not of "good business repute" according to Ohio statutes and rules, and stated its intent to issue an order denying Mr. Lessinger's application for a salesperson's license. The Ohio Notice provided that Mr. Lessinger had 30 days in which to request an administrative hearing contesting the agency's intended denial of his application. Mr. Lessinger timely filed the appropriate documents contesting the Ohio Notice and requesting an evidentiary hearing. Immediately after receiving the Ohio Notice, Mr. Lessinger brought it to the attention of Mr. Locy, then Brookstone's chief compliance officer, in order to determine whether his Form U-4 should be amended. Only Brookstone, as the broker/dealer employing Mr. Lessinger, had authority to amend his Form U-4. Mr. Lessinger did not have independent access to the Web CRD database and thus had no ability to amend the document on his own. Mr. Locy considered the situation and decided that the Ohio Notice did not require an amendment to Mr. Lessinger's Form U-4. Because Mr. Lessinger had appealed the intended denial of his Ohio application, Mr. Locy concluded that that matter was not reportable until the Ohio action ripened into a final order. Mr. Lessinger deferred to Mr. Locy's greater expertise regarding compliance issues. Though Mr. Lessinger could not amend his Form U-4, there was no obstacle to Mr. Lessinger's directly informing OFR of the Ohio Notice. However, there was also no evidence that Mr. Lessinger attempted to conceal the existence of the Ohio Notice, or was anything other than forthright in his dealings with employers and regulatory authorities. The credible evidence established that he simply relied on the opinion of Mr. Locy. The State of Ohio issued a final order denying Mr. Lessinger's application on April 7, 2008. Upon receipt of the final order, Mr. Lessinger promptly notified his employer, and Brookstone updated Mr. Lessinger's Form U-4 on April 23, 2008, to reflect the actions of the Ohio regulators. At the hearing, Mr. Lessinger emphasized that he seeks only to act as a registered representative. Most of his clients are retirees invested in fixed-income mutual funds. They are conservative to moderate in their risk tolerance. Mr. Lessinger does not trade in their accounts on margin, and does not have discretion to make trades without express client authorization. Mr. Lessinger gets new customers through referrals. He makes no cold calls to prospective customers. Mr. Lessinger has never been the subject of a complaint by one of his own customers, and had never been disciplined for any actions he has taken as a registered representative. All of the disciplinary proceedings involving Mr. Lessinger concerned his actions in a supervisory capacity. Mr. Lessinger has forsworn any intention to ever again act in a supervisory capacity in the securities industry. Mr. Turbeville and Mr. Locy were emphatic that Mr. Lessinger would not be permitted to act in a supervisory capacity at Brookstone. Mr. Classie convincingly testified that he would closely monitor Mr. Lessinger's actions in accordance with the NAC order, and understood that failure to do so could place his own registration in jeopardy.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Office of Financial Regulation enter a final order granting Petitioner's application for registration as an associated person with Brookstone Securities, subject to such heightened supervisory restrictions as the Office of Financial Regulation shall deem prudent. DONE AND ENTERED this 15th day of December, in Tallahassee, Leon County, Florida. S LAWRENCE P. STEVENSON 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 15th day of December, 2008.
The Issue The issue is whether Petitioner is liable for proposed assessments of sales tax, interest, and penalty in the total amount of $38,739.48, through June 3, 1994, and local government infrastructure surtax, interest, and penalty in the total amount of $524.67, through June 3, 1994.
Findings Of Fact Petitioner purchases chemicals from manufacturers and resells the chemicals at retail. Among the chemicals that Petitioner purchases and resells are certain ozone-depleting chemicals (ODCs) that are subject to two different federal taxes. One federal tax is found in Section 4681(a)(1) of the Internal Revenue Code of 1986, as amended (IRC). IRC Section 4681(a)(1) imposes a tax on "any ozone-depleting chemical sold or used by the manufacturer, producer, or importer . . .." This is referred to as the "ODC tax." As interpreted by the Department of Treasury in regulations and rulings and applied by the Internal Revenue Service, IRC Section 4681(a)(1) imposes the ODC tax at the time of the sale or use of an ODC by the manufacturer, producer, or importer. As interpreted and applied by these federal agencies, the ODC tax is a liability exclusively of the manufacturer, producer, or importer; a purchaser from any of these entities is not liable to pay the ODC tax to the federal government. The federal government may not attach a lien on the ODCs, after they have been sold or used, if the manufacturer, producer, or importer has failed to pay the ODC tax. In this case, the ODC tax is imposed on the chemical manufacturer that sold the ODCs to Petitioner, and the tax is imposed at the time of the sale from the manufacturer to Petitioner. It is irrelevant that the manufacturer separately stated the ODC tax on invoices to Petitioner. The manufacturer could have separately stated other items of the cost of goods sold or general administration and overhead, such as the federal gasoline taxes that it paid in transporting the ODCs to Petitioner. The manufacturer's invoice has no bearing on the exclusive legal liability of the manufacturer, under IRC Section 4681(a)(1), to pay this federal excise tax. The other federal tax involved in this case is found in IRC Section 4682(h), which imposes a floor stocks tax on persons-other than the manufacturer, producer, or importer-holding ODCs for use in further manufacture or sale. Imposed after the payment of the ODC tax, this tax ensures that the ODC tax, which has increased over time, is not partially avoided by a retailer holding ODCs in inventory for a considerable period of time following their purchase from the manufacturer. Following an audit, Respondent issued on June 3, 1994, a Notice of Intent to Make Audit Changes of Tax, Penalties, and Interest under Chapter 212. The amount of sales tax due was $24,469.73 with a penalty of $8289.52 and interest through June 3 of $5980.23 and accruing at a daily rate of $8.04. Respondent issued on June 3, 1994, a Notice of Intent to Make Local Government Infrastructure Surtax Audit Changes under Section 212.054. The amount of surtax due was $351.43 with a penalty of $87.86 and interest through June 3 of $85.38 and accruing at a daily rate of $0.12. Respondent issued the proposed assessments because, in calculating sales tax and surtax on ODCs sold at retail, Petitioner reduced the actual sales price by the amount of federal ODC tax paid by the manufacturer and floor stocks tax paid by Petitioner. As noted above, though, federal law required Petitioner to pay, as a tax, only the floor stocks tax. Petitioner's payments to the manufacturer of an amount equal to the ODC tax paid by the manufacturer reflected only an agreement between Petitioner and the manufacturer as to how to characterize part of the purchase price. The sales price of the ODCs should have included the ODC tax, but not the floor stocks tax. The floor stocks tax is a legal obligation imposed on Petitioner and is based on its inventory of ODCs. As discussed in the following section, Petitioner is permitted by Respondent's rules to exclude these payments from the sales price of the ODCs. The record is not especially clear as to the amount of sales tax and surtax relief to which Petitioner is entitled on account of the floor stocks tax that it has paid. Petitioner paid approximately $21,500 in federal floor stocks tax in two forms: $20,418.80 in regular tax payments and about $1000 in tax payments following an audit. The record contains adequate proof of the $20,418.80 payment, but not of the $1000 additional payment following an audit. The $1000 represented Mr. Simmons' best estimate of the additional floor stocks tax that his company paid. Mr. Simmons retired from Dow Corning Chemical after a 37-year career in the chemical industry. He began Petitioner as a hobby, and he and his wife take obvious pride in the success of this business. Mr. Simmons is a careful reader of provisions of federal and state tax law. But without expert guidance from one of Petitioner's witnesses, who is one of a small number of IRS Revenue Agents specially trained in ODC taxes, IRC Section 4681(a)(1) lends itself to multiple interpretations. In good faith, Mr. Simmons tried to interpret the ODC tax through a careful reading of the statute and consideration of its placement in the IRC under Chapter 38, which is titled "Environmental Taxes," rather than Chapter 32, which is titled "Manufacturers Excise Taxes." As discussed below, ambiguous language in Respondent's rule may have furthered Mr. Simmons' understandable confusion on this point.
Recommendation It is RECOMMENDED that the Department of Revenue enter a final order finding that Petitioner owes the amounts assessed in the Notice of Intent to Make Audit Changes of Tax, Penalties, and Interest dated June 3, 1994, and Notice of Intent to Make Local Government Infrastructure Surtax Audit Changes dated June 3, 1994; provided, however, that the final assessments shall be reduced by the amount of the assessed penalties and shall be further reduced to reflect a reduction in total sales price of $21,418.80 with a corresponding reduction in interest. ENTERED on August 16, 1996, in Tallahassee, Florida. ROBERT E. MEALE 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 on August 16, 1996. APPENDIX Rulings on Petitioner's Proposed Findings 1: adopted or adopted in substance. The tax, surtax, and penalties are accurate. The interest figures appear accurate. However, these are not the Notices of Intent that were admitted into evidence in this case. 2: adopted or adopted in substance. 3: rejected as unsupported by the weight of the evidence and incorrect legally. 4: adopted. 5: rejected as unsupported by the weight of the evidence. 6: (first sentence): adopted. 6: (remainder): rejected as unsupported by the weight of the evidence and incorrect legally. 7-9: rejected as irrelevant. 10-12: adopted. 13-20: rejected as irrelevant. 21: rejected as unsupported by the weight of the evidence. Petitioner's counsel states in this proposed finding: "The Instructions to Internal Revenue Service Form 6627 state that the entity which holds the subject Ozone-Depleting Chemicals for sale can be held responsible for the filing of said Form 6627." At best, this statement reflects a poor understanding of the multi-purpose Form 6627 and related instructions. Taxpayers use this form to report several taxes, including the ODC excise tax and floor stocks tax. Nothing whatsoever in Form 6627 or the instructions imposes any liability on Petitioner for the ODC excise tax. The only liability imposed on Petitioner in Form 6627 or the instructions is for the floor stocks tax. 22: rejected as repetitious. 23: adopted or adopted in substance. 24 (first sentence): adopted. 24 (remainder)-25: rejected as unsupported by the weight of the evidence and incorrect legal argument. Rulings on Respondent's Proposed Findings 1-11: adopted or adopted in substance. 12-17: rejected as subordinate, irrelevant, and recitation of testimony. 18-20: adopted or adopted in substance. 21: rejected as recitation of testimony. 22: Adopted. 23: rejected as recitation of evidence. 24: rejected as subordinate. 25-26: adopted or adopted in substance. 27-29: rejected as subordinate and recitation of testimony. 30-44: adopted or adopted in substance. COPIES FURNISHED: Peter W. Simmons, President Simmons Chemical Corporation 311 Sarasota Center Boulevard Sarasota, Florida 34240 Bradley D. Magee Abel Band 240 South Pineapple Avenue Sarasota, Florida 34236 Olivia P. Klein Assistant Attorney General Office of the Attorney General The Capitol-Tax Section Tallahassee, Florida 32399-1050 Larry Fuchs, Executive Director Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100 Linda Lettera, General Counsel Department of Revenue 104 Carlton Building Tallahassee, Florida 32399-0100
Findings Of Fact On November 20, 1985, petitioners, Richard Schulze and Constable Atlantic, Inc., made application with respondent, Department of Banking and Finance, Division of Securities (Divi- sion), for licensure as a principal and broker-dealer, respec- tively. In response to a Division request, petitioners submitted amended applications containing additional information on January 31, 1986. After conducting an investigation of petitioners' backgrounds, the agency issued a proposed final order on February 18, 1986, denying the application on the grounds (a) Schulze had violated the federal Commodity Exchange Act and had been the subject of a final administrative order in the State of Minnesota involving a violation of that state's security laws, and (b) an officer or director of Constable Atlantic, Inc. (Schulze) had been guilty of an act which would be cause for denying or revoking the registration of an individual dealer. The agency action prompted the instant proceeding. Schulze is president of Wyndwood Merchantile Corporation (Wyndwood) and various affiliated organizations. Wyndwood is involved in the sale of precious metals and is currently doing business in the State of Florida and other states. Constable Atlantic, Inc. is a Delaware corporation authorized to do business in the State of Florida. Schulze is Constable's president, his wife Theodora treasurer, and his son Otto secretary. The three are also the directors and shareholders of the corporation. Constable is now registered as a broker and dealer with the federal Securities and Exchange Commission. Just recently, Schulze was licensed as an associated person and a commodity pool operator by the National Futures Association, which is the licensing arm of the Commodities Futures Trading Commission (CFTC), a federal agency in Washington, D.C. Schulze has been involved in selling securities for the last six or seven years. At one time he was also a principal with Atlantic Futures, Inc. (AFI), which was then licensed as a commodity pool operator and trading advisor with the CFTC. AFI and Schulze were both under the regulatory jurisdiction of that agency. On October 2, 1984 the CFTC issued a complaint and notice of hearing alleging that AFI and Schulze had violated various provisions of the federal Commodity Exchange Act and CFTC regulations. More specifically, it alleged that: ...AFI and Schulze, aided and abetted by each other,...cheated and defrauded or attempted to cheat and defraud AFI's pool participants in violation of Section 46(A) of the Commodity Exchange Act, as amended...; that AFI, aided and abetted by Schulze, violated Section 40(1) of the Act and Sections 4.41(a) and 166.3 of the Commission's regulations; and that AFI violated Sections 4.21(a) and 4.21(a)(3) of the Commission's regulations. Thereafter, Schulze and AFI submitted an offer of settlement to the CFTC which was accepted and formalized in a consent decree entered by the CFTC on April 23, 1985. The consent decree made no adjudication of law or fact, or an adjudication on the merits of the case. Rather, it was entered solely for the purposes of accepting the offer of settlement and terminating the proceeding. Under the terms of that decree, which has been received in evidence as respondent's exhibit 2, Schulze and Atlantic paid a $100,000 fine and agreed to cease and desist from any violations. In addition, AFI agreed to a suspension of its registrations for six months and to never apply for any other registrations with the CFTC. Finally, for purposes of the settlement only, the CFTC found Schulze had violated certain portions of the Act and regulations and noted that "these findings may be used only in any other proceedings brought by the Commission." Schulze later made application with the CFTC for licensure as a dealer, and this application was approved on September 11, 1986. On or about July 26, 1984 the State of Minnesota issued an ex parte cease and desist order against Wyndwood, Schulze and others requiring them to stop selling securities in that state without being registered. The order, which has been received in evidence as respondent's exhibit 1, required Schulze to request a hearing within a prescribed time, or the order would become final. Schulze did not timely request a hearing. However, after the prescribed time to request a hearing had expired, he filed a request with the State Commissioner and the order of July 26 was subsequently vacated on September 18, 1986. The outcome of the proceeding is not known. Constable Atlantic, Inc. is a member firm of the National Association of Security Dealers (NASD) and is registered as a broker and dealer with the Securities and Exchange Commission (SEC). In obtaining their registrations, Constable and Schulze furnished the SEC and NASD the same information that was submitted to respondent.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the applications of Constable Atlantic, Inc. and Richard Schulze for registration as a broker- dealer and principal, respectively, be APPROVED. DONE and ORDERED this 26th day of November, 1986, in Tallahassee, Florida. DONALD R. ALEXANDER Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 26th day of November, 1986. APPENDIX TO RECOMMENDED ORDER, CASE NO. 86-1065 Petitioners: 1. Covered in finding of fact 4. 2. Covered in finding of fact 4. 3. Covered in finding of fact 4. 4. Covered in finding of fact 3. 5. Covered in finding of fact 3. 6. Covered in finding of fact 3. 7. Covered in finding of fact 3. 8. Covered in finding of fact 3. 9. Covered in finding of fact 3. Covered in finding of fact 3. Covered in finding of fact 2. Covered in finding of fact 2. Rejected as being irrelevant. Covered in finding of fact 5. Respondent: Covered in finding of fact 1. Covered in finding of fact 1. Covered in finding of fact 1. Covered in finding of fact 4. Covered in finding of fact 4. Covered in finding of fact 3. Rejected as being irrelevant. Rejected as being irrelevant. COPIES FURNISHED: Edward Brodsky, Esquire Sarah S. Gold, Esquire SPENGLER, CARSON, OUBAR, BRODSKY and FRISCHLING 280 Park Avenue New York, New York 10017 Calianne P. Lantz, Esquire Office of the Comptroller 401 Northwest 2nd Avenue Suite 870 Miami, Florida 33128 Honorable Gerald Lewis, Comptroller The Capitol Tallahassee, Florida 32301-8054 Charles E. Scarlett, Esquire Room 1302, The Capitol Tallahassee, Florida 32301-8054
The Issue The issue is whether Mr. Cavallo is subject to administrative sanctions for violation of the Florida Securities and Investor Protection Act for conduct while he was employed with three Florida firms which dealt in securities, Bond Management Corporation, Bond Administration Service Corporation and Bond Services International Corporation.
Findings Of Fact The Department of Banking and Finance, Division of Securities, administers the provision of the Florida Securities and Investor Protection Act, Chapter 517, Florida Statutes. The Department had investigated the activities of the several respondents named in the Cease and Desist Order filed in this case, including Bond Management Corporation, Bond Administration Services Corporation, Bond Services International Corporation, Bond Premium Corporation and Mr. Cavallo. The business plan of Bond Management Corporation. Bond Management Corporation and Bond Administration Services Corporation were principally operated by Thomas Whalen, who was assisted by Mr. Cavallo. These corporations had been founded by Robert DiStefano, who had sold them to Mr. Whalen in 1985. Mr. Cavallo began working for Mr. Whalen in approximately March of 1986. The offices of these corporations were first located on State Road 7 in Plantation, Florida, but later were moved to Hollywood, Florida. The business of Bond Management Corporation and Bond Administration Services Corporation consisted of issuing, selling and administering the registration and redemption of Certificates of Beneficial Interest in pools of bonds. The two companies actually operated as an integrated entity. Bond Management was to be the trustee for the bonds which comprised the trust corpus and issue the Certificates of Beneficial Interest. These were sold to telephone marketing companies and to time-share companies. These companies then used the certificates as premiums or incentives to attract people to travel to their developments or to listen to sales presentations. Bond Administration Services Corporation handled the sales and the registration of the certificates by the ultimate purchasers. The certificates were sold from offices in Broward County, Florida, to corporations in Florida and throughout the United States. Bond Management Corporation represented in its private placement memorandum that 68% of the funds it received from the time-share developers and telemarketing companies or others who bought the Certificates of Beneficial Interest would form the trust corpus, and this money would be used to buy zero-coupon government securities. Most of the certificates had face values of $1,000; a few were sold with face values of $500. The certificates would attain these values only if kept until the maturity of the underlying government bonds, which would be from 20-45 years. The actual value of the $1,000 certificates at the time delivered as premiums to those who attended sale presentations was between $17 to $18; the $500 certificates were worth between $8.50 to $9.00. The clients of Bond Administration Services Corporation, the time-share developers or other entities which bought the certificates as premiums for consumers attending their sales presentations, would pay about $30 per $14000 certificate. Bond Management Corporation and Bond Administration Services Corporation assisted the time-share developers and telemarketing companies which purchased the Certificates of Beneficial Interest in the redistribution of those certificates to consumers. Bond Administration Service Corporation sent letters to the purchasing companies to be given as handouts to the sales prospects (members of the public) who ultimately received the certificates instructing the recipient about how to register the Certificates of Beneficial Interest with Bond Administration Services Corporation. Regulation of the Certificates of Beneficial Interest The Certificates of Beneficial Interest issued by Bond Management Corporation constitute securities under Federal law and Florida law. Bond Management Corporation made filings with the Securities and Exchange Commission of the United States under regulation D, which indicated that the securities were exempt from registration under the Federal Act. The Certificates of Beneficial Interest were not registered with the State of Florida Department of Banking and Finance, Division of Securities. Neither Bond Management Corporation, which issued the Certificates of Beneficial Interest, or the individuals in the corporation who offered them for sale or actually sold them (including Mr. Whalen and Mr. Cavallo), were registered with the State of Florida, Department of Banking and Finance, Division of Securities. In May of 1986, the owner of Bond Management Corporation, Mr. Whalen, was visited by representatives of the Florida Division of Securities. Mr. Cavallo attended that meeting. The Division's representative told Mr. Whalen and Mr. Cavallo that the enterprise being operated would require the registration of the issuer of the securities, Bond Management, that the staff members at Bond Management Corporation and Bond Administration Services Corporation who sold the securities to their customers (the time-share developers and telemarketing companies) would have to be registered, and that the persons at the time-share developer or other entrepreneurs who were "giving" the certificates to prospective clients would have to be registered. Prospective clients of the time-share developers and telemarketing companies were required to attend sales presentations in order to receive a Certificate of Beneficial Interest; consequently, the Division of Securities maintained that the consumers were providing consideration for the receipt of the certificates, and were purchasing them from the clients of Bond Management Corporation. Mr. Cava1lo's role at Bond Management Corporation Mr. Cavallo had a business card which represented that he was the Vice President of Marketing and Sales for Bond Management Corporation. In his capacity as Vice President of Sales and Marketing, Mr. Cavallo managed the day- to-day operation of Bond Management Corporation and Bond Administration Corporation. He offered to sell or actually sold Certificates of Beneficial Interest to many companies throughout the United States, at least five of which were located in Florida. Mr. Cavallo sent packages to time-share companies and other potential purchasers of blocks of Certificates of Beneficial Interest, which contained sample Certificates of Beneficial Interest, a private offering memorandum describing the securities, and instruction letters which would accompany the Certificates of Beneficial Interest when delivered to the purchasing corporation's prospective clients. The clients were told how to register those certificates with Bond Administration Services Corporation. When Mr. Cavallo first came to work at Bond Management Corporation, the registration coupons sent to the company by many consumers had not been processed, and Mr. Cavallo spent a good deal of his time in the first two months processing those registrations. The private offering memorandum which Mr. Cavallo distributed as part of the business plan of Bond Management Corporation and Bond Administration Services Corporation contained false representations about the securities, including the amount of the compensation which the trustee, Bond Management Corporation, was to receive; the use of 68% of the proceeds of the sale of the certificates to purchase the bonds which were to be the trust estate; the promise to deposit the bonds comprising the trust estate with the Federal bank or similar financial institution, and the underlying value of the certificates. No government bonds were ever purchased, so the Certificates of Beneficial Interest which Bond Management Corporation issued were worthless. Bond Management Corporation and Bond Administration Services Corporation, dealt with the money paid for the Certificates of Beneficial Interest as their own. In addition, the private offering memorandum Mr. Cavallo distributed did not disclose important facts, including the participation of Mr. Cavallo in the management of the issuer, and the identity of the founder of the company, John DiStefano, who had previously been convicted of securities violations. Shortly after Mr. Cavallo went to work for Bond Management and Bond Administration Services Corporation, he came to doubt that Thomas Whalen was competent to act as a trustee to run the business, due to Mr. Whalen's apparent addiction to cocaine. Mr. Cavallo consulted with an attorney because of his concerns, who advised him that he should say nothing unless he could actually prove that Mr. Whalen was engaged in wrongdoing. Otherwise, Mr. Cavallo would expose himself to potential liability for slander or libel. Although Mr. Cavallo was aware that bonds were not being purchased to create the trust estate that the Certificates of Beneficial Interest represented, he continued to engage in sales of the Certificates of Beneficial Interest until he left the companies in July of 1986. Bond Services Corporation and Bond Administration Services Corporation sold at least 10,000 Certificates of Beneficial Interest, which produced approximately $320,000 in revenue. By May 1986 approximately 3,500 of those worthless certificates had been distributed to individuals, approximately 1,100 of whom were Florida residents. Bond Services International Corporation After Mr. Cavallo resigned from working with Bond Management Corporation and Bond Administration Services Corporation, he went to work for Bond Service International Corporation (Bond International). Bond International had the same business plan as Bond Management Corporation and Bond Administration Services Corporation, and even did business at what had been the location of Bond Management Corporation. The owner of Bond International was John Wallace. He invited Mr. Cavallo to work for him because he knew Cavallo was unhappy at Bond Management Corporation because of the improper business practices of Mr. Whalen. Mr. Whalen had been involved in a previous business enterprise with Mr. Wallace. When Mr. Cavallo came to work at Bond International, Bond International had few clients. Many of Mr. Cavallo's clients from Bond Management Corporation followed him to Bond International. Sales were carried out by Bond International in a manner essentially identical to that used at Bond Management Corporation and Bond Services Administration Corporation. The Certificates of Beneficial Interest issued by Bon Services were essentially identical to that Bond Management Corporation. As with Bond Management Corporation, Mr. Whalen also failed to purchase the bonds which were to make up the trust estate represented by the Certificates of Beneficial Interest. The operation was a little better than at Bond Management Corporation because Bond International bought $225,000 worth of bonds, but that was only about 2-1/2% of the amount required to give the stated face value to the Certificates of Beneficial Interest. Ultimately, when Mr. Wallace was arrested for violation of Florida securities laws, those bonds were surrendered to Wallace's bail bondsman rather than maintained in trust. As with the program at Bond Management Corporation, neither the Certificates of Beneficial Interest issued by Bond International, nor the individuals selling the certificates, including Mr. Cavallo, were registered with the State of Florida, Division of Securities. Sales of Bond International's certificates were made to at least 40 companies. Offers of sale were made to additional businesses. Mr. Cavallo, himself, sent Certificates of Beneficial Interest in conjunction with sales or offers to sell those securities at least 54 times to 41 separate companies, four of which were located in Florida. Bond International received at least $270,000 in revenue from the sale of approximately 10,000 Certificates of Interest. When Mr. Cavallo left the company in December of 1986 about 2,800 consumers had received the Certificates of Beneficial Interest. The private offering memorandum of Bond International was essentially identical to that of Bond Management Corporation. It contained essentially the same false statements regarding the use of proceeds from the sale of certificates to purchase bonds which were to be held in trust by a financial institution, and the compensation of the trustee. The persons actually described as the company's managers, Mitchell Rymar and Janet Himmelheber did not manage the company, John Wallace and Mr. Cavallo did. The private placement memorandum also failed to disclose ongoing state and federal prosecutions of Mr. Wallace for securities fraud and credit card fraud. Mr. Cavallo drafted and mailed letters to be used by the companies purchasing the Certificates of Beneficial Interest when distributing them to consumers. These letters from Bond International to the certificate holders misrepresented that the certificates were guaranteed by the United States Government, when they were not, and that bonds were held in escrow to support the Certificates of Beneficial Interest when they were not. Mr. Cavallo represented himself as the person in charge of Bond International, represented himself as a vice president, was a signatory on Bond International's bank accounts and established a securities account as the vice president of Bond International. He ran the day-to-day affairs of the company and had access to the books and records of the company from the time he began working there. Mr. Wallace considered Mr. Cavallo as a partner in the business. In connection with his duties at Bond International, Mr. Cavallo offered and made sales of Certificates of Beneficial Interest issued by Bond International, by Federal Express delivery, by telephone, and by hand delivery of certificates to, local companies in Broward County. When Mr. Wallace was jailed in November of 1986, Mr. Cavallo continued to operate Bond Services throughout that month. Mr. Cavallo knew that bonds were not being purchased as stated on the Certificates of Beneficial Interest and in the private placement memorandum, and that John Wallace was irresponsible and wasted funds of the company from the time Mr. Cavallo began working there. Nonetheless, Mr. Cavallo continued with the company and continued to sell Certificates of Beneficial Interest. Mr. Cavallo signed numerous checks drawn on the accounts of Bond International, which included $2,500 to pay the criminal defense attorney Mr. Wallace retained to handle the Federal credit card fraud charges filed against him in Chicago, $349 for Wallace to travel to Chicago in connection with those charges, $1,000 to Robert Trachman, the local lawyer retained by Mr. Wallace to defend him with respect to securities fraud charges in Broward County, and $8,500 paid to John Gilbert Bailbonds, Inc., for Mr. Wallace's bail in connection with the Florida securities charges. Mr. Cavallo also wrote a large number of checks to "cash" on accounts of Bond International beginning in August 1986, and ending in November 1986. These checks aggregated $34,093.66. It is by no means clear what the checks to "cash" were used for, but there is no proof that they were ever used to purchase the securities which Bond International should have purchased to back, the Certificates of Beneficial Interest. Mr. Cavallo received direct payments by check made to him of at least $3,155. Mr. Cavallo is sophisticated in financial matters. He holds a bachelors and masters degree from the University of Miami in Coral Gables, as well as a masters of foreign trade from the American Institute of Foreign Trade in Glendale, Arizona. After Mr. Cavallo severed his connection with Bond International, he took steps to establish Bond Premium Corporation, which would have followed a business plan similar to those of Bond Management Corporation and Bond International, although Mr. Cavallo maintains he would have purchased bonds to support his Certificates of Beneficial Interest. That company never did any business.
Recommendation It is recommended that a final order be entered by the Department of Banking and Finance, Division of Securities, finding Mr. Cavallo guilty of: The sale of unregistered securities in violation of Section 517.07, Florida Statutes, and that he be fined $5,000; The sale of unregistered securities by an unregistered person, in violation of Section 517.12(1), Florida Statutes, and that he be fined $5,000; and Employing schemes to defraud and making false or fraudulent statements or representations in connection with the sale of the securities of Bond Management Corporation and Bond International in violation of Sections 51- 7.301(1)(a) and (c), Florida Statutes, and that for these acts he be fined $15,000, so that a total fine of $25,000 be imposed, and requiring him to cease and desist from further participation in the sale of securities. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 20th day of January, 1989. WILLIAM R. DORSEY, JR. Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1050 (904) 488-9765 Filed with the Clerk of the Division of Administrative Hearings this 20th of January, 1989. APPENDIX The following are my rulings on the proposed findings of fact submitted by the petitioners pursuant to Section 120.59(2), Florida Statutes (1987). Rulings on Petitioner's Findings of Fact Covered in finding of fact 1. Rejected as unnecessary. Covered in finding of fact 2. Covered in finding of fact 3. Covered in finding of fact 3. Covered in finding of fact 3. Covered in finding of fact 11. Covered in findings of fact 2 and 15. Covered in finding of fact 7. Covered in finding of fact 8. Covered in finding of fact 9. Covered in finding of fact 10. Covered in finding of fact 15. Covered in finding of fact 11. Covered in finding of fact 11. Covered in finding of fact 11. Covered in finding of fact 11. Covered in finding of fact 11. Covered in findings of fact 11 and 12. Covered in finding of fact 12. Covered in finding of fact 13. Covered in finding of fact 15. Rejected as cumulative. Covered in finding of fact 14. To the extent appropriate, covered in finding of fact 15. 26 To the extent appropriate, covered in finding of fact 15. Covered in finding of fact 16. Covered in finding of fact 18. Covered in finding of fact 18. Covered in finding of fact 19. Covered in finding of fact 19. Covered in findings of fact 7 and 20. Covered in finding of fact 21. Covered in finding of fact 22. Covered in findings of fact 17, 18 and 24. Covered in finding of fact 23. Covered in finding of fact 23. Covered in finding of fact 23. Covered in finding of fact 23. Rejected as unnecessary. To the extent appropriate, covered in finding of fact 25. Rejected as cumulative. Covered in finding of fact 26. Covered in finding of fact 17. Covered in finding of fact 5. It is not clear that Mr. Cavallo actually shared the profits equally with Mr. Wallace, however. Covered in finding of fact 23. Covered in finding of fact 26. Covered in finding of fact 27. Covered in finding of fact 28. Covered in finding of fact 29. Although my calculations of the amounts involved are somewhat different. Rejected as unnecessary. Covered in finding of fact 29. Covered in finding of fact 31. Covered in finding of fact 31. COPIES FURNISHED: Lawrence S. Krieger, Esquire 111 Georgia Avenue Suite 211 West Palm Beach, Florida 33401 Vincent R. Cavallo, pro se 405 S, Pine Island Road Plantation, Florida The Honorable Gerald Lewis Comptroller, State of Florida The Capitol Tallahassee, Florida 32399-0350 Charles L. Stutts, Esquire General Counsel Comptroller, State of Florida The Capitol Tallahassee, Florida 32399-0350
The Issue Whether Petitioner's application for licensure as a temporary limited surety/bail bond agent pursuant to Sections and 648.355, Florida Statutes, should be granted.
Findings Of Fact Based upon observation of the witnesses and their demeanor while testifying; documentary materials received into evidence; stipulations by the parties; evidentiary ruling made pursuant to Section 120.57, Florida Statutes; and the record evidence submitted, the following relevant and material facts are determined: Pursuant to Chapter 648, Florida Statutes, Respondent has jurisdiction over bail bond licensure, appointments, and related activities. Petitioner appeared before the undersigned in this proceeding, identified himself and admitted that he is the individual prosecuted in the Thirteenth Judicial Circuit, in and for, Hillsborough County, Florida, Case No. 88-CF-15373, State of Florida v. Bennie Small, Jr., on a Direct Information of two counts of grand theft, and that Respondent has jurisdiction over him and the subject matter involved in its denial letter. The record evidence demonstrated that on or about January 21, 1987, Petitioner entered into a real estate contract with Deltricia Wiggins, a prospective homebuyer. Ms. Wiggins, believing Petitioner to be the realtor representing the seller, gave Petitioner $500.00 to assist her in the purchase of the home. Thereafter, she became aware that the subject home had been sold and demanded that Petitioner return her $500.00. Petitioner failed or refused to return her $500.00. Ms. Wiggins contacted the Hillsborough County State Attorney's Office and made a report. At no time during the above transaction was Petitioner a licensed real estate sales person or licensed real estate broker. The record evidence demonstrated that Petitioner entered into a real estate contract with Janet Richardson, a prospective homebuyer. Ms. Richardson, believing Petitioner to be the realtor representing the seller, gave Petitioner $500.00 to assist her in the purchase of a family home. Thereafter, she became aware that the subject home had been sold and demanded that Petitioner return her $500.00. Petitioner failed or refused to return her $500.00. At no time during the above transaction was Petitioner a licensed real estate sales person or licensed real estate broker. On October 26, 1988, the State Attorney's Office filed a Direct Information charging Petitioner with two counts of grand theft. The two counts of grand theft stemmed from Petitioner's above two unlicensed real estate transactions. At some unknown time on or before January 5, 1989, Petitioner returned the money to both Misses Wiggins and Richardson. The fact that he subsequently returned money to his two victims did not negate his taking their money under illegal and false pretense. Record evidence demonstrated that on January 17, 1989, Petitioner was represented by the Office of the Public Defender of the Thirteenth Judicial Circuit, in and for, Hillsborough County, Florida, in Case No. 88-CF-15373, and a plea of no contest to the charge of grand theft was entered on his behalf. Circuit Judge Harry Lee Coe accepted the plea of no contest on behalf of Petitioner, withheld adjudication of guilt, imposed no probation, and ordered that Petitioner not practice law nor practice real estate without appropriate licensure. Petitioner produced no record evidence that the no contest plea entered on his behalf by the public defender and that the judgment and sentence of the Court imposed by Circuit Judge Harry Lee Coe, of the Hillsborough County Circuit Court on January 17, 1989, in Case No. 88-CF-15373, has been overturned, reversed or set aside by a court of competent jurisdiction. Petitioner, through his evidence and post-hearing submittals, presented the following arguments in support of his position that "he did not enter a plea of no contest to the grand theft charge." First, Petitioner argued that while in court, "he" personally did not enter a no contest plea. Second, he argued that "his" personal approval that a no contest plea be entered on his behalf was neither requested nor given to the public defender that represented him. Third, he argued that he was not made a party at the bench conference between the presiding Judge, the prosecutor, and his public defender, when discussions regarding the terms and condition of resolving his case were ongoing and concluded. Fourth, he argued that copies of the court docket sheet, recording entries written by the court's clerk, who sat in court and made each docket sheet entry as pronounced by the court, were insufficient to establish that those recorded actions were actually taken by the court. Because of the foregone alleged irregularities, argued Petitioner, there is no "official court record" of his having entered a no contest plea to the grand theft charge. Petitioner put forth no evidence in support of his several arguments challenging Respondent's denial of his license application. Petitioner proffered no evidence of the official judicial disposition of the two counts of grand theft filed against him. Petitioner failed to produce a scintilla of evidence in support of his assertions that Respondent did not fully comply with the Florida Statutes when Respondent, by letter dated June 2, 2003, informed Petitioner that his application for licensure as a surety/bail bond agent was denied, and the denial was based on a January 17, 1989, plea of no contest to the charge of grand theft, a felony, in the Thirteenth Judicial Circuit, in and for, Hillsborough County, Florida.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Respondent enter a final order denying Petitioner's, Bennie Small, Jr., application for licensure as a temporary limited surety/bail bond agent. DONE AND ENTERED this 4th day of June, 2004, in Tallahassee, Leon County, Florida. S FRED L. BUCKINE 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 4th day of June, 2004.
Findings Of Fact The Application On June 28, 1985, Petitioner, Frank Edward B1anco (Blanco), filed an application with Respondent, Department of Banking and Finance (Department), for registration as an associated person with Rothschild Equity Management Group, Inc. Pertinent to this proceeding, the application provided: Have you ever: been the subject of a major complaint or legal proceeding? E. been the subject of any order, judgment, decree or other sanction of a foreign court, foreign exchange, or foreign governmental or regulatory agency? * * * While associated in any capacity in the securities, commodities, investment advisory, real estate, banking or insurance industry or any other business have you ever: * * * C. had any temporary or permanent injunction or administrative order entered against you or any broker, dealer, investment advisor, municipal securities dealer, bank or commodities firm with which you were associated in any capacity at the time such injunction was entered? Blanco answered "yes" to each of the foregoing questions, and in response to his obligation to provide "complete details" advised that he had been named in a cease and desist order by the State of Missouri while associated with Precious Metals International, Inc., (PMI), and a cease and desist order by the State of Florida, Department of Banking and Finance, arising from his association with First Petroleum Corporation of America (First Petroleum). On August 12, 1985, Blanco filed an amendment to his application, and in so doing advised the Department that he had agreed to enter into "what is the equivalent of a Consent Decree" in the case of the Commodity Futures Trading Commission and the State of Florida, Department of Banking and Finance v. Precious Metals International, Inc., Executive Control Corporation, and Frank Blanco, et al, then pending in the United States District Court, Southern District of Florida. By Order of October 5, 1985, the Department denied Blanco's application for registration as an associated person predicated, inter alia, or Blanco's failure to disclose an injunction entered against him in the case of Federal Trade Commission v. First Petroleum, Blanco, et al, United States District Court, Southern District of Florida, Case No. 82-2744- CIV, and his unworthiness to transact business as an associated person. Blanco filed a timely request for a formal hearing. The Background Mr. Blanco was employed from September 198 to November 1982 by First Petroleum as a salesman and, ultimately, Executive Vice President (sales manager and recruiter). From December 1983 to December 1984 he was the president and sales manager of Precious Metals International, Inc. (PHI), and from December 1984 to January 1985 the "Director of Consulting" for Executive Control Corporation (the "administrative branch" for PMI). By complaint for injunctive and other relief filed in the United States District Court, Southern District of Florida, Case No. 82-2744-CIV, the Federal Trade Commission sued First Petroleum, Blanco, and others (Defendants) for violations of Section 5(a) of the Federal Trade Commission Act (FTC Act), 15 U.S.C. 45(a), regarding unfair or deceptive acts or practices. Specifically, the complaint alleged that Defendants misrepresented certain material facts in their solicitation of the sale of filing, evaluation and advisory services to consumers in connection with the Federal Simultaneous Oil and Gas Leasing System (SIMOL System). On April 6, 1983, the court entered a "Stipulated Final Order and Judgment."1 In its order, the court found: Defendants First Petroleum Corporation of America,... Frank E. Blanco,... ("defendants") may have misrepresented their past success in obtaining oil and gas mineral rights in the Federal Simultaneous Oil and Gas Leasing System (SIMOL System), the level of competition for such rights, and the value of rights obtained through the program; Defendants may have deceptively failed to disclose in oral sales presentations and written sales materials the true number parcels of land for which they obtained oil and gas leasing rights for their customers and the true number of attempts to obtain such rights. The Court enjoined the defendants from misrepresenting, orally or in writing, the past or likely future success of defendants' customers in obtaining oil or gas lease rights through the SIMOL System or any program which makes such rights available to the public; misrepresenting, orally or in writing, the number of competing applications for lease rights that are filed, or are likely to be filed; representing orally or in writing, that parcels defendants select for their clients contain oil or gas; or making any false or deceptive claims concerning past or likely future earnings of defendants' customers. The court also ordered that the defendants, jointly or severally, contribute to an escrow account established by the Federal Trade Commission the sum of $125,000 as redress for customers who may have been injured by the alleged deceptive practices. Blanco paid $25,000 into the escrow account. By complaint for injunctive and other relief filed in the United States District Court, Southern District of Florida, Case No. 85-6705-CIV, the Commodity Futures Trading Commission (CFTC) and the State of Florida, Department of Banking and 1 Finance, sued Precious Metals International, Inc. (PMI), Executive Control Corporation (ECC), Blanco, and others (Defendants) for the use of unfair, misleading, false and deceptive sales practices in the sale of "physical deferred payment" contracts for precious metals, and the unlawful operation of a "boiler room" within the State of Florida. On September 27, 1985, the court entered a final judgment and permanent injunction with the Defendants' consent, but without any adjudication on the merits and without the Defendants admitting or denying the allegations of the complaint. In its final judgment, the court found that the defendants, "without admitting or denying" had violated Section 4(a) of the Commodity Exchange Act, in that they had solicited orders in connection with contracts for the purchase and sale of commodities for future delivery without such transactions having been conducted on or subject to the rules of a board of trade designated by the CFTC as a "contract market", without such contracts having been executed or consummated through a member of such "contract market", and without such contracts having been evidenced by a record in writing showing the date, the parties, their addresses, the property, its price and terms of delivery. The court also found that the defendants, "without admitting or denying" had violated Section 4(b) of the Commodity Exchange Act, in that they had cheated, defrauded, and willfully deceived, or had attempted to cheat, defraud or deceive, customers in connection with contracts for the purchase and sale of commodities for future delivery. Finally, the court found that the defendants, "without admitting or denying" had also violated Section 517.301 and 517.312, Florida Statutes, by operating a boiler room selling commodities future contracts or "investments" as defined in Section 517.021(11), Florida Statutes, and by making various oral and written untrue and misleading representations which defendants knew or should have known were untrue and misleading.2 The court enjoined the defendants, including Blanco, from the future commission of the aforesaid offenses; appointed a receiver for PMI and ECC to take control of their assets, wind-up their business operations, remove the individual defendants from control and management of PHI and ECC, and to satisfy the claims of customers; and ordered Blanco to disgorge $28,000, payable $10,000 within 30 days of the entry of judgment and $1,500 per month for one year. Blanco has made the payments required by the court's order. On March 25, 1985, In the matter of Precious Metals International, Inc., Frank Blanco and Merrill Porte, 2 (Respondents), file No. CD-85-7, the State of Missouri, Secretary of State, Division of Securities, entered an order to cease and desist against Respondents. In its order, the Commissioner of Securities found that Respondents had violated section 409.201, 409.301, 409.101 and 409.408 of the Missouri Statutes by engaging in broker-dealer and agent activities within the state without being properly registered; by selling unregistered securities in a fraudulent manner; and by failing to file a statement of exemption with the Commissioner. Respondents were ordered to cease and desist from the offer or sale of unregistered or exempt securities in violation of section 409.301, Missouri Statutes. BLANCO'S RESPONSE Blanco asserts that his failure to disclose the final order entered in Federal Trade Commission v. First Petroleum, Blanco, et al, on his application to the Department was inadvertent. Blanco claims he "inadvertently thought" it was part of the cease and desist order entered by the State of Florida, Department of Banking and Finance, against First Petroleum. Blanco's assertion is inherently improbable. The cease and desist order entered by the Department was, as Blanco knew, reversed on appeal. Blanco paid $25,000 under the final order entered in the Federal Trade Commission case. These matters were hardly subject to confusion. An evaluation of Blanco's proof in this case is glaring in its absence of substance. With respect to the injunctions rendered against him in the Federal Trade Commission v. First Petroleum, Blanco, et al, and the Commodity Futures Trading Commission v. PMI, B1anco, et al, cases, Blanco offered no evidence concerning the validity of the charges, the propriety of the injunctions, or any exculpatory or mitigative proof. Regarding the Missouri case, Blanco averred that it arose because of misrepresentations made by PMI salesman Merrill Ponte (Ponte).3 At the time in question, however, Blanco was the president and sales manager of PMI, and responsible for assuring that sales personnel did not make misrepresentations. Blanco offered no proof that he was unaware of Ponte's activities, or that Ponte's activities were unauthorized.4
The Issue At issue in this proceeding is whether the proposal of Health Care Pharmacy Providers, Inc. (HCPP), was responsive to the request for proposal issued by the Department of Administration (Department), and whether the Department departed from the essential requirements of law in its evaluation of the responses to the request for proposal.
Findings Of Fact Background On June 14, 1991, the Department of Administration, Division of State Employees' Insurance (Department), issued Request for Proposal No. 91-14 (hereinafter "the RFP") for a statewide prescription drug card program for full- time and part-time state employees, retired employees, COBRA recipients and eligible dependents covered by the State of Florida Employees' Group Health Self-Insurance Plan. The deadline for submitting sealed proposals in response to the RFP, as amended, was established as 2:00 p.m., August 2, 1991. At the time of the deadline, the Department had received a number of proposals, including those of petitioner, Consultec, Inc. d/b/a General American Consultec, Inc. (Consultec), and intervenor, Health Care Pharmacy Providers, Inc. (HCPP). On August 22, 1991, following its evaluation of the proposals, the Evaluation Committee advised the Secretary of the Department that: Based on the evaluation criteria contained in the RFP, the Committee would normally recommend that a contract be offered to Consultec, Inc. The company that was awarded the second most points is Health Care Pharmacies. However, considering the Plan's past claim's history, the Committee projects that, with a contract awarded to Consultec rather than Health Care Pharmacies, an additional claim's cost of approximately $500,000 - $600,000 would be incurred annually. This difference is calculated based on the discount rates of 12.4% versus 15% respectively. The Committee feels it must, therefore, recommend that a contract be offered to Health Care Pharmacies. . . . Thereafter, on August 23, 1991, the Department notified Consultec that it had selected the proposal of HCPP, as the most advantageous to the state, and accorded Consultec notice of its opportunity to contest the Department's decision. Consultec filed a timely notice of protest and formal written protest to contest the Department's decision. Such protest charged that the Department materially departed from the evaluation criteria contained in the RFP, and that the proposal of HCPP was not responsive to the RFP. The Request for Proposal Pertinent to this case, General Conditions 3 and 6 of the RFP provided: 3. PROPOSAL OPENING . . . A proposal may not be altered after opening of the price proposals. . . . * * * 6. AWARDS:As the best interest of the State may require, the right is reserved to reject any and all proposals or waive any minor irregularity or technicality in proposals received. . . . The RFP, as amended, further provided: SECTION IV PROPOSAL COMPLETION 1. Any proposal submitted in response to this RFP must include the certification of compliance on pages 25 and 26 signed by an authorized representative of the respondent. By the signature, the respondent certifies that all provisions of this RFP have been read, understood and agreed. The absence of such certification at the time of bid opening will render the proposal invalid and it will not be evaluated. * * * 3. Each respondent must submit the original of the following in a single envelope: * * * Complete information requested in the 12 subsections of the Proposal Requirements. The respondent must respond to each statement in the same order as they appear in Section VI. Do not re-format or group your replies or your proposal will result in a non-responsive bid. Complete the Cost Proposal as outlined in Section VIII. . . . * * * 6. DOA reserves the right to request verifi- cation, validation or clarification of any information contained in the proposal submit- ted. This may include checking references. SECTION V INQUIRIES * * * Questions regarding this RFP will be answered at the pre-bid conference at the time, date and address shown in the Schedule of Events . . . Responses to such advance written questions, as well as questions raised at the conference, will be recorded in compre- hensive written minutes which will be distri- buted to all parties who received the RFP and who record their presence at the conference. Any changes made in this RFP which are not part of the official minutes of the pre-bid conference will be communicated in writing as an RFP amendment to all parties who received this RFP and who record their presence at the pre-bid conference. * * * 8. The State of Florida reserves the right to reject any and all proposals, to make no award or to issue a new Request For Proposals. SECTION IV PROPOSAL REQUIREMENTS 1.0. LICENSE ORGANIZATION AND HISTORY * * * 1.4 Provide audited financial reports for 1987, 1988, 1989 and 1990, summarizing revenue and expenses for the operation of the prescrip- tion drug card benefit program of your business and the total operation of your prescription drug card business. * * * 2.0 FINANCIAL RESPONSIBILITY * * * 2.2. Provide evidence of a $1 million Performance Bond. * * * PROVIDER NETWORK Develop a statewide network of pharmacies which agree, by contract, to submit claims for participants and to accept the contractor's allowance along with the participant's co-payment as full payment. There must be participating pharmacies in all of Florida's 67 counties. * * * SECTION VIII CRITERIA FOR EVALUATION The Department of Administration shall evaluate each proposal by assessing the re- spondent's reply to all issues addressed in this RFP. The evaluation process shall include: The adherence and response to the Proposal Requirements as specified in Section VI. Lack of response to each point in Section VI will result in a nonresponsive bid. Do not reformu- late or group your replies. The Cost Proposal. SECTION IX EVALUATION OF PROPOSALS CRITERIA: Each evaluation shall be done using the criteria listed in Section VIII. WEIGHTING:The weighted criteria is as follows: ADMINISTRATIVE FEES Category 1 1/1/92 - 12/31/92 40% Category 2 1/1/93 - 12/31/93 40% Enrollment data on the number of state subscribers is found in APPENDIX I of this REP. DISCOUNT PERCENTAGE RATE Category 3 1/1/92 - 12/31/93 20% FORMULA FOR CLAIMS PAYMENT Payment will be the Average Wholesale Price (AWP) less a discount percentage rate, plus a dispensing fee minus a co-payment. Information on prescriptions for participants in the last two fiscal years and partial amounts for the 1991-1992 fiscal year are found in Appendix 2 of this RFP. METHODOLOGY: In order to determine the rela- tive value of the weighted criteria, a 100 point system will be used. Respondents submitting the lowest administrative fees will be awarded the most points. Respondents submitting the highest discount percentage rate will be awarded the most points. Conversion to the 100 point scale will be determined as follows: The administrative fees and discount percentage rate for each of the respondents will be added by category. The sum of each category will be divided by the number of respondents to arrive at the mean for that category. ADMINISTRATIVE FEES The mean for administrative fees will be accorded a value of 20 points per year. Each respondent's response, by category, will be divided into the mean for that category. This factor will be multiplied by the point value of the mean (20 points) to determine the points awarded for the category. Calculations will be rounded to the fifth decimal. An administrative fee of 0 will receive a value of 40 points per year. DISCOUNT PERCENTAGE RATE The mean for the discount percentage rate will be accorded a value of 10 points. Each respondent's response will be divided by the mean for that category. This factor will be multiplied by the point value of the mean (10 points) to determine the points awarded for that category. The total points for each of the three categories will result in that respondent's total points awarded. Maximum points will be 100. SECTION X COST OF PROPOSAL Provide the monthly cost per year for all administrative services per claim for each year of the contract. 1/1/91 - 12/31/92 1/1/93 - 12/31/92 Provide the discount percentage rate for the two-year contact period. 1/1/92 - 12/31/93 SECTION XI CERTIFICATE OF COMPLIANCE * * * We propose to furnish and deliver any and all of the services in the attached Request for Proposals. It is understood and agreed that this proposal constitutes an offer which, when accepted in writing and subject to the terms and conditions of such acceptance, will consti-tute a valid and binding contract between the undersigned and the State of Florida, Department of Administration. It is understood and agreed that we have read the State's specifications shown or referenced in the RFP and that this proposal is made in accordance with the provisions of such specifi- cations. By our written signa-ture on this proposal, we guarantee and certify that all items included in this pro-posal meet or exceed any and all such State specifications. We further agree, if awarded a contract, to deliver services which meet or exceed the specifications. . . . In accordance with Section V of the RFP, Consultec submitted the following question to the Department: What is meant by "providing evidence"? Do you want written assurance that we have the capa- bility to provide these bonds and insurance should we be the successful bidder? The Department answered: Provide evidence means the respondent must show written proof that it acquired the bonds and general liability insurance as required in the RFP and that the State shall be notified by the insurer of any cancellation of the bonds and liability insurance required. While the Department's answer to Consultec's question stated that a respondent "must show written proof that it acquired the bonds," the proof at hearing demonstrated that insurance companies do not issue performance bonds until a contract has actually been awarded. Consequently, no respondent could "provide evidence" of a $1 million performance bond in the manner delineated by the Department. The responsiveness of Consultec's proposal Consultec's proposal was fully responsive to the requirements of the RFP, and contained no material omissions or deviations from those requirements. 1/ In response to Section X of the RFP, as amended, Consultec proposed a monthly cost-per-year for all administrative services per claim for each year of the contract (January 1, 1992 - December 31, 1992, and January 1, 1993 - December 31, 1993) of Zero dollars ($0.00). Consultec also proposed a discount percentage rate from the average wholesale price (AWP) for prescription drugs for the two-year contract period of 12.4 percent. The responsiveness of HCPP's proposal HCPP's proposal was not responsive to the requirements established by the RFP in at least two material particulars. First, it failed to comply with the requirement that it provide audited financial statements for 1987-1990, and second, it failed to provide evidence of a $1 million performance bond. As heretofore noted, Section VI of the RFP required that HCPP provide audited financial reports for 1987 through 1990. The specific requirement read as follows: 1.4 Provide audited financial reports for 1987, 1988, 1989, and 1990, summarizing revenue and expenses for the operation of the prescription drug card benefit program of your business and the total operation of your pre- scription drug card business. In response to such requirement, HCPP submitted a consolidated balance sheet and consolidated statement of operations for National Intergroup, Inc., and its subsidiaries. National Intergroup, Inc., is HCPP's parent company. The financial statements, assuming they were audited, which was not demonstrated by competent proof in these proceedings, failed to include any auditor's notes. More importantly, such statements were consolidated statements of National Intergroup and its subsidiaries, and it is impossible to ascertain from such documents any information concerning the financial health of HCPP, the entity proposing to contract with the Department. Moreover, such statements fail, as required by the RFP, to summarize "revenue and expenses for the operation of the prescription drug card benefit program of [HCPP's] prescription drug card business." Under such circumstances, HCPP's response to the provision of the RFP regarding the provision of financial reports was not responsive. HCPP's response to Section VI of the RFP, that it "Provide evidence of a $1 million Performance Bond" was likewise nonresponsive. Regarding such requirement, HCPP responded: HCPP does not have a Performance Bond as it is not applicable. Following bid opening, the Department contacted HCPP regarding its response to the performance bond requirement and was advised by HCPP that it had framed its response based on its assumption that a performance bond would not be required for a company of its stature. Upon being advised that it indeed was required, HCPP agreed to provide such a bond. Notably, however, HCPP's proposal contained no evidence of its ability or inclination to provide such a bond, and its agreement to do so occurred subsequent to bid opening. Under such circumstances, HCPP's proposal was not responsive to the performance bond requirement of the RFP. HCPP's response to Section VI of the RFP, that it agree to develop a statewide network of pharmacies with participating pharmacies in all of Florida's 67 counties was ambiguous. Pertinent to this requirement, HCPP responded: HCPP proposes a statewide network of pharma- cies including Eckers, Kmart, Pharxnor and numerous independent pharmacies. The total preferred network consists of 820 stores in 53 counties. Upon review of HCPP's response, the Evaluation Committee was of the opinion that HCPP's response evidenced an intention to provide a statewide network, with participating pharmacies in all 67 counties, and that HCPP currently had a network of pharmacies in 53 counties. To clarify such point, the committee contacted HCPP following the bid opening, and HCPP confirmed that the committee's interpretation of its response was accurate. At hearing, the proof confirmed the accuracy of the committee's interpretation of HCPP's response. Under such circumstances, the Department's request for clarification was appropriate, and HCPP's response that it had in fact proposed a 67-county statewide network was not a post-bid opening alteration of its proposal. Finally, HCPP's proposal failed to contain any specific response to paragraphs 5.8, 5.10, 11.1, 11.2, and 11.3 of Section VI of the RFP, as required by paragraph 3C of Section IV and paragraph 1 of Section VIII of the RFP. Such failing, more likely than not, was inadvertent and the fault of the typist who prepared the response, since any response to such paragraphs required no more of the bidder than its agreement to comply with such requirements. HCPP's proposal was, nonetheless, not responsive to paragraphs 5.8, 5.10, 11.1, 11.2, and 11.3 of the RFP. While not responsive to such paragraphs, the Department and HCPP contend that such failing is a minor irregularity since, by execution of Section XI (the Certificate of Compliance), HCPP obligated itself to comply with such requirements. A fair reading of Section XI comports with the position espoused by such parties. Accordingly, it is found, under the circumstances, that HCPP's failure to specifically respond to such paragraphs was a minor irregularity, appropriately waived by the Department. The same conclusion cannot, however, be drawn regarding HCPP's failure to provide audited financial statements or to provide evidence of a $1 million performance bond. Such requirements were required as part of the proposal, and were not so submitted. Additionally, HCPP's response in these particulars was contrary to the express requirements of the RFP. Under such circumstances, HCPP's mere execution of the Certificate of Compliance does not cure the deficiencies of its proposal as to such requirements. In response to Section X of the RFP, as amended, HCPP proposed a monthly cost-per-year for all administrative services per claims for each year of the contract (January 1, 1992 - December 31, 1992, and January 1, 1993 - December 31, 1993) of forty cents ($.40). HCPP also proposed a discount percentage rate from the AWP for the two-year contract period of 15 percent. Evaluation of the cost proposals Applying the weighted criteria established by Section IX of the RFP to Consultec's cost proposal, the Evaluation Committee awarded it the maximum number of possible points (80 points) for its proposed administrative costs, since the proposal reflected no charge for such expenses, and 21.440 points based on its proposed discount percentage rate of 12.4 percent. In all, Consultec received 101.440 points. By comparison, HCPP was awarded 51.666 points for its proposed administrative costs and 25.936 points based on its proposed discount rate of 15 percent. In all, HCPP received 77.603 points. 2/ Notwithstanding that Consultec was the superior respondent, based on the evaluation criteria contained in the RFP, the Evaluation Committee recommended, and the Secretary concurred, that the contract be awarded to HCPP. Such result was occasioned by the committee's conclusion that, notwithstanding the fact that Consultec received the most points under the evaluation criteria, awarding the contract to Consultec rather than HCPP would cost the state an additional $500,000 - $600,000 annually when the cost proposals are evaluated in light of the Plan's past claims history. 3/ The Department, as well as HCPP, do not concede that the Department departed from the methodology established by the RFP but, rather, contend that the point system by which the cost proposals were to be evaluated was but a "starting point" for the evaluation of the cost proposals. Supportive of such contention, those parties note that no where in the RFP was it specifically stated that the proposal with the most points would be awarded the contract and, therefore, the Department's decision to award the contract based on the lowest cost, as opposed to the most points, was not a departure from the established methodology or otherwise improper. Such contention is rejected as being contrary to the terms of the RFP, and otherwise not persuasive. Section VIII of the RFP establishes a two-pronged test for awarding the contract: (1)"The adherence and response to the Proposal Requirements as specified in Section VI," and (2)"The Cost Proposal." 4/ Pursuant to Section X of the RFP, the cost proposal of a vendor is to be evaluated under the weighted criteria established by Section IX of the RFP. Neither Section VIII, IX or X contemplate any other factor, and nothing in the RFP establishes any other test or methodology by which to compare the various responses. Accordingly, under the literal terms of the RFP, Consultec was the prevailing bidder because it received the highest number of points under the methodology established by the Department. While the proof demonstrated that Consultec is the successful bidder when the methodology established by the RFP is properly applied, it further demonstrated that the methodology established by the Department was fatally flawed since, among other things, it neither provided for an exact comparison of bids, nor secured the best values for the public at the lowest possible expense. In this regard, the proof showed that while Consultec proposed zero administrative costs, it in fact proposed to recover such costs by being able to obtain drugs from participating pharmacies at a greater discount than the discount quoted to the state. 5/ Accordingly, while Consultec did have administrative costs, and was planning to recoup those costs, such costs were subsumed in its discount rate, and the methodology established by the Department did not permit an exact comparison of bids. Further, as heretofore, found, the methodology adopted by the Department was not designed to secure the best values for the state. 6/ Considering the flawed methodology adopted by the Department to evaluate the proposals submitted in response to the subject RFP, it is concluded that it is in the best interests of the State of Florida to reject all bids and to extend a new RFP.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is recommended that a final order be entered which rejects all proposals, and that a new request for proposals be extended. RECOMMENDED in Tallahassee, Leon County, Florida, this 13th day of November 1991. WILLIAM J. KENDRICK 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 13th day of November 1991.
The Issue The issue for consideration in this matter is whether Petitioner should be granted registration as an associated person of FISCL Securities in Florida.
Findings Of Fact At all times pertinent to the allegations herein, the Petitioner was an applicant for registration as an associated person of FISCL Securities. The Respondent, Department, was the state agency charged with the administration and enforcement of Chapter 517, FLORIDA STATUTES, the Florida Securities and Investor Protection Act, and the rules promulgated thereunder which include the registration of associated persons as securities dealers inthis state. Under the rules of the Department, anyone who seeks to represent a securities dealer in Florida is required to file an application form, (Form U- 4), with the National Association of Securities Dealers, (NASD), which, upon review, is forwarded to the state in which the applicant resides and seeks registration. If the records of the NASD disclose any disciplinary action having been taken against the applicant, it is identified to the state in which registration is sought. In Florida the Department is the appropriate agency and Department officials review the application to see if it should be approved. In this regard, all disciplinary information, the records of the NASD, is forwarded to the pertinent state for review in accordance with the rules and statutes of that state and, based on the information provided, a decision is made as to whether the application should be approved fully, approved with conditions, or denied. In Florida, all documents relating to the applicant's disciplinary history are secured and reviewed by the Department's Division of Securities prior to a recommendation being made as to approval or denial of the application for registration. In the instant case, the information submitted by NASD, pertaining to the Petitioner herein, included evidence of a prior disciplinary record. Upon receipt of the notice, Ms. Cain, the Division's Assistant Director, sent out a discrepancy letter to the Petitioner and requested copies of the disciplinary record and his form U-4 from NASD. The information submitted to the Department by Ellen J. Badler, Assistant Director, Special Registration, with NASD, dated July 18, 1990, reflected three letters of admission, waiver and consent from First Heritage Corporation, a securities dealer in Southfield Michigan, and Louis Feldman, Petitioner, a registered options principal with and president of the firm. The documents show that on the basis of periodic review of the company records in October and November, 1981, the corporation failed to obtain or maintain option account agreements for 7 of its option customers; that in 5 cases it failed to obtain or maintain sufficient background and financial information on customers approved for trading; and that it failed to show the date prospectuses were furnished to options customers. All of the above were cited as violations of Article III, Section 33, Appendix E, NASD's Rules of Fair Practice. This inquiry also indicated that the corporation and Petitioner failed to inform its customers, in writing, of the method it used to allocate exercise notices to its customers' accounts, and failed to explain the way the system operated and its consequences, in violation of Section 63, of NASD's Uniform Practice Code. Mr. Feldman, along with the company, admitted those violations in a Letter of Admission, Waiver and Consent he executed in response to NASD's District 8 Business Conduct Committee, (Committee), and they were punished with a censure to the company and a joint fine of up to $500.00 for Mr. Feldman andthe company. No further disciplinary action was taken against the Petitioner or his company by NASD, the SEC, or the state of Michigan until, in 1989, NASD entered its Decision and Order of Acceptance of Respondents' Offer of Settlement regarding three Complaints filed by the Committee in 1988 for alleged violations of rules of the Municipal Securities Rulemaking Board, (MSRB), and the Rules of Fair Practice. These complaints, filed against Petitioner, First Heritage, and as to one of the three, to a third party as well, related to: effecting the purchase and sale of municipal securities at prices in which the aggregate price at which the securities were purchased or sold were not reasonable and fair under the circumstances; placing several different advertisements which omitted material facts and were mis- leading; again, purchasing and selling municipal securities at prices which were not fair and reasonable. The Committee found that the Petitioner and the other parties involved were in violation of the rules as alleged, and fined Petitioner and First Heritage $10,000.00 jointly as to the two price allegations, and $5,000.00 as to the advertising allegation. Petitioner claims the violations were more ministerial and technical than substantive and that no customer ever complained about or was in any way injured by those actions. As to the advertisements, he claims they were not misleading. Examination of the advertisements does not necessarily support that claim, however, He also claims that the policies complained of were the same as those followed for the 13 years the company was in business and prior audits by NASD had never resulted in any noted discrepancies. The Department does not consider as pertinent the fact that injury to a consumer was not involved. By the same token, given, as here, the completed disciplinary action which has become final, it will not look behind that action and re-litigate, at a hearing such as this, the truth of the allegations. Petitioner also claims that in each case he was advised by counsel that it would be useless to fight the allegations of misconduct since it appeared the collective mind of the agency was made up to take action. Further, weighing the minimal fines sought against the extensive cost to Petitioner in attorney fees and lost commissions while litigating the allegations, he elected to take that route less expensive to him in the short run and accept punishment. This decision did not, it would appear, redound to his benefit. Petitioner also claims, and it is so found, that at no time has any disciplinary action ever been taken against him for actions in the securities business by the states of Michigan or Florida. On the basis of those actions, by letter of October 11, 1990, the Department notified the Petitioner that his application for registration was denied. The two page letterclearly indicated the Petitioner's professional history and the fact that he was the subject of "at least two regulatory actions filed by the NASD." The letter then listed the specific allegations of misconduct charged against the Petitioner in each of the two actions and noted the agency action taken in each case. The Department's letter also cited the pertinent statute which authorizes it to deny an application for registration and the bases therefor, and noted the reasons for its action. Petitioner was also notified of his right to and the procedure for contesting the Department's action.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is therefore recommended that a Final Order be entered denyingPetitioner, Louis Feldman's application for registration as an associated person of FISCL Securities in Florida. RECOMMENDED in Tallahassee, Florida this 17th day of September, 1991. 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 17th day of September, 1991. COPIES FURNISHED: Gregory G. Schultz, Esquire Schultz & Associates, P.A. 26750 U.S. Highway 19 N. Suite 310-A Clearwater, Florida 34621 Margaret S. Karniewicz, Esquire Department of Banking and Finance Suite 1302, The Capitol Tallahassee, Florida 32399-0350 Gerald Lewis Comptroller The Capitol, Plaza Level Tallahassee, Florida 32399-0350 William G. Reeves General Counsel Department of Banking and Finance The Capitol, Plaza Level, Room 1302 Tallahassee, Florida 32399-0350
The Issue Whether the petitioner's application for registration as an associated person of Hardman Financial Services, Inc., should be granted or denied.
Findings Of Fact Based on the oral and documentary evidence presented at the final hearing and the entire record of this proceeding, the following findings of fact are made: The Department is the state agency charged with the administration of chapter 517, Florida Statutes (Florida Securities and Investor Protection Act), and is responsible for registering associated persons. The Division of Securities and Investor Protection carries out this function. In January 1995, Mr. Northern applied to the Department for registration as an associated person of Hardman Financial Services, Inc., pursuant to section 517.12, Florida Statutes. Mr. Northern is currently registered with the National Association of Securities Dealers and with the State of California. On November 24, 1992, the Commodity Futures Trading Commission ("CFTC") filed a Complaint and Notice of Hearing charging Mr. Northern with fraudulent allocation, that is, with cheating or defrauding or attempting to cheat or defraud his customers with respect to trades in the purchase and sale of commodities, a violation of section 4b of the Commodity Exchange Act, title 7, section 6b, United States Code. 1/ Specifically, the CFTC alleged in the complaint that, from "at least December 1987 to May 1989," Mr. Northern, "fraudulently allocated profitable trades to the Northern account and unprofitable or less profitable trades to his customers' accounts." The CFTC based the fraudulent allocation charge on an inference drawn from two facts alleged in the complaint. First, the CFTC alleged that, during the period extending from December 1987 to May 1989, 180 out of 184 trades on Mr. Northern's personal trading account were profitable, producing a profit of $53,517, while his customers' accounts lost $696,889. Secondly, the CFTC alleged that Mr. Northern's name was included by Paine Webber's Compliance Department on lists variously known as "ACL lists", "Discretionary Broker lists", and "Account Number Later lists", which meant that Mr. Northern was allowed to batch his orders and telephone them directly to the Paine Webber clerks on the floors of the exchanges, who then accepted and executed the orders even though Mr. Northern did not provide account identification at the time the orders were placed. Mr. Northern presented the CFTC with an offer of settlement dated June 1, 1994, and, on July 19, 1994, the CFTC entered an Opinion and Order Accepting Offer of Settlement of Lovell Braxton Northern, III. In the Opinion, the CFTC found that "[s]olely on the basis of the consent evidenced by the Offer, and without any adjudication on the merits, the Commission finds that Northern has violated section 4b of the [Commodity Exchange] Act." The CFTC noted in footnote 2 of the Order that Mr. Northern neither admitted nor denied the allegations against him and that he "stipulates that the record basis on which this Opinion and Order . . . is entered consists of the Complaint and the findings consented to in the Offer, which are incorporated in this Order." 2/ The CFTC, in accordance with the terms of Mr. Northern's offer, denied Mr. Northern trading privileges on any contract market for a period of seven years and ordered him to liquidate all futures and options positions in which he had any beneficial interest. In addition, the CFTC directed Mr. Northern to "comply with his undertakings" never to seek registration with the CFTC or to act in any position requiring registration or requiring him to hold customer funds. This Opinion was the basis for the CFTC's Order of Dismissal, dated July 19, 1994, which finally resolved the action brought against Mr. Northern and his former employer, Paine Webber. 3/ Mr. Northern explained that he offered to settle the CFTC case only because he could not travel to California for the hearing. At the time, his father was gravely ill with cancer, and he feared losing his job. Mr. Northern maintains that he did not fraudulently allocate any commodity trades, although he concedes that he placed orders by telephone without simultaneously providing account identification numbers to the floor clerks. He claims that he was required by Paine Webber's Compliance Department to place orders and provide account numbers after the orders were executed; he considers himself an innocent victim, whose only fault was adhering to Paine Webber's policy with regard to order entry. In response to a request by the National Futures Association, Paine Webber reported in a letter dated August 15, 1989, that, as a result of several consumer complaints, it had done a thorough analysis of Mr. Northern's trades and that the analysis had shown that orders were entered by Mr. Northern without proper account identification. It reported that, although purchases and sales in Mr. Northern's personal account were all profitable and purchases and sales in Mr. Northern's customer accounts were primarily unprofitable, it had found no conclusive evidence that Mr. Northern had fraudulently allocated trades. Paine Webber also notified the National Futures Association in the August 15, 1989, letter that Mr. Northern did not explain the transactions in his account to the satisfaction of Paine Webber and that he was permitted to resign on May 26, 1989. In a report dated August 19, 1993, an expert hired by Mr. Northern to examine several commodity order slips concluded that, in his opinion, his examinations failed to prove that the account numbers were written at the same time as the other information on the slips or at a different time. Six slips were examined, five of which were time-stamped in 1989 and one of which was time-stamped in 1988. Mr. Northern had approximately fifteen customer complaints filed against him during the period from 1985 through 1992. All but one of the complaints arose out of Mr. Northern's activities as an associated person of Paine Webber in California, and all of the complaints were related to commodity trading. Two of these complaints were resolved in Mr. Northern's favor, one was resolved adverse to Mr. Northern, and ten were settled by Paine Webber. Mr. Northern attributes most of the complaints to customer panic following the October 1987 stock market crash. Mr. Northern has failed to prove by a preponderance of the evidence that he is entitled to be registered as an associated person of Hardman Financial Services, Inc.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is: RECOMMENDED that the Department of Banking and Finance enter a Final Order denying the application of Lovell B. Northern, III, for registration as an associated person of Hardman Financial Services, Inc. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 1st day of May 1996. PATRICIA HART MALONO, 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 1st day of May 1996.
