The Issue The issues for determination in this proceeding are whether Respondent, by and through his employees: (a) sold unregistered securities in the secondary market which were marked up in excess of 10 percent of the prevailing market price and which were not exempt from registration; (b) permitted an agent to service accounts prior to the agent's effective date of registration in the State and concealed such action; and (c) failed to maintain minimum net capital requirements for his corporation; and (d) failed to properly supervise the activities of his employees and agents.
Findings Of Fact Respondent owned the stock of a holding company and was an officer in a wholly owned subsidiary of the holding company. Respondent and another individual owned the stock of Dean, Johnson and Burke Holding Company ("Holding"). Holding owned the stock of Dean, Johnson and Burke Securities, Inc. ("Securities"). Respondent was the Secretary of Securities. Respondent had ultimate responsibility for disbursements and profits for Holding and Securities. Respondent monitored the checkbooks and daily expenses for Securities. Respondent's accountant provided financial information to Respondent concerning the daily operations of both companies. The information was provided on forms supplied by Respondent. Respondent kept a daily record of how much each company made or lost, how much was owed, and other accounting information. Respondent made sure that the bills were paid and that the credit of each company remained good. Respondent also controlled the hiring of key personnel. Brent A. Peterson was a manager and principal for Securities. 2/ Mr. Peterson set prices for the firm. Mr. Peterson engaged in transactions in which prices were set for securities to be sold to customers in excess of 10 percent above and below the prevailing market price. Out of 457 trades, approximately 38 were sold at prices that exceeded a 10 percent markup (the "marked up securities"). The marked up securities were sold at prices in excess of 10 percent of the prevailing market rate. The National Association of Securities Dealers, Inc., ("NASD") determined that the securities were marked up in excess of 10 percent of the prevailing market price based upon Securities' contemporaneous costs. When a dealer is simultaneously making a market in a security (a "market maker"), the NASD looks to the prevailing market price for the purpose of determining if a markup exceeds 10 percent. The prevailing market price is the price at which dealers trade with one another, i.e., the "current inter-dealer market." 3/ When a dealer is not simultaneously making a market in a security (a "non-market maker"), the contemporaneous costs of the dealer are used for the purpose of determining if the securities have been marked up in excess of 10 percent. The contemporaneous costs reflect the prices paid for a security by a dealer in actual transactions closely related in time to the dealer's retail sales of that security. Such a standard is normally a reliable indication of prevailing market price in the absence of evidence to the contrary. Securities was not a market maker in the marked up securities. Even though securities may be sold at the same market price by one firm that is a market maker and one that is not a market maker, the latter may be deemed by the NASD to have marked up the security by more than 10 percent depending on the firm's contemporaneous costs. Many of the marked up securities were sold to customers at the same market price as that the customers would have paid other brokerage houses. 4/ Since Securities was not a market maker in the marked up securities, the standard used by the NASD to determine the amount of markup was the contemporaneous costs paid by Securities. The securities involved in the 38 trades were marked up more than 10 percent over Securities' contemporaneous costs. Respondent sold unregistered securities that were not exempt from registration. Unregistered securities may be sold if they are reasonably related to the current market price. The marked up securities were not reasonably related to the prevailing market price because they were marked up more than 10 percent over Securities' contemporaneous costs. Robert M. Long sold securities to customers as an employee of Securities prior to the effective date of his registration with Petitioner. Mr. Long was registered with Petitioner as a registered representative on May 18, 1988. Mr. Long was employed by Securities, from April 19, 1988, through September 20, 1989. Mr. Peterson advised Mr. Long that Mr. Long was authorized to trade securities. Pursuant to Mr. Paterson's advice, Mr. Long sold securities in Tel-optics prior to the effective date of his registration with Petitioner on May 18, 1988. Respondent concealed the sale of securities by Mr. Long prior to the effective date of his registration with Petitioner. Mr. Long's registered representative number was 34. Relevant order tickets showed Mr. Long as the person engaged in the sale of securities prior to May 18, 1988. Registered representative number 30 had been used on the order tickets at the time of the trades. After Mr. Long was registered with Petitioner, Mr. Long's number 34 was added to the order tickets and number 30 was crossed out. Securities operated with a net capital deficiency of approximately $30,000. The net capital deficiency resulted from the failure to accrue liabilities. The net capital deficiency was discovered by Mr. Long and Jeff Clark, an examiner for the NASD. The invoices for bills for the unaccrued liabilities were not filed where bills and invoices were normally filed and were found by Mr. Long concealed in drawers and other remote locations in the office. The net capital deficiency was discovered by Mr. Long on August 28, 1989, but not reported to Petitioner until September 19, 1989. Mr. Long did not notify Petitioner of the net capital deficiency at Securities until the deficiency could be verified by Mr. Clark.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner enter a final order finding that Respondent is guilty of committing the acts alleged in the Administrative Complaint, requiring Respondent to cease and desist from all violations of Florida statutes and rules, and imposing a fine in the aggregate amount of $9,000. The fine should be imposed in the amount of $2,000 for selling securities in excess of a 10 percent markup and $3,500 for each of the other two acts that constituted violations of applicable statutes and rules. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 25th day of July, 1991. DANIEL MANRY 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 25th day of July, 1991.
Findings Of Fact At all times pertinent to the issues herein the Respondent, Linda H. Abraham, was licensed by the State of Florida as a real estate broker under license number 0323486. During the months of February and March 1983 Martha L. Tew owned a parcel of waterfront property located in Panama City Beach which was identified as being for sale by a sign on the property reflecting her husband's real estate company. Her husband was Ronald Eugene Tew and Mrs. Tew also held a salesman's license. Mr. Tew was contacted by Gregory A. Peaden, a contractor and developer in the Panama City Beach area on several occasions prior to March 1983 with offers to purchase the Tew property. The contacts with Mr. Peaden subsequently culminated in a contract dated March 8, 1983, between Greg Peaden, Inc., and the Tews in the amount of, initially, $180,000.00. During the negotiations for the property, Mr. Peaden had introduced the Respondent to the Tews as his broker. When, at the time of Use contract, Mr. Peaden advised the Tews he wanted Respondent to get a commission for the sale, Mr. Tew refused to pay any commission indicating that Respondent had performed no service for him; that he, Tew, was a broker himself; and that he had no intention of paying any commission to the Respondent or to anyone, for that matter. After some further negotiation, a second contract was prepared and agreed upon wherein the contract price was raised to $189,000.00 and the Respondent's commission was to be paid with the additional money from Mr. Peaden. The contract in question executed by the parties on March 8, 1983, reflected that the sum of $5,000.00 deposit was paid to Linda Abraham, Inc., by check. Mr. Tew contends that at this point he was led to believe that Respondent had the $5,000.00 check and, he contends, he would not have signed the contract if he had known that the check had not been delivered and placed in Respondent's escrow account. The actual signing of the contract took place in Respondent's office, a mobile home which she shared with Mr. Peaden's business. This trailer home was described as having Mr. Peaden's office on one end, and Respondent's on the other, with the living-kitchen area in the middle used as a reception area for both businesses. Mr. Peaden contends that once the contract was signed by the Tews, he gave a check drawn on one of his business accounts, that of Peaden and Guerino, a property management company he owned, to his secretary, Judy White, to deposit in Respondent's escrow account and thereafter promptly forgot about the matter until the date scheduled for closing, two months in the future. Ms. white, on the other hand, contends that Mr. Peaden at no time gave her a check for $5,000.00 to deposit to Respondent's escrow account. It is her contention that when she received the contract after it was signed, she, on her own, inserted the receipt portion on the bottom of the second page and signed as having received it merely to complete the contract. At the time, she contends, she did not know if the deposit was received from Peaden or not. She has never signed a contract like this before without a deposit and cannot give any other reason why she did it on this occasion. She is certain, however, that at no time did Mr. Peaden ever give her a $5,000.00 check or tell her to draw one for his signature on March 8, 1983, or, for that matter, at any time thereafter. What is more, neither Mr. Peaden nor the Respondent, at any time after the signing of the contract and prior to her departure under less than friendly circumstances approximately a week or so later, ever asked her whether she had made the escrow deposit or discussed it with her at all. Ms. white contends that she left Mr. Peaden's employ because he expected her to perform certain functions she was unwilling to do. When she left his employ, she did not feel there was any unfinished business that needed her immediate attention. To the best of her recollection, there were no sales contracts or deposits left in or on her desk - only bills. According to Respondent, the $5,000.00 deposit by Mr. Peaden was to stay in her escrow account. She understood Mr. Peaden was going to arrange with the bank to borrow the entire cash payment called for under the contract, including the deposit, and when that was done, it was her intention to give him back his $5,000.00 check. Under these circumstances, the amount in escrow would never be paid to the sellers but would be returned to Mr. Peaden and the Tews would receive the entire cash amount called for by the contract from the proceeds of the bank loan. Respondent also indicated that this procedure had been followed at least once, in a prior transaction. Under the circumstances, it is clear that no deposit was ever received from Mr. Peaden nor was it placed in Respondent's escrow account. Therefore, the contract, dated on March 8, 1983, was false in that it represented a $5,000.00 deposit had been received. The check for $5,000.00 dated March 8, 1983, payable to Linda Abraham, Inc. and drawn by Mr. Peaden on the Peaden and Guerino account with the stub admitted to show the date of issuance, does not establish that it was written on March 8, 1983, as contended. This check, number 1349, comes after two other checks, 1347 and 1348, which bear dates of April 4 and September 7, 1983 respectively. Mr. Peaden's explanation that the checks were drafted out of sequence is non-persuasive. Of greater probative value is the fact that neither Mr. Peaden nor Respondent bothered to review their bank statements on a regular basis. The check in question was drawn on an account not related to the construction and development business of Greg Peaden, Inc. Further, examination of Respondent's escrow account reflects that there were approximately eleven transactions over a three year period even though, according to her, she handled numerous other closings as well as this. Her explanation is that in most cases the attorney handling the closing served as escrow agent even though she was the sales broker. Her explanation is not credible. This appears to be a classic situation of movement of accounts to satisfy a particular end. The contract called for closing of the sale to be held on or before May 8, 1983, in the office of Panama Title Company. May 8, 1983, fell on a Sunday. As a result, the closing would not have been held that day, but it was not held the following day, Monday, May 9, 1983 either. Mr. Peaden admits that he had not checked with Panama Title prior to May 9 to see if everything was prepared for the closing. Instead, he contacted the title company for the first time at approximately noon on May 9. Apparently he received disquieting information because he thereafter called his attorney, Mr. Hutto, and asked him to check with the title company to see if and when the closing would be held. Mr. Hutto's inquiry reflected that the title insurance binder was ready but the closing statement and the package were not because the title company required a copy of the contract. At this point Mr. Peaden immediately had a copy of the contract delivered to the title company but later that day was advised that the closing still could not be held because of the failure to provide a survey. Mr. Hutto indicates that the reason given was that the release clauses called for in the contract required the survey to be furnished though he did not necessarily agree with that. In any event, closing was not held on May 9. At this time both Mr. Peaden and Respondent allegedly became concerned about the $5,000.00 deposit. Admittedly, neither had concerned themselves with it from the time of the signing of the contract. At this point, Mr. Peaden indicates that he examined his bank records which failed to show the deposit being made and his subsequent search of Ms. White's desk finally revealed the check, undeposited, still there. On May 11, 1983, a $5,000.00 deposit was made to the account on which the deposit check was drawn and on the same day, May 11, 1983 check number 1349, in the amount of $5,000.00 was presented against the account. When on May 10, 1983, Mr. Peaden and Respondent went to Mr. Hutto's office the primary reason for the visit was because Mr. Peaden had heard that the Tews were planning to sell the property in question to someone else at a price much higher than that agreed upon for the sale to Peaden. At this point Mr. Hutto indicated that if Peaden so desired, Hutto could "fix up the contract to jam up the works" until he could do something about it. His examination of the contract revealed that it was not recorded or acknowledged and under the laws of Florida, acknowledgment is required in order for a contract to be recorded. Hutto asked the Respondent if she had seen the parties sign the contract and when she said that she had, he had his secretary prepare a jurat. Unfortunately, his secretary prepared an affidavit type notary jurat rather than an acknowledgment and Hutto quickly admits that he did not look at it when it was given back to him. He says that if he had, he would have had it changed but in any event, without looking at what was given him, he gave it to the Respondent with the implication, at least, that she should notarize it and have the contract recorded. According to Hutto, Peaden, and the Respondent, the sole purpose for notarization and recordation was to preserve the status quo to protect Mr. Peaden's interest in the property so that the matter could be adjudicated in a lawsuit which was soon to be filed. Respondent contends she never intended any misconduct throughout this transaction nor did she do any of the things alleged in the Administrative Complaint. She contends she never saw the check which Mr. Peaden allegedly gave to his secretary for deposit to her escrow account. She merely assumed that it was given and never checked to insure that it had been placed in her account. She does not know why Mr. Peaden did not give her the check. When she took the contract to the Tews, she was operating under the assumption that the check had been received but did not verify this to insure that it had. She contends that since she represented the buyer, her duties were limited to insuring that he performed and this made it simple. She did not check on him because she had had so much experience with him, him being by far her largest account, if he said something, she believed him and when the contract was executed, she merely instructed the secretary, Judy White, to make the file and did not check on it again. As to the recordation and the notarization after the fact, she acted upon the advice of counsel, she states, and did what was suggested to her by Mr. Hutto. It should be noted, however, that Mr. Hutto did not represent her but instead represented Mr. Peaden and while because of her long-standing relationship with him and Mr. Hutto, she may have felt safe in relying on his advice, the fact remains that Hutto was not her attorney.
Recommendation On the basis of the foregoing Findings of Fact and Conclusions of Law, it is, therefore: RECOMMENDED that the Respondent's license as a registered real estate broker in Florida be suspended for six months and that she pay an administrative fine of $2,000.00. RECOMMENDED this 6th day of June, 1985, in Tallahassee, Florida. ARNOLD H. POLLOCK Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 6th day of June, 1985. COPIES FURNISHED: Arthur Shell, Esquire Department of Professional Regulation Division of Real Estate 400 W. Robinson Street Orlando, Florida 32801 John D. O'Brien, Esquire P. O. Box 1218 Panama City, Florida 32402 Harold Huff Executive Director Division of Real Estate P. O. Box 1900 Orlando, Florida Fred Roche Secretary Department of Professional Regulation 130 N. Monroe Street Tallahassee, Florida 32301 Salvatore A. Carpino General Counsel Department of Professional Regulation 130 N. Monroe Street Tallahassee, Florida 32301
Findings Of Fact Based on the stipulations and admissions of the parties, on the exhibits received in evidence, and on the testimony of the witnesses at hearing, I make the following findings of fact. The Petitioner, Christopher James Arenal, filed a Form U-4 application seeking registration as an associated person with Rocky Mountain Securities & Investments, Inc., located at 1600 Stout Street, Suite 920, Denver, Colorado 80202. Said application was received by the Respondent on April 24, 1986. By letter dated June 17, 1986, the Respondent advised the Petitioner that it intended to deny his application for registration for the reasons set forth at length in the letter. (At the hearing the Respondent stipulated that the allegations of the top paragraph on the second page of the denial letter of June 17, 1986, should be deleted.) Thereafter, the Petitioner filed a timely request for hearing. Except for the reasons stated in the Respondent's denial letter dated June 17, 1986, the Petitioner is otherwise eligible for the registration he seeks. On October 26, 1982, the State of Tennessee issued a Complaint and Notice in the matter of First Colorado Investments and Securities, Inc., Mr. Arenal, and others, alleging the sale of securities while not being properly registered. On February 7, 1983, Mr. Arenal entered into a Findings and Consent Order which found that Mr. Arenal and others had engaged in securities transactions involving Tennessee residents at a time when Mr. Arenal and others were not registered in the State of Tennessee. Mr. Arenal and others were ordered to cease and desist from acting as agents in the State of Tennessee without being lawfully registered to do so. The transactions in question took place during 1981. The evidence does not show how many of those transactions involved Mr. Arenal. On April 28, 1983, the State of Wisconsin entered into a Stipulation and Consent Order of Prohibition with Mr. Arenal in which Mr. Arenal agreed to the entry of an Order of Prohibition. On June 2, 1983, a Consent Order of Prohibition was entered into in which Mr. Arenal was prohibited from transacting business as a securities agent in Wisconsin without lawful registration in that state. That order had as its genesis the fact that during 1981 Mr. Arenal had engaged in nine securities transactions for a Wisconsin resident who had previously been a client of Mr. Arenal when the client resided in New York. On January 11, 1984, the State of Iowa issued a Summary Order Denying Application For Securities Agent License on an application filed by Mr. Arenal. The findings of fact in that order included findings that Mr. Arenal had "engaged in securities transactions on behalf of an Iowa resident in March, 1981, while unlicensed as a securities agent," and, with regard to an affidavit filed with the Iowa Division of Securities, that "Mr. Arenal's filed and notarized statement is a false statement." Since the issuance of the January 11, 1984, order, the State of-Iowa has approved Mr. Arenal's application to be registered as a securities agent and he is presently registered in that state. On November 5, 1984, the State of Utah entered an Order Summarily Denying Application For Registration as an Agent on an application filed by Mr. Arenal. The denial was based on Mr. Arenal's prior disciplinary history. Since the issuance of the November 5, 1984, order, the State of Utah has approved Mr. Arenal's application to be registered as a securities agent and he is presently registered in that state. The State of Oregon, by letter dated November 1, 1985, denied Mr. Arenal's application for registration in that state. The Oregon denial letter does not set forth a factual basis for the denial. On September 6, 1984, the State of Nebraska issued an Order Denying Agent Registration on an application filed by Mr. Arenal. The denial was based on his prior disciplinary history. Mr. Arenal was again denied registration in the State of Nebraska on February 20, 1986. During 1985, the staff of the Respondent's Division of Securities was almost tripled in size. Shortly after the increase in staff size, a Task Force recommended that the Division of Securities devote more time and energy to the review of applicants with disciplinary history in order to more carefully screen such applicants. As a result of the increase in staff size and the increased emphasis on review of applicants with disciplinary history, the Respondent is now rejecting applications that previously might have gotten through a cursory review. All of the adverse actions taken against Mr. Arenal by the states of Tennessee and Wisconsin were based on events that occurred in 1981, at one firm, First Colorado Investments and Securities, Inc. Mr. Arenal's supervisors at that firm advised him that it was permissible for him to sell certain securities in states where he was not registered. Since those improper sales in 1981, Mr. Arenal has not engaged in any subsequent transactions in states where he was not registered. During his approximately eleven years of professional experience in the securities field, there have never been any client complaints against Mr. Arenal. Mr. Arenal has been previously registered as an associated person in the State of Florida. He was last registered in Florida from approximately February of 1985 until December of 1985. His prior registrations were processed prior to the changes in policy and procedure described in paragraph B, above.
Recommendation Based on all of the foregoing, I recommend the entry of a Final Order granting Mr. Arenal's application for registration as an associated person. DONE AND ENTERED this 9th day of June, 1987, at Tallahassee, Florida. MICHAEL M. PARRISH, 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 9th day of June, 1987. COPIES FURNISHED: H. Richard Bisbee, Esquire Assistant General Counsel Office of the Comptroller Suite 1302, The Capitol Tallahassee, Florida 32399-0350 Mr. Christopher James Arenal 1600 Stout Street Suite 920 Denver, Colorado 80202 The Honorable Gerald Lewis Comptroller, State of Florida The Capitol Tallahassee, Florida 32399-0350 =================================================================
The Issue Whether Respondent committed the offenses alleged in the Administrative Complaint and the penalties, if any, that should be imposed.
Findings Of Fact Petitioner is an agency of the State of Florida charged with the responsibility and duty to administer Chapter 517, Florida Statutes, which is known as the Florida Securities and Investor Protection Act. On August 15, 1997 and September 9, 1997, Petitioner conducted an audit of the branch office of Merit Capital Associates, Inc., located in Boca Raton, Florida, and known as the H. K. Laurence Branch (the branch office). The branch office was an office of supervisory jurisdiction that required the presence of a branch manager. On April 28, 1997, Merit Capital executed a form entitled "Branch Registration Form" that registered the branch office with Petitioner and designated Respondent as the branch manager. Respondent accepted that designation on April 29, 1997. On April 30, 1997, the form was filed with Petitioner. In August and September 1997, Petitioner conducted an examination of the branch office. Michael Ward, whose job title is Senior Financial Investigator, was in charge of the examination. Annette Beresford, whose job title is Financial Specialist, assisted Mr. Ward. Both Mr. Ward and Ms. Beresford are full-time employees of Petitioner with appropriate training and experience. Respondent failed to properly register with the National Association of Securities Dealers (NASD) to act as a branch manager. Respondent was required by NASD rules to register as a principal because he had supervisory responsibilities. His only registration was as a salesperson. NASD Conduct Rule 3010, a rule adopted by NASD, sets forth standards for the supervision of branch offices. Pursuant to Rule 3E-600.013, Florida Administrative Code, Respondent, as the designated branch manager, was required to comply with the minimum supervisory standards set forth in NASD Conduct Rule 3010. Respondent did not meet those minimum supervisory standards while serving as the manager of the branch office. The following establish Respondent’s failure to supervise. Respondent did not provide NASD manuals to the registered representatives (salespersons) at the branch, he did not maintain Merit Capital's supervisory manuals at the branch, and he did not require that salespersons comply with Merit Capital's written policies and procedures. Respondent failed to maintain NASD and Florida registrations of salespersons at his branch. During the period April 29 through July 9, 1997, representatives of Merit Capital under Respondent's supervision at the branch office sold to members of the public shares of stock in a company known as Certified Diabetic Services, Inc., and shares of stock in a company known as Arcoplate Corporation. Respondent had supervisory responsibility for these transactions involving the sale of these two stocks. At the times pertinent to this proceeding, the stock of Certified Diabetic Services, Inc., and the stock of Arcoplate Corporation were not registered as required by Section 517.07(1), Florida Statutes, and they were not exempt from registration. Respondent should not have permitted the salespersons under his supervisory jurisdiction to sell unregistered stock During the period March 11 through July 9, 1997, Respondent was personally responsible for three transactions involving the sale of stock in Certified Diabetic Services, Inc., at a time when the stock was not registered as required by Section 517.07(1), Florida Statutes, and was not exempt from registration.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner enter a final order finding Respondent guilty of failing to supervise the branch office and of selling unregistered securities. The final order should revoke Respondent’s registration under Section 517.12, Florida Statutes, and order him to cease and desist violations of Chapter 517, and the rules promulgated thereunder. The final order should also impose an Administrative Fine against Respondent in the amount of $5,000 for the failure to supervise. The final order should also impose an Administrative Fine against Respondent in the amount of $1,500 for the three transactions involving the sale of shares of unregistered stock. DONE AND ORDERED this 22nd day of January, 2002, in Tallahassee, Leon County, Florida. CLAUDE B. ARRINGTON Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 22nd day of January, 2002.
Findings Of Fact Petitioner and Respondent stipulated at formal hearing to Paragraphs 1- 6 of the Administrative Complaint, (TR-5-6) and it is accordingly found that: Petitioner seeks to suspend, revoke or take other disciplinary action against Respondent as licensee and against his license to practice the real estate brokerage business under the laws of the State of Florida. Respondent is now and was at all times alleged in the administrative complaint a licensed real estate broker having been issued license number 0191613. The last license issued was as a broker c/o Cluett Realty, Inc., 4720 Palm Beach Boulevard, Fort Myers, Florida 33905. On about July 14, 1983, Respondent received a check in the amount of $400.00 from Mary Snodgrass, a salesman, who at the time was associated with Respondent. Snodgrass had received the money from Robert James. James had submitted four contracts which were accepted for purchase of four duplexes listed with Respondent. The $400.00 represented a deposit of $100.00 on each of the four contracts. When the check was entrusted to Respondent, Snodgrass stated that the buyer had requested the check be held a couple of days before depositing into escrow to insure it would clear. Respondent indicated this was wrong and the check should be deposited immediately. 1/ The check was not deposited into Respondent's escrow account, but, was held by Respondent until September 15, 1983, two months after initial receipt of the check. The check presented by Mr. James (buyer) to Mrs. Snodgrass (saleswoman) was drawn on the Fort Myers Barnett Bank and on its face represents it is drawn on an account in the name "Clara A. James For: Caj-Raj-Casa De Chihuahua's." There is no indicator on the check itself that Robert A. James is an appropriate signatory on this account. At hearing, Mr. James represented that he was a proper signatory on the account because Clara A. James is his wife. Mrs. Snodgrass represented that she knew Mr. James had this authority but there was no predicate laid for this knowledge on her part and there is nothing about the check itself which would convey such knowledge to someone not intimate with the James' household, nor does the check itself reveal any relationship between Mr. James and "Caj-Raj-Casa De Chihuahua' s." At the time Snodgrass submitted the check to Respondent, she informed Respondent that it was possible that the check would not clear the bank due to insufficient funds. At the time of his conversation with Mrs. Snodgrass on July 14, Respondent was aware of previous problems arising from failure of an earlier check written by Mr. James for rent to one of Respondent's other clients to clear the bank. Respondent was also aware that Mr. James had refused to vacate the premises which James, James' wife, and approximately 80 Chihuahuas occupied by rental from this other client. Respondent perceived Mr. James resented Respondent due to Respondent's involvement in getting the James entourage out of the rental properties so that Respondent's other client as seller could close sale of that property to a third party buyer. Accordingly, Respondent retained the check when it was given him by Mrs. Snodgrass for a few minutes to think about the situation. He then returned it to her and explained it was an inappropriate deposit because it did not represent cash if they knew at the time it was tendered that it might be returned for insufficient funds. He told Mrs. Snodgrass to either secure a check which would clear or to inform both potential buyer and sellers that there was no deposit placed in escrow on the four contracts. Mrs. Snodgrass denied that the check was returned to her by Respondent or that this conversation ever took place; she assumed the check would be held by Respondent until evening and in the evening she went out and got the sellers to sign the 4 contracts previously signed by James. Mrs. Snodgrass placed the signed contracts in a file drawer in Respondent's office and never again initiated any title work or any conversation with Respondent about the transaction. The testimony of Mrs. Weise and Mrs. Cluett support the material particulars of Respondent's version of this second interchange between Mrs. Snodgrass and Respondent. Mr. James testified that he did, indeed, go the following day (July 15) to the bank to transfer funds if needed, but did not then notify Mrs. Snodgrass or Respondent because the money transfer was not necessary. Upon this evidence and due to the credibility problems recited in footnote 1, supra and in Findings of Fact Paragraph 8 infra, the Respondent's version of this interchange is accepted over that of Mrs. Snodgrass and provides additional, but not contradictory, information to Finding of Fact Paragraph 1-e as stipulated by the parties. In early September, Mrs. Snodgrass secured employment with Barbara Ware Realty, a competitor of Respondent. She then turned in all of her keys, gear, and papers to Cluett Realty. Shortly thereafter, Helen Weise, secretary to Respondent, discovered the July 14, 1983, check on what had been Mrs. Snodgrass's desk. This discovery is confirmed by both Respondent and Mrs. Weise. Respondent knew Mrs. Snodgrass and Mr. James were personal friends. He telephoned Mrs. Snodgrass about the status of the James' transaction when the check was discovered. Mrs. Snodgrass admitted she thereafter called Mr. James to verify the status of the transaction and then called Respondent to tell him she thought the sale would go through, but she now denies telling Respondent that the July 14, 1983, check was good or even that Respondent mentioned the check when he called her the first time. Respondent then deposited the check into his escrow account the next day, September 15, 1983. He immediately placed the request for title search and insurance. Thereafter, two duplexes out of the four involved in the four James contracts with Cluett Realty were sold by Mrs. Snodgrass through her new employer, Barbara Ware Realty, and two were sold by Mary Cluett, Respondent's wife, through Cluett Realty. During the period from July 14, 1983, until September 15, 1983, Mr. James was apparently aware that the check submitted to Cluett Realty had never been deposited by Cluett Realty because it did not show up in monthly bank statements. After September, Mr. James clearly was further aware of what was going on because he admits to trying to get Mary Snodgrass to pursue the transaction under her new employer's auspices, despite Cluett's retaining the exclusive listing for the sellers of the properties. It was not established whether or not the sellers were misled by Respondent's failure to immediately deposit the July 14, 1983, check, but Mr. James testified that when Respondent approached him about refunding his deposit or at least a portion thereof, he, (Mr. James), told the Respondent to keep it or give it to the sellers or at least not to give it back to him due to all the inconvenience. Mr. James and Mrs. Snodgrass were friends on July 14, 1983. They became friendlier thereafter. Apparently, in early September, Mrs. Snodgrass left Respondent's employ upon very unfriendly terms. The terms may be characterized as "unfriendly" even if one accepts Mrs. Snodgrass' version that her job hunt was successful before she was fired by Respondent and therefore she should be viewed as quitting upon being asked by Respondent to resign. Respondent has previously filed an unsuccessful complaint with the Department of Professional Regulation against Mrs. Snodgrass. It was she who initiated the complaint giving rise to these instant proceedings against Respondent. Mrs. Snodgrass' resentment of Respondent's filing a complaint against her was evident in her demeanor on the stand. An attempt at formal hearing to impeach Respondent's credibility upon the basis of a supposed prior admission to Petitioner's investigator that Respondent forgot to deposit the crucial check and upon the basis of Respondent's July 13, 1984, letter to the Department of Professional Regulation (P-7) left Respondent's credibility intact. When Investigator Potter's testimony as a whole is compared with Respondent's letter as a whole in light of Potter's investigation of three separate complaints over a period of many months 2/ there is no material variation of Respondent's representations. Also, what was "forgotten" and when it was forgotten is vague and immaterial in light of consistent information supplied to the investigator by Respondent that there was a request to hold the July 14, 1983, check for a couple of days due to insufficient funds.
Recommendation Upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED: That the Florida Real Estate Commission enter a Final Order dismissing all charges against Respondent. DONE and ORDERED this 14th day of August, 1985, in Tallahassee, Florida. ELLA JANE P. DAVIS 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 14th day of August, 1985.
Findings Of Fact By Prehearing Stipulation entered into by the parties on August 30, 1990, the parties agreed, and it is so found, that: Petitioner, Edward T. Strehlau, is President and control person of Deerfield Securities, Inc. On or about February 3, 1989, Petitioners filed an application, (Form BD), for registration as a broker/dealer, which was signed by Mr. Strehlau. On or about March 15, 1989, Petitioners filed with the Division an amendment to that Form BD. On or about April 19, June 22, and July 20, 1989, Petitioners filed additional amendments to the Form BD initially signed and submitted on behalf of the Petitioners by Mr. Strehlau. All of the Forms BD and amendments filed by Petitioner, Strehlau, with the Division were represented by him as true and complete. On February 3, 1989, Petitioner, Strehlau, also filed the Articles of Incorporation of Deerfield Securities, Inc., with the Florida Secretary of State. These Articles listed Edward T. Strehlau, Patericia O'Dell, William Manger, and Patricia Strehlau as Directors. The Division of Securities requires the filing of the Articles of Incorporation along with the dorm BD. This requirement is outlined in Section 517.12, Florida Statutes. Neither William Manger nor Patricia Strehlau were listed as Directors of Deerfield Securities, Inc., on the Form BD or on any amendments thereto which were filed with the Division. Mr. Manger is the subject of a complaint relating to securities violations committed by Eiffel Securities, Inc., Mr. Manger, a Mr. Riddle, and a Mr. Ashbee, in the State of Tennessee. On or about February 23, 1989, Mr. Strehlau, as President of Deerfield, withdrew the application for registration of Deerfield Securities, Inc., as a broker dealer with the State of Tennessee, and further agreed not to reapply for registration as a broker/dealer in that State, and not to sell Deerfield Investments, Inc.'s investment units in Tennessee. Deerfield Securities, Inc. is a wholly owned subsidiary of Deerfield Investments, Inc. Edward T. Strehlau is a control person and President of Deerfield Investments, Inc. The principal place of business of Deerfield Securities, Inc. is Sarasota, Florida. William Manger, at all times pertinent hereto, was President and a control person of the aforementioned Eiffel Securities, Inc., a Tennessee corporation. Petitioner, Edward T. Strehlau, was a control person of Eiffel Securities, Inc., during the period June 1, 1988 through September 21, 1988. Eiffel Securities, Inc. was a wholly owned subsidiary of Tennessee Investments Marketing Enterprises, (TIME), and Edward T. Strehlau was vice-president of TIME between June, 1988 and September, 1988. On February 3, 1989, Petitioner Strehlau paid $200.00 in filing fees for Deerfield Securities, Inc. with the Florida Division of Securities. On February 10, 1989, The Division of Securities notified Deerfield of several deficiencies in its application for registration as a securities dealer. These deficiencies included a requirement for: the officer or partner names of the parent firm; registration as a foreign corporation or a legal opinion indicating no need therefor;+ a clearing agreement from a dealer in Florida signed by both firms; Articles of Incorporation or partnership agreement; proof of securities effectiveness and compliance with SIPC (Securities Investors Protection Corporation). Thereafter, on February 27, March 16, April 20, June 22, and July 18, 1989, Mr. Strehlau sent letters to the Division of Securities in which he attempted to convince the Division of his compliance with the requirements set forth in the February 10, 1989 deficiencies letter. The Petitioner's efforts, however, were not supported by facts in some particulars. For example, the clearing agreement with OTRA, to be signed by both parties, was signed only by Petitioner Strehlau as President of Deerfield Securities, Inc., and attested by Patericia O'Dell of the firm. No signature from any responsible party of OTRA appears on the document. By letter dated December 2, 1988, Mr. Strehlau submitted this unilaterally executed clearing agreement. By letter dated February 22, 1989, the vice- president for finance of the SIPC attested that Deerfield Securities, Inc. was, as of that date, registered with the Securities and Exchange Commission, (SEC), as a securities broker under Section 15(b), of the 1934 Securities Investor Protection Act, and by operation of that Act, the corporation would be a member of SIPC unless its business consisted exclusively of various activities which are not pertinent to this hearing. It would appear, therefore, that Deerfield Securities, Inc. was, at the time of application at least, a member of SIPC. It is also found, however, that the application for registration submitted by Mr. Strehlau on behalf of himself and Deerfield Securities, Inc. contained what appears to be a material misrepresentation of fact in that it did not list Mr. Manger and Mrs. Strehlau as Directors. Mr. Manger had a disciplinary history in the industry in Tennessee and his omission was material. Article VI of Deerfield Securities' Articles of Incorporation filed with the Florida's Secretary of State's office listed Mr. Manger as one of the original Directors of Deerfield Securities, Inc. as of February 3, 1989. However, when Mr. Strehlau submitted the application for registration for Deerfield, (Form BD), neither that form nor any of the subsequent amendments listed Manger as a Director or affiliated person even though the form required that all Directors be listed. Mr. Strehlau contends that Manger and Mrs. Strehlau were omitted because neither were to take an active part in the management of Deerfield's operations. The Division, however, considered the omission to be a false material statement since the Directors of an applicant are considered to be pertinent to its operation. In this, the Division is correct. The Division also took the position that the pending Tennessee disciplinary action against Mr. Manger was significant. It surmised that Manger, seeing he could not be licensed in Florida on his own, was attempting to achieve this end through Mr. Strehlau, and the Department was concerned there was still a relationship between Manger and Deerfield. There is no evidence, direct or otherwise, to support that suspicion. When an application form is sent to an applicant, upon the applicant's request, an instruction sheet is sent with it which outlines the basic requirements for filing. These instructions are not, however, all inclusive or controlling. The statutes and Rules of the Department, pertinent to criteria for application and registration, constitute the ultimate guidelines over who is approved for registration. When Division analysts review an application, they check it against a requirements check list to insure that all requirements are met. If required information is not included with the application, the Division must notify the applicant of the omitted information within 30 days. If the requested information is received within 60 days, the Division then has an additional 90 days in which to rule on the application. If the omitted information is not timely received, however, the Division can deny the application for incompleteness or approve it if appropriate. On the other hand, when all required information is received timely, if the Division does not act on the application within 90 days, the application is automatically approved and if a discrepancy is thereafter noted, corrective action must be through disciplinary action rather than denial. The Division's denial action here was based on two grounds. The first was the failure to list Mr. Manger as a Director on the original Form BD or any of the amendments thereto. The second was Mr. Manger's prior and pending disciplinary record. Even if the pending action were not considered, the Division would still have denied the Petitioner, Deerfield's, application based on the prior, completed disciplinary actions against Mr. Manger in Tennessee. Petitioner claims that the Division did not request a second time those items listed on the initial deficiency letter and which were not thereafter provided by him. It is the Division's policy that once the initial deficiency letter is sent, calling for additional information, if the applicant submits only a part of those items identified, it will not send out another notification reminding the applicant of the still- missing items. It is not required that such follow-up notification be sent. If, however, the applicant calls and inquires if its application is complete, the Division will advise the applicant which of the previously noted deficiencies have not yet been corrected. Here, no such inquiry by the Petitioner was made. In this case, the Division took the position that Petitioner's application was never complete since there was no clearing agreement signed by the required parties prior to approval. Further, Mr. Strehlau's application as a principal failed to include a proper copy of his personal disciplinary history regarding a dismissed charge of felonious pointing a fire arm in Oklahoma in 1981. Under Florida law, every securities dealership must have a registered principal and Mr. Strehlau was to fill that capacity for Deerfield. Since his application could not be deemed complete because of the failure to provide all the required information, neither could Deerfield's be deemed complete. The State of Florida will not approve the application of a broker/securities dealer without approval of the National Association of Securities Dealers, (NASD). It is normal practice for NASD and Florida approval to be at the same time. There is an attempt at coordination, but Florida cannot approve a dealer for registration without the approval of the SEC and NASD. As of March 8, 1989, the state had been advised that NASD was prepared to approve Deerfield Securities, Inc., though it had some reservations about the firm which were insufficient to support denial. Even had NASD granted approval, however, NASD registration and membership does not guarantee Florida registration. The standards for registration are different. No doubt Mr. Strehlau made many phone calls to the Division in an effort to get approval of these applications. Without question he submitted numerous amendments to the Form BD in an effort to provide that information that the Division asked for in a timely and proper manner. His claims that neither Mr. Manger nor Mrs. Strehlau were listed as Directors on any of the forms because they were not involved in the operation of the business, and that had it been intended for them to work in an operational capacity, they would have been listed are not persuasive, however. Notwithstanding his argument that if the Division had any questions about that, it should have inquired, clearly, that is not the Division's responsibility to do.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, therefore recommended that the application of Deerfield Securities, Inc. to be registered as a broker/dealer, and the application of Edward T. Strehlau to be registered as an associated person/principal of Deerfield Securities, Inc., in Florida be denied. RECOMMENDED this 5th day of October, 1990, in Tallahassee, Florida. ARNOLD H. POLLOCK, Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 5th day of October, 1990. COPIES FURNISHED: Edward T. Strehlau, pro se 13122 Woodington Drive Houston, Texas 77038 R. Beth Atchison, Esquire Office of the Comptroller The Capitol, Suite 1302 Tallahassee, Florida 32399-0350 The Honorable Gerald Lewis Comptroller, State of Florida The Capitol Tallahassee, Florida 32399-0350 William G. Reeves General Counsel The Capitol Plaza Level, Room 1302 Tallahassee, Florida 32399-0350
The Issue The issue for determination is whether Respondent committed the offenses set forth in the Administrative Complaint and, if so, what penalty should be imposed.
Findings Of Fact At all times material hereto, Respondent was licensed by the State of Florida as a real estate broker, having been issued license number 0521991. Respondent's last license issued was as a broker c/o Stellings Realty, Inc., 2368 Saratoga Bay Drive, West Palm Beach, Florida. Beginning on or about March 1, 1998, until August 31, 1998, Respondent had an Exclusive Right of Sale Listing Agreement (Agreement) with Judy Cominse (Seller) for real property, owned by the Seller, located at 4397-B Woodstock Drive, West Palm Beach, Florida. Respondent represented the Seller as a transaction broker and owed her certain duties pursuant thereto. A Brokerage Relationship Disclosure statement was provided to the Seller by Respondent. Another broker, Robert Berman, was the referring agent and was personally known by the Seller. Respondent was of the opinion that Berman was to receive a referral fee of 25 per cent in the event of a sale. The listing was problematic for Respondent. Respondent encountered problems due to restrictions placed on the showing of the property by the Seller and her tenants, who were the Seller's son and daughter-in-law. Respondent contemplated not continuing with the listing. He even mentioned discontinuing the listing with the Seller, but he did not discontinue it. A contract for sale of the Seller's property was entered into by the Seller and Evelyn Swinton (Buyer Swinton). Buyer Swinton signed the contract on June 1, 1998, and the Seller signed it on June 3, 1998. The contract provided, among other things, for an escrow deposit of $1,500 to be held by Sun Title, located in Lake Worth, Florida. The $1,500 was paid and held in escrow by Sun Title. The transaction for the sale of Seller's property failed to close. By a Release and Cancellation of Contract for Sale and Purchase form (Release and Cancellation) dated July 28, 1998,1 both the Seller and Buyer Swinton agreed, among other things, that the $1,500 escrow deposit would be disbursed to the Seller. On July 30, 1998, Sun Title prepared an escrow check in the amount of $1,500, made payable solely to the Seller. The check was forwarded to Respondent sometime after July 30, 1998; the evidence presented was insufficient to show when Sun Title forwarded the check to Respondent.2 On August 6, 1998, Respondent prepared an addendum (Respondent's Addendum) to the Agreement that he had with the Seller. Respondent's Addendum was dated and signed by Respondent on this same date. Respondent's Addendum provided, among other things, the following: This contract [Agreement] will be extended from August 31, 1998 until March 1, 1999; if necessary.3 * * * Stellings Realty, Inc. will receive 7% of the total purchase price. In addition 25% commission of the listing side will be given to Berman Realty as a referral fee. If the Seller should cancel this listing the cancelation fee would be $1000.00. Judy Cominse [Seller] will receive $1500.00 by mail upon acceptance. Paragraph numbered 5 of Respondent's Addendum indicates that, upon the Seller accepting Respondent's Addendum, the Seller will receive $1,500, which was the escrow deposit, by mail. The Seller did not accept Respondent's Addendum although the Seller was of the opinion that the only way for her to obtain the $1,500 was to agree to an addendum to the contract that she had with Respondent. With the assistance of her sister, who was a licensee, licensed by Petitioner,4 the Seller negotiated a change of terms to Respondent's Addendum. The seller prepared and executed an addendum (Seller's Addendum) on August 6, 1998, and forwarded it to Respondent. The Seller's Addendum provided, among other things, the following: This listing agreement [Agreement] will be extended six months (i.e., from August 31, 1998 until February 28, 1999). * * * Stellings Realty, Inc. will receive 7% of the total selling price (if sold at full listing price), otherwise negotiable; however, no lower than 6%. Additionally, $533.75 to the listing agency (Stellings Realty), which amount will not be subject to the referral fee due and payable to Robert A. Berman Real Estate, the referring broker to the listing agency. If the seller should cancel this listing, the cancellation fee would be $788.75 ($250.00 cancellation fee, plus $533.75). Judy Cominse [Seller] will receive $1,500.00 (100% of the escrow deposit relinquished by the buyer [Buyer Swinton]) by mail upon acceptance. Paragraph 5 of Seller's Addendum indicates that, upon Respondent's accepting the Seller's Addendum, the Seller will receive $1,500, which was the escrow deposit, by mail. Respondent executed the Seller's Addendum on August 11, 1998, and faxed it to her on this same date. Respondent accepted the Seller's Addendum on August 11, 1998. Prior to August 11, 1998, Berman had contacted Respondent on behalf of the Seller. Berman was requested by the Seller to make an attempt to obtain the escrow deposit of $1,500 for her. Berman contacted Respondent who indicated to Berman that, as soon as the escrow check was received, he would contact Berman. Sometime after July 30, 1998, Berman contacted Sun Title and was informed that the escrow check had been prepared and forwarded to Respondent. On or about August 11, 1998, Respondent contacted the Seller and informed her that the escrow check had been received by him. On or about August 11, 1998, Respondent also contacted Berman regarding the receipt of the escrow check. At the request of the Seller, Berman went to Respondent's office, obtained the escrow check, and forwarded it to the Seller via express delivery. Based upon the required proof, the evidence fails to demonstrate that Respondent refused to relinquish the $1,500 escrow deposit to the Seller in order to force or pressure the Seller to agree to an addendum to their Agreement. Respondent continued to represent the Seller. The Seller's property was sold on November 3, 1998. Subsequently, Respondent sued the Seller in the County Court of West Palm Beach, Florida for $533.75, based on the Seller's Addendum. The Seller had refused to pay Respondent the $533.75, pursuant to the Seller's Addendum, and Respondent sued the Seller to recoup the monies. On or about January 4, 1999, the court suit was settled. Before the end of 1998, Respondent paid Berman the referral fee.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Business and Professional Regulation, Division of Real Estate enter a final order and therein dismiss the Administrative Complaint filed against Leon Stellings. DONE AND ENTERED this 31st day of July, 2000, in Tallahassee, Leon County, Florida. ERROL H. POWELL 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 31st day of July, 2000.
Findings Of Fact Seaton made application to the Division under the provisions of Section 517.12, Florida Statutes, for registration as a salesman of securities. Subsequently, the Division issued its intent to refuse or deny license or registration along with administrative charges and complaint alleging that Seaton was unworthy to transact the business of a salesman. On February 22, 1977, the Securities Commissioner of the State of South Carolina issued his order to cease and desist directed to Seaton on the dual grounds that Seaton engaged in conduct inconsistent with just and equitable principles of trade in that he offered for sale limited partnerships constituting securities while failing to register them as required and that Seaton failed to register as a broker, dealer or agent in South Carolina. On June 7, 1977, the District Business Conduct Committee for District number 4 of the National Association of Securities Dealers, Inc., issued its complaint against Seaton for violations of Article III, Sections 1, 18 and 27 of the Rules of Fair Practice of the National Association of Securities Dealers, Inc.
