The Issue The parties' Pretrial Stipulation executed herein, limits the issues framed by the Amended Administrative Charges and Complaint for Removal: Do Respondent's acts between January 1, 1980 and May 22, 1981 constitute conduct that is an unsafe or unsound practice as that term is defined in Section 655.005(1)(d), F.S. (1985)? Do Respondent's acts of commission or omission between January 1, 1980 and May 22, 1981 constitute conduct that is a breach of fiduciary duty as utilized and understood under Title XXXVIII, Banks and Banking, F.S. (1985)? Do Respondent's acts between January 1, 1980 and May 22, 1981 constitute a violation of any other law involving fraud or moral turpitude which constitutes a felony, to wit, a violation of Section 517.301(1), F.S. (1985)? BACKGROUND AND PROCEDURE The Prehearing Stipulation was admitted as Hearing Officer Exhibit A. Petitioner presented the oral testimony of Thomas Flood and Gualalupe Prada, and had admitted one exhibit in evidence. Respondent presented the oral testimony of Thomas Flood, Manuel Diner, and Rolando Pozo, and had admitted nine exhibits in evidence. Petitioner filed the transcript. The parties timely submitted posthearing proposed findings of fact and conclusions of law which have been duly considered and which are ruled upon in the appendix hereto pursuant to Section 120.59(2), Florida Statutes.
Findings Of Fact Respondent Rolando Pozo was and is an officer of Capital Bank, Miami, Florida, having held the following positions: Assistant Vice-President, from July 25, 1978 to December 28, 1978; Vice-President and Branch Manager of the Downtown Branch from December 28, 1978 to September 1, 1980; Vice-President, Commercial Loans at the North Bay Village Branch (Main Office) from September 1, 1980 to May 22, 1981; and from February 3, 1986 to the present in the capacity of Vice-President and Branch Manager of the Downtown Branch. Mr. Pozo is fluent in both Spanish and English. The downtown branch offices of Capital Bank are located at 145 East Flagler Street, Miami, Florida. Guadalupe Prada is a female Mexican national with limited command of the English language. Her native language is Spanish. Ms. Prada, the state's chief complaining witness, testified through a qualified interpreter. In making the following findings of fact, it has been necessary to weigh the relative credibility of Mr. Pozo's version of the events and chronology thereof against the narrative of events and chronology of events related by Ms. Prada. Wherever possible, Ms. Prada has been taken at her word and every benefit of doubt that may accrue to her as a result of possible unfamiliarity with the English language has been accorded her. Wherever possible, extrinsic evidence, either documentary or oral by way of other witnesses, has been used to resolve all discrepancies of fact so that all witnesses may be found to speak the truth. However, in some respects, Ms. Prada's testimony is simply not internally or externally consistent and/or credible. Her memory is "convenient" to say the least. Her concept of time and chronology was elastic on direct examination and contradictory on cross- examination. Her version of the "truth" of crucial events and with regard to her finances varies with the circumstances and with the type of legal action in which she has been involved. Most telling to the undersigned is that with regard to every effort at impeachment of her testimony by Respondent's attorney, Ms. Prada either asserted that too many questions confuse her or asserted that her prior contradictory assertions under oath within various lawsuits, including a 1981 divorce, were the result of having been told by a succession of attorneys to perjure herself; then, she claimed that one of her prior attorneys also tried to swindle her. The final impression left by Ms. Prada's testimony is that when events work out to suit her, she considers herself in charge, and when events do not work out to suit her, she considers it everybody's fault but Ms. Prada's. Ms. Prada entered the United States in 1979 and between 1979 and May 1981 was unemployed and actively seeking a job and investment opportunities. She was a customer of the downtown branch of Capital Bank, during the period 1979 to and including May 22, 1981. Guadalupe Prada was and is affluent. Among other personal individual assets, she held certificates of deposit (CDs) issued by Capital Bank during 1979 through and including May 22, 1981 in varying amounts up to and including $90,000. Ms. Prada met Respondent Pozo in 1979 while her then-husband, Frank Prada, was trying to obtain a loan at the Capital Bank, downtown branch. Ms. Prada's husband, with whom she was in business in a jewelry manufacturing company called "Caribe Manufacturing", urged her to come in on the corporate loan which Pozo had agreed to grant, provided a guarantor was found. In the course of loan negotiations with both the Pradas, Pozo candidly explained to Ms. Prada that if she co-signed the loan, she could lose the bulk of her individual assets if her husband/the corporation defaulted on the loan. Therefore, Ms. Prada, on her own initiative, declined to become her husband's guarantor and developed confidence in Pozo's honesty and financial acumen. This confidence was in part due to Pozo's fluency in Spanish. In the course of reviewing Mr. and Mrs. Prada's respective individual financial statements for the loan application, Pozo became familiar with Ms. Prada's 1979 financial arrangements at Capital Bank, including the aforementioned CDs and a small checking account, and with her assets remaining in Mexico. He formed the initial opinion that she was a knowledgeable businesswoman. Thereafter, Ms. Prada would speak to Respondent Pozo from time to time at Capital Bank, however, Ms. Prada's personal banking needs were attended-to either by tellers or by a Capital Bank officer named Margarita Gonzalez. Ms. Prada continued to seek out Mr. Pozo and a personal friendship developed. Mr. Pozo and Ms. Prada met on mixed business/social occasions away from the Capital Bank and they spoke on the telephone on matters wholly unrelated to development of Capital Bank depository accounts. Between 1979 and May 1981, Ms. Prada and Respondent discussed potential investments for Ms. Prada and how she was going to get a job. These discussions were usually initiated by Ms. Prada but Mr. Pozo was a willing participant. In testimony, Ms. Prada named several investment opportunities she says Pozo recommended during this period of time. She also claims he told her to withdraw money from Capital Bank. Contrariwise, Pozo testified that he told her to leave her money in the bank and not to invest in these projects, two restaurants and a boutique, but he admits that he did refer Ms. Prada to a Mr. Savloff for a possible job in an electronics store. Ms. Prada describes the referral to Mr. Savloff as one for investment purposes. Mr. Savloff was also a Capital Bank customer. The disparity of testimony on these contacts is largely immaterial because even if each were an investment opportunity, which is hardly to be believed on the undersigned's assessment of Ms. Prada's overall credibility, each "opportunity" was rejected by Ms. Prada. In each instance, Ms. Prada acted as a knowledgeable investor at least to the extent of controlling her own money and to the extent of choosing when and in which projects she would invest. Neither Ms. Prada's nor Mr. Pozo's testimony gives the slightest hint that he exerted undue pressure to get her invest any of her money from any source or depository in any of these alleged investment ventures. During the time Mr. Pozo was employed at Capital Bank, Ms. Prada never withdrew any of the monies which she had entrusted to Capital Bank. After being transferred to Capital Bank's North Bay Village branch in September, 1980, Mr. Pozo did not maintain an office at, nor did he work out of Capital Bank's downtown branch offices at Flagler street. On or about May 23, 1981, Mr. Pozo commenced employment at Miami National Bank, located at 8101 Biscayne Boulevard, Miami, Florida. Thereafter, Mr. Pozo had no relationship with Capital Bank until he resumed employment at Capital Bank in February, 1986. In June 1981, Respondent Pozo and Ms. Prada became involved together in a business project known as "Hobby Market, Inc." This involvement occurred after Pozo had severed his association with Capital Bank and at a time Ms. Prada was not a customer at Miami National Bank, the Bank with which Pozo was then- associated. Pozo did not at first approach Prada with the investment opportunity. He had arranged with another Capital Bank customer, George Leijtman, to invest 50-50 in this project. Prada overheard Pozo's end of a telephone conversation concerning his arrangement while she was visiting him in his Miami National Bank office in early June 1981. She then urged Pozo to allow her to buy into the Hobby Market project and to help her get a job as a salesperson with the new corporation so that she would have a continuing source of income. At this time, Mr. Pozo knew Ms. Prada to be a qualified salesperson. He also knew she had money and assets in Mexico besides her money at Capital Bank. The record is unclear whether he knew she also had at least a $5,000 checking account at Southeast Bank in Miami, but she did. The agreement ultimately reached involved Ms. Prada, Jorge Lejtman, and Rolando Pozo and is memorialized by letter agreement and by assignment of stock interest executed on June 15, 1981, and June 16, 1981 respectively. Mr. Lejtman invested $10,000 in the business for 2,000 stock shares. In addition to the money, Lejtman's contribution was to be expertise and experience in the toy/hobby business. Lejtman would operate the first store in Omni Mall. The agreement called for Ms. Prada to pay $20,000 to Mr. Pozo in return for 800 shares of the 4000 shares of the company's outstanding stock. Pozo had subscribed to 2,000 shares of Hobby Market stock on June 12, 1981, at $10 per share. Pozo had $15,000 in savings and anticipated borrowing the remaining $5,000 needed to fulfill his subscription. Instead, he raised the necessary $20,000 by selling 800 of his subscribed-to but unpaid-for 2,000 shares to Ms. Prada, not his the $10 per share subscription price, but at $25 per share. The result enabled Pozo to secure 1200 shares free and clear without delving into his savings and without borrowing. Pozo immediately turned the money he received from Prada over to the business. In addition to his money investment, Pozo's contribution to the venture was to be his financial experience and his assistance to Hobby Market in obtaining credit from toy/hobby suppliers. Ms. Prada also agreed to tender $20,000 in loans to the business and to fund another $25,000 in loans in the future. In return, Ms. Prada received two promissory notes for $10,000, each note to bear interest at 18 percent. Ms. Prada ultimately failed to fund the additional $25,000 loan but in return for providing the first $20,000 and promising the additional $25,000, Ms. Prada was also guaranteed a job at a second Hobby Market store to be opened with the additional monies she was going to provide, but did not. Ms. Prada's contribution in expertise was purely as a salesperson. Ms. Prada was eventually paid $7,000 principal and interest on the cash loans. The Hobby Market transaction was conducted at the law offices of attorney Manuel Diner. The documents were drafted by Diner in English. All negotiations were in Spanish. Signature authority for all Hobby Market bank accounts were in Lejtman and Prada jointly. These were opened at Central National Bank located in the Omni Mall where a lease was obtained for the first store. Prada was made corporate Secretary. Prada initialed certain written English changes indicating her assent to various agreements formalized after oral negotiations in Spanish. With regard to the cash that Ms. Prada turned over to Pozo/Hobby Market Inc., her testimony is that Pozo told her to take it out of Capital Bank and she did. His testimony is that he did not and that he thought she was transferring her Mexican funds. Subsequently, Ms. Prada and Mr. Lejtman had disagreements. Ms. Prada never funded the additional loans and the second Hobby Market store was unable to open. Ultimately, Mr. Lejtman offered to purchase back from Ms. Prada and Mr. Pozo their respective interests in the business. Ms. Prada rejected an offer that would have paid her back the monies she had invested and she later filed a lawsuit against Mr. Pozo, Mr. Lejtman, and the business. In that litigation, Prada v. Lejtman, Pozo, et al., Case No. 82-1370 (Eleventh Circuit Court in and for Dade County, Florida), Ms. Prada received a money judgment against Rolando Pozo. That judgment states in part: . . . considered that it was the Defendant Rolando Pozo who committed the fraud against the Plaintiffs and thereby caused Plaintiffs to suffer the loss of funds due to the conversion of the stock. The case was affirmed on appeal. This judgment, admitted by stipulation, shows that Ms. Prada's son, who apparently had an interest only in her monies still in Mexico in 1981, joined in the lawsuit as a co-plaintiff. His joinder strongly suggests that her Hobby Market investment monies came from her family funds in Mexico, not from her personal funds anywhere in the United States. As to the issue of fraud, the judgment is not binding on the undersigned finder of fact in this de novo proceeding, due to different rules as to the quantum of proof in each case. The classic tort of fraud or deceit requires proof only by a preponderance of the evidence. A license disciplinary case, such as the instant one, requires proof by the "clear and convincing standard." See, Rigot v. Bucci, 245 So.2d 51 (Fla. 1971); and Spayberry v. Sheffield Auto and Truck Service, Inc., 422 So.2d 1073 (Fla. 1st DCA 1982). Rolando Pozo is held in high esteem at Capital Bank, has an excellent and unblemished work record, and has an excellent reputation in that limited "community" for truth and honesty. Capital Bank has never initiated or joined in any complaint against Rolando Pozo relating to Mr. Pozo's association with Ms. Prada. The only evidence of banking standards presented at formal hearing was that presented by Mr. Thomas Flood, Senior Vice-President of Capital Bank, who is personally very supportive of Mr. Pozo. He stated that it is internal policy of Capital Bank, when it deems it to be a prudent decision, to advise persons with whom it has a banking relationship that the bank will sever that banking relationship and will request or require that person to remove his or her deposits from Capital Bank; that such severance of relationship is extraordinary and is a bank decision that would have been transmitted to a bank manager such as Mr. Pozo; that Capital Bank made no such decision with regard to Guadalupe Prada; and that it would be "extraordinary" for a branch manager, which is the position Respondent held from January 1, 1979 through 1980, to tell a depositor to invest elsewhere. At no time did Mr. Flood characterize such a suggestion as a breach of banking standards or ethics.
Recommendation Upon the foregoing findings of fact and conclusions of law it is recommended that the Comptroller enter a Final Order dismissing all charges against Respondent Rolando Pozo. DONE and RECOMMENDED this 14th day of December, 1987, at 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 December, 1987. APPENDIX TO RECOMMENDED ORDER The following constitute rulings pursuant to Section 120.59(2), Florida Statutes, upon the parties' respective posthearing proposed findings of fact (PFOF). Petitioner's PFOF: 1-2 Except as subordinate and unnecessary covered in FOF 1-3. Covered in FOF 5 and 7. Covered in FOF 6-9. Covered in FOF 23. Except as unnecessary, covered in FOF 10. Rejected as stated as not supported by the greater weight of the credible evidence as a whole, see FOF 4, 7, 11, 14, and 16. 8-11 Rejected as not supported by the greater weight of the credible evidence as a whole and as largely subordinate and unnecessary, see FOF 16-18. Covered in FOF 20. Rejected as covered in FOF 4. Covered in FOF 21-23. Respondent' PFOF: 1 Covered in FOF 1. 2 Covered in FOF 2. 3 Covered in FOF 12. 4 Covered in FOF 13. 5 Covered in FOF 5. 6 Covered in FOF 6. 7 Covered in FOF 14. 8 Covered in FOF 7. 9 Covered in FOF 9. 10 Covered in FOF 5. 11-13 Covered in FOF 1. 14, 15, and 17 Covered in FOF 13-16. 16, 18, and 24 are of such an ultimate nature as to be conclusions of law and are addressed as such within the Recommended Order. To the extent they constitute PFOF, they are covered in FOF 14-16, and 18. 19-23 Covered in FOF 16. Covered in FOF 20. Covered in FOF 21. Covered in FOF 22. COPIES FURNISHED: GERALD LEWIS, COMPTROLLER DEPARTMENT OF BANKING AND FINANCE THE CAPITOL TALLAHASSEE, FLORIDA 32399-0350 MALCOLM S. GREENFIELD, ESQUIRE OFFICE OF COMPTROLLER THE CAPITOL, SUITE 1302 TALLAHASSEE, FLORIDA 32399 MICHAEL S. PASANO, ESQUIRE 2100 PONCE DE LEON BOULEVARD SUITE 1100 CORAL GABLES, FLORIDA 33134 CHARLES L. STUTTS, ESQUIRE OFFICE OF COMPTROLLER THE CAPITOL, SUITE 1302 TALLAHASSEE, FLORIDA 32399
Findings Of Fact The Office of the Comptroller, Department of Banking and Finance, Division of Securities and Investor Protection (Department), is an agency of the State of Florida charged with the responsibility to administer and to enforce the provisions of Chapter 517, Florida Statutes (1987), and administrative rules promulgated thereunder, related to regulating the practice of securities dealers, "associated persons" and investment advisors. It regulates sales and other transactions in securities and investments, as those items are defined in that chapter. The Respondent, David John Kury, has been registered with the Department since 1967 as an associated person under Chapter 517, Florida Statutes. Pursuant to that registration, he is authorized to engage in the offer and sale of securities to clients. Since 1967 he has also been registered with the National Association of Securities Dealers (NASD). Since July 21, 1987, Respondent Kury has been registered with the Department as an associated person of American Capital Equities, Inc. (American), and he has also been registered as an associated person with the following broker/dealers: Associated Planner Securities Corporation (Associated); Prudential Bache Securities, Inc.; and E. F. Hutton. These registrations cover the period of time from April 1978 through May 1987. During all times Respondent Kury has been registered with the Department as an associated person of American, he has been simultaneously registered with the NASD as a "principal" of American. American is a corporation incorporated under the laws of the State of Missouri, which has been lawfully registered with the Department as a broker/dealer since approximately August 1984. American operates a branch office at 116 West Government Street, Pensacola, Florida. This office has been lawfully registered with the Department and in continuous operation since approximately August 21, 1987. Respondent Kury has been the branch manager of the office during all the period of time it has been registered with the Department. Kury has been registered with the Department as a principal of the Kury Investment Advisory Corporation (KIAC), pursuant to Chapter 517, Florida Statutes, since approximately March 2, 1988. That corporation is incorporated under the laws of the State of Florida and has been registered itself with the Department as an investment advisor, pursuant to Chapter 517, since approximately March 2, 1988. The Respondent corporation maintains its principal place of business also at 116 West Government Street, Pensacola, Florida, at which address Respondent Kury maintains the branch office of American. Respondent Kury is and has been at all pertinent times the sole owner, officer, director and chief operating officer of the Respondent corporation. Since March 2, 1988, Respondent David Kury has been registered as an investment advisor himself, with KIAC. He is also registered in approximately 15 other states as an associated person, thereby being authorized to offer and sell securities in those states as well. Kury Financial Planning Group, Inc. (Group) is a corporation organized under the laws of the State of Florida on or about October 23, 1985. It maintains its principal place of business at the above-referenced address as well. Respondent David Kury is the registered agent, sole officer and director of Group. Since approximately 1976, Kury has engaged continuously in the business of financial planning for individuals in the Pensacola area. Pursuant to this business, he has recommended various financial products, including securities and insurance products for individuals' personal portfolios. He has also rendered advice to clients concerning matters that are not involved with securities or insurance, although the bulk of his financial planning advice and experience relates to these two areas. During the twenty or more years he has been licensed as an associated person only one minor complaint has been lodged against Kury by a client. He has never been the subject of a complaint or an investigation by the Securities Exchange Commission, the NASD, the State of Florida or any other state securities regulatory agency. Neither has he been the subject of a complaint or investigation by the Florida Department of Insurance. He is a member of the Institute of Certified Financial Planners, a member of the International Association for Financial Planning and is in the Registry of Financial Planning Practitioners, a very select group comprised of only a very small percentage of the total number of certified financial planners in the United States. The Respondent, Mr. Kury, has been highly successful as an associated person dealing in securities and as a financial planner. In 1983, while employed with E. F. Hutton as a salesperson, selling securities and investments, the Respondent earned commissions in excess of $500,000 for that year and was one of the largest producers for E. F. Hutton in the entire nation for that year. He received commendations directly from the Chairman of the Board of E. F. Hutton and other senior management for his sales efforts and his integrity. His personal share of the commissions earned that year amounted to $330,000. It is obvious that the Respondent has substantial earning power due to his knowledge, experience and other capabilities in the field of securities and investment sales and advice and the field of financial planning. The Department, commencing on or about May 20, 1988, conducted an investigation and examination of the affairs of Kury Investment Advisory Corporation and the branch office of American, of which Respondent David Kury was branch manager, located at 116 West Government Street, Pensacola, Florida. It was thus determined (and established by clear and convincing evidence in this proceeding) that David Kury, as well as Kury Financial Planning Group, Inc. ("Group") sold or offered for sale both personal notes of David Kury, as well as corporate promissory notes of the Group, since approximately 1975. At the present time, there are approximately 50 persons holding 83 notes in amounts ranging from $5,000 to $200,000. These notes have maturities ranging from three months to four years, with investment return rates ranging from 9 percent to 13 percent. Some of the note-holders were told by Respondent Kury that certificates of deposit, by comparison, were then available to the note-holders or investors at rates ranging from two to three percent less than the rates offered by Kury and Group for the subject personal and/or corporate promissory notes. The total principal amount outstanding, represented by the corporate and personal promissory notes at issue, is approximately $2.4 million. The total principal and accrued interest as of June 15, 1988 is approximately $2.8 million. The total principal amount with accrued interest at the maturity of the notes in question would amount to approximately $3.1 million. The 50 note- holders are clients of the Respondent's. The notes were offered to them in the context of being investment alternatives to certificates of deposit and other "passive" investments, with the primary inducement being higher rates of return on the notes. Respondent David Kury and/or the Corporation failed to maintain and preserve an adequate record of purchases and sales of equity securities by maintaining a "purchase and sales blotter," as well as a "securities received and delivered blotter" and failed to maintain a current "trial balance." These items were not maintained in the ordinary course of business by Respondent David Kury and the Corporation. (See Section 517.121, Florida Statutes, and Rule 3E- 600.014, Florida Administrative Code). During approximately the last 13 years, Respondent David Kury has utilized the proceeds of the personal and corporate notes to pay business expenses for himself and the corporations he controls, as well as certain personal expenses, including the financing of his home (at a cost of approximately $1,000,000). The Respondents have sold or offered for sale the notes, both personal and corporate, without having them registered with the Department, which is required if they are deemed securities. The Respondents did not provide the purchasers of these notes a prospectus for purposes of Section 517.07, Florida Statutes. Group has engaged in the offer and sale of these notes to the note- holders or investors without being registered with the Department to engage in such activities, as required by law, if it be deemed that these notes indeed are securities. Respondent David Kury, in his individual capacity, and on behalf of Group, has engaged in the offer or sale of the notes without being registered with the Department to engage in such activities, either in his individual capacity or on behalf of Group, if the notes are deemed securities. Kury and the Corporation engaged in the business of "investment advisor" prior to lawful registration of that corporation with the Department to engage in such activity. Kury and the Corporation have rendered investment advice since at least September 18, 1987, notwithstanding the fact that the Corporation did not obtain lawful registration with the Department to engage in such activities until March 2, 1988. David Kury was the branch office manager for the registered branch office of American. He failed to establish, maintain and preserve certain books and records required by Florida law for registered branch offices of brokerage firms. In particular, he failed to establish and maintain the purchase and sales blotter reflecting all equity securities sold by American through Kury's branch office. Additionally, as branch office manager for a registered branch office of American, he failed to maintain and preserve a "securities received and delivered blotter." The Corporation, and Kury acting on its behalf, has failed to maintain a current trial balance indicating proof of current money balances in the corporate accounts. Respondent Kury, in his individual capacity and on behalf of Group, sold securities and/or investments (the notes) without making disclosures as to certain material facts, which disclosures were necessary in order for the purchasers or investors not to be misled. Statements were made in conjunction with the sales to the investors under circumstances, such that the omitted material facts, which were not disclosed, were necessary in order to prevent these investors or purchasers from being misled. See Section 517.081, Florida Statutes. Specifically, Kury and Group omitted to inform the investors of the following material facts: Information about the risks to the purchasers of the notes, including his and the Group's ability or inability to repay the notes generally and provision for repayment in the event of Kury's death. Information as to the use to be made of the proceeds of the notes, which in fact were used to finance business operating losses, business operating expenses and to repay personal debts of Kury, and to assist in the financing of personal living expenses of Respondent Kury. (d) Information concerning approximately $4,000,000 in liabilities and outstanding indebtedness of Respondent Kury individually and/or the Corporation and/or the Group. The $2.3 million negative net worth of Kury and/or the Corporation and/or the Group. The fact that Kury's previous employment with E. F. Hutton and Company had been terminated in 1984, partially because of his borrowing money from investors, in violation of Hutton's internal policies and NASD rules. In fact, Respondent Kury had borrowed an aggregate sum of approximately $327,172 from approximately 17 different clients by the time of his termination by Hutton. The fact that Kury's previous employment with Associated Planners Securities Corporation had been terminated in 1987 due to his borrowing money from investors in violation of that company's internal policies and NASD rules. The fact that Kury's personal and group life insurance policies were inadequate to pay the total indebtedness represented by the subject notes, in the event of Kury's death. The fact that Kury's representations concerning his abilities to borrow from banks and other financial institutions were predicated in part on inaccurate financial statements which under- estimated liabilities and overstated net worth without including on those statements the aggregate indebtedness represented by the outstanding personal and corporate notes. The fact that he had submitted an inaccurate financial statement to the Florida Comptroller's Office in connection with the charter application of American Bank and Trust Company during the Summer and Fall of 1985 in the process of becoming an organizer and founding director of that bank. The fact that he was using the money generated from the sale of the promissory notes, at least in part, to repay principal and interest payments due on other, earlier promissory notes. The fact that Kury failed to relate to the note-holders and investors how the promised rate of interest on the notes was reasonably related, if at all, to the risk associated with the investment involved and how it might be related to any other factor commonly known to influence interest rates. Witnesses Catone, Engelman and Boyd, testifying as Respondent's witnesses, in part established that the appropriate disclosures referenced above were not made. Additionally, Kury's explanation for submitting the false financial statements to lending institutions and to the Comptroller was to the effect that he did not wish to violate the confidentiality of the note sales transactions with the note-holders or investors. This rationale is illogical and self-serving, however, and is not accepted. Disclosing accurate financial information, required by law, to banks would have only required, at most, that Kury list the aggregate indebtedness he owed, the type of indebtedness owed, as well as information concerning principal balances, interest rates and repayment terms. Such information required on these financial statements would not have involved divulging the note-holders names or any confidential information pertaining to the note-holders, including the amounts of their individual notes. Law Professor Stuart Cohn was accepted as an expert in state and federal securities laws and corporate finance. It has thus been established that Kury and the Group sold approximately $2.4 million worth of personal and corporate promissory notes which are established to be securities and investments, as discussed infra., to at least 50 investors. This constituted, in effect, the borrowing of money from clients or customers, which is a prohibited business practice for a registered "associated person," investment advisor and financial planner. See Rule 3E-600.013(2)(a), Florida Administrative Code, and Article III, Section 2, NASD Rules of Fair Practice. Kury also effected securities transactions with customers which were not recorded on the regular books and records at American Capital Equities, for whom he was functioning and registered as an "associated person." In particular, he engaged in, sales and offers to sell securities in his capacity as an associated person of American, the Corporation and the Group and failed to record those transactions on the books of American. This is a prohibited business practice. See Rule 3E-600.13(2)(c), Florida Administrative Code. He engaged in private securities transactions without notifying his principal, American. See also Article III, Section 40, NASD Rules of Fair Practice. The Respondents' activities, largely ongoing at the time of the investigation, posed an immediate, serious threat to investors or potential investors because the Respondent's activities constituted, at least in part, the operation of a "pyramid" or "ponzi" scheme. This occurs when funds from new investors, in this case the more recent purchasers of the notes, are used to satisfy interest and principal obligations coming due to earlier investors or note purchasers. Therefore, as time progresses, and more of such notes or securities are sold, then more and more investors will be subject to losing their investments and suffer financial hardship. This occurred in the instant situation through the practice engaged in by the Respondent of "note rollovers" or renewals when due without paying principal and interest owed, or all of it, as well as by making new note sales and using the proceeds, or some of them, to pay earlier investors in spite of the above-described adverse consequences. The threat to the public welfare, as described above, is also represented by the fact that Kury and the Group have undergone an obligation to the note purchasers in excess of $2.8 million as of June 15, 1988, with ultimate liability on the notes of more than $3.1 million, at the respective maturity dates, in the aggregate. The $2.4 million to $3.1 million liability to these investors vastly exceeds the assets available to the Respondents to satisfy the note obligations. Kury admitted that the Respondents are insolvent and currently unable to meet the total financial obligations represented by the notes.
Recommendation Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record, the candor and demeanor of the witnesses and the pleadings and arguments of the parties, it is, therefore RECOMMENDED that a Final Order be entered by the Department of Banking and Finance finding the, Respondents guilty as charged, and in the above particulars, and that the registrations of the Respondents as associated person and investment advisors be revoked, provided however, that such revocation should be suspended and held in abeyance contingent on the Respondent David John Kury, under the close supervision and direction of the Department, embarking upon a plan whereby, by continued practice under his registrations, he will repay the principal and interest due all the investors involved in this proceeding within a time certain, as directed by the Department. That plan should include creation of an escrow or trust account, managed by an independent escrow agent, such as a bank, into which, pursuant to an approved plan and schedule, a substantial portion of revenues earned by Kury in the practice as an associated person, investment advisor and any other registration pursuant to the regulation of the Department, shall be deposited for the use and benefit of the subject investors. This arrangement should continue until the investors have been fully repaid principal and interest due them. Should the Respondents, David John Kury and Kury Investment Advisory Corporation, refuse to accept such an arrangement or violate its terms and conditions, their registrations should be immediately revoked. DONE and ENTERED this 9th day of January, 1989, in Tallahassee, Florida. P. MICHAEL RUFF 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 9th day of January, 1989. APPENDIX TO RECOMMENDED ORDER, CASE NO. 88-3419 Petitioner's Proposed Findings of Fact: 1-3. Accepted. 4. Rejected as not constituting a Finding of Fact. 5-19. Accepted. Rejected as subordinate to the Hearing Officer's Findings of Fact on this subject matter and to some extent not supported by the evidence of record. Accepted. Accepted in part but subordinate to the Hearing Officer's Findings of Fact on this subject matter. 23-26. Accepted. Respondent's Proposed Findings of Fact: 1-8. Accepted. 9-14. Constitute statements of issues presented and recitation of evidence presented and are not Proposed Findings of Fact. COPIES FURNISHED: Reginald R. Garcia, Esquire Charles E. Scarlett, Esquire Office of Comptroller The Capitol Tallahassee, Florida 32399-0350 Philip J. Snyderburn, Esquire SNYDERBURN, RISHOI & SWANN Suite 240 280 West Canton Avenue Winter Park, Florida 32789 Donald A. Rett, Esquire MANG, RETT & COLLETTE, P.A. Post Office Box 11127 Tallahassee, Florida, 32302-3127 Honorable Gerald Lewis Comptroller State of Florida The Capitol Tallahassee, Florida 32399-0350 =================================================================
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: In early January, 1987, the petitioners filed with the respondent their application for authority to organize a state-chartered bank to be located in Sarasota. Notice of receipt of this application was published in the Florida Administrative Weekly on January 16, 1987. The application was deemed complete in March or April of 1987. By an "Administrative Notice for Public Formal Hearing" dated September 18, 1987, and received by the Division Of Administrative Hearings on September 22, 1987, the respondent Department of Banking and Finance, Division of Banking, noticed its intent to initiate a formal hearing concerning the issue of whether to grant or deny the application. That proceeding was assigned to the undersigned as the designated Hearing Officer as Case No. 87-4417. As a result of various preliminary motions filed in Case No. 87-4417, the Department was ordered to file a more definite statement of the issues and/or statutory criteria in dispute between the parties and the final hearing was scheduled for December 16 and 17, 1987. In response, the Department filed an "Amended Administrative Notice for Public Formal Hearing," citing as authority therefore, Rule 3C-9.004, Florida Administrative Code. Due to appellate court proceedings, the December 16 and 17, 1987, final hearing was cancelled and rescheduled for the week commencing February 29, 1988. On January 6, 1988, the petitioners filed with the Division of Administrative Hearings its petition for a determination of the invalidity of Rule 3C-9.004(3), Florida Administrative Code, and the final hearing was held on February 5, 1988. The parties agreed that the final hearing in Case No. 87-4417, regarding the merits of the petitioners' application for a bank charter, should be continued pending a resolution of the instant rule-challenge proceeding. While the State of Florida has enjoyed a period of relative economic health in comparison to other regions of the country, in the past three years there have been a growing number of financial institutions experiencing difficulties related primarily to their financial condition and solvency. During this time period, the Department has found it necessary to close seven commercial banks and six savings and loan associations. Accordingly, when applications for new financial institutions are filed, the Department attempts, during the application process, to ensure the probability of success of the proposed institution. This is done through a period of investigation by the Department's trained financial investigators of all the material submitted by applicants, particularly with respect to the individuals who are named as proposed directors and officers. During the course of the Department's investigation, information frequently is discovered which is at some variance with the information contained in the application. To the extent that it is possible to do so, the Department attempts to reconcile any discrepancies between the application contents and the products of its investigation through informal dialogue or correspondence with the applicant. In instances where there may be questions of credibility on the part of the applicant, that type of informal resolution may not be feasible. The procedural processing of bank charter applications is specifically governed by Section 120.60(5), Florida Statutes, and Chapter 3C-9, Florida Administrative Code. As pertinent to the issues in this proceeding, those statutory and regulatory provisions require the Department to have published in the Florida Administrative Weekly notice of an application within 21 days of its receipt. Section 120.60(5)(a)1; Florida Statutes; Rule 3C-9.003(1), Florida Administrative Code. Within 21 days of publication of notice, "any person may request a hearing.... however, the failure to request a hearing within 21 days of publication of notice shall constitute waiver of any right to a hearing." Section 120.60(5)(a)2, Florida Statutes. Any petition for hearing filed before an application is received or more than 21 days after the publication of notice is void. Rule 3C-9.003, Florida Administrative Code. While all information in support of an application is required to be submitted with the original filing, the Department has the authority to request additional information and ask for the correction of errors or omissions within 30 days of its receipt of the original application. Thereafter, the applicant has 60 days to respond to the Department's request. Rule 3C-9.002(3), Florida Administrative Code. Every application, except for those involving foreign nationals, is required to be approved or denied within 180 days after receipt of either the original application or the timely requested additional information or correction of errors or omissions. Applications not approved or denied within that 180- day period or within 30 days after the conclusion of a public hearing on the application, whichever date is latest, are deemed approved. Section 120.60(5)(c), Florida Statutes. Rule 3C- 9.012(i), Florida Administrative Code. The procedures with regard to financial institutions involving foreign nationals differ in that the Department is required to request that a public hearing be conducted and the 180-day period for approval or denial is extended to a period of one (1) year. Section 120.60(5)(d), Florida Statutes. The statute is silent with respect to the time period within which the Department must request a hearing on applications involving foreign nationals. More often that not, the Department does request additional information from an applicant subsequent to the filing of the initial application. Since the Department has 30 days within which to request this information and the applicant has another 60 days to supply it, the additional information typically is received by the Department long after it has published notice of the application and long after the 21-day point of entry to request a hearing. The challenged rule is contained as a subsection of the rule entitled "Petition for Public Hearing." After providing that petitions for public hearing must be filed within 21 days of publication of notice and that petitions not received within that time are void, subsections (1) and (2) of Rule 3C- 9.004, subsection (3) provides that "The department may initiate a hearing on its own motion, at any time regardless of whether there has been a petition." It was the opinion of the Director of the Division of Banking that the purpose of the challenged rule was to afford the Department the opportunity for a hearing in those instances where information is discovered during the investigation process or where additional information is supplied subsequent to 21 days after publication of notice of the initial application. Generally, the character, credit worthiness and financial responsibility of the organizers, officers or directors of a proposed financial institution is determined toward the end of the application and investigation process, and not within the 21- day period after publication of notice of the initial application. According to the Director, if the Department were unable to request a hearing subsequent to that 21-day period, it would be compelled to request a hearing within that 21-day period every time an application is filed. An employee from the Division of Banking for approximately ten years could recall only one occasion when the Department had requested a hearing after the passage of 21 days from the publication of notice. In that one instance, a foreign national was involved in the application.
The Issue The issue proposed in the Department's "Recommended Order" is: Whether the Department was substantially justified in bringing this action, or that special circumstances exist which would make an award of attorney's fees unjust, pursuant to Section 57.111, Florida Statutes (1983). As Respondent, the Department has not contested Ms. Fieber's allegations of standing as a "prevailing small business party" nor the reasonableness of the fees and costs claimed by Ms. Fieber.
Findings Of Fact Kimberlee M. Fieber is a licensed mortgage solicitor, having been issued license number HK 0008319 by the Department of Banking and Finance ("Department"). Ms. Fieber was employed by State Capital Corporation in the capacity of a mortgage solicitor commencing in 1983 and ending in August 1984. (Stipulation Agreement filed February 17, 1987; R 53, 132.) The Department began investigating State Capital Corporation in 1982, and in July of that year filed suit against the corporation, its directors, officers and certain named employees (not Kimberlee Fieber), charging eleven counts of securities and mortgage brokerage act offenses. (R 1-24, 160-161) The parties executed stipulations for final judgment, and judgment was entered on April 11, 1983, restraining the defendants from making certain representations to investors and from other specific violations of Chapters 494 and 517 F.S.. 25-28) Anthony Bernardo lives in Ft. Myers, Florida. Sometime in early 1983 he saw a State Capital Corporation advertisement regarding investment opportunities. He contacted the company and on June 27, 1983, Kimberlee Fieber came to his house to answer his questions. After about one hour Mr. Bernardo gave Ms. Fieber a check for $5,000.00 to invest as a loan yielding 18 percent interest, secured by a mortgage on commercial property. (R 30-32, 68-80) This was the first and only contact he had with Ms. Fieber. (R 74) Approximately two weeks later, the Bernardos received the papers related to their investment, including a Mortgage Deed, described in boldfaced print on the first page as a first mortgage of equal dignity with other first mortgages to be given in the total amount of $260,000.00, on a motel in Ft. Lauderdale. (R 32, 73) The Bernardos began receiving their $75.00 per month interest payments; in November 1983, they exercised an option to continue the investment for an additional twelve months at the same interest rate. (R 38) After reading some adverse articles about State Capital Corporation in the newspaper, Anthony Bernardo decided not to continue his loan beyond the term ending December 31, 1984. He informed the company in writing. (R 50, 83-85) When he did not receive his $5,000.00, he began calling the company on January 7, 1985. (R 84) He sent a letter dated January 16, 1985, to Gary Allen at State Capital Corporation demanding the return of his $5,000.00 with interest from January 1, 1985. He sent a copy of that letter to Gerald Lewis, State Comptroller. (R 50) On January 31, 1985, John Willard, an investigator for the Office of the Comptroller, interviewed Anthony Bernardo by telephone. The investigator's notes of that interview reflect the facts described in paragraphs 3 and 4, above, but also note that during Ms. Fieber's explanation of the investment, she did not explain to the Bernardos what equal dignity mortgages were, nor did she disclose that the Comptroller's Office had taken action against State Capital Corporation. The investigator noted that Bernardo told him that Ms. Fieber suggested he call the Comptroller's Office as a reference. (R 51-52) On February 14, 1985, Anthony Bernardo received his $5,000.00 from State Capital Corporation along with full interest. (R 85-86) John Willard never interviewed nor contacted Anthony Bernardo again, nor did he ever interview Ms. Fieber or anyone else regarding the Fieber case. He conducted interviews with other investors. He had some general discussion with an attorney in the Comptroller's Office about solicitors who had been employed by State Capital Corporation who may have committed misrepresentations regarding the sale of equal dignity mortgages. (R 170-173) He told the attorney, John Root, that the only thing they had in the file on Ms. Fieber was the memorandum of his interview with Anthony Bernardo. (R 174) Nothing in the record suggests that any other investigation of Ms. Fieber was done. On April 2, 1986, the Department served Kimberlee M. Fieber, as individual Respondent, a Notice of Intention to Suspend and Administrative Charges and Complaint which provided, in pertinent part: * * * STATEMENT OF FACTS Under the Provisions of Chapter 494, Florida Statutes (1983), the Department is charged with the responsibility and duty of administering and enforcing the provisions of the ACT, which includes the duty to suspend the licenses of those persons registered under the ACT for violations of the terms therein, as set forth in Section 494.05, Florida Statutes (1983). Kimberlee M. Fieber is a mortgage solicitor, who has been issued license number HK 0008319 by the DEPARTMENT. Formerly, Respondent was a mortgage solicitor for State Capital Corporation. As authorized by Section 494.071(1), Florida Statutes (1983), the DEPARTMENT conducted an investigation of the affairs of State Capital Corporation under the ACT. During that investigation, the DEPARTMENT took a statement from A. G. Bernardo. Mr. Bernardo stated that he had first heard of State Capital Corporation through its advertisements in the newspaper, to which he responded. After Mr. Bernardo contacted State Capital in answer to the advertisements, Respondent went to his home to attempt to persuade him to invest. During her sales talk, Respondent failed and neglected to explain the concept of equal dignity mortgages to Mr. Bernardo. Respondent also failed and neglected to disclose to Mr. Bernardo that the DEPARTMENT had taken legal action against State Capital and, in fact, suggested that Mr. Bernardo call the Department as a reference. Based on Respondent's representations, Mr. Bernardo invested $5,000.00 with State Capital Corporation. In return for his investment, Mr. Bernardo received an equal dignity first mortgage on a small motel. Mr. Bernardo's note became due after six months, and he renewed his investment for another period, this time of a year. When the one year renewal period had expired, Mr. Bernardo had decided not to renew his investment because of newspaper articles telling of State Capital's financial difficulties, and he notified State Capital of his decision and made demand on it for the return of his investment. Said mortgage note was due to be paid in December, 1984. However, payment was not made to Mr. Bernardo at that time, nor within a reasonable time thereafter.
Findings Of Fact Respondent Larry Nathan Booker is presently employed as an office manager for an insurance agent in Jay, Florida. At all times pertinent to this proceeding, he has been licensed by Petitioner as an Ordinary Life including Health agent (Testimony of Respondent, Stipulation). On June 21, 1985, in Case No. 85-00077 in The United States District Court for the Southern District of Alabama, Respondent pleaded guilty and was found guilty to a violation of 18 United States Code, Section 656, as charged in Count One of the information. Count One of the information contained the following allegations: At all times material to this information Larry N. Booker, served in the capacity of manager of the Flomaton Branch, United Bank of Atmore, Flomaton, Alabama. At all times material to this information, the deposits of the United Bank of Atmore were insured by the Federal Deposit Insurance Corporation - charter number 0058-2 dated December 23, 1969. At all times material to this information, Larry N. Booker had open a personal checking account number 02111607 with the United Bank of Atmore. At all times material to this information, Ronald E. Watkins was doing Business as Watkins Cars-Trucks, 726 Highway 90-West, Milton, Florida and Ronald E. Watkins had open a checking account with the United Bank of Atmore. On or about the 17th day of December, 1982, Larry N. Booker, the then manager of the Flomaton Branch, United Bank of Atmore, with the intent to injure and defraud the United Bank of Atmore did knowingly and willfully misapply $2,333.33 of the funds of the United Bank of Atmore. Larry N. Booker did knowingly and wilfully misapply the $2,333.33 by crediting his personal account with a debit from the account of Watkins Cars-Trucks, at the time of debit the Watkins Cars-Trucks account was in an overdrawn status and Larry N. Booker knew that the Watkins Cars-Trucks account was in an overdrawn status; all in violation of 18 United States Code, Section 656. Respondent was placed on probation for a period of five years, and required to make restitution in the amount of $2,333.33, and to pay a personal note that he had with the United Bank of Atmore. (Petitioner's Composite Exhibit 1) In explanation of his conviction, Respondent testified that in order to assist Ronald E. Watkins in keeping his rental business property from being sold by his landlord, Respondent purchased the property in his name with four investors to hold the mortgage to the property. The arrangement was for Watkins to pay Respondent rent on the property and Respondent would subsequently make payment of the rental amount to the investors under a lease-purchase agreement at a monthly payment of $2,333.33. The payment was made on an automatic debit from Watkins' bank account to Respondent's bank account. Respondent further testified that the overdraft occurred due to the fact that Watkins came into the bank between 1:30 and 2:00 p.m., paid off some of his floor plan loans to tellers, and then went directly to Respondent's assistant to work up new additional floor plan loans to offset the checks that he had just given. However, by the time the loans were prepared and signed, it was after 2:00 p.m., which was the cut-off time for bookkeeping transactions. Therefore, the overdraft in question occurred even though it was automatically covered the next day. Respondent testified that such overdrafts are a common occurrence in the banking system and that, at no time did he have an intent to defraud the bank, nor did it lose any money as a result of the overdraft. (Testimony of Respondent)
The Issue Whether the Respondent overpaid the Petitioner for services covered by the Medicaid program as claimed by the Final Agency Audit Report and, if so, in what amount.
Recommendation Based upon the foregoing, it is RECOMMENDED that the Agency for Health Care Administration enter a Final Order incorporating the terms of the parties' settlement agreement and that the instant case be closed. DONE AND ENTERED this 23rd day of June 2003, in Tallahassee, Leon County, Florida. ___________________________________ J. D. PARRISH 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 23rd day of June, 2003. COPIES FURNISHED: Debora Fridie, Esquire Agency for Health Care Administration 2727 Mahan Drive, Suite 3431 Fort Knox Building, Mail Station 3 Tallahassee, Florida 32308 Evan B. Shenfeld 800 East Hallandale Beach Boulevard Number 9 Hallandale Beach, Florida 33009 Valda Clark Christian, General Counsel Agency for Health Care Administration 2727 Mahan Drive Fort Knox Building, Suite 3431 Tallahassee, Florida 32308 Rhonda M. Meadows, M.D., Secretary Agency for Health Care Administration 2727 Mahan Drive Fort Knox Building, Suite 3116 Tallahassee, Florida 32308
