Findings Of Fact On February 21, 1980, petitioner, as president and chief executive officer of Crown Financial Services was fined $500 and censured by NASD for violating SEC, NASD and Municipal Securities Rulemaking Board regulations. Crown Financial, a holding company under the direction and control of Petitioner, became a member of the NASD in 1977. At the time Crown Financial employed the services of a large accounting firm, knowledgeable of NASD regulations, to set up their accounts so as to comply with NASD regulations. During the first audit of crown Financial by NASD in 1979-80 it was noted that Crown was including accounts receivable from subsidiaries as cash which was contrary to NASD regulations and Crown and Petitioner were fined and censured for this infraction. Crediting such receivables as cash was the procedure established by the accounting firm hired by Crown Financial Services. On December 30, 1982 the Massachusetts Securities Division issued a Summary Order Denying Exemption from Registration and a temporary Cease and Desist Order naming Petitioner and others based upon the offering of limited partnerships in Energy Exchange Corporation which had been founded by Petitioner. Although Petitioner founded Energy Exchange in February 1981 and was its president and chief operations officer, he resigned from these positions in November 30, 1982 shortly after Energy Exchange went public. Thereafter, Swain remained an outside director and was unaware of management decisions, one of which involved the issuance of questionable (or fraudulent) securities in December 1982, which led to the actions taken by the Massachusetts Securities Division. Petitioner was unaware these securities were issued until he read of the Massachusetts Securities Division's actions in the newspaper and he had nothing to do with their issuance. On April 23, 1983, NASD fined and censured Swain in the amount of $12, 000 as a result of limited partnerships set up by Crown Financial Corporation of which Swain was Chief Operations Officer and principal owner. The violation alleged Crown Financial was engaged in a continuous and integrated offering in connection with the development of four condominiums were built (and to which limited partnerships were sold) he was unaware any other parcel of property nearby was or would be for sale, and that each of these developments was independent of the other and in no wise integrated alleged. An investigation by the Securities and Exchange Commission disclosed no integrated operation. Petitioner concluded it was prudent to enter into a consent order without admitting any violation and pay the fine rather than go to the expense of defending against the allegations. Civil actions alleged to have been brought against Petitioner and which were listed as another basis for denying registration were contained in paragraph 5 of the Exhibit 21. At the hearing Respondent stipulated to a dismissal of these grounds as a basis for denying registration. Despite the charges by NASD Petitioner' s registration with NASD remains in good standing. Petitioner produce one witness who is registered with Respondent and with NASD who testified that fines and censures for violation of NASD regulations are an every day occurrence with NASD. This witness ,was recently found in violation of NASD regulations because he had included accounts receivable for more than 30 days as assets. According to NASD regulations these accounts receivable or more than 30 days cannot be included as an asset although the vast majority will be paid.
The Issue The issue is whether Mr. Cavallo is subject to administrative sanctions for violation of the Florida Securities and Investor Protection Act for conduct while he was employed with three Florida firms which dealt in securities, Bond Management Corporation, Bond Administration Service Corporation and Bond Services International Corporation.
Findings Of Fact The Department of Banking and Finance, Division of Securities, administers the provision of the Florida Securities and Investor Protection Act, Chapter 517, Florida Statutes. The Department had investigated the activities of the several respondents named in the Cease and Desist Order filed in this case, including Bond Management Corporation, Bond Administration Services Corporation, Bond Services International Corporation, Bond Premium Corporation and Mr. Cavallo. The business plan of Bond Management Corporation. Bond Management Corporation and Bond Administration Services Corporation were principally operated by Thomas Whalen, who was assisted by Mr. Cavallo. These corporations had been founded by Robert DiStefano, who had sold them to Mr. Whalen in 1985. Mr. Cavallo began working for Mr. Whalen in approximately March of 1986. The offices of these corporations were first located on State Road 7 in Plantation, Florida, but later were moved to Hollywood, Florida. The business of Bond Management Corporation and Bond Administration Services Corporation consisted of issuing, selling and administering the registration and redemption of Certificates of Beneficial Interest in pools of bonds. The two companies actually operated as an integrated entity. Bond Management was to be the trustee for the bonds which comprised the trust corpus and issue the Certificates of Beneficial Interest. These were sold to telephone marketing companies and to time-share companies. These companies then used the certificates as premiums or incentives to attract people to travel to their developments or to listen to sales presentations. Bond Administration Services Corporation handled the sales and the registration of the certificates by the ultimate purchasers. The certificates were sold from offices in Broward County, Florida, to corporations in Florida and throughout the United States. Bond Management Corporation represented in its private placement memorandum that 68% of the funds it received from the time-share developers and telemarketing companies or others who bought the Certificates of Beneficial Interest would form the trust corpus, and this money would be used to buy zero-coupon government securities. Most of the certificates had face values of $1,000; a few were sold with face values of $500. The certificates would attain these values only if kept until the maturity of the underlying government bonds, which would be from 20-45 years. The actual value of the $1,000 certificates at the time delivered as premiums to those who attended sale presentations was between $17 to $18; the $500 certificates were worth between $8.50 to $9.00. The clients of Bond Administration Services Corporation, the time-share developers or other entities which bought the certificates as premiums for consumers attending their sales presentations, would pay about $30 per $14000 certificate. Bond Management Corporation and Bond Administration Services Corporation assisted the time-share developers and telemarketing companies which purchased the Certificates of Beneficial Interest in the redistribution of those certificates to consumers. Bond Administration Service Corporation sent letters to the purchasing companies to be given as handouts to the sales prospects (members of the public) who ultimately received the certificates instructing the recipient about how to register the Certificates of Beneficial Interest with Bond Administration Services Corporation. Regulation of the Certificates of Beneficial Interest The Certificates of Beneficial Interest issued by Bond Management Corporation constitute securities under Federal law and Florida law. Bond Management Corporation made filings with the Securities and Exchange Commission of the United States under regulation D, which indicated that the securities were exempt from registration under the Federal Act. The Certificates of Beneficial Interest were not registered with the State of Florida Department of Banking and Finance, Division of Securities. Neither Bond Management Corporation, which issued the Certificates of Beneficial Interest, or the individuals in the corporation who offered them for sale or actually sold them (including Mr. Whalen and Mr. Cavallo), were registered with the State of Florida, Department of Banking and Finance, Division of Securities. In May of 1986, the owner of Bond Management Corporation, Mr. Whalen, was visited by representatives of the Florida Division of Securities. Mr. Cavallo attended that meeting. The Division's representative told Mr. Whalen and Mr. Cavallo that the enterprise being operated would require the registration of the issuer of the securities, Bond Management, that the staff members at Bond Management Corporation and Bond Administration Services Corporation who sold the securities to their customers (the time-share developers and telemarketing companies) would have to be registered, and that the persons at the time-share developer or other entrepreneurs who were "giving" the certificates to prospective clients would have to be registered. Prospective clients of the time-share developers and telemarketing companies were required to attend sales presentations in order to receive a Certificate of Beneficial Interest; consequently, the Division of Securities maintained that the consumers were providing consideration for the receipt of the certificates, and were purchasing them from the clients of Bond Management Corporation. Mr. Cava1lo's role at Bond Management Corporation Mr. Cavallo had a business card which represented that he was the Vice President of Marketing and Sales for Bond Management Corporation. In his capacity as Vice President of Sales and Marketing, Mr. Cavallo managed the day- to-day operation of Bond Management Corporation and Bond Administration Corporation. He offered to sell or actually sold Certificates of Beneficial Interest to many companies throughout the United States, at least five of which were located in Florida. Mr. Cavallo sent packages to time-share companies and other potential purchasers of blocks of Certificates of Beneficial Interest, which contained sample Certificates of Beneficial Interest, a private offering memorandum describing the securities, and instruction letters which would accompany the Certificates of Beneficial Interest when delivered to the purchasing corporation's prospective clients. The clients were told how to register those certificates with Bond Administration Services Corporation. When Mr. Cavallo first came to work at Bond Management Corporation, the registration coupons sent to the company by many consumers had not been processed, and Mr. Cavallo spent a good deal of his time in the first two months processing those registrations. The private offering memorandum which Mr. Cavallo distributed as part of the business plan of Bond Management Corporation and Bond Administration Services Corporation contained false representations about the securities, including the amount of the compensation which the trustee, Bond Management Corporation, was to receive; the use of 68% of the proceeds of the sale of the certificates to purchase the bonds which were to be the trust estate; the promise to deposit the bonds comprising the trust estate with the Federal bank or similar financial institution, and the underlying value of the certificates. No government bonds were ever purchased, so the Certificates of Beneficial Interest which Bond Management Corporation issued were worthless. Bond Management Corporation and Bond Administration Services Corporation, dealt with the money paid for the Certificates of Beneficial Interest as their own. In addition, the private offering memorandum Mr. Cavallo distributed did not disclose important facts, including the participation of Mr. Cavallo in the management of the issuer, and the identity of the founder of the company, John DiStefano, who had previously been convicted of securities violations. Shortly after Mr. Cavallo went to work for Bond Management and Bond Administration Services Corporation, he came to doubt that Thomas Whalen was competent to act as a trustee to run the business, due to Mr. Whalen's apparent addiction to cocaine. Mr. Cavallo consulted with an attorney because of his concerns, who advised him that he should say nothing unless he could actually prove that Mr. Whalen was engaged in wrongdoing. Otherwise, Mr. Cavallo would expose himself to potential liability for slander or libel. Although Mr. Cavallo was aware that bonds were not being purchased to create the trust estate that the Certificates of Beneficial Interest represented, he continued to engage in sales of the Certificates of Beneficial Interest until he left the companies in July of 1986. Bond Services Corporation and Bond Administration Services Corporation sold at least 10,000 Certificates of Beneficial Interest, which produced approximately $320,000 in revenue. By May 1986 approximately 3,500 of those worthless certificates had been distributed to individuals, approximately 1,100 of whom were Florida residents. Bond Services International Corporation After Mr. Cavallo resigned from working with Bond Management Corporation and Bond Administration Services Corporation, he went to work for Bond Service International Corporation (Bond International). Bond International had the same business plan as Bond Management Corporation and Bond Administration Services Corporation, and even did business at what had been the location of Bond Management Corporation. The owner of Bond International was John Wallace. He invited Mr. Cavallo to work for him because he knew Cavallo was unhappy at Bond Management Corporation because of the improper business practices of Mr. Whalen. Mr. Whalen had been involved in a previous business enterprise with Mr. Wallace. When Mr. Cavallo came to work at Bond International, Bond International had few clients. Many of Mr. Cavallo's clients from Bond Management Corporation followed him to Bond International. Sales were carried out by Bond International in a manner essentially identical to that used at Bond Management Corporation and Bond Services Administration Corporation. The Certificates of Beneficial Interest issued by Bon Services were essentially identical to that Bond Management Corporation. As with Bond Management Corporation, Mr. Whalen also failed to purchase the bonds which were to make up the trust estate represented by the Certificates of Beneficial Interest. The operation was a little better than at Bond Management Corporation because Bond International bought $225,000 worth of bonds, but that was only about 2-1/2% of the amount required to give the stated face value to the Certificates of Beneficial Interest. Ultimately, when Mr. Wallace was arrested for violation of Florida securities laws, those bonds were surrendered to Wallace's bail bondsman rather than maintained in trust. As with the program at Bond Management Corporation, neither the Certificates of Beneficial Interest issued by Bond International, nor the individuals selling the certificates, including Mr. Cavallo, were registered with the State of Florida, Division of Securities. Sales of Bond International's certificates were made to at least 40 companies. Offers of sale were made to additional businesses. Mr. Cavallo, himself, sent Certificates of Beneficial Interest in conjunction with sales or offers to sell those securities at least 54 times to 41 separate companies, four of which were located in Florida. Bond International received at least $270,000 in revenue from the sale of approximately 10,000 Certificates of Interest. When Mr. Cavallo left the company in December of 1986 about 2,800 consumers had received the Certificates of Beneficial Interest. The private offering memorandum of Bond International was essentially identical to that of Bond Management Corporation. It contained essentially the same false statements regarding the use of proceeds from the sale of certificates to purchase bonds which were to be held in trust by a financial institution, and the compensation of the trustee. The persons actually described as the company's managers, Mitchell Rymar and Janet Himmelheber did not manage the company, John Wallace and Mr. Cavallo did. The private placement memorandum also failed to disclose ongoing state and federal prosecutions of Mr. Wallace for securities fraud and credit card fraud. Mr. Cavallo drafted and mailed letters to be used by the companies purchasing the Certificates of Beneficial Interest when distributing them to consumers. These letters from Bond International to the certificate holders misrepresented that the certificates were guaranteed by the United States Government, when they were not, and that bonds were held in escrow to support the Certificates of Beneficial Interest when they were not. Mr. Cavallo represented himself as the person in charge of Bond International, represented himself as a vice president, was a signatory on Bond International's bank accounts and established a securities account as the vice president of Bond International. He ran the day-to-day affairs of the company and had access to the books and records of the company from the time he began working there. Mr. Wallace considered Mr. Cavallo as a partner in the business. In connection with his duties at Bond International, Mr. Cavallo offered and made sales of Certificates of Beneficial Interest issued by Bond International, by Federal Express delivery, by telephone, and by hand delivery of certificates to, local companies in Broward County. When Mr. Wallace was jailed in November of 1986, Mr. Cavallo continued to operate Bond Services throughout that month. Mr. Cavallo knew that bonds were not being purchased as stated on the Certificates of Beneficial Interest and in the private placement memorandum, and that John Wallace was irresponsible and wasted funds of the company from the time Mr. Cavallo began working there. Nonetheless, Mr. Cavallo continued with the company and continued to sell Certificates of Beneficial Interest. Mr. Cavallo signed numerous checks drawn on the accounts of Bond International, which included $2,500 to pay the criminal defense attorney Mr. Wallace retained to handle the Federal credit card fraud charges filed against him in Chicago, $349 for Wallace to travel to Chicago in connection with those charges, $1,000 to Robert Trachman, the local lawyer retained by Mr. Wallace to defend him with respect to securities fraud charges in Broward County, and $8,500 paid to John Gilbert Bailbonds, Inc., for Mr. Wallace's bail in connection with the Florida securities charges. Mr. Cavallo also wrote a large number of checks to "cash" on accounts of Bond International beginning in August 1986, and ending in November 1986. These checks aggregated $34,093.66. It is by no means clear what the checks to "cash" were used for, but there is no proof that they were ever used to purchase the securities which Bond International should have purchased to back, the Certificates of Beneficial Interest. Mr. Cavallo received direct payments by check made to him of at least $3,155. Mr. Cavallo is sophisticated in financial matters. He holds a bachelors and masters degree from the University of Miami in Coral Gables, as well as a masters of foreign trade from the American Institute of Foreign Trade in Glendale, Arizona. After Mr. Cavallo severed his connection with Bond International, he took steps to establish Bond Premium Corporation, which would have followed a business plan similar to those of Bond Management Corporation and Bond International, although Mr. Cavallo maintains he would have purchased bonds to support his Certificates of Beneficial Interest. That company never did any business.
Recommendation It is recommended that a final order be entered by the Department of Banking and Finance, Division of Securities, finding Mr. Cavallo guilty of: The sale of unregistered securities in violation of Section 517.07, Florida Statutes, and that he be fined $5,000; The sale of unregistered securities by an unregistered person, in violation of Section 517.12(1), Florida Statutes, and that he be fined $5,000; and Employing schemes to defraud and making false or fraudulent statements or representations in connection with the sale of the securities of Bond Management Corporation and Bond International in violation of Sections 51- 7.301(1)(a) and (c), Florida Statutes, and that for these acts he be fined $15,000, so that a total fine of $25,000 be imposed, and requiring him to cease and desist from further participation in the sale of securities. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 20th day of January, 1989. WILLIAM R. DORSEY, JR. Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1050 (904) 488-9765 Filed with the Clerk of the Division of Administrative Hearings this 20th of January, 1989. APPENDIX The following are my rulings on the proposed findings of fact submitted by the petitioners pursuant to Section 120.59(2), Florida Statutes (1987). Rulings on Petitioner's Findings of Fact Covered in finding of fact 1. Rejected as unnecessary. Covered in finding of fact 2. Covered in finding of fact 3. Covered in finding of fact 3. Covered in finding of fact 3. Covered in finding of fact 11. Covered in findings of fact 2 and 15. Covered in finding of fact 7. Covered in finding of fact 8. Covered in finding of fact 9. Covered in finding of fact 10. Covered in finding of fact 15. Covered in finding of fact 11. Covered in finding of fact 11. Covered in finding of fact 11. Covered in finding of fact 11. Covered in finding of fact 11. Covered in findings of fact 11 and 12. Covered in finding of fact 12. Covered in finding of fact 13. Covered in finding of fact 15. Rejected as cumulative. Covered in finding of fact 14. To the extent appropriate, covered in finding of fact 15. 26 To the extent appropriate, covered in finding of fact 15. Covered in finding of fact 16. Covered in finding of fact 18. Covered in finding of fact 18. Covered in finding of fact 19. Covered in finding of fact 19. Covered in findings of fact 7 and 20. Covered in finding of fact 21. Covered in finding of fact 22. Covered in findings of fact 17, 18 and 24. Covered in finding of fact 23. Covered in finding of fact 23. Covered in finding of fact 23. Covered in finding of fact 23. Rejected as unnecessary. To the extent appropriate, covered in finding of fact 25. Rejected as cumulative. Covered in finding of fact 26. Covered in finding of fact 17. Covered in finding of fact 5. It is not clear that Mr. Cavallo actually shared the profits equally with Mr. Wallace, however. Covered in finding of fact 23. Covered in finding of fact 26. Covered in finding of fact 27. Covered in finding of fact 28. Covered in finding of fact 29. Although my calculations of the amounts involved are somewhat different. Rejected as unnecessary. Covered in finding of fact 29. Covered in finding of fact 31. Covered in finding of fact 31. COPIES FURNISHED: Lawrence S. Krieger, Esquire 111 Georgia Avenue Suite 211 West Palm Beach, Florida 33401 Vincent R. Cavallo, pro se 405 S, Pine Island Road Plantation, Florida The Honorable Gerald Lewis Comptroller, State of Florida The Capitol Tallahassee, Florida 32399-0350 Charles L. Stutts, Esquire General Counsel Comptroller, State of Florida The Capitol Tallahassee, Florida 32399-0350
The Issue Whether petitioner's application for registration as a principal with Monvest Securities, Inc., should be granted by the Department of Banking and Finance, Division of Securities (Department).
Findings Of Fact The petitioner was registered with the Department as an associated person pursuant to Chapter 517, as follows: DATE COMPANY 9/22/82 to 9/19/83 Blinder, Robinson & Co. 11/23/83 to 6/26/84 First Interwest Securities Co. 9/4/84 to 12/27/84 Wall Street West, Inc. 3/11/85 to 10/3/85 R. H. Stewart & Co., Inc. 9/25/85 to 12/3/85 Allied Capital Group, Inc. Petitioner has not been registered with the Department in any capacity since December 3, 1985. The Department uses the forms adopted and approved by the National Association of Securities Dealers (N.A.S.D.) and filed with the Central Registration Depository (C.R.D.). Customarily, the registration application, Form U-4, is filled out by the applicant and given to the Broker-Dealer with whom the applicant is to be licensed. The Broker-Dealer then completes the form with the information concerning that Broker-Dealer and sends the completed form to the C.R.D. After Form U-4 has been filed with the C.R.D., the information is transmitted to the Department. The Broker-Dealer is advised when the applicant has been approved, and the Broker-Dealer informs the applicant that he can begin selling securities. It generally takes between one and two weeks for an applicant to be approved. No license or other paper is transmitted to the applicant from the Department to inform the applicant of his registration. However, the applicant can telephone the Department and determine his status. When an individual leaves the employ of a Broker-Dealer, the Broker- Dealer is required to send a Form U-5 to the C.R.D. within 30 days of termination. The individual never receives a copy of this form from either the C.R.D. or the Department or knows when it has been sent or received. Again, the associated person relies on the Broker-Dealer to advise him of his status. There is a procedure whereby an individual registered with one Broker- Dealer can transfer to another Broker-Dealer. This procedure, known as T.A.T., allows the individual to sell securities for 30 days while his application for registration with the new Broker-Dealer is pending. However, this procedure applies only to individuals who transfer their affiliation. It does not apply to individuals who terminate their affiliation with one company and then apply for registration with another company. Petitioner's registration as an associated person with Allied Capital terminated on December 3, 1985, and petitioner was advised by Allied Capital of his termination around December 1, 1985. Petitioner was terminated by Allied Capital due to insufficient business. On or about December 16, 1985, petitioner traveled to New York and spoke with representatives of Monvest Securities, Inc. (Monvest), regarding his registration through that company to open a branch office in Apopka, Florida. The same day he filled out a portion of a Form U-4 and gave it to the company for them to complete and send on to the C.R.D. Monvest also agreed to prepare the necessary documents to register the branch office in Apopka. Generally, the Broker-Dealer submits the application for the branch office. The application was submitted by Monvest on January 8, 1986. According to the application, petitioner was to be employed with Monvest in their office at 116-C East 5th Street, Apopka, Florida. There is no branch office of Monvest registered with the Department at that address. Petitioner stated in the employment history section of the application that from September of 1984 through November of 1984 he was unemployed. However, from September 4, 1984, until December 27, 1984, petitioner was registered as an associated person with Wall Street West. Petitioner made this error because he merely copied the employment history section from the previous application submitted for registration with Allied Capital. However, there was not a satisfactory explanation given as to why Wall Street West was omitted from the employment history listed on the Allied Capital application. Petitioner also stated in his employment history that he worked for R. H. Stewart & Company as a branch manager from December 1984 until August 1984. Petitioner was actually registered with R. H. Stewart from March 11, 1985 until October 3, 1985. However, because of the way the registration and termination systems work, it is not surprising that an individual's employment dates might be somewhat different from the dates of his official registration. When petitioner filled out the application form and left it with Monvest, he though that the application would be routinely processed, as all his others had been, and that approval would be forthcoming. In the meantime, petitioner had been involved in another business venture known as Global 2000 along with two other individuals. The group retained a law firm in Miami versed in securities regulations which prepared a document called "Confidential Private Placement Memorandum, Global 2000, Inc., and Global 2000 Securities Company" and a "Supplement to Private Offering". Petitioner is a principal in Global 2000, Inc., and Global 2000 Securities Company (collectively known as the Global 2000 Group). The number of investors in the Global 2000 Group is limited to no more than thirty-five, and the total offering is less than $500,000.00. Petitioner testified that the offering was a "Regulation D" offering, and therefore formal registration was not required. At the time of the hearing, petitioner was unaware of any sale of Global 2000 Group stock. On January 1, 1986, the Global 2000 Group published a "Supplement to Private Offering Memorandum, Global 2000, Inc., and Global 2000 Securities Corporation." The supplement had been sent to the printers on or about December 1, 1986, but was dated January 1, 1986. The last page of this supplement contains a picture of Woerz and the following: Melvin W. Woerz President Global 2000 Securities Company (Age 55) Licensed General Securities Principal and Registered Representative with the Division of Securities, Department of Banking and Finance, State of Florida; Securities and Exchange Commission, Washington, D.C.; NASD (National Association of Securities Dealers . . . In the bottom right corner of this page was the following: Global 2000 Securities Company 116-C East Fifth Street Apopka, Florida 32708 1-800-782-7710 This supplement was sent to all individuals who received the Private Placement Memorandum for Global 2000, Inc., and ten or fifteen other individuals. The Private Placement Memorandum and supplement were mailed shortly after January 1, 1986. At the time the supplement was mailed, petitioner was not registered with the Department nor was Global 2000 Securities Company. On or about January 22, 1986, petitioner mailed to forty or fifty individuals copies of a three page publication entitled "Our Recommendations." This publication advocates the purchase of various over the counter securities. The bottom of page three of this publication reads as follows: WE ARE WAITING TO HEAR FROM YOU!!! TAKE CARE MEL WOERZ AND ART BESCH SECURITIES BROKERS 116-C East Fifth Street Apopka, Florida 32703 PHONE: (305) 886-2288 COLLECT (800) 782-7710 IN FLORIDA (800) 423-0219 OUTSIDE FLORIDA There was no Broker-Dealer registered with the Department by the name of Mel Woerz and Art Besch. When "Our Recommendations" was mailed, petitioner was not sure whether his application for registration with Monvest had been approved in Florida. However, since Monvest had notified petitioner of his approval in six states, but not Florida, petitioner should have known that his application had not yet been approved in Florida. "Our Recommendations" was sent to prior clients of petitioner and Art Besch. Both Besch and petitioner stated that the intent of the communication was merely to keep in touch with their customers while awaiting approval. Petitioner has not sold any securities since leaving Allied Capital. On the application filed with the Department, petitioner agreed "to abide by, comply with, and adhere to all the provisions, conditions, and covenants of the statutes . . . and rules and regulationns of the states. "
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that a final order be entered denying petitioner's application for registration pursuant to Section 517.161(1)(a), Florida Statutes, in that petitioner has violated Sections 517.12(1) and 517.311(2), Florida Statutes, and pursuant to Section 517.161(1)(b), Florida Statutes, in that petitioner's application contains a material false statement. It is also recommended that petitioner's application be denied because it designates as petitioner's place of employment a branch office that has not been registered. DONE and ORDERED this 15th day of October 1986 in Tallahassee, Florida. DIANE A. GRUBBS 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 15th day of October 1988. APPENDIX TO RECOMMENDED ORDER IN CASE No. 86-1785 Petitoner's Proposed Findings of Fact and Conclusions of Law 1 & 2. Accepted in Paragraph 3. Accepted in Paragraph 7. Accepted in Paragraph 3. Accepted in Paragraph 4. Accepted in Paragraph 3. Accepted in Paragraph 5. 8 & 9. Accepted that petitioner's employment history did not correlate with his registration in Paragraph 10. Remainder rejected as unnecessary. 10-12. Rejected as unnecessary. Accepted as stated in Paragraph 6. Accepted in Paragraph 1. Accepted, Paragraph 7. 16-18. Accepted in Paragraph 8. 19. Accepted in Paragraph 11. 20-22. Accepted generally in Paragraphs 12 and 13, last sentence and date of mailing rejected as not supported by competent evidence. Accepted generally in Paragraph 14. Accepted generally in Paragraph 17'. Accepted in Paragraph 15. Accepted in Paragraph 1. First sentence accepted in Paragraph 9, second sentence rejected for reason stated in Paragraph 9, last sentence rejected as irrelevant and not supported by credible evidence. Respondent's Proposed Findings of Fact and Conclusions of Law 1-3. Accepted in Paragraph 8, except date changed to January 8th because that is when Monvest signed application. Accepted in Paragraph 1. Accepted generally in Paragraph 13. 6 & 7. Accepted in Paragraph 1. 8. Accepted generally in Paragraphs 14 and 16. 9. Accepted in Paragraph 15. 10. Accepted in Paragraph 1. 11. Accepted in Paragraphs 9 and 10. 12. Accepted in Paragraph 1. 13. Accepted in Paragraph 3. 14. Accepted in Paragraph 5. 15. Accepted generally in Paragraphs 1 and 3. COPIES FURNISHED: Robert W. Kieffer, Esquire Post Office Box 2021 Orlando, Florida 32801 Robert K. Good, Esquire Office of the Comptroller 400 W. Robinson Street Suite 501 Orlando, Florida 32801 Honorable Gerald Lewis, Comptroller Department of Banking and Finance The Capitol Tallahassee, Florida 32301 Charles Stutts, Esquire General Counsel Department of Banking and Finance The Capitol Tallahassee, Florida 32301
Findings Of Fact Based upon my observation of the witnesses, and their demeanor while testifying, the documentary evidence received and the entire record compiled herein, I hereby make the following findings of fact: The Petitioner, Thomas Patrick Boggs, resides in Ft. Lauderdale, Florida, and is employed with MCG Portfolio Management Corporation. On March 9, 1987, the Petitioner submitted an application for registration as an associated person with MCG Portfolio Management Corporation pursuant to the "Florida Securities and Investor Protection Act," Chapter 517, Florida Statutes. By letter dated April 9, 1987, the Respondent, Department of Banking and Finance, Division of Securities and Investor Protection, denied the Petitioner's application based on the incidents discussed in paragraphs three (3) to nine (9) below. Petitioner was arrested on August 8, 1975, in the State of Virginia for the alleged offense of passing a bad check to a service station. The charges were dropped when the Petitioner made payment on the check. In a letter dated July 24, 1978, the New York Stock Exchange ("NYSE") admonished Petitioner for failing to disclose his 1975 arrest for petty larceny on a Form U-4 (Uniform Application for Securities and Commodities Industry Representative and/or Agent). The NYSE took note of Petitioner's "explanation that [he] failed to report the offense because [he] considered the problem minor and that the charge against [him] was subsequently dropped." The letter to Petitioner went on to state that "[t]he Exchange hereby admonishes you for your conduct and cautions you that any future misconduct may result in formal disciplinary action. " In a letter dated March 20, 1981, the NYSE admonished Petitioner for failing to respond correctly to a question on a Form U-4 dated May 7, 1980. Question 50(a) of the Form U-4 read as follows: "In your previous business connections or employment, have you ever been . . . a subject of a major complaint or legal proceeding?" The Petitioner responded "no" to question 50(a), although he had been named as a party defendant in a lawsuit commenced in March 1980 by a customer of Drexel, Burnham, Lambert Incorporated where he was employed as a registered representative from January to May 1980. In a letter dated March 20, 1981, the NYSE took consideration of Petitioner's "explanation that [he] interpreted Question 50(a) as referring to [his] business connections and employment prior to entering the securities business, and that [he] had disclosed the litigation to Dean Witter personnel during [his] initial interview for employment." The NYSE's letter to Petitioner went on to state that "the Exchange hereby admonishes you for your conduct and cautions you that any misconduct on your part in the future will very likely lead the Exchange to take formal disciplinary action against you." On September 25, 1985, a suit was filed against Petitioner in the United States District Court for the Northern District of Georgia. The suit, Bernard, et al v. First Continental Resources, Inc.; T. Patrick Boggs (Petitioner); David Meeks; and First Continental Drilling Associates, a Nevada Limited Partnership (Civil Action No. 85-182), alleged fraud, breach of contract, breach of fiduciary duty, and negligence in connection with the sale of securities. First Continental Resources, Inc., was the corporation general partner of First Continental Drilling Associates. Petitioner was the individual general partner for First Continental Drilling Associates and President/Chief Operating Officer and Director of First Continental Resources, Inc. Petitioner was a controlling person of First Continental Resources, Inc., and First Continental Drilling Associates as that term is used in Section 15 of the Securities Act of 1933 and Section 20 of the Securities Exchange Act of 1934. The plaintiffs in the lawsuit sought compensatory damages of approximately $800,000, treble damages, and punitive damages of $20 million. The Petitioner and the other defendants failed to defend the suit and the Court entered an Order of Default against Petitioner on March 31, 1986. On May 31, 1986, the defendants obtained a judgment against Petitioner and all defendants for approximately $2.3 million. The Petitioner testified that he had a meritorious defense to the Bernard lawsuit but failed to present it because of lack of funds for legal representation. The Petitioner testified that he was in fact a victim of fraud along with the plaintiffs, perpetrated by some of the co-defendants in the lawsuit. George Bloukos, Executive Vice President of MCG Portfolio Management Corporation, has known the Petitioner since March of 1987 when Petitioner first sought employment with his company. Since that time, the Petitioner has been employed with MCG in a clerical-like capacity, pending resolution of his registration application. Bloukos has worked in the securities and investments profession for approximately thirty (30) years. Based on Bloukos' observation of Petitioner, the Petitioner has shown himself to be a person of good character, good business ethics and a conscientious worker. Bloukos believes that Petitioner is a trustworthy individual who would be an asset to his company and to the securities and investments profession.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, RECOMMENDED that the Petitioner's application for registration as an associated person be DENIED. DONE and ORDERED this 7th day of October, 1987 in Tallahassee, Leon County, Florida. W. MATTHEW STEVENSON 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 7th day of October, 1987. COPIES FURNISHED: Charles E. Scarlett, Esq. Office of the Comptroller Suite 1302, The Capitol Charles L. Stutts, Esq. General Counsel Department of Banking & Tallahassee, FL 32399 Finance Plaza Level, The Capitol Tallahassee, FL 32399-0350 Thomas P. Boggs c/o George Bloukos MCG Portfolio Management Corp. 5301 North Federal Highway Suite 170 Boca Raton, FL 33431 Hon. Gerald Lewis Comptroller Department of Banking & Finance The Capitol Tallahassee, FL 32399-0350
The Issue The central issue in this case is whether Petitioner is entitled to be registered as an associated person.
Findings Of Fact Petitioner filed an uniform application for securities registration with the Department. This application sought registration as a general securities representative (5-7) and named Sheffield Securities, Inc. as the firm for whom she intended to work. The application sought information regarding Petitioner's past work experience and specifically inquired as to whether the U.S. Securities and Exchange Commission (SEC) had ever found her to have been involved in a violation of investment-related regulations or statutes. The application also asked Petitioner to disclose whether the SEC had entered an order denying, suspending or revoking her registration or disciplined here by restricting her activities. To both of these questions Petitioner answered "yes." Petitioner's association with the securities industry began in 1972 when she was employed as a secretary for a securities firm. Her work prior to that had been as a bookkeeper. Petitioner obtained her registration and purchased a securities business, Adams & Whitney Securities Corp., in late 1973 or early 1974. Adams & Whitney was registered with the SEC and operated as a broker/dealer buying and selling interests for itself and others. Petitioner was the president and sole principal for Adams & Whitney. On February 9, 1976, the SEC issued a released which claimed Adams & Whitney and Petitioner had wilfully violated and wilfully aided and abetted violations of the anti-fraud provisions of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities EXCHANGE ACT of 1934, and Rule lOb-5 in connection with an offer to purchase, and sale of ITS securities and manipulation of the price of the security. The release also alleged Petitioner had violated Section 15(c)(2) of the securities EXCHANGE ACT of 1934 and Rule 15c 2-7 by submitting quotations for ITS securities to a interdealer quotation system without notification to the system of arrangements with other brokers and guarantees of profits. Without admitting or denying the allegations against her, Petitioner submitted an offer of settlement regarding the ITS charges which the SEC determined to accept. As a result, the registration as a broker-dealer of Adams & Whitney was suspended for a period of four months. Also, Petitioner was suspended from association with any broker-dealer for a period of four months. On June 27, 2977, the SEC issued a release which charged that Petitioner had wilfully violated and wilfully aided and abetted violations of the registration provisions of the Securities Act of 1933, and had willfully violated an wilfully aided and abetted violations of the anti-fraud provisions of the Securities Act of 1933 and the Securities EXCHANGE Act of 1934 in connection with the offer and sale of the common stock of Tucker Drilling Company, Inc. Without admitting or denying the allegations against her, Petitioner submitted an offer of settlement regarding the Tucker Drilling charges which the SEC decided to accept. As a result, the SEC found that Petitioner wilfully violated and wilfully aided and abetted violations of Sections 5(a) and 5(c) of the Securities Act of 1933. Further, it was found Petitioner willfully violated and willfully aided and abetted violations of Section 10(b) of the EXCHANGE act and Rule 10b-6. Based on its findings the SEC suspended Petitioner from association with any brokers, dealer or investment company for a period of twelve months and barred her from association with any broker, dealer or investment company in a supervisory or proprietary capacity. Prior to the entry of the administrative penalties imposed against Petitioner in connection with the Tucker Drilling charges, the SEC had obtained a civil injunction against Petitioner which permanently enjoined her from violating the federal securities laws in connection with the offer and sale of Tucker securities or any other securities. Petitioner maintained at hearing that the submitted of settlement were offered as an expedient means of resolving the charges since she did not have the financial resources needed to oppose the allegations. In connection with the ITS charges, Petitioner stated she did not improperly scheme to manipulate the stock prices, that she neither bought nor sold shares of ITS, and that she was charged with other broker-dealers who had "made a market" for ITS simply because of her association with them. Further, Petitioner denied she had ever received compensation for deals made with the ITS sales In connection with the Tucker Drilling charges, Petitioner admitted she actively participated in the purchase and sale of the Tucker stock but that she had not known of the improprieties of others involved in the trading. Petitioner denied she had knowingly violated the laws and alleged that by the time she determined something was improper, the investigations had begun. Petitioner found the Tucker incident a "stupid mistake. In 1976, Adams & Whitney went out of business. Petitioner subsequently devoted her energy to her own and family health problems and became a housewife. In 1985, Petitioner's family moved to Florida and she worked as a secretary for a brokerage firm called Brown & Hawk, Inc. From September, 1986 until the time of her application, Petitioner worked as a secretary for Sheffield Securities, Inc. During her employment with Sheffield, Petitioner studied for an successfully passed the examination for S-7 registration. According to Dennis Dixon, who was a financial principal and general securities associated person at Sheffield Securities, Petitioner is a very trustworthy person who is also very capable. According to Don Saxon, the determination that Petitioner had violated the anti-fraud provisions was a great concern to the Department since those violations are the most serious types perpetrated by an individual in the industry.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED: Department of Banking and Finance, Office of the Comptroller, Division of Securities and Investor Protection enter a Final Order approving Petitioner's application for registration with restrictions as may be deemed appropriate by the Department. DONE and RECOMMENDED this 25th day of July, 1988, in Tallahassee, Florida. JOYOUS D. PARRISH 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 25th day of July, 1988. APPENDIX TO RECOMMENDED ORDER, CASE NO. 88-0531 Rulings on Petitioner's proposed Findings of Fact: Paragraph 1 is accepted. Paragraph 2 is accepted. Paragraph 3 is rejected as argument. Paragraph 4 is rejected as argument or unsupported by the evidence. To the extent relevant see findings made in paragraphs 11 & 12. Paragraph 5 is rejected as argument. Paragraph 6 is accepted to the extent addressed in findings made in paragraphs 10, 11, 12 otherwise rejected as argument unsupported by the record, or irrelevant. The first sentence in paragraph 7 is accepted. The balance of paragraph 7 is rejected as argument. Paragraph 8 is accepted. Paragraph 9 is rejected as argument. The first 4 sentences of paragraph 10 are accepted. The balance of paragraph 10 is rejected as argument. Paragraph 11 is rejected as argument. COPIES FURNISHED: Charles E. Scarlett Assistant General Counsel Office of the Comptroller Suite 1302, The Capitol Tallahassee, Florida 32399 Michael J. Cohen, Esquire 517 S. W. First Avenue Fort Lauderdale, Florida 33301 Honorable Gerald Lewis Comptroller, State of Florida The Capitol Tallahassee, Florida 32399-0350
Findings Of Fact 1. Adopted in Finding of Fact 10. 2-4. Rejected as Conclusions of Law and not Finding of Facts. Adopted in Finding of Fact 4. Adopted in Findings of Fact 4 and 6. Rejected as contra to the weight of the evidence in that Hardage, for Respondent Benchmark, arranged the joint venture which culminated in the sale. Rejected as contra to the weight of the evidence. 9-10. Adopted in Finding of Fact 6. Adopted in Findings of Fact 6 and 7. Rejected as contra to the weight of the evidence. Rejected as a Conclusion of Law and not a Finding of Fact.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, therefore RECOMMENDED that the allegations against the Respondent, David W. Stuart, and the allegations of a violation of Section 475.25(1)(b), Florida Statutes, against Respondent, Benchmark Brokers of Destin, Inc., be dismissed, but that the license of Benchmark Brokers of Destin, Inc., be suspended for a period of 90 days for the violation of Section 475.25(1)(d), Florida Statutes. RECOMMENDED this 3rd day of March, 1986, in Tallahassee, Florida. ARNOLD H. POLLOCK, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 3rd day of March, 1986. COPIES FURNISHED: Arthur Shell, Jr., Esquire Division of Real Estate Department of Professional Regulation P.O. Box 1900 Orlando, Florida 32802 David L. Selty, Esquirer Executive Park, Building H, Suite 3 11 Racetrack Road, NE Ft. Walton Beach, Florida 32548 Harold Huff, Exec. Director Division of Real Estate Department of Professional Regulation P.O. Box 1900 Orlando, Florida 32802 Fred Roche, Secretary Department of Professional Regulation 130 N. Monroe Street Tallahassee, Florida 32301 APPENDIX The following constitutes my specific rulings pursuant to Section 120.59(2), Florida Statutes, on all Proposed Findings Of Fact submitted by the parties to this case.
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 in this case is whether the allegations of the Administrative Complaint are correct and, if so, what penalty should be imposed.
Findings Of Fact At all times material to this case, Respondent Carolyn Cutler ("Cutler"), was a licensed real estate salesperson in the State of Florida, license #0319031. The most recent license issued to Cutler was as a non-active salesperson residing at Post Office Box 1315, Clyde, North Carolina 28721. The Petitioner is the state agency with statutory responsibility for licensure and regulation of real estate salespersons including the prosecution of Administrative Complaints against such persons. Immediately prior to September 24, 1990, Virginia Gregory responded to a newspaper advertisement offering a three bedroom house for sale with "easy financing". When she called the number set forth in the advertisement, she spoke to Cutler. Ms. Gregory and Cutler met sometime thereafter, at which time, Cutler agreed to assist Ms. Gregory in clearing a poor credit record and in purchasing a home. According to an agreement signed by Ms. Gregory on September 24, 1990, Ms. Gregory agreed to pay Cutler $350 for a credit report and for "SERVICES RENDERED IN ADVISING ME ON MY CREDIT REPORT." The agreement states that "CAROLYN CUTLER IS NOT ACTING AS A REAL ESTATE AGENT OR COMPANY. ACTING ONLY IN AN ADVISORY COMPASSADY (sic)". The agreement continues as follows: "I ALSO UNDERSTAND THE FEE IN WHICH I AM BEING CHARGED IS NOT REFUNDABLE. I AGREE TO PAY CONSULTING FEE OF $5,000. (TOTAL) TO PROFESSIONAL MKT. FOR CREDIT SERVICE." Although the agreement states that Cutler is not acting as a real estate agent, Ms. Gregory decided to rely upon Cutler's expertise and counsel because she was a licensed real estate salesperson. By her check numbered 179 and dated October 15, 1990, Ms. Gregory paid $350 to "C & S Consultant & Marketing". By her check numbered 242 and dated November 19, 1990, Ms. Gregory paid $2,000 to "Professional Marketing". Ms. Gregory subsequently had difficulty in contacting Cutler, and so notified the bank to stop payment on this check. By her check numbered 261 and dated December 5, 1990, Ms. Gregory again paid $2,000 to "Professional Marketing". On or before January 20, 1991, Cutler solicited and obtained an offer from Ms. Gregory to purchase a house owned by Beverly Dibble. The Dibble house was offered for sale pursuant to a listing agreement with another realtor. Cutler represented Ms. Gregory in the transaction and completed a standard Florida Association of Realtors Contract for Sale and Purchase to purchase the Dibble house for $74,000. The contract provides that a $2,000 deposit will be held in trust by "Professional Marketing." An addendum to the sales contract provides that of the $74,000, Ms. Dibble would pay a "consulting fee" to "Professional Marketing" in the amount of $3,000. There is no evidence that Ms. Gregory provided "consulting" services to Ms. Dibble. Ms. Gregory did not obtain financing for the purchase of the Dibble house and the transaction did not close. Although the contract states that deposit funds were placed with "Professional Marketing", there is no evidence that such designated funds were paid by Ms. Gregory. In any event, no funds were returned to Ms. Gregory. On or about February 7, 1991, Ms. Gregory, without Cutler, viewed a home offered for sale by David Godfrey and Rodney Troyer, and signed a contract to purchase the house for $84,500. The contract provided that a $5,000 deposit would be held in escrow by "Executive Title Co." The Godfrey/Troyer sales contract further provided that the purchase was conditioned on Ms. Gregory being able to obtain financing of $65,000 at an initial interest rate not to exceed 10.5 per cent for a 30 year term. After making the offer, Ms. Gregory brought Cutler into the house to inspect the property. Although the escrow deposit check was rendered to Executive Title Services, Inc., for some reason the check was never deposited into an escrow account. By her check numbered 383 and dated February 8, 1991, Ms. Gregory paid $1,500 to Cutler as payment for services in connection with obtaining a mortgage on the Godfrey/Troyer property. Cutler contacted a representative of Norwest Mortgage Company to discuss obtaining financing for Ms. Gregory's purchase of the Godfrey/Troyer house. Initially, Cutler met directly with the Norwest representative and provided information including a completed loan application to Norwest. Ms. Gregory subsequently met with the Norwest representative at Cutler's home. Cutler assisted Ms. Gregory in responding to the Norwest officer's questions and, using the Norwest application form, prepared a second application for financing. By her check numbered 394 and dated February 15, 1991, Ms. Gregory paid $300 to Norwest Mortgage as payment for services in connection with processing the mortgage application. The application for financing completed by Cutler indicated that Ms. Gregory was employed part-time as a "router" for "Routing Services", a business allegedly involving transportation of "large items". The application completed by Cutler stated that Ms. Gregory's annual income was approximately $36,000. Ms. Gregory did not work for and was not employed by any business entity identified as "Routing Services". Norwest was unable to corroborate Ms. Gregory's income level as identified on the mortgage application and requested additional information. On or about March 3, 1991, Cutler provided to Ms. Gregory a billing statement allegedly from "Professional Marketing" showing a balance due of $1,500. The statement provides as follows: "MRS. GREGORY-DUE TO THE FACT WE ARE NOT ON THE CONTRACT, WE MUST HAVE BALANCE PAID BEFORE YOUR INCOME VERICATION (sic) ARE SENT TO MORTGAGE. PLEASE ISSUE A CASHIERS CHECK FOR $1,500.00 PAYABLE TO PROFESSIONAL MKT. IF MORTGAGE IS DECLINED, PROFESSIONAL WILL REFUND $1,500.00 IMMEDIATELY." Ms. Gregory made a cash payment of $1,500 to Cutler on or about March 5, 1991. Thereafter, Cutler provided additional paperwork to Norwest in an attempt to substantiate an income level for Ms. Gregory. Cutler provided to Norwest, additional materials containing false information which indicated that Ms. Gregory was an employee of "Routing Service" with an income level of approximately $36,000. The materials included a 1990 tax return, and an IRS form 1099-MISC (statement for recipients of miscellaneous income) for tax year 1990. Norwest attempted to contact "Routing Services" to verify the employment and income information set forth on the loan application. In response to the inquiry, Norwest received the following statement: "TO WHOM IT MAY CONCERN: WAGE AND INCOME VARICATION (sic), V. GREGORY, MRS. GREGORY GETS PAID WEEKLY, OF APP. 650. PER WEEK, FOR WORK SHE PERFORMS. WE DO NOT USE CHECKS WITH PAY STUBS, SO SHE CAN NOT PRODUCE A PAY STUB. (PAYROLL PAY STUB) IN 1990, SHE MADE (GROSS) APP. 36,000. SHE WORKS A LOT OF HOURS ON THE ROAD." The statement was signed by Mary Lou Leeds, who identified herself as "MANGER (sic)" of "Routing Services". There is no evidence that any person named Mary Lou Leeds was employed by "Routing Services". Norwest was subsequently provided two checks supposedly demonstrating salary paid to Ms. Gregory. Check #96 has an issue date of 2-13-91 and shows a payment of $1,335 identified as "TWO WEEKS WAGES". Check #97 has an issue date of 2-27-91 and shows a payment of $700 identified as "1 wk. wages." Norwest declined to finance Gregory's purchase of the Godfrey/Troyer property because the Norwest representative was unable to obtain reliable corroboration for the information set forth by Cutler on Ms. Gregory's loan application. On or about April 6, 1992, Cutler provided to Ms. Gregory a billing statement allegedly from "Professional Market & Counseling (sic)" showing payments made totaling $5,000, and a balance due of $45. The statement provides as follows: "THERE ARE TWO MORTGAGE BROKERS, WHO ARE WILLING TO GET YOU A MORTGAGE, WITH A BIT HIGHER INTEREST RATE, YOU CHOSE NOT TO ACCEPT, SO THERE FOR (sic) YOU OWE A BALANCE TO THIS OFFICE OF $45. YOUR FILE WILL BE CLOSED, AS WE ARE MOVING OUR OFFICE TO THE NORTHERN STATES." During the transactions between Cutler and Ms. Gregory, Cutler stated that she worked for a company variously identified as "Professional Marketing", "C & S Consultant & Marketing", or "Professional Market & Counseling". There is no evidence that any of the business entities, if they exist at all, provided any legitimate services to Ms. Gregory or that persons other than Cutler were involved in the operation of the entities. The statements issued by Cutler on behalf of the various business entities indicated that the company operated from Post Office Box 9426 in Clearwater, Florida. There is no such box number in Clearwater. In the materials provided to Norwest, Cutler had identified the "Routing Service" address as Box 150114, Cape Coral, Florida 33915. According to the records of the postal service, Box 150114, Cape Coral, Florida 33915 is assigned to the physical location 5128 York Court, wherein Kurt Liebegott has resided at all times material to this case. Mr. Liebegott does not receive his mail at a post office box, has never met Cutler and has no knowledge of her activities. During the period of time Cutler was attempting to obtain financing on behalf of Ms. Gregory from Norwest Mortgage, Cutler provided a telephone number, 813-338-6398, to the Norwest representative and identified the number as that of "Routing Service", the alleged employer of Ms. Gregory. According to records of the telephone company, the number had been previously assigned to Cutler and was disconnected on April 2, 1991. Ms. Gregory has received no refunds of any kind from Cutler or from any of the business entities Cutler allegedly operated.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED: That the Department of Professional Regulation, Division of Real Estate, enter a Final Order determining B. Carolyn Cutler guilty of the violations set forth herein and revoking her license as a real estate salesperson. DONE and ENTERED this 24th day of November, 1992, in Tallahassee, Florida. WILLIAM F. QUATTLEBAUM 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 24th day of November, 1992. APPENDIX The following constitute rulings on proposed findings of facts submitted by the Petitioner. Petitioner The Petitioner's proposed findings of fact are accepted as modified and incorporated in the Recommended Order except as follows: Rejected, not supported by cited exhibit which establishes that the Respondent's most recent address of record is as set forth in Finding of Fact #1. Rejected, unnecessary. Rejected. There is no direct evidence that Cutler placed the ad although she was the person who responded to calls. 5-6. Rejected, unnecessary. 9. Rejected, not supported by the document Ms. Gregory signed on September 24, 1990, which clearly states that she acknowledges that she will not receive a refund. Ms. Gregory's testimony to the contrary is rejected as not credible. 15. Rejected, contrary to evidence. The check cited in the proposed finding as constituting the deposit of the purchase of the Dibble home is dated December 5, 1990. The contract for purchase is dated January 20, 1991. 20-21. Rejected, unnecessary. 25-26. The statement is dated March 1, 1991. 32. Rejected, cumulative. 42-45. Rejected, unnecessary. 46-47. Rejected, cumulative. 48. Rejected, subordinate. Rejected, cumulative. Rejected, unnecessary. 52-54. Rejected, cumulative. 65. Rejected, unnecessary. 67-69. Rejected, unnecessary. 76. Rejected. There is no credible handwriting evidence which establishes that the letter was indeed written and signed by Cutler. 77-78. Rejected. Neither the common misspelling nor the apparent similarity of type establish that Cutler wrote both letters. COPIES FURNISHED: Darlene F. Keller, Director Division of Real Estate Department of Professional Regulation Hurston North Tower 400 W. Robinson Street P.O. Box 1900 Orlando, Florida 32802 Jack McRay General Counsel Department of Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-0792 Janine B. Myrick, Esq. Department of Professional Regulation Post Office Box 1900 Orlando, FL 32802 B. Carolyn Cutler Post Office Box 1315 Clyde, NC 28721-1315 B. Carolyn Cutler Post Office Box 300601 Fern Park, Florida 32730-0601
