The Issue The issues for determination in this proceeding are whether Respondent, by and through his employees: (a) sold unregistered securities in the secondary market which were marked up in excess of 10 percent of the prevailing market price and which were not exempt from registration; (b) permitted an agent to service accounts prior to the agent's effective date of registration in the State and concealed such action; and (c) failed to maintain minimum net capital requirements for his corporation; and (d) failed to properly supervise the activities of his employees and agents.
Findings Of Fact Respondent owned the stock of a holding company and was an officer in a wholly owned subsidiary of the holding company. Respondent and another individual owned the stock of Dean, Johnson and Burke Holding Company ("Holding"). Holding owned the stock of Dean, Johnson and Burke Securities, Inc. ("Securities"). Respondent was the Secretary of Securities. Respondent had ultimate responsibility for disbursements and profits for Holding and Securities. Respondent monitored the checkbooks and daily expenses for Securities. Respondent's accountant provided financial information to Respondent concerning the daily operations of both companies. The information was provided on forms supplied by Respondent. Respondent kept a daily record of how much each company made or lost, how much was owed, and other accounting information. Respondent made sure that the bills were paid and that the credit of each company remained good. Respondent also controlled the hiring of key personnel. Brent A. Peterson was a manager and principal for Securities. 2/ Mr. Peterson set prices for the firm. Mr. Peterson engaged in transactions in which prices were set for securities to be sold to customers in excess of 10 percent above and below the prevailing market price. Out of 457 trades, approximately 38 were sold at prices that exceeded a 10 percent markup (the "marked up securities"). The marked up securities were sold at prices in excess of 10 percent of the prevailing market rate. The National Association of Securities Dealers, Inc., ("NASD") determined that the securities were marked up in excess of 10 percent of the prevailing market price based upon Securities' contemporaneous costs. When a dealer is simultaneously making a market in a security (a "market maker"), the NASD looks to the prevailing market price for the purpose of determining if a markup exceeds 10 percent. The prevailing market price is the price at which dealers trade with one another, i.e., the "current inter-dealer market." 3/ When a dealer is not simultaneously making a market in a security (a "non-market maker"), the contemporaneous costs of the dealer are used for the purpose of determining if the securities have been marked up in excess of 10 percent. The contemporaneous costs reflect the prices paid for a security by a dealer in actual transactions closely related in time to the dealer's retail sales of that security. Such a standard is normally a reliable indication of prevailing market price in the absence of evidence to the contrary. Securities was not a market maker in the marked up securities. Even though securities may be sold at the same market price by one firm that is a market maker and one that is not a market maker, the latter may be deemed by the NASD to have marked up the security by more than 10 percent depending on the firm's contemporaneous costs. Many of the marked up securities were sold to customers at the same market price as that the customers would have paid other brokerage houses. 4/ Since Securities was not a market maker in the marked up securities, the standard used by the NASD to determine the amount of markup was the contemporaneous costs paid by Securities. The securities involved in the 38 trades were marked up more than 10 percent over Securities' contemporaneous costs. Respondent sold unregistered securities that were not exempt from registration. Unregistered securities may be sold if they are reasonably related to the current market price. The marked up securities were not reasonably related to the prevailing market price because they were marked up more than 10 percent over Securities' contemporaneous costs. Robert M. Long sold securities to customers as an employee of Securities prior to the effective date of his registration with Petitioner. Mr. Long was registered with Petitioner as a registered representative on May 18, 1988. Mr. Long was employed by Securities, from April 19, 1988, through September 20, 1989. Mr. Peterson advised Mr. Long that Mr. Long was authorized to trade securities. Pursuant to Mr. Paterson's advice, Mr. Long sold securities in Tel-optics prior to the effective date of his registration with Petitioner on May 18, 1988. Respondent concealed the sale of securities by Mr. Long prior to the effective date of his registration with Petitioner. Mr. Long's registered representative number was 34. Relevant order tickets showed Mr. Long as the person engaged in the sale of securities prior to May 18, 1988. Registered representative number 30 had been used on the order tickets at the time of the trades. After Mr. Long was registered with Petitioner, Mr. Long's number 34 was added to the order tickets and number 30 was crossed out. Securities operated with a net capital deficiency of approximately $30,000. The net capital deficiency resulted from the failure to accrue liabilities. The net capital deficiency was discovered by Mr. Long and Jeff Clark, an examiner for the NASD. The invoices for bills for the unaccrued liabilities were not filed where bills and invoices were normally filed and were found by Mr. Long concealed in drawers and other remote locations in the office. The net capital deficiency was discovered by Mr. Long on August 28, 1989, but not reported to Petitioner until September 19, 1989. Mr. Long did not notify Petitioner of the net capital deficiency at Securities until the deficiency could be verified by Mr. Clark.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner enter a final order finding that Respondent is guilty of committing the acts alleged in the Administrative Complaint, requiring Respondent to cease and desist from all violations of Florida statutes and rules, and imposing a fine in the aggregate amount of $9,000. The fine should be imposed in the amount of $2,000 for selling securities in excess of a 10 percent markup and $3,500 for each of the other two acts that constituted violations of applicable statutes and rules. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 25th day of July, 1991. DANIEL MANRY Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 25th day of July, 1991.
Findings Of Fact Based upon the testimony and exhibits in evidence, and the observed candor and demeanor of the witnesses, the following are found as facts: The Respondent, Shirley L. Kundsen, is a real estate broker, having been issued License No. 0048550. The Respondent, Robert S. Kingsland, is a real estate broker, having been issued License No. 0047741. The Respondent, Kingsland-Henry and Associates, Inc., is a corporate real estate broker having been issued License No. 0047745. In 1972, Charles Pullen and Beverly Pullen owned Lots 84, 85, 86, 87 and 88, Kissimmee Heights Subdivision, in Osceola County, Florida. In 1972, Charles Pullen's sister, Myrtle Saulsbury, and her husband, Frank, owned lots 89, 90, 91, 133 and 134 in Kissimmee Heights Subdivision, Osceola County, Florida. Myrtle Saulsbury died on January 27, 1975, and Mr. Frank Saulsbury subsequently remarried to Mary E. Saulsbury. In 1972, the Respondent, Shirley L. Kundsen, then a salesperson for Kingsland-Henry and Associates, Inc., presented a contract to Mr. and Mrs. Pullen for the purchase of their five lots for a price of $12,500.00 At approximately the same time, the Respondent, Shirley L. Kundsen, presented a contract to the Pullens offering to purchase the lots owned by the Saulsburys. This contract was delivered to the Saulsburys by Mr. Pullen. Upon initially being presented the contract for purchase of their lots, the Pullens contend that they refused to accept the offer and asked that the purchase price be raised to $17,500.00, with no real estate commission payable by the seller. They contend that they offered any excess over that price to Shirley L. Kundsen and Kingsland-Henry and Associates, Inc., in lieu of a real estate commission. Shirley L. Kundsen subsequently crossed out the price of $12,500.00, and replaced it with the figure $17,500.00. With this change the contract was initialed by Mr. and Mrs. Pullen. The Saulsbury contract was drafted to indicate a purchase price of $17,500.00 as well. Mr. and Mrs. Pullen subsequently signed the contract, and contend that upon Shirley L. Kundsen's request, they placed the date "way over on the right hand side of the line", thereby leaving room for the later insertion of a commission percentage in the space to the left. The Saulsburys also subsequently signed their contract. At the time these contracts were executed by the Pullens and by the Saulsburys, they contend that there was no reference to any commission payable to Kingsland-Henry and Associates, Inc. The contracts with Mr. and Mrs. Pullen and with Mr. and Mrs. Saulsbury have been received in evidence as Petitioner's Exhibits 1 and 3. The language now appearing in these contracts requiring the payment of a 10 percent commission to Kingsland-Henry and Associates, Inc., was inserted after the signatures of the Sellers was placed on the contracts. This fact was established by evidence presented by a handwriting expert. The Pullens and the Saulsburys first learned of the addition of the real estate commission at the time of closing, and after learning of this addition they refused to close on the contracts. The Pullens and the Saulsburys never agreed to pay for any survey work performed for or by the prospective purchaser of the properties, and paragraph D on page 2 of the contracts obligated the buyer to bear this expense. When attempting to sell their property years later, in 1978, the Saulsburys, and subsequently the Pullens, learned that their property had been encumbered by recorded Affidavits prepared at the direction of Respondent, Robert S. Kingsland. Both Mr. and Mrs. Saulsbury's broker, and their title insurance agent, dealt directly and solely with the Respondents, Robert S. Kingsland and Kingsland-Henry and Associates, Inc., in attempting to obtain the release of the lots encumbered by these Affidavits. The Affidavits had been recorded in order to preclude sale of the lots in question to another purchaser without payment to Robert S. Kingsland for expenses incurred in having the subject properties surveyed. Robert S. Kingsland refused to release the lots encumbered by the Affidavits until he had been reimbursed for the expense of the surveys. The Saulsburys paid $1,100.00, or $220.00 per lot for their five lots, to Robert S. Kingsland. Thereupon, the property of the Saulsburys was released by Quit- Claim Deed. The Saulsburys have requested a refund of the $1,100.00 paid to Robert S. Kingsland and Kingsland-Henry and Associates, Inc., but this request has been refused. The Affidavit encumbering the property owned by the Pullens has never been released, although requests have been made by the Pullens, and the property remains encumbered to this time.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Respondent, Shirley L. Kundsen, be found guilty of violating 475.25(1)(b), Florida Statutes; and that her license be suspended for six months. And it is further RECOMMENDED that the Respondents, Robert S. Kingsland and Kingsland-Henry and Associates, Inc., found guilty of Violation of 475.25(1)(b) and 475.25(1)(j), Florida Statutes; and that their licenses be revoked, and that an administrative fine of $1,000.00 be imposed upon these Respondents. THIS RECOMMENDED ORDER entered on this 12th day of March, 1982, in Tallahassee, Florida. WILLIAM B. THOMAS 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 12th day of March, 1982. COPIES FURNISHED: James S. Quincey, Esquire Post Office Box 1090 Gainesville, Florida 32602 A. Wayne Rich, Esquire Post Office Box 1911 Orlando, Florida 32802 Shirley L. Kundsen Post Office Box 1888 Kissimmee, Florida 32741
The Issue The issue is whether Respondent operated as a real estate broker or sales associate without a license, in violation of Section 475.42(1)(a), Florida Statutes, and, if so, what penalty should be imposed.
Findings Of Fact Respondent has not been licensed as a real estate broker, broker sales-associate, or sales person in the state of Florida. Respondent entered into an arrangement with Tina Mathews, who holds a valid broker or sales person's license, to find buyers in return for which she would split the commission with him. Although Respondent never showed the properties to prospective buyers, after finding them, he performed other, unspecified tasks to ensure that the deals closed and he would be paid. Respondent's defense is that he did not know that what he was doing was illegal. In fact, this case arose by a complaint filed by Respondent against Ms. Mathews, who had paid him several times in the past for similar work in connection with other transactions. When Ms. Mathews declined to pay Respondent in connection with three other transactions described in the Administrative Complaint, Respondent contacted Petitioner, which, after an investigation, brought these charges against Respondent for two transactions, as identified in the Administrative Complaint, for which Ms. Mathews paid him. In one letter (received June 12, 2007) from Mr. Haque to Petitioner, he acknowledges that he has "done 10 more deals with [Ms. Mathews] in the past for which she compensated me 1/3 of her commission. Enclosed are the HUDS for Ronald Nicolas and Beryl George . . .." These are the two transactions that are the subject of the Administrative Complaint, so there is no doubt that Respondent received compensation for his work on these two transactions. It is difficult to determine exactly what Respondent did to "earn" his share of the commission, although clearly he found the buyers. Although Respondent claims to have substantial work on each of these transactions, he is vague about what he did, and the weight to be accorded this admission is limited due to Respondent's persistent misunderstanding of this case as some sort of vehicle by which he can obtain payment for his share of the commission for the three subsequent transactions about which he filed a complaint against Ms. Mathews. The only remaining element of Petitioner's case against Respondent involves any ownership interest that Respondent may have had in the two properties identified in the Administrative Complaint. A summary of the investigator's interview with Ms. Mathews, who did not testify, states that she told the investigator that the deals that she did with Respondent were with properties that he owned. However, Respondent supplies the needed evidence as to this critical point when, in his post- hearing statement, he refers to this statement from the investigator and disputes it by stating: "The fact is, this is the only property in my complain [sic] I own with Ms. Mathews as agent of record." It is impossible to determine whether this admission applies to one of the two transactions that are the subject of the Administrative Complaint or one of the transactions for which he is, even now, seeking payment. At minimum, though, even if the statement applies to one of the two subject transactions, it applies to only one of them, and, by negative implication, Respondent concedes that he was not an owner of the other property. On the basis of this record, Petitioner has proved all of the above-cited allegations of the Administrative Complaint in connection with both transactions that underlie Count I.
Recommendation Based on the foregoing, it is RECOMMENDED that the Department of Business and Professional Regulation enter a final order finding Respondent guilty of operating as a broker or sales person without a license and imposing an administrative fine against him of $5000. DONE AND ENTERED this 22nd day of June, 2009, in Tallahassee, Leon County, Florida. ROBERT E. MEALE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 22nd day of June, 2009. COPIES FURNISHED: Thomas W. O'Bryant, Jr., Director Division of Real Estate 400 West Robinson Street, Suite 802 North Orlando, Florida 32801 Reginald Dixon, General Counsel Department of Business and Professional Regulation Northwood Centre 1940 North Monroe Street Tallahassee, Florida 32399-0792 Patrick J. Cunningham, Esquire Department of Business and Professional Regulation 400 West Robinson Street Hurston Building-North Tower, Suite N801 Orlando, Florida 32801 Syed Haque 10100 Country Brook Road Boca Raton, Florida 33428
The Issue The central issue is whether Bennett committed the violations as alleged and, if so, what discipline is appropriate. More specifically, did he violate Section 475.25(1)(b), (d) and (k), Florida Statutes, by committing fraud, culpable negligence or the like, by failing to account for and deliver trust funds, and by failing to properly maintain trust funds?
Findings Of Fact Respondent, Fred M. Bennett was, at all times relevant, licensed as a real estate broker in the State of Florida, having been issued license number 0161968 in accordance with Chapter 475, Florida Statutes. Harold E. McNally is a self-employed businessman from Chillicothe, Ohio. He met Fred Bennett in 1976 or 1977 when he bought some property in Orlando. Thereafter, the relationship continued with McNally buying and selling property as an investment, and Bennett acting as agent or purchaser. Four of McNally's properties in Orlando, Florida were held as rentals: 3939 Spoonbill Avenue 4525 Salvia Drive 7806 Toledo Street 1308 Forester Avenue Bennett collected the rents and sent them to McNally, after deducting his management fee. There was no written management agreement, but rather McNally leased the properties back to Bennett. Later, those leases expired and since the market was not good for sales, Bennett and McNally continued their relationships with Bennett sending the rents and deducting his fees. The rents were $450.00 and $485.00 per month and his fee was $93.00 per month in 1986. The rents remained the same in 1987, but the management fee was raised to $103.00 per month. Beginning in May 1986, the rents were not sent to McNally on a regular basis. McNally attempted to contact Bennett but was unsuccessful. By July 1987, Bennett owed McNally $11,169.00 for back rents and a $400.00 deposit on one of the houses. After McNally retained counsel and sent a letter informing Bennett that he was terminating the management arrangement, Bennett eventually returned the keys and (with the exception of one which he had applied to rent) transferred the tenants' deposits to McNally's new agent. Bennett attempted to account for the back rents with promissory notes. McNally never acknowledged the notes and filed them. The $11,169.00 was never paid. James D. Stayton is another real estate investor who dealt with Bennett. He had two properties which Bennett handled for him. Between September 20, 1984, when he acquired the property, and October 1986, when he removed the property from Bennett's control, Stayton was owed $7,447.44 in back rents. Again, Bennett signed a promissory note in this amount, but never paid on the note. Bennett admits that he owes the funds but denies fraud or dishonesty and claims that his failure to pay the rents was the result of a business deal that went bad. Bennett Does not claim that the rents were not collected. One tenant, Patricia Sulter established that she lived in the 4525 Salvia Drive unit and paid her deposit and rents regularly to Bennett during the months when Bennett failed to forward the funds as agreed, to Harold E. McNally.
Recommendation Based on the foregoing, it is hereby RECOMMENDED that a Final Order be entered finding Fred M. Bennett guilty of violations of Section 475.25(1)(b) and (d), Florida Statutes, imposing a $4,000.00 fine and suspending his license for four years. DONE and ENTERED this 31st day of March, 1989, in Tallahassee, Leon County, Florida. MARY CLARK 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 31st day of March, 1989. APPENDIX TO RECOMMENDED ORDER, CASE NO. 88-4903 The following constitute specific rulings on each of the findings of fact proposed by the Petitioner: Adopted in paragraph :1. Adopted in paragraph #3. Rejected as unsupported by the evidence. & 5. Adopted in paragraph #5. Adopted in paragraph 6, except for the finding that the funds were converted to Bennett's own use, which finding was not proven. Adopted in paragraph #6. COPIES FURNISHED: Arthur R. Shell, Jr., Esquire Department of Professional Regulation - Legal Division of Real Estate 400 West Robinson Street Orlando, Florida 32802 Fred M. Bennett Post Office Box 3102 Orlando, Florida 32802 Darlene Keller, Director Division of Real Estate 400 West Robinson Street Orlando, Florida 32802
The Issue At issue in this proceeding is whether Petitioner is entitled to registration as an associated person of Brookstone Securities, Inc. ("Brookstone"), either by virtue of the default provision of Subsection 120.60(1), Florida Statutes, or by virtue of the substantive merits of his application.
Findings Of Fact Based on the oral and documentary evidence adduced at the final hearing and the entire record in this proceeding, the following findings of fact are made: The Parties The Office of Financial Regulation, a part of the Financial Services Commission, is the state agency charged with regulation of the securities industry. § 20.121(3)(a)2., Fla. Stat. Chapter 517, Florida Statutes, is the "Florida Securities and Investor Protection Act." § 517.011, Fla. Stat. Pursuant to Section 517.012, Florida Statutes, OFR is responsible for the registration of persons associated with broker-dealers. Victor Alan Lessinger is 62 years old. He has been involved in the securities industry since 1976. He was registered with the State of Florida as an associated person from April 23, 1991, until October 31, 1994. He was later registered as an associated person with the State of Florida from June 5, 1997, through April 29, 2006, with the exception of the eight-day period between January 23, 2002, and February 1, 2002. This eight-day lapse was caused by Mr. Lessinger's changing jobs, which necessitated that he re-apply for registration. An associated person must be registered through the broker-dealer that employs him. From February 2005 until April 2006, Mr. Lessinger was a broker associated with Archer Alexander Securities Corporation, and was registered as such with the State of Florida. Archer Alexander went out of business in April 2006, and Mr. Lessinger accepted an offer of employment from Brookstone, a company based in Lakeland. Mr. Lessinger was to work as an associated person in Brookstone's Coral Springs branch. The Application Process and the Notice On July 5, 2007, Mr. Lessinger submitted his application for registration as an associated person with Brookstone to OFR through Web CRD, the central licensing and registration system for the U.S. securities industry operated by the Financial Industry Regulatory Authority ("FINRA").2 Mr. Lessinger's initial application for registration as an associated person with Brookstone disclosed the following disciplinary events: a 1993 Consent Order that Mr. Lessinger entered into with the relevant authorities in the State of Maine; a 1998 "Division Order" from the State of Ohio denying Mr. Lessinger's application for a securities salesman license; a 2000 letter of acceptance, waiver and consent ("AWC") issued by the National Association of Securities Dealers ("NASD"), the predecessor to FINRA; a 2002 arbitration award issued by NASD Dispute Resolution, Inc.; and two related actions taken by the Securities and Exchange Commission ("SEC") in 2005. The 2000 AWC letter, the 2002 arbitration award, and the 2005 SEC actions all related to incidents and/or transactions that occurred in 1999. By letter dated July 18, 2007, Justin Mills, a financial analyst for OFR, notified Mr. Lessinger as follows: In order for the application to be deemed complete, it will be necessary to provide this office with a complete response to the following [sic] a copy of the complete Form U-4, as amended, and all documents pertaining to disciplinary matters, whether disclosable on the U-4 or not.[3] Documentation submitted must be certified by the issuer of such documents. Additionally, explain in detail the status of each pending action, and for each final action, summarize the action and the disposition. Specifically, but not limited to the following: * Certified copies of any regulatory actions by any state or federal regulator, or any self-regulatory organization, including but not limited to, the complaint, answer or reply, and final order or sanction. Certified documentation must be certified by the appropriate agency. Also, provide a brief narrative describing the causes that lead [sic] to the actions. Pursuant to Rule 69W-301.002(3), Florida Administrative Code, additional information shall be submitted within sixty (60) days after a request has been made by the Office. Failure to provide all the information may result in the application being denied. Mr. Lessinger responded with a package of documents and a cover letter dated July 23, 2007. OFR received the package and letter from Mr. Lessinger on July 24, 2007. On October 9, 2007, Ryan Stokes, a financial analyst supervisor for OFR, sent an e-mail to David Locy, then the executive vice president and compliance officer of Brookstone. Mr. Stokes requested the following documents in order to complete Mr. Lessinger's application: Certified copies of the complaint, Lessinger's answer/reply, and resolution for the actions taken by the SEC, State of Maine, State of Pennsylvania,[4] NASD, and State of Ohio. Certified copies of the statement of claim, Lessinger's response, settlement/arbitration panel's decision, and proof of payment of any awards/settlement for the arbitrations filed by Joseph Orlando and Muriel Hecht. Certified copy of the petition for bankruptcy and a discharge of bankruptcy. If any of the documents are unavailable due to age, a statement from the appropriate regulator/court to that effect, will suffice. At the hearing, Pamela Epting, chief of OFR's regulatory review bureau, testified that an e-mail such as that sent by Mr. Stokes is not OFR's usual method of doing business. OFR typically sends only an initial deficiency letter such as that sent by Mr. Mills on July 18, 2007. Richard White, director of OFR's division of securities, described Mr. Stokes' e-mail as a "courtesy" that provided Mr. Lessinger "with a reminder and greater detail as to what had not yet been provided." Mr. Lessinger responded with a package of documents and a cover letter dated November 5, 2007, which were received by OFR on November 6, 2007. The cover letter stated as follows, in relevant part: As requested, I am enclosing certified copies of all of the following: SEC, State of Maine (with additional prior correspondence), NASD. Joseph Orlando and Muriel Hecht (there were no payments made since Orlando was dismissed in its entirety with regard to me and Hecht was absolved as a result of my bankruptcy). Certified copy of the Petition for Bankruptcy and Discharge. I believe the State of Pennsylvania will be submitting directly to your office. I have not yet received the certification from the State of Ohio yet [sic]. I have enclosed the original Division Order which is signed and sealed by the Commissioner of Securities. If needed, I will forward the certification as soon as I receive the documents. . . . OFR did not respond in writing to Mr. Lessinger's November 5, 2007, submission. At some point in December 2007 or January 2008, Ms. Epting spoke to Mr. Locy by telephone. She told Mr. Locy that the agency intended to deny Mr. Lessinger's application and offered him an opportunity to withdraw the application in lieu of outright denial. In an e-mail to Ms. Epting dated February 4, 2008, Alan Wolper, attorney for Brookstone and Mr. Lessinger, wrote that his clients had decided not to withdraw the application, "notwithstanding the fact that you have indicated OFR's intent to deny that application." Mr. Wolper requested that Ms. Epting send a written notice of intent to deny, stating the particular grounds for the denial of Mr. Lessinger's application. At some point after writing the February 4, 2008, e-mail, Mr. Wolper wrote a letter to OFR asserting that Mr. Lessinger's registration should be deemed granted by default due to CFR's failure either to notify Mr. Lessinger of the application's incompleteness within 30 days of his November 5, 2007, submission or to act upon the completed application within 90 days of the November 5, 2007, submission, as required by Subsection 120.60(1), Florida Statutes. In a letter dated April 23, 2008, OFR assistant general counsel Jennifer Hrdlicka responded to Mr. Wolper with the assertion that the statutory default provision had not been triggered because Mr. Lessinger had yet to submit a completed application: Mr. Lessinger's application is still deficient. He has not provided to the Office the information requested in its July 18, 2007, letter to him. Still missing from his application are: Certified copies of the complaint, Lessinger's answer/reply, and resolution for the actions taken by the SEC; Certified copies of the resolution for the actions taken by the State of Ohio; and Certified copies of the statement of claim, Lessinger's response, settlement/arbitration panel's decision, and proof of payment of any awards/settlement for the arbitrations filed by Joseph Orlando. Mr. Lessinger did submit a certified copy of the Notice of Intent to Deny Application for Securities Salesman License from the State of Ohio, dated July 9, 1997. However, he did not submit any document, certified or not, regarding the resolution from that Notice of Intent of July 9, 1997, such as a Final Order. * * * Mr. Lessinger was timely notified of deficiencies in his application on July 18, 2007, thirteen days after submittal of his application and well within the thirty (30) day period set by the Administrative Procedures [sic] Act and the Office's corresponding Rule [Florida Administrative Code Rule 69W-301.002]. Your interpretation of Florida's Administrative Procedure Act and the Office's Rules contemplates an additional thirty day time period from Mr. Lessinger's November 6, 2007, submittal of additional information; this is a mistaken interpretation of Florida statutes. Mr. Lessinger's application was not considered complete on December 5, 2007. In fact, he has not yet delivered to the Office all requested information and so his application is currently not considered complete. His application will not be considered complete until such time as all requested information is received by the Office. . . . (Emphasis added.) On April 30, 2008, Mr. Lessinger submitted to Ms. Epting an affidavit attesting that the additional documents requested by Mr. Stokes on October 9, 2007, had been submitted to the agency on November 6, 2007. At the hearing, OFR continued to assert that Mr. Lessinger's November 6, 2007, submission did not contain all the information requested by Mr. Stokes. OFR submitted into evidence a sheaf of documents purporting to be Mr. Lessinger's November 6, 2007, submission. The documents had been unstapled for copying and re-stapled, and bore no consistent marks of date stamping or numbering that would allow a fact finder to conclude with confidence that the documents had been maintained in the form they were submitted by Mr. Lessinger. Ms. Epting could testify only as to OFR's general practice in maintaining its files, not as to the manner in which this particular file had been maintained. At the hearing, Mr. Lessinger stated under oath that he had provided OFR with every document it had asked for with the exception of the final order in the 1998 Ohio denial of his application. Mr. Lessinger conceded that he had only provided OFR with the notice of intent to deny in that case. Ms. Epting testified that OFR obtained the final order directly from the State of Ohio some time during the Spring of 2008. The only other item that OFR asserted was missing from the November 6, 2007, submission was a certified copy of the SEC's 2005 order barring Mr. Lessinger from association in a supervisory capacity with any broker or dealer for a period of two years. Mr. Lessinger's November 6, 2007, submission contained what appeared to be a non-certified copy of the order. The faint image of a seal is visible on the last page, with Mr. Lessinger's notation: "Raised seal unable to make darker." Ms. Epting testified that Mr. Lessinger submitted a certified copy of the order some time around May 2008. It is found that Mr. Lessinger submitted a certified copy of the SEC's 2005 order with his November 6, 2007, submission. On May 5, 2008, OFR issued the Notice to Mr. Lessinger. In the Notice, OFR identified a third "completeness" issue that Ms. Epting testified she discovered only during her inquiry to the State of Ohio regarding the final order in the 1998 denial. As to this issue, the Notice recited as follows under heading, "Statement of Facts": On October 3, 2007, the State of Ohio, Department of Commerce, Division of Securities, issued a Notice of Intent to Deny Application for Securities Salesperson License for Lessinger, Order No. 07-387. On April 7, 2008, the State of Ohio, Division of Securities issued a Final Order against Lessinger Denying the Application for a Securities Salesperson License, Order No. 08-052. The Final Order states that on October 15, 2007, Lessinger requested an adjudicative hearing of the Notice of Intent to Deny; the Final Order further states that such a hearing was held on December 18, 2007, and on January 23, 2008, the Hearing Examiners Report and Recommendation was issued, upholding the Division's Notice of Intent. The Final Order states that the Division found that Lessinger was not of "good business repute" as that term is used in Ohio Revised Code 1707.19(A)(1) and Ohio Administrative Code 1301:6-3-19(D)(2),(6),(7),(9), and (D)(11) . . ." Notice was not given to the Office of these administrative actions by the State of Ohio. Lessinger did not update his Form U-4 until April 23, 2008, and subsequent to the Office's inquiry as to this matter; further, his update to his Form U-4 is misleading in that it cites that the date of initiation of this matter was April 7, 2008. Under the heading "Conclusions of Law," the Notice states that Mr. Lessinger's failure to update his Form U-4 constitutes a violation of Florida Administrative Code Rule 69W-600.002(1)(c)5 and therefore a basis for denial pursuant to Subsection 517.161(1)(a), Florida Statutes, which provides that violation of any rule promulgated pursuant to Chapter 517 constitutes grounds for denial of registration. The parties agreed that Mr. Lessinger's application file at OFR was complete at the time of the hearing. The Notice cited additional grounds for denial based on Subsections 517.161(1)(h) and (m), Florida Statutes, which provide: (1) Registration under s. 517.12 may be denied or any registration granted may be revoked, restricted, or suspended by the office if the office determines that such applicant or registrant: * * * (h) Has demonstrated unworthiness to transact the business of dealer, investment adviser, or associated person; * * * (m) Has been the subject of any decision, finding, injunction, suspension, prohibition, revocation, denial, judgment, or administrative order by any court of competent jurisdiction, administrative law judge, or by any state or federal agency, national securities, commodities, or option exchange, or national securities, commodities, or option association, involving a violation of any federal or state securities or commodities law or any rule or regulation promulgated thereunder, or any rule or regulation of any national securities, commodities, or options exchange or national securities, commodities, or options association, or has been the subject of any injunction or adverse administrative order by a state or federal agency regulating banking, insurance, finance or small loan companies, real estate, mortgage brokers or lenders, money transmitters, or other related or similar industries. For purposes of this subsection, the office may not deny registration to any applicant who has been continuously registered with the office for 5 years from the entry of such decision, finding, injunction, suspension, prohibition, revocation, denial, judgment, or administrative order provided such decision, finding, injunction, suspension, prohibition, revocation, denial, judgment, or administrative order has been timely reported to the office pursuant to the commission's rules. . . . As the basis for OFR's conclusions that Mr. Lessinger had demonstrated "unworthiness" as described in Subsection 517.161(1)(h), Florida Statutes, and that Mr. Lessinger was the subject of decisions, findings, injunctions and/or prohibitions as set forth in Subsection 517.161(1)(m), Florida Statutes, the Notice cited the 1993 Maine consent order, the 1998 Ohio final order denying Mr. Lessinger's application for a securities salesman license, the 2000 AWC letter from NASD, the 2002 arbitration award issued by NASD Dispute Resolution, Inc., the 2005 SEC actions, and the April 7, 2008, Ohio final order denying Mr. Lessinger's application for a salesperson's license. Petitioner's Disciplinary History During his career, Mr. Lessinger has been employed in various capacities: as a broker/registered representative, a supervisor, and a general securities principal. He has lived and worked in Florida since 1997. From November 1976 through October 1994, Mr. Lessinger was employed by First Investors Corporation ("First Investors") in New York, working his way up to senior vice president and director of the company. On December 20, 1993, Mr. Lessinger entered into a Consent Agreement with the Attorney General of the State of Maine, "for the sole purpose of effecting a settlement of the civil action against Lessinger," First Investors and other individual defendants commenced by the Attorney General and the Maine Securities Administrator in 1991. Mr. Lessinger did not admit or deny that his conduct violated the Revised Maine Securities Act. The Consent Agreement does not provide the details of the grounds for the civil action. Mr. Lessinger testified that First Investors sold mutual funds, one of which was a junk bond fund that lost a great deal of money for investors in the late 1980s. First Investors had an office in Maine, and the Attorney General instituted a civil action against First Investors and certain supervisory personnel, including Mr. Lessinger, for failure to disclose to investors the risk inherent in these bond funds. Mr. Lessinger had no customers in Maine and did not personally sell the junk bond fund to any of his clients. Under the Consent Agreement, Mr. Lessinger agreed not to apply for a license as a sales representative in Maine for a period of one year. Mr. Lessinger also agreed to pay the sum of $50,000 to the State of Maine; First Investors paid the money for Mr. Lessinger. He eventually reapplied and was approved as a sales representative in the State of Maine. In mid-1997, Mr. Lessinger moved from New York to Boca Raton, becoming president of Preferred Securities Group, Inc. ("Preferred"). Mr. Lessinger was obliged to seek licensure in the states in which Preferred had brokers, which included Ohio. In March 1998, the State of Ohio, Department of Commerce, Division of Securities issued a "Division Order" denying Mr. Lessinger's application for securities salesman license. The Division Order found that Mr. Lessinger was not of "good business repute" under the Ohio statutory and rule provisions named in the quotation portion of Finding of Fact 20, supra. The only factual basis stated for the Division Order's "good business repute" finding was the 1993 Consent Agreement with the State of Maine. On November 16, 2000, Mr. Lessinger entered into the NASD AWC letter along with Preferred and Kenneth Hynd, Preferred's financial operations principal ("FINOP"). The recipients of the AWC letter agreed that the letter would become part of their permanent disciplinary record and may be considered in any future actions brought by NASD against them. They also agreed to the following: We may not take any action or make or permit to be made any public statement, including in regulatory filings or otherwise, denying, directly or indirectly, any allegation in this AWC or create the impression that the AWC is without factual basis. Nothing in this provision affects our testimonial obligations or right to take legal positions in litigation in which the NASD is not a party. Only one of the allegations that prompted the AWC letter directly involved Mr. Lessinger. Without admitting or denying the alleged violation, Mr. Lessinger and Preferred consented to the entry of the following finding by NASD Regulation, Inc.: During the period from about March 22, 1999, until about April 21, 1999, Respondent [Preferred], acting through Respondent Lessinger, allowed an inactive registered representative to effect three securities transactions for customers, in violation of NASD Membership and Registration Rule 1120 and Conduct Rule 2110. Mr. Lessinger and Preferred also consented to the entry of a $3,000 fine, imposed jointly and severally. Mr. Lessinger paid the fine. Mr. Lessinger testified that the representative who effected the improper transactions was in Preferred's Pompano Beach branch office, which was open only from March to June 1999. The manager on premises had not notified Mr. Lessinger that a registered representative in the office was deemed "inactive" for failure to complete mandatory continuing education. On April 30, 2002, a NASD Dispute Resolution, Inc.6 arbitration panel issued an award against Mr. Lessinger in a case that had been filed by a former Preferred customer against Preferred, Mr. Lessinger, and three other individuals associated with the firm, including the owner, Anthony Rotonde, and two brokers. The initial statement of claim in the matter was filed in 1999. The claims included misrepresentation, unsuitability, breach of fiduciary duty, failure to supervise, violations of Section 517.301, Florida Statutes, and common law fraud and negligence. Mr. Lessinger was not the broker of record for the complaining customer and never had anything directly to do with her account. He did not know her. She had been a client of the two brokers for several years. As president of the company, Mr. Lessinger was ultimately responsible for supervision of the brokers, though he was not their direct supervisor. Preferred, Mr. Rotonde, and Mr. Lessinger were found jointly and severally liable on the claims of suitability and failure to supervise and were required to pay damages of $42,294.90, plus interest, costs, and attorneys' fees. The liability for attorneys' fees was expressly based on Sections 517.301 and 517.211, Florida Statutes. Section 517.301, Florida Statutes, generally prohibits fraud and deception in connection with the rendering of investment advice or in connection with securities transactions. Section 517.211, Florida Statutes, sets forth the remedies available for unlawful sales, including those in violation of Section 517.301, Florida Statutes. Subsection 517.211(6), Florida Statutes, provides for attorneys' fees to the prevailing party unless the court finds that the award of such fees would be unjust. After the arbitration award, Preferred went out of business. Mr. Rotonde was a non-licensed owner and simply walked away from the matter. Thus, Mr. Lessinger was left on the hook for the entire arbitration award. He was unable to pay it, and was forced to declare bankruptcy. In April 2004, Mr. Lessinger was named in a civil action filed by the SEC in the United States District Court for the Southern District of Florida. The SEC alleged that Preferred's Pompano Beach office was opened in March 1999 to operate as a boiler room for a "pump and dump" operation involving a penny stock, Orex Gold Mines Corporation ("Orex"). Orex claimed to be in the business of extracting gold from iron ore by means of an environmentally safe process. The SEC alleged that Orex was in fact a shell corporation owned by a "recidivist securities law violator and disbarred attorney." Though its promotional video, literature, and website touted Orex as an active, established company with gold mines, employees, and a revolutionary gold extraction process, Orex in fact owned no mines or mining equipment and had never commercially tested its claimed extraction process. As to Mr. Lessinger, the SEC's complaint alleged as follows: According to Preferred's written supervisory procedures, the form prohibited the solicitation of "penny stocks" as defined under Exchange Act Rule 3a51-1, and restricted the purchase of penny stocks unless it received an unsolicited letter, signed by the investor, requesting to purchase a particular penny stock. Despite the firm's prohibition against soliciting transactions in penny stocks, Lessinger authorized the Pompano Beach branch office's request to solicit transactions in Orex. Prior to authorizing the firm's solicitation of Orex, Lessinger simply reviewed the Orex brochure, the Orex private placement memo, and an Orex press release. He did not conduct any independent research or assessment regarding Orex's officers, assets, or prospects for success. Orex quickly accounted for a high percentage of the overall transactions conducted by Preferred's Pompano Beach branch. Although Lessinger retained responsibility for reviewing, authorizing, and approving customers' transactions in Orex stock, and although he was the senior official of Preferred and functioned as a compliance officer, he failed to exercise appropriate supervision and to take the necessary steps to ensure that Preferred, and the personnel operating out of Preferred's Pompano Beach branch in particular, complied with applicable procedures, securities laws and regulations in connection with transactions in Orex stock. The brokers in the Pompano Beach branch sold more than $3 million in Orex stock between March and July 1999 through fraudulent representations regarding the company, forgery of penny stock disclosure forms, bait and switch tactics, refusal to execute sell orders, or delaying sell orders until a buyer for the shares could be found. The stock ballooned to a value of $7.81 in late May 1999. By late July, it was trading for pennies per share. To his credit, Mr. Lessinger closed the Pompano Beach branch of Preferred after a site visit in June offered him a glimpse of the office's actual operations. However, had Mr. Lessinger showed more curiosity at the outset, or had he merely enforced the company policy against soliciting penny stock sales, the situation in Pompano Beach might never have developed. On September 7, 2005, the court entered final judgment as to Mr. Lessinger. He was permanently restrained and enjoined from: violating the fraud provisions of the Securities Exchange Act of 1934; violating the NASD Conduct Rule regarding supervision of the activities of registered representatives and associated persons; and participating in any offering involving penny stocks. He was also ordered to pay a civil penalty of $20,000. On September 23, 2005, the SEC also issued an Administrative Order making findings and imposing remedial sanctions in connection with the Orex matter. The order barred Mr. Lessinger from association in a supervisory capacity with any broker or dealer for two years, with a right to reapply at end of the two-year period. The SEC's Administrative Order left Mr. Lessinger free to continue to act as a registered representative. However, the two SEC actions rendered Mr. Lessinger statutorily disqualified from membership in the securities industry under FINRA rules. To remain active in the industry, Mr. Lessinger was required to go through the MC-400, or "Membership Continuance," process with FINRA. The Form MC-400 must be filed by a member firm on behalf of the disqualified person. In this case, Archer Alexander Securities, Mr. Lessinger's employer at the time of his disqualification, filed the MC-400 application on his behalf. However, Archer Alexander went out of business before the application could be considered. Mr. Lessinger was hired by Brookstone in April 2006. Brookstone filed a Form MC-400 with FINRA on Mr. Lessinger's behalf on May 15, 2006. Brookstone is owned by Antony Turbeville, a certified financial planner who has been licensed in the securities industry since 1987. Mr. Turbeville has never been the subject of disciplinary actions by the SEC, NASD, or the State of Florida. David Locy is currently the president of Brookstone. At the time Brookstone filed the MC-400 application for Mr. Lessinger, Mr. Locy was Brookstone's chief compliance officer. He has been a certified public accountant since 1974, licensed in the securities industry since 2003, and has never been the subject of regulatory or disciplinary action by any professional or licensing entity. Michael Classie is the branch manager and supervisor of Brookstone's Coral Springs office, where Mr. Lessinger works.7 He has been licensed to sell securities since 1995 and has never been the subject of disciplinary actions by the SEC, NASD, or the State of Florida. In its MC-400 application, Brookstone stated that Mr. Lessinger did not seek licensure as a supervisor or control person, and that Brookstone would not allow him to work in a supervisory capacity. Brookstone agreed that Mr. Lessinger would work only as a registered representative, and then only under highly controlled supervisory conditions. FINRA's Department of Member Regulation, which conducts the initial review of all MC-400 applications, recommended that Brookstone's application on behalf of Mr. Lessinger should be denied. By order dated December 13, 2006, following an evidentiary hearing, FINRA's National Adjudicatory Council ("NAC") disagreed with the recommendation of the Department of Member Regulation and granted the application, subject to approval by the SEC. The NAC's order provided as follows: After considering all of the facts, we approve Lessinger as a general securities representative with Brookstone, supervised by Classie and Locy, and subject to the following terms and conditions of employment: Classie and Locy will review, initial, and date all of Lessinger's order tickets on a daily basis; Classie will review all of Lessinger's incoming correspondence daily and will review all of Lessinger's outgoing correspondence prior to its being sent. Lessinger will print out a daily log of faxes from the fax machine for Classie to review; Classie and Locy will review every new account form for Lessinger and, if approved, sign such form; Classie will be in the office with Lessinger at least four times per week from 8:00 a.m. until 5:00 p.m. If Classie is not in the office, Lessinger will be prohibited from effecting trades on the computer and will, instead, call them in to Locy for approval; Locy will make random unannounced office visits to Lessinger's home office at least once during each calendar quarter; Brookstone will amend its written supervisory procedures to state that Classie is the primary responsible supervisor for Lessinger, and that Locy is the backup supervisor; Lessinger will provide a list of all sales contacts to Classie, including the nature of the contacts, on a daily basis; Classie will review Lessinger's written sales contacts and investigate any irregular activity; Locy will conduct five random telephone calls per quarter to Lessinger's customers to verify information or ascertain the customers' level of satisifaction; Lessinger will not participate in any manner, directly or indirectly, in the purchase, sale, recommendation, or solicitation of penny stocks (this is defined in the Court Judgment as "any equity security that has a price of less than five dollars, except as provided in Rule 3a5-1 under the Exchange Act [17 C.F.R. 240.3a51-1]"); Classie must certify quarterly (March 31st, June 30th, September 30th, and December 31st) to the Compliance Department that Lessinger and Classie are in compliance with all of the above conditions of heightened supervision; and For the duration of Lessinger's statutory disqualification, Brookstone must obtain prior approval from Member Regulation if it wishes to change Lessinger's responsible supervisor from Classie to another person. On June 29, 2007, the SEC issued a letter approving the NAC's decision to permit Mr. Lessinger to register with Brookstone as a registered representative under the heightened supervisory restrictions set out in the NAC's order. Brookstone and Mr. Lessinger have agreed that they will abide by the same list of heightened supervisory restrictions should the State of Florida approve the application at issue in this proceeding.8 As noted at Findings of Fact 20 and 21, supra, the Notice alleged that Mr. Lessinger failed to timely update his Form U-4 to disclose receipt of a Notice of Intent to Deny Application for Securities Salesperson from the State of Ohio, Department of Commerce, Division of Securities ("Ohio Notice") dated October 5, 2007. The Ohio Notice stated that on July 9, 2007, Mr. Lessinger had applied for a securities salesperson license via submission of his Form U-4, and that his application disclosed the September 23, 2005, SEC order, the April 2004 filing of the SEC complaint in the United States District Court for the Southern District of Florida, the 2000 NASD AWC letter, the NASD Dispute Resolution arbitration award, the 1998 Ohio application denial, and the Maine Consent Agreement. Based on these disclosures, the Ohio Division of Securities alleged that Mr. Lessinger was not of "good business repute" according to Ohio statutes and rules, and stated its intent to issue an order denying Mr. Lessinger's application for a salesperson's license. The Ohio Notice provided that Mr. Lessinger had 30 days in which to request an administrative hearing contesting the agency's intended denial of his application. Mr. Lessinger timely filed the appropriate documents contesting the Ohio Notice and requesting an evidentiary hearing. Immediately after receiving the Ohio Notice, Mr. Lessinger brought it to the attention of Mr. Locy, then Brookstone's chief compliance officer, in order to determine whether his Form U-4 should be amended. Only Brookstone, as the broker/dealer employing Mr. Lessinger, had authority to amend his Form U-4. Mr. Lessinger did not have independent access to the Web CRD database and thus had no ability to amend the document on his own. Mr. Locy considered the situation and decided that the Ohio Notice did not require an amendment to Mr. Lessinger's Form U-4. Because Mr. Lessinger had appealed the intended denial of his Ohio application, Mr. Locy concluded that that matter was not reportable until the Ohio action ripened into a final order. Mr. Lessinger deferred to Mr. Locy's greater expertise regarding compliance issues. Though Mr. Lessinger could not amend his Form U-4, there was no obstacle to Mr. Lessinger's directly informing OFR of the Ohio Notice. However, there was also no evidence that Mr. Lessinger attempted to conceal the existence of the Ohio Notice, or was anything other than forthright in his dealings with employers and regulatory authorities. The credible evidence established that he simply relied on the opinion of Mr. Locy. The State of Ohio issued a final order denying Mr. Lessinger's application on April 7, 2008. Upon receipt of the final order, Mr. Lessinger promptly notified his employer, and Brookstone updated Mr. Lessinger's Form U-4 on April 23, 2008, to reflect the actions of the Ohio regulators. At the hearing, Mr. Lessinger emphasized that he seeks only to act as a registered representative. Most of his clients are retirees invested in fixed-income mutual funds. They are conservative to moderate in their risk tolerance. Mr. Lessinger does not trade in their accounts on margin, and does not have discretion to make trades without express client authorization. Mr. Lessinger gets new customers through referrals. He makes no cold calls to prospective customers. Mr. Lessinger has never been the subject of a complaint by one of his own customers, and had never been disciplined for any actions he has taken as a registered representative. All of the disciplinary proceedings involving Mr. Lessinger concerned his actions in a supervisory capacity. Mr. Lessinger has forsworn any intention to ever again act in a supervisory capacity in the securities industry. Mr. Turbeville and Mr. Locy were emphatic that Mr. Lessinger would not be permitted to act in a supervisory capacity at Brookstone. Mr. Classie convincingly testified that he would closely monitor Mr. Lessinger's actions in accordance with the NAC order, and understood that failure to do so could place his own registration in jeopardy.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Office of Financial Regulation enter a final order granting Petitioner's application for registration as an associated person with Brookstone Securities, subject to such heightened supervisory restrictions as the Office of Financial Regulation shall deem prudent. DONE AND ENTERED this 15th day of December, in Tallahassee, Leon County, Florida. S LAWRENCE P. STEVENSON Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 15th day of December, 2008.
Findings Of Fact Based upon all of the evidence, the following findings of fact are determined: At all times relevant hereto, respondent, Columbus Equities International, Inc. (Columbus Equities), was registered as a broker/dealer with petitioner, Department of Banking and Finance, Division of Securities and Investor Protection (Division), having been issued broker/dealer registration number 30936. The business address of the firm was 6321 East Livingston Avenue, Reynoldsburg, Ohio. Respondent, Roger L. Parsons, was registered with the Division as an agent with Columbus Equities. He was also registered with the National Association of Securities Dealers (NASD) as the financial and operations principal, general principal and representative of Columbus Equities. As such, Parsons was responsible for supervising the employees of Columbus Equities. Similarly, under the terms of Rule 3E-600.002(4), Florida Administrative Code, Columbus Equities was also responsible for the acts of its employees. Prior to June 1990, Columbus Equities was known as Parsons Securities, Inc. The business was originally formed in 1978 by Parsons, who is majority stockholder and serves as its president, secretary and director. In June 1990, the firm's name was changed to Columbus Equities International, Inc. In January 1991, Columbus Equities filed for protection under Chapter 7 of the Federal Bankruptcy Law. When the events herein occurred, Vincent C. Lombardi was registered with the NASD as general securities principal, representative and registered options principal of Columbus Equities. Lombardi's business address was 450 Tuscarora Road, Crystal Bay, Nevada, where he managed the Nevada branch office of Columbus Equities. Except for Ohio, Lombardi was not registered to sell securities in any other state, including Florida. In the fall of 1990, a Division financial analyst, Joanne Kraynek, received a letter from the Nevada Securities Commission. Based upon that letter, Kraynek wrote a letter on November 21, 1990, to "Parsons Securities/Columbus Equities International, Inc." regarding that firm's alleged sale of unregistered securities to a Florida resident. The letter requested various items of information. On December 6, 1990, Lombardi replied to Kraynek's letter on behalf of Columbus Equities and enclosed a number of documents in response to her request. Based upon this information and a subsequent investigation by the Division, the following facts were determined. On May 31, 1990, Charles D. Flynn conducted a transaction on behalf of his wife, Susan, for the purchase of 4,933 shares of World Videophone, an unregistered security. On June 22, 1990, Flynn purchased 2,500 shares of White Knight Resources Limited on behalf of his wife. That security was also not registered in the State of Florida. On July 9, 1990, Flynn purchased an additional 2,000 shares of White Knight Resources Limited on behalf of his wife. In each transaction, the trade was executed by Lombardi from the Nevada branch office of Columbus Equities. When the sales occurred, Flynn and his wife resided at 2045 Parkside Circle South, Boca Raton, Florida. In finding that the Flynns were Florida residents at the time of the trades, the undersigned has rejected a contention by Parsons that Flynn purchased the stocks while residing in Canada and thus the transactions were not subject to the Division's jurisdiction. Evidence of these transactions and the Flynns' Florida domicile is confirmed by the deposition testimony of Mr. Flynn, admissions by Lombardi, and copies of the order tickets from the Nevada branch office. The order tickets reflect the code "MM" (market maker), which means that Columbus Equities held the securities in its own inventory and did not have to go to an outside source to obtain the stocks. Thus, Parsons (on behalf of Columbus Equities) should have been familiar with these securities. However, at hearing he acknowledged that he was not. This in itself is an indication that Parsons was not properly supervising his employees. Finally, there was no evidence that the three transactions were exempt within the meaning of Sections 517.051 and 517.061, Florida Statutes, and thus were beyond the Division's jurisdiction. As the principal for Columbus Equities, Parsons was responsible for supervising the activities of both Lombardi and the Nevada branch office. Indeed, section 27, article III of the NASD Rules of Fair Practice requires that a NASD member such as Parsons supervise the activities of all associated persons to insure that those persons are complying with all securities laws and regulations. In order to fulfill this duty, Parsons should have reviewed on a timely basis the monthly statements generated by the Nevada office as well as that office's new account applications. For the reasons stated hereinafter, Parsons' review of Lombardi's activities was neither complete nor timely. The Flynn account was opened by Lombardi in April 1990 and Lombardi was the only employee who dealt with the Flynns. Parsons had no knowledge that the Flynn account had been opened because he did not review new account applications. This failure to review new account applications prevented Parsons from detecting whether Lombardi was selling securities in states such as Florida where he was not registered. Lombardi was required to send Parsons a monthly statement reflecting the activity of the branch office. During his review of the May statement in the second or third week of June 1990, Parsons became aware of the first Flynn transaction. Just prior to that, Parsons had learned that Lombardi had also engaged in another illicit trade. In addition, Parsons subsequently became aware of at least four other transactions (including two more with the Flynns) involving the sale of securities by Lombardi in states where he was not registered. However, except for a verbal warning given to Lombardi to discontinue that type of trade, Parsons took no disciplinary action against Lombardi until September 13, 1990, when Lombardi was terminated as an employee and the Nevada branch office closed. By failing to review the new account applications and to take prompt action against Lombardi after having learned of his indiscretions, Parsons failed to properly supervise his employees. Rule 3E-600.014(6), Florida Administrative Code, requires that each member establish, maintain and enforce written procedures governing the conduct of its employees to ensure compliance with all security laws and regulations. To this end, Parsons developed a policy (compliance) manual which was to serve as a guide in the conduct of all employees of Parsons Securities, Inc. and its successor, Columbus Equities. A copy of this manual should have been given to each employee, including Lombardi, for his or her review. However, Parsons did not know if Lombardi ever received and reviewed the manual. In addition, the manual itself was deficient in that it failed to indicate whether employees were to be given a copy for review, and it contained no provisions for taking disciplinary action against an agent if he violated a manual proscription. By failing to develop and utilize an appropriate manual, respondents violated the above cited rule.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that a final order be entered by petitioner finding respondents guilty of all violations alleged in the administrative complaint, ordering respondents to cease and desist all unlawful activities, and imposing a $5,000 fine, jointly and severally, against them. DONE and ENTERED this 26th day of May, 1992, in Tallahassee, Florida. DONALD R. ALEXANDER 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 26th day of May, 1992.
Findings Of Fact Forbes, Walsh & Kelly is a New York corporation licensed to deal in securities under the laws of New York. The company through its secretary, Mr. Robert E. Kelly, contacted the Division of Securities on March 2 and 21, 1979 concerning the procedure for registering to be a securities dealer in Florida. After receiving the appropriate application forms and a copy of the relevant Florida Statutes, Forbes, Walsh & Kelly filed its application on March 26, 1979, to be licensed in Florida as a securities dealer. On April 2, 1979, FWK was notified that its application as a dealer was being held in abeyance, pending receipt of the corporate by-laws, a branch office application, and other materials. Subsequently, on April 20, 1979, FWK applied for a branch office license with Respondent, Carl F. Bailey, Jr. to be the company's "principal" and branch manager in Florida. Between March 26, 1979 and June 26, 1979, while Mr. Carl F. Bailey was not licensed as a securities salesman and while FWK was not registered as a securities dealer, FWK through Bailey executed approximately 774 security sales transactions on behalf of their customers. On June 27, 1979, the Division told FWK that its registration as a security broker-dealer had been approved. At the same time notice was also given that the application for a branch office in Orlando was approved as was the transfer of Carl F. Bailey's registration as a salesman for FWK. Between March 26, 1979 and August 14, 1979, in the course of its business, FWK through Carl F. Bailey "introduced" approximately 263 security transactions on a fully disclosed basis to Robb, Peck, McCooey & company, Inc., which though registered as a securities dealer in New York was not at that time so registered in Florida. Aside from the instant order of suspension, neither Carl F. Bailey, Jr. nor FWK has ever been charged with previously violating the Florida Securities Act. FWK and Carl F. Bailey, Jr., have at least two very satisfied customers, Mr. A.J. Rusterholtz and Mr. Richard W. Baker. They testified in support of Respondents at the final hearing. No evidence was presented to show that either Carl F. Bailey or FWK ever made any inquiry with the Division about when they would be eligible to engage in securities transactions in Florida after submitting their applications for registration. FWK through its Orlando branch office serves approximately 500 securities customers, many of whom are in direct daily contact with the office.
Recommendation In light of the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED: That the registration of Forbes, Walsh, Kelly & Company, Inc., as a dealer and to operate a branch office and the registration of Carl F. Bailey, Jr., as an associated salesman, with Forbes, Walsh, Kelly & Company, Inc. be suspended for a period of 65 business days from the effective date of the Department's final order. DONE AND ORDERED in Tallahassee, Leon County, Florida, this 5th day of October, 1980, in Tallahassee, Florida. MICHAEL P. DODSON Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675 COPIES FURNISHED: Philip J. Snyderburn, Esquire Director, Division of Securities Office of Comptroller The Capitol, Suite 1402 Tallahassee, Florida 32301 Patrick T. Christiansen, Esquire AKERMAN SENTERFITT & EIDSON 17th Floor, CNA Building Post Office Box 231 Orlando, Florida 32802
The Issue The issue in this case is whether Respondent violated Section 475.25(1)(b), Florida Statutes (1995) (hereinafter, "Florida Statues"), by engaging in dishonest dealing by trick, scheme or device, culpable negligence, or breach of trust in any business transaction.
Findings Of Fact Petitioner is the state agency responsible for regulating the practice of real estate. Respondent is licensed as a real estate sales person pursuant to license number 0590475. Respondent was last licensed as an inactive sales person located at 6752 Longmeade Lane, Orlando, Florida 32822. In 1993, Mr. Efrain and Mrs. Luz Rivera (the "Riveras") approached Respondent to represent them in purchasing a house. Respondent agreed to represent the Riveras as a buyer's agent. The Riveras are not related to Respondent. While Respondent was representing the Riveras as a buyer's agent, Respondent asked the Riveras for a loan. Respondent wanted the loan to assist him in the establishment and publication of a real estate magazine entitled, La Casa. Respondent had gained the Riveras' trust while representing them as their real estate agent. The Riveras loaned Respondent $2,500 from the money they needed for a down payment on the house they sought to purchase. Respondent published La Casa for a brief period. Then the business closed. Respondent paid the Riveras $250 as a partial payment on the loan. Respondent has not paid the Riveras any other amounts. The Riveras were unable to purchase a house without the $2,500 they loaned to Respondent. In January 1995, the Riveras filed suit to recover the money they loaned Respondent. The court entered a final judgment of $3,598.98. Respondent has not satisfied any portion of the final judgment against him.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Commission enter a Final Order finding Respondent guilty of violating Section 475.25(1)(b) and suspending Respondent's license for three years from the date of this Recommended Order.RECOMMENDED this 5th day of May, 1997, in Tallahassee, Florida. COPIES FURNISHED: Henry M. Solares, Director Department of Business and Professional Regulation Division of Real Estate 400 West Robinson Street Post Office Box 1900 Orlando, Florida 32802-1900 DANIEL MANRY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (904) 488-9675 SUNCOM 278-9675 Fax Filing (904) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 5th day of May, 1997. Lynda Goodgame, General Counsel Department of Business and Professional Regulation Northwood Center 1940 North Monroe Street Tallahassee, Florida 32399-0792 Daniel Villazon, Esquire Department of Business and Professional Regulation Division of Real Estate 400 West Robinson Street Post Office Box 1900 Orlando, Florida 32802 Jorge Rivera, Jr., pro se 6752 Longmeade Lane Orlando, Florida 32822
Findings Of Fact The facts in this case are clear and uncontroverted. On or about February 5, 1975, Martin E. Kulok terminated his employment as a mortgage solicitor with ABC Investment Corporation. ABC Investment Corporation wrote and advised the Division of Finance on February 10, 1975, that Kulok had left his employ. On February 5, 1975, Kulok applied for licensure as a mortgage solicitor with Financial Resources Corporation On February 12, 1975, the Division of Finance cancelled Kulok's registration as a mortgage solicitor with ABC. On February 20, 1975, the Division of Finance issued Kulok's license as a mortgage solicitor with Financial Resources Corporation. On February 13, 1975, while unlicensed, Kulok sold what purports to be a first mortgage to Lincoln H. Evans in behalf of Financial Resources Corporation. Kulok has applied for licensure as a mortgage solicitor with Joseph Maddlone, and said application is at issue because the Division of Finance asserts that Kulok's sale to Evans while he was unlicensed between February 12 and February 20 "demonstrates deficiencies in qualities of experience, integrity, and competency" which are essential to the issuance of a mortgage solicitor's license. It is clear that in issuing licenses, the Division of Finance issues licenses to the broker, in this case Financial Resources, and that nothing is forwarded to the mortgage solicitor. Kulok was physically located in Miami, Florida and his broker's office was located in Fort Lauderdale, Florida. Kulok stated that he called his broker frequently to determine what the status of his license was. On February 13, 1975, some eight days after completing his application, his broker advised him that he could go out and sell. On February 13, 1975, Kulok's application was received by the Division of Finance. The apparent basis for requiring issuance of licenses to brokers and requiring brokers to delicense solicitors is that they are more responsible than solicitors. See Subsection 498.04(9)(10), F.S. It appears that in the instant case Financial Resources Corporation was not as responsible as many people, including Mr. Kulok and the Division, thought it was. Fortunately, the issue presented here is not Mr. Kulok's status when his application for licensure had been received but had not been granted by the Division. Under the procedures adopted by the Division of Finance the solicitor is dependent upon the good faith representations of his broker, to whom the Division also looks for control. By inquiring of and being told by his broker that he was able to sell, Kulok did what he could do to determine his status. Certainly he could have done more, but he had no basis to mistrust his broker. Under the facts presented here, there is no evidence that Kulok lacks the "experience, integrity, and competency" to be licensed as a mortgage solicitor, and that is the issue.
Recommendation Based upon the foregoing conclusions of law and findings of fact, the Hearing Officer recommends that Kulok's license be granted. DONE and ORDERED this 6th day of April, 1976. STEPHEN F. DEAN, Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: James M. Barclay, Esquire Assistant General Counsel Office of the Comptroller The Capitol Tallahassee, Florida 32304 Martin B. Kulok 150 S.E. 25th Road, No. 14F Miami, Florida 33129 ================================================================= AGENCY FINAL ORDER =================================================================
Findings Of Fact Terry G. Jewell is the sole proprietor of an unincorporated business, wherein Jewell engages in business as a real estate broker-salesman. His net worth is less than $2,000,000. In DOAH Case No. 87-2192, the Division filed an Administrative Complaint dated April 20, 1987, wherein the Division essentially alleged that Jewell was co-owner and agent for Sun Country Homes of North Florida, Inc., a corporation engaged in the business of constructing homes; that Jewell, as vice- president and agent for Sun Country Homes, entered into a contract with the Koblinskis to build their house; that Sun Country Homes received approximately $74,900.00 to build the home; that Sun Country Homes did not pay certain materialmen and contractors; and that Jewell did not pay the outstanding liens. The Division sought revocation and other penalties against Jewell's license as a real estate broker-salesman, alleging that Jewell was guilty of fraud, misrepresentation, concealment, false promises, false pretenses, dishonest dealing by trick, scheme or device, culpable negligence and breach of trust in a business transaction. After hearing, a Recommended Order was entered by the undersigned on September 25, 1987, recommending dismissal of the Administrative Complaint. The recommendation was based on findings that Jewell's contacts with the Koblinskis were solely as an officer, co-owner and agent for Sun Country Homes of North Florida, Inc.; that all sums paid by the Koblinskis were to Sun Country Homes and were deposited to its corporate account; that the president of Sun Country Homes mismanaged the corporate funds and did not pay some of the subcontractors on Koblinskis' home, that Jewell quit the corporation then he found out about this; that Jewell did all he could to assist the Koblinskis once he had resigned from the corporation; that the president of the corporation disappeared with the Koblinskis' money; and that Jewell did not benefit from the funds paid by the Koblinskis to Sun Country Homes of North Florida, Inc. The recommendation was based on conclusions of law that the contract was between the Koblinskis and Sun Country Homes of North Florida, Inc.; that Jewell had no intent to deceive the Koblinskis; that it is well settled law that disciplinary action cannot be taken against a real estate broker's license for conduct not connected with the licensee's business as a broker; and that Jewell did not violate Section 475.25(1)(b), Florida Statutes, as alleged. The Final Order of the Division, through the Florida Real Estate Commission, adopted the Findings of Fact, Conclusions of Law and Recommendation in the Recommended Order and dismissed the Administrative Complaint. The affidavit which initiated this action was filed on February 5, 1988, and was later supplemented by the Petition for Small Business Party's Attorney's Fees and Costs. The affidavit, which was an application for an award of fees and costs, was timely, having been filed within 60 days after the date on which Jewell became a prevailing small business party. In this case, the 60 days is calculated from the date on the Certificate of Service showing mailing of the Final Order to the parties. See Section 57.111(4)(b)2, Florida Statutes. According to the affidavit of William C. Andrews, and the statements of account attached thereto, Jewell incurred legal fees of $3,252.50 and costs of $957.21. These fees and costs are found to be reasonable since the Division has not filed a counter affidavit or response questioning their reasonableness. According to the Petition, the disciplinary action in DOAH Case No. 87- 2192 was substantially unjustified at the time it was initiated: because the Administrative Complaint was an attempted disciplinary action taken against Petitioner's real estate broker-salesman's license for conduct not connected with the licensee's business as a broker-salesman, and there was a complete absence of evidence to show any wrong doing on the part of the Petitioner.
