Findings Of Fact Albert Earl Wise, II, (Al,II) (Case No. 86-2161) began work as a securities salesman in Memphis, Tennessee, approximately November 15, 1982. He was a plumber when an old friend recruited him to be come a salesman with G.I.C. Government Securities, Inc., which was registered with the Department of Banking and Finance, Division of Securities (Department), from June 8, 1982, until October 1, 1985. In February, 1983, Al,II, was transferred to Tampa to work in the branch office being opened there by an office manager named Lonnie Kilpatrick. Kilpatrick had been a government trader with the firm in Memphis. In approximately July, 1984, Al,II, became the Tampa branch manager. As the firm's Florida business expanded, Kilpatrick took over sole ownership and named Al,II, general manager over all the offices in Florida. Al,II, also became vice-president, comptroller and member of the board of directors of G.I.C. Government Securities, Inc. As general manager, Al,II, was responsible for the day-to-day operations of the company. A more accurate description of his duties is that of sales manager as he was primarily responsible for promoting sales and motivating the account executives/sales persons. Al,II's, duties did not include registration of securities, as he possessed no training in that area, nor deciding what products G.I.C.. Government Securities would sell. Notwithstanding having been named comptroller and vice- president, Al,II, was not allowed by Kilpatrick, despite request, to audit or examine the company's books and records. Lonnie Kilpatrick decided what securities the entity would offer, as well as who, if anyone, would have access to the corporate records. Dorothy (also known as D'Oresa) Wise Young (Case No. 86-1848) was employed by G.I.C. Government Securities, Inc., as an associated person from September, 1983, through April, 1985, and as Sarasota branch manager from January through April, 1985. She is Al,II,'s daughter. Albert Earl Wise, III, (Al,III) (Case No. 86-1888) was employed by G.I.C. Government Securities, Inc., as an account executive from February, 1983, through April, 1985, became Boca Raton and Orlando branch manager, and was a member of the board of directors of G.I.C. Government Securities, Inc. Al,III, is Al,II,'s son. Glenn Patrick Young (Case No. 86-1847) was employed by G.I.C. Government Securities, Inc., as an associated person from January through April, 1985. He is Dorothy's husband. David Randall Phillips (Case No. 86-1887) was employed by G.I.C. Government Securities, Inc., as an associated person or agent from August, 1984, to May, 1985. He is a long-time, close friend of Al,III. William Fredrick Mann (Case No. 86-2160) was employed by G.I.C. Government Securities, Inc., as an associated person or agent from February to April, 1985. He is Al,III,'s father-in-law. Al,II, was employed as a general manager of G.I.C. Securities Corporation from at least January 27, 1985 to March 5, 1985 and supervised the sale of securities by unregistered agents of G.I.C. Securities Corporation to following investors located outside the State of Florida: Fred E Martin or Matalie L. Martin $85,000 Post Office Box 449 West Upton, Massachusetts 01587 Gregory E Westerman $50,000 2034 Strathmoor Boulevard Louisville, Kentucky 40205 Karen E Prevett $70,000 72 Old Farm Road Mansfield, Massachusetts 02048 Harvey Notis or Marion Notis $50,000 R. D. 3 Box 1248 Great Harrington, Massachusetts 01230 C. T. George $155,000 Living Revocable Trust Trust Dated 01/31/83 20 Palmer Drive Canton, Massachusetts 02021 Geoffrey P. Pollitt $25,000 313 Simon Willard Road Concord, Massachusetts 01742 Walter Kossman or Virginia Kossman $25,000 1594 S. Circle View Seven Hills, Ohio 44131 Robert Anandale Trustee $30,000 Dated 02/28/84 F.B.O. Robert Allandale c/o Central National Bank 6690 McKenzie Road North Olmstead, Ohio 44070 William P. Giblin $25,000 6433 Beverly Drive Parma Heights, Ohio 44129 Walter Kossman or Virginia Kossman $25,000 1594 South Circle View Seven Hills, Ohio 44131 Dorothy L. Bayman or Dale L. Bayman $85,000 150 Belleair Avenue Dayton, Ohio 45420 Dorothy Wise Young was employed by G.I.C. Securities Corporation as an account executive although not registered with Respondent in any capacity at anytime concerning said employment. Young also sold securities on behalf of G.I.C. Securities Corporation to the following investors despite not being properly registered with Respondent: Albin W. Johnson Box 333 Randolph, Massachusetts 02368 $75,000 T. W. Wenzlick or Viola 421 Jeffrey Drive R. Wenzlick $25,000 New Washington, Ohio 44854 Harvey Notis or Marion Notis $50,000 R. D. 3, Box 142C Great Barrington, Massachusetts 01230 Al,III, was employed by G.I.C. Securities Corporation as an account executive from January to April, 1985, and admitted engaging in the sale of one or more securities while employed by said firm. Al,III, also admitted to not being properly registered in the State of Florida with G.I.C. Securities Corporation. G.I.C. Securities Corporation was denied a license by Order of the Department dated April 16, 1984, in part for material false statements in the application and demonstration of the applicant's unworthiness to transact the business of a broker/dealer. G.I.C. Securities Corporation subsequently filed a petition for formal hearing regarding the Department's denial of registration. On August 30, 1984, G.I.C. Securities Corporation entered into a stipulation, consent agreement and final order with the Department. This written agreement provided that the firm would not apply to the Department for registration under Section 517.12(1), Florida Statutes, for a period of twelve months from August 30, 1984, and that it would fully and faithfully comply with all of the provisions of Chapter 517, Florida Statutes, and the rules of the Department. On the basis of these findings of fact, on April 9, 1985, the Department ordered the firm to cease and desist from violating Chapter 517, Florida Statutes, and more specifically from selling unregistered securities and from selling securities without being lawfully registered to do so. Al,II, also sold unregistered Government National mortgage Association GNMA/U.S. Treasury Trust Note securities, to the following individuals in the following amounts: Joseph or Bernice Metcalf 4299-14th Street N.E. St. Petersburg, Fl 33703 $25,000 Bruce or Diane J. Fenton 2435 Post Road Sarasota, Fl 33581 $5,000 Betsy O. Lester 1200 Capri Circle S. Apt. 29 Treasure Island, Fl 33706 $10,000 Ernest L. Miller Post Office Box 458 Lake Hamilton, Fl 33851 $7,000 John and Louise Magill 4260 S.E. 20th Place Apt. Cape Coral, Fl 33904 208 $10,000 Mrs. Lina Anker-Simmons Post Office Box 353 Boca Grande, Fl 33921 $10,000 Charles W. Wood or Babetta 211 W. Emily Tampa, Fl 33603 Edmunds $10,000 Margaret McMenamy 1225 N.W. 16th Street Pembroke Pine, Fl 33026 $20,000 Suzanne J. Lewis 4703 Brookwood Drive Tampa, Fl 33629 $10,000 Raymond or Suzanne Lewis 4703 Brookwood Drive Tampa, Fl 33629 $10,000 Deno or Barbara Kazanis 2310 Southern Lights Lutz, Fl 33549 $5,000 William K. Mall, IV 9500 82nd Avenue N. Seminole, Fl 33543 $20,000 Carl E. or Minnie E. Gustafson $10,000 Post Office Box 451 Matlacha, Fl 33909 John A. or Louis Gress $22,000 Post Office Box 1555 Palm Harbor, Fl 33563 Marguerite Gould or Marguerite Robertson $10,000 16183 Dublin Circle Casa Bella Bldg. A-Apt. 103 Ft. Myers, Fl 33908 Robert J. Evans $7,000 Rt. 2, Box 12-B Moore Haven, Fl 33471 Virginia H. or Robert E Bartlett $10,000 4703 Baycrest Drive Tampa, Fl 33615 Robert S. or Helen M. Gerard $5,000 or Frances C. Rafter JT WROS, 4521 W. Rogers Avenue Tampa, Fl 33611 Jacinto R. or Palmira M. Fernandez $10,000 8436 Nebraska Avenue Tampa, Fl 33604 Paul E. or Elizabeth A. Cleveland $10,000 306 Kllburn Road Holiday, Fl 33590 William F. Price $30,000 custodian for Gary Cotton Dan Cook 9105 Tudor Dr #F102 Tampa, Fl 33615 Ruth T. Penner or Laura B. Wood $5,000 1204 W. Risk-Apt. G Plant City, Fl 33566 Edward G. or Eleanor G. Daniels $20,000 4630 B.E. 20th Place Cape Coral, Fl 33904 Frederick S. Crysler $5,000 1200 Johnston Road Unite B-24 Dade City, Fl 33525 Hazel H. Aspinwall or Frederick F. Smith $30,000 69 Arrowhead Drive St. Augustine, Fl 32086 Jay E or Betty A. Yager $20,000 or Martha Dean Post Office Box 465 Astatula, Fl 32705 Katherine B. Wolf $10,000 1850 Palmcrest Lane Clearwater, Fl 33546 Howard J. or Margaret M. Williams $10,000 8290 Oakhurst Road Seminole, Fl 33542 Roy or Dorothy Schreiner $15,000 4112 Robin Way Valrico, Fl 33594 Alfred or Frances Richter $13,000 7248 Antigua Place Sarasota, Fl 33581 Kaye Reid Wainwright $50,000 10671 William Tell Drive Orlando, Fl 32821 Charles A. Kottmeier $25,000 1200 Druid Road S. #7 Clearwater, Fl 33516 Bernie or Sylvia Albert or $10,000 Sharon Terry Albert 10642 Watertown Court Orlando, Fl 32809 Arnold or Gloria Barr $10,000 7503 Willow Court Tampa, Fl 33614 Edward Daniels Development Company $35,000 4630 S.E. 20th Place Cape Coral, Fl 33904 John W. DuBrian $30,900 2912 Tiburon Drive New Port Richey, Fl 33553 Arthur and Ruth P. Hiller $10,000 10702 Westbrook Dr Orlando, Fl 32821 Charles A. Kottmeir $40,000 200 Druid Road S. #7 Clearwater, Fl 33516 Kenneth S. Preston $12,000 11839 U.S. Hwy 41 S. Gibsonton, William E. Fl 33534 Morris $11,000 271-B Deming Avenue North Port, Fl 33596 Walter Leena M. Fennander $7,000 1727 Bayshore Boulevard Dunedin, Fl 33528 Thomas B. or Charlene M. Austin $10,000 309 15th Avenue Indian Rocks Beach, Fl 33535 Katherine Wolf $10,000 1850 Palmcrest Lane Clearwater, Fl 33546 Dorothy Wise Young sold unregistered Government National Mortgage Association GNMA/U.S. Treasury Trust Note securities, to the following individuals in the following amounts: George W. Arnold $8,000 618 4th Avenue S. St. Petersburg, Fl 33701 W. R. Bauman or Barbara Nagle $10,000 Post Office Box 16 Yankeetown, Fl 32698 George W. or Marjorie E. Border $10,000 860 N. Lake Avenue Avon Park, Fl 33825 Joan or Jerome Brenan 0005 Granite Lane Orlando, Fl 32821 $10,000 Freida Blockner 14623 Bonaire #607 Delray Beach, Fl 33446 $5,000 John or Elizabeth Grabowski 2308 Castilla Isle Fort Lauderdale, Fl 33301 $10,000 Louis or Mary Hoffman 3512 Spring Valley Drive New Port Richey, Fl 33552 $10,000 Raymond F. Joyce custodian for Salvatore Leone 267 S. Ocean Boulevard #212 C Pompano Beach, Fl 33062 $5,000 John or Caroline Susanec $10,000 215 Stafford Avenue Brooksville, Fl 33512 Stephen Karakay $10,000 Box 3344 Sarasota, Fl 33578 Mrs. Floyd A. Flowers or James A. Monroe $5,000 Route 2, Box 330H Crestview, Fl 32536 Fannie Felicia Caliuzzi $5,000 2742 C. Sherbrook Lane Palm Harbor, Fl 33563 Emma Carolyn Hammond $95,000 130 Devon Drive Clearwater, Fl 33515 A. E. or Joyce LaBeau $12,000 1801 Marine Park Way #106 New Port Richey, Fl 33552 A. E. or Joyce LaBeau $13,000 1801 Marine Park Way #106 New Port Richey, Fl 33552 A. E. or Joyce LaBeau $7,000 1801 Marine Park Way #106 New Port Richey, Fl 33552 Oscar Ritter $5,000 952 N.E. 199th Street #415 N. Miami Beach, Fl 33179 Murial or Sherry Stearns 580 Rio Vista Avenue $9,000 Daytona Beach, Fl 32014 F. William or Frances C. Van 219 87th Street Stone Harbor, N.J. 08247 Ness $6,000 Kaye Reid Wainwright 10671 William Tell Drive Orlando, Fl 32821 $50,000 Adele Althouse 400 Freedom Square U.S.A. Apt. J 619 Seminole, Fl 33542 $5,000 Murial or Sherry Stearns 580 Rio Vista Avenue Daytona Beach, Fl 32014 $10,000 F. William or Frances C. Van 112 S.W. 1st Avenue Seller Apt. Ness $10,000 Delray Beach, Fl 33444 McKinely or Grace Anderson 12408 Oakleaf Avenue Tampa, Fl 33612 $10,000 Mrs. Eileen Coutts 190 S.W. 72nd Terrace Margate, Fl 33068 $18,000 John C. Bertram 1416 Lake Marion Drive Apopka, Fl 32703 $8,000 Luther or Alena D. Ellis Rt. 2, Box 72 Wauchula, Fl 33873 $20,000 F. H. or H. Elizabeth Groezinger $15,000 2308 Crescent Ridge Road Daytona Beach, Fl 32018 Luther or Alena D. Ellis $30,000 Rt. 2, Box 72 Wauchula, Fl 33873 Mrs Isabelia K. Berg $6,000 5421 B Lakefront Blvd. Delray Beach, Fl 33445 Al,III, sold unregistered Government National Mortgage Association GNMA/U.S. Treasury Trust Note securities, to the following individuals in the following amounts: Charles S. Ammerman or Florence F. Ammerman $6,500 710 Lake Hiawassee Orlando, Fl 32811 Eva Wilson $15,000 409 S.E. 2nd Court Deerfield Beach, Fl 33441 Frank or Jean Arnold $18,000 6020 Shakerwood Circle, #G-108 Tamara, Fl 33319 Virginia Cummins or J. H. Cromer $15,000 311 S. Dean Street Westport, Indiana 47283 Morris or Sylvia Erlbaum $10,000 6795 Huntington Lane Bld. #14, Apt. #207 Delray Beach, Fl 33446 Lois G. Crosley $41,000 1626 Silversmith Place Orlando, Fl 32818 Sandy Garrison or Mary M. Boitnott $15,000 3104 Harrison Ave., #C-18 Orlando, Fl 32804 William or Rose Herzog $25,000 Custodian for Ronald Coyne 258-A Hibiscus Drive, M.F.L. Leesburg, Fl 32788 Helen Klein or Shari Weitzner $5,000 3205 Portofina #C-4 Coconut Greek, Fl 33066 Mattye Oliver or Eileen Johnson $3,000 147 W. State Street Kennett Square, PA 19348 Alma Pagliaro or Nancy De Marco $10,000 or Godfrey D. De Marco 9925-B Papaya Tree Trail Boynton Beach, Fl 33436 Gai S. Verner I.T.F. Bill Trilsch $25,000 901 N.W. 31st Avenue Box 13 Pompano Beach, Fl 33069 Harry or Anita Cope $5,000 417 Piedmont I Delray Beach, Fl 33445 Al Rappaport or Ellen Rappaport $15,000 2780 Pine Allen Rd. N. Sunrise, Fl 33329 Godfrey D. De Maro or Nancy De Marco $5,000 9925-B Papaya Tree Trail Boynton Beach, Fl 33436 Morris Erlbaum or Sylvia Erlbaum $10,000 6795 Huntington Lane Delray Beach, Fl 33446 A. Froid or Gertrude Froid $10,000 in trust for Roy Lee Froid 2600 S.W. 18th Terrace Ft. Lauderdale, Fl 33315 Max Pendergrast or Carol Pendergrast $20,000 custodian for Eric & Kurt Pendergrast 1611 S.W. 26th Street Ft. Lauderdale, Fl 33315 Glenn Patrick Young sold unregistered Government National Mortgage Association GNMA/U.S. Treasury Trust Note and GNMA/Mortgage Backed Collateral Note securities, to the following individuals in the following amounts: Wanda G. Baugh $10,500 Trustee for Buford Sitzlar Post Office Box 1523 Bonita Springs, Fl 33923 Wanda Baugh $5,000 Trustee for Buford Sitzlar Post Office Box 1523 Bonita Springs, Fl 33923 Norman R. or Margaret 3442 Gerhardt Street A. Keyes $25,000 Sarasota, Fl 33577 Norman R. or Margaret 3442 Gerhardt Street Sarasota, Fl 33577 A. Keyes $25,000 Howard W. or Hazel M. 3300 26th Avenue East Apt. 17-A Bradenton, Fl 33508 Kerr $10,000 David Randall Phillips sold unregistered Government National Mortgage Association GNMA/U.S. Treasury Trust Note securities, to the following individuals in the following amounts: Frank G. and Mildred W. Reynolds $2,500 JTWROS 400 S. Orlando #305 Maitland, Fl 32751 Vivian W. McCann or Marilyn Culpepper $10,000 JTWROS 2211 Beatrice Drive Orlando, Fl 32810 Stanislaw Szamrej or Stanislawa Szamrej $10,000 or Zdzislaw Szamrej JTWROS 2204 Stanley Street Orlando, Fl 32803 Paul Gheorghiu or Martha Gheorghiu $2,500 JTWROS 6565 Carder Drive Orlando, Fl 32818 Marjorie R. Romano or Michael Romano $40,000 11508 Benbow Court Orlando, Fl 32821 William Fredrick Mann sold unregistered Government National Mortgage Association GNMA/U.S. Treasury Trust Note securities to Mark Fulkerson or Bea Kuykendall, 7900 Montezuma Trail, Orlando, Fl, in the amount of $41,000. On April 9, 1985, the Department issued an Administrative Charges and Complaint against G.I.C. Government Securities, Inc., alleging among other things the sale of unregistered securities. On June 27, 1985, the Department entered into a Stipulation and Consent Order whereby G.I.C., its officers and directors and other persons acting in cooperation or concert with them or at their direction were permanently enjoined in part from selling unregistered securities and from obtaining money or property by means of untrue or misleading statements. Despite their positions with Kilpatrick's firms, the petitioners were not told, and did not know, that G.I.C. Securities Corporation was not registered with the Department. Al,III, and Dorothy Wise Young were registered in the states of Ohio (Al,III, only), Delaware and Massachusetts, and Kilpatrick, who had the benefit of legal counsel, had told them that it was legal for them to sell from their Florida offices to customers in those states. Likewise, Kilpatrick and the company's legal counsel, Tony Todd, told Al,II, Al,III, and Dorothy in late 1984 that the Government National Mortgage Association GNMA/U.S. Treasury Trust Notes and GNMA/Mortgage Backed Collateral Notes issued by Southern Bond Clearing were exempt from registration. Following Kilpatrick's instructions, they had their salesmen, including Glenn Patrick Young, Phillips and Mann, sell the securities. Despite their respective positions with G.I.C. Government Securities, Inc., and despite their representation on their U-4 Form applications to be associated persons with the firm that they were familiar with Florida's securities laws, none of the petitioners knew that those securities were unregistered securities for which there was no exemption. In March, 1985, Al,II, was in Memphis interviewing with the securities broker Turner & Sellhorn, Inc., about possible employment. At the time, although earning income well into six figures, Al,II, was dissatisfied with the way Kilpatrick was keeping him in the dark about some aspects of the companies' operations and finances. While in Memphis, Al,II, called in to his Tampa office and was told that the Department was engaged in some kind of audit. After he returned to the office, on April 4, 1985, he confronted Kilpatrick and demanded to know what the audit was about. Kilpatrick told him for the first time that violations had been committed by selling unregistered securities and selling for G.I.C. Securities Corporation, which had not been registered. Although Al,II, and Al,III, technically were members of the board of directors of G.I.C. Government Securities, Inc., there were no meetings of the board during their tenure, and Kilpatrick did not fully disclose the details of the firm's operations and finances to them. The Wises also were not made privy to the operations of related firms, such as Southern Bond Clearing. Dissatisfied with the position in which Kilpatrick had placed him and Al,III, Al,II, decided to resign despite Kilpatrick's offer of concessions and an expenses-paid trip to Europe as enticement to Al,II, stay on with the company. Al,II, resigned the next day, effective April 15, 1985. Al,III, resigned as a director on April 17, 1985. When Al,II, resigned, the other petitioners--family and friends whom Al,II, had brought to the company--began discussing plans to leave. On April 9, 1985, Gerald Lewis, as Comptroller, entered the cease and desist orders enjoining G.I.C. Securities Corporation from selling any securities while still unregistered and enjoining both G.I.C. Government Securities, Inc., and G.I.C. Securities Corporation from sales of unregistered securities. But the orders did not otherwise enjoin G.I.C. Government Securities, Inc., from conducting business. When Dorothy Wise Young inquired of a Department employee, the violations were characterized as "technical." The petitioners then decided that, to be able to have uninterrupted income, the others would stay at the company until Al,II, secured employment at Turner & Sellhorn and could hire the others on at Turner & Sellhorn. But on April 30, 1985, Kilpatrick required all employees to sign a new employment contract which provided, among other things, for 90 days notice before an employee could terminate employment. At that point, the petitioners still at the company (i.e., all but Al,II) refused to sign the new contract and resigned from employment. Up to the departure of the petitioners from Kilpatrick's companies, none of them had any reason to think that securities they sold would not be delivered in due course of time to the customers who purchased them. Securities always had been delivered properly during the term of their employment with the companies. The petitioners, like the Department's employees, were not privy to the companies' finances and had no reason to believe the companies would not, or would not be able to, deliver securities that had been purchased. It is not a customary practice in the industry for securities salesmen associated with a broker/dealer to remain responsible for insuring delivery of securities after termination of employment with the broker/dealer. To the contrary, it is customary for the salesman to rely on the broker/dealer to follow through on delivery of securities. On or about July 22, 1985, the petitioners' U-4 Form applications to be associated persons with Turner & Sellhorn, Inc., were granted, and they began employment at Turner & Sellhorn. They mailed notices to their former customers to advise the customers of their new place of employment. Later in the summer of 1985, some of the petitioners were told by former customers both that G.I.C. Government Securities, Inc., had begun selling short-term zero coupon repurchase agreements and that some former customers had not yet received possession of securities purchased from some of the petitioners on or before April 30, 1985, an extraordinary delay. After discussing these developments with Mr. Turner, the petitioners concluded that Kilpatrick's companies might be having financial difficulties and that the former customers might be at risk. The petitioners began to try to contact all of their former customers to caution them about the "zero repos" and to be sure they had received possession of their securities. This was not easy since many of the petitioners' former customers already had left for summer residences up north, some without leaving a forwarding address or telephone number. Glenn Patrick Young sent letters to the U.S. Postal Service and paid its service fee to obtain a good address or telephone number at which to contact six of his former customers If former customers the petitioners were able to contact had not yet received their securities, petitioners advised them to contact G.I.C. Government Securities, Inc., immediately and demand satisfaction--either possession of their securities or return of their investment. They further advised the customers that, if the company did not satisfy them within a week to ten days, they should contact the Department. Thanks to petitioners' efforts, several of their former customers recovered either their security or investment. For example, Al,III, was able to contact former customer Bryant on August 20, 1985, on Bryant's return to Florida and was told that Bryant still had not received the GNMA certificate he had bought on March 26, 1985. Following Al,III,'s advice, Bryant got his certificate on September 6, 1985. Glenn Patrick Young was contacted by former customer Bough about a "zero repo." He advised her not to invest and to contact the Department. Young also called former customers Neukom and Horowitz and, by his advice, helped Neukom get her $23,000 investment returned around September 25, 1985, and helped Horowitz get his $66,000 GNMA certificate on September 6, 1985, after a six month delay. David Randall Phillips helped former customers, including Mrs. Moffat, who called Phillips at his home for help in August, 1985, because she still had not received the security she had purchased in April, 1985. Phillips advised Moffat to write a letter to the Department, and she got her security within five days. Unfortunately, not all of petitioners' former customers had gotten satisfaction--either the security they had purchased or the return of their investment--by the time G.I.C. Government Securities, Inc., went bankrupt on or about October 1, 1985. Some, including Lillian Nelson and Raymond Dennis (customers of Phillips), did not listen to petitioners' advice and counsel. One couple, the Bakers of Ft. Myers, were contacted by Glenn Patrick Young but misinformed him that they had received possession of their security when in fact they had not. Others could not be contacted because petitioners were unable to get a good address or telephone number for them during the summer and early autumn, 1985. Dr. Stanley Pollock of 332 Fifth Avenue, Suite 213, McKeesport, Pennsylvania, purchased three GNMA certificates in the amount of $195,131 from Dorothy Wise Young near the end of her employment at G.I.C. Government Securities. Young tried to telephone Pollock but had a bad telephone connection. She tried to leave a message for Pollock to call her if he had not yet received his securities and, when Pollock did not call her, she assumed that he had received them. In fact, Pollock never got the message because of the bad connection. As a result, Dr. Pollock did not receive or obtain registered ownership of the securities which he had purchased. He currently has a claim pending in the United States Bankruptcy Court for the Middle District of Florida for the purchase price of the certificates. At the direction of Richard Johnson of Tampa, Richard J. Hansen, IRA Plans Administrator, Retirement Accounts, Inc., Post Office Box 3017, Winter Park, Florida, purchased two GNMA certificates from Al,III, on behalf of Johnson in the amount of $18,470.37. Mr. Johnson did not receive the certificates. He moved to Wisconsin June through October, 1985, and gave Al,III, no forwarding address or telephone number (although Al,III, could have made contact with Mr. Johnson through Mr. Hansen.) James and Katheryn Putnal of Route 1, Box 14, Myakka City, Florida, purchased an $85,000 GNMA certificate from Glenn Patrick Young on April 12, 1985. In addition, M. Reed and Edna M. Veazey of 2141 Third Street East, Bradenton, Florida purchased a $50,000 Federal Home Loan Mortgage Corporation (FHLMC) certificate from him on February 11, 1985. Both couples moved from Florida (the Putnals from May 8 through August, 1985, and the Veazeys until October, 1985), and neither gave Young a forwarding address or telephone number. Young unsuccessfully tried to locate them through the U.S. Postal Service and then gave up. Before they left to go up north, the Putnals did receive Young's announcement that he had left G.I.C. and was starting employment with Turner & Sellhorn. But when they returned they called G.I.C., not Young, to inquire about delivery of their certificate and were told it was coming, give it time. The Veazeys also contacted G.I.C., not Young, after Young switched to Turner & Sellhorn and, in fact, bought two more GNMA certificates from G.I.C. after Young had left (although they still had not received the security they had purchased from Young on or about February 19, 1985.) Both the Putnals and the Veazeys have had to make claims in the United States Bankruptcy Court for the Middle District of Florida for the purchase price of the certificates. While employed by G.I.C. Government Securities, William Fredrick Mann sold GNMA certificates to the following individuals in the following amounts: Louis M. Totka or Marguerite A. Totka 117 Pine Circle Drive $25,000 Lake Mary, Fl 32746 Mignon Weinstein or Philip Weinstein 2910 Plaza Terrace Drive Orlando, Fl 32803 $40,000 Philip Weinstein or Mignon Weinstein 2910 Plaza Terrace Drive Orlando, Fl 32803 $55,000 Although Mann was able to contact these former customers in late July or in August, 1985, and advise and counsel them how to get satisfaction (i.e., either possession of the securities they had purchased or return of their investments, for some reason the Totkas and the Weinsteins did not get satisfaction before the G.I.C. bankruptcy. Despite their association with Kilpatrick's G.I.C. companies, the petitioners have been able to maintain a good reputation for competence, honesty and trustworthiness in their business dealings. Testimony of this kind came from Mr. Turner and Mr. Sellhorn of Turner & Sellhorn, Inc., and several of petitioners' former customers--four customers of Al,II; one of Dorothy; four of Al,III; three of Glenn Patrick Young; and three of Phillips. More than being responsible for the violations in which they have participated, petitioners have been fellow victims of Kilpatrick's violations. The most serious of the violations--failure to account for and deliver securities-- occurred after the petitioners left G.I.C. and through no doing of their own.
Recommendation Based on the foregoing Findings Of Fact and Conclusions Of Law, it is recommended that a final order be entered in these cases granting the applications of all of the petitioners for registration as associated persons with Certified Capital Corporation. RECOMMENDED this 29th day of April, 1987 in Tallahassee, Florida. J. LAWRENCE JOHNSTON 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 29th day of April, 1987. APPENDIX TO RECOMMENDED ORDER, CASE NOS. 86-1847, 86-1848, 86-1887, 86-1888, 86-2160 and 86-2161 To comply with Section 120.59(2), Florida Statutes (1985), the following rulings are made on proposed findings of fact. Respondent's proposed findings of fact were organized and filed separately by petitioner. Petitioners' proposed findings of fact were not timely filed and do not require explicit rulings (although they have been considered, as reflected in the Findings Of Fact.) Respondent's Proposed Findings Of Fact As To Glenn Patrick Young (Case No. 86-1847). 1.-5. Accepted and incorporated, along with additional findings. Respondent's Proposed Findings Of Fact As To Dorothy Wise Young (Case No. 86-1848). 1.-8. Accepted and incorporated, along with additional findings. 9. Rejected as contrary to facts found that Dr. Pollock had no contact with Young; in part, subordinate; otherwise, accepted and incorporated, along with additional findings. Respondent's Proposed Findings Of Fact As To David Randall Phillips (Case No. 86-1887). 1.-5. Accepted and incorporated, along with additional findings. 6. Subordinate to facts found. Respondent's Proposed Findings Of Fact As To Albert Earl Wise, III (Case No. 86-1888). 1.-8. Accepted and incorporated, along with additional findings. Respondent's Proposed Findings Of Fact As To William Fredrick Mann (Case No. 86-2160). 1.-6. Accepted and incorporated, along with additional findings. Respondent's Proposed Findings Of Fact As To Albert Earl Wise (Case No. 86-2161). 1.-7. Accepted and incorporated, along with additional findings. COPIES FURNISHED: Michael J. Echevarria, Esquire ECHEVARRIA & BENCHIMOL, P.A. Suite 3016, First Florida Tower 111 East Madison Street Tampa, Fl 33602 Charles E. Scarlett, Esquire Assistant General Counsel Office of the Comptroller Suite 1302, The Capitol Tallahassee, Fl 32399-0305 Gerald Lewis Comptroller, State of Florida The Capitol Tallahassee, Fl 32399-0305 Charles Stutts General Counsel Plaza Level The Capitol Tallahassee, Fl 32399-0305 =================================================================
The Issue Whether Petitioner is qualified for registration as an associated person.
Findings Of Fact On December 6, 1990, Cliff J. Guerrieri submitted a Uniform Application for Securities Industry Registration (Form U4) to the National Association of Securities Dealers (NASD) for registration as a securities dealer in Florida. A copy of this form was forwarded to the Department of Banking and Finance by NASD. On this Form U4, Petitioner answered "No" to Question 22A relating to having been convicted of or plead guilty of nolo contendere to: a felony or misdemeanor involving: fraud, false statements, or omissions, wrongful taking of property, or bribery, forgery, counterfeiting or extortion? gambling? any other felony? A check by NASD revealed that Petitioner had pleaded nolo contendere to two charges of petit theft in the County Court, Pinellas County, Criminal Division, on March 10, 1986 (Exhibits 3 and 4); pleaded nolo contendere to exposure of sexual organs in the County Court, Hillsborough County, Criminal Division, on September 7, 1989 (Exhibits 5 and 6). Petitioner's employer was notified of these omissions, and on March 7, 1991, Petitioner submitted an Amended Form U4 on which he again checked "No" to Item 22A, but checked "Yes" to Item 22B, which asks if he had ever been charged with any felony or misdemeanor specified in Questions A(1) or (2). Additionally, Petitioner submitted court records admitted here as Exhibits 3, 4, 5 and 6. Although Petitioner testified that he sent Exhibits 3, 4, 5 and 6 with his amended U4, Respondent acknowledged receipt of Exhibits 3, 4, 5 and 6, but denied receiving a copy of the amended U4 dated March 7, 1991. Petitioner testified that the petit theft charges involved license plates in or on his brother's car, which Petitioner was driving when he was stopped and charged with these violations. No further explanation was provided from which the degree of Petitioner's culpability could be ascertained. With respect to the exposure charge, Petitioner stated that he was changing clothes in an open convertible when he was apprehended. Again, no further explanation was provided from which Petitioner's culpability could be ascertained. With respect to the failure to note his criminal conviction on his initial application, Petitioner testified that his initial reading of Item 22 on the U4 led him to conclude erroneously that all of Items 22A through N involved securities violations and since he had never committed such a violation, his sworn answers to Item 22 was correct. Respondent's sole witness testified that Petitioner's application would have been denied even if he had initially submitted a correct application based solely on his convictions. The convictions plus the failure to disclose constituted the given reason for denial of Petitioner's application.
Recommendation Accordingly, it is recommended that the application of Cliff J. Guerrieri for registration as an associated person be denied. RECOMMENDED this 19th day of November, 1991, in Tallahassee, Florida. K. N. AYERS Hearing Officer Division of Administrative Hearings The Desoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 19th day of November, 1991. COPIES FURNISHED: Cliff J. Guerrieri 4201 North "A" Street Apartment 14 Tampa, FL 33609 Honorable Gerald Lewis Comptroller Department of Banking and Finance Suite 1302, The Capitol Tallahassee, FL 32399-0350 Ashley Peacock, Esquire Department of Banking and Finance Suite 1302, The Capitol Tallahassee, FL 32399-0350 William G. Reeves General Counsel Department of Banking and Finance Suite 1302, The Capitol Tallahassee, FL 32399-0350 =================================================================
The Issue The basic issue in this case is whether the Petitioner's application for registration as an associated person in the state of Florida with Value Equities Corporation should be granted or denied. The Department proposes to deny the application on the basis of Section 517.161(1)(h) and (k), Florida Statutes, contending that the Petitioner has demonstrated his unworthiness to transact the business of an associated person and is of bad business repute. The Petitioner has little, if any dispute with the facts relied upon by the Department, but offered evidence in mitigation and asserts that, on the facts in this case, he is entitled to registration. Subsequent to the hearing in this case, a transcript was filed on March 4, 1987, and, pursuant to ruling at the close of the hearing, the parties were allowed until March 16, 1987, within which to file their proposed recommended orders. Both parties filed timely post-hearing documents, containing proposed findings of fact. A specific ruling on all proposed findings of fact is contained in the Appendix attached to and incorporated into this recommended order.
Findings Of Fact Based on the stipulations of the parties, on the testimony of the witnesses at the hearing, and on the exhibits received in evidence, I make the following findings of fact. Petitioner, Kenneth Joseph Whitehead, ("Whitehead") filed a Form U-4 application to be registered as an associated person in the state of Florida with Value Equities Corporation, located at 216 South Fairway Drive, Belleview, Illinois. Said application was received at the Department of Banking and Finance ("Department") in due course on June 21, 1986. By letter dated September 3, 1986, the Department advised the Petitioner that it intended to deny his application for registration for the reasons set forth at length in the letter. Thereafter, the Petitioner filed a timely request for hearing. The National Association of Securities Dealers ("NASD") District Business Conduct Committee, District #4, on July 11, 1978, accepted a "Letter of Admission, Waiver and Consent" against Weinrich, Zitzman & Whitehead, Inc., Kenneth J. Whitehead and others. In said agreement, Whitehead personally consented to a censure, a fine in the amount of $2000, and a ten day suspension from NASD membership. The sanctions imposed by the NASD resulted from violations of Regulation T imposed against Whitehead individually. The State of Missouri issued an order entitled "ORDER TO CEASE AND DESIST" in the matter of: Weinrich, Zitzman and Whitehead, Inc., Kenneth Whitehead, et al., on February 24, 1982, and found Whitehead to have personally made sales of unregistered securities, to have effected Unauthorized transactions, to have distributed promotional materials while not providing a prospectus and to have omitted to purchasers the fact that said securities were unregistered. Further, all respondents in that proceeding, including Whitehead, were found by the State of Missouri to have omitted the fact that unsuccessful attempts were made to register certain stocks, the fact that certain stocks could not justify their offering price, and the fact that the promoter's equity position could not be justified with respect to certain stock. All of the aforementioned were found to have constituted violations of Missouri law. As a result, Whitehead and others were ordered to cease and desist from violating Missouri law. Petitioner was afforded his due process rights to contest said order which was subsequently upheld. On May 31, 1983, the NASD District Business Conduct Committee #4 ("Committee"), entered a "Decision in Complaint No. KC-261" as to Whitehead and others. The Committee found that Whitehead failed to maintain minimum margin equity on certain accounts and failed to deliver securities as required by Article III, Sections 1 and 30, of the NASD Rules of Fair Practice. As a result of said violations, Whitehead was censured, fined $2500 and suspended by the NASD for three days. On September 19, 1985, the Committee issued a second complaint (KC-339) against Whitehead and others alleging violations of Article III of the NASD Rules of Fair Practice by failing to maintain required net capital, proper books, and records. As a result of an offer of settlement, Whitehead was censured and fined $1500. On December 20, 1985, the Committee issued a third Complaint (KC-343) against Whitehead and others for failure to maintain required net capital in violation of SEC Rule 15C3-1 and Article III, Section 1, of the NASD Rules of Fair Practice. The complaint remains pending. In 1982, eleven suits were filed by individual plaintiffs against WZW Financial Services, Inc., Whitehead, and others in the Circuit Court of the City of St. Louis to effect rescission of the sale of unregistered securities in the state of Missouri. The suits were settled for an aggregate of $240,000. The Petitioner was not directly involved in the sales that led to these suits, but he was vicariously liable as an officer of the corporation. In 1984, a suit was filed in the U.S. District Court for the Southern District of Illinois by certain individual plaintiffs against WZW, Inc., Kenneth Whitehead, and others in the sale of limited partnership interests wherein the allegations included violations of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C 78j(b), Rule 10b-5, involving securities fraud; violations of Section 1964c of the Racketeer Influence and Corrupt Organizations Act ("RICO") of 18 U.S.C. 1962C, 1964c, involving racketeering activity; and violations of 18 U.S.C. 1341, involving mail fraud. The case is currently pending. On January 30, 1986, O. R. Securities, Inc., filed a Form U-5 termination notice in which Whitehead was terminated for violating the firm's policy concerning margin accounts. The termination was investigated by the NASD. Following the investigation, the NASD determined that no further action was warranted.
Recommendation Based on all of the foregoing, it is recommended that the Department of Banking and Finance issue a final order in this case which denies the Petitioner's application for registration as an associated person with Value Equities Corporation. DONE AND ENTERED this 19th day of March 1987, at Tallahassee, Florida. M. M. PARRISH 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 19th day of March, 1987. APPENDIX TO RECOMMENDED ORDER, CASE NO. 86-4055 The following are my specific rulings on each of the proposed findings of fact submitted by both parties. Findings submitted by Petitioner First unnumbered paragraph: Accepted in substance with unnecessary details omitted. Second unnumbered paragraph: First sentence accepted in substance. Second sentence covered in introductory portion of this recommended order. Paragraph 1: All but last sentence is accepted in substance. Last sentence is rejected as irrelevant because there is no persuasive competent substantial evidence that customers were not hurt or jeopardized. Paragraph 2: First sentence accepted. Second sentence rejected as incomplete. Third sentence rejected as irrelevant in light of other evidence. Fourth and fifth sentences rejected as contrary to the greater weight of the evidence. Sixth sentence accepted. Seventh sentence rejected as contrary to the greater weight of the evidence and as not supported by persuasive competent substantial evidence. Paragraph 3: Accepted in substance. Unnumbered paragraph following paragraph 3: First sentence is rejected as irrelevant in light of other evidence. Second and third sentences are rejected as in part contrary to the greater weight of the evidence and in part not supported by persuasive competent substantial evidence. Paragraph 4: Accepted in substance. Paragraph 5: Accepted in substance. Paragraph 6: The first four sentences are rejected as constituting irrelevant and unnecessary details. The fifth sixth, and seventh sentences are rejected as contrary to the greater weight of the evidence and as not supported by credible competent substantial evidence. Paragraph 7: Accepted in substance with unnecessary details omitted. Findings submitted by Respondent Paragraph 1: Accepted. Paragraph 2: Accepted in substance. Paragraph 3: Accepted. Paragraph 4: Accepted. Paragraph 5: Accepted. Paragraph 6: Accepted. Paragraph 7: Accepted. Paragraph 8: Accepted. Paragraph 9: Accepted. Paragraph 10: Accepted with additional facts for clarity and accuracy. Paragraph 11: Rejected as constituting proposed conclusions of law or legal argument regarding what was not proved, and not constituting findings of fact based on evidence. COPIES FURNISHED: James S. McClellan, Esquire 314 North Broadway, Suite 1930 St. Louis, Missouri 63102 Charles E Scarlett, Esquire Assistant General Counsel Office of the Comptroller Suite 1302, The Capitol Tallahassee, Florida 32399 Honorable Gerald Lewis Comptroller, State of Florida The Capitol Tallahassee, Florida 32399-0305
Findings Of Fact Petitioner is the governmental agency responsible for issuing real estate licenses and regulating licensees on behalf of the state. Respondent, Gregory T. Franklin ("Franklin"), is licensed in the state as a real estate broker; license number 0314387. The last license issued was as a real estate broker, c/o Equity Realty of South Florida, Inc., t/a Equity Realty, 5809 Southeast Federal Highway #200, Stuart, Florida 34997. Respondent, Equity Realty of South Florida, Inc. ("Equity"), is a corporation registered as a real estate broker; license number 0229264. Respondent, Franklin, is the qualifying broker for Respondent, Equity. On or about January 26, 1990, Mr. Robert Warren (the "buyer") entered into a contract to purchase real estate from Ms. J. Zola Miller and Ms. Adrianne Miller Hill (the "sellers"). The buyer gave Respondent an earnest money deposit in the amount of $1,000. On or about April 17, 1990, a second contract was executed by the buyer and sellers. The buyer gave Respondents a second earnest money deposit in the amount of $24,000. Both earnest money deposits were timely deposited to Respondents' escrow account, number 0194101404, Florida Bank, Stuart, Florida. The buyer and sellers had difficulty in closing the contract due to disagreements concerning conditions in the contract. At the buyer's request, Respondents used the earnest money in the amount of $25,606.04 to purchase a certificate of deposit ("CD") in the name Robert Warren Century 21 Equity Realty Escrow Account #050-215-76, located at the First Marine Bank of Florida, Palm City, Florida ("First Marine"). Respondents received the sellers' verbal approval, but not written approval, for the purchase of the CD. Respondents notified the Florida Real Estate Commission (the "Commission") on August 28, 1990, that there were conflicting demands for the $25,000 earnest money deposit. Respondents stated their intent to claim a portion of the earnest money as an earned commission and stated that they were preparing to file an interpleader action to resolve the parties' dispute over the earnest money deposit. The Commission acknowledged Respondents' notification. Negotiations between the buyer and sellers continued until December 12, 1990. At that time, the parties reached an impasse, and each made written requests for the escrow deposit. Respondents maintained the earnest money in the CD until February 8, 1991. On February 8, 1991, Respondents were notified by First Marine that the buyer was attempting to obtain the escrow monies directly from First Marine. Respondents opened a CD in the name of Robert Warren Escrow Account for Equity Realty by Gregory Franklin, Account #200-517-7320, First Union Bank of Florida, Stuart, Florida. When the CD matured on May 15, 1991, the amount of the deposit was $25,989.57. On May 15, 1991, Respondents removed the earnest moneys and invested them in CD #10696954 at Community Savings Bank. On June 19, 1991, Respondents withdrew $500, paid a penalty of $6.21, and closed the CD. The remaining balance was used to open CD #10707413 at Community Savings Bank. On June 21, 1991, Respondents withdrew $600 and paid a penalty in the amount of $8.67. Respondents used half of the $600 withdrawal to pay an attorney to initiate a civil interpleader action without the knowledge or consent of either the buyer or seller. On August 23, 1991, Respondents closed the CD and withdrew the balance. On August 23, 1991, Respondents opened CD 310725647 in the name of Equity Realty, Inc., with the balance at Community Savings Bank. On October 30, 1991, Respondents made a withdrawal in the amount of $175. On November 23, 1991, the CD was renewed. The account was closed on November 27, 1991, with a balance of $25,456.94, and deposited into the court registry. The interpleader action was ultimately resolved pursuant to a settlement agreement between the parties. Respondents obtained the consent of both parties, though not the written consent of both parties, before placing the escrowed funds into an interest bearing account on August 15, 1990. The uncontroverted testimony of Respondent, Franklin, concerning this issue was credible and persuasive. Neither the sellers nor the buyer ever revoked their consent. Respondents deposited the earnest moneys into an interest bearing account without designating who was to receive the interest from such an account without the consent of both parties. Respondents took appropriate action to resolve the conflicting demands made upon the earnest moneys deposited with Respondents but failed to take such action in a timely manner.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner enter a Final Order finding Respondents guilty of placing escrow funds in an interest bearing account without designating who is to receive the interest in violation of Florida Administrative Rule 21V- 14.014. It is further recommended that Petitioner should issue a written reprimand to Respondents and require Respondent, Franklin, during the next 12 months, to document to the satisfaction of Petitioner that he has completed 14 hours of the Brokerage Management Course. RECOMMENDED this 22nd day of January, 1993, in Tallahassee, Florida. 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 22nd day of January, 1993. APPENDIX TO RECOMMENDED ORDER, CASE NO. 92-3323 Petitioner's Proposed Findings Of Fact. 1.-6. Accepted in Finding 1. 7.-8. Accepted in Finding 2. 9.-11. Accepted in Finding 3. Accepted in Finding 4. Accepted in Finding 5. Accepted in Finding 3. Accepted in Finding 6. Accepted in Finding 7. 17.-20. Accepted in Finding 8. 21.-22. Accepted in Finding 9. 1.-6. Accepted in Finding 1. 7.-8. Accepted in Finding 2. 9.-11. Accepted in Finding 3. 12. Accepted in Finding 4 13. Accepted in Finding 5. 14. Accepted in Finding 3. 15. Accepted in Finding 6. 16. Accepted in Finding 7 17.-20. Accepted in Finding 8. 21.-22. Accepted in Finding 9. 23.-24. Accepted in Findings 10.-11. Respondents' Proposed Findings Of Fact. 23.-24. Accepted in Findings 10.-11. COPIES FURNISHED: Darlene F. Keller, Director Division of Real Estate Department of Professional Regulation 400 West Robinson Street Post Office Box 1900 Orlando, Florida 32801 Jack McRay, Esquire General Counsel Department of Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-0792 James H. Gillis, Esquire Department of Professional Regulation, Division of Real Estate Legal Section - Suite N 308 Hurston Building North Tower 400 West Robinson Street Orlando, Florida 32801-1772 Gregory T. Franklin, pro se %Equity Realty of South Fla., Inc. 5809 S.E. Federal Highway, #200 Stuart, Florida 34997 APPENDIX TO RECOMMENDED ORDER, CASE NO. 92-3323 All parties have the right to submit written exceptions to this Recommended Order. All agencies allow each party at least 10 days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should contact the agency that will issue the final order in this case concerning agency rules on the deadline for filing exceptions to this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the final order in this case.
Findings Of Fact Seaton made application to the Division under the provisions of Section 517.12, Florida Statutes, for registration as a salesman of securities. Subsequently, the Division issued its intent to refuse or deny license or registration along with administrative charges and complaint alleging that Seaton was unworthy to transact the business of a salesman. On February 22, 1977, the Securities Commissioner of the State of South Carolina issued his order to cease and desist directed to Seaton on the dual grounds that Seaton engaged in conduct inconsistent with just and equitable principles of trade in that he offered for sale limited partnerships constituting securities while failing to register them as required and that Seaton failed to register as a broker, dealer or agent in South Carolina. On June 7, 1977, the District Business Conduct Committee for District number 4 of the National Association of Securities Dealers, Inc., issued its complaint against Seaton for violations of Article III, Sections 1, 18 and 27 of the Rules of Fair Practice of the National Association of Securities Dealers, Inc.
Findings Of Fact The Petitioner, Claudio A. Sevilla, submitted an application for licensure as an associated person with Great Western Financial Securities Corporation. At the time that application was submitted, the Petitioner was employed by, or had a contract for employment with, Great Western Financial Securities Corporation. Shortly after issuance of the original notice of denial, Great Western Financial Securities Corporation terminated its employment relationship with the Petitioner. As a result of that action, the Petitioner is not currently seeking, and cannot currently seek, registration as an associated person with Great Western Financial Securities Corporation because he no longer has an employment relationship with that company. In Florida, an individual must be employed by a dealer or investment adviser in order to become registered as an associated person. The Petitioner cannot become registered as an associated person with a dealer or investment adviser with which he does not have an employment relationship. Prior to filing the subject application, the Petitioner was the subject of disciplinary proceedings regarding certain banking activities. Those disciplinary proceedings were resolved by a consent order, in which the Respondent was ordered to pay an administrative fine in the amount of five hundred dollars and to cease and desist from certain enumerated activities. The Respondent never paid the administrative fine. 2/ Item 22E(4) of the application form asks whether any state regulatory agency has ever "entered an order against you in connection with investment- related activity?" At the beginning of item 22 on the application form, the term "investment related" is defined as "Pertaining to securities, commodities, banking, insurance, or real estate including, but not limited to acting as or being associated with a broker-dealer, investment company, investment adviser, futures sponsor, bank, or savings and loan association." [Emphasis supplied.] The Petitioner checked the "No" box in response to item 22E(4) on his application. 3/
Recommendation For all of the foregoing reasons, it is RECOMMENDED that the Department of Banking and Finance issue a Final Order in this case denying the Petitioner's application for licensure as an associated person with Great Western Financial Securities Corporation. DONE AND ENTERED this 5th day of October 1994 in Tallahassee, Leon County, Florida. MICHAEL M. PARRISH Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 5th day of October 1994.
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 Whether the petitioner's application for registration as an associated person of Hardman Financial Services, Inc., should be granted or denied.
Findings Of Fact Based on the oral and documentary evidence presented at the final hearing and the entire record of this proceeding, the following findings of fact are made: The Department is the state agency charged with the administration of chapter 517, Florida Statutes (Florida Securities and Investor Protection Act), and is responsible for registering associated persons. The Division of Securities and Investor Protection carries out this function. In January 1995, Mr. Northern applied to the Department for registration as an associated person of Hardman Financial Services, Inc., pursuant to section 517.12, Florida Statutes. Mr. Northern is currently registered with the National Association of Securities Dealers and with the State of California. On November 24, 1992, the Commodity Futures Trading Commission ("CFTC") filed a Complaint and Notice of Hearing charging Mr. Northern with fraudulent allocation, that is, with cheating or defrauding or attempting to cheat or defraud his customers with respect to trades in the purchase and sale of commodities, a violation of section 4b of the Commodity Exchange Act, title 7, section 6b, United States Code. 1/ Specifically, the CFTC alleged in the complaint that, from "at least December 1987 to May 1989," Mr. Northern, "fraudulently allocated profitable trades to the Northern account and unprofitable or less profitable trades to his customers' accounts." The CFTC based the fraudulent allocation charge on an inference drawn from two facts alleged in the complaint. First, the CFTC alleged that, during the period extending from December 1987 to May 1989, 180 out of 184 trades on Mr. Northern's personal trading account were profitable, producing a profit of $53,517, while his customers' accounts lost $696,889. Secondly, the CFTC alleged that Mr. Northern's name was included by Paine Webber's Compliance Department on lists variously known as "ACL lists", "Discretionary Broker lists", and "Account Number Later lists", which meant that Mr. Northern was allowed to batch his orders and telephone them directly to the Paine Webber clerks on the floors of the exchanges, who then accepted and executed the orders even though Mr. Northern did not provide account identification at the time the orders were placed. Mr. Northern presented the CFTC with an offer of settlement dated June 1, 1994, and, on July 19, 1994, the CFTC entered an Opinion and Order Accepting Offer of Settlement of Lovell Braxton Northern, III. In the Opinion, the CFTC found that "[s]olely on the basis of the consent evidenced by the Offer, and without any adjudication on the merits, the Commission finds that Northern has violated section 4b of the [Commodity Exchange] Act." The CFTC noted in footnote 2 of the Order that Mr. Northern neither admitted nor denied the allegations against him and that he "stipulates that the record basis on which this Opinion and Order . . . is entered consists of the Complaint and the findings consented to in the Offer, which are incorporated in this Order." 2/ The CFTC, in accordance with the terms of Mr. Northern's offer, denied Mr. Northern trading privileges on any contract market for a period of seven years and ordered him to liquidate all futures and options positions in which he had any beneficial interest. In addition, the CFTC directed Mr. Northern to "comply with his undertakings" never to seek registration with the CFTC or to act in any position requiring registration or requiring him to hold customer funds. This Opinion was the basis for the CFTC's Order of Dismissal, dated July 19, 1994, which finally resolved the action brought against Mr. Northern and his former employer, Paine Webber. 3/ Mr. Northern explained that he offered to settle the CFTC case only because he could not travel to California for the hearing. At the time, his father was gravely ill with cancer, and he feared losing his job. Mr. Northern maintains that he did not fraudulently allocate any commodity trades, although he concedes that he placed orders by telephone without simultaneously providing account identification numbers to the floor clerks. He claims that he was required by Paine Webber's Compliance Department to place orders and provide account numbers after the orders were executed; he considers himself an innocent victim, whose only fault was adhering to Paine Webber's policy with regard to order entry. In response to a request by the National Futures Association, Paine Webber reported in a letter dated August 15, 1989, that, as a result of several consumer complaints, it had done a thorough analysis of Mr. Northern's trades and that the analysis had shown that orders were entered by Mr. Northern without proper account identification. It reported that, although purchases and sales in Mr. Northern's personal account were all profitable and purchases and sales in Mr. Northern's customer accounts were primarily unprofitable, it had found no conclusive evidence that Mr. Northern had fraudulently allocated trades. Paine Webber also notified the National Futures Association in the August 15, 1989, letter that Mr. Northern did not explain the transactions in his account to the satisfaction of Paine Webber and that he was permitted to resign on May 26, 1989. In a report dated August 19, 1993, an expert hired by Mr. Northern to examine several commodity order slips concluded that, in his opinion, his examinations failed to prove that the account numbers were written at the same time as the other information on the slips or at a different time. Six slips were examined, five of which were time-stamped in 1989 and one of which was time-stamped in 1988. Mr. Northern had approximately fifteen customer complaints filed against him during the period from 1985 through 1992. All but one of the complaints arose out of Mr. Northern's activities as an associated person of Paine Webber in California, and all of the complaints were related to commodity trading. Two of these complaints were resolved in Mr. Northern's favor, one was resolved adverse to Mr. Northern, and ten were settled by Paine Webber. Mr. Northern attributes most of the complaints to customer panic following the October 1987 stock market crash. Mr. Northern has failed to prove by a preponderance of the evidence that he is entitled to be registered as an associated person of Hardman Financial Services, Inc.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is: RECOMMENDED that the Department of Banking and Finance enter a Final Order denying the application of Lovell B. Northern, III, for registration as an associated person of Hardman Financial Services, Inc. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 1st day of May 1996. PATRICIA HART MALONO, Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 1st day of May 1996.
The Issue The issue is whether the Petitioner's application for registration as an associated person of Koch Capital, Inc. should be denied.
Findings Of Fact Petitioner, Glenn D. Whaley submitted a Form U-4, Uniform Application for Securities Industry Registration, seeking registration as an associated person of Koch Capital, Inc. One of the states in which Petitioner sought registration was the State of Florida. The Department of Banking and Finance (Department) is the Florida agency charged with the administration and enforcement of Chapter 517, Florida Statutes, the Florida Securities and Investor Protection Act (the Act), and its implementing rules. The Department denied Mr. Whaley's application for registration as an associated person in a letter dated August 27, 1990, based upon its determination that he had violated the Act, that he had filed an application for registration which contained a material false statement; and that his disciplinary history within the securities industry constituted prima facie evidence of his unworthiness to transact the business of an associated person. Mr. Whaley has been employed in the securities industry since approximately 1984, and has been employed with several different securities dealers, including Rothschild Equity Management Group, Inc. (Rothschild), Fitzgerald Talman, Inc., and H. T. Fletcher Securities, Inc. The effective date for Mr. Whaley's registration as an associated person of Rothschild in the State of Florida was April 18, 1985. In October 1985, Department examiner Michael Blaker, conducted an examination of the books and records of Rothschild. The examination revealed violations of the provisions of the Act, including the sale of securities by unlicensed representatives. The commission reports and sales journals prepared by Rothschild revealed that Mr. Whaley, while unregistered with the Department, had effectuated approximately sixteen (16) sales of securities during the period of April 1 through 17, 1985. On May 15, 1989, the State of Missouri Commissioner of Securities issued a cease and desist order against Fitzgerald Talman, Inc. and Glenn D. Whaley. The order found that Mr. Whaley had offered for sale and sold securities on behalf of Fitzgerald Talman, Inc. in the State of Missouri without benefit of registration for himself or the securities. On or about November 8, 1989, the Department issued an Administrative Charges and Complaint against Mr. Whaley seeking revocation of his registration as an associated person of H. T. Fletcher Securities, Inc. based on his failed to timely notify the Department of the Missouri Cease and Desist Order, as required by Rule 3E-600.010(1)(a), Florida Administrative Code. The Administrative Charges and Complaint were served on November 13, 1989. On or about December 12, 1989, the Department issued a Default Final Order revoking Mr. Whaley's registration with H. T. Fletcher Securities, Inc., based upon his failure to request a hearing regarding the Administrative Charges and Complaint. The Form U-4 requires the applicant to swear and affirm that the information on the application is true and complete to the best of his knowledge and that false or misleading answers will subject him to administrative penalties. The Form U-4 application contains no disclosure of the Department's December 1989, revocation of Petitioner's registration with H. T. Fletcher Securities, Inc., as required by Question 22E.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Department of Banking and Finance enter a Final Order denying the application of Mr. Whaley for registration as an associated person of Koch Capital, Inc., in the State of Florida. RECOMMENDED this 25th day of January, 1991, at Tallahassee, Florida. WILLIAM R. DORSEY, JR. 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 January, 1991. COPIES FURNISHED: Margaret Karniewicz, Esquire Department of Banking and Finance The Capitol, Legal Section Tallahassee, Florida 32399-0350 Glenn D. Whaley 5400 Northwest Fifth Avenue Boca Raton, Florida 33487 Honorable Gerald Lewis, Comptroller Department of Banking and Finance The Capitol Tallahassee, Florida 32399-0350 William G. Reeves, General Counsel Department of Banking and Finance The Capitol Plaza Level, Room 1302 Tallahassee, Florida 32399-0350
The Issue 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.
