The Issue Whether the application of Lexington for registration as an investment adviser and the application for registration of John B. Waymire should be approved?
Findings Of Fact The Department's Division of Securities and Investor Protection is charged with the administration and enforcement of Chapter 517, Florida Statutes, the Florida Securities and Investor Protection Act. Lexington filed an application for registration as an investment adviser in the State of Florida. The application was filed on May 30, 1985. At the time the application was filed Lexington was known as Amvest Capital Management, Inc. The application was accompanied by an application for registration of John B. Waymire, as principal. By letter dated June 7, 1985, the Department notified Lexington that its application was deficient in 3 ways: The application did not indicate that Lexington was a Foreign Corporation or include a legal opinion stating why such registration was not required under Florida law; The application did not include financial reports as required by Rule 3E-300.02(2)(d), Florida Administrative Code; and Lexington did not meet the net capital/net worth requirements of Rule 3E-600.16, Florida Administrative Code. By letter dated June 17, 1985, Lexington corrected the first 2 deficiencies and requested that the Department waive the net capital requirements of Rule 3E-600.016(3)(b), Florida Administrative Code (hereinafter referred to as the "Net Capital Requirement"). By letter dated August 23, 1985, the Department denied Lexington's request for a waiver of the Net Capital Requirement. By letter dated November 11, 1985, Lexington requested that the Department reconsider its request for a waiver of the Net Capital Requirement. In the letter of November 11, 1985, Lexington also informed the Department that its name had been changed from Amvest Capital Management, Inc., to Lexington Capital Management, Inc. By letter dated February 7, 1986, the Department informed Lexington that it would reconsider its request for a waiver of the Net Capital Requirement and requested audited financial statements of Lexington and Piedmont Management Company, Inc., and information concerning the acquisition of a surety bond by Lexington. On May 7, 1986, Lexington provided the Department with documentation, including an audited financial statement for Lexington as of December 31, 1985, which indicated that Lexington had a negative net worth of $1,248,595.00, a general undertaking from Safeco Insurance Company to issue a surety bond for $100,000.00, and a proposed "Continuing Guaranty" agreement from Piedmont Management Company, Inc., guaranteeing all debt of Lexington. The Financial Administrator of the Department was requested to review the Continuing Guaranty agreement submitted by Lexington. She raised questions which led the Department to conclude that it had no authority to waive the Net Capital Requirement as requested by Lexington. The Financial Administrator of the Department orally informed Lexington of its position and indicated that a Declaratory Statement on the issue could be requested. In September of 1986, Lexington filed a Petition for Declaratory Statement on the issue of whether the Department had the authority to waive the Net Capital Requirement. The request was withdrawn by Lexington by letter on March 13, 1987. On April 29, 1987, the Department issued a letter denying Lexington's application for registration as an investment adviser in the State of Florida for failure to meet the Net Capital Requirement. The Department also denied the application of Mr. Waymire for registration as the principal of Lexington because Lexington's application had been denied. The Department's denial was based upon its determination that it did not have the authority to waive the Net Capital Requirement. The information that the Department had requested that Lexington provide was not considered or analyzed by the Department. The following facts concerning the following investment advisers currently licensed in the State of Florida were proved: FSC Advisory Corporation has filed financial statements with the Department for 1978, 1979, 1980 and 1981 which indicate that the Corporation had a negative net capital of $46,278.00, $79,127.00, $101,024.00 and $90,141.00, respectively, in each of those years. FSC Advisory Corporation has been licensed as an investment adviser in the State of Florida since at least 1977. [The Department has taken no action against FSC Advisory Corporation for failing to maintain the net capital required of licensed investment advisers.] Richard W. Whitehead, Inc., was licensed as an investment adviser on February 5, 1981. Its application included a December, 1980, financial statement which indicated that the company had a negative capital of $589.00. The evidence did not prove that the Department "waived" the Net Capital Requirement. Subsequently filed financial statements for 1981, 1983, 1984, 1985 and 1986 indicate that the company had a negative net capital of $1,071.00, $3,838.00, $4,978.00, $46,582.00 and $33,989.00, respectively, in each of those years. FCA Corporation filed financial statements with the Department for 1984 and 1985 indicating a negative net capital of $115,325.00 for 1984 and $40,136.00 for 1985. The 1985 financial statement was filed in response to a letter of August 13, 1986 from the Department notifying FCA Corporation that it had failed to file a financial statement. Coordinated Financial Services Advisors, Inc., filed a financial statement indicating that it had a negative net capital of $9,019.00 as of March 31, 1987. This statement was filed in response to a letter from the Department dated April 29, 1987, notifying the company that it had failed to file a financial statement. Stratfield Investment Management, Inc., filed a financial statement with the Department indicating that it had a negative net capital of $12,149.00 as of December 31, 1986. Consortium Group, Inc., filed a financial with the Department indicating a negative net capital of $19,947.00 as of October 31, 1986. TFG Consulting, Inc., was registered as an investment adviser by the Department on February 24, 1987. Its application included a July 31, 1986, financial statement indicating a negative net capital of $281.72. The Department informed TFG Consulting, Inc., of this deficiency by letter dated June 13, 1986. Market Metrics, Inc., filed a financial statement with the Department indicating it had a negative net capital of $38,357.00 as of June 30, 1984. Investment Management included a document with its application for registration which indicated that it had a negative net capital of $94,979.00. The Department, however, notified Investment Management of its failure to meet the Net Capital Requirement. By letter dated September 16, 1981, Investment Management notified the Department that it complied with the Net Capital Requirement; it had a net capital of $36,132.00. Generally, the Department took no action against the companies discussed in paragraphs 13a through 13i for failing to maintain the net capital required of licensed investment advisers except to the extent specifically noted in those paragraphs. The evidence did not, however, prove that the Department had waived the Net Capital Requirement for any entity filing an initial application for registration as an investment adviser. The Division of Securities and Investor Protection of the Department has a total staff of approximately 74 persons. The Division's Bureau which processes registrations consists of only 8 professional employees and several clerical positions. The 8 professional employees of the Bureau processed approximately 500 new broker-dealer and investment adviser applications which were approved during the past fiscal year. They also processed applications which were not approved and approximately 3,200 renewals. There are approximately 3,200 broker-dealers and investment advisers, 1,500 branch offices and 120,000 associated persons registered with the Department. Except for bank holding companies, which are discussed, infra, companies which received and/or retained registrations with the Department despite their failure to meet the Net Capital Requirement did so because of Department employee error. From March 6, 1979 until March 20, 1986, the Department issued thirty- three letters in response to requests for waivers of the net capital requirements. In each case the Department indicated that it interpreted Rule 3E-300.02(7)(a), Florida Administrative Code, to allow the Department to waive the Net Capital Requirement if the waiver would not be contrary to the interest of the investing public. Of the thirty-three cases where a waiver was granted, thirty of those cases involved bank holding companies. It is a common practice in bank mergers or reorganizations for a bank to form a bank holding company. Stock of the existing bank is then exchanged for stock of the bank holding company. The bank holding company is required to register as an issuer-dealer and must meet a $5,000.00 net capital requirement. Often, the bank holding company does not meet this requirement until after the transaction has occurred. Therefore, bank holding companies request a conditional waiver from the net capital requirement. Each request is reviewed on a case-by-case basis to be sure the public is adequately protected. The waivers that have been granted were conditioned on the bank holding company complying with the Net Capital Requirement after the exchange of stock occurs. Of the thirty-three waivers proved in this proceeding, thirty were bank holding companies. The evidence failed to prove what type of transaction was involved in the other three cases. The Department's position with regard to waiving the Net Capital Requirement of bank holding companies applied to investment advisers as well as broker-dealers or issuer-dealers. The Department's interpretation of Rule 3E-300.02(7)(a), Florida Administrative Code, with regard to its authority to waive the Net Capital Requirement for bank holding companies set out in the letter to the thirty-three companies referred to above was the same as set out in the Department's letter of February 7, 1986, indicating that the Department would reconsider Lexington's request for a waiver. The Department has stopped granting waivers from the Net Capital Requirement to bank holding companies based upon its present interpretation of the law. The $2,500.00 Net Capital Requirement for investment advisers does not guarantee that customers will not sustain losses or that the adviser will remain solvent. Lexington is an investment adviser doing business in 46 states. The State of Arkansas has taken action to revoke the registration of Lexington in that State. This action is based, in part, on the refusal of the State of Florida to approve Lexington's application. As of the date of its application Lexington had a negative net capital of $1,248,955.00. The negative net capital is due in part to $1,650,000.00 in long-term debt owed to Piedmont Management Company, Inc., and Lexington Management Corporation of New Jersey. Piedmont Management Company, Inc., owns 100 percent of the stock of Lexington Management Corporation of New Jersey, which in turn owns 50 percent of the stock of Lexington. The other 50 percent of the stock of Lexington is owned by "senior management" in Lexington. Lexington's $1,650,000.00 of long-term debt to Piedmont Management Company, Inc., and Lexington Management Corporation of New Jersey is subordinated; all other debts of Lexington would have priority over the long- term dept. Piedmont Management Company, Inc., had net capital of $78,394,000.00 as of December 31, 1985. Lexington does not take physical possession of its clients' assets. Clients' assets are kept with a broker-dealer. Lexington only has the authority to trade a client's account; it does not authority to transfer assets in or out of a client's account. The Continuing Guaranty agreement submitted to the Department by Lexington is not effective indefinitely. The agreement does place the asset and net worth of Piedmont Management Company, Inc., behind the liabilities of Lexington, except subordinated debt. The surety bond commitment was to be in a form specified by the Department. The parties stipulated that Lexington has never met the Net Capital Requirement. If the Net Capital Requirement were waived the investing public would be adequately protected if the actions which the Department and Lexington have discussed are taken. This protection will only be for the effective period of the Continuing Guaranty agreement, however.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the requested waiver of the Net Capital Requirement be DENIED. It is further, RECOMMENDED that the application of Lexington for registration as an investment adviser in the State of Florida and the application of John B. Waymire as principal be DENIED. DONE and ENTERED this 16th day of February, 1988, in Tallahassee, Florida. LARRY J. SARTIN 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 16th day of February, 1988. APPENDIX TO RECOMMENDED ORDER, CASE NO. 87-2289 The parties have submitted proposed findings of fact. It has been noted below which proposed findings of fact have been generally accepted and the paragraph number(s) in the Recommended Order where they have been accepted, if any. Those proposed findings of fact which have been rejected and the reason for their rejection have also been noted. The Petitioner's Proposed Findings of Fact Proposed Finding Paragraph Number in Recommended Order of Fact of Acceptance or Reason for Rejection 1 2. 2 7. 3 3. 4-5 4. 6 5. 7 6. 8 8. 9 9. The "unconditional guarantee" is for a limited period of time, however. 10 30. 11 31. 12-13 12. 14 23. 15 18. 19. The evidence failed to prove that there was a "substantial minority" or that the 3 applicants which were not bank holding companies were broker- dealers or investment advisers. The evidence failed to prove that there is such a "policy." See 21. 18 22. 19-20 12. The evidence failed to prove that the Department's discontinuance of its treatment of waiver request was "abrupt" or a discontinuance of a policy applicable to the Petitioners. 21 Hereby accepted. 22 24. 23 25. 24 29. The first sentence is irrelevant. The last sentence was not proved by the weight of the evidence. 26. The evidence failed to prove that Lexington has a "parent" company. 27 27. 20 Not a proposed finding of fact. 21 18-20. 22 19. 23 14. 24 15 and 16. 25 17. 26 12 and 23. 27 25. 28 32. The last sentence is a statement of law and not a proposed finding of fact. Not supported by the weight of the evidence. 29 26. 30 28. 31 See 33. 32 13a and 13j. 33 13b and 13j. 34 Not supported by the weight of evidence. 35 13c and 13j. 36 13d and 13j. 37 13e and 13j. 38 13f and 13j. 39 13g. 40 13h and 13j. 41 13i. 42 Not supported by the weight of the evidence. One Department employee testified that he believed that the rationale for waiving the Net Capital Requirement for bank holding companies (that the investing public was adequately protected) would apply to investment advisers also. This testimony does not prove, however, that the Department has implemented a policy with regard to permanent waivers of the Net Capital Requirement for initial applications of investment advisers. 43 Not supported by the weight of the evidence. The Department's Proposed Findings of Fact 1 1. 2 2. 3 3. 4 4. 5 5. 6 6 and 7. 7 8. 8 9. 9 10 and 11. 10 12. 11 13a and 13j. 12 13b and 13j. 13 13c and 13j. 14 13d and 13j. 15 13e. 16 13f. 17 13g. 18 13h. 19 13i. COPIES FURNISHED: Edward W. Dougherty, Esquire and Charles T. Collette, Esquire Mang, Rett & Collettee Post Office Box 11127 Tallahassee, Florida 32302-3127 Walter W. Wood Deputy General Counsel and Margaret S. Karniewicz Assistant General Counsel and Charles E. Scarlett Office of the Comptroller Suite 1302, The Capitol Tallahassee, Florida 32399-0350 Honorable Gerald Lewis Comptroller, State of Florida Banking & Finance Department The Capitol Tallahassee, Florida 32399-0350
The Issue Whether the Respondent is guilty of the violations alleged in the Notice of Cease and Desist Order dated March 13, 1989; and, if so, what penalty should be imposed.
Findings Of Fact At all times material hereto, Respondent, Timothy Gibbons, was an associated person and employed by J.B. Hanauer as a sales representative in institutional sales. Each of the subject transactions at issue in this case constituted a purchase and sale of securities. In the summer of 1988, Mr. Gibbons subscribed the City of Daytona Beach, Florida, as a client. Mr. Mike Robertson, as Deputy Finance Director for the City, was charged with investing the City's funds. The subscription was consummated by a written agreement between the City and J.B. Hanauer establishing a non-discretionary account on behalf of the City. Both Mr. Gibbons and Mr. Robertson were designated in the agreement as authorized representatives of their respective employers for the purpose of conducting transactions between the City and J.B. Hanauer. Mr. Gibbons contacted Mr. Robertson on an almost daily basis with numbers for proposed deals at different market levels. In these conversations, Mr. Robertson would give Mr. Gibbons the authority to enter the market for the City when the market reached certain, agreed market levels. The direction to initiate a trade at a certain previously approved market level was the sole "discretion" granted to Mr. Gibbons. Mr. Robertson retained and required the non-discretionary authority to approve all transactions. Mr. Gibbons did not at any time have the authority to encumber the City's funds without the prior approval of Mr. Robertson. Mr. Robertson further limited Mr. Gibbons by placing a $1,000,000 cap on the amount of the City's funds he would risk per trade. Mr. Robertson told Mr. Gibbons about the $1,000,000 trading practice and each of the approved trades was limited to the $1,000,000 amount. Their first trade was executed on August 25, 1988. Then, on August 31, 1988, without the knowledge or consent of the City, Mr. Gibbons executed several trades in the name of the City. Most of the subject trades were in excess of $1,000,000. In fact, they encumbered increments of $5,000,000 and $6,000,000. When these trades were settled, the City's account owed J.B. Hanauer in excess of $29,000. On September 1, 1988, Mr. Gibbons left the employment of J.B. Hanauer, and subsequently, J.B. Hanauer absorbed the City's loss as a result of the subject trades. By trading without the authorization of his client, the City, the respondent misrepresented his authorization to purchase and sell securities for the City and demonstrated his unworthiness to transact the business of an associated person.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is: RECOMMENDED that the Department of Banking and Finance issue a Final Order: Revoking any and all registrations of Timothy Gibbons under Chapter 517, Florida Statutes; and Assessing against Timothy Gibbons an administrative fine of $5,000. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 7th of September 1989. JANE C. HAYMAN 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 7th day of September 1989. APPENDIX TO RECOMMENDED ORDER IN CASE NO. 89-2214 Petitioner's proposed findings of fact are addressed as follows: Addressed in paragraph 1. Addressed in paragraphs 2 through 4. Addressed in paragraphs 3, 4 and 5. Addressed in paragraph 4. Addressed in paragraph 5, and subordinate to paragraph 5. Subordinate to paragraphs 4 and 5. COPIES FURNISHED: Eric Mendelshon, Esquire Office of Comptroller 111 Georgia Avenue, Suite 201 West Palm Beach, Florida 33401 Charles L. Stutts General Counsel Department of Banking and Finance The Capitol Plaza Level, Room 1302 Tallahassee, Florida 32399-0350 Honorable Gerald Lewis Comptroller, State of Florida The Capitol Tallahassee, Florida 32399-0350 Timothy Gibbons Number 5 Par Drive Maumelle, Arkansas 72118
Findings Of Fact During the period March-May, 1983, Petitioner shipped eggs to Respondent at invoice price of $31,062.53 for which payment in the amount of $15,448.82 was received, leaving a balance due of $15,487.81 (Exhibit 1). No evidence was submitted that the eggs sold to Respondent from Petitioner's facility at Balm, Florida, were not produced in Florida. Petitioner agreed to reduce the amount due by $177 on Invoice 1741 dated 4/21/83 because 20 cases of large Grade A eggs were not on invoice submitted to Respondent. Respondent withdrew the allegation in the amended Answer respecting the $.04 overcharge per dozen after producing no evidence to substantiate this claim. Respondent's primary claim is that in June and July of 1983 it returned eggs to Petitioner for which Respondent had paid because these eggs were bad and that Respondent should have been granted credit totaling $2,397.77 for these eggs. Petitioner acknowledged that Respondent had returned some eggs but claimed these eggs were in different cartons than in which shipped, that they had been held by Respondent for some time before they were returned, and that credit was not given for eggs returned under those circumstances.
The Issue The issue for consideration in this matter is whether Petitioner should be granted registration as an associated person of FISCL Securities in Florida.
Findings Of Fact At all times pertinent to the allegations herein, the Petitioner was an applicant for registration as an associated person of FISCL Securities. The Respondent, Department, was the state agency charged with the administration and enforcement of Chapter 517, FLORIDA STATUTES, the Florida Securities and Investor Protection Act, and the rules promulgated thereunder which include the registration of associated persons as securities dealers inthis state. Under the rules of the Department, anyone who seeks to represent a securities dealer in Florida is required to file an application form, (Form U- 4), with the National Association of Securities Dealers, (NASD), which, upon review, is forwarded to the state in which the applicant resides and seeks registration. If the records of the NASD disclose any disciplinary action having been taken against the applicant, it is identified to the state in which registration is sought. In Florida the Department is the appropriate agency and Department officials review the application to see if it should be approved. In this regard, all disciplinary information, the records of the NASD, is forwarded to the pertinent state for review in accordance with the rules and statutes of that state and, based on the information provided, a decision is made as to whether the application should be approved fully, approved with conditions, or denied. In Florida, all documents relating to the applicant's disciplinary history are secured and reviewed by the Department's Division of Securities prior to a recommendation being made as to approval or denial of the application for registration. In the instant case, the information submitted by NASD, pertaining to the Petitioner herein, included evidence of a prior disciplinary record. Upon receipt of the notice, Ms. Cain, the Division's Assistant Director, sent out a discrepancy letter to the Petitioner and requested copies of the disciplinary record and his form U-4 from NASD. The information submitted to the Department by Ellen J. Badler, Assistant Director, Special Registration, with NASD, dated July 18, 1990, reflected three letters of admission, waiver and consent from First Heritage Corporation, a securities dealer in Southfield Michigan, and Louis Feldman, Petitioner, a registered options principal with and president of the firm. The documents show that on the basis of periodic review of the company records in October and November, 1981, the corporation failed to obtain or maintain option account agreements for 7 of its option customers; that in 5 cases it failed to obtain or maintain sufficient background and financial information on customers approved for trading; and that it failed to show the date prospectuses were furnished to options customers. All of the above were cited as violations of Article III, Section 33, Appendix E, NASD's Rules of Fair Practice. This inquiry also indicated that the corporation and Petitioner failed to inform its customers, in writing, of the method it used to allocate exercise notices to its customers' accounts, and failed to explain the way the system operated and its consequences, in violation of Section 63, of NASD's Uniform Practice Code. Mr. Feldman, along with the company, admitted those violations in a Letter of Admission, Waiver and Consent he executed in response to NASD's District 8 Business Conduct Committee, (Committee), and they were punished with a censure to the company and a joint fine of up to $500.00 for Mr. Feldman andthe company. No further disciplinary action was taken against the Petitioner or his company by NASD, the SEC, or the state of Michigan until, in 1989, NASD entered its Decision and Order of Acceptance of Respondents' Offer of Settlement regarding three Complaints filed by the Committee in 1988 for alleged violations of rules of the Municipal Securities Rulemaking Board, (MSRB), and the Rules of Fair Practice. These complaints, filed against Petitioner, First Heritage, and as to one of the three, to a third party as well, related to: effecting the purchase and sale of municipal securities at prices in which the aggregate price at which the securities were purchased or sold were not reasonable and fair under the circumstances; placing several different advertisements which omitted material facts and were mis- leading; again, purchasing and selling municipal securities at prices which were not fair and reasonable. The Committee found that the Petitioner and the other parties involved were in violation of the rules as alleged, and fined Petitioner and First Heritage $10,000.00 jointly as to the two price allegations, and $5,000.00 as to the advertising allegation. Petitioner claims the violations were more ministerial and technical than substantive and that no customer ever complained about or was in any way injured by those actions. As to the advertisements, he claims they were not misleading. Examination of the advertisements does not necessarily support that claim, however, He also claims that the policies complained of were the same as those followed for the 13 years the company was in business and prior audits by NASD had never resulted in any noted discrepancies. The Department does not consider as pertinent the fact that injury to a consumer was not involved. By the same token, given, as here, the completed disciplinary action which has become final, it will not look behind that action and re-litigate, at a hearing such as this, the truth of the allegations. Petitioner also claims that in each case he was advised by counsel that it would be useless to fight the allegations of misconduct since it appeared the collective mind of the agency was made up to take action. Further, weighing the minimal fines sought against the extensive cost to Petitioner in attorney fees and lost commissions while litigating the allegations, he elected to take that route less expensive to him in the short run and accept punishment. This decision did not, it would appear, redound to his benefit. Petitioner also claims, and it is so found, that at no time has any disciplinary action ever been taken against him for actions in the securities business by the states of Michigan or Florida. On the basis of those actions, by letter of October 11, 1990, the Department notified the Petitioner that his application for registration was denied. The two page letterclearly indicated the Petitioner's professional history and the fact that he was the subject of "at least two regulatory actions filed by the NASD." The letter then listed the specific allegations of misconduct charged against the Petitioner in each of the two actions and noted the agency action taken in each case. The Department's letter also cited the pertinent statute which authorizes it to deny an application for registration and the bases therefor, and noted the reasons for its action. Petitioner was also notified of his right to and the procedure for contesting the Department's action.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is therefore recommended that a Final Order be entered denyingPetitioner, Louis Feldman's application for registration as an associated person of FISCL Securities in Florida. RECOMMENDED in Tallahassee, Florida this 17th day of September, 1991. ARNOLD H. POLLOCK Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 17th day of September, 1991. COPIES FURNISHED: Gregory G. Schultz, Esquire Schultz & Associates, P.A. 26750 U.S. Highway 19 N. Suite 310-A Clearwater, Florida 34621 Margaret S. Karniewicz, Esquire Department of Banking and Finance Suite 1302, The Capitol Tallahassee, Florida 32399-0350 Gerald Lewis Comptroller The Capitol, Plaza Level 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 The issue for consideration in this case is whether Petitioner should be granted registration as an associated person by the Department of Banking and Finance, or whether his application should be denied because of alleged misconduct outlined in the letter of denial.
Findings Of Fact At all times pertinent to the issues herein, the Petitioner, Richard Graibus, was either a registered associated person associated with a security firm or an applicant for registration as an associated person in Florida, and the Respondent, Department of Banking and Finance, Division of Securities and Investor Protection, (Department), was and is the state agency charged with the responsibility of regulating the sale of securities in this state. On August 19, 1988, Mr. Graibus filed an application to be an associated person of Finnet Securities, Inc., (Finnet), with the Department. On March 3, 1989, by letter, the Department notified Mr. Graibus of its intent to deny his application on the basis that prior disciplinary action taken against him by other states was prima facie evidence of his unworthiness to act as a securities dealer in Florida. Specifically, the bases for denial were: A Minnesota Cease and Desist Order in December, 1977. A Securities and Exchange commission suspension order in May, 1983. The denial of Petitioner's application for registration as an associated person with J. W. Gant and Associates by 10 states. Three judgements against Petitioner. His termination for cause from employment with American Western Securities. Petitioner was employed by American Western Securities in Denver, Colorado from November, 1977 to July 1980 when he left feeling a change would be beneficial to his career. No evidence was presented to support the Department's allegation that Petitioner was terminated for cause from that period of employment and that allegation is found to be unsupported. In December, 1977, the State of Minnesota issued a Cease and Desist Order against Petitioner alleging that he offered to sell, and did sell, unregistered securities while neither he, the firm, nor the securities were registered in that state as required by state law. Petitioner did not dispute the allegations of fact outlined in the Minnesota Order. The actual sale was made to a father and son who Petitioner had inherited as customers from his stepfather. The trades were unsolicited and were approved by petitioner's supervison who had many years experience in the securities trade. On May 23, 1983, the Securities and Exchange Commission, (SEC), found that Mr. Graibus had, at an unspecified time, wilfully violated and aided and abetted in violations of the anti-fraud and anti-manipulation provisions of the United States security law, and had failed to reasonably supervise others under his control to prevent violations of the same law. Petitioner engaged in cross trading, manipulation of stock prices, and fraudulent representations to customers regarding two stocks. These findings were incorporated in a Findings and Order Imposing Remedial Sanctions which were drafted and adopted from an offer of settlement submitted by Mr. Graibus. In its Order, the SEC took the following disciplinary action: It suspended Petitioner from association with any broker/dealer for 60 days; It barred Petitioner from acting in a supervisory capacity as a principal, officer, director or employee for 12 months; and It stipulated that Petitioner was not to act in a supervisory position without prior approval from the Commission, after the expiration of the previously mentioned 12 month period. Mr. Graibus has twice previously been granted registration as an associated person in Florida. Specifically, on May 9, 1984, he was approved as an associated person with Chesley and Dunn; and on January 28, 1985, he was approved as an associated person with J. W. Gant and Associates. In both cases, the Department had knowledge of the Minnesota Order and the SEC action since Petitioner disclosed both on each application. In 1984, while Petitioner was a principle of the brokerage firm of Chesley and Dunn, Inc., the Securities and Exchange Commission revoked the firm's registration for violations of various net capital and financial reporting regulations. There was no charge against the Petitioner. As a result of his association with this firm, and his having signed notes on behalf of the firm in his personal capacity, Mr. Graibus incurred a substantial liability for obligations of the firm, which are memorialized by three default judgements against him. The initial loan totaled $150,000.00. While manager of the firm's Sarasota office, Petitioner also invested approximately $175,000.00 of his own money which was lost. All his private obligations were fully disclosed to prospective creditors when he borrowed the money for the firm. In 1985, Mr. Graibus submitted applications to several states for registration as an associated person with J. W. Gant and Associates. These applications fully disclosed the entry of the Minnesota Order and the results of the SEC action. His applications were approved in twenty-two states, but as a result of the aforementioned SEC action, were denied by the states of Pennsylvania, Nebraska, Ohio, and Tennessee. He protested the denial by Tennessee and on November 22, 1985, that state entered a Final Order confirming its denial of his application for registration, finding that he had failed to disclose the adverse finality of the Minnesota Cease and Desist Order claiming Instead that the order had been resolved by corporate counsel. This comment is also made- in Mr. Graibus's Gant application in Florida which granted his application. Mr. Graibus did not protest the entry of the Final Order In Tennessee. Mr. Peter Maftieu is a registered securities dealer in four separate classifications. He has worked for J. W. Gant and Chesley and Dunn since January, 1983. Petitioner trained him when he first started in the industry. Incorporated as a fundamental part of Petitioner's training [pg was the insistence on full disclosure of material facts to clients and the need to insure that he, as a salesman, educated himself as to his client's situation by a full and detailed questioning to insure the securities recommended were suitable for and consistent with the client's needs. As a part of his training, Petitioner showed Mr. Maftieu the SEC and Minnesota orders as examples of what can happen if there is not full compliance with the rules. Due to increasing instances of misconduct within the securities industry in this state, none of which was shown to relate to Petitioner, in 1985 the Florida Comptroller created a task force to study the problem and come up with recommendations for efforts to combat fraud in the securities industry in Florida. In March, 1986, the task force submitted its report which, in part, recommended that the Department tighten up its review of applications for registration as securities dealers to eliminate or disqualify applicants with a disciplinary record within the industry. As a result of this recommendation, the Department altered its policy in exercising its discretionary approval authority. Petitioner has, for many years now, practiced full disclosure in the conduct of his business and it has been in excess of six years since the last findings of any violations of securities laws, rules or regulations by Petitioner. Nonetheless, in this case, the Department's denial of Mr. Graibus' application, which was based on his disciplinary history in other states, was consistent with its policy against granting registration to "unworthy" persons, as outlined in the Department's rules, and the intent of the Legislature as outlined in Section 517.1205, Florida Statutes.
Recommendation Based, on the foregoing Findings of Fact and Conclusions of Law, it is, therefore: RECOMMENDED that Petitioner's application for registration as an associated person with Finnet Securities, Inc., be granted. RECOMMENDED this 5th day of January, 1990, in Tallahassee, Florida. ARNOLD H. POLLOCK Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 5th day of January, 1990. COPIES FURNISHED: Edward W. Dougherty, Jr., Esquire Mang, Rett & Collette, P.A. 660 D. Jefferson St. Post Office Box 11127 Tallahassee, Florida 32301-3127 M. Catherine Green, Esquire Paul C. Stadler, Esquire Department of Banking and Finance Suite 1302 The Capitol Tallahassee, Florida 32399-0350 Hon. Gerald Lewis Comptroller State of Florida The Capitol Tallahassee, Florida 32399-0350 Charles L. Stutts General Counsel Department of Banking and Finance Suite 1302 The Capitol Tallahassee, Florida 32399-0350
Findings Of Fact The Petitioner, Lawrence A. Grolemund, has been in the securities business for over 21 years. Except for two complaints--one in 1986 and a second 1988--he has not been the subject of complaint or investigation by the National Association of Securties Dealers (NASD) or any state. He earned a reputation as a successful securities dealer and, as his career progressed, as manager of securities dealership branch offices. As branch manager, one of Grolemund's primary responsibilities was to insure that his office functioned in compliance with applicable state and federal law, and the rules of the NASD. Due to the reputation Grolemund had earned, the Chairman of the Board of Prudential Bache Securities, Inc., personally recruited Grolemund as a branch manager. After a training period, Grolemund assumed duties at the company's New Orleans office in August, 1982. He did not become a registered options principal for the New Orleans office until December, 1982. For several years before Grolemund's arrival, the company's New Orleans office had been a "problem office." A disproportionate share of securities violations occurred in that office, and management had difficulty controlling the associated persons in the office to achieve compliance. Several branch managers who preceded Grolemund had been disciplined by the NASD for inadequate supervision of the office. Grolemund knew some of the problems--he was hired to try to correct them--but he did not know the extent of the problems he would face when he took over. On August 25, 1986, the District 5 Business Conduct Committee filed a complaint against Howard Hampton, E.F Hutton & Company, Inc., Prudential-Bache Securities, Inc., Grolemund and others. The gist of the complaint is that Hampton committed various violations of the Securities and Exchange Act, SEC rules and NASD rules while an associated person with E.F. Hutton and with Prudential-Bache. Hampton was with E.F. Hutton from February, 1981, through August, 1982, and was with Prudential-Bache in the New Orleans office from August, 1982, through February, 1984. The violations involve Hampton's dealings with clients he brought with him from E.F. Hutton to Prudential-Bache. Most of the violations involve the exercise of discretionary power in the accounts of clients without prior written authorization. Some of the alleged incidents occurred while Hampton was at E.F. Hutton. Some occurred while Hampton was at Prudential-Bache but before Grolemund arrived at the New Orleans office. Some occurred after Grolemund arrived but before he became an options principal for the office. In some cases, the information in the file on which Grolemund had to rely was incorrect. Grolemund fired Hampton in December, 1983. (At the time Hampton was fired, no complaints had yet been leveled against Hampton. In fact, all of the clients who ultimately complained against Hampton went with Hampton when he was fired from Prudential-Bache.) Grolemund also fired some other "unsavory" account executives in the New Orleans office. Grolemund was charged, along with other Prudential-Bache options principals, with failure and neglect to establish, maintain, and/or enforce written procedures which would enable Prudential-Bache to exercise reasonable and proper supervision of Hampton and with failure and neglect to supervise Hampton reasonably and properly. Grolemund was represented in the proceedings before the district committee by in-house counsel for Prudential-Bache. Otherwise, Grolemund did not have independent advice of counsel. Prudential-Bache was involved in other proceedings before the SEC which made it in its best interest to resolve the matters arising out of the New Orleans office. For several months, Prudential- Bache tried to convince Grolemund to settle. In addition, Grolemund was concerned whether the District 5 Business Conduct Committee would fairly consider the complaint against him. As part of his successful management of Prudential-Bache's New Orleans office, he competed directly against other securities dealers in the area, some of which were represented on, or had friends who were on, the Committee. When Grolemund came to New Orleans, there were 16 account executives in the office. Under his term of management, after he fired four to five account executives, including Hampton, the New Orleans office grew from 16 to 36 account executives. In addition, Grolemund opened satellite offices in Shreveport and Lafayette, Louisiana. These offices grew in size to 11 and 9 account executives, respectively. Many of the account executives Grolemund added were recruited away from competitors, and he was concerned that there might be hard feelings against him among the members on the Committee. After spending considerable time weighing all factors, Grolemund agreed on or about November 3, 1987, to settle the Hampton matter on terms that included acceptance of a finding that he was guilty of the allegations against him and acceptance of a censure, a 21-day suspension, a requirement that he re- qualify as a registered options principal, and a $7,500 fine. The settlement was reduced to writing in final form on April 25, 1988. As a result of the 21-day suspension, another options principal at Prudential-Bache was required to sign all options agreements during the suspension. Otherwise, Grolemund's job was the same as before the suspension, and Grolemund continued to receive his full normal compensation from Prudential- Bache. Prudential-Bache paid the fine for Grolemund. Re-qualification was a matter of passing a written examination, which did not present a problem for Grolemund. In agreeing to settle, Grolemund misunderstood that the district committee's action would not be the basis of any other proceedings against him. He also misunderstood that the offer of settlement would resolve all pending matters involving the New Orleans office, including the so-called Keel matters. Contrary to Grolemund's understanding, the NASD filed another complaint against Prudential-Bache and Grolemund on May 9, 1988. This complaint, which had been under investigation during the time the Hampton case was proceeding, involved an account executive named Patrick Keel. Like Hampton, Keel was alleged to have exercised discretionary power in the accounts of clients without prior written authorization. He also was alleged to have recommended unsuitable stock and option investments to two clients and to have falsely reported to Prudential-Bache that some of his clients enjoyed profits from the investments he had recommended and made for them, when in fact they had incurred losses. As with the Hampton matter, Grolemund was accused of having failed to establish, maintain, and enforce written supervisory procedures that would have enabled him to exercise proper supervision of Keel and of having failed to properly supervise Keel. The Keel matter went to hearing before the District 5 Business Conduct Committee on August 24-25, 1989. As to what it called Cause One, the Committee found that Keel engaged in unauthorized and unsuitable options transactions in the account of one customer and that Grolemund had failed to supervise Keel properly in connection with the options transactions. Under Cause Two, the Committee found that Keel made unauthorized and unsuitable stock and options transactions in the account of another customer and that Grolemund had ample early warning that Keel was not handling his options accounts properly. The Committee noted that in October, 1984, the customer had lodged complaints regarding Keel's options trading and that Grolemund had daily conversations with a superior concerning problems with Keel's options accounts. The Committee found that, even if Grolemund did not have the benefit of the early warnings of irregularity, his response to the concerns raised by the customer in her December 10, 1984, telephone conversation was inadequate. The Committee found that, given the customer's refusal to sign the activity letter that Grolemund sent her, it was incumbent upon Grolemund to determine whether the customer understood options, whether options transactions were consistent with her financial situation, and whether she had approved the options transactions before their execution. The Committee found that Grolemund did not compile and review the customer's account documentation, which would have revealed that options trading was inconsistent with her objectives and needs and that the customer was only approved for Level II trading although Keel had executed two Level III transactions. Accordingly, the Committee found that Grolemund had violated Article III, Sections 1 and 27 of the Rules of Fair Practice by failing to supervise Keel properly. Under Cause Three, the Committee found that Keel recommended to a customer (the same customer involved in Cause Two) that she commit 25-30% of her net worth to a Hawaiian real estate private placement tax shelter that was not consistent with the customer's needs and objectives. However, the Committee noted that there was conflicting evidence as to whether Grolemund had reviewed the recommendation in light of the customer's personal financial strategy form. Although it was not Grolemund's job at Prudential-Bache to review suitability determinations with respect to private placements, the Committee expressed the view that Grolemund was in the best position to supervise the recommendations of salesmen and that he could not delegate this responsibility to other departments. Accordingly, the Committee found that Grolemund had violated Article III, Sections 1 and 27 of the Rules of Fair Practice under Cause Three. As to Causes Four through Eleven, the Committee dismissed all but two for insufficient evidence. As for the two that were not dismissed, the Committee found that Keel exercised discretion in the accounts of customers without prior written approval and that Grolemund failed to exercise proper supervision over Keel. The Committee reasoned that, by the time at issue, Grolemund had adequate warning of Keel's exercise of discretion without authority and that Grolemund allowed Keel not only to continue options trading but also allowed Keel to continue using special telephone and "bunching" privileges that, in the Committee's view, "greatly facilitated Keel's exercise of discretion." The Committee dismissed Cause Twelve to the extent that it alleged that Grolemund failed to supervise Keel reasonably with respect to the submittal of inaccurate active account information reports by him. The Committee, in its June 21, 1990, decision, censured Grolemund, barred him from associating with any NASD member in any principal capacity and fined him $4,000. Under the bar, Grolemund would not have been permitted to apply for reinstatement for at least ten years. Based on this decision, and the earlier disposition of the 1986 complaint in the Hampton matter, the Department offered to conditionally grant Grolemund's application, prohibiting Grolemund from acting as a principal, supervisor or manager. When Grolemund refused to accept the conditions, the Department denied the application. Grolemund appealed the Committee decision in the Keel matter to the Board of Governors of the NASD. The appeal was heard on October 11-12, 1990. On appeal, the Board reversed the finding that Keel executed out-of-level options transactions. The Board also noted that the record demonstrates a high degree of direct interaction between Grolemund, Keel, Keel's clients, and Prudential-Bache's operations manager and that the firm's records distribution system may have prevented Grolemund from exercising greater supervision over Keel. Because branch managers did not receive copies of customer information relating to limited partnerships, such as the Maui/Waikiki deal, Grolemund had no opportunity to assess the suitability of Keel's customer for the offering, or to compare the documents that Keel had completed in connection with that deal with other account information regarding the customer. The Board also noted that Grolemund engaged in more-than-adequate follow-up with clients following the receipt of complaints and that the customer may have been less than candid regarding her lack of understanding of the investments that Keel recommended for her account. Nonetheless, the Board believed that Grolemund fell short of the standard of reasonable supervision in that it should have been clear to Grolemund that Keel had not been properly trained and lacked a basic understanding of the practices of the securities industry. The well-documented problems that Keel's options trading caused with respect to customers' margins, and Keel's documented confusion of cash and margin accounts, certainly should have put Grolemund on notice that Keel lacked sufficient training to engage in such risky trading strategies as writing options. The Board also thought Grolemund should have inquired why there was no options agreement on file for one customer until after options trading in her account had ceased. The Board concurred with the Committee that Grolemund fell below the standard of reasonable supervision, and thereby violated Article III, Section 1 and 27 of the Rules of Fair Practice. The Board of Governors affirmed the censure and $4,000 fine against Grolemund. However, in light of the various mitigating factors regarding Grolemund's overall conduct, the Board ruled that barring him as a principal was an excessively harsh penalty. Instead, the Board suspended him from acting in any principal capacity for seven days and required him to requalify by examination in all principal capacities. In July, 1985, long before either the Hampton or the Keel complaint was filed, Prudential-Bache promoted Grolemund to the new Tampa office. When Grolemund took over as branch manager, the Tampa office was only nine months old. Grolemund successfully managed the Tampa office until May, 1990, when he applied for registration as an associated person with Advest, Inc. During Grolemund's time as branch manager, the Tampa office grew to 35 account executives. The evidence proved that no violations occurred in the Tampa office during the almost five years that Grolemund was the branch manager there. Since the Hampton and Keel matters, the securities industry has changed remarkably, in part as a result of the October, 1987, stock market crash. Before the crash, options trading generally was viewed as a conservative investment--a way to participate in the market with limited resources and to provide an additional source of income from a conservative investment. The risks of options trading now are widely recognized, and management generally has become sensitive and responsive to those risks. In addition, the data processing and informations systems now in general use in the industry have given management new and effective tools for supervising the activities of account executives. Some of these systems make it impossible for some of the Hampton and Keel violations to occur today. For example, the systems will not process options trades for which there is no record of prior written authorization in the file. For these reasons, it is not likely that activities such as those in which Hampton and Keel were involved in 1981 through 1984 would go undetected today by a manager of Grolemund's caliber or that, detected, they would go unchecked. Advest, Inc., the securities dealer that wants to associate Grolemund to manage its new Clearwater office, is a respectable securities dealer that places reasonably strong emphasis on compliance with the requirements of the various regulatory agencies under which it must operate. It specializes in relatively safe investments, certainly as compared with the activities of the New Orleans office of Prudential-Bache in the early 1980s. Options trading represents only 14 to 15 percent of Advest's total business nationwide. Less than six percent of the business of its new Clearwater office consists of options trading. Advest's compliance department generates a monthly computer report called a "commission versus equity" run which displays the account name and number, the account executive's number, gross commission generated for the month and year, the number of trades for the month and year to date, the amount of cash and securities in the account, and the value of the account in relationship to the trading on a percentage basis. Some variation of the report is provided to the branch managers, to the division managers, and to the branch group manager, with each higher level of management getting more and more information in the report. An options activity report is produced in the Advest compliance department on a daily basis listing all accounts that traded outside their levels, if any, and any accounts that have a trade executed where the appropriate forms are not on file within the allowed period. Advest compliance sends out active account letters to verify customer satisfaction. If the customer does not respond within ten days, a second letter is sent. If the customer does not respond to the second letter within ten days, the account is restricted from further activity. The Advest compliance department reviews all aspects of the branch offices on an annual audit. Compliance then issues a report to the branch manager, the division manager, and the branch group manager. The computer generated commission report would automatically detect a trade executed by a registered representative not assigned to the account for which the trade is completed and would place an asterisk around the account executive number. The manager would then be contacted by the compliance department and asked to explain the discrepancy. In addition to the ordinary compliance procedures in place at Advest, to address the concerns of the Department and other regulatory agencies, Advest proposes several measures to reduce even further the likelihood of violations in the new Clearwater office to which it will assign Grolemund as branch manager. First, it will limit the number of account executives under Grolemund to 15 or less for the first year. Second, it will require another senior registered options principal to supervise the options trading along with Grolemund for the first year. Third, Advest's branch group manager or another Florida branch manager will personally visit Grolemund's office four times during the first year to monitor compliance; during the second year, either he or another Florida branch manager will personally visit Grolemund's office for this purpose at least twice. Fourth, two annual routine compliance monitoring visits will be made, instead of the usual one visit. Finally, the branch group manager personally will review all new account information from Grolemund's office weekly.
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 granting Grolemund's application for registration as an associated person with Advest, Inc., subject only to the following conditions: First, that Advest limit the number of account executives under Grolemund to 15 or less for the first year; Second, that Advest require another senior registered options principal to supervise the options trading along with Grolemund for the first year. Third, that Advest's branch group manager or another Florida branch manager will personally visit Grolemund's office four times during the first year to monitor compliance and that, during the second year, either he or another Florida branch manager personally visit Grolemund's office for this purpose at least twice. Fourth, that Advest make two annual routine compliance monitoring visits to Grolemund's office, instead of the usual one visit. Finally, that the branch group manager personally review all new account information from Grolemund's office weekly. RECOMMENDED this 21st day of February, 1991, in Tallahassee, Florida. J. LAWRENCE JOHNSTON 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 21st day of February, 1991. APPENDIX TO RECOMMENDED ORDER, CASE NO. 90-5880 To comply with the requirements of Section 120.59(2), Florida Statutes (1989), the following rulings are made on the parties' proposed findings of fact: Petitioner's Proposed Findings of Fact. Accepted and incorporated. Rejected in part in that the Department did not consider the order of the Board of Governors of the NASD on appeal from the order of the District 5 Business Conduct Committee on the 1988 "Keel" complaint before giving notice of intent to deny the application. Otherwise, accepted and incorporated. Accepted and incorporated. Rejected in the sense that final action has not yet been taken. As it refers to Department notice of intended action, accepted and incorporated to the extent not subordinate or unnecessary. Accepted and incorporated. Accepted and incorporated to the extent not subordinate or unnecessary. Accepted but subordinate and unnecessary. 8.-10. Accepted but subordinate and unnecessary. Rejected as not proven. Also, subordinate and unnecessary. Accepted but subordinate and unnecessary. First sentence, accepted and incorporated. Second sentence, rejected as not proven exactly when the uniform guidedlines went into effect. Rejected as not proven exactly when the uniform guidedlines went into effect. Accepted and incorporated to the extent not subordinate or unnecessary. 16.-17. Accepted and incorporated to the extent not subordinate or unnecessary. Accepted but subordinate and unnecessary. Accepted but unnecessary. Rejected as not proven that the system was in operation since 1980. 21.-23. Accepted but subordinate and unnecessary. 24. Accepted and incorporated. 25.-28. Accepted and incorporated. 29. Accepted but subordinate and unnecessary. 30.-36. Accepted and incorporated. Rejected as not proven. Accepted but subordinate and unnecessary. Accepted but subordinate to facts contrary to those found and unnecessary. First clause, accepted; second clause, rejected consistent with the NASD orders. Accepted but subordinate to facts contrary to those found and unnecessary. Accepted but subordinate and unnecessary. 43.-46. Accepted and incorporated to the extent not subordinate or unnecessary. Accepted and incorporated in the form of the findings of the Board of Governors of the NASD on appeal from the 1988 "Keel" complaint. Accepted but unnecessary. 49.-50. Accepted and incorporated. 51.-52 Accepted and incorporated to the extent not subordinate or unnecessary. Accepted but subordinate and unnecessary. Accepted and incorporated. Accepted but subordinate and unnecessary. Accepted and incorporated to the extent not subordinate or unnecessary. Accepted and incorporated. Respondent's Proposed Findings of Fact. 1.-2. Accepted and incorporated. Rejected as conclusion of law and unnecessary. Rejected that the orders were entered in 1986 and 1988; otherwise, accepted and incorporated. 5.-7. Rejected as conclusion of law and unnecessary. 8.-12. Accepted and incorporated to the extent not subordinate or unnecessary. Accepted but unnecessary. Accepted that the Committee characterized its decision in those terms by way of explaining why it was just to differentiate between Prudential-Bache and its representatives, including Grolemund, and E.F. Hutton and its representatives. However, in fact, the various dispositions were agreed by the parties. It is unnecessary to include this finding. 15.-18. Accepted and incorporated. 19. Accepted but unnecessary. 20.-21. Accepted and incorporated. 22. Accepted but unnecessary. COPIES FURNISHED: Edward W. Dougherty, Esquire Mang, Rett & Collette, P.A. 660 East Jefferson Street Tallahassee, Florida 32302 Margaret S. Karniewicz, Esquire Assistant General Counsel Department of Banking and Finance Legal Section The Capitol Tallahassee, Florida 32399-0350 Hon. Gerald Lewis Comptroller The Capitol Tallahassee, Florida 32399-0350 William G. Reeves, Esquire General Counsel Department of Banking and Finance The Capitol Plaza Level, Room 1302 Tallahassee, Florida 32399-0350
The Issue The issue is whether, pursuant to section 717.126, Florida Statutes,1 Petitioner2 has proved that it is entitled to proceeds in the amount of $128,788.36 from an unclaimed cashier's check.
Findings Of Fact On April 15, 2011, Bank of America remitted to the state of Florida, as unclaimed property, $128,788.36 in proceeds from one or more cashier's checks. Neither the original check nor a copy of the original check is available. A synopsis of Bank of America records identifies the amount of the check or checks, the form of the property as "cashiers checks," an issue date of October 12, 2005, and the existence of "multi[ple] owners." If there were multiple cashier's checks, the total amount of the checks was $128,788.36. For ease of reference, the cashier's check or cashier's checks will be referred to in the singular. The synopsis lists the "title" as "Claudy Joseph Erlande Merceron Jean Aristide." There are three variants of the same form--one for each individual named in the preceding sentence. In each, the first name listed is Claudy Joseph. For the two other variants, this name is preceded by "1st Payee." It thus appears that these three persons were named as payees on the cashier's check. In a cryptic reference, each variant of the synopsis states: "RELATIONSHIP CD: OR." The placement of this fragment of information follows the description of each payee. Although this fragment of information immediately precedes the above-quoted "title" information that names the three payees, it is on the extreme right-hand side of the page, and the "title" information starts on the extreme left-hand side of the page. The meaning of this fragment of information is obscure. The variant of the synopsis for Claudy Joseph states that this page is a "Primary Record" as to this "Multiple Owner." For the other multiple owners, their variants state that this page is a "Secondary Record." For the address of each of the three owners, the variants list only "El Portal, Florida 33138." There is no information concerning the purchaser of the cashier's check, who will be referred to as the remitter. The above-described references to the "owner" refer to the payee, not to the person who, by law, owns the proceeds of the cashier's check. In 2018, Mr. Aristide banked with Bank of America and lived in El Portal, Florida, although in zip code 33150. On December 19, 2005, Mr. Aristide completed an application form to open a banking account with a Bank of America in "Sky Lake," and the bank associate's phone number is the area code for Miami. Mr. Aristide's date of birth is November 30, 1970, so he is old enough to have engaged in a transaction in 2006 and young enough that he reasonably may be expected to recall the transaction and something about Mr. Joseph and Mr. Merceron. In response to interrogatories, Mr. Aristide stated that the other two persons "very well could have been roommates at that time." Without addressing them in particular, Mr. Aristide added: "Claimant was a silent partner in real estate transactions together with other silent partners who invested in a third party who purchased real estate. The money was part of that investment transaction or transactions." Mr. Aristide acknowledged that he never received the cashier's check, but "believes but is not sure that [the cashier's check] was part of a structured purchase of real estate by a third party." Mr. Aristide explained that he "was an investor with other investors and it is not uncommon to include each investor in cashiers checks." Mr. Aristide did not testify in this case and has failed to provide the type of detail that would be expected, if he were a rightful owner of the cashier's check, specifically, the circumstances surrounding the bank's issuance of the check and the remitter's delivery of the check. Petitioner thus has failed to prove entitlement to the property or any part of it. Referred to as "Petitioner" in this recommended order, Global Discoveries, Ltd., LLC, is a registered claimant's representative, within the meaning of section 717.1400. Petitioner was retained by Mr. Aristide to pursue his claim to the proceeds of the cashier's check. On July 3, 2018, Petitioner duly filed a claim for the proceeds of the cashier's check, and Respondent denied the claim by the NOI.
Recommendation It is RECOMMENDED that Respondent shall issue a final order denying Petitioner's claim. DONE AND ENTERED this 6th day of October, 2020, in Tallahassee, Leon County, Florida. S ROBERT E. MEALE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 6th day of October, 2020. COPIES FURNISHED: Michael A. Alao, Esquire Department of Financial Services 200 East Gaines Street Tallahassee, Florida 32399-0333 (eServed) Michael J. Farrar, Esquire Michael J. Farrar, P.A. 18851 Northeast 29th Avenue, Suite 700 Aventura, Florida 33180 (eServed) Julie Jones, CP, FRP, Agency Clerk Division of Legal Services Department of Financial Services 200 East Gaines Street Tallahassee, Florida 32399-0390 (eServed)
Findings Of Fact Based upon the testimony of the witnesses and the documentary evidence received at the hearing, the following findings of fact are made: Florida Brethren Homes, Inc. is a not for profit corporation doing business as the Palms. The Palms is a nursing home facility certified to participate in the Medicaid program. The Department is the state agency charged with the responsibility of reviewing costs claimed by facilities participating in the Medicaid program. The Palms filed a cost report for Medicaid reimbursement for the fiscal period ending December 31, 1987. The cost report reviews the past payment rate and sets the prospective rate. The Department reviewed Petitioner's report and disallowed interest costs in the amount of $298,500 which were included by the Palms. The Palms timely challenged that disallowance. In 1984, the Palms participated in a revenue bond issuance in order to finance the construction of certain improvements to its health care facilities. That bond issue in the amount of $13,970,000 bore a tax exempt interest rate of approximately 12.89 %. For the period ending December 31, 1987, the interest which was due on that bond debt was $298,500. On April 5, 1988, the Palms filed a Chapter 11 action in the Bankruptcy Court for the Southern District of Florida. The Palms did not pay the accrued interest prior to filing its petition in bankruptcy. In fact, the Palms was in default on the interest at the time of the bankruptcy petition. The Medicaid rate which had been established prior to that time had presumed an allowable interest cost for the period and had included that interest payment in the calculation of the rates then available to the Palms. In filing bankruptcy, the Palms sought to restructure its debt. As a result, the Palms executed an Amended And Restated Indenture of Trust which included the accrued but unpaid interest which had accumulated under the 1984 revenue bond issue. The plan called for a bond issuance and for deferred interest certificates to cover the unpaid interest. The deferred interest certificates had not been issued as of the date of the final hearing. The accrued but unpaid interest provided in the deferred interest certificate has a maturity date of December 1, 2016. The unpaid interest is subject to a mandatory prepayment from available net cash flow after December 1, 1992. The restructure of Petitioner's debt has allowed it to remain in business. The plan of reorganization was entered into as a good faith, arm's length transaction. The plan of reorganization was confirmed by the Bankruptcy Court and the proceedings before that tribunal have concluded. In its audit of the Palms, the Department determined that the deferred interest obligation does not mature and become due and payable until December 1, 2016, and that, therefore, the interest expense is not a reimbursable cost for the period that ended December 31, 1987. The Palms' claims that for cost reimbursement purposes the accrued interest was paid by the refinancing of the debt and that the amount should remain an allowable cost to be included for that period.
Recommendation Based upon the foregoing, it is RECOMMENDED: That the Department audit disallowing interest claimed for the period that ended December 31, 1987, be confirmed. DONE and ENTERED this 14th day of June, 1991, in Tallahassee, Leon County, Florida. Joyous D. Parrish Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32301 (904)488-9675 Filed with the Clerk of the Division of Administrative Hearings this 14th day of June, 1991. APPENDIX TO CASE NO. 90-1770 Rulings on the proposed findings of fact submitted by the Petitioner: Paragraphs 1 through 3 are accepted. Paragraphs 4 and 5 are not findings of fact but restate the stipulation reached by the parties at the outset of the hearing. Paragraphs 6 through 11 are accepted. Paragraph 12 is rejected as it is not a finding of fact but, if accurate, would be a conclusion of law. Such conclusion has not been reached in this case. Paragraph 13 is rejected as irrelevant. Paragraph 14 is accepted. With regard to paragraph 15, it is accepted that the repayment of the accrued interest is not a short term liability. Otherwise, the paragraph is rejected as irrelevant. Paragraph 16 is rejected as a restatement of the issue or fact not supported by the weight of the evidence. Paragraph 17 is rejected as irrelevant. Paragraph 18 is accepted. Paragraph 19 is rejected as irrelevant. Paragraphs 20 and 21 are rejected as irrelevant or a conclusion of law. Paragraph 22 is accepted. Paragraph 23 is rejected as irrelevant. Paragraph 24 is rejected as a conclusion of law not supported by the record in this case. Paragraph 25 is rejected to the extent that the term "refinancing" is used to suggest a payment of allowable interest; it is accepted that restructuring the Palms' debt was required to allow it to continue in business. Paragraph 26 is rejected as irrelevant. Rulings on the proposed findings of fact submitted by the Department: 1. Paragraphs 1 through 14 are accepted. COPIES FURNISHED: Scott D. LaRue Assistant General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Building One, Room 407 Tallahassee, Florida 32399-0700 Karen L. Goldsmith Goldsmith and Grout, P.A. P.O. Box 2011 Winter Park, Florida 32790-2011 Sam Power, Agency Clerk Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700 Linda K. Harris Acting General Counsel Department of Health and Rehabilitative Services 1323 Winewood Boulevard Tallahassee, Florida 32399-0700
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 The central issue in this case is whether Petitioner is entitled to be registered as an associated person.
Findings Of Fact Petitioner filed an uniform application for securities registration with the Department. This application sought registration as a general securities representative (5-7) and named Sheffield Securities, Inc. as the firm for whom she intended to work. The application sought information regarding Petitioner's past work experience and specifically inquired as to whether the U.S. Securities and Exchange Commission (SEC) had ever found her to have been involved in a violation of investment-related regulations or statutes. The application also asked Petitioner to disclose whether the SEC had entered an order denying, suspending or revoking her registration or disciplined here by restricting her activities. To both of these questions Petitioner answered "yes." Petitioner's association with the securities industry began in 1972 when she was employed as a secretary for a securities firm. Her work prior to that had been as a bookkeeper. Petitioner obtained her registration and purchased a securities business, Adams & Whitney Securities Corp., in late 1973 or early 1974. Adams & Whitney was registered with the SEC and operated as a broker/dealer buying and selling interests for itself and others. Petitioner was the president and sole principal for Adams & Whitney. On February 9, 1976, the SEC issued a released which claimed Adams & Whitney and Petitioner had wilfully violated and wilfully aided and abetted violations of the anti-fraud provisions of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities EXCHANGE ACT of 1934, and Rule lOb-5 in connection with an offer to purchase, and sale of ITS securities and manipulation of the price of the security. The release also alleged Petitioner had violated Section 15(c)(2) of the securities EXCHANGE ACT of 1934 and Rule 15c 2-7 by submitting quotations for ITS securities to a interdealer quotation system without notification to the system of arrangements with other brokers and guarantees of profits. Without admitting or denying the allegations against her, Petitioner submitted an offer of settlement regarding the ITS charges which the SEC determined to accept. As a result, the registration as a broker-dealer of Adams & Whitney was suspended for a period of four months. Also, Petitioner was suspended from association with any broker-dealer for a period of four months. On June 27, 2977, the SEC issued a release which charged that Petitioner had wilfully violated and wilfully aided and abetted violations of the registration provisions of the Securities Act of 1933, and had willfully violated an wilfully aided and abetted violations of the anti-fraud provisions of the Securities Act of 1933 and the Securities EXCHANGE Act of 1934 in connection with the offer and sale of the common stock of Tucker Drilling Company, Inc. Without admitting or denying the allegations against her, Petitioner submitted an offer of settlement regarding the Tucker Drilling charges which the SEC decided to accept. As a result, the SEC found that Petitioner wilfully violated and wilfully aided and abetted violations of Sections 5(a) and 5(c) of the Securities Act of 1933. Further, it was found Petitioner willfully violated and willfully aided and abetted violations of Section 10(b) of the EXCHANGE act and Rule 10b-6. Based on its findings the SEC suspended Petitioner from association with any brokers, dealer or investment company for a period of twelve months and barred her from association with any broker, dealer or investment company in a supervisory or proprietary capacity. Prior to the entry of the administrative penalties imposed against Petitioner in connection with the Tucker Drilling charges, the SEC had obtained a civil injunction against Petitioner which permanently enjoined her from violating the federal securities laws in connection with the offer and sale of Tucker securities or any other securities. Petitioner maintained at hearing that the submitted of settlement were offered as an expedient means of resolving the charges since she did not have the financial resources needed to oppose the allegations. In connection with the ITS charges, Petitioner stated she did not improperly scheme to manipulate the stock prices, that she neither bought nor sold shares of ITS, and that she was charged with other broker-dealers who had "made a market" for ITS simply because of her association with them. Further, Petitioner denied she had ever received compensation for deals made with the ITS sales In connection with the Tucker Drilling charges, Petitioner admitted she actively participated in the purchase and sale of the Tucker stock but that she had not known of the improprieties of others involved in the trading. Petitioner denied she had knowingly violated the laws and alleged that by the time she determined something was improper, the investigations had begun. Petitioner found the Tucker incident a "stupid mistake. In 1976, Adams & Whitney went out of business. Petitioner subsequently devoted her energy to her own and family health problems and became a housewife. In 1985, Petitioner's family moved to Florida and she worked as a secretary for a brokerage firm called Brown & Hawk, Inc. From September, 1986 until the time of her application, Petitioner worked as a secretary for Sheffield Securities, Inc. During her employment with Sheffield, Petitioner studied for an successfully passed the examination for S-7 registration. According to Dennis Dixon, who was a financial principal and general securities associated person at Sheffield Securities, Petitioner is a very trustworthy person who is also very capable. According to Don Saxon, the determination that Petitioner had violated the anti-fraud provisions was a great concern to the Department since those violations are the most serious types perpetrated by an individual in the industry.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED: Department of Banking and Finance, Office of the Comptroller, Division of Securities and Investor Protection enter a Final Order approving Petitioner's application for registration with restrictions as may be deemed appropriate by the Department. DONE and RECOMMENDED this 25th day of July, 1988, in Tallahassee, Florida. JOYOUS D. PARRISH Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 25th day of July, 1988. APPENDIX TO RECOMMENDED ORDER, CASE NO. 88-0531 Rulings on Petitioner's proposed Findings of Fact: Paragraph 1 is accepted. Paragraph 2 is accepted. Paragraph 3 is rejected as argument. Paragraph 4 is rejected as argument or unsupported by the evidence. To the extent relevant see findings made in paragraphs 11 & 12. Paragraph 5 is rejected as argument. Paragraph 6 is accepted to the extent addressed in findings made in paragraphs 10, 11, 12 otherwise rejected as argument unsupported by the record, or irrelevant. The first sentence in paragraph 7 is accepted. The balance of paragraph 7 is rejected as argument. Paragraph 8 is accepted. Paragraph 9 is rejected as argument. The first 4 sentences of paragraph 10 are accepted. The balance of paragraph 10 is rejected as argument. Paragraph 11 is rejected as argument. COPIES FURNISHED: Charles E. Scarlett Assistant General Counsel Office of the Comptroller Suite 1302, The Capitol Tallahassee, Florida 32399 Michael J. Cohen, Esquire 517 S. W. First Avenue Fort Lauderdale, Florida 33301 Honorable Gerald Lewis Comptroller, State of Florida The Capitol Tallahassee, Florida 32399-0350
