The Issue The issue is whether Mr. Cavallo is subject to administrative sanctions for violation of the Florida Securities and Investor Protection Act for conduct while he was employed with three Florida firms which dealt in securities, Bond Management Corporation, Bond Administration Service Corporation and Bond Services International Corporation.
Findings Of Fact The Department of Banking and Finance, Division of Securities, administers the provision of the Florida Securities and Investor Protection Act, Chapter 517, Florida Statutes. The Department had investigated the activities of the several respondents named in the Cease and Desist Order filed in this case, including Bond Management Corporation, Bond Administration Services Corporation, Bond Services International Corporation, Bond Premium Corporation and Mr. Cavallo. The business plan of Bond Management Corporation. Bond Management Corporation and Bond Administration Services Corporation were principally operated by Thomas Whalen, who was assisted by Mr. Cavallo. These corporations had been founded by Robert DiStefano, who had sold them to Mr. Whalen in 1985. Mr. Cavallo began working for Mr. Whalen in approximately March of 1986. The offices of these corporations were first located on State Road 7 in Plantation, Florida, but later were moved to Hollywood, Florida. The business of Bond Management Corporation and Bond Administration Services Corporation consisted of issuing, selling and administering the registration and redemption of Certificates of Beneficial Interest in pools of bonds. The two companies actually operated as an integrated entity. Bond Management was to be the trustee for the bonds which comprised the trust corpus and issue the Certificates of Beneficial Interest. These were sold to telephone marketing companies and to time-share companies. These companies then used the certificates as premiums or incentives to attract people to travel to their developments or to listen to sales presentations. Bond Administration Services Corporation handled the sales and the registration of the certificates by the ultimate purchasers. The certificates were sold from offices in Broward County, Florida, to corporations in Florida and throughout the United States. Bond Management Corporation represented in its private placement memorandum that 68% of the funds it received from the time-share developers and telemarketing companies or others who bought the Certificates of Beneficial Interest would form the trust corpus, and this money would be used to buy zero-coupon government securities. Most of the certificates had face values of $1,000; a few were sold with face values of $500. The certificates would attain these values only if kept until the maturity of the underlying government bonds, which would be from 20-45 years. The actual value of the $1,000 certificates at the time delivered as premiums to those who attended sale presentations was between $17 to $18; the $500 certificates were worth between $8.50 to $9.00. The clients of Bond Administration Services Corporation, the time-share developers or other entities which bought the certificates as premiums for consumers attending their sales presentations, would pay about $30 per $14000 certificate. Bond Management Corporation and Bond Administration Services Corporation assisted the time-share developers and telemarketing companies which purchased the Certificates of Beneficial Interest in the redistribution of those certificates to consumers. Bond Administration Service Corporation sent letters to the purchasing companies to be given as handouts to the sales prospects (members of the public) who ultimately received the certificates instructing the recipient about how to register the Certificates of Beneficial Interest with Bond Administration Services Corporation. Regulation of the Certificates of Beneficial Interest The Certificates of Beneficial Interest issued by Bond Management Corporation constitute securities under Federal law and Florida law. Bond Management Corporation made filings with the Securities and Exchange Commission of the United States under regulation D, which indicated that the securities were exempt from registration under the Federal Act. The Certificates of Beneficial Interest were not registered with the State of Florida Department of Banking and Finance, Division of Securities. Neither Bond Management Corporation, which issued the Certificates of Beneficial Interest, or the individuals in the corporation who offered them for sale or actually sold them (including Mr. Whalen and Mr. Cavallo), were registered with the State of Florida, Department of Banking and Finance, Division of Securities. In May of 1986, the owner of Bond Management Corporation, Mr. Whalen, was visited by representatives of the Florida Division of Securities. Mr. Cavallo attended that meeting. The Division's representative told Mr. Whalen and Mr. Cavallo that the enterprise being operated would require the registration of the issuer of the securities, Bond Management, that the staff members at Bond Management Corporation and Bond Administration Services Corporation who sold the securities to their customers (the time-share developers and telemarketing companies) would have to be registered, and that the persons at the time-share developer or other entrepreneurs who were "giving" the certificates to prospective clients would have to be registered. Prospective clients of the time-share developers and telemarketing companies were required to attend sales presentations in order to receive a Certificate of Beneficial Interest; consequently, the Division of Securities maintained that the consumers were providing consideration for the receipt of the certificates, and were purchasing them from the clients of Bond Management Corporation. Mr. Cava1lo's role at Bond Management Corporation Mr. Cavallo had a business card which represented that he was the Vice President of Marketing and Sales for Bond Management Corporation. In his capacity as Vice President of Sales and Marketing, Mr. Cavallo managed the day- to-day operation of Bond Management Corporation and Bond Administration Corporation. He offered to sell or actually sold Certificates of Beneficial Interest to many companies throughout the United States, at least five of which were located in Florida. Mr. Cavallo sent packages to time-share companies and other potential purchasers of blocks of Certificates of Beneficial Interest, which contained sample Certificates of Beneficial Interest, a private offering memorandum describing the securities, and instruction letters which would accompany the Certificates of Beneficial Interest when delivered to the purchasing corporation's prospective clients. The clients were told how to register those certificates with Bond Administration Services Corporation. When Mr. Cavallo first came to work at Bond Management Corporation, the registration coupons sent to the company by many consumers had not been processed, and Mr. Cavallo spent a good deal of his time in the first two months processing those registrations. The private offering memorandum which Mr. Cavallo distributed as part of the business plan of Bond Management Corporation and Bond Administration Services Corporation contained false representations about the securities, including the amount of the compensation which the trustee, Bond Management Corporation, was to receive; the use of 68% of the proceeds of the sale of the certificates to purchase the bonds which were to be the trust estate; the promise to deposit the bonds comprising the trust estate with the Federal bank or similar financial institution, and the underlying value of the certificates. No government bonds were ever purchased, so the Certificates of Beneficial Interest which Bond Management Corporation issued were worthless. Bond Management Corporation and Bond Administration Services Corporation, dealt with the money paid for the Certificates of Beneficial Interest as their own. In addition, the private offering memorandum Mr. Cavallo distributed did not disclose important facts, including the participation of Mr. Cavallo in the management of the issuer, and the identity of the founder of the company, John DiStefano, who had previously been convicted of securities violations. Shortly after Mr. Cavallo went to work for Bond Management and Bond Administration Services Corporation, he came to doubt that Thomas Whalen was competent to act as a trustee to run the business, due to Mr. Whalen's apparent addiction to cocaine. Mr. Cavallo consulted with an attorney because of his concerns, who advised him that he should say nothing unless he could actually prove that Mr. Whalen was engaged in wrongdoing. Otherwise, Mr. Cavallo would expose himself to potential liability for slander or libel. Although Mr. Cavallo was aware that bonds were not being purchased to create the trust estate that the Certificates of Beneficial Interest represented, he continued to engage in sales of the Certificates of Beneficial Interest until he left the companies in July of 1986. Bond Services Corporation and Bond Administration Services Corporation sold at least 10,000 Certificates of Beneficial Interest, which produced approximately $320,000 in revenue. By May 1986 approximately 3,500 of those worthless certificates had been distributed to individuals, approximately 1,100 of whom were Florida residents. Bond Services International Corporation After Mr. Cavallo resigned from working with Bond Management Corporation and Bond Administration Services Corporation, he went to work for Bond Service International Corporation (Bond International). Bond International had the same business plan as Bond Management Corporation and Bond Administration Services Corporation, and even did business at what had been the location of Bond Management Corporation. The owner of Bond International was John Wallace. He invited Mr. Cavallo to work for him because he knew Cavallo was unhappy at Bond Management Corporation because of the improper business practices of Mr. Whalen. Mr. Whalen had been involved in a previous business enterprise with Mr. Wallace. When Mr. Cavallo came to work at Bond International, Bond International had few clients. Many of Mr. Cavallo's clients from Bond Management Corporation followed him to Bond International. Sales were carried out by Bond International in a manner essentially identical to that used at Bond Management Corporation and Bond Services Administration Corporation. The Certificates of Beneficial Interest issued by Bon Services were essentially identical to that Bond Management Corporation. As with Bond Management Corporation, Mr. Whalen also failed to purchase the bonds which were to make up the trust estate represented by the Certificates of Beneficial Interest. The operation was a little better than at Bond Management Corporation because Bond International bought $225,000 worth of bonds, but that was only about 2-1/2% of the amount required to give the stated face value to the Certificates of Beneficial Interest. Ultimately, when Mr. Wallace was arrested for violation of Florida securities laws, those bonds were surrendered to Wallace's bail bondsman rather than maintained in trust. As with the program at Bond Management Corporation, neither the Certificates of Beneficial Interest issued by Bond International, nor the individuals selling the certificates, including Mr. Cavallo, were registered with the State of Florida, Division of Securities. Sales of Bond International's certificates were made to at least 40 companies. Offers of sale were made to additional businesses. Mr. Cavallo, himself, sent Certificates of Beneficial Interest in conjunction with sales or offers to sell those securities at least 54 times to 41 separate companies, four of which were located in Florida. Bond International received at least $270,000 in revenue from the sale of approximately 10,000 Certificates of Interest. When Mr. Cavallo left the company in December of 1986 about 2,800 consumers had received the Certificates of Beneficial Interest. The private offering memorandum of Bond International was essentially identical to that of Bond Management Corporation. It contained essentially the same false statements regarding the use of proceeds from the sale of certificates to purchase bonds which were to be held in trust by a financial institution, and the compensation of the trustee. The persons actually described as the company's managers, Mitchell Rymar and Janet Himmelheber did not manage the company, John Wallace and Mr. Cavallo did. The private placement memorandum also failed to disclose ongoing state and federal prosecutions of Mr. Wallace for securities fraud and credit card fraud. Mr. Cavallo drafted and mailed letters to be used by the companies purchasing the Certificates of Beneficial Interest when distributing them to consumers. These letters from Bond International to the certificate holders misrepresented that the certificates were guaranteed by the United States Government, when they were not, and that bonds were held in escrow to support the Certificates of Beneficial Interest when they were not. Mr. Cavallo represented himself as the person in charge of Bond International, represented himself as a vice president, was a signatory on Bond International's bank accounts and established a securities account as the vice president of Bond International. He ran the day-to-day affairs of the company and had access to the books and records of the company from the time he began working there. Mr. Wallace considered Mr. Cavallo as a partner in the business. In connection with his duties at Bond International, Mr. Cavallo offered and made sales of Certificates of Beneficial Interest issued by Bond International, by Federal Express delivery, by telephone, and by hand delivery of certificates to, local companies in Broward County. When Mr. Wallace was jailed in November of 1986, Mr. Cavallo continued to operate Bond Services throughout that month. Mr. Cavallo knew that bonds were not being purchased as stated on the Certificates of Beneficial Interest and in the private placement memorandum, and that John Wallace was irresponsible and wasted funds of the company from the time Mr. Cavallo began working there. Nonetheless, Mr. Cavallo continued with the company and continued to sell Certificates of Beneficial Interest. Mr. Cavallo signed numerous checks drawn on the accounts of Bond International, which included $2,500 to pay the criminal defense attorney Mr. Wallace retained to handle the Federal credit card fraud charges filed against him in Chicago, $349 for Wallace to travel to Chicago in connection with those charges, $1,000 to Robert Trachman, the local lawyer retained by Mr. Wallace to defend him with respect to securities fraud charges in Broward County, and $8,500 paid to John Gilbert Bailbonds, Inc., for Mr. Wallace's bail in connection with the Florida securities charges. Mr. Cavallo also wrote a large number of checks to "cash" on accounts of Bond International beginning in August 1986, and ending in November 1986. These checks aggregated $34,093.66. It is by no means clear what the checks to "cash" were used for, but there is no proof that they were ever used to purchase the securities which Bond International should have purchased to back, the Certificates of Beneficial Interest. Mr. Cavallo received direct payments by check made to him of at least $3,155. Mr. Cavallo is sophisticated in financial matters. He holds a bachelors and masters degree from the University of Miami in Coral Gables, as well as a masters of foreign trade from the American Institute of Foreign Trade in Glendale, Arizona. After Mr. Cavallo severed his connection with Bond International, he took steps to establish Bond Premium Corporation, which would have followed a business plan similar to those of Bond Management Corporation and Bond International, although Mr. Cavallo maintains he would have purchased bonds to support his Certificates of Beneficial Interest. That company never did any business.
Recommendation It is recommended that a final order be entered by the Department of Banking and Finance, Division of Securities, finding Mr. Cavallo guilty of: The sale of unregistered securities in violation of Section 517.07, Florida Statutes, and that he be fined $5,000; The sale of unregistered securities by an unregistered person, in violation of Section 517.12(1), Florida Statutes, and that he be fined $5,000; and Employing schemes to defraud and making false or fraudulent statements or representations in connection with the sale of the securities of Bond Management Corporation and Bond International in violation of Sections 51- 7.301(1)(a) and (c), Florida Statutes, and that for these acts he be fined $15,000, so that a total fine of $25,000 be imposed, and requiring him to cease and desist from further participation in the sale of securities. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 20th day of January, 1989. WILLIAM R. DORSEY, JR. Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1050 (904) 488-9765 Filed with the Clerk of the Division of Administrative Hearings this 20th of January, 1989. APPENDIX The following are my rulings on the proposed findings of fact submitted by the petitioners pursuant to Section 120.59(2), Florida Statutes (1987). Rulings on Petitioner's Findings of Fact Covered in finding of fact 1. Rejected as unnecessary. Covered in finding of fact 2. Covered in finding of fact 3. Covered in finding of fact 3. Covered in finding of fact 3. Covered in finding of fact 11. Covered in findings of fact 2 and 15. Covered in finding of fact 7. Covered in finding of fact 8. Covered in finding of fact 9. Covered in finding of fact 10. Covered in finding of fact 15. Covered in finding of fact 11. Covered in finding of fact 11. Covered in finding of fact 11. Covered in finding of fact 11. Covered in finding of fact 11. Covered in findings of fact 11 and 12. Covered in finding of fact 12. Covered in finding of fact 13. Covered in finding of fact 15. Rejected as cumulative. Covered in finding of fact 14. To the extent appropriate, covered in finding of fact 15. 26 To the extent appropriate, covered in finding of fact 15. Covered in finding of fact 16. Covered in finding of fact 18. Covered in finding of fact 18. Covered in finding of fact 19. Covered in finding of fact 19. Covered in findings of fact 7 and 20. Covered in finding of fact 21. Covered in finding of fact 22. Covered in findings of fact 17, 18 and 24. Covered in finding of fact 23. Covered in finding of fact 23. Covered in finding of fact 23. Covered in finding of fact 23. Rejected as unnecessary. To the extent appropriate, covered in finding of fact 25. Rejected as cumulative. Covered in finding of fact 26. Covered in finding of fact 17. Covered in finding of fact 5. It is not clear that Mr. Cavallo actually shared the profits equally with Mr. Wallace, however. Covered in finding of fact 23. Covered in finding of fact 26. Covered in finding of fact 27. Covered in finding of fact 28. Covered in finding of fact 29. Although my calculations of the amounts involved are somewhat different. Rejected as unnecessary. Covered in finding of fact 29. Covered in finding of fact 31. Covered in finding of fact 31. COPIES FURNISHED: Lawrence S. Krieger, Esquire 111 Georgia Avenue Suite 211 West Palm Beach, Florida 33401 Vincent R. Cavallo, pro se 405 S, Pine Island Road Plantation, Florida The Honorable Gerald Lewis Comptroller, State of Florida The Capitol Tallahassee, Florida 32399-0350 Charles L. Stutts, Esquire General Counsel Comptroller, State of Florida The Capitol Tallahassee, Florida 32399-0350
The Issue Whether petitioner should take disciplinary action against respondent for the reasons alleged in the administrative complaint?
Findings Of Fact At all pertinent times, respondent Richard L. Faircloth has held a real estate salesman's license, No. SL 0407933, issued by petitioner Department of Professional Regulation, Division of Real Estate, authorizing him to work, since July 16, 1990, as a salesman for Discount Realty-Fla., Inc., a corporate broker in Alachua, Florida, whose "qualifying broker" is respondent's wife, Lise H. Faircloth. Petitioner's Exhibit No. 1. On December 1, 1990, Alvin and Betty J. Wilson came to Mr. Faircloth's office in Alachua to sign a form deposit receipt and purchase and sale agreement, Petitioner's Exhibit No. 2, by which they offered to purchase a house on Northwest 18th Terrace in Gainesville; and they gave Mr. Faircloth five hundred dollars in cash, as earnest money. Mr. Faircloth did not recall at hearing whether he put the money in his pocket at that point, but the money was never deposited in an escrow or trust account. After Mr. and Mrs. Wilson left, Mr. Faircloth communicated their offer by telephone to a representative of the house's owner. The offer was declined. When he telephoned the Wilsons with the news, he asked them to come back to his office. With their return later that day, a conversation lasting about an hour and a half began, at the end of which the Wilsons authorized respondent and his broker to retain the earnest money deposit for use in the event respondent located another house they decided to make an offer to purchase. For the same purpose, Mrs. Wilson later wrote respondent a check in the amount of $1,500, which was duly deposited in the broker's escrow account. Shortly thereafter, respondent drew a check on the escrow account in Mr. Wilson's favor in the amount of $200 (so he could pay an electric bill), but the bank refused to cash it. Funds in the escrow account were insufficient, because the Wilsons' $1,500 check had bounced. Mr. Faircloth also wrote a check the Wilsons used as a deposit when they rented a truck to move into a duplex they rented from him. The deposit check was ultimately returned to respondent, without being cashed. (When the Wilsons moved, respondent regained possession of the dog he had earlier given the Wilsons' son. He was never reimbursed $78 he expended for the care and feeding of this dog, after it had become the Wilsons' property.) The Wilsons paid $450 a month, in advance, while they rented the duplex, and nobody ever asked for a security deposit. When Mrs. Wilson received a check from Beneficial National Bank (who lent money against an anticipated tax refund) in the amount of $1,466, Petitioner's Exhibit No. 5, she endorsed it in favor of respondent or the broker and, as far as the evidence showed, this money was put in escrow (although $200 might have been deducted beforehand.) In any event, respondent transferred $200 to the Wilsons more or less contemporaneously. Altogether, the Wilsons entrusted respondent with $1,776 ($500 + $1466 - $200 = $1,766) for possible use as earnest money. After Mr. and Mrs. Wilson bought a house respondent had shown them in December of 1990, but through another broker's office, without availing themselves of Mr. Faircloth's assistance in closing the transaction, they asked him to return the money they had given him. He gave them a check signed by his wife, drawn on a Discount Realty-Fla., Inc. account in the amount of $1,316, on which was written "return of deposit less 450 00/100 security." Petitioner's Exhibit No. 6. The check was dated April 17, 1991. At hearing, Mr. Faircloth testified that the $1,316 check to the Wilsons represented a $50 overpayment. He conceded that $450 had been improperly deducted from the moneys the Wilsons paid, as a claimed security deposit. But he contended that he and the Wilsons had agreed to a non- refundable, $500 "finder's fee" during their second visit on December 1, 1990. In fact, the Wilsons never agreed to any finder's fee, non-refundable or otherwise. At the time it was received, respondent and his wife gave two receipts for the Wilsons' $500. Each reflected that it was to be deposited as earnest money, and no subsequent writing indicated any different agreement between the parties. As late as April of 1991, respondent's conduct, notably delivery of the $1,316 check to the Wilsons, was inconsistent with the putative agreement about a finder's fee he testified to at hearing.
Recommendation It is, accordingly, RECOMMENDED: That petitioner suspend respondent's license for one year. DONE and ENTERED this 14 day of August, 1992, in Tallahassee, Florida. Copies furnished to: Janine Myrick, Esquire P.O. Box 1900 Orlando, FL 33802 Richard L. Faircloth Post Office Box 1859 Alachua, FL 32615 Jack McRay, General Counsel Department of Professional Regulation 1940 North Monroe Street Tallahassee, FL 32399-0792 ROBERT T. BENTON, II 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 14 day of August, 1992. Darlene F. Keller, Division Director Division of Real Estate 400 W. Robinson Street P.O. Box 1900 Orlando, FL 32802-1900
Findings Of Fact Respondent Martha M. Bustillo is a real estate broker licensed in the State of Florida, having been issued license number 0401092. At all times material hereto, she has been the qualifying broker for Respondent Virmar Investments, Inc. Respondent Virmar Investments, Inc., is a real estate brokerage corporation licensed in the State of Florida, having been issued license number 0237551. At no time material hereto has Respondent Olga Venedicto been licensed in the State of Florida as either a real estate broker or as a real estate salesperson. In July of 1992 Thomas F. Sevilla contacted Virmar Investments, looking for a house to buy. Olga Venedicto took his phone call and told him that she would help him. Sevilla went to Venedicto's "office" at Virmar Investment and began working with her. Venedicto gave Sevilla her business card which represented that she is the vice president of Virmar Investments, Inc., and carries the notation "registered real estate brokers." In addition to giving him her card which carried her name, Virmar's name, and the word "brokers" in the plural form rather than the singular form, Venedicto specifically told Sevilla that she was a broker. Venedicto and Bustillo took Sevilla to see a house which he decided to buy. He gave Venedicto his check for $2,000 as a deposit and instructed her and Bustillo to make an offer on that house. Venedicto told him she would put the money in Virmar's escrow account. Instead, the money was deposited in Virmar's operating account. Sevilla did not buy that house, and Venedicto and Bustillo took him to see a second house. Sevilla decided not to make an offer on that house and asked Venedicto to refund his money. It took a month before Sevilla received a check from Venedicto. Although the check was marked "deposit return," the check was not written from Virmar's account but rather was a check from a Mega Group Corp. for only $1,675. When Sevilla attempted to cash that check, it was dishonored three times, with the notation "N. S. F." Finally, the check was honored by the bank. Sevilla had expected to receive his entire $2,000 deposit. Neither Venedicto nor Bustillo had ever told him in advance that they would keep part of his money. Although Respondents' attorney during the final hearing implied that his clients may have kept part of Sevilla's money to pay for a survey and credit report, Sevilla had not agreed in advance to pay for a credit report, and no evidence was offered as to what house Sevilla might have purchased a survey on or for what reason. Further, neither Venedicto nor Bustillo gave him a copy of any survey or credit report nor was he ever shown one or advised that either would be obtained. When Sevilla inquired as to why he was reimbursed the lesser amount, only then did Venedicto tell him that Respondents were keeping part of his money for a credit report. Respondents Bustillo and Virmar authorized and assisted Venedicto in her performance of acts and services requiring licensure as a salesperson relative to the transaction with Sevilla. Rita and Carlos Benitez listed their house for sale with Pedro Realty. Gladys Diaz was the listing agent at Pedro Realty. Respondents Bustillo and Venedicto brought Carlos Martinez and his wife to look at the Benitez house. Gladys Diaz was present at the time. Respondents Bustillo and Venedicto subsequently came to Diaz' office and presented to Diaz and Carlos Benitez an offer on behalf of Mr. and Mrs. Martinez. Respondent Venedicto represented herself to be a realtor and Respondent Bustillo to be Venedicto's partner and broker. Respondent Venedicto discussed the contract and price with Diaz and Benitez while Respondent Bustillo observed Venedicto's presentation. The offer had previously been signed on behalf of Respondent Virmar by Respondent Venedicto who represented to Diaz that the signature on the offer was that of Respondent Venedicto. Mr. Benitez signed the document, and Diaz then took the offer to Mrs. Benitez to obtain her signature. Mrs. Benitez also signed the offer, thereby completing the contract. Thereafter, delays ensued because Mr. and Mrs. Martinez were not in a financial position to be able to purchase the home. Respondent Venedicto contacted Mrs. Benitez and attempted to re-negotiate the contract. During those negotiations which were not successful, Respondent Venedicto represented herself to Mrs. Benitez as being a licensed real estate agent. In response to Mrs. Benitez' inquiries, Respondent Venedicto gave Benitez her business card carrying the names of Venedicto and Virmar and the notation "registered real estate brokers." As to the portion of the transaction involving Mrs. Benitez, all of her contact with the three Respondents in this cause was with Respondent Venedicto. Venedicto gave Benitez advice regarding proceeding with the sale and handled the negotiations. Prior to September 24, 1992, Hector F. Sehweret, an investigator for the Department of Business and Professional Regulation, requested that Respondents Bustillo and Virmar produce certain records for inspection by him. He spoke with Respondent Bustillo on a number of occasions to no avail. He offered to give her time to gather the records if necessary, but she never did. On September 24, 1992, he served Respondent Bustillo with a subpoena for those records. She still failed to produce them. Thereafter, she would not return his phone calls, and when he came to the office of Virmar Investments, Respondent Bustillo would hide from him. Neither Respondent Bustillo nor Respondent Virmar have ever produced the records subpoenaed. Further, no explanation has been given for the failure of Respondents Bustillo and Virmar to produce their records. Although the attorney for Respondents implied during the final hearing that the records may have been destroyed by Hurricane Andrew, there is no evidence to support that implication; rather, the evidence is uncontroverted that the building housing the real estate office of Respondents Virmar and Bustillo was not damaged by Hurricane Andrew. Ileana Hernandez is a realtor and a mortgage broker licensed in the State of Florida. She met Respondents Bustillo and Venedicto during a real estate transaction. In November of 1991 Respondents Bustillo and Venedicto contacted Hernandez regarding obtaining money in exchange for a second mortgage on certain real property. At the time, Respondents did not tell Hernandez the identity of the owner of the property, but Hernandez was given the address of the property and was advised that the market value of the property was approximately $79,000. Hernandez was subsequently advised that Respondent Venedicto (a/k/a Olga Bichara) was the owner of the property. It was agreed that Respondent Venedicto would execute and record the promissory note and mortgage in the amount of $15,500. Hernandez, who knew that Respondent Bustillo was the president of Terra Title, gave her a personal check payable to Terra Title in the amount of $15,000 on November 26, 1991. Respondent Venedicto, who had promised Hernandez that the promissory note and second mortgage would be recorded, never recorded those documents. Further, Respondents never delivered the original copy of the promissory note and mortgage to Hernandez despite her repeated demands. Hernandez later discovered that Respondent Venedicto was not the sole owner of the property which she had attempted to mortgage but jointly owned the property with her son. Accordingly, Respondent Venedicto's signature would not be sufficient to perfect a mortgage on the property. Hernandez also discovered that the mortgage, represented by Bustillo and Venedicto to be a second mortgage, was not. There were already two mortgages on the property. Had Hernandez known the true ownership and the true encumbrances on the property, she would not have loaned Venedicto the $15,000 because that raised the total amount of mortgages on the property to be in excess of the value of the property. Three checks which were subsequently written by Respondent Bustillo from the operating accounts of Respondent Virmar and of Mega Group Corp. were dishonored by the bank with the notation "N. S. F." As a result of those checks, Hernandez obtained default final judgments against Respondent Virmar and against Mega Group Corp., which final judgments are still unsatisfied. Prior to that time, however, Respondents Venedicto and Bustillo approached Hernandez regarding their need to borrow $35,000 to be re-paid in 30 days in conjunction with some real estate development in which Respondents Venedicto and Bustillo were involved. Respondent Venedicto and Respondent Bustillo each individually represented that Hernandez would have her money back in 30 days. Respondent Bustillo told Hernandez that Respondent Venedicto was in business with Bustillo and was selling real estate in Mexico. Bustillo asked Hernandez to make the check payable to Bustillo's company Terra Title. Hernandez went to the offices of Respondent Virmar and handed her personal check made payable to Terra Title to Respondent Venedicto. When the 30 days had passed with no payments to Hernandez, she went to Virmar Investments and made Respondent Venedicto sign a promissory note for $35,000. By the time of the final hearing in this cause, Hernandez had recovered only $15,000 of the $35,000 loan made to Respondent Venedicto and had recovered only the principal amount of the money supposed to have been secured by a second mortgage on real property. Hernandez is still owed $20,000 in principal alone.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered revoking the license of Respondent Martha M. Bustillo, revoking the license of Respondent Virmar Investments, Inc., and requiring Respondent Olga Venedicto to pay an administrative penalty in the amount of $5,000 within 30 days from the entry of the Final Order. DONE and ENTERED this 31st day of January, 1994, at Tallahassee, Florida. LINDA M. RIGOT Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 31st day of January, 1994. APPENDIX TO RECOMMENDED ORDER DOAH CASE NO. 93-3328, 93-3329, and 93-3330 Petitioner's proposed findings of fact numbered 2-18, 20-29, and 31-33 have been adopted either verbatim or in substance in this Recommended Order. Petitioner's proposed finding of fact numbered 1 has been rejected as not constituting findings of fact but rather as constituting argument of counsel, conclusions of law, or recitation of the testimony. Petitioner's proposed finding of fact numbered 19 has been rejected as not being supported by the weight of the evidence in this cause. Petitioner's proposed finding of fact numbered 30 has been rejected as being unnecessary to the issues involved herein. Respondents' proposed findings of fact numbered 1, 4, 5, 8, 9, 18, 25, 26, 28, 37, 42, 49-52, 55, 57, 62, 63, 69, 71, and 73 have been adopted either verbatim or in substance in this Recommended Order. Respondents' proposed findings of fact numbered 2, 6, 11-17, 19-22, 30- 36, 43, 46-48, 53, 54, 56, 58, 60, 67 and 68 have been rejected as not constituting findings of fact but rather as constituting argument of counsel, conclusions of law, or recitation of the testimony. Respondents' proposed findings of fact numbered 7, 10, 23, 29, 61, 64, 65, 70, 72, and 75 have been rejected as not being supported by the weight of the evidence in this cause. Respondents' proposed findings of fact numbered 3, 24, 27, 38-41, 44, and 45 have been rejected as being unnecessary to the issues involved herein. Respondents' proposed findings of fact numbered 59, 66, 74, and 76-78 are rejected as being irrelevant to the issues under consideration in this cause. COPIES FURNISHED: Steven W. Johnson, Esquire Department of Business and Professional Regulation Division of Real Estate 400 West Robinson Street, Suite N-308A Orlando, Florida 32802-1900 Ofer M. Amir, Esquire Amir & Associates, P.A. 8751 West Broward Boulevard, Suite 500 Plantation, Florida 33324 Darlene F. Keller, Division Director Department of Business and Professional Regulation Division of Real Estate 400 West Robinson Street Orlando, Florida 32802-1900 Jack McRay, Acting General Counsel Department of Business and Professional Regulation Northwood Centre 1940 North Monroe Tallahassee, Florida 32399-0792
The Issue The issues for determination in this proceeding are whether Respondent is guilty of a) fraud, misrepresentation, concealment, false promises , and similar acts, in violation of subsection 475.25(1)(b) F.S. and b) having his mortgage broker's license suspended or revoked in violation of subsections 475.25(1)(e) and 475.455(2) F.S., as alleged in the Administrative Complaint.
Findings Of Fact At all times pertinent to the charges, William Binder was the holder of Florida real estate license number 0376980. William Binder obtained his mortgage solicitor's license from the Department of Banking and Finance in June 1982. His first and only job as a mortgage solicitor was with State Capital Corporation. He worked for that company for approximately three years. Potential investors contacted the company and he was directed to make home visits to discuss mortgage investment opportunities. The information he provided on these visits came from a manual, prepared by the company, which explained step by step what to say. The solicitors were expected to use the company's script. A prospectus and brochure, also prepared by the company, were provided to the prospective investors. Sometime in early 1985, State Capitol Corporation went bankrupt. William Binder did not know of the bankruptcy in advance. On or about February 5, 1985, the Orlando office where he worked was closed; Binder was informed that same day. He held the title, Assistant Vice-President, in the Orlando office, but that title did not mean that he was actively involved in the affairs of the company. He obtained a mortgage broker's license and began working for American Financial Consultants, Inc.. However, when an unfavorable newspaper article appeared regarding State Capitol Corporation, his new employer forced him to resign. The Department of Banking and Finance filed Administrative Complaints against Binder and myriad other individuals who worked for State Capitol Corporation. The Department of Banking and Finance complaint against William Binder dated December 6, 1985, alleged that he misled investors with regard to the mortgages handled by State Capitol Corporation. Binder was told that if he did not contest the complaint his license would not be revoked. He defaulted by failing to request a hearing, and on January 28, 1986, a Final Order by Comptroller Gerald Lewis, suspended for two years all licenses issued to him under the provisions of Chapter 494 F.S. Patricia Pickard was an investor in State Capitol Corporation. She is an 81-year old retired teacher. She taught both high school and college and has several academic degrees. She contacted State Capitol Corporation in early 1983 after a friend showed her a newspaper advertisement. She contacted the Chamber of Commerce and the Comptroller's office and felt she got good reports on the company. William Binder came to her home to explain the investment opportunities. The newspaper advertisements describe an 18 percent yield on "replacement mortgages" secured by Florida real estate, with a choice of six- month and twelve-month maturities. Patricia Pickard initially invested $15,000.00 from funds she had in certificates of deposit. Over a period of two years she invested a total of $44,000.00. She called State Capitol each time she wanted to make an additional investment and each time William Binder was sent to her house. At one point she was concerned about newspaper articles about the company, but Binder assured her that everything was worked out in court. In fact, the company did make some changes in their forms as the result of a lawsuit by the Department of Banking and Finance. Patricia Pickard drew interest on her investments, but when the company went bankrupt in February 1985, she lost all but $488.00 in principal. Lawrence E. Mason, a 76-year old retired chiropractor, was also an investor in State Capital Corporation. He saw the newspaper advertisements in December 1983 and called the company. William Binder was sent to his house. At the time $40,000.00 was his entire savings. The promise of an 18 percent yield satisfied (as he characterized it) his "greedy nature". Even though he had intended to invest only $10,000.00, Binder convinced him to use his entire savings. He drew interest on the $40,000.00 throughout 1984. In late 1984 he bought a new home and intended to use the $40,000.00 from his State Capital Corporation investment when it reached maturity,. He began contacting the company office to initiate the paperwork but never got real answers. He received $600.00 in January 1985 and read about the bankruptcy in February. He eventually received $15,000.00 back from his $40,000.00 principal. His only involvement with William Binder was the day he made the investment and one subsequent phone call when he had not received the deed and other papers. He got those items shortly thereafter. William Binder thought the mortgages he sold were a good investment. No evidence was presented of fraudulent intent in his dealings with the potential investors.
Findings Of Fact Introduction Petitioners, Herman R. Staudt and L. Justin Jackman, are the owners of 1,900 and 5,600 shares of capital stock, respectively, in Intervenor-Respondent, Bank of Central Florida (Bank). This represents 9.1 percent of the outstanding shares of the Bank. The Bank is a state chartered commercial bank which began business in 1975. Its principal offices are located at 1401 Lee Road, Orlando, Florida. Petitioners were founders and original members of the board of directors of the Bank when it began operating in 1975. On September 9, 1981, the President of the Bank issued a notice of special meeting of shareholders to be held on September 21, 1981, for the purpose of "considering and determining by vote whether an agreement to merge said Bank with and into Second Bank of Central Florida...shall be approved, ratified and confirmed." Under the terms of the merger agreement, each shareholder was entitled to receive substitute shares of stock in the successor bank, or if that was unacceptable, he would receive $25 per share for each share of stock held by him, or he could dissent from the merger. The agreement was ultimately approved by a majority of the shareholders and applications were then filed with Respondent, Department of Banking and Finance, Division of Banking (Department), seeking formal state approval. The applications were approved by the Department on October 7, 1981, and the merger was actually consummated effective January 4, 1982. The Bank continues to operate under the corporate title "Bank of Central Florida". Petitioners initially objected to the plan of merger and requested that the Department conduct a hearing on the merger applications. The request was denied. Petitioners then availed themselves of their rights under Subsection 658.44(5), Florida Statutes, which provides that whenever a bank and its dissenting shareholders cannot agree on a value to be assigned the stock held by the dissenting shareholders, the Comptroller shall select an appraiser to make an "appraisal of such dissenting shares" which shall be final and binding on all parties. On September 7, 1982, the Comptroller selected Blackstock & Company, Inc., a Jacksonville, Florida registered broker-dealer and registered investment adviser, to appraise the value of the dissenting shares. In its letter selecting Blackstock, the director of the Division of Banking gave the following relevant instructions to Blackstock: Your appraisal should include the Bank of Central Florida's earnings history and the history of its stock sale prices. Characteristics of the Bank of Central Florida to be considered in your appraisal are, the stock is not widely traded, and the interest of the shareholders for whom this appraisal has been commissioned constitute a minority interest in Bank of Central Florida. Your appraisal shall include a determination expressed in dollars and cents per share of the-fair compensation to be paid for all outstanding minority shares. That final dollar and cent figure shall be based upon information readily available through public records and records of the bank, but shall not be based upon any con fidential records of the Department of Banking and Finance. According to the letter of engagement, Blackstock was to receive a maximum $2,000 fee for its services to be paid by the Bank. On September 9, 1982, Petitioners filed a complaint in circuit court for Leon County seeking a declaratory judgment concerning the constitutionality of the Department's actions. On November 2, 1982, the circuit court entered its order holding that, if any party was dissatisfied with the independent appraisal, it was entitled to a de novo hearing before the Division of Administrative Hearings pursuant to Subsection 120.57(1), Florida Statutes. On November 11, 1982, Blackstock submitted a report of appraisal to the Comptroller in which it expressed the opinion that the dissenters' stock should be valued at $27.63 per share. After certain communications with the Department, a revised report was prepared by Blackstock and forwarded to the Comptroller on December 30, 1982. On January 5, 1983, the Comptroller issued its notice of intent to adopt the report. That notice prompted the instant proceeding. The Bank's stock has not been traded publicly at any time. All stock exchanges prior to December 31, 1981, were between existing shareholders. Most involved the Bank's present majority shareholder and chairman of the board. The Bank is a closely held family corporation and its stock is not readily marketable. This was openly acknowledged in the plan of merger itself. The Bank paid no dividends from its inception through December 31, 1981. The Bank is considered to be well managed. It has produced excellent financial results, and is considered to be a "high-performing" bank. As of December 31, 1981, its return on equity and return on assets were 19.4 percent and 1.73 percent, respectively, which were higher than any publicly traded bank in the State of Florida. The Blackstock Report William C. Norton, vice-president of Blackstock and a registered securities dealer, assumed the initial responsibility for preparing the report on behalf of Blackstock. Without advising the Department, Norton contacted Terry A. Rodgers, a former co-worker in Orlando and a chartered financial analyst, and requested that Rodgers prepare the report. They agreed to split the $2,000 fee. Neither Norton or Rodgers had previously prepared an appraisal of dissenting shareholders' stock. Norton instructed Rodgers to "gather the financial information", prepare an "analysis" of that data, and then forward his results to Blackstock. Norton also "suggested the types of comparisons (he) felt would be appropriate in looking at it", the financial information Norton believed to be relevant, and "some of the valuation techniques (he) felt would be appropriate." However, it was not disclosed which of the four techniques used by Rodgers was recommended by Norton. Rodgers forwarded his report to Norton on October 18, 1982. After receiving Rodger's report, Norton reviewed the data, proofed the financial information, and rechecked Rodgers' calculations. The two also communicated by telephone on several occasions and once met briefly in Orlando. In all, Norton estimated he spent approximately six or seven days reviewing the data. He also requested that his partner review the data. Norton ultimately accepted the report almost verbatim, signed it, and sent it to the Department on November 11, 1982. After consultation with the Department, Norton made very slight revisions to the report and resubmitted it on December 30, 1982. Rodgers did not appear or testify at the final hearing in this cause. The report has been received in evidence as Respondent's Exhibit 1 and Intervenor's Exhibit 5. Data apparently relied upon by Rodgers, and in turn reviewed by Norton, included (a) all sales of stock of the Bank from its inception through December 31, 1981, (b) all purchases of bank stock by Donald Rogers (its current president) from 1975 through 1979, (c) the Bank's statement of condition as of December 31, 1981, (d) the Bank's Call Reports for the years 1977 through 1981, (e) the notice of special meeting of shareholders given on September 9, 1981, and (f) comparative data from the First Bankers' Corporation of Florida, Jefferson Bancorporation, Atlantic Bancorporation, and Great American Banks, Inc. The latter four banks are publicly traded Florida banks and were considered by Norton to be representative for comparative purposes because, like the Bank, two did not pay dividends one was controlled by a single family, and the remaining bank had undefined operating "characteristics" similar to that of Bank of Central Florida. However, because of the Bank's extremely small size in relation to the four, and the limited marketability of its shares, none were comparable in terms of size, market type or performance. Further, Norton conceded that a part of the 1901 earnings of one of the four (Jefferson) would normally be factored out for comparative purposes because they included extraordinary income. This in turn caused the composite price-earnings ratio to be substantially understated. By a subjective process, four valuation techniques were incorporated into the Blackstock report and were based upon data derived from a five year study period (1977-1981). These included (a) historical stock sale transactions, (b) industry price-earning ratio comparison, (c) industry price to book value ratio comparison, and (d) capitalization of expected future earnings. The four approaches produced the following valuations: $26.49, $30.38, $25.21 and 28.42. The sums were then divided by four to reach the recommended value of the stock, or $27.63 per share. Norton (and presumably Rodgers) did not attempt to assign a relative weight to each technique because such a process would require the use of subjective judgment, the four valuations arrived at were within a relatively narrow range ($25.21 to $30.38), and no single approach yielded a result substantially out of line with the others. Had the weighted average approach been used, Norton would have assigned a greater or lesser value or weight to the results of the various appraisal valuation techniques employed according to relevance. Despite his rejection of this methodology, Norton conceded that the weighted average method is the most applicable and best suited approach for valuing capital stock not having an active and continuous market, and that it is used by the U.S. Comptroller of the Currency in determining the value of dissenters' shares in federal bank merger cases. In this regard, he agreed that had the Bank been federally chartered, he would have used the same approach in valuing its stock. As noted earlier, Norton's industry price-earning ratio comparison was distorted because of the inclusion of a bank with extraordinary income due to the sale of a subsidiary and property. Had this non-recurring income been factored out, the value of the stock under this methodology would have exceeded $50 rather than the $30.38 reflected in the report. The historical sales approach, to which Norton gave equal weight, was also subject to criticism. This approach, which analyzed stock sales between 1977 and 1981, had the inherent weakness of failing to reflect the Bank as a going concern. The Goff Report A second valuation study was performed on behalf of Intervenor by Ronald W. Goff, a research analyst for Allen C. Ewing & Company, an investment banking firm in Tampa, Florida. That report has been received in evidence as Intervenor's Exhibit 9. Although Goff reviewed the Blackstock report and certain other financial information, he relied primarily upon previous stock exchanges as a basis for determining fair market value. In this regard, he used a major stock transaction between a former vice-chairman of the board (J.F. Cooper) and its present chairman of the board (J.E. Muroski) as the primary basis for arriving at his recommended valuation. The sale involved 12,525 shares, was negotiated in the fall of 1980 and consummated on January 6, 1981, and resulted in increasing Muroski's total stock outstanding in the Bank from 45.3 percent to 59.7 percent. The agreed upon price was $27.86 per share, and after "massaging" that number, Goff arrived at a recommended valuation of $27.34 per share. The circumstances underlying the sale included a falling out between Cooper and Muroski in the spring of 1980 and a request by Muroski that Cooper resign his position with the Bank in May of that year. Shortly afterwards, they began negotiations for Muroski to buy the stock, The deal was agreed upon in 1980 but was not consummated until January, 1981 for tax purposes. Although Goff did not consider the exchange to be an insider transaction, nonetheless it is found that it was because (a) no dividends had been paid from the inception of the Bank through 1981, and Cooper was accordingly receiving no return on his stock, (b) Cooper had terminated all involvement in the Bank's operations, (c) the exchange took place between current and former principal officers of the Bank, and (d) Muroski was an insider by definition of the Securities and Exchange Commission. Therefore, the transaction was not a reasonable basis to determine the fair market value of the stock. Goff himself acknowledged that it was an unusual valuation practice in preparing an appraisal of bank stock to determine market value on the basis of one or a very few transactions. The Perkins Report Marc I. Perkins, an investment banker with Raymond, James and Associates in St. Petersburg, Florida, prepared a valuation report for Petitioners. That report has been received in evidence as Petitioners' Exhibit Perkins had previously been engaged on a number of occasions to value bank stock where a dispute over its value had arisen in a proposed merger. Perkins utilized the weighted average methodology which generally employs, where applicable, five categories of analyses, and then requires that the appraiser assign a weight to each category. This method is identical to that used by the U.S. Comptroller of the Currency in valuing dissenting shareholders' stock and is endorsed in an authoritative text entitled "Security Analysis" by Graham and Dodd. The five approaches include (a) book value, (b) adjusted book value, (c) imputed market value, (d) market value, and (e) investment value. However, in the case at bar imputed market value was inapplicable since that method is used only where a subsidiary is merged into a larger holding company. By the same token, the market value criterion was excluded by Perkins since no stock exchanges occurred during the last eleven months of 1981 and those occurring prior to that date were more akin to insider exchanges. Accordingly, Perkins used the three remaining approaches, to wit, book value, adjusted book value and investment value from which he derived valuations of $35.51, $35.44 and $50.30, respectively. After assigning the appropriate relative weights to each sum, he arrived at a recommended valuation of $46.59 per share. Unlike the authors of the Blackstock report, Perkins found no publicly traded Florida banking companies to be comparable to the Bank, and because of this, used as broad a peer group as possible for comparative purposes in order to take in the maximum number of investor decisions. The comparative data was extracted from the Jerry Williams, Inc. report which is a compilation of financial data for twenty-one publicly traded banking institutions in Florida. The use of a broader base is more appropriate than the Blackstock peer group since it is virtually impossible to find other banking companies of the same size, market type and performance as the Bank of Central Florida. Perkins assigned the greatest weight (75 percent) to the results of the investment value approach since that approach is appropriate where market value does not exist or where the market is thin. Moreover, it provides an easy to understand and reasonable estimate of the value to investors of a share in the future earnings of the Bank. Then, too, that approach includes an analysis of price earnings ratios for the average publicly traded Florida bank, and takes into account a number of key factors that go into investors' perceptions about risk and estimated returns. The approach also considers historical earnings per share as a guide to earnings prospects. Perkins assigned only 25 percent weight to the results of the adjusted book value approach since it had less relevance than investment value. He gave no weight to book value since that approach is dependent on historical cost and fails to reflect the investors' perceptions of the value of the bank as a going concern. Perkins' study produces a more reliable and accurate result than the other suggested methodologies because of its well-accepted approaches, the use of relative weights, a broader and more representative peer group and its rejection of irrelevant and improper data. Miscellaneous From December 31, 1981 through July, 1983 the value of money left on deposit in commercial banks in 30-day certificates of deposit and reinvested was 18 percent. The Bank's average prime rate was 16 during 1982 and the average interest rate charged customers by the Bank was 12 percent.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that Petitioners L. Justin Jackman and Herman R. Staudt be paid $46.59 per share for each share of stock held in the Bank of Central Florida, said amount representing the fair market value of such stock as of December 31, 1981. It is further RECOMMENDED that Petitioners' request to receive interest from December 31, 1981 through July, 1983, post order interest, and costs incurred in this proceeding be DENIED. DONE and ENTERED this 23rd day of September, 1983, in Tallahassee, Florida. DONALD R. ALEXANDER 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 23rd day of September, 1983.
Findings Of Fact Background Invest America, Inc. is a Delaware Corporation with its home offices in California. The company offers and sells franchises for the operation of a financial planning business. Through the franchise agreement, financial planners become part of a nationwide network of financial planners and have access to products and services endorsed by Invest America, Inc. and made available to the franchisees. In addition, holders of a franchise receive invitations to seminars conducted by Invest America, Inc. and the benefit of nationwide advertisements printed and broadcast by Invest America, Inc. Besides the payment of a franchise fee, the financial planners are required to use only the services and products endorsed or specifically approved by the company. Invest America, Inc. has never been registered with the Department to provide investment advice in this state. Dunwoody Securities Corporation d/b/a Investment Brokers of America, Inc. (IBA) is a wholly-owned subsidiary of Invest America, Inc. with interlocking officers and directors. The company conducts retail stock brokerage activities and engages in the private placement of limited partnership interests and certain other securities as well as mutual funds investments. IBA conducts its trading activities solely as an agent on behalf of its clients. At all times material to these proceedings, IBA was a registered broker-dealer with a limited license to sell securities in Florida. IBA was never registered to provide investment advice because that was not one of its functions within the network designed by Invest America, Inc. The network made the financial planners who had franchises with Invest America, Inc. responsible for the marketing and sale of the securities. IBA's activities were limited to the trading of those securities as the broker-dealer the financial planners were required to use. From August 1, 1986 to August 26, 1988, Respondent Wiley was registered as an agent for IBA in Florida. The registration provided that Respondent Wiley was a limited broker-dealer and would not be giving investment advice. Although Respondent Wiley did not hold a franchise with Invest America, Inc., he did receive their mailouts, including invitations to local, state, and national seminars. He received these materials because he was in the general lines insurance business in addition to his work with IBA. From December 1984 to September 1987, Invest America, Inc. sent its materials to financial planners and insurance agents at no cost in order to get this sales force to promote the services of its related businesses such as IBA, and to interest them in the purchase of a franchise and the subsequent renewals. It was not until January 1988 that the company began offering network membership to franchisees for a $500 fee plus a $100 monthly membership charge. Before that date, there was no charge for the franchise. The franchisees were only required to have the necessary licenses to give financial planning advice. The Respondent did not have the prerequisite licenses. Activities Of Respondent Wiley During His Introduction To The Broker-Dealer Business At the same time Respondent Wiley was a broker-dealer, he continued his involvement in the sale of insurance in a general lines agency. Because both businesses were managed from the same location, clients who sought advice on the proper insurance policies for their needs began to seek his advice on security investments. Likewise, the Respondent would volunteer his knowledge in the investment area to his long-standing insurance clients. When Respondent Wiley advised these clients to invest in products and services endorsed by Invest America, Inc., he would use his own services as an agent of IBA to buy and sell the securities. This practice enabled him to get more commissions than he would have had as a broker-dealer who did not solicit clients. The combination of his insurance business with the investment broker business allowed him to deprive Invest America, Inc. of the commission fee the company should have received from a financial planner who recommended its products and services. In addition, it relieved the Respondent of the need to pass the licensing examinations offered by the National Association of Securities Dealers (NASD) that were required of franchise holders. Although this practice was convenient for the Respondent, it was dishonest because it violated the rules regarding the demarcation between financial planners and investment brokers within the securities industry. NASD Disciplinary Action In his duties as a broker-dealer with IBA, the Respondent began to accept funds from purportedly public customers for the purchase of shares in the Putnam High Income Government Trust and the AMCAP Fund in August of 1986. During these transactions from August 1986 through December 1986, the funds were placed into checking accounts controlled by Respondent Wiley contrary to the record and bookkeeping requirements set forth in the Rules of Fair Practice promulgated by NASD. An enforcement action was filed by the NASD to discipline the Respondent for these rule violations on July 30, 1987. Respondent's Failure To Keep The Department Apprised Of The Status Of The NASD Disciplinary Action The Respondent did not inform the Department of the disciplinary action until he submitted an application for registration as an associated person of American Investors Group, Inc. after August of 1988. On September 20, 1988, the Department referred Respondent to the Department's rule which requires a registrant to keep the Department informed of such proceedings. The Respondent was advised in writing that he needed to keep the Department apprised of any change in status of the pending proceeding. On September 29, 1988, the appeal decision was filed by the NASD Board of Governors. The Respondent failed to inform the Department of the decision with its accompanying censure and fine even though he had been reminded of that requirement nine days earlier. The Evolvement Of Respondent's Practice From A Broker-Dealer to Financial Planner While it is unknown how many clients Respondent Wiley gave investment advice to in addition to his broker-dealer services, evidence presented at hearing demonstrates that he was selling securities and holding himself out to the public as a Licensed Financial Planner in Florida from March 26, 1987 through October 30, 1987. A search of the Department's records during this time period reveal that he was not registered in Florida to give financial advice regarding the purchase of securities. In spite of his lack of registration, the Respondent was conducting seminars, sending direct mailings to clients, and airing radio commercials. On June 12, 1987, the Respondent began to misrepresent to Protect America, Inc., a mutual fund monitoring and investment management service, that he was a financial adviser with Invest America, Inc. The Respondent benefited from this misrepresentation in that it enabled him to purchase Trend TRAC, a mutual fund management program, for some of his clients he had persuaded to purchase mutual funds as opposed to the lower risk certificates of deposit they had traditionally purchased. The mutual funds recommended to the clients were endorsed by Invest America, Inc. and were purchased through Respondent's position as a broker-dealer with IBA. Three former clients testified at hearing that they would not have purchased the mutual funds but for Respondent's representation that their additional purchase of Trend TRAC would protect them from the usual risks associated with stock market investments. It was explained to each of them that Trend TRAC is a form of "insurance" designed to protect their principal investments. One client was told the Trend TRAC purchase was an insurance that would secure the principal she had in the mutual funds. Another client was told Trend TRAC was the same thing as the deposit insurance maintained by banks. It was the same thing with a different name. The third client was told Trend TRAC would monitor his mutual funds account and prevent him from suffering more than a three percent loss. All three clients were old enough to have directly experienced some of the effects of the Great Depression which followed the stock market crash. They explained that they would not have purchased the mutual funds if the risk to their principal had not been removed by the purchase of Trend TRAC. According to the fee disclosure statements given to the clients who purchased Trend TRAC, Protect America, Inc. explained that the service was sold through Invest America, Inc. Ordinarily, this meant that the company Invest America, Inc. and its franchise holder would get forty percent of the fees paid by the client to Protect America, Inc. It is unknown if Protect America, Inc. received a commission from the sales of Trend TRAC made by Respondent Wiley. It is also unknown whether he received a commission as the investment broker for the correlative purchase of the mutual funds that he had induced the clients to purchase by supposedly minimizing their investment risks with Trend TRAC. Trend TRAC was a computer-based mutual fund management program which was designed to transfer funds from one mutual fund investment to another when it appeared to the manager that another mutual fund was performing better than the previous selection. The service agreement, which was given to the previously mentioned clients by Respondent Wiley, represented that no specific investment result was guaranteed, and under some market conditions, the investor would experience a loss of capital. The clients who invested in Trend TRAC upon Respondent Wiley's advice each lost a substantial amount of retirement funds that they have been unable to recover. It is unknown whether Respondent Wiley received commission money for the investment advice he provided to clients when he began to hold himself out as an investment adviser. The Selling Of Shares In Investment Brokers of America, Inc. On October 5, 1987, Respondent Wiley advised one of his clients to whom he gave investment advice to purchase stock in Investment Brokers of America, Inc. A subscription agreement was signed on the same date, and a purchase of 4,000 shares was made for $10,000.00. The shares were not registered with the Department nor were they lawfully exempt from such registration. The investor was not given a prospectus or any information beyond the subscription agreement. Falsification Of Information On A Subscription Agreement For Energy Vault III, Ltd. On October 30, 1987, Respondent Wiley held himself out as a financial adviser and gave investment advice to a client for the purchase of a limited partnership known as Energy Vault III, Ltd. for $11,322.00. In order to invest in the venture, the investor had to represent that he was experienced in investment matters and understood the financial hazards involved in the investment. It was also required that the investor represent that he could financially sustain the loss of the investment and the lack of liquidity. A questionnaire accompanied the subscription agreement. The purpose of the questionnaire was to provide more information about the investor. This would allow the General Partner to determine if the subscription should be accepted. Some of the information placed on the questionnaire by Respondent Wiley was either false or misleading in that it suggested that the investor was better able to assume the risks of such a speculative investment. Unsuitable Investment Recommendations The three investors who purchased mutual funds and Trend TRAC upon Respondent Wiley's advice were investing retirement funds. The investors had represented that they were unable to enter into investments that would reduce their principal. In spite of these requirements, the Respondent recommended their money be placed in ventures that could reduce their principal. One of the investors purchased highly speculative stock in Investment Brokers of America and a limited partnership in a high risk business venture that stored oil in an underground vault with retirement funds, based upon Respondent Wiley's advice. I. Mitigation Respondent Wiley is no longer in the investment brokerage business. The Respondent suffered financial losses from making the same investments that he recommended to others. He has not recovered from these losses and is unable to pay large administrative penalties if they are imposed in these proceedings. Respondent Wiley was acting alone from his small business known as Arlington Insurance and Financial Services. He was not part of a large scheme to defraud investors. His misconduct was not sanctioned by Invest America, Inc., Protect America, Inc. or Investment Brokers of America, Inc.
Recommendation Based on the foregoing, it is RECOMMENDED: That the Respondent's registration as an investment broker be revoked as he is unworthy to transact any business involving the sale of securities in Florida. That the Respondent be found guilty of the following allegations: Acting as an investment adviser without benefit of registration; selling shares of Investment Brokers of America, Inc. without the shares being lawfully registered or exempt from registration by furnishing a prospectus; recommending to inexperienced investors that they place their money in highly speculative investments when such recommendations were unsuitable, based upon the information furnished by these customers to Respondent; and falsifying information on a subscription agreement and questionnaire for the sale of a limited partnership. That Respondent be fined $1,500.00. DONE and ENTERED this 27th day of June, 1990, in Tallahassee, Leon County, Florida. VERONICA E. DONNELLY 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 27th day of June, 1990. APPENDIX TO RECOMMENDED ORDER CASE NO. 89-6698 Petitioner's Proposed Findings of Fact are addressed as follows: Accepted. Accepted. Accepted. Rejected. Irrelevant. Improper ultimate conclusion. Rejected. Contrary to fact. See HO #4, #8, #13 and #14. Accepted. Accepted. See HO #3 - #4. Accepted. See HO #2, #4, #5 and #14. Accepted. Rejected. Improper name of business. Reject as to Invest America and Protect America. See HO #6 and #14. Accepted. Accepted. See HO #13. Accepted. Reject first sentence. Contrary to fact. Accept second sentence. Accepted. See HO #12. Accepted. See HO #14. Accepted. See HO #16. Accepted. Accepted. See HO #13. Accepted. Accepted. See HO #13. Accepted. See HO #13. Rejected. Redundant. Rejected. Contrary to fact. Accepted. See HO #16. Accepted. Accepted. Accepted. Accepted. Accepted. Accepted. See HO #7. Accepted. See HO #25. Accept that Wiley represented he was a financial planner. See HO #21. The rest is rejected as contrary to fact. Accepted. Accepted. Accepted. See HO #13. Accepted. See HO #13. Rejected. Contrary to fact. Rejected. Contrary to fact. Accepted. Accepted. Accepted. Rejected. Irrelevant. Accepted. See HO #25. Rejected. Contrary to fact and redundant. Accepted. See HO #25. Rejected. Contrary to fact. Rejected. See HO #14 and #17. Accepted. Accepted. See HO #21. Rejected. Irrelevant. Rejected. Irrelevant. Rejected. Irrelevant. Accepted. See HO #18. Accepted. See HO #19. Accept as to IBA. Reject the rest. Contrary to fact. Rejected. Contrary to fact. See HO #18. Rejected. Contrary to fact. See HO #18. Accepted. See HO #20. Accepted. Accepted. Rejected. Redundant. Rejected. Redundant. Accepted. See HO #21. Accepted. See HO #21. Rejected. Irrelevant. Rejected. Contrary to fact. See HO #22. Accepted. See HO #24. Rejected. Contrary to fact. See HO #22. Rejected. This testimony by the investor was not believable. Rejected. Irrelevant to the charges. Rejected. Irrelevant to the charges. Rejected. See HO #22. Accepted. See HO #25. Rejected. Contrary to fact. See HO #18 and #25. Rejected. Irrelevant. Rejected. Irrelevant to the charges. Rejected. Irrelevant to the charges. Rejected. Irrelevant to the charges. Accepted. See HO #25. Accepted. See HO #9. COPIES FURNISHED: Elsie M. Greenbaum, Esquire Office of the Comptroller 400 West Robinson Street Suite 501 Orlando, Florida 32801 David C. Wiley 2701 Cleveland Avenue Fort Myers, Florida 33902 William G. Reeves, Esquire General Counsel Department of Banking and Finance The Capitol, Room 1302 Tallahassee, Florida 32399-0350 Honorable Gerald A. Lewis Comptroller, State of Florida The Capitol Tallahassee, Florida 32399-0350
The Issue The issue is whether Respondent committed the offenses alleged by the Administrative Complaint, and, if she did, the penalty that should be imposed.
Findings Of Fact Petitioner is a regulatory agency of the State of Florida charged with the responsibility of investigating and prosecuting complaints against real estate professionals, including licensed real estate salesmen. At all times pertinent to this case, Respondent, America Canizales, was licensed by Petitioner as a real estate salesman. At the time of the hearing, however, Respondent's license was on inactive status. Respondent was the real estate salesman who represented Elvira Martinez when Ms. Martinez bought her apartment in the middle of 1987. As a result of her professional dealings with Ms. Martinez, Respondent learned that Ms. Martinez was interested in investing in real estate. On December 4, 1987, Respondent persuaded Ms. Martinez to enter into a real estate transaction with her. Respondent intended to purchase a house for the sum of $34,000, but she did not have the funds necessary to close the transaction. Respondent needed an additional $5,000 to apply toward the purchase price and to pay the costs of closing. The house was to be purchased by Respondent in her individual capacity in a transaction that was independent of her status as a real estate salesman. The agreement executed by Respondent and Ms. Martinez on December 4, 1987, provided for Ms. Martinez to give to Respondent the sum of $5,000. In exchange for this money, Respondent agreed that she would convey to Ms. Martinez one-half interest in the $34,000 house after she had acquired title to the property. In the event the transaction did net close and Respondent did not obtain title to the house, Respondent was to return to Ms. Martinez the sum of $5,000 without the payment of interest. Between December 4, 1987, and December 8, 1987, Ms. Martinez gave to Respondent a check made payable to America Canizales in the amount of $5,000. This check, dated December 9, 1987, was to be held in trust by Respondent until the closing on the purchase of the $34,000 house. At no time did Respondent deposit the check in a bank account. There was no evidence that Respondent took any action to safeguard Ms. Martinez's check or the funds represented by the check. Although the check was dated December 9, 1987, the check was cashed on December 8, 1987, at the bank used by Ms. Martinez. The person who cashed the check endorsed it in the name of America Canizales. On or about December 10, 1987, Respondent told Ms. Martinez that Respondent's husband had stolen all of Respondent's money and that he had also stolen Ms. Martinez's check. Respondent also told Ms. Martinez that because of the theft, she would be unable to close their contemplated transaction and promised to repay the $5,000. Respondent offered no further explanation or accounting for the funds. Respondent made repeated promises to repay Ms. Martinez the sum of $5,000 on the occasions Ms. Martinez was able to contact her. Thereafter, Respondent moved from the State of Florida without letting Ms. Martinez know where she could be reached. When Ms. Martinez located Respondent in Chicago, Illinois, Respondent again promised to repay Ms. Martinez. As of the time of the formal hearing, Respondent had returned to Dade County, Florida, but she had made no effort to repay Ms. Martinez the sum of $5,000. Respondent repeatedly misled Ms. Martinez as to her intentions to repay her. The factual allegations of the Administrative Complaint filed by Petitioner to "initiate this case were denied by Respondent. The request for a formal hearing was timely filed by Respondent.
Recommendation Based on the foregoing Findings of `Fact and Conclusions of Law, it is: RECOMMENDED that the Department of Professional Regulation, Florida Real Estate Commission, enter a final order which finds that Respondent violated Section 475.25(1)(b), Florida Statutes, as alleged in Count I of the Administrative Complaint. It is further recommended that the final order revoke the real estate salesman's license issued to Respondent, America Canizales. DONE and ORDERED this 30th day of January, 1990, in Tallahassee, Florida. CLAUDE B. ARRINGTON 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 30th day of January, 1990. COPIES FURNISHED: John R. Alexander, Esquire Department of Professional Regulation 400 West Robinson Street Post Office Box 1900 Orlando, Florida 32802 America Canizales 158 West 10th Street Hialeah, Florida 33010 Kenneth E. Easley, General Counsel Department of Professional Regulation 1940 North Monroe Street, Suite 60 Tallahassee, Florida 32399-0792 Darlene Keller, Division Director Department of Professional Regulation Division of Real Estate 400 West Robinson Street Post Office Box 1900 Orlando, Florida 32802
The Issue The issue is whether Respondents' real estate licenses should be disciplined on the ground that Respondents allegedly violated a rule and various provisions within Chapter 475, Florida Statutes, as charged in the Administrative Complaint.
Findings Of Fact Based upon all of the evidence, the following findings of fact are determined: When the events herein occurred, Respondents, Edward D. Armbruster and Colleen Michele Armbruster, were licensed real estate brokers having been issued license numbers 0002159 and 0362890, respectively, by Petitioner, Department of Business and Professional Regulation, Division of Real Estate (Division). Respondents served as qualifying brokers and officers of Respondent, Armbruster Realty, Inc., a corporation registered as a real estate broker and located at 1031 West Nelson Avenue, DeFuniak Springs, Florida. The corporation holds license number 0211855, also issued by the Division. On July 10, 1996, Gerald and Joyce Singleton, who had just relocated to California, entered into a contract with James B. and Joyce Patten to sell their single-family residence located on Madison Street in the City of Freeport, Florida, for a price of $78,000.00. The contract called for the Pattens to pay $1,000.00 as an earnest money deposit, to be held in escrow by Respondents. The contract further provided that "[c]losing shall be within 30 days (more or less) after acceptance of this contract," and that "[i]n the event that buyer defaults and deposit is forfeited, it is agreed said deposit shall be divided equally between seller and broker." The transaction was handled by Geraldine Dillon (Dillon), a salesperson in Respondents' office, who is now retired. Because the Pattens had recently moved to Walton County from Washington State, and they were temporarily living with a relative in a mobile home, the time for closing was of the essence. Accordingly, the Pattens inserted into the contract a provision requiring that a closing be held within "30 days (more or less)." This meant that a closing should be held on or about August 10, 1996, give or take a few days. The parties acknowledge that property boundary problems were somewhat common in certain areas of Freeport, including the area where the subject property was located. To satisfy the bank and title company, a surveyor was engaged to prepare a survey of the property. However, the parties agree that the surveyor noted problems with the boundaries of the lot. When a second surveyor would not undertake the survey because of similar boundary problems, Joyce Patten, who was the principal negotiator for the couple, notified Dillon that they did not wish to close because of potential title problems and wanted a refund of their deposit. Notwithstanding this concern, Dillon advised Joyce Patten that a third surveyor would be hired, at the seller's expense, and he could "certify" the property. Although Joyce Patten expressed concern that the bank might not accept a third survey after two earlier ones had failed, and she did not want to pay for another survey, she did not instruct Dillon to stop the process. Accordingly, Dillon engaged the services of Tommy Jenkins, a local surveyor, to perform another survey. After a certified survey was obtained by Jenkins on August 12, 1996, which Respondents represent without contradiction satisfied the lender and title company, a closing was scheduled within the next few days. This closing date generally conformed to the requirement that a closing be held by August 10, 1996, "more or less." The seller, who by now had relocated to California, flew to Florida for the closing, and the title company prepared a closing statement and package. Just before the closing, however, Respondents learned through a representative of the title company that the Pattens were "cancelling the closing," apparently in violation of the contract. Shortly after the aborted closing, Joyce Patten requested that Dillon return their deposit. By this time, the Pattens had already entered into a second contract to buy another home in the same area and closed on that property before the end of August. Respondents were never informed of this fact by the Pattens. On August 21, 1996, Colleen Armbruster prepared a rather lengthy letter to the Pattens (with a copy to the sellers) in which she acknowledged that they had orally requested from Dillon that their escrow deposit be returned. The letter has been received in evidence as Petitioner's Exhibit 4. Armbruster stated that she was "perplexed" that they were demanding a refund of their earnest money deposit, given the fact that the seller had "met the terms and conditions of the sale." Armbruster outlined the three reasons in the contract which would allow the Pattens to withdraw without forfeiting their deposit, but noted that none were applicable here. Accordingly, she advised them that the seller would be consulted as to his wishes regarding the deposit, and that the Pattens should contact her if they had any questions. Through oversight, however, she did not include a notice to the Pattens that they must respond to her letter within a stated period of time reaffirming their demand for the trust funds, or the deposit thereafter would be disbursed pursuant to the contract. By failing to include this specific language, and sending the letter by regular rather than certified mail, return receipt requested, Respondents committed a technical, albeit minor, violation of an agency rule. Even so, the Pattens acknowledged receiving the letter, and there is no reason to believe that they did not understand its import, especially the requirement that they contact the broker if they disagreed with the proposed disbursement of the money. It can be reasonably inferred that the Pattens did not respond because they "figured [they weren't] going to be able to get [their] money back" due to their failure to perform. On September 13, 1996, the seller's attorney advised the Pattens by letter that the seller considered the deposit forfeited pursuant to paragraph 15(a) of the contract, which pertains to the "Default" provisions. The Pattens never responded to either letter, and they also failed to respond to telephone calls made by Respondents or their agents regarding this matter. In view of the Pattens' lack of response or reaffirmance of their demand, and the fact that they had already closed on another property, Respondents logically and fairly assumed that the Pattens were in agreement with the disbursement procedures outlined in Coleen Armbruster's letter of August 21. Accordingly, on September 17, 1996, Edward Armbruster, who had not been involved in this transaction to date, in good faith signed two disbursement checks giving $697.50 to the seller and retaining the balance for his firm. This division was consistent with the terms of the contract. In making this disbursement, there was no intent on the part of Respondents to trick, deceive, breach their trust, or in any way unlawfully deprive the Pattens of their deposit. Respondents did not notify the Florida Real Estate Commission (Commission) that they had received conflicting demands for a deposit, nor institute any other procedures regarding the deposit, since they no longer had any good faith doubt as to whom was entitled to their trust funds. This was because the Pattens had failed to respond to letters and telephone calls regarding the sellers' claim to the deposit. There is no evidence that Respondents have ever been the subject of prior disciplinary action during their lengthy tenure as licensees. At the same time, it is noted that Respondents acted in good faith throughout the process and genuinely believed that there was no dispute. It should also be recognized that, for at least part of the time, the Pattens were working two contracts simultaneously without advising the realtors.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Florida Real Estate Commission enter a Final Order finding Respondents guilty of a technical violation of Rule 61J2-10.032(1), Florida Administrative Code, and Section 475.25(1)(e), Florida Statutes, and that they be given a reprimand. All other charges should be dismissed. DONE AND ENTERED this 28th day of July, 1998, in Tallahassee, Leon County, Florida. DONALD R. ALEXANDER 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 Filed with the Clerk of the Division of Administrative Hearings this 28th day of July, 1998. COPIES FURNISHED: Henry M. Solares, Director Division of Real Estate Post Office Box 1900 Orlando, Florida 32802-1900 Christine M. Ryall, Esquire 400 West Robinson Street Suite N-308 Orlando, Florida 32801-1772 Edward D. Armbruster Colleen M. Armbruster Post Office Box 635 DeFuniak Springs, Florida 32433 Lynda L. Goodgame, Esquire Department of Business and Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-0792
Findings Of Fact In his application for registration as a mortgage broker (Exhibit 2), David Stain, Petitioner, in response to question 7 "Have you any judgments against you?" answered "No". By letter dated May 12, 1980 (Exhibit 1), Respondent advised Stein that background investigation revealed numerous judgments against him and stated it would he necessary for Stein to advise why he chose to answer question 7 in the negative. After receiving no response from Stein, Respondent, on 2 July 1980, entered a Final Order denying Stein's application for registration as a mortgage broker. Grounds given in this Order were based upon numerous unsatisfied judgments entered against Stein in Pennsylvania. Exhibit 3, a composite exhibit of court records from Allegheny County, Pennsylvania, shows judgements entered against David Stein and in favor of: Pennsylvania Department of Revenue (2), Diner's Club, Ford Motor Credit Company, Charles Arnold, Alan Shaffer, Carl Kronander, and CNA Financial Corporation.
