The Issue The issue in this case is whether Petitioner is entitled to receive a passing grade on her optometry examination.
Findings Of Fact Petitioner took the optometry licensure examination on September 22-24, 1991. Following review of her initial scores, Respondent informed her by notice dated February 22, 1991, that she earned 100 points on Florida law and rules, which was a passing grade; 52.5 points on pharmacology and ocular diseases, which was below the minimum passing grade of 70; and 77 points on clinical, which was below the minimum passing grade of 80. Petitioner challenged her grades on the pharmacology and ocular diseases and clinical portions of the examination. However, at the beginning of the hearing, shedropped her challenge to the pharmacology and ocular diseases portion of the examination. The clinical portion of the examination is divided into two sections. In the first section, the applicant sees a "patient." Two examiners watch and listen as the applicant examines the "patient," who is unknown to the applicant and has been prepared with certain information. The applicant is graded under various areas within the broad categories of case history, visual acuity, pupillary exam, confrontation visual fields, and extra-ocular muscle balance assessment. In the second section, the applicant brings with him to the test site his own "patient." Two examiners, who are different from the examiners for section one, evaluate the applicant's ability to use various types of clinical equipment on his "patient." In the first section, Petitioner challenged the grades that she received for Questions 6, 8-10, and 11, which are all worth two points except for Question 10. Question 10 is worth four points. In the second section, Petitioner challenged the grades that she received for Questions 1-4, which are all worth five points, except for Question 4. Question 4 is worth four points. Any combination of additional points adding up to two or more would give Petitioner a passing grade on the pharmacology and ocular disease portion of the examination. As noted below, Petitioner received partial credit for certainanswers. Each of the four examiners completed a scoresheet while grading Petitioner. When no or partial credit was awarded, the examiner would write comments explaining what the problem was. Testifying for Respondent at the hearing, a licensed optometrist, who was one of the examiners of Petitioner for section two, explained adequately each of the scores awarded Petitioner for each of the challenged questions. He established that the equipment was carefully calibrated prior to each test session and for each individual applicant. A psychometrician employed by Respondent also testified that she had analyzed the variance of the scores among the examiners, in terms of overall scores for all applicants, and found no variances tending to discredit the grades. The challenged questions and clinical procedures provided a reliable measure of an applicant's relevant ability, knowledge, and skill. Petitioner's grades were a fair evaluation of her performance on the challenged questions.
Recommendation Based on the foregoing, it is hereby recommended that the Board of Optometry enter a final order dismissing Petitioner's challenge to her scores in pharmacology and ocular diseases and clinical portions of the September, 1990, optometry licensure examination. RECOMMENDED this 19th day of June, 1991, in Tallahassee, Florida. ROBERT E. MEALE Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 19th day of June, 1991. COPIES FURNISHED: Jack McCray, General Counsel Department of Professional Regulation 1940 North Monroe Street Tallahassee, FL 32399-0792 Patricia Guilford, Executive Director Board of Optometry 1940 North Monroe Street Tallahassee, FL 32399-0792 Chidiebere Ekenna-Kalu P.O. Box 621507 Orlando, FL 32862-1507 Vytas J. Urba Assistant General Counsel Department of Professional Regulation 1940 N. Monroe St. Tallahassee, FL 32399-0792
The Issue Whether Respondents committed the offenses set forth in the Administrative Complaint and, if they did, the penalties, if any, which should be imposed.
Findings Of Fact On May 15, 1989, Petitioner filed an Order to Cease and Desist, Administrative Charges and Complaint with Notice of Rights against several parties including the following Respondents to the instant proceeding: Habersheir Securities, Inc. (Habersheir); Raymond Hayden (Hayden); Sharieff Mustakeem (Mustakeem); and Frank J. Hurt, III (Hurt). By Order Imposing Sanctions entered November 30, 1989, a default pursuant to Rule 1.380(b)(2)(C), Florida Rules of Civil Procedure, was entered against Habersheir, Hayden, and Mustakeem. No appearance was made by Habersheir, Hayden, or Mustakeem at the formal hearing, although Notice of Hearing was served upon them. Habersheir is a corporation whose main office in Atlanta, Georgia, has been registered with Petitioner as a broker/dealer since June 22, 1987. The Florida branch office of Haersheir was located at 100 West Cypress Creek Road, Suite 810, Fort Lauderdale, Florida 33309. The branch office was registered with Petitioner on September 29, 1988. At all times pertinent hereto, Mustakeem was the president of Habersheir and the majority owner of its stock, while Hayden was a vice- president of Habersheir. At the time of the final hearing, neither Mustakeem nor Hayden was registered with Petitioner. At all times pertinent hereto, Hurt was qualified for registration with Petitioner as a principal. Hurt's registration with Petitioner had not, prior to the filing of this matter, been disciplined. The application submitted by Habersheir to Petitioner on September 7, 1988, listed Hurt as the "Designated Manager in Charge Registered as Principal in Florida". Form BD is a form required by Petitioner in the application process. On Schedule E of the Form BD filed by Habersheir on November 14, 1988, Hurt is listed as the "Supervisor" of the Florida Branch. Hurt's name and his registration with Petitioner as a principal were used in connection with the registration of the Florida Habersheir branch to gain a favorable review of the application by Petitioner. Such use was without compensation to Hurt, but was with his knowledge and permission. Hurt was a salesman who had been employed by Habersheir for a short period of time when the application for the Florida branch office was filed. He was not an officer of Habersheir and had no managerial authority. At no time did Hurt intend to serve the Florida branch office of Habersheir in any capacity and at no time did he have any authority to supervise or otherwise manage that office. Representatives of Habersheir transacted business in Florida between September 7, 1988 and September 28, 1988, prior to Habersheir's branch office being registered in Florida with Petitioner on September 29, 1988. Associated persons working for Habersheir sold securities in or from the branch office in Fort Lauderdale, Florida prior to the associated persons being registered with the Petitioner. Habersheir's branch office in Fort Lauderdale, Florida, failed to maintain records and make available for Petitioner's inspection its cash receipt and disbursement blotter, securities received and delivery blotter, order tickets, and customer confirmations on all transactions as required by Section 517.121, Florida Statutes, and by Rule 3E-600.014(4), Florida Administrative Code. Habersheir also failed to maintain copies of its associated persons files as required by Rule 3E- 600.0014 (5)(a), Florida Administrative Code. At all times pertinent to this proceeding, Habersheir was a member of the National Association of Securities Dealers (NASD). Between November 7, 1988, and November 30, 1988, Habersheir's authority to transact business was suspended by NASD. Habersheir failed to notify its Fort Lauderdale, Florida, branch office of its suspension by NASD. Consequently, business was transacted by that branch office while Haersheir's authority to transact business was suspended by NASD.
Recommendation Based on the foregoing findings of facts and conclusions of law, it is RECOMMENDED that the State of Florida, Department of Banking and Finance, Division of Securities, enter a final order which: Revokes all registrations presently held by Habersheir Securities, Inc., and which assesses an administrative fine against Habersheir Securities, Inc. in the amount of $10,000.00 for its violations of Sections 517.12(5), and 517.121(1), Florida Statutes; and Which dismisses the administrative complaint against Sharieff Mustakeem, Raymond Hayden, and Frank J. Hurt, III. DONE AND ENTERED this 27th day of February, 1990, in Tallahassee, Leon County, Florida. CLAUDE B. ARRINGTON Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 22nd day of February, 1990. APPENDIX TO THE RECOMMENDED ORDER IN CASE 89-3886 The following rulings are made on the findings of fact submitted by Petitioner: The proposed findings of fact In paragraphs 1-10 are adopted in material part by the Recommended Order. The proposed findings of fact In paragraph 11 are adopted in part by paragraph 1 of the Recommended Order, and are rejected in part as being unnecessary to the findings made. COPIES FURNISHED: Randall L. Rubin, Esquire Assistant General Counsel Office of Comptroller 401 N.W. 2nd Avenue Suite N-708 Miami, Florida 33128 Oliver Lee, Esquire Troutman, Sanders, Lockerman & Ashmore Candler Building, Suite 1400 127 Peachtree Street, N.E. Atlanta, Georgia 30303-1810 Frank J. Hurt, III 6666 Powers Ferry Road Suite 202 Atlanta, Georgia 30339 Preston Spears 91 Farmington Drive Woodstock, Georgia 30188 Rahim Davoudpour 1972 Benthill Drive Marietta, Georgia 33062 Honorable Gerald Lewis Comptroller, State of Florida 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, Rm. 1302 Tallahassee, Florida 32399-0350 =================================================================
The Issue The issue is whether Respondent's opticianry license should be revoked or otherwise penalized based on the acts alleged in the Administrative Complaint.
Findings Of Fact Max A. Vinson is currently a licensed optician, holding license No. DO 601. On December 24, 1986, the Board of Opticianry entered a Final Order in DPR Case No. 0060708 and therein assessed a fine of $500.00 against Vinson. The fine was to have been paid within thirty days of the Final Order. Vinson never paid the fine. On October 17, 1989, the Board of Opticianry again entered a Final Order in Case No. 0106315. This Final Order was based on the failure to pay the fine from the first action. Another fine of $1,000.00 was assessed and Vinson's license was suspended until the fines were paid. Vinson never paid this fine. Vinson is charged with violating Section 484.014(1)(i), Florida Statutes, based on his failure to obey these two lawful orders of the Board of Opticianry.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Board of Opticianry enter a Final Order and therein revoke license No. DO 601 issued to Max A. Vinson. Vinson may not reapply for a license until all fines have been paid. DONE and ENTERED this 9th day of April, 1991, in Tallahassee, Florida. DIANE K. KIESLING 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 9th day of April, 1991. COPIES FURNISHED: E. Renee Alsobrook, Senior Attorney Department of Professional Regulation 1940 North Monroe Street, Suite 60 Tallahassee, FL 32399-0792 Max A. Vinson 12512 Caron Drive Jacksonville, FL 32258 Jack McRay General Counsel Department of Professional Regulation 1940 North Monroe Street Tallahassee, FL 32399-0792 LouElla Cook Executive Director Board of Opticianry 1940 North Monroe Street Tallahassee, FL 32399-0792
The Issue The issues are whether Respondents are guilty of selling or offering for sale securities in Florida that were not exempt under Section 517.051, Florida Statutes, were not sold in an exempt transaction under Section 517.061, Florida Statutes, were not a federally covered security, or were not registered pursuant to Chapter 517, Florida Statutes, in violation of Section 517.07(1), Florida Statutes; or whether Respondents are guilty of acting as unregistered dealers, associated persons, or issuers and selling or offering for sale any securities from this state, in violation of Section 517.12(1), Florida Statutes. If so, an additional issue is what penalties should be imposed.
Findings Of Fact At all material times, neither Respondent Philip E. Mehl, Sr. (Mr. Mehl), nor Respondent Susan E. Mehl (Ms. Mehl) has been licensed or registered to sell securities. However, Mr. and Ms. Mehl, who are married to each other, were licensed to sell securities from 1993 through mid-1996. During this period of time, they were registered with three different brokers. Both Mr. and Ms. Mehl were registered with the same broker at the same time. The interests in, or obligations of, the products or investments that were the subject of programs sponsored by ETS Payphones, Inc. (ETS), Eagle Capital Management One U.S. Estate Group, LLC (Eagle), and MP3 Entertainment.com, Inc. (MP3) were never registered as securities pursuant to Chapter 517, Florida Statutes. All sales described below took place in Florida. The ETS payphone program evolved out of the ownership and operation of payphones by ETS, starting in 1992. Offering materials prepared by National Communications Marketing, Inc. (NCMI), offer to sell installed payphones to individuals for $7000. These materials provide each payphone purchaser three options: owner operation, in which the payphone owner maintains, services, and collects coins from the payphone; "turn-key maintenance," in which the payphone owner pays a monthly fee for a payphone management company to maintain, service, and collect coins from the payphone; and a lease, in which the payphone owner leases the payphone to a management company that will pay monthly rent of $82 for a five-year term-- at the end of which the payphone owner may assume the maintenance and operation responsibilities, attempt to renegotiate the lease, or sell the payphone for the original purchase price to the management company. The materials provide that self-directed individual retirement accounts, Keogh plans, simplified employee pension plans, and Section 401K plans may purchase payphones, but only under the third option, in which they lease them to a management company. Mr. Mehl learned of ETS and NCMI in 1996 through Michael Bugelman, who visited Mr. Mehl's office and explained the ETS payphone program. Mr. Bugelman described his business relationship with NCMI, which was one of four ETS affiliates formed by ETS or its chief executive officer, Charles B. Edwards. Mr. Mehl later met Mr. Edwards. From these men, Mr. Mehl learned that NCMI sold the payphones, ETS leased them from the purchasers, and Mr. Mehl could earn commissions if he procured purchasers of ETS payphones. Before agreeing to market ETS payphones, Mr. Mehl contacted numerous persons who had purchased payphones and determined that they were satisfied with the operation of the program. Mr. Mehl also visited the main plant in Georgia where over 200 persons were working in shipping and maintaining payphones. Eventually, Mr. Mehl decided to participate in the marketing of ETS payphones, and his first sales took place in mid-1997. By Sales Representative Agreement dated January 1, 1998, between NCMI and Mr. Mehl or Mehl & Mehl, Inc. (the agreement identifies the sales representative as Mr. Mehl once and Mehl & Mehl, Inc., once), NCMI appointed Mr. Mehl or Mehl & Mehl, Inc., as its sales representative for customer-owned payphones. Among the sales representative's responsibilities was to "[d]evelop and implement a marketing program and plan for maximum sales . . .." In return, NCMI would pay a 10 percent commission with a bonus of a free payphone for sales of at least 15 payphones in a single month. An undated addendum, signed only by Mr. Mehl, raises the commission to 12 percent. Another undated addendum, again signed only by Mr. Mehl, changes the commission to 10-16 percent, based on sales volume. Contemporaneous with the developments, Mr. Mehl was aware of a complaint from a purchaser concerning the sale of four payphones by David R. Fuller. A March 30, 1999, memorandum prepared by Marsha A. Perkins, financial investigator, criminal enforcement, West Central Florida Regional Office, Department of Banking and Finance, states that "[initial review of the offer [including the "offering material"] revealed that [the purchaser] purchased a leasing agreement from ETS Payphones to lease pay phones, which was not within the scope of F.S. 517." The memorandum notes that ETS refunded the purchaser her entire purchase price and that Mr. Fuller may have violated the Florida Deceptive and Unfair Trade Practices Act by representing an annual yield of 15 percent. At some point, Mr. Mehl formed the opinion that Mr. Bugelman was unreliable and decided that he wanted to sever their business relationship. Mr. Bugelman maintained a commission override on all of Mr. Mehl's commissions, so Mr. and Ms. Mehl formed ETI Enterprise Telephone Industries, Inc. (ETI). Although Mr. Mehl remained responsible for selling the payphone program, the addition of Ms. Mehl as a sales agent enabled them to eliminate Mr. Bugelman's commission override. From this point, NCMI and/or ETS paid ETI all commissions due on the sale of ETS payphones. Notwithstanding the assertions contained in his proposed recommended order, Mr. Mehl contends, as he stated in his answers to interrogatories, "I acted more in the nature of a broker. The purchase of payphones was from an unrelated third- party." (Ms. Mehl makes the same contention in her answers to interrogatories.) The Eagle program consists of the sale of membership units in the U.S. Estate Group, LLC. As explained in the Operating Agreement, the business of the limited liability company is "limited to the purchase and collection of defaulted consumer debt that lending institutions have written off, and such other activities as are incidental to [this b]usiness . . .." The Eagle Operating Agreement provides: "all profits and losses of [Eagle] and all income, deductions and credits shall be allocated to the Members in the percentages as set forth in Exhibit 'A.'" The Operating Agreement states that the Manager is to conduct the business of the company, unless removed by a 60 percent vote of the Members or unless a majority of Members vote to override a business decision of the Manager. The Eagle Operating Agreement provides that the company will pay each Member a monthly sum equal to two percent of the Member's investment until the Member receives an amount equal to his or her original investment. The Operating Agreement conditions these payments upon the presence of sufficient operating net cash flow. The Operating Agreement provides that 34 months after the commencement of the two- percent monthly payments, a Member may elect to require the company to repurchase the Member's original investment for the original price.1 Mr. Mehl contends, as he stated in his response to interrogatories, that he "merely conveyed onto individuals the information [about the Eagle program] that was provided to me by the Eagle Program managers. . . . I contest that I was the 'seller' with regard to this alleged investment. I acted as . . . 'broker' in the transaction. I conveyed certain information to interested individuals and they made the decision whether or not they wished to purchase the investment from the Eagle Program itself." (Ms. Mehl makes the same contention in her answers to interrogatories.) The MP3 program consists of the sale of nine-month promissory notes issued by MP3 with an eleven-percent annual return. On certain conditions, including the payment of $4 per share over a specified period of time, the note is convertible to equity. The MP3 offering material adds that these "obligations are fully guaranteed by United Assurance Company Ltd. [w]ith $41 million in assets listed in the A.M. Best International Directory of Insurance Companies." On a candid note, the offering material notes: The company is a public company, listed on the NASD Bulletin Board . . ., formed in 1983, with a $2,000,000 tax loss carry forward, and no assets or liabilities from its former publishing business. Company is receiving $5,000,000 in assets from its new major shareholder. . . . Mr. Mehl holds licenses to sell health, life, annuities, and insurance contracts. He is a certified senior advisor and a certified estate planner. At all material times, he maintained an office in Stuart, Florida, staffed with nine support employees and adjoining a law office, whose attorneys were available to Mr. Mehl's clients. Publishing flyers in the local newspaper, Mr. Mehl solicited interested persons to attend monthly workshops or seminars that he would sponsor in the Stuart area. Persons obtained by Mr. Mehl would present investment options at the workshops or seminars. Two or three times, Mr. Edwards was the featured speaker. Although other speakers did not highlight any of the three programs that are the subject of this case, they discussed many investment topics. At some point, attendees would have an opportunity to sign up to meet Mr. Mehl at his office to discuss investment possibilities. Ten persons testified that they invested money based on Mr. Mehl's advice in one of the three subject programs. Sterling Tyndall has been retired for six years. Formerly an electrician, he had little investment experience, mostly in some mutual funds and major stocks like Intel and Oracle. A friend, Richard Granger, who had done business with Mr. Mehl, recommended that Mr. Tyndall discuss with Mr. Mehl investment options. Although he met Ms. Mehl inconsequentially while in the office, Mr. Tyndall's contact was with Mr. Mehl. When Mr. Tyndall asked for an investment that would provide him a good return, Mr. Mehl recommended ETS payphones. Mr. Mehl assured Mr. Tyndall that the principal would be guaranteed for five years and he would receive 14 percent annually on his investment. Mr. Mehl explained the three management options for the payphones, and Mr. Tyndall chose the lease option. Mr. Tyndall invested $28,000 in ETS payphones three years ago. Mr. Mehl was the sales agent on the sale. After receiving several monthly payments, he stopped receiving any money. His sole chance of recovering any more of his investment lies with the trustee in bankruptcy. Mr. Tyndall also invested $99,000 in the Eagle membership units, apparently in a single transaction. Acting as the sales agent in this transaction, Mr. Mehl assured Mr. Tyndall that the investment was risk-free, and Mr. Tyndall would receive a guaranteed annual return of 24 percent. After receiving two payments, Mr. Tyndall received notification from the Commonwealth of Pennsylvania that it had attached the accounts and hoped to be able to return two-thirds of his original investment. Mr. Granger has been retired 16 years after a career with General Motors as Senior Buyer in charge of the Fisher Body Division. Mr. Granger has no investment experience and learned of Mr. Mehl through a flyer in the Stuart News. During the seminar that he attended, Mr. Granger made an appointment to meet Mr. Mehl at his office. During that meeting, Mr. Mehl sold him three annuity contracts. About one year later, Mr. Granger visited Mr. Mehl again; the annuities that had originally paid eight percent annually were now paying only 4.25 percent annually. Mr. Mehl suggested that Mr. Granger cash in his annuities and invest in a higher-returning investment--ETS payphones. Mr. Granger originally bought two or three ETS payphones. Later, he purchased ten more ETS payphones. His total investment was $84,000. Mr. Mehl was the sales agent. Although Ms. Mehl and Mr. Granger became friends, she did not participate in the sales. Mr. Granger received payments for about six months, but has received no more income or return of principal on this investment. Mr. Granger also invested in MP3 notes, on Mr. Mehl's recommendation. Mr. Mehl told Mr. Granger that this was an "insured" investment, and he would earn 11 percent over nine months, if he accepted a single payment at the end of the term, or 10 percent over nine months, if he preferred monthly payments. Mr. Granger invested $60,000 with Mr. Mehl as the sales agent. Mr. Granger has lost his entire investment in MP3. Robert A. Cook is a freelance contractor engaged in structural and architectural design work. He has no investment experience. When looking for insurance, Mr. Mehl was recommended to Mr. Cook. At some point, Mr. Cook learned that Mr. Mehl was also a financial advisor. In a discussion, Mr. Mehl recommended that Mr. Cook diversify his investments to include ETS payphones. Assuring Mr. Cook that the ETS payphone investment was secure, Mr. Mehl said that it was a five-year guaranteed contract at a certain interest rate. Mr. Mehl praised the investment highly. Mr. Cook understood that, if something happened to "his" payphone, ETS would assign him another, and he could deduct his expenses in visiting "his" payphone. Mr. Cook invested over $120,000 in ETS payphones. Mr. Mehl served as the sales agent. He was not told of the three management options or that a separate company would lease the phones. At some point, Mr. Cook met Mr. Edwards at a seminar and was impressed with Mr. Edwards down-to-earth quality. Mr. Edwards even mentioned how they had returned the money of one purchaser who had suffered some financial problems. When Mr. Cook first encountered interrupted payments, he trusted Mr. Mehl's assurances that Mr. Cook would get his payments. Mr. Cook lost nearly all of his investment. Naomi Schounard is a retired teacher without much investment experience. She first met Mr. Mehl when he served as her Sunday school teacher. Three years prior to her ETS investment, Ms. Schounard visited Mr. Mehl at his office and received good advice on stocks. When Ms. Schounard heard about the ETS payphones, she asked Mr. Mehl if they were not securities. He responded that problems with the state concerning the ETS program had been taken care of. He told her that the ETS payphones carried only a "little bit" of risk and that she would get her money back in five years. Ms. Schounard kept wondering about the impact of cell phones and why all the payphones she saw were rundown. Mr. Mehl replied that one-third of all persons did not have a phone. He assured her that Mr. Edwards was a good friend and a "fine Christian gentleman," on whom she could depend. Mr. Mehl added, "I wouldn't think of offering to sell something to those wonderful people at the church that I knew wasn't a good investment." Eventually, Ms. Schounard invested $38,000 in ETS payphones with Mr. Mehl as the sales agent. No one told her about the three management options. She lost her entire investment except for six monthly checks that she received from January through June 2000. As late as July 2000, Mr. Mehl tried to sell Ms. Schounard more ETS payphones. Ms. Schounard also invested in MP3 notes. Commenting on how hesitant she had been in making the ETS investment, Mr. Mehl told Ms. Schounard that he had another investment that is guaranteed by an offshore insurance company also licensed in California. Mr. Mehl asked her if she had anything to cash in to buy these notes. Ms. Schounard replied that she had a single premium life insurance policy. Mr. Mehl told her that that was a bad investment, so she cashed in two of three or four policies. She and her husband invested a total of $116,350, including $25,000 from the cashed-in life policies and the rest from their individual retirement accounts. Mr. Mehl was the sales agent on this investment, and Mr. and Ms. Schounard lost every penny of the money they spent on MP3 notes. Ms. Mehl did not participate in Ms. Schounard's transactions. However, Ms. Schounard heard Ms. Mehl assure an elderly woman in the office lobby about her ETS payphone investment, "Don't worry. Everything will be great. Wait until you get your first check." Mary Louise Smick is a retired customer service representative for a utility company. She has no investment experience. Ms. Smick first met Mr. Mehl in late 1998 through her income-tax preparer, who had advised Ms. Smick that she was paying too much income tax. When she met Mr. Mehl, he told her that he had researched ETS for two years before presenting it to clients. Ms. Smick invested $110,600 in ETS payphones with Mr. Mehl as the sales agent through purchases of $7000 in May 1999, $77,000 in August 1999, and $26,600 in March 2000. Mr. Mehl assured her that the investment had no risk and was liquid. No one told Ms. Smick about the management options. She lost her total investment except for payments of $11,414. Ms. Mehl did not take part in any transaction with Ms. Smick. Ms. Smick also invested $86,000 in Eagle and MP3. Her Eagle investment appears to have been a single transaction. Again, Mr. Mehl assured her that he had researched Eagle for two years and she could not lose money in Eagle membership interests. Mr. Mehl told Ms. Smick that the MP3 notes were ideal for her desire for short term return on $20,000 that she wanted to invest; he guaranteed her that she would have her money back plus interest in nine months. Ms. Smick lost her entire investment. She has since been forced to sell her apartment. Arthur Hayes is retired from Allstate Insurance Company and has no previous investment experience, except for rolling over a profit-sharing account and retirement pay into an AG Edwards account. Mr. Hayes first met Mr. Mehl two years ago after seeing an advertisement for a trust for $365. Mr. Hayes visited Mr. Mehl's son, Shawn, who suggested that Mr. Hayes speak with Mr. Mehl. When he visited Mr. Mehl, Mr. Hayes learned from Mr. Mehl that ETS payphones were paying 14 percent annually. Mr. Mehl told Mr. Hayes that Mr. Mehl had $500,000 in ETS payphones, and the investment was very safe and secure. Mr. Hayes knew that one of his neighbors had been collecting for 12-18 months on an ETS payphone purchase through Mr. Mehl. With Mr. Mehl as the sales agent, Mr. Hayes invested $280,000 in ETS payphones in early June 2000. Mr. Hayes had no dealings with Ms. Mehl. No one discussed the three management options. Mr. Hayes lost his entire investment. At Mr. Mehl's suggestion, Mr. Hayes purchased $328,000 in MP3 notes. Mr. Mehl assured him that the notes were bonded and he would receive nine percent, if he wanted monthly payments, or 10 percent, if he would accept a single payment at the end of a year. Mr. Mehl did not reveal that the surety, if any, was offshore. Mr. Haynes lost his entire investment, as to which Mr. Mehl was the sales agent. George Kitchen is a retired ophthalmic lens designer. His investment experience is limited to mutual funds, such as those offered by Fidelity Investment. Mr. Kitchen first met Mr. Mehl in 1998 when Mr. Kitchen attended a seminar for which he had seen an advertisement in the newspaper. The subject of the seminar was investing and trusts. Mr. Mehl later recommended to Mr. Kitchen the ETS payphones. Mr. Mehl assured him that the investment was liquid, risk-free, and interest-bearing. With Mr. Mehl as the sales agent, Mr. Kitchen and his wife invested a total of $233,000. Although he recalls that Ms. Mehl had him sign some papers, Mr. Kitchen cannot recall whether the papers were connected to the ETS purchase. Mr. Mehl explained the three management options. Mr. Kitchen and his wife lost their entire investment. In what appears to have been a single transaction, Mr. Kitchen also invested in Eagle through Mr. Mehl as the sales agent. Mr. Mehl described the investment as an opportunity to earn 24 percent interest annually. Mr. Kitchen invested $100,000 in Eagle membership interests, but hopes to receive 86 percent of this investment back through the efforts of Pennsylvania officials. With Mr. Mehl as the sales agent, Mr. Kitchen also invested $30,000 in MP3 notes. Mr. Mehl told Mr. Kitchen that these notes would pay nine percent annually and were ironclad because they were insured. Lengi Dominissini is a retired plasterer without investment experience. He first met Mr. Mehl at a seminar to protect money from a nursing home. During the seminar, Mr. Dominissini made an appointment to meet Mr. Mehl at his office. Mr. Mehl and Ms. Mehl described the ETS payphone program to Mr. Dominissini during several office visits. Mr. Mehl assured Mr. Dominissini that the investment was "rock solid." On the last visit, when Mr. Dominissini purchased $56,000 of ETS payphones, his wife walked out of the office in disgust. To make the purchase, Mr. Dominissini paid a $17,000 penalty on an early withdrawal, based on Mr. Mehl's advice that his five percent annual return was insufficient. With Mr. Mehl as the sales agent, Mr. Dominissini received three monthly checks before losing the remainder of his investment. Mr. Mehl also served as the sales agent when Mr. Dominissini purchased $86,000 in MP3 notes. Mr. Mehl assured Mr. Dominissini that this investment was safe. Mr. Dominissini lost his entire investment in MP3 notes. Martha Fritz is a housewife with no investment experience. She first met Mr. Mehl in 1997 when she saw one of his advertisements as a financial advisor. She attended one of Mr. Mehl's financial seminars. She later went to his office for financial advice and to obtain a living trust. As the sales agent, Mr. Mehl sold Ms. Fritz $72,000 in ETS payphones. She based her investment decision on her trust of Mr. Mehl and his assurance that he had invested in the ETS payphones for a couple of years. Mr. Mehl mentioned the three management options. Ms. Fritz lost her entire investment. Raymond Joseph Sweeney is a retired manager of New York Telephone, who had invested previously only in his company's stock. Mr. Sweeney met Mr. Mehl two and one-half years ago through word-of-mouth. He sought Mr. Mehl's advice for the investment of retirement funds at a return that would better current returns in the stock market. Mr. Mehl suggested ETS payphones, assuring Mr. Sweeney that he would receive 14 percent annually, risk-free, and ETS would collect the coins from his payphones. With Mr. Mehl as the sales agent, Mr. Sweeney invested $114,000 and lost all of it except for $41,000. Again with Mr. Mehl as the sales agent, Mr. Sweeney and his wife, each using his or her individual retirement account and both using a joint account, purchased $103,203.38 in Eagle membership interests. Mr. Mehl told Mr. Sweeney that he could get 24-25 percent annual interest. Instead, Mr. and Ms. Sweeney lost their entire investment in these three Eagle transactions. An employee of Petitioner posing as a potential investor spoke with Ms. Mehl about ETS payphones. She told him that the ETS payphone purchases could be determined to be securities, but they were not. She said that ideal locations would be in places like the South Bronx, where residents could not afford home telephones. She told the employee that he needed to make an appointment for a one to one and one-half hour presentation on the ETS program, and she mailed him ETS payphone offering materials. Mr. Mehl's 181 sales of ETS payphones constituted 181 sales of unregistered securities and 181 sales of securities by an unregistered associated person or dealer. The ETS payphone sales by NCMI with simultaneous leases from the purchasers to ETS constitute investment contracts because the payphone purchasers are investing money in a common enterprise induced by the expectation of profit solely from the efforts of other persons. As for the common enterprise, the ETS payphone program bears all the indicia of a Ponzi scheme, in which early investors are paid not with earned income, but with the investments made by later investors, often acting in reliance upon the positive returns experienced by the early investors. By definition, such a scheme requires the pooling of investors' funds, despite any contrary indications in the offering materials. Even if not a Ponzi scheme, the ETS payphone program constitutes a common enterprise because the economic return of the investors in based on the managerial efforts of the promoters. Each payphone purchaser chose the lease option from among the three management options or one of the Respondents chose the lease option for the payphone purchaser. Regardless of the documentation, when the ETS payphone program went down, all purchasers went down at the same time. Nor does the ETS payphone lease leave purchasers with significant control over "their" payphones. The lease provides that ETS has the "right and sole authority" to move payphones to a new location if the original location proves unprofitable or subject to vandalism. The lease adds that the payphones remain under the "sole and absolute control" of ETS with the lessor having only a right to inspect the payphones. The present record does not support the characterization of the sale-and-lease transactions as a financing arrangement. No evidence suggests that ETS relied on the investments of ETS payphone purchasers in order to conduct normal business. Instead, the record, including the offering materials, is replete with evidence that the motivating force for these purchases was the payphone purchasers' search for superior, safe returns on their investments. The record amply demonstrates that the role of ETS was to provide managerial expertise to assist the purchasers in realizing their investment objectives, and the role of the purchasers was not to provide financing for ETS to expand its payphone business. Thus, the sale-and-lease transaction was an investment contract, not a financing arrangement. Mr. Mehl's six sales of Eagle membership interests constituted six sales of unregistered securities and six sales of securities by an unregistered associated person. The Eagle membership interests constitute investment contracts because the purchasers are investing money in a common enterprise induced by the expectation of profit solely from the efforts of other persons. Unlike the situation with the ETS payphone purchases, in which the focus is on the common enterprise, the focus in the Eagle membership interests is on whether the purchasers are relying solely on the efforts of other persons. In the Eagle operating agreement, the Manager exerts the efforts, in buying accounts receivable, on which the Members rely for their profits. Although it is true that Members may override decisions of the Manager and replace the Manager, these rights are illusory as a practical matter. The purchasers in this case, for instance, had no clear idea what they were buying. They sensed vaguely (and incorrectly) that they held some form of debt, not equity. The Eagle purchasers had no idea that the form of their purchase was not a promissory note, but a membership interest in a form of entity that did not even exist in Florida 25 years ago. It follows that the Eagle purchasers had no idea that they had any rights in the management of Eagle and no idea how to exercise such rights. In sum, the Eagle purchasers had no effective rights in the management of Eagle, but relied completely on the Manager to provide a return on their investment, and, when he failed to do so, the Eagle purchasers in this case had no idea what to do but to wait for Pennsylvania to try to return a portion of their investments. Mr. Mehl's 52 sales of MP3 notes constituted 52 sales of unregistered securities and 52 sales of securities by an unregistered associated person. The MP3 notes constitute a security because they are option contracts that are convertible to equity at a fixed price within a specified period of time. The notes also constitute a security because they are investment contracts. Ms. Mehl participated substantially in the sale of ETS payphones to an unnamed elderly woman and Mr. Dominissini and participated substantially in the offer to sell ETS payphones to one of Petitioner's employees. These sales and offer to sell constitute three sales or offers to sell an unregistered security and three sales or offers to sell a security by an unregistered associated person. Additionally, Petitioner proved that Ms. Mehl was the sales agent on 285 purchases involving ETS payphones. Petitioner established this sales activity by the 285 COCOT [Coin-Operated, Customer-Owned Telephones] Purchase Agreements signed by Ms. Mehl (Petitioner Exhibit 12) and other evidence in the record.
Recommendation It is RECOMMENDED that the Department of Banking and Finance enter a final order directing Respondents to cease and desist from further violations of Sections 517.07(1) and 517.12(1), Florida Statutes; imposing an administrative fine of $2,390,000 against Mr. Mehl; and imposing an administrative fine of $2,880,000 against Ms. Mehl. DONE AND ENTERED this 16th day of July, 2002, in Tallahassee, Leon County, Florida. ROBERT E. MEALE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 16th day of July, 2002.
The Issue Whether Respondent violated Section 463.014, Florida Statutes, by violating Rule 64B13-3.008(15)(a), Florida Administrative Code; violated Section 463.014, Florida Statutes, by violating Rule 64B13-3.008(15)(f), Florida Administrative Code; violated Section 463.016(1)(h), Florida Statutes, by violating Rule 64B13-3.009(2)(b), Florida Administrative Code; and violated Section 463.016(1)(f), Florida Statutes, and if so, what penalty should be imposed.
Findings Of Fact At all times material, Respondent was licensed to practice optometry by the State of Florida, Board of Optometry. On or about April 19, 1998, Respondent entered into a lease agreement captioned "Equipment License," with U.S. Visions, Corp., to lease space and equipment as an optometric office in the J. C. Penney retail store on Mary Esther Avenue, Mary Esther, Florida. This location also constitutes the Santa Rosa Mall. Respondent paid $100.00 monthly rent for this office space. At all times material, Respondent also maintained a separate office for the practice of optometry under the name "Coastal Vision Center" in rental space in Destin, Florida. Respondent paid $2,900.00 monthly rent for the Destin office space. Respondent practiced in both locations during 1998. Respondent practiced under a professional corporation, named Shannon Fowler, O.D., P.A. Respondent's office space at the J.C. Penney location was inside the J.C. Penney retail store. Adjacent to Respondent's office space was the "J.C. Penney Optical Center," in which an optometrist practiced, and in which eyeglasses, contact lenses, and other optical merchandise could be purchased. Respondent personally placed a sign at the entrance to his office space at the J.C. Penney location identifying himself by name, stating that an independent practice of optometry was located there, and stating that he was not affiliated with the J.C. Penney retail store. During the time he practiced at the leased office space located in the J.C. Penney store, Respondent maintained telephones listed in his name at both his office locations. The telephone number for his office in J.C. Penney was different than the telephone number for his Destin office. Only Respondent, himself, answered Respondent's telephone at the J.C. Penney location. This telephone and telephone number were separate and had a different telephone number from the telephones for the J.C. Penney Optical Center. The receptionist at the J.C. Penney Optical Center occasionally made appointments with Respondent for persons who walked into the J. C. Penney Optical Center or who telephoned the J. C. Penney Optical Center telephone, but all such appointments were subject to confirmation by Respondent. There was no formal arrangement or agreement for the J. C. Penney Optical Center receptionist to make appointments over the Optical Center telephone for Respondent, and Respondent did not pay the receptionist. However, Petitioner benefited if the appointments she made were confirmed by him and actually kept by the patient. All of Respondent's patients at either location were advised that Respondent maintained an office in Destin, and all of his patients were advised to call a third telephone number, Respondent's cell phone number, for after-hours or emergency matters. All after-hours matters were handled at the Destin office by Respondent. However, patient files for patients that Respondent saw solely at the J.C. Penney location were stored by Respondent at that location. Respondent had no after-hours access to the J.C. Penney store. If there were an emergency, Respondent would have to obtain the patient's file the following day. At both office locations, Respondent, alone, determined which patients to see, what examinations and procedures to conduct, what optometry services to render, and what fees to charge any patients for his services. The lease agreement for Respondent's office space at J.C. Penney contained provisions precluding U.S. Visions Corp. from interfering with, or regulating, Respondent's independent practice of optometry in the office space he had leased. The lease agreement also contained a provision by which U.S. Vision Corp. covenanted not to violate Florida law. Respondent's lease with U.S. Visions Corp. prohibited his selling "frames, contacts, and related items" at the J.C. Penney location. Respondent did maintain inventory, employ an optometrist, and sell eyeglasses, lenses and frames at the Destin location. Respondent worked out of the J.C. Penney location three half-days per week on Mondays, Tuesdays, and Wednesdays. When requested by the patient, Respondent accepted the J.C. Penney credit card as payment for optometric services rendered at that location. When such card was used by a patient to pay for Respondent's services, J.C. Penney processed the payment and billed the patient directly. J.C. Penney rendered accounting and payment in full to Respondent for services charged on the credit cards on a bi-monthly basis. There is no evidence as to whether payment to Respondent was, or was not, affected by a delinquent payment by a patient to J.C. Penney. Respondent also accepted payment for his services rendered to patients at either location by check, cash, and Visa, Mastercard, and American Express credit cards. The patient elected which manner of payment to tender. Respondent's business records indicate that all of these forms of payment were utilized by patients at both locations. J.C. Penney charged a two-percent (2%) processing fee for the collection and accounting of services charged by patients on their J.C. Penney credit card. This fee, and the manner in which J.C. Penney processed the payments charged to the J. C. Penney credit card, are comparable to, and do not materially differ from, the typical arrangements between small business merchants and issuers of the other major credit cards which Respondent accepted. Unrefuted testimony of a certified public accountant employed by Respondent was to the effect that the financial records of Respondent's two optometry offices for 1998 show no indication that J.C. Penney exercised any influence or control over Respondent's independent practice of optometry or billing practices, and in fact, indicate that J.C. Penney did not. There is no evidence that the Respondent ever used prescription forms or any other forms referring to J.C. Penney at either of his office locations. On July 12, 1998, an advertisement appeared in the Sunday supplement to the "Northwest Florida Daily News" under the heading "J.C. Penney Optical Center," advertising a "FREE eye exam & 50% off frames." In very small print, the advertisement said, "we'll pay for your eye exam for eyeglasses by deducting up to $40 from your prescription eyeglass purchase." The advertisement specified "Santa Rosa Mall." The J.C. Penney Optical Center is not a licensed optometrist. A corporation can never hold an optometrist license. Only an individual can be licensed as an optometrist in Florida. The record is silent as to who or what entity placed the advertisement. Respondent was not named in the advertisement. Respondent did not place the advertisement. There is no evidence that Respondent had any involvement in the text or publication of the advertisement. Respondent did not have any prior knowledge that the advertisement was going to be published. U.S. Visions Corp. had never published any advertisement prior to July 1998, and Respondent did not foresee that the subject advertisement would be published. Respondent had no opportunity or means to prevent the publication of the advertisement. Respondent did not approve of, or consent to, the publication or content of the advertisement. Respondent had no opportunity to review the advertisement prior to publication. The lease for the J.C. Penney office location did not provide for U.S. Vision Corp. to do any advertising for Respondent. Respondent had no arrangements for advertising with either U.S. Vision Corp. or J.C. Penney. Respondent did not contemporaneously see the advertisement. He learned about it only through service of notice of the Department of Health's investigation into the advertisement, which ultimately resulted in this case. No patient or potential patient ever brought the advertisement or the coupon in the advertisement to Respondent or ever requested that the Respondent provide optometry services in accordance with the advertisement or the coupon. Respondent did not provide any optometry services in accordance with the advertisement or coupon, and would not have done so if requested. Respondent received no benefit from the advertisement. Respondent provided no "FREE" eye exams. The Respondent charged $49 per eye exam. The agency's expert witness, a licensed optometrist and former member of the Board of Optometry, testified that he believed that, on its face, the advertisement implied an association or affiliation between Respondent and J.C. Penney; that an optometrist practicing at J.C. Penney could be expected to benefit from the advertisement because of the content of the advertisement; that the advertisement was misleading because a person reading it would expect an eye exam to be "FREE"; and that when there is a lessor-lessee relationship of the type presented in this case, the Respondent optometrist has a responsibility to ensure that advertisements conform to the optometry statute and rules. The same expert witness testified that Chapter 463, Florida Statutes, does not prohibit optometrists from commercial establishments.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED: That the Board of Optometry enter a final order dismissing Counts II, III, and IV, finding Respondent guilty of Count I of the Second Amended Administrative Complaint, and issuing a reprimand. DONE AND ENTERED this 2nd day of March, 2001, in Tallahassee, Leon County, Florida. ELLA JANE P. DAVIS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 2nd day of March, 2001.
Findings Of Fact Petitioner is an applicant for licensure as an optometrist in the State of Florida. He received a Bachelor's Degree in Biology from Youngstown State University in 1985. In 1989, Dr. Martuccio graduated from the Ohio State University College of Optometry where he had followed a four-year course of study prior to receiving his optometry degree. Dr. Martuccio has been practicing optometry in Ohio since 1989. When Dr. Martuccio took the 1989 optometry examination for licensure in Florida, he received a passing grade on the written portion of the examination but not on the clinical portion. That passing grade on the written examination remained valid when he took the 1990 optometry exam. Therefore, in 1990 Dr. Martuccio only had to repeat the clinical part of the examination. Dr. Martuccio received lower than a passing grade on that clinical examination. For the clinical examination, an applicant is required to bring his or her own "patient." The clinical examination is conducted by having a candidate perform procedures requested by the examiners on the "patient." The clinical portion of the optometry examination is divided into two sections. On Section 1 an applicant can receive a possible score of 48 points. Dr. Martuccio received a perfect score of 48 points on that Section. The total passing grade for Section 1 and Section 2 is 80 points. Therefore, Dr. Martuccio needed to receive a total of 32 points out of a possible 52 points on Section 2. However, the grades given to Dr. Martuccio on Section 2 totaled only 27.5. His total score for the clinical portion of the 1990 optometry exam was, therefore, 75.5. Section 2 of the clinical examination is divided into 16 different procedures. Each of the 16 procedures has a maximum score that varies depending on the weight given to the procedure. The grading is done by two examiners who are practicing optometrists. If both examiners agree, the candidate either receives no credit or full credit depending on whether they considered him to have properly performed the procedure requested. If they disagree, the candidate is given one-half of the possible points on that procedure. Dr. Martuccio has challenged the scores he received on four of the procedures in Section 2 of the September, 1990, clinical exam. Those four procedures, in the order in which they were performed, are: BIO 2 (Binocular Indirect Opthalmoscope), Anterior Biomicro 4 (Anterior Biomicroscopy), Anterior Biomicro 9 (Anterior Biomicroscopy), and Gonio 15 (Gonioscopy). In Binocular Indirect Opthalmoscope 2 Dr. Martuccio was required to show a clear view of the fundus (back of the eye). The back of the eye is visible through the dilated eye by means of a binocular headpiece worn by the candidate and a hand-held lens, which are focused together. This procedure is very simple to perform. It is a procedure which he has been doing since "day one in optometry school," and which Petitioner performs daily in his private practice. One of the graders who evaluated Dr. Martuccio's performance on BIO 2 indicated that he performed the procedure properly, but the other grader indicated that his demonstration was "out of focus". Dr. Martuccio's sight is perfect in both eyes, and he is capable of detecting whether an image is out of focus. Since the "patient" did not move during the examination process, then one of the graders made a mistake in his evaluation. Dr. Martuccio correctly performed BIO 2, and he should receive 2.5 additional points for that procedure. The next procedure in dispute is Anterior Biomicroscopy 4, which was worth a total of four points. The two graders disagreed as to whether Dr. Martuccio properly performed the procedure, and he, therefore, received only two points. This procedure required him to display the corneal endothelium. To do that, Dr. Martuccio used a slit lamp which is an instrument that projects a beam of light into the patient's eye. One grader gave Dr. Martuccio full credit for this procedure. The other gave no credit, commenting that Dr. Martuccio used an optic section rather than a parallelpiped. There is an elementary and fundamental difference between a parallelpiped and an optic section of light projected from a slit lamp. The slit lamp has a separate adjustment that determines the width of this beam of light. Since Dr. Martuccio did not change the width of the beam of light after he began the procedure, that width did not change between the time the first examiner and the second examiner evaluated his work. One of the examiners was mistaken in grading Dr. Martuccio's performance, and Dr. Martuccio was scored incorrectly on this procedure. For Anterior Biomicroscopy 9, Dr. Martuccio was instructed to focus on the anterior vitreous, part of the gel-like substance in the middle of the eye. In some patients vitreous strands are present and may be visible during the examination. However, in healthy patients vitreous strands are not present and the anterior vitreous is extremely clear. In those situations, the beam of light from the slit lamp will have nothing from which to reflect. Dr. Martuccio utilized the standard method of examining the anterior vitreous by focusing the instrument on the back of the lens, which is immediately adjacent to the beginning of the anterior vitreous. The focus is then projected inward, into the eye, which will automatically set the focus within the anterior vitreous. Dr. Martuccio's patient had no vitreous strands, protein particles, or other objects in his anterior vitreous. Thus, there was an absence of particles which would reflect light back to the observer from the subject. The examiner who gave Dr. Martuccio no points for this procedure noted, as his explanation, that vitreous strands were not visible. However, as explained by Dr. Martuccio and corroborated by the Department's expert witness, that was an inappropriate comment if the patient had no vitreous strands. Since the examiner's comments were inappropriate, indicating he used an erroneous criterion, Dr. Martuccio was given an incorrect score on this procedure. Instead of two points, he should have received the full four points. The last procedure in issue is Gonio 15. This was worth a total of four points for which Dr. Martuccio received only two. This process requires a gonioscope to be placed on the patient's eye, in much the same fashion as a contact lens is placed on the eye. Once the gonioscope is placed, a mirror inside this instrument allows the optometrist to examine structures of the eye at a sideways angle and see portions of the eye which are not visible by looking straight into the eye. Dr. Martuccio installed the gonioscope properly and adjusted it so that the structures in question were clearly visible. He received full credit from one of the examiners but no credit from the other examiner whose comment was that the structures were "out of focus". It is unreasonable to believe that Dr. Martuccio did not keep the structures of the eye in question in focus during this examination. He was able to perform all of the procedures easily, without any delays, and had no problem doing all the procedures in the allotted time, which was relatively brief. Dr. Martuccio's "patient" was an ideal subject who did not move in any fashion so as to cause the focus to change for any of these procedures. Further, Dr. Martuccio is knowledgeable about structures of the eye and the use of all of the instruments involved in this case. He has had extensive training and experience in these areas not only through his formal education in optometry, but also due to the fact that Dr. Martuccio has been in private practice for over two years, using these instruments on a daily basis. Considering that Dr. Martuccio has perfect vision in both eyes, it is difficult to conceive that he could not keep his instruments in focus for the few seconds it took for both examiners to review his work. The Department's expert witness, Dr. Chrycy, characterized the procedures that are called for in Section 2 of the clinical examination as being fundamental and relatively simple. Candidates who cannot perform these functions are clearly unqualified to be an optometrist. Dr. Chrycy expects all graduates of optometric school to be able to keep images in focus. Dr. Martuccio has been licensed in the State of Ohio for over two years and has recently been licensed in the state of Pennsylvania. He passed the National Board examination which is recognized in at least 10 states for licensure. Both the National Board and the Ohio licensure examinations have clinical components similar to Florida's. Dr. Martuccio passed both of those clinical examinations on his first attempt. When considered in light of Dr. Chrycy's characterization that the examination tests fundamental, basic ability and is not difficult, one cannot accept the proposition that Dr. Martuccio was fairly graded in this examination process. The general passing rates that candidates taking the Florida optometry exam have experienced since 1986 are quite low. In 1987, only 51% of those taking the clinical portion of the examination passed; in 1988, 59%; in 1989, 57%, and in 1990, 53%. The overall pass rate for the entire exam is even lower: in 1987, only 30%; in 1988, only 42%; in 1989, only 45%, and in 1990, only 34%. If taken literally, these scores mean that the typical applicant for licensure as an optometrist in Florida is incompetent at using the basic, everyday instruments employed by optometrists and by optometric technicians and is incapable of identifying the different parts of the eye. Such a conclusion is without credibility.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is recommended that a Final Order be entered awarding to Petitioner 8.5 additional points on the clinical portion and finding that Petitioner achieved a passing score on the September, 1990, optometry examination. RECOMMENDED this 13th day of November, 1991, 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 13th day of November, 1991. APPENDIX TO RECOMMENDED ORDER, CASE NO. 91-2354 Respondent's proposed findings of fact numbered 1-3 have been adopted in substance in this Recommended Order. Respondent's proposed findings of fact numbered 4 and 6 have been rejected as being subordinate to the issues under consideration in this cause. Respondent's proposed findings of fact numbered 5 and 7 have been rejected as being irrelevant to the issues under determination herein. Respondent's proposed finding of fact numbered 8 has been rejected as not constituting a finding of fact but rather as constituting argument of counsel. COPIES FURNISHED: Diane Orcutt, Executive Director Department of Professional Regulation/Board of Optometry 1940 North Monroe Street Tallahassee, Florida 32399-0792 Jack McRay, General Counsel Department of Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-0792 Kenneth G. Oertel, Esquire Oertel, Hoffman, Fernandez & Cole, P.A. 2700 Blair Stone Road, Suite C Tallahassee, Florida 32301 Vytas J. Urba, Esquire Assistant General Counsel Department of Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-0792
The Issue The issue is whether Respondent is guilty of a failure to discharge adequately his compliance and supervisory responsibilities, in connection with the churning of a securities account by an account representative, and, if so, what penalty should be imposed.
Findings Of Fact In February 1999, Petitioner conducted a three-day onsite examination of the activities of Allen Douglas Securities, Inc. (Allen Douglas Securities), which is a full- service brokerage firm, following the receipt of a complaint from a customer, Joseph Nellis. The examination covered, among other things, trading in Mr. Nellis’s account from May to November 1998, which is the relevant period in this case. Based on the findings of the examination, Petitioner filed an administrative complaint dated September 17, 1999, against Allen Douglas Securities; the registered representative responsible for Mr. Nellis’s account, James Singer; the president of Allen Douglas Securities, Stephen Pizzuti (Mr. Pizzuti); the vice-president of Allen Douglas Securities and brother of Mr. Pizzuti, Richard Pizzuti; and Respondent. The administrative complaint alleged that Mr. Singer churned the Nellis account and assigned responsibility for Mr. Singer’s wrongful acts to the Pizzutis and Respondent, as General Securities Principals and Mr. Singer’s supervisors, and to Respondent, as the compliance officer of Allen Douglas Securities. Mr. Singer did not defend the allegations. By Stipulation and Consent Agreement between Petitioner, on the one hand, and Allen Douglas Securities and the Pizzutis, on the other hand, the company and the Pizzutis agreed to comply with the applicable securities laws, Allen Douglas Securities paid Petitioner $10,000 in administrative costs, the three respondents agreed to develop written supervisory procedures, the three respondents agreed to pay Petitioner for the cost of the examination, the three respondents agreed not to register Respondent in any capacity with Allen Douglas Securities, Allen Douglas Securities agreed to employ an onsite compliance officer at the Altamonte Springs office, Allen Douglas Securities agreed to copy Petitioner for one year with customer complaints, Allen Douglas Securities agreed to maintain its customer files in separate folders, and Petitioner agreed to register new Allen Douglas Securities branch offices in Tampa and Sarasota. The three respondents signed the Stipulation and Consent Agreement on November 24, 1999, and Petitioner signed it on November 29, 1999. Reportedly, due to subsequent miscommunications, the administrative law judge dismissed the case then pending before the Division of Administrative Hearings, even though the issues involving Respondent had not been resolved. Petitioner later filed the Administrative Complaint commencing this case. In this case, Petitioner again seeks to discipline Respondent for his alleged failure to discharge adequately his compliance and supervision duties at Allen Douglas Securities, of which Respondent was never an officer, director, shareholder, or employee. Respondent has held a National Association of Securities Dealers (NASD) series 7 license (General Securities Representative) since 1976, a series 24 license (General Securities Principal) since 1980, a series 4 license (Registered Options Principal) since 1983, and a series 8 license (General Securities Sales Supervisor) since 1989. Except for two two- year periods, Respondent has been continuously employed in the securities industry since January 1980. From October 1995 through October 1997, Respondent was registered with an NASD brokerage firm based in Sarasota, Florida, known as Executive Securities, Inc. (later known as Executive Wealth Management; all references to Executive Securities are to Executive Securities, Inc. and Executive Wealth Management). In 1995, while providing compliance services to Executive Securities branch offices, Respondent met Mr. Pizzuti, who was the manager of the Executive Securities branch located in Altamonte Springs, Florida. Although not as experienced as Respondent in the retail securities industry, Mr. Pizzuti has had substantial experience in this business. After acquiring his series 24 license in 1987, Mr. Pizzuti has managed eight separate offices and hundreds of brokers. Respondent and Mr. Pizzuti dispute whether Respondent ever provided compliance services to Mr. Pizzuti’s branch of Executive Securities. Respondent testified that he did not, and Mr. Pizzuti testified that he did. They also dispute whether Mr. Pizzuti operated a branch office or a franchise of Executive Securities. Respondent testified that it was a branch office, and Mr. Pizzuti testified that it was a franchise. Most importantly, Respondent and Mr. Pizzuti dispute the extent to which Respondent was responsible for compliance and supervision at Allen Douglas Securities. Respondent testified that, during the relevant period, he was responsible for compliance and supervision in options trading only. Respondent testified that he sporadically provided other compliance services, on a very limited basis, when he answered questions asked of him by Mr. Pizzuti or his brother or sometimes questions asked of him by brokers who had received a customer complaint. Explaining that he happened to have been visiting the office at the time, Respondent testified that his compliance involvement intensified when Mr. Pizzuti received a letter from Mr. Nellis dated November 6, 1998, in which Mr. Nellis expressed dissatisfaction in the handling of his account and directed that all trading terminate, except to the extent necessary to cover margin calls. Respondent acknowledged that he assumed greater compliance responsibilities at the very end of the relevant period, largely to deal with Petitioner and Mr. Nellis, but that he did so as an accommodation to Mr. Pizzuti. Mr. Pizzuti testified that his brother reported to him and Respondent on all compliance matters during the relevant period. Mr. Pizzuti testified that Respondent had served as the compliance officer in all matters for Allen Douglas Securities from prior to 1998 through the relevant period. As to non- options matters, Mr. Pizzuti testified that he relied on Respondent for “macro compliance,” but not “day to day compliance.” As to supervision during the relevant period, Mr. Pizzuti testified that Respondent had input into the implementation of supervision practices and procedures to a greater extent than he had input into the design of these practices and procedures. The relationship between Respondent and Mr. Pizzuti has become strained over time. Initially closing ranks when confronted with Mr. Nellis’s complaint and Petitioner’s investigation, Respondent and Mr. Pizzuti contended that Mr. Nellis was a day trader and responsible for the losses that followed from his excessive trading. The Pizzuti brothers escaped personal discipline for an obvious failure in supervision, if not also compliance, presumably by blaming Respondent, as one of the conditions of their stipulation with Petitioner is that they not register Respondent in any capacity. Respondent now blames the Pizzutis for the failure in supervision, if not also compliance. This deterioration in relations is important in assessing certain of the evidence at various stages of the relationship between Respondent and the Pizzutis. Respondent probably provided compliance services to Mr. Pizzuti’s branch of Executive Securities. Mr. Pizzuti kept a copy of a memorandum dated March 6, 1996, and issued by Respondent, as “Compliance Officer” of “Executive Securities, Inc.” Although the recipients are merely “All Registered Representatives,” the retention of a copy of this memorandum by Mr. Pizzuti at his branch office suggests that the account representatives at this branch were the recipients of the memorandum. Announcing a “Mandatory Compliance Meeting,” the memorandum explicitly illustrates the nature of Respondent’s compliance responsibilities, in describing the topics to be discussed, and implicitly illustrates the nature of Respondent’s supervisory authority, in warning of specific consequences-- implicitly to be imposed by Respondent--for tardiness or absence. The memorandum states in its entirety: Please arrange your schedules to accommodate a mandatory compliance meeting on Friday, March 8, 1996, at 8:30 AM. No exceptions will be permitted. Please be prompt. Anyone arriving later than 5 minutes following the starting time will be considered absent. Absent representatives will risk censure or imposition of fines. The session should be approximately 30 minutes long. Subjects covered include suitability, discretion, basis for recommendation, asset turnover, margin, quality control, customer service. Call me . . . with comments or questions. The memorandum reveals the nature of Respondent’s compliance responsibilities and supervisory authority at Executive Securities, and thus Respondent’s relevant experience and capabilities. The memorandum also illustrates the relationship between compliance responsibilities and supervisory authority that Respondent enjoyed with Executive Securities. Lacking hiring and firing authority at Allen Douglas Securities, Respondent testified that he was unwilling to assume wider ranging compliance responsibilities. Aside from these matters, though, the memorandum is of little direct value in the present case because Mr. Singer was never employed by Executive Securities. Mr. Singer was one of about 14 registered representatives employed by Allen Douglas Securities. His employment with Allen Douglas Securities ran from March 11, 1998, through November 18, 1998. Mr. Singer’s preceding employment was with Empire Financial Group, Inc., from November 20, 1996, through February 13, 1998, and Charles Schwab & Co., Inc., from November 4, 1991, through October 15, 1996. Mr. Singer was also registered with three other brokerage firms between July 22, 1988, through December 2, 1991. Choosing to end his association with Executive Securities, Mr. Pizzuti formed or acquired American Trading and Brokerage, which, through a name change, became Douglas Allen Financial Group, Inc. (DAFG). Mr. Pizzuti was the sole shareholder of DAFG. On March 28, 1996, probably shortly after the formation of the company, the board of directors unanimously consented to its reformulation to comprise Respondent, Mr. Pizzuti, and Richard Pizzuti, all of whom had series 24 licenses. At the same time, the board of directors caused DAFG to form a subsidiary corporation to be licensed as a brokerage firm. The new company, Allen Douglas Securities, was incorporated on September 26, 1996. DAFG was never registered with the NASD or Petitioner, presumably due to its status as a mere holding company that did not serve as a broker or dealer of securities. Also at the same time, the board of directors required DAFG to set aside 9750 shares of DAFG stock for Respondent. A written agreement, incorporated into the minutes, provides that Respondent earned these shares, pursuant to a five-year vesting schedule, by serving as the “Chief Operating Officer and Compliance Officer” of Allen Douglas Securities and supplying Allen Douglas Securities with “the exclusive right to his research and financial reports.” The vesting schedule was to “commence upon Mr. Kase’s assumption of duties” with “vested ownership [to] be recognized as follows: Completion of Year 1 Service--20 [percent;] Completion of Year 2 Service--40 [percent;] Completion of Year 3 Service--60 [percent;] Completion of Year 4 Service--80 [percent; and] Completion of Year 5 Service--100 [percent.] Despite the apparent “vesting” of ownership of varying percentages of the shares designated for transfer to Respondent, the schedule cautions: The award is not transferable without the Board of Director’s consent. Mr. Kase is entitled to enjoy the benefits associated with the beneficial ownership of the Corporation but is not permitted to transfer ownership or any rights to permanent ownership without the Board of Director’s consent. The Corporation holds the right to demand repudiation of all ownership rights in the event of failure to complete the service requirements. Prominent among the items not in dispute between Respondent and Mr. Pizzuti is that Respondent did not earn any DAFG shares and never owned any shares of DAFG at anytime. By letter dated June 15, 1999, Respondent “acknowledge[d] my inability to meet the service requirements for sustaining an ownership interest in the company . . ..” As a result, Respondent acknowledged that he was “not entitled to any further claim of ownership interest in the company and am obliged to forfeit any current and future claims based upon service rendered to the company.” Registered in Florida as a broker-dealer on December 6, 1996, Allen Douglas Securities initially operated out of the location formerly used by the Executive Securities branch office managed by Mr. Pizzuti. As president and secretary of Allen Douglas Securities, Mr. Pizzuti was in charge of the new company. Serving as the branch manager (of the sole office) and vice-president of Allen Douglas Securities from early 1997, Richard Pizzuti conferred with his brother, when necessary, for guidance as to, among other things, compliance matters with which Richard Pizzuti was unfamiliar. Respondent memorialized his research responsibilities, as he entered into one-year contracts for 1997 and 1998 to provide securities research. Through these contracts, Respondent, as an independent contractor, agreed to provide investment research in return for which he was to earn, subject to a cap, the greater of $4500 monthly or three percent of the gross sales of DAFG for the month. The first contract between Respondent and DAFG is dated January 1, 1997, and provides that DAFG shall transfer to Respondent 5000 shares of its stock, if Respondent grants DAFG an exclusive right to his research. However, the contract prohibits Respondent from transfering the stock, and the parties lined out a provision that would have eliminated this prohibition after one full year of exclusive service. The first contract provides for notices to Respondent to be sent to an address in Winter Park, Florida. A second contract, substantially similar to the first contract, is dated January 1, 1998, and provides for notices to Respondent to be sent to two addresses: the same one in Winter Park, Florida, and a new one in Park City, Utah. The most significant difference between the two contracts is the omission from the latter contract of the stock-ownership provisions described in the preceding paragraph. The two contracts are primarily useful for four purposes. First, the contracts show that, between January 1997 and January 1998, Respondent had at least begun the process of relocating his residence from Winter Park, Florida to Utah. Respondent testified credibly that he moved to Utah in January 1998, after which he only visited Florida from time to time. For 1998, Respondent visited Florida three or four times, usually for a combination of business and personal purposes. The business usually involved Allen Douglas Securities. The account applications signed by Respondent and introduced into evidence generally corroborate Respondent’s claim that he was not often in Florida between May and November 1998. For instance, Petitioner Exhibit 22 is an application for an options account that is signed by Respondent on July 18, 1998; however, the client, registered representative, and manager signed the application one month earlier. This delay most likely was due to the time it took to transmit the form to Respondent in Utah or the next visit that he made to Florida from Utah. Second, the contracts show that, from January 1997 and January 1998, Respondent was an independent contractor, not an employee, of Allen Douglas Securities. The recitations of the contracts concerning Respondent’s level of control regarding his work are entirely consistent with the record regarding how and even where Respondent performed his work. Third, the contracts show that, between January 1997 and January 1998, Respondent’s role with Allen Douglas Securities had diminished, at least with respect to the likelihood that he would obtain an equity interest in the company in return for research. Fourth, the contracts are inaccurate in one revealing respect. The contracts misidentify the company as DAFG, rather than Allen Douglas Securities. Allen Douglas Securities, as a broker-dealer, required Respondent’s services; DAFG, as a holding company, did not. This awkwardness of this transparent effort to distance Respondent from Allen Douglas Securities, and thus from securities liability, was betrayed by basing Respondent’s payments on the sales of DAFG. As a holding company, DAFG had no sales; Respondent was paid based on the sales of Allen Douglas Securities. For at least one of these years, Allen Douglas Securities actually issued Respondent the Form 1099 reporting the payments to the Internal Revenue Service. Respondent’s effort to characterize his relationship with DAFG, rather than Allen Douglas Securities, underscores his sophistication, at the expense of his candor, as he structured the relationship to serve his liability needs rather than to reflect business reality. The two contracts are incomplete in one important respect: they omit any discussion of Respondent’s compliance responsibilities. In 1998, most of Respondent’s income was derived from the services that he provided Allen Douglas Securities, in return for which he earned $52,500. This sum approximates the $54,000 that Respondent was due under the 1998 contract for his research. There were no separate payments for the compliance services, which assumed greater importance by the end of 1998. This omission from the contracts may not be another attempt by Respondent to shield himself from liability. Based on the record, it is more likely than not that Respondent’s compliance responsibilities were negligible, at least through early 1998, when the second contract was signed. From the inception of Allen Douglas Securities, Mr. Pizzuti consulted with Respondent over compliance issues with which Mr. Pizzuti was unfamiliar. However, nothing in the record suggests that Mr. Pizzuti needed to, or did, consult with Respondent over every compliance issue. Relying on his substantial experience in the retail securities industry, Mr. Pizzuti handled the many common compliance issues without soliciting the advice of Respondent. Analysis of Respondent’s precise responsibilities at Allen Douglas Securities requires careful consideration of two facts. First, compliance and supervision are largely distinct tasks. Compliance requires the development of policy, and supervision requires the execution of policy by ensuring that subordinates behave within certain acceptable parameters. Compliance and supervision overlap when a superior must determine if certain behavior of a subordinate constitutes a violation of policy. Thus, a superior’s determination of whether a registered representative’s trading activity is excessive for a particular account requires the collection of data concerning the trading activity and account holder, analysis of this data in light of prevailing standards for assessing excessive activity, and communicating to and enforcing upon the registered representative any determinations arising out of this analysis. This potentially complex process necessarily involves both compliance and supervision tasks. Second, Respondent’s compliance and supervision responsibilities were evolved over time. This case requires a determination of Respondent’s compliance and supervision responsibilities from May to November 1998. Evidence of Respondent’s responsibilities before and after the relevant period is useful in inferring the exact extent of these responsibilities during the relevant period. Contemporaneous documentation is helpful in identifying the allocation of compliance and supervision responsibilities at Allen Douglas Securities at various times. One valuable source of information is the Form BD, which is a Uniform Application for Broker-Dealer Registration. This is a form used by a broker-dealer for initial registration and amendments to registration. The first Form BD, which is dated December 4, 1996, represents the initial application of Allen Douglas Securities. Prepared by Mr. Pizzuti, as are all the Forms BD, the December 4, 1996, Form BD seeks registration with the Securities Exchange Commission and NASD. In response to a question asking for the names of each chief executive officer, chief financial officer, chief operations officer, chief legal officer, chief compliance officer, direction, any other person with similar functions, or shareholder, the December 4, 1996, Form BD identifies Mr. Pizzuti as president, Mark Thomes as chief financial officer, and DAFG as the sole shareholder. The record contains several Forms BD for 1997. Nearly all of these amendments sought to add different states to the registration of Allen Douglas Securities. However, two of the Forms BD in 1997 mention Respondent. By Form BD dated May 5, 1997, Allen Douglas Securities named Respondent, as of May 1997, as its senior registered options principal and compliance registered options principal, as well as municipal bond principal. This Form BD names Mr. Pizzuti as the person in charge of compliance. A Form BD dated November 5, 1997, assigns these responsibilities exactly as did the May 5, 1997, Form BD. A Form BD dated March 3, 1998, only changes a state registration. A Form BD dated May 11, 1998, changes a state registration, names a new clearing house, and names two new municipal bond principals, Mr. Thomes and another person whose name is illegible. A Form BD dated May 26, 1998, restates the previously supplied information concerning DAFG as the shareholder, Mr. Pizzuti as the president, Mr. Thomes as the chief financial officer and municipal bond principal, and Respondent as the registered options principal. A Form BD dated June 16, 1998, changes a state registration. The last available Form BD is dated September 25, 1998, and again restates the previously supplied information set forth in the first sentence of this paragraph. During this period, Respondent issued some documents reflecting his activities with Allen Douglas Securities. On December 29, 1997, on letterhead entitled, “Allen Douglas Compliance Memo,” Respondent provided advice to all registered representatives, with a copy to Mr. Pizzuti, concerning “Options Trading--Basis for Recommendations and Suitability.” This memorandum, which is limited to options trading, warns the registered representatives to be careful with options trading, which Respondent described generically as “drifting toward increased speculation bordering on gambling.” Noting that options trading generates a disproportionate share of customer complaints and is not especially profitable for a broker-dealer, the memorandum states: “We tend to maintain higher standards and stricter discipline regarding options trading than most firms in our industry. We intend to continue maintaining higher standards than the industry requires.” At the bottom of the memorandum is Respondent’s typewritten name and “Compliance Registered Options Principal,” below which is “Fax.” On February 6, 1998, Respondent sent a short e-mail to an employee of Allen Douglas Securities asking for help in assembling a research file on a particular bulletin-board stock. At the bottom of the memorandum is “Compliance.” Two more e-mails dated June 29, 1998, to Mr. Pizzuti concern options accounts and compliance. In one of these e-mails, dealing with options accounts, Respondent responded to an options account application that Mr. Singer sought to open for a customer otherwise unrelated to this case. Respondent stated: “This is a weak qualifier. I am willing to approve it but it requires close supervision. . . . Place a special emphasis on monitoring activity in this account.” In the other e-mail, dealing with options compliance, Respondent restricted a particular broker, identified only by number, to closing already-open options positions. Respondent conditioned reinstatement of full options trading privileges upon a review of account activity and demonstration of suitability. By e-mail dated July 7, 1998, Mr. Singer responded to Respondent’s e-mail and noted that the customer had followed Mr. Singer from firm to firm and had directed the trading in his account. By e-mail dated July 8, 1998, Respondent did not yield, instead warning Mr. Singer: . . . When a firm qualifies and accepts an account as suitable for options trading, we must monitor the activity and assess the suitability of transactions. We are not permitted to accept a trade simply because it was the client’s idea. If it is remotely reasonable to assume that the firm should have considered a particular trade or series of trades to be unsuitable, whether solicited or unsolicited, then the firm must assume it can and will likely be held accountable for adverse results and financial loss. The only documents that assign Respondent a broader role in compliance and supervision are the Written Supervisory Procedures of Allen Douglas Securities and a Designated Responsibility matrix, both of which appear to have been prepared by Mr. Pizzuti. The date of origin of the Written Supervisory Procedures is undeterminable. The matrix is dated September 11, 1998, although Mr. Pizzuti insists that earlier, unproduced matrices exist and characterize Respondent identically. The September 11, 1998, matrix assigns a broad range of compliance and supervision responsibilities to Respondent, reserving for Mr. Pizzuti only the tasks of hiring and reviewing correspondence. The Written Supervisory Procedure and Designated Responsibility matrix are self-serving documents obviously prepared by Mr. Pizzuti. Through these entirely internal documents, Mr. Pizzuti appears to have attempted to have assigned broad compliance and supervision responsibilities to Respondent. Mr. Pizzuti’s effort to make a broad, internal assignment of responsibilities contradicts his earlier, public acceptance of compliance responsibilities by the Form BD dated May 5, 1997. The credibility of the Written Supervisory Procedure and Designated Responsibility matrix is further undermined by the failure of Mr. Pizzuti to prepare new Forms BD at the times of these changes in compliance responsibility, despite his obvious incentive to do so, as Respondent was purportedly relieving Mr. Pizzuti of potential liability in this area. Also, given Respondent’s knowledge of compliance issues and previously noted sophistication in the preparation of the two contracts, he unlikely would have bothered to try to shield himself from liability in the two contracts, and then waste this effort by allowing Mr. Pizzuti to name him as the compliance officer in internal documents. Filed documents and documents prepared by Respondent reveal that he had comprehensive compliance and supervision responsibilities in the area of options only during the relevant period. Respondent provided compliance assistance, but not supervisory assistance, on an as-needed basis throughout his tenure with Allen Douglas Securities. Undoubtedly, Respondent’s contributions in compliance matters not involving options became more substantial at the end of 1998 and start of 1999, but Respondent never replaced Mr. Pizzuti in this area. Eventually, well after the conclusion of the relevant period, Respondent assumed substantial compliance responsibilities. For instance, by letter on Allen Douglas Securities letterhead to Petitioner’s auditor dated April 13, 1999, Respondent designated himself as “Senior Compliance Officer.” Focusing on Respondent’s compliance and supervision responsibilities during the relevant period, he appears to have discharged commendably his acknowledged responsibilities in options trading. From May to November 1998, only five options trades took place in the Nellis account. Consistent with his original claim assigning substantial responsibility to Mr. Nellis, Respondent testified that the system worked as to options trading: Mr. Nellis tried trading options, found that he was not comfortable trading options, and chose not to trade options after a few minor trades. However, Mr. Nellis denied any knowledge of the options trading. More likely, given Mr. Nellis’s past trading experience, his education, and his receipt of monthly statements from Allen Douglas Securities, Mr. Nellis more or less condoned months of very, very heavy trading by Mr. Singer in Mr. Nellis’s account, as discussed below, in the expectation of big profits. When the heavy trading produced significant losses, Mr. Nellis complained. Under this more likely scenario, Mr. Nellis did not intervene at all until early November 1998, and, prior to that, he would no more likely have stopped Mr. Singer from trading options than he not have stopped Mr. Singer from trading excessively in non-options. Under the more likely scenario, in which Mr. Nellis did not stop the options trading, Respondent’s close supervision of Mr. Singer’s options trading was probably why Mr. Singer was unable to damage the Nellis account through options trading, as he did through non-options trading. Reading Respondent’s unyielding e-mail of July 8, 1998, Mr. Singer necessarily must have realized that, if he were to assume the role of rogue broker, he would have to do it in an area unsupervised by the watchful Respondent. It is difficult to harmonize the evident level of supervision that Respondent provided over Mr. Singer’s options trading with the non-supervision that Mr. Singer received over his non-options trading, if Respondent in fact was responsible for the latter during the relevant period. The trading activity in the Nellis account from May to November 1998 was, under all relevant circumstances, wildly excessive, or, as Respondent described it, “breathtaking.” Churning arises when a broker in control of an account trades too often, so as to support the inference (in the absence of direct evidence of intent) that the broker’s intent was primarily to generate commissions for the broker rather than to generate profits for the client. Relevant factors include the client’s sophistication, the client’s objectives, the extent to which the client actually relied on the broker, the party initiating the trades, the extent to which the client approved of broker-initiated trades, and the effect of the commissions on the potential for profitability. Mr. Nellis is a 1985 graduate of the University of Tennessee. At the time in question, he was working in real estate sales. His annual earnings, largely in the form of commissions, were $35,000 to $63,000, and his net worth was $75,000 to $100,000. Before transferring his account to Allen Douglas Securities in May 1998, Mr. Nellis had traded at Dean Witter and Empire Financial. At Empire Financial, Mr. Singer had been Mr. Nellis’s registered representative for the first four months of 1998. During Mr. Singer’s assignment to the Nellis account for the seven months from May to November 1998, the average account equity was $41,620; the total purchases were $4,987,559, the total commissions were $17,289, and the total margin interest was $20,286. Over seven months, commissions and interest equaled half of the account balance. Conventional turnover analysis requires the calculation, over a single year, of the total purchases divided by the account equity. This ratio expresses the annual frequency of annual turnover of an account. Although current trading volumes and reduced commission costs have necessitated reconsideration of acceptable ranges for these turnover ratios, historically a ratio of 6:1 was excessive, even for an especially active account. The annual turnover ratio in Mr. Nellis’s account was over 200:1. In August 1998, the turnover ratio for one month was 75:1, as the $20,000 account, in that month alone, purchased $1.5 million in securities. A better measure of activity is the commission to equity ratio, which measures the rate of return that an account would have to generate to cover the commissions. In other words, an account paying 20 percent of its average balance in commissions must earn 20 percent of its average balance to break even. A good measure of a reasonable expected return is that, over the long run, the securities market has produced an annual rate of return of 10-12 percent. Again annualized, the commission to equity ratio of Mr. Nellis’s account was 71.2 percent, meaning that he would have had to earn 71.2 percent over the year just to pay the commissions. An even better measure of activity is the total cost to equity ratio, which measures the rate of return that an account would have to generate to cover the commissions and margin interest. Adding Mr. Nellis’s margin interest results in an annualized ratio of 83.6 percent, meaning that he would have had to earn 83.6 percent over the year just to pay the commissions and interest. Over seven months, Mr. Singer executed about 240 trades in the Nellis account, or about 34 per month. Mr. Nellis claims to have approved less than five percent of these trades. During the preceding 13 months at Empire Financial, Mr. Nellis executed only six trades and held his securities an average of 127 days. During the relevant period, about one-third of the trades in the Nellis account were day trades. The financial impact of the excessive trading was exacerbated by the leveraging of Mr. Nellis’s account. Thus, when the market declined during the summer of 1998, his account, which averaged 50 percent leverage and reached 90 percent leverage, responded dramatically. There is no question that Mr. Singer churned this account. Mr. Singer was in control of the Nellis account, Mr. Singer excessively traded the Nellis account, and Mr. Singer excessively traded the account to advance his own interests, rather than the interests of Mr. Nellis. The gaps in the record concerning the finer points in the extent to which Respondent assisted the Pizzutis with compliance issues during the seven months in question ultimately prove irrelevant. In identifying the compliance and supervision issues presented by Mr. Singer’s egregious behavior in this case, Mr. Pizzuti and his brother had absolutely no need for the compliance expertise (or any supervisory authority, of which Respondent none outside of options trading) of Respondent. The compliance issue was that Mr. Singer was churning Mr. Nellis’s account, and the supervisory issue was that the Pizzutis needed to fire Mr. Singer. As the Pizzuti brothers presumably do not need a weatherman to know which way the wind blows, neither do they need Respondent to know that supervisors need to examine daily trading tickets, that Mr. Singer was churning Mr. Nellis’s account, that churning is bad, and that Mr. Singer had to be stopped immediately. Petitioner has failed to prove by clear and convincing evidence that Respondent had any role whatsoever in the compliance and supervision issues present in Mr. Singer’s churning of the Nellis account. The customer abuse in this case happened on the watch of the Pizzutis, not Respondent.
Recommendation It is RECOMMENDED that the Department of Banking and Finance enter a final order dismissing the Administrative Complaint against Respondent. DONE AND ENTERED this 26th day of December, 2000, in Tallahassee, Leon County, Florida. ROBERT E. MEALE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 26th day of December, 2000. COPIES FURNISHED: Honorable Robert F. Milligan Office of the Comptroller Department of Banking and Finance The Capitol, Plaza Level 09 Tallahassee, Florida 32399-0350 Robert Beitler, Acting General Counsel Office of the Comptroller Department of Banking and Finance Fletcher Building, Suite 526 101 East Gaines Street Tallahassee, Florida 32399-0350 Chris Lindamood Assistant General Counsel Department of Banking and Finance 400 West Robinson Street, Suite S-225 Orlando, Florida 32801 David S. Wood Sarah A. Long Baker & Hostetler, LLP Post Office Box 112 Orlando, Florida 32802-0112
The Issue Whether proposed rules 25-4.300 ("Scope and Definition"); 25-4.301 ("Applicability of Fresh Look"); and 25-4.302, ("Termination of Local Exchange Contracts"), Florida Administrative Code, known as "The Fresh Look Provision," constitute an "invalid exercise of delegated legislative authority".
Findings Of Fact Telecommunications carriers/providers may "wear different hats," dependent upon what function they are performing at a given time. Local exchange carriers are abbreviated "LECs" in the proposed rules. For purposes of this case only, Time Warner is an Alternative Local Exchange Carrier ("ALEC") and GTE and BST are Incumbent Local Exchange Carriers ("ILECs"). Both types of companies provide local telephone service over the public switch network. On February 17, 1998, Time Warner filed a Petition to Initiate Rulemaking. Time Warner's Petition requested that the Commission adopt what it described as a "Fresh Look" rule, under which a customer a/k/a "patron" a/k/a "end user" of an ILEC who had agreed to a long-term, discounted contract would have an opportunity to abrogate that ILEC contract without incurring the liability to the ILEC which the customer had agreed to, so that the customer could then enter a new contract with an ALEC. On at least one prior occasion, the Commission had elected to reach a similar result by a Final Order, rather than by enacting a rule. This time, the Commission granted Time Warner's Petition, and the Commission began the rulemaking process. Other states have adopted "Fresh Look" rules or statutes with varying degrees of success. The legislative, administrative, or litigation histories of these extraterritorial matters are immaterial to the rule validity issues herein, which are governed by Chapter 120, Florida Statutes. Those histories are likewise non-binding on this forum. The Commission has no way of identifying, let alone notifying, ILEC contract customers as a separate class of the public or as a separate class of potentially interested parties. However, the public, including customers and carriers, received the required statutory notice(s) at each stage of the rulemaking process, and only the following dates and occurrences have significance within the rulemaking process for purposes of the issues herein. A Notice of Rulemaking Development was published in the Florida Administrative Weekly on April 3, 1998. Commission staff held a Rule Development Workshop on April 22, 1998. Based on information received from carriers in response to staff data requests, the rules as proposed April 3, 1998, were revised by staff. On March 4, 1999, staff recommended that the revised rules be adopted by the Commission. At its Agenda Conference on March 19, 1999, the Commission set the rulemaking for hearing. On March 24, 1999, the Commission issued a Notice of Rulemaking, which included further revisions to the proposed rules. The Commission received a letter from JAPC dated April 28, 1999 ("the JAPC letter") which stated, in pertinent part: Article 1, Section 10 of the Florida Constitution prohibits the passage of laws impairing the obligation of contracts. Inasmuch as the rules effectively amend the terms of existing contracts, please reconcile the rules with the Constitution. The JAPC letter was not placed into the rulemaking record, responded-to by the Commission, or specifically addressed on its merits by any interested parties. Interested parties did not find out about it until many months later. A rulemaking hearing on the proposed rules was held before the Commission on May 12, 1999. Interested persons submitted written and oral testimony and comments at the hearing. No customer with a contract that would be affected by these rules participated in the rulemaking proceedings, including the hearing, before the Commission. At no time did anyone formally submit a lower cost regulatory alternative, but it was clear throughout the rulemaking process that Petitioners herein opposed the adoption of the proposed rules. Two Statements of Estimated Regulatory Cost ("SERCs") were prepared by Commission staff. The proposed rules were further revised after the May 12, 1999, hearing. On November 4, 1999, Commission staff issued a recommendation that the Commission adopt the latest rules draft, in part on the basis that the proposed rules will implement the "regulatory mandates" of Section 364.01, Florida Statutes, that the Commission should "promote competition by encouraging new entrants" and "encourage competition through flexible regulatory treatment among providers of telecommunication services." Attached to this recommendation was a revised SERC, dated September 13, 1999. The September 13, 1999, SERC addressed the alternative of not adopting the proposed rules, and found such an alternative was not viable because it would not foster competition. In preparing both SERCs, Commission staff relied solely on market share data for analyzing competition and did not fully account for revenues to which ILECs were contractually entitled, but which potentially could be unilaterally cancelled by the ILEC customer as a result of the proposed rules. Staff did not ask for such data for estimating cost of the proposed rules to the ILECs. At its November 16, 1999, Agenda Conference, the participation of interested parties was limited to addressing the new SERC. During this Agenda Conference, the Commission revised the rules further, limiting the contracts affected by them to contracts entered into before July 1, 1999, and voted to approve the proposed rules as revised. The exact language of the proposed rules under challenge, as published in the December 3, 1999, Florida Administrative Weekly, pursuant to Section 120.54(3)(d), Florida Statutes, is as follows: PART XII - FRESH LOOK: 25-4.300 Scope and Definitions. Scope. For the purposes of this Part, all contracts that include local telecommunications services offered over the public switched network, between LECs and end users, which were entered into prior to June 30, 1999, that are in effect as of the effective date of this rule, and are scheduled to remain in effect for a least one year after the effective date of this rule will be contracts eligible for Fresh Look. Local telecommunications services offered over the public switched network are defined as those services which include provision of dial tone and flat-rated or message-rated usage. If an end user exercises an option to renew or a provision for automatic renewal, this constitutes a new contract for purposes of this Part, unless penalties apply if the end user elects not to exercise such option or provision. This Part does not apply to LECs which had fewer than 100,000 access lines as of July 1, 1995, and have not elected price-cap regulation. Eligible contracts include, but are not limited to, Contract Service Arrangements (CSAs) and tariffed term plans in which the rate varies according to the end user's term commitment. The end user may exercise this provision solely for the purpose of obtaining a new contract. For the purposes of this Part, the definitions to the following terms apply: "Fresh Look Window" - The period of time during which LEC end users may terminate eligible contracts under the limited liability provision specified in Rule 25- 4.302(3). "Notice of Intent to Terminate" - The written notice by an end user of the end user's intent to terminate an eligible contract pursuant to this rule. "Notice of Termination" - The written notice by an end user to terminate an eligible contract pursuant to this rule. "Statement of Termination Liability" - The written statement by a LEC detailing the liability pursuant to 25-4.302(3), if any, for an end user to terminate an eligible contract. 25-4.301 Applicability of Fresh Look. The Fresh Look Window shall apply to all eligible contracts. The Fresh Look Window shall begin 60 days after the effective date of this rule. The Fresh Look Window shall remain open for one year from the starting date of the Fresh Look Window. An end user may only issue one Notice of Intent to Terminate during the Fresh Look Window for each eligible contract. 25-4.302 Termination of LEC Contracts. Each LEC shall respond to all Fresh Look inquiries and shall designate a contact within its company to which all Fresh Look inquiries and requests should be directed. An end user may provide a written Notice of Intent to Terminate an eligible contract to the LEC during the Fresh Look Window. Within ten business days of receiving the Notice of Intent to Terminate, the LEC shall provide a written Statement of Termination Liability. The termination liability shall be limited to any unrecovered, contract specific nonrecurring costs, in an amount not to exceed the termination liability specified in the terms of the contract. The termination liability shall be calculated as follows: For tariffed term plans, the payments shall be recalculated based on the amount that would have been paid under a tariffed term plan that corresponds to the actual time the service has been subscribed to. For CSAs, the termination liability shall be limited to any unrecovered, contract specific nonrecurring costs, in an amount not to exceed the termination liability specified in the terms of the contract. The termination liability shall be calculated from the information contained in the contract or the workpapers supporting the contract. If a discrepancy arises between the contract and the workpapers, the contract shall be controlling. In the Statement of Termination Liability, the LEC shall specify if and how the termination liability will vary depending on the date services are disconnected pursuant to subsections (4) and (6). From the date the end user receives the Statement of Termination Liability from the LEC, the end user shall have 30 days to provide a Notice of Termination. If the end user does not provide a Notice of Termination within 30 days, the eligible contract shall remain in effect. If the end user provides the Notice of Termination, the end user will pay any termination liability in a one-time payment. The LEC shall have 30 days to terminate the subject services from the date the LEC receives the Notice of Termination. (Emphasis provided only to facilitate the following discussion of "timed" provisions) "Tariff term plans" or "tariffed term plans" are telecommunication service plans in which the rate the customer pays depends on the length of the service commitment. The longer the service commitment the customer makes with the company, the lower the monthly rate will be. Ninety-eight percent of the contracts affected by the proposed rules are tariff term plans filed with the Commission. Contract service arrangements (CSAs) have many functions. By tariff term plans and CSAs, carriers and their customers formalize a negotiation whereby the customer signs-on for service for an extended period, in exchange for lower rates than he would get if he committed to shorter periods or under the regular tariff. Both tariff term plans and CSAs are subject to the Commission's regulatory oversight. No reason was given for use of the "included but not limited to" language added in the rules' current draft. The Commission has published that the "specific authority" for the proposed rules is Sections 350.127(2) and 364.19, Florida Statutes. The Commission has published that the "law implemented" by the proposed rules is Sections 364.19 and 364.01, Florida Statutes. The proposed rules would allow customers of ILECs, including Petitioners GTE and BST, to terminate their contracts and tariffed term plans for local exchange services without paying the termination liability stated in those contracts and tariffs. Instead, customers would only be required to pay the ILEC "any unrecovered, contract specific nonrecurring costs" associated with the contracts. (Proposed rule 25-4.302(3)(b)). For tariffed term plans (but not contracts), termination liability would be recalculated as the difference, if any, between the amount the customer paid and the amount he would have paid under a plan corresponding to the period during which he actually subscribed to the service. (Proposed rule 25- 4.302(3)(a)). The "Fresh Look" rule applies to agreements entered into before June 30, 1999, and that remain in effect for at least one year after the date the rule takes effect. (Proposed rule 25-4.300(1)). The window for contract termination starts 60 days after the rules' effective date and lasts for one year thereafter. (Proposed rule 25-4.301). In the case of ILEC customers who may exercise the "opt-out early" (termination) provisions of the proposed rules, the proposed rules would provide the ILECs with the compensation they would have received if the contracts had been made for a shorter period than for the period of time for which the parties had actually negotiated. The proposed rules clearly modify existing contracts. Indeed, they retroactively impair existing contracts. It may reasonably be inferred that the retroactive elimination of the respective durations of the existing contracts would work to the detriment of any ILECs which have waived "start up costs" on individual contracts or which planned or invested in any technological upgrades or committed to any other business components (labor, training, material, development, expansion, etc.) in anticipation of fulfilling the contracts and profiting over the longer contract terms legally entered-into prior to the proposed rules. The purpose of the proposed rules, as reflected in the Commission's rulemaking notices, is to "enable ALECs to compete for existing ILEC customer contracts covering local exchange telecommunications services offered over the public switched network, which were entered into prior to switch-based substitutes for local exchange telecommunications services." However, the Commission now concedes that switch-based substitutes for the ILECs' local exchange services were widely available to consumers prior to June 30, 1999, the date provided in the proposed rule. At hearing, the Commission asserted that it is also the purpose of the proposed rules to actively encourage competition, and that by proposing these rules, the Commission deemed competition to be meaningful or sufficient enough to warrant a "fresh look" at the ILECs' contracts, but not so widespread that the rules would not be necessary. In effect, the Commission made a "judgment call" concerning the existence of "meaningful or sufficient" competition, but has not defined "sufficient" or "meaningful" competition for purposes of the proposed rules. The Commission's selection of June 30, 1999, as the cut-off date for contract eligibility was motivated primarily by a concept that using that date would render approximately 40 percent of existing ILEC contracts eligible for termination. The rulemaking process revealed that the terms of so- called "long-term" agreements range from six months to four years in duration. The Commission selected a one-year term for eligible contracts subject to the proposed rules as a compromise based on this spread of actual contract durations. The one-year window of opportunity in which a customer will be permitted to terminate a contract was selected by the Commission as a compromise among presenters' views expressed during the rulemaking process. The one-year window is to be implemented 60 days after the effective date of the rule to avoid the type of problems incurred when a "fresh look" was previously accomplished by a Commission Order and to allow the ILECs and ALECs time to prepare. Tariffed term plans were developed as a response to competition and have been used at least since 1973. As early as 1984, the Commission had, by Order, given ILECs authority to use CSAs for certain services, upon the condition that there was a competitive alternative available. The Commission has long been aware of the ILECs' use of termination liability provisions in CSAs and tariff term plans, including provisions for customer premises equipment (CPE), and has not affirmatively determined that their use is anticompetitive, discriminatory, or otherwise impermissible. Private branch exchanges (PBXs), which are switches, competed with the ILECs' Centrex systems for medium- to large- size business customers and key telephone systems for smaller businesses, from the early 1980's, as recognized by a Commission Order in 1994. Commission Order No. PSC-94-0285-FOF-TP, dated March 3, 1994, in Docket No. 921074-TP, permitted a "fresh look" for customers of LEC private line and special access services with terms equal to, or greater than, three years. Customers were permitted a limited time to terminate their existing contracts with LECs to take advantage of emerging competitive alternatives, such as alternative access vendors' (AAVs') ability to interconnect with LECs' facilities. Termination liability of the customer to the ILEC was limited to the amount the customer would have paid for the services actually used. Prior to 1996, only ILECs could offer dial tone service, which enables end users to communicate with anyone else who has a telephone. Chapter 364, Florida Statutes, Florida's telecommunication statute, was amended effective January 1, 1996, to allow ALECs to operate in Florida. ILECs had offered tariffed term plans and CSAs for certain services before the 1996 revision of Chapter 364, Florida Statutes, but effective 1996, substantial amendments allowed the entry of ALECs into ILECs' markets. The new amendments codified and expanded the ILECs' ability to use CSAs and term and volume discount contracts in exchange for ILECs losing their exclusive local franchises and deleted statutory language requiring the Commission to determine that there was effective competition for a particular service before an ILEC could be granted pricing flexibility for that service. Tariff filings before the amendments had required Commission approval. The federal Telecommunications Act of 1996 also opened the ILECs' local exchange markets to full competition and imposed upon the ILECs a number of obligations designed to encourage competitive entry by ALECs into the market, including allowing ALECs to interconnect their networks with those of ILECs; "unbundling" ILEC networks to sell the unbundled elements to competitors; and reselling ILEC telecommunications services to ALECs at a wholesale discount. See 47 U.S.C. Section 51 et seq. "Resale" means taking an existing service provided by a LEC and repackaging or remarketing it. The requirement that ILECs resell their services, including contracts and tariffed term plans, to competitors at a wholesale discount, has been very effective in stimulating resale competition, but to resell or not is purely an internal business decision of each ALEC. For instance, Time Warner has elected not to be involved in "resales," and is entirely "facility based." Since 1996, competing carriers could and do sell additional (other) services to customers already committed to long-term ILEC contracts. They may also purchase ILEC CSAs wholesale at discount and resell such agreements to customers. Market share data demonstrates that there has been greater ALEC competition in Florida since the 1996 amendments, but typically, ALECs target big cities with denser populations and denser business concentrations. There is no persuasive evidence that any of the affected ILEC contracts (those post-June 30, 1999) were entered into by customers who did not have competing alternatives from which to choose. In fact, testimony by Commission staff supports a finding that since LECs' CSAs are subject to Commission review and their service tariffs are filed with the Commission, the Commission has not authorized CSAs unless there was an "uneconomic bypass" or competition. "Uneconomic bypass" occurs where a competitor can offer service at a price below the LEC's tariffed rate but above the LEC's cost. The Commission presented an ILEC customer, Mr. Eric Larsen of Tallahassee, who testified that he had had the benefit of competition, not necessarily from an ALEC, when he had entertained a bid from a carrier different from his then-current ILEC in 1999. However, at that time, he renegotiated an expiring contract with his then-current ILEC instead of with the competitor. This renewal contract with an ILEC would not be affected by the proposed rules. Business customers, such as Mr. Larsen, may reasonably perceive business trends. They could reasonably be expected to have factored into their negotiations with competing carriers at the time the contracts were formed that a potential for greater choices would occur in the future, even within the life of their long-term contracts with an ILEC. As of 1999, 80 ALECs were serving Florida customers, 100 more had expressed their intention of serving Florida before the end of the year 2000, and ALECs had obtained some share of the business lines in many exchanges. While this does not mean that every area of Florida has every service, it is indicative of a spread of competition. Petitioner GTE is anchored in the Tampa Bay area. By June 30, 1999, the date expressed in the proposed rules, nine facilities-based competitors were in the same geographic area. One ALEC (MCI) was serving 10,000 lines. Competitors operated 20 switches and 83 percent of the buildings in GTE's franchise area were within 18,000 feet of a competitor's switch. However, in most cases, GTE's CSA or tariff term agreements had been successful against specific competing bids for the respective services. Market share data showed that by June 30, 1999, Petitioner GTE had executed 101 agreements allowing ALECs to provide service by inter-connecting their networks with GTE's networks, reselling GTE's services, and/or taking "unbundled" parts of GTE's network. While market share data is not conclusive, in the absence of any better economic analysis by the Commission or other evidence of existing ALEC presence or of a different prognosis for ALEC penetration, market share is at least one indicator of the state of competition when the contracts addressed by the proposed rules were entered into. The Commission has no data about how many customers currently opt-out of their ILEC contracts prior to natural expiration and pay the termination liability to which those ILEC agreements bind them in order to accept a competing offer from another carrier, but clearly, some do. This evidences current competition. Competing carriers can and do sell to ILEC customers at the natural expiration of their long-term agreements. This evidences current competition. The Commission has no data predicting how many more customers would opt-out if the proposed rules are validated. Therefore, the presumption that "if we publish a rule they will come" is speculative. Likewise the Commission's presumption that customers regard termination liability provisions in ILEC contracts as a barrier to their choices and a bar to competition was not proven. Some of the factors that went into that presumption were speculative because the Commission has not reviewed the termination liability provisions of Petitioners' contracts and has offered no evidence of formal complaints to the Commission by customers who want to opt-out of ILEC contracts. "Informal communication" with Commission staff by customers was undocumented and unquantified. The Commission did present the testimony of Mr. Larsen who explained that because he needs to keep the same business telephone number, he feels that it is not economically feasible for him to opt-out of his several overlapping ILEC contracts unless he can synchronize all his existing contract termination dates and that the proposed "fresh look" rules would permit him to do that. However, his testimony provided no valid predictor that even if the termination of all his existing ILEC contracts were enabled by the proposed rules he would, in fact, be able to find a competitor in his area whose contract(s) were more to his liking. The proposed rules, with their arbitrary date of June 30, 1999, would not allow Mr. Larsen to terminate, without liability, the one ILEC contract he entered into after that date. (See Finding of Fact No. 47). Based on his sincere but unfocused testimony, it remains speculation to presume that Mr. Larsen would be willing to incur contractual liability by early termination of his single non-qualifying ILEC contract just because the proposed rules would let him "opt-out" of the several qualifying ILEC contracts. It is indicative of the proposed rules' possible effect on future competition that Mr. Larsen speculated that if he could terminate all his qualifying ILEC contracts simultaneously under the proposed rules, he might be able to persuade a competitor, perhaps an ALEC, to pay his termination costs on his single non- qualifying ILEC contract if he renegotiated all his business away from his ILEC and to that competitor. The introduction of the proposed rules into the market place could create a "competitive edge" not anticipated by the Commission. Other carriers, including ALECs competing with ILECs, can and do enter into contracts with their customers which, like the contracts which would be affected by the proposed rules, are long-term contracts subject to termination liability, but the long-term contracts of carriers other than ILECs would not be affected by the proposed rules. The proposed rules pertain only to ILECs and their business customers. In effect, the proposed rules apply predominantly to ILECs' large business customers. Under the proposed rules, competitors which had originally bid against the ILECs for an affected contract at the time it was entered-into could get "a second bite at the apple" occasioned solely by the application of the proposed rules.
The Issue Whether Dunlop violated Rules 21P-1.012 and 21P-6.07, Florida Administrative Code, by permitting an unlicensed person to use his license for the purpose of dispensing optics.
Recommendation Based on the foregoing findings of fact and conclusions of law, the Hearing Officer recommends that the Florida State Board of Dispensing Opticians take no action against the license of Francis (Frank) Dunlop. DONE and ORDERED this 9th day of March, 1978, in Tallahassee, Florida. STEPHEN F. DEAN, Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Daniel Wiser, Esquire Post Office Box 1752 Tallahassee, Florida 32304 Thomas F. Lang, Esquire Suite 302 801 North Magnolia Avenue Orlando, Florida 32803 ================================================================= AGENCY FINAL ORDER ================================================================= BEFORE THE FLORIDA STATE BOARD OF DISPENSING OPTICIANS In the Matter of the Suspension or revocation of the License to Practice the Trade or Occupation of Dispensing Optician in this State of FRANCIS NELSON DUNLAP DOAH CASE NO. 77-2291 As a duly licensed dispensing optician authorized to supervise the preparing, fitting and adjusting of optical devices at Vent-Air Contact Lens Service, Florida National Bank Building, Jacksonville, Florida /
