01-003761 Department Of Banking And Finance, Division Of Securities vs. Thomas Nile Anthony, Jr. Status: Closed Recommended Order on Tuesday, January 22, 2002.

Summary: Respondent guilty of failing to supervise branch office and selling unregistered securities. Revoke registration; administrative fine of $5,000 for failure to supervise and $1,500 for selling unregistered stock.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF BANKING AND FINANCE, )

DIVISION OF SECURITIES, )

)

Petitioner, )

)

vs. ) Case No. 01 - 3761

)

THOMAS NILE ANTHONY, JR., )

)

Respondent. )

___________________________________)

RECOMMENDED ORDER

Pursuant t o notice, a final hearing was held in this case

on December 10, 2001, by video teleconference between West Palm

Beach and Tallahassee, Florida, before Claude B. Arrington, a

duly - designated Administrative Law Judge of the Division of

Administrative Hearing s.

APPEARANCES

For Petitioner: Diane E. Leeds, Esquire

Department of Banking and Finance

Office of the Comptroller

111 South Sapodilla Avenue

Suite 211

West Palm Beach, Florida 33401 - 5293

For Respondent: No appearance

STATEMENT OF THE ISSUES

Whether Respondent committed the offenses alleged in the

Administrative Complaint and the penalties, if any, that should

be imposed.

PRELIMI NARY STATEMENT

At the times pertinent to this proceeding, Respondent was

the manager of a branch office of a brokerage office.

Petitioner filed a pleading styled Administrative Complaint for

Entry of Cease and Desist Order Imposing Sanctions and Notice o f

Rights (Administrative Complaint), against Respondent and

19 other - named individuals. The other - named Respondents settled

this proceeding prior to the final hearing.

The Administrative Complaint set forth what is referred to

as Background information and Findings of Fact. Based on that

Background information and Findings of Fact, Petitioner reached

the following “Conclusions of Law” pertaining to Respondent:

Respondent violated F.A.C. 3E -

600.013(1)(p)(2)(g) (sic), NASD Conduct Rule

3010, Section 517 .161(1)(a), Florida

Statutes, in that he failed to supervise the

branch office.

Respondent violated Section 517.121(1),

Florida Statutes, 3E - 600.14(10) [sic] and

3E - 600.13(1)(p)(2)(g) (sic), F.A.C., NASD

Complaint, Investigations and Sanctions Rule

8110, and NASD Conduct Rule 3010(a) in that

he failed to maintain and follow written

supervisory procedures.

Respondent (and all other named

Respondents except one) violated Section

517.07(1), Florida Statutes, and therefore

Section 517.161(1)(a), Florida Sta tutes, and

3E - 600.013(1)(n) and (2)(g), F.A.C. in that

they offered to sell and in fact sold,

totaling 266 sales, of unregistered

securities as enumerated in the

Administrative Complaint. [ 1 ]

Respondent violated 3E - 600.014(1) in that

Merit did not keep and maintain a record of

each cash and margin account indicating the

name and address of the beneficial owner of

such account as required by 17 CFR 240.17a -

3(9) and 17 CFR 240.17a - 4(c).[ 2 ]

The Administrative Complaint reflects that Petitioner

intends to enter a Final Order to Cease and Desist pursuant to

Section 517.221(1), Florida Statutes; impose administrative

fines pursuant to Section 517.221(3), Florida Statutes; and

revoke, suspend, or restrict Respondent’s registration pursuant

to Section 517.161(1 )(a), Florida Statutes.

Respondent timely requested a formal administrative hearing

to challenge the proposed disciplinary action, the matter was

referred to the Division of Administrative Hearings, and this

proceeding followed.

At the final hearing, P etitioner presented the testimony of

Michael Ward and Annette Beresford and offered two exhibits,

each of which was accepted into evidence. Respondent made no

appearance at the final hearing.

No transcript of the proceedings was filed. Petitioner

filed a Proposed Recommended Order, which has been duly -

considered by the undersigned in the preparation of this

Recommended Order. Respondent did not file a proposed

recommended order.

FINDINGS OF FACT

1. Petitioner is an agency of the State of Florida charged

with the responsibility and duty to administer Chapter 517,

Florida Statutes, which is known as the Florida Securities and

Investor Protection Act.

2. On August 15, 1997 and September 9, 1997, Petitioner

conducted an audit of the branch office o f Merit Capital

Associates, Inc., located in Boca Raton, Florida, and known as

the H. K. Laurence Branch (the branch office). The branch

office was an office of supervisory jurisdiction that required

the presence of a branch manager.

3. On April 28, 19 97, Merit Capital executed a form

entitled "Branch Registration Form" that registered the branch

office with Petitioner and designated Respondent as the branch

manager. Respondent accepted that designation on April 29,

1997. On April 30, 1997, the form w as filed with Petitioner.

4. In August and September 1997, Petitioner conducted an

examination of the branch office. Michael Ward, whose job title

is Senior Financial Investigator, was in charge of the

examination. Annette Beresford, whose job title is Financial

Specialist, assisted Mr. Ward. Both Mr. Ward and Ms. Beresford

are full - time employees of Petitioner with appropriate training

and experience.

5. Respondent failed to properly register with the

National Association of Securities Dealers (N ASD) to act as a

branch manager. Respondent was required by NASD rules to

register as a principal because he had supervisory

responsibilities. His only registration was as a salesperson.

6. NASD Conduct Rule 3010, a rule adopted by NASD, sets

forth stan dards for the supervision of branch offices. Pursuant

to Rule 3E - 600.013, Florida Administrative Code, Respondent, as

the designated branch manager, was required to comply with the

minimum supervisory standards set forth in NASD Conduct

Rule 3010. Respon dent did not meet those minimum supervisory

standards while serving as the manager of the branch office.

The following establish Respondent’s failure to supervise.

Respondent did not provide NASD manuals to the registered

representatives (salespersons) a t the branch, he did not

maintain Merit Capital's supervisory manuals at the branch, and

he did not require that salespersons comply with Merit Capital's

written policies and procedures. Respondent failed to maintain

NASD and Florida registrations of sale spersons at his branch.

During the period April 29 through July 9, 1997, representatives

of Merit Capital under Respondent's supervision at the branch

office sold to members of the public shares of stock in a

company known as Certified Diabetic Services, Inc., and shares

of stock in a company known as Arcoplate Corporation.

Respondent had supervisory responsibility for these transactions

involving the sale of these two stocks. At the times pertinent

to this proceeding, the stock of Certified Diabetic Ser vices,

Inc., and the stock of Arcoplate Corporation were not registered

as required by Section 517.07(1), Florida Statutes, and they

were not exempt from registration. Respondent should not have

permitted the salespersons under his supervisory jurisdictio n to

sell unregistered stock

7. During the period March 11 through July 9, 1997,

Respondent was personally responsible for three transactions

involving the sale of stock in Certified Diabetic Services,

Inc., at a time when the stock was not registered as required by

Section 517.07(1), Florida Statutes, and was not exempt from

registration.

CONCLUSIONS OF LAW

8. The Division of Administrative Hearings has

jurisdiction of the parties to and the subject of this

proceeding. Section 120.57(1), Florida Statu tes.

9. Petitioner has the burden of proving by clear and

convincing evidence the allegations against Respondent. See

Ferris v. Turlington , 510 So. 2d 292 (Fla. 1987); Evans Packing

Co. v. Department of Agriculture and Consumer Services , 550

So. 2d 112 ( Fla. 1st DCA 1989); and Inquiry Concerning a Judge ,

645 So. 2d 398 (Fla. 1994).

10. Section 517.161(1)(a), Florida Statutes, provides, in

pertinent part, as follows:

(1) Registration under s. 517.12 may be

denied or any registration may be revoked,

r estricted, or suspended by the department

if the department determines that such

applicant or registrant:

(a) Has violated any provision of this

chapter or any rule or order under this

chapter.

11. Section 517.121, Florida Statutes, provides, in

per tinent part, as follows:

(1) The department may issue and serve

upon a person a cease and desist order

whenever the department has reason to

believe that such person is violating, has

violated, or is about to violate any

provision of this chapter, any rule or order

promulgated by the department, or any

written agreement entered into with the

department.

* * *

(3) The department may impose and collect

an administrative fine against any person

found to have violated any provision of this

chap ter, any rule or any written agreement

entered into with the department in an

amount not to exceed $5,000 for each such

violation. All fines collected hereunder

shall be deposited as received in the Anti -

Fraud Trust Fund.

12. Section 517.07(1), Florid a Statutes, provides, in

pertinent part, as follows:

(1) It is unlawful and a violation of

this chapter for any person to sell or offer

to sell a security within this state unless

the security is exempt under s. 517.051, is

sold in a transaction exempt under s.

517.061, or is registered pursuant to this

chapter.

13. Petitioner proved by clear and convincing evidence

that Respondent failed to supervise the branch office after

accepting the designation as the branch office's branch manager.

That fai lure constitutes a violation of NASD Conduct Rule 3010,

which set forth standards for the supervision of branch offices,

and Rule 3E - 600.013, Florida Administrative Code, which requires

compliance with those standards. Those violations constitute a

violat ion of Section 517.161(1)(a), Florida Statutes.

14. Petitioner also proved by clear and convincing

evidence that Respondent failed to maintain and follow written

supervisory procedures. That violation is subsumed in

Petitioner's general allegation that Respondent failed to manage

the branch office and no additional penalty will be recommended

for that violation.

15. Petitioner proved by clear and convincing evidence

that Respondent sold unregistered securities in violation of

Section 517.07(1), Florida Statutes.

16. Petitioner has cited no disciplinary guidelines

pertinent to this proceeding.

17. Petitioner persuasively argued that the failure to

supervise a branch office of a brokerage office is a serious

violation of its rules.

18. Selling unregistered stock may or may not be a serious

violation. Here, there was no evidence as to whether any member

of the public suffered because Respondent sold unregistered

shares of Certified Diabetic Services, Inc., in three separate

transactions.

RECOM MENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is RECOMMENDED that Petitioner enter a final order

finding Respondent guilty of failing to supervise the branch

office and of selling unregistered securities. The final order

sho uld revoke Respondent’s registration under Section 517.12,

Florida Statutes, and order him to cease and desist violations

of Chapter 517, and the rules promulgated thereunder. The final

order should also impose an Administrative Fine against

Respondent in the amount of $5,000 for the failure to supervise.

The final order should also impose an Administrative Fine

against Respondent in the amount of $1,500 for the three

transactions involving the sale of shares of unregistered stock.

DONE AND ORDERED th is 22nd day of January, 2002, in

Tallahassee, Leon County, Florida.

___________________________________

CLAUDE B. ARRINGTON

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675 SUNCOM 278 - 9675

F ax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 22nd day of January, 2002.

ENDNOTES

1/ Th e Administrative Complaint charged Respondent with selling

unregistered stock. In its Proposed Recommended Order,

Petitioner proposed that Respondent be held responsible for all

sales of unregistered stock by all representatives under his

supervision. Al though Petitioner charged Respondent with

failure to supervise, that allegation was bottomed on specific

factual allegations and did not include the theory espoused in

its Proposed Recommended Order. The theory that Respondent is

responsible for all trans actions at the branch office of

unregistered stock set forth by Petitioner in its Proposed

Recommended Order was not properly pled in the Administrative

Complaint and will not be incorporated in this Recommended

Order.

2/ Petitioner did not introduce e vidence as to this allegation

at the final hearing, and it did not address this issue in its

Proposed Recommended Order. The undersigned has treated this

issue as having been abandoned by Petitioner.

COPIES FURNISHED:

Thomas Nile Anthony, Jr.

4833 Pa mela Drive

Abilene, Texas 79606

Diane E. Leeds, Esquire

Department of Banking and Finance

Office of the Comptroller

111 South Sapodilla Avenue

Suite 211

West Palm Beach, Florida 33401 - 5293

Honorable Robert F. Milligan

Department of Banking and Finance

Office of the Comptroller

The Capitol, Plaza Level 09

Tallahassee, Florida 32399 - 0350

Robert Beitler, General Counsel

Department of Banking and Finance

Fletcher Building, Suite 526

101 East Gaines Street

Tallahassee, Florida 32399 - 0350

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of this Recommended Order. Any exceptions

to this Recommended Order should be filed with the agency that

will issue the Final Order in this case.

1 The Administrative Complaint charged Respondent with selling unregistered

stock. In its Proposed Recommended Order, Petitioner proposed that

Respondent be held responsible for all sales of unregistered stock by all

represent atives under his supervision. Although Petitioner charged

Respondent with failure to supervise, that allegation was bottomed on

specific factual allegations and did not include the theory espoused in its

Proposed Recommended Order. The theory that Respon dent is responsible for

all transactions at the branch office of unregistered stock set forth by

Petitioner in its Proposed Recommended Order was not properly pled in the

Administrative Complaint and will not be incorporated in this Recommended

Order. 2

Petitioner did not introduce evidence as to this allegation at the final

hearing, and it did not address this issue in its Proposed Recommended Order.

The undersigned has treated this issue as having been abandoned by

Petitioner.