06-001144 Michael Silverstein vs. Florida Real Estate Commission Status: Closed Recommended Order on Monday, June 26, 2006.

Summary: Despite the fact the National Association of Securities Dealers imposed discipine against Petitioner in 2003, Respondent should grant his application for licensure as a real estate salesperson; he has shown good conduct and has a reputation for honesty.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

MICHAEL SILVERSTEIN, )

)

Petitioner, )

)

vs. ) Case No. 06 - 1144

)

FLORIDA REAL ESTATE COMMISSION, )

)

Respondent. )

)

RECOMMENDED ORDER

This case came before Administrative Law Judge John G.

Van Laningham for final hearing by video teleconference on

June 5, 2006, at sites in Tallahassee and West Palm Beach,

Florida.

APPEARANCES

For Petitioner: John L. Bryan, Jr., Esquire

Scott, Harris, Bryan, Barra &

Jorgensen, P.A.

4400 PGA Boulevard, Suite 800

Palm Beach Gardens, Florida 33410

For Respondent: Thomas Barnhart, Esquire

Office of the Attorney General

The Capitol, Plaza Level 01

Tallahassee, Florida 32399

STATEMENT OF THE ISSUE

The issue in this case is whether Petitioner's application

for licensure as a real estate salesperson should be granted

even though, in 2003, NASD imposed discipline against Petitioner

pursuant to a settlement agreement wherein Petitioner neither

admitted nor denied allegations that he had been involved in

improper trading activities.

PRELIMINARY STATEMENT

By a Notice of Intent to Deny dated February 15, 2006,

Respondent Florida Real Estate Commi ssion informed Petitioner

Michael Silverstein that it had decided not to grant his

application for licensure as a real estate sales associate. Mr.

Silverstein timely requested a formal hearing, and on

March 31, 2006, the Commission referred the matter to the

Division of Administrative Hearings, where an Administrative Law

Judge was assigned to conduct a formal hearing.

The hearing took place on June 5, 2006, as scheduled, with

both parties present. Mr. Silverstein testified on his own

behalf and called one character witness, Rabbi Michael Simon.

He also offered Petitioner's Exhibits 1 through 4, which were

received in evidence. The Commission called no witnesses. The

undersigned admitted Respondent's Exhibits 1 and 2 into

evidence.

The final hear ing was recorded but not transcribed.

Proposed Recommended Orders were due on June 15, 2006, and each

party timely filed one. These submissions were considered in

the preparation of this Recommended Order.

Unless otherwise indicated, citations to t he Florida

Statutes refer to the 2005 Florida Statutes.

FINDINGS OF FACT

1. Respondent Florida Real Estate Commission ("FREC") is

the agency responsible for licensing real estate brokers and

salespersons in the State of Florida.

2. In September 2005, P etitioner Michael Silverstein

("Silverstein") applied for licensure as a real estate sales

associate.

3. In his application, Silverstein disclosed that in 2003,

NASD —— a private - sector securities regulator —— had imposed

discipline against him, pursuant to a settlement agreement known

formally as a Letter of Acceptance, Waiver and Consent ("AWC"),

for allegedly having engaged in improper trading activities.

4. The disciplinary matter had arisen out of certain bids

that Silverstein had made to buy shares, for his own account, in

Chromatic Color Sciences International, Inc. ("CCSI"), a company

whose fortunes (and stock price), Silverstein had believed, were

due to rise. The bids in question —— of which there were 29 —— had

taken place over a two - month period b etween December 31, 1999,

and February 29, 2000. At that time, Silverstein and a partner

had owned a brokerage firm called Your Discount Broker, Inc.

("YDB").

5. Each of the 29 bids had been placed within 30 seconds

or so of the close of the trading day on which the bid was made.

Each bid had exceeded the day's previous highest bid for CCSI,

by an amount ranging from about three cents to 20 cents per

share. NASD had alleged that the bids were not bona fide offers

to purchase (five had resulted in a cons ummated sale) but rather

artifices made in furtherance of a "manipulative, deceptive,

and/or fraudulent" scheme undertaken to artificially inflate the

value (on paper, at least) of Silverstein's investment in CCSI. 1

NASD had accused Silverstein, his partn er, and YDB of violating

NASD Conduct Rules 2110 and 2120. 2

6. Ultimately, in June 2003, Silverstein and the two other

respondents had entered into the aforementioned AWC, wherein,

"without admitting or denying the allegations, and solely for

the purposes of [the then - pending] proceeding and any other

proceeding [that might later be] brought by or on behalf of

NASD, or to which NASD [might be] a party," they had agreed to

the imposition of specified penalties. The stipulated sanctions

against Silverstein were a fine of $75,000, which he had paid,

and a "suspension from association with any member firm for a

period of two months," which Silverstein had served, as agreed,

from July 7, 2003, through September 6, 2003.

7. After Silverstein had served his susp ension, NASD had

reinstated his registrations, allowing Silverstein once again to

engage in securities transactions under NASD's oversight.

Later, the New York Stock Exchange ("NYSE") had granted

Silverstein a license. As of the final hearing in this cas e,

Silverstein still held his securities licenses, although he was

not then active in the industry.

8. Placing a bid near the close of the trading day was

not, of itself, a violation of any NASD rule. 3 Likewise, merely

offering to pay more for a partic ular company's shares than any

other investor previously had offered on a given day was not a

disciplinable act under any NASD rule. Silverstein's conduct in

relation to the 29 bids for which NASD disciplined him was

wrongful, therefore, only if undertake n with bad intent.

9. At hearing in this case, Silverstein denied any intent

to manipulate the value of CCSI's shares. The only evidence

opposing Silverstein's testimony is the AWC, which is, to be

sure, some proof of wrongdoing, because Silverstein agr eed

therein to be punished. On the other hand, in entering into the

AWC, Silverstein was not required expressly to admit wrongdoing,

and he did not do so. Further, the undersigned credits

Silverstein's unrebutted testimony that he agreed to accept

punish ment, not because he believed he was guilty of violating

NASD rules, but because, at the time, YDB was being acquired by

another company, and the deal could not be completed until the

NASD matter had been resolved.

10. In addition, there was no evidence a bout the volume of

trading that typically occurred, during the relevant time

period, within minutes or seconds of the trading day's close.

The undersigned therefore cannot make any rational

determination, based on the evidence in the record, as to

whether Silverstein's 29 last - minute bids were highly unusual

(and hence especially suspicious), relatively routine, or

something in - between. There was, as well, no evidence

concerning either the volume of trading that was then occurring

in connection with CCSI shares, or the prices at which that

company's shares were trading during the relevant period, making

it impossible for the undersigned reasonably to draw any

inferences from the dollar - amounts of Silverstein's bids. In

short, there is no persuasive circum stantial evidence (besides

the AWC itself) from which the undersigned might infer that

Silverstein acted with fraudulent or dishonest intent when he

made the 29 bids.

11. At bottom, the evidence in the instant record is

simply insufficient to persuade th e undersigned that

Silverstein's conduct in relation to the 29 bids for which NASD

disciplined him was, in fact, manipulative, deceptive, or

fraudulent.

12. The undersigned is convinced, however, that, apart

from the AWC, Silverstein's past (so far as t he evidence shows)

is spotless. He has maintained a reputation in his community

for truth and honesty, which NASD's disciplinary action failed

to sully. Silverstein's conduct after February 29, 2000 (when

he stopped making last - minute bids) has been good , even

exemplary. Indeed, FREC itself concedes (and the undersigned

finds) that Silverstein "is a well - respected member of his

community." Resp. Prop. Rec. Order at 4.

13. In view of Silverstein's good conduct and reputation;

the facts that NASD and t he NYSE presently consider him fit to

work in the securities industry; and the fact the that last

allegedly improper bid was placed more than six years ago, the

undersigned determines as a matter of ultimate fact that

granting Silverstein a license to work as a real estate sales

associate will not likely endanger the public generally or

investors specifically.

CONCLUSIONS OF LAW

14. T he Division of Administrative Hearings has personal

and subject matter jurisdiction in this proceeding pursuant to

Section s 120.569 and 120.57(1), Florida Statutes.

15. A s an applicant for licensure, Silverstein bore the

burden at hearing of going forward initially with proof of his

qualifications; he also was required to shoulder the ultimate

burden of persuasion. See Depa rtment of Banking & Fin., Div. of

Sec. & Investor Protection v. Osborne Stern & Co . , 670 So. 2d

932, 934 (Fla. 1996).

16. Section 475.17(1)(a), Florida Statutes —— under which

Silverstein presented his application to FREC —— prescribes the

qualifications fo r licensure as follows:

An applicant for licensure who is a natural

person must be at least 18 years of age;

hold a high school diploma or its

equivalent; be honest, truthful,

trustworthy, and of good character; and have

a good reputation for fair dealing. An

applicant for an active broker's license or

a sales associate's license must be

competent and qualified to make real estate

transactions and conduct negotiations

therefor with safety to investors and to

those with whom the applicant may undertake

a re lationship of trust and confidence. If

the applicant has been denied registration

or a license or has been disbarred, or the

applicant's registration or license to

practice or conduct any regulated

profession, business, or vocation has been

revoked or sus pended, by this or any other

state, any nation, or any possession or

district of the United States, or any court

or lawful agency thereof, because of any

conduct or practices which would have

warranted a like result under this chapter,

or if the applicant has been guilty of

conduct or practices in this state or

elsewhere which would have been grounds for

revoking or suspending her or his license

under this chapter had the applicant then

been registered, the applicant shall be

deemed not to be qualified unle ss, because

of lapse of time and subsequent good conduct

and reputation, or other reason deemed

sufficient, it appears to the commission

that the interest of the public and

investors will not likely be endangered by

the granting of registration . The

commi ssion may adopt rules requiring an

applicant for licensure to provide written

information to the commission regarding the

applicant's good character.

(Emphasis added.)

17. In addition to maintaining that Silverstein's

disciplinary record is disqualifying pursuant to the foregoing

statute, FREC here urges that denial of Silverstein's

application is authorized under Section 475.25, which provides

in pertinent part as follows:

(1) The commission may deny an application

for licensure, registration, or permit , or

renewal thereof; may place a licensee,

registrant, or permittee on probation; may

suspend a license, registration, or permit

for a period not exceeding 10 years; may

revoke a license, registration, or permit;

may impose an administrative fine not to

e xceed $1,000 for each count or separate

offense; and may issue a reprimand, and any

or all of the foregoing, if it finds that

the licensee, registrant, permittee, or

applicant:

* * *

(s) Has had a registration suspended,

revoked, or otherwise act ed against in any

jurisdiction. The record of the

disciplinary action certified or

authenticated in such form as to be

admissible in evidence under the laws of the

state shall be admissible as prima facie

evidence of such disciplinary action.

18. In it s Notice of Intent to Deny, FREC further found,

on the basis of the NASD sanctions, that denial of Silverstein's

application was warranted pursuant to Sections 475.25(1)(b) and

475.25(1)(o), Florida Statutes. 4 To be operative, however, each

of these provi sions requires a previous finding or findings of

"guilt". And Silverstein was never adjudicated guilty in the

NASD matter; the parties' settlement (the AWC) relieved NASD of

the burden of proving its allegations, without requiring

Silverstein to admit the m. Thus, Sections 475.25(1)(b) and

475.25(1)(o) are inapposite. (Moreover, FREC did not press

these points, either at hearing, or in its Proposed Recommended

Order (in which no mention was made of the statutes referenced

in this paragraph). The undersig ned therefore concludes, in the

alternative, that the agency has abandoned these grounds.)

19. As for the prior discipline, there is no dispute that

NASD suspended Silverstein's registration with that organization

(for 60 days) and imposed a fine of $75, 000 against him. NASD

is not, however, a state, nation, possession or district of the

United States, court, or governmental agency. See Whitehall

Wellington Invs., Inc. v. NASD , 2000 U.S. Dist. LEXIS 18607, *2

(S.D.Fla. Dec. 7, 2000)("NASD is a non - gover nmental agency").

Therefore, according to the plain and unambiguous language of

Section 475.17(1)(a), Florida Statutes, Silverstein cannot be

deemed unqualified for licensure solely because of the NASD

proceeding.

20. Whether NASD, as a private - sector c orporation,

constitutes a body whose prior disciplinary action against an

applicant's third - party "registration" implicates Section

475.25(1)(s) is another matter. For this statute, unlike

Section 475.17(1)(a), does not expressly restrict its operation

to discipline imposed by governments and public - sector agencies,

rendering Section 475.25(1)(s) ambiguous in relation to the

present situation.

21. It is commonly known that many voluntary private -

sector organizations reserve the right to discipline or expel

any member who violates a rule or rules of the organization. To

take one example, the Florida Association of Realtors, a

private, voluntary trade association, is empowered to discipline

its members for violating the National Association of Realtors'

Code of Ethics. If, based on evidence presented at a hearing, a

hearing panel determines that a member - realtor has committed an

ethics violation, the guilty party may be reprimanded, fined,

suspended from membership, or thrown out of the association. 5

22. Yet, the rules of a private organization such as the

Florida Association of Realtors, however sensible and

commendable they might be, are designed primarily to advance and

protect the organization's interests —— which are not necessarily

coterminous, or even consistent, with the interests of the

public (though of course they might be). Governments and their

agencies, in contrast, are accountable to all the people and

hence (should) strive to adopt statues and rules that advance

and protect the public' s interests. Given that the general

public has little or no say in the internal operations and

affairs of private organizations, it might be unreasonable to

interpret Section 475.25(1)(s) as authorizing FREC to deny an

application for licensure, or discip line a licensee, solely on

the basis of the individual's having been sanctioned by a

private organization. 6

23. As mentioned earlier, NASD is not a governmental

agency. It is a private, non - profit corporation, organized

under the laws of Delaware. See Lang v. French , 154 F.3d 217,

219 (5th Cir. 1998). To be sure, NASD exercises regulatory and

disciplinary jurisdiction over its members, but it is not a

public body. For the reasons discussed above, there exists a

serious, nontrivial argument that discipline imposed by NASD

does not fall within Section 475.25(1)(s).

24. The argument, however, is not airtight. Though a

private entity, NASD nevertheless has been delegated substantial

governmental power in the area of securities regulation, in

conse quence of its registration, with the Securities and

Exchange Commission ("SEC"), as a national securities

association under the Exchange Act. See Merrill Lynch, Pierce,

Fenner & Smith, Inc. v. National Association of Securities

Dealers, Inc. , 616 F.2d 136 3, 1367 (5th Cir. 1980). Further,

Congress has specified certain procedural

safeguards for NASD disciplinary hearings.

The association is required to "bring

specific charges, notify such member or

person of, and give him an opportunity to

defend against , such charges, and keep a

record." 15 U.S.C. § 78o - 3(h)(1). Any

disciplinary sanction must be supported by a

statement setting forth the act or practice

which constituted the violation, the

specific provision violated, the sanction

imposed, and the rea sons supporting its

imposition. Id. In addition, the procedure

of NASD disciplinary hearings is subject to

close scrutiny by the SEC. The SEC must be

satisfied that NASD rules provide a "fair

procedure" for disciplinary hearings. 15

U.S.C. §§ 78o - 3(b) (8), 78s(b)(1), (2).

Id. Accordingly, NASD is distinguishable from the run of trade

associations, perhaps materially so. Arguably, therefore,

discipline imposed by NASD is cognizable under Section

475.25(1)(s), Florida Statutes.

25. Because the questi on is close and neither party has

addressed it, 7 the undersigned will assume without deciding,

solely for the purposes of this Recommended Order, that

Silverstein's record of discipline before NASD provides FREC a

ground under Section 475.25(1)(s) to deny his application for

licensure.

26. That said, it is concluded that FREC should not deny

Silverstein's application on the basis of the AWC because of the

several mitigating factors summarized in paragraphs 12 and 13

above. See Fla. Admin. Code R. 61J2 - 2 4.001(4)(a)(authorizing

consideration of mitigating circumstances in imposing or

recommending a penalty). To repeat for emphasis, the

undersigned concludes that, notwithstanding the NASD matter,

which arose out of events that occurred more than six years ago,

Silverstein's good conduct and reputation for honesty in his

community convincingly establish that granting him a real estate

license will not endanger the public.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of

Law, it is RE COMMENDED that FREC enter a final order granting

Silverstein's application for licensure as a real estate sales

associate.

DONE AND ENTERED this 26th day of June, 2006, in

Tallahassee, Leon County, Florida.

S

___________________________________

JOHN G. VA N LANINGHAM

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 th e

Division of Administrative Hearings

this 26th day of June, 2006.

ENDNOTES

1 / Evidently, YDB's clearing firm valued a company's shares

based on the "National Best Bid," a figure which reflects the

day's highest offer for a particular stock, regardless whether

that offer resulted in a consummated transaction. Th us,

allegedly, Silverstein's 29 last - minute bids were made solely

for the wrongful purpose of pumping up the National Best Bid for

CCSI, in turn causing YDB's clearing firm to increase the value

of the CCSI shares that Silverstein then held, thereby

ultima tely reducing Silverstein's margin exposure (by increasing

the equity in his account).

2 / Rule 2110 provides that, in conducting his business, a

"member . . . shall observe high standards of commercial honor

and just and equitable principles of trade." Rule 2120

prohibits a member from using "any manipulative, deceptive or

other fraudulent device or contrivance" as a means of effecting

a securities transaction.

3 / Parenthetically, moreover, a rule prohibiting trading within,

say, 10 minutes of the clos ing bell (and there was no evidence

of such) simply would shorten the trading day by 10 minutes; the

"pre - close" cutoff would be, then, the effective close of the

trading day —— and bids made within 30 seconds before this

effective close would be permissible .

4 / Section 475.25(1)(b) allows FREC to deny an application for

licensure if the applicant "[h]as been guilty of fraud,

misrepresentation, concealment, false promises, false pretenses,

dishonest dealing by trick, scheme, or device, culpable

negligence, or breach of trust in any business transaction in

this state or any other state, nation, or territory[.]" Section

475.25(1)(o) authorizes denial if the applicant

[h]as been found guilty, for a second time,

of any misconduct that warrants her or his

susp ension or has been found guilty of a

course of conduct or practices which show

that she or he is so incompetent, negligent,

dishonest, or untruthful that the money,

property, transactions, and rights of

investors, or those with whom she or he may

sustain a confidential relation, may not

safely be entrusted to her or him.

5 / Information about disciplinary proceedings before

associations of realtors is available online at

.

6 / Interpreting Section 475.25(1)(s) to include prior, pr ivate -

sector discipline also would raise a "slippery - slope" problem.

That is, if Section 475.25(1)(s) were construed to comprehend

private discipline by, e.g. , a trade association, then the

statute might also be urged, according to similar reasoning, to

e mbrace disciplinary actions taken by, for example, a church or

private club.

7 / As the principal legal support for FREC's intended action,

Section 475.25(1)(s) was placed squarely in issue. Therefore,

the undersigned, as an independent, quasi - judicial o fficer, is

obligated to interpret and apply this governing statute

according to his understanding thereof —— even if his

understanding of the law differs from the views of both parties.

This is, after all, "a de novo proceeding intended to formulate

agency action, and not to review action taken earlier and

preliminarily." Beverly Enterprises - Florida, Inc. v. Department

of Health and Rehabilitative Services , 573 So. 2d 19, 23 (Fla.

1st DCA 1990); Szkolny v. State Awards Committee , 395 So. 2d

1290, 1293 - 94 (F la. 1st DCA 1981)("Section 120.57(1) proceedings

do not perform a review function; rather, this procedure is

utilized to formulate agency action."). Moreover, the

undersigned has a duty, as a participant in the decision - making

process, to make an independ ent recommendation, based on the

evidentiary record and applicable law, regarding the form and

substance of final agency action in the cause. See Gulf Coast

Home Health Services of Florida, Inc. v. Department of Health

and Rehabilitative Services , 513 So. 2d 704, 706 (Fla. 1st DCA

1987)("In Section 120.57(1) proceedings, the hearing officer

'independently serves the public interest by providing a forum

to expose, inform and challenge agency policy and

discretion.'"). Nevertheless, it is sometimes preferab le, as a

prudential matter, merely to identify an issue than to raise and

resolve one, especially where, as here, avoiding a conclusion

will not change the outcome.

COPIES FURNISHED :

John L. Bryan, Jr., Esquire

Scott, Harris, Bryan, Barra &

Jorgensen, P.A.

4400 PGA Boulevard, Suite 800

Palm Beach Gardens, Florida 33410

Thomas Barnhart, Esquire

Office of the Attorney General

The Capitol, Plaza Level 01

Tallahassee, Florida 32399

Nancy B. Hogan, Chairman

Real Estate Commission

Department of Business and

Professional Regulation

400 West Robinson Street, Sui te 801N

Orlando, Florida 32801

Josefina Tamayo, General Counsel

Department of Business and

Professional Regulation

Northwood Centre

1940 North Monroe Street

Tallahassee, Florida 32399 - 0792

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.