[Cite as Henneforth v. Seidt, 2025-Ohio-1109.]
COURT OF APPEALS DELAWARE COUNTY, OHIO FIFTH APPELLATE DISTRICT
JUDGES: CHRISTOPHER J. HENNEFORTH : Hon. William B. Hoffman, P.J. : Hon. Craig R. Baldwin, J. Plaintiff-Appellant : Hon. Kevin W. Popham, J. : -vs- : : Case No. 24 CAE 06 0040 ANDREA L. SEIDT, : COMMISSIONER, OHIO : DEPARTMENT OF COMMERCE, : OPINION DIVISION OF SECURTIES
Defendant-Appellee
CHARACTER OF PROCEEDING: Appeal from the Delaware County Court of Common Pleas, Case No. 2023 CVF 12 0974
JUDGMENT: Affirmed
DATE OF JUDGMENT ENTRY: March 28, 2025
APPEARANCES:
For Plaintiff-Appellant For Defendant-Appellee
MATTHEW L. JALANDONI DAVID YOST Flannery Georgalis, LLC Attorney General 175 S. 3rd St., Ste. 1060 BY: CHAD M. KOHLER Columbus, OH 43215 Assistant Attorney General 30 E. Broad St. 26th Floor Columbus, OH 43215 Popham, J.,
{¶1} Appellant appeals the May 28, 2024, judgment entry of the Delaware
County Court of Common Pleas.
Facts & Procedural History
{¶2} Appellant Christopher Henneforth worked as a licensed investment advisor
and was the president/owner of Level Partners Management, Inc. (“Level”). Appellant
currently serves as the CFO of two other companies, Omnia Medical, LLC, and Exacter,
Inc.
{¶3} In March of 2015, Robert Walton was the President and CEO of Hadsell
Chemical Processing, LLP (“HCP”). Appellant recruited investors for HCP and managed
the funds received from the investors. Specifically at issue in this case are two investors
named C.B. and B.S. From March 2, 2015, to September 21, 2015, appellant encouraged
his clients from Level to invest in HCP. In return for their investments, HCP issued the
investors promissory notes, which were not registered securities under Ohio law. The
promissory notes were purportedly guaranteed by Don Hadsell, the minority owner of
HCP. The promissory notes stated the funds were to be used for HCP’s “commercial,
agricultural, or industrial activities.”
{¶4} In exchange for recruiting investors, and pursuant to a contract he had with
HCP, appellant received a commission for the investments he solicited. He also received
a salary from HCP. Appellant did not disclose his employment with HCP to investors. He
also verbally informed investors the funds they invested would be used by HCP to acquire
tools and equipment. {¶5} In April of 2015, appellant opened a Chase Platinum Business Checking
Account at JPMorgan Chase Bank (“Chase”) in the name of HCP. Appellant was the sole
authorized signatory on the account, and account statements were mailed to appellant’s
personal residence, which was identified by appellant as HCP’s business address.
{¶6} After a tip from Don Hadsell that he had not actually signed the promissory
notes, the Securities and Exchange Commission began an investigation. It was
discovered that Walton had falsified HCP’s business records, forged the personal
guarantees on the promissory notes, and made HCP appear operational, which it was
not. None of the investments actually funded HCP’s business operations. Rather,
appellant used the funds he solicited to pay wages, commissions, and travel expenses to
himself, advisory fees to Level, and interest payments to other, earlier investors, including
appellant himself. HCP eventually filed bankruptcy. The investors appellant solicited
were never repaid.
{¶7} Walton pled guilty to criminal wire fraud, theft, embezzlement, and
conversion. The SEC investigation resulted in a consent order with Walton and HCP,
enjoining further violations of federal securities laws, ordering disgorgement of funds, and
imposing a civil monetary penalty.
{¶8} On April 29, 2020, the Ohio Department of Commerce, Division of Securities
(“Division”) issued to appellant a “Notice of Intent to Suspend or Revoke [his] Investment
Advisor Representative License” (“Notice”). The Notice was 127-paragraphs long and
detailed the factual allegations for each count and the Revised Code or Administrative
Code section allegedly violated in each count. {¶9} Prior to the hearing, appellant issued subpoenas to the Division, seeking
Brady materials (exculpatory or impeachment evidence) in the Division’s possession,
including any impeachment or exculpatory evidence the Division obtained in their
interviews with C.B. and B.S. during its investigation. Upon a motion from the Division,
the Hearing Officer quashed the subpoena, finding Brady did not apply in this civil case.
{¶10} The Hearing Officer conducted a hearing on April 11th and 12th of 2023.
Testimony was taken from the following individuals at the hearing: Janice Hitzeman,
Attorney Inspector with the Division, C.B., B.S., Anne Fellowell, Licensing Chief with the
Division, Timothy Rist, and appellant.
{¶11} Hitzeman testified extensively to the investigation of appellant. She
reviewed the specifics of the promissory notes. She then reviewed, in detail, the emails
and bank records of appellant, testifying how the evidence shows that: between April 27,
2015 and September 2015, a total of $1,043,957.86 came into the Chase account of
which appellant was the sole signatory, including $925,000 of investor funds ($650,000
from appellant and Level’s investment advisory clients); only $195,000 was transferred to
HCP; from the Chase funds, appellant was paid $30,000 as his salary from HCP and
$77,500 as commissions from HCP; $24,093.75 was paid to Level for investment advisory
fees; $108,824.60 was paid to appellant as interest and principal repayments on loans he
made to HCP; $4,203.72 was paid to appellant as expense reimbursements; and
$583,643.93 was used to pay interest payments to previous investors of HCP.
{¶12} Hitzeman also testified to the investments of both C.B. and B.S. In regards
to B.S., the records she obtained demonstrated: B.S. initially invested $100,000 with
appellant for HCP and received a promissory note; B.S. invested an additional $200,000 and received an additional promissory note; prior to the deposit of B.S.’s $200,000, the
Chase account had a balance of zero; after B.S.’s deposit, $8,437.50 was transferred
from the Chase account to Level for advisory fees; $6,000 was transferred to appellant
for his April salary; $77,500 was transferred to appellant for commissions; $96,242,51
was paid from the Chase account to prior investors; none of the funds B.S. deposited into
the Chase account were used for commercial, agricultural, or industrial activities or used
to purchase equipment or machines for HCP; and HCP has not paid off the principal of
either of the promissory notes with B.S.
{¶13} As to C.B., the records demonstrated: in June of 2015, C.B. agreed to
invest $250,000 with appellant for HCP and received a promissory note; C.B. gave
appellant a check for $125,000 in July; prior to the deposit of these funds, the Chase
account had a balance of $549.79; none of the funds were transferred to HCP;
$112,526.94 was paid to prior investors as interest payments; $4,302.72 was transferred
to appellant to reimburse him for a trip to Colorado with investors; $6,000 was transferred
to appellant for his July salary; $2,000 was transferred to appellant as a loan repayment;
C.B. gave appellant the remaining $125,000 in August of 2015; none of these funds were
transferred to HCP; these funds were again used to pay prior investors, appellant, or
Level; and HCP has not paid C.B. the principal or interest on the promissory note.
{¶14} When asked on cross-examination what false statements appellant made
that served as the basis for a R.C. 1707.44(B)(4) violation, Hitzeman stated there were
two types of affirmative representations: (1) the affirmative representations contained in
the promissory notes appellant delivered to C.B. and B.S. and (2) the affirmative representations appellant made directly (verbally) to both C.B. and B.S. concerning how
the proceeds from their investments would be used.
{¶15} C.B. testified that appellant had been his financial advisor since 2008.
Appellant brought the HCP investment opportunity to C.B. in 2015. Based upon their
discussions and what appellant told him, C.B. thought his funds were going to be used
for “various machinery that was going to be used to do different projects.” Appellant told
C.B. he was seeking investors for HCP to “get new equipment.” Appellant did not disclose
to C.B. that appellant had an ownership interest in HCP; that he was being paid a salary
by HCP; that HCP was paying him commission; or that he was the CFO of HCP.
{¶16} On cross-examination, C.B. stated he did not question what appellant told
him about the use of the funds because appellant told him what they were going to be
used for, and HCP was “going to be buying certain things for this company so they could
do certain projects that they had secured, but they didn’t have the equipment yet for
them.” C.B. confirmed he did not remember every specific conversation he had with
appellant related to this investment.
{¶17} B.S. knew appellant for several years when appellant brought HCP to his
attention. B.S. remembered appellant describing HCP to him and telling him that while
he would never say it was a “sure thing” in investing, this was as close as appellant would
find for B.S. because Don Hadsell was going to personally sign and guarantee the
promissory notes. Based upon his conversations with appellant, B.S. thought his funds
would be used for “working capital” because HCP “had, I think, a backlog of orders and
their line needed updates, so equipment and that type of thing.” Appellant did not disclose
to B.S. that appellant had an ownership interest in HCP; that he was being paid a salary by HCP; that HCP was paying him commission; or that he was the CFO of HCP. On
cross-examination, B.S. stated he did not remember verbatim the exact words of his
conversations with appellant. While B.S. did not remember the exact words, he
“remembered the meaning.”
{¶18} Fellowell, the Licensing Chief from the Division, testified primarily to the
“licensing” components of the violations, i.e., the filings or disclosures licensed investment
advisors are required to submit to the Division on a regular basis and records
requirements the Division must check at the advisor’s place of business.
{¶19} Rist testified he worked as the head accountant for HCP. He prepared the
financial statements for HCP. Rist stated he had access to the bank accounts of HCP.
When asked whether HCP had one bank account or more than one account, Rist could
not remember. Rist does not know appellant, and does not remember appellant’s name
being on any documents related to HCP. Rist was not aware that appellant had access
to accounts of HCP and was not aware if appellant was an officer of HCP.
{¶20} On cross-examination, Rist stated he did not have check-signing authority
on any bank accounts for HCP. He could only log into the account to manage the day-
to-day payment of bills. Rist did not remember a Chase account. He never saw a bank
statement from a Chase account and was not aware of any of the transactions in the
Chase account, but remembers people talking about a Chase account throughout the
investigation.
{¶21} Appellant testified he is a victim of Walton’s deception, and he believed the
investments were legitimately funding HCP’s business operations. Appellant also stated
he was unaware how the investment funds were being used, even though he controlled the bank account in which those funds were deposited and from which appellant paid
himself and others.
{¶22} Appellant testified that, despite his contract with HCP saying he was the
CFO for HCP, he was not actually the CFO because Walton “redirected his
responsibilities.” When asked what he specifically told his investors about his role with
HCP, appellant stated he didn’t “have specific knowledge of what [he] did or didn’t say,”
but that with C.B. and B.S., it was very common for them to insist appellant be involved
with the company because they relied on his business acumen. Appellant stated he did
not remember specifically telling either C.B. or B.S. what their funds would be used for,
but he likely told them “working capital,” because that is what he believed the funds were
used for. Appellant believes the phrase “working capital” would include paying interest to
previous investors of HCP and paying employees. Appellant also believed paying prior
investors, paying advisory fees, and paying his salary was “commercial activity.”
However, at his initial hearing with the Division several years prior, appellant testified
none of the investors’ funds were used for “commercial activity.”
{¶23} The Hearing Officer issued a Report and Recommendation (“Report”)
revoking appellant’s investment advisor representative license and ordering appellant to
cease and desist from any acts and practices in violation of Revised Code Chapter 1707.
The Hearing Officer found appellant was afforded full procedural due-process rights,
including proper notification of the proposed action. Further, the Hearing Officer
concluded appellant violated: R.C. 1707.44(A)(1) (selling promissory notes in the
reasonable expectation of receiving a fee or commission); R.C. 1707.14(A) (selling
promissory notes without being properly licensed as a dealer); R.C. 1707.44(B)(4) (informing clients and potential investors proceeds of their investments in HCP would be
used for purposes they were not used for); R.C. 1707.44(C)(1) (selling unregistered
securities); R.C. 1707.44(G) (selling securities while not properly making disclosures to
B.S. and C.B.); R.C. 1707.44(M)(1)(d) (misrepresenting to investors the intended use of
investment proceeds and failing to make disclosures); R.C. 1707.44(M)(2) (failing to
follow administrative code when depositing funds in Chase account); Adm.Code 1301:6-
3-44(E)(1)(f) (advising clients to invest in HCP without adequate disclosures) and
Admin.Code 1301-6-3-16.1(C) (failing to update forms). The Hearing Officer also
concluded appellant’s license was subject to suspension or revocation under R.C.
1707.19(A)(4) and R.C. 1707.19(A)(9) and that appellant is not of “good business repute”
based upon the factors contained in the Ohio Administrative Code.
{¶24} Appellant appealed the Report to the Division. The Division issued
Administrative Order No. 23-044 (“Order”) on December 1, 2023. The Division found
there was reliable, probative, and substantial evidence to support the charges and to
support the majority of the Hearing Officer’s findings of fact and conclusions of law.
{¶25} The Division disapproved, in whole or in part, of three of the Hearing
Officer’s findings of fact: (1) appellant was an officer of HCP when he sold HCP securities
to investors; (2) appellant did not disclose his financial interest in HCP to C.B.; and (3)
appellant failed to disclose to B.S. the promissory notes were unregistered. However, the
Division determined these findings were only a partial basis for the charges under R.C.
1707.44(G) and (M)(1)(d), and the other violations under these sections were each
capable of independently substantiating a violation. Thus, the Division did not overturn
any of the Hearing Officer’s conclusions of law. {¶26} The Division also clarified the findings contained in the analysis of the R.C.
1707.44(B)(4) violation, stating appellant “affirmatively misrepresented the use of investor
proceeds by verbally assuring them that their money would be used as ‘working capital’
to buy tools and equipment and by presenting promissory notes stating their money would
only be used for commercial, agricultural, or industrial activities.” The Division specifically
found appellant’s assertions that the payments he made to himself and to prior investors
was “commercial activity” not credible.
{¶27} The Order adopted the Hearing Officer’s Report and Recommendation and
issued an order calling for appellant to cease and desist, as well as an order revoking his
Ohio investment advisor representative license.
{¶28} Appellant appealed the Order to the Delaware County Court of Common
Pleas, and argued eight assignments of error. The trial court issued a detailed and
comprehensive judgment entry on May 28, 2024, overruling appellant’s assignments of
error, and finding the Order was supported by reliable, probative, and substantial
evidence, and was in accordance with law.
{¶29} Appellant appeals the May 28, 2024, judgment entry of the Delaware
County Court of Common Pleas and assigns the following as error:
{¶30} “I. THE DIVISION OF SECURITIES VIOLATED MR. HENNEFORTH’S
CONSTITUTIONAL AND STATUTORY DUE PROCESS RIGHTS BY IMPROPERLY
WITHHOLDING EVIDENCE, LIMITING HIS ABILITY TO CROSS-EXAMINE ITS
WITNESSES, AND FAILING TO PROVIDE ADEQUATE NOTICE OF THE BASIS FOR
ITS MOST SERIOUS CHARGE. {¶31} “II. THE DIVISION’S FINDING THAT HENNEFORTH SOLD NONEXEMPT
UNREGISTERED SECURITIES IS CONTRARY TO THE PLAIN TEXT OF THE
RELEVANT STATUTE, WHICH REQUIRES THE SALE TO BE PUBLIC FOR THE
EXEMPTION NOT TO APPLY.
{¶32} “III. THE DIVISION FAILED TO PROVE UNDER THE PROPER LEGAL
STANDARD THAT MR. HENNEFORTH KNOWINGLY MADE OR CAUSED TO BE
MADE ANY AFFIRMATIVE MISSTATEMENT OF MATERIAL INFORMATION UNDER
R.C. 1707.44(B)(4).”
Standard of Review
{¶33} R.C. 119.12(N) sets forth the standard of review employed by the trial court.
It provides the court may affirm the Order if, “upon consideration of the entire record and
any additional evidence the court has admitted, the order is supported by reliable,
probative, and substantial evidence, and is in accordance with law.”
{¶34} As explained by the Supreme Court of Ohio, the trial court conducts two
inquiries: a hybrid factual/legal inquiry and a purely legal inquiry. Bartchy v. State Bd. of
Edn., 2008-Ohio-4826. In the first inquiry, “[a]n agency’s findings of fact are presumed to
be correct and must be deferred to by a reviewing court unless that court determines that
the agency’s findings are internally inconsistent, impeached by evidence of a prior
inconsistent statement, rest upon improper inferences, or are otherwise unsupportable.”
Id. at ¶ 37. In the second inquiry (purely legal), the trial court must construe the law on
its own. Id. at ¶ 38.
{¶35} This Court’s role is more limited, and is set forth in R.C. 119.12(O). When
reviewing the decision of the common pleas court as to factual matters, we are to “determine only if the trial court abused its discretion” in determining whether the
administrative decision is supported by reliable, probative, and substantial evidence.
Bartchy at ¶ 41. While it is incumbent on the trial court to examine and weigh the
evidence, this Court does not determine the weight of the evidence. Id. “The fact that
the court of appeals * * * might have arrived at a different conclusion than did the
administrative agency is immaterial. Appellate courts must not substitute their judgment
for those of an administrative agency or a trial court absent the approved criteria for doing
so.” Lorain City School Dist. Bd. of Edn. v. State Emp. Relations Bd., 40 Ohio St.3d 257
(1988). However, on review of purely legal questions, this Court has de novo review.
TWISM Ent., L.L.C. v. State Bd. of Registration for Professional Eng. & Surveyors, 2022-
Ohio-4677, ¶ 42.
I.
{¶36} In his first assignment of error, appellant contends the Division violated his
constitutional and statutory due process rights. Appellant lists five specific reasons as to
why he believes his due process rights were violated: (1) Brady violations, (2) lack of
meaningful cross-examination, (3) improperly withholding evidence, (4) failure to provide
adequate notice of the basis for its most serious charge, and (5) the refusal to identify the
Division’s potential witnesses and exhibits until seven days before the hearing.
{¶37} Both the Supreme Court of the United States and the Supreme Court of
Ohio have held that the Fourteenth Amendment to the U.S. Constitution and Section 16,
Article I of the Ohio Constitution, require that administrative proceedings comport with
due process. Mathews v. Eldridge, 424 U.S. 319 (1976); Doyle v. Ohio Bur. of Motor
Vehicles, 51 Ohio St.3d 46 (1990). This Court has stated a party is entitled to procedural due process in an administrative appeal, which includes reasonable notice and a
meaningful opportunity to be heard, in order to ensure the fairness of the hearing. Quinton
v. Delaware Cty. Bd. of Revision, 2024-Ohio-6034, ¶ 12 (5th Dist.); Sharp on Behalf of
Sharp v. Ohio Dept. of Job & Family Servs., 2019-Ohio-5397, ¶ 51 (5th Dist.), citing Ohio
Assn. of Pub. School Emp., AFSCME, AFL-CIO v. Lakewood City School Dist. Bd. of
Edn., 68 Ohio St.3d 175 (1994).
Brady Violations
{¶38} Appellant argues his due process rights were violated because the Division
withheld exculpatory evidence in violation of the Due Process Clause of the Fourteenth
Amendment as articulated in Brady v. Maryland, 373 U.S. 83 (1963).
{¶39} On March 7, 2023, appellant issued a subpoena to the Division to provide
him with “any and all exculpatory or impeachment evidence in the possession of the
Division, as those terms are used and understood by Brady and its progeny.” Specifically,
appellant requested segments of transcripts of any investigative interviews of C.B. and
B.S. that contained impeachment or exculpatory evidence. The Division moved to quash
the subpoena, arguing the documents are statutorily protected from disclosure under R.C.
1707.12(C). The Hearing Officer granted the motion to quash, finding Brady is not
applicable to this civil proceeding and R.C. 1707.12(C) prevents disclosure. At the
hearing, appellant argued he was prevented from obtaining Brady materials, specifically,
the interviews of Rist, B.S., and C.B., that were conducted during the Division’s
{¶40} Courts have uniformly declined to apply Brady to civil cases, except in three
rare instances: (1) a civil commitment hearing where involuntary confinement occurred for six months; (2) a civil case where the government’s litigation tactics were designed to
make the case “virtually impossible to defend”; and (3) a denaturalization and extradition
case where the government sought denaturalization and extradition based on alleged
criminal activities. Brodie v. Dept. of Health & Human Servs., 951 F.Supp.2d 108, 118
(D.D.C. 2013), citing U.S. v. Edwards, 777 F.Supp.2d 985, 994 (E.D.N.C. 2011); Equal
Emp. Opp. Comm. v. Los Alamos Constructors, Inc., 382 F.Supp. 1373 (D.N.M. 1974);
Demjanjuk v. Petrovsky, 10 F.3d 338 (6th Cir. 1993). The rationale for the application of
Brady in these cases is that the consequences “equal or exceed those of most criminal
convictions.” Demjanjuk at 354.
{¶41} Appellant argues this case is like the Demjanjuk and Los Alamos cases
because the consequences are similar to a criminal conviction, specifically, that his
license will be revoked and his other companies will have to forego the ability to raise
capital. We disagree. While the consequences of the Division’s findings against
appellant are significant, the consequences in this case do not “equal or exceed those of
most criminal convictions.” Rather, the consequences appellant faces are the loss of his
reputation, the loss of his ability to practice in his chosen profession, and the loss of his
ability to earn a livelihood. “These losses are precisely the kind . . . [that do] not warrant
applying Brady.” Brodie at 119.
{¶42} Many courts have rejected arguments similar to appellant’s, finding that
Brady does not apply in the context of administrative hearings. Id. at 119; Fox ex rel. Fox
v. Elk Run Coal Co., Inc., 739 F.3d 131 (4th Cir. 2014); Rivera v. Martin, 2024 WL
4678913, *10 (S.D.Fla. 2024) (losing custody of child not sufficient consequence for
Brady to apply); U.S. v. Project on Gov’t Oversight, 839 F.Supp.2d 330 (D.D.C. 2012) (Brady does not apply when loss of money and reputation are consequences). Further,
both the Los Alamos and Demjanjuk cases have been limited to their unique set of facts.
As noted above, many courts since Los Alamos have found Brady does not apply in the
context of administrative hearings. After the Demjanjuk case, the Sixth Circuit limited its
holding, stating the “seemingly broad language” contained in the Demjanjuk case, “must
be read in the context of a case that involved an unusual set of circumstances.” In re
Extradition of Drayer, 190 F.3d 410 (6th Cir. 1999).
{¶43} Appellant also argues the proceeding is “quasi-criminal” because he could
have been criminally charged under the portions of the Revised Code he was found to
have violated. However, as aptly noted by the trial court, appellant has not been criminally
charged under those statutes and does not face felony punishment as a direct
consequence of this administrative proceeding.
{¶44} The facts in this case do not warrant extending Brady to apply to this civil
proceeding.
Lack of Meaningful Cross-Examination
{¶45} Appellant argues he was deprived of a meaningful cross-examination and
opportunity to be heard because the Division denied him access to the exculpatory
information he requested from the subpoena. As detailed above, the information was not
required to be disclosed pursuant to Brady. Appellant cites no other rule, statute, or
precedent that requires disclosure. In fact, civil procedure rules, including its discovery
provisions, do not apply to administrative proceedings. Bennett v. Ohio Dept. of Edn.,
2022-Ohio-1747 (4th Dist.); Ohio Dept. of Alcohol & Drug Addiction Servs. v. Morris,
2005-Ohio-3053 (5th Dist.). {¶46} Appellant cites the case of In re Kralik in support of his argument. 101 Ohio
App.3d 232 (10th Dist. 1995). In Kralik, the agency provided its expert witness with
confidential investigatory material. Id. at 235. The expert relied on the confidential
information in his testimony, but the materials were not introduced into the record or
provided to appellant. Id. The court held the appellant in that case was denied due
process because the appellant was unable to cross-examine the expert about his reliance
on the report. Id. Like the trial court, we find Kralik distinguishable from the instant case.
There is no indication either in the administrative record or in appellant’s briefing that the
Division improperly provided any of its witnesses confidential investigatory materials, nor
did any of the Division’s witnesses state they relied upon the Division’s confidential files
in preparing their testimony. Thus, we find Kralik unpersuasive.
{¶47} Appellant has known about the identities of both B.S. and C.B. since
February of 2020, when the Division held a R.C. 1707.23 hearing. Appellant provided the
names of B.S. and C.B. at this hearing as individuals who he offered the HCP investment
opportunity to. The Notice does not contain either B.S. or C.B.’s full names; however, the
Notice does contain the initials “B.S.” and “C.B.” extensively throughout. These two
individuals were long-term clients of appellant. Since appellant provided these names to
the Division at the February 2020 hearing, it is clear appellant had notice his actions
surrounding these two individuals served as the basis for at least part of the Division’s
charges and they would likely be witnesses at the hearing. Appellant had more than
ample time from the date of the Notice to the date of the hearing to prepare for cross-
examination and, if so desired, could have utilized the procedures outlined in R.C. 119.09
to take the depositions of these witnesses and/or request the Division issue a subpoena for these witnesses. Further, counsel for appellant had the opportunity to do a thorough
cross-examination of both B.S. and C.B. during the hearing. We find no due process
violation.
Improperly Withholding Evidence
{¶48} Appellant contends R.C. 1707.12(C) does not protect the Brady materials
from disclosure and thus, the Division improperly withheld Brady materials. The only
materials appellant alleges the Division improperly withheld from him were the
exculpatory materials he requested in his March 2023 subpoena.
{¶49} We first note that the trial court specifically found that if Brady applied in this
case, Brady would, pursuant to the Supremacy Clause, overrule a conflicting state
statute. U.S. Const., art. VI, cl. 2. Thus, the prohibitions contained in R.C. 1707.12(C)
would not be applicable to any proceeding in which Brady applied. Because Brady does
not apply in this case, appellant fails to set forth any precedent, statute, or rule under
which the Division would be required to disclose exculpatory materials, particularly in an
administrative proceeding in which the discovery provisions of the civil rules do not apply.
Bennett, 2022-Ohio-1747 (4th Dist.); Ohio Dept. of Alcohol & Drug Addiction Servs. v.
Morris, 2005-Ohio-3053 (5th Dist.).
{¶50} As to appellant’s argument about R.C. 1707.12(C), appellant contends the
prohibition contained in R.C. 1707.12(C) applies to records of ongoing investigation, not
investigations that have been completed.
{¶51} R.C. 1707.12(B) limits the Division’s disclosures of information obtained
through its investigations (“information obtained by the division . . . through any
investigation shall be retained by the division and shall not be available to inspection by persons other than those having a direct economic interest in the information . . . ). The
Supreme Court of Ohio has specifically interpreted R.C. 1707.12(B) to prevent the
Division from disclosing its investigatory file to the “target of the investigation.” State ex
rel. Cincinnati Enquirer, Div. of Gannett Satellite Info. Network, Inc. v. Joyce, 2002-Ohio-
5807, ¶ 16.
{¶52} Similarly, R.C. 1707.12(C) protects law enforcement investigatory records
and trial preparation materials of the Division, providing, “confidential law enforcement
investigatory records and trial preparation records of the division of securities or any other
law enforcement or administrative agency which are in the possession of the division of
securities shall in no event be available to inspection . . . .”
{¶53} However, the prohibition against disclosure contained in R.C. 1707.12(C)
contains no provision allowing disclosure after an investigation has concluded and
contains no date after which confidential investigatory information must be disclosed.
Appellant cites no authority for his proposition that R.C. 1707.12(C) no longer applies
after an investigation has concluded. Ohio courts, including the Supreme Court of Ohio,
have recognized the General Assembly intended the provision to be broad, in keeping
with the unambiguous language of the statute. Id. (plain language of R.C. 1707.12 applies
to prohibit disclosure once an investigation has begun); State ex rel. Dublin Securities,
Inc. v. Ohio Div. of Securities, 68 Ohio St.3d 426, 432 (holding General Assembly
specifically intended to provide right of inspection to consumers with direct economic
interest in information, not to the target of an investigation); Ohio Div. of Securities v.
Treece, 2022-Ohio-3267 (6th Dist.) (holding R.C. 1707.12 completely exempts the Division’s investigatory files from disclosure). We find the Division did not improperly
withhold evidence.
Adequate Notice of Fraud Claim
{¶54} Appellant contends the Division failed to give him adequate notice of the
basis of its fraud claim. R.C. 119.07 states, in relevant part, “[notice] shall include the
charges or other reasons for the proposed action, the law or rule directly involved, and a
statement informing the party that the party is entitled to a hearing if the party requests it
within thirty days of the time of mailing the notice.” A notice complying with R.C. 119.07
satisfies “due process requirements because it sets forth a process reasonably calculated
to apprise the party of the charges against him and the opportunity to request a hearing.”
Kellough v. Ohio State Bd. of Edn., 2011-Ohio-431, ¶ 36.
{¶55} Appellant essentially argues that because the precise wording of the alleged
misrepresentations (money would go towards “working capital to buy tools and
equipment”) and because the specific circumstances surrounding the alleged
misrepresentations (dates, times, places) were not contained in the Notice, he was denied
due process. We disagree.
{¶56} After a review of the record and relevant facts, we find the Notice was
consistent with R.C. 119.07 and satisfied due process requirements. The record
demonstrates that fair notice of the charges at issue were given within the Notice received
by appellant. The facts surrounding B.S. and C.B.’s investment with appellant in HCP
are contained in the Notice. The Notice specifically contains the statute at issue and its
exact wording. The Notice does not limit the Division’s fraud allegations to the promissory
notes only, and encompasses oral/verbal statements appellant made directly to B.S. and C.B. Due process “require[s] only fair notice; not perfect notice.” Langdon v. Ohio Dept.
of Edn., 2017-Ohio-8356, ¶ 28 (12th Dist.) (“due process does not require the allegations
pinpoint the exact date and time when an alleged incident was to have occurred”); Bennett
v. Ohio Dept. of Edn., 2022-Ohio-1747 (4th Dist.); Seman v. State Med. Bd. of Ohio, 2020-
Ohio-3342 (10th Dist.).
{¶57} While appellant contends the Division utilized appellant’s verbal statements
as an “alternate theory” after the hearing, the information contained in the transcript
directly contradicts this argument. Appellant knew from the very start of the hearing these
statements would be at issue, as counsel for the Division argued in his opening statement
that appellant’s verbal statements about what the funds would be used for were knowingly
false. Further, Hitzeman testified the statements appellant made directly to C.B. and B.S.
regarding the use of the funds were false statements the Division based its R.C.
1707.44(B)(4) charges upon. Counsel for the Division specifically asked both B.S. and
C.B. during the hearing about oral statements appellant made directly to them about
where the funds and/or proceeds for their HCP investments were going to go.
{¶58} Additionally, to support reversal of the trial court, the record must
affirmatively show “that such error was to the prejudice of the party seeking such a
reversal.” Griffin v. State Med. Bd., 2011-Ohio-6089, ¶ 26 (10th Dist.). We find no such
prejudice exists in this case. Counsel for appellant cross-examined Hitzeman specifically
as to these oral statements made directly to B.S. and C.B. Counsel for appellant also
extensively cross-examined both B.S. and C.B. about these statements. Further, counsel
specifically asked appellant what he told C.B. and B.S. their investments would be used
for. Appellant responded, “I don’t know that I would have been specific pointing to things. I will say that the phraseology working capital would absolutely have been something that
would have been used in the conversation.” T. at 277. Appellant went on to describe
what he intended the phrase “working capital” to mean, which included the “servicing of
debt.” Appellant presented a focused defense to these specific allegations, which
centered on denials, explanations, and extensive cross-examination. Accordingly, he has
not demonstrated prejudice.
Witness and Exhibit Identification
{¶59} Finally, appellant argues that because the Division refused to identify its
potential witnesses or its exhibits until seven days prior to the hearing and did not allow
appellant to view the entirety of all of the exhibits prior to the hearing, his due process
rights were violated.
{¶60} On January 27, 2023, the Hearing Officer issued an entry and order setting
forth modified prehearing deadlines. In that entry, the officer ordered “exchange of lists
of witnesses and exhibits” by Tuesday, April 4, 2023, at 4:30 p.m. EST. Appellant never
objected to this deadline. In fact, appellant filed his own witness list and list of exhibits on
the same day as the Division did (April 4, 2023). Further, at no time either before or
during the hearing, did appellant or his counsel inform the Hearing Officer that he needed
more time to review the exhibits. We find no fundamental unfairness in the Hearing
Officer’s prehearing deadlines, particularly when appellant failed to object to them.
{¶61} Further, the record does not affirmatively show appellant was prejudiced.
Id. At no time during the hearing did appellant argue he was not able to review the exhibits
prior to the hearing or that this somehow prejudiced him. Appellant did not object to the
admission of any of the Division’s exhibits. Additionally, almost all of the exhibits the Division set forth in their list and introduced at the hearing were either public records or
records produced by appellant in response to a subpoena. The two summaries
composed by Division employees introduced as exhibits were short, and were merely
summaries of information provided by appellant. Additionally, appellant knew both C.B.
and B.S. were involved in the Division investigation since February of 2020 because
appellant himself provided the Division with their names at the February 2020 hearing.
{¶62} Upon our review of the record, appellant’s first assignment of error is
overruled. We find appellant had reasonable notice and a meaningful opportunity to be
heard. As such, his due process rights were not violated.
II.
{¶63} In his second assignment of error, appellant argues the Division’s finding
that he sold nonexempt, unregistered securities is contrary to the plain text of the relevant
statute. Appellant contends that since the shares of HCP were not made available to the
public and were only available to a select number of investors that appellant hand-picked,
the exemption contained in R.C. 1707.02(G) is applicable.
{¶64} The Division found appellant violated R.C. 1707.44(C)(1), which prohibits
the sale, or offering of sale, of nonexempt, unregistered securities. There is no dispute
that the HCP promissory notes were not registered. However, appellant argues the
exception contained in R.C. 1707.02(G) applies. It states, “promissory notes are exempt
[from enforcement under R.C. 1707.44(C)(1)] when they are not offered directly or
indirectly for sale to the public.”
{¶65} The Division’s rules, adopted in accordance with R.C. 1707.20(A)(1) and
contained in the Ohio Administrative Code, define the scope of the private-sale exemption and limit the exemption to promissory notes sold either: (1) to officers, directors, general
partners, and management of the issuing company, or (2) to not more than 10 persons
during a 12-month period, where those sales meet certain additional criteria. Adm.Code
1301:6-3-02(D). The burden of establishing that the promissory notes were exempt from
the registration requirements of R.C. Chapter 1707 is on appellant, because it is an
affirmative defense, and he is the party attempting to claim the benefit of the exemption.
R.C. 1707.45; Mathias v. Rosser, 2002-Ohio-2772, ¶ 27 (10th Dist.).
{¶66} Appellant does not argue his sale of the promissory notes met the criteria
for the exemption. Rather, appellant asked the trial court, and now this Court, to ignore
the definition contained in Admin.Code 1301:6-3-02(D) and instead adopt the broader
dictionary definition of the word “public.” Appellant cites to the Supreme Court of Ohio’s
decision in TWISM Ent., L.L.C. v. State Bd. of Registration for Professional Eng. and
Surveyors for the proposition that a court is not required to defer to an agency’s
interpretation of the law, and argues the trial court and this Court should not give any
deference to the agency’s interpretation of the term “public.” Appellant asserts we should
instead adopt the ordinary meaning of the term “public” as contained in the dictionary
(“open or available for all to use, share, enjoy”).
{¶67} While appellant is correct that the Supreme Court of Ohio has held, “it is
never mandatory for a court to defer to the judgment of an administrative agency with
respect to the interpretation of a statute,” the Supreme Court also stated in TWISM that
a court “may consider an administrative agency’s construction of a legal text in exercising
its duty to independently interpret the law.” Id. at ¶¶ 42-44. Further, the interpretation of an administrative agency does “constitute a body of experience and informed judgment
to which courts and litigants may properly resort for guidance.” Id. at 47.
{¶68} Upon our independent review, we agree with the trial court that the
Division’s definition of the term “public” is a practical one, providing a clear line between
the public and private sale of securities. Additionally, courts who have addressed the
issue of how to define the term “public” as contained in R.C. 1707.44(G) have utilized the
definition contained in Administrative Code. Perrysburg Twp. v. Rossford Arena
Amphitheater Auth., 2008-Ohio-363 (6th Dist.); Mathias v. Rosser, 2002-Ohio-2772 (10th
Dist.); State v. Jackson, 1994 WL 162338 (9th Dist.); State v. Taubman, 78 Ohio App.3d
834 (1992) (definition of public in Admin.Code applicable to R.C. 1707.44(G)). One court
has specifically held that Admin.Code 1301:6-3-02(D) properly amplifies and defines the
exemption contained in R.C. 1707.44(G) and “is neither in excess of the policies behind
the enabling statute under which it was promulgated nor in conflict with the legislative
scheme of which it is a part.” Perrysburg Twp., 2008-Ohio-363 at ¶ 52.
{¶69} Appellant’s second assignment of error is overruled.
III.
{¶70} In his third assignment of error, appellant makes four sub-arguments: (1)
the Division used the wrong definition of “knowingly,” (2) the Division failed to present
evidence to support a finding that he made affirmative representations, (3) the Division
failed to present evidence that would support a finding that appellant “caused” any
misrepresentations to be made, and (4) the Division failed to show the statements in the
promissory notes were false. Definition of Knowingly
{¶71} Appellant contends the Division and the trial court erred in concluding that
he knowingly failed to disclose material information to potential investors. Appellant
argues this Court should adopt the definition of “knowingly” contained R.C. 2901.22(B).
We disagree.
{¶72} Chapter 1707 of the Ohio Revised Code, the chapter under which appellant
was found to have violated in this case, specifically provides a definition for the term
“knowledge” in the securities-law context. R.C. 1707.29 provides:
In any prosecution brought under sections 1707.01 to 1707.50 of the
Revised Code . . . the accused shall be deemed to have knowledge of any
matter of fact, where in the exercise of reasonable diligence, the accused
should, prior to the alleged commission of the offense in question, have
secured such knowledge.
{¶73} R.C. 1707.29 “has the general effect of defining ‘knowingly’ more in terms
of ‘negligently’ . . . rather than ‘knowingly’ . . . .” State v. Walsh, 66 Ohio App.2d 85, 95
(10th Dist. 1979). Thus, “a person is criminally liable if he represents facts to be different
than he should have known them to be if he had exercised reasonable diligence to
ascertain the facts.” Id. Ohio courts have utilized R.C. 1707.29 in non-criminal cases.
Chiles v. M.C. Capital Corp., 95 Ohio App.3d 485 (10th Dist. 1994) (knowledge
requirement of R.C. 1707.44(C)(1) must be read in conjunction with R.C. 1707.29); Emick
v. Hawkins & Assoc., 2004-Ohio-6803 (7th Dist.) (applying knowledge requirement in
R.C. 1707.29). {¶74} We find R.C. 1707.29 should apply in this case, a non-criminal case brought
by the Division under Chapter 1707. We agree with the trial court that R.C. 1707.29
provides a helpful, context-specific definition and is more appropriate than the standard
criminal-law definition of knowledge. Additionally, as noted by the trial court, appellant
had actual knowledge of several of the material non-disclosures, including that (1) he was
being paid a salary by HCP as well as commissions to bring new investment money to
HCP, (2) he had a financial interest in HCP, (3) he exercised control over bank accounts
on behalf of HCP, (4) the promissory notes were unregistered securities, and (5) he was
an unlicensed dealer. We similarly find no error in the trial court’s conclusion that
appellant could have, in the exercise of reasonable diligence, secured knowledge as to
how the investor’s funds would be utilized, and thus violated R.C. 1707.44(G).
{¶75} Appellant argues that if this Court applies R.C. 1707.29, he is entitled to
Brady materials because R.C. 1707.29 contains the word “prosecution,” and the term
“prosecution” is only used in criminal cases. We disagree. Simply because appellant
could have faced criminal prosecution under Chapter 1707 does not mean Brady is
applicable because appellant was not charged criminally. The trial court did not commit
error in applying R.C. 1707.29 in this case.
Affirmative Misrepresentation
{¶76} This argument centers around the Division’s finding that appellant violated
R.C. 1707.44(B)(4), which provides:
(B) No person shall knowingly make or cause to be made any false
representation concerning a material and relevant fact, in any oral statement or in any prospectus, circular, description, application, or written
statement, for any of the following purposes:
...
(4) Selling any securities in this state
{¶77} R.C. 1707.44(B)(4) prohibits an affirmative misrepresentation, and does not
apply to fraudulent nondisclosure. Steinfels v. Ohio Dept. of Commerce, Div. of
Securities, 129 Ohio App.3d 800 (10th Dist. 1998).
{¶78} Appellant contends the Division failed to present evidence to support a
finding that he made any affirmative representations. Appellant argues that, at most, he
failed to disclose, which is not sufficient for a R.C. 1707.44(B) violation. Appellant argues
the evidence demonstrates the promissory notes were created and signed by Walton, not
him. Further, that the Division and the trial court’s conclusions contradict the evidence
produced at the hearing because he honestly believed the primary purpose of the capital
raised was to purchase machines and equipment, and the Division did not trace the
entirety of the funds.
{¶79} In this section of his argument, appellant essentially asks this Court to weigh
the evidence, which is not the role of this Court. We have reviewed the record, not to
weigh the evidence, but to ensure there was appropriate evidence for the trial court’s
decision. Despite appellant’s contentions, we find there is evidence in the record to
support the trial court’s decision. The trial court made the following findings: (1) B.S. and
C.B. recalled their conversations with appellant in detail, and their testimony was
consistent with the documentary evidence; (2) appellant verbally assured potential
investors, including B.S. and C.B., that their money would be used to purchase equipment for projects HCP was allegedly engaged in; (3) a majority of the funds raised by appellant
and deposited into Chase were not used to purchase equipment but were used to pay
appellant and HCP’s prior investors; (4) of the $925,000 deposited into Chase, $200,000
of which came from direct solicitation of B.S., $585,468.53 was paid to prior investors,
over $210,000 was paid to appellant, over $24,000 was paid to Level, and only $195,000
was paid to HCP; (5) appellant was the sole authorized signatory on the Chase account;
and (6) appellant negotiated a salary, plus commission on investor proceeds, for himself
before he solicited funds from the investors.
{¶80} “Within the ambit of questions for law for appellate-court review [in an
administrative appeal] is whether the common pleas court abused its discretion” in making
its factual determinations. City of Independence v. Office of the Cuyahoga Cty. Executive,
2014-Ohio-4650, ¶ 14. In examining each one of the factual findings made by the trial
court as listed above, we find the trial court did not abuse its discretion in making these
determinations, as they accurately reflect the information contained the administrative
record, including the transcript.
{¶81} We further find these factual findings provide reliable, substantial, and
probative evidence of the trial court’s determination that, based on the totality of the
circumstances: appellant’s assurances to the investors clearly conflict with how the funds
were utilized, appellant would have known his statements to the potential investors were
false at the time the statements were made, and appellant would have known the funds
he solicited would be used for purposes other than for the purchase of equipment or
machines for HCP. We also find the trial court’s determination that, even if the Division
did not trace the entirety of the investors’ funds, appellant’s statements remain false. R.C. 1707.44(B) does not require the Division to trace every investor fund for the section to
apply, and the Division proved a majority of the funds deposited into Chase were used
for purposes other than the purchase of equipment for HCP.
“Caused” Misrepresentations
{¶82} Appellant next contends the Division failed to present evidence to support
a finding that he “caused” misrepresentations to be made because he was not the source
of the statements in the promissory notes, Walton was.
{¶83} Appellant encourages this Court to utilize the definition of “cause to be
made” contained in R.C. 2917.21(B)(1) from the Ohio Criminal Code defining the crime
of telecommunications harassment. As noted above, this is not a criminal case, much
less a telecommunications harassment case. Accordingly, we find any definitions
contained in R.C. 2917.21(B)(1) inapplicable in this case.
{¶84} The trial court did not hold, as a matter of law, that appellant “caused”
misrepresentations to be made via the promissory notes. Rather, the trial court found
that appellee did not have to prove appellant made or “caused to have been made,” the
statements contained within the promissory notes because appellant’s verbal statements
to C.B. and B.S. are, on their own, sufficient to support a finding that appellant violated
R.C. 1707.44(B)(4). We agree with the trial court. As detailed above, there is competent
and credible evidence to support the trial court’s determination that the facts surrounding
appellant’s verbal statements to C.B. and B.S. were sufficient to demonstrate a violation
of R.C. 1707.44(B)(4).
False Statements {¶85} Finally, appellant argues the Division failed to show the statements in the
promissory notes were false because: (1) appellant had no knowledge of Walton’s
deception, (2) appellant thought the loans would go towards commercial, agricultural, and
industrial activities and (3) consultant payments to appellant, travel expenses of appellant,
and paying prior investors’ interest payments are all “commercial” activity.
{¶86} As to the first portion of appellant’s argument, appellant asks this Court to
weigh the evidence and find his testimony credible. However, that is not the role of this
Court in an administrative appeal.
{¶87} Further, as detailed above, the trial court did not rely upon the promissory
notes for its determination. Rather, it based its decision on the verbal statements
appellant made directly to the potential investors. There is competent and credible
evidence to support the trial court’s determination that the facts surrounding appellant’s
verbal statements to C.B. and B.S. were sufficient to demonstrate a violation of R.C.
1707.44(B)(4). Specifically, as it applies to this argument, we find the factual findings by
the trial court as set forth above provide reliable, substantial, and probative evidence of
the trial court’s determination that appellant would have known his statements to the
potential investors were false at the time the statements were made. Appellant’s third
assignment of error is overruled. {¶88} Based on the foregoing, appellant’s assignments of error are overruled.
The May 28, 2024, judgment entry of the Delaware County Court of Common Pleas is
affirmed.
By: Popham, J.,
Hoffman, P.J., and
Baldwin, J., concur [Cite as Henneforth v. Seidt, 2025-Ohio-1109.]