North Atlantic Securities, LLC v. Maine Office of Securities

• Court: Superior Court of Maine
• Decided: July 10, 2012
• Docket: CUMbcd-ap-12-01
• Status: Unpublished

Opinion

.J STATE OF MAINE BUSINESS AND CONSUMER COURT CUMBERLAND, ss Locatiou: Portland Docket No.: BCD-AP-12-01

) NORTH ATLANTIC SECURITIES, LLC, ) MICHAEL J. DELL'OLIO & ) ASSOCIATES, and MICHAELJ. ) DELL'OLIO, ) ) Petitioners, ) DECISION AND ORDER ) V. ) ) MAINE OFFICE OF SECURITIES, ) ) Respondent ) )

Petitioners Nortb Atlantic Securities, LLC (NAS), Michael J. Dell'Olio. & Associates

(MID), and Michael J. Dell'Olio seek judicial review, pursuant to 32 M.R.S. § 16609 (2011) and

M.R. Civ. P. 80C, of a decision of the SecurJties Administrator of the Maine Office of Secmities

(MOS) dated Febrnary 2, 2011 (hereinafter, 11 Decision"). The Administrator concluded that

Petitioners committed "unlawful, dishonest or unethical practices,'' see 32 M.R.S. § 16412(4)(M)

(2011), and revoked the licenses of all three Petitioners, pursuant to 32 M.R.S. § 16412(2)

(2011). (Administrative Record (hereinafter, "A.R.") 2015-16.)

FACTUAL BACKGROUND NAS is a broker-dealer located in Saco, ME, and has been licensed as such since 2003.

See 32 M.R.S. § 16401 (2011) (requiring licensure of broker-dealers conducting business in

Maine). (A.R. 1992.) MJD has been a Maine-licensed investment adviser since 2002 and shares

an office with NAS. (A.R. 1993.) See 32 M.R.S. § 16402 (2011) (requiring licensure of

investment advisers coqducting business in Maine), Dell'Olio is an agent of NAS, see 32 M.R.S.

1 § 16402, an investment advisor representative of MJD, see 32 M.R.S. § 16404 (2011), and owner

of both firms. (A.R. 993.)

The client in question is Rachel Demers. Ms. Demers is Dell'Olio's mother in law and

has been a brokerage and investment advisory client of Dell'Olio and his firms since December

of 2003. (A.R. 1993.)

The 2006 Loan

The Administrator found that on or about June 16, 2006, DelJ 'Olio borrowed $20,000

from Ms. Demers; the money came out of an account that Ms. Demers had at NAS's clearing

broker at the time.' (A.R. 1993.) Upon receipt of the $20,000, Dell'Olio put $11,750 of the

funds into NAS and created a "payment schedule" setting forth repayment terms. (A.R. 1993.)

Dell'Olio made several monthly payments, but did not repay $15,583 of the amount advanced.

(A.R. 1993-94.) Three checks, each in the amount of $631, were paid to Ms. Demers from either

MID or Dell'Olio personally. The checks were dated August 4, 2006, September 11, 2006, and

October 16, 2006. (A.R. 855-57.) During his deposition, Dell'Olio testified that the $20,000

payment was not a loan, but compensation for renovations that he made to a house owned by his

wife. (A.R. 1994.)

T he 2008 Loan

The Administrator found that on or about April 27, 2008, Dell'Olio persuaded Ms.

Demers to loan Dell'Olio's son, Brian Dell'Olio, $150,000 so that Brian could purchase a

building from which NAS and MJD would operate. (A.R. 1994.) Dell'Olio established a

non-purpose loan account with Pershing, NAS's clearing firm, in the name of Ms. Demers and

secured by the value of Ms. Demers' securities. (A.R. 1994.) Dell 'Olio then had Ms. Demers

1 Petition.e rs dispute this finding vi gorously, 11sscrting that the $20,000 was not a loan, but payment for renovations

that Dell'Ollo performed on Demcrs's home, for which payment he sub~equently reimbursed Ms. Demers.

2 borrow $150,000 from Pershing in the account and wire the $150,000 to a bank account in the

name of Delmore Associates, LLC (Delmore). (A.R. 1994.) Delmore's sole member is Brian

Dell'Olio. (A.R. 1994.) Shortly thereafter, Delmore purchased the bullding where NAS and

MJD are now located; most of the purchase was funded by a mortgage loan from Norway

Savings Bank. Approximately $94,000 of the $150,000 received from Ms. Demers was used to

purchase the building. (A.R. 1994-95.) Dell'Olio and his son used the remaining $56,000 for

vArious other purposes, including $10,000 to pay off Dell'Olio's car loan, and approximately

$4700 paid into the retail brokerage account of MJD. (A.R. 1995.)

Autl1orization Letters

On five occasions in 2008, Dell'Olio asked Ms. Demers to provide further money

through the non-pmpose loan account because of financial difficulties, in part due to margin calls

on his personal brokerage account. (A.R. 1995.) To obtain the money, Dell'Olio needed Ms.

Demers' written authorization. (A.R. 1995.) On at least three of the five occasions,2 Dell'Olio

did not obtain a new letter of authorization, but "cut and pasted" a copy of Ms. Demers'

signature from an earlier letter of authorization to make it appear as if Ms .. Demers had signed

the new letters. (A.R. 1995-96.) Dell'Olio then submitted the forged letters to Pershing as if I- they were authentic. (A.R. 1996.) A total of $47,000 was wired into the Delmore account

through the forged letters of authorization. (A.R. 1996.) $18,000 was then disbursed from that

account to checking or brokerage accounts of MID or Dell'Olio. (A.R. 1996.) The balance was

used to cover business expenses of NAS ­and MJD. (A.R. 1996-97.) $14,000 was subsequently

repaid to Ms. Demers. (A.R. 1997.)

2 In the decision, the Administrator states that nil subsequent five letters of authorization were not signed by Demers

but were cul and paste "forgeries." (A.R. 2011.) Forgery is not used in the criminal sense; it is used lo refer to the blanket prohibition against "forgery" in the Petitioners' written procedures. (A.R. 2011 n.18.)

3 PROCEDURAL BACKGROUND MOS issued a Notice of Intent on June 10, 2011. (A.R. 1-4, 1989.) The Notice of Intent

was signed by Judith Shaw, the Administrator who presided over the hearing and issued the

resulting Decision. (A.R. 4, 2017.) Petitioners requested a hearing on June 21, 2011. (A.R. 10,

I 990.) Petitioners moved to disqualify Ms. Shaw from participating in the adjudication based on

her involvement in the investigation of NAS, MJD, and Dell'Olio. (A.R. 12-25.) The

Administrator, i.e. Ms. Shaw, denied the motion. (A.R. 93-95.)

After various pre-hearing procedures, the hearing commenced on October 26; 2011, and

continued on November 7, 2011, ending that same day. (A.R. 1991.) During the hearing,

Petitioners moved for dismissal of the allegations regarding the 2006 loan, arguing that they

were time barred by the statute of limitations. See 32 M.R.S. § 16412(9) (2011). (A.R. 1904-06,

1998.) The Administrator denied the motion, but Petitioners renewed the argument in their

written closing arguments. (A.R. 1908-09, 1946-47, 1998.) The Administrator issued her

decision on Febrnary 2, 2012. (A.R. 2017.)

Title 32 M.R.S. § 16412(4)(M) prohibits a broker-dealer or investment adviser from

engaging in "unlawful, dishonest or µnethical practices in the securities, commodities,

investment, franchise, banking, finance or insurance business." The Decision found four

violations of section 16412(4)(M) for the following acts:

• borrowing money from a client;

• borrowing money from a client "for the express purpose of purchasing a building and then using a significant portion of the proceeds for other purposes" that benefitted all Petitioners;

• "creating and submitting authorization letters bearing false 'cut and paste' signatures"; and

• "nrnking false statements to the Office of Securities."

4 (A.R. 2016.) The Administrator found Dell'Olio subject to discipline as the individual directly

engaged in the conduct described and NAS and MJD subject to discipline as "control persons of

those engaging in the conduct." See 32 M.R.S. § 16412(8) (2011) ("A person that controls,

directly or indirectly, a person not in compliance with this section may be disciplined by order of

the administrator ....").

Petitioners filed a timely appeal on February 9, 2012, in Kennebec Superior Comt. The

matter was transferred upon motion to the Business and Consumer Docket on March 16, 2012.

The Court heard oral argument on June 1, 2012.

STANDARD OF REVIEW

In an appeal of final agency action brought pursuant to M.R. Civ. P. 80C, the court

reviews "the agency's decision for errors of law, abuse of discretion, or findings not supported

by substantial evidence in the record." Beauchene v. Dep't ofHealth & Human Servs., 2009 ME

24, ~ 11, 965 A.2d 866, 870 (quotation marks omitted); see also Seider v. Bd. of Exam'rs of

Psychologists, 2000 ME 206, ~ 8, 762 A.2d 551, 555, On appeal, the court may affirm the

decision, 5 M.R.S. § l 1007(4)(A) (2011), remand for further proceedings, 5 M.R.S.

§ 11007(4)(B) (2011), or:

[r]everse or modify the decision if the administrative findings, inferences, conclusions or decisions are:

(1) In violation of constitutional or statutory provisions; (2) In excess of the statutory authority of the agency; (3) Made upon unlawful procedure; (4) Affected by bias or error of law; (S) Unsupported by substantial evidence on the whole record; or (6) Arbitrary or capricious or characterized by abuse of discretion.

5 M.R.S. § 11007(4)(C) (2011).

5 "TI1e court shall not substitute its judgment for that of the agency on questions of fact."

5 M.R.S. § 11007(2) (2011). Factual findings must be affirmed if "they are suppo1ted by

substantial evidence in the record, even if the record contains inconsistent evidence or evidence

contrary to the result reached by the agency." Concerned Citizens to Save Roxbury v. Bd. of

Envtl. Prof., 2011 ME 39, ! 24, 15 A.3d 1263 (quotation marks omitted). Substantial evidence is

"any competent evidence in the record to support a finding" based upon a review of the entire

record to determine whether "the agency could fairly and reasonably find the facts as it did." Id.

"An agency's findings of fact will be vacated only if there is no competent evidence in the record

to suppott a decision." Id. ! 24, 15 A.3d 1263 (quotation marks omitted). Credibility

determinations of witnesses are within the exclusive province of the Administrator as fact finder.

See Sprague Elec. Co. v. Me. Unemployment Ins. Comm'n, 544 A.2d 728,732 (Me. 1988).

DISCUSSION

I. S(fltute of Limitations: 32 M.R.S. § 16412(9)

Petitioners first argue that proceedings related to the 2006 loan transaction are precluded

by the limitations period set forth in 32 M.R.S. § 16412(9) because all the material facts were

known to MOS in 2006. Title 32 M.R.S. § 16412(9) provides that "[t]he admjnistrator may not

institute a proceeding ... based solely on material facts actually known by the administrator

unless an investigation or the proceeding is instituted within one year after the administrator

actually acquires knowledge of the material facts." (Emphasis added).

Petitioners argue that during a routine examination by MOS of NAS and MJD in 2006,

MOS learned of the 2006 trnnsfer of funds from Ms. Demers to Dell'Olio, and thus was "on

notice" of the transaction. Two MOS employees examined NAS and MJD in 2006: Mr.

Smedberg and Mr. Dyer. Dell'Olio testified at the hearing that the $20,000 was "used as part of

6 a repayment of a loan," that Ms. Demers should "make it out as a loan," and that the money was

to "repay for expendinires that came out of my personal pocket to fix up the house." (A.R. 1910

at 231:19-25.) Later, Dell'Olio testified that he told Mr. Dyer that the transfer was a loan from

Ms. Demers, but that Mr. Dyer was unconcerned because FINRA 3 regulations allowed such a

Joan. (A.R. 1910 at 232:1-17.) Based on MOS's alleged knowledge of the transaction in 2006

and failure to initiate an investigation until 2009, Petitioners. contend that the transaction is

barred by section 16412(9).

The Administrator rejected Petitioner's statute of limitations argument. (A.R. 1909,

1998-2001.) The Administrator reasoned that: "The statute precludes the initiation of a

proceeding that is based 'solely' on material facts actually known unless the proceeding is

initiated within one year. This investigation and proceeding, however, is based upon significant

material facts discovered as recently as 2010." (A.R. 2000.) In her interpretation and

application of the term "solely" in section 16412(9), the Administrator relied upon the official

commentary to the Uniform Securities Act, which states:

The addition of the word "so!ely 11 is intended to make It clenr that an administrntor may consider the prior history of au applicant or registrant even if thflt prior history had been known to the admiu.istrntor for more thau one year if there are additional material facts which are actually known to the administrator within the Inst year.

Joseph 0. Steligman, The New Uniform Securities Act, 81 Wash, .Univ. L. Q. 243, 284-85

(2003). (A.R. 2000-0 I .)

Petitioners argue that the Court should apply a "discovery rule" interpretation to section

16412(9), More specifically, citing Donahue v. United States, 634 F.3d 615 (1st Cir. 2011), en

bane reh'g denied, 660 F.3d 523 (1st Cir. 2011), cert denied, Macarelli v. United States, No.

3 FINRA is the Financial Industry Regulntory Authorll}', "the largest independent regulntor for nll securities firms doing business in the United States." About FINRA, FINRA.org, http://www.Flnra.org/AboutFfNRA/ (last visited June2l,2012).

7 11-838 (U.S., May 4, 2012), Petitioners contend that because reasonable inqui1y would have

revealed the transaction in 2006, MOS should be deemed to have knowledge as of that date.

Donahue, however, involved a claim under the Federal Tort Claims Act (FfCA), which is

fundamentally different than an action commenced pursuant to section 16412(9).4 634 F.3d at

616.. That is, while section 16412(9) clearly states that only "actual knowledge" triggers the one

year limitation period, "actual knowledge of the injury and its cause is not necessary for a claim

to accrue" under the FfCA. Donahue, 634 F.3d at 623-24. Petitioners' reliance on Donahue is

thus not persuasive.

For the Court to adopt the discovery rule as urged by Petitioners, the Court would

improperly give no meaning to the legislature's use of the term "solely" in section 16412(9). See

Davis Forestry Prods, Inc. v. DownEast Power Co., LLC, 2011 ME 10, J 9, 12 A.3d 1180 ("All

words in a statute are to be given meaning, and none are to be treated as surplusage if they can be

reasonably construed,"). The record supports the conclusion that the only material fact known

by MOS in 2006 was the first $631 check/ and its materiality was not established until 2009. In

4 In Donahue, the Firs! Circuit nddrcssed the accrual of causes of action under

Actunl knowledge of' the injury and lls cause is 1101 ncccssnry for n clnim to accrue. A plaintiff who is unaware of the fnctual basis for his claim may be charged with such knowledge based 011 information that he rcnsonably should lmve known or discovered in the exercise of due diligence.

634 F.3d at 623-24 (citntions omiHed). Ultimately, a majority of First Circuit panel held lhal the plaintifts' clnlms were barred by 1hc slc1tutc of limilatrons. Id. at 630. Judge Torruelln dissented from the decision nnd from lh~ denial of the en bane rehe1uing, as did Judge Lipez and Judge Thompson. Id. al 63 l-39i D011aliue v. United Swtes, 660 F.3d 523,524-3l (Isl Cir. 201 J). 5 The Administrator discredited Dell 'Ollo's testimony 011 the 2006 transaction because ii was 1101 consistent with the notes of Mr. Dyer or Mr. Smcdberg's testimony. (A.R. 1999.) Mr. Dyvr's notes surround lbc August 4, 2006, check nnd slate lhal the money wns given to Dell'Ollo by Ms. Demers to purchase building supplies and the $631 check wus ro return funds nol used for the project. (A.R. 859, 1999.) Although three checks had been wrlllen nt lhe rime of the 2006 routine Investigation, there was no mention in Mr. Dyer's notes of the second and third checks, and Mr. Smcdbcrg did nol recall those checks when presented 10 hlm at lite henring. (A.R. 1901 ar 198:8-13.) Mr. Smedbcrg's teslimony al the hearing was consistent wl1h lhnt explanation. (A.R. 1901 al J96:7-17.)

8 addition, the record contains numerous other material facts that were unknown until 2009. Given

that MOS has asserted facts that it did not know prior to 2009, this action is not time barred.

II. Suffi ciency of the Evidence: 5 M.R .S. § J 1007(4)(C)(5)

The Administrator found that the Petitioners engaged in fom acts that were violations of

32 M.R.S. § 16412(4)(M), which acts involve the 2006 loan, the 2008 loan, alleged forgery, i:ind

alleged false statements. Petitioners challenge the sufficiency of the evidence for each violation.

A. The 2006 Loan

The Administrator found that the 2006 transaction was a loan by Ms. Demers, a client, to

Dell'Olio, her investment adviser. The Administrator's conclusion was based principally on

Dell 'Olio's testimony, a repayment schedule, and the three checks in the amount of $631, (A.R.

2001.) The repayment schedule, which is undated, sets forth the essential terms of the loan:

principal borrowed, annual interest rate, period of repayment, and the date for each monthly

payment, (A.R. 858.)

Citing Dell '0Iio's testimony and affidavits submitted by Demers, Petitioners maintain

that the 2006 transaction was not a loan. Petitioners argue that when she determined that the

transaction was a loan, the Administrator viewed Dell'Olio's testimony out of context. (See A.R.

2001 (relying on testimony at A.R. 1801 at 81:23-82-4).) In support of this argument, Petitioners

point to Dell'Olio's testimony in which he stated that "[i]t [the transaction) didn't stait out that

way," but that he and Demers later "made it a loan." (A.R. 1801 at 81:23-82-4.) Although some

ambiguity arguably exists regarding DeJl'Olio's testimony, the Administrator's findings are

partly based on her assessment of the witnesses' credibility. In this regard, "the court shall not

substitute its judgment for that of the agency on questions of fact." 5 M.R.S. § 11007(2). Thus,

based on credibility determinations of Dell'Olio's testimony and other documentary evidence,

9 there is sufficient record evidence to support the factual conclusion that the transaction was a

loan. See Concerned Citizens to Save Roxbury, 2011 ME 39,, 24, 15 A.3d 1263.

Upon concluding that the transaction was a loan, the Administrator determined that

Dell'Olio and MJD violated 32 M.R.S. § l6412(4)(M) because the pertinent MOS rule prohibits

an investment advisor or an investment adviser representative from borrowing m~ney from a

client. See 02-032 C.M.R. ch. 515, § 14(6) (2008); see also 32 M.R.S. § 16605(1) (2011)

(constituting the Administrator's rule-making authority). 6

The Administrator also found that NAS violated 32 M.R.S. § 16412(4)(M) because the

applicable MOS rule prohibits a broker-dealer or its agent from borrowing money from a client:

A person may be deemed to have engnged in "dishonest or unethical prnctices" under Section l641 2(4)(M) of the [Maine Securities] Act if the person engaged in prncti ces in cluding but not limited to one or more of tile foll owing:

36. As an agent, lending money or securities to, or borrowing money or securities from, a customer, or acting as A custodian for money, securities or an executed stock power of a custom~r, unless:

A. The broker-dealer has written procedures allowing such an arrangement; a11d

B. The customer is:

6 The rule states in pertinent pnrt: . A person may be deemed to hove engnged in "dishonest or uneth.lcal practices" under Section 16<11 2(4)(M) of the [Maine Sccurili esl Act if the person engaged in practices including but not limilcd to one or more of the foll owing:

6. Borrowing money or securities from a client unless the client is a broker-dealer, an affiliate of lhc investment adviser, or a financial institution engaged in the business of loaning funds.

02-032 C.M.R. ch. 515, § 14(6). The parties do not contend that any of the exceptions to the rule apply here.

10 (1) a member of the agent's immediate family or another person whom the agent supports, directly or indirectly, to a material extent;

(2) a financial institution regularly engaged in the business of providing credit, financing, or loans, or other person that regularly arranges or extends credit in the ordinary course of business; or

(3) a licensed agent of the same broker-dealer, if the broker dealer has given advance written authorization for the arrangement.

02-32 C.M.R. ch. 504, § 8(36) (2008) (emphasis added). The Administrator specifically found

that NAS had not adopted written procedures that permitted the loan during the relevant time

period and thus the exception in section 8(36)(8)(1) of Rule 504 did not apply . (A.R. 2002-06.)

Petitioners assert that NAS's Written Supervisory Procedures (WSPs) contained a family

member loan exception in early 2006 and, therefore, the evidence does not support the

Administrator's findings. At the hearing, numerous versions of NAS's WSPs were admitted into

evidence. The version advocated by Petitioners (Petitioners' Exhibit Cl) contains the family

member exception, which version reflects an effective date of February 28, 2006. (A.R. 1323.)

The WSP supplied by Petitioners at hearing differed from the WSP that Petitioners provided to

MOS in 2006 during the routine examination-the WSP provlded in 2006 to MOS did not

include the family member exception but indicated the same effective date. (A.R. 213.) Simply,

the Administrator discredited Petitioners' evidence and credited the evidence provided by MOS.

In part, the Administrator discredited t~e WSP that Petitioner introduced at the hearing because it

did not contain the naming convention that a former NAS employee testified that NAS used to

ensme the correct version is being used. (A.R. 2004.) Once again, the Administrator determined

which evidence was more credible. Credibility determinations are properly within the

Administrator's discretion. The evidence, therefore, is sufficient to support the finding that

11 NAS's WSPs did not contain the family member exception in 2006. See Concerned Citizens to

Save Roxbury, 2011 MB 39, ~ 24, 15 A.3d 1263.

B. The 2008 Loan

The Administrator concluded that the $150,000 loan from Demers to Delmore was

"effectively a loan for [Petitioners!," (A.R. 2009), because "Delmore was used, in part, as a

conduit to transfer funds from Ms. Demers' account to Dell 'Olio and his firms" (A.R. 2007).

The Administrator based th.is conclusion the following findings regarding Dell'Olio's

involvement in the loan:

• Dell 'Olio convinced Demers "to arrange for the loau by setting up a non-purpose loan account using some of her securities as collateral";

• Dell 'Olio created the non-purpose loan account; 7

• Dell'Olio, on his own behalf and on behalf of MJD, guaranteed the mortgage to Delmore from Norway Savings Bank;

• Dell'Olio wrote checks on Delmore's checking account; and

• A portion of the loan proceeds were used to pay off the balance owed on Dell 'Olio's car loan.

(A.R. 2006-08.)

Petitioners argue that the loan was not to Dell'Olio and his firms, but was in fact a loan

from Demers to Delmore. According to Petitioners, Dell 'Olio only guaranteed the loan to

Norway Savings Bank because he is Brian Dell 'Olio's father. In her conc!usions of law, the

Administrator specifically determined: "By borrowing money from Ms. Demers for the express

purpose of purchasing a building and then using a significant portion of the proceeds for other

7 I.. Dell'Olio later withdrew additional funds from Demers's non-purpose account to cover his own margin calls, pulling Dell 'Ofio's account at risk for margin calls. (A.R. 2008 .)

12 purposes all benefitting Respondents, they committed unlawful, dishonest, and unethical

practices." (A.R. 2016 (emphasis added).)

Petitioners argue that the Joan was in fact from Demers to Delmore, not to Dell'Olio or

his companies, and that Dell'Olio only guaranteed the loan to Norway Savings Bank because he

is Brian's father. The Administrator explicitly rejected this argument, stating that Petitioners

"wish to hide behind the fact that the loan was made to Delmore Associates in order to avoid any

inference that [Petitioners] were the true benefactors." (A.R. 2007 .) The Administrator also

reasoned that

[b]roker-dealers and their agents, while not held to the same fiduciary standard as investment advisers, are held to l'l high standard of conduct. ln considering conduct that may be viewed flS antitheticol to the interests of investors and potentially dishonest, regulators take a broad view. In fact, FINRA has looked askance at borrowing practices that involve recommending a client make a questionable loan to a third party.

(A.R. 2008-09.) MOS argues that the evidence supports the Administrator's finding that

Dell'Olio was a recipient of the loan and that his actions w·ere dishonest and unethical, given the

admission that Petitioners' financial situation was such that they could not pay any rent to

Delmore. (A.R. 2009.)

The Court acknowledges that to the extent that the Administrator characterized the 2008

loan to Delmore as an unlawful loan to Dell'Olio, NAS, and MJD, Petitioners' challenge to the

finding might have some merit. That is, on its face, the form of the transaction reflects a loan to

Delmore. The Court need not, however, determine whether the Administrator can properly

cone! ude that the transaction constitutes an achial loan to Dell 'Olio in contravention of section

16412(4)(M). The Administrator's overall assessment of the transaction - that it was an atte,mpt

to circumvent the prohibition against a loan by a client to an advisor, and a way to provide funds

for Dell'Olio's use - is supported by substantial evidence on the record. In this way, the

13 Administrator's conclusion that the transaction constitutes unethical and dishonest conduct (A.R.

2016) is supported by substantial evidence on the record.

C. Forgery8

The Administrator found that Dell 'Olio's use of cut and pasted signatures as

authorization for withdrawals from the non-purpose account during 2008 and 2009 constitutes a

falsification of records and was thus a dishonest and unethical practice. (A.R. 2011-14)

Petitioners assert that Ms. Demers knew and approved of the use of her signature, citing

affidavits by Ms. Demers that support their assertion that she knew of the cut and pasting and in

fact directed Petitioners to do so. (A.R. 971,974, 978.)

Contrnry to Petitioners' argument, Demers' knowledge of and intent regarding the

signatures are not controlling. The NAS WSPs during the relevant time period expressly

prohibit the signing of a client's name: "Regardless of intention - whether authorized by the

client or done for the client's convenience - no employee may sign a client's name to any •'

document." (A.R. 398.) The decision does not address directly the involvement of MJD in the

withdrawals, but some of the funds were then deposited into MJD accounts, thus implicating the

contrnl provisions of 32 M.R.S. § 16412(8). The Administrator's fach1al conclusions regarding

the cut and pasted signatures are supported by substantial evidence on the record.

D. False Statements

The Administrator also determined that DeWOlio made false stateme1its to MOS staff

during his deposition when he claimed that the $20,000 loan was not a loan but compensation for

renovations that he pe1formed on a house owned by his wife. (A.R. 1994.) The record reveals

that at his deposition, Dell 'Olio stated that the $20,000 payment was compensation for work that

8 The decision makes clcnr that the Admlnistrntor is not using forgery In the crimlnnl sense. Forgery refers to r. Petitioners' blanket prohibition against "forgery" in their WSPs. (A.R. 2011 n.18.)

14 I l he performed on the house (A.R. 872-73). Because the Administrator concluded that the

$20,000 payment was in fact a loan (A.R. 2002), and because as explained above this conclusion

is supported by record evidence, the Administrator's determined that Dell'Olio's testimony is a

false statement is suppo1ted by substantial evidence in the record.

III. Constitutionality and Bias: 51vLR.S. § l 1007(4)(C)(l). (4)

Petitioners contend that the participation of the Administrator, Ms. Shaw, at the hearing

was unconstitutionally biased because Ms. Shaw also issued the "Notice of Intent" by which

Petitioners' licenses were revoked and thus she improperly participated in both an investigatory

and adjudicatory capacity in these proceedings.

As to participation by administrators in both investigatory and adjudicatory capacities,

the United States Supreme Court has said:

The contention that the combination of investigative and adjudicative functions necessarily creates an unconstitutional risk of bias in admin.istrati ve adjudication has a much more difficult burden of persuasion to carry. It must overcome a presumption of honesty and integrity in those serving as adjudicators; and it must convince that, under a realistic appraisal of psychological tendencies and human weakness, conferring investigative and adjudicative powers on the same individuals poses such a risk of actual bias or prejudgment that the practice must be forbidden if the guarantee of due process is to be adequately implemented.

It is not surprising, therefore, to find that "[t]he case law, both federal and state, generally rejects the idea that the combination [of] judging [and] investigating functions is a denial of due process , , , ," 2 K. Davis, Administrative Law Treatise § 13.02, p. 175 (1958). Similarly, our cases, although they reflect the substance of the prnblem, offer no support for the bald proposition applied in this case by the District Court that agency members who participate in an investigation are disqualified from adjudicating. The incredible variety of administrative mechanisms in this country will not yield to any single organizing principle. '

Withrow v. Larkin, 421 U.S. 35, 47, 52 (1975), Petitioners acknowledge the reasoning of

Withrow, but assert that the present case is distinguishable because Ms. Shaw made a

15 determination on the merits by signing the Notice of Intent insofar as the notices operated to

revoke the licenses unless Petitioners chose to request a hearing.

In her decision denying Petitioners' motion for disqualification, Ms. Shaw confirms that

she only signed the notice of intent and did not participate in the investigation. (A .R. 93-95 .)

Petitioners cite no record evidence to support their contrary conclusion, other than the form of

the notice itself, which they assert is self-effectuating. Absent any record evidence to establish

that Ms. Shaw made a determination on the merits prior to the hearing, the Court finds no

constitutional violation from Ms. Shaw presiding over these proceedings. As explained by the

United States Supreme Court,

[i]t is also very typical for the members of administrative agencies to receive the results of investigations, to approve the filing of charges or formal complaints instituting enforcement proceedings, and then to participate in the ensuing hearings. This mode of procedure does not violate the Administrative Procedure Act, and it does not violate due process of law. ·

Withrow,421 U.S.at56.

IV. Abuse of Discretion: 5 M.R.S. § 11007(4)(C)(6).

Petitioners argue that the discipline imposed through the Decision is an abuse of the

Administrator's discretion in two ways: 1) the license revocation is too harsh of a penalty, and

2) the penalty should not have been levied against NAS and MJD. In particular, Petitioners

contend that the license revocation is inappropriate because: Dell 'Olio has no prior history of

questionable conduct; the subject transactions involved a family member; Ms. Demers was not

the complaining party and has repeatedly supported Dell 'Olio and his condt1ct; the license

revocation is disproportionate when compared to the conduct; and the license revocation is

inconsistent the sanction imposed in similar cases.

) 16 The parties agree that abuse of discretion is the appropriate standard when evaluating the ' imposed discipline.

An abuse of discretion may be found where an appellant demonstrates that the decisionmaker exceeded the bounds of the reasonable choices available to it, considering the facts and circumstances of the particular case and the governing law. It is not sufficient to demonstrate that, on the facts of the case, the decisionmaker could have made choices more acceptable to the appellant or even to a reviewing court.

Sager v. Town ofBowdoinham, 2004 MB 40, ~ 11, 845 A.2d 567 (citing Steuben v. Lipski, 602

A.2d 1171, 1172 (Me. 1992)).

The Court recognizes that because the victim of Petitioners' conduct is a supportive

relative of Dell 'Olio, the Administrator's statutory mandate to protect the public might not be as

critical as in cases in which members of the general public experience losses as the result of an

advisor's misconduct. Nevertheless, given the Administrator's factual findings, which are

supported by record evidence, the Administrator's concerns about the public interest were

warranted. As explained above, the Administrator's findings establish that Petitioners failed to

abide by agency rules, that Petitioners failed to comply with NAS's own WSPs, that Dell'Olio

improperly signed documents on behalf of a client, and that Dell'Olio made false statements to

MOS about the 2006 transaction. The violations are serious, and objectively can justify a

significant sanction. Given the seriousness of the violations, and given that Petitioners have not

been barred from acting as a broker-dealer or an investment adviser in the future, see, e.g., In re

Douglas G. Bezio, No. 11-7133 (Me. Office of Securities, Mar. 4, 2012) (distinguishing between

a revocation and a bar), license revocation does not exceed the bounds of reasonable choices.

See Sager, 2004 ME 40, ! 11,845 A.2d 567.

Finally, although the Decision does not distinguish among the three Petitioners, the

Administrator found that NAS and MJD were "control persons." (A.R. 2016.) Section 16412

17 permits the Administrator to discipline control persons as well as those directly engaging in the

prohibited conduct:

8. Control person liability. A person that controls, directly or indirectly, a person not in compliance with this section may be disciplined by order of the administrator under subsections 1 to 3 to the same extent as the noncomplying person, unless the controlling person did not know, and in the exercise of reasonable care could not have known, of the existence of conduct that is a ground for discipline under this section,

32 M.R.S. § 16412(8) (2011 ). Petitioners do no assert that any of the exceptions to this

provision apply in this case. The decision to hold MID and NAS liable as control persons does

not "exceed[J the bounds of the reasonable choices available." Sager, 2004 ME 40, ! 11, 845

A.2d 567.

CONCLUSION

Based on the foregoing the court decides and orders as follows:

The Court affirms the decision of the Securities Administrator of the Maine Office of

Securities (MOS) dated February 2, 2011, in its entirety.

Pursuant to M.R. Civ. P. 79(a), the Clerk shall incorporate this Decision and Order into

the docket by reference.

Date: 7 /tb/lJ.

1- ~nlored on the Docket: 1·! '5. /.:f Cflples son! via Mart·- Eleclr~