MAINE SUPREME JUDICIAL COURT Reporter of Decisions
Decision: 2014 ME 67
Docket: BCD-12-368
Argued: September 11, 2013
Decided: May 15, 2014
*
Panel: SAUFLEY, C.J., and ALEXANDER, LEVY, SILVER, MEAD, GORMAN, and
JABAR, JJ.
Majority: ALEXANDER, SILVER, GORMAN, and JABAR, JJ.
Concurrence/
Dissent: SAUFLEY, C.J. and MEAD, J.
NORTH ATLANTIC SECURITIES, LLC, et al.
v.
OFFICE OF SECURITIES
ALEXANDER, J.
[¶1] North Atlantic Securities, LLC; Michael J. Dell’Olio & Associates,
LLC; and Michael J. Dell’Olio appeal from a judgment entered in the Business and
Consumer Docket (Nivison, J.) affirming the revocation of each of their securities
licenses by the Securities Administrator of the Office of Securities. The
revocations resulted from transactions in 2006 and 2008 through which Dell’Olio,
his son, and the entities under Dell’Olio’s control received more than $200,000 in
*
Levy, J., sat at oral argument and participated in the initial conference but resigned before this
opinion was adopted.
2
loans from Dell’Olio’s elderly mother-in-law,1 who was a client. Most of the loans
were not repaid. The companies and Dell’Olio argue that charges arising from the
2006 transactions were time-barred, the administrative record fails to support the
Administrator’s factual findings, the administrative process and the Administrator
herself were biased, and the penalty imposed was excessive. We affirm the
judgment.
I. STATUTORY AND REGULATORY FRAMEWORK
[¶2] The Maine Uniform Securities Act, 32 M.R.S. §§ 16101-16702
(2013), 2 includes licensing requirements for broker-dealers,3 agents,4 investment
advisers, 5 and investment adviser representatives 6 who deal in securities, id.
1
At the time of the administrative hearing in October 2011, Dell’Olio’s mother-in-law was
ninety-two years old.
2
Although there have been statutory amendments to these sections since the alleged misconduct, see,
e.g., P.L. 2013, ch. 39 (effective Oct. 9, 2013) (codified at 32 M.R.S. §§ 16409, 16508(1), 16604(4)
(2013)), the pertinent statutory language is unchanged, and we cite to the current statutes.
3
A broker-dealer is “a person engaged in the business of effecting transactions in securities for the
account of others or for the person’s own account.” 32 M.R.S. § 16102(4) (2013).
4
An agent is “an individual, other than a broker-dealer, who represents a broker-dealer in effecting or
attempting to effect purchases or sales of securities or represents an issuer in effecting or attempting to
effect purchases or sales of the issuer’s securities.” 32 M.R.S. § 16102(2) (2013).
5
An investment adviser is “a person that, for compensation, engages in the business of advising
others, either directly or through publications or writings, as to the value of securities or the advisability
of investing in, purchasing or selling securities or that, for compensation and as a part of a regular
business, issues or promulgates analyses or reports concerning securities.” 32 M.R.S. § 16102(15)
(2013).
3
§§ 16401-16411, and authorizes disciplinary action against licensees to protect the
public interest, including by revoking or suspending a license, id. § 16412. The
Securities Administrator of the Office of Securities is responsible for determining
whether discipline should be imposed. Id. §§ 16102(1), 16412, 16601(1). A
broker-dealer, agent, investment advisor, or investment advisor representative may
be disciplined for, within the previous ten years, “engag[ing] in unlawful,
dishonest or unethical practices in the securities, commodities, investment,
franchise, banking, finance or insurance business” or failing to reasonably
supervise a person under its supervision. Id. § 16412(4)(I), (M).
[¶3] “If the administrator finds that the order is in the public interest and
subsection 4 authorizes the action, an order issued under [the Maine Uniform
Securities Act] may revoke, suspend, condition or limit the license of a licensee.”
Id. § 16412(2). Before entering such a disciplinary order, the Administrator must
provide “[a]ppropriate notice to the applicant or licensee,” afford an “[o]pportunity
6
Investment adviser representatives are
individuals employed by or associated with an investment adviser or federal covered
investment adviser and who make any recommendations or otherwise give investment
advice regarding securities, manage accounts or portfolios of clients, determine which
recommendation or advice regarding securities should be given, provide investment
advice or hold themselves out as providing investment advice, receive compensation to
solicit, offer or negotiate for the sale of or for selling investment advice or supervise
employees who perform any of the foregoing.
32 M.R.S. § 16102(16) (2013).
4
for hearing,” and reach “[f]indings of fact and conclusions of law in a record in
accordance with Title 5, chapter 375 [the Maine Administrative Procedure Act].”
Id. § 16412(7); see also 5 M.R.S. §§ 9051-9064 (2013) (governing administrative
agencies’ adjudicatory proceedings).
A. Broker-Dealer and Broker-Dealer Agent
[¶4] North Atlantic was licensed as a broker-dealer and Dell’Olio as a
broker-dealer agent at all relevant times. See 32 M.R.S. § 16102(2), (4). The rules
adopted by the Administrator pursuant to 32 M.R.S. § 16605 (2013) and in effect
at the relevant times required broker-dealers and their agents to “observe high
standards of commercial honor and just and equitable principles of trade in the
conduct of their business” and to “give particular consideration to any conflicts of
interest that may arise or exist.” 6 C.M.R. 02 032 504-5 § 8 (2006). This rule
included a list of practices deemed to be unethical but stated clearly, “This section
is not intended to be all inclusive, and thus practices not enumerated herein may
also be deemed dishonest or unethical.” Id. Relevant here, the rule provided:
A person may be deemed to have engaged in “dishonest or
unethical practices” under Section 16412(4)(M) of the Act if the
person has engaged in practices including but not limited to one or
more of the following:
...
5
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 customer, unless:
A. The broker-dealer has written procedures allowing
such an arrangement; and
B. The customer is:
(1) a member of the agent’s immediate family
or another person whom the agent supports, directly or
indirectly, to a material extent.
6 C.M.R. 02 032 504-5, -7 § 8 (2006, 2009).
[¶5] The Financial Industry Regulatory Authority (FINRA), the independent
federal regulator responsible for overseeing securities firms including North
Atlantic, also has a set of rules that imposes responsibilities similar to those of the
Maine statutes and regulations. Pursuant to FINRA rules, a securities firm “in the
conduct of its business, shall observe high standards of commercial honor and just
and equitable principles of trade.” FINRA Rule 2010 (2013).7
[¶6] Both the FINRA Rules in effect in 2006 and the current rules prohibit
regulated persons and entities from borrowing money from or lending money to
customers, except in defined circumstances, such as when the firm “has written
7
The quoted language is the current language, which incorporates an August 1, 2006, amendment to
make the rule gender neutral, see 71 Fed. Reg. 38,935, 38,948 (July 10, 2006); Sec. & Exch. Comm’n,
File No. SR-2005-087, amend. 1 at 395, Proposed Rule Change by National Association of Securities
Dealers, and a December 15, 2008, amendment in which it was renumbered, see 73 Fed. Reg. 57,174,
57,176-77 (Oct. 1, 2008). In substance, this rule has not changed since the events of this case.
6
procedures allowing the borrowing and lending of money between such registered
persons and customers of the member,” and “the customer is a member of such
person’s immediate family,” which is defined to include a mother-in-law. FINRA
Rule 2370(a), (c) (effective Feb. 18, 2004), repealed and replaced by FINRA Rule
3240(a), (c) (2013) (effective June 14, 2010) (replacing former Rule 2370 without
any change in the language at issue here). The written procedures to which this
rule refers are written supervisory procedures that a member must annually certify
it has in place; the procedures must be “reasonably designed to achieve compliance
with applicable FINRA rules, MSRB [Municipal Securities Rulemaking Board]
rules and federal securities laws and regulations.” FINRA Rule 3130(b) (2013).
B. Investment Adviser and Investment Adviser Representative
[¶7] Michael J. Dell’Olio & Associates is an investment adviser, see
32 M.R.S. § 16102(15), and Dell’Olio individually is an investment adviser
representative, see id. § 16102(16). The applicable rules adopted by the
Administrator provided, “Investment advisers and investment adviser
representatives are fiduciaries and have a duty to act for the benefit of their clients.”
6 C.M.R. 02 032 515-15 § 14 (2009). The rule prohibited an investment adviser or
investment adviser representative from “engag[ing] in dishonest or unethical
business practices,” and listed “examples of practices that may constitute grounds
for discipline as ‘dishonest or unethical practices’ under Section 16412 of the Act.”
7
Id. One listed example is “[b]orrowing money or securities from a client unless the
client is a broker-dealer, an affiliate of the investment adviser, or a financial
institution engaged in the business of loaning funds.” 6 C.M.R. 02 032 515-15
§ 14(6) (2009).8 As with the rule governing the conduct of broker-dealers and their
agents, “[t]his section is not intended to be all inclusive, and thus practices not
enumerated herein may also be deemed dishonest or unethical.” Id. § 14.
II. CASE HISTORY
[¶8] In 2002, Michael J. Dell’Olio & Associates became a licensed
investment adviser with the Office of Securities. North Atlantic became licensed
as a broker-dealer with the Office in 2003 and later shared a business location with
Michael J. Dell’Olio & Associates. Dell’Olio individually was an agent of North
Atlantic, an investment adviser representative of Michael J. Dell’Olio
& Associates, and an owner exercising control in both firms.
[¶9] In June 2006, Dell’Olio borrowed $20,000 from his mother-in-law.
She had been a brokerage and investment advisory client of Dell’Olio and his firms
since 2003. Dell’Olio borrowed the money in part to help North Atlantic meet its
8
The rule included no definition of the term “affiliate” for purposes of this section. Cf. 6 C.M.R. 02
032 515-6 § 7(1)(L)(4)(a) (2009) (defining the term “affiliated person” but only “[f]or the purposes of this
paragraph”).
8
obligations. However, he retained $8,250 from the loan to pay for work he
performed in renovating a house owned by his wife.
[¶10] Dell’Olio created a payment schedule and made seven monthly
payments of $631. He then stopped paying, leaving a balance of $15,583.
[¶11] At the time of these transactions, the written supervisory procedures
that North Atlantic had in place provided:
Financial Relationships With Clients
Under no circumstances may a RR [Registered Representative]
engage personally in any type of financial relationship or
arrangement outside of the established the Firm structure.
Prohibited practices include, but are not limited to: (a) Pooling
funds for investment purposes with a client; (b) Lending to or
borrowing from a client; (C) Participating in the profits or
losses in a client’s account or agreeing to repurchase a client’s
security or contract; (E) Acting as agent for a client in arranging
a bank loan or any other transaction not directly part of the
Firm’s business; (F) Engaging in private securities transactions;
and (G) Agreeing to rebate or share any portion of RR
compensation with any other person or organization.
(Emphasis added.)
[¶12] In April 2008, when she was still a client of North Atlantic, Dell’Olio
persuaded his mother-in-law to lend his son $150,000 for the purchase of a
building where Dell’Olio’s firms could do business. He established a non-purpose
loan account in his mother-in-law’s name with North Atlantic’s clearing firm,
Pershing, secured by the value of her securities. His mother-in-law borrowed
9
$150,000 using the Pershing loan account and wired the money to a bank account
held by Delmore Associates, LLC, whose sole member was Dell’Olio’s son.
[¶13] Dell’Olio’s son, using $94,000 of the money Dell’Olio received from
his mother-in-law ($10,000 of which was used to repay Dell’Olio for earlier
supplying earnest money) and a mortgage loan from a bank, purchased the building
that came to house Dell’Olio’s firms. The remaining $56,000 in proceeds from the
non-purpose loan was used for other purposes, including depositing $4,718 into a
retail brokerage account of Michael J. Dell’Olio & Associates and using $10,263
to pay off Dell’Olio’s car loan.
[¶14] Due to personal financial difficulties, during the second half of 2008,
Dell’Olio, on five separate occasions, borrowed more money from his
mother-in-law through her Pershing non-purpose loan account. On at least three of
these five occasions, Dell’Olio cut and pasted a copy of his mother-in-law’s
signature rather than obtaining from her a signature authorizing additional
borrowing. At the time of these events, the written supervisory procedures for
North Atlantic provided:
Forgery
Signing the name of a client to any document constitutes
forgery. All such occurrences, which come to the attention of
The Firm, must be reported to FINRA and will lead to severe
disciplinary action against the employee.
10
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.
[¶15] Ultimately, through the five additional transactions, $47,000 was
drawn from the Pershing loan account and wired to Delmore. From there, more
than $18,000 was disbursed to checking or brokerage accounts of Dell’Olio or
Michael J. Dell’Olio & Associates. The remaining funds were used to cover
business expenses of North Atlantic and Michael J. Dell’Olio & Associates.
[¶16] Although a few thousand dollars were returned to the non-purpose
loan account in June 2008, no repayments were made to Dell’Olio’s mother-in-law
until January 2010. Only $14,000 was repaid at all. To maintain sufficient
collateral in the non-purpose loan account, Dell’Olio’s mother-in-law had to sell or
encumber other securities that she owned.
[¶17] On June 10, 2011, the Office of Securities issued a notice of intent to
issue an order revoking or suspending the licenses of North Atlantic, Michael J.
Dell’Olio & Associates, and Dell’Olio. The notice gave explicit warning of the
sanctions anticipated if violations were found: “The Securities Administrator
intends to issue an order revoking or suspending the licenses of [the three entities];
censuring each of them; barring each of them from associating with any
broker-dealer, investment adviser, or issuer in Maine; and imposing a civil penalty
of $5,000 per violation on each of them.” The notice was signed by the Securities
11
Administrator and provided a thirty-day deadline to request a hearing to address
the alleged violations and anticipated sanctions.
[¶18] Dell’Olio and his companies filed a timely request for a hearing and
then moved for the Administrator to disqualify herself on the ground that she had
been involved in investigating them. The Administrator denied the motion to
disqualify on the grounds that she had had no role in the investigation and had
signed the notice of intent as required by statute, see 32 M.R.S. § 16412(7),
without looking at any of the evidence that the Office of Securities staff had
gathered. The Administrator scheduled a hearing on the alleged violations and
anticipated sanctions for October 2011.
[¶19] The Administrator served as the hearing officer and accepted
voluminous exhibits during a two-day hearing held on October 26 and November 7,
2011. Three examiners from the Office of Securities testified, as did Dell’Olio, the
chief operating officer of North Atlantic in 2006, and the attorney who represented
North Atlantic until May 2011.
[¶20] Dell’Olio and his companies had been subject to a 2006 investigation
by the Office of Securities. During that 2006 investigation, Dell’Olio’s son had
provided written supervisory procedures to the Office that included the prohibition
against borrowing from clients quoted in paragraph 11. In 2009, during the
investigation that led to the order now under review, Dell’Olio had provided the
12
Office with a different set of written supervisory procedures that he contended
were the correct set. This later-offered set had the same date in the running footer
but included a family-member exception to the prohibition against borrowing from
a client.
[¶21] To controvert Dell’Olio’s assertion that the written supervisory
procedures provided in 2009 were in place when the relevant events occurred in
2006 and 2008, the Office offered a fax that Dell’Olio sent to the Maine
Governor’s Office on May 2, 2011. In that fax, Dell’Olio stated,
In 2008, after a recommendation by the FINRA auditor, the firm
changed the procedures to conform more closely with the FINRA rule.
The provision as revised states as follows:
Under no circumstances may a RR engage personally in any
type of financial relationship or arrangement outside of the
established the Firm structure. Prohibited practices include, but
are not limited to: . . . (b) Lending to or borrowing from a client,
unless the client is an immediate family member, registered
member of the same broker dealer or a financial institution . . . .
(Emphasis added.)
[¶22] North Atlantic’s chief operating officer testified that the version
containing the family-member exception must have been the one in effect when all
of the transactions took place. However, the Administrator later found that
testimony to be speculative.
13
III. PROCESS LEADING TO DECISION
[¶23] After the close of the hearing, the parties were invited to file written
arguments addressing both (i) the sufficiency of proof of the alleged violations of
law and regulations, and (ii) the sanctions that would be appropriate depending on
the violations found by the Administrator. The process employed was similar to
that in other professional disciplinary proceedings when a hearing is conducted and
the parties are then given the opportunity to present closing arguments or file
written memoranda addressing both the evidence of violations and the sanctions
that might be appropriate if violations are found, with the resulting decision then
finding violations proven or not, and, if violations are found, imposing sanctions.
See for example Zablotny v. State Board of Nursing, 2014 ME 46, ¶ 7, --- A.3d ---
(April/May 2010 hearing, June 2010 administrative decision finding violations and
imposing professional discipline and monetary sanctions); Lippitt v. Bd. of
Certification of Geologists and Soil Scientists, 2014 ME 42, ¶¶ 8, 11,
12, --- A.3d --- (June 2010 hearing, August 2010 administrative decision finding
violations and imposing professional discipline and monetary sanctions);
Michalowski v. Bd. of Licensure in Medicine, 2012 ME 134, ¶¶ 6-7, 58 A.3d 1074
(April/July 2010 hearing, September 2010 administrative decision finding
violations and imposing professional discipline and monetary sanctions). See also
M.R. Civ. P. 80G(b) mandating that court complaints seeking professional
14
licensing discipline “must allege the violation of a cited statute or rule and the
relief requested” so that parties are on notice that the violation claimed and the
sanction sought are at issue in a combined proceeding.
[¶24] The combination of consideration of professional conduct violations
and sanctions in a single hearing and advocacy process with a subsequent decision
addressing both issues enables a relatively efficient resolution of what has often
been an extended and expensive administrative review process. It avoids the
further cost and delay that would be inherent in any process that would require
separate, subsequent consideration of sanctions, after resolution of violation issues,
but before any appeals. Here, the investigation began in 2009, the notice of intent
to revoke or suspend issued in June 2011, the hearing was held in the fall of 2011,
and the Administrator’s decision issued in February 2012. Further delay for an
additional sanctions hearing would likely have delayed final resolution of the
matter at the administrative level to three-and-a-half years, or longer, since the
investigation had begun.
[¶25] In this case, the hearing was completed on November 7, 2011; the
parties’ arguments addressing both the alleged violations and possible sanctions
were due and filed by December 9, 2011. Both parties were then allowed to file
rebuttal arguments by December 23, 2011. The staff of the Office of Securities did
15
so. Dell’Olio and the related respondents did not file their rebuttal arguments until
January 17, 2012.
[¶26] In their post-hearing memoranda, the staff addressed both violations
and sanctions in considerable detail, arguing for revocation of the securities
licenses. Dell’Olio and the related respondents argued that they had done little, if
anything, wrong and asserted that the proceedings against them should be
dismissed. Although given the opportunity to do so in both their original and
rebuttal memoranda, Dell’Olio and the related respondents gave relatively little
attention to possible sanctions.
[¶27] The Administrator issued her decision on February 2, 2012. 9
Following that decision, Dell’Olio did not file any request for further findings or
any motion for reconsideration. The petition for review to the Superior Court was
filed February 9, 2012.
IV. THE ADMINISTRATOR’S DECISION
[¶28] In a twenty-nine-page decision that extensively addressed the issues
raised at hearing, the Administrator found that the written supervisory procedures
provided in 2006 were the procedures in effect until September 2008. Thus, most
9
The decision was dated February 2, 2011. Electronic coding on the decision indicated that it was
“Filed 02/02/2012.”
16
of the money was borrowed before the family-member exception to the borrowing
prohibition, was incorporated into the written supervisory procedures.10
[¶29] The Administrator determined that North Atlantic, Michael J.
Dell’Olio & Associates, and Dell’Olio committed unlawful, dishonest, or unethical
practices by (1) borrowing from a client when the written supervisory procedures
of the office did not permit such loans; (2) using loan proceeds for purposes other
than the intended purpose; (3) creating authorization letters that bore forged,
cut-and-pasted signatures; and (4) making false statements under oath to the Office
of Securities during the disciplinary proceeding. See 32 M.R.S. § 16412(4)(I), (M),
(8); 6 C.M.R. 02 032 504-5, -7 § 8(36); 6 C.M.R. 02 032 515-15 § 14(6); FINRA
Rule 2010; FINRA Rule 2370(a), (c) (effective Feb. 18, 2004), repealed and
replaced by FINRA Rule 3240(a), (c) (2013) (effective June 14, 2010). The
Administrator ordered that the securities licenses of North Atlantic, Michael J.
Dell’Olio & Associates, and Dell’Olio be revoked.
[¶30] As indicated above, Dell’Olio and the companies promptly petitioned
for Superior Court review of final agency action. See 5 M.R.S. § 11002 (2013);
32 M.R.S. § 16609 (2013); M.R. Civ. P. 80C. The matter was accepted for transfer
to the Business and Consumer Docket. After receiving briefs and hearing oral
10
The updated written supervisory procedures were in place only when the final four transactions
occurred between October and December 2008; those transactions accounted for $32,000 in loans. The
forgery provision was in place throughout and did not change in any way.
17
arguments, the court entered a judgment affirming the decision of the
Administrator. Dell’Olio and the companies timely appealed to us. See 5 M.R.S.
§ 11008 (2013); M.R. Civ. P. 80C(m).
V. LEGAL ANALYSIS
[¶31] Dell’Olio and the companies raise four issues: (A) whether the
Office’s allegations about the 2006 transaction were time-barred, (B) whether the
record supports the Administrator’s findings, (C) whether the decision must be
vacated because it was tainted by structural or actual bias, and (D) whether the
Administrator abused her discretion by imposing such severe penalties.11
[¶32] At no point before the Administrator, before the trial court, or before
us did Dell’Olio suggest, as addressed in the concurring and dissenting opinion,
that the proceedings before the Administrator should have been bifurcated with the
violation issues decided first and the sanctions then decided in a separate,
subsequent proceeding. That issue is not preserved for our review, and it cannot be
noticed as obvious error in light of our recent opinions, cited above, and M.R.
Civ. P. 80G(b), accepting and anticipating processes that consider violations and
sanctions in a single proceeding leading to a single final decision addressing both
issues.
11
To the extent that Dell’Olio raised other challenges, we are unpersuaded and do not discuss them
further.
18
A. Were Allegations About the 2006 Transaction Time-barred?
[¶33] We interpret statutes de novo to give effect to the intent of the
Legislature based on the plain meaning of the statute. Michalowski, 2012 ME 134,
¶ 11, 58 A.3d 1074; Cobb v. Bd. of Counseling Prof’ls Licensure, 2006 ME 48,
¶ 11, 896 A.2d 271. At issue here is a time limitation on the institution of
proceedings based on when the Administrator had actual knowledge of the material
facts:
Limit on investigation or proceeding. The administrator may not
institute a proceeding under subsection 1, 2 or 3 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.
32 M.R.S. § 16412(9).
[¶34] Although Dell’Olio and the companies argue that the material facts in
this matter were known to the Office by October 2006, evidence in the record
supports the Administrator’s finding that, when he was questioned in 2006,
Dell’Olio told investigators that an August 4, 2006, payment to his mother-in-law
constituted reimbursement for building materials. Because the payments had just
begun and the schedule of payments had not been supplied, the investigator could
not reasonably have known that Dell’Olio was making a loan payment.
Accordingly, the Office did not actually acquire knowledge of the material facts
until the later investigation, within one year of when the notice of intent was issued.
19
See id. The administrator did not err in determining that the matter is not
time-barred.
B. Does the Administrative Record Support the Administrator’s Factual
Findings?
[¶35] Dell’Olio and the companies contend that the 2006 transaction was
not a loan; that the 2008 transaction constituted a loan to Dell’Olio’s son, not to
any named respondent; that the written supervisory procedures presented to the
Administrator in 2009 permitted loans to family members; and that Dell’Olio did
not violate any legal or ethical obligation by using his mother-in-law’s signature
with her authorization.
[¶36] The Administrator’s findings are supported by substantial evidence in
the record. Based on those findings, the Administrator reached the ultimate
findings that Dell’Olio and his entities engaged in unlawful, dishonest, or unethical
practices by borrowing money from a client both directly and indirectly through
Dell’Olio’s son, using the money from one loan for purposes other than the express
purpose for which the loan was intended, creating and submitting letters bearing
forged signatures in violation of the written supervisory procedures then in place,
and making false statements under oath to the Office of Securities. These findings
have evidentiary support and will be affirmed notwithstanding the existence of
contrary evidence in the administrative record. See Dyer v. Superintendent of Ins.,
20
2013 ME 61, ¶ 14, 69 A.3d 416 (stating that we defer to an agency’s findings if
supported by substantial evidence in the record even if the record contains
inconsistent or contrary evidence).
[¶37] Based on the findings that the Administrator reached, she could
conclude that the broker-dealer (North Atlantic) and the broker-dealer agent
(Dell’Olio) violated their obligations to maintain high ethical standards, see
6 C.M.R. 02 032 504-5 § 8; FINRA Rule 2010; that Dell’Olio violated the
regulatory provision prohibiting a broker-dealer agent from borrowing from a
customer when the broker-dealer’s written procedures did not allow for loans from
immediate family members, see 6 C.M.R. 02 032 504-5, -7 § 8(36); and that North
Atlantic similarly failed to comply with the FINRA Rule allowing for family loans
only when “the member has written procedures allowing the borrowing and
lending of money between such registered persons and customers of the member,”
FINRA Rule 2370(a).
[¶38] Michael J. Dell’Olio & Associates, the investment adviser, and
Dell’Olio individually, as an investment adviser representative for that company,
could also be found to have “engage[d] in dishonest or unethical business
practices,” by borrowing money or securities from a client and using forged
signatures. 6 C.M.R. 02 032 515-15 § 14. Furthermore, although North Atlantic’s
written supervisory procedures may not have applied to Michael J. Dell’Olio
21
& Associates or to Dell’Olio as an investment adviser representative, the practices
for which North Atlantic was penalized could also constitute punishable dishonest
or unethical practices committed by an investment adviser and its representative.
See id. The Administrator’s findings are supported by the record and her decision,
based on those findings, does not indicate any error of law.
C. Was the Administrator’s Decision Affected by Structural or Actual Bias?
1. Structural Bias
[¶39] Dell’Olio and the companies argue that there is structural bias in the
statutory notice-of-intent procedure because at the outset of proceedings, the
Administrator identifies penalties that may automatically be imposed unless the
respondent challenges them. They contend that this procedure renders the
Administrator inherently biased when she later hears the matter upon a
respondent’s challenge. In essence, Dell’Olio and the companies regard the notice
of potential penalties, intended to convey the serious nature of the proceedings, as
an indication of possible prejudgment by the Administrator. We are not persuaded
by this argument.
[¶40] The notice complained of here is similar to the notice required in
court initiated professional licensing disciplinary proceedings that mandate
identification of “the relief requested,” usually license suspension or revocation, in
the complaint initiating the proceeding. M.R. Civ. P. 80G(b). A holder of a
22
professional license has a property interest in that license. Balian v. Bd. of
Licensure in Med., 1999 ME 8, ¶ 11, 722 A.2d 364. Thus, the license may not be
revoked without complying with the dictates of due process. See id. ¶¶ 10-11. “It
is essential to a party’s right to procedural due process that he be given notice of
and an opportunity to be heard at any proceeding in which such property rights are
at stake.” Senty v. Bd. of Osteopathic Examination & Registration, 594 A.2d 1068,
1072 (Me. 1991). “An administrative process may be infirm if it creates an
intolerable risk of bias or unfair advantage.” Zegel v. Bd. of Soc. Worker Licensure,
2004 ME 31, ¶ 16, 843 A.2d 18.
[¶41] Here, the Administrator served on North Atlantic a notice of intent to
revoke or suspend its license unless a hearing was requested. The statute in place
requires that the Office of Securities offer the opportunity for a hearing:
Procedural requirements. An order may not be issued under this
section, except under subsection 6 [providing for a summary process
in certain instances], without:
A. Appropriate notice to the applicant or licensee;
B. Opportunity for hearing; and
C. Findings of fact and conclusions of law in a record in
accordance with Title 5, chapter 375.
32 M.R.S. § 16412(7). The applicable Office of Securities regulation adds, “In
accordance with 5 M.R.S.A. § 9053(3), the Administrator or presiding officer may
23
dispose of an adjudicatory proceeding by default against any party that fails to
timely request a hearing . . . .” 6 C.M.R. 02 032 540-5 § 19(1) (2006). Title
5 M.R.S. § 9053(3) (2013) provides that an agency may, unless otherwise provided
by law, “[m]ake informal disposition of any adjudicatory proceeding by default,
provided that notice has been given that failure to take required action may result
in default, and further provided that any such default may be set aside by the
agency for good cause shown.”
[¶42] North Atlantic’s structural due process challenge rests on the wording
of the notice of intent, which states that the Administrator “intends to issue an
order” of revocation or suspension and that “[f]ailure to request a hearing in
writing within thirty (30) calendar days of the date of this Notice of Intent will
result in a waiver of the right to a hearing.” Despite the wording declaring an
intention on the part of the Administrator, however, this provision serves to inform
the respondents of the potential consequences of inaction and protects their rights
to an opportunity for hearing. The notice is consistent with the statutory and
regulatory requirements, and the Office of Securities procedures do not violate due
process because they do not generate any risk of bias but rather employ a common,
and constitutional, process by which members of administrative agencies “receive
the results of investigations, . . . approve the filing of charges or formal complaints
24
instituting enforcement proceedings, and then . . . participate in the ensuing
hearings.” Withrow v. Larkin, 421 U.S. 35, 56 (1975).
2. Actual Bias
[¶43] Dell’Olio and the companies also argue that the Administrator was
biased because she overruled many of their objections, disregarded Dell’Olio’s
mother-in-law’s affidavits, lacked a basis to sanction them for an authorized
reproduction of a family member’s signature, was swayed by a politically
connected complainant (the son of Dell’Olio’s mother-in-law), reached her
decision for purposes of preserving her predetermination that the licenses should
be revoked, and imposed an excessive penalty.
[¶44] If an entity subject to adjudication by an administrator raises a claim
of bias, the entity must offer proof to demonstrate an actual risk of bias or
prejudgment in the form of a conflict of interest or some other form of partiality.
Brasslett v. Cota, 761 F.2d 827, 837 (1st Cir. 1985). Evidence of actual bias is not
present here. The Administrator’s decisions overruling many objections that were
founded on inapplicable rules of evidence does not demonstrate bias because,
“[u]nless otherwise provided by statute, agencies need not observe the rules of
evidence observed by courts.” 5 M.R.S. § 9057(1). Indeed, in the context of
counsel’s repeated off-point objections and occasionally rude interjections, the
Administrator’s patience evidenced the opposite of bias. Similarly, the
25
Administrator’s finding that Dell’Olio committed “unlawful, dishonest or unethical
practices,” 32 M.R.S. § 16412(4)(M), by repeatedly forging his mother-in-law’s
signature does not constitute evidence of bias because an adjudicator’s decision
against a party on disputed issues of law and fact is not, without more, evidence of
partiality, see Copp v. Liberty, 2008 ME 97, ¶ 12, 952 A.2d 976.
[¶45] Nor can evidence of bias arise from the Administrator’s finding that
some evidence was more credible than other evidence. See Dyer, 2013 ME 61,
¶ 14, 69 A.3d 416 (stating that we defer to an agency’s findings if supported by
substantial evidence in the record even if the record contains inconsistent or
contrary evidence). Determining credibility is solidly the province of the
fact-finder. See id. ¶ 12. Finally, no evidence has been provided to demonstrate
that the early involvement of the mother-in-law’s son resulted in the Administrator
considering or relying on information outside of the administrative record in
reaching her decision.
[¶46] A review of the record shows that a patient Administrator allowed
Dell’Olio and the companies to challenge the Office’s evidence and present all of
the testimony and documentary exhibits that they wished in response to the
Office’s charges. The law has been correctly applied, the facts are supported in the
record, the decision-maker acted within her discretion in making evidentiary
26
determinations, and the record is devoid of evidence of institutional or personal
bias.
D. Penalties Imposed
[¶47] The Office of Securities and the respondents submitted post-hearing
memoranda that incorporated their arguments regarding sanctions. Because
Dell’Olio and the companies argued in their closing memorandum that they had
done nothing wrong, or that, at worst, Dell’Olio had engaged in a technical
violation when he cut and pasted his mother-in-law’s signature, the memorandum
contained little discussion of appropriate sanctions.
[¶48] Even in their reply memorandum, despite the explicit request for a full
revocation by the Office of Securities in its post-hearing memorandum, Dell’Olio
and the companies suggested no meaningful alternative to that proposed sanction.
Completely missing from Dell’Olio’s reply was any discussion of sanctions that
would be appropriate in the event that the Administrator found, as the Office of
Securities requested, that Dell’Olio had lied during the hearing and had doctored a
critical document. Accordingly, the Administrator was left with two starkly
different arguments on sanctions: the Office of Securities argued that nothing short
of revocation would protect the public, particularly given Dell’Olio’s willingness
27
to lie under oath, and Dell’Olio argued that he was essentially blameless such that
the notice of intent should be dismissed.12
[¶49] It is in this context that we review the Administrator’s decision to
revoke the licenses. “On appeal of an administrative agency’s imposition of a
penalty, we review the agency’s decision directly for an abuse of discretion, errors
of law, or findings not supported by the evidence.” Me. Real Estate Comm’n v.
Jones, 670 A.2d 1385, 1387 (Me. 1996). Having affirmed the factual findings of
the Administrator, and in the absence of any legal infirmities in the Administrator’s
analysis, we review the determination of the penalty for an abuse of discretion.
[¶50] Although we have not construed the penalty provision of the Maine
Uniform Securities Act, securities decisions from other jurisdictions that, like
Maine, require that a penalty order be “in the public interest,” 32 M.R.S.
§ 16412(2), provide a useful framework for the review of a penalty’s propriety.
The following non-exclusive factors are among the key guiding factors that have
been identified for purposes of determining whether an order should be entered in
the public interest: “(1) the egregiousness of the respondent’s actions; (2) the
isolated or recurrent nature of the infractions; (3) the degree of scienter involved;
(4) the sincerity of the respondent’s assurances against future violations; (5) the
12
Dell’Olio noted in his initial post-hearing memorandum that others found to have committed only
technical violations regarding signatures had been fined or briefly suspended.
28
respondent’s recognition of the wrongful nature of his or her conduct; and (6) the
likelihood that his or her occupation will present opportunities for future
violations.” Westmark Asset Mgmt. Corp. v. Joseph, 37 P.3d 516, 519 (Colo. App.
2001) (citing Steadman v. Sec. & Exch. Comm’n, 603 F.2d 1126, 1140 (5th Cir.
1979), aff’d on other grounds, 450 U.S. 91 (1981)).13 Although several of these
identified guiding factors relate to the nature and extent of the misconduct, the
others are designed to gauge the trustworthiness and honesty of the licensed
individuals and entities to determine what type of sanction or sanctions would best
protect the public.
[¶51] The type of sanction imposed here is the most serious penalty
available, other than a permanent revocation that would bar any future
reapplication for a license. Revocation is a substantial penalty, especially when
corporate entities’ fates may determine the livelihoods of all who are employed in
13
We have taken into account similar factors in reviewing sanctions imposed against other
professionals for their misconduct. See Dyer v. Superintendent of Ins., 2013 ME 61, ¶¶ 10, 21, 69 A.3d
416 (affirming the imposition of maximum civil penalties on an insurance producer based on the
seriousness and quantity of violations); Bankers Life & Cas. Co. v. Superintendent of Ins., 2013 ME 7,
¶ 18, 60 A.3d 1272 (affirming the imposition of a civil penalty on an insurance company when the
company was on notice at the time of the misconduct that its process for determining the suitability of
products for sale to customers had been failing); Bd. of Overseers of the Bar v. Murphy, 570 A.2d 1212,
1213 (Me. 1990) (affirming an attorney’s disbarment for deliberately committing multiple violations of
the Maine Bar Rules); Bd. of Overseers of the Bar v. Dineen, 557 A.2d 610 (Me. 1989) (affirming an
attorney’s disbarment for multiple instances of neglecting clients’ cases and failing, after his suspension,
to comply with the requirement that he file an affidavit with the Court and the Board of Overseers of the
Bar attesting that he had notified clients and others of the suspension).
29
their offices. The penalty of revocation must be reserved for some of the most
serious circumstances, taking into account all relevant factors.
[¶52] The Administrator’s decision to impose that sanction here was
primarily based on her findings regarding two separate courses of conduct: (1) the
conduct originally complained of, that is, Dell’Olio’s and the companies’ treatment
of their client, Dell’Olio’s mother-in-law; and (2) Dell’Olio’s and the companies’
conduct during the investigation and hearing, which included the making of “false
statements to the Office of Securities.”
[¶53] Regarding the first course of conduct, because the client herself—
Dell’Olio’s mother-in-law—does not appear to have objected to the conduct or
sought any sanctions, a license revocation may appear to be harsh. See Uniform
Securities Act § 412 cmt. 2, included with 32 M.R.S.A. § 16412 (Supp. 2013)
(“The public interest will not require imposition of a sanction for every minor
technical violation . . . .”). The Office of Securities conceded that “the client
apparently is fond of him and would prefer that he suffer no consequences.”
[¶54] The Administrator found, however, that, regardless of the relationship,
Dell’Olio impermissibly placed his own interests ahead of his client:
Additional disbursements were made from [his
mother-in-law’s] account in order to provide money to cover margin
calls in Dell’Olio’s personal account and to cover expenses for the
firms. Dell’Olio’s testimony is consistent in that he admits he and his
firms were suffering financially. He also admits that some of the
30
money obtained from [her] non-purpose loan account was provided to
Dell’Olio to cover margin calls on his personal account all the while
placing [her] at holdings at risk for her own margin calls. . . .
....
Clearly, Respondents were aware of the likelihood that [she]
would not be repaid for the loan intended to be used to purchase the
office building. Respondents’ financial situation was such that any
anticipated rent to be paid [to Dell’Olio’s son] could not be paid, a
fact that Respondents admit. Even after the continued and sharp
decline in the market resulting in margin calls and increased risk of
liquidation of [her] stock, Respondents continued to transfer funds
from the non-purpose loan account based upon forged authorization
letters . . . .
[¶55] In light of these findings and others related to the forgery of the
mother-in-law’s signature, all of which are amply supported in the record, the
Administrator did not err in finding that, “[b]y borrowing money from [Dell’Olio’s
mother-in-law] as set forth [in the findings], the respondents committed unlawful,
dishonest, or unethical practices.” Nor did Dell’Olio’s responses to these facts in
the record promote a sense of strong ethical standards. As the Administrator noted,
“Respondents go so far as to imply that dishonesty involving ‘public customers’ is
an aggravating circumstance while dishonesty involving family members is a
mitigating circumstance.”
[¶56] The second course of conduct found by the Administrator—that
Dell’Olio lied under oath and submitted false documents—is substantial
justification for the harsh sanction. Dell’Olio’s misrepresentation of facts and
31
fabrication or manufacturing of documentary exhibits14 is at least as serious as the
violation of North Atlantic’s internal written supervisory procedures themselves
because it demonstrates a lack of trustworthiness. The Administrator may impose
a sanction for purposes of protecting clients if a broker-dealer, agent, investment
adviser, or investment adviser representative has demonstrated untrustworthiness
through dishonest practices. See 32 M.R.S. § 16412(4)(M). Dell’Olio’s conduct,
which was found to include willfully providing false documents to the Office of
Securities and lying about the documents under oath before the Administrator,
reasonably prompted the Administrator to exercise her discretion in a manner that
is more protective of the public.
[¶57] Examining the factors that are relevant in this case—the misconduct
occurred more than once; Dell’Olio, individually and as principal of the two
entities under his control, was personally involved with the misconduct; and he
both failed to concede the wrongfulness of much of the misconduct and lied in an
effort to avoid taking responsibility for it—the facts raise a serious concern that
Dell’Olio or his entities will commit violations in the future if they continue to
14
Specifically, although Dell’Olio testified before the Administrator in this proceeding that he had
borrowed $20,000 from his mother-in-law in 2006 as a loan, he earlier stated in a sworn deposition that
his mother-in-law had tendered the full $20,000 to him in payment for renovations that he made to his
wife’s property and that he did not consider it to be a loan. He also submitted the subsequently edited
version of North Atlantic’s written supervisory procedures in an effort to pass it off as the version in
effect when the transactions at issue took place rather than concede his mistake in accepting loans from
his mother-in-law client.
32
hold licenses. See Westmark Asset Mgmt. Corp., 37 P.3d at 519. In this context,
despite the severity of the penalty imposed, we cannot conclude that the
Administrator abused her broad discretion in revoking the licenses.
The entry is:
Judgment affirmed.
SAUFLEY, C.J., and MEAD, J., concurring in part and dissenting in part.
[¶58] Because Dell’Olio did not have an opportunity to be heard on the
nature of the sanction at a meaningful time, that is, after the findings of violations
were entered by the Administrator, we would remand for a hearing on sanctions.
[¶59] We concur in full with the Court’s determinations that the process
employed was not infected by bias, that the Administrator demonstrated
commendable patience at the hearing, that the factual determinations in support of
the conclusion that Dell’Olio and the companies violated critical rules are
supported in the record, and that the investigation and proceedings were not
time-barred. We further concur in the Court’s delineation of the considerations
that must be taken into account in determining the appropriate sanction in this type
of licensing proceeding.
[¶60] Because we would conclude, however, that the process employed in
the administrative proceeding should have included an opportunity for additional
33
briefing or argument on sanctions after the determination that violations had
occurred, we would remand this matter for further consideration of the sanction to
be imposed.
[¶61] “If the administrator finds that the order is in the public interest and
subsection 4 authorizes the action, an order issued under this chapter may revoke,
suspend, condition or limit the license of a licensee.” 32 M.R.S. § 16412(2) (2013).
Before entering such a disciplinary order, the Administrator must provide
“[a]ppropriate notice to the applicant or licensee,” afford an “[o]pportunity for
hearing,” and reach “[f]indings of fact and conclusions of law in a record in
accordance with Title 5, chapter 375 [the Maine Administrative Procedure Act].”
32 M.R.S. § 16412(7) (2013); see also 5 M.R.S. §§ 9051-9064 (2013) (governing
administrative agencies’ adjudicatory proceedings).
[¶62] The process established through the typical procedural rulings did not
afford an opportunity for the licensee to be heard after the findings were entered.
We recognize that the relevant statutes do not require the Administrator to allow
additional written or oral argument before determining a penalty. We further note
that Dell’Olio and his companies did not request such additional process or argue
34
on appeal that it is required. 15 Nonetheless, reviewing the imposition of the
penalty for errors of law, see Me. Real Estate Comm’n v. Jones, 670 A.2d 1385,
1387 (Me. 1996), we would conclude that the process provided in these particular
circumstances was lacking because it deprived Dell’Olio of the opportunity to be
heard “at a meaningful time and in a meaningful manner,” Kirkpatrick v. City of
Bangor, 1999 ME 73, ¶ 15, 728 A.2d 1268 (quotation marks omitted).
[¶63] The Legislature itself has recognized that a full revocation of a
professional license is a very serious sanction. Accordingly, in some
administrative proceedings, when the ultimate sanction of a revocation has been
imposed after an administrative hearing, the licensee has a right to a de novo
hearing in a court. See, e.g., Zablotny v. State Bd. of Nursing, 2014 ME 46,
¶¶ 27-29, --- A.3d --- (construing 10 M.R.S. § 8003(5) (2013)). Here, there is no
such additional process allowed by law. Therefore, unless the Administrator
allows the licensee to be heard after entry of findings on the alleged violations, the
licensee is left without a timely, meaningful opportunity to be heard on the
sanctions. See Kirkpatrick, 1999 ME 73, ¶ 15, 728 A.2d 1268.
[¶64] The process employed here is akin to requiring a person who has been
charged with multiple criminal offenses to make his sentencing arguments before
15
Dell’Olio and the companies did argue in their reply brief on appeal that the notice of intent failed
to allege what untruthful statements Dell’Olio made before the notice was issued.
35
the jury or fact-finder has determined what charges were proved. We would
conclude that, when a person’s very livelihood is at stake, the Administrator should,
consistent with best practices, provide a meaningful opportunity to be heard on the
proposed sanctions after entry of the findings of violations. Accordingly, before
reviewing the sanction of revocation on appeal, we would remand this matter for
additional written or oral argument and findings on the issue of sanctions.
On the briefs and at oral argument:
Neal L. Weinstein, Esq., Old Orchard Beach, for appellants North Atlantic
Securities, LLC, Michael J. Dell’Olio & Associates, LLC, and Michael J.
Dell’Olio
Paul Stern, Dep. Atty. Gen., Office of the Attorney General, Augusta, for
appellee Office of Securities
Business and Consumer Docket docket number AP-12-01
FOR CLERK REFERENCE ONLY
North Atlantic Securities, LLC v. Office of Securities
Court: Supreme Judicial Court of Maine
Date filed: 2014-05-15
Citations: 2014 ME 67, 92 A.3d 335
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