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NAME,

By Sylvia Ward,2014-11-21 21:52
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NAME,

    Before the

    Administrative Hearing Commission

    State of Missouri

COMMISSIONER OF SECURITIES, )

     )

     Petitioner, )

     )

     vs. ) No. 03-0522 SE

     )

    MICHAEL B. FRUIN, )

     )

     Respondent. )

    DECISION

     We grant the Commissioner of Securities’ motion for summary determination and

    conclude that Michael B. Fruin’s securities agent license is subject to discipline for selling unregistered securities that were not exempt or covered by federal law; for fraud; and for omitting material facts in connection with the purchase of securities.

    Procedure

     On April 22, 2003, the Commissioner of Securities filed a complaint alleging that there is cause to discipline Fruin’s security agent license. On July 31, 2003, the Commissioner of Securities filed a motion for summary determination based on Fruin’s failure to respond to a

    request for admissions. The Commissioner of Securities cites the request for admissions that was served on Fruin on June 6, 2003. Under Supreme Court Rule 59.01, the failure to answer a request for admissions establishes the matters asserted in the request, and no further proof is

required. Killian Constr. Co. v. Tri-City Constr. Co., 693 S.W.2d 819, 827 (Mo. App., W.D.

    1985). Such a deemed admission can establish any fact or any application of law to fact. Linde

    v. Kilbourne, 543 S.W.2d 543, 545-46 (Mo. App., W.D. 1976). That rule applies to all parties, including those acting pro se. Research Hosp. v. Williams, 651 S.W.2d 667, 669 (Mo. App.,

    1 and our Regulation 1 CSR 15-3.420(1) apply that rule to this W.D. 1983). Section 536.073,

    case.

     By order dated September 3, 2003, we ordered the Commissioner of Securities to provide additional information necessary to determine whether we have jurisdiction over this case. On September 10, 2003, the Commissioner of Securities provided a response with exhibits. We gave Fruin until August 21, 2003, to respond to the motion for summary determination, but he did not. Therefore, we find the following facts as admitted by Fruin.

    Findings of Fact

    1. Fruin was registered as a securities agent of Invest Financial Corporation from July 2, 2000, to January 31, 2002. He was registered to sell securities in Missouri during this period.

    2. Carlos and Jackie Wright, both disabled, were Fruin’s clients.

    3. In September of 2001, Fruin discussed investment options with the Wrights, but they decided to wait to assess the market conditions and their own financial needs. Their investment objectives were very conservative.

    4. In September of 2001, the Wrights asked Fruin to place a $60,000 check in the bank for them. Carlos Wright endorsed the check to Fruin.

    5. Fruin deposited the check in his personal account at Commercial Federal Bank in Overland Park, Kansas.

     1 Statutory references are to the 2000 Revised Statutes of Missouri. We apply the substantive law in effect when Fruin committed the conduct. Section 1.170; Comerio v. Beatrice Foods Co., 595 F. Supp. 918, 920-21 (E.D.

    Mo. 1984).

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    6. Over a one-month period of time, Fruin disbursed $12,000 of the $60,000 to the Wrights, leaving $48,000 in his account.

    7. Fruin was involved in real estate options investment (real estate investment), in which he found a house “for sale by owner” and gave the owner $10,000 to $15,000 in cash to be the exclusive sales agent for the home. He then attempted to close on the house or find a buyer within a specified amount of time.

    8. The real estate investment involved an investment of money, a common scheme or enterprise, an expectation of profit, and was derived from the significant managerial efforts of others.

    9. The real estate investment was an investment contract and thus a security.

    10. The real estate investment was not registered with, or exempt from registration with, the Missouri Secretary of State’s Office. The real estate investment was not a federally covered

    security, and it carried a high degree of risk. Fruin did not advise the Wrights of these facts.

    11. Fruin claimed that he had invested his own money in this type of investment and made a $5,000 profit.

    12. Fruin used the Wrights’ money in this type of investment without authorization and lost the $48,000. The Wrights did not know that Fruin was investing their money until he informed them that he had lost their money.

    13. The Commissioner of Securities instituted a revocation proceeding against Fruin

    2 within one year after Fruin’s withdrawal of his license.

     2 Neither the complaint nor motion for summary determination presented evidence that the Commissioner of Securities instituted the proceeding within one year after Fruin’s license withdrawal. The Commissioner of Securities’ response to our show cause order includes exhibits that allow us to make this finding, which establishes our jurisdiction over this case.

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    Conclusions of Law

     We have jurisdiction to hear the complaint. Section 409.204(f)(1). The Commissioner of Securities has the burden of proving that Fruin has committed an act for which the law allows discipline. Missouri Real Estate Comm’n v. Berger, 764 S.W.2d 706, 711 (Mo. App., E.D.

    1989). The Commissioner of Securities instituted this proceeding within one year after Fruin’s withdrawal of his license, as required by ? 409.204(e).

     The Commissioner of Securities argues that the real estate investment is an investment contract. An investment contract is:

    (1) an investment of money, (2) in a common enterprise, (3) with

    the expectation of profit from the significant managerial efforts of

    others.

    State v. Reber, 977 S.W.2d 934, 937 (Mo. App., S.D. 1998). Fruin has admitted that his real estate investment met these criteria. We find that it was an investment contract.

     An investment contract is a security under ? 409.401(o), which states:

    Security” means any note; stock; treasury stock; bond; debenture;

    evidence of indebtedness; certificate of interest or participation in

    any profit-sharing agreement; collateral-trust certificate;

    preorganization certificate or subscription; transferable share;

    investment contract . . . .

(Second emphasis added.)

     The Commissioner of Securities argues that there is cause to discipline Fruin’s license under ? 409.204(a)(B), which states:

    (a) The commissioner may by order deny, suspend, or revoke any

    registration or bar or censure any registrant . . . if he finds (1) that

    the order is in the public interest and (2) that the applicant or

    registrant . . . :

    * * *

    (B) Has willfully violated or willfully failed to comply with any

    provision of sections 409.101 to 409.419 or a predecessor act or

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    any rule or order under sections 409.101 to 409.419 or a

    predecessor act[.]

     The Commissioner of Securities argues that Fruin violated or willfully failed to comply with ? 409.301, which states:

    It is unlawful for any person to offer or sell any security in this

    state unless:

     (1) It is registered under this act;

     (2) The security or transaction is exempted under section

    409.402; or

     (3) It is a federal covered security.

and ? 409.101, which states:

    It is unlawful for any person, in connection with the offer, sale or

    purchase of any security, directly or indirectly

     (1) to employ any device, scheme, or artifice to defraud,

     (2) to make any untrue statement of a material fact or to

    omit to state a material fact necessary in order to make the

    statements made, in the light of the circumstances under which

    they are made, not misleading, or

     (3) to engage in any act, practice, or course of business

    which operates or would operate as a fraud or deceit upon any

    person.

    We have found that Fruin sold a security that was not registered with the Secretary of State, was not exempt from registration, and was not a federally covered security. He violated ? 409.301.

     Fraud is an intentional perversion of truth to induce another, in reliance on it, to part with some valuable thing belonging to him. State ex rel. Williams v. Purl, 128 S.W. 196, 201 (Mo.

    1910). The dictionary definition of “material” is “having real importance or great

    thERRIAM-WEBSTER'S COLLEGIATE DICTIONARY 717 (10 ed. 1993). We have consequences[.]” M

    found that Fruin took money from the Wrights and used it to purchase a security without their

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knowledge or authorization. He failed to inform the Wrights of material facts about the purchase.

    He violated ? 409.101(1), (2), and (3).

     We find cause to discipline Fruin’s license under ? 409.204(a)(B) for violating provisions

    of ?? 409.101 and 409.301.

    Summary

     We grant the Commissioner of Securities’ motion for summary determination and find

    that Fruin’s license is subject to discipline under ? 409.204(a)(B). We cancel the hearing.

     SO ORDERED on September 12, 2003.

     ________________________________

     JUNE STRIEGEL DOUGHTY

     Commissioner

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