ALJDEC decisions subject to certification as final

12F-DI-225-REL · Department of Real Estate · 2012-05-07

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: April 24, 2012 APPEARANCES: Kevin Neal Ross did not appear at the hearing; Assistant Attorney General Lynette Evans appeared on behalf of the Arizona Department of Real Estate ADMINISTRATIVE LAW JUDGE: Lewis D. Kowal _____________________________________________________________________ FINDINGS OF FACT 1. On March 20, 2012, the Arizona Department of Real Estate (“Department”) issued a Notice of Hearing regarding this matter (“Notice of Hearing”) setting an administrative hearing to be held with the Office of Administrative Hearings on April 24, 2012, at 1:00 p.m. On the date of the hearing, the Administrative Law Judge convened the hearing at 1:20 p.m., which provided additional time for Kevin Neal Ross (“Petitioner”) to appear. After expiration of the additional time, Petitioner failed to appear and the hearing proceeded on the merits. 2. The Notice of Hearing contained allegations regarding the conduct of Petitioner that the Department contended violated the Arizona real estate laws. Through the administrative hearing process, the Department sought to revoke Petitioner’s real estate broker’s license and to impose a civil penalty of not more than $1,000.00 for each violation of the State’s real estate laws. 3. On April 20, 2012, the Commissioner of the Department (“Commissioner”) issued Findings of Fact, Conclusions of Law, and Order deeming admitted the allegations set forth in the Notice of Hearing, and revoked Petitioner’s real estate broker’s license. 4. At hearing, Dalton Casón (“Mr. Casón”), an auditor and investigator with the Department, testified that Petitioner’s conduct, as found by the Commissioner pursuant to the allegations in the Notice of Hearing that were deemed admitted, constituted violations of the Arizona Real Estate Laws. 5. Mr. Casón testified as follows: a. He conducted an on-site audit of Primary Residential Management (“PMR”), of which Petitioner was the designated broker. b. The audit covered the six month period of June 2011 through November 2011. c. Petitioner submitted electronically to the Department a Broker Audit Declaration in which Petitioner represented that trust account journals and client ledgers were in balance with each other and were reconciled with monthly bank account statements, and that the trust account records contain a proper descriptive Receipts and Disbursement Journal and Client Ledger for each transaction. d. During the opening interview held immediately prior to the audit, Petitioner informed Mr. Casón that the trust account had a deficiency, and that he had been aware that the trust account had had a deficiency, but did not know the amount. 6. Mr. Casón opined that the amount of deficiency was probably unknown to Petitioner because there was no accounting being performed by Petitioner. 7. Mr. Casón found upon conclusion of the audit that: a. There was a shortage in the trust account in the amount of $794,791.70, funds from the trust account were not used for the purposes for which the monies were deposited, and Petitioner did not retain a complete record of all monies received in accordance with Generally Accepted Accounting Principles. b. Petitioner’s records did not include descriptive receipts and disbursement journals and client ledgers for each transaction, and the journals and client ledgers were not in balance with each other. c. Petitioner did not maintain trust account bank reconciliation and client ledger balances on a monthly basis. d. Petitioner did not keep computerized records in a manner so as to allow for reconstruction in the event of destruction of electronic data. e. The account labeled in bank statements as, “Snowball Investments, LLC dba Primary Residential Management, LLC Investor Trust,” did not use descriptive wording properly designating the account as a property management trust account. e. Although requested by the Department, Petitioner did not provide the Department with any reconciliation, client ledger, or other supporting documents, and only provided bank statements. 8. On or about January 13, 2012, the Department issued an Order of Summary Suspension and Notice of Opportunity for Hearing to Petitioner, which Petitioner appealed on or about February 10, 2012. 9. Petitioner did not present any evidence to refute or rebut the evidence or legal arguments presented in support of the imposition of civil penalties in this matter. 10. The Department represented that the facts adduced at hearing, together with the nature of the violations and the amount of the deficiency of the trust account, would normally warrant the imposition of the maximum civil penalty to be imposed for each violation. However, the Department requested that a civil penalty in the amount of only $2,000.00 be imposed so as to provide an opportunity for clients of Petitioner to have some possibility of obtaining funds from Petitioner. CONCLUSIONS OF LAW 1. Because this matter is disciplinary in nature, the Department bears the burden of proof. The standard of proof on all issues is by a preponderance of the evidence. See A.A.C. R2-19-119. 2. A preponderance of the evidence is “such proof as convinces the trier of fact that the contention is more probably true than not.” Morris K. Udall, Arizona Law of Evidence § 5 (1960). It is “[e]vidence which is of greater weight or more convincing than the evidence which is offered in opposition to it; that is, evidence which as a whole shows that the fact sought to be proved is more probable than not.” Black’s Law Dictionary 1182 (6th ed. 1990). 3. The Commissioner has the authority to impose a civil penalty of up to $1,000.00 for each violation of the Arizona real estate laws. See A.R.S. § 32-2160.01. 4. The Department proved by a preponderance of the evidence that Petitioner violated A.R.S. § 32-2153(A)(17) by failing upon demand to produce documents, records, compilations, contracts, books, information, or reports that were required to be maintained for inspection by the Commissioner or Commissioner’s representative. 5. The Department proved by a preponderance of the evidence that Petitioner violated A.R.S. §§ 32-2153(A)(18) by failing to maintain a complete record of each transaction that is required under A.R.S., Title 32, Chapter 20. 6. The Department proved by a preponderance of the evidence that Petitioner violated A.R.S. § 32-2153(A)(21) by failing to exercise reasonable supervision and control over the activities of salespersons, associate brokers or others under Petitioner’s employ or failed to exercise reasonable supervision or control over the activities of PMR. 7. The Department proved by a preponderance of the evidence that Petitioner violated A.R.S. §§ 32-2153(A)(22) and 32-2153(B)(8) by engaging in conduct demonstrating negligence or incompetence in performing acts for which a license is required. 8. The Department proved by a preponderance of the evidence that Petitioner violated A.R.S. § 32-2153(B)(3) by making substantial misrepresentations to the Department. 9. The Department proved by a preponderance of the evidence that Petitioner violated A.R.S. § 32-2153(B)(7) by engaging in conduct showing that Petitioner is not a person of honesty, truthfulness, and good character. 10. By engaging in the conduct as found in the above Findings of Fact, Petitioner disregarded or violated the provisions of A.R.S., Title 32, Chapter 20, within the meaning of A.R.S. § 32-2153(A)(3). 11. Based upon the above, grounds existed for the issuance of the January 13, 2012 Order of Summary Suspension. See A.R.S. §§ 32-2157(B) and 41- 1092.11(B). 12. Based upon the above-found conduct of Petitioner and the above-found violations of law, grounds exist to assess a civil penalty in the amount of $1,000.00 against Petitioner for each violation pursuant to A.R.S. § 32- 2160.01. However, taking into consideration the Department’s request as to the amount of civil penalty to be imposed and the reasons therefore, the Administrative Law Judge concludes that the imposition of a $2,000.00 civil penalty is reasonable under the circumstances. ORDER Within 30 days of the effective date of the Order entered in this matter, Petitioner shall pay to the Department a civil penalty in the amount of $2,000.00, and such payment shall be made by cashier’s check or money order made payable to the Department.

In the event of certification of the Administrative Law Judge Decision by the Director of the Office of Administrative Hearings, the effective date of the Order will be 5 days from the date of that certification. Done this day, May 7, 2012.

/s/ Lewis D. Kowal Administrative Law Judge

Transmitted electronically to:

Judy Lowe, Commissioner Arizona Department of Real Estate

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Office of Administrative Hearings 1400 West Washington, Suite 101 Phoenix, Arizona 85007 (602) 542-9826