ALJDEC decisions subject to certification as final

14F-2014.057-ACY · State Board of Accountancy · 2014-09-02

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: July 25, 2014, with the record held open until August 11, 2014 APPEARANCES: Respondent Stephen M. Evans appeared on his own behalf. The Arizona State Board of Accountancy was represented by Assistant Attorney General Michael Raine. ADMINISTRATIVE LAW JUDGE: Tammy L. Eigenheer _____________________________________________________________________ FINDINGS OF FACT 1. The Arizona State Board of Accountancy (“Board”) is the state agency authorized to regulate the practice of public accounting by certified public accountants in the State of Arizona. 2. Stephen M. Evans (“Respondent”) is the holder of Certified Public Accountant Certificate No. 7551-E issued by the Board. This certificate enables Respondent to practice as a certified public accountant in the State of Arizona. 3. On or about June 20, 2013, a jury empanelled in the Arizona Superior Court of Maricopa County (“Court”) Civil Case No. CV2011-005070 entered its verdict finding that Respondent had engaged in negligent misrepresentation, securities fraud, and common law fraud. Exhibit 2. 4. On or about June 20, 2013, the Court entered a minute entry memorializing the jury’s verdict. Exhibit 3 at 1-5. 5. On or about June 26, 2013, the Court entered a minute entry correcting a clerical error made in the June 20, 2013 minute entry. Exhibit 3 at 6-7. 6. On October 21, 2013, the judge signed a civil judgment (“Judgment”) against Respondent in the Arizona Superior Court of Maricopa County. The Court made a finding that Respondent had engaged in negligent misrepresentation, securities fraud, and common law fraud. The Judgment awarded the plaintiff $250,000.00 in damages, with pre- and post-judgment interest to be calculated, and $261,250.94 in attorneys’ fees and expenses, with post-judgment interest to be calculated. The Judgment documents it was filed on October 22, 2013. Exhibit 1. 7. On or about November 22, 2013, a woman, who did not identify herself,[1] hand-delivered a copy of the Judgment to the Board’s office. No other documentation was included with the Judgment. Testimony of Ryan Edmonson. 8. On or about November 27, 2013, the Board sent Respondent a certified letter, return receipt requested, informing Respondent that the Board had opened a complaint file upon receipt of the Judgment.[2] The letter provided, in relevant part, as follows: If you haven’t already, please review the enclosed documents. You are hereby required to respond by submitting a written response, within thirty (30) days from the date of this letter. You response should include your reason for NOT self-disclosing this civil judgment within days from the date of the judgment, in accordance with A.A.C. R4-1- 456. If you have requested and/or been granted a stay of the judgment pending appeal, you are requested to submit documentation of that with your response. Please be advised that your failure to timely respond and/or submit the requested material may be considered a violation of A.A.C. R4-1-455.03(F), and grounds for disciplinary action against your certificate pursuant to A.R.S. § 32-741(A)(9) and/or (15).

Exhibit 4.

9. The complaint file was assigned to the Board’s Accounting and Auditing Standards Committee (“Committee”) for investigation. Exhibit 4. 10. On or about December 27, 2013, Respondent submitted a written response (“Response”) to the Board’s November 27, 2013 letter. The Response indicated that the Judgment had been appealed and that Respondent’s attorneys would seek a stay from the court and he would update the Board as more information because available. Complaint and Notice of Public Hearing.[3] 11. On or about January 9, 2014, the Committee met and considered the Response. The Committee voted to send a letter to Respondent requesting information about the status of the appeal. Complaint and Notice of Public Hearing. 12. On or about January 10, 2014, the Board sent Respondent a certified letter, return receipt requested, inquiring as to the status of the appeal, specifically, as to whether Respondent had requested and/or been granted a stay of enforcement of the Judgment. Complaint and Notice of Public Hearing. 13. On or about February 11, 2014, the Board received a letter from counsel for Respondent indicating that Respondent had not secured a stay in the appeal of the Judgment. Because the Judgment against Respondent was in excess of $579,000.00, Respondent was “unable to post the security necessary to obtain the requisite supersedeas bond.” Counsel requested that the Board delay any disciplinary action against Respondent pending the outcome of the appeal. Exhibit 5. 14. On or about February 20, 2014, the Committee met and considered the February 11, 2014 letter from Respondent’s counsel. The Committee voted to recommend that the Board offer a Decision and Order (By Consent) for Relinquishment in lieu of formal Disciplinary Proceedings pursuant to A.R.S. § 32-741.04. Complaint and Notice of Public Hearing. 15. On March 19, 2014, the Board voted to accept the Committee’s recommendation to offer a Decision and Order (by Consent) and to give Respondent 30 days to respond. Complaint and Notice of Public Hearing. 16. On March 24, 2014, the Board sent to Respondent, via certified mail, the Decision and Order (by Consent). Complaint and Notice of Public Hearing. 17. On or about April 23, 2014, Respondent emailed the Board staff and rejected the Decision and Order (By Consent). Complaint and Notice of Public Hearing. 18. On May 5, 2014, the Board voted to proceed with a complaint against Respondent. Complaint and Notice of Public Hearing. 19. At hearing, the Board presented its case through the testimony of Ryan Edmonson and Exhibits 1 through 7. While Respondent appeared at the commencement of the hearing, Respondent left the hearing during his cross-examination of Mr. Edmonson and therefore did not present any evidence or testimony in support of his position. 20. During the cross-examination of Mr. Edmonson, Respondent asked questions relating to the underlying Judgment and seemed to insinuate that the Board was responsible for the Judgment against him because it withheld evidence that would have exonerated him of the claims against him. While Respondent acknowledged that he had not sought and/or had not been granted a stay of the Judgment due to the size of the bond required, Respondent indicated he was confident that the Judgment would be reversed on appeal.[4] Respondent implied that the Board had delayed imposing discipline against other similarly situated registrants but did not present any documentation of such alleged delays. CONCLUSIONS OF LAW 1. The Board has jurisdiction over Respondent and the subject matter in this case. A.R.S. § 32-701 et seq. and A.A.C. R4-1-101 et seq. 2. Pursuant to A.R.S. § 41-1092.07(G)(2), the Board has the burden of proof in this matter. The standard of proof on all issues in this matter is that of a preponderance of the evidence. A.A.C. R2-19-119. 3. A preponderance of the evidence is “[t]he greater weight of the evidence, not necessarily established by the greater number of witnesses testifying to a fact but by evidence that has the most convincing force; superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other.” Black’s Law Dictionary 1301 (9th ed. 2009). 4. The Board has the authority to revoke or suspend Respondent’s certificate to practice public accounting and take additional disciplinary action pursuant to A.R.S. § 32-741(A).[5] 5. The doctrine of collateral estoppel bars Respondent from collaterally attacking the Judgment in this administrative proceeding. See Arizona Downs v. Superior Court of Arizona, 128 Ariz. 73, 76, 623 P.2d 1229, 1232 (1981). 6. A.A.C. R4-1-456 provides as follows: A. All registrants, individuals and firms shall report to the Board: . . . . 2. Any final judgment in a civil action or administrative proceeding where the court or public agency makes findings of violations, by the registrant, of any fraud provisions of the laws of this state or of federal securities laws. 3. Any final judgment in a civil action where the court makes findings of accounting violations, dishonesty, fraud, misrepresentation or breach of fiduciary duty by the registrant. . . . . B. The report required under this rule must be in the form of a written letter and received by the Board within 30 days of the entry of any judgment . . . . Such letter shall contain a description of the registrant's activities which resulted in a . . . final judgment or conviction; . . . the case file number of any court action, civil or criminal; and the name and location of the court rendering a final judgment or conviction; and the entry date of any final judgment or conviction.

7. Arizona Supreme Court Rule 58(a) provides “[t]he filing with the clerk of the judgment constitutes entry of such judgment.” 8. The October 21, 2013 Judgment, which made findings that Respondent had engaged in negligent misrepresentation, securities fraud, and common law fraud, was filed with the clerk on October 22, 2013. 9. Respondent had 30 days from October 22, 2013, to self-report the judgment to the Board. A copy of the Judgment was hand-delivered to the Board on November 22, 2013, 31 days after the Judgment’s date of entry. Furthermore, the copy of the Judgment was delivered by an unknown female. While the Board conceded at the hearing that the female who delivered the copy of the Judgment was Respondent’s wife, the Board did not know that information at the time the copy of the Judgment was submitted to the Board. It was impossible for the Board to know that the copy of the Judgment it had received was intended to be Respondent’s self-disclosure of the Judgment and not merely a report from a concerned member of the public. Additionally, Respondent failed to include a written letter describing Respondent’s activities that resulted in the Judgment as required by A.A.C. R4-1- 456(B). Such a letter would have made clear that the copy of the Judgment was intended to be Respondent’s self-disclosure of the Judgment. 10. Respondent’s failure to timely self-disclose the Judgment to the Board and to include the written letter constitutes a violation of A.R.S. § 32-741(A)(9),[6] specifically A.A.C. R4-1-456(A)(2), A.A.C. R4-1- 456(A)(3), and A.A.C. R4-1-456(B). 11. Although Respondent has filed an appeal of the October 21, 2013 Judgment, Respondent did not seek and/or did not receive a stay of the Judgment. Without a stay, the Judgment is considered final regardless of the appeal status. See Anderson v. Pickrell, 115 Ariz. 589, 566 P.2d 1335 (1977). 12. The October 21, 2013 Judgment constitutes grounds to impose disciplinary action against Respondent pursuant to A.R.S. § 32- 741(A)(7)[7] and A.R.S. § 32-741(A)(8).[8] 13. The evidence of record supports the revocation of Respondent’s Certified Public Accountant Certificate No. 7551-E pursuant to A.R.S. §§ 32-741 and 32-742. RECOMMENDED ORDER It is recommended that Respondent’s Certified Public Accountant Certificate No. 7551-E be revoked on the effective date of the Order entered in this matter. It is further recommended that Respondent shall reimburse the Board’s costs for investigating and proceeding to hearing in this matter, pursuant to A.R.S. § 32-701(10)(g). 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 shall be five (5) days from the date of the certification. Done this day, September 2, 2014.

/s/ Tammy L. Eigenheer Administrative Law Judge

Transmitted electronically to:

Monica L. Petersen, Executive Director Arizona State Board of Accountancy ----------------------- [1] The parties agreed at the hearing that the woman was Respondent’s wife. [2] The letter also indicated the Board had received a Notice of Appeal. No testimony or evidence was presented during the hearing regarding the Notice of Appeal. [3] As to the procedural history of this matter following the November 27, 2013 letter, the hearing record contained limited evidence of the subsequent events. If not specifically cited to an exhibit or to testimony presented at the hearing, the recitation of these events was gathered from the Complaint and Notice of Public Hearing issued on May 28, 2014. The procedural events are not relevant to the legal issues to be determined. [4] The Administrative Law Judge repeatedly advised Respondent that he could not collaterally attack the Judgment in these administrative proceedings. [5] A.R.S. § 32-741(A) provides as follows:

after notice and an opportunity for a hearing, the board may revoke or suspend any certificate granted under this chapter and may take disciplinary action concerning the holder of any certificate for any of the following causes . . . .

[6] A.R.S. § 32-741(A)(9) identifies among the causes for discipline, “[v]iolation of any decision, order or rule issued or adopted by the board.” [7] A.R.S. § 32-741(A)(7) identifies among the causes for discipline, “[f]inal judgment in a civil action if the court makes findings of accounting violations, dishonesty, fraud, misrepresentation or breach of fiduciary duty.” [8] A.R.S. § 32-741(A)(8) identifies among the causes for discipline, “[f]inal judgment or order in a civil action or administrative proceeding if the court or agency makes findings of violations of any fraud provisions of the laws of this state or federal securities laws.”

-----------------------

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