Secretary of State v. Tretiak
| Decision Date | 15 May 2001 |
| Docket Number | No. 33665.,33665. |
| Citation | 22 P.3d 1134,117 Nev. 299 |
| Parties | SECRETARY OF STATE, Securities Division, an Agency of the State of Nevada, Appellant/Cross-Respondent, v. Robert TRETIAK, Retirement Financial Centers of America, Inc., and RFCA Financial Services, Inc., Respondents/Cross-Appellants. |
| Court | Nevada Supreme Court |
Frankie Sue Del Papa, Attorney General, and Tracey J. Brierly and Matthew S. Gabe, Deputy Attorneys General, Carson City, for Appellant/Cross-Respondent.
Christensen & Boggess, Las Vegas, for Respondents/Cross-Appellants.
Before the Court En Banc.
This case involves interpretation of the Nevada Uniform Securities Act and the elements necessary to prove securities fraud in state enforcement actions initiated under NRS 90.570(2) and (3). Respondents argue that reliance and scienter are required elements of securities fraud. According to respondents, if either element is missing, a claim of securities fraud must fail. In contrast, appellant, Nevada Secretary of State, Securities Division ("Division"), argues that the common law elements of fraud are not necessary to prove a claim of securities fraud under NRS 90.570(2) and (3). We conclude that reliance and scienter are not required elements of securities fraud in state enforcement actions initiated under NRS 90.570(2) and (3).
Respondent Retirement Financial Centers of America, Inc. ("Retirement"), is a Nevada corporation, and its business consists of helping senior citizens perform financial planning for retirement. Respondent Robert Tretiak is the founder, chief executive officer, chairman, president and director of Retirement. Prior to this action, Tretiak possessed a National Association of Securities Dealers ("NASD") license. Respondent RFCA Financial Services, Inc. ("RFCA Financial"), is a Nevada corporation and, prior to this action, was registered as a broker-dealer with the Division and NASD.
In October 1994, Retirement made a public offering of almost $1,000,000.00. The public offering was registered with the Division under Nevada's Small Corporate Offering Registration ("SCOR") program.1 According to the prospectus, the offering was intended to raise money for the company's expansion to a nationwide chain of franchises. Also, the prospectus stated that Retirement wanted to raise money to purchase a "high profile 1-acre building site on Lake Mead Boulevard" in Las Vegas for the company's headquarters.
Although the prospectus was approved by the Division, many of the disclosures set forth in the prospectus were disregarded by respondents. Thus, on September 4, 1996, the Division filed a complaint against respondents alleging numerous securities violations. Following a seventeen-day hearing, a hearing officer issued findings of fact, recommended conclusions of law and recommended sanctions. The hearing officer concluded that respondents committed numerous securities violations that warranted the imposition of sanctions.
The hearing officer concluded that "the prospectus used by Retirement to solicit investors was false, incomplete, and misleading in material respects." Specifically, the hearing officer found that the total amount of money spent on franchise development was significantly more than the amount set forth in the prospectus. Moreover, the hearing officer found that the Lake Mead Boulevard property was not acquired in the manner set forth in the prospectus. Rather, Retirement used borrowed funds to purchase the property. Because investor funds were not used to purchase the property, Retirement used the money raised in the public offering in manners not set forth in the prospectus.
Additionally, the hearing officer concluded that "[t]he improper conduct that resulted, and the failures of other Respondents, were all a direct result of actions taken by Tretiak." The hearing officer found that Tretiak misrepresented that the offering period had been extended and that he continued to sell stock after the registration period had expired. Moreover, the hearing officer found that Tretiak received compensation as franchise director without the approval of the board of directors and outside normal accounting procedures. Further, the hearing officer found that Tretiak charged over $35,000.00 in personal expenses to a credit card issued to Retirement. Also, the hearing officer found that Tretiak manipulated the offering to earn cash commissions on non-cash stock sales. Finally, because Tretiak continued to use the prospectus even though many significant events had changed, the hearing officer concluded that Tretiak's conduct justified the imposition of sanctions.
As to Retirement, the hearing officer concluded that Retirement, as issuer of the stock, also committed securities violations. First, the hearing officer found that Retirement allowed its stock to be sold by using a prospectus that was false and misleading. Second, the hearing officer found that Retirement's stock was sold after the registration period had expired. Third, the hearing officer found that Retirement improperly paid commissions and compensation to Tretiak. Accordingly, the hearing officer recommended that sanctions be imposed against Retirement.
Finally, with respect to RFCA Financial, the hearing officer concluded as follows:
[RFCA Financial] utterly failed to carry out its fiduciary duty to customers and stock purchasers. In so doing, it failed in the areas that are most fundamental for licensed broker-dealers. It did not comply with registration laws. It violated disclosure laws. It failed to register a branch. It conducted trades at unfair prices. It allowed employees to benefit at the expense of customers. It breached its fiduciary duty to act in the best interests of customers.
Thus, the hearing officer determined that RFCA Financial's conduct justified the imposition of sanctions.
On June 27, 1997, the Division adopted the hearing officer's findings of fact, recommended conclusions of law and recommended sanctions. Further, the Division issued a final order and sanctioned respondents as follows: (1) Retirement was ordered to cease and desist from further violations of the Nevada Uniform Securities Act; (2) Tretiak was barred from association with a licensed broker-dealer or investment adviser in the State of Nevada, but he could apply to have the bar lifted after five years; and (3) RFCA Financial's broker-dealer license was revoked.
On August 27, 1997, respondents petitioned the district court for judicial review. On January 6, 1999, the district court denied the petition because it determined that substantial evidence existed to support the Division's findings of fact. Nonetheless, the district court concluded that the sanctions imposed against Tretiak and RFCA Financial were an abuse of discretion. The district judge stated: "I think that [the] punishment is disproportionate to the offense and I elect to make a partial modification in that regard, to me there is a big difference between Mr. Tretiak running his own company and being allowed to practice in an advisory capacity." Therefore, the district court modified Tretiak's punishment as follows: (1) Tretiak could apply for a license in a supervised capacity after January 1, 1999, and (2) Tretiak could apply for a license in an unsupervised capacity after January 1, 2002. Further, the district court determined that a permanent revocation of RFCA Financial's broker-dealer license was too harsh. Accordingly, the district court concluded that RFCA Financial could apply for a broker-dealer license after January 1, 1999; however, the license could only be obtained on a supervised basis.
On appeal, the Division contends that the district court improperly modified the sanctions imposed against Tretiak and RFCA Financial. The Division asserts that a district court may not modify an agency's final decision when the underlying findings of fact of that decision are found to be supported by substantial evidence. Moreover, the Division argues that it was improper for the district court to characterize the sanctions as an abuse of discretion. Accordingly, the Division requests that this court reverse that portion of the district court's order modifying the sanctions imposed against Tretiak and RFCA Financial.
On cross-appeal, respondents contend that the Division's final decision should be set aside in its entirety because their substantial rights have been prejudiced. Specifically, respondents assert that the hearing officer misinterpreted the elements required to prove securities fraud. Because the hearing officer and the Division found that reliance and scienter were not required elements of securities fraud in state enforcement actions initiated under NRS 90.570(2) and (3), respondents urge this court to reverse that portion of the district court's order denying judicial review, and to instruct the district court to set aside the Division's final decision in its entirety.
When reviewing an administrative decision, this court's role is identical to that of the district court.2 This court must "review the evidence presented to the agency in order to determine whether the agency's decision was arbitrary or capricious and was thus an abuse of the agency's discretion."3 Additionally, "[w]hen reviewing the decision of an administrative agency, a court is limited to the agency record, and may not substitute its judgment for that of the agency as to the weight of evidence on questions of fact."4 Nonetheless, an administrative decision may be set aside in whole or in part, if the final decision is "[c]learly erroneous in view of the reliable, probative and substantial evidence on the whole record."5
Thus, the question before us is whether the agency's final decision was based on substantial evidence.6 If it was, "neither this court, nor the district court, may substitute its judgment for the administrator's determination."7 Furthermore, ...
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