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Documentary Stamp Taxes: When is a Written Obligation to Pay Money not a Written Obligation to Pay Money?

History of Document Stamp Taxes

 The British are coming! The British are coming! In 1765, Britain’s Parliament enacted The Stamp Act by a vote of 245 to 49 in the House of Commons, and unanimously in the House of Lords. The tax would be effective November 1, 1765.1 The tax was broad. It applied to virtually all documents, including pleadings, wills, bills of lading, or playing cards, whether in paper format or “skin or piece of vellum or parchment….”2 The tax even applied to playing dice. Though repealed less than one year after enactment, the Stamp Act itself led to riots throughout the colonies, from Portsmouth, New Hampshire, to Savannah, Georgia. The Stamp Act represented one of the colonies’ first glimpses of taxes placed on documents. With the colonies’ eventual independence, document stamp taxes continued to exist, both at the state and federal levels. Fast forward 200 years, the Excise Tax Reduction Act of 1965 served to eliminate various document taxes at the federal level, including taxes on stocks, mutual funds, and transfers of stocks and mutual funds. Those repeals were effective January 1, 1966.3 The Excise Tax Reduction Act of 1965 was broad based, eliminating some taxes, while adding others. As an example, it extended federal taxes on alcoholic beverages and tobacco products, but also eliminated taxes on playing cards (13 cents per pack) and coin-operated amusement devices.4

Document stamp taxes are inconsistent among the states. Nebraska enacted its documentary stamp tax upon the passage of the Excise Tax Reduction Act of 1965. The Nebraska tax focuses on deeds to trustees.5 Real estate transfer taxes exist in all but fourteen states.6 The highest such taxes are in New Jersey, New York, Connecticut, and Washington. Florida’s tax on deeds and mortgages is relatively modest. Few states, if any besides Florida, have documentary taxes that broadly apply to most “promissory notes” and “written obligations to pay money.”

Florida’s Documentary Stamp Tax General Overview and History

Unique to Florida, and perhaps more akin to the broader Stamp Act of 1765, is section 201.08, Florida Statutes.7 Section 201.08 was originally enacted in 1931. After being amended in 1936, the statute provided:

On promissory notes, non-negotiable notes, written obligations to pay money, assignment of salaries, wages, or other compensation, made, executed, delivered, sold, transferred, or assigned in the State of Florida, and for each renewal of the same on each one hundred dollars of the indebtedness of obligation evidenced thereby, the tax shall be ten cents.8

Today, section 201.08(1) is divided into sub-sections (a) and (b). Section 201.08(1)(a) provides:

On promissory notes, nonnegotiable notes, written obligations to pay money, or assignments of salaries, wages, or other compensation made, executed, delivered, sold, transferred, or assigned in the state, and for each renewal of the same, the tax shall be 35 cents on each $100 or fraction thereof of the indebtedness or obligation evidenced thereby. The tax on any document described in this paragraph may not exceed $2,450.

The 2023 version of the statute differs from the 1936 version primarily by virtue of the amount of the tax having been increased, and there being a cap on the tax. The cap of $2,450 was instituted on July 1, 2002.9 The amount of the tax charged, though capped, is based upon the face amount of the obligation. Documents taxed under section 201.08(1)(a) are generally not recorded. The tax is paid with the filing of Form DR-228, Documentary Stamp Tax Return For Nonregistered Taxpayers’ Unrecorded Documents. Until the 2002 amendments, there also did not exist a distinction within the statute for documents falling under sub-sections (a) and (b). Documents taxed by section 201.08(1)(b) are filed or recorded, and generally include mortgages and trust deeds.  There is no cap on this tax.  This article will focus exclusively on section 201.08(1)(a), Florida Statutes. Because of the confusion and loopholes concerning 201.08(1)(a), Florida Statutes, one of three things should occur: (1) the Department of Revenue and law enforcement can be more aggressive collecting this tax, (2) the legislature defines the statute’s operative terms, or (3) section 201.08(1)(a) be repealed in its entirety.

Section 201.08(1)(a), Florida Statutes – Confusion and Loopholes

 Section 201.08(1)(a) applies to all “promissory notes” and “written obligations to pay money.” These terms are not defined in the statute nor within Chapter 201. For years, this broad, perhaps vague statute, which on its face applies to all “promissory notes” and “written obligations to pay money”, has created confusion for taxpayers, and a windfall for tax attorneys helping clients avoid this relatively small, but annoying, tax. The basis for these loopholes is section 201.08(6), which provides:

  • Taxability of a document pursuant to this section shall be determined solely from the face of the document and any separate document expressly incorporated into the document. Taxability of a document pursuant to this section shall not be determined by reference to any separate document referenced or forming part of the same contract or obligation unless the separate document is expressly incorporated into the document. When multiple documents evidence, secure, or form part of the same primary debt, tax pursuant to this section shall not be imposed more than once, on the total indebtedness evidenced, notwithstanding the existence of multiple documents.

 

The position taken by Florida’s Department of Revenue (DO R

in a 2016 Technical Assistance Advisement allows (DOR) the complete avoidance of the tax by dividing a single obligation into multiple documents that do not expressly incorporate each other. The last sentence of section 201.08(6) evidences the view that the purpose of section 201.08(6), added to the statute in 1996, was to ensure that a taxpayer was not taxed multiple times when multiple documents evidence the same debt or obligation.  That view makes sense – a taxpayer should not be taxed multiple times on a single debt or obligation. The DOR has taken the analysis a step further by reasoning that the tax can be completely avoided by dividing a single obligation into multiple documents that do not expressly incorporate each other. If the multiple documents are not “expressly incorporated” into each other, one can argue that none of the documents are taxable. From the perspective of the DOR, a single document that is obviously a “written obligation to pay money” would not be taxable if it lacks any of three elements: (1) that it be in writing; (2) that it state a sum certain in money; and (3) that it be signed by the borrower.10 By dividing an ordinary, single document obligation or transaction into multiple documents, such that the documents are not “expressly incorporated” into each other, the tax can be avoided. Chapter 201, Florida Statutes, does not contain guidance for determining whether multiple documents are expressly incorporated into each other. However, through its regulations, DOR provides guidance on determining whether two documents are expressly incorporated into each other. Rule 12B-4.052 (6) (b), Florida Administrative Code,11 as adopted in 2003,12 provides:

  • Taxability of a written obligation to pay money is determined from the form and face of the document.
    1. Whether a document is taxable is determined by reference to that document and any other document or documents expressly incorporated therein.
    2. A document does not expressly incorporate another document by implication or by mere reference and description of the other document.
    3. Express incorporation occurs when words in a document under examination provide that another document or documents are incorporated into the document under examination.
    4. Following are examples of terminology whereby a document is expressly incorporated into the document under examination.
      1. [document] is incorporated herein;
      2. [document] the terms of which are incorporated herein;
      3. [document] is made a part hereof;
      4. [document] is a part of [this document];
  1. The agreement consists of [this document] and [separate document] the same as if it were fully set forth herein;
  2. [document] shall become a part of [document];
  3. [document] and [document] constitute a single
  4. Following are examples of terms in a document under examination that do not expressly incorporate another document, unless the document under examination otherwise contains language that meets the criteria of subparagraphs (b)3. or (b)4. above.
    1. In the attachment hereto;
    2. Is subject to;
    3. Is subject to the terms of;
    4. Pursuant to;
    5. Pursuant to the terms of;
    6. As set forth in;
    7. Reference is made to;
    8. Governed

This rule may be viewed as nonsensical because it can turn a document that clearly is intended to create a single “written obligation to pay money” into something that is not a “written obligation to pay money.” All that is required for this transformation is the use of the terms in Rule 12B- 4.052(6)(b)(5). This Rule arguably provides the “magic” words for arguing that multiple documents do not incorporate each other. The use of the phrase “expressly incorporated” in both section 201.08(6), Florida Statutes and Rule 12B-4.052 (6)(b)(5), Florida Administrative Code, has served to create a loophole through which taxpayers have divided single obligation transactions into multiple documents for the sole and exclusive purpose of avoiding the tax.

The use of this mechanism is illustrated in Technical Assistance Advisement 16B4-001, 2016 Fla. Tax LEXIS 16. A Technical Assistance Advisement is a binding opinion issued by the Florida Department of Revenue. In this case, the taxpayer loaned money for auto loans. According to the taxpayer, the loan transaction was divided into five distinct documents, including: an Auto Express Loan Agreement, a Security Agreement, a Truth-in-Lending Statement, an Auto Express Loan Check, and a Loan Modification Rider. None of the documents expressly incorporated the other documents. While the Rider contained a sum certain of money, it did not contain a promise to pay or the consumer’s signature. The Department stated as follows13:

  • The Note contains the amount financed and a promise to pay; however, it does not contain the signature of the Additionally, the Note does not expressly incorporate any other document.
  • The Check contains a promise to pay and requires the signature of a borrower; however, it does not contain a sum certain in money. Though the Check makes reference to the Note, it does not expressly incorporate the Note or any other
  • The Rider contains the amount financed; however, it does not contain an unconditional promise to pay a sum certain in money or the signature of the borrower. Additionally, the Rider does not expressly incorporate any other

The Department’s reasoning has the ring of a legal contortionist. The entire basis of the Department’s reasoning is premised upon the Department’s own administrative rules, rather than the plain language of the applicable statute, section 201.08(1)(a). All of this begs the question of whether a promissory note, in this case called an Auto Express Loan Agreement, would be enforceable in court if it did not contain a specific reference to the amount of the loan.14 Arguably, the promissory note would be void for vagueness.15 The putative lender must decide whether attempting to avoid section 201.08(1)(a)’s tax is worth risking have a set of documents that a court might not enforce.

In an earlier auto loan case, the Department of Revenue, in a Technical Assistance Advisement, ruled that section 201.08(1)(a)’s tax would not be owed because none of the five documents that comprised a single auto loan met the required elements.16 Those three elements –

– (1) an unconditional written promise to pay, (2) a sum certain in money, and (3) the signature of the borrower — are not mandated as such anywhere within section 201.08. Rather, section 201.08(1)(a)’s focus is whether the document at issue is a “promissory note” or a “written obligation to pay money.” It makes little sense for a document, or series of documents, to be interpreted as something other than a “written obligation to pay money” for tax purposes, but at the same time take the view that there is an enforceable “written obligation to pay money” for litigation purposes.

The hornet’s nest created by Rule 12B-4.052 (6)(b)(5), Florida Administrative Code is self- evident.17 In essence, the Rule seeks to create a definition for the term “expressly incorporated” as used in section 201.08(6), Florida Statutes. The role of a state agency, however, is not to define legislative terms – that task is generally the province of the legislature. Chapter 201 does not contain any definitions. The terms “promissory note”, “written obligation to pay money”, and “expressly incorporated” were never defined by the Legislature. As such, when interpreting a statute, “[i]t is a fundamental principle of statutory construction that where the language of a statute is plain and unambiguous there is no occasion for judicial interpretation.”18 Arguably, the Rule represents an agency’s “invalid exercise of delegated legislative authority.”19 In order for the Rule to be considered invalid, any of six criteria need be met. If a rule is vague or arbitrary, it may be deemed invalid. A rule is considered arbitrary “if it is not supported by logic or the necessary facts.”20

Whether a document constitutes either a “promissory note” or a “written obligation to pay money” should not be especially complex. Moreover, where a single obligation is evidenced by multiple documents, regardless of whether they “expressly incorporate” each other, it is reasonable to conclude that any “written obligation to pay money” is taxable. The concern addressed by section 201.08(6), Florida Statutes, is to avoid there being multiple taxes on the same obligation, simply because they are evidenced by multiple documents. On occasion ambiguity exists among multiple documents as to the dollar amount of the underlying obligation, i.e., on what dollar amount should the tax be calculated? In a case decided prior to the enactment of section 201.08(6), Florida Statutes, Computer Sales Int’l v. State Department of Revenue,21 a dispute existed between the Florida Department of Revenue and a taxpayer. The dispute revolved around whether a tax was owed pursuant to section 201.08(1), Florida Statutes (1983). The underlying business transaction was comprised of three documents: a Master Lease Agreement, an Equipment Schedule, and a Certificate of Acceptance. The Court rejected the notion that for purposes of determining whether a tax was owed the documents must specifically incorporate each other by reference. Rather, relying upon general rules of contract interpretation, the Court stated that the “rule is clear that when a writing expressly refers to and sufficiently describes another document – in this case, the Certificate of Acceptance – the other document is to be interpreted as part of the writing.”22 Indeed, the Court noted, instruments executed on different days may be regarded as one contract and interpreted together. Whether the outcome in Computer Sales Int’l would have changed following the enactment of section 201.08(6), is unclear.23

Whether Section 201.08(1)(a), Florida Statutes, is Constitutionally Void Due to Vagueness or Overbreadth

 There exists a reasonable argument that section 201.08(1)(a), Florida Statutes, is violative of the Florida Constitution as vague or overbroad. Specifically, the phrases “promissory note” and “written obligation to pay money”, within the statute’s context, are arguably vague or overbroad.24 Whether they are sufficiently vague and/or overbroad for constitutional purposes is debatable. In Southeastern Fisheries Assoc. v. Department of Natural Resources, 453 So. 2d 1351 (Fla. 1984), the Florida Supreme Court considered the constitutionality of Florida’s fish trap law, section 370.1105, Florida Statutes (Supp. 1980). Although found constitutional, the Court made it clear that there existed a distinction between analyses for determining whether a statute was void on the one hand as vague, or on the other hand, as overbroad.25 With regard to overbreadth, the Court stated:

The overbreadth doctrine applies only if the legislation “is susceptible of application to conduct protected by the First Amendment.” Carricarte v. State, 384 So. 2d 1261, 1262 (Fla.), cert. denied, 449 U.S. 874, 101 S. Ct. 215, 66 L. Ed. 2d

95 (1980) (citing Dandridge v. Williams, 397 U.S. 471, 25 L. Ed. 2d 491, 90 S. Ct.

1153 (1970)). See also McKenney v. State, 388 So. 2d 1232 (Fla. 1980); State v. Ashcraft, 378 So. 2d 284 (Fla. 1979). See generally Note, The First Amendment Overbreadth Doctrine, 83 Harv. L. Rev. 844 (1970).

In contrast, the Court stated, the vagueness doctrine “was developed to assure compliance with the due process clause of the United States Constitution.”26 A statute is constitutionally void for vagueness if it:

fails to give adequate notice of what conduct is prohibited and which, because of its imprecision, may also invite arbitrary and discriminatory enforcement. In determining whether a statute is vague, common understanding and reason must be used. Where a statute does not specifically define words of common usage, such words must be given their plain and ordinary meaning.27

If a document has all the trappings of a promissory note, is it still a promissory note if is called a “Loan Agreement” or if it is given a title other than “promissory note”? Likewise, what is a “written obligation to pay money”? Is a handwritten IOU for a sum certain a “written obligation to pay money” for tax purposes? There is no shortage of caselaw addressing various legal issues involving section 201.08, Florida Statutes. Many of those cases address whether the payment of the documentary stamp tax is a condition precedent to suing on the underlying obligation.28 Assuming there are numerous taxpayers not paying the tax, is this due to intentional evasion, or is it due to not understanding a vague statute?

Examples of statutes found void based upon the vagueness doctrine include section 893.13(1)(i), Florida Statutes (Supp. 1990).29 In Brown v. State, the Florida Supreme Court found that the phrase “public housing facility” was unconstitutionally vague. The statute at issue imposed criminal penalties on persons selling, delivering or manufacturing controlled substances within 200 feet of a “public housing facility.” The Court found that this phrase did not give “adequate notice of what conduct is prohibited and, because of its imprecision, may invite arbitrary and discriminatory enforcement.”30

In Bischoff v. Florida,31 the plaintiffs challenged the constitutionality of sections 316.2045 and 316.2055, Florida Statutes. These statutes were directed at rights to public protest in certain scenarios. After an evidentiary hearing, a United States Magistrate Judge recommended that the State’s Motion to Dismiss be converted to a Motion for Summary Judgment, and that the statutes be declared unconstitutional as content based and vague. The District Court agreed.32 With respect to the vagueness argument, the statute included two undefined terms, “solicit” and “political campaigning.” The purpose of the vagueness doctrine, the Court noted, is to warn individuals that their conduct may have criminal consequences. Section 201.08(1)(a) is similar, in that a failure to pay a required tax on either a “promissory note” or a “written obligation to pay money” may have criminal consequences.33 Failure to pay the tax is a misdemeanor in the first degree, punishable by up to one year in prison.34 Citing United States Supreme Court precedent, the Court stated that the test for vagueness is “whether the language conveys sufficiently definite warning as to the proscribed conduct when measured by common understanding and practices.”35

Perhaps the strongest argument in support of the view that section 201.08(1)(a) is void for vagueness is the statute’s “arbitrary … enforcement.”36 Numerous industries routinely use promissory notes in their day-to-day business. One of those industries is the broker-dealer, or stockbroker, community. Typically, when these firms recruit lateral hires, the candidates are enticed with large, up-front loans. Here is how they work. A financial advisor will be offered a loan based on a percentage of the advisor’s trailing twelve-month gross production at his or her prior firm. The percentage can be 300% or more.37 If an advisor is generating $1 million in gross production, the advisor may be offered as much as $3 million in the form of loan. The loan terms vary in length from firm to firm. It is not uncommon for the terms to be longer than 10 years.38 Simultaneous with the signing of the note, the financial advisor will also sign a bonus agreement. The bonus agreement will be the same length as the note. The payments due to the financial advisor will be equal to the note payments due to the employer.39 In other words, the note and the bonus agreement are intended to wash each other out.

Given that the maximum tax due on a note, or written obligation to pay money, may not exceed$2,450.00, one would think that broker-dealers, as well as other businesses that routinely use notes, would as a matter of routine pay the relatively small tax. While some businesses pay the tax, many do not. In the broker-dealer community, it is perceived that numerous firms never pay the documentary stamp tax when they offer promissory notes to lateral hires. Broker-dealers have gotten away with this tax avoidance for several reasons. First, when seeking to enforce the notes, broker-dealers sue their former employees in the Financial Industry Regulatory Authority’s40 arbitration forum. There is mandatory arbitration in the securities industry.41 Because these cases are rarely in court, a judge will not be publishing a written opinion addressing whether the tax was paid, or its significance. The arbitration process provides a level of secrecy that protects Florida’s broker-dealer community. Second, because arbitration is an equitable forum,42 when the defense of non-payment of the tax is proffered, firms believe that arbitrators will ignore the issue, and treat non-payment of the tax as either a technicality, or simply outside their province.43 Third, when pressed, a broker-dealer can simply cure the issue in a specific case and pay the tax and any late fees. Florida courts unanimously agree that once the tax is paid, there no longer exists an argument that a taxpayer has failed to satisfy all conditions precedent.44 In one instance in a FINRA arbitration, in response to the argument that a note claim should be dismissed due to non-payment of the tax, the Respondent agreed to pay the tax by the end of the business day. Based upon this agreement, the arbitrator entered an award enforcing the note.45 Finally, and perhaps most importantly, the Department of Revenue has not been aggressive with forcing the broker-dealer community to pay this tax. One reason for the Department’s passivity is the size of the tax. For each note, the tax may not exceed $2,450. This is a drop in the bucket compared with what the Department of Revenue collects monthly on deeds. For example, in January 2023, the Department collected $173,690,477.11 million in documentary stamp taxes on deeds.46 Deeds are taxed pursuant to section 201.02, Florida Statutes, at a rate of 70 cents per $100 of the underlying obligation.47 For the same month, the Department collected $71,356,378.67 million on documentary stamps on all documents to which the 35-cent tax applies.48 It is impossible to know what portion of the $71 million is from unrecorded promissory notes or other “written obligations to pay money.” These figures are down 44.47% and 50.73%, respectively, over January 2022 collections.49 It is conceivable that any failure to enforce section 201.08(1)(a) is the result of the putative collections being perceived as less significant than taxes collected on deeds.

From the taxpayer’s perspective, the monetary cost of failing to pay the tax is relatively small. The person responsible for paying the tax will be required to pay the tax itself, a penalty that cannot exceed 50% of the tax, or if the Department of Revenue finds fraud, there is an additional penalty of 200% of the deficiency.50 If the original tax was $2,450, the maximum amount for which a taxpayer can be liable is $7,350 per note, inclusive of penalties. In addition to monetary exposure, there is criminal exposure. The failure to pay the required tax is treated as a first-degree misdemeanor, subjecting a person to up to one year in jail.51 Research does not reveal whether anyone has ever been criminally charged with this tax violation.

Conclusion

Research also does not reveal whether section 201.08(1)(a), Florida Statutes, has ever been challenged as unconstitutional based upon the vagueness doctrine. Clarifying or narrowing the scope of the statute would serve to educate taxpayers regarding the taxability of certain documents, and in particular, promissory notes. Unfortunately, publicly available data does not reflect precisely how much money is collected specifically from promissory notes, as opposed to “written obligations to pay money, or assignments of salaries, wages, or other compensation….”52) Assuming the legislature does not have an appetite for reviewing and revising the statute, the Department of Revenue should aggressively enforce the statute to protect those taxpayers who have been paying the tax for years, if not decades, and to simply maximize the funds in the public coffers. Finally, the statute could simply be clarified through amendments defining the statute’s operative terms, “promissory note” and “written obligations to pay money.”

 

1 Massachusetts, Florida, and Jamaica also passed stamp taxes in the mid-18th century. Edmund

  1. and Helen M. Morgan, The Stamp Act Crisis: Prologue to Revolution 77 (Chapel Hill: University of North Carolina Press, 3rd ed., 1995); Yale Law School, https://avalon.law.yale.edu/18th_century/stamp_act_1765.asp. (last visited February 9, 2023)

2 Yale Law School, https://avalon.law.yale.edu/18th_century/stamp_act_1765.asp. (last visited February 9, 2023)

3 https://library.cqpress.com/cqalmanac/document.php?id=cqal65-1257961 (last visited February 14, 2023).

4 https://library.cqpress.com/cqalmanac/document.php?id=cqal65-1257961 (last visited February 14, 2023).

5 Neb. Rev. Stat. Ann § 76-901 (LexisNexis, Lexis Advance through all Acts of the 2nd Regular Session of the 107th Legislature (2022) and 2022 ballot propositions).

6 https://www.bankrate.com/real-estate/transfer-taxes/.

7 Fla. Stat. Ann. § 201.02 (LexisNexis, Lexis Advance through the 2022 regular and extra sessions), Tax on deeds and other instruments relating to real property or interests in real property, is beyond the scope of this article.

8 CGL 1936 Supp. 1279 (111).

 

9 2002 Fla. ALS 26, 2002 Fla. Laws ch. 26, 2002 Fla. SB 462, 2002 Fla. ALS 26, 2002 Fla. Laws

  1. 26, 2002 Fla. SB 462.

10 2016 Fla. Tax LEXIS 16, 2016 TAX FALR 3.

11 Fla. Admin. Code Ann. r. 12B-4.052 (Lexis Advance through January 23, 2023)

12 2002 FL Regulation Text 26690

13 2016 Fla. Tax LEXIS 16, 2016 TAX FALR 3

14 A frequently litigated issue is whether a “promissory note” is enforceable when the documentary stamp tax has not been paid. See e.g., Wilmington Tr., N.A. v. Serpa, 346 So. 3d 1218 (Fla. Dist. Ct. App. 2022); Solis v. Lacayo, 86 So. 3d 1147 (Fla. Dist. Ct. App. 2012); Somma v. Metra Elecs. Corp., 727 So. 2d 302 (Fla. Dist. Ct. App. 1999); Glenn Wright Homes LLC v. Lowy, 18 So. 3d 693, 696 (Fla. Dist. Ct. App. 2009); ; Ben Fu Li v. Jackie Tan, No. 17- cv-60363, 2017 U.S. Dist. LEXIS 87302 (S.D. Fla. June 7, 2017).

15 Southeastern Fisheries Asso. v. Dep’t of Nat. Res., 453 So. 2d 1351, 1353 (Fla. 1984).

16 2008 Fla. Tax LEXIS 11, 8 TAX FALR 41.

17 Fla. Stat. Ann. § 213.05 (LexisNexis, Lexis Advance through the 2022 regular and extra sessions) provides the Department of Revenue with rulemaking authority.

18 Forsythe v. Longboat Key Beach Erosion Control Dist., 604 So. 2d 452 (Fla. 1992); see also Van Pelt v. Hilliard, 75 Fla. 792, 78 So. 693 (1918).

19 Fla. Stat. Ann. § 120.52 (8) (LexisNexis, Lexis Advance through the 2022 regular and extra sessions).

20 Fla. Stat. Ann. § 120.52 (8)(d) and (e) (LexisNexis, Lexis Advance through the 2022 regular and extra sessions).

21 Comput. Sales Int’l v. State Dep’t of Revenue, 656 So. 2d 1382 (Fla. Dist. Ct. App. 1995).

22 Id. at 1384.

23 Comput. Sales Int’l v. State Dep’t of Revenue, 656 So. 2d 1382 (Fla. Dist. Ct. App. 1995).

24 A promissory note is “[a]n unconditional written promise, signed by the maker, to pay absolutely and in any event a certain sum of money either to, or to the order of, the bearer or a designated person.” Black’s Law Dictionary, 11th edition, 2019.

25 Southeastern Fisheries Asso., 453 So. 2d at 1353 (Fla. 1984); see also Simmons v. State, 944 So. 2d 317 (Fla. 2006).

26 Southeastern Fisheries Asso., 453 So. 2d at 1353, cited in Martin v. State, 207 So. 3d 310, 317 (Fla. Dist. Ct. App. 2016).

27 Id. at 1353.

28 Wilmington Tr., N.A. v. Serpa, 346 So. 3d 1218 (Fla. Dist. Ct. App. 2022); Solis v. Lacayo, 86 So. 3d 1147 (Fla. Dist. Ct. App. 2012); Somma v. Metra Elecs. Corp., 727 So. 2d 302 (Fla. Dist. Ct. App. 1999); Glenn Wright Homes LLC v. Lowy, 18 So. 3d 693, 696 (Fla. Dist. Ct. App.

2009); Ben Fu Li v. Jackie Tan, No. 17-cv-60363, 2017 U.S. Dist. LEXIS 87302 (S.D. Fla. June 7, 2017).

29 Brown v. State, 629 So. 2d 841 (Fla. 1994).

30 Id at 842.

31 Bischoff v. Florida, 242 F. Supp. 2d 1226 (M.D. Fla. 2003).

32 Id. at 1235 – 1236.

33 Id. at 1236.

34 Fla. Stat. Ann. § 201.17 (LexisNexis, Lexis Advance through the 2022 regular and extra sessions).

35 Bischoff v. Florida, 242 F. Supp. 2d 1226, 1236 (M.D. Fla. 2003).

 

36 Southeastern Fisheries Asso., 453 So. 2d at 1353 (Fla. 1984).

37  https://www.advisorhub.com/recruiting-bonuses-for-top-producers-flirt-with-400-hitting-

fresh-highs/ (last visited Feb. 10, 2023)

38  https://www.pjblawoffice.com/wp-content/uploads/2018/11/Promissory-Notes-White-

Paper.pdf (last visited February 14, 2023).

39 https://www.vantageimpact.com/news/financial-advisors-considering-offer (last visited February 10, 2023).

40 https://www.finra.org/about#:~:text=FINRA%20Utility%20Menu,- What%20We%20Do&text=To%20protect%20investors%20and%20ensure,in%20the%20market

%20with%20confidence. (last visited on February 10, 2023)

41 FINRA Rule 13200. Required Arbitration. https://www.finra.org/arbitration-mediation/rules- case-resources/13000 (last visited February 10, 2023).

42 FINRA Dispute Resolution Services Arbitrator’s Guide, p. 9 (January 2023 Edition).

43 In an Award issued on May 31, 2022, a Florida arbitration panel found that the broker- dealer/lender owed the tax, but that the failure to pay the tax did not bar enforcement of the underlying obligation. Because FINRA arbitrators are not required to issue detailed opinions unless both parties request a detailed opinion, it is impossible to know how often the non- payment of the documentary stamp tax is raised as a defense in these cases; https://www.finra.org/sites/default/files/aao_documents/18-04045.pdf (last inspected February 13, 2023).

44 See e.g., Wilmington Tr., N.A. v. Serpa, 346 So. 3d 1218 (Fla. Dist. Ct. App. 2022); Solis v. Lacayo, 86 So. 3d 1147 (Fla. Dist. Ct. App. 2012); Somma v. Metra Elecs. Corp., 727 So. 2d 302 (Fla. Dist. Ct. App. 1999); Glenn Wright Homes LLC v. Lowy, 18 So. 3d 693, 696 (Fla. Dist. Ct. App. 2009).

45 https://www.finra.org/sites/default/files/aao_documents/10-05384-Award-FINRA-

20120127.pdf (last inspected February 13, 2023).

46 https://floridarevenue.com/DataPortal/Pages/TaxResearch.aspx (last inspected February 13,

2023)

47 Fla. Stat. Ann. § 201.02 (LexisNexis, Lexis Advance through the 2022 regular and extra sessions)

48 https://floridarevenue.com/DataPortal/Pages/TaxResearch.aspx (last inspected February 13,

2023)

49 https://floridarevenue.com/DataPortal/Pages/TaxResearch.aspx (last inspected February 13,

2023)

50 Fla. Stat. Ann. § 201.17(2)(b) (LexisNexis, Lexis Advance through the 2022 regular and extra sessions).

51 Fla. Stat. Ann. § 775.082 (4)(a) (LexisNexis, Lexis Advance through the 2022 regular and extra sessions) and Fla. Stat. Ann. § 201.17 (LexisNexis, Lexis Advance through the 2022 regular and extra sessions).

52 Fla. Stat. Ann. § 201.08 (LexisNexis, Lexis Advance through the 2022 regular and extra sessions).

Former Aegis Capital Broker Surage Kamal Roshan Perera Charged With Fraud

On March 27, 2023, the SEC charged former broker Surage Kamal Roshan Perera and his firm, Janues Capital Incorporated, with defrauding at least one investor out of millions by lying about investment opportunities and strategies, concealing trading losses, and using funds received from others to give the victim the promised returns in Ponzi-like fashion. The SEC has obtained emergency relief in court, including a temporary restraining order and an asset freeze.

According to the SEC’s complaint, from February 2022 until March 2023, Perera, a Long Island, NY resident, falsely told an investor, not named in the complaint, that Janues had access to specific restricted securities at discounted prices though connections with large, institutional investors. He allegedly claimed to also exercise a trading strategy, which he referred to as ‘Options Straddles,’ that would not only prevent any trading losses but also guarantee returns on some of the investments of up to 9 percent with the potential for returns of 50 percent. According to the complaint, Perera and Janues misappropriated at least $3.5 million of the investor’s funds to engage in highly speculative and leveraged trading. In total, Perera engaged in more than $2.5 billion in securities transactions, with nearly $3 million in trading losses. Perera then allegedly concealed the misappropriation and losses by providing the investor with phony confirmations and account statements that falsely showed the expected returns. The complaint also alleges that Perera further attempted to hide the losses by using funds received from other sources to make Ponzi-like payments to the investor.

“As noted in our complaint, Perera and his firm Janues engaged in predatory and fraudulent behavior by claiming to have special access to securities through their professional connections, but instead defrauded millions of dollars from his investor,” said Antonia Apps, Director of the New York Regional Office. “We will continue to pursue individuals who prey upon retail investors and steal money from their clients.”

In a parallel action, the U.S. Attorney’s Office for the Eastern District of New York today announced criminal charges against Perera.

The SEC’s complaint alleges that Perera and Janues violated antifraud provisions of the federal securities laws. Perera also was charged with aiding and abetting Janues’ alleged violations. The SEC’s complaint names Nishani Alahakoon, whose brokerage account Perera and Janues traded, as a relief defendant. The asset freeze obtained by the SEC prevents any further dissipation of investor funds. The SEC is seeking permanent injunctions and disgorgement of ill-gotten gains plus interest and penalties.

If you were a victim of Mr. Perera, please contact David A. Weintraub, P.A. at (800) 718-1422 to discuss possible representation.

David A. Weintraub, P.A. is Investigating Losses Related to Closed-End Funds

The national securities and investment fraud law firm, David A. Weintraub, P.A., continues to investigate claims regarding the recommendation and sale of closed-end funds. Closed-end funds can involve a high degree of risk and may be unsuitable for certain investors.

Investors who have sustained losses related to investment in a closed-end fund are strongly encouraged to contact David A. Weintraub, P.A. for a free consultation. Aggrieved investors can call David A. Weintraub, P.A. directly at (800) 718-1422 or email: [email protected]

What Is a Closed-End Fund?

Closed-End Funds or CEFs are a type of mutual fund that unlike open-end funds only sells a limited number of shares during its initial public offering (IPO).  Closed End Funds are also known as closed-end investment companies and differ in several ways from the other type of investment companies. There are many types of closed-end funds, but the most common are municipal bond funds or muni bond funds.

Closed-end funds are complex and subject to price volatility. They are less liquid than open-end funds, which are more common.  CEFs may be subject to high fees and expenses.  They can also result in significant losses, particularly when they use leverage to borrow money and generate income.  It is imperative to have a firm understanding of the potential risks involved with investing in a closed-end fund.

The recent market downturn has cost investors in closed-end funds substantial amounts of money, with some CEFs cutting dividends by over 40%.  Rising rates continue to put a stop to the normal payouts, causing retirees, often reliant on this form of investment for income, to suffer.

Contact David A. Weintraub, P.A., for a Free Consultation

If you sustained losses after investing in a closed-end fund, contact David A. Weintraub, P.A., for a free case evaluation. Harmed investors can call (800) 718-1422 or email [email protected] to discuss their legal options. All consultations are free and confidential.

Most cases are handled on a contingency fee basis, meaning that clients are not obligated to pay attorney fees unless money is recovered on their behalf.

FINRA Fined Center Street Securities for GPB Capital Fund Sales

On December 29, 2022, the Financial Industry Regulatory Authority fined Nashville based, Center Street Securities, Inc., for improperly selling GPB Capital Holding private placements.  According to FINRA, Center Street Securities failed to inform nearly 20 investors that GPB had failed to submit its required filings with the SEC.

According to the Letter of Acceptance, Waiver and Consent, filed by FINRA, Center Street “negligently failed” to tell 20 investors in two offerings related to GPB Capital Holdings LLC, that the issuer failed to make timely required filings with the Securities and Exchange Commission. Per FINRA, in connection with these 20 sales, Center Street representatives did not inform the customers that the partnerships in question, Automotive Portfolio and Holdings II had not timely filed their audited financial statements with the SEC or the reasons for the delay. The delay in filing audited financial statements and the reasons for it was material information that should have been disclosed.   Between May 4, 2018, and June 29, 2018, Center Street sold limited partnership interests.  The principal value of those 20 sales, totaled $1,206,000.  These transactions generated $98,727.50 in commissions.   By negligent omitting material facts, Center Street violated FINRA rules.

In settling this matter, Center Street Securities neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.  Center Street Securities, agreed to a public censure and to pay a $70,000 fine and partial restitution of $89,652.50.

If you have not hired an attorney and wish to discuss any securities related question, please contact David A. Weintraub, P.A., 7805 SW 6th Court, Plantation, FL  33324.  By phone: 954.693.7577 or 800.718.1422.

Florida Employee Leasing Companies Operating Without Licenses Under the Guise of Being “Employers of Record”

This law firm is investigating the potentially illegal efforts of Employee Leasing Companies attempting to evade Florida’s stringent licensing requirements by calling themselves “Employers of Record”, when in fact they may be operating as de facto Employee Leasing Companies.  Employee Leasing Companies are also known as “professional employer organizations”, or PEO’s.

These licensing requirements are to protect you, the consumer, and Florida law makes clear that PEOs must be licensed in Florida.  Just as the state emphasizes the importance of hiring only licensed contractors after a hurricane, Florida’s employers should only hire licensed PEOs to protect them and their employees’ payroll.

It appears that the state of Florida and the DBPR began investigating unlicensed EOR companies late last year.  We are also investigating several EOR companies including OysterHR, Deel and others.  PEOs or employee leasing companies that conduct business in Florida without an active license, are subject to discipline pursuant to Chapter 468, Florida Statutes.

If you are aware of PEOs or Employee Leasing Companies operating in Florida without active licenses, please contact this law firm if you wish to discuss the issue.  Please contact David A. Weintraub, P.A., 7805 SW 6th Court, Plantation, FL  33324, or call (954) 693-7577.

Morgan Stanley Smith Barney Fined and Order to Pay Restitution to Customers Affected by its Failure to Supervise

On November 21, 2022 FINRA censured Morgan Stanley Smith Barney LLC for its failure to supervise nine registered representatives who recommended potentially high risk securities to their customers.  The firm previously paid restitution to some of the customers who suffered losses as a result of its conduct.   FINRA ordered Morgan Stanley to pay restitution to the remaining customers.

From January 2014 through December 2018, Morgan Stanley failed to reasonably supervise nine registered representatives who recommended potentially high-risk securities to their customers in violation of the firm’s Plan of Solicitation policy.  Each of the nine representatives recommended that customers purchase securities in quantities that were subject to Morgan Stanley’s pre-approval requirement but did not complete a Plan of Solicitation.    The investigation revealed that Morgan Stanley received alerts that some of its registered representatives had made hundreds of recommendations that violated the firm’s Plan of Solicitation policy. The firm’s procedures require that a supervisor at the firm review and approve the Plan of Solicitation prior to the representative recommending the security. Each of the representatives recommended that customers purchase securities in quantities that were subject to the firm’s pre-approval requirement but did not complete a Plan of Solicitation.  Some of the recommended securities were high risk and inconsistent with certain of their customers’ moderate or conservative risk tolerances. The firm did not take appropriate action in response to alerts that its representatives had violated its own policies.  In particular, the firm did not evaluate whether the recommendations were consistent with the customers’ investment profiles. These customers incurred realized losses as a result of many of the recommended trades. Subsequently, the firm improved its enforcement of the Plan of Solicitation policy, including by directing review of Plan of Solicitation alerts to a central review unit.

 

Without admitting or denying the findings, the firm consented to the entry of findings that it failed to reasonably supervise registered representatives who recommended potentially high-risk securities to their customers in violation of the firm’s Plan of Solicitation policy.  Morgan Stanley was fined $200,000.00 and required to pay $497,897, plus interest in restitution to affected customers.

Harmed investors can call (800) 718-1422 or email [email protected] to discuss their legal options. All consultations are free and confidential.   Most cases are handled on a contingency fee basis, meaning that clients are not obligated to pay attorney fees unless money is recovered on their behalf.

 

Registered Representative, Douglas F. Kaiser Fined, and Suspended in Relation to his Failure to Supervise US Treasury Securities Transactions

On November 11, 2022, FINRA sanctioned Douglas Fulton Kaiser of Boca Raton, Florida.  Kaiser, who is registered with Westpark Capital Inc., was fined $5,000.00 and suspended from association with any FINRA member in any principal capacity for three months.  In addition, he is required to attend and satisfactorily complete twenty hours of continuing education concerning supervision.  The sanctions stemmed from failing to supervise WestPark’s markups and markdowns for US Treasury securities.

Through the investigation, FINRA learned that Kaiser was the supervisor of WestPark’s fixed-income trading desk while a representative, who was recommending an unsuitable investment strategy characterized by the active, short-term trading of U.S. Treasury securities and charging excessive markups on certain transactions involving U.S. Treasury securities was registered at the firm. In his role, Kaiser was responsible for reviewing markups and markdowns on fixed-income transactions. For eight customers who suffered losses due to the representative’s Treasury-trading strategy, the representative charged, and Kaiser approved, markups or markdowns more than the firm’s policies allowed.   Kaiser failed to recognize and respond appropriately to the elevated markups and markdowns.  Moreover, for five of the eight customers, Kaiser miscalculated the markdowns the representative charged for certain sales on one day. Those sales were part of a group of same-day sales followed by purchases the following day that collectively amounted to “proceeds” transactions.

Without admitting or denying the findings, Kaiser consented to the sanctions and to the entry of findings that he failed to supervise his member firm’s markups and markdowns for U.S. Treasury securities. The suspension is in effect from December 5, 2022, through March 4, 2023.

Harmed investors can call (800) 718-1422 or email [email protected] to discuss their legal options. All consultations are free and confidential.   Most cases are handled on a contingency fee basis, meaning that clients are not obligated to pay attorney fees unless money is recovered on their behalf.

FINRA Fined Wedbush Securities Inc., Due to its Misrepresentation In Connection with Certain Corporate and Municipal Bonds Interest or Principal Payments

On November 3, 2022, FINRA censured Wedbush Securities Inc., fined the firm $850,000, and required it to certify that the firm’s WSPs and supervisory system are reasonably designed to review the accuracy of account statements sent to customers and to achieve compliance with its obligation to deliver to customers annual privacy notices, margin disclosures, and order execution disclosures.

From January 2013 through December 2018, Wedbush negligently misrepresented on monthly account statements that it sent to approximately 610 customers that certain corporate and municipal bonds were making interest or principal payments when, in fact, the bonds were in default.  The investigation stated that the firm failed to establish and maintain a supervisory system reasonably designed to review the accuracy of account statements it sent to customers. Although the firm received notice when bonds held by customers had defaulted, it did not have any system to verify that such information was reflected in the system the firm used to maintain information about securities held by customers.  In addition, from January 2010 through August 2020, Wedbush failed to deliver to a total of approximately 14,900 customers three types of annual notices and disclosures required by FINRA and SEC rules.  The notices were available on the firm’s website. FINRA found that the firm did not have a supervisory system reasonably designed to achieve compliance with its obligation to deliver annual privacy notices, order execution disclosures, and margin disclosures. The firm’s WSPs required the firm to deliver the privacy notices, order execution disclosures, and margin disclosures to customers on an annual basis. However, the firm did not have any system to verify that such notices were sent to customers who elected to receive materials from the firm via its online platform. Instead, the firm relied on its vendor to deliver these required annual notices and disclosures to customers, but the firm did not take any steps to verify that its vendor had appended the required notices and disclosures to the account statements sent electronically to customers. Ultimately, the firm identified that customers had not been receiving the required notices and disclosures, implemented changes in its delivery process, and self-reported the issue to FINRA.  Without admitting or denying the findings, the firm consented to the sanctions and to the entry of findings that it negligently misrepresented the default status of bonds on customer account statements.

Harmed investors can call (800) 718-1422 or email [email protected] to discuss their legal options. All consultations are free and confidential.   Most cases are handled on a contingency fee basis, meaning that clients are not obligated to pay attorney fees unless money is recovered on their behalf.

 

 

South Florida Stockbroker Indicted and Charged With Stealing From Client

On January 21, 2022, the Securities and Exchange Commission filed a complaint in the U.S. District Court for the Southern District of Florida against German Nino, a former investment advisor with UBS Financial Services, Inc.

The SEC alleges that, over a period of 6 years, Nino stole approximately $5.8 million from an advisory client. The client invested $11 million with UBS through Nino. He gradually wired large sums of money into a personal account. This account was, naturally, separate from his shared marital accounts, as Nino spent most of the money ($4.6 million) on various gifts for women with whom he was having affairs. These gifts ranged from vacations to luxury cars to an apartment in Colombia. The rest of the funds went towards paying back another client from whom he previously stole.

Nino doctored account statements to conceal his fraud. In meetings with the client, he lied about account performance and account balances to perpetuate his scheme. Nino’s crimes were not revealed until the client’s son noticed discrepancies in the accounts.

One must always remain diligent in regard to one’s investments. If you wish to discuss any securities related question, please contact David A. Weintraub, P.A., 7805 SW 6th Court, Plantation, FL  33324.  By phone: 954.693.7577 or 800.718.1422.

SEC Charges Wedbush Securities with Unregistered Sales of Microcap Securities and Failing to Report Suspicious Transactions

The SEC announced that Wedbush has agreed to pay more than $1.2 million to settle charges arising from the unlawful, unregistered distribution of nearly 100 million shares of more than 50 different microcap companies.  In addition, Wedbush failed to file suspicious activity reports (SARs) in reference to these transactions.

According to the SEC’s Order, Wedbush engaged in unregistered offers and sales of large blocks of low-priced securities by an offshore customer.  Wedbush held a brokerage account for Silverton SA, now known as Wintercap, S, a purported Swiss assets manager.  The activity in Silverton’s account reflected a pattern of depositing them low priced securities, selling a large quantity of these shares soon after depositing them and withdrawing the proceeds.  Silverton’s business model enabled individuals or groups scheming to conceal their ownership of and control over public companies to fraudulently sell stock to investors.  Despite the presence of numerous red flags that Wedbush had identified in its written guidance to employees, it failed to file SARs for the transactions it executed on behalf of its offshore customer, as required to do when transactions are suspected to involve fraudulent activity.

Wedbush agreed to cease and desist from committing or causing violations of these provisions; to be censured; payment of disgorgement and prejudgment interest of over $207,000 and a civil penalty of $1 million.  Additionally, in 2018, the SEC and US Attorney’s Office for the District of Massachusetts brought parallel actions against a number of related parties, including Silverton’s principal, Roger Knox, for the alleged fraudulent scheme.

If you wish to discuss any securities related questions, please contact David A. Weintraub, P.A. 7805 SW 6th Court, Plantation, FL  33324.  By phone 954-693-7577 or 800-718-1422.