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HomeMy WebLinkAbout1064In Re: Lonnie Dusenberry STATE ETHICS COMMISSION 308 FINANCE BUILDING HARRISBURG, PENNSYLVANIA 17120 File Docket: X -ref: Date Decided: Date Mailed: Before: Daneen E. Reese, Chair Austin M. Lee, Vice Chair Roy W. Wilt Boyd E. Wolff Julius Uehlein This is a final adjudication of the State Ethics Commission. 96- 043 -C2 Order No. 1064 10/2/97 10/14/97 Procedurally, the Investigative Division of the State Ethics Commission conducted an investigation regarding a possible violation of the Public Official and Employee Ethics Law, Act 9 of 1989, P.L. 26, 65 P.S. §401 et seq., by the above named Respondent. At the commencement of its investigation, the Investigative Division served upon Respondent written notice of the specific allegations. Upon completion of its investigation, the Investigative. Division issued and served upon Respondent a Findings Report identified as an "Investigative Complaint." An Answer was not filed and a hearing was waived. A Consent Agreement was submitted by the . parties to the Commission for consideration which was subsequently approved. This adjudication of the State Ethics Commission will be made available as a public document thirty days after the mailing date noted above. However, reconsideration may be requested. Any reconsideration request must be received. at this Commission within thirty days of the mailing date and must include a detailed' = explanation of the reasons as to why reconsideration should be granted in conformity with 51 Pa. Code §21.29(b). A request for reconsideration will not affect the finality of this adjudication but will defer its public release pending action on the request by the Commission. The files in this case will remain confidential in accordance with Act 9 of 1989, 65 P.S. §408(h). Any person who violates confidentiality of the Ethics Law is guilty of a misdemeanor subject to a fine of not more than $1,000 or imprisonment for not more than one year, 65 P.S. §409(e). Confidentiality does not preclude discussing this case with an attorney at law. Dusenberry, 96- 043 -C2 Page 2 I. ALLEGATION: That Lonnie Dusenberry, a public official /public employee in his capacity as a Securities Compliance Examiner I for the Pennsylvania Securities Commission, violated the following provisions of the State Ethics Act (Act 9 of 1989) when he used the authority of his office for a private pecuniary benefit and when he accepted something of monetary value based on an understanding that his official action or judgment would be influenced thereby, by accepting free legal services and a $500.00 payment for legal services from an attorney who was part of an examination being conducted by Dusenberry in return for Dusenberry's recommendation that no action be taken regarding the attorney and when he failed to file a Statement of Financial Interests for the 1996 calendar year by May 1, 1997, as a former public official. Section 3. Restricted activities (a) No public official or public employee shall engage in conduct that constitutes a conflict of interest. (c) No public official, public employee or nominee or candidate for public office shall solicit or accept, anything of monetary value, including a gift, loan, political contribution, reward, or promise of future employment based on any understanding of that public official, public employee or nominee that the vote, official action, or judgment of the public official or public employee or nominee or candidate for public office would be influenced thereby. 65 P.S. §§403(a), (c). Section 4. Statement of financial interests required to be filed (a) Each public official of the Commonwealth shall file a statement of financial interests for the preceding calendar year with the commission no later than May 1 of each year that he holds such a position and of the year after he leaves such a position. Each public employee and public official of the Commonwealth shall file a statement of financial interests for the preceding calendar year with the department, agency, body or bureau in which he is employed or to which he is appointed or elected no later than May 1 of each year that he holds such a position and of the year after he leaves such a position. Any other public employee or public official shall file a statement of financial interests with the governing authority of the political subdivision by which he is employed or within which he is appointed or elected no later than May 1 of each year that he holds such a position and of the year after Dusenberry, 96- 043 -C2 Page 3 65 P.S. §404(a). 65 P.S. §402. II. FINDINGS: he leaves such a position. Persons who are full -time or part-time solicitors for political subdivisions are required to file under this section. Section 2. Definitions "Conflict" or "conflict of interest." Use by a public official or public employee of the authority of his office or employment or any confidential information received through his holding public office or employment for the private pecuniary benefit of himself, a member of his immediate family or a business with which he or a member of his immediate family is associated. "Conflict" or "conflict of interest" does not include an action having a de minimis economic impact or which affects to the same degree a class consisting of the general public or a subclass consisting of an industry, occupation or other group which includes the public official or public employee, a member of his immediate family or a business with which he or a member of his immediate family is associated. 1. The Investigative Division of the State Ethics Commission received information alleging that Lonnie Dusenberry violated provisions of the State Ethics Act (Act 9 of 1989). 2. At the direction of the Executive Director, the Investigative Division initiated a preliminary inquiry which was docketed pursuant to the regulations of the Commission on May 15, 1996. 3. The preliminary inquiry was completed within sixty days. 4. On July 8, 1996, a letter was forwarded to Lonnie Dusenberry, by the Executive Director of the State Ethics Commission informing him that a complaint against him was received by the Investigative Division and that a full investigation was being commenced. a. Said letter was forwarded by certified mail, no. Z 129 438 607. b. The domestic return receipt bore the signature of Lonnie Dusenberry, with a delivery date of July 11, 1996. 5. On October 8, 1996, the Executive Director of the State Ethics Commission filed an application for a ninety day extension of time to complete the investigation. 6. The Commission issued an order on November 4, 1996, granting a ninety day extension. Dusenberry, 96- 043 -C2 Page 4 7. On January 21, 1997, the Executive Director of the State Ethics Commission filed an application for a second ninety day extension of time to complete the investigation. 8. The Commission issued an order on February 20, 1997, granting the ninety day extension. 9. Periodic notice letters were forwarded to Lonnie Dusenberry in accordance with the provisions of the Ethics Law advising him of the general status of the investigation. 10. The Investigative Complaint was mailed to the Respondent on July 3, 1997. 11. Lonnie Dusenberry was employed as a Securities Compliance Examiner 1 with the Pennsylvania Securities Commission from August 1, 1994, until June 12, 1996. a. Dusenberry's position was a civil service position within the Division of Licensing and Compliance. b. Dusenberry's position was headquartered in Harrisburg from August 1, 1994, until October 8, 1994. , c. Dusenberry worked at the Pittsburgh office from October 7, 1994, until June 12, 1996. 12. The Pennsylvania Securities Commission administers and enforces the Pennsylvania Securities Act of 1972 and the Takeover Disclosure Law of 1976. 13. The Securities Commission is divided into five divisions. a. Corporation Finance b. Licensing and Compliance c. Enforcement and Litigation d. Chief Accountant e. Management Services 14. The Compliance Section where Dusenberry was employed is responsible for conducting periodic examinations of broker - dealers and investment advisors registered in the Commonwealth. 15. Laura Plumley was an attorney for the Securities Commission who supervised the activities of the Compliance Examiners during Dusenberry's period of employment. 16. Dusenberry's job description as a Compliance Examiner I included the following duties: Dusenberry, 96- 043 -C2 Page 5 a. The Compliance Examiner in the Harrisburg Office is under the direct supervision of an attorney who operates from the headquarters office in Harrisburg and will receive assistance, guidance and training from a senior examiner on site. b. The Compliance Examiner is charged with the responsibility of examining and auditing broker - dealer and investment adviser firms registered or required to be registered in Pennsylvania to determine compliance with federal, state and other regulatory requirements and insure investor protection. c. In determining compliance, the examiner performs full scope examinations wherein he first reviews filings made by the registrant for insights into the type and kind of business the registrant is conducting, principals of the firm, company background and investor complaints and reviews licensing and enforcement files to prepare for the on -site examination. d. At the on -site examination, the examiner interviews the registrants principals, inspects their books, records, compiles data from blotters, journals, ledgers and other relevant documents, examines bank statements, sales practice procedures, supervisory procedures, subordinated note agreements, investment advice, plans, advertisement brochures, fee schedules and solicitations material; reviews registrant's preparation of cash receipts journals, securities transfer Togs and net capital computation. e. Prepares documentation of the examination and prepares written reports to present results of the examination along with necessary schedules or charges; presents findings and conclusions of the registrants' conditions .. and operations; makes recommendations based on findings for further Commission action; drafts proposed notice to registrants outlining non compliance with statutory requirements. f. Examiner receives and processes oral and written complaints made by investors against broker - dealers, investment advisers, agents and associated persons. This process involves communicating with the broker - dealer and investment adviser firms and the investors both orally and in writing to attempt to mediate the problem and determine if a violation of the law has occurred. In appropriate situations, the examiner will recommend referral of the problem to the Division of Enforcement & Litigation or another state or federal agency. Examiner participates in examinations of firms both inside and outside of Pennsylvania and may work on a team of examiners from other states, stock exchanges, self - regulatory organizations and the U.S. Securities and Exchange Commission. h. Examiner may testify, when required, at administrative hearings, trials and before other regulatory bodies. 17. Dusenberry also had the following job requirements as a Securities Compliance Examiner I. g. Dusenberry, 96- 043 -C2 Page 6 a. Ability to travel to work sites throughout the Commonwealth and in other states. b. Ability to review and analyze business records kept by broker - dealers and investment advisers at the office of the company. c. Ability to read and analyze filings and correspondence filed with the Division of Licensing and Compliance in order to determine critical areas for review during on -site compliance of broker - dealers and investment advisors. • d. Ability to communicate orally and in writing with Commission staff, management of broker- dealer and investment adviser firms and the general public. e. Ability to write letters, memoranda and reports regarding findings during compliance exams and identify potential violations of the Pennsylvania Securities Act of 1972. f. Ability to operate or learn to operate a Personal Computer. 18. As a condition of employment, Dusenberry signed a statement on August 2, 1994, acknowledging receipt of copies of Section 601(c), 605 and 511 of the Pennsylvania Securities Act and Regulation 605.020 of the Securities Commission. By signing the statement, Dusenberry acknowledged that he understood that the above cited sections placed restrictions upon him as an employee of the Commission and that he would conform to those requirements as a condition of his employment. b. Regulation 605.020 specifically pertains to Conflicts of Interests. for Commissioners and Commission employees, their purchase of securities and their relationships with licensed persons or qualified organizations. 19. On August 2, 1994, Dusenberry signed a statement acknowledging his review and discussion of Executive Order 1980 -18 Amended (Code of Conduct) and the Public Official and Employee Ethics Law. a. Dusenberry filed Ethics Law Statements of Financial Interests on April 24, 1995, and April 29, 1996, in his capacity as a Securities Compliance Examiner. a. b. Dusenberry did not file a Statement of Financial Interests for the 1996 calendar year by May 1, 1997, as a former public employee. (1) Dusenberry received notices from the Securities Commission that he was required to file as a former public employee. 20. In his capacity as a Securities Compliance Examiner, Dusenberry was assigned to an examination involving Penn Capital Financial Services, Inc., in August, 1995. Dusenberry, 96- 043 -C2 Page 7 21. On September 21, 1995, Dusenberry was made the lead examiner in the Commission's examination of Penn Capital. a. This decision was made by Laura Plumley in order to give Dusenberry a more complex examination which could enable him to be promoted to Examiner II. 22. The examination of Penn Capital focused in part on the transfer of investor funds from mutual funds to limited partnerships, including Pennsylvania Housing Properties Fund and Financial Estate Planning, Inc. 23. On October 20, 1995, Dusenberry received a phone call from Attorney John D'Onofrio regarding Penn Capital. a. John D'Onofrio is an attorney who specialized in bankruptcies. b. D'Onofrio had a license to sell securities. 24. D'Onofrio was involved with this examination because he was a former business partner of the two principals of Penn Capital. a. The two principals of Penn Capital were Philip Roy, Jr. and John Jarvis. b. D'Onofrio informed Dusenberry he had several canceled checks from the account of the principals involved with Penn Capital and believed his information might be helpful to the Securities Commission examination. c. D'Onofrio had known Dusenberry for approximately six months prior to this contact. 25. D'Onofrio first met with Dusenberry on March 21, 1995, on a personal matter. a. Dusenberry was considering filing for bankruptcy and received 'debt - counseling from D'Onofrio. b. Dusenberry and D'Onofrio met on approximately eight to ten occasions from March, 1995, until October, 1995, to discuss Dusenberry's financial problems. (1) The meetings were at least one -half hour periods. 26. Dusenberry had been referred to D'Onofrio by Robert O'Toole, a Securities Compliance Examiner at the Pittsburgh Office who knew D'Onofrio from a previous examination. a. O'Toole was aware that D'Onofrio specialized in bankruptcy cases. 27. D'Onofrio never charged Dusenberry for any of the debt counseling sessions he had with him. 28. It is a standard practice for bankruptcy attorneys to charge fees for debt counseling sessions. Dusenberry, 96- 043 -C2 Page 8 a. Fees can vary but generally range in the area of $200.00 for such sessions as provided by D'Onofrio to Dusenberry. 29. In his capacity as a Securities Compliance Examiner, Dusenberry met with D'Onofrio regarding Penn Capital Financial Services on October 23 and 24, 1995. 30. Dusenberry never informed Laura Plumley, his supervisor, or anyone with the Securities Commission of his personal dealings with D'Onofrio at that time. 31. On October 24, 1995, Dusenberry submitted a memo to Laura Plumley regarding his official interview with D'Onofrio. a. Dusenberry indicated in his memo that he had been contacted by D'Onofrio on October 20, 1995, who advised that he had several old canceled checks drawn on the account of Pennsylvania Housing Properties Fund I made payable to John Jarvis, Phil Roy and various others that the Pennsylvania Securities Commission might be interested in looking at. b. Dusenberry explained in his memo that D'Onofrio had been following newspaper articles on the Securities Exchange Commission v. Penn Capital case and wanted to share his knowledge about Financial Estate Planning with the Commission. c. Dusenberry concluded his memo by stating that after reviewing documents and canceled checks provided by D'Onofrio, and discussing issues with him, he was of the opinion that D'Onofrio's involvement was limited and short- lived. 32. Plumley reviewed the memo and did not feel that Dusenberry was in a position to make a recommendation on D'Onofrio's involvement after conducting one interview. a. Plumley instructed Dusenberry to make the memo a draft copy and directed him to write another memo in which he omitted the paragraph regarding his opinion of D'Onofrio's involvement with Penn Capital. b. Plumley did not accept Dusenberry's recommendation regarding D'Onofrio. 33. During Dusenberry's interviews with D'Onofrio regarding Penn Capital, he also discussed his personal financial situation with D'Onofrio. a. D'Onofrio agreed to write letters to Dusenberry's creditors in an attempt to give him additional time to pay off his debts. (1) These letters were sent in accordance with the Fair Debt Collection Act which allows a creditor to try to pay off his debts before filing for Chapter 7 Bankruptcy. 34. On October 26, 1995, six days after his meeting with Dusenberry and two days after Dusenberry made a favorable recommendation on his behalf, D'Onofrio Dusenberry, 96- 043 -C2 Page 9 sent letters to the following creditors on behalf of Lonnie L. and Linda L. Dusenberry. a. Equitable Gas Employees Credit Union b. Associates Financial Consumer Discount Company c. MBNA America d. AVCO Financial Services e. Greenwood Trust Company 35. D'Onofrio never charged Dusenberry for any of the letters he wrote on Dusenberry's behalf. a. The standard fee for a bankruptcy attorney providing this service is $300. 36. In October, 1995, Dusenberry was assigned Complaint Docket Number 95 -10- 01, which involved Robert Kyslinger of Erskine Duncan Corporation. 37. On October 27, 1995, Dusenberry sent Kyslinger a letter informing him a complaint had been filed against him and requested that Kyslinger provide him with some documentation regarding the matter. a. Dusenberry instructed Kyslinger to provide the documents within fifteen days. 38. On November 9, 1995, D'Onofrio sent Dusenberry a letter indicating he had been retained by Robert Kyslinger. a. D'Onofrio requested an extension of time for providing the documents Dusenberry requested in his letter of October 27, 1995. b. The extension was granted by Dusenberry. 39. On December 29, 1995, and on January 10, 1996, D'Onofrio provided the documentation Dusenberry requested from Kyslinger. 40. On January 26, 1996, Dusenberry submitted a memo to Laura Plumley regarding his review of the complaint against Robert Kyslinger. a. Dusenberry recommended that Kyslinger be cited for a violation of Article III, Sections 40(b) and 43 of the NASD Rules of Fair Practice for engaging in private securities transactions and /or outside business activities. 41. In either late October or early November, 1995, following D'Onofrio mailing the letters to Dusenberry's creditors, Dusenberry informed D'Onofrio that he had a wrongful discharge claim against a former employer, Equitable Gas Company. Dusenberry, 96- 043 -C2 Page 10 a. D'Onofrio referred Dusenberry to John A. Lee, an employment law attorney with an office in the same building as D'Onofrio. 42. D'Onofrio introduced Lee to Dusenberry at their law office in November, 1995. a. Dusenberry was at the law office discussing matters with D'Onofrio regarding his personal financial situation and the examinations involving D'Onofrio. 43. D'Onofrio asked Lee if he would review a potential employment discrimination action involving Dusenberry and a prior employer. 44. Dusenberry called Lee on November 27, 1995, and scheduled a consultation for November 29, 1995. a. A meeting occurred at 4:30 p.m. on November 29, 1995, in Lee's office. 45. On November 29, 1995, following the initial meeting, Lee sent a letter to Dusenberry informing him that pursuant to the Canons of Professional Ethics of the Pennsylvania Supreme Court, he presented a written agreement to Dusenberry which revealed his legal fees. a. The fee arrangement was a non - refundable retainer in the amount of $4,000; $2,000 due immediately and $2,000 due by February 1, 1996. b. Dusenberry signed the agreement on December 29, 1995. 46. On December 13, 1995, Lee sent a letter to Dusenberry informing him that if he did not receive a good faith payment in the amount of $500 on or before December 18, 1995, followed by a $1,500 payment on December 29, 1995, , he would not represent him. . 47. After receipt of Lee's December 13, 1995, letter, Dusenberry contacted D'Onofrio asking if D'Onofrio could get Lee to waive the retainer. a. D'Onofrio told Dusenberry Lee wanted "something." b. Dusenberry told D'Onofrio he did not have the money and asked for his help. c. D'Onofrio agreed to pay $500.00 to Lee on behalf of Dusenberry. 48. By letter dated December 20, 1995, Lee sent Dusenberry a letter informing him he had received a good faith payment in the amount of $500 from John D'Onofrio on December 22, 1995, on behalf of Dusenberry. a. The December 20, 1995, date was judged a typographical error by Lee who confirmed that the letter was probably sent on December 22, 1995. 49. Check Number 3217 drawn on the account of John D'Onofrio from Integra Bank confirmed a payment was made to John Lee in the amount of $500 on December 22, 1995. Dusenberry, 96- 043 -C2 Page 11 a. Lee endorsed the check on December 22, 1995. 50. Prior to D'Onofrio's payment to Lee, Dusenberry signed an affidavit on December 21, 1995, in which he agreed to pay John D'Onofrio $500 for the payment D'Onofrio made to Lee for his legal fees. 51. The affidavit signed by Dusenberry contained the following information: 21 DEC 95 This letter authorized Attorney John D'Onofrio to pay Attorney John Lee the sum of Five hundred dollars ($500.00) on my behalf to begin litigation against Equitrans /Equitable Resources, Inc. Additionally, John D'Onofrio is to be reimbursed the aforementioned five hundred dollars from any settlement as a result of said litigation. I also agree to pay John Lee one third of any amount of settlement received from Equitrans /Equitable Resources, Inc. as payment to represent me in the litigation. 52. Dusenberry never reimbursed D'Onofrio the $500 payment made on his behalf to Lee. 53. Dusenberry never paid Lee any additional monies as a retainer for Lee's representation. 54. On January 29, 1996, Lee sent Dusenberry a letter informing him a full retainer was due on February 1, 1996, in the amount of $4,000. a. Lee added that unless he heard from Dusenberry, he would assume that Dusenberry was not pursuing his claim against Equitrans any further. 55. Lee never pursued Dusenberry's case. 56. Dusenberry maintained a daily worksheet of his activities as a compliance examiner which were reviewed by Laura Plumley. 57. Dusenberry's time sheets confirmed contacts with D'Onofrio regarding the examinations of Penn Capital and Robert Kyslinger. Date 10/20/95 10/20/95 10/20/95 10/23/95 10/24/95 10/24/95 Tim 1 :30 p.m. 2:30 p.m. 3:00 p.m. 9:00 a.m. to 11:00 a.m. 9:21 a.m. to 11:00 a.m. 1:00 p.m. Activity Phone call from D'Onofrio regarding Penn Capital Discuss phone call from D'Onofrio with Ortenzio. Prepare questions for Monday interview with D'Onofrio Interview D'Onofrio regarding Pennsylvania Housing Properties Fund Continued interview with D'Onofrio Phone call with Ortenzio regarding interviews with D'Onofrio Dusenberry, 96- 043 -C2 Page 12 10/24/95 11/13/95 11/27/95 11/27/95 12/11/95 12/18/95 12/20/95 12/26/95 12/27/95 12/29/95 12/29/95 01/03/96 01/03/96 01/03/96 01/04/96 01/05/96 01/10/96 01/11/96 01/25/96 01/25/96 58. On January for Division association 1:30 p.m. 2:30 p.m. 9:00 a.m. 10:00 a.m. 9:00 a.m. 8:30 a.m. 10:30 a.m. 10:00 a.m. 11:30 a.m. 8:30 a.m. 1:45 p.m. to 3:00 p.m. 8:30 a.m. 11:30 a.m. 1:30 p.m. 10:30 a.m. 12:30 p.m. 4:00 p.m. to 4:30 p.m. 11:30 a.m. 8:30 a.m. to 11:30 a.m. 4:00 p.m. Start memo to Laura Plumley on D'Onofrio after discussion with O'Toole. Read letter from attorney requesting an extension on Kyslinger Phone call with D'Onofrio regarding PA Housing Properties Fund Phone call from Kevin LaRose on extension to Kyslinger who was now represented by an attorney Phone call with D'Onofrio regarding Penn Capital Phone call with D'Onofrio on Kevin LaRose 95- 10 -01, regarding Robert Kyslinger and Erskine Duncan Stock • Phone call from D'Onofrio regarding meeting Phone call with D'Onofrio regarding meeting to discuss LaRose complaint Drove from state office to meet D'Onofrio but he was not available Phone call with D'Onofrio regarding 1 -1:30 meeting Meeting with D'Onofrio to discuss LaRose Reading information from D'Onofrio regarding Kevin LaRose v. Erskine Duncan Phone call from Kevin LaRose claiming he is a fraud victim Read document from Kyslinger /D'Onofrio Attempt to reach attorney D'Onofrio Phone call with D'Onofrio regarding Kyslinger Meeting with D'Onofrio regarding trade activity on LaRose Complaint Begin reviewing documents (future trades) received from D'Onofrio Closing 95 -10 -01 Phone call from Kevin LaRose, still believes fraud took place 26, 1996, Dusenberry had a conversation with Ken Smolar, Counsel of Enforcement and Litigation at the Pittsburgh office regarding his with John Lee and John D'Onofrio. a. Dusenberry questioned Smolar to determine if Lee had done anything inappropriate as an attorney. b. Dusenberry informed Smolar of his dealings with D'Onofrio regarding his financial situation and his association with him as an examiner. c. This was the first time Dusenberry informed anyone at the Securities Commission about his personal dealings with D'Onofrio. Dusenberry, 96- 043 -C2 Page 13 59. On January 31, 1996, Dusenberry had a telephone conversation with Terry Lupia, Director for Division and Compliance, about his involvement with Lee and D'Onofrio. a. Dusenberry informed Lupia of his personal dealings with D'Onofrio and his involvement with him as a compliance examiner. 60. On February 7, 1996, Dusenberry was informed by Simon Dengel, Director for the Division of Management Services, that his cases had been reassigned by Laura Plumley in reference to the Kyslinger inquiry and the Penn Capital case. 61. Dusenberry was prohibited from the following duties and responsibilities as determined by Laura Plumley. a. Any contact with registrants or complainants regardless of the method. b. Return any telephone calls, verbal or written messages and /or inquiries. c. Conduct any examinations, interviews or other activity outside the Pittsburgh Office, i.e. "in the field." d. These prohibitions specifically referred to the Penn Capital and Kyslinger cases. 62. The examination involving Robert Kyslinger in which D'Onofrio served as legal counsel was reassigned to Securities Compliance Examiner Harry Harper. Harper recommended no violation which was approved by Laura Plumley on April 10, 1996. 63. The examination involving Penn Capital Financial Services is still an on going matter. 64. On June 5, 1996, Dusenberry informed Laura Plumley that he was resigning as a Securities Compliance Examiner effective 5:00 p.m., June 11, 1996. 65. On June 12, 1996, Lonnie Dusenberry was notified by the Securities Commission that he had been terminated from his position as a Securities Compliance Examiner effective the close of business Tuesday, June 11, 1996, based upon his association with D'Onofrio at a time when he was conducting an examination of a company with which D'Onofrio was associated. The termination reasons cited were: a. Your awareness / "acceptance" of a $500 payment on your behalf made by an attorney associated with Pennsylvania Securities Commission (PSC) business (Attorney "A ") to another outside attorney to pursue your personal severance pay issue with your former employer which constitutes a violation of the Governor's Code of Conduct, Executive Order Number 1980 -18 Amended, dated May 16, 1984, Part I, Restricted Activities; Conflicts of Interests. b. Your repeated failure to notify, inquire of or mention to your immediate supervisor about your ongoing personal relationship with Attorney "A" Dusenberry, 96- 043 -C2 Page 14 since approximately March, 1995, during work conversations with your immediate supervisor specifically regarding PSC matters being investigated by you that involved Attorney "A" on at least three separate occasions (on or about October 20, 23 and 24, 1995). c. Your continued failure to notify, inquire of or mention to your immediate supervisor about your ongoing personal relationship with Attorney "A" when on or about November 13, 1995, you received his November 9, 1995, letter indicating his role as counsel for a respondent in a PSC complaint (Docket No. 95- 10 -01) to which you were solely assigned and which you subsequently continued to handle as a PSC employee. d. That while conducting official Commission business at Attorney "A's" office on October 23 or 14, 1995, you reviewed draft(s) of the October 26, 1995, representation letter(s) regarding your personal financial situation with him. e. On October 24, 1995, you prepared and submitted a memorandum of interview to your immediate supervisor containing a favorable opinion of Attorney "A" that was not factual and was a conclusion that was premature. f. Your awareness of a conflict of interest and that you "could" be influenced by your personal ongoing relationship with Attorney "A" in the conduct of your official PSC duties as demonstrated by your comments to Attorney "A" regarding doing your job and not being influenced. g. Your attempt to continue to cover up this conflict of interest and soliciting a co- worker to conspire to not say anything to anyone about the $500 and as well as your destroying the $500 repayment affidavit. , 66. Attorney "A" referred to in the June 12, 1996, letter was D'Onofrio. 67. Dusenberry never reimbursed D'Onofrio for the $500.00 paid toward the retainer for John Lee. 68. Dusenberry accepted something of monetary value from John D'Onofrio at a time when he was conducting examinations for the Securities Commission regarding a company D'Onofrio was associated with and an individual D'Onofrio represented. a. From March 21, 1995, through December 31, 1995, Dusenberry received debt counseling from D'Onofrio and assistance with a potential employment discrimination law suit. (See Finding No. 25). b. D'Onofrio provided the debt counseling without any charge to Dusenberry. (See Finding No. 27). (1) The standard fee for debt counseling is at least $200.00. c. On December 22, 1995, D'Onofrio paid $500 towards a retainer to an attorney who was to represent Dusenberry in an employment discrimination law suit. (See Finding No. 49). Dusenberry, 96- 043 -C2 Page 15 d. During this period, beginning on October 20, 1995, D'Onofrio began providing information to Dusenberry regarding Penn Capital Financial Services (See Finding No. 23). (1) Meetings were held on October 23, 1995, and October 24, 1995. e. On October 24, 1995, Dusenberry, in a letter to his supervisor, indicated that D'Onofrio's involvement with Penn Capital was limited and short lived. (See Finding No. 31). (1) His recommendation was not followed by his supervisor. (See Finding No. 32). f. On October 26, 1995, D'Onofrio wrote letters on Dusenberry's behalf to five creditors seeking time for Dusenberry to pay his debts. No fees were charged by D'Onofrio. (See Finding Nos. 33, 34 & 35). (1) The standard fee for such a service is $300.00 (See Finding 35(a)). On November 9, 1995, D'Onofrio advised Dusenberry that he was representing Robert Kyslinger, a subject of an examination assigned to Dusenberry and requested an extension of time to provide documents to Dusenberry. Dusenberry granted the extension. (See Finding No. 38). h. Between December 13, 1995, and December 21, 1995, Dusenberry discussed a retainer for additional legal services concerning an employment discrimination law suit with D'Onofrio. (See Finding No. 47). g. i. D'Onofrio made a $500.00 payment towards this retainer. (See Finding No. 48 -49). j. Dusenberry never repaid the $500.00. (See Finding No. 52). 69. Lonnie Dusenberry realized a financial gain by accepting free legal services and a $500 payment for legal services from Attorney John D'Onofrio who was part of an examination that was conducted by Dusenberry. a. Dusenberry received free debt counseling of at least $200.00 and free legal services in the form of letters to creditors valued at least $300.00. b. Dusenberry received a benefit as a result of the $500.00 retainer paid on his behalf by D'Onofrio. c. The total financial gain received by Dusenberry is as follows: Debt Counseling: $ 200.00 Legal Services: $ 300.00 Retainer: $ 500.00 TOTAL: $1,000.00 III. DISCUSSION: Dusenberry, 96- 043 -C2 Page 16 At all times relevant to this matter, the Respondent, Lonnie Dusenberry, hereinafter Dusenberry, has been a public official /employee subject to the provisions of the Public Official and Employee Ethics Law ( "Ethics Law "), Act 9 of 1989, Pamphlet Law 26, 65 P.S. §401, et seq. The allegations are that Dusenberry violated Sections 3(a), 3(c), and 4(a) of the Ethics Law when he used the authority of his office for a private pecuniary benefit and when he accepted something of monetary value based on an understanding that his official action or judgment would be influenced thereby, by accepting free legal services and a $500 payment for legal services from an attorney who was part of an examination being conducted by Dusenberry in return for his recommendation that no action be taken regarding the attorney and when he failed to file a Statement of Financial Interests for the 1996 calendar year by May 1, 1997, as a former public official. Pursuant to Section 3(a) of the Ethics Law quoted above, a public official /public employee is prohibited from engaging in conduct that constitutes a conflict of interest. 65 P.S. §402. Section 3(c) of Act 9 of 1989 quoted above provides in part that a public official /public employee shall not solicit or accept anything of monetary value based upon any understanding that his vote, official action or judgment would be influenced thereby. Section 4(a) of the Ethics Law quoted above requires that each public official /public employee must file a Statement of Financial Interests for the preceding calendar year, each year that he holds the position and the year after he leaves it. Having noted the issues and applicable law, we shall now summarize the salient facts. The term "conflict of interest" is defined under Act 9 of 1989 as follows: Section 2. Definitions "Conflict" or "conflict of interest." Use by a public official or public employee of the authority of his office or employment or any confidential information received through his holding public office or employment for the private pecuniary benefit . of himself, a member of his immediate family or a business with which he or a member of his immediate family is associated. "Conflict" or "conflict of interest" does not include an action having a de minimis economic impact or which affects to the same degree a class consisting of the general public or a subclass consisting of an industry, occupation or other group which includes the public official or public employee, a member of his immediate family or a business with which he or a member of his immediate family is associated. From August 1, 1994 until June 12, 1996, Dusenberry was employed as a Securities Compliance Examiner I with the Pennsylvania Securities Commission (PSC) Dusenberry, 96- 043 -C2 Page 17 which administers and enforces the Pennsylvania Securities Act. Dusenberry was employed in the Compliance Section which has the responsibility for conducting examinations of broker dealers and investment advisors registered in the Commonwealth. The duties and responsibilities for a Compliance Examiner I together with the job requirements for Dusenberry are delineated in Fact Findings 16 and 17. As a condition of his employment, Dusenberry signed a statement which acknowledged receipt of Sections of the Pennsylvania Securities Act dealing with restrictions upon PSC employees and Sections concerning Conflicts of Interests. In addition, Dusenberry signed a statement acknowledging his review and discussion of Executive Order 1980-18 and the Ethics Law. One of Dusenberry's assignments as a Securities Compliance Examiner in August, 1995, was as an examiner in 'the Penn Capital Financial Services, Inc. (PCFS) case. Dusenberry was made the lead examiner in September, 1995. During the course of the PCFS examination, Dusenberry received a telephone call from John D'Onofrio, an attorney who specializes in bankruptcies and also holds a license to sell securities. D'Onofrio was involved in the examination since he was a former business partner of two of the principals in PCFS. D'Onofrio had prior contract with Dusenberry because Dusenberry met with D'Onofrio in March, 1995 at a time when Dusenberry was considering filing for bankruptcy. Dusenberry received debt counseling from D'Onofrio. On October 26, 1995, D'Onofrio wrote letters to Dusenberry's creditors. Although it is standard practice for bankruptcy attorneys to charge fees for debt counseling sessions and related services, D'Onofric never charged Dusenberry for such services. As a Securities Compliance Examiner, Dusenberry met with D'Onofrio regarding PCFS in October, 1995. Dusenberry never informed his supervisor or anyone else at the PSC about his personal dealings with D'Onofrio. In a submitted memo dated October 24, 1995, Dusenberry advised his supervisor about an interview Dusenberry had with D'Onofrio. Dusenberry first noted that D'Onofrio, who had several canceled checks which had been drawn on an account of the Pennsylvania Housing Properties Fund, wanted to share his knowledge with the PSC. After reviewing the documents and canceled checks provided by D'Onofrio, Dusenberry stated his opinion that D'Onofrio's involvement was limited and short lived. After Dusenberry's supervisor reviewed the memo, she instructed Dusenberry to omit the paragraph regarding his opinion on D'Onofrio because Dusenberry was not in a position to make such a recommendation. Further, Dusenberry's supervisor did not accept Dusenberry's recommendation regarding D'Onofrio. When Dusenberry interviewed D'Onofrio regarding PCFS, he also discussed his personal finances with D'Onofrio who agreed to write letters to Dusenberry's creditors in an attempt to give him additional time to pay off his debts. D'Onofrio sent letters to six of Dusenberry's creditors which occurred six days after his meeting with Dusenberry and two days after Dusenberry made a favorable recommendation on D'Onofrio's behalf. As noted above, D'Onofrio never charged Dusenberry for any of the letters D'Onofrio wrote. In October, 1995, Dusenberry was assigned a case involving Robert Klysinger of Erskine Duncan Corporation. On October 27, 1995, Dusenberry sent Klysinger a letter advising him that a complaint had been filed and requested Klysinger to file certain documentation with Dusenberry. On November 9, 1995, D'Onofrio sent Dusenberry, 96- 043 -C2 Page 18 . Dusenberry a letter indicating he had been retained by Klysinger and requested an extension of time to provide the documentation that Dusenberry requested. The extension was granted by Dusenberry. Subsequently, D'Onofrio provided the documentation which Dusenberry requested from Klysinger. On January 26, 1996, Dusenberry submitted a memo to his supervisor regarding the Klysinger matter and recommended that Klysinger be cited for a violation of engaging in private securities transactions or outside business activities. In either October or November, 1995, D'Onofrio was informed by Dusenberry that he had a wrongful discharge claim against his former employer. D'Onofrio referred Dusenberry to John A. Lee, an employment law attorney. Dusenberry had a consultation conference with Lee and entered into a fee agreement. After Lee sent Dusenberry a letter informing him that he needed a good faith payment in order to represent him, Dusenberry contacted D'Onofrio and asked D'Onofrio if he could prevail upon Lee to waive his retainer. D'Onofrio informed Dusenberry that Lee wanted "something." After Dusenberry told D'Onofrio he did not have the money and asked for his help, D'Onofrio agreed to pay $500 to Lee on Dusenberry's behalf. Lee then sent a letter to Dusenberry indicating that he had received a payment in the amount of $ 500 from D'Onofrio on behalf of Dusenberry. A check was drawn from D'Onofrio's account at the Integra Bank for the $500 payment to Lee. Although Dusenberry signed an Affidavit in December, 1995 in which he agreed to pay D'Onofrio $500 for the payment D'Onofrio made on his behalf for legal fees, Dusenberry never made reimbursement to D'Onofrio. Dusenberry never paid Lee any additional monies as a retainer for his representation. In January, 1996, Lee sent Dusenberry a letter informing him that the full retainer was due and that if he (Lee) did not receive same, he would assume Dusenberry was not pursuing his claim. Lee never pursued Dusenberry's case. In January, 1996, Dusenberry had a conversation with an attorney in the Enforcement and Litigation Division of the PSC. At that time, Dusenberry asked if Lee had done anything inappropriate as an attorney and admitted for the first time his personal dealings with D'Onofrio. Shortly thereafter, Dusenberry had a telephone conversation with the Director of the Compliance Division regarding his involvement with Lee and D'Onofrio. Dusenberry was informed by the Director of Management Services that the Klysinger and PCFS cases had been reassigned. Dusenberry was prohibited from contacting registrants or complainants, returning telephone calls, conducting any examinations, interviews, or taking action as to the PCFS and Klysinger cases. As to the Klysinger case, the new examiner recommended no violation which was approved. The PCFS case is still ongoing. On June 5, 1996, Dusenberry informed his supervisor that he was resigning as a Securities Compliance Examiner. On June 12, 1996, Dusenberry was notified by the PSC that he had been terminated effective June 11, 1996 based upon his association with D'Onofrio at a time when he was conducting an examination of a company with which D'Onofrio was associated. The termination reasons are delineated in Fact Finding 65. The $500 legal retainer paid by D'Onofrio for Dusenberry from D'Onofrio, the free debt counseling valued at $200, and the service of sending letters to Dusenberry's creditors valued at $300 are detailed in Fact Findings 67 -69. Although Dusenberry filed Financial Interests Statements (FIS) in April of 1995 and 1996, he did not file an FIS in 1997 for the calendar year 1996. Dusenberry, 96- 043 -C2 Page 19 Having summarized the above relevant facts, we must now determine whether the actions of Dusenberry violated Sections 3(a), 3(c), and 4(a) of Act 9 of 1989. In order to establish a violation, Section 3(a) requires a use of the authority of office or confidential information by a public official /public employee for the private pecuniary benefit of himself, a member of his immediate family, or a business with which he or a member of his immediate family is associated. In applying the provisions of Section 3(a) to the instant matter, we first note that there was a use of authority of office on the part of Dusenberry as a public employee. Dusenberry as a Securities Compliance Examiner was involved in examinations of the Klysinger and PCFS cases on which he made certain recommendations. Although Dusenberry recommended that Klysinger be cited for a violation, his recommendation as to PCFS regarding D'Onofrio was that D'Onofrio's involvement was limited and short lived. Clearly such actions were uses of authority of office by Dusenberry, being part of his duties and responsibilities in his public position. See, Juliante, Order No. 809. The uses of authority of office in this case resulted in a private pecuniary benefit to Dusenberry. In particular, Dusenberry received free services from D'Onofrio which amounted to approximately $500. In addition, Dusenberry obtained a financial gain of $500 consisting of the payment D'Onofrio made on Dusenberry's behalf to Attorney Lee. Finally, the private pecuniary benefit enured to Dusenberry himself who did not have any out -of- pocket expenses as to the $1,000. Clearly, Dusenberry's actions violated Section 3(a) of Act 9 of 1989. See, Catone, Order No. 994. As to Section 3(c) of the Ethics Law, we find no violation under these particular facts in that the receipt of the free legal services by Dusenberry from D'Onofrio and the $500 advance that D'Onofrio made to Attorney Lee on behalf of Dusenberry was not based on any understanding that Dusenberry's official action or judgment would be influenced thereby. Without the element of such an improper understanding, no violation of Section 3(c) of Act 9 of 1989 could occur. See, Kasaback, Order No. 993. As to Section 4(a) of Act 9 of 1989, the facts establish that Dusenberry did not file an FIS in 1997 for the 1996 calendar year. Accordingly, we find a violation of Section 4(a) of Act 9 of 1989 for the failure to file the FIS for the calendar year 1996. Dusenberry is directed within thirty days of the date of issuance of this Order to file the calendar year 1996 FIS. We note that the parties have entered into a Consent Agreement which includes a payment by Dusenberry of $500 together with his agreement to file an FIS for the 1996 calendar year. Section 7(13) of Act 9 of 1989, 65 P.S. §407(13), specifically empowers this Commission to impose restitution in those instances where a public official /public employee has obtained a financial gain in violation of the Ethics Law. In this case, the parties, the Investigative Division and Dusenberry, have stipulated to a payment of $500 by Dusenberry. Therefore, Dusenberry is directed to make payment of $500 in a timely manner through this Commission to the Commonwealth of Pennsylvania. Compliance with the foregoing, whereby Dusenberry will make the $500 payment and file the Financial Interests Statement, will result in the closing of this Dusenberry, 96- 043 -C2 Page 20 case with no further action by the Commission. Non - compliance will result in the institution of an order enforcement action. Lastly, we note that the parties have filed a Stipulation of Findings and Consent Agreement which sets forth a proposed resolution of the allegations. We believe that the Consent Agreement is the proper disposition for this case based upon our review as reflected in the above analysis and the totality of the facts and circumstances. IV. CONCLUSIONS OF LAW: 1. Lonnie Dusenberry, as a Securities Compliance Examiner I for the Pennsylvania Securities Commission, was a public official /employee subject to the provisions ofAct9of 1989. 2. Dusenberry violated Section 3(a) of the Ethics Law when he received and accepted free legal services from John D'Onofrio in the form of debt counseling and when D'Onofrio advanced $500 to Dusenberry to retain another attorney for legal services at a time when Dusenberry was assigned to examine -a financial institution with which D'Onofrio was associated. 3. Dusenberry violated Section 4(a) of the Ethics Law when he failed to file 'a Statement of Financial Interests for the 1996 calendar year as a former public employee. 4. Dusenberry did not violate Section 3(c) of the Ethics Law because the facts do not establish that his receipt of free legal services and a $500 advance was based on his understanding that his official action or judgment would be influenced thereby. In Re: Lonnie Dusenberry File Docket: 96- 043 -C2 Date Decided: 10/2/97 Date Mailed: 10/14/97 ORDER NO. 1064 1. Lonnie Dusenberry, as a Securities Compliance Examiner I for the Pennsylvania Securities Commission, violated Section 3(a) of the Ethics Law when he received and accepted free legal services from John D'Onofrio in the form of debt counseling and when D'Onofrio advanced $500 to Dusenberry to retain another attorney for legal services at a time when Dusenberry was assigned to examine a financial institution with which D'Onofrio was associated. 2. Dusenberry violated Section 4(a) of the Ethics Law when he failed to file a Statement of Financial Interests for the 1996 calendar year as a former public employee. 3. Dusenberry did not violate Section 3(c) of the Ethics Law because the facts do not establish that his receipt of free legal services and a $500 advance was based on his understanding that his official action or judgment would be influenced thereby. 4. As per the Consent Agreement of the parties, Dusenberry is directed to make payment of $500 in a timely manner through this Commission to the Commonwealth of Pennsylvania. 5. As per the Consent Agreement of the parties, Dusenberry is directed to file :a Statement of Financial Interests for the 1996 calendar year. 6. Compliance with paragraphs 4 and 5 will result in the closing of this case with, no further action by the Commission. Non - compliance will result in the . institution of an order enforcement action. BY THE COMMISSION, A &AL-, DANEEN E. REESE, CHAIR