CHARLES M. BLAIR & CO., INC. vs. SECURITIES DIVISION.

WILKINS, J. We conclude that the Securities Division (division) of the office of the Secretary of the Commonwealth did not apply the proper test in passing on the application of the plaintiff (Blair) for registration as a broker-dealer in the Commonwealth. A judge sitting in the Superior Court sustained the division, and we transferred Blair's appeal here on our own motion. We reverse the judgment and direct that a judgment be entered remanding the proceeding to the division for reconsideration.

In March, 1986, Blair applied to the division for registration as a broker-dealer pursuant to G. L. c. 110A, Section 202 (1986 ed.).

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On April 15, 1986, the division issued Blair a notice to show cause why the application for registration should not be denied. The acting director of the division, as hearing officer, held a hearing in May, 1986, and by an "Opinion, Findings and Order" denied the registration application in July, 1986.

The division, acting for the State Secretary (950 Code Mass. Regs. Section 14.406 [a][1] [1986]), may deny an application for registration "if [it] finds (1) that the order is in the public interest and (2) that the applicant or registrant or, in the case of a broker-dealer, any partner, officer, or director . . . or any person directly or indirectly controlling the broker-dealer" falls within any one of nine circumstances. G. L. c. 110A, Section 204 (a) (1986 ed.). Of those circumstances, one was clearly applicable to Blair. Its president and sole stockholder had been the subject of a permanent injunction issued by the United States District Court for the Central District of California in 1984 enjoining him and his agents from engaging in certain unlawful conduct in connection with the purchase or sale of the securities of the Universal Energy Corporation. See Section 204 (a)(D).

Because one of the circumstances listed in Section 204 (a) existed, the question at the hearing concerned the public interest aspect of Section 204 (a). In arguing the public interest issue, the division relied solely on the allegations of the Securities and Exchange Commission (S.E.C.) that led to the injunction and on the injunction itself. Blair presented evidence concerning itself and pointed out that the injunction was issued against its president by consent without any admission of the allegations against him. The hearing officer ruled that the company had "not sustained the burden of proving that its registration would be in the public interest" and denied the application.

The hearing officer stated the issue inappropriately, and at the same time misplaced the burden of proof. An application for registration may be denied only if the division finds that the order of denial is in the public interest. The issue thus is whether denial is in the public interest and not whether admission is in the public interest. See Mayflower Sec. Co. v. Bureau of Sec., 64 N.J. 85, 90-91 (1973). Moreover, the burden is on the division to prove that denial of the application is in the

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public interest. Section 204 (a) makes no distinction between a broker-dealer revocation or suspension proceeding and a proceeding involving a broker-dealer registration application. In each instance, there must be a finding that the order is in the public interest. The agency must make that showing in order to justify its action in denying, suspending, or revoking a broker-dealer registration. The absence of substantial evidence showing that such an order is in the public interest would require that the division not deny, suspend, or revoke registration.

The division must reconsider its decision, applying the proper standard and placing the burden of proof appropriately. We decline Blair's invitation to decide whether there was substantial evidence that would support a ruling that a denial of registration would be in the public interest. New or additional evidence may be offered on the question. In any event, the matter is for the agency in the first instance. We do add that, in some instances, the circumstances leading to an injunction might themselves present reasons in the public interest to deny a registration application. We note the possibility that the S.E.C.'s unadmitted factual allegations that lead to an injunction by consent might shift to an applicant for registration the burden of coming forward with evidence to disprove them. See 2 L. Loss, Securities Regulation 1328 (2d ed. 1961). Even if the facts alleged by the S.E.C. could constitute substantial evidence standing alone, that evidence would have to be weighed with the evidence offered by the company on its behalf.

The judgment is reversed and judgment shall be entered remanding the proceeding to the division for reconsideration.

So ordered.