STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF INSURANCE AND ) TREASURER, )

)

Petitioner, )

)

vs. ) CASE NO. 89-0502

)

MELVIN MOSES LESSER, )

)

Respondent. )

)

RECOMMENDED ORDER

This matter was heard by William R. Dorsey, Jr., the Hearing Officer designated by the Division of Administrative Hearings, on October 11 1989, in Tallahassee, Florida.

APPEARANCES

For Petitioner: S. Marc Herskovitz, Esquire

Robert V. Elias, Esquire Office of Legal Services

412 Larson Building Tallahassee, Florida 32399-0300

For Respondent: William W. Corry, Esquire

Jack M. Skelding, Jr., Esquire Patrick J. Phelan, Jr., Esquire Parker, Skelding, Labasky & Corry

318 North Monroe Street Post Office Box 669 Tallahassee, Florida 32301

STATEMENT OF THE ISSUES

The issue is whether respondent's license as a public adjuster should be revoked, suspended, or otherwise disciplined after his conviction for aiding in the preparation of a false tax return in violation of 26 U.S.C. Section 7206(2).

PRELIMINARY STATEMENT

The Department of Insurance and Treasurer filed an administrative complaint on December 30, 1988, seeking to discipline the license of Melvin Moses Lesser as a public adjuster.

At the hearing, the Department offered into evidence a certified copy of Mr. Lesser's license, a certified copy of the judgement of conviction entered by the U.S. District Court for the Southern District of New York and a statement that Mr. Lesser submitted to the District Court in connection with his sentencing. The Department presented no testimony.

Mr. Lesser testified in his own behalf, and also presented the testimony of Philip Weinstein, Mark Gallagher, Jack Silver, Paul Steinburg, and Maria Marcillo. By agreement, the record was supplemented with the transcripts of post-hearing depositions of Avron Kaiser and Foy Taff, who were unavailable at the date of the hearing. Mr. Lesser also submitted a composite exhibit made up of character reference letters which had been presented to the U.S. District Court in connection with sentencing on his criminal conviction, and a client reference catalog which were received into evidence as exhibits 1 and 2 respectively. Official recognition was taken of certain legislative materials pertaining to Chapter 88-166, Laws of Florida, which had been CS/CS/SB 368.

Both parties filed proposed findings of fact. Rulings on proposed findings are made in the Appendix to this Recommended Order.

Stipulated facts

1. The parties entered into a pretrial stipulation concerning the position of the Department on discipline to be imposed upon an individual who has been convicted of or entered a plea of guilty to a felony under federal law. If the conviction involves a crime of moral turpitude, it is the Department's position that the licensee lacks fitness or trustworthiness to engage in the business of insurance under Section 626.611(7), Florida Statutes. The penalty imposed by the Department will vary depending on: (a) the facts of the underlying case;

   (b) the nature of the crime, i.e., whether the crime was related to the business of insurance; (c) whether the licensee was convicted or not; (d) whether the civil rights of the licensee have been restored after the conviction; (e) the length of time which has elapsed since the offense and disposition of the case;

   (f) whether restitution has been made, if applicable; and (g) whether the individual was placed on probation and, if so, successfully completed the probation. The Department will also consider the other factors offered by the licensee in mitigation.

   
   

2. Historically, licensees convicted of or who have entered pleas of guilty to federal felonies involving moral turpitude have had their licensure revoked. Findings of fact based on the hearing

   
   

3. Melvin Lesser is licensed as a public adjuster in the State of Florida and has been licensed since May 1969. His business is a family owned and operated enterprise known as Lesser and Company, Inc. in Miami Beach, Florida. He employs four full-time adjusters.

   
   

4. On December 9, 1987, Mr. Lesser pled guilty to the offense of aiding in the preparation of a false tax return, in violation 26 U.S.C. Section 7206(2) in the United States District Court for the Southern District of New York, case 87- 00458-01.

   
   

5. Before the incident giving rise to the criminal charges in federal court, Mr. Lesser had no previous criminal history, and had never been the subject of any previous complaints or disciplinary actions by the Florida Department of Insurance. The following scheme began in 1975, and led to Mr. Lesser's federal criminal conviction:

   
   

   Mr. Lesser would exchange checks drawn upon the account of Lesser and Company, his public adjusting firm, for cash paid to him by two individuals, a Mr. Benevento and Mr. Maneri.

   The firm carried the payment to Benevento and Maneri on its books as a referral fee. There is no indict ion in the record that it is per se improper for a public adjusting firm to pay referral fees. Those fees, however, are expenses of the public adjusting firm, which are deductions to its income. The scheme involved creating false entries in records of actual cases handled by Lesser and Company showing false payments of referral fees to Benevento or Maneri. This practice served to artificially reduce the income of Lesser and Company for federal income tax purposes. The scheme also permitted Mr. Benevento and Mr.

   Maneri to claim a legitimate source of income.

   
   

6. The cash which was exchanged for the checks of Lesser and Company had been derived from drug trafficking operations. At first, Mr. Lesser used the money shown on his books as referral fees to pay an insurance agent, Allan Fulton, who referred clients to him to handle claims against insurance companies. This put the agent in a compromising position with respect to the insurance companies he represented, so he sought cash payments which left no paper trail. Beginning in 1980, Mr. Lesser kept the cash given to him from Mr. Benevento and Mr. Maneri for his personal use. From 1980-1984 he received and failed to report as income about $500,000.

   
   

7. These cash laundering transactions enabled Benevento and Maneri to mischaracterize the source of their taxable income, but did not result in any loss to any party in the matters handled by Mr. Lesser as a public adjuster. While Mr. Lesser testified that he did not know the funds had come from illegal drug smuggling operations, what he believed is not significant. He always knew the funds were derived from illegitimate sources.

   
   

8. Mr. Lesser came forward and informed the Internal Revenue Service that his own tax returns were in error because he did not correctly report his own income, or the income of Lesser and Company. He came forward, however, only after he was contacted by an agent of the Internal Revenue Service after the arrest of Mr. Benevento with a large amount of cash at J.F. Kennedy airport. Due to the understatement of his tax liability, Mr. Lesser was required to pay back taxes, penalties and interest in the amount $478,386.

   
   

9. When Mr. Lesser went to the Internal Revenue Service to disclose the understatement of his business and personal income and, necessarily, to thereby disclose his involvement in money laundering, Mr. Lesser retained the services of an experienced tax attorney, Philip Weinstein. Mr. Weinstein assisted Mr. Lesser in cooperating with the United States Attorney in the investigation into the criminal activities of Mr. Benevento and Mr. Maneri. Mr. Lesser's truthful cooperation with the government, and his testimony against Mr. Benevento resulted in Mr. Benevento's conviction in the U.S. District Court for the Southern District of New York.

   
   

10. Mr. Lesser's cooperation in the prosecution placed him and his family in some danger.

    
    

11. Mr. Lesser's activities resulted his own prosecution for the crime of aiding Benevento and Maneri in the preparation of false tax returns through

    mischaracterizing their sources of income. He could have been charged with additional crimes with respect to his own tax returns. His cooperation with the federal authorities resulted in limited exposure to criminal charges and penalties. Mr. Lesser was not charged with any offense relating to his own income tax returns or with offenses relating to the income tax returns of his insurance business. Mr. Lesser made full restitution of all back taxes, interests and penalties to the Internal Revenue Service.

    
    

12. Mr. Lesser could have been imprisoned for three years and fined

    $50,000 for aiding the preparation of false tax returns. After considering evidence in mitigation, on December 9, 1987, the U.S. District Judge ordered Mr. Lesser to perform 900 hours of community service and to serve three years probation. It appears that the approximately 60 character letters submitted to the U.S. District Judge on Mr. Lesser's behalf and his cooperation in the prosecution of Mr. Benevento and his charitable activities caused the court to treat him leniently. The period of probation has not yet been completed.

    
    

13. Mr. Lesser presented the testimony of a number of character witnesses. It is clear that Mr. Lesser has enjoyed, and enjoys, a reputation in the community generally and in the insurance industry as being competent, honest, and an aggressive public adjuster. Certified public accountants, insurance company executives, and lawyers who have dealt with him, and who know at least generally of his misconduct, nonetheless regard him well and would be satisfied to deal with him in the future, or to refer clients to him.

    
    

14. Since June 1987, Mr. Lesser has also provided a substantial service to the Ronald McDonald House, a non-profit facility which provides housing for families who have traveled to the Miami area with sick children and who stay there during prolonged medical treatment. The quality of his work there before his sentencing caused the house manager to write glowing letters to the U.S. District Judge in connection with his sentencing. Mr. Lesser's many activities at the Ronald McDonald House have included office work, transportation assistance, preparation of meals for house guests at his expense, guest check- in, and housekeeping activities. He has continued to be active there since he completed the community service required by the sentence imposed by the U.S. District Court and has been asked to serve as a member of the board of trustees for the Miami Ronald McDonald House.

    
    

    CONCLUSIONS OF LAW

    
    

15. The Division of Administrative Hearings has jurisdiction over this matter. Section 120.57(1), Florida Statutes (1987).

    
    

16. The Administrative Complaint filed against Mr. Lesser charges him of violations of Sections 626.611(1), (7), (14); and 626.621(2), and (8), Florida Statutes (1987).

    
    

17. The Department of Insurance is required to suspend or revoke the license of an adjuster who lacks the qualifications for licensure set out in the Florida Insurance Code, who has demonstrated a lack of fitness or trustworthiness to engage in the business of insurance, or who has been found guilty of, or has pled guilty to a felony in this state or any other state which involves moral turpitude. Section 626.611(1), (7), (14), Florida Statutes.

    
    

18. The Department also has discretionary authority to revoke or suspend the license of any agent who violates any provision of the Insurance Code, or

    who has been found guilty or pleads guilty to a felony in this state or any other state. Section 626.621(2), (8), Florida Statutes.

    
    

19. Two of the provisions which Mr. Lesser has been charged with violating are not substantive; Sections 626.611(1) and 626.621(2) generally forbid the violation of any other provisions of the insurance code, so these charges are cumulative of the central charges made -- demonstrated lack of fitness or trustworthiness to engage in the business of insurance and pleading guilty to a felony involving moral turpitude.

    
    

20. The text of Sections 626.611(7), (14) and 626.621(8), Florida Statutes (1987), provide:

    
    

    The Department shall ... suspend [or] revoke

    ... the license of any ... adjuster ... if it finds that as to the ... licensee ... any one or more of the following applicable grounds exist:

    (7) Demonstrated lack of fitness or trustworthiness to engage in the business of insurance.

    (14) Having been found guilty of, or having pleaded guilty or nolo contendere to, a felony in this state or any other state which involves moral turpitude, without regard to whether a judgment of conviction has been entered by the court having jurisdiction of such cases. Section 626.611, Florida Statutes (1987).

    The Department may, in its discretion, ... suspend [or] revoke ... the license of any

    ... adjuster ... if it finds that as to the

    ... licensee ... any one or more of the following applicable grounds exist under circumstances for which such ... suspension [or] revocation ... is not mandatory under Section 626.611:

    (8) Having been found guilty of, or having pleaded guilty or nolo contendere to, a felony in this state or any other state, without regard to whether a judgment of conviction has been entered by the court having jurisdiction of such cases. Section 626.621, Florida Statutes (1987).

    
    

21. A careful reading of Section 626.611(14) and Section 626.621(8) show that there is a gap in the coverage of the statute for criminal convictions in federal court. A U.S. District Court is not a state court. Moreover, Mr. Lesser offered into evidence staff analyses from the Florida House and Senate which show that the Legislature recognized this gap in the statutes, and amended the law to expand the grounds for discipline of those licensed by the Department of Insurance to include federal criminal convictions during the 1988 session of the Legislature. See Sections 13 and 14, Chapter 88-166, Laws of Florida, discussed below.

22. The section-by-section analysis prepared in the House of Representatives for Sections 13 and 14 of the bill ultimately enacted as Chapter 88-166, Laws of Florida, states:

    
    

    [This section] expands grounds for compulsory administrative action against applicants or licensees to include felonies or crimes punishable by imprisonment of one year or more under federal law, or the law of any other state or country. Currently, the grounds for administrative action only include having been found guilty of, or having pleaded guilty or nolo contendere to a felony in this state or any other state.

    
    

    The analysis prepared by the Senate staff refers to the section in question as Section 11. That analysis states:

    
    

    Currently, s.626.611, F.S., [which] provides the grounds for administrative action against applicants or licensees only include felonies punishable by imprisonment of 1 year or more under the law of this state or any other state. [New] Section 626.611, F.S., expands the grounds for administrative action against applicants or licensees to include felonies or crimes punishable by imprisonment of one year or more under federal law, or the law of any state or country.

    
    

23. It is apparent that the Legislature understood that the law, as it existed at the time Mr. Lesser plead guilty to the federal felony, did not encompass federal criminal convictions. As a result, Mr. Lesser is not subject to discipline, for the legislative expansion of the grounds for discipline to include conviction of federal felonies became effective only after his plea of guilty was entered in Federal Court. The Department has argued that under the "closest counterpart" doctrine, Mr. Lesser can be disciplined because his plea of guilty to aiding and abetting the filing of a false and fraudulent tax return in federal court is similar to a plea of guilty to the Florida crime described in Section 893.135(5), Florida Statutes, of conspiring to illegally traffic in drugs. The short answer is that there is no evidence in the documents of conviction from the U.S. District Court that the federal crime had anything to do with drug trafficking. The crime to which Mr. Lesser pled guilty dealt only with tax filings, for which Section 893.135 is no counterpart.

    
    

24. The Department has established that Mr. Lesser violated Section 626.611(7) by demonstrating a lack of fitness or trustworthiness to engage in the business of insurance. Over a period of years, Mr. Lesser created false or fraudulent entries in the books and records of his public adjusting firm to launder money, which provided Messrs. Maneri and Benevento the opportunity to claim legitimate sources of income and also provided Lesser and Sons the opportunity to claim a non-existent referral fee as an apparently legitimate expense against its own income. No such legitimate expense had been incurred.

    
    

25. A stipulation was entered by the parties that the Department takes the position that an adjuster licensed by the Department who has entered a plea of guilty to a felony under Florida law involving moral turpitude demonstrates a

    lack of fitness or trustworthiness to engage in the business of insurance under Section 626.611(7), Florida Statutes. Whether or not that should be true in all cases, it is reasonable to regard a conviction for aiding in the filing of false and fraudulent tax returns where licensee's conduct involved false entries in the books and records of the adjusting business as a demonstrated lack of fitness or trustworthiness to engage in the business of insurance. Section 626.611 requires the Department to suspend or revoke the license of an adjuster who has demonstrated a lack of fitness or trustworthiness to engage in the business of insurance.

    
    

26. Mr. Lesser's involvement in the money laundering over a period of ten years is an aggravating factor in determining the penalty to impose. On the other hand, there are a number of mitigating factors. First, Mr. Lesser has not engaged in other improper conduct over his entire career. Second, Mr. Lesser made full restitution of all back taxes, interest and penalties which resulted from his improper actions and was not charged, himself, with any criminal offenses relating to his own tax liability. Third, Mr. Lesser's activities had no adverse affect upon any client, or upon any other adjuster or insurance company. Fourth, Mr. Lesser has been engaged in a substantial amount of community service which he has continued even after the period of service prescribed by the U.S. District Court has been finished. Fifth, the U.S. District Court recognized that there were extenuating circumstances entitling Mr. Lesser to leniency, as evidenced by the rather light sentence imposed by the

U.S. District Judge. On balance, the outright revocation of Mr. Lesser's licensure as a public adjuster is too severe a penalty. A period of suspension is required by Section 626.611 if revocation is not imposed. The penalty suggested by Mr. Lesser, of an administrative probation to run for a period concurrent with the period of probation imposed by the Federal Court, fails to give effect to Section 626.611, Florida Statutes. The period of suspension need not be a lengthy one, such as a suspension for one year. A brief suspension, such as for 90 days, would fail to take into account the seriousness of the offense, because the books and records of the adjusting company were involved in the wrongdoing. A suspension of six months would be adequate to vindicate the interests of the Department of Insurance in penalizing the licensee, without destroying his livelihood.

RECOMMENDATION

It is RECOMMENDED that Mr. Lesser be found guilty of violation of Section 626.611(7), Florida Statutes (1987), and that his licensure as a public adjuster be suspended for a period of six months.

DONE AND ENTERED in Tallahassee, Leon County, Florida, this 28th day of December, 1989.

WILLIAM R. DORSEY, JR.

Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 28th day of December, 1989.

APPENDIX TO RECOMMENDED ORDER DOAH CASE NO. 89-0502

Rulings on findings proposed by the Department:

1 and 2. Adopted in finding of fact 3.

1. Adopted in finding of fact 4.

2. Implicit in findings of fact 5 and 6.

3. Adopted in finding of fact 6.

4. Adopted in finding of fact 8.

5. Adopted in finding of fact 8.

6. Adopted in finding of fact 8.

7. Implicit in finding of fact 11. Rulings on findings proposed by Mr. Lesser:

1-11. Inapplicable.

1. Adopted in finding of fact 3.

2. Adopted in finding of fact 3, to the extent necessary.

3. Rejected as unnecessary.

4. Adopted in finding of fact 5.

5. Adopted in finding of fact 5.

6. Adopted in finding of fact 5, though finding of fact 5 includes certain logical deductions or inferences.

7. Made more specific in findings of fact 5 and 6.

8. Adopted as modified in finding of fact 7.

9. Rejected. Not only were the laundering transactions illegitimate because they allowed Benevento Maneri to mischaracterize the source of their income, they also created false expenses for Lesser and Company, Inc., which artificially lowered the income of Lesser and Company, Inc., by the amount of the expense.

10. Adopted as modified in finding of fact 7.

11. It is difficult to determine what Mr. Lesser actually thought the source of the money was, but he knew it was illicit. See, finding of fact 7.

12. Adopted as modified in finding of fact 8.

13. Adopted as modified in finding of fact 9.

25 and 26. Adopted as modified in finding of fact 9.

1. Adopted as modified in finding of fact 10 The extent of Mr. Lesser's danger cannot be determined from this record, although he was in some danger.

2. Covered in finding of fact 9

3. Adopted as modified in finding of fact 11.

4. Rejected. See, finding of fact 8. The IRS first contacted Mr. Lesser. He then went to Mr. Weinstein to set matters straight.

5. Adopted as modified in finding of fact 11.

6. Adopted as modified in finding of fact 4.

7. Adopted as modified in finding of fact 12.

8. Adopted as modified in finding of fact 12.

9. A light sentence implies the factors set out in finding of fact 35, were taken into consideration, but does not prove that they were all the reasons the U.S. District Judge took into consideration.

10. To the extent necessary, mentioned in finding of fact 12.

11. Rejected as procedural.

38-51. Covered in findings of fact 13 and 14. The proposed findings are subordinate to the findings made in findings of fact 13 and 14.

COPIES FURNISHED:

S. Marc Herskovitz, Esquire Robert V. Elias, Esquire Office of Legal Services

412 Larson Building Tallahassee, Florida 32399-0300

William W. Corry, Esquire

Jack M. Skelding, Jr., Esquire Patrick J. Phelan, Jr., Esquire Parker, Skelding, Labasky & Corry

318 North Monroe Street Post Office Box 669 Tallahassee Florida 32301

Honorable Tom Gallagher State Treasurer and Insurance Commissioner Department of Insurance and Treasurer

The Capitol, Plaza Level Tallahassee, Florida 32399-0300

Don Dowdell, General Counsel Department of Insurance

and Treasurer

The Capitol, Plaza Level Tallahassee, Florida 32399-0300

Docket for Case No: 89-000502

Orders for Case No: 89-000502