REPRESENTING ce CHIEF FINANCIAL OFFICER STATE OF FLORIDA IN THE MATTER OF: Os (p YIdPL PAUL FRANCIS MCCARTHY, III CASE NO.: 92507-07-AG / ADMINISTRATIVE COMPLAINT TO: PAUL FRANCIS MCCARTHY, III IMS Partners, Inc. 5240 Babcock Street NE, Suite 218 Palm Bay, Florida 32905-4641 PAUL FRANCIS MCCARTHY, III 500 Eugenia Road Vero Beach, Florida 32963-1636 You, PAUL FRANCIS MCCARTHY, III, are hereby notified that, pursuant to Chapter 626, Florida Statutes, the Chief Financial Officer of the State of Florida has caused to be made an investigation of your activities while licensed as an insurance agent in this state, as a result of which it is alleged: GENERAL ALLEGATIONS 1. Pursuant to Chapter 626, Florida Statutes, you, PAUL FRANCIS MCCARTHY, Ill, License No. A170203, are currently licensed in this state as a Life, including Variable Annuity Agent (2-14), Life, including Variable Annuity and Health Agent (2-15), Life Agent (2- 16), Life & Health Agent (2-18), and Health Agent (2-40). 2. At all times pertinent to the dates and occurrences referred to herein, you, PAUL FRANCIS MCCARTHY, III, were licensed in this state as an insurance agent. 3. Pursuant to Chapter 626, Florida Statutes, the Florida Department of Financial Services has jurisdiction over your insurance licenses and appointments. 4. Rule 69B-215.210, Florida administrative Code, provides: The Business of Life Insurance is hereby declared to be a public trust-in which service all agents of all companies have a common obligation to work together in serving the best. interests of the insuring public, by understanding and observing the laws governing Life Insurance in letter and in spirit by presenting accurately and completely every fact essential to a client's decision, and by being fair in all relations with colleagues and competitors always placing the policyholder's interests first. COUNT I 5. The above General Allegations are hereby realleged and fully incorporated herein by reference. 6. During the early to mid 1990s, you, PAUL FRANCIS MCCARTHY, III, befriended consumer Violet Freeman (“Ms. Freeman”) and her mother in or around Vero Beach, Florida. © 7. Ms. Freeman and her mother were both clients of your insurance and investment business. Your relationship was personal and social, in addition to being a business relationship. The extent of your relationship with Ms. Freeman and her family amplified the trust Ms. Freeman placed in you and your financial advice. 8. On or about July 23, 1999, you, PAUL FRANCIS MCCARTHY, III, borrowed twenty thousand dollars ($20,000.00) from Ms. Freeman indicating that you needed the money to open your own office. Ms. Freeman wrote check number 1001 from her NationsBank account to you for the sum of twenty thousand dollars ($20,000.00). You, PAUL FRANCIS MCCARTHY, II, endorsed the check and used the funds for your benefit. 9. On or about August 1, 1999, you, PAUL FRANCIS MCCARTHY, Ill, signed a promissory note (“Note”) in favor of Ms.. Freeman for twenty thousand dollars ($20,000.00) at ten percent (10%) per annum for two years. The Note was-due and payable by August 1, 2001, and was signed by you and your wife Cathy McCarthy. 10. On or about September 13, 2000, you, PAUL FRANCIS MCCARTHY, III, wrote and/or signed check number 1605 out of a Citrus Bank account of McCarthy Investment Insurance Services Inc. for two thousand dollars ($2,000.00). This check was given to Ms. Freeman and was intended as the first, interest-only, installment on the loan secured by the Note. 11, You, PAUL FRANCIS MCCARTHY, IH, have not made any subsequent payments on the loan secured by the Note. 12. You, PAUL FRANCIS MCCARTHY, III, have not made any arrangements to repay the loan secured by the Note, nor have you made any other arrangements to have the loan secured by the Note discharged. 13. You, PAUL FRANCIS MCCARTHY, III, continue to owe Ms. Freeman the balance of the loan secured by the Note, with the accruing interest. 14. The lack of payment or responsibility on your part for debt represented by the Note is a breach of the trust placed in you, PAUL FRANCIS MCCARTHY, III, by Ms, Freeman as your client. . IT IS THEREFORE CHARGED that you, PAUL FRANCIS MCCARTHY, III, have violated or are accountable under provisions of one or more of the following: the Florida Statutes or the Florida Administrative Code, which constitute grounds for the suspension or revocation of your licenses as a Florida insurance agent: (a) Demonstrated lack of fitness or trustworthiness to engage in the business of insurance. [Section 626.611(7), Florida Statutes]; (b) | Demonstrated lack of reasonably adequate knowledge and technical competence to engage in the transactions authorized by the license or appointment. [Section 626.611(8), Florida Statutes]; and (c) Fraudulent or dishonest practices in the conduct of business under the license or appointment. [Section 626.611(9), Florida Statutes]. COUNT II 15. The above General Allegations and the allegations contained in paragraphs 7 and 8 are hereby re-alleged and fully incorporated herein by reference. 16. | Consumer Barbara Rice (“Ms. Rice”) is Ms. Freeman’s daughter. You, PAUL FRANCIS MCCARTHY, III, met Ms. Rice through your relationship with Ms. Freeman, Ms. Freeman’s mother and other family members. 17. By late 1999 or early 2000, Ms. Rice asked you to assist and advise her with her investments. As with Ms. Freeman, your relationship with Ms. Rice was personal and social, in addition to being a business relationship. The extent of your relationship with Ms. Rice and her family amplified the trust Ms. Rice placed in you and your financial advice. 18. During the time period of May 2000 through September of 2000, you, PAUL FRANCIS MCCARTHY, III, borrowed from Ms. Rice at least sixty-two thousand dollars ($62,000.00) (“Rice Loan”). You, PAUL FRANCIS MCCARTHY, III, told Ms. Rice that you would pay the loan back with ten percent (10%) interest and that you needed the money for various expenses, business, personal and mortgage. 19. | The Rice Loan includes the money loaned from Barbara Rice to you by the following checks: MBNA America Bank check number 1022 dated May 3, 2000, written to you for ten thousand dollars ($10,000.00); MBNA America Bank check number 1023 dated May 3, 2000, written to you for ten thousand dollars ($10,000.00); MBNA America Bank check number 1024 dated June 9, 2000, written to you through your business, McCarthy Investment and Insurance, for three thousand dollars ($3,000.00); NationsBank check number 199 dated July 8, 2000, written to you for ten thousand dollars ($10,000.00); NationsBank check number 200 dated July 8, 2000, written to you for ten thousand dollars ($10,000.00); NationsBank check number 201 dated July 8, 2000, written to you for five thousand dollars ($5,000.00); MBNA America Bank check number 1025 dated August 15, 2000, written to you for eight thousand dollars ($8,000.00); MBNA America Bank check number 1026 dated September 8, 2000, written to you through your business, McCarthy Investment and Insurance, for six thousand dollars ($6,000.00). 20. In asking for the money and receiving it from Ms. Rice, you, PAUL FRANCIS MCCARTHY, III, represented to Ms. Rice that you were borrowing the money, and you would repay the Rice Loan with interest at a rate of ten percent (10%) per annum. 21. You, PAUL FRANCIS MCCARTHY, III, never paid Ms. Rice any money on the Rice Loan. 22. In or around April 2001, your father, Paul Francis McCarthy, Jr. (“Paul McCarthy, Jr.”), who is also licensed by the Department as an insurance agent, gave Ms. Rice a check for forty-two thousand dollars ($42,000.00) representing that it was a partial repayment of the Rice Loan on your behalf. 23, You, PAUL FRANCIS MCCARTHY, III, have not made any payments on the Rice Loan, and Paul McCarthy, Jr. has not made any subsequent payments on the Rice Loan on your behalf. 24. You, PAUL FRANCIS MCCARTHY, III, have not made any arrangements to repay the Rice Loan, nor have you made any arrangements to have the loan discharged, otherwise. 25. You, PAUL FRANCIS MCCARTHY, III, continue to owe Ms. Rice the balance of the Rice Loan, with the accruing interest. . 26. The lack of payment or responsibility on your part for the debt represented by the Rice Loan is a breach of the trust placed in you, PAUL FRANCIS MCCARTHY, III, by Ms Rice as your client. IT IS THEREFORE CHARGED that you, PAUL FRANCIS MCCARTHY, III, have violated or are accountable under provisions of one or more of the following: the Florida Statutes — or the Florida Administrative Code, which constitute grounds for the suspension or revocation of your licenses as a Florida insurance agent: (a) Demonstrated lack of fitness or trustworthiness to engage in the business of insurance. [Section 626.611(7), Florida Statutes]; (6) Demonstrated lack of reasonably adequate knowledge and technical competence to engage in the transactions authorized by the license or appointment. [Section 626.61 1(8), Florida Statutes]; and (c) Fraudulent or dishonest practices in the conduct of business under the license or appointment. [Section 626.611(9), Florida Statutes]. COUNT IIT 27. The above General Allegations are hereby re-alleged and fully incorporated herein by reference. 28. During the mid 1990s, you, PAUL FRANCIS MCCARTHY, III, met and befriended consumer Colleen Joy Jeeves (“Ms. Jeeves”) in or around Vero Beach, Florida. 29. In or around July 1998, Ms. Jeeves became a client of your insurance and investment business when she came to you regarding her being laid-off from her job with the JC Penney Co. and the pay-out she would receive because of the lay-off. 30. Like many of your clients, your relationship with Ms. Jeeves was personal and social, in addition to being a business relationship. The extent of your relationship with Ms. Jeeves amplified the trust she placed in you and your financial advice. 31. In July of 1998, you, PAUL FRANCIS MCCARTHY, III, recommended to Ms. Jeeves that she purchase an annuity from American Life and Casualty Insurance Company (“ALCIC”), a subsidiary of Conseco Annuity Assurance Company (CAAC”), which was a subsidiary of Conseco, Inc, a holding company. The ALCIC annuity purchase was funded by the payout from her JC Penney retirement plan. 32. On or about July 29, 1998, ALCIC issued annuity contract number ON533162 with an initial premium paid by Ms. Jeeves of fifty-eight thousand sixty-seven dollars ($58,067.00), contract number ON533162, which had a twenty-percent (20%) declining, sixteen- year surrender period. . 33. In or around October 2000, you, PAUL FRANCIS MCCARTHY, III, contacted Ms. Jeeves and advised her to exchange the ALCIC annuity contract ON533162 for another annuity. 34, You, PAUL FRANCIS MCCARTHY, Ill, represented that CAAC was in financial trouble and its demise was impending, and that Ms. Jeeves should exchange her CAAC annuity because there was no future in CAAC. . 35. You, PAUL FRANCIS MCCARTHY, III, did not inform Ms. Jeeves that the financial issues that Conseco, Inc. was experiencing were related to the holding company and that subsidiary insurance companies like ALCIC and CAAC were not implicated in the financial problems. 36. Although the exchange documents informed Ms. Jeeves about the surrender charges, you, PAUL FRANCIS MCCARTHY, III, falsely represented to Ms. Jeeves that she would not really lose in the exchange, because she had gains or profits that would entirely off-set any surrender charges. 37. Ms. Jeeves incurred $10,278.37 in surrender charges in the transaction. As a result, only $54,837.90 was transferred from ALCIC, $3,229.10 less than the initial premium paid on ALCIC annuity contract ON533162. 38. Using the aforementioned fraudulent misrepresentations and/or material omissions regarding the terms and conditions of the annuity, you, PAUL FRANCIS MCCARTHY, III, influenced Ms. Jeeves to enter inappropriate annuity investments that’ were not in Ms. Jeeves’s best interest and you, PAUL FRANCIS MCCARTHY, III, knew they were not in Ms. Jeeves’s best interest. 39. You, PAUL FRANCIS MCCARTHY, III, stood to personally profit through the transaction with Ms. Jeeves, and this consideration overshadowed your fiduciary responsibility to work for Ms. Jeeves’s best interest. You advised Ms. Jeeves to make the transaction without regard for Ms. Jeeves best interest, but instead, to generate commissions for you or on your behalf. IT IS THEREFORE CHARGED that you, PAUL FRANCIS MCCARTHY, III, have violated or are accountable under provisions of one or more of the following: the Florida Statutes or the Florida Administrative Code, which constitute grounds for the suspension or revocation of your licenses as a Florida insurance agent: (a) If the license or appointment is willfully used, or to be used, to circumvent any of the requirements or prohibitions of this code. [Section 626.611(4), Florida Statutes]; (b) Willful misrepresentation of any insurance policy or annuity contract or willful deception with regard to any such policy or contract, done either in person or by any form of dissemination of information or advertising. [Section 626.611(5), Florida Statutes]; (c) Demonstrated lack of fitness or trustworthiness to engage in the business of insurance. [Section 626.611(7), Florida Statutes]; (d) Demonstrated lack of reasonably adequate knowledge and technical competence to engage in the transactions authorized by the license or appointment. [Section 626.61 1(8), Florida Statutes]; (e) Fraudulent or dishonest practices in the conduct of business under the license or appointment. [Section 626.611(9), Florida Statutes]; (f) Willful failure to comply with, or willful violation of, any proper order or rule of the department or willful violation of any provision of this code. [Section 626.611(13), Florida Statutes]; (g) Violation of any provision of this code or of any other law applicable to the business of insurance in the course of dealing under the license or appointment. [Section 626.621(2), Florida Statutes]; (h) Violation of the provision against twisting, as defined in Section 626.9541(1)(1). [Section 626.621(5), Florida Statutes]; (i) In the conduct of business under the license or appointment, engaging in unfair methods of competition or in unfair or deceptive acts or practices, as prohibited under part IX of this chapter, or having otherwise shown himself or herself to be a source of injury or loss to the public or detrimental to the public interest. [Section 626.621(6), Florida Statutes]; G) Knowingly making a false or fraudulent written or oral statement or representation on, or relative to, an application or negotiation for an insurance policy for the purpose of obtaining a fee, commission, money, or other benefit from any insurer, agent, broker, or individual. [Section 626.9541(1)(k)1, Florida Statutes]; (k) Knowingly making any misleading representation or incomplete or fraudulent comparisons or fraudulent material omissions of or with respect to any insurance policies or insurers for the purpose of inducing, or tending to induce, any person to lapse, forfeit, surrender, terminate, retain, pledge, assign, borrow on, or convert any insurance policy or to take out a policy of insurance with another insurer. [Section 626.9541(1)(), Florida Statutes]; and () No person shall make, publish, disseminate, circulate, or place before the public, or cause, directly or indirectly, to be made, published, disseminated, circulated, or placed before the public, in a newspaper, magazine, or other publication, or in the form of a notice, circular, pamphlet, letter or poster, or over any radio or television station, or in any other way, any advertisement, announcement or statement containing any assertion, representation or statement with respect to the business of insurance or with respect to any person in the conduct of his insurance business, which is untrue, deceptive or misleading. [Rule 69B-215.230(2), Florida Administrative Code]. WHEREFORE, you, PAUL FRANCIS MCCARTHY, III, are hereby notified that the Chief Financial Officer intends to enter an Order revoking your licenses and appointments as an insurance agent or to impose such penalties as may be provided under the provisions of Sections 626.611, 626.621, 626.681, 626.691, 626.692, 626.9521 and 626.9541, Florida Statutes, and 10 under the other referenced Sections of the Florida Statutes as set out in this Administrative Complaint. In addition, you are notified that the Department intends to seek aggravation of the total applicable penalties in consideration of the willfulness of your, PAUL FRANCIS MCCARTHY, III’S conduct, and the degree of injury to the victims. You are further notified that any order entered in this case revoking or suspending any license or eligibility for licensure held by you shall also apply to all other licenses and eligibility held by you under the Florida Insurance Code. NOTICE OF RIGHTS You have the right to request a proceeding to contest this action by the Department of Financial Services ("Department") pursuant to Sections 120.569 and 120.57, Florida Statutes, and Rule 28-106, Florida Administrative Code. The proceeding request must be in writing, signed by you, and must be filed with the Department within twenty-one (21) days of your receipt of this notice. Completion of the attached Election of Proceeding form and/or a petition for administrative hearing will suffice as a written request. The request must be filed with the General Counsel acting as Agency Clerk, at the Florida Department of Financial Services, 612 Larson Building, 200 East Gaines Street, Tallahassee, Florida 32399-0333. Your written response must be received by the Department no later than 5:00 p.m. on the twenty-first day after your receipt of this notice. Mailing the response on the twenty-first day will not preserve your right to a hearing. YOUR FAILURE TO RESPOND IN WRITING WITHIN TWENTY-ONE (21) DAYS OF YOUR RECEIPT OF THIS NOTICE WILL CONSTITUTE A WAIVER OF YOUR RIGHT TO REQUEST A PROCEEDING ON THE MATTERS ALLEGED HEREIN AND AN ORDER OF SUSPENSION OR REVOCATION WILL BE ENTERED AGAINST YOU. : If you request a proceeding, you must provide information that complies with the requirements of Rule 28-106.2015, Florida Administrative Code. As noted above, completion of the attached Election of Proceeding form conforms to these requirements. Specifically, your response must contain: (a) The name, address, and telephone number, and facsimile number (if any) of the respondent (for the purpose of requesting a hearing in this matter, you are the respondent"). (b) The name, address, telephone number, facsimile number of the attorney or qualified representative of the respondent (if any) upon whom service of pleadings and other papers shall be made. (c) A statement requesting an administrative hearing identifying those material facts that are in dispute. If there are none, the petition must so indicate, (d) A statement of when the respondent received notice of the administrative complaint. . (e) A statement including the file number to the administrative complaint. If a hearing of any type is requested, you have the right to be represented by counsel or other qualified representative at your expense, to present evidence and argument, to call and cross-examine witnesses, and to compel the attendance of witnesses and the production of documents by subpoena. Ifa proceeding is requested and there is no dispute of material fact, the provisions of Section 120.57(2), Florida Statutes, apply. In this regard, you may submit oral or written evidence in opposition to the action taken by the Department or a written statement challenging the grounds upon which the Department has relied. While a hearing is normally not required in the absence of a dispute of fact, if you feel that a hearing is necessary, one will be conducted in Tallahassee, Florida, or by telephonic conference call upon your request. However, if you dispute material facts which are the basis for the Department’s action, you must request an adversarial proceeding pursuant to Sections 120.569 and 120.57(1), Florida Statutes. These proceedings are held before a State Administrative Law Judge of the Division of Administrative Hearings. Unless the majority of witnesses are located elsewhere, the Department will request that the hearing be conducted in Tallahassee, Florida. Failure to follow the procedure outlined with regard to your response to this notice may result in the request being denied. All prior oral communication or correspondence in this matter shall be considered freeform agency action, and no such oral communication or correspondence shall operate as a valid request for an administrative proceeding. Any request for an administrative proceeding received prior to the date of this notice shall be deemed abandoned unless timely renewed in compliance with the guidelines as set out above. Mediation of this matter pursuant to Section 120.573, Florida Statutes, is not available. No Department attorney will discuss this matter with you until the response has been received by the Department. DATED and SIGNED this \ we day of Mowmiow2 2008. _ TAMMY TESYON Deputy Chief Financial Officer 13 CERTIFICATE OF SERVICE I HEREBY CERTIFY that true and correct copy of the foregoing ADMINISTRATIVE COMPLAINT and the following ELECTION OF PROCEEDING has been furnished to: PAUL FRANCIS MCCARTHY, III IMS Partners, Inc. 5240 Babcock Street NE, Suite 218 Palm Bay, Florida 32905-4641 PAUL FRANCIS MCCARTHY, III 500 Eugenia Road Vero Beach, Florida 32963-1636 By Certified t, .S. Mail, restricted delivery, return receipt requested, this 1? a day of ove , 2008. Thomas A. “Tad” David, Esq. Florida Department of Financial Services Division of Legal Services 200 East Gaines St. 612 Larson Building Tallahassee, Florida 32399-0333 (850) 413-4164 Florida Bar Number 0706868

Docket for Case No: 08-006422PL