STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF INSURANCE, )

)

Petitioner, )

)

vs. ) Case No. 00-3242PL

) JAMES ROBERT STIFFLER, )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, the Division of Administrative Hearings, by Administrative Law Judge, Fred L. Buckine, held a formal hearing in the above-styled case on October 3, 2000, in Pinellas County, St.

Petersburg, Florida.

APPEARANCES

For Petitioner: Robert Prentiss, Esquire

Department of Insurance Division of Legal Services 612 Larson Building

200 East Gaines Street Tallahassee, Florida 32399-0333

For Respondent: James Robert Stiffler, pro se

202 18th Avenue

Indian Rocks Beach, Florida 33785 STATEMENT OF THE ISSUE

The issue in this case is whether Respondent, James Robert Stiffler, knowingly made untrue statements of material facts to induce Frank Galasso to purchase two viatical settlement agreements.

Essentially, the charges are that Respondent, in his solicitations and negotiations with Frank Galasso, stated that viatical settlement agreements were, "guaranteed," "no risk," "fully secured," "risk free," "non-speculative," and promised a "fixed rate of return;" and that Respondent provided viatical settlement agreement literature containing one or more the above the prohibited phrases, for the purpose of inducing Frank Galasso to purchase, and Frank Galasso did purchase, two viatical settlement agreements for money paid.

PRELIMINARY STATEMENT

Respondent, in his answer to the compliant and by stipulation at the hearing, agreed to Counts 1,2 and 7(b) of the complaint.

Petitioner presented no witnesses and offered into evidence, without objection, 15 exhibits, including the deposition of Frank Galasso, retired real estate and casualty insurance agent, taken September 22, 2000, and not attended by the Respondent.

Respondent testified on his own behalf and exhibits "A," "B," and "C" were admitted in evidence without objection.

The Transcript was filed on October 10, 2000. Petitioner filed a Proposed Recommended Order on October 30, 2000, and Respondent filed a Proposed Recommended Order on October 31, 2000.

FINDINGS OF FACT

1. The background activities pertinent to the dates and occurrences between Respondent and Mr. Galasso are presented. Simultaneous activities by the Federal Bureau of Investigation

   (hereinafter FBI) investigating other companies, including principals of American Benefits Services, Inc. (hereinafter "ABS") involved in the sale of viatical agreement in Florida are summarized.

   FRANK GALASSO and RESPONDENT

   
   

2. At an unspecified time in mid 1998, Frank Galasso, a retired licensed real estate and casualty insurance agent, had his first exposure to viatical purchases while watching "60 Minutes" on television.

3. In October of 1998, Frank Galasso, in response to a newspaper advertisement, called Respondent's listed phone number and left a message expressing his interest in viatical and requested a return phone call.

4. In a January 1999 return phone call to Mr. Galasso, Mr.

   
   

   Galasso advised Respondent that he was not quite ready and needed more time to consider the purchase.

5. A subsequent follow-up phone call in April 1999, resulted in Respondent and Mr. Galasso discussing diversifying Mrs. Galasso's portfolio with the possibility of investing in a viatical settlement agreement purchase.

6. In May of 1999, Respondent met with Mr. Galasso at Mr. Galasso's residence and explained the viatical purchase

   agreement "from start to finish." Respondent gave Mr. Galasso a package of literature and other information provided Respondent by ABS. After a two-and-one-half-hours of discussion Mr. Galasso

   purchased a $13,429.93 viatical agreement for Mrs. Galasso's Individual Retirement Account. A receipt of purchase and the agreement of purchase were given to Mr. Galasso.

7. On June 11, 1999, Respondent met again with Mr. Galasso for discussion of and consummation of a second purchase of a viatical settlement agreement. Respondent assured Mr. Galasso that he would receive interest payments of 9.85 percent, per annum, paid monthly for 36 months and when the viator died, he, Mr. Galasso, would receive his principal investment of $25,000 back. Respondent further assured Mr. Galasso that after one year he could rescind the viatical purchase agreement, retain all interest paid, and get his principal back by sending a written request at least 30 days prior to the anniversary date of purchase.

8. In June 1999, ABS informed Mr. Galasso that the State of Florida, Department of Banking and Finance, filed an administrative complaint alleging violations by ABS of the state's "Securities Act" and that a stipulation and consent to Final Order Agreement was entered, effective August 10, 1999.

9. In July of 1999, Mr. Galasso, reading the Herald Tribune, became aware that ABS and Financial Federated were under investigation by the FBI. In August of 1999, Mr. Galasso made several written attempts to exercise his option to rescind his viatical purchase agreements without success.

   FBI AGENT, ANTHONY YANKETIS, and VIATICAL SALES ENTITIES

   
   

10. Unknown to Respondent and Mr. Galasso, in May/June of 1998, Anthony Yanketis, FBI special agent of the economic crimes division, initiated an investigation regarding a viatical settlement as a result of information received from an investor in a viatical purchase agreement situation.

11. In January 1999, the FBI confirmed that Ray Levy was the owner of ABS, a viatical settlement brokerage company that raised funds for the purchase of viatical settlements, that generated approximately six million ($6M) of investors funds each month.

12. In June 1999, Jeffery Paine, Esquire, escrow agent for ABS, admitted that he merely rubber-stamped written representations from Financial Federated that insurance policies had been purchased and actual medical overviews conducted and released money held in escrow.

13. In August 1999, FBI investigations revealed that approximately 90 percent of money obtained from investors were used for the purchase of personal benefits and the purchase of real estate; and that lulling letters were sent to insurance agents, attorneys, and viatical investors.

    FEDERAL GRAND JURY and VIATICAL SALES ENTITIES

    
    

14. In September 2000, the Federal Grand Jury, Southern District of Florida, West Palm Beach Division, returned a True Bill Indictment.

15. The indictment introductory allegation states:

    
    

    At all times relevant and material to this indictment:

    
    

    1. Viatical settlements are the purchase of life insurance policies or their benefits at a discounted rate from a terminally ill person. The beneficial interest in the insurance policies purchase is sold or reassigned to an investor. A viatical investor receives the full benefits when the ill person dies.

Count 9.

From at least as early February, 1996, Viatical Asset Management, Asset Base Management, and later ABS operated as viatical settlement brokerage companies engaged in the business of locating investors who would purchase interests in viatical settlements. ABS obtained investors' funds through a network of independent insurance agents and financial consultants.

Count 10.

In connection with its viatical settlement brokerage business ABS used one or more participation disclosure documents that described the viatical settlement program it was offering for sale to investors.

OBJECT OF THE SCHEME AND ARTIFICE TO DEFRAUD

1. The object of the scheme and artifice to defraud was that defendants, together with others known and unknown to the Grand Jury, would unlawfully enrich themselves by knowingly and willfully making false and fraudulent representations and promises, and . . . concealing material facts from prospective investors, inducing them to send personal checks, bank checks, wire transfers or money orders to Financial Federated, Viatical Asset Management, Asset Base Management, American Benefits Services, Inc, and the escrow

   agent. . .

   MANNER & MEANS OF EXECUTING THE SCHEME TO DEFRAUD

   
   

2. "Under false and fraudulent pretenses defendants, FREDRICK C. BRANDAU, and MARY ANNE BILLINGHURST, together with other persons . . . participated in recruiting insurance agents to solicit investors in viaticated insurance policies . . ."

   
   

3. (a) . . . investor funds obtained by American Benefits Services . . . would be used to purchase viaticated insurance benefits;

   
   

   (b). . . investors was guaranteed a 42% rate of return within 36 months on his or her investment if the insured party died.

   
   

4. (a) While over $115 million in investors funds were transferred to Financial Federated for the primary purpose of purchasing insurance policies, less then $6 million was actually used to purchase policies . . . the vast majority of such monies was used to fun commissions for ABS and Financial Federated employees, and to purchase real and personal property around the United States that had nothing to do with viatical business.

(f) the defendants knew that the irrevocable assignment of trust benefits was not a "guaranteed receivable from the insurance company." The defendants knew that 90% of the investors funds had been used to buy real and personal property, and not insurance policies. Accordingly, the defendants knew that the vast majority of the assigned "trust benefits" were worthless, and not a "guaranteed receivable" since most investors had no underlying insurance policy securing their investment.

OVERT ACTS

1. (t) In or about June 1998 . . . FREDRICK

   C. BRANDAU, and MARY ANN BILLINGHURST attended a meeting with numerous insurance agents for the purpose of promoting the activities of FINANCIAL FEDERATED. (Respondent's Exhibit "C")

   1. James Robert Stiffler, at all times pertinent and material hereto, was licensed in Florida as a life insurance agent, therefore authorized by Section 626.992(4), Florida Statutes, to perform the functions of a viatical settlement agent.

   2. At all times pertinent and material hereto, James Robert Stiffler, d/b/a/ "James Financial Inc.," worked for ABS through U.S. Investors Group and Seniors Financial Resources.

   3. At all times pertinent and material hereto, Rafael Levy, a/k/a Ray Levy, was the principal of ABS.

   4. Fred Brandau, convicted on 42 counts of fraud in United States District Court and awaiting sentencing, was the head of Financial Federated. ABS sales agents would procure investors to provide money to Financial Federated.

   5. Financial Federated provided the viaticals to ABS, which were in turn sold by Respondent to Frank Galasso.

   6. Respondent, in May of 1999, solicited and sold a viatical settlement agreement to Frank Galasso for Mrs. Galasso's IRA. During solicitation and sale Respondent represented and made untrue statements of material fact to Frank Galasso that the viatical were "secure," "had no risk," and "was safe."

   7. Respondent, in October 1998, gave to Frank Galasso literature provided by ABS containing statements and assertions, which were untrue, deceptive, and misleading.

   8. On June 11, 1999, Respondent solicited and sold a viatical settlement purchase agreement to Frank Galasso for $25,000. During

      the solicitation and sale Respondent represented and made the following untrue statements of material fact: (a) that Frank Galasso would receive his principal back when the viator died; (b) that if the viator did not die within 36 months, Frank Galasso would be able to get his principal back; (c) that before expiration of one year from the purchase date, Frank Galasso would be able to rescind the purchase agreement, retain monthly interest paid, and get full refund of his principal; (d) that the investment was safe, and had no risk and until the viatical had been purchased he could receive his money back; and (e) that the $25,000.00 purchase price would go to an attorney, in trust, to be used to purchase a viatical.

   9. Respondent, on two separate occasions during the sales of viatical purchases agreements, presented literature provided by ABS to Mr. Galasso containing written assertions, to wit: (a) an investment with a "fixed 42 percent return"; (b) "Guaranteed"; (c) "no risk investment"; and (d) the principal is "safe."

   10. Respondent's defense that Frank Galasso was an experienced investor and therefore could not be persuaded into an investment he did not want is without merit.

   11. Respondent's defense that Frank Galasso's reliance upon ABS printed literature absolved him from liability is without merit.

   12. Respondent's defense that Frank Galasso purchased two viatical agreements based upon the representations made in the disclosure documents provided by ABS and presented by Respondent to Mr. Galasso is without merit.

   13. Respondent's defense that his inquiries and phone calls to the Department of Insurance resulted in no negative information concerning ABS is without merit.

   14. Respondent's defense that once the Department of Insurance became aware of problems with the business practices of ABS it had a duty to communicate that information to licensed agents, such as Respondent, is without merit.

       CONCLUSIONS OF LAW

       
       

   15. The Division of Administrative Hearings has jurisdiction over the parties to and the subject matter of this proceeding. Sections 120.57 and 120.569, and Chapter 626, Florida Statutes.

   16. The standard of proof required to discipline an insurance licensee is that of clear and convincing evidence. Ferris v.

       Turlington, 510 So. 2d 292 (Fla. 1987); quoting Reid v. Florida Real Estate Commission, 188 So. 2d 846, 851 (Fla. 2d DCA 1966);

       "The power to revoke a license should be exercised with no less careful circumspection than the original granting of it. And the penal sanctions should be directed only toward those who by their conduct have forfeited their right to the privilege, and then only upon clear and convincing proof of substantial causes justifying the forfeiture."

   17. Section 626.611, Florida Statutes, provides: The Department shall deny . . . suspend, revoke

       . . . the license . . . if it finds that . . .

       any one or more of the following applicable grounds exist:

       
       

       1. Lack of one or more of the qualifications for the license or appointment as specified in this code.

          * * *

          
          

          1. Demonstrated lack of fitness or trustworthiness to engage in the business of insurance.

             
             

          2. Demonstrated lack of reasonably adequate knowledge and technical competence to engage in the transactions authorized by the license or appointment.

          
          

   18. As a licensed insurance agent Respondent is required to know the contents and appropriate applications of the Florida Statutes governing the business conduct of licensed insurance agents. Accordingly, Respondent's assertion that the Department of Insurance had a duty to notify Respondent and other insurance agents regarding ABS, Respondent's upline source, does not obviate his individual violation of Section 626.611(1), (7) and (8), Florida Statutes.

   19. Section 626.99275(2), (b) and (c), Florida Statutes,1 provides,

       It is unlawful for any person:

       
       

       (2) In the solicitation or sale of a viatical settlement purchase agreement:

       
       

       1. To obtain money or property by means of an untrue statement of a material fact or by omission to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; or

          
          

       2. To engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon a person.

   20. During June 11, 1999, solicitation and sale of the

       
       

       $25,000.00 viatical purchase settlement agreement to Mr. Galasso, Respondent made the following untrue statements of material fact:

       1. "the investment in the viatica was secured,"

       2. investment in viatical had "no risk," and

       3. investment in viatical was "safe."

       
       

   21. Respondent made the additional untrue statements that Mr. Galasso would be able to rescind the purchase agreement and get a return of principal:

       1. Mr. Galasso would receive his principal back when the viator died,

          
          

       2. if viator did not die within 36 months, Mr. Galasso would be able to get his principal back,

          
          

       3. after one year Mr. Galasso would be able to rescind the purchase agreement, keep any and all interest paid, and get his principal back.

          
          

       4. that the $25,000.00 purchase price would go to an attorney, trustee, who would assure that the money was used to purchase viaticals.

       
       

       In so doing, Respondent violated Section 626.99275(2)(b) and (c), Florida Statutes.

   22. Section 626.99277(6), Florida Statutes, provides:

       
       

       A person may not represent that the investment in a viatical settlement purchase agreement is "guaranteed," that the principal is "safe," or that the investment is free of risk.

       
       

   23. Respondent, during his June 11, 1999, oral presentation and in the ABS printed materials, given to Mr. Galasso, made assertions that the investment in the viatical was safe and had no

       risk. In so doing Respondent violated Section 626.99277(6), Florida Statutes.

   24. Section 626.9541(1)(b), Florida Statutes, provides:

       
       

       1. The following are defined as unfair methods of competition and unfair or deceptive acts or practices:

          
          

          (b) Knowingly making, publishing, dissemination, circulating, or placing before the public, or causing, directly or indirectly, to be made, published, disseminated, circulated, or placed before the public:

          
          

          1. In a newspaper, magazine, or other publication,

             
             

          2. In the form of a notice, circular, pamphlet, letter or poster,

             
             

          3. Over any radio or television station, or

             
             

          4. In any other way, an advertisement, announcement, or statement containing any assertion, representation, or statement with respect to the business of insurance, which is untrue, deceptive, or misleading.

          
          

   25. Section 626.99235(1), Florida Statutes, provides:

       
       

       No person shall misrepresent the nature of the return or duration of time to obtain the return of any investment related to one or more viatical settlements sold by a viatical settlement provider or related provider trust.

       
       

   26. Respondent, distributed to Mr.Galasso in October 1998, during solicitation, and again in June 1999, at the sale of the viatical agreement, materials prepared by ABS in the form of brochures, flyers, and information sheets, containing untrue, deceptive, and misleading statements. Included in the distribution were assertions that viatical financial settlement would return 42

       percent Fixed Return. In doing so, Respondent twice violated Section 626.9514(1)(b) and Section 626.99235(1), Florida Statutes. PENALTY

   27. Section 626.21, (2) and (6) Florida Statutes, authorizes the discretionary suspension, revocation or refusal of renewal the license of an agent for:

       (2) 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.

       
       

       (6) 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 X 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.

       
       

   28. Rule 4-231.090(2), Florida Administrative Code, provides a range of penalty from 90-days' suspension to 180-days' suspension for violations Sections 626.9541(b) and 626.99275(2)(b), Florida Statutes.

   29. Rule 4-231.160, Florida Administrative Code, provides a series of factors to be considered either in mitigation or aggravation.

   30. There were aggravating factors: (a) Degree of injury to victim: $25,000.00 loss of principal; and (b) Age and capacity of victim: Mr. Galasso is an educated, retiree investor with years of actual insurance experience as a casualty agent.

   31. There were mitigating factors: (a) Loss to Respondent:

       
       

       $800.00 commission; (b) Motive of Respondent: Lack of evidence that Mr. Stiffler had knowledge of the fraudulent activities of individual owners of ABS and other upline companies in their fraudulent scheme; (c) Mr. Galasso received $6,984.16 in monthly interest payments on the $25,000 viatical purchase agreement; and

       1. though Respondent is personally liable, he, like other Florida licensed insurance agents selling viatical settlement agreement were recruited with intended misuse by ABS and Financial Federated in their scheme to defraud viatical investors.

   32. Personal accountability for the violations of several sections of the Florida Statutes provides the basis for Respondent's penalty. Under Chapter 626, Florida Statutes, specific acts that violate one section also violate several other sections thereof. Considering the totality of circumstances involved in this matter with appropriate weight to each aggravating and mitigating factors present, the appropriate penalty for Respondent's violations is the suspension of his license as an insurance agent in the state for 91 days.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that the agency enter its final order finding Respondent, James Robert Stiffler, guilty of violations of Sections 626.611(1),(7) and (8); 626.99275(2)(b) and (c); 626.99277(6);

626.9541(1)(b); 626.99235(1), and 626.621.(2) and (6) Florida

Statutes, and that Respondent, James Robert Stiffler's, license as an insurance agent in this State be suspended for a period of (91)

days.

DONE AND ENTERED this 8th day of November, 2000, in

Tallahassee, Leon County, Florida.

FRED L. BUCKINE

Administrative Law Judge

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-3060

(850) 488-9675 SUNCOM 278-9675

Fax Filing (850) 921-6847 www.doah.state.fl.us

Filed with the Clerk of the Division of Administrative Hearings this 8th day of November, 2000.

ENDNOTE

1/ Florida Statute 626.99275(2)(b) and (c) became effective

May 26, 1999; therefore, its application is directed to only the June 1999 sale to Mr. Galasso by Respondent.

COPIES FURNISHED:

Robert Prentiss, Esquire Department of Insurance Division of Legal Services 612 Larson Building

200 East Gaines Street Tallahassee, Florida 32399-0300

James Robert Stiffler

202 18th Avenue

Indian Rocks Beach, Florida 33785

Daniel Y. Sumner, General Counsel Department of Insurance

The Capitol, Lower Level 26 Tallahassee, Florida 32399-0307

Honorable Bill Nelson

State Treasurer and Insurance Commissioner Department of Insurance

The Capitol, Plaza Level 02 Tallahassee, Florida 32399-0300

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within 15 days from the date of this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the Final Order in this case.

Docket for Case No: 00-003242PL

Orders for Case No: 00-003242PL