STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL SERVICES, f/k/a DEPARTMENT OF INSURANCE,

Petitioner,

vs.

STUART DANIEL GOLDFARB,

Respondent.

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) Case No. 02-4579PL

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RECOMMENDED ORDER

Notice was provided, and on January 30, 2003, a formal hearing was held in this case. The authority for conducting the hearing is set forth in Sections 120.569 and 120.57(1), Florida Statutes. The hearing was conducted by Fred L. Buckine, Administrative Law Judge. The hearing location was

2002 Ringling Boulevard, Sarasota County Courthouse, Sarasota, Florida.

APPEARANCES

For Petitioner: James A. Bossart, Esquire

Department of Financial Services

200 East Gaines Street, Room 612 Tallahassee, Florida 32399-0333

For Respondent: Jack Windt, Esquire

2389 Ringling Boulevard, Suite A Sarasota, Florida 34237

STATEMENT OF THE ISSUE

The issue in this case is whether Respondent's, Stuart Daniel Goldfarb's, a licensed agent, license should be disciplined because he knowingly made untrue statements of material facts to induce Mr. and Mr. Devries to purchase certain investment instruments; the charges are that Respondent, in his solicitations, negotiations and presentations to Mr. and

Mrs. Devries, stated that the offered investment instruments, "guaranteed 11% annual return the first year, and they were insured by both the Federal Deposit Insurance Corporation and Great American Insurance Company, through a financial guarantee bond," for the purpose of inducing Mr. and Mrs. Devries to purchase the investment instruments. In reliance thereon,

Mr. and Mrs. Devries did purchase the offered investment instruments and, thereafter, suffered the loss of their investment principle. If proven, whether Respondent's conduct is in violation Sections 626.611(7), 626.611(9), 626.611(13),

626.621(2), 626.621(3), 626.621(6)(g), and 626.9541(1)(e)1,

Florida Statutes, and, if so, what are appropriate penalties under Sections 626.611, 626.621, 626.681, 626.691, and 626.9521,

Florida Statutes.

PRELIMINARY STATEMENT

On March 20, 2002, Petitioner, the Department of Financial Services f/k/a Department of Insurance (Department), filed an

Administrative Complaint against Respondent. On April 8, 2002, the Department referred Respondent's request for an administrative hearing to the Division of Administrative Hearings (DOAH), and this cause was assigned DOAH Case

No. 02-1434PL. The one-count Administrative Complaint alleged that Respondent violated six separate provisions of the Florida Insurance Code, Sections 626.611(7), 626.611(9), 626.611(13),

626.621(2), 626.621(3), and 626.621(6), Florida Statutes.

On July 22, 2002, the Department filed a Motion to Relinquish Jurisdiction, and by order dated July 24, 2002, DOAH relinquished jurisdiction to the Department, thereby closing DOAH Case No. 02-1434PL.

The parties were unable to resolve their differences, and on November 22, 2002, the Department filed a Motion to Reassume Jurisdiction and Re-Set Final Hearing. By order dated

November 27, 2002, the Motion was granted, and the case was re- opened as DOAH Case No. 02-4579PL. The final hearing was held as scheduled on January 30, 2003.

At the final hearing, the Department presented the testimony of Mr. Donald Devries and Mrs. Helen Devries and submitted nine exhibits, which were accepted into evidence without objection. Respondent testified on his own behalf and submitted four exhibits, which were accepted into evidence without objection.

The Transcript was filed on February 14, 2003. The parties' request for more than ten days after filing of the transcript to submit their proposed recommended orders was granted thereby waiving the 30-day requirement for this Recommended Order. See Rule 28-106.216, Florida Administrative Code. Petitioner filed its Proposed Recommended Orders on February 28, 2003. Respondent filed its Proposed Recommended Order on March 6, 2003. Both parties' proposals have been considered in the preparation of this Recommended Order.

FINDINGS OF FACT

1. Petitioner is the state agency responsible for regulating and licensing the sale of insurance in Florida, in accordance with the provisions of Chapter 626, Florida Statues.

2. Respondent (Mr. Goldfarb) is currently eligible for licensure and has been licensed for 15 years in this state as a health insurance agent, life insurance agent, life and health insurance agent, and life, including variable annuity agent, and was so licensed at all times material and relevant to these proceedings.

3. Mr. Devries is married and, after 45 years as a building contractor, suffered a stroke in 1992 and retired. He has no college degree, having gone into his trade as a carpenter directly from high school. His net worth, including his home, as of March 24, 1999, is approximately $600,000. His yearly

   income consists of social security and low interest-bearing bonds and mutual funds. In 1992, seven years before the incident that is the subject of this proceeding, Mr. Devries invested $320,000 on an unsecured promissory note with his brother-in-law, Bob Rosscamp, a building contractor, for a residential home building project. From this transaction,

   Mr. Devries received monthly payment of $3,000 for a period of six years at which time the note was paid in full. He has little experience in investments and cannot be considered as knowledgeable or sophisticated in stock or share purchases.

4. In 1997, Mr. Goldfarb attended a seminar in Clearwater, Florida. At that seminar, a detailed presentation was given attendees regarding the sale of stock certificates of the Palm Beach Investment Group, Incorporated (hereinafter PBIG). After hearing about this financial opportunity and the potential for sales commission, Mr. Goldfarb believed PBIG's investment opportunity to be a "very interesting" project. Included in the information provided him at the seminar, the point was made, or as he understood the presentation, that "PBIG was a Regulation D entity therefore one does not have to be licensed to sell the offering." This statement Mr. Goldfarb accepted without independent verification. By his admission, Mr. Goldfarb "relied on the brochures, seminar conference, Regulation D and checking out the insurance companies, that PBIG was covered."

   It is clear that Mr. Goldfarb did not confuse the sale of PBIG's certificate of stock shares investment as an insurance product for which he was licensed to sell.

5. His explanation of his obligations under his insurance licensure to sell PBIG certificate of stock shares was "to the best of my knowledge it’s a privately held corporation that can sell, I guess, shares of stock, as an investment. And the fact it [sic] does not fit into the licensed investment area. So it's got an exemption."

6. Having sold the Devries health insurance coverage in 1997 and armed with a very interesting new product plus and the assurance of earning a sale commission, Mr. Goldfarb sought out and contacted Mr. and Mrs. Devries in March 1999, for the purpose of offering to them an opportunity to "make a good investment in the Palm Beach Investment Group." There is no evidence that Mr. Goldfarb, at this or any other time in the process, considered the PBIG product as "insurance," as that term is defined by the Florida Insurance Code. Nor is there any evidence that Mr. Goldfarb considered the need to be licensed to engage in the sale of PBIG's certificate of stock subscriptions. In fact, Mr. Goldfarb admitted that, without verification, he concluded PBIG was "exempt" from regulatory and licensing requirements and by implication the insurance license he held.

7. Mr. Goldfarb came to the home of the Devries in March of 1999, with literature regarding PBIG. The literature included a brochure stating, among other things, that the "investment is safe and low risk as it gets. PBIG is FDIC Insured for the full ($5,000,000) and is insured by Great American Insurance Company through an Institutional Financial Guarantee Bond for $5,000,000. If that’s not enough PBIG capitalization equals $19 Million."

8. In his oral presentation Mr. Goldfarb informed the Devries that PBIG would invest in short-term, high yield certificates of deposits, thereby enabling PBIG to pay its investors 11 percent interest on their investment and return to investors their principal investment within one year from the date of PBIG's high yield certificates of deposit investments. Mr. Goldfarb very clearly informed, advised and assured the Devries that PBIG's investment was insured by the Federal Deposit Insurance Corporation (FDIC) and, therefore, no risk to their investment was involved. The Devries, believing the statements made by Mr. Goldfarb and relying, in part, upon the FDIC insurance literature he provided, invested $100,000 with Mr. Goldfarb for PBIG.

9. The Devries' investment was made with clear expectation of the promised 11 percent return on their $100,000 investment plus the return of their $100,000 principal within one year from

   the date of their investment. The representations and assurances given by Mr. Goldfarb that PBIG was insured by the FDIC were decisive for the Devries' election, and, accordingly, they limited their investment to $100,000 with PBIG. The Devries knew from past experiences that the FDIC guaranteed individual bank deposits up to $100,000. The Devries gave to Mr. Goldfarb their personal check for $100,000, which he promptly remitted to PBIG and received his sales commission.

10. At no time during his presentation did Mr. Goldfarb inform the Devries that there was a risk that they could lose all their $100,000 investment. Had they been so informed and aware of the possibility of a total loss of $100,000 of their savings, the Devries would not have invested their funds. Having earlier sold the Devries health insurance, thereby gaining some insight into the extent of their total worth, their limited knowledge of investment/insurance, and their age and financial circumstances as retirees, Goldfarb knew or should have known the Devries' need to place their funds only in a safe, low risk investment.

11. A few weeks after receiving the check from the Devries, Mr. Goldfarb returned to their home, sat down and, after a brief discussion, delivered a document to the Devries. After his brief explanation but without a detailed study and review of the document, the Devries, relying and trusting in his

    representations, signed the document given them and placed it in a drawer with their other personal papers. The document given to them by Mr. Goldfarb and signed by the Devries was entitled PBIG stock subscription agreement, which clearly states the Devries were purchasing stock shares of PBIG. The PBIG agreement is not an application to purchase a "guaranteed certificate of deposit" as Mr. Goldfarb had earlier specifically and intentionally led the Devries to believe. No reference is made in the document to the promised certificate of deposit purchase or the promised guaranteed return of the $100,000 investment after one year. Mr. Goldfarb admitted that he did not explain the specifics of the stock subscription agreement to the Devries nor offer an explanation for the change from the promised "certificate of deposit" to "stock certificate." The stock certificate does not document that the Devries owned any certificate of deposit or any share in a certificate of deposit. Mr. Goldfarb admitted that he did not know nor did he make any effort to find out how the Devries' funds were to be utilized by PBIG. Mr. Goldfarb knew that the Devries trusted and depended upon him for information and advice, and it is convincingly clear that Mr. Goldfarb's failure to explain the stock subscription document was intentional and willful.

12. From the totality of circumstances and evidence relevant to and material to this transaction, it is convincingly

    clear that throughout this entire process Mr. Goldfarb was not acting as a licensed insurance salesperson "selling an insurance product." The indisputable fact is that Mr. Goldfarb offered advice to the Devries in the particular field of PBIG investments stock sale. Therefore, Mr. Goldfarb was knowingly acting as a "financial advisor" for the selling of stock investments to Mr. and Mrs. Devries unconnected with and independent of any insurance under the Florida Insurance Code.

    He intended that the Devries act on his representations regarding PBIG and invest their money; in reliance on his representations regarding PBIG, they invested their money.

13. Acting as the Devries's "financial advisor,"

    
    

    Mr. Goldfarb acknowledged that he did not inform the Devries of any risk associated with their investment even though the stock subscription agreement document clearly states that the investment(s) should be considered "high risk." Mr. Goldfarb was aware of the "high risk" warning but failed to bring it to the attention of the Devries. In fact, Mr. Goldfarb represented to the Devries the opposite, that there was little, if any, risk involved in the PBIG investment. This representation was made to the Devries by Mr. Goldfarb without his having made any independent effort to ascertain from PBIG or its representatives just how the Devries' money was to be invested, and he did not

    inform them that he did not know how their moneys were to be utilized by PBIG.

14. Mr. Goldfarb's overall conduct during his presentations and transactions with the Devries, absent the earlier 1997 sale of health insurance, clearly demonstrated fraudulent, deceitful and dishonest behavior on his behalf. At all times throughout this process, Mr. Goldfarb knew his representations made to the Devries concerning the PBIG stock investment shares were either false or he made representations without any knowledge of their truth of falsity. As a result of their reliance on the false financial representations made by their financial advisor, Mr. Goldfarb, regarding the PBIG investment, the Devries invested $100,000 of their savings and suffered a large financial loss.

15. The PBIG stock certificates offered for sale and sold by Mr. Goldfarb to Mr. and Mrs. Devries were securities as defined by Section 517.021(19), Florida Statutes, and are required to be registered pursuant to Section 517.07, Florida Statutes. As such, the offer for sale and the sale by

    Mr. Goldfarb of those unregistered securities is in violation of Sections 517.02 and 517.07, Florida Statutes.

16. On November 19, 1999, PBIG and the Department of Banking entered into a Settlement Stipulation and Final Order whereby PBIG admitted violation of Sections 517.07 and 517.12,

    Florida Statutes, by offering for sale or selling unregistered securities with unregistered securities dealers to sell such

    securities.

    
    

    CONCLUSIONS OF LAW

    
    

17. The Division of Administrative Hearings has jurisdiction over the subject matter and the parties in this proceeding. Section 120.57(1), Florida Statutes.

18. Petitioner has the burden of proof in this proceeding and must show by clear and convincing evidence that Respondent committed the acts alleged in the Administrative Complaint and the reasonableness of any proposed penalty. Ferris v. Turlington, 510 So. 2d 292 (Fla. 1987).

19. Petitioner concedes, and the undersigned agrees, that the alleged conduct does not involve insurance transactions as defined under the Florida Insurance Code; Respondent held no license of any kind as an agent for PBIG and, therefore, cannot be considered transactions under Respondent's insurance license. Therefore, no violation of any other enumerated statutes in the Administrative Complaint, other than violation of Section 626.611(7), Florida Statutes, has been proven by clear and convincing evidence to have occurred. See Harnett v. Department of Insurance, 406 So. 2d 1180 (Fla. 1st DCA 1981).

20. Revocation of license proceedings are penal in nature, State ex rel. Vining v. Florida Real Estate Commission, 281 So.

    2d 487 (Fla. 1973), and must be construed strictly in favor of the one against whom the penalty would be imposed. Munch v.

    Department of Professional Regulation, Division of Real Estate,

    
    

    592 So. 2d 1136 (Fla. 1st DCA 1992); Fleischman v. Department of Professional Regulation, 441 So. 2d 1121 (Fla. 3rd DCA 1983). Petitioner has the burden of proving by clear and convincing evidence each of the allegations in the Administrative Complaint. Department of Banking and Finance v. Osborne Stern & Co., 670 So. 2d 932 (Fla. 1996); Ferris v. Turlington, 510 So. 2d 292 (Fla. 1987).

21. The following provisions of Chapter 626, Florida Statutes (Supp. 1998), are relevant. The provisions provide as follows, in pertinent part:

    626.611 Grounds for compulsory refusal, suspension, or revocation of agent's, title agency's, solicitor's, adjuster's, customer representative's, service representative's, or managing general agent's, license or appointment.--The department shall deny an application for, suspend, revoke, or refuse to renew or continue the license or appointment of any applicant, agent, title agency, solicitor, adjuster, customer representative, service representative, or managing general agent, and it shall suspend or revoke the eligibility to hold a license or appointment of any such person, if it finds that as to the applicant, licensee, or appointee any one or more of the following applicable grounds exist:

    
    

    * * *

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

    
    

22. Respondent's conduct in its entirety indicates a lack of trustworthiness to sell insurance and is therefore a violation of Section 626.611(7), Florida Statutes (Supp. 1998).

23. The evidence is clear and convincing that Respondent was acting as a financial investment advisor to the Devries. His advising them to invest in the PBIG stock certificates violated their trust. The Devries were not knowledgeable or sophisticated investors; their only concern was augmenting their small income. They desired to purchase and actually thought they were purchasing a very low-risk-investment bank certificate of deposit.

24. Respondent knew or certainly should have known that the Devries were only interested in a safe and secure investment for their life's savings. The disclosure statement provided but not explained in detail, by Respondent makes it very clear that the investment was an inherently risky proposition and should only be undertaken by individuals who met specific and high financial suitability criteria. Although the Devries had an obligation to read the information given to them by their financial advisor, Respondent convincingly led them to believe that their investment was fully insured and was guaranteed by the FDIC and, in fact, that they could not lose their principal

    investment of $100,000. The Devries relied on the representations made to them by Respondent. In fact, their investment was never insured, and Respondent was aware that their investment was not insured by the FDIC nor guaranteed by any other financial entity. Respondent failed to inform the Devries of these known facts.

25. Respondent, by his conduct, has demonstrated a convincing lack of fitness and trustworthiness in the sale of a financial product. Respondent knew his representations concerning the PBIG stock certificate share purchase were either false, or made without any knowledge of their truth or falsity. He intended that the Devries, on his financial advice and oral representations, invest their money in the PBIG product. As a result, the Devries have suffered great financial loss of savings. Respondent knew his solicitation presentations and ultimate sale of the PBIG stock certificate to the Devries was not an appropriate investment for retired individuals of limited means, who were seeking safety and income. This knowledge and conduct clearly demonstrates a lack of fitness and trustworthiness to sell insurance products. Therefore, Respondent has violated Section 626.611(7), Florida Statutes. See Department of Insurance v. Hoyt, DOAH Case No. 02-2370PL (October 25, 2002); see also Department of Insurance v. Robert Darren Carlson, DOAH Case No. 95-4947 (March 21, 1996).

26. Rule 4-231.030(6), Florida Administrative Code, provides that "'Penalty per count' refers to the penalty to be assessed for a single count which shall be equal to the highest stated penalty in the count for all violations proven." Rule 4- 231.160, Florida Administrative Code, sets forth aggravating and mitigating factors to be considered in determining penalties. Violations of Section 626.611(7), Florida Statutes, are punishable with six months' suspension per violation. Rule 4- 231.080, Florida Administrative Code.

27. In this case, the circumstances are aggravated by the large sum of their life savings lost by the Devries. They now have a very limited opportunity to make up the loss. Furthermore, Respondent intentionally and knowingly made no attempt to disclose, much less explain, any of the risks of the investments to the Devries, including the fact that their investment was not insured. In mitigation, Respondent has no prior record of disciplinary action against his licenses.

RECOMMENDATION

Based on the forgoing Findings of Fact and Conclusions of Law, it is

RECOMMENDED as follows:

1. Respondent, Stuart Daniel Goldfarb, be found guilty of violating Section 626.611(7), Florida Statutes.

2. Pursuant to Rule 4-231.080, Florida Administrative Code, Respondent's licenses and eligibility for licensure be SUSPENDED for a period of nine months, followed by a two-year period of probation upon such reasonable conditions as the Department may require.

DONE AND ENTERED this 21st day of March, 2003, 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 21st day of March, 2003.

COPIES FURNISHED:

James A. Bossart, Esquire Department of Financial Services

200 East Gaines Street, Room 612 Tallahassee, Florida 32399-0333

Jack Windt, Esquire 2389 Ringling Boulevard Suite A

Sarasota, Florida 34237

Honorable Tom Gallagher Chief Financial Officer

Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300

Mark Casteel, General Counsel Department of Financial Services The Capitol, Plaza Level 11 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: 02-004579PL

Orders for Case No: 02-004579PL