The Issue The primary issue in this proceeding is whether Respondent committed the alleged multiple violations of Chapter 626 F.S. through misrepresentation and fraud relating to the surrender and issuance of certain policies to Melvin and Clara Smith. The ancillary issue raised by Respondent's motion to dismiss is whether this proceeding, filed approximately ten years after the questioned events, is barred by a statute of limitations or laches, or is a violation of due process or right to a speedy trial.
Findings Of Fact Prior to hearing, in a Prehearing Statement filed on April 21, 1987, Bonafide admitted the following allegations or the amended administrative complaint: You, RICHARD ANTHONY BONAFIDE, are currently eligible for licensure and licensed in this state as an Ordinary- Variable Annuity, including Health Agent and as an Ordinary Life, including Health Agent. At all times pertinent to the dates and occurrences referred to in this Administrative Complaint you, RICHARD ANTHONY BONAFIDE, were eligible for licensure and licensed as an insurance agent in this state. You, RICHARD ANTHONY BONAFIDE, were licensed in this state to represent Jefferson Standard Life Insurance Company (hereinafter referred to as "Jefferson Standard") from January 1, 1972 through December 31, 1978. You, RICHARD ANTHONY BONAFIDE, were licensed in this state to represent Jefferson National Life Insurance Company (hereinafter referred to as "Jefferson National") from August 31, 1976 through June 23, 1978. References in this Administrative Complaint to you, RICHARD ANTHONY BONAFIDE, includes persons acting under your direct supervision and control. Sometime during October 1976 Melton H. Smith of Orlando, Florida contacted the Orlando office of Jefferson Standard concerning two life insurance policies issued to Melton H. Smith and his wife, Clara B. Smith. At that time Jefferson Standard had in force policy number 945382 insuring the life of Melton H. Smith which was issued in 1947; and policy number 1144867 insuring the life of Clara B. Smith which was issued in 1951. Melvin Smith's purpose in contacting Jefferson Standard was to determine the cash value of the two policies and to purchase paid-up life policies for himself and his wife with the accumulated funds. Bonafide was the Jefferson Standard regional agency manager. He went to the Smith's home and assisted them in getting the information they needed and in obtaining cash surrender checks for the two policies. Those checks were issued by Jefferson Standard on October 26, 1976, and were mailed to the regional agency office. On or about November 1, 1976, Bonafide visited the Smiths again. He had the checks: No. 419184 payable to Melton H. Smith in the amount of $8,608.22 and No. 419186 payable to Clara B. Smith in the amount of $5,208.73. He gave the Smiths the checks and took their two surrendered policies. In their discussions with Bonafide, the Smiths indicated their desire to have the funds utilized for paid up policies which would not require periodic premiums. Bonafide recommended that the couple go with Jefferson National life insurance rather than Jefferson Standard, as Jefferson Standard was in the process of merger with Pilot Life and rates were not available for the type of policy they were seeking. On the occasion of that same visit, Bonafide prepared two applications for Jefferson National life insurance for the Smiths, a $25,000.00 whole life policy for Melton Smith, and a $20,000.00 whole life policy for Clara Smith. The application forms signed by the Smiths clearly indicate an annual mode of premium payment and the amount of the premium: $1,061.00 for Melton Smith's policy, $592.20 for Clara Smith's policy. The application forms were filled out by Bonafide, who explained that the only way the policies could be written was in this manner, as it was difficult to come up with premium rates for a paid-up policy. Bonafide told the couple that he would handle the premium payments for paid up policies. The couple endorsed their two cash surrender checks and gave them to Bonafide. In return he gave them a check in the amount of $735.78, which he said represented the difference between the premiums for the paid up insurance and the cash surrender checks they turned over to him. The $735.78 check was written on Atlantic Bank of Orlando account No. 272-04-155-9, printed with "Richard Bonafide, 2699 Lee Road, Winter Park, Florida 32789". In his testimony at hearing, Melvin Smith stated that Bonafide had secured their trust with his very cordial and helpful manner. He had visited their home on several occasions in working with them to obtain the Jefferson Standard refunds. The Smith's two checks, totalling $13,816.95 were deposited in Bonafide's account No. 272-04-155-9 on November 2, 1976. Bonafide, alone, had the authority to draw on this account. It was not the account maintained by the Jefferson Standard regional office for the deposit of premiums nor was it the account maintained by the office for the payment of office expenses. The address printed on the checks and maintained on bank records was the address for the Jefferson Standard regional office. Bonafide claimed that the account was for his business as an insurance agent, that he used the account to make premium payments to the various companies he represented and for business expenses. He could also write checks to himself on that account. Copies of the checks and deposit slips are kept by the bank for seven years and have been destroyed. Copies of the signature card for the account and copies of monthly statements were available and were admitted into evidence at the hearing. Bonafide forwarded the Smiths' two applications to Jefferson National along with ten percent of the annual premium due on each policy, for a total of $165.32. A debit in this amount appears in the December 9, 1976 bank statement for account No. 272-04-155-9. It was customary, and in accordance with company policy, for the agent to retain his commission portion of the premium payment. Subsequently, Jefferson National issued two policies to the Smiths: No. 00278718, effective November 17, 1976, for Clara E. Smith; and No. 00278717, effective December 9, 1976, for Melton H. Smith. The policies were mailed to the agent, Bonafide, who in turn delivered them to the Smiths at their home. The policies, as delivered to the Smiths, included standard terms, copies of the signed application forms and policy specifications. Those specifications, in computer-generated type, establish an annual premium amount, and alternate schedule of premiums for annual semi-annual and quarterly payments. However, on both policies, at the bottom of the policy specifications page, is found this language, in typewritten form: *Premium schedule amended Premiums paid in advance as of 11-7-76 full term of contract. [Petitioner's exhibits No. 4 and No. 5] Bonafide explained carefully and in detail, the provisions of the policies to the Smiths. In particular in response to Melvin Smith's question, Bonafide explained the type- written notation regarding premiums. He said that the computers were not set up to handle a paid up full life policy and there was difficulty getting premium rates because this was an unusual occurrence. He assured the Smiths that they had paid up policies. The typewritten notation is not the sort of notation the home office would have added. For some reason that is not clear, Jefferson National sent two letters dated May 5, 1977 to the Smiths on each policy indicating that they understood the Smiths did not want their policies and including refund checks in the amounts of $106.10 and $59.22. The Smiths, upon receipt of the letter immediately called Bonafide. He assured them that the home office made an error and that he would get an explanation. A few days later the Smiths received a memo on a green Jefferson National Life Insurance memo form, purportedly from Robert Jackson, Underwriting Division, to Dick Bonafide. The memo explained the error and asked Bonafide to have the checks returned for cancellation. At the bottom of the memo was Bonafide's handwritten note to Melvin Smith asking that he return the checks in the furnished self-addressed, stamped envelope. Mr. Smith called Bonafide again and was told to put the checks in the envelope. He did this on May 17, 1977. Jefferson National's cash journal transaction register, virtually the only company records remaining of these policies, indicate that the entries made on May 5, 1977 were reversed in June 1977, and the policies were approved and issued. The memo received by the Smiths was neither signed nor generated by Robert Jackson. It does not reference policy numbers, a practice unheard of at the company, and it references a company division and section that never existed. The memo forms were available to company agents, such as Bonafide, in the field. The Smith's next and final contact with Bonafide was in November 1979 when he visited them and tried unsuccessfully to sell them some more life insurance. In October or November 1985, Mr. Smith's income status had changed and he was curious about the cash surrender value of the Jefferson National policies. If enough, he thought he might take the money and invest it elsewhere. He wrote to the company and the immediate response was that the policies had lapsed. Further correspondence and the investigation which led to this proceeding ensued. The Smiths also filed a civil suit, presumably still pending. Unknown and uninitiated by the Smiths, the company processed a change of address notice for them in October 1977. The address was changed from 1101 Powers Drive, Orlando, where they lived, to 100 Partridge Circle, Maitland, where Bonafide lived. All Company notices regarding the Smith's policies were sent to the 100 Partridge Circle address, including premium notices, late payment offers and lapse notices. Annual premiums on the policies were due in November and December, 1977, and were not paid. In due course, after a series of notices were sent and not answered, the polices were lapsed and dividend checks of $48.50 and $24.00 were issued to the Smiths and presumably sent to the Partridge Circle address. The checks were never cashed by anyone. When Jefferson National makes a policyholder address change, a notice of that change is also sent to the agent. It was not the company practice to send policyholder's notices to their agents' home addresses. Neither Jefferson standard nor Jefferson National Life Insurance Company records reveal policies for the Smiths other than the ones addressed above. In 1976, while employed by Jefferson Standard Life Insurance Company under a contract which prohibited the representation of other companies, Bonafide had contacts with or represented several other insurance companies. As agent, Bonafide would have received copies of lapse notices sent to his policyholders. Depending on various factors, including the amount of the business, he would have followed up with a contact to the policyholder. In Bonafide's view, in those days the $20,000 and $25,000 policies for the Smiths were "a sizable sale". [Tr-293]
Recommendation Based on the foregoing, it is hereby, RECOMMENDED: That Richard Anthony Bonafide be found guilty of violations of sections 626.561(1), 626.611(5), (7), (9), and (10), and 626.621(6) F.S. and that his licenses and eligibility for licensure as an insurance agent in this state be revoked. DONE and RECOMMENDED this 10th day of August, 1987 in Tallahassee, Florida. MARY CLARK Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 10th day of August, 1987. COPIES FURNISHED: Honorable William Gunter State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Don Dowdell, Esquire General Counsel Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, Florida 32399-0300 William W. Tharpe, Jr., Esquire 413-B Larson Building Tallahassee, Florida 32399-0300 James R. Lavigne, Esquire 541 South Orlando Avenue Maitland, Florida 32751
Findings Of Fact James Edward Snapp is licensed by the Department of Insurance as an Ordinary Life, including Disability Agent, Dental Agent and Disability Agent and was so licensed at all times in 1981 and 1982 in his dealings with Mrs. Mabel McCarthy and Mr. George Guertin. In July 1981 Respondent went to the apartment of Mabel McCarthy, a 79- year-old widow, and talked to her about insurance. His visit was unsolicited and Mrs. McCarthy initially told him she had adequate coverage with her Medicare, Medicaid and Blue Cross. Respondent discussed the issuance of a "gold" card which provided better coverage than she was presently receiving. They also discussed her $1,000 life insurance policy for which she had designated the Haven School in Miami as beneficiary. When she indicated she would also like to leave something to another school in Palm Beach County, Respondent suggested she cancel the $1,000 policy and take out two $5,000 policies and make each school beneficiary of one policy. Following Respondent's assertions to Mrs. McCarthy regarding her taking out different insurance policies, Mrs. McCarthy gave Respondent her check on 26 July 1981 in the amount of $1,100 made payable to Accident & Health Agency, the agent for whom Respondent worked. Mrs. McCarthy understood this to be the premium payment for the life insurance and hospitalization insurance policies. Respondent told Mrs. McCarthy the cash surrender value of her life insurance policy should be about $900. When she wrote Mutual of Omaha about the cash surrender value, she was advised it was nearer $700 and the company questioned her reasons for cancelling the policy. This aroused Mrs. McCarthy's suspicions and she called the Insurance Commissioner's branch office to inquire about Respondent. Up until this time she had full confidence in Respondent. In the application for health insurance for Mrs. McCarthy which Respondent subsequently submitted 12 July 1981 to American Sun Life Insurance Company, he checked the "no" square to the question "Is the insurance applied for intended to replace any insurance presently in force?" knowing he had suggested to Mrs. McCarthy this policy would replace her Blue Cross insurance policy. The total premium on these policies, one providing for medical expenses and the other providing for nursing home care, is $530. American Sun Life Insurance Company does not sell life insurance. On 28 July 1981 Respondent again visited Mrs. McCarthy, obtained her check in the amount of $380 made payable to Accident & Health Agency, and submitted an application to American Sun Life Insurance Company on behalf of Mrs. McCarthy which provides hospital and medical benefits. On this application he also checked the "no" square to the question about replacing existing insurance. The annual premium for this policy was $370. Mrs. McCarthy also gave Respondent a check in the amount of $500 payable to Accident & Health Agency for additional policies. Before this check had been cleared, Mrs. McCarthy received the first policies Respondent had sold her and realized they were no different from her prior coverage, no "gold" card was included and neither was a life insurance policy. Upon receipt of these policies on 11 August 1981 Mrs. McCarthy stopped payment on the $500 check and again called the Insurance Commissioner's office. When the Insurance Commissioner contacted American Sun Life Insurance Company with Mrs. McCarthy's complaint, they refunded $900 to Mrs. McCarthy for the policies they had issued. Those policies were for the maximum coverage Sun Life provides. The three policies issued by Orange State Life Insurance for various health care benefits were those applied for when the $500 check was written by Mrs. McCarthy and these policies were cancelled when payment was stopped on that check. The total premium for these policies was $449.99 plus a $26 policy fee. Respondent obtained the name of George Guertin as a potential client and called him for an appointment to discuss insurance. Upon arrival 18 January 1982 shortly after the phone call, Respondent looked at two policies Guertin showed him covering Medicare Supplemental payments on Guertin and his wife. These policies were issued by Tara Life Insurance Company. Respondent told Guertin that the agent who sold him these policies had charged top price and he could get these policies for him at a lower premium. The premium paid on the policy issued to George Guertin was $482 and the premium on the policy issued to Alma Guertin was $445. Respondent was not authorized to solicit policies for Tara. Guertin gave Respondent his check payable to J. Snapp in the amount of $540 to renew the two policies with Tara Life Insurance Company. Guertin also gave Respondent his life insurance policy issued on John Hancock Mutual Life Insurance Company to inquire about the cash surrender value. This policy was later returned to Guertin without change. Respondent's testimony that the $540 was for services he was to provide the Guertins in preparing Medicare claims and that the Guertins understood this at the time the check was signed, is not credible. George Guertin was born in Canada in 1903 but has lived in the United States for 65 years. Although he went to school in Canada through the eighth grade, he does not read English. George's brother Eme apparently lived with the Guertins and was disabled. Respondent offered to take Eme to the Veteran's Administration to get his disability pension increased. He was paid $250 for this service and for taking Eme to the VA on other occasions. Guertin testified that the signature on Exhibit 12 was not his signature and that on Exhibit 13 was not his wife's signature. Respondent testified that these "contracts" were signed by George Guertin and Alma Guertin in his presence. Regardless of the validity of the signatures, these "contracts" provide that compensation [of Respondent] shall be determined by mutual agreement. There was no mutuality of agreement that the $540 paid by Guertin to Respondent was for services to be rendered by Respondent in completing Medicare forms. When Guertin was advised by Tara Life Insurance Company that his policies were about to lapse for nonpayment of premiums, he realized Respondent had not renewed these policies as he was told Respondent would do, he complained to the Insurance Commissioner's office, and he sent premium payments to Tara. Respondent suffered injuries while serving in the Marine Corps in Korea. He was discharged with a 35 percent disability rating in 1955 and since that time he has been treated from time to time in VA facilities. He has had several heart attacks, five according to Respondent's testimony, and takes a wide variety of medication. In his testimony Respondent admitted that he only sold insurance and left the doing of the paperwork associated with these policies to the agency for whom he works. He does not keep records of his insurance transactions because he has a "real tough time" doing so. He leaves those chores to the agency.
The Issue Whether Respondent, Rosette Francesca Berban (Respondent), committed the violations alleged in the Administrative Complaint issued against her and, if so, what penalty should be imposed.
Findings Of Fact Petitioner is the state agency charged with the responsibility and authority to regulate insurance and insurance-related activities within the State of Florida. The licenses held by Respondent are included within the Petitioner’s authority. At all times material to the issues of this case, Respondent has been licensed as a life, health and variable annuity insurance agent, and as a life and health insurance agent (licensee). At all times material to the issues of this case, all of Respondent's acts or omission were in the course of her conducting insurance business as a licensee and agent for Penn Life-Senior Solutions, Lincoln Financial Group, or Aviva. Ezelle Smith is a female retiree, who resides in Sanford, Florida. At all times material to this case, Ms. Smith was a "senior consumer," as that term is used in the statutes. Ms. Smith was born in 1922 and makes her permanent residence in Florida. In November 2003, at age 80, Ms. Smith acquired a deferred annuity from Pennsylvania Life Insurance Company by paying a $50,000.00 premium. This annuity guaranteed Ms. Smith a certain monthly income for a certain period of time. Prior to January 25, 2008, Ms. Smith contacted Penn Life-Senior Solutions for the purpose of changing her beneficiary under the previously described annuity. On or about January 25, 2008, Respondent went to Ms. Smith's home purportedly to handle the change of beneficiary. At the time of Respondent's visit, Ms. Smith was 85 years of age. In discussions between Respondent and Ms. Smith, the latter opined that she would like more monthly income. Respondent sold Ms. Smith an equity indexed tax deferred annuity from Lincoln Financial Group (new annuity). The premium for the new annuity was funded, in part, by the Pennsylvania Life Insurance annuity. The total required to fund the new annuity was $56,497.97. In addition to the redeemed annuity, Ms. Smith was required to write a check in the amount of $10,000.00, for the difference in cost. Further, when the annuity was cashed in, Ms. Smith paid a surrender penalty of $3,607.43. It is found, Respondent did not fully explain the surrender penalty that would be incurred in the acquisition of the new annuity. Because Respondent did not make full disclosures regarding the new annuity, Ms. Smith did not understand the transaction and did not have a full accounting of the options available to her. Additionally, when Respondent explained the transaction to Respondent's daughters, she omitted pertinent information regarding the surrender penalty. Although the daughters knew their mother was seeking an increased monthly income, Respondent did not accurately explain the entire transaction. Ms. Smith's right to cancel the new annuity provided a 20-day window after the receipt of the policy within which it was possible to cancel the transaction. Respondent knew or should have known within the cancellation period that Ms. Smith was not agreeable to the transaction. Under the original annuity, Ms. Smith received a monthly income in the amount of $123.00. Under the new annuity, the monthly income was increased to $222.00. Mathematically, an 85-year-old woman would have to wait over three years to recover the amount surrendered when the original policy was cashed in. Although Respondent claimed the new annuity was superior to the original one, Ms. Smith lost the surrender amount, and $10,000.00 was then tied up in the new annuity. An annuity is not "more liquid" than cash. In summary, the new annuity did not afford sufficient benefits to overcome the loss of the surrender penalty and the loss of liquidity of the cash for the consumer. Respondent encouraged Ms. Smith to acquire an inappropriate investment, and thereby failed to protect the consumer's best financial interests. Mary Ann DeVita is a ?senior consumer,? who resides in DeBary, Florida, and is a citizen of the State of Florida. Ms. Devita was born in 1935. Prior to April of 2009, Ms. DeVita acquired two deferred variable annuities from John Hancock Life Insurance Company. The total invested in the annuities was well over $550,000.00. Ms. DeVita was unhappy with the performance of her investments and responded to an advertisement placed by Respondent's company. Ms. DeVita sought information as to how her retirement funds might be better invested to preserve the principle. Respondent visited Ms. DeVita in her home and explained options available regarding a new investment. Respondent proposed that Ms. DeVita invest in two equity indexed deferred annuities with Aviva that would be funded by the John Hancock annuities and Ms. DeVita's stock market account valued in the amount of $475,000.00. In furtherance of her proposal to Ms. DeVita, Respondent visited the home on several occasions. Each visit Respondent pitched the proposal. Respondent filled out the application for the proposed transaction and eventually Ms. DeVita signed the form. Ms. DeVita did not want the transaction to be completed until her children could review the paperwork and sign off on the deal. Respondent claimed she would consult with Ms. DeVita's family and that an additional signature would be needed to complete the transaction. In fact, no additional signatures were needed. Shortly after learning about the proposed transaction, Ms. DeVita's son was contacted by Bill Harrison (Ms. DeVita’s insurance agent). Mr. Harrison was concerned that by surrendering the John Hancock annuities, Ms. DeVita could potentially lose the death benefits that were valued at approximately $286,000.00. As a result of Mr. Harrison's intercession into the matter, Respondent was not able to complete her proposed transaction.
Recommendation It is recommended that the Department of Financial Services enter a final order finding Respondent guilty of the violations alleged in Counts I and II of the Administrative Complaint as set forth above, suspending her license for a period of 180 days, and imposing an administrative fine in the amount of $2,500.00. DONE AND ENTERED this 1st day of June, 2011, in Tallahassee, Leon County, Florida. S J. D. PARRISH Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 1st day of June, 2011. COPIES FURNISHED: Regina M. Keenan, Esquire Department of Financial Services Division of Legal Services 200 East Gaines Street Tallahassee, Florida 32399-0390 Walter A. Ketcham, Jr., Esquire Grower, Ketcham, Rutherford, Bronson, Eide & Telan, P.A. Post Office Box 538065 Orlando, Florida 32853-8065 Julie Jones, CP, FRP, Agency Clerk Department of Financial Services Division of Legal Services 200 East Gaines Street Tallahassee, Florida 32399-0390
Findings Of Fact Edward Berk, Respondent, was at all times here relevant licensed as an ordinary life, including disability, insurance agent to represent Founders Life Assurance Company, Standard Security Life Insurance Company of New York, American Variable Annuity Life Assurance Company, Wisconsin Life Insurance Company, Columbian Mutual Life Insurance Company, and Lone Star Life Insurance Company. He is licensed as a disability insurance (2-40) agent to represent American Family Life Assurance Company of Columbus and an ordinary life (2-16) agent to represent Estate Life Insurance Company of America. (Exhibit 1). On April 12, 1979 Respondent pleaded guilty in the U. S. District Court for the Southern District of New York of violation of 18 USC 1341 and 1342 to wit: unlawfully, willfully and knowingly devising and intending to devise a scheme and artifice to defraud and to obtain money from The Travelers Insurance Company by means of false and fraudulent pretenses, representations , and promises. He was found guilty and sentenced to two years imprisonment on each of five counts, the sentences to run concurrently. The execution of the sentence was suspended and Respondent was placed on probation for a period of two years (Exhibits 2)
The Issue The issue to be resolved in this proceeding concerns whether the Petitioner, as beneficiary of her deceased father's State of Florida life insurance policy, is entitled to a benefit of $10,000 or $2,500, and is related to how notice of a change in coverage amount and premium was provided to the decedent.
Findings Of Fact At the time of his death on November 29, 2008, Maurice Adkins was covered by the state life insurance plan, as a retired employee of the State of Florida. The Petitioner, Justina Mullennix, is the daughter of Mr. Adkins and is the beneficiary of any life insurance benefits paid or payable from the state life insurance plan on account of the death of her father. Effective January 1, 2000, the coverage for retirees was increased to $10,000.00. The premium for this coverage was $4.20 per month. The DSGI prepared a letter dated July 31, 2006, to notify the retirees that effective January 1, 2007, the life insurance benefit options provided to retirees would change. The changes allowed retirees to elect one of the following options: $2,500 benefit for a monthly premium of $ 4.20. $10,000 benefit for a monthly premium of $35.79. Termination of coverage. The letter dated July 31, 2006, informed retirees that their life insurance premium would remain the same, but that their coverage would be reduced to $2,500, unless they elected coverage in the amount of $10,000 and elected to pay the higher premium. The letter advised the retirees they could change their election up to and including January 19, 2007. Mike Waller, an employee of the DSGI, maintains benefits data for the People First/Division of State Group Insurance. In July 2006, Mr. Waller was asked to prepare a file containing the names and mailing addresses of all retirees who were covered by life insurance. Mr. Waller created the file, prepared in July 2006, to use in a "mail merge," to send all retirees a copy of the letter dated July 31, 2006. In preparing the file containing the mailing addresses of retirees covered by life insurance, Mr. Waller used the addresses of record that he maintained. In July 2006, the address of record for Mr. Adkins was 2877 Belair Road E., Jacksonville, Florida 32207, and was included in the file. Mr. Waller prepared the file and on July 3, 2006, delivered it to Dick Barnum and Thomas Lockeridge. Thomas Lockeridge delivered the file to Laura Cutchen, another employee of the DSGI. The DSGI contracted with Pitney Bowes to mail the letter of July 31, 2006, to all retirees. After obtaining copies of the letter from the print shop of the DSGI, Ms. Cutchen delivered the letters and the file containing names and addresses of retirees to Pitney Bowes to assemble. The letters dated July 31, 2006, in envelopes addressed to each retiree who carried life insurance at the time, were delivered to the U.S. Post Office, accompanied by Ms. Cutchen. The State of Florida first class mailing permit had been applied to each envelope. The letter dated July 31, 2006, was mailed to Mr. Adkins at the Belair address. The return address on the envelope containing the letter was the Division of State Group Insurance, 4050 Esplanade Way, Ste. 215, Tallahassee, Florida, 32399-0949. The letter was not returned to the Division. The letters that were returned to the DSGI were processed by Janice Lowe, an employee of the DSGI. Each letter that was returned to the Division of State Group Insurance was handled in one of two ways: a) if the envelope showed a different address on a yellow sticker applied by the US Postal Service (USPS), the letter was re-mailed to that address; b) if the returned envelope did not provide a different address, a manual search of the database of the Division of Retirement was made, a copy of the print screen showing the address in the Retirement database was made, if different from that on the database of the Division of State Group Insurance, and the original envelope and letter were placed in another envelope and mailed to the address from the Division of Retirement database. A copy of each Retirement screen that was accessed by Ms. Lowe was printed and inserted in alphabetical order in a binder. For every person whose letter was returned, and for which there was not another address, there would have been a Retirement print screen. The absence of a Retirement print screen indicates that the initial letter was not returned. There is no retirement print screen for Mr. Adkins, indicating that the letter to him dated July 31, 2006, was not returned to the DSGI. DMS has contracted with Convergys, Inc., to provide human resources management services, including assisting in the administration of employee benefits. Convergys primarily performs these tasks through an on-line system known as “People First.” Prior to Convergys assuming responsibility for the administration of benefits, DSGI maintained benefits information in the Cooperative Personnel Employment System (COPES). When Convergys assumed responsibility for the management of benefits, the benefits information from COPES was imported into the Convergys People First System. People First became the system of record for the DSGI beginning January 1, 2005. People First and the Division of Retirement do not share databases and each maintains its own database of names and addresses. Once a year the DSGI must hold Open Enrollment for the health program. § 110.123(3)(h)5, Fla. Stat.; Fla. Admin. Code R. 60P-1.003(16). Open Enrollment is the period designated by the DMS during which time eligible persons may enroll or change coverage in any state insurance program. Prior to Open Enrollment each year, the DSGI provides employees and retirees a package that explains the benefits and options that are available for the next plan year. The 2006 Open Enrollment period, for the 2007 Plan Year, ran from September 19, 2006, through October 18, 2006. During open enrollment for Plan Year 2007, the People First Service Center was charged with the responsibility of sending open enrollment packages to State of Florida retirees and other employees. People First mailed Mr. Adkins’s Open Enrollment Package to the 2877 Belair Road E., Jacksonville, Florida 32207 address, on September 3, 2006. The Open Enrollment Package for Plan Year 2007 was mailed by People First through the U.S. Post Office, first class postage paid. The Open Enrollment Package mailed to Mr. Adkins, for 2006 Open Enrollment, was not returned to People First. The Open Enrollment Package mailed to Mr. Adkins on September 3, 2006, contained Mr. Adkins’s 2007 Benefits Statement; a letter from John Mathews, former Director of the DSGI; "Information of Note"; a Privacy Notice; Notice Regarding Prescription Coverage; and a 2007 Benefits Guide. The Information of Note included the following statement: Retiree Life Insurance For Plan Year 2007, those currently enrolled with retiree life insurance may elect to retain the current $4.20 premium for a benefit of $2,500, retain the current benefit of $10,000 for a premium of $35.79, or cancel coverage. If no change is made during open enrollment, participation will continue at the $4.20 premium level. Neither Mr. Adkins nor anyone on his behalf affirmatively elected to continue $10,000.00 in life insurance coverage during the enrollment period in 2006 and 2007. Because the election was not made, at the death of Mr. Adkins, the benefit paid to the Petitioner was $2,500.00. Prior to January 1, 2007, the Life Insurance Trust Fund was used to augment the premiums paid by retirees for life insurance. The premium paid by the retirees did not support a $10,000 coverage level. In year 2006, the DSGI determined that the money in the life insurance trust fund, used to augment the retiree’s benefits from years 2000 through 2007, would not be available after 2007. Beginning January 1, 2007, the change in life insurance coverage was made because the funds in the Life Insurance Trust Fund were no longer available to augment the premium payment required to maintain a benefit level of $10,000.00, for a payment of $4.20 per month by the retirees. In 2006, the DSGI determined that the then-current life insurance premium of $4.20 would support a benefit of $2,500, and that the $10,000 benefits would cost $35.79. The notices provided by the July 31, 2006, letter and the 2006 Open Enrollment Package were sufficient notices of the increase in premium in that they provided a reasonable opportunity within which to make a selection of the level of coverage. On December 30, 1997, the Division of Retirement received a written notice of change of address for Mr. Adkins. The new address was 217 Skye Dr. W, Jacksonville, Florida 32221. Although Mr. Adkins had changed his address with the Division of Retirement, he did not notify the DSGI. A change of address with one division does not automatically change addresses in the other. The two divisions have different databases. During no time relevant to these proceedings have the two divisions shared databases. The DSGI, through People First, used the database of the Division of Retirement to send the 2004 Benefits Statement as an experiment to determine whether DSGI undeliverable returns would decrease. The same database was also used for the mailing of the letter dated September 2, 2003. However, neither DSGI nor People First changed its database after the 2004 Benefits Statement was sent and subsequent information was mailed to the DSGI address of record, based upon the COPES system. Therefore, the letter dated July 31, 2006, and the 2006 Open Enrollment Package for the Plan Year 2007, were mailed to the same Belair address, the address of record. A change of address for Mr. Adkins was not made in the database of the DSGI until December 1, 2008, when People First was provided a change of address. The only change of address that the Petitioner has alleged, was the one provided by Mr. Adkins to the Division of Retirement (only) in 1997.
Recommendation Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record, the candor and demeanor of the witnesses and the pleadings of the parties, it is RECOMMENDED that a Final Order be entered by the Department of Management Services, Division of State Group Insurance, dismissing the petition in its entirety. DONE AND ENTERED this 22nd day of January, 2010, in Tallahassee, Leon County, Florida. S P. MICHAEL RUFF Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 22nd day of January, 2010. COPIES FURNISHED: Sonja P. Mathews, Esquire Department of Management Services Office of the General Counsel 4050 Esplanade Way, Suite 260 Tallahassee, Florida 32399 Justina Mullennix 1217 Skye Drive West Jacksonville, Florida 32221 John Brenneis, General Counsel Division of Management Services 4050 Esplanade Way Tallahassee, Florida 32399-0950
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: At all times relevant to this proceeding, Respondent, Barrett Chambers Miller, was licensed as an agent with Independent Life and Accident Insurance Company in the State of Florida. On March 11, 1981, Respondent signed a Combination Agent's Contract Form 1-7759 with the Independent Life and Accident Insurance Company. Part I, Article 2, of the contract requires the agent to "pay over all monies collected to the manager of the district" or to his representative and forbids the agent to retain any monies collected for any purpose. Part I, Article 1, of the contract requires the agent to "keep true records of the business on the books [and] to forward to the company on company forms a true account each week of his business. Among the "company forms" routinely used by agents in the conduct of their business are: (1) the Premium Receipt Book, (2) the Collection Book, (3) the Ordinary Remittance Report, (4) the Field Accounting Route List, and (5) the Balance Due Account Deficiency Sheet. The Premium Receipt Book is used to record the premium paid by the policyholder; is annotated whenever a premium is paid; and bears the premium paid, the date paid, and the signature or initials of the agent receiving the payment. The Collection Book page bears the name and address of the premium payer, the policy number(s), the type of plan, some statistics as to the insured, the death benefit, and the date on which the premium is paid each month. The Ordinary Remittance Report carries, as to each policy on the agent's debit (list of policyholders to be serviced), an account of the periodic premium collections recorded during the week covered by the report. The Field Accounting Route List is used by the agent to indicate weekly collections on weekly premium payments, and the Balance Due Account Deficiency Sheet is used to charge back deficiencies to the agent's account that are found in his collections turned in weekly. Count I: On May 26, 1981, Annie McKibben, owner of Policies A 39189 on the life of Carol L. Cox, A 39190 on the life of Ronny Cox, Jr., and A 39191 on the life of Stacey Cox, paid to the Respondent by check payable to Independent Life the amount of $13.96, total premium for the three policies listed. The premium card for that policy reflects an altered payment of $13.98 with the signature "B. C. Miller" for the May 1981 payment on the 26th of that month. The Collection Book page reflects collection on May 26, 1981. The Ordinary Remittance Report for the week of May 25, 1981, shows collection of $13.96. There is no Field Accounting Route List in evidence for this account, but the Balance Due Account Deficiency Sheet for the week of August 17, 1981, reflects deficiencies for money not turned in for all three policies for the collections made thereon on May 26, 1981. The check with which Mrs. McKibben paid the premiums in question was subsequently deposited to the account of Independent Life at the Florida First National Bank of Jacksonville. Respondent denies any wrongful withholding on this account. Count II: On some date in June, 1981, Wilma L. Robinson, owner of Policies B 03628 and A 67660, both in her name, wrote Check No. 348 on the Flagship Bank of Jacksonville in the amount of $48.68, payable to Independent Life Insurance and reflecting the notation "Ins. June." Someone, she is not sure who, gave that check to a representative of the company. Her payment book reflects a payment of $23.03 received by B. C. Miller on June 16, 1981. The Collection Book reflects collection on June 16, 1981. The Remittance Report reflects collection on June 16, 1981. The Deficiency Account Sheet, however, reflects a deficiency for money not turned in in the total amount of $23.03. Mrs. Robinson is not sure to whom her check was given. She was sick during that period, and it may be that her husband actually delivered the check; and in early 1981, she began mailing her payment checks in. However, to the best of her knowledge, she had never seen Respondent until he came to her home on January 4, 1983. Count III: In June, 1981, Mrs. Evelyn Reynolds had four policies with Independent Life: 017872 on Debbie Spivey, A0037496 on Angela Reynolds, A0010351 on Sherry D. Reynolds, and A14776 on Robert Reynolds. Though she cannot identify to whom she made her payment that month, her routine practice was to make the payment monthly, sometimes by check and sometimes by cash. On some occasions, Respondent and a Mr. McGroarty from the company both came to get her payment. On some occasions, she left the payment with her mother and does not know to whom it was made. Mrs. Reynolds' payment book shows a payment of $24.02 made on June 9, 1981, with the initials "BCM" reflected in the block for the signature of the agent. The Collection Book page shows collection on June 9, 1981; and the Remittance Report does as well, but the Deficiency Sheet shows a deficiency of $24.02 for monies not turned in but collected that date. Mr. Miller unequivocally denies the initials in the payment book were put there by him, nor was any entry on the Collection Book page relating to this account put there by him. Count IV: Mrs. Evie Bennett does not recognize the Respondent. She has only seen him once before in her life, on New Year's Day, 1983, when he came to her house. She did not meet with him on August 4, 1981, and did not make any payments to him. Her payment book for Policy No. B0000499 in her name reflects a premium payment in the amount of $9.51 made on August 4, 1981; and the entry in the block for the signature of the agent reads "Receipt Miller." The Collection Book page for this account reflects a collection on August 4, 1981, of $9.51. Other pertinent documents reflect a deficiency by reason of monies not turned in of $9.51 for this collection. Mr. Miller denies the entries in both the Payment Receipt Book and the Field Report were made by him. Mr. Edward Cooper owned Policies 05 18285A on Edward Thomas; and 0536115A and 0536115B, both on Mary Cooper. He normally paid his premiums by check once a month to whatever agent came to collect. He does not know to whom he made the payment on July 7, 1981, nor does he know whether he paid on that day by check or cash, notwithstanding his written statement on November 24, 1981, witnessed by Mr. Pat McGroarty, indicates he paid the payments on his Premium Receipt Book to the Respondent. The payment card for these policies reflects that on July 7, 1981, an individual who used the signature "B. C. Miller" received payment of $20.80, representing premiums of $4.16 for each of five weeks including June 29, 1981; July 6, 1981; July 13, 1981; July 20, 1981; and July 27, 1981. The Field Accounting Route List for this Respondent in the period in question reflects a remittance of $16.64 with a shortage of $4.61, which shortage is also reflected on the deficiency page. Mr. Miller admits the signature on the payment card is his, but contends the card was altered. Mr. Kerry Fossett is a field auditor for Independent Life Insurance Company and in November, 1981, was requested to conduct an audit of Respondent's agency. As a part of the audit, he checked policyholders' receipt books and compared them to the agent's account. His audit showed discrepancies on 19 premium receipt cards for a total shortage of $141.75, of which amount the sum of $100.98 occurred when Respondent had the agency. The remainder of the shortage occurred either before or after Mr. Miller was in the job. During the course of the audit, Mr. Fossett found at least one instance where Mr. McGroarty made a collection on Mr. Miller's account and failed to turn it in. In the opinion of the auditor, the shortages in the account of $30 before Mr. Miller took over, when it was handled by Mr. McGroarty, were theft. Mr. McGroarty was discharged from employment with Independent Life and Accident Insurance Company approximately one week after the audit was completed. Mr. Baucom, assistant vice president of the company and custodian of the personnel records, indicated the audit done on Respondent's records revealed a shortage of $361.50. This was subsequently adjusted to $126.18 as a result of the company withholding commissions due Respondent. On February 4, 1983, Mr. Baucom wrote to the Department of Insurance, State of Florida, requesting to withdraw a charge of deficiency against Respondent previously submitted on December 7, 1981, on the basis that the company was not satisfied with the documentation of the alleged deficiency. Thereafter, on April 5, 1982, he again wrote the Department of Insurance reinstating the charge based upon subsequent receipt of "satisfactory documentation" and Mr. Miller's "attitude." Gracie Williams, a policyholder with Independent Life, experienced somewhat of a problem with the company when she and her husband tore down a house on which they had been paying premiums. When the house was removed, they mentioned the fact to Mr. McGroarty, but he did nothing about it. As a result, they paid several months' premiums on property that did not exist. In fact, when Respondent complained about this to Mr. McGroarty, he was told to collect the money or McGroarty would take it from another policy. Jennie L. Wilder also had difficulties on her policy with Independent Life's agent named "Alligood" (sic). She had paid her premiums for six months in advance, but because the agent delayed remitting the premium, she got credit for only three months. On the other hand, Catherine C. DiPerna and her husband have been insured with Independent Life for quite a while. Part of that time, the Respondent was her agent/collector. On June 16, 1981, just about the time of the other alleged shortages in Respondent's remittances, she paid her premium payment to Mr. Miller by check. The check was cashed, she did not receive a notice of lapsed policy, nor did she have any problem with her policy, even though on the Ordinary Remittance Report for the same period used by the Petitioner in the allegations relating to Mrs. Robinson shows no money received from the DiPernas. On March 11, 1981, upon the recommendation of Mr. R. Brenner, an investigator with the Department of Insurance, Respondent went to work for Independent Life as a debit agent in Jacksonville, Florida, under the supervision of Mr. Pat McGroarty, who, also, had had the debit (account) before. After the basic company indoctrination course, Respondent underwent on-the-job training under McGroarty. He never, during the entire time he worked for the company, accepted total responsibility for the account because, in his opinion, there were large discrepancies between the premium receipt cards and the company records when he was assigned the account. Respondent discussed these difficulties with McGroarty and other officials of the company, such as Mr. Ivanoski, Mr. Tharpe, and Mr. Baucom. In April, 1981, Miller saw that his signature as agent was forged on a policy owned by the Petitioner's witness Cooper on the life of Cooper's nephew, Edward Thomas, who, at all times pertinent, was an inmate in the state penitentiary. When Respondent mentioned this to McGroarty, McGroarty told him that Cooper had forged the names and Respondent was with McGroarty when he delivered the policy to Cooper. This is one of the policies which form the allegation in Count V of the Complaint and about which there is an obvious alteration on the Premium Receipt Book showing an increase in the weekly premium of one cent because of a change from a health policy to a life policy. Other difficulties with this particular account were brought by Miller to the attention of the district manager who forced McGroarty to make up the shortage from his own pocket. During a part of the time Respondent worked with the company, he also handled fire policies on a temporary license. He found so many irregularities and such out-and-out corruption, he states, that he intentionally failed the state examination for an industrial fire license. Even after instructions came from the home office terminating Respondent's work in fire insurance, the district manager instructed him to continue to collect fire premiums and turn them over to McGroarty. As a result of all of this, deficiencies show up on his fire accounts for periods after the time he ceased fire business. In fact, documents show collections by Miller on his accounts, even after he left the employ of the company. Respondent unequivocally denies any wrongdoing with regard to his accounts.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law stated above, it is RECOMMENDED: That the Administrative Complaint against the Respondent dated August 27, 1982, and amended on September 24 and December 28, 1982, be DISMISSED. RECOMMENDED this 28th day of February, 1983, in Tallahassee, Florida. ARNOLD H. POLLOCK Hearing Officer Division of Administrative Hearings Department of Administration 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 28th day of February, 1983. COPIES FURNISHED: Rhoda Smith Kibler, Esquire David Yon, Esquire Department of Insurance 413-B Larson Building Tallahassee, Florida 32301 S. Perry Penland, Esquire Penland, McCranie & Shad, P.A. Suite 1103, Blackstone Building Jacksonville, Florida 32202 The Honorable Bill Gunter State Treasurer and Insurance Commissioner The Capitol Tallahassee, Florida 32301
The Issue The issues are whether Respondents offered and sold securities in Florida, in violation of the registration requirements of Section 517.07(1), Florida Statutes; offered and sold securities in Florida while Respondents were unregistered, in violation of Section 517.12(1), Florida Statutes; or committed fraud in the offer, sale, or purchase of securities in Florida, in violation of Section 517.301(1)(a), Florida Statutes. If so, an additional issue is the penalty to be imposed.
Findings Of Fact At all material times, Respondent James A. Torchia (Respondent) held a valid life and health insurance license. Respondent was the president and owner of Respondent Empire Insurance, Inc. (Empire Insurance), a now-dissolved Florida corporation. Empire Insurance was in the insurance business, and Respondent was its sole registered insurance agent. At no material time has Respondent or Empire Insurance held any license or registration to engage in the sale or offer for sale of securities in Florida. At no material time were the investments described below sold and offered for sale by Respondent or Empire Insurance registered as securities in Florida. These cases involve viaticated life insurance policies. A life insurance policy is viaticated when the policy owner, also known as the viator, enters into a viatical settlement agreement. Under the agreement, the viator sells the policy and death benefits to the purchaser for an amount less than the death benefit--the closer the viator is perceived to be to death, the greater the discount from the face amount of the death benefit. The viatical industry emerged to provide dying insureds, prior to death, a means by which to sell their life insurance policies to obtain cash to enjoy during their remaining lives. As this industry matured, brokers and dealers, respectively, arranged for the sale of, and bought and resold, life insurance policies of dying insureds. Prior to the death of the viator, these viaticated life insurance policies, or interests in such policies, may be sold and resold several times. In these cases, viators sold their life insurance policies to Financial Federated Title & Trust, Inc. (FinFed). Having raised money from investors, American Benefit Services (ABS) then paid FinFed, which assigned viaticated policies, or interests in the policies, to various trusts. The trusts held the legal title to the policies, and the trust beneficiaries, who are the investors from whom ABS had obtained the funds to pay FinFed, held equitable title to the policies. Sometimes in these cases, a broker or dealer, such as William Page and Associates, intervened between the viator and FinFed. At some point, though, ABS obtained money from investors to acquire policies, but did not pay the money to FinFed to purchase viaticated life insurance policies. The FinFed and ABS investment program eventually became a Ponzi scheme, in which investor payouts were derived largely, if not exclusively, from the investments of other investors. ABS typically acquired funds through the promotional efforts of insurance agents, such as Respondent and Empire Insurance. Using literature provided by ABS, these agents often sold these investments to insurance clients. As was typical, Respondent and Empire Insurance advertised the types of claims described below by publishing large display ads that ran in Florida newspapers. Among the ABS literature is a Participation Disclosure (Disclosure), which describes the investment. The Disclosure addresses the investor as a "Participant" and the investment as a "Participation." The Disclosure contains a Participation Agreement (Agreement), which provides that the parties agree to the Disclosure and states whether the investor has chosen the Growth Plan or Income Plan, which are described below; a Disbursement Letter of Instruction, which is described below; and a Letter of Instruction to Trust, which is described below. The agent obtains the investor's signature to all three of these documents when the investor delivers his check, payable to the escrow agent, to purchase the investment. The Disclosure states that the investments offer a “High Return”: “Guaranteed Return on Participation 42% at Maturity.” The Disclosure adds that the investments are “Low Risk”: “Secured by a Guaranteed Insurance Industry Receivable”; “Secured by $300,000 State Insurance Guarantee Fund”; “Short Term Participation (Maturity Expectation 36 Months)”; “Principal Liquid After One Year With No Surrender Charge”; “State Regulated Participation”; “All Transactions By Independent Trust & Escrow Agents”; and “If policy fails to mature at 36 months, participant may elect full return of principal plus 15% simple interest.” The Disclosure describes two alternative investments: the Growth Plan and Income Plan. For the Growth Plan, the Disclosure states: “At maturity, Participant receives principal plus 42%, creating maximum growth of funds.” For the Income Plan, the Disclosure states: “If income is desired, participation can be structured with monthly income plans.” Different rates of return for the Growth and Income plans are set forth below. For investors choosing the Income Plan, ABS applied only 70 percent of the investment to the purchase of viaticated life insurance policies. ABS reserved the remaining 30 percent as the source of money to "repay" the investor the income that he was due to receive under the Income Plan, which, as noted below, paid a total yield of 29.6 percent over three years. The Disclosure states that ABS places all investor funds in attorneys’ trust accounts, pursuant to arrangements with two “bonded and insured” “financial escrow agents.” At another point in the document, the Disclosure states that the investor funds are deposited “directly” with a “financial escrow agent,” pursuant to the participant’s Disbursement Letter of Instruction. The Disbursement Letter of Instruction identifies a Florida attorney as the “financial escrow agent,” who receives the investor’s funds and disburses them, “to the order of [FinFed) or to the source of the [viaticated insurance] benefits and/or its designees.” This disbursement takes place only after the attorney receives “[a] copy of the irrevocable, absolute assignment, executed in favor of Participant and recorded with the trust account as indicated on the assignment of [viaticated insurance] benefits, and setting out the ownership percentage of said [viaticated insurance] benefits”; a “medical overview” of the insured indicative of not more than 36 months’ life expectancy; confirmation that the policy is in full force and effect and has been in force beyond the period during which the insurer may contest coverage; and a copy of the shipping airbill confirming that the assignment was sent to the investor. The Disclosure states that the investor will direct a trust company to establish a trust, or a fractional interest in a trust, in the name of the investor. When the life insurance policy matures on the death of the viator, the insurer pays the death benefits to the trust company, which pays these proceeds to the investor, in accordance with his interest in the trust. Accordingly, the Letter of Instruction to Trust directs FinFed, as the trust company, to establish a trust, or a fractional interest in a trust, in the name of the investor. The Letter of Instruction to Trust provides that the viaticated insurance benefits obtained with the investor's investment shall be assigned to this trust, and, at maturity, FinFed shall pay the investor a specified sum upon the death of the viator and the trustee's receipt of the death benefit from the insurer. The Disclosure provides that, at anytime from 12 to 36 months after the execution of the Disclosure, the investor has the option to request ABS to return his investment, without interest. At 36 months, if the viator has not yet died, the investor has the right to receive the return of his investment, plus 15 percent (five percent annually). The Disclosure states that ABS will pay all costs and fees to maintain the policy and that all policies are based on a life expectancy for the viator of no more than 36 months. Also, the Disclosure assures that ABS will invest only in policies that are issued by insurers that are rated "A" or better by A.M. Best "at the time that the Participant's deposit is confirmed." The Disclosure mentions that the trust company will name the investor as an irrevocable assignee of the policy benefits. The irrevocable assignment of policy benefits mentioned in the Disclosure and the Disbursement Letter of Instruction is an anomaly because it does not conform to the documentary scheme described above. After the investor pays the escrow agent and executes the documents described above, FinFed executes the “Irrevocable Absolute Assignment of Viaticated Insurance Benefits.” This assignment is from the trustee, as grantor, to the investor, as grantee, and applies to a specified percentage of a specific life insurance policy, whose death benefit is disclosed on the assignment. The assignment includes the "right to receive any viaticated insurance benefit payable under the Trusts [sic] guaranteed receivables of assigned viaticated insurance benefits from the noted insurance company; [and the] right to assign any and all rights received under this Trust irrevocable absolute assignment." On its face, the assignment assigns the trust corpus-- i.e., the insurance policy or an interest in an insurance policy--to the trust beneficiary. Doing so would dissolve the trust and defeat the purpose of the other documents, which provide for the trust to hold the policy and, upon the death of the viator, to pay the policy proceeds in accordance with the interests of the trust beneficiaries. The assignment bears an ornate border and the corporate seal of FinFed. Probably, FinFed intended the assignment to impress the investors with the "reality" of their investment, as the decorated intangible of an "irrevocable" interest in an actual insurance policy may seem more impressive than the unadorned intangible of a beneficial interest in a trust that holds an insurance policy. Or possibly, the FinFed/ABS principals and professionals elected not to invest much time or effort in the details of the transactional documentation of a Ponzi scheme. What was true then is truer now. Obviously, in those cases in which no policy existed, the investor paid his money before any policy had been selected for him. However, this appears to have been the process contemplated by the ABS literature, even in those cases in which a policy did exist. The Disbursement Letter of Instruction and correspondence from Respondent, Empire Insurance, or Empire Financial Consultant to ABS reveal that FinFed did not assign a policy, or part of a policy, to an investor until after the investor paid for his investment and signed the closing documents. In some cases, Respondent or Empire Insurance requested ABS to obtain for an investor a policy whose insured had special characteristics or a investment plan with a maturity shorter than 36 months. FinFed and ABS undertook other tasks after the investor paid for his investment and signed the closing documents. In addition to matching a viator with an investor, based on the investor's expressed investment objectives, FinFed paid the premiums on the viaticated policies until the viator died and checked on the health of the viator. Also, if the viator did not die within three years and the investor elected to obtain a return of his investment, plus 15 percent, ABS, as a broker, resold the investor's investment to generate the 15 percent return that had been guaranteed to the investor. Similarly, ABS would sell the investment of investors who wanted their money back prior to three years. The escrow agent also assumed an important duty--in retrospect, the most important duty--after the investor paid for his investment and signed the closing documents; the escrow agent was to verify the existence of the viaticated policy. Respondent and Empire Insurance sold beneficial interests in trusts holding viaticated life insurance policies in 50 separate transactions. These investors invested a total of $1.5 million, nearly all of which has been lost. Respondent and Empire Insurance earned commissions of about $120,000 on these sales. Petitioner proved that Respondent and Empire Insurance made the following sales. Net worths appear for those investors for whom Respondent recorded net worths; for most, he just wrote "sufficient" on the form. Unless otherwise indicated, the yield was 42 percent for the Growth Plan. In all cases, investors paid money for their investments. In all cases, FinFed and ABS assigned parts of policies to the trusts, even of investors investing relatively large amounts. On March 21, 1998, Phillip A. Allan, a Florida resident, paid $69,247.53 for the Growth Plan. On March 26, 1998, Monica Bracone, a Florida resident with a reported net worth of $900,000, paid $8000 for the Growth Plan. On April 2, 1998, Alan G. and Judy LeFort, Florida residents with a reported net worth of $200,000, paid $10,000 for the Growth Plan. In a second transaction, on June 8, 1998, the LeForts paid $5000 for the Growth Plan. In the second transaction, the yield is 35 percent, but the Participation Agreement notes a 36-month life expectancy of the viator. The different yields based on life expectancies are set forth below, but, as noted above, the standard yield was 42 percent, and, as noted below, this was based on a 36-month life expectancy, so Respondent miscalculated the investment return or misdocumented the investment on the LeForts' second transaction. On April 29, 1998, Doron and Barbara Sterling, Florida residents with a reported net worth of $250,000, paid $15,000 for the Growth Plan. In a second transaction, on August 14, 1998, the Sterlings paid $100,000 for the Growth Plan. The yield for the second transaction is 35 percent, and the Participation Agreement notes that the Sterlings were seeking a viator with a life expectancy of only 30 months. When transmitting the closing documents for the second Sterling transaction, Respondent, writing ABS on Empire Insurance letterhead, stated in part: This guy has already invested with us (15,000) [sic]. He gave me this application but wants a 30 month term. Since he has invested, he did some research and has asked that he be put on a low T-cell count and the viator to be an IV drug user. I know it is another favor but this guy is a close friend and has the potential to put at least another 500,000 [sic]. If you can not [sic] do it, then I understand. You have done a lot for me and I always try to bring in good quality business. If this inventory is not available, the client has requested that we return the funds . . . In a third transaction, on February 24, 1999, the Sterlings paid $71,973 for the Growth Plan. The yield is only 28 percent, but the Participation Agreement reflects the typical 36-month life expectancy for the viator. Although the investors would not have received this document, Respondent completed an ABS form entitled, "New Business Transmittal," and checked the box, "Life Expectancy 2 years or less (28%). The other boxes are: "Life Expectancy 2 1/2 years or less (35%)" and "Life Expectancy 3 years or less (42%)." On May 4, 1998, Hector Alvero and Idelma Guillen, Florida residents with a reported net worth of $100,000, paid $6000 for the Growth Plan. In a second transaction, on October 29, 1998, Ms. Guillen paid $5000 for the Growth Plan. In a third transaction, on November 30, 1998, Ms. Guillen paid $5000 for the Growth Plan. For this investment, Ms. Guillen requested an "IV drug user," according to Respondent in a letter dated December 1, 1998, on Empire Financial Consultants letterhead. This is the first use of the letterhead of Empire Financial Consultants, not Empire Insurance, and all letters after that date are on the letterhead of Empire Financial Consultants. In a fourth transaction, on January 29, 1999, Ms. Guillen paid $15,000 for the Growth Plan. On April 23, 1998, Bonnie P. Jensen, a Florida resident with a reported net worth of $120,000, paid $65,884.14 for the Growth Plan. Her yield was 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On May 20, 1998, Michael J. Mosack, a Florida resident with a reported net worth of $500,000, paid $70,600 for the Income Plan. He was to receive monthly distributions of $580.10 for three years. The total yield, including monthly distributions, is $20,883.48, which is about 29.6 percent, and the Participation Agreement reflects a 36-month life expectancy. On May 27, 1998, Lewis and Fernande G. Iachance, Florida residents with a reported net worth of $100,000, paid $30,000 for the Growth Plan. On June 3, 1998, Sidney Yospe, a Florida resident with a reported net worth of $1,500,000, paid $30,000 for the Growth Plan. The yield is 35 percent, and the Participation Agreement reflects a 30-month life expectancy. On June 12, 1998, Bernard Aptheker, with a reported net worth of $100,000, paid $10,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 10, 1998, Irene M. and Herman Kutschenreuter, Florida residents with a reported net worth of $200,000, paid $30,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 9, 1998, Daniel and Mary Spinosa, Florida residents with a reported net worth of $300,000, paid $10,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 5, 1998, Pauline J. and Anthony Torchia, Florida residents with a reported net worth of $300,000 and the parents of Respondent, paid $10,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 29, 1998, Christopher D. Bailey, a Florida resident with a reported net worth of $500,000, paid $25,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. In a second transaction on the same day, Mr. Bailey paid $25,000 for the Growth Plan. Petitioner submitted documents concerning a purported purchase by Lauren W. Kramer on July 21, 1998, but they were marked "VOID" and do not appear to be valid. On July 22, 1998, Laura M. and Kenneth D. Braun, Florida residents with a reported net worth of $150,000, paid $25,000 for the Growth Plan, as Respondent completed the Participation Agreement. However, the agreement calls for them to receive $205.42 monthly for 36 months and receive a total yield, including monthly payments, of 29.6 percent, so it appears that the Brauns bought the Income Plan. In a second transaction, also on July 22, 1998, the Brauns paid $25,000 for the Growth Plan. On January 20, 1999, Roy R. Worrall, a Florida resident, paid $100,000 for the Income Plan. The Participation Agreement provides that he will receive monthly payments of $821.66 and a total yield of 29.6 percent. On July 16, 1998, Earl and Rosemary Gilmore, Florida residents with a reported net worth of $250,000, paid $5000 for the Growth Plan. In a second transaction, on February 12, 1999, the Gilmores paid $20,000 for the Growth Plan. The yield is 28 percent, but the Participation Agreement reflects a 36-month life expectancy. The New Business Transmittal to ABS notes a life expectancy of two years or less. On July 14, 1998, David M. Bobrow, a Florida resident with a reported net worth of $700,000 on one form and $70,000 on another form, paid $15,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. In a second transaction, on the same day, Mr. Bobrow paid $15,000 for the Growth Plan. On July 27, 1998, Cecilia and Harold Lopatin, Florida residents with a reported net worth of $300,000, paid $10,000 for the Growth Plan. On July 30, 1998, Ada R. Davis, a Florida resident, paid $30,000 for the Income Plan. Her total yield, including monthly payments of $246.50 for three years, is 29.6 percent. In a second transaction, on the same day, Ms. Davis paid $30,000 for the Income Plan on the same terms as the first purchase. On July 27, 1998, Joseph F. and Adelaide A. O'Keefe, Florida residents with a net worth of $300,000, paid $12,000 for the Growth Plan. On August 5, 1998, Thurley E. Margeson, a Florida resident, paid $50,000 for the Growth Plan. On August 19, 1998, Stephanie Segaria, a Florida resident, paid $20,000 for the Growth Plan. On August 26, 1998, Roy and Glenda Raines, Florida residents, paid $5000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. The New Business Transmittal to ABS notes a life expectancy of 30 months or less. In a second transaction, on the same day, the Raineses paid $5000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy, although, again, the New Business Transmittal notes the life expectancy of 30 months or less. On November 24, 1998, Dan W. Lipford, a Florida resident, paid $50,000 for the Growth Plan in two transactions. In a third transaction, on January 13, 1999, Mr. Lipford paid $30,000 for the Growth Plan. On December 1, 1998, Mary E. Friebes, a Florida resident, paid $30,000 for the Growth Plan. On December 4, 1998, Allan Hidalgo, a Florida resident, paid $25,000 for the Growth Plan. On December 17, 1998, Paul E. and Rose E. Frechette, Florida residents, paid $25,000 for the Income Plan. The yield, including monthly payments of $205.41 for three years, is 29.6 percent. On December 26, 1998, Theodore and Tillie F. Friedman, Florida residents, paid $25,000 for the Growth Plan. On January 19, 1999, Robert S. and Karen M. Devos, Florida residents, paid $10,000 for the Growth Plan. On January 20, 1999, Arthur Hecker, a Florida resident, paid $50,000 for the Income Plan. The yield, including a monthly payment of $410.83 for 36 months, is 29.6 percent. On February 11, 1999, Michael Galotola, a Florida resident, paid $25,000 for the Growth Plan. In a second transaction, on the same day, Michael and Anna Galotola paid $12,500 for the Growth Plan. On November 3, 1998, Lee Chamberlain, a Florida resident, paid $50,000 for the Growth Plan. On December 23, 1998, Herbert L. Pasqual, a Florida resident, paid $200,000 for the Income Plan. The yield, including a monthly payment of $1643.33 for three years, is 29.6 percent. On December 1, 1998, Charles R. and Maryann Schuyler, Florida residents, paid $10,000 for the Growth Plan. Respondent and Empire Insurance were never aware of the fraud being perpetrated by FinFed and ABS at anytime during the 38 transactions mentioned above. Respondent attempted to verify with third parties the existence of the viaticated insurance policies. When ABS presented its program to 30-40 potential agents, including Respondent, ABS presented these persons an opinion letter from ABS's attorney, stating that the investment was not a security, under Florida law. Respondent also contacted Petitioner's predecessor agency and asked if these transactions involving viaticated life insurance policies constituted the sale of securities. An agency employee informed Respondent that these transactions did not constitute the sale of securities.
Recommendation RECOMMENDED that Petitioner enter a final order: Finding James A. Torchia and Empire Insurance, Inc., not guilty of violating Section 517.301(1), Florida Statutes; Finding James A. Torchia guilty of 38 violations of Section 517.07(1), Florida Statutes, and 38 violations of Section 517.12(1), Florida Statutes; Finding Empire Insurance, Inc., guilty of 38 violations of Section 517.07(1), Florida Statutes, and 38 violations of Section 517.12(1), Florida Statutes, except for transactions closed on or after December 1, 1998; Directing James A. Torchia and Empire Insurance, Inc., to cease and desist from further violations of Chapter 517, Florida Statutes; and Imposing an administrative fine in the amount of $120,000 against James A. Torchia. DONE AND ENTERED this 19th day of May, 2003, in Tallahassee, Leon County, Florida. ROBERT E. MEALE 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 19th day of May, 2003. COPIES FURNISHED: 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 Fred H. Wilsen Senior Attorney Office of Financial Institutions and Securities Regulation South Tower, Suite S-225 400 West Robinson Street Orlando, Florida 32801-1799 Barry S. Mittelberg Mittelberg & Nicosia, P.A. 8100 North University Drive, Suite 102 Fort Lauderdale, Florida 33321
