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
The Issue Did Mr. Carter violate sections 627.4554(4)(a), 627.4554(4)(c)2., 626.611(5), 626.611(7), 626.611(9), 626.611(13), 626.621(2), 626.621(6), 626.9541(1)(a)1., and 626.9541(1)(e)1., Florida Statutes (2006, 2009, 2010); section 626.9521(2), Florida Statutes (2006, 2010); sections 626.9541(1)(k)2., 626.9541(1)(l), and 626.9521(2), Florida Statutes (2009, 2010); section 626.621(9), Florida Statutes (2010); and Florida Administrative Code Rule 69B-215.210? If so, what discipline should be imposed?
Findings Of Fact At all times material to this proceeding, the Legislature has vested the Department with the authority to administer the disciplinary provisions of Chapter 626, Florida Statutes. § 20.121(2)(g) and (h)1.d., Fla. Stat. (2011). At all times material to his proceeding, Mr. Carter was licensed by the Department as a Florida life (including variable annuity) agent (2-14), life including variable annuity and health agent (2-15), life insurance agent (2-16) and life and health agent (2-18). He has been appointed as an agent for several different life insurance companies, including Allianz, EquiTrust and Great American, but not RiverSource. Counts I through V--W.K. and J.K. 2006, J.K. and W.K., and the MasterDex 10 J.K. was born in 1937 in Madrid Spain, where she finished high school. Spanish is J.K.'s native tongue. She cannot write in English and does not speak or understand English well. When J.K. was 17, she met W.K., a member of the United States' armed services. They married in Spain. Six months after the marriage, the newlyweds moved to Brooklyn, New York, W.K.'s home. They later relocated to Florida. W. K. constructed a mall in New Port Richey containing 18 stores that included a restaurant and a frame shop. J.K. ran the frame shop. Wal-Mart eventually bought the mall. By 2006, J.K. and W.K. had accumulated approximately two million dollars in brokerage investments. Until the decline of his health and mental faculties in 2008, W.K. handled all financial matters for the couple. J.K. did not understand them or have any interest in them. In 2006, J.K. and W.K. met Mr. Carter, who began marketing annuities to them. J.K.'s testimony demonstrated that her memory was significantly impaired. That fact, combined with the fact that W.K. had died several years before the hearing, limit the ability to determine what representations Mr. Carter made to J.K. and W.K. or what information or instructions they gave him. On July 25, 2006, W.K. applied for a MasterDex 10 annuity policy from Allianz Life Insurance Company of North America. He paid an initial premium of $603,470.34 for the policy. W.K. was 73 years old at the time. W.K. obtained the money to fund the policy from the couple's Merrill Lynch brokerage account. Mr. Carter knew this. As part of the annuity application process, Mr. Carter submitted an Allianz "Product Suitability Form" for W.K. Completion of the form is a prerequisite to processing the application and issuing the policy. The stated purpose of the form is "to confirm that your [the applicant's] annuity purchase suits your current financial situation and long-term goals." The form, signed by W.K. and Mr. Carter, stated that an annuity was the source of the funds for payment of the annuity's premium. This statement was not accurate. Mr. Carter knew that it was not accurate. Signing and submitting the application with the suitability form containing this known incorrect statement was a willful deception by Mr. Carter with regard to the policy. Signing and submitting the application with the suitability form containing this known incorrect statement was a dishonest practice in his conduct of the business of insurance. The suitability form also indicated that W.K. expected the annuity to provide him a steady stream of income in six to nine years. Allianz accepted the application and issued the policy. Mr. Carter received a commission of $66,381.73. The MasterDex 10 is a complex financial product with many difficult to understand restrictions, conditions, interest options, bonuses, penalties, and limitations. The MasterDex 10 that W.K. and J.K. purchased paid interest linked to the performance of the Standard and Poors 500 stock market index. It also guaranteed interest of at least one percent. A "Nursing Home Benefit" was one of the options the MasterDex 10 provided. The "benefit" permitted the policy holder to receive payments of the full "annuitization" value of the policy over a period of five years or more if the holder was confined to a nursing home for 30 out of 35 consecutive days. The "annuitization value" is the maximum value that the policy can reach. It is the total of all payments that would be made to the holder if he either (1) let the premium and interest earned accumulate for a minimum of five contract years and then took ten years of interest only payments, followed by a lump sum payment of the annuitization value or (2) equal payments of principal and interest over ten or more years. Policy holders could make additional premium payments to increase the policy value. The policy also permitted limited withdrawals without penalty. After holding the policy for 12 months after the most recent premium payment, a holder could, without penalty, withdraw up to ten percent of the premium paid once a year until a maximum of 50 percent of the premium had been withdrawn. This meant that after one year passed, W.K. could make five annual withdrawals of $60,347.03. The policy also provided for loans on the annuity. In the years following this transaction, Mr. Carter maintained contact with W.K. and J.K. by periodically asking them to join him at a restaurant for lunch. Decline of W.K.'s Health While visiting his mother in Greece in 2008, W.K. fell and hit his head. Afterwards his health declined. On June 3, 2008, W.K. was diagnosed with Alzheimer's disease and determined to be unable to make sound financial and medical decisions. From June 2008, forward, J.K. was very worried about W.K.'s health, caring for him, and making him as comfortable as possible. On November 5, 2008, W.K., at Mr. Carter's suggestion, executed a Durable Power of Attorney, prepared for her by a lawyer, giving J.K. broad authority to act on his behalf in financial matters. At some point, W.K. was admitted to the Bear Creek Skilled Nursing Center and resided there for a period of time. On April 4, 2010, he was discharged from Bear Creek. W.K. resided in Bear Creek for a period of time. Although there is some hearsay evidence about when W.K. entered Bear Creek, the evidence does not corroborate direct evidence or hearsay evidence that would be admissible over objection in circuit court, sufficient to prove when W.K. entered Bear Creek. Consequently, the evidence does not establish the length of time that W.K. spent in the facility and does not establish that W.K. would have been eligible for the "Nursing Home Benefit" described in paragraph 16. After W.K. returned home in April, J.K. engaged an enterprise called "Granny Nannies" to provide caretakers at home. The services cost approximately $12,000 per month. During this period J.K.'s health also declined markedly. Among other things, she had appendicitis and breast cancer. Treatment of the cancer required chemotherapy, which left her in pain and exhausted. During this time Mr. Carter obtained a copy of the power of attorney executed by W.K. in favor of J.K. On June 18, 2010, the court appointed Paula Rego as guardian for W.K and J.K. with authority to act on their behalf in all matters affecting property rights. On November 26, 2010, W.K. died in hospice care after a short hospital stay. The Events of 2010 In December 2009, J.K. met with insurance sales agents and sisters Kimberly Trotter and Chandra Valdez. J.K. had responded to a mail solicitation by them. During the meeting, J.K. and Mss. Trotter and Valdez realized that J.K. knew them because J.K. and W.K. had rented space to the sisters' parents. Capitalizing on the connection and J.K.'s concerns about paying the monthly costs of care for W.K., Ms. Trotter and Ms. Valdez began providing financial advice and marketing annuity products that they sold. They advocated liquidating W.K.'s and J.K.'s existing annuities, including the MasterDex 10. In December 2009, Ms. Trotter and Ms. Valdez sold W.K. and J.K. two annuities with Great American for approximately $661,098. On January 28, 2010, W.K. authorized J.K. and Ms. Trotter to access policy information. In January 2010, Ms. Trotter attempted to liquidate the MasterDex 10 policy and transfer the funds to Great American. Allianz notified Mr. Carter of this in February 2010. He intervened to stop the transfer. On March 3, 2010, Allianz received another request to liquidate the MasterDex 10 from J.K. Allianz sent her what it calls a "conservation letter." The purpose of the letter is to "conserve" the business with the company. The letter also identified needed information, including a copy of J.K.'s power of attorney for W.K. On March 4, 2010, Allianz notified Mr. Carter of the liquidation request. He contacted J.K. and began a successful effort to obtain a letter asking to reverse the liquidation. On March 17, 2010, Ms. Trotter or Ms. Valdez again convinced J.K. to liquidate the MasterDex 10 funds and transfer them to Great American. Again Mr. Carter acted to stop the liquidation. On March 23, 2010, J.K. signed a letter written by Mr. Carter asking for William Pearson to be her new financial advisor. Mr. Carter sent the letter to RiverSource, a company that issued another annuity policy of J.K's. J.K. did not know who Mr. Pearson was. She only signed the letter because Mr. Carter told her that it would help her save money. On March 26, 2010, J.K. submitted a liquidation request form for the MasterDex 10 signing it on behalf of herself and W.K. J.K. submitted the request at the urging of Ms. Trotter and/or Ms. Valdez. Allianz received the request on March 31, 2010. It began processing the full liquidation of the annuity policy. On April 1, 2010, Mr. Carter sent Allianz a letter saying that J.K. did not want to liquidate W.K.'s MasterDex 10 policy. The letter claimed that this was the second time that competing agents had tried to cancel the policy. Allianz reinstated the policy. On April 1, 2010, Mr. Carter sent a handwritten letter to Great American stating that J.K. did not want the MasterDex 10 policy canceled. The letter refers to having previously provided the power of attorney. Mr. Carter signed the letter. J.K. signed the letter on behalf of W.K. and herself. On April 7, 2010, Great American received a typewritten letter addressed to "To Whom It May Concern" stating that J.K. and W.K. wanted to transfer their funds to Great American since "December and January" and that J.K. did not see Mr. Carter on April 1 and did not sign a letter that he sent. On April 9, 2010, Mr. Carter wrote and sent a letter, signed by J.K. at his request, asking Great American to cancel the policies sold by Ms. Trotter and Ms. Valdez and waive all surrender charges. The letter states that J.K. is fighting cancer and that the agents forced her to sign the policy documents. Mr. Carter included with the letter a Withdrawal/Surrender Request Form completed by him and signed by J.K. On April 23, 2010, Mr. Carter wrote a letter to Allianz stating that J.K. needed more than ten percent of the value of the MasterDex 10 policy (the penalty-free withdrawal permitted) to provide the funds needed to take care of W.K. The letter states that W.K. and J.K. wished to change ownership of the policy to J.K. only and then to fully surrender the policy. Mr. Carter's letter is signed by J.K. on her behalf and on behalf of W.K. Mr. Carter enclosed forms with the same date, which he prepared for J.K.'s signature, requesting the change of ownership and liquidation. Allianz sent J.K. a letter, with a copy to Mr. Carter, on April 29, 2010, identifying alternatives to liquidating MasterDex 10 for getting the money needed to care for W.K. The Allianz letter also disclosed that liquidating the policy would result in a substantial loss of money. In part, the letter stated: We understand you wish to surrender your annuity policy. As we review your request, we want to be certain you are aware of all the alternatives that are available to you. This information can help you make an informed decision based on your best financial interests. It is possible for you to access a portion of your policy's value while your policy remains in deferral. This would allow its value to continue to grow tax-deferred, and still provide the cash you need. Your annuity may permit you to take a free withdrawal, policy loan, or partial surrender. Finally, it's important to realize exactly how much you will be giving up should you decide to fully surrender your policy. Your policy's current Accumulation Value is $751,566.07 and its Surrender Value is $585,014.49. By surrendering your policy now, you are giving up the difference between these two values [$166,551.58]. Any one of these options could provide you with needed cash while allowing you to receive your full accumulation value in cash after your policy's 10-year surrender charge period. The letter provided a ten-day period, called a conservation period, during which J.K. could withdraw her request to liquidate the policy. Mr. Carter called Allianz on April 30, 2010, and spoke to Amber Hendrickson. In the recording of the conversation, Mr. Carter sounds agitated and speaks forcefully. J.K. participated in the telephone call. She is quiet and deferential. In the call, J.K. waives the ten-day "conservation" period. Mr. Carter insists that Allianz process the surrender swiftly. Allianz processed the liquidation of the MasterDex 10 on April 30, 2010. It wired funds from the liquidated annuity to J.K.'s Regions Bank account the same day. On April 30, 2010, J.K. signed a check for $475,000 to EquiTrust Life Insurance Company to purchase an annuity. Mr. Carter wrote the check. Also on April 30, 2010, J.K. signed an EquiTrust annuity application completed by Mr. Carter. The form indicates that the policy is not replacing an existing annuity contract. This is not an accurate representation. On April 30, 2010, Mr. Carter also completed an Annuity Suitability Questionnaire for J.K. to sign and submit with the EquiTrust application. He indicated that J.K. had income from a pension. Mr. Carter knew that this was not accurate. Mr. Carter also indicated that J.K.'s income was adequate to cover all expenses, including medical. He knew this was not accurate because he was fully aware of the cost of W.K.'s caregivers and J.K.'s concern about them. The form, as completed by Mr. Carter, is misleading about the source of the funds for purchase of the annuity. He made the technically correct representation that the funds come from a checking account. But the funds were from the liquidation of the MasterDex 10 and were placed in the checking account the same day the application was completed. The funds were actually from the liquidation of the MasterDex 10 annuity. The form also stated that the proposed annuity would not replace any product. Mr. Carter knew this was not accurate also. He knew that the EquiTrust annuity was replacing the MasterDex 10, albeit in a lower amount, because J.K. kept some cash and lost a good deal of money in surrender costs. A letter Mr. Carter sent to EquiTrust on August 16, 2010, when it was investigating complaints about J.K.'s purchase of the annuity, demonstrates that he knew the EquiTrust annuity was replacing the MasterDex 10. Mr. Carter's letter described the surrender and purchase this way: "An amount of $475,000 was placed into the EquiTrust Annuity (Market Power Bonus Index's Fixed account), the remaining balance of $110,038.75 was sent to her checking account, plus two other accounts valued at $50,000 that were closed, and a Jefferson National check that wasn't cashed for $3,500." Also, on April 23, 2010, J.K. signed, on behalf of herself and W.K., a Surrender/Withdrawal Request to RiverSource asking for the full withdrawal of the net accumulation value of their annuity contract with RiverSource. RiverSource sent J.K. a check for $26,430.07. It deducted $2,158.32 for a withdrawal charge and $295.98 for a "rider charge" from the full value of $28,884.37. On May 5, 2010, EquiTrust received J.K.'s policy application documents and check. EquiTrust required additional documents including a financial needs analysis form. Mr. Carter sought an exception to the requirement for a financial needs analysis form. He did not receive the exception. On May 6, 2010, Mr. Carter sent EquiTrust the required financial needs analysis form. He completed the form for J.K., who was 72 at the time. J.K. also signed this form. The form repeats some of the incorrect statements of the previous forms. It is also includes additional incorrect statements. The instructions for the section about "Replacements" states, "complete if an existing life insurance policy or annuity contract will be used to fund this product." Mr. Carter checked "no" as the response to the question: "Is the agent assisting you with this annuity purchase the same agent on the life insurance policy or annuity contract being replaced?" This indicates he is aware that the policy replaces the MasterDex 10. The response was also a representation that he knew to be false, because he was the agent on the policy being replaced. Mr. Carter also indicated on the needs analysis form that the source of funds for the EquiTrust annuity purchase was "Stocks/Bonds/Mutual Funds." Mr. Carter knew that this representation was not correct. It was also inconsistent with the statement on the suitability questionnaire that the funds came from a checking account. On May 18, 2010, J.K. signed a letter, written by Mr. Carter, asking for William Pearson to be her new financial advisor. Mr. Carter sent the letter to Genworth, a company holding another annuity policy of J.K's. J.K. did not know who Mr. Pearson was and only signed the letter because Mr. Carter told her that it would help her save money. J.K. signed a letter, dated May 20, 2010, instructing EquiTrust to cancel the annuity she had with it. On May 23, 2010, Mr. Pearson submitted a form, signed by J.K., using the power of attorney, asking Genworth to liquidate an annuity held for W.K. On May 26, 2010, EquiTrust received the request to cancel J.K.'s policy and advised Mr. Carter. On May 31, 2010, Mr. Carter sent EquiTrust a letter saying that J.K. did not want to cancel and enclosed a letter he prepared, dated May 26, 2010, and signed by J.K. asking EquiTrust to withdraw the cancelation request. The letter also stated that an agent who provided her untruthful information initiated the request. On June 2, 2010, at Mr. Carter's urging, J.K. sent EquiTrust a letter saying she wanted to keep the EquiTrust policy. On June 2, 2010, Mr. Carter sent, by facsimile, a letter written by him and signed by J.K. asking Great American to make Peter Gotsis her annuity agent. J.K. did not know Peter Gotsis and only signed the letter because Mr. Carter asked her to. On June 29, 2010, EquiTrust received a check for an additional $90,302.19 premium for J.K.'s policy. In July 2010, with the assistance of employees at her bank and others, J.K. contacted an attorney. The attorney, Joan Hook, contacted Mr. Carter and the various companies with annuities. Due to the efforts of Ms. Hook, J.K.'s guardian, Ms. Rego, Ms. Karen Ortega of the Department, and others, the series of transactions were undone and J.K. returned to her position before the liquidation of the MasterDex 10 annuity. From December 2010 forward, it was clear to Mr. Carter or anyone else having regular dealings with J.K. that she is confused, uninformed about financial matters, compliant, reasoning poorly, and not capable of making sound decisions. J.K.'s testimony demonstrated that her memory was significantly impaired. That fact combined with the fact that W.K. died several years before the hearing, makes it impossible to determine what representations Mr. Carter made to W.K. and J.K. and to determine what information or instructions they gave him. Much of the evidence related to Counts I through V is hearsay evidence that would not be admissible over objection in a civil action. In addition, there is no expert testimony evaluating the facts of record and analyzing the suitability of the investments advocated by Mr. Carter. Also, there is no evidence of the life expectancy of W.K. and J.K., which is an important factor in evaluating suitability of annuity products. Consequently, the record is inadequate for determining the reasonableness or suitability of the various products promoted by Mr. Carter or of the liquidation of the MasterDex 10. Mr. Carter willfully misrepresented information with regard to the applications for the Allianz and the EquiTrust annuities. This was dishonest. In the process, Mr. Carter also demonstrated a lack of trustworthiness to engage in the business of insurance. These willful misrepresentations were false material statements knowingly delivered to Allianz and EquiTrust. Count VI--G.D. and K.D. G.D. lives in New Port Richey, Florida, where she moved from New York about 40 years ago. She was born on January 17, 1935, and has a ninth-grade education. G.D. had worked as a courier. Her investment experience consists of funding certificates of deposit (CDs), placing money in a mutual fund, and purchasing a Transamerica annuity. She is frugal and a conservative investor. G.D. is married to K.D. who was born April 12, 1927. Both are retired. G.D. met Mr. Carter in January 2010, when she responded to a postcard that he sent suggesting that he could save her money on taxes on social security payments. At that time, G.D. was 75 years old and K.D. was 83. G.D. was and is in bad health due to having suffered four strokes. She had difficulty speaking to Mr. Carter during his sales presentations. G.D. and K.D. disclosed to Mr. Carter that their total monthly family income, including social security and K.D.'s pension income, was approximately $2,400.00. They also disclosed that their assets included approximately $325,000.00 in CDs held with Suncoast Schools Federal Credit Union. G.D. and K.D. each owned an annuity, one with Hartford and one with Transamerica, which they told Mr. Carter about. Together, the annuities had a value of approximately $85,000. G.D. and K.D. also had approximately $66,000 in a money market account. Mr. Carter convinced G.D. and K.D. to liquidate their CDs to purchase two Allianz annuities called a MasterDex 10 Plus. One required payment of a $38,219.39 premium. The other required payment of a $287,365.00 premium. The couple applied for the annuities for G.D., with K.D. as the beneficiary, because he was the older of the two. Mr. Carter completed the applications, which they signed. Part six of the applications is titled: "Replacement (this section must be completed)." It asks two questions. The first is: "Do you have existing life insurance or annuity contracts?" Mr. Carter checked "no" as an answer. This was not correct, and he knew it. The second question asks: "Will the annuity contract applied for replace or change existing contract or policies?" This Mr. Carter correctly answered "no." Section six also asks for the amount of coverage in force. Mr. Carter did not provide this information. Mr. Carter also completed the Florida Senior Consumer Suitability Form Questionnaire for G.D. and K.D., which they signed. The form accurately reflects the couple's net worth, liquid assets, and income. It reports correctly that they owned or had owned CDs, fixed annuities, and variable annuities. The completed form also accurately reflects the couple's desire for guaranteed income. The form discloses that the annuity must be owned a minimum of 15 years to receive its maximum value. The MasterDex 10 Plus annuity is a complicated financial product with a ten percent "bonus" that the buyer does not receive unless she holds the policy for 15 years. In fact, holding the policy for 15 years is the only way to get the full benefit of the policy. While money may be withdrawn earlier, that results in losses of the benefits and in some cases penalties. For instance, if a policy holder chooses to liquidate the policy, the value she receives is only 87.5 percent of the premium paid with one percent interest for the period held. These provisions have a substantial financial effect on the benefits of the annuity. For example, in the fifth year, the cash surrender value of the $38,219.49 premium policy is $36,027.00. About ten months after purchasing the annuities, G.D. and K.D. began having second thoughts about the purchase of the annuities. G.D. consulted with the financial advisor "Wayne" at her bank. G.D. later concluded that she had also misunderstood the interest rate. Mr. Carter had shown her sales material with the ten percent "bonus," which generated a high interest rate of 13.3 percent for one year. But G.D. did not understand that the interest rate only applied in one year, and the money was not immediately available. On November 17, 2010, G.D., with Wayne's help, composed a complaint letter to Allianz that summarized her complaints and requested that her premium payments be returned without fees. On November 28, 2010, Carter responded with a letter to Allianz defending his annuity sales. On December 17, 2010, Allianz's employee, Mary Lou Fleischacker, advised G.D. by letter that the "free look" period for cancelling the contracts had passed. But Fleischacker did request further information about the sales. By two letters dated January 10, 2011, Allianz advised G.D. that she would suffer over $80,000 in penalties if she canceled the contracts. G.D.'s efforts to terminate the annuities prompted Carter to come uninvited into G.D.'s home and insistently demand that G.D. telephone Allianz and cancel her attempt to rescind the contracts. He also asked her, without explanation, to wait one week before liquidating the policies. G.D. refused. Carter repeatedly telephoned G.D. and returned uninvited to the house several times making the same demand. G.D. refused to answer her door. Mr. Carter came to G.D.'s daughter's house uninvited one evening, told her that her mother was going to lose a lot of money, and revealed her mother's financial matters to her. Mr. Carter demanded that G.D.'s daughter deliver to her mother for signature a letter he wrote rescinding the liquidation requests. G.D.'s daughter agreed to get Carter to leave. G.D.'s daughter feared for her mother's safety because of Mr. Carter's harassing telephone calls to her and her mother. She urged her mother to call the police. G.D. called the police and a New Port Richey officer told Mr. Carter to cease the harassment, and then filed a report on January 13, 2011. Mr. Carter did not contact G.D. or her daughter after that. Eventually, with the assistance of Department Investigator Ortega, G.D. was able to obtain the return of her funds from Allianz. There is no expert testimony evaluating the facts of record and analyzing the suitability of the investments advocated by Mr. Carter. Also, there is no evidence of the life expectancy of G.D. and K.D., which is an important factor in evaluating suitability of annuity products. Consequently, the record is inadequate for determining the reasonableness or suitability of the liquidation of the CDs and purchase of the MasterDex 10 Plus annuities as promoted and sold by Mr. Carter. Mr. Carter willfully misrepresented information with regard to the applications for the MasterDex 10 Plus annuity. This was dishonest. In the process, Mr. Carter also demonstrated a lack of trustworthiness to engage in the business of insurance. These willful misrepresentations were false material statements knowingly delivered to Allianz. Mr. Carter's repeated, persistent, and overbearing efforts to require G.D. to speak with him about the cancelation and withdraw it demonstrate a lack of fitness to engage in the business of insurance. Count VII--G.B. G.B. was born on January 14, 1930. She has a high school education. G.B. worked at and retired from Lucent Technology wiring telephone boards. She receives a small pension. Her husband, K.B., managed their financial affairs before he died ten years ago. Before K.B.'s death, the couple maintained investment accounts with Schwab. After K.B.'s death, Schwab employee, Barry Tallman, recommended that G.B. seek financial advice from Christopher Trombetta, CPA. She did so. Mr. Carter and a colleague, Christopher Drew, met with G.B. on June 29, 2010. She was 70 years old, timid, and easily confused. G.B. had responded to a promotional postcard she received from them purporting that the law governing taxes on social security income had changed and that they could lower her taxes. Mr. Carter was the person who presented G.B. information and persuaded her to purchase an annuity in the course of a meeting that lasted one to two hours. The evidence does not permit a determination of what representations and information Mr. Carter presented in his sales meeting with G.B. Her memory of the meeting was not distinct. She was confused about the meeting and did not remember facts precisely or explicitly. Mr. Carter completed applications for EquiTrust annuity products. G.B. signed the applications. Mr. Carter also completed financial needs analyses. G.B. signed them also. A box that asks if the applicant is aware that the annuity may be "a long-term contract with substantial penalties for early withdrawal" was checked "yes." The form also accurately represented that the source of funds for the annuity premium was stocks, bonds, or mutual funds. The other representations in the form were accurate. Mr. Carter persuaded G.B. to purchase two EquiTrust Market Power Plus annuities. G.B. signed two EquiTrust annuity contracts ending with 29F (E-29F) and 30F (E-30F). The initial premium for E-29F was $458,832.71. The initial premium for E-30F was $118,870.34. Both annuities were designed to provide G.B. with income in 2036. The funds for the premium came from the liquidation of her stock brokerage account. Both contracts had 20 percent surrender charges for the first two years of ownership. G.B. could not have surrendered the contract with its full financial benefits without a penalty until she was 95 years old. Mr. Carter delivered the annuity contracts to G.B. on August 6, 2010. The contracts provided G.B. the right to cancel the annuity by returning it within 15 days of the date she received it. Soon afterwards, Barry Tallman notified G.B. that her Schwab accounts had been liquidated. Transamerica Agent William Pearson had liquidated the accounts to transfer the money for purchase of the EquiTrust annuities. She was surprised. G.B. grew concerned about the annuities and consulted Mr. Trombetta and a financial advisor named Judith Gregory on September 20, 2010. With their assistance, G.B. wrote a complaint letter to EquiTrust asserting that Mr. Carter had assured her, among other things, that the annuities would protect her money should she enter a nursing home. G.B. wanted to cancel the annuities and have her full premium returned. G.B.'s letter to EquiTrust said, "I do not want any calls or visits from the agent or the agent's office." Mr. Carter learned of the effort to cancel the annuities. On November 15, 2010, at Mr. Carter's suggestion, he and Mr. Drew returned to G.B.'s home uninvited and unannounced. Mr. Carter insisted on entering and speaking to G.B. Mr. Carter began loudly and forcefully arguing with G.B. She telephoned Mr. Trombetta and asked that he speak to Mr. Carter. Mr. Carter yelled at Mr. Trombetta. Mr. Trombetta credibly describes part of the conversation as follows: And before I could barely get that out, Rick exploded on me. He snapped and he started cursing up and down. F'n me up one side and down the other. And "you don't F'n know what you are talking about. You don't care about this person. You don't f'n know what you are doing;" and this and that. When G.B. returned to the telephone to speak with Mr. Trombetta, he advised her to call the police if Mr. Carter did not leave her house within five minutes. Mr. Carter and Mr. Drew left. EquiTrust eventually returned over $600,000 to G.B. There is no expert testimony evaluating and analyzing the suitability of the investments advocated by Mr. Carter. Also, there is no evidence of G.B.'s life expectancy which is an important factor in evaluating suitability of annuity products. Consequently, the record is inadequate for determining the reasonableness or suitability of the two annuities Mr. Carter sold G.B. Mr. Carter's conduct, in his unannounced visit to G.B. to try to persuade her to change her plans to liquidate the annuities and his conversation with Mr. Trombetta, demonstrated a lack of fitness to engage in the business of insurance.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Financial Services enter a final order revoking the licenses of Richard Edward Carter. DONE AND ENTERED this 28th day of November, 2012, in Tallahassee, Leon County, Florida. S JOHN D. C. NEWTON, II 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 28th day of November, 2012.
Findings Of Fact Respondent has worked in the insurance business some eleven years, including a five year stint with the Metropolitan Life Insurance Company in New York and two years with Gulf Life Insurance Company. Although respondent remained an ordinary agent for Independent Life Insurance Company until January of 1978, he and a partner, William Andrew Carrigan, contracted, in October of 1977, with Gordon Burnham, one of PIC's managing general agents, to act as general agents for the sale of life, health and disability insurance on a franchise group basis. On behalf of PIC, they sought out employers willing to let them offer insurance to their employees and to arrange for payment of premiums by payroll deduction. Under the arrangement with PIC, respondent's partnership, Carrie & Associates, was permitted to borrow, subject to a weekly maximum, the lesser of $250.00 or "fifty percent of [the] annualized commission," p. 21, Lee Logan's deposition, whenever respondent or his partner sold an insurance policy and submitted the appropriate papers to PIC. The indebtedness respondent and his partner incurred in receiving the advance was to be gradually reduced, as premiums on the policy were paid to PIC. In the event a policy was cancelled before the advance was repaid, PIC was authorized to look to other policies sold by the same agents for repayment. Respondent and his partner regularly asked for advances and ordinarily received them within a week of forwarding a new policy application to PIC. Ordinarily, the first month's premium was required to accompany an application for a new policy. When, however, a new policy was sold to an employee of an employer who already deducted PIC premiums from employees' paychecks, there was no requirement that the first month's premium accompany the papers respondent or his partner furnished PIC. In the event PIC received no premium within 30 days, PIC was authorized to look to other policies sold by the partnership for repayment of the advance. By February of 1978, Carrie & Associates had sold insurance policies to employees of, among other businesses, Tower Coiffures in Lakeland and Seminole Bakery in Sanford. Business was slow that February, so respondent decided to write applications for insurance policies for nonexistent people, in order to improve his cash flow. He wrote an application for life insurance for a fictitious Peter Paulson, whom he described as a 34 year old Texan, 5 feet 9 inches tall, weighing 149 pounds, and whom he falsely reported to be an employee of Seminole Bakery. He wrote an application for life and health insurance for a fictitious Bob Webb, falsely reporting him as an employee of Seminole Bakery, and on Rohnda (sic) Webb, Bob's imaginary wife. In connection with the Webb application, respondent signed his partner's name in a blank on a form entitled "Signature of Soliciting Agent," only apprising his partner afterwards. Respondent wrote applications for insurance for fictitious persons named Brian Williams, Christine Williams, Robert Jackson, Muriel Carter and Kim Stone, whom he falsely reported to be employees of Seminole Bakery, as well as for Kim's fictitious spouse, Ronald Stone. He wrote applications for life and health insurance for a fictitious Virginia Birch and for a fictitious Janice D. Boynton, falsely reporting them as employees of Tower Coiffures. In each instance, respondent forwarded the falsified papers to PIC and, in each instance, PIC advanced money on the strength of the papers. At the time of the hearing, respondent (who is no longer licensed as an agent with PIC) and his partner owed PIC $5,342.31, representing unrepaid commission advances on lapsed or fictitious policies, together with accrued interest. At the time of the hearing, proceeds from policies still in force applied against this indebtedness at the rate of $60.48 per month. Charles William "Bill" Honaker employed respondent as an insurance agent, at the time of the hearing. Mr. Honaker began in the insurance business in 1953. Since that time he has seen "bogus" policies many times, yet he has never heard of a state license revocation for a one-time bogus business problem.
Recommendation Upon consideration of the foregoing, it is RECOMMENDED: That petitioner revoke respondent's license as an insurance agent. DONE and ENTERED this 27th day of July, 1979, in Tallahassee, Florida. ROBERT T. BENTON, II Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 27th day of July, 1979. COPIES FURNISHED: Patrick F. Maroney, Esquire 428-A Larson Building Tallahassee, Florida 32301 James W. Markel, Esquire and Leslie King O'Neal, Esquire Post Office Drawer 1991 Orlando, Florida 33802
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following facts are found: At all times relevant to this proceeding, the respondent Frank Cimino, Jr. was licensed as an ordinary life, ordinary life including disability and dental health plan insurance agent. Respondent was also the president and incorporator of National Consumer Investment Counselors, Inc., a Florida corporation doing business at Post Office Box 1520, Brandon, Florida. Charles R. Ritzi is an insurance salesman employed at National Consumer Investment Counselors, Inc., and respondent is his supervisor. On or about November 2, 1979, Mr. Ritzi went to the home of Edward Kimball for the purpose of discussing insurance with him. He received from Mr. Kimball his other existing insurance policies and took them back to his office to analyze and compare their benefits, costs and terms with a policy which could be provided by respondent's corporation. Among the policies taken was Mr. Kimball's State Farm Insurance Company "IRA" annuity policy number 4,664,836. Several days later, Mr. Ritzi and respondent returned to Mr. Kimball's residence. Mr. Kimball made a decision to purchase an insurance Policy from respondent and numerous forms were signed by Mr. Kimball. These forms were then taken back to respondent's office and processed. Mr. Kimball did not sign a cash surrender form for his State Farm "IRA" annuity policy and he did not intend for that policy to be cancelled. On December 6, 1979, the offices of State Farm Life Insurance Company received in the mail a cash surrender request form on Edward Kimball' s "IRA" annuity policy number 4,664,836. Mr. Kimball's name appeared on the signature line of the form. The form also contained a change of mailing address section in which had been written the respondent's business address. The form constitutes a request for a withdrawal of dividends and surrender of the policy. By the terms of the policy, only the owner of the policy may make such a request. The "IRA" annuity policy funds a retirement plan. If the request form had been processed, there would have been a penalty imposed by the Internal Revenue Service for a premature distribution of funds and the funds distributed would have been treated as ordinary income for tax purposes. State Farm sent a service agent to Mr. Kimball's residence and it was discovered that Mr. Kimball did not desire to give up his "IRA" policy number 4,664,836, and that he did not sign the cash surrender request form. A handwriting expert confirmed that the handwriting appearing on the line entitled "Signature of Policyowner" was not the signature of Mr. Kimball. It is concluded as an ultimate finding of fact that respondent or an employee acting under his supervision signed the name of Edward Kimball, Jr. appearing on the State Farm cash surrender form and transmitted sold form to State Farm without the knowledge or consent of Mr. Kimball, the policy owner. In February of 1980, respondent placed an advertisement in the East Hillsborough Edition of The Tampa Tribune, a newspaper with a circulation of approximately 36,000. The advertisement guaranteed the reader that: "...if you are insurable and own any personal, ordinary life insurance, regardless of the company, we can show you a method of rearranging your program in a way that will: Increase the amount of money which would be paid to your beneficiary in the event of your death. 2. Increase the amount of cash available for retirement [sic], 3. Retain all of your existing guarantees and benefits and 4. We can do all this with no increase in premium." The four guarantees mentioned in the advertisement may not be capable of performance in all life insurance policies. However, it is possible for a qualified agent to accomplish the four guarantees in personal ordinary cash value life insurance policies. The guarantees are made to those persons who are insurable and who own personal, ordinary life insurance.
Recommendation Based upon the findings of fact and conclusions of law recited herein, it is RECOMMENDED THAT: The charges in the Administrative Complaint relating to a Penn Mutual Life Insurance Whole Life Policy be dismissed; Count II of the Administrative Complaint relating to an advertisement appearing in The Tampa Tribune be dismissed; Respondent be found guilty of violating Florida Statutes, Sections 626.611(4),(5),(7),(9), and (13) and 626.9541(1)(f); and Pursuant to Section 626.611, Florida Statutes, the insurance licenses presently held by the respondent be suspended for a period of one (1) year. Respectfully submitted and entered this 6th day of February, 1981, in Tallahassee, Florida. DIANE D. TERMOR Hearing Officer Division of Administrative Hearings 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 6th day of February, 1981. COPIES FURNISHED: Richard P. Harris, Esquire Department of Insurance 428-A Larson Building Tallahassee, Florida 32301 Frank Cimino, Jr. Post Office Box 1520 Brandon, Florida 33511 Honorable Bill Gunter Office of Treasurer Insurance Commissioner The Capitol Tallahassee, Florida 32301
The Issue The issue to be resolved in this proceeding concerns whether the Petitioner Donna Danzis is a retired state employee and is entitled to reinstatement of her policy of State Life Insurance Plan.
Findings Of Fact The Petitioner was an employee of the Florida Department of Children and Family Services (DCF) through October 28, 2005. On October 28, 2005, she voluntarily terminated her employment. At the time she terminated employment she had been covered under the Plan. The Plan is made available to state employees and retirees through the DSGI, in accordance with Section 110.123, Florida Statutes (2006). The terms and conditions of employee participation in the plan are provided for in Florida Administrative Code Rule Chapter 60P-3. The Petitioner was a cancer patient at times pertinent hereto and that may have played a role in her decision to terminate her employment. In any event, her employment termination was voluntary and occurred during a time apparently when she was undergoing chemical therapy concerning her cancer issues. Prior to the time she terminated her employment on October 28, 2005, the Petitioner did not discuss her plans to retire with DCF Human Resources Personnel. She had, however, apparently applied for disability retirement, although that disability retirement status had not yet been determined or granted at the time she terminated her employment. After termination of employment, on or about November 24, 2005, the Petitioner contacted DCF personnel office and spoke with Mr. Harvey Whitesides. During that conversation, Mr. Whitesides determined that the Petitioner had had deductions from her paycheck to cover premiums for three types of insurance coverage: state health insurance, a group life insurance plan, as well as state security insurance. The later type of insurance is an optional supplemental life insurance that is not a part of the Plan. In that November 24, 2005, conversation with Mr. Whitesides, the Petitioner told him that she had terminated her employment with the state but did not inform him that she had applied for disability retirement. During their conversation she told Mr. Whitesides that she wanted refunds that she was entitled to from the state health insurance and group life insurance plans. Mr. Whitesides was supervisor of payroll for DCF and its predecessor agency from 1993 through 2002. In that position his duties included management of the benefit section and retirement operations within the DCF. While her performed his duties as supervisor he would commonly assist employees in their preparation of the forms necessary to affect retirement. Mr. Whitesides retired in 2003, but returned to DCF as an employee in March 2004. Beginning in June 2004, he assumed the duties of DCF personnel services specialist. In July 2005, his position and duties were transferred to the Agency for Persons With Disabilities. Since returning to state employment in March 2004, Mr. Whitesides duties have been substantially the same as those he performed from 1993 through 2002. These included the processing of benefits and retirement requests submitted by employees. In the course of performing those operations he has always assisted employees in the completion of the form required to apply for retirement. Since 1993, Mr. Whitesides has used a "continuation/termination form," for retiring employees who upon retirement wished to continue their state group life insurance. Beginning in March 2004 when he returned to state employment, Mr. Whitesides had access to and used that same continuation/termination form. He did not offer the form to the Petitioner during their conversation on November 24, 2004, however, because the Petitioner did not then inform him that she had applied for retirement. Mr. Whitesides did not learn that the Petitioner had applied for retirement until he received a letter from the Division of Retirement (DMS) dated December 14, 2005, which asked that the DCF provide information and data necessary to calculate Ms. Danzis retirement benefits. Mr. Whitesides provided the date requested by DMS, including the "Florida Retirement System Pension Plan Salary Certification." Prior to the receipt of the letter dated December 14, 2005, the Petitioner had not informed anyone in the DCF personnel office that she had applied for disability retirement. Florida Administrative Code Rule 60P-3.014 requires that an employee who retires and is covered under the life insurance plan must elect one of the following options: (1) submit a request to continue coverage during retirement accompanied by a personal check or money order for one full month's premium, which must be received by the employee's former agency and forwarded with the original application no later than 31 calendar days after the last day of employment; or (2) that the retiring employee must submit a request to terminate coverage under the life insurance plan no later than 31 calendar days after the employee's last day of employment. That rule goes on to provide that an employee who applies for disability retirement and has not received approval of that prior to his last day of employment but who is covered under the life insurance plan on that last day of employment has the option to continue coverage in the life plan pending such retirement disability approval or rejection by submitting a request to continue coverage in accordance with Florida Administrative Code Rule 60P-3.014(1)(a) and by paying the full premium for each month's coverage by personal check or money order to his or her former personnel office. Concerning employees or retirees off the payroll, if it is determined that none of the required contribution by the end of the coverage month the coverage will be cancelled and the retirees coverage will be terminated effective the first day of that month. A retired employee whose coverage is terminated in accordance with subsection (1) or (2) of Rule 60P-3.010 may not re-enter the Plan. The Petitioner did not submit a continuation/termination form within 31 days of the date of her termination of employment stating that she wished to continue her participation in the plan, and provide the other information required by Florida Administrative Code Rule 60P-3.014(1)(a). The Petitioner did not submit a month's premium for life insurance within 31 days after the last date of her employment. The only notice that Ms. Danzis gave, or attempted to give, was notice that she was voluntarily terminating her employment and that her last date of work would be October 28, 2005. Because she did not elect to continue her participation in the life insurance plan through the proper procedure and filing, the Agency canceled her life insurance, thus generating the subject dispute.
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 and arguments of the parties, it is, therefore, RECOMMENDED that a final order be entered by the Department of Management Services, Division of State Group Insurance determining that the Petitioner failed to properly elect to remain a covered retiree of the State Life Insurance Plan, and that the Petition be dismissed. DONE AND ENTERED this 4th day of April, 2007, 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 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with Clerk of the Division of Administrative Hearings this 4th day of April, 2007. COPIES FURNISHED: Donna Danzis 7744 State Road 100 Keystone Heights, Florida 32656 Sonja P. Mathews, Esquire Department of Management Services Office of the General Counsel 4050 Esplanade Way, Suite 260 Tallahassee, Florid 32399-0950 Sarabeth Snuggs, Director Division of Retirement Department of Management Services Post Office Box 9000 Tallahassee, Florida 32315-9000 John Brenneis, General Counsel Division of Retirement Department of Management Services 4050 Esplanade Way Tallahassee, Florida 32399-0950
The Issue The issue for determination is whether Respondent committed the offenses set forth in the administrative complaint, and if so, what action should be taken.
Findings Of Fact At all times material hereto, Allison Kay Werner (Respondent) was licensed by the Department of Insurance and Treasurer (Petitioner) as a life and variable annuity contracts and life insurance agent. She was issued license number 106486443 in 1989. Prior to being licensed in Florida, in or around 1981 Respondent was a licensed agent in the State of New York. On February 15, 1991, Ms. Estelle Lewis went to the California Federal Bank (Bank), located at 4601 Sheridan Street, Hollywood, Florida, to redeem a $10,000 Certificate of Deposit (CD) which had matured. Ms. Lewis was 81 years old. Also, she was unemployed even though, in her earlier years, she worked. Through the years, Ms. Lewis engaged in short term, two year investments, not long term investments. Nor did she invest in annuities for her belief was that annuities were for young people who are planning towards retirement. Being a senior citizen and unemployed, Ms. Lewis needed her money for income, using the proceeds from her investments as income. She did not want to tie-up her money for long periods of time. Ms. Lewis approached the teller at the Bank to redeem her CD. The teller referred Ms. Lewis to Respondent to discuss re-investing her money. It was not unusual for a teller at the Bank to refer a Bank customer to Respondent. Also, at times, Bank employees assisted with scheduling appointments with Respondent. Respondent's office was located inside the Bank, within a glass enclosure, and could be seen from the teller's location. A sign identified Respondent's office as Kemper-Invest Financial Corporation for which Respondent was a representative. Respondent provided Ms. Lewis with her business card which only identified Respondent as an Invest Financial Corporation (Invest) representative located at the Bank. No where on the business card was Respondent identified as an insurance agent. No where on the business card were the terms "insurance" or "annuity." Furthermore, Respondent did not inform Ms. Lewis that she was an insurance agent. Ms. Lewis trusted the Bank and her trust extended to Respondent even though Ms. Lewis understood that Respondent was a representative of Invest and not employed by the Bank. Because the Bank teller had referred Ms. Lewis to Respondent and because Respondent's office was located within the Bank, Ms. Lewis believed that Respondent had a connection with the Bank. Without this trust, Ms. Lewis would not have engaged in any business with Respondent. Ms. Lewis informed Respondent that she wanted a two year investment. Respondent was not unfamiliar with discussing investments with senior citizens for most of her clients were age 70 and above. Ms. Lewis agreed upon a two year investment at a return of eight percent. Unbeknownst to Ms. Lewis, she had invested in an annuity which would mature in 20 years. The annuity also had an investment time of seven years, which meant that the annuity could be surrendered without a surrender charge in its seventh year. The maximum issuance age for the annuity was 85 which meant that anyone up to age 85 could purchase the annuity. That same day, February 15, 1991, Respondent completed an account application for the investment, which included writing Ms. Lewis' responses to questions on the application which included Ms. Lewis' age and date of birth. Respondent submitted the application to Ms. Lewis for her review. Ms. Lewis skimmed the application only for responses that she felt were important, i.e., her name and social security number. Finding those items correct, she signed the account application. No where on the account application were the terms "life insurance" or an "annuity" mentioned. Invest Financial Corporation and Kemper Fiancial Services were clearly displayed on the application. Also, the investment objective indicated on the application was growth instead of income. An application for an annuity, referred to as the All Savers Plan on the application, was also completed on that same date. However, this application contained the terms life insurance and annuity. Believing that life insurance or an annuity did not apply to her since neither were requested and were not agreed upon, Ms. Lewis signed this second application. Additionally, on February 15, 1991, Ms. Lewis gave Respondent the $10,000 and Respondent provided Ms. Lewis a receipt for the $10,000. The receipt contained a notation that the money was received for "Kemper All Savers." Invest and Kemper Financial Services were displayed on the receipt. No where on the receipt were the terms annuity or life insurance. As with other annuities sold by Respondent, she received a commission for the annuity that she sold Ms. Lewis. Paying commissions to insurance agents for annuities sold is a common practice. Subsequently, Ms. Lewis received an undated letter of thanks from Respondent for obtaining the services of Invest. The letter was on Invest letterhead, with Kemper Financial Services indicated on it. Additionally, on the letter Respondent identified herself as an Invest representative. The letter made no mention of what services Ms. Lewis had obtained or of life insurance or an annuity. Further, Ms. Lewis received two letters dated February 20, 1991 and February 28, 1991 from Kemper. The letters were on "Kemper Investors Life Insurance Company" letterhead and referenced Ms. Lewis' investment as an annuity. Ms. Lewis did not believe that the two letters applied to her since she had not purchased an annuity or life insurance. Consequently, she ignored the letters. Ms. Lewis received a copy of the annuity policy in the mail but did not read it. She filed it away with the rest of her documents associated with the transaction. Ms. Lewis received account summaries regarding her investment. The summaries indicated that they reflected the activity for an annuity called Kemper All Savers Annuity and that they were from the Kemper Investors Life Insurance Company. The summaries showed the performance of her investment. Ms. Lewis ignored the summaries as reflecting activities for an annuity in which she had invested. She continued to believe that she had not invested in an annuity. On or about February 15, 1993, approximately two years after the transaction, Ms. Lewis returned to Respondent's office located in the Bank to redeem her investment. At that time, Ms. Lewis was informed by Respondent that a penalty fee of $525.89 would be assessed for early withdrawal. Respondent advised Ms. Lewis further that she had an annuity which could be cashed-in at no penalty (no surrender charges) after seven years. The meeting on February 15, 1993, was the first time that Ms. Lewis was informed of a penalty by Respondent. Also, the meeting was the first time that Respondent had informed Ms. Lewis that she had purchased an annuity and that the annuity was a seven year investment. Ms. Lewis did not want to wait the additional years to avoid the penalty and insisted on surrendering what she knew now to be an annuity. Subsequently, Ms. Lewis received her $10,000 plus interest less the penalty. Respondent has vast experience in annuities. She has sold annuities since around 1981 when she was employed with Merrill Lynch and Shearson in New York. At all times material hereto, Ms. Lewis had no mental or physical infirmity which interfered with her mental capacity to think and understand. At all times material hereto, Ms. Lewis could read and write. Ms. Lewis has never been offered restitution or a refund of the penalty.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Insurance and Treasurer enter a final order suspending the license of Allison Kay Werner for one-year. DONE AND ENTERED this 1st day of March, 1996, in Tallahassee, Leon County, Florida. ERROL H. POWELL Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 1st day of March, 1996.
Findings Of Fact Respondent John Thomas Holmes held a license issued by petitioner at all times pertinent. His appointment by Georgia Life and Health Insurance Company (Georgia Life) expired on February 13, 1991. Petitioner's Exhibit No. 1. He acted as a general agent in Bonifay, Florida, for American Family Life Insurance Company of Columbus (American Family) as recently as January of 1990. His appointment by American Family expired on April 1, 1992. Petitioner's Exhibit No. 1. In January of 1990, J.R. Lunsford, Sr. approached Mr. Holmes and suggested that Mr. Holmes contact older people to whom he had sold insurance, in an effort to sell them medicare supplement insurance issued by Georgia Life, which was less expensive than policies Mr. Holmes had written for American Family. They decided that Mr. Holmes would make appointments with prospects, and that Mr. Lunsford (or both of them together) would try to sell substitute (or in some cases new) insurance policies. They agreed to split expenses and income fifty-fifty. Although he told Mr. Holmes otherwise, Mr. Lunsford was not authorized by Georgia Life to sell its insurance policies in January of 1990. But Mary Nell Smith of Tallahassee, once a close friend of Mr. Lunsford's, was so authorized; and had agreed to write any Georgia Life policies Mr. Lunsford was able to sell. Only on March 1, 1990, did Mr. Lunsford gain official permission to act on behalf of Georgia Life in Florida. Respondent's Exhibit 2. Even then, he needed a general agent's endorsement, which Mary Nell Smith supplied. Of the premiums Mr. Lunsford and Mr. Holmes collected, two-fifths had to be forwarded to Georgia Life under the agreement between Ms. Smith and the company. Ms. Smith retained some of the money she did not forward to Georgia Life: In keeping with an oral agreement with Messrs. Lunsford and Holmes, she was allowed $400.00 a month for her services and to cover expenses, including the expenses of xeroxing various forms and transmitting others to Georgia Life's office in Huntsville, Alabama. At the suggestion of Messrs. Lunsford and Holmes, Ms. Smith met them Thursdays at Hardee's in Chattahoochee to settle accounts. In the restaurant she calculated the amount of commission their activities for the week had entitled the three of them to divide up. She offset chargebacks or the like against any monies otherwise payable to the men, then wrote them checks representing their shares. Georgia Life differs from some insurance companies in requiring only that the general agent forward to the company the net premium (the premium less the agent's commission.) Georgia Life does not require that the entire premium be forwarded to the company, or that the company be the only source of commission payments to its agents. Only rarely did Ms. Smith receive cash from Mr. Holmes or Mr. Lunsford. In the event either of them had received cash from an insured or an applicant for insurance, he ordinarily kept it and she treated it as an offset against the commission share she would otherwise have disbursed by check. For a while, the enterprise went forward more or less to the satisfaction of the principals, earning some $47,000.00 for Mr. Holmes. But Mr. Lunsford and Ms. Smith insisted, after he was legally authorized to do so, that Mr. Lunsford sign the policies written for Georgia Life. This assured that any commission the company owed an agent on account of a renewal premium would be paid to Mr. Lunsford. This circumstance and other matters of contention eventually caused the dissolution of the partnership between Mr. Holmes and Mr. Lunsford. Mr. Holmes felt he was entitled to more money. On September 28, 1990, Mr. Holmes told Mr. Lunsford that he wanted nothing further to do with either Georgia Life or Mr. Lunsford. On August 30, 1990, Messrs. Lunsford and Holmes had persuaded Alvin M. Stewart of Marianna to buy a medicare supplement policy, Georgia Life No. 310872. Petitioner's Exhibit No. 2. At the time, he gave them $246.20 in cash, and they gave him a receipt for that amount. Petitioner's Exhibit No. 3. On the receipt Mr. Lunsford wrote "BAL. $208.20 DUE on DELIVERY if DESIRED." Id. This reflected the parties' understanding that Mr. Stewart could obtain a year's coverage by paying the difference between what he had already paid and the annual premium. Properly accounted for by Mary Nell Smith, the appropriate fraction of the money collected from Mr. Stewart on August 30, 1990, went to the insurance company, which issued a policy originally written remain in effect for six months. On October 9, 1990, Mr. Holmes stopped by Mr. Stewart's house and collected $208.20 from Mr. Stewart. On the receipt Mr. Lunsford had signed and given to Mr. Stewart on August 30, 1990, Mr. Holmes wrote "PD-10-9-1990." Petitioner's Exhibit No. 3. Mr. Holmes did not give the money he collected from Mr. Stewart on October 9, 1990, to Mr. Lunsford, despite his testimony to that effect at hearing. Instead he appropriated it to his own use. On or about September 11, 1990, Messrs. Lunsford and Holmes had called on Rubbin B. Beck of Defuniak Springs. They induced him to execute an application for a Georgia Life medical supplement policy, No. 310956, Petitioner's Exhibit No. 7, and received a payment of $98.30 from him, representing an initial monthly premium payment and a $20.00 registration fee. Id. After an accounting on or about September 13, 1990, Mary Nell Smith mailed Georgia Life a check for $1951.50, an aggregate sum which included half the registration fee and two fifths of the monthly premium Mr. Beck had paid two days earlier. Later Mr. Lunsford and Mr. Holmes returned together to Mr. Beck's and received $354.20 from him. On October 4, 1990, Ms. Smith forwarded two fifths of this amount to Georgia Life with directions that the company "change to annual" the premium mode. On or about November 18, 1990, respondent Holmes called on Mr. Beck. He went alone, and received $437.40 in cash from Mr. Beck, the amount of the final instalment on the annual premium. He signed a receipt for this amount which he left with Mr. Beck. Petitioner's Exhibit No. 5. Despite respondent's claim that he gave this money to Ms. Smith, the money never reached Ms. Smith, Mr. Lunsford or Georgia Life. Mr. Holmes' misappropriations came to light after Messrs. Stewart and Beck received cancellation notices from Georgia Life and inquired of Mr. Lunsford regarding them. In each case, the policies were reinstated, and neither policy holder suffered actual damage.
Recommendation It is, accordingly, RECOMMENDED: That petitioner suspend any license it has issued that respondent now holds and deny any application for licensure or relicensure he may make for a period of three years. DONE and ENTERED this 6th day of November, 1992, in Tallahassee, Florida. ROBERT T. BENTON, II Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 6th day of November, 1992. APPENDIX Petitioner's proposed findings of fact Nos. 1, 3, 5, 7, 8, 10, 11, 13 and 14 have been adopted, in substance, insofar as material. With respect to petitioner's proposed finding of fact No. 2, the payment also included a registration fee. With respect to petitioner's proposed findings of fact Nos. 4, 6 and 12, sums Ms. Smith paid Messrs. Holmes and Lunsford were reduced by the amount she kept for herself. Also with respect to petitioner's proposed finding of fact No. 6, the premium forwarded to Georgia Life was $141.68, not $212.52. Respondent's proposed findings of fact Nos. 1 and 3 have been adopted, in substance, insofar as material. With respect to respondent's proposed finding of fact No. 2, respondent's appointment by Georgia Life ended in February, but he had terminated the partnership the preceding September. With respect to Respondent's proposed findings of fact Nos. 4 and 5 while Mr. Lunsford's testimony has not been credited in every detail, it was clearly and convincingly established that he never received the moneys in question. COPIES FURNISHED: Joseph D. Mandt, Esquire 412 Larson Building Tallahassee, FL 32399-0300 Clifford L. Davis, Esquire 1105 Hayes Street Tallahassee, FL 32301 Don Dowdell, General Counsel Department of Insurance Division of Legal Services 412 Larson Building, 200 East Gaines Street Tallahassee, FL 32399-0300 Tom Gallagher, State Treasurer Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, FL 32399-0300
Findings Of Fact National Benefit is a foreign corporation incorporated under the laws of the District of Columbia, organized for profit, and doing business in several states, including the State of Florida. National Benefit is authorized to write insurance in the State of Florida. Insurance Marketing Corporation (INC) operates as the marketing arm for Associated Direct Marketing Services (ADMS), which in turn is an affiliate of National Benefit and functions as the marketing company for National Benefit. INC prepares all of National Benefit's direct response marketing, including the advertisement at issue in this case. National Benefit is fully responsible for advertisements prepared by INC. National Benefit has advertised and is currently advertising insurance products, through the television medium, which are received by residents of the State of Florida. One such product is known as "Security Life TM." The television advertising at issue in this case is referred to as IMC- 103 and is a television commercial featuring Dick Van Dyke as the compensated spokesperson. Van Dyke states: "that National Benefit Life has found a way for you to get the protection you need . . . at a price you really can afford. Just $3.95 a month . . . ." At this point in the advertisement, superimposed on the screen are the words: "$3.95 a month (per unit)" At no time during this advertisement is there either an explanation of the use of units in which a common premium is specified or a description of varying benefit amounts according to age. During the advertisement, Van Dyke states that a forty-five (45) year old male consumer can obtain forty thousand dollars ($40,000.00) of coverage for just sixty-five cents ($.65) a day. However, the implication is that such coverage can be obtained for a monthly premium of three dollars and ninety-five cents ($3.95) because this figure is prominently displayed twice on the screen and Van Dyke mentions this figure twice within a 120-second period. In reality, the consumer must purchase five (5) units of insurance at a monthly premium of nineteen dollars and seventy-five cents ($19.75) to be eligible for the forty thousand dollars ($40,000) benefit advertised. At the advertised premium of three dollars and ninety-five cents ($3.95)(one unit) per month, a forty-five (45) year old male consumer would receive benefits of only six hundred ($600.00) in Term Life benefits if he dies a natural death at age seventy (70) while having paid in seven hundred eleven dollars ($711.00). A forty-five year old consumer purchasing five (5) units would obtain a forty thousand dollar ($40,000.00) benefit only if the consumer's death was caused by a covered accidental bodily injury and only after the first two years of coverage. The amount of coverage decreases as the policyholder's age increases. Death benefits are limited to premiums paid during the first two (2) years of coverage if death is caused by other than accidental bodily injury. The advertisement contains a 14-word superimposed summary of limitations on benefits which appear on the screen for approximately two (2) seconds. At the same time that the summary of limitations appears on the screen, Van Dyke is discussing something unrelated to the summary of limitations. There is no other explanation of these terms. A person of average education or intelligence cannot be expected to read or comprehend the afore-mentioned summary within the two (2) second period in which the summary appears on the screen. In fact, the undersigned was able to read only the first five words when the advertisment was shown. Van Dyke also states during the afore-mentioned advertisement, "Big Dollar Benefits." Using Van Dyke's example given in the advertisement, i.e., forty thousand dollars ($40,000.00) of coverage, a forty-five (45) year old male would have to purchase five (5) units of insurance, keep the policy in force, die before age forty-ninety (49), and die as a result of accidental bodily injury, directly and independently from all other causes, within ninety (90) days of the accident. None of these factors are mentioned in the advertisement. Likewise, a forty-five (45) year old male could purchase five (5) units of insurance, keep the policy in force until his natural death at age sixty (60), and have paid National Benefit a total premium of three thousand five hundred fifty-five dollars ($3,555.00), yet the policy would pay, because of decreasing benefits, a total benefit of only three thousand dollars ($3,000.00). The advertisement indicates "guaranteed acceptance" by superimposition and spoken text without explaining the limitations on benefits in a manner contiguous to and as prominent as the term. Taken as a whole, IMC-103 is deceptive and misleading advertising and has the capacity or tendency to mislead or deceive either by fact or implication. After the Notice and Order to Show Cause was received by National Benefit in November, 1987; it continued to run the subject advertisement on local television stations until February, 1988. The advertisement, when cancelled, was cancelled for poor response. National Benefit re-entered the spot market in Florida with this advertisement subsequent to its cancellations. National Benefit continues to show a commercial almost identical to INC-103 available for viewing in Florida by Cable T.V. National Benefit had actual notice of and access to the rules of the Department of Insurance regarding advertising, Chapter 4-35, Florida Administrative Code. National Benefit has a "compliance manual," but does not always follow the requirements set out in that manual. Repeated references to age and health emphasize the aspects of the policy which pay for death by natural causes over death by accident. The advertisement neglects objective information and obfuscates elements of cost. Taken as a whole, there is both direct and circumstantial evidence of a knowing intent to make a distorted presentation and to present less than a full, fair and accurate explanation of the policy through this televised advertisement. The advertisement involves a compensated person and includes identification of various toll-free telephone numbers which Florida residents are encouraged to use in order to receive additional information concerning the advertised insurance product. As a result of receiving a telephone inquiry from Florida residents, National Benefit also solicits its insurance products via U.S. Mail by sending consumers information packets called fulfillment kits containing various written material concerning its advertised product. At the time a consumer views the television advertisement, the consumer does not have the fulfillment kit available. The television advertisement is a separate advertisement and may in itself be deceptive and misleading. The television ad contains an "800" number that viewers can call to receive a fulfillment kit. The fulfillment kit contains an application for insurance. Once consumers receive a fuflment kit, if they wish to purchase insurance, they fill out the application and send it to the company. Because the next item received following the viewing of the T.V. commercial contains an application form, it is possible to purchase the insurance solely on the basis of Van Dyke's representations as to premiums and benefits. The statements of Van Dyke went beyond the parameters authorized in Rule 4-35.008, Florida Administrative Code, and constituted solicitation. Explanation of policy provisions including quotation of premiums and benefits are acts performed by a licensed agent and constitute solicitation. Van Dyke described coverages, benefits and premiums, and in doing so is acting as an insurance agent for National Benefit. Van Dyke is not licensed as an insurance agent in the State of Florida. No action has been brought by the Department against Van Dyke and Van Dyke is not a party to this action. Joe Plante, Vice-President of Direct Response Advertising Compliance for IMC, keeps up with the current rules and regulations of state insurance departments as they occur. In order to carry out this responsibility, Mr. Plante has a set of ACLI manuals relating to group insurance which are updated on a daily basis. He receives updates to the National Law Services Manual, and he attends regular NAIC meetings and ad hoc NAIC meetings, including the Delaware Valley Ad Hoc Committee. NAIC is an acronym for National Association of Insurance Commissioners. It meets three times per year for a day or two days for the purpose of discussing compliance issues. Mr. Plante also determines where advertising can be viewed and aired. In carrying out this responsibility he often requires that advertising materials be modified to comply with state regulations and he has taken advertising to the Florida Department of Insurance to be reviewed prior to use since 1981, even though such a review is not required by the Department. When a company submits an advertisement for review by the Department, if the analysts do not find any apparent violations, their usual procedure is to stamp the advertisement "Filed" and return a copy to the company. The same procedure may or may not be followed after apparent violations noted by the analysts have been corrected by the company. After a company has made all changes in its advertising requested by the Department, the Department's file is closed. Closing the file means that the advertising appears to be in compliance with applicable statutes and rules. A file may be reopened at any time. On November 25, 1986, Plante met with Department personnel regarding a television advertising script identified as IMC-115 and a fulfillment kit which the company planned to mail to viewers responding to the advertisement. Mr. Plante did not supply the Department with a videotape of the ad. The Department personnel took the advertising material to review and agreed to meet with Mr. Plante later that same day to offer their comments. The supervisor of the analyst who reviewed INC-115 told the analyst, in front of Mr. Plante, that he should review the T.V. script and solicitation letter only. The fulfillment kit and videotapes were not reviewed at that time. At the second meeting on November 25, 1986, Department personnel suggested various changes be made to the television advertising material which had been submitted. Mr. Plante returned to his office in Pennsylvania and directed that the changes suggested by the Department be incorporated in the television advertisements, with one exception. The Department's request that the compensated endorser's statement that "no agent will come to your home" be eliminated was not complied with because this would have entailed refilming the advertisements. On January 30, 1987, Mr. Plante submitted a videotape of a television advertisement identified as IMC-103 to the Department with a cover letter indicating that the requested changes had been made. IMC-103 is very similar to IMC-115, but not identical. No script was provided for IMC-103. On February 20, 1987, Department personnel sent a letter to Mr. Plante which states in part: "Once we have resolved this matter, the material appears to be in compliance with Florida advertising rules and regulations." Department personnel had not reviewed the videotape of IMC-103 prior to sending the letter. The television advertising identified as IMC-103 contains the words "Big dollar benefits," which were not contained in the script presented to the Department for review on November 25, 1986, and identified as INC-ll5. The Department closed its file on March 23, 1987. The compliance manual developed in September, 1986, by Mr. Plante for IMC states that Florida prohibits use of the term "No agent will call" and "No medical exam." However, the term "no agent will come to your home" was included in both IMC-115 and IMC-103. The manual contained these admonitions at the time IMC-115 was submitted to the Department for review. IMC began broadcasting IMC-103 in March, 1987, without further changes and spent in excess of $350,000.00 in broadcasting IMC-103 over the next year. In September, 1987, the Department began a review of medicare supplement and life and health insurance advertising. Department personnel were directed to obtain copies of the scripts and videotapes of insurance television advertisements, to review them, and to send the analysts' reviews to the legal office. In conjunction with this departmental review, Plante supplied the materials related to IMC-103. This action is a result of the September, 1987, investigation. Between March, 1987, when the Department closed its file on IMC-103 and November, 1987, when this action was brought, the Department clearly changed its policy regarding what statements by compensated endorsers constitute solicitation and what statements constitute an invitation to inquire. The Department has initiated rulemaking to reflect the Department's current policy in its rules. There is no definition of what constitutes deceptive or misleading advertising in the department's rules. In this case, both parties offered expert testimony of what the appropriate definition is. National benefit's expert, Phillip E. Downs, acknowledged that there are different definitions of deceptive advertising. The definition he supports is that advertising is considered to be deceptive if it includes untruthful claims that create belief levels in individuals that result in some purchase behavior that would result in some harm or damage to the consumer. Essentially, Downs' definition contains three elements: 1) requires that the advertisement contains statements which are untrue, and 2) which are believed by the consumer, 3) resulting in damage to the consumer. This definition is rejected as it does not conform to the statutory framework which recognizes that an advertisement can be either untrue, deceptive or misleading. Additionally, there is no statutory prerequisite involving the need to show damage to the consumer. Instead, the definition used and applied by the Department's expert, Richard W. Mizerski, is accepted and credited and it has been applied herein. That definition requires that the viewer be lead to believe things that are not true and it involved four factors: the probability of deception, the characteristics of the targeted audience, the materiality of the information, and the way the information is presented. An advertisement is deceptive if individuals have the capacity of taking away an understanding this is not based on reality or if they come away with a perception that is not realistic, given what the real situation is. It includes deception by omission. There is no necessity that actual injury occurs, but there must be a possibility of injury.
Recommendation Based upon the foregoing Findings of Fact and Conclusion of Laws, it is RECOMMENDED that the Department of Insurance, through the Insurance Commissioner, enter a Final Order and therein: Find National Benefit Life Insurance Company guilty of violating Sections 626.9521 and 626.9541 and Rules 4-35.004, 4-35.005, and 4-35.006(1)(a) and (f) and (2)(a). Dismiss the charges that National Benefit Life Insurance Company violated Sections 626.051 and 626.112. Impose an administrative penalty of $10,000.00 against National Benefit Life Insurance Company for the above mentioned violations. Find that the compensated spokesperson in IMC-103 does solicit insurance. Order National Benefit Life Insurance Company to cease and desist from using IMC-103 in Florida. DONE AND ENTERED this 12th day of August, 1988 in Tallahassee, Leon County, Florida. DIANE K. KIESLING Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division Administrative Hearings this 12th day of August, 1988. APPENDIX TO THE RECOMMENDED ORDER IN CASE NO. 87-5436 The following constitutes my specific rulings pursuant to Section 120.59(2), Florida Statutes, on the proposed findings of fact submitted by the parties in this case. Specific Rulings on Proposed Findings of Fact Submitted by Petitioner, Department of Insurance and Treasurer Each of the following proposed findings of fact are adopted in substance as modified in the Recommended Order. The number in parentheses is the Finding of Fact which so adopts the proposed finding of fact: 1(1); 2(2); 3(5); 4-19(4-19); 20(21); 21-39(47-65); 40-43(67-71); 46-51(22-27); 52(8); 53(9); 54(15); 55(20); 57(15); 58-62(28-32); 65 and 66(39); 67(38); 68(41); 69(42); 71(40); and 72-76(33-37) Proposed findings of fact 44, 56, 63, 64, and 70 are subordinate to the facts actually found in this Recommended Order. Proposed finding of fact 45 is irrelevant. Specific Rulings on Proposed Findings of Fact Submitted by Respondent, National Benefit Life Insurance Company Each of the following proposed findings of fact are adopted in substance as modified in the Recommended Order. The number in parentheses is the Finding of Fact which so adopts the proposed finding of fact: 1(1 and 2); 2(3); 12(31 and 35); 17-19(44-46); 29(63); 30(66); 34(69); and 38(70). Proposed findings of fact 3, 4, and 6-8 are unnecessary. 3. Proposed findings of fact 5, 9-11, 14-16, 22, 26-28, 31, 32, 35, 37, 39-46, 48, 49, 53, 55, 58-60, and 62-65 are subordinate to the facts actually found in this Recommended Order. 4. Proposed findings of fact 13, 33, 51, and 52 are rejected as being unsupported by the competent, substantial evidence. 5. Proposed findings of fact 20, 21, 23-25, 36, 47, 50, 54, 56, 57, and 61 are irrelevant. COPIES FURNISHED: Gabriel Mazzeo, Attorney at Law Susan F. Stafford, Attorney at Law Richard W. Thornberg, Attorney at Law Office of Legal Services 413-B Larson Building Tallahassee, Florida 32399-0300 Douglas A. Mang, Attorney at Law Charles T. Collette, Attorney at Law Edward W. Dougherty, Jr., Attorney at Law P. O. Box 11127 Tallahassee, Florida 32302 Stephen R. Herbert, Attorney at Law 900 Third Avenue New York, New York 10022 Honorable William Gunter State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300
