The Issue The central issue in this case is whether the Respondents are guilty of the violations alleged in the Amended Administrative Complaint; and, if so, what penalty should be imposed.
Findings Of Fact Based upon the testimony of the witnesses and the documentary evidence received at the hearing, I make the following findings of fact: The Department of Banking and Finance, Division of Finance, is charged with the responsibility of administering the provisions of Chapter 494, Florida Statutes. At all times material to the allegations in this case, Diko Investments, Inc. ("Diko") conducted business as a mortgage broker in Palm Beach County, Florida. At all times material to the allegations in this case, Dieter Kolberg ("Kolberg") was an officer, director, and acted as principal mortgage broker for Diko. Kolberg passed the mortgage broker's examination on May 28, 1985. Diko was issued a license as a mortgage broker with Kolberg as its principal broker on June 26, 1985 (license NO. HB-16568) Prior to May 28, 1985, Diko ran advertisements soliciting investors for mortgage opportunities. These ads included Kolberg's home telephone number. Prior to May 28, 1985, Kolberg/Diko entered into a business relationship with Michael D. Cirullo, a licensed mortgage broker, to "co-broke" mortgage transactions. Pursuant to their agreement, Cirullo represented the borrower/mortgagor while Kolberg obtained and represented the lender/mortgagee. Kolberg and Cirullo solicited and negotiated at least two loans prior to May 28, 1985. Kolberg acted in expectation of being paid as a mortgage broker. Cirullo remitted 50 percent of the commissions earned on these transactions to Diko. Diko stationery included the phrase "Licensed Mortgage Bankers." Neither Diko nor Kolberg has been licensed as a "mortgage banker." In August and September of 1985, investors, Marcel and Ida Barber, responded to a Diko advertisement which offered a 16 percent interest mortgage loan secured by prime residential real estate. The Barbers were interested in a safe, high interest yielding investment and requested more information from Diko. On September 23, 1985, Kolberg wrote to the Barbers to outline the following business policies of Diko: The first objective of the Diko lending program was "The Safety of the Investor's Capital." Any investment was to be secured by a mortgage on prime residential real estate clear of all liens with the exception of a first mortgage where a second mortgage would be given. Investors would be issued mortgagee title insurance to insure against loss due to defects in title to the mortgaged property. Investors would be issued fire and hazard insurance to cover any losses in the event of fire or storm. Subsequent to the receipt of the aforesaid letter, the Barbers decided to invest $25,000 in a mortgage through Diko/Kolberg. This initial transaction proceeded satisfactorily and the objectives addressed in paragraph 10 above were met. In late December, 1985, the Barbers advised Kolberg that they would be willing to invest an additional $50,000 in early January, 1986. The Barbers expected the transaction to be handled in the same manner as their prior investment through Diko. After reviewing two or three loan proposals, the Barbers chose to invest in a loan to Tony Medici/Automatic Concrete, Inc. The loan was to be secured by a second mortgage on property at 713-717 "L" Street, West Palm Beach, Florida. The "L" Street property consisted of a 24-unit apartment complex and an adjacent laundry facility. Kolberg accompanied the Barbers to view the property. During discussions with the Barbers regarding the proposed investment, Kolberg made the following false material representations: That the property had a high occupancy; That rental payments were guaranteed or subsidized by a government program; That the asset-to-debt ratio for the property was acceptable; and That a proposed expansion of the laundry facility would further enhance the security of the loan. Financial statements of the borrower (Medici/Automatic Concrete, Inc.) did not include all obligations against the "L" Street property. Diko/Kolberg did not give the Barbers an accurate or complete statement of the financial condition of the "L" Street investment. Kolberg knew the information on the statement was incomplete. Diko/Kolberg did not disclose to the Barbers the high rate of crime in the area which compromised the security of the "L" Street investment. Kolberg knew of the crime problem in the area. Diko/Kolberg did not disclose to the Barbers that foreclosure proceedings had been instituted against the "L" Street property. Kolberg knew of the foreclosure action as well as the delinquency on other obligations. Kolberg did not disclose to the Barbers that he represented, as trustee, a Kolberg family company which would directly benefit from the Barber loan. The Barber loan would satisfy a mortgage held by Kolberg, as trustee, on the subject property, which mortgage was in default and in the process of foreclosure (the Ropet Anlagen foreclosure). Kolberg did not disclose to the Barbers that another mortgage held on the "L" Street property (David Marsh loan) was also in default. A subordination agreement was required to be executed by Marsh in order for the Barber/Medici loan to close. Marsh agreed to subordinate his mortgage position for approximately $3,000 in arrear payments. Marsh was owed approximately $125,000 but chose to subordinate because by doing so he was able to recoup a small amount of what he considered a lost investment. Kolberg knew of Marsh's situation and did not advise the Barbers. The Barber loan to Medici/Automatic Concrete, Inc. closed on January 18, 1986. The Barbers delivered a check for $53,000 payable to the title company chosen by Diko. Neither Diko nor Kolberg gave the title company, Manor Title, closing instructions to protect the lenders' interests. Kolberg did, however, instruct the title company to list expenses relating to the Ropet Anlagen foreclosure against the Medici loan. Proceeds from the closing, in the amount of $50,000 were paid to Kolberg, as trustee for "Ropet Anlagen," and deposited to an account by that name. The name "Ropet Anlagen" translates to "Ropet Investments." Kolberg handles all transactions for this Kolberg family company in the United States. (Kolberg has two sons, Robin and Peter, from a former marriage. The name "Ropet" may derive from their names.) Kolberg's former wife, Patricia Kolberg, owns an interest in Ropet Anlagen. Regular monthly payments were made by Kolberg to Patricia Kolberg on a Ropet Anlagen account. Many of the checks drawn on the Ropet Anlagen account were for personal expenses of Kolberg or his business. The first mortgage on the "L" Street property was 45 days overdue on January 13, 1986. Kolberg knew of this delinquency but did not advise the Barbers. To the contrary, Diko gave the Barbers an estoppel notice from a prior closing showing the first mortgage to be current. The first mortgagee ultimately foreclosed its mortgage and the Barbers lost their entire investment. The Barbers did not receive a fire and hazard insurance policy to cover losses in the event of fire or storm for the "L" Street property. The Barbers did not receive a mortgagee title insurance policy until March, 1986, by which time the first mortgage was further in default. Additionally, the mortgagee policy disclosed a financing statement and a collateral assignment of rents recorded prior to the Barbers' mortgage.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED: That the Department of Banking and Finance, Office of the Comptroller, enter a Final Order revoking the mortgage broker license issued to Dieter Kolberg and Diko Investments, Inc. DONE and RECOMMENDED this 30th day of November, 1987, in Tallahassee, Florida. JOYOUS D. PARRISH 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 of Administrative Hearings this 30th day of November, 1987. APPENDIX Rulings on proposed Findings of Fact submitted by Petitioner: Paragraphs 1, 2, 3, 4 and 5 are accepted. Paragraph 6 is accepted; however, Kolberg's interest when financing with funds he controlled was only on a temporary, interim basis. The activities were conducted with Diko to receive a commission, therefore requiring a license. Paragraphs 7-15 are accepted. Paragraph 16 is accepted to the extent addressed in findings of fact paragraphs 12, 13. Paragraphs 17-18 are accepted to the extent addressed in findings of fact paragraphs 14, 18, 22. Paragraphs 19-27 are accepted. Paragraph 28 is rejected as immaterial and unnecessary. Paragraphs 29-42 are accepted. The detail of Petitioner's finding is unnecessary to the conclusions reached herein. Paragraphs 43-45 are accepted but unnecessary. Paragraph 46 is accepted. Paragraph 47 is rejected as unnecessary and immaterial. Paragraphs 48-52 are accepted. Paragraph 53 is rejected as unnecessary. Paragraph 54 is accepted. Paragraph 55 is accepted to the extent found in findings of fact paragraphs 20, 21. Paragraphs 56-57 are accepted. Paragraph 58 is accepted to the extent addressed in finding of fact paragraph 21. Paragraphs 59-63 are accepted but unnecessary. Paragraphs 64-65 are accepted. Rulings on proposed Findings of Fact submitted by Respondents: Paragraph 1 is accepted. Those portions of paragraph 2 which set forth Respondent's dates of testing and licensure are accepted, the balance is rejected as an erroneous conclusions of law. Paragraph 3 is rejected as contrary to the weight ofevidence. Paragraph 4 is accepted but irrelevant to the issue. Paragraph 5 is rejected as the transaction was solicited with Kolberg's company, Diko, participating as a mortgage broker. Paragraph 6 is accepted but irrelevant to the issue. Paragraph 7 is rejected as contrary to the weight of theevidence and law. Paragraph 8 is accepted but does not mitigate, as a matter of law, Respondent's improper useage of the phrase. Paragraphs 9-11 are accepted; however the detail of thefindings is unnecessary and immaterial to the issues of thiscause. Paragraphs 12-14 are accepted to the extent addressed in findings of fact paragraphs 12, 13 the balance is rejected as unnecessary and immaterial. Paragraph 15 is rejected as unnecessary, relevant portions having previously been addressed. Paragraph 16 is accepted. Paragraph 17 is accepted but is unnecessary. Paragraph 18 is rejected to the extent it qualifies Barber as a "Sophisticated Investor." The record is clear Mr. Barber was experienced in the laws of France; however, he relied on Kolberg completely as to both transactions which took place in Palm Beach. Moreover, Mr. Barber's useage and understanding of the English language was suspect. He could hardly be considered a "sophisticated investor" in light of the total circumstances. Paragraph 19 is rejected as contrary to the weight of the evidence. Paragraph 20 is accepted to the extent addressed in finding of fact paragraph 13, the balance is rejected as contrary to the weight of evidence. Moreover, it is found that the only times of capacity occupancy (which were limited) were due to temporary, transient, undesirable tenants who may have directly affected the crime problem. Paragraph 21 is accepted. Paragraph 22 is rejected as contrary to the weight of evidence. Paragraphs 23-24 are rejected as contrary to the weight of evidence. Paragraph 25 is accepted but is unnecessary. The crime problem was there prior to closing and was undisclosed to Barber. That it worsened after closing only assured the disclosure should have been made. Paragraphs 26-35 are rejected as contrary to the weight of the evidence. Many of the facts asserted here are based on testimony given by Kolberg. Respondents presume that testimony to be truthful, accurate, and candid. I found the opposite to be true. Paragraph 36 is accepted but does not mitigate Respondents' responsibilities to have completed the items at closing. Paragraph 37 is accepted with same proviso as above paragraph 36, ruling #22). Paragraphs 38-39 are rejected. See ruling #21. Paragraph 40 is accepted. Paragraph 41 is accepted but see findings of fact paragraph 21 as to Kolberg's useage of Ropet funds for personal expenses. Paragraphs 42-43 are rejected as contrary to the weight of the evidence. COPIES FURNISHED: Lawrence S. Krieger, Esquire 111 Georgia Avenue, Suite 211 West Palm Beach, Florida 33401 Keith A. Seldin, Esquire 1340 U.S. Highway #1, Suite 106 Jupiter, Florida 33469 Honorable Gerald Lewis Comptroller, State of Florida Department of Banking and Finance The Capitol Tallahassee, Florida 32399-0350
The Issue Whether Respondent has violated Section 627.8405, Florida Statutes.
Findings Of Fact Respondent, Capital National Financial Corporation (Capital), is transacting the business of insurance premium financing pursuant to a certificate of authority issued by the Petitioner, Florida Department of Insurance (Department). The Department is responsible for regulating the premium finance business affairs of Capital. On August 30, 1994, the Department issued a Notice of Intent to Non- renew Capital's certificate of authority to transact premium financing in Florida pursuant to Section 627.829, Florida Statutes. As authority for issuing the Notice of Intent to Non-renew, the Department cited two grounds. First, the Department alleged that Capital was illegally financing the purchase of automobile club memberships in conjunction with an insurance transaction, a violation of Section 627.8405, Florida Statutes. Second, the Department alleged that Capital was utilizing a form in conjunction with the premium financing transaction without the requisite Departmental approval, a violation of Section 627.838, Florida Statutes. The parties have stipulated that the only issue to be determined is whether there was a violation of Section 627.8405. Capital finances insurance premiums and has agreed to collect installment payments for automobile club memberships which the insurance agent sells to the customer when the customer is buying automobile insurance. The customer makes a down payment on the automobile club membership. Capital does not advance the remainder of the membership cost to the insurance agent. The customer executes a billing service disclosure form. The billing service disclosure form contains the following language: In conjunction with your insurance, you have purchased through your insurance agent the supplemental service disclosed above. The amount which you are charged for this supplemental service, after deduction of any down payment which you have paid, will be divided equally into monthly installments payable to Capital National Financial Corporation due at the same time, and in addition to, your monthly installment payable to Capital National for the financing of the purchase of your insurance. Capital National is acting as a collection agent for your insurance agent and is not charging any interest or other fee for collecting and processing the amount due for your purchase of this supplemental service. The monthly installment you will pay for the supplemental service will be added to the payment amount for your insurance and this aggregate amount will be reflected on your payment coupon. However, your insurance can not be cancelled by reason of your failure to pay the amount of the monthly installment attributable to the purchase of the supplemental service. The billing service disclosure form used by Capital is executed by the customer on the same day the premium finance agreement is executed. The billing disclosure form is a separate document from the premium finance agreement.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered finding that Capital National Financial Corporation did not violate Section 627.8405, Florida Statutes. DONE AND ENTERED this 8th day of January, 1996, in Tallahassee, Leon County, Florida. SUSAN B. KIRKLAND 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 8th day of January, 1996. APPENDIX TO RECOMMENDED ORDER, CASE NO. 95-1944 To comply with the requirements of Section 120.59(2), Florida Statutes, the following rulings are made on the parties' proposed findings of fact: Petitioner's Proposed Findings of Fact. Paragraphs 1-4: Accepted in substance. Paragraphs 5-19: Rejected as unnecessary. Paragraph 20: Rejected as not supported by the record. Capital disputes that they are "financing" the automobile club fees. Paragraphs 21-23: Accepted in substance. Paragraphs 24-29: Rejected as unnecessary. Respondent's Proposed Findings of Fact. Paragraphs 1-4: Accepted in substance. Paragraphs 5-6: Rejected as unnecessary. Paragraphs 7-11: Accepted in substance. Paragraphs 12-13: Rejected as unnecessary. COPIES FURNISHED: Alan J. Leifer, Esquire Department of Insurance/Legal Services East Gaines Street Tallahassee, Florida 32399-0333 Alberto R. Cardenas, Esquire Matias R. Dorta, Esquire Tew & Garcia-Pedrosa South Biscayne Boulevard Miami, Florida 33131-4336 Bill Nelson State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Dan Sumner Acting General Counsel Department of Insurance The Capitol, PL-11 Tallahassee, Florida 32399
Findings Of Fact At all times material to this case, and at the time of the hearing, Charles Joseph Maher ("Respondent") was licensed in Florida as a life and health agent and general lines agent, doing business as "Maher Insurance". Medford On or about December 13, 1989, the Respondent completed an application for insurance and received a check in the amount of $557.00 from Kenneth Medford of North Fort Myers, Florida for automobile insurance to be issued by Atlanta Casualty Company. The check was made payable to the insurer. Although Mr. Medford testified that the Respondent told him the coverage would be bound, the insurance application clearly provides that the coverage was not bound at the time the application was completed. The Respondent mailed the application and check to Atlanta Casualty Company. Neither the application nor the check were received by Atlanta Casualty Company. There is no evidence that the Respondent mishandled the application and check or converted said funds to his own use. The check tendered by Mr. Medford has never been deposited and has never cleared the Medford checking account. Grandpa's Cycle Center On or about October 24, 1990, the Respondent received a check in the amount of $482.50 from Grandpa's Cycle Center of Fort Myers, Florida, constituting the estimated down payment on liability insurance to be issued by Bankers Insurance Company through the Florida Joint Underwriters Association. The actual down payment on the liability insurance was $250.00 which was remitted in the due course of business by the Respondent to Bankers Insurance Company. The policy was subsequently issued. A representative of the Respondent thereafter contacted Grandpa's Cycle Center and informed the insured that a refund of the excess down payment was due to the insured. The insured directed the Respondent's representative to retain the excess pending further direction. In part due to other matters not addressed by the Administrative Complaint filed in this case, the business relationship between the Respondent and the insured became somewhat strained and the insured terminated the relationship. On or about January 3, 1991, the Respondent tendered a check for $355.00 to the insured. The Respondent identified the total amount tendered to include a refund of $232.50 excess down payment and the remainder as "return premium" for a policy which had apparently been cancelled in August, 1990.
Recommendation Based on the foregoing, it is hereby RECOMMENDED that the Department of Insurance enter a Final Order dismissing the complaint filed against Charles Joseph Maher. DONE and RECOMMENDED this 9th day of February, 1993, in Tallahassee, Florida. WILLIAM F. QUATTLEBAUM 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 9th day of February, 1993. APPENDIX TO RECOMMENDED ORDER, CASE NO. 92-0490 The following constitute rulings on proposed findings of facts submitted by the parties. Petitioner The Petitioner's proposed findings of fact are accepted as modified and incorporated in the Recommended Order except as follows: 3-4, 7. Rejected, not supported by the greater weight of the evidence. Respondent The Respondent's proposed findings of fact are accepted as modified and incorporated in the Recommended Order except as follows: 3(a)-(k), 5(a)-(m). Rejected as cumulative or unnecessary except as otherwise adopted in this Recommended Order. COPIES FURNISHED: Tom Gallagher State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Bill O'Neil, General Counsel Office of State Treasurer The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Lisa Santucci, Esq. Division of Legal Services 412 Larson Building Tallahassee, FL 32399-0300 Charles J. Maher Post Office Box 1420 Fort Myers, Florida 33902-1420
The Issue Whether Respondents committed the violations alleged in the Administrative Complaints, and, if so, what penalties should be imposed on either or both of them.
Findings Of Fact Based on the oral and documentary evidence presented at the final hearing and on the entire record of this proceeding, the following findings of fact are made: Respondent, Eduardo Enrique Mendez ("Mendez"), at all times material to this matter, was a licensed insurance agent subject to the regulatory jurisdiction of the Petitioner. Petitioner issued Mendez license number A176292. Mendez is licensed as a 2-18 life and health agent and a 2-20 general lines agent for the sale of property and casualty. Mendez first started in the insurance business in 1969 while in Panamá. He came to the United States in 1988. In South Florida, he has been known as "Mr. Panama" in the insurance industry for approximately 20 years. Respondent, Insurance Resources of the Americas, Inc. ("Insurance Resources"), is and was, at all times material in this matter, a corporation registered as a Florida insurance agent subject to the regulatory jurisdiction of Petitioner, having been issued license number R054007. Mendez is the corporation's owner and president. Insurance Resources typically handles all kinds of property and casualty insurance, but for approximately the last six years has specialized in the used car dealer business by providing bonds for the car dealers to open their operation. Bass Underwriters ("Bass") is a managing general agent which works with insurance agents who purchase insurance for their customers. Bass has no direct relationship with the customers only with the retail agent who is responsible for collecting the premium. On January 22, 2003, Insurance Resources, as producer, and Bass signed a producer agreement which allowed Insurance Resources to sell insurance through Bass or certain carriers that Bass obtains as a wholesaler. Insurance Resources received commissions as compensation under the agreement. The agreement contained a provision which guaranteed the collection of additional premiums that might arise as a result of an audit of the insurance customers. The provision provided in relevant part: Producer shall be liable to Bass Underwriters, Inc. for the full amount of premium, fees and applicable sum taxes, less commission, including additional and/or adjustable premiums developed under audits or applicable rating plan on every insurance contract placed by Producer through Bass Underwriters, Inc. Producer shall remit Twenty Five Percent (25%) of the premium upon binding. The full amount of premium, fees and applicable state taxes, less commission is due to Bass Underwriters, Inc. not later than the 15th day of the first (1st) month after the effective date of such contract, audit, rating plan, or other adjustment. During the term of the producer agreement, three policies were issued that Bass determined additional premiums were owed by Insurance Resources. On June 29, 2005, Bass notified Insurance Resources by invoice that an additional premium was owed for the insured, L. Boulevard Café, in the amount of $6,955.00. L. Boulevard Cafe, a restaurant, obtained a Century Surety policy through Insurance Resources effective November 15, 2004. In making the application, the restaurant declared a certain amount of projected sales. The premium was based upon the total sales recorded by the customer. Century Surety did a self audit and determined that the amount of sales was significantly more than the coverage. Subsequently, the carrier went back and assessed additional premiums to make up the difference between the amount of coverage represented and the self reported amount, which totaled $6,955.00. Around August 2005, after receiving the Bass invoice with the additional premiums, Insurance Resources notified L. Boulevard Café about the invoice and explained that the additional insurance premium of $6,955.00 was owed because of the difference in the amount calculated from the audit. Mendez notified Rafael Garcia, prior owner of L. Boulevard Café, about the additional insurance premium but L. Boulevard Cafe was having financial problems. L. Boulevard Café never made the additional premium payment. On July 1, 2005, Bass notified Insurance Resources by invoice that an additional premium was owed for the insured, Winner's Circle, in the amount of $418.00. Winner's Circle obtained a XL Specialty Insurance Company policy through Insurance Resources effective May 23, 2005. An inspection was performed after the policy quote was bound and issued. The subsequent inspection concluded that the construction code of the building was different from the construction code represented on the application. The difference triggered a premium increase of $418.00. When Insurance Resources found out about the additional premium for Winner's Circle, Mendez sent an invoice explaining the increase and requesting payment. Winner's Circle refused to pay the amount because the policy was issued under a lower premium. Winner's Circle decided not to keep the policy when Respondent requested that they make payment of the additional premium amount and the balance of the premium on the policy. Payment was never made. The policy was cancelled. The account was credited and the final total owed was $160.40, which Bass became responsible for with the carrier. On July 11, 2005, Bass notified Insurance Resources by invoice that an additional premium was owed for the insured, Venecar, Inc., in the amount of $1,298.00. Venecar, a small used car dealership, obtained a Century Surety policy through Insurance Resources effective July 18, 2004. The insurance inspectors did an inspection after the policy was issued and determined that one more employee and driver than had been represented in the application existed and that employee generated a change in the rating for the premium, which Bass ultimately decided was an additional premium of $1,298.00. After Insurance Resources learned about the results of the inspection, Mendez called Bass and told Ms. Rodriguez, the accountant, that the premium increase of $1,298.00 was too high and could not be the proper rate for one driver because one driver should be around $400.00. Bass ignored Mendez's proposition. Subsequently, Mendez told Venecar about the outstanding premium amount owed and they refused to pay. Insurance Resources followed up and contacted Venecar several more times requesting the additional premium payment to no avail. Soon thereafter, Venecar closed. Mendez reported his efforts to Bass while he tried to collect the three changed premium amounts. Insurance Resources never collected the additional premium from L. Boulevard Café, Winner's Circle, or Venecar even though Mendez repeatedly sought to get the outstanding premiums from all three insured customers. Despite Respondents best efforts, they never received any of the additional premiums that accrued. Bass still expected Insurance Resources to pay the additional premiums pursuant to the producer agreement. On May 1, 2006, Bass sent Insurance Resources a statement of account. The invoice statement informed Insurance Resources that the premium due for the three different accounts totaled $8,021.39. The statement outlined the amount owed from each insured. After Bass made several demands for the three accounts, Bass submitted the account to collections and the matter ultimately ended in litigation. On November 5, 2007, a final judgment was entered against Insurance Resources in favor of Bass for the principal of $8,021.39, costs of $275.00, and prejudgment interest of $1,298.14, for a total of $9,594.53. The judgment remains unsatisfied. On February 15, 2008, Insurance Resources paid $1,919.00 on the judgment. On February 29, 2008, Insurance Resources paid $640.00 on the judgment. There is a balance owed of $7,035.53. Insurance Resources also had a relationship with AAPCO, a premium finance company that financed the balance of what an insured could not pay. Respondent Insurance Resources was an authorized entity to accept premium finance contracts utilizing AAPCO premium finance. Insurance Resources had the authority to write check drafts on AAPCO's bank account for the entire premium amount owed on a customer's insurance policy and remit it to the insurer. Respondent would then submit the policy application together with the premium down payment received from the consumer to AAPCO, which would finance the rest of the policy premium. In 2009, Insurance Resources was having problems financially. Mendez approached Mrs. Blanco, AAPCO's office manager, and told her Insurance Resources sales had dropped fifty percent. Mendez, on behalf of Insurance Resources requested to make a payment arrangement.1 Blanco refused to make any type of arrangements. She insisted that Insurance Resources pay everything up front. Mendez approached her several more times but she would not negotiate. At one point, Mendez even requested that AAPCO place the $4,000.00 in producers fees owed to Insurance Resources against the monies owed and she refused to pay Respondent the $4,000.00 In 2009, Mendez submitted three checks to AAPCO's as down payments for insureds' accounts. Check number 1347 was for $10,228.47. The check was from account number 2000034377804 Mr. Panama Inc.'s account. Check number 1342 was from the same account in the amount of $2,828.15. However, check number 159 was for $3,368.44 from Insurance Resources account number 2000040742805. Checks 1347, 1342, and 159 totaled approximately $16,425.00. The funds were intended to be premium down payments on insurance policies purchased by Florida insurance consumers. Insurance policies were issued for each of the checks for down payments for insured's accounts Insurance Resources submitted. AAPCO deposited the three checks and they were submitted to the bank for negotiation. Each check was returned for insufficient funds. AAPCO attempted to collect the money for the three checks that were returned for non-sufficient funds. AAPCO demanded payment of the funds and even called Mendez in an effort to collect the funds. Mendez admitted at hearing that the three checks bounced because he had used the funds for his business operating account since the business was doing bad financially. Insurance Resources had not yet repaid AAPCO their monies owed for the three checks. AAPCO has suffered a financial loss due to nonpayment. After nonpayment, AAPCO turned the matter over to AAPCO's legal department. After an investigation, Petitioner charged Respondents with numerous violations by separate Administrative Complaints dated April 21, 2010. The Charges: In Count I of the Administrative complaint filed against Mendez, Petitioner charges Mendez with violations of sections 626.561(1), 626.611(7), (9), (10), and 626.621(4), Florida Statutes, for failing to remit all premiums due to Bass. In Count II, Petitioner charges Mendez with violations of sections 626.561(1),626.611(7), 626.611(9) and (10), and 626.621(4) for submitting the three checks to AAPCO in payment of the policy down payment premiums that were returned for insufficient funds and not repaid after demand. In Count I of the Administrative complaint filed against Insurance Resources, Petitioner charges Insurance Resources with violation of sections 626.561(1),626.6251(5)(a),(d),(f),(j), and (k) for failing to remit all premiums due to Bass.2 In Count II Petitioner charges Insurance Resources with violations of sections 626.561(1), and 626.6251(5)(a),(d), (f),(j), and (k) for remitting three checks to AAPCO in payment of the policy down payment premiums that were returned for insufficient funds and not repaid after demand.
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 that: (a) finds Respondents not guilty as charged in Count I, of the Administrative Complaints; (b) finds Respondents guilty in Count II; (c) suspends Respondent Mendez's license for 12 months with reinstatement conditioned upon repayment to AAPCO; and (d) suspends Respondent Insurance Resources' license for three months with reinstatement conditioned upon repayment to AAPCO. DONE AND ENTERED this 28th day of February, 2011, in Tallahassee, Leon County, Florida. S JUNE C. MCKINNEY 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 28th day of February, 2011.
Findings Of Fact The administratively complaint alleges that Respondent violated the provisions of Section 517,16(1)(a), F.S. by having sold notes, which were securities as defined by Section 517.02(1), F.S., which were unregistored in violation of Section 517.07, F.S., and having represented that said notes were secured by first mortgages when in fact they were not so secured in violation of Section 517.16(1)(d), F.S., on two occasions to Joseph M. and Patricia Barton. The first sale is alleged to have occurred on June 14, 1974, in the amount of $15,000, and the other sale is alleged to hake occurred on September 29, 1973 in the amount of $5,000. The Petitioner introduced Exhibit 1 which was received and which indicates that only the common stock of Equitable Development Corporation was registered with the State of Florida, Division of Securities. The Petitioner presented no evidence relative to the alleged sale occurring on June 14, 1974. It is therefore not proven. The Petitioner called Gregory Stevens who was the sole witness at the hearing and who was a license securities salesman and licensed mortgage broker. In September 1973 Stevens was self employed doing business for Gregory Stevens, Investment Incorporated. Stevens stated that he dealt in first mortgages. Respondent testified that he obtained the mortgage documents through Financial Resources Corp., the president of which was Mr. Rinehart. Respondent was assured by Mr. Rinehart before he began handling these mortgages that they were not required to be registered as securities because they ware exempt, and that the State had so indicated for this type of transaction. Respondent testified that he sold a note and mortgage to his clients, Joseph and Patricia Barton, in his capacity as a licensed mortgage broker on behalf of Gregory Stevens Investments, Inc., of which he is president. Exhibit 10 is a sample order form for another contract which shows that such transactions were in the corporate entity. Respondent's uncontroverted testimony was that only he individually is licensed to sell securities, and that no mortgages were sold as securities. The evidence is that on September 29, 1973, a promissory note of the Equitable Development Corporation was issued to Joseph and/or Patricia Barton, secured by a Mortgage Deed issued by Equitable Development Corporation. The face amount was $5,000. The Bartons also received a quitclaim deed. The mortgage deed specifically covenants that the underlying property is free and clear of all encumbrances except current and future real estate taxes. Respondent testified that he physically examined the property which secured the mortgages and it looked good. He saw appraisals at double the face amount of the mortgages he sold. Those clients who requested title insurance or opinions of title from a lawyer could obtain same, and when they were requested he saw then and they never showed any defects or other encumbrances. This was the procedure followed with the Bartons, although neither title insurance nor a title search and opinion were obtained requested by the Bartons. The Respondent indicated that at the time of said sale to the Bartons that he believed, and had no reason not to believe, that said mortgage was a first mortgage as it recites on its face. The Hearing Officer notes that Section 517.06(7), F.S., 1973, was amended effective October 1, 1973, and the Barton transaction took place on September 29, 1973. Therefore, the applicable provision is the unamended law found at Section 517.06(7), F.S.A. Regarding the law existing at the time and its interpretation, the Respondent also introduced Exhibit 2, 4, and 5 which letters indicate that the sale of notes secured by mortgages would be exempt from registration as exempt transactions pursuant to Section 517.06(7), F.S.A., and setting forth guidelines for exempt transactions. Without dealing with the question of estoppel, these exhibits state the agency's interpretations of the then existing law. The Hearing Officer finds the agency's interpretation as set out in Exhibits 2, 4, and 5 is an accurate interpretation of the statute. The Hearing Officer finds that a note is a security as defined in Section 517.02(1), F.S. Regarding the allegation that the note sold to the Bartons was an unregistered security, it is admitted that it was not registered, however, the Respondent asserts that the sale was a transaction exempted under the provisions of Section 517.06(7), F.S.A. Having examined the note and mortgage in question, the Hearing Officer finds that the note and entire mortgage securing it were sold in a single sale to one purchaser. The note and mortgage do not indicate any expressed recourse agreement or guarantee as to repayment of interest, principal, or both offered in connection with the sale. While the Respondent could not specifically recall the Barton transaction, he testified that purchasers were generally shown the property, an assessment of the property prepared by an appraiser indicating each lot's value, and it was represented that they would receive a first mortgage securing the note on lots worth two times the value of the note. There was no showing that the Respondent knew or should have known the mortgage to the Bartons was not a first mortgage and title to the property not clear. The transaction of September 29, 1973, was exempt under the law existing at that time. The Petitioner therefore has failed to show any violation of Section 517.16(1)(d), F.S.
Recommendation The agency having failed to show a violation of Section 517.16(1)(d), F.S., by the Respondent and the Hearing Officer having found that the September 29, 1973 transaction was exempt recommends that the charges be dismissed. DONE and ORDERED this 27th day of February, 1976. STEPHEN F. DEAN, Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 (904) 488-9675 COPIES FURNISHED: Fred O. Drake, III, Esquire Counsel for Petitioner Charles W. Musgrove, Esquire Counsel for Respondent
Findings Of Fact Based upon the evidence adduced at hearing, the factual stipulations into which the parties have entered, and the record as a whole, the following Findings of Fact are made: From approximately October of 1989, to February of 1990, Respondents were employed as telephone consultants by United Financial International, Inc. (hereinafter referred to as "UFI"), a Florida-based business owned by Laura Correa and Anita "Ann" Cuevas that offered to provide assistance to consumers seeking various types of loans, including mortgage loans. Respondents were not then, nor have they ever been, licensed by the Department as mortgage brokers in the State of Florida. Furthermore, at no time did UFI have a license or registration issued by the Department to operate as a mortgage broker, mortgage brokerage business, correspondent mortgage lender or mortgage lender, although it did have at least one employee during the period of Respondents' employment, telephone consultant John Archer, who possessed a Department-issued mortgage broker's license. As telephone consultants for UFI, Respondents answered and screened telephone calls placed by potential UFI clients. Among the callers Respondent Cook screened were Dudley Phipps and Arthur McCullough. Among the callers Respondent Jelich screened was Connie Wiscaver. Phipps, McCullough and Wiscaver were all interested in obtaining mortgage loans. While on the telephone with a potential client, Respondents, as a general rule, identified themselves by name, explained to the caller the services offered and fees charged by UFI, and obtained from the caller the following information, which they recorded on a form provided by their employer: the caller's name, address, telephone number, date of birth, social security number, employer, salary, financial standing, and credit history; and the type, amount and purpose of the loan sought by the caller. Respondents also typically asked what the caller hoped for in terms of interest rate, size of monthly payments and loan repayment schedule. In addition, they indicated what items the caller needed to send to UFI to complete the caller's loan application package. The representations that Respondents made during a typical telephone conversation with a potential client seeking a mortgage loan gave the impression that, if the caller submitted a complete loan application package along with the requisite loan application processing fee, and everything "checked out," Respondents would make the arrangements necessary for the caller to obtain the mortgage loan he or she wanted from one of the lenders with whom UFI had an established relationship. UFI management, in writing, instructed all of its telephone consultants, including Respondents, to incorporate the following in their presentation to potential clients and it randomly monitored the consultants' telephone conversations to make sure that these instructions were being followed: We Co-Broker loans. We are not lenders nor do we have a Funding Committee to evaluate the Loan Package after we receive it. It takes twenty one (21) to thirty (35) [sic] business days from the day we receive ALL the information to evaluate the package. We have an application Fee of $399.00. MANDATORY Please use these statements to increase your credibility and assertiveness with potential clients. The maximum life of the loan will be determined by the investor/lender. The interest rates will be fixed and vary between 12-18 percent. The application fee is non-refundable and the assessed fees to your loan are separate from the application fee. There will be a Brokerage fee of 1-5 percent assessed to your loan upon closing. To increase your potential, please make sure when your [sic] finishing with your potential client to ask them [sic] when they [sic] would like to obtain a loan. Also in your closing statements be sure to tell your client to Bill Recipient with our Federal Express/Express Mail Service to Guarantee overnight delivery. Be advised this is for the return of the Application Fee Only! The application istself [sic] is returned at the client's own expense. The client may pay the application fee by personal check; however, as the checks will be out-of-state it will take approximately (21) days for the check to clear which will hold up the clients [sic] processing. Therefore, we recommend a money order to expidite [sic] the process. We do not like to use regular mail for sending the money orders, we rather the client use our courier sevice [sic]. (see above) If you need assistance please do not hesitate to phone us at 1-800-729-5666. We want to help you secure the funds you require as soon as possible. We sincerely thank you for giving us the opportunity to serve you. In most cases, Respondents followed these instructions. As compensation for performing their duties as UFI telephone consultants, Respondents received a percentage (either 20 or 30 percent) of the non-refundable loan application processing fee submitted by each caller whose call they screened. In an effort to encourage a caller to submit the fee, Respondents sometimes told the caller that, based upon the preliminary information provided, the chances of the desired loan being approved "looked good." They never stated, however, that loan approval was "guaranteed."
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is hereby RECOMMENDED that the Department enter a final order finding Respondents guilty of having violated Section 494.093(1), Florida Statutes (1989), as alleged in the Administrative Complaint, and imposing upon each of them an administrative fine of in the amount of $5,000.00 for having engaged in such wrongdoing. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 19th day of August, 1994. STUART M. LERNER 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 19th day of August, 1994.
Findings Of Fact At all times pertinent to the issues herein, the Department of Insurance was the government agency in Florida responsible for the licensing of insurance agents and the regulation of the practice of the insurance profession in this state. Respondent, Alan Chappuis, was licensed in Florida as a life insurance agent, health insurance agent, general lines agent, and a life, health and variable annuity contracts salesman. Erna Swan, an 84 year old twice widowed lady, and the individual to whom Respondent sold the annuity policies in question, was unable, at the time of the hearing, to recall the names of either of her former husbands or when they passed away. She recalls that both husbands worked in insurance and that she has lived in the Pinellas County area for a long time, but cannot recall for how long. Mrs. Swan lives alone and can cook for herself and bathe and dress herself, but does not know how much her current income is or the source of that income. She was able to recognize Respondent as her insurance agent of several years standing, but cannot recall whether she ever purchased anything from him, and she does not know what Guarantee Trust Life Insurance Company is. She does not know what an annuity is or whether she ever wanted to buy one from the Respondent. By the same token, she cannot recall if he ever tried to sell her an annuity. Mrs. Swan has known Nadine Hopkins, a close friend, for about 10 years. She also recognizes Mr. Wells and Mr. Tipton, her attorney and stock broker respectively, but does not know what they do. Mrs. Swan maintains a room in her condominium apartment which she uses for an office where, before she was placed under the guardianship of Ms. Hopkins, she paid her bills and kept her business records, such as they were. She recalls that she had a brokerage account with Merrill Lynch but cannot remember what it was for or what type of securities were in it. She is familiar with Bayridge Baptist Church, of which she is a member, and she recognizes that she has given money to the church over the years. Mrs. Swan's driver's license was cancelled several years ago because, according to Ms. Hopkins, she felt she could not take the test required to renew it. Mrs. Swan does not recall this though she remembers she used to own a car. She cannot remember what kind it was. Mrs. Swan's apartment is paid for. There are no mortgage payments. She claims she still writes checks for her monthly bills by herself, but also notes that Ms. Hopkins does it. More likely it is the latter. She still answers her phone, answers her mail, and reads the newspaper. She is, however, obviously incompetent to testify to the nature of an annuity, and it is quite clear that at this time she would be unable to understand the provisions of an annuity contract and the difference between an annuity contract and an investment portfolio in another product. Mr. Tipton, formerly a stock broker with Merrill Lynch, first met Mrs. Swan in the early 1960's through a family member who worked at the family insurance agency. At that time Mrs. Swan and her husband had purchased the agency from his family, and in the years following the Swans stayed as friends of Mr. Tipton. Mr. Tipton became an investment advisor in 1981 to Mr. Swan who passed away sometime in either 1985 or 1986. He started buying U.S. Government bonds and thereafter moved to tax free investments. When Mr. Swan passed away, Mrs. Swan became the owner of the account. During 1992 and 1993, Mr. Tipton would see Mrs. Swan once or twice a month. At that time, toward the end of 1993, it was clear to him that her memory appeared to be slipping. She would not remember things they had talked about and was unable to participate fully in the decisions made on her investments. At the end of 1993, Mrs. Swan's portfolio with Merrill Lynch was valued at approximately $360,000, plus a money market balance of $18,000. The account statement for October, 1993 reflected she had 5 municipal bonds valued at $80,000, tax free bond funds valued at $273,620, and approximately $18,000 in money market funds. Her estimated annual income from the bonds was approximately $6,631, or approximately $520.00 per month. Her tax free bond funds income returned approximately $1,200 per month, and her Nuveen Fund, approximately $50.00 per month, giving her a grand total of approximately $1,800 per month investment income in addition to her Social Security monthly payment of somewhat in excess of $650. On December 20, 1993, Mr. Tipton, as a representative of Merrill Lynch, received a letter moving Mrs. Swan's account to another brokerage firm, located in Texas, but with a local representative. At that time, Mr. Tipton tried to stop the transfer by contacting his main office, but was advised that by the time he had received the letter, the transfer had been completed. Mr. Tipton wanted to stop the transfer because when he called Mrs. Swan to inquire about it, she indicated to him that she did not want her account moved. Several weeks later, Mrs. Swan called Mr. Tipton to find out where her Merrill Lynch monthly account statement was. She did not recall at that time that her Merrill Lynch account had been closed and the securities therein transferred to the Texas brokerage concern. Because of this call, sometime in early January, 1994, Mr. Tipton called Mr. Wells, Mrs. Swan's attorney, and set up a meeting for the three of them. There were approximately three meetings of the three of them between January and March, 1994. The substance of their discussions was the fact that the broker to whom the Merrill Lynch account had been transferred had liquidated her entire account and used the proceeds thereof to pay for the annuities sold to Mrs. Swan by Mr. Chappuis and his associate, Mr. Mednick. According to Mr. Tipton, up until this time, Mrs. Swan had never indicated any dissatisfaction with the interest and income she was earning on her Merrill Lynch brokerage account. Mr. Tipton absolutely denies there was any churning of her account to garner more commissions. The only transfer was a sale at a premium in February, 1993 of bonds of the Jacksonville Electric Authority to create more capital for investment to provide greater income. The brokerage account owned by Mrs. Swan was not insured against loss of principal though many of the particular funds in which much of the money was invested were, however, individually insured. In 1990, Mrs. Swan's account, which had been in her name individually, was transferred to a trust account of which she was the beneficiary for life, with the provision that at her death, the funds therein would be distributed to various religious organizations and a few friends. Mrs. Swan had no family heirs. No commission was earned by Mr. Tipton on the transfer, though he did receive a commission on both the above-mentioned sale of the Jacksonville Electric bonds and the purchase of a tax free bond fund with the proceeds. Her brokerage account permitted her to write checks on the funds in the money fund. Mr. Tipton claims he never engaged in a transaction regarding Mrs. Swan's account without first talking to her about it. In his opinion, whenever he did make a change she appeared alert and aware enough to participate effectively. The last major transaction was the 1990 bond sale, however. Mrs. Hopkins and Mrs. Swan attend the same church. In late 1993 or early 1994, Respondent's business card was always on Mrs. Swan's refrigerator. At no time did she ever speak disparagingly of him to Mrs. Hopkins, or complain about any insurance product he sold her. Mrs. Hopkins was not Mrs. Swan's guardian at that time and Mrs. Swan was paying her own bills, however not effectively. She was late getting them out and complained it was becoming difficult for her to type out the checks. According to Mrs. Hopking, Mrs. Swan was not extravagant in her spending. She did not take cruises, go to expensive restaurants or buy a lot of clothes. Mrs. Swan, in Ms. Hopkins' opinion, lived comfortably. She was generous in the terms of her charitable contributions. Since being appointed Mrs. Swan's guardian, Mrs. Hopkins had seen her financial records and she knows that Mrs. Swan donated a lot of money to various churches and religious organizations. Mrs. Swan received many requests for donations and indicated that as long as she had the money to give she would do so. In later years, however, as Mrs. Hopkins recalls, it became a physical and mental burden for Mrs. Swan to write the checks, and she frequently commented on this. Mr. Wells is Mrs. Swan's attorney, specializing in estate and trust planning. He met Mrs. Swan through a friend in 1990 and began to serve as her estate planner. In the spring of 1994 Mr. Wells met with Mr. Tipton and Mrs. Swan regarding the Respondent's sale of her security portfolio and the purchase of the two annuities in issue here with the proceeds. At that time Mrs. Swan seemed to have no knowledge of the transaction. As a result, he called Guarantee Trust Life Insurance Company to get some information on what needed to be done in order to bring about a recision of the policies, but before any action was taken, the entire matter was turned over to Mr. Keirnan, another attorney, who does trial work. As a result of Keirnan's efforts, approximately two weeks before the hearing, Mr. Wells, on behalf of Mrs. Swan, received a check in the amount of approximately $372,000 from Guarantee Trust and Life Insurance Company as full reimbursement of the premiums paid for the two annuities in issue. From the time the annuities were issued in December, 1993 and January, 1994, Mrs. Swan had only her Social Security check to live on. She also received a check from Guarantee for $5,000, at her request, at the time the policies were issued as the balance in her brokerage account over the amount required as premiums for the annuities. She received nothing from her annuities which, as set up, did not call for the payment of any monthly income. As a result, Mr. Wells felt it necessary to borrow between $15,000 and $20,000 at 8 percent for Mrs. Swan from other trusts he managed to provide funds for Mrs. Swan to live on. From the documents which Mr. Tipton and Mrs. Swan brought to him in March, 1994, Wells could determine that the two annuities were purchased for her but she, at that time, did not seem to know anything about them. Though the annuities offered several options to permit period withdrawal of principal and interest, none had been selected by Mrs. Swan and as they then existed, she would draw no income from them until she was 100 years of age. When Mr. Tipton and Mrs. Swan came to Mr. Wells' office and brought the paperwork showing she had sold her securities to buy the annuities, Mr. Wells called Respondent to find out what had happened to Mrs. Swan's money. About the same time, he drafted a letter to Respondent at Mrs. Swan's request in which she requested Respondent not contact her any more. This letter was written because Mrs. Swan had said Respondent had "pestered" her at home and upset her on some occasions before the letter was written. Guarantee's manager of Government Relations and Compliance, Mr. Krevitzky, identified the two policies issued to Mrs. Swan. According to Mr. Krevitzky, an annuity is a savings vehicle which holds funds over a period at interest with provision for single or periodic pay out. Interest on both annuities in issue here was guaranteed at a rate of 4.5 percent per year or higher. The first year, the policies earned only the guaranteed 4.5 percent interest, and the income was credited to the policy from January, 1994 until the policies were surrendered as a part of the litigation settlement on March 25, 1995. At that point, since it was considered that the policies were rescinded and therefore void ab initio, the interest earned was forfeited and not paid. Only the premiums paid in were refunded in total. The commission paid to the Respondent and his associate, Mr. Mednick, was paid out of company funds and not Mrs. Swan's funds. The annuity contracts sold by the Respondent to Mrs. Swan had options for five different pay-outs, some of which would have returned income to her during the pendency of the contract. However, none of these was selected by Mrs. Swan and there was no evidence to indicate that Respondent ever explained any of them to her. As they existed as of the date they were cancelled, and at all time up until then, Mrs. Swan would receive no income until the annuity matured at her age 100. This is an unreasonable situation for an individual of Mrs. Swan's age and situation. Mr. Krevitzky contends that the potential pay out options could have provided Mrs. Swan with a substantial income equal to or exceeding the income she was received from her securities portfolio. Most of these options would have included a partial return of principal, however, whereas the income from the prior held portfolio was interest only with her principal remaining intact. One option provided an income for a guaranteed period which, in some circumstances, could have resulted in her receiving more than the amount paid in for the contract. The ultimate fact remains, however, that at the time of sale, and at all times thereafter, notwithstanding the fact that Mr. Chappuis was directed to stay away from Mrs. Swan, he had failed to assist her in the selection of any income option and she was receiving no current income at all from the annuities. In each of the two years prior to the purchase, for 1992 and 1993, she had regular tax free investment income of between $26,000 and $27,000, in addition to the capital gains of approximately $23,000 from the sale of the bonds in 1992. It matters not that she needed little to live on or donated a great portion of her income to charity. This decision was hers to make. By the same token, it matters not that no request for income was made, during the pendency of the annuities, by or on behalf of Mrs. Swan. Annuities have several benefits over other types of investments, according to Mr. Krevitzky. One is the tax deferment provision for interest earned on the annuity. Another is the fact that, subject to local law, the principal of the annuity is not subject to garnishment. A third is the guaranteed return of principal at the end of the annuity which permits older annuitants to provide for their heirs while maintaining income during their lifetimes. Many senior citizens look to the safety of their investment rather than the taxability of the interest. Therefore, in selling annuities to seniors, the agents stress these factors and the no-probate consideration. David W. Johnson has been an independent contractor with Respondent's broker, Professional Systems Associates, since 1989 and is the annuity manager for the firm. Mr. Johnson indicates that there has been an increase in the annuity business with seniors in 1993 - 1994. Funds for the purchase of the annuities usually comes from bank certificates of deposit, but sometimes, like in the instant case, the funds come from a brokerage account. In his experience, seniors choose annuities over certificates of deposit and brokerage accounts. According to Mr. Johnson, if Mrs. Swan had wanted to stop the transfer from her account she could have done so up until the transaction was completed, even after the securities had been liquidated and the funds sent to Guarantee. This is so, he claims even though Mrs. Swan gave authority to make the transfer in the documentation accompanying her application for the annuities. Mr. Johnson indicated it takes about two weeks after the receipt of the premium before Guarantee issues the annuity contract and at any time before issue, the transaction could be cancelled and the money returned. Even after issue, there is a "free look" period during which the contract may be cancelled without penalty. Though the contract may be cancelled and the premium returned, the former securities are still liquidated and the brokerage account closed. According to Mr. Johnson, there was nothing in the paperwork regarding these annuities which he saw which would raise any flag for consideration. He did not feel it necessary to call Mrs. Swan to see if she really wanted the policy and he never received a call from her or anybody else regarding it. Mr. Chappuis' partner in this sale was Scott Mednick who has been a licensed insurance agent since 1984 and who is an independent contractor with the same agency. Mr. Mednick was solicited to accompany Mr. Chappuis to Mrs. Swan's home in December, 1994 because of his expertise in the annuity field. Respondent had described Mrs. Swan to him as a long time customer. Respondent claimed that Mrs. Swan had indicated she was concerned about her brokerage account and he wanted to show her some product, annuities, she might be interested in. Mr. Mednick has known Respondent for eleven years and knows him to be a top producer. Respondent's reputation is that he is cheap and close with the dollar. Nonetheless, Mr. Mednick claims he was not surprised that Respondent was willing to share the commission on this sale in order to be sure the client got the proper product. Mrs. Swan let Mr. Mednick examine her monthly statement from Merrill Lynch. It appeared to Mr. Mednick that the account had not grown over the years. This is not surprising in that the portfolio was made up solely of tax free bond funds, tax free municipal bonds and tax free money marts, the volatility of and fluctuation in price of which is minimal. Mr. Mednick cannot now recall if Mrs. Swan indicated she knew about her stocks. However, he relates that he and the Respondent suggested she look into annuities as an alternative which Respondent explained to her. In addition, he claims they provided her with a lot of written material. Based on Mrs. Swan's action, words and attitudes expressed, Mr. Mednick believed she completely understood what was explained to her and wanted to make the change. It was his belief she seemed to understand she would pay no commission on the purchase; that she would have a guaranteed income that she could not outlive; that the annuity avoided the volatility of the stock market; and it was not attachable by creditors. As structured and sold to Mrs. Swan, however, she was to get no income at all from this product until she reached the age of 100/. Mr. Mednick asserts that at no time did he feel that Respondent had less than the best interests of Mrs. Swan at heart and he can recall no time when Respondent lied to Mrs. Swan. All representations made by either Respondent or Mednick allegedly came from the brochures left with her. Mednick indicates that during their conversation, Mrs. Swan did not seem concerned about getting her principal out of the investment. She was most concerned about her desire to leave the principal to the church. Mednick claims that at the time of the sale, the two agents asked Mrs. Swan if she wanted her interest paid quarterly but she said to let it accrue. This representation, in light of the other evidence, is not credible. Taken together, Mednick's testimony does nothing to detract from Respondent's sale of this product, inappropriate as it was for this client, to Mrs. Swan. Mr. Mednick's credentials are somewhat suspect, and his credibility poor, however. By his own admission, he has been administratively fined by the Department on two occasions based on allegations of misconduct. He denies any misconduct, however, claiming he accepted punishment only as an alternative to a prolonged contest of the allegations. The allegations herein were referred to an investigator of the Department to look into. As is the custom of the Department, he did not interview the Respondent but merely sought to gather facts concerning each allegation to be sent to the Department offices in Tallahassee where the analysis and determination of misconduct is made. By the same token, he did not call or speak with Mrs. Swan, Mr. Mednick, or anyone at Professional Systems. He spoke with Mr. Tipton, Mr. Wells, Mrs. Hopkins and with Mr. Keirnan a couple of times.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, therefore: RECOMMENDED that the insurance licenses and the eligibility for licensure of the Respondent herein, Alan Chappuis, be suspended for nine months. RECOMMENDED this 22nd day of August, 1995, in Tallahassee, Florida. ARNOLD H. POLLOCK, 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 22nd day of August, 1995. APPENDIX TO RECOMMENDED ORDER The following constitutes my specific rulings pursuant to Section 120.59(2), Florida Statutes, on all of the Proposed Findings of Fact submitted by the parties to this case. FOR THE PETITIONER: 1. - 21. Accepted and incorporated herein. 22. & 23. Accepted and incorporated herein. 24. - 27 Accepted and incorporated herein. FOR THE RESPONDENT: Respondent's post hearing submittal was entitled "Respondent's Final Argument." However, because it makes specific Findings of Fact, the submittal will be treated as though it were Proposed Findings of Fact which will be ruled upon herein. First sentence accepted. Balance rejected as contra to the weight of the evidence. & 3. Accepted that Mr. Krevitzky testified and that there was nothing in the contract which would cause Respondent to misrepresent. The product may well be a worthy product for someone in a different financial position than Ms. Swan, and the issue is whether Respondent fully explained the implications and ramifications of the contracts to her. Rejected as a misconception of the nature of the witness' testimony. Rejected as contra to the weight of the evidence. First sentence accepted. Second sentence rejected. Irrelevant. Accepted as a summary of the witness' testimony. First and second sentences accepted. Balance rejected as an unwarranted conclusion drawn from the evidence. Accepted but irrelevant. COPIES FURNISHED: James A. Bossart, Esquire Department of Insurance 612 Larson Building Tallahassee, Florida 32399-0300 Alan Chappuis, Pro se P. O. Box 86126 Madiera Beach, Florida 33738 The Honorable Bill Nelson State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Dan Sumner Acting General Counsel Department of Insurance The Capitol, PL-11 Tallahassee, Florida 32399-0300
