Conclusions THE PARTIES resolved all disputed issues and executed a Settlement Agreement. The parties are directed to comply with the terms of the attached settlement agreement. Based on the foregoing, this file is CLOSED. DONE and ORDERED on this the day of --+-h+----"-''----,,,'f---' Tallahassee, Florida. 200_, m Agency for Health Care Administration 1 Filed July 7, 2009 1:05 PM Division of Administrative Hearings. A PARTY WHO IS ADVERSELY AFFECTED BY THIS FINAL ORDER IS ENTITLED TO A JUDICIAL REVIEW WHICH SHALL BE INSTITUTED BY FILING ONE COPY OF A NOTICE OF APPEAL WITH THE AGENCY CLERK OF AHCA, AND A SECOND COPY ALONG WITH FILING FEE AS PRESCRIBED BYLAW, WITH THE DISTRICT COURT OF APPEAL IN THE APPELLATE DISTRICT WHERE THE AGENCY MAINTAINS ITS HEADQUARTERS OR WHERE A PARTY RESIDES. REVIEW PROCEEDINGS SHALL BE CONDUCTED IN ACCORDANCE WITH THE FLORIDA APPELLATE RULES. THE NOTICE OF APPEAL MUST BE FILED WITHIN 30 DAYS OF RENDITION OF THE ORDER TO BE REVIEWED. Copies furnished to: Karen Dexter, Esquire Agency for Health Care Administration (Laserfiche) Louise Jeroslow 6075 Sunset Drive, Suite 201 Miami, Florida 33143 (U.S. Mail) Claude B. Arrington Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 Ken Yon, Chief, Medicaid Program Integrity Fred Becknell, Medicaid Program Integrity Finance and Accounting CERTIFICATE OF SERVICE I HEREBY CERTIFY that a true and correct copy of the foregoing has been furnished to the above named addressees by U.S. Mail on this the f ;t , 200.?' Richard Shoop, Esquire Agency Clerk State of Florida Agency for Health Care Administration 2727 Mahan Drive, Building #3 Tallahassee, Florida 32308-5403 (850) 922-5873
The Issue Whether Respondents improperly charged a real estate client a fee for document preparation and storage and, if so, what penalty should be imposed.
Findings Of Fact Respondent CMT Holding, Ltd., trading as the Prudential Florida Realty (CMT), is a limited partnership registered as a real estate broker, holding license number 0266433. Respondent CMT Holdings, Ltd., is registered as a real estate broker, holding license number 0266412. Respondent Patricia A. Brotherton (Brotherton) is registered as a real estate broker, holding license number 0601688. At all material times, Brotherton was the Naples branch manager for CMT. At all material times, Judith Price was a real estate salesperson employed by CMT. On October 3, John Iraci, as buyer, and Donald J. and Beryl B. Cullette, as sellers, entered into a contract for the sale of a condominium for $210,000. The contract acknowledges that CMT is the selling broker and an unrelated broker is the listing broker. CMT also executed the contract as the escrow agent holding the $1000 deposit. The Cullettes signed the contract on October 3 and counteroffered $210,000, rejecting Iraci's offer of $200,000. Iraci accepted the counteroffer. Price and CMT entered into an agency agreement with Iraci the previous month. The Agency Disclosure form that they signed promised that Price and CMT would make full disclosure to Iraci. On October 2, Price presented Iraci with a Real Property Disclosure Statement. She reviewed with him the expenses to be paid by buyer, including an item identified as "Processing and document preparation fee." Although the form does not disclose actual expenses, except for the rate at which statutorily imposed charges are imposed, Price explained to Iraci that the processing and document preparation fee was $110 paid to CMT. Iraci expressed no objection to the charges, and Price prepared the October 3 sales contract. On January 3, 1996, Respondent sent the closing agent, attorney Louis X. Amato, a document entitled, "Fund Disbursement Instructions." The document instructed Amato to divide the $12,600 real estate commission equally between the two brokers and pay CMT an additional $110 for a processing and document preparation fee, which will be a buyer's expense on the closing statement. Amato refused to add the $110 fee to the closing statement or charge Iraci for this expense. On January 8, 1996, Amato sent a letter to Petitioner complaining of this practice. On the next day, the sale closed without payment of the $110 fee to CMT. At the closing, Iraci executed a first mortgage note and lien. Iraci visited Price on the day of the closing to discuss Amato's refusal to collect this fee. Price said that she would pay the fee, if Iraci did not. Iraci returned to Price's office on January 15 and paid the fee. Four months later, Price and CMT sold Iraci's former condominium. Iraci paid the $110 fee on this transaction. No litigation or complaint ensued. The purpose of the $110 fee is to compensate CMT for the costs of preparing and storing documents. There is no evidence that the fee is disproportionate to the preparation and storage expenses. On occasions where the $110 fee has been inadvertently omitted from the closing statement, Price has paid it herself. Petitioner filed the Administrative Complaint more than one year after the closing and payment of the fee by Iraci.
Recommendation It is RECOMMENDED: That the Florida Real Estate Commission enter a final order dismissing the Administrative Complaint against Respondents and denying their request for attorney's fees. DONE AND ORDERED this 6th day of November, 1997, in Tallahassee, Leon County, Florida. COPIES FURNISHED: Geoffrey T. Kirk, Esquire Daniel Villazon, Esquire Division of Real Estate Department of Business and Professional Regulation Post Office Box 1900 Orlando, Florida 32802-1900 ROBERT E. MEALE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (904) 488-9675 SUNCOM 278-9675 Fax Filing (904) 921-6847 Filed with the Clerk of the Division of Administrative Hearings this 6th day of November, 1997. James H. Gillis, Esquire Gillis and Wilsen Suite B 1415 East Robinson Street Orlando, Florida 32801 Jeffrey D. Fridkin, Attorney Thomas G. Norsworthy, Attorney Grant Fridkin & Pearson, P.A. Pelican Bay Corporate Centre 5551 Ridgewood Drive, Suite 501 Naples, Florida 34108 Lynda L. Goodgame, General Counsel Department of Business and Professional Regulation 1940 North Monroe Street Tallahassee, Florida 32399-0792 Henry M. Solares, Division Director Division of Real Estate Department of Business and Professional Regulation Post Office Box 1900 Orlando, Florida 32802-1900
The Issue The issue in this case is whether Respondent, James Robert Stiffler, knowingly made untrue statements of material facts to induce Frank Galasso to purchase two viatical settlement agreements. Essentially, the charges are that Respondent, in his solicitations and negotiations with Frank Galasso, stated that viatical settlement agreements were, "guaranteed," "no risk," "fully secured," "risk free," "non-speculative," and promised a "fixed rate of return;" and that Respondent provided viatical settlement agreement literature containing one or more the above the prohibited phrases, for the purpose of inducing Frank Galasso to purchase, and Frank Galasso did purchase, two viatical settlement agreements for money paid.
Findings Of Fact The background activities pertinent to the dates and occurrences between Respondent and Mr. Galasso are presented. Simultaneous activities by the Federal Bureau of Investigation (hereinafter FBI) investigating other companies, including principals of American Benefits Services, Inc. (hereinafter "ABS") involved in the sale of viatical agreement in Florida are summarized. FRANK GALASSO and RESPONDENT At an unspecified time in mid 1998, Frank Galasso, a retired licensed real estate and casualty insurance agent, had his first exposure to viatical purchases while watching "60 Minutes" on television. In October of 1998, Frank Galasso, in response to a newspaper advertisement, called Respondent's listed phone number and left a message expressing his interest in viatical and requested a return phone call. In a January 1999 return phone call to Mr. Galasso, Mr. Galasso advised Respondent that he was not quite ready and needed more time to consider the purchase. A subsequent follow-up phone call in April 1999, resulted in Respondent and Mr. Galasso discussing diversifying Mrs. Galasso's portfolio with the possibility of investing in a viatical settlement agreement purchase. In May of 1999, Respondent met with Mr. Galasso at Mr. Galasso's residence and explained the viatical purchase agreement "from start to finish." Respondent gave Mr. Galasso a package of literature and other information provided Respondent by ABS. After a two-and-one-half-hours of discussion Mr. Galasso purchased a $13,429.93 viatical agreement for Mrs. Galasso's Individual Retirement Account. A receipt of purchase and the agreement of purchase were given to Mr. Galasso. On June 11, 1999, Respondent met again with Mr. Galasso for discussion of and consummation of a second purchase of a viatical settlement agreement. Respondent assured Mr. Galasso that he would receive interest payments of 9.85 percent, per annum, paid monthly for 36 months and when the viator died, he, Mr. Galasso, would receive his principal investment of $25,000 back. Respondent further assured Mr. Galasso that after one year he could rescind the viatical purchase agreement, retain all interest paid, and get his principal back by sending a written request at least 30 days prior to the anniversary date of purchase. In June 1999, ABS informed Mr. Galasso that the State of Florida, Department of Banking and Finance, filed an administrative complaint alleging violations by ABS of the state's "Securities Act" and that a stipulation and consent to Final Order Agreement was entered, effective August 10, 1999. In July of 1999, Mr. Galasso, reading the Herald Tribune, became aware that ABS and Financial Federated were under investigation by the FBI. In August of 1999, Mr. Galasso made several written attempts to exercise his option to rescind his viatical purchase agreements without success. FBI AGENT, ANTHONY YANKETIS, and VIATICAL SALES ENTITIES Unknown to Respondent and Mr. Galasso, in May/June of 1998, Anthony Yanketis, FBI special agent of the economic crimes division, initiated an investigation regarding a viatical settlement as a result of information received from an investor in a viatical purchase agreement situation. In January 1999, the FBI confirmed that Ray Levy was the owner of ABS, a viatical settlement brokerage company that raised funds for the purchase of viatical settlements, that generated approximately six million ($6M) of investors funds each month. In June 1999, Jeffery Paine, Esquire, escrow agent for ABS, admitted that he merely rubber-stamped written representations from Financial Federated that insurance policies had been purchased and actual medical overviews conducted and released money held in escrow. In August 1999, FBI investigations revealed that approximately 90 percent of money obtained from investors were used for the purchase of personal benefits and the purchase of real estate; and that lulling letters were sent to insurance agents, attorneys, and viatical investors. FEDERAL GRAND JURY and VIATICAL SALES ENTITIES In September 2000, the Federal Grand Jury, Southern District of Florida, West Palm Beach Division, returned a True Bill Indictment. The indictment introductory allegation states: At all times relevant and material to this indictment: Viatical settlements are the purchase of life insurance policies or their benefits at a discounted rate from a terminally ill person. The beneficial interest in the insurance policies purchase is sold or reassigned to an investor. A viatical investor receives the full benefits when the ill person dies. Count 9. From at least as early February, 1996, Viatical Asset Management, Asset Base Management, and later ABS operated as viatical settlement brokerage companies engaged in the business of locating investors who would purchase interests in viatical settlements. ABS obtained investors' funds through a network of independent insurance agents and financial consultants. Count 10. In connection with its viatical settlement brokerage business ABS used one or more participation disclosure documents that described the viatical settlement program it was offering for sale to investors. OBJECT OF THE SCHEME AND ARTIFICE TO DEFRAUD The object of the scheme and artifice to defraud was that defendants, together with others known and unknown to the Grand Jury, would unlawfully enrich themselves by knowingly and willfully making false and fraudulent representations and promises, and . . . concealing material facts from prospective investors, inducing them to send personal checks, bank checks, wire transfers or money orders to Financial Federated, Viatical Asset Management, Asset Base Management, American Benefits Services, Inc, and the escrow agent. . . MANNER & MEANS OF EXECUTING THE SCHEME TO DEFRAUD "Under false and fraudulent pretenses defendants, FREDRICK C. BRANDAU, and MARY ANNE BILLINGHURST, together with other persons . . . participated in recruiting insurance agents to solicit investors in viaticated insurance policies . . ." (a) . . . investor funds obtained by American Benefits Services . . . would be used to purchase viaticated insurance benefits; (b). . . investors was guaranteed a 42% rate of return within 36 months on his or her investment if the insured party died. (a) While over $115 million in investors funds were transferred to Financial Federated for the primary purpose of purchasing insurance policies, less then $6 million was actually used to purchase policies . . . the vast majority of such monies was used to fun commissions for ABS and Financial Federated employees, and to purchase real and personal property around the United States that had nothing to do with viatical business. (f) the defendants knew that the irrevocable assignment of trust benefits was not a "guaranteed receivable from the insurance company." The defendants knew that 90% of the investors funds had been used to buy real and personal property, and not insurance policies. Accordingly, the defendants knew that the vast majority of the assigned "trust benefits" were worthless, and not a "guaranteed receivable" since most investors had no underlying insurance policy securing their investment. OVERT ACTS (t) In or about June 1998 . . . FREDRICK C. BRANDAU, and MARY ANN BILLINGHURST attended a meeting with numerous insurance agents for the purpose of promoting the activities of FINANCIAL FEDERATED. (Respondent's Exhibit "C") James Robert Stiffler, at all times pertinent and material hereto, was licensed in Florida as a life insurance agent, therefore authorized by Section 626.992(4), Florida Statutes, to perform the functions of a viatical settlement agent. At all times pertinent and material hereto, James Robert Stiffler, d/b/a/ "James Financial Inc.," worked for ABS through U.S. Investors Group and Seniors Financial Resources. At all times pertinent and material hereto, Rafael Levy, a/k/a Ray Levy, was the principal of ABS. Fred Brandau, convicted on 42 counts of fraud in United States District Court and awaiting sentencing, was the head of Financial Federated. ABS sales agents would procure investors to provide money to Financial Federated. Financial Federated provided the viaticals to ABS, which were in turn sold by Respondent to Frank Galasso. Respondent, in May of 1999, solicited and sold a viatical settlement agreement to Frank Galasso for Mrs. Galasso's IRA. During solicitation and sale Respondent represented and made untrue statements of material fact to Frank Galasso that the viatical were "secure," "had no risk," and "was safe." Respondent, in October 1998, gave to Frank Galasso literature provided by ABS containing statements and assertions, which were untrue, deceptive, and misleading. On June 11, 1999, Respondent solicited and sold a viatical settlement purchase agreement to Frank Galasso for $25,000. During the solicitation and sale Respondent represented and made the following untrue statements of material fact: (a) that Frank Galasso would receive his principal back when the viator died; (b) that if the viator did not die within 36 months, Frank Galasso would be able to get his principal back; (c) that before expiration of one year from the purchase date, Frank Galasso would be able to rescind the purchase agreement, retain monthly interest paid, and get full refund of his principal; (d) that the investment was safe, and had no risk and until the viatical had been purchased he could receive his money back; and (e) that the $25,000.00 purchase price would go to an attorney, in trust, to be used to purchase a viatical. Respondent, on two separate occasions during the sales of viatical purchases agreements, presented literature provided by ABS to Mr. Galasso containing written assertions, to wit: (a) an investment with a "fixed 42 percent return"; (b) "Guaranteed"; (c) "no risk investment"; and (d) the principal is "safe." Respondent's defense that Frank Galasso was an experienced investor and therefore could not be persuaded into an investment he did not want is without merit. Respondent's defense that Frank Galasso's reliance upon ABS printed literature absolved him from liability is without merit. Respondent's defense that Frank Galasso purchased two viatical agreements based upon the representations made in the disclosure documents provided by ABS and presented by Respondent to Mr. Galasso is without merit. Respondent's defense that his inquiries and phone calls to the Department of Insurance resulted in no negative information concerning ABS is without merit. Respondent's defense that once the Department of Insurance became aware of problems with the business practices of ABS it had a duty to communicate that information to licensed agents, such as Respondent, is without merit.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that the agency enter its final order finding Respondent, James Robert Stiffler, guilty of violations of Sections 626.611(1),(7) and (8); 626.99275(2)(b) and (c); 626.99277(6); 626.9541(1)(b); 626.99235(1), and 626.621.(2) and (6) Florida Statutes, and that Respondent, James Robert Stiffler's, license as an insurance agent in this State be suspended for a period of (91) days. DONE AND ENTERED this 8th day of November, 2000, in Tallahassee, Leon County, Florida. FRED L. BUCKINE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 8th day of November, 2000.
Conclusions For Claimant: Daniel Harwin, Esquire Freedland Harwin Valori, P.L. 110 Southeast 6th Street, Suite 2300 Fort Lauderdale, Florida 33301 For Defendant: S. William Fuller, Jr., Esquire Hall Booth Smith, P.C. 200 West Forsyth Street, Suite 400 Jacksonville, Florida 32202
Other Judicial Opinions A party who is adversely affected by this Final Order is entitled to judicial review pursuant to section 120.68, Florida Statutes. Review proceedings are governed by the Florida Rules of Appellate Procedure. Such proceedings are commenced by filing the original notice of administrative appeal with the agency clerk of the Division of Administrative Hearings within 30 days of rendition of the order to be reviewed, and a copy of the notice, accompanied by any filing fees prescribed by law, with the clerk of the district court of appeal in the appellate district where the agency maintains its headquarters or where a party resides or as otherwise provided by law.
The Issue This issue in this case is whether Petitioner has jurisdiction to prosecute a viatical settlement sales agent for conduct relating to transactions involving viatical settlement purchase agreements, which Petitioner contends were “investment contracts”——and hence securities——subject to regulation under the Florida Securities and Investor Protection Act.
Findings Of Fact Petitioner Department of Financial Services, Office of Financial Institutions and Securities Regulation (the “Office”), as successor to the Division, is the state agency charged with administering and enforcing the Florida Securities and Investor Protection Act, Chapter 517, Sections 517.011-517.32, Florida Statutes. Respondent David H. Kligfeld (“Kligfeld”) was, at all relevant times, a Florida-licensed life and health agent subject to the regulatory jurisdiction of the Department of Insurance. Respondent Dhalco Financial Services, Inc. (“Dhalco”) was, at all relevant times, a Florida corporation of which Kligfeld was a director. The evidence does not establish that Dhalco engaged in any conduct distinct from Kligfeld’s in connection with the transactions at issue. Therefore, Respondents will be referred to collectively as “Kligfeld.” During a period of about one year, from early 1998 through early 1999, Kligfeld arranged for some of his clients to purchase equitable interests in life insurance policies that had been the subject of viatical settlement contracts. The following explanation of the viatical settlement business will put these deals in proper context. A traditional viatical settlement occurs when a person who is terminally ill, known as a “viator,” sells to an investor the right to receive death benefits under his life insurance policy. The investor pays a discount off the face value of the policy that reflects the viator’s life expectancy. For example, if the viator were expected to live for three more years, the investor might pay $.40 on the dollar (e.g. $40,000 for a $100,000 policy), whereas he might pay $.60 on the dollar for a policy insuring a person whose life expectancy is one year.1 Typically, the investor is responsible for paying any premiums that come due under the policy, which is known as a “viaticated policy” after the sale. His return——the death benefits less the total amount invested in the policy——is realized when the viator dies, the sooner the better. Under Florida law, a person who invests in a viatical settlement as just described is called a “viatical settlement provider.” In the instant case, one party to the subject transactions was a viatical settlement provider called American Benefits Services, Inc. (“ABS”). As a viatical settlement provider, ABS acquired——or purported to acquire——an inventory of viaticated policies. ABS in turn sold “interests” in these viaticated policies to other investors. The evidence shows that these investors——who are known under Florida law as “viatical settlement purchasers”—— bought death benefit dollars at a discounted price reflecting the viator’s life expectancy. Before going into greater detail about the viatical settlement purchase transactions that are at the heart of this case, it is important to note that viatical settlement purchasers do not enter into a traditional viatical settlement because they do not deal directly, or even indirectly, with the viator. In effect, viatical settlement purchasers buy at “retail” a product (death benefit dollars) that the viatical settlement provider has acquired in the “wholesale” market. To make money, the viatical settlement provider, like any retailer, must charge more per dollar of coverage (its product) than it paid for that dollar. In the instant case, the Office established that Kligfeld arranged for ten investors (hereafter, the “Investors”) to purchase death benefit dollars from ABS in 18 separate transactions.2 What follows is a general description of these transactions. ABS offered viatical settlement purchasers the option of investing in either a “growth” plan or an “income” plan. Because all but one of the 18 transactions at issue involved the growth plan, it will be discussed first. The growth plan offered an investor a choice between three levels of risk based on life expectancy. These were: Life Expectancy 2 years or less (28%) Life Expectancy 2½ years or less (35%) Life Expectancy 3 years or less (42%) The percentages in the parentheses reflect the discounted price per dollar of death benefit in each category of risk. To explain, for the “three-year” growth plan, an investor would pay $1.00 for $1.42 worth of death benefits, or a bit more than $.70 on the dollar——roughly a 30% discount.3 Thus, an investment of $100,000 would purchase $142,000 in death benefits, resulting in a net return to the investor, when the underlying policy matured, of $42,000 ($142,000 - $100,000)——a 42% increase in his money. The actual yield upon such an investment naturally would depend on the viator’s lifespan. For example, if the viator lived for 10 more years instead of three, thereby deferring the $142,000 payoff for 10 years, the net return of $42,000 would be worth far less, due to the time-value of money, than if the viator passed away within a year. The income plan, in contrast, offered only one level of risk, namely, the “three years or less” life expectancy. As well, the price per benefit dollar under the income plan was much higher than under the corresponding “three-year” growth plan: approximately $.77 per dollar for “income” versus about $.70 per dollar for “growth.” The income investor, however, was entitled to receive from ABS up to (but no more than) 36 monthly payments, calculated to return 9.86% simple interest annually on his investment, making a net return, at the end of three years, equal to 29.58% of the amount invested. At that point, he would receive no further payments until the viator’s death caused the underlying policy to mature, triggering a distribution of the death benefits. (As with the growth plan, the actual yield upon the income investor’s investment would not be known until the underlying policy matured and his equity was returned. Also, keep in mind that an investor would not “make money” unless and until he got back all of this original capital, which would not happen until the policy matured.) If the policy in which the income investor held an interest happened to mature before the end of three years, then he would be paid the amount of death benefits he had purchased, less the monthly distributions already paid. Thus, for example, an investment of $100,000 in the income plan would purchase $129,580 worth of death benefits. The investor would be entitled to receive up to 36 monthly payments of $821.66. If he received all 36 payments, then at the time the policy matured he would receive a final payment of $100,000 (returning his equity), producing a yield upon investment that would depend on the length of time he had waited for the payoff. If, on the other hand, the policy matured after, say, only two years, he would receive a final payment of $109,860——which, together with the previous distributions totaling $19,720, would make a net return on his investment of $29,580, producing a relatively high yield. Although not described as such in any of the documents or testimony in evidence, the income plan, in economic substance, called for ABS to lend money to the investor as an advance against the anticipated payout under the viaticated policy. This meant that ABS retained some of the risk that the policy would mature outside the projected timeframe4——a risk that, in contrast, ABS passed along in full to the growth investors.5 The element of risk to ABS coupled with the concomitantly reduced risk to the investor explains why the income plan was quite a bit more expensive. Whether the Investor chose the growth plan or the investment plan, the deal was structured the same way, using the same basic transaction documents. The core instrument was the Participation Agreement, to which the parties were ABS and the individual Investor.6 The Participation Agreement provided in pertinent part: Whereas, AMERICAN BENEFITS SERVICES, INC. (hereinafter ABS) is in the business, on behalf of other individuals, of finding and securing Viaticated Insurance Benefits (hereinafter VI Benefits); and, Whereas, PARTICIPANT [i.e. the investor] wants to have ABS make available VI Benefits that have been assigned to an independent third-party escrow company. All VI Benefits must meet the criteria set forth herein. Now then, in consideration of the foregoing, it is agreed by the parties: TERMS OF PARTICIPATION PARTICIPANT and ABS agree to the terms of this PARTICIPATION AGREEMENT, as expressed herein. This agreement incorporates by reference, as if set forth fully herein, pages 10 and 11, of the VIATICATED INSURANCE BENEFITS PARTICIPATION DISCLOSURE, entitled DESCRIPTION OF THE PARTICIPATION.[7] * * * ACKNOWLEDGMENTS, REPRESENTATIONS AND WARRANTIES PARTICIPANT warrants and represents that PARTICIPANT has read this agreement and understands it, along with the 13 page VIATICATED INSURANCE BENEFITS PARTICIPATION DISCLOSURE, and, specifically, the DESCRIPTION OF THE PARTICIPATION. PARTICIPANT warrants and represents that PARTICIPANT understands that PARTICIPANT will not receive his or her principal and interest until the maturity of the policy (which occurs at the death of the insured) and, therefore, the PARTICIPANT may not receive his or her VI Benefits within the 36 month life expectancy. For this reason, PARTICIPANT will not be able to liquidate this participation except as set forth in the PARTICIPATION DISCLOSURE under DESCRIPTION OF THE PARTICIPATION.[8] PARTICIPANT warrants and represents that, in reaching his or her decision regarding this participation, PARTICIPANT has not relied on any statement of AMERICAN BENEFITS SERVICES, INC. or its agents, except for those statements which are made in this Participation Agreement or in the VIATICATED INSURANCE BENEFITS PARTICIPATION DISCLOSURE. GENERAL PARTICIPATION PROVISIONS A. ENTIRE UNDERSTANDING OF PARTICIPATION: This Agreement constitutes the entire understanding of the parties and there are no representations, warranties, covenants, or undertakings other than those expressly set forth herein. In addition to the Participation Agreement, each Investor also executed a Disbursement Letter of Instruction and a Letter of Instruction to Trust. The former directed the escrow agent, to whom the Investor’s funds were remitted, to disburse the invested funds to Financial Federated Title & Trust, Inc. (“FinFed”) upon his receipt of certain documents (e.g. proof that the viaticated policy was in full force and effect). The latter instructed FinFed——which evidently held legal title to the viaticated policy, in the capacity of trustee——to establish a trust, or “fractionalized interest” in a trust, for the benefit of the Investor.9 The Participation Agreement, Disbursement Letter of Instruction, and Letter of Instruction to Trust will hereafter be referred to collectively as the “Contract.” It is undisputed that the Investors lost all or most of the money they had invested under the Contracts. They did not lose their money as a direct and proximate result of anything that Kligfeld had done or failed to do, however, but rather because, as it turned out, ABS was perpetrating a massive fraud on its victims, including the Investors and Kligfeld, who had also purchased death benefits from ABS.10 It should be stressed, too, that the Office did not charge Kligfeld with fraud of any kind. Despite this, the Office has argued, or at least insinuated, in its Proposed Recommended Order that Kligfeld misrepresented the nature of the transaction, or the terms of the deal, when soliciting the Investors. Given the specific violations alleged, however, no findings in this regard are required. Along the same line, some of the Investors who testified at the final hearing described representations and promises that they believed were part of the deal, but which are not contained in, and indeed contradict the unambiguous provisions of, the Contract. It is difficult to tell whether such representations were really made——or whether the testimony simply reflects fading memories, a lack of understanding on a given Investor’s part regarding the actual details of the deal, or some combination thereof. Since fraud was not charged, however, and because each Contract speaks for itself as to the terms and conditions of the deal, it is not necessary to make any findings of fact concerning whether extra-contractual promises were made.11
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Office enter a final order dismissing all charges against Respondents. DONE AND ENTERED this 25th day of March, 2003, in Tallahassee, Leon County, Florida. JOHN G. VAN LANINGHAM 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 25th day of March, 2003.
