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DEPARTMENT OF INSURANCE AND TREASURER vs MICHAEL EUGENE BEST, 89-005556 (1989)
Division of Administrative Hearings, Florida Filed:Sarasota, Florida Oct. 10, 1989 Number: 89-005556 Latest Update: Feb. 15, 1990

The Issue The issue for consideration is whether Respondent's license or eligibility for licensure as an insurance agent in Florida should be disciplined because of the Administrative Complaint filed herein, and whether Respondent should be denied a resident license to represent various insurance companies in this state because of the misconduct alleged in the Administrative Complaint.

Findings Of Fact At all times pertinent to the allegations contained herein, Michael Eugene Best was either licensed or eligible for licensure as a life insurance agent, a life and health insurance agent, and a health insurance agent in the State of Florida, and was engaged in the sale and brokerage of insurance, doing business as M. E. Best Investments. The Department of Insurance is the state agency responsible for the monitoring and regulation of the insurance business in this state. Ms. Dorothy Clark, a 73 year old woman, has known and done business with Mr. Best in the insurance area for approximately ten years. In August, 1988, she met with him to discuss her possible purchase of some kind of insurance. She cannot recall what kind of insurance it was. She gave him some money to pay for the insurance in question, which was to be procured from some insurance company, the name of which she could not initially remember, but subsequently recalled to be American Sun Life Insurance Company. The premium payment which she gave to Mr. Best was in the amount of $1,200.00, but she cannot recall whether he was obliged to use that money for the purchase of insurance from that particular company, or whether he had the option to place the insurance with another company. To the best of her limited recollection, Mr. Best did get a policy for her from American Sun Life Insurance Company, but she cannot recall if she kept that policy or if it was changed to another company. She does not recall requesting him to change companies, however, but does recall that she ultimately received a policy issued by United American Life Insurance Company and that Mr. Best was the agent who procured it for her. At hearing she denied ever attempting to cancel the United American policy though she claims she did not want it. She claims that she never received a refund check from United American, however, a check payable to her in the amount of $799.90 was issued to her by that company with address shown as her home of record. The check bears what purports to be her endorsement on the back thereof, followed by the endorsement of Mr. Best's company, but at first she claimed she did not place it there. When shown the check at the hearing, however, she admitted the signature on the endorsement was hers and that she most likely signed it. This check was issued as a result of her unremembered direction to Mr. Best to cancel the policy. She claims she did not authorize Mr. Best to take the money it represented and use it for his purposes. She claims that the check was subsequently deposited by her to her account and that Mr. Best never got possession of it or the money. This is patently wrong, however, inasmuch as Mr. Best admits that he did have the check and placed his company's endorsement on it. He subsequently used the check, with her agreement, to apply toward a policy with another company, and to his recollection, she voluntarily endorsed the check to him. Ms. Clark also purchased a $30,000.00 annuity policy through Mr. Best with another company, the name of which she cannot recall, at about the same time as the first policy mentioned herein. To get this policy she issued a check to Mr. Best in the amount of $30,000.00. When the policy was issued, she requested that it be cancel led because by the time she received it, she had reconsidered and determined that she did not want it. She notified Mr. Best of her desires that the policy be cancelled, but claims she never communicated directly with the company. The company has a letter reputedly from her, however, which complains of Respondent's purported trickery and deceit. It is found that this latter letter was prepared for her signature by someone else. When Ms. Clark told Mr. Best she did not want the policy, and requested him to cancel it, he asked her to wait awhile, for some reason which was unclear to her. Instead, she indicated to him then that she did not want to do so but wanted her money back. Some time after this discussion, but before the policy was cancelled, Mr. Best came to see her and though she cannot recall if he got her to sign anything, she identified her signature on a letter to the company which had issued the annuity policy in question , which indicated that she was satisfied with the policy and withdrawing her request to cancel. She recalls Mr. Best requesting that she sign the letter, but cannot recall what he said at the time. As she remembers, he appeared normal when he came to see her, and she voluntarily signed the letter of her own free will. It is obvious, however, that Ms. Clark did not understand what was being said to her or what she was signing because, she claims, she still wanted the policy cancelled. Her recollection of the incident is shaky - and unsure. She cannot recall if Mr. Best made her sign the letter, and she cannot recall where she signed it. It may have been at her home or at some other location, but she does not know for certain. In addition, she cannot recall if the letter was typed when she signed it, or if the paper was blank. Though she contends Mr. Best tried to keep her from cancelling this annuity policy, at this time she cannot recall what he told her; what reasons he gave her; or why he wanted her to wait. Whenever she dealt with Mr. Best, he was not rude to her. She did not feel she was being forced by him to take out any insurance from him or to do any of the things or sign any of the documentation that she did. Ms. Clark filed the complaint against Mr. Best because she was told by someone that he had forged her name on a check. At the time she signed the complaint, and at the time of the hearing, she did not know whether he did it or not, nor does she know which check he is supposed to have forged. In fact, Ms. Clark finds it difficult to recall much of what had happened and is not sure of any of the facts to which she testified. She does know, and it is found, that all the money she paid to Mr. Best was reimbursed to her and she has lost nothing as a result of her dealing with him. Ms. Clark recalls that about this time, upon the advice of her attorney, Mr. Kanetsky, she engaged in dealings with another insurance agent who advised her to cancel the annuity policy and, in fact, wrote the letter of cancellation to the insurance company for her. Mr. Kanetsky, an attorney practicing in Venice, Florida, has worked with Ms. Clark for approximately ten years, primarily in the area of estate planning for her and her sister. Over the years, he has discussed with Ms. Clark various insurance policies and other financial products, and is aware of the insurance dealings involved in this case which he learned about from his discussions with his client. He claims that in August or September, 1988, Ms. Clark called his office and solicited advice from him as to how she could get rid of an insurance policy she did not want. He advised her to come in with all her papers to discuss it and at their first meeting, found that she had purchased the $30,000.00 annuity on the life of a niece, and also a health policy, from Respondent. The annuity policy was a single premium annuity, and the health policy had a $1,200.00 premium, for both of which, she had written checks. During this discussion Ms. Clark was quite sure that she did not want to keep the annuity policy. She was somewhat confused about the health policy, but was also satisfied that she didn't want it, though she could not elaborate why. Due to Ms. Clark's conditions, both financial and otherwise, Mr. Kanetsky felt she would be better off in a liquid position rather than having such a large annuity outstanding, and since she apparently wanted to cancel both policies, he agreed to help her. To do so, he first contacted an individual in the insurance business who was aware of Mr. Best and his operation. Upon advice of this individual, Mr. Kanetsky then contacted the insurance company on which the annuity policy had been written and requested that it be cancelled. Mr. Kanetsky also referred Ms. Clark to another insurance agent to get the health policy cancelled and a new policy issued. He also contacted Mr. Best to have him refund the $400.20 difference between the $1,200.00 which Ms. Clark had paid in as a premium on the health policy, and the $799.80 which had been refunded to her by the company when the first policy was cancelled. There is some misunderstanding as to how that first $799.80 check was handled. On its face, the check reflects it was sent to Ms. Clark who, in turn, endorsed it over to Mr. Best to be applied toward another policy. Mr. Kanetsky, on the other hand, indicates the check, though addressed to Ms. Clark, was actually sent to Mr. Best, who had Ms. Clark endorse it and who applied it to another policy. In any event, since Ms. Clark wanted that policy cancel led and apparently intended to do no further business with Mr. Best, Mr. Kanetsky requested that Best refund all monies paid. Mr. Best immediately issued his check for $400.20. The insurance company, apparently concluding it had sent the first check to Mr. Best by mistake, issued another check to Ms. Clark in the amount of $799.80, which represents the actual premium cost, with the balance being the agent's legitimate commission. Since Mr. Best had already forwarded his check for $799.80, when the second insurance company check was received it was immediately refunded to Mr. Best. The $30,000.00 paid in for the annuity policy was refunded to Ms. Clark directly by the insurance company. Mr. Kanetsky contends that notwithstanding he had written to Mr. Best to advise him to stay away from Ms. Clark, there is some indication that Best thereafter came to Ms. Clark's residence to discuss the annuity policy with her. Mr. Best does not deny having gone to Ms. Clark's home on several occasions; once to talk to her about the health and accident policy, and another time, to talk about the annuity. In both cases, however, this is a standard practice in the insurance industry, suggested by the company, to attempt to "conserve" the business by making a follow-up call in an effort to dissuade a policy holder from cancelling. It is found that no improper pressure was applied by Mr. Best in his efforts to conserve his sales. Over his years of experience with Ms. Clark, Mr. Kanetsky has found that she confuses easily, and though she is competent, she is extremely limited in business experience and understanding. She does not have a guardian of her property, but is clearly not equipped emotionally to handle many of her financial affairs. It is found that her recollection of the incidents in question here is so poor as to render her testimony almost irrelevant and without merit, and though she is quite sure she did not want the insurance she bought, and attempted to cancel it, she is totally unsure of the circumstances surrounding her relationship with Respondent and the details of any conversations and transactions she may have had with him. Consequently, her testimony, the only direct testimony regarding the issue of what transpired between her and Mr. Best, is, for all purposes here, worthless. Mr. Best denies threatening Ms. Clark or attempting to coerce her into purchasing insurance from him. When he saw her in August, 1988, it was the first time he had seen her for a while and had, in fact, forgotten about her until she came into his office to file a claim. At that point, he made an appointment with her for a review of her policy status. At that time Ms. Clark had no Medicare coverage, (she does now), and he offered to attempt to get her medical coverage, to which she agreed. She wrote a check for a policy to be issued by American Sun Life Insurance Company which, subsequently, rejected her. When the rejection came through, Mr. Best immediately notified her of that fact and told her then he would convert to another company, to which she agreed. Mr. Best is satisfied Ms. Clark understood he would apply the refund check he received from American Sun to the second policy issued by United American Life, and he did this. She thereafter cancelled that policy. After Mr. Best received notice of the cancellation, he went to her home to explain everything to her. At no time, however, did he threaten her, a fact to which she agrees. He claims she had received the initial refund from united American for $799.80, which she agreed he could apply toward a policy with another company, and she voluntarily endorsed the check over to him. She also cancelled this second policy. With regard to the annuity policy, when she notified the company that she was cancelling it, he received notice of this from the home office which suggested he do what he could to conserve the business. When he went to see her about it, she agreed, he claims, that she would keep the policy. At that time he wrote out, by hand, a note to be signed by her indicating her satisfaction with the policy and her desire it be maintained. When the company thereafter indicated it preferred a typed statement to that effect, he went to her with a typed notice which said the same thing, and which Ms. Clark signed. No threats were made, and Ms. Clark agrees to this. Mr. Best also sold an insurance policy to an Ann Ward, which she cancelled for a reason totally unrelated to the Respondent. When Mr. Best found out she had cancelled the policy, he went to see her to inquire as to her reasons. At that time, as in all her dealings with him over a period of time, he was not, and she has never found him to be, overbearing, unprofessional, or coercive. In all their transactions together, he has always fully explained his product, and on the basis of their relationship, she would be happy to deal with him again. When Ms. Ward cancelled her policy, the company wrote to Mr. Best and advised him of this fact and that he must refund a portion of the premium which it had paid to him as a commission. When he received this letter, he called the company and authorized it to withhold from the amount owed to him for renewal commissions, any amount the company claimed as reimbursement. He claims to have believed this procedure, a standard action within the industry, satisfied his obligation to the company. He was, therefore, quite surprised when the company complained and he immediately wrote a check to the company to cover the balance due it which is now paid in full. However, the evidence of record shows he was sent several notices of delinquency, even several for the balance after he authorized the company to take his earned commissions, without his taking any action and the company ultimately, on December 22, 1988, terminated his agency. His failure to pay over is found to be more negligent than willful, however. Mr. Best has been in the insurance business since 1979 and claims he has had no prior administrative complaints filed against him since that time. The Department showed none.

Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, therefore: RECOMMENDED that Counts I and II of the Administrative Complaint relating to the Respondent, Michael Eugene Best, be dismissed; and that as to Count III, he pay an administrative fine of $500.00. It is further RECOMMENDED that Mr. Best's applications to represent World Insurance Company, Travellers Life Insurance Company, and American Integrity Insurance Company be denied, such denial to be without prejudice to re-filing of the applications at a later time to be set by the Department. RECOMMENDED this 15th day of February, 1990, 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 15th day of February, 1990. APPENDIX TO RECOMMENDED ORDER The following constitutes my specific rulings pursuant to S 120.59(2), Florida Statutes, as to all of the Proposed Findings of Fact submitted in this case. FOR THE PETITIONER; 1. - 3. Accepted and incorporated herein. Accepted and incorporated herein. -10. Accepted and incorporated herein. 11.-14. Accepted and incorporated herein. 15.&16. Accepted and incorporated herein. 17. Accepted and incorporated herein, with the understanding that the failure to deal with American Sun Life was not due to any misconduct of Respondent but because of the Company's rejection of Ms. Clark. 18.-20. Rejected as not supported by the evidence. 21.-24. Accepted and incorporated herein. 25.-27. Rejected as not supported by the evidence. 28.-31. Accepted and incorporated herein. 32.&34. Accepted and incorporated herein. 35. Accepted and incorporated herein. COPIES FURNISHED: C. Christopher Anderson, III, Esquire Office of Legal Services Department of Insurance 412 Larson Building Tallahassee, Florida 32399-0300 Michael E. Sweeting, Esquire Pflaum, Dannheisser and Sweeting, P. A. 100 Wallace Avenue, Suite 210 Sarasota, Florida 34237 Tom Gallagher State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Don Dowdell General Counsel Department of Insurance The Capitol, Plaza Level Tallahassee, Florida 32399-0300

Florida Laws (5) 120.57626.561626.611626.621626.681
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DEPARTMENT OF INSURANCE AND TREASURER vs. KENNETH EVERETT WHITE, 86-002646 (1986)
Division of Administrative Hearings, Florida Number: 86-002646 Latest Update: Mar. 20, 1987

Findings Of Fact Based upon my observation of the witnesses and their demeanor while testifying, documentary evidence received and the entire record filed herein, I hereby make the following relevant factual findings: During times material, Respondent was licensed and/or qualified for licensure as a General lines (2-20), Ordinary Life, and Health Insurance (2-18) Agent in Florida (Petitioner's Exhibit 1). During times material to the allegations herein, 1/ Respondent was an officer and director of White Insurance Agency, Inc. (White Insurance). (Petitioner's Exhibit 2). On June 20, representatives of Great Wall Chinese Restaurant (Great Wall) entered into a premium finance agreement with Crown Premium Finance, Inc., (Crown), through White Insurance, which indicated the insurance coverage for Great Wall would be provided and issued through Service Insurance Company and Corporate Group Services. (Petitioner's Exhibit 3, sub. "a"). On June 20, Respondent signed the premium finance agreement as broker- agent. (Petitioner's Exhibit 3, sub "a"). On June 22, pursuant to the premium finance agreement, Crown issued a check made payable to White Insurance in the amount of eight hundred ninety-four dollars ($894.00) which was subsequently deposited into Respondent's bank account. (Petitioner's 3, sub B). On July 13, a representative of Service Insurance Company notified Crown that they had not received the full annual premium for Great Wall and a binder charge of $81.00 was sent to White Insurance. (Petitioner's Exhibit 3 sub C). On July 13, representatives of Service Insurance Company notified Respondent that coverage was bound for Great Wall's risk for only 33 days and a charge of $81.00 was sent to White Insurance. (Petitioner's Exhibit 3, sub D). On July 13, representatives of Service Insurance Company mailed a cancellation notice to Great Wall and Crown indicating an $81.00 charge as due and owing. (Petitioner's Exhibit 3, sub) On September 14, Crown sent a standard cancellation notice to both Corporate Group Services and Service Insurance Company. (Petitioner's Exhibit 3, sub H & I). On November 8, representatives of Corporate Group Services notified Crown that an application for insurance was received but was rejected and returned to the agent's (Respondent) office. (Petitioner's Exhibit 3, sub F). Neither Service Insurance Company nor Corporate Group Services issued a policy for the consumer, Great Wall. Respondent refuses to return the premium monies received for the Great Wall coverage to Crown. Respondent owes Crown for the premium monies submitted by Crown. COUNT II On July 8, representatives of Chateau Madrid, Inc., a restaurant, entered into a premium finance agreement with Crown, through Respondent, which indicated the insurance coverage would be issued through Casualty Indemnity Exchange. (Petitioner's Exhibit 4, sub A). On July 8, Respondent signed the premium finance agreement as broker/agent. On July 25, pursuant to the premium finance agreement, Crown issued a check made payable to Respondent in the amount of three thousand five hundred eight dollars (3,508.00). The check was deposited into White Insurance's bank account. (Petitioner's Exhibit 4, sub b). On August 30, Crown sent a standard cancellation notice to both Chateau Madrid and Casualty Indemnity Exchange and their managing general agents, Program Underwriters. (Petitioner's Exhibit 4, sub D). As a result of the standard cancellation notice, the policy was reduced to a short-term policy which was effective July 15 and expired September 13, 1983. On March 13, 1984, Program Underwriters notified Crown that they had not received a premium payment concerning this particular policy and that neither Respondent nor White Insurance was an authorized agent for Casualty Indemnity Exchange. (Petitioner's Exhibit 4, sub e). Respondent never returned the premium monies he received to Crown. Respondent owes Crown for the premium monies he received from Crown. COUNT III On September 16, a representative of Tennis Trainer, Inc. requested that Respondent secure a multi-peril insurance policy for Tennis Trainer. Respondent secured a binder for Tennis Trainer indicating the insurance would be issued through Service Insurance Company. On September 16, Respondent signed the binder as an authorized representative. (Petitioner's Exhibit 13, sub b). On September 16, Respondent was not authorized to represent Service Insurance Company. (Petitioner's Exhibits 12 and 13, sub a and b). On September 15, Jeffrey Rider, Vice President of Tennis Trainer issued a check in the amount of three hundred five dollars ($305.00) to White Insurance representing the downpayment necessary to secure the agreed business insurance coverage. Thereafter, Respondent, took no measures to secure insurance for Tennis Trainer other than issuing the binder. Respondent has failed to submit the premium to secure the agreed upon insurance coverage on behalf of Tennis Trainer. Additionally, Respondent refused to return the premium payments to Tennis Trainer despite its demand (from Respondent) to do so. Tennis Trainer has directly forwarded the remainder of the premium to Service Insurance to secure the multi-peril coverage. Service Insurance Company is owed a balance due of approximately $305.00 from Respondent. COUNT VI On May 5, Donald Powers entered into a premium finance agreement with Crown, through White Insurance. Pursuant to the agreement, the insurance coverage would be provided through Progressive American Insurance (Progressive). On May 9, Crown issued a check made payable to White Insurance in the amount of two hundred ninety-nine dollars ($299.00) which was subsequently deposited into Respondent's bank account. On October 1, the consumer, Donald Powers, requested that the policy be cancelled. On October 25, Crown sent a standard cancellation notice to both the consumer and Progressive. On October 19, Progressive notified both Crown and White Insurance that the gross unearned premium of two hundred twenty-six dollars ($226.00) was applied to the Agent's (White Insurance) monthly statement and Crown must therefore collect this amount from the Agent. Progressive American never received any premium payments from Respondent concerning the subject policy. On November 25, 1986, Progressive notified Petitioner that the policy was originally accepted on May 7, 1983 at an annual premium of four hundred sixty dollars ($460.00) and was cancelled on October 1, 1983, with Two Hundred twenty-six Dollars ($226.00) credited to Respondent's statement. Progressive never received any premium payment for this policy. Respondent has failed to return to Crown the returned premium credit received on behalf of the Donald Powers' policy. COUNT VII On November 28, Russell Lung entered into a premium finance agreement with Crown through White Insurance. The insurance coverage for Lung was to be provided and issued through Interstate Underwriters. On November 29, pursuant to the premium finance agreement with Russell Lung, Crown issued a check made payable to White Insurance in the amount of one hundred sixty-seven dollars (167.00) which was subsequently deposited into a bank account controlled by Respondent. On February 14, 1984, Crown sent a standard cancellation notice to both the consumer and Interstate Underwriters. The policy for Russell Lung was cancelled before its normal expiration date and the unearned premium was credited to Respondent's account. Respondent has not returned to Crown the unearned premium credit received for Lung's policy. COUNT VIII On December 6, representatives of Thomson's Lawn Care (Thomson) entered a premium finance agreement with Crown, through White Insurance, which indicated the insurance coverage would be provided through Northeast Insurance and Southern Underwriters as managing general agents. On December 8, pursuant to the premium finance agreement, Crown issued a check made payable to White Insurance in the amount of one hundred fifty-one dollars ($151.00) which was subsequently deposited into a bank account controlled by Respondent. On January 25, 1984, Crown sent a standard cancellation notice to both the consumer and Northeast Insurance Company/Southern Underwriters. On February 8, 1984, Southern Underwriters notified Crown that they were never paid by White Insurance for Thomson's insurance. On October 16, 1984, Crown was notified by representatives of Thomson's that immediately after making the down payment to White Insurance, Thomson notified White Insurance that the policy should be cancelled immediately since Thomson never operated as a business. (Petitioner's Exhibit 7, sub e). Crown received the returned premium payment from Southern Underwriters even though the original payment to White Insurance by Crown was never forwarded to Southern Underwriters. Respondent refuses to return the unearned premium payment to Crown. COUNT IX On October 15, representatives of Comfort Inn entered a premium finance agreement with Crown, through White Insurance, which indicated the insurance coverage would be provided through Protective National Insurance Company and Interstate Fire and Casualty Company. On November 4, pursuant to the premium finance agreement, Crown issued a check made payable to White Insurance in the amount of one thousand six hundred sixty dollars ($1,660.00) which was subsequently deposited into a bank account controlled by Respondent. On March 1, 1984, Crown sent a standard cancellation notice to both Comfort Inn and the Insurance Companies involved. On February 6, 1984, Comfort Inn's counsel, James W. Martin, forwarded a letter to the insurance companies involved and simultaneously notified Crown that White failed to remit funds to the insurance companies involved and as a result, the policy was cancelled and subsequently reinstated only after his client, Comfort Inn paid the premium directly to the respective insurers. (Petitioner's Exhibit 8, sub e). On February 23, 1984, Irwin Lonschien of Crown responded to attorney Martin's letter and advised that the one thousand six hundred sixty dollars premium payment was forwarded to White Insurance pursuant to the premium finance agreement on November 4, 1983. On July 23, 1984, William Edwards, a representative of Comfort Inn, wrote a letter to Dan Martinez of Eagle Underwriters advising that Comfort Inn had paid a premium to White Insurance and Comfort Inn no longer desired White Insurance to represent them in insurance matters. Respondent, has not returned premiums received from Crown and is therefore indebted to Crown in the amount of one thousand six hundred sixty dollars. COUNT X On April 14, representatives of Royal Palm Motel entered into a premium finance agreement with Crown, through White Insurance which indicated insurance coverage would be provided through Casualty Indemnity- Exchange. On April 18, pursuant to the premium finance agreement, Crown issued a check made payable to White Insurance in the amount of nine hundred seventy- seven dollars ($977.00) which was subsequently deposited into a bank account controlled by Respondent. COUNT XI On March 16, 1982, representatives of Flip's of West Broward entered a premium finance agreement with Crown, through White Insurance which indicated the insurance coverage would be provided through Service Insurance Company. On March 19, 1982, pursuant to the premium finance agreement, Crown issued a check made payable to White in the amount of six hundred forty-eight dollars ($648.00) which was subsequently deposited in a bank account controlled by Respondent. Sometime between March 1982 and June 20, 1982, White Insurance forwarded a premium payment for this coverage to Service Insurance Company. On June 20, 1982, Crown sent a standard cancellation to the consumer and Service Insurance indicating the policy was to be cancelled. By letter dated January 7, Service Insurance notified White Insurance that the policy had been cancelled and the returned premium for the policy was credited to the account of White Insurance. Respondent, as agent/director of White Insurance has failed and refused to return to Crown the returned premiums received for Flip's of West Broward. COUNT XII On November 7, Paula Wilcoxon entered a premium finance agreement with Crown, through White Insurance, indicating the insurance coverage would be issued through Universal Casualty. On November 8, pursuant to the premium finance agreement, Crown issued a check made payable to White Insurance in the amount of two hundred ninety-five dollars ($295.00) which was subsequently deposited into a bank account controlled by Respondent. On December 15, Crown notified the consumer and Universal Casualty, by standard cancellation notice, that the policy was being cancelled. Respondent has refused and continues to refuse to return the unearned premium to Crown.

Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED: That the Petitioner, Department of Insurance and Treasurer, enter a Final Order revoking all licenses and qualifications for licensure of Respondent, Kenneth Everett White, as an insurance agent in the State of Florida. RECOMMENDED this 20th day of March, 1987, in Tallahassee, Florida. JAMES E. BRADWELL 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 20th day of March, 1987.

Florida Laws (6) 120.57626.561626.611626.621626.734626.9521
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DEPARTMENT OF FINANCIAL SERVICES, OFFICE OF FINANCIAL INSTITUTIONS AND SECURITIES REGULATION vs EMPIRE INSURANCE AND JAMES A. TORCHIA, 02-003583 (2002)
Division of Administrative Hearings, Florida Filed:Fort Lauderdale, Florida Sep. 13, 2002 Number: 02-003583 Latest Update: Sep. 02, 2003

The Issue The issues are whether Respondents offered and sold securities in Florida, in violation of the registration requirements of Section 517.07(1), Florida Statutes; offered and sold securities in Florida while Respondents were unregistered, in violation of Section 517.12(1), Florida Statutes; or committed fraud in the offer, sale, or purchase of securities in Florida, in violation of Section 517.301(1)(a), Florida Statutes. If so, an additional issue is the penalty to be imposed.

Findings Of Fact At all material times, Respondent James A. Torchia (Respondent) held a valid life and health insurance license. Respondent was the president and owner of Respondent Empire Insurance, Inc. (Empire Insurance), a now-dissolved Florida corporation. Empire Insurance was in the insurance business, and Respondent was its sole registered insurance agent. At no material time has Respondent or Empire Insurance held any license or registration to engage in the sale or offer for sale of securities in Florida. At no material time were the investments described below sold and offered for sale by Respondent or Empire Insurance registered as securities in Florida. These cases involve viaticated life insurance policies. A life insurance policy is viaticated when the policy owner, also known as the viator, enters into a viatical settlement agreement. Under the agreement, the viator sells the policy and death benefits to the purchaser for an amount less than the death benefit--the closer the viator is perceived to be to death, the greater the discount from the face amount of the death benefit. The viatical industry emerged to provide dying insureds, prior to death, a means by which to sell their life insurance policies to obtain cash to enjoy during their remaining lives. As this industry matured, brokers and dealers, respectively, arranged for the sale of, and bought and resold, life insurance policies of dying insureds. Prior to the death of the viator, these viaticated life insurance policies, or interests in such policies, may be sold and resold several times. In these cases, viators sold their life insurance policies to Financial Federated Title & Trust, Inc. (FinFed). Having raised money from investors, American Benefit Services (ABS) then paid FinFed, which assigned viaticated policies, or interests in the policies, to various trusts. The trusts held the legal title to the policies, and the trust beneficiaries, who are the investors from whom ABS had obtained the funds to pay FinFed, held equitable title to the policies. Sometimes in these cases, a broker or dealer, such as William Page and Associates, intervened between the viator and FinFed. At some point, though, ABS obtained money from investors to acquire policies, but did not pay the money to FinFed to purchase viaticated life insurance policies. The FinFed and ABS investment program eventually became a Ponzi scheme, in which investor payouts were derived largely, if not exclusively, from the investments of other investors. ABS typically acquired funds through the promotional efforts of insurance agents, such as Respondent and Empire Insurance. Using literature provided by ABS, these agents often sold these investments to insurance clients. As was typical, Respondent and Empire Insurance advertised the types of claims described below by publishing large display ads that ran in Florida newspapers. Among the ABS literature is a Participation Disclosure (Disclosure), which describes the investment. The Disclosure addresses the investor as a "Participant" and the investment as a "Participation." The Disclosure contains a Participation Agreement (Agreement), which provides that the parties agree to the Disclosure and states whether the investor has chosen the Growth Plan or Income Plan, which are described below; a Disbursement Letter of Instruction, which is described below; and a Letter of Instruction to Trust, which is described below. The agent obtains the investor's signature to all three of these documents when the investor delivers his check, payable to the escrow agent, to purchase the investment. The Disclosure states that the investments offer a “High Return”: “Guaranteed Return on Participation 42% at Maturity.” The Disclosure adds that the investments are “Low Risk”: “Secured by a Guaranteed Insurance Industry Receivable”; “Secured by $300,000 State Insurance Guarantee Fund”; “Short Term Participation (Maturity Expectation 36 Months)”; “Principal Liquid After One Year With No Surrender Charge”; “State Regulated Participation”; “All Transactions By Independent Trust & Escrow Agents”; and “If policy fails to mature at 36 months, participant may elect full return of principal plus 15% simple interest.” The Disclosure describes two alternative investments: the Growth Plan and Income Plan. For the Growth Plan, the Disclosure states: “At maturity, Participant receives principal plus 42%, creating maximum growth of funds.” For the Income Plan, the Disclosure states: “If income is desired, participation can be structured with monthly income plans.” Different rates of return for the Growth and Income plans are set forth below. For investors choosing the Income Plan, ABS applied only 70 percent of the investment to the purchase of viaticated life insurance policies. ABS reserved the remaining 30 percent as the source of money to "repay" the investor the income that he was due to receive under the Income Plan, which, as noted below, paid a total yield of 29.6 percent over three years. The Disclosure states that ABS places all investor funds in attorneys’ trust accounts, pursuant to arrangements with two “bonded and insured” “financial escrow agents.” At another point in the document, the Disclosure states that the investor funds are deposited “directly” with a “financial escrow agent,” pursuant to the participant’s Disbursement Letter of Instruction. The Disbursement Letter of Instruction identifies a Florida attorney as the “financial escrow agent,” who receives the investor’s funds and disburses them, “to the order of [FinFed) or to the source of the [viaticated insurance] benefits and/or its designees.” This disbursement takes place only after the attorney receives “[a] copy of the irrevocable, absolute assignment, executed in favor of Participant and recorded with the trust account as indicated on the assignment of [viaticated insurance] benefits, and setting out the ownership percentage of said [viaticated insurance] benefits”; a “medical overview” of the insured indicative of not more than 36 months’ life expectancy; confirmation that the policy is in full force and effect and has been in force beyond the period during which the insurer may contest coverage; and a copy of the shipping airbill confirming that the assignment was sent to the investor. The Disclosure states that the investor will direct a trust company to establish a trust, or a fractional interest in a trust, in the name of the investor. When the life insurance policy matures on the death of the viator, the insurer pays the death benefits to the trust company, which pays these proceeds to the investor, in accordance with his interest in the trust. Accordingly, the Letter of Instruction to Trust directs FinFed, as the trust company, to establish a trust, or a fractional interest in a trust, in the name of the investor. The Letter of Instruction to Trust provides that the viaticated insurance benefits obtained with the investor's investment shall be assigned to this trust, and, at maturity, FinFed shall pay the investor a specified sum upon the death of the viator and the trustee's receipt of the death benefit from the insurer. The Disclosure provides that, at anytime from 12 to 36 months after the execution of the Disclosure, the investor has the option to request ABS to return his investment, without interest. At 36 months, if the viator has not yet died, the investor has the right to receive the return of his investment, plus 15 percent (five percent annually). The Disclosure states that ABS will pay all costs and fees to maintain the policy and that all policies are based on a life expectancy for the viator of no more than 36 months. Also, the Disclosure assures that ABS will invest only in policies that are issued by insurers that are rated "A" or better by A.M. Best "at the time that the Participant's deposit is confirmed." The Disclosure mentions that the trust company will name the investor as an irrevocable assignee of the policy benefits. The irrevocable assignment of policy benefits mentioned in the Disclosure and the Disbursement Letter of Instruction is an anomaly because it does not conform to the documentary scheme described above. After the investor pays the escrow agent and executes the documents described above, FinFed executes the “Irrevocable Absolute Assignment of Viaticated Insurance Benefits.” This assignment is from the trustee, as grantor, to the investor, as grantee, and applies to a specified percentage of a specific life insurance policy, whose death benefit is disclosed on the assignment. The assignment includes the "right to receive any viaticated insurance benefit payable under the Trusts [sic] guaranteed receivables of assigned viaticated insurance benefits from the noted insurance company; [and the] right to assign any and all rights received under this Trust irrevocable absolute assignment." On its face, the assignment assigns the trust corpus-- i.e., the insurance policy or an interest in an insurance policy--to the trust beneficiary. Doing so would dissolve the trust and defeat the purpose of the other documents, which provide for the trust to hold the policy and, upon the death of the viator, to pay the policy proceeds in accordance with the interests of the trust beneficiaries. The assignment bears an ornate border and the corporate seal of FinFed. Probably, FinFed intended the assignment to impress the investors with the "reality" of their investment, as the decorated intangible of an "irrevocable" interest in an actual insurance policy may seem more impressive than the unadorned intangible of a beneficial interest in a trust that holds an insurance policy. Or possibly, the FinFed/ABS principals and professionals elected not to invest much time or effort in the details of the transactional documentation of a Ponzi scheme. What was true then is truer now. Obviously, in those cases in which no policy existed, the investor paid his money before any policy had been selected for him. However, this appears to have been the process contemplated by the ABS literature, even in those cases in which a policy did exist. The Disbursement Letter of Instruction and correspondence from Respondent, Empire Insurance, or Empire Financial Consultant to ABS reveal that FinFed did not assign a policy, or part of a policy, to an investor until after the investor paid for his investment and signed the closing documents. In some cases, Respondent or Empire Insurance requested ABS to obtain for an investor a policy whose insured had special characteristics or a investment plan with a maturity shorter than 36 months. FinFed and ABS undertook other tasks after the investor paid for his investment and signed the closing documents. In addition to matching a viator with an investor, based on the investor's expressed investment objectives, FinFed paid the premiums on the viaticated policies until the viator died and checked on the health of the viator. Also, if the viator did not die within three years and the investor elected to obtain a return of his investment, plus 15 percent, ABS, as a broker, resold the investor's investment to generate the 15 percent return that had been guaranteed to the investor. Similarly, ABS would sell the investment of investors who wanted their money back prior to three years. The escrow agent also assumed an important duty--in retrospect, the most important duty--after the investor paid for his investment and signed the closing documents; the escrow agent was to verify the existence of the viaticated policy. Respondent and Empire Insurance sold beneficial interests in trusts holding viaticated life insurance policies in 50 separate transactions. These investors invested a total of $1.5 million, nearly all of which has been lost. Respondent and Empire Insurance earned commissions of about $120,000 on these sales. Petitioner proved that Respondent and Empire Insurance made the following sales. Net worths appear for those investors for whom Respondent recorded net worths; for most, he just wrote "sufficient" on the form. Unless otherwise indicated, the yield was 42 percent for the Growth Plan. In all cases, investors paid money for their investments. In all cases, FinFed and ABS assigned parts of policies to the trusts, even of investors investing relatively large amounts. On March 21, 1998, Phillip A. Allan, a Florida resident, paid $69,247.53 for the Growth Plan. On March 26, 1998, Monica Bracone, a Florida resident with a reported net worth of $900,000, paid $8000 for the Growth Plan. On April 2, 1998, Alan G. and Judy LeFort, Florida residents with a reported net worth of $200,000, paid $10,000 for the Growth Plan. In a second transaction, on June 8, 1998, the LeForts paid $5000 for the Growth Plan. In the second transaction, the yield is 35 percent, but the Participation Agreement notes a 36-month life expectancy of the viator. The different yields based on life expectancies are set forth below, but, as noted above, the standard yield was 42 percent, and, as noted below, this was based on a 36-month life expectancy, so Respondent miscalculated the investment return or misdocumented the investment on the LeForts' second transaction. On April 29, 1998, Doron and Barbara Sterling, Florida residents with a reported net worth of $250,000, paid $15,000 for the Growth Plan. In a second transaction, on August 14, 1998, the Sterlings paid $100,000 for the Growth Plan. The yield for the second transaction is 35 percent, and the Participation Agreement notes that the Sterlings were seeking a viator with a life expectancy of only 30 months. When transmitting the closing documents for the second Sterling transaction, Respondent, writing ABS on Empire Insurance letterhead, stated in part: This guy has already invested with us (15,000) [sic]. He gave me this application but wants a 30 month term. Since he has invested, he did some research and has asked that he be put on a low T-cell count and the viator to be an IV drug user. I know it is another favor but this guy is a close friend and has the potential to put at least another 500,000 [sic]. If you can not [sic] do it, then I understand. You have done a lot for me and I always try to bring in good quality business. If this inventory is not available, the client has requested that we return the funds . . . In a third transaction, on February 24, 1999, the Sterlings paid $71,973 for the Growth Plan. The yield is only 28 percent, but the Participation Agreement reflects the typical 36-month life expectancy for the viator. Although the investors would not have received this document, Respondent completed an ABS form entitled, "New Business Transmittal," and checked the box, "Life Expectancy 2 years or less (28%). The other boxes are: "Life Expectancy 2 1/2 years or less (35%)" and "Life Expectancy 3 years or less (42%)." On May 4, 1998, Hector Alvero and Idelma Guillen, Florida residents with a reported net worth of $100,000, paid $6000 for the Growth Plan. In a second transaction, on October 29, 1998, Ms. Guillen paid $5000 for the Growth Plan. In a third transaction, on November 30, 1998, Ms. Guillen paid $5000 for the Growth Plan. For this investment, Ms. Guillen requested an "IV drug user," according to Respondent in a letter dated December 1, 1998, on Empire Financial Consultants letterhead. This is the first use of the letterhead of Empire Financial Consultants, not Empire Insurance, and all letters after that date are on the letterhead of Empire Financial Consultants. In a fourth transaction, on January 29, 1999, Ms. Guillen paid $15,000 for the Growth Plan. On April 23, 1998, Bonnie P. Jensen, a Florida resident with a reported net worth of $120,000, paid $65,884.14 for the Growth Plan. Her yield was 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On May 20, 1998, Michael J. Mosack, a Florida resident with a reported net worth of $500,000, paid $70,600 for the Income Plan. He was to receive monthly distributions of $580.10 for three years. The total yield, including monthly distributions, is $20,883.48, which is about 29.6 percent, and the Participation Agreement reflects a 36-month life expectancy. On May 27, 1998, Lewis and Fernande G. Iachance, Florida residents with a reported net worth of $100,000, paid $30,000 for the Growth Plan. On June 3, 1998, Sidney Yospe, a Florida resident with a reported net worth of $1,500,000, paid $30,000 for the Growth Plan. The yield is 35 percent, and the Participation Agreement reflects a 30-month life expectancy. On June 12, 1998, Bernard Aptheker, with a reported net worth of $100,000, paid $10,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 10, 1998, Irene M. and Herman Kutschenreuter, Florida residents with a reported net worth of $200,000, paid $30,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 9, 1998, Daniel and Mary Spinosa, Florida residents with a reported net worth of $300,000, paid $10,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 5, 1998, Pauline J. and Anthony Torchia, Florida residents with a reported net worth of $300,000 and the parents of Respondent, paid $10,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 29, 1998, Christopher D. Bailey, a Florida resident with a reported net worth of $500,000, paid $25,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. In a second transaction on the same day, Mr. Bailey paid $25,000 for the Growth Plan. Petitioner submitted documents concerning a purported purchase by Lauren W. Kramer on July 21, 1998, but they were marked "VOID" and do not appear to be valid. On July 22, 1998, Laura M. and Kenneth D. Braun, Florida residents with a reported net worth of $150,000, paid $25,000 for the Growth Plan, as Respondent completed the Participation Agreement. However, the agreement calls for them to receive $205.42 monthly for 36 months and receive a total yield, including monthly payments, of 29.6 percent, so it appears that the Brauns bought the Income Plan. In a second transaction, also on July 22, 1998, the Brauns paid $25,000 for the Growth Plan. On January 20, 1999, Roy R. Worrall, a Florida resident, paid $100,000 for the Income Plan. The Participation Agreement provides that he will receive monthly payments of $821.66 and a total yield of 29.6 percent. On July 16, 1998, Earl and Rosemary Gilmore, Florida residents with a reported net worth of $250,000, paid $5000 for the Growth Plan. In a second transaction, on February 12, 1999, the Gilmores paid $20,000 for the Growth Plan. The yield is 28 percent, but the Participation Agreement reflects a 36-month life expectancy. The New Business Transmittal to ABS notes a life expectancy of two years or less. On July 14, 1998, David M. Bobrow, a Florida resident with a reported net worth of $700,000 on one form and $70,000 on another form, paid $15,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. In a second transaction, on the same day, Mr. Bobrow paid $15,000 for the Growth Plan. On July 27, 1998, Cecilia and Harold Lopatin, Florida residents with a reported net worth of $300,000, paid $10,000 for the Growth Plan. On July 30, 1998, Ada R. Davis, a Florida resident, paid $30,000 for the Income Plan. Her total yield, including monthly payments of $246.50 for three years, is 29.6 percent. In a second transaction, on the same day, Ms. Davis paid $30,000 for the Income Plan on the same terms as the first purchase. On July 27, 1998, Joseph F. and Adelaide A. O'Keefe, Florida residents with a net worth of $300,000, paid $12,000 for the Growth Plan. On August 5, 1998, Thurley E. Margeson, a Florida resident, paid $50,000 for the Growth Plan. On August 19, 1998, Stephanie Segaria, a Florida resident, paid $20,000 for the Growth Plan. On August 26, 1998, Roy and Glenda Raines, Florida residents, paid $5000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. The New Business Transmittal to ABS notes a life expectancy of 30 months or less. In a second transaction, on the same day, the Raineses paid $5000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy, although, again, the New Business Transmittal notes the life expectancy of 30 months or less. On November 24, 1998, Dan W. Lipford, a Florida resident, paid $50,000 for the Growth Plan in two transactions. In a third transaction, on January 13, 1999, Mr. Lipford paid $30,000 for the Growth Plan. On December 1, 1998, Mary E. Friebes, a Florida resident, paid $30,000 for the Growth Plan. On December 4, 1998, Allan Hidalgo, a Florida resident, paid $25,000 for the Growth Plan. On December 17, 1998, Paul E. and Rose E. Frechette, Florida residents, paid $25,000 for the Income Plan. The yield, including monthly payments of $205.41 for three years, is 29.6 percent. On December 26, 1998, Theodore and Tillie F. Friedman, Florida residents, paid $25,000 for the Growth Plan. On January 19, 1999, Robert S. and Karen M. Devos, Florida residents, paid $10,000 for the Growth Plan. On January 20, 1999, Arthur Hecker, a Florida resident, paid $50,000 for the Income Plan. The yield, including a monthly payment of $410.83 for 36 months, is 29.6 percent. On February 11, 1999, Michael Galotola, a Florida resident, paid $25,000 for the Growth Plan. In a second transaction, on the same day, Michael and Anna Galotola paid $12,500 for the Growth Plan. On November 3, 1998, Lee Chamberlain, a Florida resident, paid $50,000 for the Growth Plan. On December 23, 1998, Herbert L. Pasqual, a Florida resident, paid $200,000 for the Income Plan. The yield, including a monthly payment of $1643.33 for three years, is 29.6 percent. On December 1, 1998, Charles R. and Maryann Schuyler, Florida residents, paid $10,000 for the Growth Plan. Respondent and Empire Insurance were never aware of the fraud being perpetrated by FinFed and ABS at anytime during the 38 transactions mentioned above. Respondent attempted to verify with third parties the existence of the viaticated insurance policies. When ABS presented its program to 30-40 potential agents, including Respondent, ABS presented these persons an opinion letter from ABS's attorney, stating that the investment was not a security, under Florida law. Respondent also contacted Petitioner's predecessor agency and asked if these transactions involving viaticated life insurance policies constituted the sale of securities. An agency employee informed Respondent that these transactions did not constitute the sale of securities.

Recommendation RECOMMENDED that Petitioner enter a final order: Finding James A. Torchia and Empire Insurance, Inc., not guilty of violating Section 517.301(1), Florida Statutes; Finding James A. Torchia guilty of 38 violations of Section 517.07(1), Florida Statutes, and 38 violations of Section 517.12(1), Florida Statutes; Finding Empire Insurance, Inc., guilty of 38 violations of Section 517.07(1), Florida Statutes, and 38 violations of Section 517.12(1), Florida Statutes, except for transactions closed on or after December 1, 1998; Directing James A. Torchia and Empire Insurance, Inc., to cease and desist from further violations of Chapter 517, Florida Statutes; and Imposing an administrative fine in the amount of $120,000 against James A. Torchia. DONE AND ENTERED this 19th day of May, 2003, in Tallahassee, Leon County, Florida. ROBERT E. MEALE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 19th day of May, 2003. COPIES FURNISHED: Honorable Tom Gallagher Chief Financial Officer Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Mark Casteel, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Fred H. Wilsen Senior Attorney Office of Financial Institutions and Securities Regulation South Tower, Suite S-225 400 West Robinson Street Orlando, Florida 32801-1799 Barry S. Mittelberg Mittelberg & Nicosia, P.A. 8100 North University Drive, Suite 102 Fort Lauderdale, Florida 33321

Florida Laws (13) 120.57200.001517.021517.051517.061517.07517.12517.171517.221517.241517.301626.9911626.99245
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DEPARTMENT OF INSURANCE vs ALLAN BURTON CARMEL, 00-004544PL (2000)
Division of Administrative Hearings, Florida Filed:Tallahassee, Florida Nov. 06, 2000 Number: 00-004544PL Latest Update: Dec. 24, 2024
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DEPARTMENT OF INSURANCE vs STEPHEN EDWARD FREDERICK, 00-002620 (2000)
Division of Administrative Hearings, Florida Filed:St. Augustine, Florida Jun. 27, 2000 Number: 00-002620 Latest Update: Dec. 24, 2024
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DEPARTMENT OF INSURANCE AND TREASURER vs FIRST UNION MORTGAGE CORPORATION, 92-001476 (1992)
Division of Administrative Hearings, Florida Filed:Tallahassee, Florida Mar. 04, 1992 Number: 92-001476 Latest Update: Aug. 16, 1994

The Issue A notice and order to show cause, issued to Respondent on January 15, 1992, seeks to terminate Respondent's grandfathered status under Section 626.988, F.S., and seeks to suspend or revoke Respondent's certificate of authority pursuant to Section 626.891, F.S. Various violations are alleged, including expanding the scope of functions being performed on April 2, 1974; soliciting prospective insurance customers by placing enclosures and solicitations in First Union Bank customers' bank statements; adding resident life agents; and allowing an unlicensed individual to solicit applications of insurance in Florida. The issues for resolution in this proceeding are whether the alleged violations occurred and if so, what discipline or remedial action is appropriate.

Findings Of Fact Respondent, First Union Mortgage Corporation (FUMC), is a North Carolina corporation with its principal place of business at 301 South Tryon Street, Charlotte, North Carolina. FUMC is a "financial institution agency" as defined in Section 626.988(1)(c), F.S. FUMC is a wholly-owned subsidiary of First Union Corporation, a registered bank holding company with headquarters in Charlotte, North Carolina. First Union Corporation is also a financial institution as defined in Section 626.988(1)(a), F.S. First Union National Bank of Florida, N.A., is a national bank authorized to do business in Florida and is a sister corporation of FUMC. Until February 8, 1987, FUMC was known as Cameron Brown Mortgage Company. Under that name it had engaged in certain insurance activities in Florida since the late 1960's. When Cameron Brown became FUMC there was no change in ownership, affiliation or corporate structure. Before and after the name change the company was owned by First Union Corporation. THE DECLARATORY STATEMENT On April 2, 1974, Section 626.988, F.S., took effect, prohibiting insurance agents or solicitors licensed by the Department of Insurance (DOI) from engaging in insurance agency activities as employees, officers, directors, agents or associates of a financial institution agency. The same section includes a "grandfather" provision for continued operation of financial institution agencies which were in existence and engaged in insurance agency activities as of April 2, 1974. FUMC represented to DOI that it was entitled to the grandfather exemption for its pre-1974 insurance agency activities, and in February 1988, FUMC filed a petition for declaratory statement pursuant to Section 120.565, F.S. for determination of its status. After notice to FUMC and to the public, a proceeding on the petition was conducted on March 30, 1988 by a staffperson of DOI appointed as hearing officer. On August 5, 1988, a declaratory statement was issued, and on September 2, 1988, an amended declaratory statement was issued. The latter statement finds in pertinent part: First Union Insurance Group (formerly the insurance division of Cameron Brown Company) was engaged in insurance agency activities prior to April 2, 1974. First Union Mortgage Corporation through First Union Insurance Group has continuously [word apparently deleted here] licensed agents and conducted insurance agency activities in Florida since and before April 2 1974. The scope of insurance agency activities continuously conducted by First Union Mortgage Corporation has been limited to: One life and health insurance agent, (Mr. Winifred Eugene Strickland), who served as an agent for the insurance division of Cameron-Brown Company while also serving as a salaried employee of American Heritage Life Insurance Company. Although Mr. Strickland apparently had one or more additional sub- agents involved in soliciting Cameron-Brown Customers, their involvement was sporadic and does not meet the test for "continuously engaged" so as to entitle First Union Mortgage Corporation to more than one life and health insurance agent. One non-resident property and casualty agent, (Charles Johnson). Mr. Johnson has been licensed as the successor agent for Mr. Hubert Reid Jones. Mr. Jones and Mr. Johnson sold, through countersignature relationships with Florida agents, property and casualty insurance prior and subsequent to April 2, 1974. The solicitation and servicing of customers of Cameron-Brown Company (now First Union Mortgage Corporation) was the focus of its insurance agency activities. . . . (Petitioner's Exhibit A Pages 3-4) The amended declaratory Statement also provides: . . . But for application of the "grandfathering" provisions of Section 626.988(5), Florida Statutes, any insurance agent or solicitor licensed by the Department of Insurance (the Department) would be prohibited from association with First Union Mortgage Corporation in insurance agency activities. . . . (Petitioner's Exhibit A Page 5) The amended declaratory Statement concludes as follows: . . . Pursuant to Section 626.988(5), Florida Statutes, the Petitioner's subsidiary, First Union Mortgage Corporation, is entitled to continue to engage in insurance agency activities through First Union Insurance Group by utilizing one licensed non-resident property and casualty insurance (Class 9-20) and one licensed resident life and health insurance agent. This recognition of grandfather status for Petitioner's subsidiary First Union Mortgage Corporation does not extend to Petitioner's subsidiary, First Union National Banks of Florida. First Union Mortgage Corporation may solicit prospective insurance customers so long as neither the Petitioner, First Union Corporation, nor any subsidiary bank plays an active role in such insurance solicitation through endorsements, bank mailings, providing space within bank offices, or similar activities. . . . (Petitioner's Exhibit A Pages 7-8) emphasis added. CERTIFICATE OF AUTHORITY AS "THIRD PARTY ADMINISTRATOR" In addition to its activities described in the amended declaratory statement, FUMC (then, Cameron Brown) was engaged in other insurance related activities prior to 1970. Under contracts with various life and health insurers Cameron Brown provided third party administrator services including receiving and reviewing applications, issuing policies, explaining and collecting premiums and accounting for and remitting premiums to the insurance companies. The insurance companies with whom Cameron Brown contracted handled the actual solicitation and sale of the policies. The contracts in effect in 1968, 1970 and 1978 between Cameron Brown and Minnesota Mutual Life Insurance Company were typical of the arrangements with other companies, according to Charles Johnson, Jr., retired vice president in charge of insurance agency operations at Cameron Brown. (Transcript, p. 102). As provided in the contracts with Minnesota Mutual Life Insurance Company, the administrative services were in connection with the mortgage insurance program made available by the insurance company to borrowers of Cameron Brown. (Respondent's Exhibits number 1, 2, 3). This included borrowers in the State of Florida, although the services were being provided out of Cameron Brown/FUMC's principal offices in Charlotte, North Carolina. Prior to 1983, when Chapter 626 Part VII, Florida Statutes was enacted, Florida did not regulate third party administrators as such. Section 626.8805, F.S. now requires a certificate of authority to be issued by the Department of Insurance (DOI). On or about September 26, 1986, Cameron Brown applied to DOI for authorization to operate in the State of Florida as a third party administrator. The application was prepared by Peter Nagle, senior vice-president of FUMC who had just recently joined what was then Cameron Brown. On the application, and later in October, in response to DOI's request for additional information, Nagle indicated that Cameron Brown had operated as an administrator of insurance plans since December 1983 and that the company was not providing such services on plans for Florida residents. This information was an inadvertent error, primarily the result of Nagles unfamiliarity with the company's history. There is no evidence that the information was material to a determination of the company's eligibility for certification. Nor is there evidence of any scheme by the company to conceal its past practices at the time of application in 1986. In its application Cameron Brown disclosed its affiliation with First Union Corporation, and further provided that First Union National Bank of Florida conducted only credit insurance activities in First Union Corporation locations in Florida. DOI issued a certificate of authority for Cameron Brown to operate as an administrator in the State of Florida on October 14, 1986. The cover letter provides, "the certificate is perpetual and shows no expiration date contingent upon your annual filing, due March 1st". (Petitioner's exhibit B, p.17) Those annual filings have been made, and on May 18, 1987, the certificate of authority was reissued in the name of FUMC. During the declaratory statement proceeding, the company's third party administrator status was never an issue. DOI never asked about, and FUMC never mentioned, the existence of its certificate or the company's insurance administration activities. The staff of DOI involved in the declaratory statement proceeding did not know about their agency's grant of the certificate to FUMC. Their pique at FUMC"s failure to affirmatively raise the certificate issue, however, is misplaced in the absence of any evidence that the outcome of the declaratory statement would have been altered with that knowledge. At most, the staff can only say that their investigation would have been different had they realized that FUMC was providing insurance administration services. INVESTIGATION AND ALLEGED VIOLATIONS After the third party administrator certificate was issued, and after the amended declaratory statement was issued, sometime in 1989, DOI began investigating all financial institutions claiming grandfathered status under Section 626.988, F.S. This included FUMC, and during a two day visit to the Charlotte, North Carolina headquarters, DOI staff, obviously other than staff involved in the certificate process, learned for the first time that FUMC was operating as an administrator of insurance plans. Even then this did not trigger further investigation of the administrator activities, as there was no evidence that the company was out of compliance with its amended declaratory statement. Approximately a year later, in the summer of 1990, DOI's Bureau of Agent and Agency Investigations began receiving inquiries regarding Monumental General Insurance solicitations mailed to First Union Bank customers in Florida. Gail Connell, DOI Analyst II, opened her investigation. A few months later complaints were received from insurance agents who were also customers of First Union Bank regarding solicitations done by American Heritage Life. The brochure from Monumental General sent to First Union Bank customers listed a toll-free number for the plan administrator, First Union Insurance Group, a division of FUMC. The mailing included letters from the president of Monumental General and the senior vice-president of First Union National Bank of Florida, with an enrollment form for a $1,000 no-cost accidental death group policy and optional additional coverage. Benefits and premiums for the additional coverage were explained in the brochure. A pre-paid postage reply envelope was addressed to "First Union Insurance Group, Plan Administrator, Attn: Daniel J. McPherson, Licensed Resident Agent, P. O. Box 2678, Jacksonville, Florida 32203-9851". (Petitioner's Exhibit C; pp. 157-163.) Daniel McPherson is not one of FUMC's grandfathered agents nor a successor to a grandfathered agent. The American Heritage Life mailings were stuffed in bank statements of customers of First Union National Bank. These mailings included a simple check- off form for the customer to return for more information and for a personalized quotation for term life insurance. Some mailings indicated return to "C. Dennis Wiggins, Resident Licensed Agent, P. O. Box 2678, Jacksonville, Florida 32203- 9851", and others required return to "Robert T. Jones, Sr. Resident Licensed Agent, P. O. Box 2678, Jacksonville, Florida 32203-2678" (Petitioner's Exhibit C, p 141, 154). Neither of these agents are FUMC's grandfathered agents or their successors. The American Heritage mailings also included a toll-free number for information. Gail Connell called that number and was eventually connected to a person identified as Sheila Auten, an insurance specialist for FUMC in North Carolina. Ms. Connell said to Ms. Auten that she was interested in more information about the term life policy addressed in the brochure. Ms. Auten asked questions about Ms. Connell's name, address, age, occupation and general health. Ms. Auten gave some history about American Heritage Life, estimated a premium for Ms. Connell, and offered to take her application over the phone. In response to Ms. Connell's question, she indicated that the completed application would be mailed to American Heritage Life in Jacksonville. Ms. Connell did not reveal her occupation as DOI investigator. Ms. Connell said she needed to think about the decisions and asked Ms. Auten to mail her something. A few days later Ms. Connell received a brochure explaining the product, a premium rate sheet and an application form. A few weeks later, when Ms. Connell did not return the application she received this letter from Sheila Auten: Dear Ms. Connell: Recently we sent you a proposal for term life insurance from American Heritage Life Insurance Company. I regret I have been unable to reach you by telephone to discuss it and answer any questions you may have. This term insurance is one of the best values on the market today. You can be sure it will provide you with a high level of life insurance protection at a very competitive rate. Once you decide to apply for this valuable insurance coverage, I would be happy to answer your questions or help you apply. Don't delay. Call me now at 1-800-366-8703. (Petitioner Exhibit C, p. 176) Ms. Auten is not licensed in Florida as an insurance agent or customer account representative. DOI considers it necessary for third party administrators to use licensed agents if they are engaged in solicitation of insurance. Based on her investigation, including a review of the compensation paid to FUMC for its agency activities compared to its administrator activities, Ms. Connell concluded that FUMC was using its administrator status to perform functions beyond the scope of its amended declaratory statement. She also concluded that FUMC was using unlicensed agents (Sheila Auten) to solicit insurance. These conclusions form the basis for the allegations in the agency's Notice and Order to Show Cause issued to FUMC on January 15, 1992. FUMC concedes that no grandfathered agent participated in the Monumental and American Heritage solicitations which triggered Ms. Connell's investigation. The two insurance companies solicit customers through direct mailings conducted by their licensed agents, which mailings go to customer lists provided by First Union National Bank of Florida or are enclosed in bank statements sent out by that institution. The bank has endorsed some of the products offered by the insurance companies. Other than provide marketing advice to the insurance company, FUMC plays no part at all in the sending or preparation of the mail solicitations. The bank sends out its statements; the insurance company or its agent, unaffiliated with FUMC, sends the inserts to the place where the bank statements are prepared; and a machine stuffs the inserts. The returned inquiry forms go to a Florida post office box, as indicated in paragraphs 18 and 19 above, and are forwarded to FUMC for its administrative support services. Those services include the further response to inquiries (as evidenced by Ms. Connell's encounter with Sheila Auten), review and approval of applications based on the insurance company's underwriting guidelines, entry into the administrative system, issuance of the policy and explanation to the customer, drafting the premiums out of the customer's account, and general servicing of the policy. These functions are consistent with administrator agreements between FUMC and Monumental General effective October 1, 1986; and FUMC and American Heritage Life effective November 1, 1989. There is no evidence that FUMC has been subject to discipline in the past, has operated unprofessionally or has caused harm or risk of harm other than through what DOI asserts is the impermissible involvement of a financial institution in the insurance business. It is primarily its status as a financial institution that has resulted in this proceeding against FUMC.

Recommendation Based upon the foregoing, it is hereby RECOMMENDED that the amended notice and order to show cause be dismissed. DONE AND ENTERED this 22nd day of October, 1992, in Tallahassee, Leon County, Florida. MARY CLARK 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 October, 1992. APPENDIX TO RECOMMENDED ORDER, CASE NO. 92-1476 The following constitute rulings on the findings of fact proposed by the parties. Petitioner's Proposed Findings of Fact Adopted generally in paragraph 1. Adopted in paragraph 2. Adopted in paragraph 1. Adopted in paragraph 14. Adopted in paragraph 6. Adopted generally in paragraph 7, but the implied characterization of that order as establishing the only way that insurance activities might be conducted is rejected as discussed in the conclusions of law. Rejected as irrelevant. Rejected as an inappropriate characterization as a grant of exemption, as discussed in the conclusions of law. Adopted in part in paragraph 7, but the characterization of the order as a permit is rejected. See paragraph 8, above. Rejected as contrary to the evidence and law. Rejected as improperly precluding the possibility of Respondent's later presenting evidence of other activities in which it engaged as of April 2, 1974, if it is determined that third-party administrator status must also be grandfathered in order to continue. This was not an issue in the prior proceeding. Rejected as contrary to the evidence, as to deliberate concealment. Adopted in paragraph 14. Adopted in part, as to the first sentence. Otherwise, rejected as unsupported by the evidence. Rejected as argument rather than proposed finding of fact. Adopted in paragraph 12. 17-18. Adopted generally but Respondent's contention as to evidence in this proceeding is rejected, as provided in conclusions of law, paragraph 32. 19. Rejected as unnecessary. 20-27. Rejected as argument. 28-29. (not included in the filing). 30-33. Rejected as contrary to the weight of the evidence. Adopted in paragraphs 20-22, except for the characterization of the activity as "soliciting". Rejected as unsubstantiated by the evidence. This case establishes only that the department now interprets FUMC's administrator activities as solicitation, not that it is a policy supported by rule, procedure or reason. Rejected as contrary to the evidence. The level of compensation did not establish the association the department theorizes. Rejected as unsupported by the weight of the evidence. The response given by the witness on page 189 was a qualified, inconclusive response. Respondent's Proposed Findings of Fact Adopted in paragraph 1. Adopted in paragraph 2. Adopted in paragraph 7. Adopted in paragraph 8. Adopted in paragraph 3. Included in Conclusions of Law. Adopted in paragraph 11. Adopted by implication in paragraph 11. 9-10. Adopted in paragraph 8. 11-14. Adopted in substance in paragraph 9. 15. Rejected as unnecessary. 16-17. Adopted in paragraph 12. Adopted in paragraph 14. Adopted in paragraph 12. Adopted in paragraph 13. Adopted in substance in paragraph 9, but there is no competent evidence that the same kinds of services were being provided since 1970. Rejected as unnecessary. Adopted in paragraphs 4 and 14. Adopted in paragraph 7. 25-26. Adopted in substance in paragraph 6. 27-31. Rejected as unnecessary. Adopted in paragraph 13. Adopted in paragraph 15. Adopted in substance in paragraph 7. Adopted in paragraph 15. 36-37. Adopted in paragraph 7. Addressed in Conclusions of Law. Rejected as unnecessary and cumulative. Adopted in paragraph 25. 41-42. Adopted in paragraph 26. 43-44. Rejected as cumulative and unnecessary. 45. Adopted in paragraph 26. 46-49. Adopted in paragraphs 20-22. Included in Conclusions of Law. Rejected as cumulative and unnecessary. 52-53. Adopted in paragraph 27. COPIES FURNISHED: Lisa S. Santucci, Esquire Dennis Silverman, Esquire Department of Insurance Division off Legal Services 412 Larson Building Tallahassee, Florida 32399-0300 J. Thomas Cardwell, Esquire Virginia B. Townes, Esquire Akerman, Senterfitt & Eidson, P.A. Post Office Box 231 255 South Orange Avenue Orlando, Florida 32802 Tom Gallagher State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-2152 Bill O'Neil General Counsel Department of Insurance The Capitol, PL-11 Tallahassee, Florida 32399-0300

Florida Laws (19) 120.52120.565120.57120.68624.10624.33624.401624.4211626.0428626.112626.561626.621626.88626.8805626.8817626.882626.883626.891626.9541
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DEPARTMENT OF INSURANCE AND TREASURER vs. CHARLES STEVEN BONGIORNO, 88-005830 (1988)
Division of Administrative Hearings, Florida Number: 88-005830 Latest Update: Mar. 03, 1989

Findings Of Fact Respondent is Charles Stephen Bongiorno, licensed by Petitioner at all times relevant to these proceedings to engage in the business of insurance in the areas of life, health and legal expense insurance. Respondent was a representative for Life Insurance Company of Georgia from July 17, 1986 through June 26, 1987. He was a representative for Investors Life Insurance Company of North America (CIGNA) from June 5, 1987 through September 16, 1987. In early April of 1987, Respondent met with Harvey and Patricia Noury regarding the purchase of life insurance by them. As a result of that meeting, Respondent prepared two life insurance applications for submittal to Life Insurance Company of Georgia; one on behalf of Harvey Noury and the other on behalf of Patricia Noury. Harvey and Patricia signed their respective applications in blank and gave Respondent two checks in payment of the initial premiums on each policy. Those checks were subsequently endorsed and deposited by Life Insurance Company of Georgia. Mr. and Ms. Noury executed the blank applications based on Respondent's assurances that he would complete the applications from information in his office files. The office file information had been gleaned from the couple by Respondent in the course of selling them disability insurance coverage on a previous occasion. After the sale of that disability insurance coverage, a social relationship had developed between the Nourys, Respondent and an individual introduced to the Nourys by Respondent named Alice Baker. Information contained in part 2 of the Life of Georgia insurance policy application submitted by Respondent to that company on behalf of Harvey Noury was inconsistent with the information obtained by Respondent from Mr. Noury at the time of the previous sale of the disability insurance coverage. Information on the Life of Georgia insurance policy application also misrepresented Harvey Noury's previous five year medical history. After signing the insurance policy applications and giving Respondent their checks, the Nourys cancelled their life insurance coverage which they had held until that time with another insurance company. Five or six weeks after the April 1987 meeting, Patricia Noury called Respondent as a result of her concern that the new insurance policies had not arrived. Respondent vaguely promised to look into the matter. Subsequently, Respondent told Ms. Noury that he would submit applications to other insurance companies on the couple's behalf while awaiting approval by Life of Georgia Insurance Company of those policies. Through Respondent, the Nourys obtained and signed applications for insurance with Commercial Union Insurance Company and John Hancock Insurance Company; they also provided checks to cover initial premium charges to accompany these applications. No checks or applications were signed or provided to Respondent by the Nourys for any other insurance companies. Around this point in time, the sister company of CAGNA, known as Insurance Company of North America (INA), received two applications for life insurance; each bearing agency code numbers assigned to Respondent by CIGNA for such submittals as well as his signature as the submitting agent. One application was on behalf of Harvey Noury; the other on behalf of Patricia Noury. One application bore a signature purporting to be that of Harvey Noury; the other application was purported to be signed by Patricia Noury. Both applications were dated June 17, 1987. Two checks for the applications were also received by INA. Both checks were purportedly signed by Harvey L. Noury. One check was dated June 17, 1987, and was drawn in the amount of $100.85; the other in the amount of $120.85 was dated June 25, 1987. Both checks were drawn on a checking account at the Holiday Bank of Holiday, Florida. The account was closed at the time of the dates reflected on the checks and was no longer a valid account. The only authorized signatory on the account had been an individual named Alice Baker. Once received by INA, the applications and checks were handled administratively by CIGNA since Respondent was not licensed to represent INA. By letters dated July 9, 1987, the Nourys were informed by CIGNA that checks purported to be signed by Harvey Noury in payment of initial premiums on recently purchased life insurance policies had been dishonored upon presentment for payment and returned to the company. The Nourys were informed that payment of the premiums would be necessary to prevent cancellation of insurance coverage. The Nourys had not applied for insurance with the company or executed any checks payable to the company. Further, they had not authorized anyone to submit applications on their behalf to either INA or CIGNA. Upon receipt of the communications from CIGNA, the Nourys contacted Respondent. He told them not to worry and that he would look into the matter. Two days after receipt of the letters from CIGNA, Harvey Noury received a telephone call from CIGNA's representative inquiring as to the reason Mr. Noury did not want the policy. Noury explained to the representative that he never signed applications or checks for the policy and had not received the policy. Pursuant to the representative's request, Noury wrote to CIGNA explaining what he knew concerning the matter. CIGNA paid Respondent $2,958.05 in commissions on sale of the two policies for life insurance reflected by the applications received on behalf of the Nourys. After learning that the Nourys would not pay for the policies, a demand was made by CIGNA that Respondent return the commissions. Respondent did not return the commissions. As a result of his failure to return the commissions, CIGNA terminated the contract with Respondent to act as its agent.

Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that a final order be entered finding Respondent guilty of the allegations set forth in the administrative complaint and that his licenses and eligibility for licensure be revoked. DONE AND ENTERED this 3rd day of March, 1989, in Tallahassee, Leon County, Florida. DON W. DAVIS 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 3rd day of March, 1989. APPENDIX The following constitutes my specific rulings, in accordance with Section 120.59, Florida Statutes, on findings of fact submitted by the parties. PETITIONER'S PROPOSED FINDINGS 1.-3. Adopted in substance. 4.-35. Addressed. RESPONDENT'S PROPOSED FINDINGS No proposed findings were presented. COPIES FURNISHED: Honorable Tom Gallagher State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Don Dowdell, Esquire The Capitol, Plaza Level Tallahassee, Florida 32399-0300 James A. Bossart, Esq. S. Marc Herskovitz, Esq. Department of Insurance and Treasurer 412 Larson Building Tallahassee, Florida 32399-0300 Charles Stephen Bongiorno 1320 Oak Valley Dr. Seffner, FL 33584 and 17721 Sunrise Dr. Lutz, FL 33549

Florida Laws (5) 120.57626.611626.621626.9521626.9541
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DEPARTMENT OF INSURANCE AND TREASURER vs. FRANK JOSEPH BRENNAN, 86-000707 (1986)
Division of Administrative Hearings, Florida Number: 86-000707 Latest Update: May 01, 1987

The Issue The issue is whether the licenses of Frank Joseph Brennan should be disciplined for actions of Mr. Brennan or of agents associated with Frank J. Brennan, P.A. with respect to the sale of insurance products to three (3) clients: Rebecca Fisher, Celine M. Rompre, and Mr. and Mrs. Joseph T. Nolan.

Findings Of Fact Frank Brennan Frank Joseph Brennan holds licenses as an ordinary life agent, ordinary life including health, health agent, and ordinary-variable annuity agent. Brennan is the owner and president of Frank J. Brennan, P.A., which sells life and health insurance products, including tax sheltered annuities of the National Western Life Insurance Company. The firm has several thousand tax sheltered annuity clients. Brennan had been the president and the director of Lancer Securities Corporation. On March 22, 1979, he was enjoined by the U.S. District Court for the Middle District of Florida for acting as an officer or director of any registered investment company. That injunction states that it did not constitute evidence against or an admission by Brennan, and that the injunction did not "establish or prove any of the acts alleged or asserted in any pleadings." Brennan was suspended from associating with any investment advisor for 120 days, and barred from associating thereafter with an investment advisor other than as a supervised employee in an order entered by the Securities and Exchange Commission on March 26, 1979. Brennan was barred from associating with any member of the National Association of Securities Dealers, Inc. in the capacity of a principal in an order entered by that association on October 15, 1980. Brennan was barred by the Securities and Exchange Commission in October 1980 from associating with any member in the capacity of a principal and fined $1,000. In May 1983, United Equitable Insurance Company terminated Brennan as an agent based on an adverse Equifax report. That report was not placed in evidence. (The foregoing findings 3 through 7 are based upon the Department of Insurance's Second Request for Admissions and Fifth Request for Official Recognition.) The Relationship Of Gregory Langsett And Betty Jones To The Frank J. Brennan, P.A. Frank J. Brennan, P.A., has contracts with a number of licensed insurance agents, including Gregory Langsett and Betty Jones. Langsett has a producer agreement with National Western Life Insurance Company which describes him as an independent contractor, and an agent's agreement with the Brennan firm. Under the agent's agreement Langsett has with the Brennan professional association dated December 4, 1981, Langsett is deemed an independent contractor and nothing in this agreement shall be construed to create the relationship of employer and employee. You are free to exercise your own judgement as to the persons from whom you solicit applications and the time and place of such solicitation. (Petitioner's Exhibit 28, Paragraph 1.) Brennan had been involved in training of Langsett and Jones when they first were associated with the firm. Agents such as Langsett and Jones are not listed on the employer's quarterly wage report made by the Frank J. Brennan, P.A. to the State of Florida Division of Unemployment Compensation. Agents such as Langsett and Jones pay their own estimated income tax withholding and their own social security taxes. The Brennan firm does provide agents with business cards (although Jones had her own cards printed). It also provides sales kits, telephone answering, postal services, makes available space for meeting with clients at the firm office and provides accounting services incident to the payment of commissions on business submitted to carriers through the firm, all without charge to the agents. Educational meetings are held on Fridays, which the agents are encouraged, but not required, to attend which discuss the various insurance products available through insurance companies the Brennan firm is associated with. Agents benefit from advertising done by the Brennan firm. Brennan occasionally provides leads to agents. For example, January 1986 Brennan provided to Betty Jones and her husband (also a licensed insurance agent) a list of approximately 100 names of employees of the Boca Raton Academy so that they could be solicited for purchase of tax sheltered annuities, and an arrangement was worked out under which Brennan and the Joneses would divide commissions from any such sales. There is no evidence that Brennan controlled the time, place or manner of these solicitations, or of any other solicitations for the purchase of insurance products. Langsett and Jones were not subject to the direct supervision and control of Brennan in their activities of soliciting insurance clients. They are not employees of the Professional Association -- they are independent contractors. This arrangement of appointing soliciting agents who are independent contractors is used by other sellers of tax sheltered annuities, and is not unique to the Brennan firm. (Tr. 496, 579). Brennan does have the authority, based on his contracts with insurance carriers, to appoint licensed agents as agents of insurance carriers. Rebecca Fisher's Dealings With Frank J. Brennan, P.A. and Frank Brennan Rebecca Fisher is an employee of the Dade County School Board. She contacted Langsett concerning tax sheltered annuities offered by the National Western Life Insurance Company, after learning of Langsett from another employee. Under Section 403(b) of the Internal Revenue Code, employees of school boards may have a portion of their wages paid into a tax sheltered annuity. They pay no income tax on the amounts deposited in the annuity through payroll deduction and the interest paid on the amounts deposited is not taxed when earned. Such annuities are long term savings plans designed to supplement the participant's retirement income. Ms. Fisher already had a tax sheltered annuity with Northern Life Insurance Company which had a face value of over $90,000. She had bought it through an insurance agent, Mr. Paul Indianer, with whom she had dealt over a number of years. Langsett met with Mrs. Fisher at her home for about 15 to 20 minutes on a Saturday in June 1985. Mrs. Fisher was not able to spend much time with Mr. Langsett that day because she had to go to a funeral at about noon. Thereafter, Mrs. Fisher attempted to call Langsett at the Brennan insurance offices. She called after 5:00 p.m. and Langsett was not there. Respondent Brennan answered the phone call. They discussed the possibility of opening a tax sheltered annuity account through National Western by rolling over into a new account money she had in her current tax sheltered annuity. Mrs. Fisher knew if the money were rolled over she would incur a surrender charge. She also discussed with Brennan whether it would be possible to borrow money from a new National Western tax sheltered annuity for home improvements. She was told money borrowed from a National Western annuity could be used for home improvements, and taxes would not have to be paid on the money borrowed from the annuity until her death. Her current annuity did not have a provision that permitted borrowing. At the hearing the provision permitting borrowing was referred to as the TEFRA provision -- so known , because it had its genesis in a portion of the Tax Equity and Fiscal Responsibility Act (TEFRA). (Tr. 45, 46, 80) Reviewing the totality of Mrs. Fisher's testimony, the Hearing Officer is not persuaded that Mrs. Fisher is able to recall with clarity the conversation which she had with Mr. Brennan. For example, the Hearing Officer does not accept the testimony that Respondent or Langsett told Fisher that National Western would pay 20 percent interest the first year and 18 percent the second year on its annuities. Those figures represented the surrender charges on the Northern Life tax sheltered annuity she already had. Neither did Brennan tell Fisher that she would get $75,000 of free life insurance in connection with a new tax sheltered annuity. One of the possibilities Brennan mentioned to Fisher was a more involved transaction in which her money would be rolled over into a new tax sheltered annuity, and a $50,000 loan would be taken against that new annuity. The $50,000 might be used to purchase a single premium life insurance policy. Interest paid on the amount placed in that policy would accumulate without any income tax being owed on the interest as it was paid. National Western Life Insurance Company would provide $75,000 of life insurance in connection with such a policy, over and above its $50,000 face amount, for a $155,000 total life insurance benefit. The single premium life insurance policy does not make a specific charge for the $75,000 additional death benefit. There is, of course, a charge for this insurance in that the interest rate paid on the $50,000 deposited in the single premium life insurance policy is reduced by the mortality charge on the $75,000 additional death benefit. Mrs. Fisher confused these two different insurance products (the tax sheltered annuity and the single premium life insurance policy), and thought that the life insurance was part of the tax sheltered annuity, which is not what Brennan discussed. Mrs. Fisher's notes of her conversation indicate that there would be a rollover penalty assessed against the face amount of her Northern Life tax sheltered annuity if she moved it to a National Western tax sheltered annuity. She had incurred penalties when she had moved money from her first annuity with Franklin Life to Standard Life the second annuity from Standard Life to Northern Life, both at the suggestion of her insurance advisor/agent, Mr. Indianer. (Tr. 57). Those notes also appear to indicate that Brennan referred to her current Northern Life tax sheltered annuity as "antiquated," and described the method by which payments are made under the annuity as "suicide" from an income tax point-of-view. In view of the complexity of these insurance matters, and Mrs. Fisher's misunderstanding of what Brennan had said on other significant portions of the conversation, the Hearing Officer is not satisfied that the evidence is clear and convincing that Brennan used those terms to describe Mrs. Fisher's current insurance products in his conversation with Mrs. Fisher. Similarly, the testimony that Brennan referred to her old Franklin Life and Standard Life annuities (which Indianer had already persuaded her to replace) as "garbage" is not accepted. Under the Internal Revenue Code, if money were borrowed from the annuity for the purpose of home improvements, no tax would be due on the amount borrowed until the annuitant's death, or the surrender of the annuity for cash or annuitization. (Tr. 624, 781). Borrowings for other purposes must be paid back in five years or they are treated as a distribution from the shelter, and require that income tax be paid on that distribution. Neither the code nor case law requires a loan to be repaid when the annuitant reaches a certain age. In short, contrary to the allegations of Count I of the Amended Administrative Complaint, the evidence is not convincing that Brennan made improper or defamatory remarks about Fisher's prior annuities or existing annuity, that he misrepresented the actual tax implications of the plans or the interest rate offered by the plans, or falsely represented that Fisher would receive $75,000 of free life insurance with a National Western annuity contract. Celine Rompre's Dealings With Betty J. Jones Betty J. Jones is an insurance agent licensed by the State of Florida. She also worked as an independent contractor through the Frank J. Brennan, P.A., selling tax sheltered annuity products of the National Western Life Insurance Company. Unlike Langsett there is no evidence that she has a written contract with the Brennan firm, but she does have a producer agreement with National Western Life Insurance Company. On or about July 23, 1985, Ms. Jones solicited Celine M. Rompre for the purpose of selling her a National Western Life Insurance Company Section 403(b) tax sheltered annuity. Rompre was an employee of the Palm Beach County School Board who already had a Section 403(b) tax sheltered annuity payroll deduction handled through Voyager Life Insurance Company; the insurance agency which had sold that annuity to her was owned by Edward Parmele. Respondent Brennan personally had nothing to do with the solicitation which Betty J. Jones made of Celine Rompre. Betty J. Jones was not acting under the direct supervision and control of Frank J. Brennan in that transaction. Betty Jones met with Celine Rompre and discussed the National Western tax sheltered annuity. Mrs. Rompre's husband also works and the Rompres do not need Mrs. Rompre's salary for living expenses. At the time she spoke with Betty Jones, Mrs. Rompre's annual salary was $5,500. She believed that it would increase to $7,200 at the beginning of the next school year, which did happen. At the time Mrs. Rompre was putting $1,040 into her Voyager Insurance Company tax sheltered annuity each year. Betty Jones discussed with Mrs. Rompre increasing her tax sheltered annuity contribution to approximately $4,000 per year. Jones told her that the maximum amount she could contribute would have to be separately calculated for each year. (Tr. 752). Mrs. Rompre was interested in this because Mrs. Rompre's daughter was then in the 8th grade, and it would be possible to borrow against that money to help with her daughter's education. Mrs. Rompre knew she would incur a substantial surrender charge on her current annuity if she switched to National Western. She signed papers prepared by Jones to accomplish the transfer of her annuity to National Western. Rompre was not eligible to increase her Section 403(b) annuity contribution immediately because she had changed her contribution once that year and only one change in the payroll deduction can be made annually. (Tr. 751). When the paperwork went to the School Board to change the annuity from the Voyager annuity to the National Western annuity, Mrs. Rompre was contacted by Mr. Parmele about her Voyager annuity. He stated that Mrs. Rompre could not put $4,000 per year into a Section 403(b) tax sheltered annuity. This influenced Mrs. Rompre to cancel the transfer to National Western. In fact, Mrs. Rompre was in a situation where she qualified to put as much as $5,051 into a tax sheltered annuity (this amount is known as the maximum exclusion allowance) over the next year under a catch-up provision of the Internal Revenue Code because she had not been contributing to an annuity for all eight years she had been employed by the Palm Beach County School Board. (Tr. 780). There is no evidence that Ms. Rompre was contributing to any other qualified retirement plans that would have affected her maximum exclusion allowance. Betty Jones did not misrepresent to Celine Rompre the amount of her maximum exclusion allowance, the terms of the surrender charges for the Voyager life insurance policy or the National Western life insurance policy, or improperly affixed the signature of Celine Rompre to a letter to the Voyager Life Insurance Company requesting cancellation of her existing account. Dealings Of Frank J. Brennan With The Nolans In about March of 1985, Mr. and Mrs. Nolan went to Brennan for help preparing their tax return and for financial planning. Mr. Brennan had been highly recommended to them. Mr. Nolan is a loss prevention manager for Radio Shack, and Mrs. Nolan is employed by the School Board of Broward County. Mr. Nolan had recently received an inheritance of about $30,000 and was looking for a way to invest it. The Nolans emphasized that the investment vehicle be liquid so they could access the money if they needed it. They were concerned that they might need it for the care of their parents. When Mr. Nolan came to Brennan, he had whole life insurance policies with Prudential and Metropolitan Life which had some cash value. Brennan suggested those policies be cancelled so that the cash value could be invested, and this was done. Mrs. Nolan's Section 403(b) Tax Sheltered Annuity When the Nolans came to Brennan, Mrs. Nolan did not have a Section 403(b) tax sheltered annuity. Brennan suggested that she contribute to such an annuity program as a means of saving on income taxes. He also told them they could borrow against those funds, but this was of no interest to the Nolans. Mrs. Nolan purchased a tax sheltered annuity with Great American Life Insurance Company which currently paid 13.75 percent interest. One of the documents which is filled out to begin the payroll deduction with the Broward County School Board for Section 403(b) tax sheltered annuities is an amendment to the annuitant's employment contract to cause part of the salary to be paid directly into the annuity. On that form there are disclosures, including whether there is a sales charge, administration fee, or transfer fee, as well as whether there is a surrender charge. The amendment which she executed does not show any surrender charge in connection with the Great American Life Insurance Company Section 403(b) annuity she purchased. Later the Nolans received another copy of the amendment which had the surrender charge portion filled in. It stated there would be a surrender charge of one-fifth of the first year's deposits only, which is waived if all proceeds are withdrawn over 36 months or longer. When Mr. Nolan received this he immediately called Mr. Brennan to ask about the surrender charge. Brennan told him that the annuity document itself explained the surrender charge and it should have been on the amendment to the employment contract as well. Brennan negligently failed to explain the surrender charge to the Nolans when the annuity was first taken out. After receiving the altered amendment to employment contract, Mrs. Nolan instructed the School Board to stop the annuity deductions as of December She had contributed $7,234 to the annuity at that time. The Nolans then asked to cancel the annuity because they had not been made aware of the surrender charge. Mr. Brennan responded by stating that in order to get the refund, they would have to sign a release at the request of the insurance company, but the Nolans refused to sign any release. They prepared a short letter to the insurance company seeking the recision of the policy. Brennan also wrote to the company seeking the refund. The Nolans did receive their money back. In connection with the rescission, the Nolans demanded and received from Brennan assurances that if the amount deposited in the annuity were not received by March 3, 1986, that Brennan would pay 10 percent interest per year on the proceeds until the Nolans received the proceeds. The Nolans received the amount before the agreed date when Brennan would begin to pay interest. The amount they received was only the principal paid in, however, and did not include any interest for the period the money had been held by Great American Life Insurance Company. Repayment of the $7,234 rendered these funds subject to current income taxes, because that income had not been subject to tax when placed in the annuity. The Nolans' Other Insurance Purchases From Brennan When the Great American Section 403(b) annuity was purchased, the Nolans also purchased other insurance products. These included two $2,000 individual retirement accounts (IRAs) for Mr. and Mrs. Nolan with National Western in the form of annuity policies, a Kemper Life Insurance policy on Mr. Nolan with a face value of $100,000 to replace the existing policies he had cancelled, and a $30,000 single premium endowment policy on Mrs. Nolan from National Western Life Insurance Company, which included a life insurance benefit so that the face amount of the policy was $200,602. These purchases saved the Nolans about $3,000 in income taxes. The Nolan's had had IRA accounts at savings and loan institutions before they came to Brennan, which they would roll over when the instruments in which the money was deposited matured. Brennan explained that these National Western annuities were different than the accounts they had. These annuities were cancelled because the Nolans became dissatisfied with Brennan due to the non-disclosure of the surrender charge on the Section 403(b) annuity with Great American Life Insurance Company. Mr. Brennan arranged for those to be cancelled without penalty at the request of the Nolans. They received the principal paid in plus interest. After the cancellation of the prior whole life policies at Brennan's suggestion, see Finding of Fact 37, above, Mr. Nolan purchased a Kemper Life Insurance term life insurance policy. At first he considered rescinding it along with the IRAs, also due to dissatisfaction with Brennan because of the failure to disclose the surrender charge on the Section 403(b) annuity. Ultimately he kept the Kemper policy, which was a better policy than the ones that had been cancelled. The $30,000 inheritance Mr. Nolan received was used to purchase a $30,000 single premium life endowment policy on Mrs. Nolan, which then paid 11.12 percent interest on the amount deposited and permitted borrowing from the policy at 7.4 percent. The policy was placed on Mrs. Nolan's life because she was the better underwriting risk. The interest which accrued on that policy was not subject to current federal income taxation, so the purchase was consistent with the Nolan's goal of achieving a high yield on the money with minimum taxation. That $30,000 premium purchased over $200,000 worth of life insurance on Mrs. Nolan, which Brennan described as "a freebie" in connection with the tax sheltered investment of the $30,000. This policy was cancelled under a policy provision which gave the right to cancel the policy during the first year, in part due to dissatisfaction with Brennan over the non-disclosure of the surrender charge on the Section 403(b) tax sheltered annuity. Nolan was also dissatisfied with the endowment policy after he received it because (1) the interest guaranteed to be paid on the $30,000 was only 4 percent although he understood that the actual interest to be paid would fluctuate with economic conditions and be competitive and (2) to access the $30,000 he could not withdraw money, but had to borrow from the policy. Although a loan could be processed quickly, Mr. Nolan did not like the idea of having to borrow his own money. The record is not clear whether the Nolans did or did not receive interest on the $30,000 for the time it was on deposit with National Western Life Insurance Company before the cancellation. The policy itself provides that on cancellation the insured "will be refunded the greater of the premium you paid or the cash value at that time." (Respondent's Exhibit 25) Because Mrs. Nolan signed an application naming Mr. Nolan and beneficiary for the insurance purchased with the $30,000, because she had a physical examination to obtain the policy, and because the check to purchase it was made out to National Western Life Insurance, Mr. Nolan's testimony that he did not understand that the "investment" he was making with his $30,000 involved the purchase of an insurance policy is not accepted. Brennan did sell the $30,000 policy to the Nolans in part on the basis that they would receive approximately $200,000 in free life insurance. The Nolans were more interested in a tax shelter for the $30,000 that would pay high interest, not in the insurance benefit. In summary, Brennan failed to explain the surrender charge associated with the Great American Life Insurance Company Section 403(b) tax sheltered annuity to the Nolans when it was purchased. Brennan made no misrepresentations with respect to the sale of the two annuities from National Western Life Insurance which were to be used as the Nolans' individual retirement accounts. There were no misrepresentations made to Mr. Nolan with respect to the purchase of his Kemper Life Insurance policy, which he still has. Brennan told the Nolans that they would receive free life insurance associated with the deposit of $30,000 in the endowment policy on Mrs. Nolan's life, which had been purchased due to the tax free accumulation of interest on the $30,000 deposited.

Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED: That Counts I and II of the Amended Administrative Complaint be DISMISSED. That on Count III, for offering free life insurance as an inducement for the deposit of $30,000 in the single premium endowment policy, Brennan be FINED $2,500.00 and his license SUSPENDED for a period of three (3) months. DONE AND ORDERED this 1st day of May, 1987, in Tallahassee, Florida. WILLIAM R. DORSEY, JR. Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 1st day of May, 1987. APPENDIX TO RECOMMENDED ORDER, CASE NO. 86-0707 The following constitute my specific rulings pursuant to Section 120.59(2), Florida Statutes (1985), on the proposed findings of fact submitted by the parties. See Rule 28-5.405(3), Florida Administrative Code. Rulings on Proposed Findings of Fact Submitted by Petitioner Before ruling on the individual proposals made by the Petitioner, it is appropriate to make some general comments. The proposals submitted by the Petitioner are exceptionally detailed, indeed unnecessarily so. Many are rejected as unnecessary or cumulative to the facts found in the Recommended Order. Others are irrelevant because they address issues not properly raised by the allegations of the First Amended Administrative Complaint. The testimony of the principal witnesses on counts one and two, Rebecca Fisher and Celine Rompre, was certainly sincere but generally unpersuasive. The testimony of the other expert witnesses who make their livings by selling tax sheltered annuities was also not convincing because their view of Mr. Brennan and his activities is so colored by their competition. Mr. Parmele's testimony left an abiding impression of hostility to Brennan for trying to persuade clients of Parmele to switch their annuities to companies represented by Brennan, and Parmele's testimony is discounted based upon his hostility. Mr. Indianer was not as hostile, but his financial interest in removing Brennan as a competitor also causes substantial discounting of his testimony. The opinions of Robert Storms are accorded little weight because he does not regard himself as an expert in tax sheltered annuities. To the extent necessary, covered in Finding of Fact 1. Covered in Findings of Fact 3-6. Covered in Finding of Fact 7. To the extent relevant, covered in Finding of Fact 2. Rejected as irrelevant. Rejected because it is not a finding of fact. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as a statement of law, not a finding of fact. Covered in Finding of Fact 8. Rejected as unnecessary. To the extent relevant, covered in Finding of Fact 2. Rejected as unnecessary. Rejected as a statement of law, not a finding of fact. Rejected as unsupported by the transcript citation given. To the extent necessary, covered in Finding of Fact 10. Rejected as irrelevant. Although true, rejected as unnecessary. Covered in Finding of Fact 8. Rejected as unnecessary, and unsupported by the transcript citation given. Covered in Finding of Fact 25. Rejected as unnecessary. Covered in Finding of Fact 13. Rejected as unsupported by transcript citation given which only reflects a division of commissions between the Jones' and Brennan with respect to sales to employees of the Boca Raton Academy. Rejected as irrelevant. Rejected as unnecessary and not supported by the exhibit citation given. PX 25 authorizes Langsett to procure applications; whether this is a license as a "writing agent" is unclear. Rejected as a statement of law. Rejected because Betty Jones had no written contract with the Brennan firm. Langsett's relationships are covered in Finding of Fact 8. Rejected because Jones had no written contract with the Brennan firm. With respect to Langsett's contract with the firm, rejected as irrelevant. To the extent relevant, covered in Finding of Fact 8. Jones had no written contract with the firm. Rejected because Langsett and Jones testified that being independent contractors included that they pay their own expenses, not meant that they pay their own expenses. Rejected as irrelevant. Covered in Finding of Fact 14. Rejected as unnecessary. Rejected as inconsistent with the transcript citations given. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. To the extent that the information was provided in the form of sales kits, covered in Finding of Fact 12. Covered in Finding of Fact 12. Rejected as not supported by the evidence. Rejected as unnecessary. Rejected as not constituting a finding of fact. Rejected as not constituting a finding of fact. Rejected as not constituting a finding of fact. Rejected as subordinate and cumulative to Finding of Fact 12. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary and inconsistent with the transcript citation given. Rejected as unnecessary and irrelevant. Rejected as unnecessary and irrelevant. Rejected as unnecessary and irrelevant. Rejected as unnecessary and irrelevant. Rejected as unnecessary and irrelevant. Rejected as unnecessary and irrelevant. Rejected as unnecessary and irrelevant. Rejected as unnecessary and irrelevant. Rejected as a recitation of testimony, not a finding of fact, also irrelevant. Rejected as irrelevant. Rejected as unnecessary and irrelevant. Rejected as unnecessary Rejected as unnecessary. The citation given supports only the statement made as to Betty Jones. Rejected as unnecessary. To the extent necessary, covered in Finding of Fact 9. Rejected as unnecessary. Covered in Finding of Fact 12. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Covered in Finding of Fact 15. Covered in Finding of Fact 15. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. To the extent necessary, covered in Finding of Fact 12. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. To the extent necessary, covered in Finding of Fact 12. Covered in Finding of Fact 12. Rejected as unnecessary. To the extent necessary, covered in Finding of Fact 15. Rejected as unnecessary. Rejected as unnecessary. - Rejected as a statement of law, not a finding of fact, also unnecessary. Rejected as a statement of law, not a finding of fact, also unnecessary. Rejected as a statement of law, not a finding of fact. Rejected as a statement of law, not a finding of fact. Rejected as a statement of law, not a finding of fact. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Covered in Finding of Fact 23. To the extent necessary, covered in Finding of Fact 23. Rejected as subordinate to Finding of Fact 23. Rejected as subordinate to Finding of Fact 23. Rejected as inconsistent with Finding of Fact 23. Rejected as unnecessary. Rejected as unnecessary. Subordinate to Finding of Fact 33. Subordinate to Finding of Fact 33. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Covered in Finding of Fact 33. Subordinate to Finding of Fact 33. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected for the reasons stated for the rejection of proposed finding of fact 32. Rejected as unnecessary. Rejected as unnecessary. Rejected as cumulative to Finding of Fact 15. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as irrelevant and unnecessary. Further, Mr. Storm's testimony is not persuasive on the point. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected because the form, PX 9, is a creation of a committee which is advisory to the risk manager of the School Board of Broward County and has no legal status. Rejected because the form, PX 9, is a creation of a committee which is advisory to the risk manager of the School Board of Broward County and has no legal status. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Mr. Storm's testimony as to what would be misleading is unpersuasive. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Although true, rejected as unnecessary. The power to appoint sub-agents who become producers for insurance carriers does not mean that Brennan exercised direct supervision and control over such persons, or over Langsett and Jones in the situations at issue in this matter. Although true, rejected as unnecessary. Covered in Finding of Fact 14. Covered in Findings of Fact 8 and 25. Covered in Finding of Fact 2. Rejected as irrelevant. Covered in Finding of Fact 13. Rejected as irrelevant. Rejected as irrelevant. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as a recitation of testimony7 not a finding of fact. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Covered in Finding of Fact 12. Rejected as unnecessary. Rejected as unnecessary. Covered in Finding of Fact 9. Subordinate to Finding of Fact 12. Rejected as Rejected as unnecessary. Rejected as irrelevant. Rejected as irrelevant. Rejected as irrelevant. Rejected as unnecessary. Rejected as irrelevant. Rejected as irrelevant. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected because the finding is taken out of context. Agents such as Langsett submit business through the Brennan firm and receive their commission through the accounting system at the Brennan firm. When the files are submitted to the carriers, this does not imply that the firm has the right not to pay Langsett, it is the medium through which his payments are processed. See Finding of Fact 12. Covered in Finding of Fact 12. Rejected as a misstatement of the testimony. That testimony occurred because Langsett was asked about commissions payable in a situation he never had experienced. Rejected as unnecessary. Rejected as irrelevant and unnecessary. Rejected as irrelevant. Rejected as irrelevant. Covered in Finding of Fact 12. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as a recitation of testimony, not a finding of fact. Rejected as a recitation of testimony, not a finding of fact. Rejected as unnecessary. Generally covered in Finding of Fact 12. Covered in Finding of Fact 12. Rejected as unnecessary. Rejected as cumulative to Finding of Fact 12 concerning education. Rejected as unnecessary. Covered in Finding of Fact 12. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Covered in Finding of Fact 12. Covered in Findings of Fact 12 and 25. Rejected as unnecessary. Rejected as unnecessary. Rejected as cumulative to Finding of Fact 12. Rejected as unnecessary. Rejected as unnecessary. Rejected as irrelevant and unnecessary. Rejected as irrelevant and unnecessary. Rejected as unnecessary. Generally covered in Findings of Fact 15 and 16. As pointed out at the beginning of these rulings, Mrs. Fisher's version of her dealings with Langsett and Brennan were not found persuasive. For example, only one meeting occurred between Fisher and Langsett, not two. Rejected as irrelevant to the allegations in the Amended Administrative Complaint and unnecessary. Rejected as a recitation of testimony, not a finding of fact. Rejected because I do not accept Mrs. Fisher's version of the events, rendering Mr. Indianer's comments on that version irrelevant and unnecessary. See also the general comment about Indianer at the beginning of this section. The issue of free life insurance is covered in Finding of Fact 20. Rejected as unnecessary. Rejected as a recitation of testimony, not findings of fact. Covered in Findings of Fact 27, 29, 30 and 31. Many of the proposed findings are rejected as unnecessary. Covered in Findings of Fact 29, 30 and 31. The proposal that Jones told Rompre she could deposit $4,000 per year for five years is rejected and the contrary testimony of Ms. Jones, incorporated in Finding of Fact 31, has been accepted. Rejected because the testimony of Mr. Storms is not found persuasive. Rejected as a recitation of testimony, not findings of fact. Many of the proposals are unnecessary. Rejected as unnecessary. Generally rejected because Mr. Parmele's testimony is not found persuasive. Further, many of the proposals aggregated in the finding are unnecessary. That Jones told Rompre she could deposit $4,000 a year for five years has been rejected. Rulings on Proposed Findings of Fact Submitted by Respondent Covered in Finding of Fact 1. To the extent relevant, covered in Finding of Fact 2. To the extent necessary, covered in Finding of Fact 2. Rejected as unnecessary. Covered in Finding of Fact 8. To the extent necessary, covered in Finding of Fact 8. To the extent necessary, covered in Finding of Fact 25. The proposal that Jones had a written agent's agreement with the Brennan firm is rejected because no such document was offered in evidence. To the extent necessary, covered in Findings of Fact 9 and 12. Rejected as cumulative to Finding of Fact 9. Rejected as unnecessary but discussed in the introduction to the rulings on the Petitioner's proposed findings of fact as relates to the credibility of Indianer and Parmele. Rejected as unnecessary. Rejected as unnecessary but discussed in the introduction to the rulings on the Petitioner's proposed findings of fact. Rejected as unnecessary. Rejected as not constituting a finding of fact. Covered in Findings of Fact 8 and 14. Covered in Findings of Fact 15 and 16. Rejected as a recitation of testimony, not a finding of fact. Rejected as a recitation of testimony, not a finding of fact. Rejected as a recitation of testimony, not a finding of fact. Rejected as a recitation of testimony, not a finding of fact. Rejected as unnecessary. To the extent necessary, covered in Finding of Fact 21. Rejected as a recitation of testimony, not a finding of fact. Rejected as a recitation of testimony, not a finding of fact. Rejected as a recitation of testimony, not a finding of fact. Rejected as unnecessary. Rejected as unnecessary because Indianer's testimony has not been accepted. Rejected as unnecessary. Covered in Findings of Fact 14 and 25. Covered in Findings of Fact 26, 27 and 31. Covered in Finding of Fact 29. Covered in Finding of Fact 31. Covered in Finding of Fact 31. Rejected as cumulative to Findings of Fact 30 and 31. Rejected as unnecessary, and as a recitation of testimony, not a finding of fact. Rejected as unnecessary. Covered in Finding of Fact 32. Rejected because the testimony of Mr. Parmele has not been accepted for the reasons. stated in the introduction to the rulings on the Petitioner's proposed findings of fact. See also Finding of Fact 33. Generally rejected as a recitation of testimony. Rejected as unnecessary because it is based on income of $7,200 which was not Mrs. Rompre's income at the time of her meeting with Betty Jones. Accepted in Finding of Fact 33. To the extent not cumulative, covered in Finding of Fact 31. Covered in Findings of Fact 35 and 38. Covered in Finding of Fact 43. Rejected as unnecessary. Covered in Finding of Fact 43. Covered in Findings of Fact 39, 44 and 46. Rejected as a recitation of testimony and because the problem was not only that the form did not contain the surrender charge, but that Brennan had not explained the surrender charge to the Nolans when the Great American Section 403(b) tax sheltered annuity was first purchased. Generally rejected as unnecessary. The surrender value is explained in the altered amendment to the employment contract. See Finding of Fact 39. To the extent necessary, covered in Finding of Fact 41. To the extent necessary, covered in Finding of Fact 44. Covered in Finding of Fact 44. Covered in Finding of Fact 46 and 47. Rejected for the reasons stated in Finding of Fact 46. Covered in Finding of Fact 46. To the extent necessary, covered in Finding of Fact 46. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Rejected as unnecessary. Covered in Finding of Fact 23. Rejected as unnecessary and because the testimony of Mr. Indianer has not been found persuasive. Rejected because the testimony of Mr. Parmele has not been accepted. Covered in Finding of Fact 23. Sentences 1 and 2, covered in Finding of Fact 14. The remainder, rejected as unnecessary. Rejected as unnecessary. Covered in Finding of Fact 12. Covered in Findings of Fact 10 and 11. Generally covered in Finding of Fact 12. Covered in Findings of Fact 8 and 11. Rejected as unnecessary. COPIES FURNISHED: James F. Falco, Esquire Department of Insurance and Treasurer Room 413-B, Larson Building Tallahassee, Florida 32399-0300 Russell L. Forkey, Esquire Pamela M. Burdick, Esquire 400 Southeast 12th Street Fort Lauderdale, Florida 33316 Honorable William Gunter State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Don Dowdell, General Counsel Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, Florida 32399-0300 =================================================================

Florida Laws (8) 11.12120.57120.68626.611626.681626.795626.9521626.9541
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DEPARTMENT OF FINANCIAL SERVICES, OFFICE OF FINANCIAL INSTITUTIONS AND SECURITIES REGULATION vs JAMES A. TORCHIA, 02-003582 (2002)
Division of Administrative Hearings, Florida Filed:Fort Lauderdale, Florida Sep. 13, 2002 Number: 02-003582 Latest Update: Sep. 02, 2003

The Issue The issues are whether Respondents offered and sold securities in Florida, in violation of the registration requirements of Section 517.07(1), Florida Statutes; offered and sold securities in Florida while Respondents were unregistered, in violation of Section 517.12(1), Florida Statutes; or committed fraud in the offer, sale, or purchase of securities in Florida, in violation of Section 517.301(1)(a), Florida Statutes. If so, an additional issue is the penalty to be imposed.

Findings Of Fact At all material times, Respondent James A. Torchia (Respondent) held a valid life and health insurance license. Respondent was the president and owner of Respondent Empire Insurance, Inc. (Empire Insurance), a now-dissolved Florida corporation. Empire Insurance was in the insurance business, and Respondent was its sole registered insurance agent. At no material time has Respondent or Empire Insurance held any license or registration to engage in the sale or offer for sale of securities in Florida. At no material time were the investments described below sold and offered for sale by Respondent or Empire Insurance registered as securities in Florida. These cases involve viaticated life insurance policies. A life insurance policy is viaticated when the policy owner, also known as the viator, enters into a viatical settlement agreement. Under the agreement, the viator sells the policy and death benefits to the purchaser for an amount less than the death benefit--the closer the viator is perceived to be to death, the greater the discount from the face amount of the death benefit. The viatical industry emerged to provide dying insureds, prior to death, a means by which to sell their life insurance policies to obtain cash to enjoy during their remaining lives. As this industry matured, brokers and dealers, respectively, arranged for the sale of, and bought and resold, life insurance policies of dying insureds. Prior to the death of the viator, these viaticated life insurance policies, or interests in such policies, may be sold and resold several times. In these cases, viators sold their life insurance policies to Financial Federated Title & Trust, Inc. (FinFed). Having raised money from investors, American Benefit Services (ABS) then paid FinFed, which assigned viaticated policies, or interests in the policies, to various trusts. The trusts held the legal title to the policies, and the trust beneficiaries, who are the investors from whom ABS had obtained the funds to pay FinFed, held equitable title to the policies. Sometimes in these cases, a broker or dealer, such as William Page and Associates, intervened between the viator and FinFed. At some point, though, ABS obtained money from investors to acquire policies, but did not pay the money to FinFed to purchase viaticated life insurance policies. The FinFed and ABS investment program eventually became a Ponzi scheme, in which investor payouts were derived largely, if not exclusively, from the investments of other investors. ABS typically acquired funds through the promotional efforts of insurance agents, such as Respondent and Empire Insurance. Using literature provided by ABS, these agents often sold these investments to insurance clients. As was typical, Respondent and Empire Insurance advertised the types of claims described below by publishing large display ads that ran in Florida newspapers. Among the ABS literature is a Participation Disclosure (Disclosure), which describes the investment. The Disclosure addresses the investor as a "Participant" and the investment as a "Participation." The Disclosure contains a Participation Agreement (Agreement), which provides that the parties agree to the Disclosure and states whether the investor has chosen the Growth Plan or Income Plan, which are described below; a Disbursement Letter of Instruction, which is described below; and a Letter of Instruction to Trust, which is described below. The agent obtains the investor's signature to all three of these documents when the investor delivers his check, payable to the escrow agent, to purchase the investment. The Disclosure states that the investments offer a “High Return”: “Guaranteed Return on Participation 42% at Maturity.” The Disclosure adds that the investments are “Low Risk”: “Secured by a Guaranteed Insurance Industry Receivable”; “Secured by $300,000 State Insurance Guarantee Fund”; “Short Term Participation (Maturity Expectation 36 Months)”; “Principal Liquid After One Year With No Surrender Charge”; “State Regulated Participation”; “All Transactions By Independent Trust & Escrow Agents”; and “If policy fails to mature at 36 months, participant may elect full return of principal plus 15% simple interest.” The Disclosure describes two alternative investments: the Growth Plan and Income Plan. For the Growth Plan, the Disclosure states: “At maturity, Participant receives principal plus 42%, creating maximum growth of funds.” For the Income Plan, the Disclosure states: “If income is desired, participation can be structured with monthly income plans.” Different rates of return for the Growth and Income plans are set forth below. For investors choosing the Income Plan, ABS applied only 70 percent of the investment to the purchase of viaticated life insurance policies. ABS reserved the remaining 30 percent as the source of money to "repay" the investor the income that he was due to receive under the Income Plan, which, as noted below, paid a total yield of 29.6 percent over three years. The Disclosure states that ABS places all investor funds in attorneys’ trust accounts, pursuant to arrangements with two “bonded and insured” “financial escrow agents.” At another point in the document, the Disclosure states that the investor funds are deposited “directly” with a “financial escrow agent,” pursuant to the participant’s Disbursement Letter of Instruction. The Disbursement Letter of Instruction identifies a Florida attorney as the “financial escrow agent,” who receives the investor’s funds and disburses them, “to the order of [FinFed) or to the source of the [viaticated insurance] benefits and/or its designees.” This disbursement takes place only after the attorney receives “[a] copy of the irrevocable, absolute assignment, executed in favor of Participant and recorded with the trust account as indicated on the assignment of [viaticated insurance] benefits, and setting out the ownership percentage of said [viaticated insurance] benefits”; a “medical overview” of the insured indicative of not more than 36 months’ life expectancy; confirmation that the policy is in full force and effect and has been in force beyond the period during which the insurer may contest coverage; and a copy of the shipping airbill confirming that the assignment was sent to the investor. The Disclosure states that the investor will direct a trust company to establish a trust, or a fractional interest in a trust, in the name of the investor. When the life insurance policy matures on the death of the viator, the insurer pays the death benefits to the trust company, which pays these proceeds to the investor, in accordance with his interest in the trust. Accordingly, the Letter of Instruction to Trust directs FinFed, as the trust company, to establish a trust, or a fractional interest in a trust, in the name of the investor. The Letter of Instruction to Trust provides that the viaticated insurance benefits obtained with the investor's investment shall be assigned to this trust, and, at maturity, FinFed shall pay the investor a specified sum upon the death of the viator and the trustee's receipt of the death benefit from the insurer. The Disclosure provides that, at anytime from 12 to 36 months after the execution of the Disclosure, the investor has the option to request ABS to return his investment, without interest. At 36 months, if the viator has not yet died, the investor has the right to receive the return of his investment, plus 15 percent (five percent annually). The Disclosure states that ABS will pay all costs and fees to maintain the policy and that all policies are based on a life expectancy for the viator of no more than 36 months. Also, the Disclosure assures that ABS will invest only in policies that are issued by insurers that are rated "A" or better by A.M. Best "at the time that the Participant's deposit is confirmed." The Disclosure mentions that the trust company will name the investor as an irrevocable assignee of the policy benefits. The irrevocable assignment of policy benefits mentioned in the Disclosure and the Disbursement Letter of Instruction is an anomaly because it does not conform to the documentary scheme described above. After the investor pays the escrow agent and executes the documents described above, FinFed executes the “Irrevocable Absolute Assignment of Viaticated Insurance Benefits.” This assignment is from the trustee, as grantor, to the investor, as grantee, and applies to a specified percentage of a specific life insurance policy, whose death benefit is disclosed on the assignment. The assignment includes the "right to receive any viaticated insurance benefit payable under the Trusts [sic] guaranteed receivables of assigned viaticated insurance benefits from the noted insurance company; [and the] right to assign any and all rights received under this Trust irrevocable absolute assignment." On its face, the assignment assigns the trust corpus-- i.e., the insurance policy or an interest in an insurance policy--to the trust beneficiary. Doing so would dissolve the trust and defeat the purpose of the other documents, which provide for the trust to hold the policy and, upon the death of the viator, to pay the policy proceeds in accordance with the interests of the trust beneficiaries. The assignment bears an ornate border and the corporate seal of FinFed. Probably, FinFed intended the assignment to impress the investors with the "reality" of their investment, as the decorated intangible of an "irrevocable" interest in an actual insurance policy may seem more impressive than the unadorned intangible of a beneficial interest in a trust that holds an insurance policy. Or possibly, the FinFed/ABS principals and professionals elected not to invest much time or effort in the details of the transactional documentation of a Ponzi scheme. What was true then is truer now. Obviously, in those cases in which no policy existed, the investor paid his money before any policy had been selected for him. However, this appears to have been the process contemplated by the ABS literature, even in those cases in which a policy did exist. The Disbursement Letter of Instruction and correspondence from Respondent, Empire Insurance, or Empire Financial Consultant to ABS reveal that FinFed did not assign a policy, or part of a policy, to an investor until after the investor paid for his investment and signed the closing documents. In some cases, Respondent or Empire Insurance requested ABS to obtain for an investor a policy whose insured had special characteristics or a investment plan with a maturity shorter than 36 months. FinFed and ABS undertook other tasks after the investor paid for his investment and signed the closing documents. In addition to matching a viator with an investor, based on the investor's expressed investment objectives, FinFed paid the premiums on the viaticated policies until the viator died and checked on the health of the viator. Also, if the viator did not die within three years and the investor elected to obtain a return of his investment, plus 15 percent, ABS, as a broker, resold the investor's investment to generate the 15 percent return that had been guaranteed to the investor. Similarly, ABS would sell the investment of investors who wanted their money back prior to three years. The escrow agent also assumed an important duty--in retrospect, the most important duty--after the investor paid for his investment and signed the closing documents; the escrow agent was to verify the existence of the viaticated policy. Respondent and Empire Insurance sold beneficial interests in trusts holding viaticated life insurance policies in 50 separate transactions. These investors invested a total of $1.5 million, nearly all of which has been lost. Respondent and Empire Insurance earned commissions of about $120,000 on these sales. Petitioner proved that Respondent and Empire Insurance made the following sales. Net worths appear for those investors for whom Respondent recorded net worths; for most, he just wrote "sufficient" on the form. Unless otherwise indicated, the yield was 42 percent for the Growth Plan. In all cases, investors paid money for their investments. In all cases, FinFed and ABS assigned parts of policies to the trusts, even of investors investing relatively large amounts. On March 21, 1998, Phillip A. Allan, a Florida resident, paid $69,247.53 for the Growth Plan. On March 26, 1998, Monica Bracone, a Florida resident with a reported net worth of $900,000, paid $8000 for the Growth Plan. On April 2, 1998, Alan G. and Judy LeFort, Florida residents with a reported net worth of $200,000, paid $10,000 for the Growth Plan. In a second transaction, on June 8, 1998, the LeForts paid $5000 for the Growth Plan. In the second transaction, the yield is 35 percent, but the Participation Agreement notes a 36-month life expectancy of the viator. The different yields based on life expectancies are set forth below, but, as noted above, the standard yield was 42 percent, and, as noted below, this was based on a 36-month life expectancy, so Respondent miscalculated the investment return or misdocumented the investment on the LeForts' second transaction. On April 29, 1998, Doron and Barbara Sterling, Florida residents with a reported net worth of $250,000, paid $15,000 for the Growth Plan. In a second transaction, on August 14, 1998, the Sterlings paid $100,000 for the Growth Plan. The yield for the second transaction is 35 percent, and the Participation Agreement notes that the Sterlings were seeking a viator with a life expectancy of only 30 months. When transmitting the closing documents for the second Sterling transaction, Respondent, writing ABS on Empire Insurance letterhead, stated in part: This guy has already invested with us (15,000) [sic]. He gave me this application but wants a 30 month term. Since he has invested, he did some research and has asked that he be put on a low T-cell count and the viator to be an IV drug user. I know it is another favor but this guy is a close friend and has the potential to put at least another 500,000 [sic]. If you can not [sic] do it, then I understand. You have done a lot for me and I always try to bring in good quality business. If this inventory is not available, the client has requested that we return the funds . . . In a third transaction, on February 24, 1999, the Sterlings paid $71,973 for the Growth Plan. The yield is only 28 percent, but the Participation Agreement reflects the typical 36-month life expectancy for the viator. Although the investors would not have received this document, Respondent completed an ABS form entitled, "New Business Transmittal," and checked the box, "Life Expectancy 2 years or less (28%). The other boxes are: "Life Expectancy 2 1/2 years or less (35%)" and "Life Expectancy 3 years or less (42%)." On May 4, 1998, Hector Alvero and Idelma Guillen, Florida residents with a reported net worth of $100,000, paid $6000 for the Growth Plan. In a second transaction, on October 29, 1998, Ms. Guillen paid $5000 for the Growth Plan. In a third transaction, on November 30, 1998, Ms. Guillen paid $5000 for the Growth Plan. For this investment, Ms. Guillen requested an "IV drug user," according to Respondent in a letter dated December 1, 1998, on Empire Financial Consultants letterhead. This is the first use of the letterhead of Empire Financial Consultants, not Empire Insurance, and all letters after that date are on the letterhead of Empire Financial Consultants. In a fourth transaction, on January 29, 1999, Ms. Guillen paid $15,000 for the Growth Plan. On April 23, 1998, Bonnie P. Jensen, a Florida resident with a reported net worth of $120,000, paid $65,884.14 for the Growth Plan. Her yield was 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On May 20, 1998, Michael J. Mosack, a Florida resident with a reported net worth of $500,000, paid $70,600 for the Income Plan. He was to receive monthly distributions of $580.10 for three years. The total yield, including monthly distributions, is $20,883.48, which is about 29.6 percent, and the Participation Agreement reflects a 36-month life expectancy. On May 27, 1998, Lewis and Fernande G. Iachance, Florida residents with a reported net worth of $100,000, paid $30,000 for the Growth Plan. On June 3, 1998, Sidney Yospe, a Florida resident with a reported net worth of $1,500,000, paid $30,000 for the Growth Plan. The yield is 35 percent, and the Participation Agreement reflects a 30-month life expectancy. On June 12, 1998, Bernard Aptheker, with a reported net worth of $100,000, paid $10,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 10, 1998, Irene M. and Herman Kutschenreuter, Florida residents with a reported net worth of $200,000, paid $30,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 9, 1998, Daniel and Mary Spinosa, Florida residents with a reported net worth of $300,000, paid $10,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 5, 1998, Pauline J. and Anthony Torchia, Florida residents with a reported net worth of $300,000 and the parents of Respondent, paid $10,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. On June 29, 1998, Christopher D. Bailey, a Florida resident with a reported net worth of $500,000, paid $25,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. In a second transaction on the same day, Mr. Bailey paid $25,000 for the Growth Plan. Petitioner submitted documents concerning a purported purchase by Lauren W. Kramer on July 21, 1998, but they were marked "VOID" and do not appear to be valid. On July 22, 1998, Laura M. and Kenneth D. Braun, Florida residents with a reported net worth of $150,000, paid $25,000 for the Growth Plan, as Respondent completed the Participation Agreement. However, the agreement calls for them to receive $205.42 monthly for 36 months and receive a total yield, including monthly payments, of 29.6 percent, so it appears that the Brauns bought the Income Plan. In a second transaction, also on July 22, 1998, the Brauns paid $25,000 for the Growth Plan. On January 20, 1999, Roy R. Worrall, a Florida resident, paid $100,000 for the Income Plan. The Participation Agreement provides that he will receive monthly payments of $821.66 and a total yield of 29.6 percent. On July 16, 1998, Earl and Rosemary Gilmore, Florida residents with a reported net worth of $250,000, paid $5000 for the Growth Plan. In a second transaction, on February 12, 1999, the Gilmores paid $20,000 for the Growth Plan. The yield is 28 percent, but the Participation Agreement reflects a 36-month life expectancy. The New Business Transmittal to ABS notes a life expectancy of two years or less. On July 14, 1998, David M. Bobrow, a Florida resident with a reported net worth of $700,000 on one form and $70,000 on another form, paid $15,000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. In a second transaction, on the same day, Mr. Bobrow paid $15,000 for the Growth Plan. On July 27, 1998, Cecilia and Harold Lopatin, Florida residents with a reported net worth of $300,000, paid $10,000 for the Growth Plan. On July 30, 1998, Ada R. Davis, a Florida resident, paid $30,000 for the Income Plan. Her total yield, including monthly payments of $246.50 for three years, is 29.6 percent. In a second transaction, on the same day, Ms. Davis paid $30,000 for the Income Plan on the same terms as the first purchase. On July 27, 1998, Joseph F. and Adelaide A. O'Keefe, Florida residents with a net worth of $300,000, paid $12,000 for the Growth Plan. On August 5, 1998, Thurley E. Margeson, a Florida resident, paid $50,000 for the Growth Plan. On August 19, 1998, Stephanie Segaria, a Florida resident, paid $20,000 for the Growth Plan. On August 26, 1998, Roy and Glenda Raines, Florida residents, paid $5000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy. The New Business Transmittal to ABS notes a life expectancy of 30 months or less. In a second transaction, on the same day, the Raineses paid $5000 for the Growth Plan. The yield is 35 percent, but the Participation Agreement reflects a 36-month life expectancy, although, again, the New Business Transmittal notes the life expectancy of 30 months or less. On November 24, 1998, Dan W. Lipford, a Florida resident, paid $50,000 for the Growth Plan in two transactions. In a third transaction, on January 13, 1999, Mr. Lipford paid $30,000 for the Growth Plan. On December 1, 1998, Mary E. Friebes, a Florida resident, paid $30,000 for the Growth Plan. On December 4, 1998, Allan Hidalgo, a Florida resident, paid $25,000 for the Growth Plan. On December 17, 1998, Paul E. and Rose E. Frechette, Florida residents, paid $25,000 for the Income Plan. The yield, including monthly payments of $205.41 for three years, is 29.6 percent. On December 26, 1998, Theodore and Tillie F. Friedman, Florida residents, paid $25,000 for the Growth Plan. On January 19, 1999, Robert S. and Karen M. Devos, Florida residents, paid $10,000 for the Growth Plan. On January 20, 1999, Arthur Hecker, a Florida resident, paid $50,000 for the Income Plan. The yield, including a monthly payment of $410.83 for 36 months, is 29.6 percent. On February 11, 1999, Michael Galotola, a Florida resident, paid $25,000 for the Growth Plan. In a second transaction, on the same day, Michael and Anna Galotola paid $12,500 for the Growth Plan. On November 3, 1998, Lee Chamberlain, a Florida resident, paid $50,000 for the Growth Plan. On December 23, 1998, Herbert L. Pasqual, a Florida resident, paid $200,000 for the Income Plan. The yield, including a monthly payment of $1643.33 for three years, is 29.6 percent. On December 1, 1998, Charles R. and Maryann Schuyler, Florida residents, paid $10,000 for the Growth Plan. Respondent and Empire Insurance were never aware of the fraud being perpetrated by FinFed and ABS at anytime during the 38 transactions mentioned above. Respondent attempted to verify with third parties the existence of the viaticated insurance policies. When ABS presented its program to 30-40 potential agents, including Respondent, ABS presented these persons an opinion letter from ABS's attorney, stating that the investment was not a security, under Florida law. Respondent also contacted Petitioner's predecessor agency and asked if these transactions involving viaticated life insurance policies constituted the sale of securities. An agency employee informed Respondent that these transactions did not constitute the sale of securities.

Recommendation RECOMMENDED that Petitioner enter a final order: Finding James A. Torchia and Empire Insurance, Inc., not guilty of violating Section 517.301(1), Florida Statutes; Finding James A. Torchia guilty of 38 violations of Section 517.07(1), Florida Statutes, and 38 violations of Section 517.12(1), Florida Statutes; Finding Empire Insurance, Inc., guilty of 38 violations of Section 517.07(1), Florida Statutes, and 38 violations of Section 517.12(1), Florida Statutes, except for transactions closed on or after December 1, 1998; Directing James A. Torchia and Empire Insurance, Inc., to cease and desist from further violations of Chapter 517, Florida Statutes; and Imposing an administrative fine in the amount of $120,000 against James A. Torchia. DONE AND ENTERED this 19th day of May, 2003, in Tallahassee, Leon County, Florida. ROBERT E. MEALE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 19th day of May, 2003. COPIES FURNISHED: Honorable Tom Gallagher Chief Financial Officer Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Mark Casteel, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Fred H. Wilsen Senior Attorney Office of Financial Institutions and Securities Regulation South Tower, Suite S-225 400 West Robinson Street Orlando, Florida 32801-1799 Barry S. Mittelberg Mittelberg & Nicosia, P.A. 8100 North University Drive, Suite 102 Fort Lauderdale, Florida 33321

Florida Laws (13) 120.57200.001517.021517.051517.061517.07517.12517.171517.221517.241517.301626.9911626.99245
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