Findings Of Fact At present, and at all times relevant, Michael Mason is, and has been president of International Assurance Underwriters, Inc. (IAU), 2600 Maitland Center Parkway, Maitland, Florida. Respondent Mason was licensed as an insurance agent in the State of Florida in 1978 and continued to be licensed at all times relevant to this proceeding. He is currently eligible for licensure as a surplus lines insurance agent and general lines insurance agent. Prior to its emergency temporary suspension in this proceeding, Mason's license has not been subject to discipline. IAU was incorporated on or about March 11, 1991. Its directors were Michael Mason, John Erb and Robert Campbell. Shortly thereafter, a Limited Binding Authority Agreement was made between Assicurazioni Generali, S.P.A. (Generali), an international insurance company with a branch in London, and Leslie & Godwin Special Risks Ltd., London, (Leslie & Godwin) authorizing Leslie & Godwin to bind insurances, issue certificates of insurance, and settle claims on behalf of Generali. M.C. Rutty, Citadel Insurance Services, Ltd., London (Citadel), was designated as intermediary. Article II of the agreement provides, in pertinent part,"... the binding of insurances hereunder shall be the responsibility of one of the persons named in Section B.2 herein...." (Petitioner's Exhibit #16) Section B.2 provides, in pertinent part: 2. Persons authorized to use this Limited Binding Authority It is a condition of this Agreement that all insurances submitted hereunder must be first accepted and approved by the following persons: Michael T. Mason John K. Erb [names handwritten and initialled by Barry West, Director of Leslie & Godwin, and Maurice Rutty] (Petitioner's exhibit #16) The agreement provided for Generali to insure hospitality businesses (hotels, motels, restaurants, bars, taverns and the like) in the United States, for property limits up to $1,000,000 per location, general liability limits up to $1,000,000 and liquor legal liability up to $1,000,000. Under the arrangement, IAU, as approved producing agent, obtained requests for insurance from its subagents and other brokers or companies. Requests were forwarded to Generali, through Citadel and Leslie & Godwin. Generali was the ultimate authority to approve the risk, but Leslie & Godwin and IAU had some limited authority to bind the company on a temporary basis. Each month a bordereau, or list, was to be submitted by IAU through Citadel and Leslie & Godwin showing what policies were written that month. Premiums were due thirty (30) to forty-five (45) days from the end of the month. IAU immediately began providing insurance business for Generali, primarily involving insureds in Florida, and primarily through three Florida insurance companies: Hull & Company, Hummel Co., and Southeast Insurers, Inc. Except for delays in getting copies of policies in some cases, representatives from these companies noted nothing out of the ordinary in their dealings with IAU or Michael Mason. Claims were made and paid; premiums were paid by the companies to IAU. Sometime around the end of October or early November 1991, the companies learned that a cease and desist order had been entered by the Florida Department of Insurance against IAU. Maurice Rutty and attorneys representing Leslie & Godwin and Citadel met with the companies and obtained lists of policies obtained for them by IAU. At the time that the cease and desist order was entered, the companies had on hand premium funds due to be paid to IAU for Generali policies. Those funds have not been paid and allegedly remain in the companies' accounts. Notwithstanding the risk limits in the Limited Binding Authority Agreement, a substantial number of policies were written by IAU for more than $1,000,000. Ocean Properties was an account involving multiple properties, mostly hotels, with an aggregate risk of $300 to $400 million. A single building in the Bahamas was insured with $45 million property coverage. Maurice Rutty claims that Generali never approved the coverage beyond the $1 million limit, but instead obtained excess coverage beyond the limit after Generali learned of IAU's actions. Rutty admits that Generali routinely approved limits beyond $1 million, but only to $1.2 or $1.5 million. Michael Mason claims that he properly forwarded the paperwork to Citadel, that he never dealt directly with Generali, but that the policies were approved. In June 1991, Generali informed Citadel that it would no longer write policies in Florida as it was concerned about windstorm liability. This change was conveyed to Michael Mason by telephone by Maurice Rutty and by facsimile transmission from Eve Russell, Rutty's partner. In a telephone call with Rutty, Mason argued that the limitation would cripple IAU as most of its work was in Florida. Mason also provided a list of Florida policies showing what he believed was an acceptable ratio of coastal to inland properties. Mason continued to approve policies for Generali on Florida properties. Mason believed that he and Generali, through communication with Citadel, had gotten around the problem of windstorm hazards. The Limited Binding Authority Agreement includes a section styled "underwriting guidelines". One such guideline is that "...a wind exclusion or deductible may apply to risks located within one mile from the coastline." (Petitioners exhibit #16) Mason considered that a discretionary guideline and included windstorm deductibles on some risks located by the ocean. The bordereaux, or lists, submitted by Mason to Citadel were reasonably appropriate, according to Maurice Rutty, except for one or two premium discrepancies, which is normal. The premiums submitted to Citadel for Generali's policies from IAU and other producers were net premiums, after the commissions were deducted. At some point Mason learned that someone in his office had bound risks that were not originally submitted on his list. A supplemental list was filed for those six policies and the premiums were submitted. After Maurice Rutty learned that the bank account set up by Citadel in the United States for receipt of premiums was frozen by the Florida Department of Insurance, he traveled to Florida to meet with the various companies who were providing business to IAU for Generali. He found what he claimed were approximately 140 policies which were written through IAU but were never approved by Generali. With one exception, eventually all of those policies were covered by Generali. The exception was a large policy for the Catholic Diocese of Nassau, Bahamas, which Generali cancelled after a 3-month notice. The policy was beyond the scope of the hospitality program described in the Limited Binding Authority Agreement. No one from Generali nor Leslie & Godwin testified, and the exact nature of the relationship between those companies and IAU was not clearly established. Michael Mason was not a signatory to the Limited Binding Authority Agreement. Rutty's testimony regarding what was approved or disapproved by Generali was unclear. He insisted that Generali did not approve the coverage beyond $1 million, but excess policies were acquired by Generali for the additional amounts. He conceded that facsimile notices of those policies and the Florida policies written after June 1991 could have been received by Citadel, but he did not explain how the coverage denial by Generali was communicated to Mason or IAU. He insisted that coverage was ineffective prior to approval by Generali or by Barry West, but the language of the Limited Binding Authority Agreement appears to delegate some approval responsibility to Mason and Erb. Evidence on what premiums are still due from IAU is also unclear. The Florida companies providing business to IAU concede that they are holding some premium funds. Mason has over $1 million in bank accounts that are frozen by the Florida Department of Insurance. He argues that these funds are sufficient to pay any premiums that were due from IAU when the emergency agency action was taken the end of October 1991. Counsel for the agency concedes that no audit was done, but he has added the premiums for all the policies written by IAU for Generali that were submitted by Hull & Company, Hummel Company and Southeast Insurers, Inc., and those premiums exceed the funds available in Mason's accounts. This exercise does not prove a misappropriation by Mason. It fails to take into account funds still being held by the three companies and funds which even Maurice Rutty concedes were paid for premiums up to the liability limits of $1 million (see transcript, p. 145, lines 11-12). No Florida insurance consumer testified as to failure to receive requested insurance or the incurrence of financial losses, and evidence by the three company representatives did not establish these alleged violations by Mason. The evidence did establish that a once cordial and informal relationship between Citadel and IAU deteriorated by October 1991. Mason also conceded that some problems existed with staff in his office, but except for the delayed submittal of six policies, the nature of the problems was not defined. No witness explained how those internal problems constituted violations of the Florida Insurance Code.
Recommendation Based on the foregoing, it is hereby, recommended that the Administrative Complaint dated November 18, 1991, be dismissed. RECOMMENDED this 1st day of May, 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 1st day of May, 1992. APPENDIX TO RECOMMENDED ORDER, CASE NO. 91-7548 The following constitute rulings on the findings of fact proposed by Petitioner: Adopted in paragraph 1. Adopted in paragraph 2. Adopted by implication in paragraphs 3 and 5. Adopted in part in paragraph 4, otherwise rejected as unsupported by the evidence. 5.-6. Rejected as contrary to the weight of evidence. Adopted in paragraph 4. Adopted in part in paragraph 4, otherwise rejected as unsupported by the weight of evidence. The actions of the parties, including Generali and Citadel, as well as IAU were not in strict compliance with the Limited Binding Agreement and it is apparent that other agreements, written or oral, existed to govern those actions. 9.-10. Adopted in paragraph 4. 11. Adopted in paragraph 7. 12.-13. Adopted in paragraph 8. Adopted by implication in paragraph 9. Addressed, but not adopted, as unsupported by competent clear evidence. Adopted in paragraph 5. 17. Rejected as contrary to the weight of evidence. 18. Adopted in summary in paragraph 5. 19.-21. Rejected as irrelevant. 22. Adopted in paragraph 9. 23.-24. Rejected as irrelevant (see paragraph 11). COPIES FURNISHED: James A. Bossart, Esquire Dept. of Insurance & Treasurer Division of Legal Services 412 Larson Building Tallahassee, FL 32399-0300 Jason Reynolds, Esquire Box 5428 Daytona Beach, FL 32118 Tom Gallagher State Treasurer & Insurance Commissioner The Capitol, Plaza Level Tallahassee, FL 32399-0300 Bill O'Neil, General Counsel Dept. of Insurance & Treasurer The Capitol, PL-11 Tallahassee, FL 32399-0300
The Issue Whether Respondents directly or indirectly represented or aided an unauthorized insurer, an insurance or annuity product; whether Respondents knew or reasonably should have known that the annuity contracts with the unauthorized insurer violated Section 626.901, Florida Statutes; whether Respondents knowingly placed before the public a statement, assertion, or representation with respect to the business of insurance that was untrue, deceptive, or misleading; whether Respondents knowingly caused to be made, published, disseminated, circulated, delivered, or placed before the public any false material statement; whether Respondents demonstrated a lack of fitness and trustworthiness to engage in the business of insurance; whether Respondents engaged in unfair or deceptive practices or otherwise showed themselves to be a source of injury or loss to the public; and whether Respondents otherwise acted in violation of the Florida Insurance Code provisions as specifically detailed in Petitioner’s Amended Administrative Complaint, and, if so, what penalty, if any, should be imposed on Richard P. Eberhardt’s insurance agent license and/or Nancy Eberhardt’s license.
Findings Of Fact General facts applicable to both Respondents Respondent, Richard Eberhardt (RE), is currently licensed in the State of Florida as a Life Including Variable Annuity & Health Life, Life & Health, and Health insurance agent. RE was initially licensed by Petitioner as a non- resident insurance agent on May 6, 2004. Previously, RE was a licensed insurance agent in Nebraska, Indiana, and Arizona. Respondent, Nancy Eberhardt (NE), is currently licensed in the State of Florida as a Life Including Variable Annuity, Life Including Variable Annuity & Health, Life, Life & Health, and Health insurance agent. NE was initially licensed by Petitioner as a non-resident insurance agent on January 2, 2003, and then as a resident agent on October 5, 2004. Previously, NE was a licensed insurance agent in Arizona. Petitioner has historically mailed, and subsequently made available on line, the Intercom, an insurance agent newsletter. The heading to the newsletter, reads in part: “Publication for Agents and Adjusters from the State of Florida Department of Financial Services.” These newsletters contained warnings regarding unauthorized sales of insurance products, and explanations as how an agent could verify whether or not an insurer was authorized to do business in Florida. Petitioner’s records evidence that the newsletters were distributed to insurance agents from the July – October 1996 through December 2006 editions. Respondents became licensed Florida agents in January 2003, and it is a reasonable assumption that they received or had computer access to those publications. Both Respondents are listed in Petitioner’s records as being the owners of LLQ Consulting, LLC. Respondent NE is listed as being the insurance agent-in-charge of LLQ Consulting, LLC. Pursuant to records on file with the Florida Secretary of State, LLQ Consulting, LLC, is an Arizona-limited liability company that is authorized to do business in Florida. Respondent RE was originally listed as manager; however, since April 22, 2005, Respondent NE has been listed as the manager. At all times pertinent to the dates and occurrences referred to herein, Respondents were licensed in Florida as insurance agents. Petitioner has jurisdiction over Respondents’ insurance agent licenses and appointments, pursuant to statute. National Foundation of America (NFOA) The NFOA is a registered Tennessee corporation that was formed on January 27, 2006, and headquartered in Franklin, Tennessee. Respondents assert that the difference between a charitable gift annuity and a charitable installment bargain sale is that a charitable gift annuity is under Internal Revenue Code (IRC) Section 501(m) and the payout to the investor is based on a mortality table of the donor’s expected life. Therefore, it is a tax free exchange of an asset by a donor at less than the asset’s fair market value to a charitable organization in exchange for an annuity issued by the charitable organization. On the other hand, Respondents argue that an installment bargain sale is under Section 453 of the IRC and 26 C.R.F. Sections 1.1011-2 of the IRC regulations. It is an exchange of an asset owned by the donor at less than fair market value to a charitable organization in exchange for an annuity. The IRS allows the donor to deduct the difference between the fair market value of the asset and the amount that the charitable organization pays for the asset. The payout of the annuity is for a specific term and not tied to a mortality table. Therefore, NCF did not consider the Charitable Installment Purchase to be an insurance transaction or the sale of an insurance product under state insurance laws. Nevertheless, an NFOA Corporate Resolution, dated April 16, 2006, provides for the corporate authority to “liquidate stocks, bonds, and annuities . . . in connection with charitable contributions or transactions. . . .” This same resolution also provides for the corporate ability to “enter into and execute planned giving or charitable contribution transactions with donors, including executing any and all documentation related to the acceptance or acquisition of a donation, . . . given in exchange for a charitable gift annuity. “ On September 18, 2006, the State of Washington Office of Insurance Commissioner issued an Order to Cease and Desist in the matter of National Foundation of America, Richard K. Olive, and Susan L. Olive, Order No. D06-245. The Order, among other things, was based on NFOA’s having not been granted a Certificate of Authority (COA) as an insurer in Washington and having not been granted tax exempt status under Section 501(c)(3) of the IRC. On April 13, 2007, the OIR issued an Immediate Final Order (IFO) in the matter of National Foundation of America, Richard K. Olive, Susan L. Olive, Breanna McIntyre, and Robert G. DeWald, Case No. 89911-07, finding that the activities of NFOA, et al., constituted an immediate danger to the public health, safety or welfare of Florida consumers. OIR further found that, in concert, NFOA, et al., were “soliciting, misleading, coercing and enticing elderly Florida consumers to transfer and convey legitimate income tax deferred annuities for the benefit of themselves and their heirs to NFOA in exchange for charitable term certain annuities”; and that NFOA, et al., had violated provisions of the FIC, including Sections 624.401 and 626.901, Florida Statutes. NFOA has never held a license or COA to transact insurance or annuity contracts in Florida, nor has NFOA ever been registered pursuant to Section 627.481, Florida Statutes, for purposes of donor annuity agreements. NFOA was never a registered corporation with the Florida Department of State, Division of Corporations. New Life Corporation of America (“NLCA”) d/b/a National Community Foundation (“NCF”) has been registered with OIR as a Section 627.481, Florida Statutes, donor annuity organization, since October 1997. NCLA subsequently changed its name to New Life International (“NLI”), which continued to use the d/b/a/ NCF. NLI is presently registered as a donor annuity organization with OIR. NFOA appealed OIR’s IFO to the First District Court of Appeal of Florida (1st DCA). The 1st DCA dismissed NFOA’s appeal on July 24, 2007. Therefore, NFOA operated as an unauthorized insurer in Florida. On May 17, 2007, the Internal Revenue Service (IRS) sent a letter to the Texas Department of Insurance stating that NFOA was not classified as an organization exempt from federal income tax as an organization described in Section 501(c)(3) of the IRC. On May 23, 2007, the Tennessee Department of Commerce and Insurance (DCI) filed a Verified Petition for Appointment of Receiver for Purposes of Liquidation of National Foundation of America; Immediate and Permanent Injunctive Relief; Request for Expedited Hearing, in the matter of Newman v. National Foundation of America, Richard K. Olive, Susan L. Olive, Breanna MyIntyre, Kenny M. Marks, and Hunter Daniel, Chancery Court of the State of Tennessee (“Chancery Court”), 20th Judicial District, Davidson County, Case No.: 07-1163-IV. The Verified Petition states at paragraph 30: NFOA’s contracts reflect an express written term that it is recognized by the IRS as a charitable non-profit organization under Section 501(c)(3) of the Internal Revenue Code (Prosser, attachment 4), and NFOA represents in multiple statements and materials that the contract will entitle the customers to potential generous tax deductions related to that status. The IRS states that it has granted NFOA no such designation. The deceptive underpinning related to NFOA’s supposed tax favored treatment of its contracts permeates it entire business model and sales pitch. This misrepresentation has materially and irreparably harmed and has the potential to harm financially all its customers and the intended beneficiaries of the contracts. These harms are as varied in nature and degree as the circumstances of all those individuals’ tax conditions, the assets turned in to NFOA, and the extent to which they have entrusted their money and keyed their tax status and consequences to reliance on such an organization. On August 2, 2007, the Commissioner for the Tennessee DCI, having determined that NFOA was insolvent with a financial deficiency of at least $4,300,000.00, filed a Verified Petition to Convert Rehabilitation by Entry of a Final Order of Liquidation, Finding of Insolvency, and Injunction, in the matter of Newman v. National Foundation of America, et al. On September 11, 2007, pursuant to a Final Order of Liquidation and Injunction entered in the matter of Newman v. National Foundation of America, et al., the Chancery Court placed NFOA into receivership after finding that the continued rehabilitation of NFOA would be hazardous, financially and otherwise, and would present increased risk of loss to the company’s creditors, policy holders, and the general public. On February 6, 2008, the IRS sent a letter to the court appointed Tennessee DCI Receiver (“Receiver”) for NFOA stating that NFOA does not qualify for exemption from federal income tax as an organization described in Section 501(c)(3) of the IRC. The IRS, in determining that NFOA did not qualify for tax exempt status, stated that the sale of NFOA annuity plans has a “distinctive commercial hue” and concluded that NFOA was primarily involved in the sale of annuity plans that “constitute a trade or business without a charitable program commensurate in scope with the business of selling these plans.” The IRS letter also provides that consumers may not take deductions on their income tax returns for contributions to NFOA. Insurance Agent’s Duties An insurance agent has a fiduciary duty to his or her clients to ensure that an insurer is authorized or otherwise approved by OIR as an insurer in Florida prior to the insurance agent selling the insurer’s product to his client. There are several methods by which an insurance agent could verify whether or not an insurer was authorized or otherwise approved (hereinafter “authorized”) as an insurer in Florida by OIR. It is insufficient for an insurance agent to depend on the assurances of the insurer itself or his or her insurance business peers as to whether an insurer needs to be authorized in Florida. Respondents asserted that, prior to selling NFOA annuities in 2006, they had performed due diligence in order to determine whether or not NFOA was authorized in Florida. Respondents testified that at the time they performed their due diligence, they viewed a State of Florida website that seemingly indicated that OIR does not regulate donor annuities. Respondents’ testimony lacks credibility as to the timing of Respondents’ claimed due diligence. The websites that seemingly indicate that OIR does not regulate donor annuities did not come into existence until September 12, 2008, for OIR and January 16, 2009, for Petitioner, which would have been several years after any due diligence that Respondents claim that they performed. As further noted below, the sale of the NFOA annuities to Mr. Bisch and Ms. Clark occurred in 2006, well in advance of the September 2008 and January 2009 creation of any websites that might seemingly indicate a lack of OIR regulation of donor annuity organizations. While the OIR 2008 and DFS 2009 websites may be somewhat confusing, at all times relevant to these matters, donor annuity organizations have been and continue to be regulated by OIR pursuant to Section 627.481, Florida Statutes, and Florida Administrative Code Rules 69O-202.001 and 69O-202.015. Due to the importance of income tax considerations in a consumer’s decision making process as to whether or not to purchase an insurance product, insurance agents have a fiduciary duty to their clients to verify the validity of any representations that an insurer’s product has an IRC Section 501(c)(3) tax exempt status, prior to the insurance agent’s selling the product to his or her clients. There are several methods by which insurance agents could verify whether or not an insurer has an IRS 501(c)(3) tax exempt status. Respondents admitted, in their testimony, that they had depended on the assurances of others and assumed that NFOA did not need to be authorized as an insurer in Florida. Respondents also admitted in their testimony that, but for the different names, the NFOA paperwork was the same as that of NCF. Respondent’s testimony is contradictory and lacks credibility in that NCF was qualified and registered with OIR as a donor annuity organization and NFOA was not. Nevertheless, Respondents claim NFOA was not and did not need to be regulated by OIR. Respondents testified that they had verified with the IRS that NFOA had applied for Section 501(c)(3) tax exempt status. However, Respondents were aware that the tax exempt status had not been granted to NFOA at any time relevant to this proceeding. Respondents knew income tax considerations were materially important to their clients. However, none of the NFOA materials nor any Florida consumer contracts signed or provided by Respondents to their clients contain any disclaimer language informing consumers that the Section 501(c)(3) tax exempt status had been applied for but had yet to be granted by the IRS. Respondents received commissions totaling $22,062.80 for selling NFOA annuities to Florida consumers. Respondents have failed to return any of these commissions to the Receiver for NFOA in the state of Tennessee. Count I: Consumer – Jacob Bisch On February 20, 2006, Respondents solicited and induced Jacob Bisch of Cape Coral, Florida, then aged 75, to transfer or otherwise surrender ownership of his existing annuity contract with Allianz Life Insurance Company in return for an NFOA annuity. The NFOA agreement that the consumer entered into was signed by Respondent RE. Bisch credibly testified as to both Respondents’ involvement in the sale of the NFOA annuity. NE wrote a letter asking that the commission for this sale be issued in her name. The commission check was ultimately paid to LLQ Consulting, LLC, a company owned by both Respondents and which NE was registered as the insurance agent- in-charge. Respondents knew or reasonably should have known that NFOA was not an authorized insurer in Florida. Respondents, by use of the NFOA donor annuity agreement, knowingly misrepresented to Bisch that NFOA was a charitable non-profit organization under Section 501(c)(3) of the IRC, even though Respondents knew or should have known that NFOA did not hold tax exempt status with the IRS. Bisch’s testimony was credible that tax considerations were the prime consideration in the purchase of the NFOA annuity from Respondents. Based upon Respondents’ transaction of insurance, Bisch presently anticipates losing approximately $26,320.04. This amount includes a surrender penalty of $16,823.04 incurred for transferring his original Allianz annuity to NFOA, and after receiving partial refunds from the NFOA Receiver. Based upon Respondents’ transaction of insurance with Bisch, Respondents were paid a commission of $4,062.80 by NFOA. Count II: Consumer – Fay Ann Clark Culminating on May 8, 2006, Respondents solicitated and induced Fay Ann Clark of Ft. Myers, Florida, then aged 70, to write a check for $200,000.00 in return for an NFOA annuity. The NFOA agreement that Clark entered into, and which was signed by Respondent RE, was entered into less than three weeks after Clark requested rescission of two NCF annuities that Respondents had previously sold Clark. Proceeds from the rescission of the NCF annuities enabled Clark to purchase the NFOA annuity. Prior to the rescission of the NCF annuities, on or about October 21, 2005, Clark had surrendered two Allianz Life Insurance Company annuities. Proceeds from the surrender of the Allianz annuities were used to purchase the NCF annuities. Respondent NE signed the NCF annuities agreement and was the advisor. Respondent NE, by use of a check drawn on Respondents’ joint checking account, refunded Respondents’ commission for the NCF sales to Clark. Sales documentation and correspondence clearly and convincingly evidence both Respondents’ involvement in Clark’s Allianz to NCF and NCF to NFOA transactions. Respondents knew or reasonably should have known that NFOA was not an authorized insurer in Florida. Respondents, by use of the NFOA donor annuity agreement, knowingly misrepresented to Clark that NFOA was a charitable non-profit organization under Section 501(c)(3) of the IRC, even though Respondents knew NFOA was not tax exempt. Based upon Respondents’ transaction of insurance, Clark paid $200,000.00 for an NFOA annuity, paid $7,971.00 in penalties to the IRS (U.S. Treasury), and presently anticipates losing approximately $42,000.00. Clark has received a partial refund from the NFOA Receiver. Based upon Respondents’ transaction of insurance with Clark, Respondents were paid a commission of $18,000.00 by NFOA. Petitioner has proven by clear and convincing evidence that Respondents directly or indirectly represented or aided an unauthorized insurer to do business in Florida. Petitioner has proven by clear and convincing evidence that Respondents knew or reasonably should have known that the annuity contracts they contracted with clients were with an unauthorized insurer. Petitioner has proven by clear and convincing evidence that Respondents knowingly placed before the public a statement, assertion, or representation with respect to the business or insurance that was untrue, deceptive or misleading. Petitioner has proven by clear and convincing evidence that Respondents knowingly caused to be made, published, disseminated, circulated, delivered, or placed before the public a false material statement. Petitioner has proven by clear and convincing evidence that Respondents demonstrated a lack of fitness and trustworthiness to engage in the business of insurance. Petitioner has proven by clear and convincing evidence that Respondents engaged in unfair and deceptive practices or showed themselves to be a source of injury to the public. Neither Respondent has had prior disciplinary charges filed against them in Florida.
Recommendation Based upon the foregoing Finds of Facts and Conclusions of Law, it is RECOMMENDED that a final order be entered by the Department of Financial Services: Finding that Respondents violated Subsections 626.901(1), 626.901(2), 626.9541(1)(b)4., 626.9541(1)(e)1.e., 626.611(7), 626.621(2), and 626.621(6), Florida Statutes, as charged in Counts I and II of Petitioner’s Amended Administrative Complaints; Revoking Respondent Richard Eberhardt’s, licenses and appointments issued or granted under or pursuant to the Florida Insurance Code; Revoking Respondent Nancy Eberhardt’s, licenses and appointments issued or granted under or pursuant to the Florida Insurance Code; 4. Providing that if either of the Respondents, subsequent to revocation, makes an application to Petitioner for any licensure, a new license will not be granted if the applicant Respondent fails to prove that he or she has otherwise satisfied the financial losses of his or her NFOA clients or if the applicant Respondent otherwise fails to establish that he or she is eligible for licensure. DONE AND ENTERED this 27th day of April, 2010, in Tallahassee, Leon County, Florida. S DANIEL M. KILBRIDE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 27th day of April, 2010.
The Issue Should Petitioner impose discipline on Respondent's health agent (2-40), life agent (2-16), life and health agent (2-18), life including variable annuity and health agent (2-15), and life including variable annuity agent (2-14), licenses issued by Petitioner ?
Findings Of Fact Stipulated Facts Respondent is licensed by Petitioner as a health agent (2-40), a life agent (2-16), life and health agent (2-18), life including variable annuity and health agent (2-15), and life including variable annuity agent (2-14). Additional Facts Respondent has been licensed as a Florida insurance agent since 1979 and has worked in the insurance industry in Florida on a full-time basis beginning in 1988. At present, Respondent does business under his life and health license (2-18). While in business, Respondent formed a corporation with Steven Brown sometime in either 1989 or 1990. Mr. Brown was president of the corporation, and Respondent was the vice- president. It was a closely held corporation, an S corporation. Neither individual served as the supervisor for the other person. At times, they split sales and clients in conducting the business. In the past, Respondent was also licensed under Chapter 517, Florida Statutes, the "Florida Securities and Investor Protection Act" as an "associated person." While acting as an associated person, Respondent was affiliated with Tower Square Securities Inc. (Tower Square) between August 26, 1998, and June 22, 2000. Beyond that affiliation, Respondent was an associated person with Horner, Townsend & Kent (HTK) between June 23, 2000, and July 5, 2001. This license in relation to securities had been issued by the State of Florida, Department of Banking and Finance. The regulatory function for securities has since become the province of the State of Florida, Department of Financial Services, Office of Financial Regulation. Upon the entry of the final order in the case State of Florida, Department of Banking and Finance, Petitioner, vs. Michael Carroll Gainer, Respondent, DBF No. 0655-I-2/02, accepting a stipulation and consent agreement, Respondent's application for registration by the Department of Banking and Finance to become an associated person of High Mark Securities, Inc.(High Mark) was withdrawn by High Mark. As of February 25, 2002, through the stipulation and consent agreement, Respondent agreed that he would not apply for licensure or registration in any capacity pertaining to the Florida Securities and Investor Protection Act for a period of ten years from the date of the entry of the final order in that cause. The matters contemplated by the case before the Department of Banking and Finance were in relation to 21st Century, the company implicated in the present case, found to be involved with unregistered securities. To resolve the disciplinary action before the Department of Banking and Finance, Respondent, through the stipulation and consent agreement, neither admitted nor denied the allegations concerning the nature of the transactions involved with that prosecution; however, Respondent agreed to cease and desist all present and future violations of Chapter 517, Florida Statutes, and the administrative rules promulgated under that chapter. At the time Respondent worked with Tower Square as an associated person, the broker-dealer supervising Respondent and the company itself through other personnel made no mention of industry problems related to promissory notes. While employed at HTK in November 2000, Respondent attended a compliance meeting. This activity included the completion of a questionnaire. Among the questions was one concerning "notes." Respondent indicated that he had experience with "notes." This reference to "notes" made by Respondent was also reported to Tower Square. This episode in November 2000 came at a time outside the period contemplated by the present Amended Administrative Complaint involving "notes" related to 21st Century. Respondent first became aware of 21st Century when he received a telephone call sometime in 1997. A couple of people that Respondent knew told Respondent about the 21st Century business. In the beginning, Respondent was not interested in pursuing opportunities with 21st Century. About a year later, he changed his mind. He made an appointment to visit 21st Century offices sometime in 1998. Through his involvement, Respondent learned that the 21st Century program dealt with a note, a collateralized note. When Respondent went to Tampa, Florida, to check out 21st Century, he met with the company vice-president, Spencer Tyrrell. Respondent toured 21st Century facility, looked at equipment, and had an on-site engineer explain the nature of the 21st Century program. Mr. Tyrrell took Respondent and others to installation sites that 21st Century had completed. In his tour of the 21st Century facilities, Respondent also visited the billing department for the company. They appeared busy. During the trip, Respondent found out that 21st Century was engaged in the business of the sale, installation, maintenance, and servicing of what it referred to as Satellite Master Antenna Television (SMATV) systems to private property owners. To conduct this business, financing was needed for the necessary equipment and installations. As 21st Century put it, the funds loaned for the financing of equipment and installations would be derived from investors, whose investment would be secured by a collateral mortgage on the equipment and the income derived from its installation, as confirmed by a UCC-1 filing and corporate promissory note. It was anticipated that Respondent and others like him would be involved in the promotion and obtaining of funding for 21st Century to pursue its business through the investment vehicle that has been described. In addition to visiting the company and sites where the SMATV systems had been installed, Respondent spoke to an attorney associated with 21st Century. He also spoke with someone whom was responsible for holding investment money, qualified money, in an escrow account. Respondent spoke with someone whom he understood was performing an audit on the business as a member of an accounting firm. Respondent spoke to several other 21st Century company officers, not to include Mr. Tyrrell. The attorney that Respondent spoke to was Byron Nenos, who acted as a disbursement agent for 21st Century. Respondent discussed with Mr. Nenos any difficulties that the attorney was aware of that had been experienced in the provision of quarterly interest payments to the investors in the SMATV systems. At that time, no problems were revealed by Mr. Nenos on this topic. The escrow company responsible for maintaining the qualified money was Retirement Accounts, Incorporated, who acted as trustee of the investment funds. The trustee would release money to 21st Century to further its purposes. The investor would receive a quarterly statement concerning the investment and would be billed an administrative charge by the escrow firm. Respondent was familiar with Retirement Accounts, Incorporated by reputation, in that he understood that this was a nationwide firm. Respondent also checked with the Better Business Bureau to ascertain any complaints that had been made against 21st Century with that organization. He was told that complaints had not been received. Respondent invested $16,000.00 in the 21st Century SMATV systems for his own purposes under the terms that have been described. Respondent received subsequent memos from the company concerning the subscriber base for the 21st Century product. Respondent was introduced to S.R. around 1998. Respondent sold S.R. mutual funds and a tax sheltered annuity. The application for the tax sheltered annuity was made in May 1998 with the funds distribution to begin in August 1998. The investment in the mutual funds took place around September 1998. The subject of 21st Century as an investment for S.R. was brought up in the fall of 1998. S.R. told Respondent that she had a lot of money in CDs and would like to do something different with that money and wanted to know if Respondent had anything to offer other than mutual funds. Respondent suggested a government securities fund. S.R. remained interested in some other possible alternative investment opportunity. Respondent brought up the 21st Century investment. He provided material to S.R. for her review concerning 21st Century. S.R. made no decision concerning 21st Century until December 1998. In this connection, Respondent arranged for S.R. to visit the 21st Century headquarters and/or talk with persons at 21st Century by telephone. S.R. did not avail herself of those opportunities. To this point, Respondent was unaware of any problems with the 21st Century investment. Ultimately, S.R. decided to invest $50,000.00 in 21st Century and that was arranged by Respondent in December 1998. When S.R. invested her money in 21st Century, Respondent understood that this was extra money coming due from a CD or similar investment. In deciding upon an investment in 21st Century, Respondent and S.R. went through details concerning her financial position. S.R. was the first person that Respondent sold the 21st Century product. In his dealings with S.R., Respondent explained that the 21st Century investment was not secured. The risk would be that if S.R. needed the money she would invest within the five year period contemplated by the terms of her agreement with 21st Century, she would not be able to get the money. The inability to reacquire the principal within the period of the investment was not a concern to S.R., as she remarked to Respondent. The investment by S.R. was, as Respondent describes it, "collateralized." By this he meant that the investment was in association with one facility or community, in which there were sufficient numbers of investors within a subscriber base for the equipment to make the site profitable. The UCC-1 reference meant that the state-maintained website would allow confirmation that the client's name was listed in relation to the property that was being invested in. S.R.'s name was on the property she invested in, according to the Secretary of State's records under the UCC-1. In connection with the UCC-1 filing, Respondent had financed another business on his own and filed the UCC-1 for equipment. With the experience in mind, Respondent perceived the UCC-1 filing as being associated with collateral related to the equipment involved with 21st Century. Respondent eventually found out that there was a limit on the value of equipment as collateral, in that it was over-collateralized limiting the return on investment. Respondent understood that he was selling a promissory note to S.R. for 60 months. Respondent proceeded with the assumption that it was exempt from the requirement to be registered as a security based upon conversations with attorney Nenos, the disbursement agent for 21st Century. This was not the true status of the promissory note. Respondent told S.R. that her investment with 21st Century was a relatively low risk. S.R. considered that her investment was a capital investment. As Respondent recalls, problems began with 21st Century when it was late on its interest payment for the third quarter 2000. This was in relation to the five-year loan agreement program that S.R. participated in, calling for a monthly fixed and guaranteed interest payment of 13 percent, plus an additional 25 percent of the annual profits generated by installation of the SMATV systems, both disbursements paid in quarterly installments. When the problems commenced, Respondent told S.R. that he was available if she needed his assistance and committed himself to provide information to her that he received concerning the difficulties experienced by 21st Century. Later Respondent also offered to assist S.R. in relation to bankruptcy proceedings that had been commenced in relation to 21st Century and its creditors that are ongoing. In a deposition, S.R. explained her understanding of the transaction with 21st Century through Respondent. She understood it as an opportunity in which four times a year she would receive a check, which represented interest payments and at the end of five years the principal investment would be returned. S.R. expected to receive 13 percent annual return on the investment. Respondent told S.R. that he had also invested in 21st Century. S.R. recalls Respondent arranging for an on-site visit at the 21st Century business location which she was unable to meet because of her schedule. Respondent told S.R. about his visit to the facility and that by its appearance it seemed very solid, a growing opportunity. S.R. never spoke directly with anyone in management or otherwise at 21st Century. As she explained, S.R.'s investment came from an inheritance left to her by her mother, who had died in 1998. The $50,000.00 investment by S.R. constituted about 25 percent of her available cash. Petitioner's Exhibit numbered 8 is a copy of the brochure Respondent provided to S.R. explaining 21st Century and the investment opportunity. The brochure describes the nature of the sale, installation, maintenance and servicing of SMATV systems to private owners and the need for financing of the equipment and installations. The brochure highlights the investment opportunity where it states: Real Opportunities in Communications 21st Century Satellite Communications, Inc. is offering on a limited and selected basis, the following opportunity to participate in its SMATV installation programs. For both qualified and non-qualified funds, the Company is offering a 5 year Loan Agreement program, whereby individuals can receive an attractive income on funds loaned to the Company. Loan repayments consist of a monthly fixed and guaranteed interest payment of 13 percent, plus an additional 25 percent of the annual profits generated by a spread of installations, all payable in quarterly installments. (Important Note: Profits are a direct result of the number of subscribers per installation, hence profits are calculated over a series of installations, rather than any one location). For qualified monies, accumulations would grow on a tax deferred basis, providing interest on the principal, together with interest on the accumulating interest! Each Loan Agreement is backed up by the Uniform Commercial Code, which provides a lien on both the equipment and income derived therefrom. . All Lenders receive a Promissory Note backed by the assets of 21st Century Satellite Communications, Inc. . Each installation will be subject to an annual accounting.. The average installation is between 500 to 600. Companies are currently offering $1,000 to $1,500 to purchase a subscriber. Even a small installation of 400 subscribers could be sold for $400,000 (twice the original investment). It is anticipated that installations will average between 400 to 1,000 subscribers. Consistent with its obligation 21st Century paid S.R. four checks for interest due and then it ceased making payments. On October 12, 2000, through its vice-president and CFO, Gabe Panepinto, 21st Century wrote to S.R. restating the status of the account pertaining to the note and the interest rate. S.R. confirmed by her signature the status of the account on the form at the bottom of the letter for return to the company. On October 12, 2000, a letter was generally written to the men and women who invested with 21st Century by its chairman Robert S. Byrch, explaining the financial problems experienced by that company. It described several options to the investors, to include S.R., where it said: As a noteholder, your choices are simple. You may either do nothing and retain your promissory note, or you may tender your note to the Company and request that your note be converted into equity in accordance with the instructions and subject to the conditions set forth in the Exchange Offer Memorandum. The terms of the preferred stock are not yet finalized but will be specified in the Exchange Offer Memorandum. On November 13, 2000, in correspondence from Mr. Byrch as chairman of the board for 21st Satellite, directed to the investors, S.R. among them, the investors were told that the company was in default on its obligation under its note program to make quarterly interest payments. The letter referred to the intent to change the nature of the investment opportunity from one of a noteholder to a stockholder in the company. On November 14, 2000, S.R., among other investors, received a letter from Mr. Nenos pertaining to 21st Century. The correspondence referred to an October 27, 2000, letter sent to 21st Century notifying the company of the default status of the promissory notes held by S.R. and other investors and a demand for payment made by Mr. Nenos. The correspondence from Mr. Nenos told the investors that 21st Century had not paid its obligation and advised the investors that they should seek legal counsel to enforce the terms of the promissory notes and to protect their interest in the collateral. On December 7, 2000, in a letter by Spencer G. Tyrrell, Director, and Robert S. Byrch, Chairman for 21st Century, they asked the investors to communicate: Whether you would be willing to convert your note, or a portion of your note, to preferred stock; or Whether you would be willing to modify the terms of the original note; or Whether you are unwilling to convert your note or modify the terms of the existing note. On September 20, 2001, Respondent wrote S.R. with an enclosure from a Glenn Liberatore that was being submitted to the creditors committee, taken to be in relation to 21st Century. It gave a telephone number for S.R. to call and comment to Mr. Liberatore on this topic. A personal handwritten note was attached to this correspondence which said, "S. please call me or write to let me know you are o.k. - I haven't heard from you in a while." In what appears to be correspondence dated November 30, 2001, Respondent again wrote S.R. on the subject of having received official notice regarding 21st Century's reorganization through Chapter 11, offering to assist S.R. in processing her claim in that proceeding. Respondent indicated that he was filing a claim and encouraged S.R. to do the same. To that end, S.R. has retained counsel to protect her interest in the bankruptcy proceedings.
Recommendation Upon consideration of the facts found and the conclusions of law reached, it is RECOMMENDED: That a final order be entered finding violations of Section 621.611 (7) and (13), Florida Statutes (1997), dismissing the other alleged violations and suspending Respondent's insurance licenses for six months. DONE AND ENTERED this 2nd day of June, 2006, in Tallahassee, Leon County, Florida. S CHARLES C. ADAMS 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 2nd day of June, 2006.
