Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant facts are found: The Respondent was at all times material to this proceeding a licensed real estate broker in the state of Florida having been issued license number 0035275. The last license issued was as a broker, d/b/a Silver Springs Real Estate, Corp., 4121 East Silver Springs Boulevard, Ocala, Florida 32671. On or about August 3, 1984, the Respondent obtained Teri L. Lochman (Lochman) as a tenant of certain residential property belonging to Gail and Valerie Cox (Cox) that was involved in a sale to A. Pillot. In connection with this sale, a lease had been prepared between A. Pillot as Lessor and A. Alongi as Lessee. Lochman signed this lease as Lessee, and in connection with this lease, paid Respondent $1,600.00 representing $700.00 for the first month's rent, $700.00 for the last month's rent and $200.00 security deposit. These funds were paid by Lochman to Respondent in two separate checks in the amount of $500.00 and $1,100.00 dated August 5, 1984 and August 13, 1984, respectively. The Pillot/Cox escrow account, which had previously been established in Respondent's escrow ledger, was credited with these funds and the funds deposited in Respondent's real estate brokerage trust bank account, No. 805 0006583, in the Sun Bank of Ocala (Trust Account), on August 9, 1984 and August 17, 1984, respectively. Upon attempting to move into the home she had rented, Lochman discovered that Cox was still in possession because the sale had not gone through. At this point, August 17, 1984, Lochman and Cox signed an agreement which would allow Lochman to reside in the home rent free for two weeks while Cox was out of town in return for acting as a security guard. Sometime after the August 17, 1987 agreement was executed by Lochman and Cox, Lochman and Cox signed a handwritten month to month lease of the premises requiring Lochman to pay Cox $700.00 for the first month's rent, $700.00 for the last month's rent and a $200.00 damage deposit. This payment was conditioned upon Lochman receiving her refund from the Respondent. There was no credible evidence that Respondent agreed to release Cox from any previous agreement with Respondent wherein Respondent acted as agent for Cox in obtaining Lochman as a tenant or the handling of Cox's property, i.e. mowing grass or preparing house for rent. Additionally, there was no credible evidence that Respondent agreed to Lochman dealing directly with Cox. Respondent was at all times relevant to this proceeding acting as agent for Cox, and therefore, demanded from Cox her commission for obtaining Lochman as a tenant and reimbursement for other services rendered before returning Lochman's rental deposit. There is no credible evidence that the Respondent agreed to return Lochman's rental deposit without first obtaining her commission or reimbursement for other services rendered from Cox. There is no credible evidence to show that Cox paid Respondent her commission or reimbursed Respondent for other services rendered or that Cox made a demand on Respondent to pay the Lochman rental deposit to Lochman. There is credible evidence that Lochman made a demand on Respondent for the return of her rental deposit and that Respondent refused to return Lochman's rental deposit because there was a dispute between Respondent and Cox concerning Respondent's commission and reimbursement for other services rendered. Lochman did not pay Cox the rent for the month of September, 1984, therefore, she contends that Respondent only owes her $900.00 of the rental deposit. Upon Respondent's refusal to pay her the balance of the rental deposit, Lochman obtained a default judgment for $900.00 in civil court, however, and although the record is not clear, the default judgment may have been set aside. (See transcript, page 15, lines 9-13). The evidence is clear that check no. 257 drawn on the Trust Account in the amount of $1,465.00, paid on April 18, 1985, included $1,278.00 from the Pillot/Cox escrow account and depleted the funds in the Pillot/Cox escrow account. However, there was no evidence presented to show that the Lochman rental deposit was paid to Respondent. Likewise, there was no evidence presented to show that Cox did not receive the Lochman rental deposit. There was no evidence presented to show the payee on Check No. 257, or any other check, drawn on the Trust Account. There was no evidence presented to show that Respondent commingled trust funds and personal funds in the Trust Account in regard to deposits and withdrawals. There was insufficient credible evidence to show that Lochman was entitled to delivery of $900.00 or any funds from the Trust Account. There was no evidence that Respondent notified the Real Estate Commission (Commission) of the conflicting demands on the Lochman rental deposit or followed any of the procedures set forth in the statutes to resolve such a conflict.
Recommendation Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record and the candor and demeanor of the witnesses, it is, therefore, RECOMMENDED that the Commission enter a Final Order finding the Respondent guilty of failing to notify the Commission of the conflicting demands on the trust funds and failing to follow the procedures set forth for resolving such conflict in violation of Section 475.25(1)(d), Florida Statutes and that Respondent's real estate broker's license be suspended for a period of six (6) months, stay the suspension, place the Respondent on probation for a period of six (6) months under the condition that the issue of conflicting demands on the trust funds be resolved within sixty (60) days and under any other conditions the Commission feels appropriate, and assess an administrative fine of $300.00 to be paid within sixty (60) days of the date of the Final Order. It is further RECOMMENDED that the Final Order DISMISS Counts I, III, IV and V of the Administrative Complaint filed herein. Respectfully submitted and entered this 1st day of May, 1987, in Tallahassee, Leon County, Florida. WILLIAM R. CAVE 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. 86-2387 The following constitutes my specific rulings pursuant to Section 120.59(2), Florida Statutes, on all of the Proposed Findings of Fact submitted by the parties in this case. Rulings on Proposed Findings of Fact Submitted by the Petitioner 1.-2. Adopted in Finding of Fact 1. 3. Adopted in Findings of Fact 8 and 9. 4.5 Rejected as not supported by substantial competent evidence in the record. Additionally, Petitioner has treated certain facts in this case as background in unnumbered paragraphs which I have numbered 6-10. Adopted in Finding of Fact 2 as clarified. Adopted in Finding of Fact 4 except for the phrase that Respondent agreed to the return of the rental deposit which is rejected as not being supported by substantial competent evidence in the record. I did not find Lochman's testimony credible in this regard. Adopted in Findings of Fact 8 and 9 as clarified. Adopted in Finding of Fact 10 as clarified. This paragraph is a statement of Lochman's testimony and not presented as a fact, therefore, is rejected. Rulings on Proposed Findings of Fact Submitted by the Respondent For the reasons set forth in the Background portions of this Recommended Order, there has been no rulings of Respondent's Proposed Findings of Fact. COPIES FURNISHED: Van Poole, Secretary Department of Professional Regulation 130 North Monroe Street Tallahassee, Florida 32301 Harold Huff Executive Director Department of Professional Regulation Division of Real Estate 400 West Robinson Street Orlando, Florida 32801 James H. Gillis, Esquire Department of Professional Regulation Division of Real Estate 400 West Robinson Street Post Office Box 1900 Orlando, Florida 32802 Jeffrey J. Fitos, Esquire Valley Forge Military Academy Wayne, Pennsylvania 19087
Findings Of Fact Based upon my observation of the witnesses and their demeanor while testifying, documentary evidence received and the entire record compiled herein, I hereby make the following relevant factual findings. David B.C. Yeomans, Jr., is now and was at all times material hereto a licensed real estate broker having been issued license number 0163386. During times material, Respondent was the qualifying broker for G & A Realty and Investments, Inc., a corporation licensed as a real estate broker in the State of Florida. 1/ From approximately April 1985 to December 1985, Respondent Yeomans was the president and qualifying broker for G & A. Wilfredo Gonzalez, a licensed real estate salesman and Alberto Aranda were each 50 percent shareholders of G & A. Wilfredo Gonzalez, while licensed as a real estate salesman in the employ of G & A, solicited and obtained a client, Alfredo Susi, who made an offer to purchase a commercial property in Dade County, Florida. In connection with the offer, Alfredo Susi entrusted a $10,000 earnest money deposit with Wilfredo Gonzalez to be held in trust in G & A's escrow account. The seller rejected Susi's offer to purchase whereupon Alfredo Susi made demands upon Gonzalez for return of the earnest money deposit. Wilfredo Gonzalez attempted to return the earnest money deposit entrusted by Susi via check dated November 18, 1985 drawn on G & A's escrow account. Upon presentation of the subject check by Susi, it was returned unpaid due to non-sufficient funds. Alfredo Susi has been unable to obtain a refund of the deposit submitted to Gonzalez. Wilfredo Gonzalez used the deposit presented by Susi and did not apprise Respondent Yeomans of what or how he intended to dispose of Susi's deposit. Alfredo Susi had no dealing with Respondent Yeomans and in fact testified and it is found herein, that Susi's dealings in this transaction, were exclusively with Wilfredo Gonzalez. Tony Figueredo, a former salesman with G & A, is familiar with the brokerage acts and services performed by Respondent Yeomans and Wilfredo Gonzalez. During his employment with G & A, Figueredo had no dealing with Respondent Yeonans and in fact gave all escrow monies to Wilfredo Gonzalez. Carolyn Miller, the president and broker for Rite Way, Realtors, an area brokerage entity, is familiar with the customs and practices in the Dade County area brokerage operations. Ms. Miller considered it a broker's responsibility to supervise all salesman and to review escrow deposits and corresponding accounts approximately bimonthly. Theodore J. Pappas, Board Chairman for Keyes Realtors, a major real estate brokerage entity in Dade County, also considered it the broker's responsibility to place escrow accounts into the care and custody of a secretary and not the salesman. Mr. Pappas considered that in order to insure that funds were not misappropriated, checks and balances and intensive training programs would have to be installed to minimize the risk of misappropriation of escrow deposits. Mr. Pappas conceded however that it was difficult to protect against dishonest salesman. Respondent Yeomans has been a salesman for approximately eleven years and during that time, he has been a broker for ten of those eleven years. During approximately mid 1984, Respondent Yeomans entered into a six (6) month agreement with G & A to be the qualifying broker and to attempt to sell a large tract of land listed by Context Realty in Marion County (Ocala). When Respondent agreed to become the qualifying broker for G & A Respondent was a signator to the escrow account for G & A Realty. Sometime subsequent to Respondent qualifying as broker for G & A, Wilfredo Gonzalez changed the escrow account and Respondent Yeomans was unfamiliar with that fact. Respondent Yeomans first became aware of Susi's complaint during late 1985 or early 1986. Respondent Yeomans was not a signator on the escrow account where Wilfredo Gonzalez placed the escrow deposit entrusted by Alfredo Susi. (Petitioner's Exhibit 9) During approximately November, 1986, Respondent Yeomans made it known to the officers at G & A that he was withdrawing his license from G & A and attempted to get G & A's officers to effect the change. When this did not occur by December, 1986, Respondent Yeomans effectuated the change himself and terminated his affiliation with G & A. During the time when Respondent was the qualifying agent for G & A, there were approximately four employees and little activity to review in the way of overseeing real estate salespersons. During this period, Respondent Yeomans reviewed the escrow account for G & A that he was aware of. During the time that Respondent Yeomans was qualifying broker for G & A, he was primarily involved in the undeveloped acreage owned by Context Realty and other REO listed property of G & A. During the period when Respondent Yeomans was qualifying agent for G & A, Wilfredo Gonzalez spent approximately 95 percent of his time managing rental property that he (Gonzalez) owned.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is hereby RECOMMENDED: That the Administrative Complaint filed herein be DISMISSED. RECOMMENDED this 9th day of June, 1987 in Tallahassee, Leon County, 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 9th day of June, 1987.
The Issue Whether Respondents committed the offenses described in the administrative complaint? If so, what disciplinary action should be taken against them?
Findings Of Fact Based upon the record evidence and the stipulations entered into by the parties, the following Findings of Fact are made: Murray Wieder (Respondent Wieder) is now, and was at all times material hereto, a real estate broker licensed in the State of Florida pursuant to license number 0303130. His last license was issued c/o Wieder Realty, Inc., 900 S. Pompano Parkway, Pompano Beach, Florida 33069. Wieder Realty, Inc. is now, and was at all times material hereto, a corporation licensed in the State of Florida as a real estate broker pursuant to license number 0254413. Its last license reflects its address as 900 S. Pompano Parkway, Pompano Beach, Florida 33069. Respondent Wieder is now, and was at all times material hereto, the President of Wieder Realty, Inc., and its qualifying broker. Margaret Hoskins has been an investigator with the Department of Professional Regulation for the past year and a half. As part of her responsibilities, she conducts audits of escrow accounts maintained by real estate brokers licensed in the State of Florida. On April 27, 1989, Hoskins conducted a routine audit of Respondents' escrow accounts. Her investigation revealed that, on that date, Respondents maintained at Bank Atlantic in Fort Lauderdale, Florida, a noninterest-bearing escrow account (number 005-50199 0-3) with a balance of $14,577.39 and an interest- bearing account (number 005-175922-1) with a balance of $32,955.50. Respondents' "trust liability" with respect to these two accounts was $41,856.50. The $5,676.39 difference between the total balance of these two escrow accounts and Respondents' "trust liability" represented accrued interest on the monies deposited in the interest-bearing account. Respondents used the accrued interest to cover their incidental operating expenses. Hoskins further discovered as a result of her investigation that on March 13, 1989, Respondents had deposited $50,000.00 into the noninterest- bearing account, which prior to the transaction had had a balance of $950.58, and that on March 30, 1989, Respondents had withdrawn $25,000.00 from the interest-bearing account and had deposited $25,000.00 in the noninterest-bearing account. During the course of her investigation, Hoskins spoke with Respondent Wieder, who indicated to her that it was his practice to transfer funds from one of the Bank Atlantic escrow accounts to the other. Of the fully executed sales contracts and lease agreements Respondents' had on file, only one, the Kutner-Fox contract, contained a provision authorizing Respondents to place escrow monies in the interest-bearing account and to use the accrued interest for incidental operating expenses. The remaining contracts and leases were silent regarding the matter. Hoskins, in her conversation with Respondent, therefore attempted to find out from him if the escrow monies in the interest-bearing account, other than those attributable to the Kutner-Fox contract, had been deposited in the account with the permission of all interested parties. Wieder, who was otherwise very cooperative, failed to provide Hoskins with a direct answer to her question. Hoskins did not thereafter make any effort to contact these parties and ask them if they had given Respondents permission to place monies held in escrow in an interest- bearing account and to use the accrued interest to cover incidental operating expenses. Later on April 27, 1989, after Hoskins had completed her visit to their office, Respondents withdrew all of the funds from the interest-bearing account and deposited them in the noninterest-bearing account. They then closed the interest- bearing account. Respondents then transferred from the noninterest- bearing account to their operating account $5,676.39, the amount of interest that had accrued on the monies that had been in the interest-bearing account.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is hereby RECOMMENDED that the Florida Real Estate Commission issue a final order in this matter finding the proof insufficient to establish Respondents' guilt of the offenses charged and dismissing the instant administrative complaint. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 22nd day of August, 1990. STUART M. LERNER Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 22nd day of August, 1990.
Findings Of Fact Upon consideration of the oral and documentary evidence adduced at the hearing, the following relevant findings of fact are made: The Respondent, Mark Clinton Russell, is currently eligible for licensure and licensed in the State of Florida as an insurance agent and was so licensed at all times material to this proceeding. At all times material to this proceeding, Medical Underwriters of Sarasota, Inc. (Underwriters), was an incorporated insurance agency organized under the laws of the State of Florida, and Respondent was the vice-president. The Principal Financial Group (PFG) is the parent corporation of a number of insurance-related entities with whom Respondent had contractual relationships beginning in November 1985 and ending in May 1993. Principal, formerly known as Bankers Life Company, is an Iowa corporation licensed to sell group and individual life and health insurance products in Florida. Principal has two strategic business units -- Individual and Group -- each of which is administered and operated with separate goals, leadership, and procedures. The Individual business unit is responsible for the sale of insurance products to individuals, while the Group unit is responsible for the sale of insurance products to groups of people. Also affiliated with PFG is Principal Marketing Services, Inc. (Principal Marketing), and Princor Financial Services Corporation (Princor). Principal Marketing is a general agency for competing life and health companies which was formed to permit Principal agents to sell competitors' insurance products on those occasions when a Principal product was not available for a particular, prospective insurance client. Princor is a securities broker dealer and, through its agents, offers securities such as annuities and mutual funds for sale to the public. Respondent began his association with PFG in 1985 when he executed "UMEG Employers" and "GME 1495" contracts with Principal, which was then known as Bankers Life Company. These contracts, which were subsequently re-executed in 1987, permitted Respondent to sell group life and health insurance policies as an agent of Principal. Further, on those occasions when Respondent sold a Planned Employee Program group policy, he would receive a Planned Employee Program Group Commission Agreement for each sale. In January 1989, Respondent executed additional contracts with Principal: a Special Brokerage Agency Personal Production Contract, DD 714; Brokerage General Agency Agreement; and a Special Brokerage Agency Management Agreement. These contracts permitted Respondent to sell insurance products from Principal's Individual business unit, for which he would earn sales and renewal commissions. The contracts also permitted Respondent to recruit, appoint, and manage agents to sell Principal insurance products. As a consequence of his recruitment and management work, Respondent was entitled to certain management compensation and override commissions. The Special Brokerage Agency Personal Production Contract, DD 714, provides that Principal will not advance commissions on future premium deposits. However, as will be shown in later Findings of Fact, Principal did not always abide by this provision. Respondent was the insurance agent of record for Principal at Underwriters at all times material to this proceeding. Also in 1989, Respondent became a licensed securities broker and executed a Registered Representative's Agreement with Princor. Further, Respondent executed a Marketer Contract and a Management Contract for Manager with Principal Marketing. These contracts permitted Respondent to sell insurance products of other companies and to earn override commissions on the sales of insurance agents appointed and managed by him. During his association with the PFG companies, Respondent regularly received a number of commission statements that purported to account for commissions, overrides, compensation, credits, advances, and debits due from or to the companies. On the 8th and 20th of each month, the Principal Group business unit sent Respondent a Group and Pension Compensation Statement. On the 15th and 30th of each month, the Principal Individual business unit would send Respondent an Agent's Statement. Although all group policy information is input into the company's computer system by Group personnel only, some sales and renewals of group policies appear on the Agent's Statement and some appear on the Group Statement. Because group policy information appears on both statements without any apparent rhyme or reason, the Group Compensation and Agent's Statements are confusing and difficult to read. Respondent also received Commission Statements from Principal Marketing and Princor -- each of which were sent twice a month -- and a Management Compensation Statement, which was sent once a month. In addition, along with the statements that reflected his personal earnings, Respondent received commission statements twice a month for each of the approximately 45 Principal brokers appointed by him. Respondent was licensed with other life and health companies and received commission statements from them as well. Because of the volume of commission paperwork sent to him by Principal, and the time it would have taken to do so, neither Respondent nor anyone else in the office reviewed the statements for accuracy. Respondent trusted Principal to pay him properly and to accurately account for the monies due him. Respondent's commission statements and checks were sent to him by express, next day delivery. Respondent would have an idea about the size of the compensation check that he expected to receive from Principal and upon receipt of the check would confirm that it was "in the ballpark." Respondent's compensation statements and checks were received at work by the office administrator, who would confirm that the check received was approximately what Respondent expected, file the commission statements in three ring binders, and either deposit the commission check or give it to Respondent to deposit. So far as is relevant here, Principal's Individual business unit began with Diana McGovern, who was employed by Principal as a Commission Specialist in the Agency Services Department from January 1990 until June 1992. In her capacity as a Commission Specialist, McGovern dealt directly with Principal agents and brokers, including Respondent, in Florida and six other southern states. McGovern's duties and responsibilities required her to answer brokers' questions regarding compensation statements and issue special checks for advances that would be repaid out of present or future commissions. Immediately superior to McGovern was Bruce Woods, who served as the Supervisor of Agency Services. Woods reported to Tom Herman, a junior officer of Principal who served as the officer in charge of Agency Services. Herman reported to Principal's Brokerage Vice-President, which is sometimes referred to as a Regional Vice-President or RVP. Since 1989, Respondent has had a number of RVPs. Initially, when Respondent first contracted with the Principal Individual group unit, Bill Gordon was his RVP. Gordon was succeeded by Gayle Thompson, who was followed by Russ Miller, who was Respondent's RVP from March 1991 through December 1992. At that time, Bill Moren assumed the position as Brokerage Vice-President of Principal. On the Group side of Principal, the organization began with Kathy Bianchi, who served as Principal's Compensation Technician. In that role, Bianchi dealt with Principal brokers, including Respondent, who were also Old Northwestern or Roger's Benefit Group agents. Among other duties, Bianchi was responsible for sending certain agents' commission statements and compensation checks by express delivery. In January 1991, Jan Henderson assumed Bianchi's position as Compensation Technician and began dealing with Respondent. Henderson's supervisor, or Team Leader, was Kelli Ellis. Ellis reported to the assistant manager, Deb Henman, who in turn reported to the manager, Betty Jo Dickson (who had previously served as the assistant manager before being promoted to Manager of the department). Respondent also had dealings with Principal's Management Compensation Department -- most notably with Russ Griffin, an officer of Principal, and his executive secretary, Juanita Schuster. In 1989, Respondent began to request and receive checks from Principal before they were due and payable in the normal course of Principal's issuance of commission statements and compensation. The term "advance" was frequently used by Principal officers and employees to describe sending monies to Respondent both with and without a positive commission balance. The words "advance," "early check," or "special check" were used interchangeably by Dickson and others. Respondent did receive -- with the express and repeated approval of officers at Principal -- advances of monies when he had no "positive balance" in his commission account and these advances were repaid from commissions he was to earn in the future. In April 1989 -- over three years before receiving the funds here at issue -- Respondent called Bianchi and told her that he was in a jam and needed some money. He asked that Principal send him by overnight delivery an advance of $2000. Bianchi said "Okay" and told Respondent that if there was a problem, she would call him back and, if not, that he could expect the check "in the next couple of days". The advance arrived by overnight express. During 1989, Respondent requested and received from Bianchi four additional advances against commissions. In January 1990, Respondent requested and received yet another advance from Bianchi. Although unknown at the time by Respondent, the 1989 and January 1990 payments from Bianchi were expressly approved by Betty Jo Dickson, then serving as Bianchi's supervisor and Assistant Manager. At some point, however, Dickson believed that Respondent's requests for advances were becoming abusive. As a consequence, Dickson placed a computer message in the Principal computer system which appeared whenever a Compensation Technician accessed Respondent's compensation account. The message read: "If Mark Russell should ever call for an advance let Betty Jo [Dickson] or Deb Henman know." After the message regarding Respondent was placed into the computer, Dickson spoke directly to Respondent -- who had called asking for another advance. Dickson advised Respondent that she felt he had abused the system and that there would be no further early checks. Respondent tried to persuade Dickson to approve the requested advance but was unsuccessful. Despite her threatened prohibition, Dickson thereafter approved -- about a year later -- a request by Respondent for an advance. In all, Dickson expressly approved a number of advances to Respondent and, despite the supposedly required positive balance to do so, her approvals came without any inquiry as to Respondent's then-current balance with Principal. In any event, by November 1991, Dickson's Principal Group unit had advanced over $20,444 to Respondent. In 1989, Respondent also spoke with and requested advances from Diana McGovern. McGovern was Bianchi's counterpart in Principal's Individual business unit. As a commission specialist, McGovern sent special checks -- which she defined as money sent in advance against future commissions or renewals -- to Principal brokers on a daily basis. McGovern had earlier been advised by her trainer, Rhonda Nelson, and by Tom Herman, the Principal officer responsible for her department, that there were no guidelines for issuing a special check and that she should simply use her best judgment in deciding whether to issue a special check. McGovern soon began dealing with Respondent, who she knew had a substantial block of group business with a good persistency. When McGovern first started working with Respondent she would not advance money unless there was a positive balance in Respondent's commission account; however, as she had been instructed, McGovern soon felt she could trust Respondent and would advance monies to him without the necessity of a positive amount on his statement. Soon, McGovern was sending Respondent advances at least once a month, sometimes twice. On occasion, McGovern did not feel that she could advance money to Respondent and, despite Respondent's persistence in requesting an advance, McGovern refused to do so. Several times when met with a "no" from McGovern, Respondent went over her head and spoke with Bruce Woods who, on occasion, would overrule McGovern's decision and authorize an advance. On two or three occasions, after Woods failed to approve Respondent's request for an advance, Respondent went to Wood's supervisor, Tom Herman, an officer of Principal, who would authorized the advance. Unlike Principal's Group business unit, there was never any message on the computer screens of the Individual business unit notifying McGovern or anyone else that approval was required before advancing any money to Respondent. McGovern only needed to obtain approval to issue a special check if the amount requested exceeded $10,000. By early 1992, McGovern's department had advanced by special check over $127,860 to Russell. Prior to May 1992, Respondent received numerous advances authorized by and provided to him by officers of Principal. Two advances -- totalling $5,164 -- were requested from and approved by Bill Gordon in July 1990, who was then serving as the President of Principal Marketing. Additional advances were requested from and approved by Russ Griffin, an officer of Principal in the Management Compensation division of Principal's Individual business unit. Griffin's department was responsible for generating and sending to Respondent his monthly Management Compensation Statement. Between June and November 1990, Griffin advanced $133,453 to Respondent. In addition, Griffin's executive secretary, Juanita Shuster, sent Respondent two advances totaling $30,500. In all, Griffin's Management Compensation Department advanced Respondent $163,953 prior to May 1992. Part of this amount included a single advance -- with the knowledge and apparent approval of Gayle Thompson (Respondent's RVP) and Griffin-- of $93,000 to allow Respondent to close on a house he purchased. This advance, as well as others from Principal's Management Compensation department, were made despite the fact that Respondent did not then have a positive balance with the company and could not repay the advance for some time. Thompson had earlier advanced $15,000 to Respondent in July 1990. In all, by April 21, 1992, Respondent had requested, received, and repaid in excess of $330,000 of monies advanced by Principal. There was no evidence that Respondent had been advised by any of Principal's employees or officers that these requests were inappropriate or questionable in any respect or that his privilege to request advances had been terminated . Sometime around April 1991, Respondent's RVP, Russ Miller, visited Respondent in Sarasota to discuss Principal's desire that Respondent expand his business. It was Respondent's understanding from Miller that Principal wanted to build a brokerage business and that his business needed to expand or Principal would sever its relationship with him. As a consequence, Respondent began to expand his business by renting a substantially larger office, hiring additional agents and office staff and purchasing office equipment. Miller returned to Sarasota a year later, in April 1992. While in Sarasota, Miller reviewed Respondent's business plan, which Respondent had forwarded to Miller prior to his arrival. The business plan specified Respondent's anticipated need for advances and that any future renewal commissions would be used as the source of repayment for those advances. Respondent advised Miller that in order to continue the expansion, the Respondent would need advances from Principal. It was Respondent's understanding from Miller that since he had obtained advances in the past, that future advances should not create a problem. As a consequence, when Respondent required an advance immediately after Miller's April 1992 visit, he called Henderson -- the commission technician in charge of Respondent's group renewals and compensation. In May 1992, Respondent began requesting and receiving advances from Henderson, who had replaced Bianchi as Respondent's compensation technician in Principal's Group Business Unit. Thereafter, Respondent requested and received, between May 1992 and May 1993, $329,043.09 of additional monies from Principal - - forwarded by Henderson. It is these funds and how they were requested and obtained by Respondent which are at issue in this proceeding. There is no dispute that Respondent requested the money from Henderson, that Henderson forwarded the money to the Respondent and that the Respondent received the money. Respondent did not offer or promise Henderson anything in return for her sending him the money, and Henderson did not receive any money or benefit whatsoever from anyone for diverting Principal's funds to Respondent. Likewise, Respondent did not threaten, coerce or improperly encourage Henderson to send him money. Respondent's requests of Henderson to send him funds were never made with the intention that Henderson wrongfully divert funds from Principal. Likewise, Respondent did not know, and there was no reason for Respondent to have known, that Henderson was wrongfully diverting Principal's funds. Respondent did not tell Henderson or suggest to Henderson how she was to accomplish the transfer of the money to Respondent. Although Henderson's computer instructed her to advise Betty Jo (Dickson) or Deb Henman should Respondent call for an advance, Henderson did not seek permission before advancing Respondent money. Henderson had no knowledge that Respondent had in the past received advances on future commissions without a positive balance in commissions at the time he received the advance. Likewise, Henderson was not aware that these advances had been approved by a person or persons in the Principal organization with authority to approve such advances. It is clear that Henderson misunderstood Respondent's request of her to advance him money, and as a result she devised a method of adding money to Respondent's commission statement and forcing the computer to pay Respondent unearned money. Henderson's sole, expressed reason for diverting funds from Principal was to "help" Respondent and she was willing to devise and go to the lengths that she did because she felt that she "was in a dead end job" that "wasn't going anywhere" and about which she "didn't care". Since Respondent had received advances on unearned commissions in the past that were approved by someone in authority at Principal, there was no reason for Respondent to suspect that the money received through Henderson was being improperly diverted to him. Likewise, since Respondent did not thoroughly check his commission statements, there was no reason for him to have noticed how Henderson accomplished the diversion of Principal's funds to him. Respondent had sufficient reasons to assume that advances sent to him by Henderson had been approved by Principal. In the latter part of May 1993, Henderson's diversion of funds was discovered when she inadvertently input a code to the system that brought Respondent's commission statement to the attention of Henderson's team leader, who noticed that payments were being credited to terminated accounts. Henderson was identified as the source of the payments because of her computer sign-on code, which she made no effort to conceal when diverting funds to Respondent. After an investigation by Averell Karstens, Principal's Chief Fraud Investigator, Henderson was confronted and terminated from her employment. When confronted, Henderson admitted improperly sending money to Respondent Shortly thereafter, Principal called the FBI and the United States Attorney's Office regarding the conduct of Henderson and what they suspected to be the conduct of Russell. Henderson pled guilty to multiple counts of mail and wire fraud and testified before a federal grand jury regarding her conduct at Principal. Subsequent to learning of Henderson's improper diversion of Principal's money, Respondent's commissions statements and financial dealings with Principal were gone over with by Principal to determine what monies had been improperly obtained by Respondent. The results of this intensive and extensive investigation confirmed that Principal's complaint concerning monies allegedly provided improperly to Respondent are limited to the payments made to Respondent by Henderson between May 1992 and May 1993, totalling $329,043.09. Subsequently, Respondent's agency agreements with Principal were terminated. A complaint alleging theft and other fraudulent acts was filed by Principal with the U. S. Attorney's office. Respondent's clients were taken from him and all rights of future commissions were terminated by Principal. Despite a detailed investigation by the FBI and the U. S. Attorney's office and, a federal grand jury investigation, Respondent has never been charged or convicted of any illegal activity relating in any way to Henderson's diversion of funds from Principal. In an attempt to recover what Principal considers unauthorized payments to Respondent, Principal has filed a civil lawsuit in the Circuit Court of Sarasota County, Florida. Respondent has filed a civil lawsuit against Principal, Princor and Principal Marketing in the Iowa District Court For Polk County alleging breach of contract, defamation, interference with prospective business advantage and intentional infliction of emotional distress. The Respondent is seeking a monetary award in this case. At the time of hearing in the instant case, both of the civil cases were still pending. Although Respondent admits that the $329,043.09 is unearned, he has not repaid Principal this sum because he is awaiting the outcome of the two aforementioned civil actions. However, Respondent also admits that he no longer has the funds and would have to borrow the money should he be required to repay Principal. There is insufficient evidence to show that Respondent knowingly requested Henderson to wrongfully divert to him payments totaling $329,043.09 belonging to PFG. Furthermore, there is insufficient evidence to show that Respondent received and retained the diverted funds knowing that he had no right to the monies.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is recommended that the Department enter a Final Order which dismisses the amended complaint against Russell. DONE AND ORDERED this 2nd day of December, 1994, in Tallahassee, Florida. WILLIAM R. CAVE, 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 2nd day of December, 1994. APPENDIX TO RECOMMENDED ORDER, CASE NO. 94-810 The following constitutes my specific rulings, pursuant to Section 120.59(2), Florida Statutes, on all of the proposed findings of fact submitted by the parties in this case. Petitioner's Proposed Findings of Fact: Each of the following proposed findings of fact is adopted in substance as modified in the Recommended Order. The number in parentheses is the Finding(s) of Fact which so adopts the proposed finding(s) of fact: 1(1); 2(2); 3(6,7,8); 4(8); 5(9); 6(19); 21(51,52,53); 23(55); 24(42); 25(60); 26(57); 27(42,43); and 35(60). Proposed findings of fact 8 through 20, 29, 31, 32, 33 and 36 are rejected as not being supported by evidence in the record, notwithstanding Henderson testimony. However, there may be portions of each proposed finding of fact that are adopted as modified in Findings of Fact 41 through 49, otherwise they are rejected as not being supported by evidence in the record. Proposed findings of fact 7, 22, 28 and 34 are neither material nor relevant to this proceeding. The first sentence of proposed finding fact 30 is rejected as not being supported by evidence in the record. The second sentence is adopted in Finding of Fact 8. Respondent's Proposed Findings of Fact: 1. Proposed findings of fact 1 through 70 are adopted in substance as modified in Findings of Fact 3 through 61. Otherwise, they are rejected as not being supported by evidence in the record or recitation of testimony or unnecessary. COPIES FURNISHED: James A. Bossart, Esquire Department of Insurance and Treasurer 612 Larson Building Tallahassee, Florida 32399-0333 Alan F. Wagner, ESquire Wagner, Vaughan & McLaughlin, P.A. 601 Bayshore Boulevard Suite 910 Tampa, Florida 33606 Tom Gallagher, State Treasurer and Insurance Commissioner Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Bill O'Neil, General Counsel Department of Insurance and Treasurer The Capitol, PL-11 Tallahassee, Florida 32399-0300
Findings Of Fact Respondents Jon Broderick, Betty A. Newhouse, Donald F. Newhouse, David E. Evans, Newhouse Realty Group, Inc. and Newma Investment Group, Inc. at all times pertinent hereto were licensed brokers and salesmen and corporate brokers. The Petitioner is an agency of the State of Florida charged with enforcing the provisions of Chapter 475, Florida Statutes, as they relate to licensure and regulation of the practice of realtors, both brokers and salesmen, practicing real estate sales and brokerage in the State of Florida. Joan Tomasso at all times pertinent hereto was a licensed Florida real estate salesperson. She was employed initially by J&L Realty, Inc., which merged with the Newma Group in January 1984. She thereafter became a licensed salesperson in January of 1984 for the Newma Investment Group. She was involved in a project known as the Sun Village. Her task involved finding investors to invest in shares of a land trust agreement related to the development of the Sun Village project, a multi-family residential development. The Newma Investment Group, Inc. was involved in promoting the development of the project known as Sun Village and conducted various sales meetings which Tomasso attended. Ms. Tomasso was charged by the co-trustees of the land trust agreement (in evidence as Respondent Evans' Exhibit 1), with obtaining various investors to invest in shares in the land trust as a means of financing the acquisition and development of the project, Sun Village, Inc. Ms. Tomasso represented to those investors that they would invest in the land trust and that they would hold shares in that land trust in return for which they would receive a 33 1/3 percent return on their investment. As a result of these representations and promotional efforts, she obtained investment monies from the following investors in the following amounts: Reginald Dennis $5,000 Linda and Bud Field 5,000 Robert Dennis 4,000 Rita Billi 3,000 Ms. Tomasso was given the land trust agreement by the co- trustees to present to those investors, and she executed the land trust agreement as the agent of investors. She obtained the above funds from the investors named in the form of checks and turned those over to Respondent Jon Broderick. Respondent Broderick was at all times relevant hereto a licensed real estate broker and an employee and qualifying broker for the Respondent Newma Investment Group, Inc. Ms. Tomasso advised Mr. Broderick contemporaneously with the submission of the checks from the investors, that the money was for investment in the Sun Village project. The investment funds were not for the purchase of real property or an interest in the real property upon which the project would be built, but were in fact for purchases of interests in the land trust, i.e. shares. Respondent Broderick, upon receiving the funds, initially deposited them into the escrow account held by the Respondent Newma Investment Group, Inc. Subsequent thereto these funds were disbursed to the Newma Group, Inc. and the Newma Investment Group, Inc. These funds were disbursed to Newma Group, Inc. and Newma Investment Group, Inc. as proceeds of their efforts to obtain investment capital to finance the project through sale of shares in the subject land trust. The Respondent, Mr. Broderick, had no contact with the investors either before or after the investment funds were obtained, deposited and disbursed. No demand was ever made upon Respondent Broderick by either the investors nor their agent, Ms. Tomasso, for the return of the 4 funds. Ms. Tomasso in turn was paid a commission for her efforts in securing this investment capital. Initially, by the terms of the trust agreement, the investors were guaranteed an interest return of 33 1/3 percent on their investment. At some point, the co-trustees, upon advise of counsel, learned that this was a usurious interest rate under Florida law and consequently entered into a novation of the agreement with these investors such that the investors were given, instead, four promissory notes bearing a rate of interest return of 18 percent in lieu of the original agreement providing that they be paid an interest rate of 33 1/3 percent. At the time the transaction was entered into, Joan Tomasso had been a licensed real estate agent for four months. At the time she became involved in this investment transaction she did not know or understand the purposes or workings of a Florida land trust agreement, had never taken courses involving the use of land trusts, and had no experience operating a real estate office or managing the bank accounts for a real estate office. She had represented to the investors that their monies would be investment funds for purchasing shares in the land trust agreement as an investment and that they were not thereby acquiring title to any real estate. Approximately a month after the execution of the land trust agreement, Ms. Tomasso became suspicious that the investment in the project to which it related might not be successful and made demand upon Newma Investment Group for the return of her investors' money. Ultimately, on October 6, 1984, she wrote a letter to the Florida Real Estate Commission seeking to enforce the rights of her investor clients to obtain the monies she felt due them under the land trust agreement and the promissory notes. During the period from February 15, 1984, when the money was deposited in the Newma Investment Group escrow account and then disbursed therefrom, until October 6, 1984, Ms. Tomasso and her investor principals had no discussions about the status of the supposed escrowed money, however. Neither Ms. Tomasso nor any of the Respondents ever represented to the investors that they would receive their money back immediately upon demand, but rather they were to obtain their money upon maturity of the promissory notes. No Respondent nor Ms. Tomasso ever represented to the investors that they were entering into a contract to purchase an interest in real estate or that they would receive title to any real estate. Rather, they were entitled to the return of their principal investment plus the 18 percent interest on the promissory notes, all of which were timely honored. The original trust agreement had provided for repayment of the principal monies invested plus 33 percent returned to these investors in one year's time. Thus the monies invested and interest thereon was not due and owing to the investors approximately one month after the agreement was entered into and when Ms. Tomasso began seeking return of the monies. The 18 percent interest bearing notes which were given in replacement for the 33 percent return on investment provision in the trust agreement was done because the 33 percent return was illegal and the 18 percent notes were timely repaid. Investors Mary Dennis and Rita Billi, however, agreed to extend their promissory notes for an additional six months term in consideration for which those two investors were promised and received an additional 33 percent interest on their money. None of the investors ever dealt with any of the Respondents directly, nor did any of the Respondents represent to them that their monies would be placed in an escrow account, although Joan Tomasso apparently told Linda Field, one of her principal investors, that the money she received from her would be placed in an escrow account. Be that as it may, when Linda Field received back 33 1/3 percent interest on her investment, she considered that as representing an investment return on money she had given to Joan Tomasso and that the promissory note she received was a negotiable instrument rather than any belief that she had purchased an interest in real property. None of the Respondents ever represented to Joan Tomasso that the investment money she was soliciting was for the purchase of real property, rather, it was represented that it was for purchase of beneficial interests in personal property, the land trust agreement. Deborah Matusie was a broker salesperson at times pertinent hereto and was working for Newma Investment Group, Inc. in January 1984. In January or early February 1984 a sales meeting was called in reference to the solicitation of investment capitol for the Sun Village project. The Respondents Broderick, Evans, as well as Joan Tomasso and one Fred Spencer were present at the sales meeting. Ms. Matusie was given to understand that a commission would be paid those brokers or salespersons who obtained investment money for the Sun Village project when the monies were deposited with the Newma Investment Group, Inc. She was always of the understanding that the investment money to be obtained was to be used for a land trust agreement and not for purchases of interest in real estate itself. Respondent David Jones had no personal knowledge concerning any monies coming in through the efforts of Joan Tomasso or obtained from investors by her, nor had he any contact with those investors. He did not have any control over the Newma Investment Group, Inc. escrow account, did not maintain and keep the records of that account nor have signatory powers over that escrow account. He had no authority to disburse any monies from that account nor did he do so. He did have authority and control over a checking account for Newma Investment Group, Inc., which was its general business account from which he paid bills for Newma Investment Group, Inc. Respondent Evans did not accept any monies or checks from Joan Tomasso and place them in escrow or in any other account himself. The monies obtained by Joan Tomasso from the above- named investors were actually used to purchase beneficial interests in the land trust agreement for those investors. Thereafter, because of the usury statute, the land trust was dissolved and the investors were given promissory notes to replace the interest they had had in the land trust agreement. The notes for 18 percent interest for these investors which replaced the 33 percent notes were prepared and executed approximately three months after the 33 1/3 percent notes which related to the land trust agreement. These notes were honored and paid in full in a timely fashion. Respondent Betty Newhouse at times pertinent hereto was a licensed real estate broker and was qualifying broker for Respondent Newhouse Realty, Inc., which in turn was licensed as a corporate broker. Respondent Donald F. Newhouse was at all times pertinent hereto a licensed real estate salesman in the employ of Newhouse Realty, Inc. At all times pertinent to the Administrative Complaint, Jon Broderick was licensed as a broker and the qualifying broker and officer of the Respondent Newma Investment Group, Inc., which in turn was licensed as a corporate broker. At no time was Betty Newhouse the qualifying broker for Respondent Newma Investment Group, Inc. When the investment funds were obtained by Joan Tomasso, they were delivered to Jon Broderick. Betty Newhouse never received or had custody of those funds, nor did Donald Newhouse. They were not placed in accounts established for Respondent Newhouse Realty, Inc. Neither Respondent Betty Newhouse nor Respondent Donald Newhouse participated in any disbursement of the $17,000 obtained by Ms. Tomasso from the above investors. Instead, those monies were received by Broderick, placed in the Newma Investment Group escrow account, and from there disbursed by Broderick and others with signatory powers on the account to the two above-named business accounts for payment of expenses. At no time was it represented to the investors by any of the Respondents that their funds were to be escrowed and accounted for to them as escrowed funds involved in any real estate purchase transaction. Rather, they understood and the Respondents represented to their agent, Joan Tomasso, that the funds obtained from them would be investment funds designed to purchase a share in the land trust agreement, entitling them-to the above-mentioned monetary return or investment, not to title in any real estate. In any event, at the request of the investors, the Respondents, including Donald F. Newhouse and Betty A. Newhouse, signed and delivered promissory notes amounting to $17,000 plus the above rate of interest payable to the investors. No evidence or testimony was presented which would tend to show that Respondents Betty Newhouse and Donald Newhouse or Newhouse Realty, Inc. made any fraudulent or other dishonest representation to the investors nor to Joan Tomasso nor made any false promises, false pretenses or otherwise dealt in a dishonest or negligent manner or breached any trust relationship with any client in connection with this business transaction. The same can be said of all the other Respondents. In fact, the only Respondent who directly received any money from Ms. Tomasso on behalf of those investors was Broderick. The record does not reflect that he or any other Respondent ever represented that the monies would be used for the purchase of real estate, that they would be escrowed and accounted to the investors as escrowed funds deposited for securing the purchase of real estate, but rather, Mr. Broderick and the other Respondents never represented anything, other than that the funds were investment capital they were seeking to finance their own project to which they or their corporation would hold title and in return for which they would sell shares in the trust agreement involved, later replaced by simple promissory notes.
Recommendation Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record and the candor and demeanor of the witnesses, it is, therefore, RECOMMENDED that the Administrative Complaint filed herein be dismissed in its entirety. DONE and ORDERED this 23rd day of December, 1986 in Tallahassee, Florida. P. MICHAEL RUFF, Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 23rd day of December, 1986. COPIES FURNISHED: Division of Real. Post Office Box 1900 Orlando, Florida 32802 Kevin F. Jursinski, Esquire 2231 First Street Fort Myers, Florida 33901 Wade H. Parsons, Esquire Post Office Box 2462 Fort Nyers, Florida 33902 Thomas G. Eckerty, Esquire Suite 89 12934 Kenwood Lane, S.W. Fort Myers, Florida 33907 Harold Huff, Executive Director Division of Real Estate 400 West Robinson Street Post Office Box 1900 Orlando, Florida 32802 Fred Roche, Secretary Department of Professional Regulation 130 North Monroe Street Tallahassee, Florida 32399 Wings S. Benton, Esquire General Counsel Department of Professional Regulation 130 North Monroe Street Tallahassee, Florida 32399 APPENDIX Respondent David E. Evans' Proposed Findings of Fact: Respondent Evans' Proposed Findings of Fact 1-106 are hereby accepted, although not all of the Proposed Findings of Fact are relevant and material to the issues presented for resolution in this case. Respondent Betty A. Newhouse, Donald F. Newhouse and Newhouse Realty, Inc.'s Proposed Findings of Fact: These Respondents Proposed Findings of Fact 1-11 are also all accepted, although not all of those Proposed Findings of Fact are relevant and material to the issues presented for resolution in this case. Respondent Jon Broderick's Proposed Findings of Fact: Respondent Broderick's Findings of Fact numbered 1-19 are accepted, although not all of those Proposed Findings of Fact are relevant and material or necessary to a resolution of the material issues presented.
The Issue Whether Respondent, State Board of Administration (SBA or Respondent), validly enrolled Petitioner, Sharon R. Huberty (Petitioner), into the Florida Retirement System (FRS) “Investment Plan” (Investment Plan), when Petitioner used a telephonic hotline to “elect” to transfer her FRS assets without completing or signing any form. Whether SBA should void Petitioner’s initial election to join the Investment Plan made via telephone in August 2002 and allow her to transfer back into the FRS Pension Plan (Pension Plan) without any cost in excess of the current value of her Investment Plan accounts.
Findings Of Fact Petitioner has been employed as a corrections officer with the Florida Department of Corrections since 1997 and has been assigned to the Hendry County Corrections Institute in Fort Myers, Florida. In Florida, corrections officers are classified as “special risk” for FRS purposes. Petitioner became a member of the Pension Plan in 1997 after she moved from Wisconsin to Florida to work for the Florida Department of Corrections. In 2000, the Florida Legislature enacted law creating a bipartite retirement system for public employees. The new system granted existing public employees the one-time option of “electing” to transfer their FRS Defined Benefit Plan assets into a newly-created FRS Defined Contribution Plan, also known as the Investment Plan. This election was termed the “first election.” Under the new optional retirement system, FRS- eligible public employees who had made a valid “first election” could, at a later date, exercise the option of making a “second election,” whereby the market value of the FRS-eligible public employee’s Investment Plan assets would be returned to the Pension Plan, and any deficit between the value of the employee’s Investment Plan assets and the value of the Pension Plan would be paid by the employee. The Investment Plan is a defined contribution plan, and the member bears the risk of loss of the investments he or she chooses. In contrast, the Pension Plan is a defined benefit plan, wherein retirement benefits are calculated based upon a fixed formula, not the performance of the investments, which are selected by the state. Thus, the state, not the member, bears the risk of loss of the Pension Plan investments. In creating the Investment Plan option, the Florida Legislature emphasized through the enabling legislation, the importance of providing information and education to potential program participants. During the 2002 “initial election” enrollment period, the SBA implemented three ways for a Pension Plan member to elect to join the Investment Plan: (1) by submitting a hard copy of the MyFRS Your Plan Choice Form, (2) by logging into the MyFRS.com website and completing the MyFRS Your Plan Choice Form electronically, or (3) by calling the MyFRS Financial Guidance Line and enrolling verbally over the telephone. Section 121.4501, Florida Statutes (2002),1 describes the standards by which the SBA must administer the Public Employee Optional Retirement Program (PEORP or Investment Plan). Subsection 121.4105(4)(a)1., Florida Statutes, provides, in part: 1. With respect to an eligible employee who is employed in a regularly established position on June 1, 2002, by a state employer: a. Any such employee may elect to participate in the Public Employee Optional Retirement Program in lieu of retaining his or her membership in the defined benefit program of the Florida Retirement System. The election must be made in writing or by electronic means and must be filed with the third-party administrator by August 31, 2002, or within 90 days after the conclusion of the leave of absence whichever is later. This election is irrevocable, except as provided in paragraph (e). . . . Thus, state employees electing to transfer from the Pension Plan into the Investment Plan must do so “in writing or by electronic means.” Further, the election must be “filed” with the third-party administrator. Pursuant to Section 121.4501, Florida Statutes, the SBA created a form called the MyFRS Your Plan Choice Form. In order to complete the MyFRS Your Plan Choice Form and elect to transfer from the Pension Plan into the Investment Plan, the SBA required that the employee sign the form. If an eligible employee submitted an otherwise complete MyFRS Your Plan Choice Form without signing it, the SBA would reject the form as incomplete and not effectively enroll the employee into the Investment Plan. For employees electing to enroll in the Investment Plan by submitting the MyFRS Your Plan Choice Form, the SBA requires that the employee sign the “Authorization” section of the form, which includes a section titled “IMPORTANT INFORMATION,” which contains several affirmative statements describing the Investment Plan participant’s rights and responsibilities. According to Daniel Beard, the form requires a signature “because there is some very important information that a member needs to take into consideration before making any choices.” This “very important information” was not provided to Petitioner at the time she used the MyFRS Financial Guidance Line to “elect” to enroll into the Investment Plan. In 2002, the SBA contracted with a third-party administrator to create and operate a telephone hotline (MyFRS Financial Guidance Line) whereby FRS-eligible public employees could elect to transfer their Pension Plan assets into the newly-created Investment Plan via telephone. On August 27, 2002, Petitioner contacted the telephone hotline intending to transfer her retirement assets from the Pension Plan to the Investment Plan. Petitioner’s initial election to transfer into the Investment Plan was made orally by telephone to the third-party administrator on August 27, 2002. The SBA did not require Petitioner to complete or sign any form following her election to transfer into the Investment Plan by telephone. Petitioner did not sign or submit a form, and no form was “filed” with the third-party administrator. At the time of her 2002 election, Petitioner understood the Investment Plan to be an alternative to the Pension Plan whereby she would have the ability to choose her own investments rather than follow the investments that the state FRS administrators picked for her. She assumed that her retirement benefits would otherwise be unchanged. At the time of her 2002 election, Petitioner claims that she did not understand that she was effectively canceling her fixed-benefit pension plan and replacing it with a fixed- contribution, market-based investment plan and that she would no longer be eligible to receive pension benefits or to participate in the state’s deferred compensation “DROP” program. Petitioner’s deadline to elect membership in the newly-created Investment Plan was August 31, 2002. Before this deadline expired, a Plan Choice Kit was mailed to members who were eligible to enroll in the Investment Plan. The Plan Choice Kit included a document entitled “Your Plan Choice Form” (Plan Choice Form). The Plan Choice Form identified 39 different investment options available to members who transferred to the Investment Plan. The Plan Choice Form advised plan members to review the material in the Plan Choice Kit before making a plan choice. The MyFRS Choice Book (Choice Book), including the Plan Choice Kit, advised members of key differences between the Pension Plan and the Investment Plan. The Choice Book warned members that the value of an Investment Plan account is not fixed and “will vary depending on the performance of your investment. That means, the value of your account can go up, but it also can go down . . .”. The Choice Book also advised members that they would have an opportunity to switch back to the Pension Plan if they so desired, but they would have to “buy back” into the Pension Plan with money from their Investment Plan account. The Choice Book cautioned members, “[i]f you don’t have enough money in your Investment Plan account, you can still get back in . . . but you’ll have to make up the difference from other savings.” The Plan Choice Form advised members to review a description of their “rights and responsibilities under the FRS Pension Plan and FRS Investment Plan in the respective Summary Plan Descriptions and Florida Statutes, available through the MyFRS Financial Guidance Line at 1-866-44-MyFRS . . . or at MyFRS.com.” The Investment Plan Summary Plan Description informed members in 2002: You will have a one-time opportunity to switch to the Pension Plan at any point while working for an FRS employer. If you decide to switch, you must “buy back” into the Pension Plan with the money in your Investment Plan account. If you don’t have enough money in your Investment Plan account, you can still get back in . . . but you’ll have to make up the difference from your other financial resources. The Plan Choice Form and Choice Book advised members that they could make an election to enroll in the Investment Plan online at MyFRS.com or by calling the MyFRS Financial Guidance Line and choosing option five to be connected directly to the FRS Plan Choice Administrator. The SBA conducted numerous workshops for members to help them determine which plan to choose. Five workshops were noticed in Fort Myers, Florida, for April 8 through 12, 2002. Petitioner testified that she was not aware the workshops were offered and, therefore, did not avail herself of the information available at the workshops. Petitioner did call her personal financial advisor at Raymond James, before the plan choice deadline expired, to discuss the investment options available to her if she chose to transfer to the Investment Plan. Petitioner’s financial advisor recommended that she invest in the following Investment Plan funds identified on the Plan Choice Form: Franklin Small-Mid Cap Growth, Fidelity Mid Cap Stock Fund, Fidelity Growth Company Stock Fund, and the T. Rowe Price Small Cap Stock Fund. On August 27, 2002, Petitioner called the MyFRS Financial Guidance Line and spoke to an FRS Plan Choice Administrator representative (Representative). She told the Representative she wanted to transfer to the Investment Plan. She also told the Representative she wanted her Investment Plan assets to be invested in the four funds recommended by her Raymond James financial advisor and identified a beneficiary for her Investment Plan account. Petitioner testified at hearing that she did not have a copy of the Plan Choice Form with her when she made the call to the Representative on August 27, 2002. However, it is evident from the transcript of the recording of the August 27, 2002, call that Petitioner, in fact, either did have that form or had reviewed it prior to the call. When asked by the Representative what she had decided to elect, Petitioner replied “section one, number two.” “Section one, number two” of the Plan Choice Form is the option to transfer all of the member’s Pension Plan assets and all future contributions to the Investment Plan. The Representative confirmed Petitioner’s “section one, number two” reference as follows: REPRESENTATIVE: Okay. You want to go into the Investment Plan? MS. HUBERTY: Yes ma’am. REPRESENTATIVE: Okay. So you’re wanting to transfer your present value of your Pension Plan and all future contributions to the Investment Plan? MS. HUBERTY: Yes, Ma’am. Similarly, when identifying the funds in which she wanted to invest, Petitioner referenced the funds in “section three,” the section containing the list of fund choices in the Plan Choice Form. Petitioner identified the funds in the order they are found in “section three” of the Plan Choice Form. Petitioner claims she had another form with her during the call, but failed to produce a copy of this other form in the instant proceeding. Petitioner’s claim that she either did not receive or did not review the Plan Choice Kit prior to her enrollment in the Investment Plan is not credible. After enrolling in the Investment Plan, Petitioner received quarterly statements indicating her membership in the Investment Plan. The quarterly statements advised Petitioner of the value of her Investment Plan account and the performance of the investment funds she selected. Petitioner changed her beneficiary designation by submitting a written form on February 2, 2007. She called the MyFRS Financial Guidance line to clarify that one of the beneficiaries she designated was to be contingent. During the call, Petitioner did not complain or make any mention of the possibility that she might be in the wrong plan. Petitioner’s Investment Plan account value grew from an opening balance of $40,308.63 on September 30, 2002, to a high of $144,029.62 on September 30, 2007. As of September 30, 2008, the value of Petitioner’s Investment Plan account had declined to $121,019.94. On October 7, 2008, Petitioner contacted the MyFRS Guidance Line and spoke with an FRS representative about the circumstances under which she had made her first election into the Investment Plan. Petitioner requested that the FRS representative send her a copy of the document that she had signed electing to switch to the Investment Plan. The FRS representative responded that Petitioner would not necessarily have signed anything and that Petitioner may have enrolled verbally over the telephone or may have filled out an electronic enrollment form. During the October 7, 2008, telephone call, Petitioner stated that she would never have “join[ed] something where I wouldn’t be getting a pension. There’s nowhere on any form or whatever supposedly that I signed or was over the telephone that nobody ever told me that I wouldn’t be getting a pension if I joined this.” Petitioner repeated this sentiment on several subsequent telephone calls to the MyFRS Financial Guidance Line. On November 5, 2008, the SBA sent a letter to Petitioner stating that on August 27, 2002, Petitioner “actively enrolled” in the Investment Plan by making her “initial election” through calling the MyFRS Financial Guidance Line, effective September 1, 2002. The SBA letter stated as follows: In processing the election through the MyFRS Financial Guidance line, you agreed to the following statements listed on the Retirement Plan Enrollment Form: “I want to . . . take the FRS Investment Plan 100% Transfer Option. That means I switch to the new FRS Investment Plan and transfer the present value of my FRS Pension Plan benefit to the new FRS Investment Plan. I will also have future employer contributions sent to my new FRS Investment Plan.” “I understand that I can find a description of my rights and responsibilities under the FRS Pension Plan and the FRS Investment Plan in the respective Summary Plan Descriptions, Florida Statutes, available through the MyFRS Financial Guidance Line . . . or at MyFRS.com. I understand that the value of my FRS Pension Plan benefit which will be initially transferred to my Investment Plan account will be an estimate. Then, within 60 days of that transfer, there will be a reconciliation pursuant to Florida law which will use my actual FRS membership record. The actual amount could be more or less than the estimate you received.” “Your choice will be final at 4:00 p.m. (Eastern Time) on the first day of your Choice period if you file prior to the beginning of your Choice period. Otherwise it will be final on the day it is received. You must file before the applicable deadline noted on page 1. See Your Choice Book for more details on when your Choice period begins, and on the second chance opportunity you have during your career with the FRS to change your selection.” The attestations and warnings listed on the SBA’s November 5, 2008, letter to Petitioner were taken from the MyFRS Your Plan Choice Form, Section 4: Authorization. However, the Representative who received Petitioner’s August 27, 2002, telephone call had not verbally, or subsequently in writing, provided Petitioner with the information, attestations and warnings that the SBA listed on its November 5, 2008, letter to her, or those which are included in the MyFRS Your Plan Choice Form. On the August 27, 2002, telephone call to the MyFRS Financial Guidance Line, Petitioner did not verbally attest that she agreed to any statements from the MyFRS Your Plan Choice Form, Section 4: Authorization. The Representative who assisted Petitioner on August 27, 2002, did not advise her that she could speak with a financial services expert from Ernst & Young to discuss the distinctions between the Investment Plan and the Pension Plan. The Representative who assisted Petitioner on August 27, 2002, did not: Refer Petitioner to Section 121.4501, Florida Statutes. Confirm that Petitioner understood the terms and conditions of the “second election.” Confirm that Petitioner understood that there might be a cost if she decided later to transfer from the Investment Plan back into the Pension Plan. Confirm that Petitioner understood that under the terms of the Investment Plan, she would not be eligible to receive monthly pension checks during her retirement. Provide any disclosures about where Petitioner could find information concerning her rights as a participant in the Investment Plan. Confirm that Petitioner understood that under the terms of the FRS Investment Plan, she would not be eligible to participate in the state’s deferred compensation “DROP” program. Confirm that Petitioner understood that she should review the fund profiles and the Investment Fund Summary before choosing investment funds. Had Petitioner been required to complete and sign the MyFRS Your Plan Choice Form, she would necessarily have been presented with such information and had the opportunity to affirmatively state that she understood her rights as a participant in the Investment Plan. The form also references Section 121.4501, Florida Statutes, which is the governing statute of the Investment Plan. Therefore, Petitioner’s alleged “election” by telephone was not the functional equivalent of her having completed and signed the MyFRS Your Plan Choice Form, and Petitioner’s alleged “election” was voidable. Petitioner did not complete any kind of form that met the requirements of Florida Administrative Code Rule 19-10.001, 19-10.002, or 19- 10.003, which were in effect at the time of her alleged election. The MyFRS telephone hotline used to enroll FRS- eligible public employees into the Investment Plan at the time of Petitioner’s alleged “election” did not require that employees complete a written or electronic enrollment form in order to transfer their Pension Plan assets into the Investment Plan. However, no one affiliated with the SBA provided her with any misleading information about the Investment Plan. The SBA did not require that an FRS-eligible public employee sign any form in order to transfer his or her FRS assets from the Pension Plan to the Investment Plan, but did require that Investment Plan participants complete and sign a “Beneficiary Designation Form” in order to change the beneficiary designation on an Investment Plan participant’s account. On November 22, 2008, Petitioner filed a petition for hearing with the SBA seeking to return to the Pension Plan at no cost over the value of her Investment Plan account. As of July 15, 2009, the balance of Petitioner’s Investment Plan account was $104,238.10. As of July 16, 2009, Petitioner’s cost to “buy back” into the Pension Plan was $184,658.81. Based upon this value, Petitioner would have to contribute $80,420.70 in addition to the value of her Investment Plan account if she exercised her second election to transfer back to the Pension Plan. Subsection 121.4501(4)(a)1., Florida Statutes, governed Petitioner’s enrollment in the Investment Plan in 2002. This provision provides in pertinent part: Any such employee may elect to participate in the [Investment Plan] in lieu of retaining his or her membership in the defined benefit program of the Florida Retirement System. The election must be made in writing or by electronic means and must be filed with the third-party administrator by August 31, 2002. . . . The SBA construed the phrase “by electronic means” used in Subsection 121.4501(4)(a)1., Florida Statutes, to mean the election could be made by computer or by telephone. The SBA considers a telephone call to be “electronic” because the telephone calls to the Plan Choice Administrator are recorded. However, Petitioner received her bachelor’s degree in 1976 and completed a semester of coursework toward a Masters of Business Administration degree in 1977. When Petitioner moved from Wisconsin to Florida in 1977, she “rolled-over” her Wisconsin retirement plan account into an Individual Retirement Account (IRA) with the assistance of a Raymond James financial advisor.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the State Board of Administration enter a final order, as follows: Allowing Petitioner to transfer her accumulated retirement assets from the Pension Plan to the Investment Plan by telephone without completing or signing a form was improper and invalid. By taking no action for six years after the SBA enrolled her in the Investment Plan, Petitioner has waived her right to transfer back into the Pension Plan without any cost in excess of the current value of her Investment Plan accounts and must comply with requirements of Subsection 121.4501(4)(e), Florida Statutes, if she desires to make a “second election.” DONE AND ENTERED this 1st day of October, 2009, 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 1st day of October, 2009.
The Issue The issue presented is whether Respondents are guilty of the allegations contained in the Amended Administrative Complaint, and, if so, what action should be taken against them, if any.
Findings Of Fact At all times material hereto, Respondent Boca Insurance Lenders, Inc. (hereinafter "Boca"), has been a Florida corporation involved in the business of purchasing life insurance assignments. Some beneficiaries of insurance policies are unable to pay for the funeral of the friend or relative insured by that policy, and most funeral homes require payment in full for the funeral expenses at the time the funeral is scheduled. Under the arrangement that Boca has with certain funeral homes, the beneficiary of the life insurance policy of a decedent can assign the policy to the selected funeral home. The funeral home then assigns the policy to Respondent Boca, and Boca pays the funeral home the cost of the funeral. Respondent Boca's profit results from a 6 percent discount on the monies paid. Shares of preferred stock of Respondent Boca were sold for $1,000 a share. Respondent Boca ceased selling its preferred stock in March 1994, converted and/or re-acquired the outstanding shares, and began selling bonds issued by the company instead. Purchasers of preferred shares of the stock of Respondent Boca earned a return of 12 percent, 14 percent if their investment was held longer than one year. Purchasers of the bonds issued instead of the preferred shares of stock received the same return on their investment as was paid on the preferred shares. At all times material hereto, Respondent Equity Investment Club, Inc. (hereinafter "Equity"), has been a Florida corporation. The business purpose of Respondent Equity is to allow persons to deposit small amounts of money in a personal account akin to a Christmas Club, except that such persons can withdraw their money on 24-hours notice. Account owners earn a return of 6 percent on their deposits. The monies deposited in such accounts were "pooled" by Respondent Equity and used by Respondent Equity to purchase Respondent Boca's shares of preferred stock. At all times material hereto, Respondent Alec Shatz was the president and the director of both Respondent Boca and Respondent Equity. He was also the sole stockholder of Respondent Equity. Respondents admit that Respondent Shatz directed, controlled, supervised, managed, and participated in the acts, practices, and policies of Respondents Boca and Equity. In conjunction with commencing sales of its preferred shares, Respondent Boca filed with the United States Securities and Exchange Commission a Form D which is a Notice of Sale of Securities pursuant to Regulation D, Section 4(6), a Uniform Limited Offering Exemption. When Respondent Equity was formed, it also filed a Form D with the Securities and Exchange Commission under Rule 504. Filing a Form D notice that stock will be sold pursuant to an exemption from registration is not the same as registering a stock with the Securites and Exchange Commission. Respondents Boca and Shatz did not register the preferred shares of stock with the Department, and neither Respondent Boca nor Shatz is or has been registered with the Department to sell or offer for sale securities as a dealer, as an associated person, or as an issuer. One of the ways in which Respondent Boca marketed its preferred shares of stock was by advertising seminars which could be attended by members of the public. Advertisements appeared in newspapers and were aired on the radio. It was not necessary that a potential investor attend one of Respondent Boca's seminars in order to purchase Boca's preferred shares. Employees of Respondent Boca attended the seminars and gave presentations. They also answered questions from members of the public attending the seminars. Information about Respondent Boca, Respondent Equity, and Respondent Shatz' other companies was given out at the seminars. A prospectus for Respondent Boca was also given out. The seminar advertisement which appeared in The Palm Beach Post on February 22, 1993, on behalf of Respondent Boca represented that one could earn 12 percent interest on a "No Risk Return", that there was no penalty for withdrawal, that the investment was "liquid," and that interest was paid every 60 days. The advertisement also read: "Registered with S.E.C". (Part of the advertisement, which was admitted as Joint Exhibit numbered l, is illegible.) By September 27, 1993, the advertisement which appeared in The Palm Beach Post remained substantially the same except that the interest rate was 14 percent, the phrase "Your Money Guaranteed through Insurance Payments" had been added, and the ad read "Register [sic] under S.E.C. exemptions". An October 25, 1993, advertisement was the same except that the word "interest" now read "dividend". However, a February 14, 1994, advertisement used the word "interest" rather than "dividend". Respondent Boca's September 18, 1995, advertisement also used the word "interest", represented that "This is a Minimum Risk Return!", and stated that "Our Investment Involve [sic] Insurance Company". The advertisement contained no language as to any registration with either the S.E.C. or the Department. Although some persons purchasing Respondent Boca's preferred shares were "accredited investors", no purchasers were questioned by Respondents Boca or Shatz as to their financial ability or experience to determine if they were accredited investors prior to their purchase of Boca's preferred shares. At some of the seminars conducted by Respondents Boca and Shatz, attendees were also given information regarding the membership accounts offered by Respondent Equity. Between May 7, 1992, and March 14, 1994, Respondent Boca made 137 sales of its preferred shares of stock. In April 1993 Respondent Shatz announced the establishment of Respondent Equity as an investment club for the purpose of raising money for Respondent Boca by having the investment club purchase Respondent Boca's stock. In May 1993 five membership accounts in Respondent Equity were opened, and those members subsequently made additional deposits in their accounts. Once the accounts were opened, Respondent Equity became the sole manager of those funds. On July 2, 1993, Respondent Equity purchased five shares of Respondent Boca's stock with the combined monies from the membership accounts. Respondent Equity has not registered its securities with the Department, and neither Respondent Equity nor Respondent Shatz is registered with the Department to sell or offer to sell its membership accounts as an issuer, as a broker/dealer, or as an associated person. A pamphlet regarding Respondent Boca's offering, labeled "prospectus" but generally known as a private placement memorandum, was given to attendees who wanted one at each seminar. No prospectus was available regarding Respondent Equity's offering. As the advertisements placed by Respondents Boca and Shatz changed, so did the prospectus for Respondent Boca. Boca's February 1, 1993, prospectus carried a caveat on the cover page that the securities of Boca and its prospectus were neither approved or disapproved by the Securities and Exchange Commission. The September 1, 1993, prospectus carried the same caveat. However, the November 1, 1993, and the April l, 1994, prospectuses added to that caveat an additional statement that the securities of Respondent Boca were not registered with the Department but the firm was registered as an issuer/dealer to sell its own securities. Between June 15, 1993, and January 14, 1994, neither Respondent Boca nor Respondent Shatz had access to all of the corporate books and records for the time period prior to June 15, 1993, since those records were in the possession of Respondent Boca's accountant/escrow agent. Respondent Boca's September 1, 1993, prospectus, its September 1, 1993, revised prospectus, and its November 1, 1993, prospectus represented that any purchaser of Boca's preferred shares had the right of access upon reasonable notice to Boca's books and records. Further, the November 1, 1993, prospectus offered that right of access to potential purchasers. Respondent Boca's September 1, 1993, prospectus represents that Larry Rosenman was Boca's escrow agent possessing copies of all assignments of insurance policies. That information was also provided orally to those attending Respondent Boca's September 30, 1993, seminar. On October 7, 1993, Rosenman wrote a letter to Respondents Boca and Shatz denying that he had agreed to be Boca's escrow agent, demanding that Boca and Shatz cease any representations to the contrary, and demanding that Boca and Shatz notify anyone who had received the September 1, 1993, prospectus that the representation in the prospectus that Rosenman was the escrow agent was not accurate. By letter dated October 8, Respondent Shatz wrote Rosenman apologizing for the error, agreeing to remove Rosenman's name from Boca's prospectus, and agreeing to notify all persons who had received the prospectus that Rosenman's name should not have been listed. Respondents Shatz and Boca issued a revised September 1, 1993, prospectus deleting any reference to an escrow agent and, specifically, deleting Rosenman's name. They did not notify all persons who may have received the original September 1 prospectus. Thereafter, none of Respondent Boca's prospectuses represented that Boca had an escrow agent. Attorney Tina Talarchyk was Respondent Boca's "in-house counsel" from October 1, 1993, through December 1993. She denied at hearing that she was also Boca's escrow agent during that time period and that she had ever executed the temporary escrow agent agreement written on her letterhead and admitted in evidence in this cause. She offered no explanation for the other items of correspondence admitted in evidence which reflect she was the person handling the redemption of stock certificates when investors wished to withdraw their monies invested in Respondent Boca. As she appeared to be carrying out the duties of an escrow agent on her professional letterhead and as she represented herself to an investor to be Boca's escrow agent, she acted as an escrow agent on behalf of Respondent Boca during that time period. On October 7, 1994, Respondents Boca and Shatz directed a letter to all investors that incorrect statements had been made in the past. The letter specifically advised that Respondent Boca did not have an escrow agent at that time, that Respondent Boca had never been registered as an issuer/dealer to sell its own securities, and that, although any investor could examine the company's books and records, no audit had been performed at that time. The letter also offered to return any investor's money. No investor requested the return of any monies based upon the contents of that letter. No investor relied upon any misrepresentation or "incorrect statement" in investing in Respondent Boca. The investors who testified at the final hearing conducted their own "due diligence" inquiry before investing in Respondent Boca and discovered, as the Department's own investigators discovered, that there were no complaints regarding Respondents made to any local or state agency. On occasion, a former employee of Respondent Boca found that an entry in Boca's accounts receivable journal had not yet been deleted when he thought it should have been. From August 18 to August 25, 1993, one of Respondent Boca's bookkeepers gave Respondent Shatz a report that she prepared indicating that Respondent Boca had a negative bank balance. Respondent Boca never missed making timely any interest or dividend payment to any investor who purchased Boca's preferred shares and, later, Boca's bonds. Similarly, Respondent Equity never missed making timely any interest payment to any investor having a membership account. Every person who purchased preferred shares in Respondent Boca was able to redeem those certificates and receive back the money invested in Boca upon electing to do so. Similarly, every member of Respondent Equity was able to withdraw their monies upon electing to do so. The Department has never received a complaint from any investor in Respondent Boca regarding Boca's or Respondent Shatz' business practices. Similarly, the Department has never received a complaint from any member of Respondent Equity regarding Equity's or Respondent Shatz' business practices. Although the Department has examined and copied Respondents' business records at the corporate office on several occasions, and although the Department has interrogated investors in Respondent Boca and members of Respondent Equity, some of them on repeated occasions, the Department has not discovered any investor or member who has been injured by Respondents' business practices, by Respondents' failure to register with the Securities and Exchange Commission and the Department, or by any representations made by Respondent Shatz at Boca's seminars or by Respondents Shatz or Boca in any of Boca's prospectuses. Further, the Department has not discovered any investor or member who relied on any erroneous or inaccurate statement made by any Respondent in deciding to invest in Respondent Boca or open a membership account in Respondent Equity. A Department investigator attended the September 30, 1993, seminar after seeing the newspaper advertisement and ascertaining that Respondents Boca and Shatz and Boca's securities were not registered with the Department. He also attended the February 17, 1994, seminar. Fifty-five of the 137 sales made by Respondents Boca and Shatz occurred after the first seminar which he attended.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered: Finding Respondents Boca and Shatz not guilty of the allegations contained in counts 1-4 of the Amended Administrative Complaint filed against them; Finding Respondents Equity and Shatz guilty of the allegations against them contained in counts 5-19; Finding Respondents Boca and Shatz guilty of the allegations against them contained in counts 20-430; Ordering Respondents to cease and desist from the sale of unregistered securities by unregistered persons and entities; Imposing an administrative fine in the amount of $100 for each of the 137 transactions against Respondents Boca and Shatz, jointly and severally, for a total of $13,700; Imposing an administrative fine in the amount of $100 for each of the 5 membership accounts against Respondents Equity and Shatz, jointly and severally, for a total of $500. DONE and ENTERED this 30th day of July, 1996, at Tallahassee, Leon County, Florida. LINDA M. RIGOT, 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 30th day of July, 1996. APPENDIX TO RECOMMENDED ORDER DOAH CASE NO. 94-6671 Petitioner's proposed findings of fact numbered 2-6, 8, 11, 13, 14, 16- 18, 22, 24, 25, 28, 29, and 33 have been adopted either verbatim or in substance in this Recommended Order. Petitioner's proposed findings of fact numbered 1, 7, 9, 15, 19, and 20 have been rejected as not constituting findings of fact but rather as constituting conclusions of law, argument of counsel, or recitation of the testimony. Petitioner's proposed findings of fact numbered 10, 21, 23, 27, and 31 have been rejected as not being supported by the weight of the evidence. Petitioner's proposed findings of fact numbered 12, 26, 30, 32, and 37- 40 have been rejected as being subordinate to the issues involved herein. Petitioner's proposed findings of fact numbered 34 and 36 have been rejected since they are illegible. Petitioner's proposed finding of fact numbered 35 has been rejected as being irrelevant. Respondents' proposed findings of fact numbered 1-3, 11, 13, 18, 23, 40, and 41 have been adopted either verbatim or in substance in this Recommended Order. Respondents' proposed findings of fact numbered 4, 6-10, 12, 19-21, 24, 29, 30, 32-34, 36-39, 42, and 43 have been rejected as not constituting findings of fact but rather as constituting conclusions of law, argument of counsel, or recitation of the testimony. Respondents' proposed findings of fact numbered 5, 14-17, and 35 have been rejected as being irrelevant to the issues herein. Respondents' proposed findings of fact numbered 22, 25, 28, and 31 have been rejected as being subordinate to the issues involved herein. Respondents' proposed findings of fact numbered 26 and 27 have been rejected as not being supported by the weight of the evidence. COPIES FURNISHED: John D. O'Neill, Esquire Department of Banking and Finance Division of Securities and Investor Protection The Capitol, Suite 1302 Tallahassee, Florida 32399-0350 Alec Shatz 5850 West Atlantic Avenue Suite 103 Delray Beach, Florida 33484 Hon. Robert F. Milligan Comptroller, State of Florida The Capitol, Plaza Level Tallahassee, Florida 32399-0350
Findings Of Fact Upon consideration of the evidence adduced at the hearing, the Report of the hearing officer submitted on December 6, 1979, is hereby adopted and incorporated herein. It should be noted, however, that the total time and savings deposits for commercial banks in Collier County as of June 30, 1979, was $266,668,000 rather than $226,668,000 as indicated in the hearing officer's Report. The idea of establishing another savings and loan association in Naples originated with Robert E. Talley, a banker, and Allan L. McPeak, a lawyer. The name proposed for the new association is Marine Savings and Loan Association. No financial institution operating in Collier County at the time of the hearing had the word "Marine" in its name. All of the savings and loan associations in operation in Collier County at the time of the hearing had the word "federal" in their names. Applicant proposes to establish an office in downtown Naples, within a few blocks of several other financial institutions. Applicant has entered into a lease for the proposed facility, at an annual rental of $50,000, renewable for two three-month periods, during the pendency of Applicant's application. The lease provides for a ten-year term at an annual rental of $50,000, if the application is approved, with the option to renew for two additional five-year terms. The lease also contains an option to purchase which must be exercised within thirty-six months of opening or no later than March, 1983, whichever first occurs, at a purchase price of $600,000. In support of its application, Applicant caused an MAI appraisal to be prepared. According to the appraisal, the leased premises have a fair market value, as of March 14, 1979, of $433,000. According to a second, CCIM appraisal, also prepared at Applicant's instance, the property will be worth $632,400 as of February 26, 1982. Initially, Applicant plans to occupy the northern 4,285 square feet of the 6,700 square foot, single-story building it is leasing. Subleases with two tenants who are to occupy the southern portion of the building will be structured so as to provide additional space for expansion by Applicant. The leased premises include 43 parking spaces. Additional parking is available on adjacent streets. The site is easily accessible. Traffic conditions appear to pose no problems. The proposed savings and loan association would be a full service financial institution and expects to be competitive with the existing savings and loan offices in the primary service area (hereinafter PSA) with respect to interest rates and breadth of services. Some of the services that the proposed savings and loan association plans are a drive-in teller window, a night depository, safety deposit boxes, a walk-up window, extended hours on week days (from 9:00 a.m. to 6:00 p.m.), evening hours on Fridays (from 9:00 a.m. to 7:00 pm.), Saturday hours (from 9:00 a.m. to Noon), and safekeeping facilities. Most of the existing savings and loan associations in the PSA do not offer extended hours, drive-in teller windows or safekeeping facilities. The proposed PSA includes the populated portion of the city of Naples and segments of unincorporated Collier County to the north and east of the city. It is bounded on the north by Pine Ridge Road, 4.7 miles away; on the east by County Barn Road, 4.2 miles away; on the south by Gordon Pass and Holly Avenue, 3 miles away; and on the west by the Gulf of Mexico, .7 miles away. The PSA is roughly rectangular except for an indentation in the northeastern corner. Twelve savings and loan association offices now operate within the PSA. One savings and loan association has headquarters within the PSA. Four of the eleven branch offices in the PSA are limited facilities. The Protestant's main office is located 0.2 miles southeast of the premises Applicant has leased. Protestant has filed an application to relocate its main office to a site in unincorporated Collier County, 4.8 miles north of Applicant's proposed site and to make its present main office a branch office. One branch office is now located 0.2 miles southwest of the proposed site; three are between 1.3 miles and 2.0 miles from it; and one is 8.7 miles to the north. Except for the Protestant, no savings and loan association now operating in Collier County has headquarters in Collier County. There are 14 commercial bank offices, including five main banking offices and nine branch offices in operation within the PSA. Three of the five main bank offices are located within 0.3 miles of the proposed site; one is 2.6 miles away and another is 7.5 miles away. Of the branch offices, one is located one mile southwest of the proposed site; three are 1.3 to 2.0 miles from it; four are between 2.2 and 4.0 miles from it and one is 8 miles away. In addition, there are three approved but unopened branch offices which are to be located between 3.1 and 5.3 miles-from Applicant's proposed site. The main office of Security Trust of Naples, a non-deposit trust company, is located 0.3 miles southwest of Applicant's proposed site. Applicant proposed five million dollars as the initial capitalization for the savings and loan association. The capital accounts would initially consist of $1,500,000 common stock and $3,500,000 paid-in surplus. Eighteen percent of the stock of the proposed savings and loan association has been subscribed to by nine organizers. The remaining 82 percent has been subscribed to by more-than 400 members of the general public, mostly from the Collier County area. Applicant has estimated the permanent 1979 population of the PSA at 47,000. This represents an average annual rate of growth of 11.6 percent from the PSA's 1970 population of 23,000. Applicant estimates the County's 1979 permanent population at 77,900, the seasonal population of the PSA at between 12,000 and 14,000, and the seasonal County population at between 15,000 and 20,000. The Applicant estimated the combined permanent and seasonal populations of the County at between 92,900 and 97,900 and that of the PSA at between 59,000 and 61,000. The Applicant projects for the 1982 permanent population of the PSA a figure of 53,000, representing an average annual growth rate of 4.3 percent from 1979. According to data compiled by the Bureau of Economic and Business Research, Division of Population Studies, at the University of Florida, the population of Collier County on April 1, 1970, was 38,040; on July 1, 1979, 64,761; on July 1, 1977, 68,900; on July 1, 1978, 74,572. According to the same source, the population of Naples on April 1, 1970, was 12,042; on July 1, 1976, 17,425; on July 1, 1977, 17,437; and on July 1, 1978, 17,462. The population of unincorporated areas of Collier County, including Everglade City, according to the same source, was 25,998, on April 1, 1970; 47,336, on July, 1976; 51,463 on July 1, 1977; and on July 1, 1978, The population of Collier County grew at an average annual rate of approximately 11.7 percent between 1970 and 1976. Between 1976 and 1977, the County's population grew at a slower rate, viz., approximately 6.4 percent. The rate of growth increased to approximately 8.2 percent between 1977 and 1978. Between 1970 and 1976, the population of Naples grew at an annual average rate of approximately 7.5 percent. During the years 1976, 1977 and 1978, the population of Naples did not increase significantly. The population of the unincorporated areas of Collier County grew at an average annual rate of approximately 13.7 percent between 1970 and 1976, at a rate of approximately 8.7 percent between 1976 and 1977, and at a rate of approximately 11.0 percent between 1977 and 1978. Almost all (94.14 percent) of the population growth in the County between 1970 and 1978, was the result of net migration. Between 1970 and 1978, the proportion of Collier County's population older than 65 years of age increased from 14.0 percent in 1970, to approximately 17.5 percent in 1978. Recent unemployment data for Collier County show an unemployment rate of 10.2 percent for July, 1979 (revised), and 9.8 percent for August, 1979 (preliminary), in the County as compared to the state averages of 6.6 and 6.1 percent for the same months, respectively. The per capita personal income for Collier County was $6,905 in 1976, and $7,663 in 1977. The 11.0 percent increase from 1976 to 1977, is higher than the 9.8 percent increase in the state average for the same period. Collier County's averages were above the state averages of $6,101 in 1976, and $6,697 in 1977. The proposed board of directors would be composed of nine members, at least seven of whom are full-time Florida residents and at least eight of whom are United States citizens. Robert E. Talley, the proposed president and chief executive officer, has had extensive commercial banking experience. From 1964 to 1972, he served as vice-president and loan officer for the Manatee National Bank; from 1972 through 1973, he was senior vice-president of the National Bank of St. Petersburg; from 1973 through 1977, he was president, chief executive officer, and a director of the Community Bank of Homestead; and from 1977 to 1978, he was executive vice-president and branch manager of the National Bank of Collier County. Proposed director, Roland Erickson, served as president and director of the Guaranty Bank and Trust Company, Worcester, Massachusetts, from 1947 to 1964. Proposed director, Harold S. Smith, served as a director and member of the executive committee of the Bank of Everglades from 1948 through 1951. Proposed director, Hendry P. Albrecht, is president of Gale-Realty, Inc., which is involved in investments, including rental property. Although most of the proposed board of directors appear to be successful businessmen, none of them has had direct savings and loan association experience. On June 30, 1975, commercial banks in Collier County had total deposits of $245,086,000 of which $152,499,000 were time and savings deposits. On June 30, 1976, commercial banks in Collier County had total deposits of $301,664,000, of which $193,488,000 were time and savings deposits. On June 30, 1978, commercial banks in Collier County had total deposits of $369,928,000 of which $224,982,000 were time and savings deposits. On June 30, 1979, commercial banks in Collier County had total deposits of $423,365,000 of which $266,668,000 were time and savings deposits. In March of 1979, Protestant held more than three quarters of all moneys on deposit with savings and loan associations in Collier County. At that time, $141,996,000 was on deposit at the Protestant's home office; $10,890,000 at its Tamiami North branch, even though this office first opened in September of 1977; $26,989,000 at its Lely branch; $4,728,000 at its Tamiami South satellite; and $5,537,000 at its Golden Gate facility. In March of 1979, Coast Federal's Tamiami North branch held $56,667,000. On deposit at First City Federal's Tamiami North branch was $6,855,000 in March of 1979. At the same time, Gulf Federal's Fifth Avenue branch had deposits of $7,018,000. In March of 1979, First Federal of Fort Myers had $10,256,000 on deposit at its Tamiami North branch and $235,000 at its Olde Naples facility, which opened in February of 1979. Time and savings deposits in savings and loan associations and commercial banks in Collier County amounted to $552,839,000 in 1978, up 55.62 percent from 1976. At the time of the hearing, there was commercial activity in Naples and residential development, particularly to the north of the PSA. Some thirteen financial institutions were in operation in the western part of Collier County, north of Applicant's proposed site, at the time of the hearing. Applicant has projected savings deposits at the end of the first, second and third years of operation to be $10,000,000, $15,000,000 and $20,000,000, respectively. Applicant also presented a pro forma budget which projected net profit for the first three years to be $191,700, $256,000 and $319,100, respectively. The Deputy Comptroller, Gerri Raines Dolan, and the Director of the Division of Banking, Ryland Terry Rigsby, as advisory staff members to the Comptroller, reviewed the application and the Department's entire file relating to the application. They assisted and concurred with the Comptroller in the ultimate determination of the application.
Conclusions As set forth in Rule 3C-20.45, Florida Administrative Code, when an application for authority to organize and operate a new state savings and loan association is filed pursuant to Chapter 3C-9, Florida Administrative Code, it is the applicant's responsibility to prove that the statutory criteria warranting the grant of authority are met. The Department shall conduct an investigation pursuant to Subsection 665.031(3), Florida Statutes, which was done in this case, and then approve or disapprove the application in its discretion. This discretion is neither absolute nor unqualified, but is instead conditioned by a consideration of the criteria listed in Subsection 655.031(4), Florida Statutes, wherein it is provided that: The Department shall approve the application upon such terms and conditions as it determines necessary to protect the public interest or disapprove the application at its discretion, but it shall not approve such application, unless in its opinion: Public convenience and advantage will be promoted by the establishment of the proposed thrift institution; Local conditions assure reasonable promise of successful operation of the proposed thrift institution and those thrift institutions already established in the community; The proposed officers and directors have good character, sufficient financial standing, and adequate experience and responsibility to assure reasonable promise of successful operation of the thrift institution; and The proposed savings account capital and organization expense fund or capital stock subscriptions comply with the requirements of this chapter. and Subsection 665.051(1), Florida Statutes, wherein it is provided that, The name of every association shall include either the words "savings association" or "savings and loan association." If in the opinion of the Department, any one of the above criteria has not been met and cannot be remedied by the applicant, it cannot approve the application. An applicant can, however, take corrective action in most circumstances to meet the criteria set forth in Subsections 665.031(4)(c), or (d), and 665.051(1), Florida Statutes, if any of these are found to be lacking. For example, if all other statutory criteria are met, the applicant may increase capital, or make certain changes in the board of directors, or change the name, or alter the provisions for suitable quarters, because these factors, at least to some degree, are within its control. It is the Department's policy to allow applicants to make certain changes to meet these criteria if all other criteria are met; to do otherwise would be to subject applicants to unnecessary red tape. However, it is the Department's opinion that there is little, if anything, that an applicant can do to alter its ability to meet the criteria set forth in Subsections 665.031(4)(a) and (b), Florida Statutes, since applicants CANNOT readily change the economic and demographic characteristics of an area. Therefore, if either one or both of these criteria are not met, the Department cannot approve the application. For purposes of applications for authority to organize and operate a new state savings and loan association, Rule 3C-20.45(1), Florida Administrative Code, defines PSA as the "smallest area from which the proposed association expects to draw approximately seventy-five percent of its deposits. It should be drawn around a natural customer base, should not be unrealistically delineated to exclude competing financial institutions or to include areas of concentrated population." Based upon, traffic patterns, natural and manmade geographic barriers and the location of other existing offices of financial institutions in the area, the Department concludes that the Applicant's PSA is realistically delineated. It is the opinion and conclusion of the Department that public convenience and advantage will be promoted by the establishment of the proposed savings and loan association. Therefore, the criterion in Subsection 665.031(4)(a), Florida Statutes, IS met. As set forth in Rule 3C-20.45(2)(a), Florida Administrative Code, the location and services offered by existing savings and loan association offices in a service area are indicative of the competitive climate of the market and should be considered. Other financial institutions such as banks and credit unions may be considered competing institutions to the extent their services parallel those of a new savings and loan association. Also, the traffic patterns in the area, as well as the general economic and demographic characteristics of the area, must be considered in evaluating this statutory criterion. Because it is recognized that the establishment of a new savings and loan association ANYWHERE would promote the convenience and advantage for at least a few people, SUBSTANTIAL convenience and advantage for a SIGNIFICANT number of people must be shown; otherwise, a new savings and loan association could be justified for every street corner in the state. Clearly, such a result was not the legislative intent in regulating entry into the savings and loan association industry, nor is it in the public interest. Based upon the facts set forth above, the Department has determined that the establishment of the proposed savings and loan association will substantially increase convenience to a significant number of residents of the PSA. This is particularly true in view of the significant growth of the various financial institutions in the area since 1976, as well as the past and projected population growth in the PSA. The Protestant, which is the only other savings and loan association with a main office in Collier County, held more than seventy-five percent of all savings and loan deposits in the County in March, 1979. Consequently, the proposed institution will served as a needed competitive alternative. The site is easily accessible and traffic patterns are favorable. Furthermore, the Applicant intends to offer a variety of new services not generally offered by other financial institutions within the PSA. Therefore, the criterion of public convenience and advantage is met. It is the opinion and conclusion of the Department that local conditions do assure reasonable promise of successful operation of the proposed thrift institution and those thrift institutions already established in the community. Therefore, the criterion in Subsection 665.031(4)(b), Florida Statutes, IS met. As set forth in Rule 3C-20.45(2)(b), Florida Administrative Code, current economic conditions and, to a lesser extent, the growth potential of the area in which the new savings and loan association proposes to locate are important considerations in determining the association's probable success. Essential to the concept of thrift institution opportunity is that there does and will exist a significant volume of business for which the new savings and loan association can realistically compete. The growth rate, size, financial strength and operating characteristics of savings and loan associations and other financial institutions in the service area are also important indicators of economic conditions and potential business for a new savings and loan association. It is noted that the statutory standards require that " . . . local conditions ASSURE reasonable PROMISE of successful operation of the proposed thrift institution and those thrift institutions already established in the community . . ." (E.S.), NOT merely that local conditions INDICATE a POSSIBILITY of such success. Thrift institutions involve a public trust. Unlike private enterprise establishments generally, a savings and loan association operates on the public's capital and therefore, the Legislature has vested in the Comptroller the responsibility to protect that public interest. Furthermore, the failure of a savings and loan association, as opposed to private enterprise establishments generally, may have an unsettling effect on the overall economic welfare of the community and that is why the Florida Legislature and the United States Congress have imposed stringent requirements for the industry. This Department is responsible for enforcing this legislative standard. Public interest is best served by having a thrift institution system whereby new competition is encouraged where appropriate, yet, at the same time, ensuring that the financial resources of the residents in the community are stable and safe. That was the obvious intent of the Legislature in regulating entry into the thrift institution industry. The Applicant's estimated 1979 PSA population of 47,000 and its projections for the near future seem more than reasonable in view of the latest official estimates by the University of Florida. The population base is healthy, a balanced mixture of residents, local businessmen and commuters, with a steady recent history of growth and projections for significant future growth. Although there are other savings and loan offices already existing in or near the PSA, the Department has concluded that the total savings potential within the PSA will readily support a new institution. The Department further concludes that the extensive deposit and loan growth of the existing financial institutions within the PSA justifies the establishment of another competitive alternative. The increasing population, the high per capita income, and the business and residential mix of the PSA point to an expanding and stimulated economy in the PSA for the present as well as the near future. Clearly, these factors are conducive to assuring the reasonable promise of success for the proposed savings and loan association and for those thrift institutions already established in the community. It is the opinion and conclusion of the Department that the proposed directors, as a group, have good character, sufficient financial standing and responsibility, but do not have sufficient experience in the savings and loan field to assure reasonable promise of successful operation of the proposed association. Therefore, one of the criteria of Subsection 665.031(4)(c), Florida Statutes, IS NOT met. As set forth in Rule 3C-20.45(2)(c), Florida Administrative Code, the organizers, proposed directors and officers shall have reputations evidencing honesty and integrity. They shall have employment and business histories demonstrating their responsibility in financial affairs. At least one member of a proposed board of directors, other than the chief managing officer, shall have experience in the savings and loan field or in a business directly related thereto such as mortgage banking, real estate finance and commercial banking where real property lending has constituted an integral part of such banking experience. The organizers, proposed director's and officers shall meet the requirements of Sections 665.131 and 665.703, Florida Statutes, as applicable. A majority of the organizers and directors of a proposed thrift institution shall be, whenever possible, from the local community and shall represent a diversification of occupation and experience commensurate with the position for which proposed. Members of the initial management group, which includes directors and officers, shall require prior approval of the Department. Changes of directors or chief managing officer during the first year of operation shall also require prior approval of the Department. While it is not necessary that the names of proposed officers he submitted with an application to organize a new savings and loan association, the chief managing officer and operations officer must be named and their names submitted for departmental approval at least sixty (60) days prior to the association' opening. In addition, interlocking directorships involving existing financial institutions competitively near the proposed site of a new institution are discouraged. Such interlocking directorships could possibly restrict competition and create fiduciary problems. Although the proposed directors have, as a group, good character, sufficient financial standing and responsibility, none of the proposed directors has any direct experience in the savings and loan field. Only Robert E. Talley, as a proposed director, has demonstrated that he has the requisite related business experience by virtue of his background in commercial banking, real estate, and mortgage brokerage. Because the selection of directors for a proposed new savings and loan association is generally within an applicant's control, the Department wilt, in this case, allow the Applicant to remedy the above inadequacy in the proposed board of directors by the addition of one director with sufficient experience in the savings and loan field or in a business directly related thereto or by further demonstrating that one of the proposed board members already has the requisite related business experience. While the department has noted that Robert E. Talley has been proposed as the chief managing officer, the Department does not approve or disapprove an applicant's proposed chief managing officer until the association makes an application for insurance of its accounts. It is the opinion and conclusion of the Department that the proposed savings account capital and the organization expense fund or capital stock subscriptions comply with the requirements of Chapter 665, Florida Statutes. Therefore, the criteria of Subsection 665.031(4)(d), ARE met. As set forth in Rule 3C-20.45(2)(d), Florida Administrative Code, capital should be adequate to enable the new savings and loan association to provide the necessary services of promoting thrift and home financing to meet the needs of prospective customers. Capital should be sufficient to purchase, build or lease a suitable permanent facility complete with equipment. Generally, the initial capital (withdrawable savings for a mutual association applicant and total stock and paid-in surplus for a stock association applicant) for a new savings and loan association should not be less than $1.5 million in non- metropolitan areas and $2.0 million in metropolitan areas. To encourage community support, a wide distribution of stock ownership is desirable. A majority of the stock should be issued wherever possible to local residents of the community, persons with substantial business interests in the community, or others who may reasonably be expected to utilize the services of the association. Subscribers to five (5) percent or more of the stock may not finance more than fifty (50) percent of the purchase price if the extension of credit is predicated in any manner on the stock of the new association, whether or not such stock is pledged. Generally, all proposed stock for-a stock savings and loan association shall be subscribed to at the time the application is submitted to the Department. The organizers may initially subscribe to all proposed stock, but should disclose the anticipated amount of individual stock to be retained. It is the opinion and conclusion of the Department that the name, Marine Savings and Loan Association, meets the criterion of Subsection 665.051(1), Florida Statutes, and is not so similar as to cause confusion with the name of an existing financial institution. As set forth in Rule 3C-20.45(4), Florida Administrative Code, the Department will consider the possibility that a name similar to that of another financial institution may cause confusion in the minds of the public or be misleading and may deny the use of such name, with the exception of names specifically authorized under Subsection 665.051(1), Florida Statutes. The Department concludes that the name Maring Savings and Loan Association is not so similar as to cause confusion with the name of an existing financial institution. It is the opinion and conclusion of the Department that provision has been made for suitable quarters. Therefore, the provisions of Rule 3C- 20.45(6)(d), Florida Administrative Code, ARE met. As set forth in Rule 3C-20.45(6)(d), should temporary quarters be contemplated by an applicant until a permanent facility is completed, permission to open in temporary quarters may be granted, generally not to exceed one year. The permanent structure of a new savings and loan association should generally contain a minimum of 5,000 square feet unless the applicant satisfactorily shows that smaller quarters are justified due to the performance of certain auxiliary services off-premises. It shall be of sufficient size to handle the projected business for a reasonable period of time. The facility shall be of a nature to warrant customer confidence in the association's security, stability and permanence. Other pertinent factors include availability of adequate parking, an adequate drive-in facility if such is contemplated and possibilities for expansion. The Applicant presently plans permanent quarters in a building containing 4,285 square feet, which will have adequate parking and drive-in facilities. No temporary quarters are contemplated. Since adequate provision has been made for expansion up to 6,700 square feet, the Department considers that provision has been made for suitable quarters. It is the opinion and conclusion of the Department that the proposed acquisition of the association's proposed site has been fully disclosed and does not constitute an insider transaction. Therefore, the provisions of Rule 3C- 20.45(3) ARE met. Rule 3C-20.45(3), Florida Administrative Code, provides that any financial arrangement or transaction involving the organization of a proposed association and its organizers, directors, officers and shareholders owning five (5) percent or more of the stock, or their relatives, their associates or interests should ordinarily be avoided. Should there be transactions of this nature, they must be fair and reasonable, fully disclosed and comparable to similar arrangements which could have been made with unrelated parties. It is the opinion and conclusion of the Department that the provisions of Rule 3C-20.45(6)(e), Florida Administrative Code, have NOT been met. Pursuant to Rule 3C-20.45(6)(e), Florida Administrative Code, appraisals of land and improvements thereon shall be made by an independent qualified appraiser and be dated no earlier than six months from the filing date of the application. In those instances where the application involves a lease arrangement, the appraisal should be directed to the comparability of the proposed lease with other leasing arrangements for similar business property. The application involves a lease arrangement and, although the Applicant has submitted an acceptable appraisal as to the fair market value of the leased premises, it has not submitted an appraisal directed to the comparability of the proposed lease with other leasing arrangements for similar business property. However, since this is a criterion that is within the control of the Applicant, the Department may approve the application upon the condition that this deficiency is remedied.
Findings Of Fact Based upon my observation of the witnesses, and their demeanor while testifying, the documentary evidence received and the entire record compiled herein, I hereby make the following findings of fact: The Petitioner, Thomas Patrick Boggs, resides in Ft. Lauderdale, Florida, and is employed with MCG Portfolio Management Corporation. On March 9, 1987, the Petitioner submitted an application for registration as an associated person with MCG Portfolio Management Corporation pursuant to the "Florida Securities and Investor Protection Act," Chapter 517, Florida Statutes. By letter dated April 9, 1987, the Respondent, Department of Banking and Finance, Division of Securities and Investor Protection, denied the Petitioner's application based on the incidents discussed in paragraphs three (3) to nine (9) below. Petitioner was arrested on August 8, 1975, in the State of Virginia for the alleged offense of passing a bad check to a service station. The charges were dropped when the Petitioner made payment on the check. In a letter dated July 24, 1978, the New York Stock Exchange ("NYSE") admonished Petitioner for failing to disclose his 1975 arrest for petty larceny on a Form U-4 (Uniform Application for Securities and Commodities Industry Representative and/or Agent). The NYSE took note of Petitioner's "explanation that [he] failed to report the offense because [he] considered the problem minor and that the charge against [him] was subsequently dropped." The letter to Petitioner went on to state that "[t]he Exchange hereby admonishes you for your conduct and cautions you that any future misconduct may result in formal disciplinary action. " In a letter dated March 20, 1981, the NYSE admonished Petitioner for failing to respond correctly to a question on a Form U-4 dated May 7, 1980. Question 50(a) of the Form U-4 read as follows: "In your previous business connections or employment, have you ever been . . . a subject of a major complaint or legal proceeding?" The Petitioner responded "no" to question 50(a), although he had been named as a party defendant in a lawsuit commenced in March 1980 by a customer of Drexel, Burnham, Lambert Incorporated where he was employed as a registered representative from January to May 1980. In a letter dated March 20, 1981, the NYSE took consideration of Petitioner's "explanation that [he] interpreted Question 50(a) as referring to [his] business connections and employment prior to entering the securities business, and that [he] had disclosed the litigation to Dean Witter personnel during [his] initial interview for employment." The NYSE's letter to Petitioner went on to state that "the Exchange hereby admonishes you for your conduct and cautions you that any misconduct on your part in the future will very likely lead the Exchange to take formal disciplinary action against you." On September 25, 1985, a suit was filed against Petitioner in the United States District Court for the Northern District of Georgia. The suit, Bernard, et al v. First Continental Resources, Inc.; T. Patrick Boggs (Petitioner); David Meeks; and First Continental Drilling Associates, a Nevada Limited Partnership (Civil Action No. 85-182), alleged fraud, breach of contract, breach of fiduciary duty, and negligence in connection with the sale of securities. First Continental Resources, Inc., was the corporation general partner of First Continental Drilling Associates. Petitioner was the individual general partner for First Continental Drilling Associates and President/Chief Operating Officer and Director of First Continental Resources, Inc. Petitioner was a controlling person of First Continental Resources, Inc., and First Continental Drilling Associates as that term is used in Section 15 of the Securities Act of 1933 and Section 20 of the Securities Exchange Act of 1934. The plaintiffs in the lawsuit sought compensatory damages of approximately $800,000, treble damages, and punitive damages of $20 million. The Petitioner and the other defendants failed to defend the suit and the Court entered an Order of Default against Petitioner on March 31, 1986. On May 31, 1986, the defendants obtained a judgment against Petitioner and all defendants for approximately $2.3 million. The Petitioner testified that he had a meritorious defense to the Bernard lawsuit but failed to present it because of lack of funds for legal representation. The Petitioner testified that he was in fact a victim of fraud along with the plaintiffs, perpetrated by some of the co-defendants in the lawsuit. George Bloukos, Executive Vice President of MCG Portfolio Management Corporation, has known the Petitioner since March of 1987 when Petitioner first sought employment with his company. Since that time, the Petitioner has been employed with MCG in a clerical-like capacity, pending resolution of his registration application. Bloukos has worked in the securities and investments profession for approximately thirty (30) years. Based on Bloukos' observation of Petitioner, the Petitioner has shown himself to be a person of good character, good business ethics and a conscientious worker. Bloukos believes that Petitioner is a trustworthy individual who would be an asset to his company and to the securities and investments profession.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, RECOMMENDED that the Petitioner's application for registration as an associated person be DENIED. DONE and ORDERED this 7th day of October, 1987 in Tallahassee, Leon County, Florida. W. MATTHEW STEVENSON 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 7th day of October, 1987. COPIES FURNISHED: Charles E. Scarlett, Esq. Office of the Comptroller Suite 1302, The Capitol Charles L. Stutts, Esq. General Counsel Department of Banking & Tallahassee, FL 32399 Finance Plaza Level, The Capitol Tallahassee, FL 32399-0350 Thomas P. Boggs c/o George Bloukos MCG Portfolio Management Corp. 5301 North Federal Highway Suite 170 Boca Raton, FL 33431 Hon. Gerald Lewis Comptroller Department of Banking & Finance The Capitol Tallahassee, FL 32399-0350
Findings Of Fact At all times material hereto Respondent Marvin M. Kornicki has been a licensed real estate broker in the State of Florida, having been issued License Nos. 0265344 and 0252335. The last license issued was as a broker for Waterway Properties, Inc., t/a Waterway Properties. At all times material hereto, Respondent Waterway Properties, Inc., t/a Waterway Properties, has been a corporation registered as a real estate broker in the State of Florida, having been issued License No. 0265344. At all times material hereto, Respondent Kornicki was licensed and operating as the qualifying broker and an officer of Respondent Waterway Properties, Inc. On January 7, 1990, Respondents solicited and obtained an offer in the amount of $155,000 from Alda Tedeschi and John Tocchio, buyers, to purchase real property, to-wit: Unit 422 at Mariner Village Garden Condominium, Aventura, Florida, from Arthur Goldstein and Myra Goldstein, sellers. The buyers' offer reflected a $1,000 deposit to be held in trust by the Respondent Waterway Properties, Inc. The offer reflected that if the offer was not executed by and delivered to all parties, or fact of execution communicated in writing between the parties, on or before January 10, 1990, the deposit would be returned to the buyers and the offer would be withdrawn. The offer also reflected that "time is of the essence." On January 8, 1990, Respondents sent the buyers' offer to the sellers in New Jersey by air express. On January 10, 1990, the sellers signed the offer but made it a counteroffer by requiring the buyers to furnish an additional deposit of $14,500 by January 12, 1990, and requiring the buyers to sign a condominium rider and an agency disclosure form. The sellers returned the counteroffer with condominium rider and agency disclosure form to the Respondents. On January 12, 1990, Respondents sent the counteroffer, condominium rider, and agency disclosure form, together with a letter dated January 11, 1990, to the buyers for the buyers' initials and signatures. Although the buyers could not have received the counteroffer until after its expiration date, they advised Respondents by telephone that they had in fact initialed the counteroffer and mailed it back to Respondents. Respondents never received from the buyers that accepted counteroffer. The buyers subsequently verbally demanded the return of their $1,000 deposit, but Respondents wrote to the buyers on February 9, 1990, advising the buyers that they were in default. On February 8, 1990, Respondents had already disbursed the $1,000 deposit to Respondents' operating account since the sellers had told the Respondents to use the deposit to cover the costs incurred advertising the sellers' property. Since he was uncertain as to whether he had "conflicting demands upon an escrow deposit" Respondent Kornicki telephoned the Florida Real Estate Commission and discussed the matter with one of the Commission's attorneys. Because Respondent Kornicki believed that the buyers were "in default," Respondents failed to notify the Florida Real Estate Commission in writing that they had received conflicting demands. No explanation was offered as to why Respondent Kornicki believed the buyers were in default when the counteroffer could not have been signed by the buyers prior to its expiration and when Respondent Kornicki had never seen a fully executed document. Further, no explanation was offered as to why the sellers believed they were entitled to the money. Since that transaction, Respondents have experienced other transactions where conflicting demands were made. In those subsequent instances, they have timely notified the Florida Real Estate Commission in writing as to those conflicting demands. On June 18, 1990, Petitioner's investigator conducted an office inspection and escrow/trust account audit of Respondents' office and escrow/trust account. That audit revealed that Respondents wrote a trust account check on September 1, 1989, in the amount of $369.15, which was returned on October 3, 1989, for insufficient funds. A second trust account check in the amount of $800 was also returned for insufficient funds on October 3, 1989. Respondents had received rental monies from a tenant by check. Respondents had written checks out of those monies for the mortgage payment on the rental property, not knowing that the tenant's check would fail to clear. The worthless check written by the tenant caused these checks written by Respondents to be returned for insufficient funds. Respondents have changed their office policies so that they no longer accept checks from tenants except before tenants move into rental properties and the checks must clear before the tenants are allowed to take possession of the leased premises.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a Final Order be entered: Finding Respondent Kornicki guilty of Counts I, III, V, VII, IX, and Finding Respondent Waterway Properties, Inc., guilty of Counts II, IV, VI, VIII, X, and XII; Dismissing Counts XIII and XIV; Ordering Respondent Marvin M. Kornicki to pay a fine of $1,000 to the Division of Real Estate within 60 days and revoking Respondents' licenses should such fine not be timely paid; Placing Respondents on probation for a period of one year if the fine is timely paid; Requiring Respondent Kornicki to complete and provide satisfactory evidence of having completed 60 hours of approved real estate post-licensure education for brokers, 30 hours of which shall include the real estate broker management course, during the probationary period; Establishing terms for the probationary period except that such probationary terms shall not require Respondent Kornicki to retake any state licensure examinations and Requiring Respondent Kornicki to appear before the Commission at the last meeting of the Commission preceding the termination of Respondents' probation. DONE AND ORDERED in Tallahassee, Leon County, Florida, this 13th day of February, 1991. LINDA M. RIGOT 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 13th day of February, 1991. APPENDIX TO RECOMMENDED ORDER DOAH CASE NO. 90-5863 Petitioner's proposed finding of fact numbered 1 has been rejected as not constituting a finding of fact but rather as constituting a conclusion of law. Petitioner's proposed findings of fact numbered 2-4, 6-14, and 16-19 have been adopted either verbatim or in substance in this Recommended Order. Petitioner's proposed finding of fact numbered 5 has been rejected as being unnecessary for determination of the issues herein. Petitioner's proposed finding of fact numbered 15 has been rejected as not being supported by the weight of the credible evidence in this cause. COPIES FURNISHED: Darlene F. Keller, Division Director Department of Professional Regulation Division of Real Estate 400 West Robinson Street Post Office Box 1900 Orlando, Florida 32801 Jack McCray, Esquire Department of Professional Regulation Legal Division 1940 North Monroe Street Tallahassee, Florida 32399-0792 James H. Gillis, Esquire Department of Professional Regulation 400 West Robinson Street Post Office Box 1900 Orlando, Florida 32801 Marvin M. Kornicki Waterway Properties, Inc. 16560 Biscayne Boulevard North Miami Beach, Florida 33160
