The Issue The issue in this case is whether Petitioner's application for a certificate of need was complete.
Findings Of Fact Petitioner and Intervenor each filed applications in the same batching cycle for certificates of need to establish Medicaid-certified home health agencies in Collier County, District 8. By letter dated October 6, 1994, Respondent advised Petitioner that its application omitted certain elements. The letter requests, among other things, an "audited financial statement," including a balance sheet and profit-and-loss statement for the previous two years' operation. Petitioner's application contained an unaudited financial statement for the part of the year that it had been operation. Incorporated in 1994, Petitioner had been receiving patients only since September or October 1994. Petitioner's agent contacted a representative of Respondent and discussed the omissions letter. A misunderstanding ensued in which Petitioner's agent thought that Respondent's representative said that Petitioner would not be required to submit an audited financial statement because Petitioner had not been in operation for a full fiscal year. In fact, Respondent's representative did not say that. Respondent's policy is to permit applicants to file audited financial statements for a partial year, if that is how long they have been in business. For example, Intervenor included with its application an audited financial statement covering the six-week period that it had been in existence. In this case, it would have been possible for Petitioner to obtain an audited financial statement for a period of time including at least its first month of operation.
Recommendation It is hereby RECOMMENDED that the Agency for Health Care Administration enter a final order dismissing Petitioner's challenge to the administrative withdrawal of the subject application for a certificate of need. ENTERED on April 24, 1995, in Tallahassee, Florida. ROBERT E. MEALE 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 on April 24, 1995. APPENDIX Rulings on Petitioner's Proposed Findings 1-6: rejected as subordinate. 7-8: rejected as unsupported by the appropriate weight of the evidence. 9: adopted or adopted in substance. 10-11: rejected as not finding of fact. 12-14: rejected as recitation of evidence. 15: rejected as unsupported by the appropriate weight of the evidence. Rulings on Proposed Findings of Respondent and Intervenor All are adopted or adopted in substance. COPIES FURNISHED: Harold D. Lewis, General Counsel Agency for Health Care Administration The Atrium, Suite 301 325 John Knox Road Tallahassee, FL 32303 Sam Power, Agency Clerk Agency for Health Care Administration The Atrium, Suite 301 325 John Knox Road Tallahassee, FL 32303 Attorney Robert E. Senton P.O. Box 963 Tallahassee, FL 32302 Richard A. Patterson Assistant General Counsel Agency for Health Care Administration 325 John Knox Road Suite 301--The Atrium Tallahassee, FL 32303 Attorney Alfred W. Clark 117 South Gadsden Street Suite 201 Tallahassee, FL 32301
The Issue Whether respondent violated Section 112.3142(2)(b), Florida Statutes, with regard to her 1996 financial disclosure obligations, and, if so, what penalty is appropriate.
Findings Of Fact Respondent, Eileen McGuire, is now and at all times material to this proceeding has been a member of the Town Council of the Town of Welaka, Florida. As a public official, Respondent is subject to the applicable requirements of Chapter 112, Florida Statutes. Respondent was first appointed to the Welaka Town Council (Town Council) on October 24, 1995. Subsequently, she was elected to the Town Council in March 1996, and was re-elected in 1998. As an elected public official, Respondent was required to file an annual CE Form 1, Statement of Financial Interests (Statement of Financial Interests), for the year 1996 with the Supervisor of Elections Office of Putnam County, Florida (Putnam County Supervisor of Elections or Supervisor of Elections). The 1996 Statement of Financial Interests was required to be filed by July 1, 1997. On June 23, 1997, Respondent submitted her 1996 Statement of Financial Interests with the Putnam County Supervisor of Elections. However, Respondent failed to sign and date the 1996 Statement of Financial Interests she submitted to the Supervisor of Elections. Respondent's failure to sign and date her 1996 Statement of Financial Interests was inadvertent and unintentional. All the official records of the Putnam County Supervisor of Elections reflect that Respondent's 1996 Statement of Financial Interests was submitted to that office on June 23, 1997. Moreover, on that same day, Respondent's 1996 Statement of Financial Interests was accepted, received, stamped, and deemed filed by the Supervisor of Elections. The Putnam County Supervisor of Elections, deemed Respondent's 1996 Statement of Financial Interests filed on June 23, 1997, notwithstanding the fact that the form was not signed or dated. Respondent was not given any written notice of any alleged defect in or failure to properly file her 1996 Statement of Financial Interests either by the Putnam County Supervisor of Elections or any other government officer or agency. In October 1997, Respondent received a telephone call from an employee of the Putnam County Supervisor of Elections who advised that she needed to sign some documents that she had previously filed. Soon after Respondent received the aforementioned telephone call from the Supervisor of Elections Office, she went to that office and signed the document which was presented to her for her signature. The form that Respondent mistakenly signed was the CE Form 10, Annual Disclosure of Gifts From Governmental Entities and Direct Support Organizations and Honorarium Event Related Expenses (CE Form 10), which was attached to the Form 1 when it was presented for signature. Notwithstanding the voluntary mutual effort of the parties to correct the oversight relative to Respondent's failure to sign her 1996 Statement of Financial Interests, the original form was thereafter filed away unnoticed until the advent of this proceeding.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is hereby: RECOMMENDED that the Florida Commission on Ethics determine that the public interest would not be served by proceeding further against Respondent, and dismiss the complaint. DONE AND ENTERED this 20th day of January, 2000, in Tallahassee, Leon County, Florida. CAROLYN S. HOLIFIELD Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 20th day of January, 2000. COPIES FURNISHED: Virlindia Doss, Esquire Office of the Attorney General The Capitol, Plaza Level 01 Tallahassee, Florida 32399-1050 Allen C.D. Scott, II, Esquire Scott & Scott 101 Orange Street St. Augustine, Florida 32084 Sheri L. Gerety, Complaint Coordinator Florida Commission on Ethics 2822 Remington Green Circle, Suite 101 Post Office Drawer 15709 Tallahassee, Florida 32317-5709 Phil Claypool, General Counsel Florida Commission on Ethics 2822 Remington Green Circle, Suite 101 Post Office Drawer 15709 Tallahassee, Florida 32317-5709
The Issue Whether Respondents violated the statutes and rules alleged in the Second Amended Administrative Complaint; and, if so, what is the appropriate penalty to be imposed against Respondents.
Findings Of Fact OFR is the state agency charged with administering and enforcing chapter 560, Florida Statutes, including part II related to money services businesses. At all times material hereto, Payservices has been a foreign corporation and part II licensee pursuant to chapter 560, specifically a "money services business," as defined in section 560.102(22), and "money transmitter," as defined in section 560.102(23).4/ At all times material hereto, Mr. Danenberg has been the chief executive officer, compliance officer, and an owner of Payservices. As such, Mr. Danenberg is an "affiliated party" and a "responsible person" as defined in sections 560.103(1) and 560.103(33). Count I Licensees, such as Payservices, are required to annually file a financial audit report within 120 days after the end of the licensee's fiscal year. The financial audit report is prepared by a certified public accountant and is used to demonstrate to OFR that the licensee has the financial health to conduct its business and transmit funds within the State of Florida. Payservices' fiscal year ends December 31st. Respondents were required to provide Payservices' 2016 financial audit report to OFR by no later than May 1, 2017. On December 20, 2017, William C. Morin, Jr., OFR's Chief of the Bureau of Registration, contacted Payservices by email with regard to Payservices' failure to timely file a financial audit report within 120 days after the 2016 fiscal year ended. Mr. Danenberg responded by email that same day, telling Mr. Morin that Payservices' accountant had prepared a financial audit report "many months ago," and that it was his "impression" that it had been uploaded to the REAL system "at some point when we filed the quarterly reports." Mr. Danenberg attached to his December 20, 2017, email what OFR accepted as the financial audit report that same day. Notably, the document indicated it was prepared by a certified public accountant on June 15, 2017, after the May 1, 2017, deadline. In any event, Mr. Morin reviewed the REAL system regarding Payservices and determined there were no problems with the REAL system's ability to accept uploaded documents. Mr. Morin testified that he could see on the REAL system that Payservices successfully uploaded a quarterly report and Security Device Calculation Form on January 26, 2017, which created a transaction number. Mr. Morin also observed that Payservices started to upload its financial audit report, which would create a transaction number, but no financial audit report was actually attached and uploaded to the REAL system on January 26, 2017, under that transaction number. According to Mr. Morin, Payservices may have attempted to start to file a financial audit report on January 26, 2017, but it did not complete the transaction because no financial audit report was attached. At hearing, Mr. Morin acknowledged that: "When I looked at the Financial Audit Report transaction, nothing was attached. And I also know that the functionality of the REAL system will kind of allow for the transaction to be completed and nothing attached." Tr. p. 100. Mr. Morin testified that Mr. Danenberg was cooperative when he was contacted on Decemeber 20, 2017, and submitted the financial audit report. The persuasive and credible evidence adduced at hearing clearly and convincingly establishes that Respondents did not submit their financial audit report to OFR until December 20, 2017, almost eight months after the May 1, 2017, deadline. Count II Licensees, such as Payservices, are required to annually file Form OFR-560-07, Security Device Calculation Form, by January 31st of each calendar year for the preceding calendar year. The Security Device Calculation Form requires licensees to report to OFR the dollar amount of transactions with Florida consumers. The dollar amount of transactions identified in the form is then utilized by OFR to determine if additional collateral is necessary to protect Florida consumers in the event a claim is made against the collateral for monies that were not properly transmitted by the licensee. Andrew Grosmaire, OFR's Chief of Enforcement in the Division of Consumer Finance, acknowledged at hearing that a licensee has 60 days to amend the face value of its surety bond, should an increase be required, and that at all times material hereto, the value of Payservices' surety bond has been correct for the minimum amount required. Nevertheless, Mr. Morin testified that Respondents did not file Form OFR-560-07, Security Device Calculation Form, until February 10, 2018, ten days late. The persuasive and credible evidence adduced at hearing clearly and convincingly establishes that Respondents did not file Form OFR-560-07, Security Device Calculation Form, until February 10, 2018, ten days late. Count III Licensees, such as Payservices, are required to update information contained in an initial application form, or any amendment to such application, within 30 days after the change is effective. In Payservices' initial application dated September 25, 2015, Respondents identified Corporate Access, Inc., as its registered agent with an address for service of process at 236 East 6th Avenue, Tallahassee, Florida 32303. According to the Department of State, Division of Corporation's records, on January 10, 2017, Mr. Danenberg was appointed as Payservices' registered agent with a new address for service of process at 300 West Palmetto Park Road, A210, Boca Raton, Florida 33432. Respondents filed an amended license application with OFR on August 28, 2017, which still listed Corporate Access, Inc., as the registered agent for service of process. On February 26, 2018, Respondents amended their registered agent information with the Department of State listing a new address for Mr. Danenberg at 14061 Pacific Pointe Place, No. 204, Delray Beach, Florida 33484. Mr. Morin testified that at no time have Respondents updated their initial application with OFR to reflect Mr. Danenberg as the registered agent for Payservices and his address as the registered agent.5/ Mr. Morin and Mr. Grosmaire testified that the reason a licensee needs to update a change in the registered agent's name and address is so that OFR may effectuate service of process against the licensee. Yet, Mr. Grosmaire acknowledged that OFR has access to the Division of Corporation's records. Nevertheless, the persuasive and credible evidence adduced at hearing clearly and convincingly establishes that Respondents did not update their initial application with OFR to reflect Mr. Danenberg as the registered agent for Payservices and his address as the registered agent.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that OFR impose an administrative fine against Respondents in the amount of $6,000. DONE AND ENTERED this 16th day of December, 2019, in Tallahassee, Leon County, Florida. S DARREN A. SCHWARTZ 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 16th day of December, 2019.
The Issue The issue is whether the Department of Corrections' decision to select Intervenor as construction manager on Project No. VO- 04-CM was clearly erroneous, contrary to competition, arbitrary, or capricious, as alleged by Petitioner.
Findings Of Fact Based upon all of the evidence, the following findings of fact are determined: Background In September 1998, Respondent, Department of Corrections (Department), issued a Request for Qualifications and Evaluations Procedures (RFQ) to select a construction manager for Project No. VO-04-CM, which involved an $18 million expansion and renovation of the Florida Correctional Institution in Lowell, Florida. The RFQ was directed to qualified minority construction firms as a "minority set aside." The successful firm would serve as a general contractor for the job, guarantee the price, and assume responsibility for any cost overruns on the project. All firms were to submit their qualifications with the Department by 4:00 p.m., October 20, 1998. After a pre-proposal meeting held on October 6, 1998, but prior to October 15, 1998, Addendum No. 1 to the RFQ was issued and clarified that all proposals must be filed by October 15, rather than October 20, that each firm have a bonding capacity of $6,000,000.00 for each of the three phases of the project, and that each firm must submit its bonding and insurance costs. The RFQ required that each firm file a letter of interest detailing the firm's qualifications to meet the selection criteria; an experience questionnaire and contractor's financial statement; resumes of proposed staff and staff organizations; examples of project reporting manuals, schedules, past experience, and examples of similar projects completed by the firm; references from past clients; and a reproduction of the firm's current state contractor's license, corporation charter, and Minority Business Enterprise (MBE) certification. Under the selection process established by the Department pursuant to Rule 60D-5.0082, Florida Administrative Code, a five-member selection committee, including four from the Division of Design and Construction, would "review all properly submitted proposals, and determine the three (3) firms with the highest score using the selection criteria established for the project." These criteria included experience, financial, schedule and cost control, office staff, site staff, information system, and location. The highest ranked firm would then be selected to negotiate a contract for the services. On October 15, 1998, applications were filed by five construction firms: Petitioner, Rattler Construction Contractors, Inc. (Rattler or Petitioner); Intervenor, A. D. Morgan Corporation (Intervenor); Linda Newman Construction Company, Inc. (Newman); Ajax Construction Company, Inc. (Ajax); and Freeman and Freeman Construction Company (Freeman). After an evaluation was conducted by the selection team, the applicants were assigned the following scores: Intervenor (85.6), Newman (75.2), Petitioner (66.2), and Freeman (20.8). Ajax was disqualified as being non- responsive on the ground it was not certified as a MBE. At a later point in the process, Freeman was disqualified for the same reason. Accordingly, as the highest ranked applicant, Intervenor was determined to be the most qualified firm, and the Department issued a letter on November 20, 1998, advising all contractors of its decision. Claiming that its submission was the only "compliant and responsive bid received" by the Department, Petitioner filed its protest on December 2, 1998. In its Formal Written Protest filed on December 14, 1998, as later amended on January 19, 1999, and then narrowed by the parties' prehearing statement, Petitioner contended that Intervenor had failed to comply with two material requirements: that it file audited financial statements and a current MBE certification. It further alleged that the second ranked applicant, Newman, had also failed to submit audited financial statements. Finally, it claimed that one of the members on the selection team was biased against Rattler. Because of the foregoing irregularities, Petitioner asserts that the Department's actions were "clearly erroneous, arbitrary, capricious, and illegal" in proposing to select Intervenor as its construction manager. As relief, Petitioner asks that Intervenor and Newman be disqualified as non-responsive, and because Rattler filed the "only complete and responsive bid," that the Department select Petitioner as its construction manager. Each of the alleged irregularities will be discussed below. Did the Department Err in Awarding Intervenor the Contract? Audited Financial Statements The RFQ, as amended, required that each minority contractor file, no later than October 15, 1998, an application and a "Contractor's Financial Statement as referenced in Chapter 60D-05 [sic], Florida Administrative Code." More specific instructions as to this latter requirement were found on page 5 of 21 of the Request for Qualification and Experience Questionnaire, which accompanied the RFQ. That document contained general and specific instructions. There, each applicant was directed to file a Financial Statement, which was described as follows: Financial Statement. This statement will be an audited report with comments, and not older than one (1) year. If the most current report has not yet been audited, the previous audited report with comment shall accompany the most recent financial statement. The RFQ described the foregoing requirement as one of the "REQUIRED SUBMITTALS." In response to this provision, an employee of Intervenor retyped its audited financial statements to conform with the format contained in the RFQ. In doing so, rather than copying the entire set of statements, she inadvertently copied only three pages, including a cover sheet. The first page was entitled "The A.D. Morgan Corporation Financial Statements, December 31, 1997 and 1996," and it reflected that the statements were prepared by Valiente, Hernandez & Co., P.A. (Valiente), a certified public accounting (CPA) firm. Testimony at hearing established that Valiente had in fact prepared audited financial statements for Intervenor for those two years. Attached to the cover sheet were Balance Sheets for the years ending December 31, 1996 and December 31, 1997. Absent, however, were the opinion letter by the CPA firm, notes to financial statements, income statement, and statement of cash flow. All of these items normally accompany audited financial statements. Even though Intervenor had audited financial statements prepared by a CPA firm, and the three pages submitted with its proposal were drawn from those statements, it is undisputed that the incomplete statements submitted by Intervenor were not "audited financial statements" as that term is commonly understood by accounting professionals. In the case of Newman, it submitted financial statements that had been reviewed, but not audited, by a CPA firm. In a review, there is no testing; no observation of inventory; no requirement for independent verification of cash balances or investment balances; no requirement for an attorney's letter; and no requirement that the accountants review the corporate minutes and other matters. In short, reviewed financial statements are not audited financial statements as that term is defined by accounting professionals. The Department did not view this requirement as being a material requirement, and thus it determined that Intervenor's and Newman's failure to file audited financial statements was a minor irregularity. This is because the Department measures the financial capability of a firm by looking collectively at its financial statements, bonding capacity, insurance costs, bonding costs, account receivables, and assets and liabilities. In other words, the Department wants sufficient information to verify that a contractor has the financial ability to undertake and complete the job. In making the above verification, the Department viewed a contractor's ability to secure a bond as one of the most important indicators of financial stability since bonding companies typically make a thorough analysis of a firm's financial capability before issuing a bond on a particular project. This was consistent with the instructions in paragraph B on page 6 of 21 of the RFQ, which stated that, in addition to the financial statement, the "financial capability" of a firm "should also include the bonding capacity of the firm." In the case of Intervenor, it was able to secure a bond capacity in excess of $20 million for single projects and in excess of $40 million for aggregate projects. When viewing all of the financial indicators submitted by Intervenor, the selection team was satisfied that Intervenor clearly had the necessary resources, working capital, and financial stability to perform the project. The Department has not strictly enforced the requirement that audited financial statements be filed with a proposal, and there is no record evidence that a vendor has ever been disqualified on this ground. Even so, the filing of audited financial statements is a "required submittal" by the RFQ's own terms, and the failure to do so renders Intervenor's and Newman's submissions as non-responsive. MBE Certification Intervenor has been a certified MBE since 1991. In its proposal, Intervenor submitted a copy of its MBE certification for the year ending September 24, 1998. To independently verify this representation, a member of the selection committee then contacted the Minority Business Advocacy and Assistance Office (MBAAO) of the Department of Labor and Employment Security, which issues certifications, to confirm that Intervenor was certified on a current basis. In response to that inquiry, the member received a list of all current MBE certified contractors. Intervenor was on that list. Petitioner points out, however, that the certification submitted with Intervenor's proposal expired on September 24, 1998, or before the application was filed, and thus the Department waived a material requirement. Relevant to this contention are the following facts. On September 11, 1998, or before its current certification had expired, Intervenor filed an affidavit for recertification with the MBAAO. Because of "computer glitches" and six office moves "in a very short time period," the MBAAO was unable to process all recertification applications before the date on which some certifications expired. However, it considered all businesses as being certified until a decision was made on all pending recertification applications. In Intervenor's case, the MBAAO granted its application for recertification on November 6, 1998, and issued Intervenor a new certification for the one-year period from September 24, 1998, to September 24, 1999. Given the foregoing circumstances, it is found that Intervenor had a current MBE certification when it filed its application, and the Department did not waive a material requirement in accepting Intervenor's certification which reflected an expiration date of September 24, 1998. Bias by a Selection Team Member James R. Ervin, a Department architect, was a member of the selection team. Ervin had served as project administrator on an earlier Department project in Wakulla County on which George Register, III, and his father, George Register, Jr., were involved. Because of two complaints filed against him by the younger Register, Ervin was taken off the Wakulla County project while the Department's Inspector-General conducted an investigation. George Register, III, is listed on Petitioner's application as one of its consulting engineers. Ervin discovered this mid-way through the evaluation process, and he initially considered recusing himself from the team. After mulling over the matter, he decided that he could fairly evaluate Petitioner's proposal. Contrary to Petitioner's assertion, there is no credible evidence that Ervin was biased against Petitioner during the evaluation process, or that he gave higher scores to Intervenor and Newman because of Register's complaints. Indeed, his scores were comparable to those of the other four evaluators. Even if Ervin's scores were discarded, the scores of the other four evaluators would still result in the same order of ranking. Therefore, the evidence does not support a finding that Ervin's participation on the selection committee was improper, as alleged in the Amended Formal Written Protest. The remaining allegation that certain members of the selection committee exhibited favoritism towards Intervenor and Newman, and bias against Petitioner, is without merit and has been rejected. Defects in Petitioner's Proposal Addendum No. 1 to the RFQ added Items 62 and 63, which required that each contractor provide its bonding and insurance costs. This "important information" was added to Addendum No. 1 at the specific request of the Department of Management Services (DMS), from whom many of the RFQ's provisions were drawn. As noted earlier, these items are two of the six items that the Department considers in determining the overall financial capability of a firm. In the Department's view, they are no less significant than the other items, including the financial statements. Intervenor's proposal included these costs. Petitioner, however, did not provide such costs in its proposal. In fact, Petitioner's representative was not aware of this requirement until after his proposal had been filed. Like the audited financial statements, the Department considered the failure to file this information to be a minor irregularity, and it waived Rattler's and Newman's omission. Because the Department considers these items to be as equally important as audited financial statements, and because they were so significant that the DMS specifically requested that they be placed in the RFQ, the items are found to be material, and a failure to file such information renders Petitioner's and Newman's proposals as non-responsive.
Recommendation Based on the foregoing findings of fact and conclusions of law, it is RECOMMENDED that the Department of Corrections enter a final order withdrawing its proposed action, rejecting all proposals as being non-responsive, and advising that it will solicit new proposals for Project No. VO-04-CM. DONE AND ENTERED this 4th day of March, 1999, in Tallahassee, Leon County, Florida. DONALD R. ALEXANDER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 4th day of March, 1999. COPIES FURNISHED: Michael W. Moore, Secretary Department of Corrections 2601 Blair Stone Road Tallahassee, Florida 32399-2500 H. Richard Bisbee, Esquire Theresa M. Bender, Esquire Post Office Box 11068 Tallahassee, Florida 32302-3068 Scott E. Clodfelter, Esquire Obed Dorceus, Esquire Department of Corrections 2601 Blair Stone Road Tallahassee, Florida 32399-2500 Mark K. Logan, Esquire 403 East Park Avenue Tallahassee, Florida 32301 Louis A. Vargas, General Counsel Department of Corrections 2601 Blair Stone Road Tallahassee, Florida 32399-2500
The Issue Whether the Respondent, the Health Care Cost Containment Board, should waive the requirement that Golden Glades Regional Medical Center file its audited actual experience or was the Respondent correct in declining to review the Petitioner's fiscal year 1990 proposed budget?
Findings Of Fact On or about September 26, 1989, the Petitioner filed its proposed budget for its fiscal year beginning January 1, 1990, and ending December 31, 1990, with the Respondent. The Petitioner's proposed 1990 budget was submitted pursuant to Section 407.50(3), Florida Statutes. The Respondent determined that the Petitioner's proposed 1990 budget should not be approved. The Respondent proposed in its preliminary findings and recommendations to hold the Petitioner to its 1988 budget levels of gross revenue per adjusted admission of $8,532.00 and net revenue per adjusted admission of $5,835.00. About the same time that the Petitioner filed its proposed 1990 budget, the Petitioner filed unaudited financial statements for its fiscal year ending December 31, 1988, with the Respondent. The financial statements were not accompanied by an audit opinion letter from the Petitioner's certified public accountants. Therefore, the statements did not constitute "audited actual experience" or "audited actual data". The Respondent rejected the Petitioner's proposed 1990 budget because of the Petitioner's failure to file audited actual experience. Hospitals subject to Chapter 407, Florida Statutes, are required to file audited actual experience which is used by the Respondent in reviewing hospital budgets. In February or March, 1989, the Petitioner retained an independent, Florida licensed certified public accountant (hereinafter referred to as the "Auditors"), to prepare audited financial statements for its 1988 fiscal year. The Auditors completed all the field work they could complete in April or May, 1989. An audit opinion letter must be included with an audit report pursuant to generally accepted auditing standards. The Auditors have delayed issuing an audit opinion letter for the Petitioner's 1988 fiscal year, which is required in order to issue audited financial statements. Audit opinion letters typically contain a description of the scope of the work performed by the auditors, a description of the audit process and an opinion concerning whether the financial statements are fairly stated in all material respects in accordance with generally accepted accounting principles. The Auditors have been requested by the Petitioner to withhold issuance of their final audit report for the Petitioner's 1988 fiscal year. As of the date of the formal hearing of this case, the Auditors had not issued an audit opinion letter, and thus an audit report, because they needed to be provided by the Petitioner with information concerning the restructuring of the Petitioner's debt, updated legal letters from the Petitioner's attorneys and a management representation letter from the Petitioner. The Petitioner's source of working capital for its daily operations has been a line of credit with First American Bank. The line of credit expired during 1989. A new source of working capital has not been arranged by the Petitioner. Therefore, the Auditors could not issue an audit opinion letter concluding that the Petitioner is viable as a "going concern." Unless the Petitioner can restructure its debt or find another source of debt-financing, increase its equity capital or achieve profitable operations, the Auditors will not be able to opine that the Petitioner is a going concern. This problem has been in existence almost since the inception of the Petitioner's ownership of the hospital. The Petitioner has requested three extensions of time to file its proposed 1990 budget. It did not inform the Respondent of the debt restructuring problem in any of the extension requests. Without resolving the debt restructuring problem of the Petitioner, the Auditors cannot determine what effect a renegotiation of the Petitioner's debt may have on the Petitioner's financial statements for its 1988 fiscal year. There will be uncertainty concerning the 1988 fiscal year financial statements of the Petitioner until the Auditors issue their final audit report. If the Auditors issued an opinion letter as of the date of the formal hearing, they would have to issue a "disclaimer" letter. In issuing a disclaimer, an auditor declines to render an opinion concerning the financial statements. To avoid a disclaimer opinion letter, the Petitioner requested that the Auditors not issue their final audit report. Whether the Petitioner is a going concern does not impact on the calculation of its operational revenues and expenses as represented in the Petitioner's unaudited 1988 fiscal year financial statements. If the Petitioner is not considered a going concern the Petitioner would be considered on a liquidation basis for purposes of its financial statements. Therefore, the question of whether the Petitioner is a going concern does impact the manner in which its assets would be valued and the determination of the Petitioner's liabilities. A management representation letter, which the Auditors also need to complete their audit of the Petitioner, is a letter from the management of a business, such as a hospital, representing that management has made available all of the books and records of the hospital, that management understands generally accepted accounting principles and the financial statements of the hospital have been prepared in accordance with such principles, that all liabilities have been accrued and that proper disclosures have been made in the financial statements. A management representation letter is required by the American Institute of Certified Public Accountants before an audit opinion letter may be issued. A management representation letter should provide assurances to the auditors that management has made available all financial records and related data, and minutes of the meetings of the stockholders and directors, if a corporation, and that there are no irregularities involving management employees that could have a significant effect on the financial statements. Without a management representation letter there are no assurances that a hospital such as the Petitioner's has engaged in related-party transactions or, if so, the nature and impact on expenses of such transactions. In addition to submitting unaudited financial statements to the Respondent, the Petitioner provided the Respondent with a "comfort letter" from the Petitioner's Auditors. The Respondent needs audited actual experience in order for it to perform a full budget review of a hospital's proposed budget submitted pursuant to Section 407.50(3), Florida Statutes. The financial data contained in the audited actual reports of a hospital is used in the methodologies and formulas utilized by the Respondent in its budget review. The purpose of conducting a budget review is to determine the recommended levels of charges that a hospital may impose upon its patients in the budget year. Audited actual experience provides the starting point for determining whether a hospital's proposed budget is reasonable. A comfort letter merely indicating that the information on the financial statements should not change is not sufficient to provide the reliability the Respondent should demand of a hospital's financial statements. The Respondent's budget review includes an analysis of a hospital's ability to earn a reasonable rate of return. This analysis requires reliance upon the financial data contained in the hospital's balance sheet and income statement. The data must be reliable. Accuracy of the data can only be assured if it is part of an auditor's final report. As part of the audited actual experience of a hospital such as the Petitioner's hospital, it is reasonable for the Respondent to require that an audit opinion letter be provided. Without an audit opinion letter the Respondent cannot determine whether there are any disclaimers, qualifying statements or notes about subsequent events of the hospital. The Respondent does not have the resources necessary to perform its own audit of hospitals. Therefore, it is reasonable for it to require that hospital's provide audited actual experience to the Respondent. The rules of the Respondent allow it to waive the requirement that a hospital file audited financial statements. Rule 10N-1.006, Florida Administrative Code. The Respondent grants waivers pursuant to Rule 10N-1.006, Florida Administrative Code, if it is "impossible" for a hospital to file audited financial statements. The Petitioner did not file a request for such a waiver. The evidence failed to prove that the Respondent was prejudiced by the Petitioner's failure to file a request for a waiver. The Petitioner has failed to prove that the information necessary for it to file audited financial statements for its 1988 fiscal year was "not available at the time nor can be reasonably developed by the hospital " Unaudited financial statements may be relied upon for some purposes. The Respondent relies upon unaudited data for some purposes. But not for full budget review purposes. The weight of the evidence failed to prove that it is unreasonable for the Respondent to refuse to rely upon the Petitioner's 1988 fiscal year unaudited financial statements to complete the budget review the Respondent is required to conduct for 1990.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Respondent issue a Final Order dismissing the Petitioner's Petition for Administrative Hearing. DONE and ENTERED this 31st day of May, 1990, in Tallahassee, Florida. LARRY J. SARTIN 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 31st day of May, 1990. APPENDIX TO RECOMMENDED ORDER The parties have submitted proposed findings of fact. It has been noted below which proposed findings of fact have been generally accepted and the paragraph number(s) in the Recommended Order where they have been accepted, if any. Those proposed findings of fact which have been rejected and the reason for their rejection have also been noted. The Petitioner's Proposed Findings of Fact Proposed Finding Paragraph Number in Recommended Order of Fact Number of Acceptance or Reason for Rejection 1 1-7 and hereby accepted. The last two sentences of proposed finding of fact 6 is not supported by the weight of the evidence. 8 2. 9 1-2. 10 3 and 10. See 29. Not relevant. Hereby accepted. The proposed finding of fact that the data on the financial statements "will not change" and the last sentence are not supported by the weight of the evidence. 11-14. The last sentence is not relevant. See 26. 16 See 27-28. The Respondent's Proposed Findings of Fact Proposed Finding Paragraph Number in Recommended Order of Fact Number of Acceptance or Reason for Rejection 1 1. 2 2. 3 4. Hereby accepted. 2 and 4. 6 6. 7 6-7 and 9. 8 8. 9 9-11. 10 12. 11-12 15. 13 12. 14 21. 15 3, 22 and 29. 16 21-22. 17 22-23. 18 16-19. 19 25. 20 Not relevant. The Intervenor's Proposed Findings of Fact Proposed Finding Paragraph Number in Recommended Order of Fact Number of Acceptance or Reason for Rejection 1 1. 2 3. 3 2. 4-8 Hereby accepted. 9-11 10. 12 16. 13 18. 14 16-19. 15 11-12. 16 11 and 13. 17 10, 14-15 and hereby accepted. 18 15. 19 Hereby accepted. 20 11. 21 14. 22 Hereby accepted. 23-26 8 27 20 and 22. 28 Hereby accepted. 29 9 and 14. 30 Hereby accepted. 31 8. 32 Not supported by the weight of the evidence. 33 21 and 24. 34 13. 35 12. 36 9. 37 12. 38 13. 39 29. 40 Hereby accepted. 41 26-27. 42 Hereby accepted. 43 9. 44 8 and hereby accepted. 45 21. 46 23. 47 24. 48 25. 49 22. 50 23 and hereby accepted. COPIES FURNISHED: James M. Barclay, Esquire Suite 500 315 South Calhoun Street Tallahassee, Florida 32301 Robert D. Newell, Jr., Esquire 817 North Gadsden Street Tallahassee, Florida 32303-6313 Jack Shreve Public Counsel David R. Terry Associate Public Counsel Peter Schwarz Associate Public Counsel c/o The Florida Legislature 812 Claude Pepper Building 111 West Madison Street Tallahassee, Florida 32399-1400 Stephen Presnell, General Counsel Health Care Cost Containment Board Woodcrest Office Park 325 John Knox Road Building L, Suite 101 Tallahassee, Florida 32303
The Issue Whether petitioner should take disciplinary action against respondent for the reasons alleged in the administrative complaint?
Findings Of Fact Respondent Marc M. Harris holds a license to practice certified public accounting in Florida, No. AC 16869. Respondent compiled, permitted his name to be associated with, and issued a balance sheet or statement of financial position, including notes, for MMH Equity Fund, Inc., purporting to represent the company's position as of March 31, 1988. Petitioner's Exhibit No. 1; Petitioner's Request for Admissions Nos. 4, 5 and 6. The body of respondent's letter accompanying the balance sheet or statement of financial position reads: We have compiled the accompanying balance sheet of MMH Equity Fund, Inc., as of March 31, 1988, except as noted in the last paragraph, in accordance with the standards established by the American Institute of Certified Public Accountants. A compilation is limited to presenting in the form of financial statements information that is the representation of the individual. We have not audited or reviewed the accompanying financial statements and, accordingly, do not express an opinion or any form of assurance on them. MMH Equity Fund, Inc., has elected to use the equity method to report its holdings in majority-owned subsidiaries. If the consolidated disclosures were included in the financial statements, they might influence the user's conclusions about the Fund's financial position. Accordingly, these financial statements are not intended for those who are not informed about such matters. Petitioner's Exhibit No. 1 (Emphasis supplied.) Dated April 15, 1988, the letter evinces an intention to qualify the balance sheet or statement of financial position. But the balance sheet or statement of financial position does not contain a reference to the accountant's report or to the notes. Petitioner's Request for Admissions Nos. 32 and 33; Petitioner's Exhibit No. 1; T. 26. While the letter refers to a "balance sheet," the document itself is styled a statement of financial position. Statements on Standards for Accounting and Review Services (SSARS), which have been adopted by Florida's Board of Accountancy, require that the balance sheet contain a reference to the accountant's report and notes to the financial statement, if any. Petitioner's Request for Admission No. 34; T. 26- This is particularly important when the report contains significant qualifications. Lack of Independence Undisclosed Respondent Harris was an officer and/or a director of MMH Equity Fund, Inc. Petitioner's Request for Admission No. 41. A company's officer or director is not independent of the company. In evaluating financial assets, liabilities and equity or net worth, certified public accountants offer three levels of service: audit, review and compilation. Certified public accountants are forbidden to undertake audits or reviews for entities with respect to which they are not independent. In contrast, nothing prohibits a certified public accountant's performing a compilation, despite a lack of independence. But the lack of independence must be disclosed: If the accountant is not independent, he should specifically disclose the lack of independence . . . When the accountant is not independent, he should include the following as the last paragraph of his report: I am . . . not independent with respect to XYZ Company. Statements on Standards for Accounting and Review Services, (SSARS) Section 100.22 (Jan. 1, 1987). The respondent's lack of independence was not disclosed in the accountant's report, on the statement of financial position, or in the notes. Petitioner's Exhibit No. 1; Petitioner's Request for Admission No. 42; T. 30, 31. Accepted Principles Disregarded A provision in SSARS 1 requires the accountant "to read the financial statements and make certain that there are no obvious deviations from generally accepted accounting principles." T. 29. This requirement applies specifically to compilations, to prevent disregard for generally accepted accounting principles. Petitioner's Exhibit No. 7; T. 29. Respondent did not adhere to applicable generally accepted accounting principles or exercise due professional care in compiling and issuing the March 31, 1988, statement of financial position for MMH Equity Fund, Inc. Assets should equal equity plus liabilities. T. 11. On the compiled balance sheet or statement of financial position, total liabilities and stockholders' equity do not add up to the amount stated as total assets. The document reflects a discrepancy of $100,000. Petitioner's Exhibit No. 1; T. 11. The balance sheet or statement of financial position puts total assets at $13,171,000 but, as stated individually, they add to $13,216,000. Petitioner's Exhibit No. 1; Petitioner's Request for Admissions Nos. 9 and 10. The balance sheet or statement of financial position shows investment in operating affiliates in the amount of $6,234,000. But there is no further disclosure as to who or how many those affiliates are; as to how much of the $6,234,000 is invested in any one entity; or as to what percentage of ownership MMH Equity Fund, Inc. has in any one entity. Petitioner's Exhibit No. 1; T. 18. With respect to investments accounted for by the equity method, Accounting Principles Board Statement No. 18 requires that the name of each investee and the percentage of the investor's ownership of common stock, if significant, be disclosed in the notes. Petitioner's Request for Admissions No. 25; Petitioner's Exhibit No. 4; T. 17-20. If the certificates of deposit were held by related parties, they should have been disclosed in the notes. T. 22. Financial Accounting Standards Board Statement No. 57 requires that the name and amount or amounts due to or from related parties be disclosed. Petitioner's Exhibit No. 5; T. 23. The notes do not disclose the balances of major classes of depreciable assets by nature or function. Petitioner's Requests for Admissions Nos. 15 and 16; Petitioner's Exhibit No. 1; T. 15. Accounting Principles Board Statement No. 12 requires that depreciable assets be broken down by class together with the accumulated depreciation thereon. T. 16; Petitioner's Exhibit No. 3. Neither the gross amount of assets in the balance sheet nor the accumulated amortization for the assets recorded under capital leases is disclosed in the notes. Petitioner's Requests for Admission Nos. 26 and 27; Petitioner's Exhibit No. 1; T. 24. The notes do not disclose accumulated depreciation by class nor do the notes disclose total accumulated depreciation. Petitioner's Requests for Admissions Nos. 18 and 19; Petitioner's Exhibit No. 1; T. 15 and 16. Neither the aggregate cost nor the market value of marketable securities is disclosed on the balance sheet or statement of financial position or in the notes. Petitioner's Requests for Admissions Nos. 29 and 30; Petitioner's Exhibit No. 1; T. 25. The requirement is that both the original cost and market value be disclosed. Petitioner's Request for Admissions No. 31; T. 25. No allowance for doubtful accounts is disclosed on the balance sheet or statement of financial position or in the notes, and no explanation is offered why such an allowance might be unnecessary. Petitioner's Request for Admissions No. 21; Petitioner's Exhibit No. 1; T. 16. Accounting Principles Board Statement No. 12 requires either that allowance for doubtful accounts be made or that an explanation as to why one is not needed be included in the notes. Petitioner's Request for Admissions No. 22; Petitioner's Exhibit No. 3; T. 16, 17. Neither the March 31, 1988, compiled balance sheet or statement of financial position for MMH Equity Fund, Inc. nor the notes disclose any maturity schedule for long term notes. But these long term notes represent indebtedness of $11,000, or less than one thousandth of total assets, and the omission of a maturity schedule is immaterial.
Recommendation It is, accordingly, recommended that the Board of Accountancy reprimand respondent; and place him on probation, on condition that he not practice in Florida without supervision by another certified public acountant licensed in Florida, until he has practiced in Florida under the supervision of another certified public accountant licensed in Florida satisfactorily for a year; and completed 24 hours of continuing education in generally accepted accounting principles. RECOMMENDED this 12th day of September, 1990, in Tallahassee, Florida. ROBERT T. BENTON, II Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, FL 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 12th day of September, 1990. COPIES FURNISHED: Charles F. Tunnicliff, Esquire Tobi C. Pam, Senior Attorney Department of Professional Regulation 1940 North Monroe Street Tallahassee, FL 32399-0792 Marc M. Harris Apartado 6-1097 Estafeta El Dorado Panama, Republica de Panama Kenneth E. Easley, General Counsel Department of Professional Regulation 1940 North Monroe Street Tallahassee, FL 32399-0792 Martha Willis Executive Director Department of Professional Regulation Suite 16 4001 Northwest 43rd Street Gainesville, FL 32606 =================================================================
The Issue Whether respondent's proposed amendment to Rule 59C-1.008(5)(g), Florida Administrative Code, constitutes an invalid exercise of delegated legislative authority?
Findings Of Fact 1. The proposed amendment under challenge would repeal or delete the fourth numbered paragraph of a provision in one of the respondent's rules, entitled "Certificate of Need Application Contents," Rule 59C-1.008(5)(g), Florida Administrative Code. Respondent has succeeded the Department of Health and Rehabilitative Services as administrator of the certificate of need program. The provision now reads: (g) With respect to paragraph 408.037(3), F.S., which requires an audited financial statement of the applicant the following provisions apply: The audited financial statement of the applicant must be for the most current fiscal year. If the most recent fiscal year ended within 120 days prior to the application filing deadline and the audited financial statements are not yet available, then the prior fiscal year will be considered the most recent. Existing health care facilities must provide audited financial statements for the two most recent consecutive fiscal years in accordance with subparagraph 1. above. Only audited financial statements of the applicant will be accepted. Audited financial statements of any part of the applicant, including but not limited to subsidiaries, divisions, specific facilities or cost centers, will not qualify as an audit of the applicant. Nor shall the audited financial statements of the applicant's parent corporation qualify as an audit of the applicant. Audited financial statements that are a combination of legal entities shall not qualify as an audit of the applicant. As construed by respondent, the sentence proposed for deletion prohibits combining information from separate legal entities in financial statements used to support certificate of need applications (in any circumstances other than those in which generally accepted accounting principles dictate the use of an applicant's consolidated financial statements.) The repeal proposed by the amendment would permit the use, in appropriate circumstances, of combined, as well as of consolidated, financial statements. Testimony at hearing identified situations in which a flat prohibition against combined financial statements may inhibit fair and meaningful statements concerning an applicant's financial position, and meaningful comparison with competing applicants. In the case of a partnership subject to financial control by a corporation, generally accepted accounting principles do not permit consolidated statement of the corporation's revenues, costs, income, expenses, assets, liabilities or cash flows with the partnership's. Generally accepted accounting principles do require that a corporation exercising financial control over (an)other corporation(s) present financial information on a consolidated basis, however. The consolidation requirement prevents shifting assets or other items among parent and subsidiary corporations in a way that might mislead. Of course, separate financial statements for a corporation and a partnership over which it exercises financial control create similar possibilities for misleading shifts of assets and other items. To preclude this, generally accepted accounting principles require combined statements, in certain circumstances. Forbidding combined statements, as respondent's rules now do, creates the possibility that corporations in economically identical postures will appear otherwise depending solely on technicalities concerning the legal form in which entities they control are organized. If two corporations are competing for certificates of need, one may receive an unfair advantage, unless combined statements are permitted to put the parent of a corporate joint venturer on the same footing as the parent of a corporate subsidiary with minority stock ownership equivalent to the unaffiliated partners' share in the joint venture. A joint venture might itself be an applicant for a certificate of need. In that event, according to petitioners' expert, combined financial statements would be appropriate, in support of the application. Deleting the language proposed for repeal by the amendment under challenge would have no bearing on "combined financial statements" in the sense of a combination of governmental funds required by law to be maintained in separate accounts, although belonging to a single governmental entity, since the provision at issue concerns only "a combination of legal entities." For the same reason, a combination of one legal entity's assets, liabilities, revenues, costs or the like with only selected assets, liabilities, revenues, costs or the like of another entity would not be condoned by the proposed amendment. As the notice published in the Florida Administrative Weekly and Rule 59C-1.002(5), Florida Administrative Code, make clear, the proposed amendment is not a retreat from respondent's insistence on audited financial statements, prepared in accordance with generally accepted accounting principles. Respondent does not propose to repeal the fundamental requirement that "[o]nly audited financial statements of the applicant will be accepted." Rule 59C-1.008(5)(g) 3., Florida Administrative Code. (Emphasis supplied.) The proposed amendment cannot be construed to countenance combining an applicant's assets or revenues with the assets or revenues of an unrelated entity, not legally responsible for complying with conditions that may be placed on a certificate of need.
The Issue Whether Petitioner's "change of status" application should be denied for the reasons set forth in the Notice of Intent to Deny.
Findings Of Fact Based on the evidence adduced at hearing, and the record as a whole, the following findings of fact are made: Petitioner has an undergraduate and master's degree in civil engineering from the Georgia Institute of Technology (received in 1962 and 1964, respectively) and a law degree from Emory University (received in 1980). In 1968, Petitioner went into the consulting business, and he has had his own business ever since. Since 1968, Petitioner has been licensed as a professional engineer, at one time or another, in approximately 20 different states, including Florida. He has held his Florida license since 1970. The other states in which he is currently licensed are Georgia, Alabama, New York, and Maryland. Petitioner is licensed to practice law in Georgia, but is on inactive status. Petitioner has been licensed as a real estate broker in Florida since 2001 or 2002. Petitioner has been certified as a general contractor in Florida since 1980. He was the qualifier for McKinney Drilling Company from 1980 until 1994. Since 1994, he has been the qualifier for Pressure Concrete, Inc. (Pressure), which approximately a year ago was purchased by Proshot Concrete, Inc. (Proshot). Petitioner has never received any discipline in connection with any of the professional licenses he has held over the years, including the certification allowing him to engage in general contracting in Florida; nor does he have any criminal record. Petitioner has not undertaken any construction or consulting project that has resulted in a lawsuit, judgment, or lien being filed. Petitioner has not been involved in any project where there has been a default triggering a claim against a payment or performance bond. All of the vendors and suppliers he has used on construction projects have been paid. Petitioner has never filed for bankruptcy. There are no lawsuits now pending against Petitioner. In or around September 2006, Petitioner completed and submitted an application to the Board seeking a "change of status" in his certification to enable him (as a general contractor) to qualify Proshot instead of Pressure. Petitioner used a Board-generated form, DBPR CILB 4363-Change of Status Application From One Business Entity to Another (Form), to apply for such a "change of status." The "Financial Responsibility" section of the Form contained the following questions and accompanying instructions: NOTE: If you answer "Yes" to any of the questions below, you must provide an explanation on DBPR 0060-General Explanatory Description form and attach legal documentation, i.e., satisfaction of lien, judgment, payment schedule, etc. If you have been convicted of a felony, you must submit proof of reinstatement of civil rights. The following persons must answer the financial responsibility questionnaire: Qualifying Agent All Owners/Partners Have you, or a partnership in which you were a partner, or an authorized representative, or a corporation in which you were an officer or an authorized representative ever: Undertaken construction contracts or work that a third party, such as a bonding or surety company, completed or made financial settlements? Had claims or lawsuits filed for unpaid past-due bills by your creditors as a result of construction operations? Undertaken construction contracts or work which resulted in liens, suits, or judgments being filed? (If yes, you must attach a copy of Notice of Lien and any payment agreement, satisfaction, Release of Lien or other proof of payment.) Had a lien filed against you by the U.S. Internal Revenue Service or Florida Corporate Tax Division? Made an assignment of assets in settlement of construction obligations for less than the debts outstanding? Been charged with or convicted of acting as a contractor without a license, or, if licensed as a contractor in this or any other state, been subject to any disciplinary action by a state, county, or municipality? (If yes, you must attach a copy of any state, county, municipal or out- of-state disciplinary order or judgment.) Filed for or been discharged in bankruptcy within the past five years? (If "yes," you must attach a copy of the Discharge Order, Order Confirming Plan, or if a Corporate Chapter 7 case, a copy of the Notice of Commencement.) Been convicted or found guilty of or entered a plea of nolo contendere to, regardless of adjudication, a crime in any jurisdiction? Note: If you, the applicant/licensee, have had a felony conviction, proof that your civil rights have been restored will be required prior to Licensure. Petitioner answered "No" to all of these questions, believing, in good faith, that such information was accurate. The final page of the Form contained the following "Attest Statement," which Respondent signed: I have read the questions in this application and have answered them completely and truthfully to the best of my knowledge. I have successfully completed the education, if any, required for the level of licensure, registration, or certification sought. I have the amount of experience required, if any, for the level of licensure, registration, or certification sought. I pledge to comply with the applicable standards of practice upon licensure, registration, or certification. I understand the types of misconduct for which disciplinary proceedings may be initiated. As part of the application process, Petitioner made the necessary arrangements with Advantage Information Services, LLC (Advantage) to directly provide the Board with a credit report. On or about October 26, 2006, Advantage sent the Board a two-page Transunion credit report (Transunion Report) containing Petitioner's "credit profile," along with a one-page report of the results of a "check[]" of public records at the "local, statewide, and national level" (Records Check Report). The Transunion Report revealed a federal tax lien in the amount of $35,100.00 that had been filed against Petitioner in 1997 for unpaid personal income taxes. Petitioner was aware of this lien at the time he filled out the Form, but did not report it in response to Question 4 of the "Financial Responsibility" section because he did not understand the question to ask about liens such as this one which were unrelated to his business activities. The Internal Revenue Service is withholding 15% of Petitioner's monthly Social Security benefit and applying it to reduce the amount Petitioner owes for his unpaid personal federal income taxes. The Records Check Report read as follows: Public records have been checked on a local, statewide, and national level and are incorporated within the report. Additional records are as follows: Cheatham Register of Deeds, TN - Federal Tax Lien Release, 01/11/2005, Case #74147 - Book/Page 131/552 - $30,908.00 - Not Paid. Plaintiff: IRS Walton County Superior Court GA - County Tax Lien, 03/12/1998, $387.00 - Not Paid. Case Number - B3P253C, Book/Page - 3/253 Plaintiff: County Tax Assessor Dekalb County State Court, GA - Civil Judgment, 05/01/1991, $49,283.00 - Not Paid. Case Number - 814497 Plaintiff: Bank South The 1998 Walton County Tax lien noted in the Records Check Report concerned an assessment made on tangible personal property in the form of an airplane owned, not by Petitioner, but by a corporation of which he was the president. The lien did not arise out of any activities in which Petitioner was engaged as a general contractor. The 1991 Dekalb County civil judgment noted in the Records Check Report required Petitioner to repay a bank loan Petitioner had co-signed for a friend. It too had nothing to do with his activities as a general contractor. It was only after the Board had provided Petitioner with a copy of the Records Check Report that Petitioner first became aware of the existence of the 1998 Walton County Tax lien and the 1991 Dekalb County civil judgment.2 As noted above, on April 18, 2007, the Board issued its Notice of Intent to Deny Petitioner's "change of status" application.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is hereby RECOMMENDED that the Board find Petitioner qualified for the "change of status" for which he has applied. DONE AND ENTERED this 1st day of November, 2007, in Tallahassee, Leon County, Florida. S STUART M. LERNER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 1st day of November, 2007.
The Issue The issue for determination is whether Respondent committed the offenses set forth in the Notice to Show Cause, filed on September 14, 2010, and, if so, what action should be taken.
Findings Of Fact The Department is the state agency charged with regulating condominiums, including condominium associations, pursuant to chapter 718, Florida Statutes. At all times material hereto, Whitehall was a condominium association operating in the State of Florida. At all times material hereto, Whitehall was responsible for managing and operating Whitehall Condominium in West Palm Beach, Florida. Pertinent to the case at hand, regarding a condominium's year-end financial statement, section 718.111, Florida Statutes, provides in pertinent part: (13) Financial reporting. --Within 90 days after the end of the fiscal year, or annually on a date provided in the bylaws, the association shall prepare and complete, or contract for the preparation and completion of, a financial report for the preceding fiscal year. Within 21 days after the final financial report is completed by the association or received from the third party, but not later than 120 days after the end of the fiscal year or other date as provided in the bylaws, the association shall mail to each unit owner at the address last furnished to the association by the unit owner, or hand deliver to each unit owner, a copy of the financial report or a notice that a copy of the financial report will be mailed or hand delivered to the unit owner, without charge, upon receipt of a written request from the unit owner. The division shall adopt rules setting forth uniform accounting principles and standards to be used by all associations and addressing the financial reporting requirements for multicondominium associations. The rules must include, but not be limited to, standards for presenting a summary of association reserves, including a good faith estimate disclosing the annual amount of reserve funds that would be necessary for the association to fully fund reserves for each reserve item based on the straight-line accounting method. This disclosure is not applicable to reserves funded via the pooling method. In adopting such rules, the division shall consider the number of members and annual revenues of an association. Financial reports shall be prepared as follows: (a) An association that meets the criteria of this paragraph shall prepare a complete set of financial statements in accordance with generally accepted accounting principles. The financial statements must be based upon the association's total annual revenues, as follows: * * * An association with total annual revenues of $ 400,000 or more shall prepare audited financial statements. (emphasis added). Whitehall's annual revenue is in excess of $400,000.00. Therefore, Whitehall is required to produce audited year-end financial statements. Whitehall's fiscal year coincided with the calendar year. As a result, Whitehall's 2009 year-end financial statement was due on or before May 1, 2010. On December 11, 2009, Whitehall engaged Hafer Company, LLC (Hafer), a Certified Public Accountant (CPA) firm, to produce its audited 2009 year-end financial statement. Whitehall must rely upon a third-party vendor, such as Hafer, to produce its audited financial statement. Hafer assigned Nicole Johnson as the auditor to produce Whitehall's audited 2009 annual financial statement.4/ Ms. Johnson's process involved, among other things, preparing a draft audit; providing a draft audit to the condominium board, which reviews the draft audit with Ms. Johnson; and then preparing the final audit. Whitehall's engaging Hafer in December 2009 did not contribute to any delay in producing Whitehall's audited financial statement. Ms. Johnson wanted to begin the auditing process early and made a request to Whitehall to begin on or about January 6, 2010, but Whitehall was not prepared to go forward at that time. She was not concerned with beginning at a later date because, among other things, her suggested date was an early date for beginning the auditing process. Whitehall's day-to-day bookkeeping and accounting was performed by a third-party vendor, The Accounting Department, Inc. (Accounting). On February 3, 2010, Ms. Johnson met with Accounting's representative who was handling the day-to-day bookkeeping and accounting. Having the meeting occur in February 2010 was not late or abnormal in the ordinary course of preparing an audited year-end financial statement for a condominium; and did not contribute to any delay in Ms. Johnson's producing Whitehall's audited 2009 year-end financial statement. On February 3, 2010, Ms. Johnson began her field-work and received the primary bulk of the accounting information necessary to complete the audit. From February 3, 2010, Ms. Johnson maintained communication, whether by telephone, email, or other methods of communicating, with Whitehall's directors and officers, and its property manager, Michael Weadock, who is a licensed Community Association Manager (CAM). Ms. Johnson's communications included requesting additional information, asking questions, and obtaining clarifications regarding items for the audited year-end financial statement. One of the items needed by Ms. Johnson to complete the audited year-end financial statement was independent verification from Whitehall's banks regarding Whitehall's certificates of deposit (CDs). Ms. Johnson, as the auditor, was responsible for obtaining the independent verification of the CDs from Whitehall's banks. Due to the economic crisis, which occurred in 2009, banks nationwide were taking an unusual amount of time to respond to auditors' requests associated with the independent verification of bank account information. The banks from which Ms. Johnson was requesting independent verification were no different. She did not receive independent verification of Whitehall's CDs until after the May 1, 2010, due date for Whitehall's audited 2009 financial statement. Whitehall could do nothing to expedite the banks' response to Ms. Johnson's requests. Additionally, on May 28, 2010, Ms. Johnson sent an email to Mr. Weadock requesting additional items that were outstanding. The requested items were non-bank items and were not items that would delay the completion of a draft audit, but were required for the final audit. The next business day, Whitehall provided the requested items. Whitehall had control over these non-bank items, which delayed completion of the final audit. Subsequently, Ms. Johnson received the independent verification of Whitehall's CDs from the banks. On June 23, 2010, Ms. Johnson completed Whitehall's audited 2009 Financial Statement and forwarded a copy to the Department. Even though the final audit was not completed until June 23, 2010, on or about June 10, 2010, Whitehall posted on its bulletin board a notice indicating that copies of the audited 2009 Financial Statement were available in its office. However, subsequently, another notice was posted on the bulletin board indicating, among other things, that copies of the audited 2009 Financial Statement would be available at the Board of Directors Meeting on July 1, 2010, in order to provide for the completion of the audited year-end financial statement. Whitehall does not dispute that neither notice complies with the manner/method of delivery requirement in section 718.111(13). Additionally, Whitehall provided notice to its unit owners as to the availability of the audited 2009 Financial Statement through its community television channel, website, and email blast. This same manner/method of sending the notices to unit owners was used in the past by Whitehall. Whitehall does not dispute that this manner/method of providing notice does not comply with the manner/method of delivery requirement in section 718.111(13). At the time of hearing, Whitehall had not provided its unit owners with a copy of the audited 2009 Financial Statement by mail or hand-delivery. Whitehall has prior disciplinary history regarding its failure timely to prepare and provide its audited year-end financial statements in prior years. On April 1, 2010, Whitehall and the Department entered a Consent Order resolving several statutory violations. One of the violations in the Consent Order was Whitehall's failure timely to prepare and provide its 2005, 2006, 2007, and 2008 audited year-end financial statements. As to this violation, the Consent Order concluded that Whitehall failed timely to prepare and provide the audited year-end financial statements for the four consecutive years. The Consent Order did not include a violation of the manner/method of delivery of notices regarding the year-end financial statements for the four consecutive years. Subsequent to the Consent Order, the Department received a complaint from a one of Whitehall's unit owners regarding Whitehall's failure timely to provide a copy of the 2009 audited year-end financial statement. The Department's usual practice is that, if a repeat violation occurs within a two-year period, administrative action is taken resulting in a consent order or notice to show cause. Considering the recent Consent Order, the Department followed its usual practice and appropriately pursued the complaint. On September 14, 2010, the Department filed a Notice to Show Cause against Whitehall, which is the subject matter of the instant case. Even though the unit owner's complaint did not include the manner/method in which notice was provided, the evidence fails to demonstrate that the Department was restricted to investigate only that which was complained of. The evidence fails to demonstrate that the Department's investigation of a violation of section 718.111(13) by Whitehall was improper. Further, the evidence fails to demonstrate that the Department's enforcement of the requirements of section 718.111(13) was selective enforcement against Whitehall. The evidence demonstrates that the Department participated in this proceeding primarily due to Whitehall having previously, within a short period of time, violated section 718.111(13) regarding Whitehall's failure timely to provide its unit owners a copy of audited year-end financial statements. Additionally, the evidence fails to demonstrate that either the Department or Whitehall needlessly increased the cost of litigation in the instant case.5/ Consequently, the evidence fails to demonstrate that the Department participated in this proceeding for an improper purpose as defined by section 120.595(1)(e)1.6/
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Business and Professional Regulation, Division of Florida Condominiums, Timeshares, and Mobile Homes, enter a final order: Finding that Whitehall Condominiums of the Villages of Palm Beach Lakes Association, Inc., violated section 718.111(13), Florida Statutes, by failing to deliver, in the manner authorized by statute, a copy of its audited 2009 year- end financial statement to all of its unit owners no later than 120 days after the end of the fiscal year, and by failing to make audited 2009 year-end financial statement available in the manner authorized by statute, when it became available; and Imposing a fine in the amount of $5,000.00. DONE AND ENTERED this 21st day of May, 2013, in Tallahassee, Leon County, Florida. S ERROL H. POWELL 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 21st day of May, 2013.
The Issue Whether Gary Savage committed the statutory violations alleged in the Amended Administrative Complaint and, if so, what penalty is authorized for such violations.
Findings Of Fact The Parties and Principle Allegations The Department is the state agency charged with the licensing of insurance agents in Florida, pursuant to authority granted in chapter 626, parts I and IX, Florida Statutes, and Florida Administrative Code Chapter 69B-231. Mr. Savage is a 75-year-old registered investment advisor and financial planner who also is licensed to sell life insurance in Florida. The Department’s Complaint seeks to revoke Mr. Savage’s license as an insurance agent. Counts I through III and V through VIII concern eight clients, whereby Mr. Savage earned commissions for selling them annuities and, based on agreements they signed, charged them annual one-percent financial planning service fees tied to the value of their portfolios, including the annuities. Each of these counts alleged the following statutory violations: Engaging in unfair insurance trade practices for knowingly collecting an excessive premium or charge. § 626.9541(1)(o)2., Fla. Stat.; Demonstrating a lack of fitness or trustworthiness to conduct insurance business. § 626.611(1)(g), Fla. Stat.; Demonstrating a lack of reasonably adequate knowledge and technical competence to engage in insurance transactions. § 626.611(1)(h), Fla. Stat.; Engaging in fraudulent or dishonest insurance practices. § 626.611(1)(i), Fla. Stat.; and Misappropriating, converting, or unlawfully withholding moneys belonging to others in conducting insurance transactions. § 626.611(1)(j), Fla. Stat. Count IX charged Mr. Savage with two violations concerning adverse administrative action taken by the Financial Industry Regulatory Authority (“FINRA”) against his securities license: Failing to timely report final administrative action taken by FINRA against his securities license. § 626.536, Fla. Stat.; and Being suspended and fined for violating FINRA’s rules. § 626.621(12), Fla. Stat. At the time of the hearing, Mr. Savage was not working in the financial services industry because FINRA suspended him for several months. During his suspension, Mr. Savage continued to meet with his insurance clients, though he currently has no appointments with life insurers to sell their products. Wearing Two Hats - An Investment Advisor and Insurance Agent Mr. Savage has worked in the investment industry for over 50 years, initially focusing on securities but evolving into financial advising and estate planning work. He has taken numerous courses and examinations relevant to securities law, financial planning, and tax law. Mr. Savage owns two investment advisor businesses: Wall Street Strategies, Inc. (“Wall Street”), is a stock brokerage firm that handles securities transactions; and Advanced Strategies, Inc. (“Advanced Strategies”), is a registered investment advisor firm, offering clients financial planning, tax management, and estate planning advice. In order to provide a wide variety of products to his financial planning clients, Mr. Savage also is licensed as a nonresident agent in Florida to sell life insurance, including annuities.2/ Annuities provide a guaranteed income stream over a term of years, but also come with substantial penalties if they are surrendered or cancelled before the term expires. Fixed index annuities, like those Mr. Savage sold to the clients at issue here, offer portfolios of funds tracking stock market indexes. Owners choose from around six portfolios and can then reallocate by choosing different portfolios each year. Mr. Savage considers himself an investment advisor who is licensed to sell insurance, which is what he tells new clients. Indeed, his businesses are securities and investment advisor firms, not insurance agencies. Mr. Savage’s client base is diverse. Many have portfolios with annuities and other investment products. Some have portfolios with no annuities. Others have portfolios with only annuities, like most of the clients at issue. In order to procure new clients, Mr. Savage held financial planning seminars where diverse speakers discussed financial and estate planning, and tax management. Mr. Savage discussed the types of insurance products he preferred, including fixed index annuities. Other speakers discussed real estate, oil, and investment trusts, which were beneficial from a tax perspective. Most of the clients at issue attended such a seminar and later met with Mr. Savage to discuss their financial plans. When Mr. Savage first met with the clients at issue, he asked them to bring tax returns, investment statements, wills and/or trusts, and other documents relevant for a financial planning discussion. They completed a new client form with information about their assets, investments, and objectives. He often met several times with new clients to develop a plan for them to reach their financial, estate, and tax management goals. To provide financial planning services, Mr. Savage—— like most investment advisors——charged an annual one-percent fee based on the total value of the portfolio. He has reduced or waived his fee if the clients’ situation warranted it or if they continued to purchase products for which he received commissions to compensate him for providing financial planning services. Before that are charged an annual fee, Mr. Savage’s clients signed a “Service Fee Agreement” (“Fee Agreement”), which was on “Advanced Strategies, Inc., Registered Investment Advisor” letterhead and provided as follows: Advanced Strategies charges a 1% (one percent) financial planning retention fee annually. This fee is based upon the total combined value of accounts including annuities, indexed life, mutual funds, income products and brokerage accounts that we manage or provide service for. This amount is tax deductible as a professional fee. The Fee Agreement offered to provide several financial planning services3/: Address, ownership, and beneficiary changes; Duplicate statements and tax returns; Required minimum distribution and withdrawal requests, and deposits; General account questions; One printed analysis per year; Annual review; Asset rebalancing when applicable; Informing client of new tax laws, changes in estate planning, and new exciting products and concepts. The Fee Agreement noted that the non-refundable fee was due on the service anniversary date and that non-payment would result in discontinuation of the planning services until paid in full. Mr. Savage confirmed that the Fee Agreement was voluntary. If clients wanted to purchase a product, but did not want him to manage their portfolio or provide the outlined services, they did not have to sign the agreement. In that event, Mr. Savage would procure the product and not provide financial planning services. All of the clients at issue here purchased annuities from Mr. Savage. He helped them complete the applications with the insurance companies and, if necessary, assisted them with transferring or closing out other investments used to pay the premiums. He ensured that the insurers received the paperwork and the premiums. Once the annuities were procured, he received commissions from the insurers. The Complaint did not allege that he acted unlawfully in recommending annuities to the clients or receiving commissions from the insurers. All of the clients at issue also signed the Fee Agreement and Mr. Savage provided them with services every year.4/ Some of the services were things an insurance agent technically could handle, such as answering client calls, making address and beneficiary changes, providing duplicate statements, assisting with the paperwork for required minimum distributions, withdrawals, and deposits, and asset reallocation. Other services were things that an agent could not provide, such as tax management/credits, duplicate tax forms, assistance with estates, trusts, and wills, and financial planning advice. But, even as to the services an agent technically could provide, Mr. Savage used his financial planning expertise to advise these clients as to a number of decisions relating to their annuities. For instance, although agents can assist with reallocation, required minimum distributions, and withdrawals, Mr. Savage’s securities and financial planning expertise allowed him to make recommendations that took into account an analysis of the stock market, the economy, and the clients’ financial circumstances and overall goals. An agent is not required to have that expertise, which is one reason he charged the clients an annual service fee. Many of these clients did not recall Mr. Savage providing most of the services listed in the Fee Agreement, but the weight of the credible evidence reflects otherwise. He analyzed asset reallocations for these clients every year and, when he believed reallocation was appropriate, he undisputedly made it happen. He provided annual account analyses consolidating the clients’ investment statements. He met with some of them every year to conduct an annual review and, for those he did not meet, he offered to do so in their annual invoice letter. Whenever the clients asked for assistance with questions, address, beneficiary, or ownership changes, withdrawals or required minimum distributions, or deposits, among others, he performed the task. And, as he confirmed and some of the clients acknowledged, the Fee Agreement made it clear that the services were available, even if they did not need all of them in a particular year or did not think to ask. Although some of the clients testified that Mr. Savage failed to tell them that his fee was optional, all of them had a chance to review the Fee Agreement before voluntarily signing it. The agreement noted that the fee was a “financial planning retention fee” based on the value of the accounts “that we manage or provide service for,” and that non-payment “will result in the discontinuation of my/our planning services.” These clients believed they hired Mr. Savage as an investment advisor and many understood that such advisors do charge fees for providing services. More importantly, no client testified that Mr. Savage said his annual fee was required to procure the annuities or was a charge for insurance. Nothing in the Fee Agreement gave that indication either. Mr. Savage credibly confirmed that he did not charge a fee for insurance; rather, the client paid the fees for financial planning services. And, if they decided they no longer wanted Mr. Savage’s services and stopped paying his fee, they took over management of their annuities without losing access to them or the money in them. The Department concedes that Mr. Savage may wear two hats, as both the agent selling an annuity and the financial advisor managing his client’s portfolio. It contends, however, that Mr. Savage violated the insurance code by selling annuities to these clients and thereafter charging them annual fees——tied to the value of the annuities——to provide services that he should have provided for free after earning commissions on the sale of those annuities. The Department’s investigator, Ms. Midgett, testified about annuities, commissions, and insurance agent services based on her experience in the industry as both a former agent and certified chartered life underwriter.5/ Ms. Midgett confirmed that the Department approves both the premiums and commissions applicable to annuities. Once the premium or deposit is paid, the commission is earned; if an additional deposit is made into the annuity, the agent would earn another commission. Ms. Midgett testified that it is improper for an agent to receive a commission and knowingly charge a client any fees with respect to that annuity under section 626.9541(1)(o). However, she admitted that a financial advisor may charge service fees on annuities if they did not receive a commission on the sale. And, if the annuity is ever rolled into a non- insurance product, that agent could charge service fees on that asset because they are no longer tied to the annuity. Ms. Midgett also testified about the services agents are expected to provide. Once an agent sells a product, he or she becomes the agent of record and does “things such as answer questions, beneficiary changes, address changes, yearly reviews, anything to keep that client and to help them in any way they can.” According to her, “it’s basic 101 insurance that an agent services their clients,” which is “extremely important if you want to build your book of business and to keep a client happy.” Importantly, however, Ms. Midgett conceded that no statute or rule specified what services agents were required to provide once they sold an annuity. “It’s just understood when you’re an insurance agent that you’re going to service your clients. It’s part of the sale of the product.” She believed agents learned this in the course study to obtain a license. Although Ms. Midgett testified that Mr. Savage should have provided most of the services listed in the Fee Agreement for free once he earned commissions on the sale of the annuities, she conceded that at least two of them——duplicate tax forms and informing the client of new tax laws——were not services agents would do. She also agreed that agents could not advise clients as to taking money from an annuity and investing in stocks, mutual funds, real estate trusts, or other investment-related options as “those are all investment advisor functions.” Ms. Midgett initially admitted having no knowledge of whether insurance agents were trained in asset reallocation, though she “would assume so” because “[i]f you have a license to sell the product, then obviously you have to have the knowledge of how to be able to service that product and make the allocations.” When she testified several months later in the Department’s rebuttal case, she stated that the manual used to obtain a license in Florida had a chapter on annuities that “touched on” reallocation. But, she admitted she was not an expert on reallocation or analyzing market conditions, and she had only previously worked with one agent who sold annuities, though he did advise his annuity clients on reallocation. In sum, the Department conceded that no statute or rule articulated the services an agent is required to provide upon receiving a commission. The appointment contracts between the agents and the insurance companies, two of which are in the record, apparently do not specify the services agents are expected to provide. At best, the evidence established what a good agent should do to build a book of business; the evidence did not establish what services an agent, like Mr. Savage, was legally required to provide for receiving a commission. Count I – Kathy Butler Ms. Butler met Mr. Savage while working at a yacht club. In February 2011, they met at his office and she filled out a new client form with financial information. In March 2011, Mr. Savage assisted Ms. Butler with the application for a fixed index annuity for $50,000. On that same day, she signed the Fee Agreement, which she understood to be paying for his services as an investment advisor to manage the annuity and ensure it was being invested correctly; she believed he received income from the insurance company. In January 2012, she purchased another fixed index annuity for $8,000. Mr. Savage procured both annuities. Between 2012 and 2015, Ms. Butler received annual invoices from Mr. Savage and paid about $3,265 in service fees. At this point, Ms. Butler deals directly with the insurance companies, though Mr. Savage is still listed as her agent. The weight of the credible evidence shows that Mr. Savage answered general account questions, made a beneficiary change, conducted annual reviews when requested, sent annual account statements, analyzed reallocation each year and, when he recommended reallocation in 2014 and 2015, he handled the paperwork. Ms. Butler knew she could avail herself of the services in the Fee Agreement, even though she chose not to request many of them. Count II – Beverly Wilcox Ms. Wilcox met Mr. Savage at a seminar in early 2009. In February 2009, they met at his office, she completed a new client form, and she signed the Fee Agreement. She believed he was a financial advisor and that she would owe him money, but she did not read the Fee Agreement before signing it. In March 2009, Mr. Savage assisted Ms. Wilcox with the application to purchase a fixed index annuity for $120,000. He procured the annuity, as requested. Between 2010 and 2016, Ms. Wilcox received yearly invoices from Mr. Savage and paid about $6,500 in fees, after which she decided to deal with the annuity company directly. The weight of the credible evidence shows that Mr. Savage answered questions when asked, offered to conduct annual reviews each year, sent annual account statements, analyzed reallocation each year and, when he recommended reallocation in 2010 and 2012, he handled the paperwork. Count III – Joseph Cerny Mr. Cerny met Mr. Savage while working at a yacht club and knew he was a financial advisor. Mr. Cerny purchased several fixed index annuities and other investments from Mr. Savage, who helped him complete the paperwork and procured the policies. Between 2003 and 2004, he bought two annuities for $100,000 each and two mutual funds for about $30,000 each. In 2008, he bought an annuity for $10,000. In 2010, he bought another annuity for $119,400. Mr. Savage did not charge fees for the first few years. Mr. Cerny believed he received compensation from the companies. However, in March 2010, Mr. Cerny signed the Fee Agreement. Between 2011 and 2012, he received two invoices, paying the first for $1,266.84 but refusing to pay the second. Mr. Cerny and Mr. Savage ended their relationship at that point. The weight of the credible evidence shows that Mr. Savage answered questions, provided annual statements, assisted with making withdrawals when requested, met with Mr. Cerny yearly, analyzed reallocation each year and, when he recommended reallocation in 2010 and 2011, he handled the paperwork. Count V – Marion Albano Ms. Albano met Mr. Savage at a retirement seminar in early 2007. In February 2007, they met at his office to go over her investments, including several annuities. Based on his recommendation, she surrendered her old annuities and purchased a fixed index annuity for about $1.6 million. He assisted her with the application and procured the annuity. In February 2007, Ms. Albano also signed the Fee Agreement. Mr. Savage told her there was a service charge to manage the annuity and she agreed because her brother pays the same rate on his managed brokerage account. She was never worried about losing the annuity if she failed to pay the fee. Ms. Albano received invoices from Mr. Savage every year from 2008 through 2015 and testified that she had paid between $110,000 and $120,000 in fees during that time. She had to pay some of the fees out of her distributions. The weight of the credible evidence shows that Mr. Savage answered account questions, corresponded with her daughter about his recommendations, provided her with an account analysis each year, met with her annually to review her account, and assisted her with required minimum distributions and withdrawals. He analyzed reallocation each year and, when he recommended reallocation in 2010 and 2011, he handled the paperwork. Count VI – Jane D’Angelo Ms. D’Angelo and her late husband, whose son-in-law was an insurance agent, met Mr. Savage at an estate planning seminar in early 2003; they believed he was an investment advisor. In March 2003, he came to their home and they completed a new client form, indicating they had several types of investments, including annuities. Between 2003 and 2016, the D’Angelos invested with Mr. Savage. In 2003, they purchased a tax credit investment for $10,000. In 2005, they purchased a similar investment for $19,000, which resulted in tax credits totaling $17,174. Between 2005 and 2011, they purchased eight fixed index annuities from Mr. Savage. He assisted them with the applications, informing them that the companies paid him directly. He procured the following annuities, some of which were purchased by transferring money from their existing annuities: In April 2005, they bought an annuity for $250,000; in May 2007, they bought an annuity for $32,789.78; in May 2008, they bought an annuity for $29,510; in March 2009, they bought three annuities for $337,554, $550,000, and $6,000; in May 2011, they bought two annuities, one for $40,715 and another for $150,889; and, in June 2011, they bought an annuity for $24,667. Prior to 2010, they paid no service fees. However, in April 2010, they signed the Fee Agreement. Although they were surprised and felt like they had to sign, Ms. D’Angelo agreed they were not coerced or told the annuities would lapse if they failed to do so. Indeed, she never lost access to the annuities even after she stopped paying Mr. Savage’s fees in 2015. Mr. Savage sent them annual invoices from 2010 through 2015, totaling $54,000 in fees. Mr. Savage agreed to waive the 2010 fee and, ultimately, they only paid about $14,511 total. In 2016, Ms. D’Angelo informed Mr. Savage that she no longer needed his services. She had been dealing directly with the insurance companies herself, though they have provided her with names of individuals if she wanted someone to advise her. The weight of the credible evidence shows that Mr. Savage provided numerous services to the D’Angelos on the investments he managed for them.6/ He had discussions with them, sent them annual statements, and assisted them with deposits and transfers between annuities, required minimum distributions and withdrawals, income riders, and beneficiary and ownership changes. He analyzed reallocation every year and handled the paperwork when he felt it was appropriate. He also offered to meet annually and held those meetings in years in which they were requested. Count VII – Ernest Blougouras Rev. Ernest Blougouras, a Greek Orthodox priest, attended several financial planning seminars with Mr. Savage. They met privately in February 2005, at which he completed a new client form listing his investments, which included fixed annuities, CDs, mutual funds, bonds, and stocks. Rev. Blougouras purchased fixed index annuities and other investments from Mr. Savage. He told Rev. Blougouras that he received commissions for selling the annuities. Mr. Savage assisted with the applications and procured the policies. Over the last 14 years, Rev. Blougouras purchased nine fixed index annuities. In March 2005, he bought an annuity for $347,003; in April 2005, he bought an annuity for $229,458; in August 2005, he bought an annuity for $102,227; in June 2006, he bought an annuity for $8,300; in May 2007, he bought an annuity for $41,143; in June 2009, he bought an annuity for $50,000; in July 2009, he bought an annuity for $14,308; and, though the record is unclear as to the date, he bought another annuity that was worth $40,572 in 2010. Since 2011, he bought an additional annuity and several non-insurance investments, such as real estate trusts and energy funds. Prior to 2010, Mr. Savage did not charge Rev. Blougouras service fees because he continued to purchase annuities. However, in 2010, Mr. Savage decided to start charging an annual service fee and sent Rev. Blougouras the Fee Agreement. Rev. Blougouras believed that Mr. Savage’s services would be cancelled if he failed to pay the fee and he would have to hire another advisor. He signed the Fee Agreement and continues to use Mr. Savage’s services. Mr. Savage has sent annual invoices to Rev. Blougouras every year since 2010. The record only contains the 2010 invoice for $9,883 and Rev. Blougouras could not recall how much he paid overall. However, he confirmed that he has paid every invoice he has received either himself or with distribution checks he received from the annuities. The weight of the credible evidence shows that Mr. Savage provided numerous services to Rev. Blougouras. He prepared paperwork and documents for required minimum distributions and withdrawals, held meetings to review and organize his tax paperwork, copied documents requested, and made address changes when requested. He analyzed asset reallocation every year and, when he recommended reallocation in 2010 and 2011, he completed the necessary paperwork. Count VIII – George Flate Mr. Flate and his wife met Mr. Savage at a financial planning seminar in 2010. In February 2010, they met Mr. Savage and completed their new client form listing their investments, including fixed annuities, CDs, mutual funds, and stocks. They also signed the Fee Agreement, which Mr. Flate believed was a standard service agreement. They thought they hired Mr. Savage as an investment advisor and never believed they would lose access to the annuities if they stopped paying his fees. Based on Mr. Savage’s recommendation, the Flates purchased two fixed index annuities: one annuity was issued in April 2010 for approximately $22,000, and the other annuity was issued in May 2010 for approximately $22,500. Mr. Savage assisted them with filling out the applications and handled the paperwork to ensure the annuities were issued. Between 2012 and 2015, Mr. Savage sent the Flates invoices for his annual service fees every year. In total, they paid approximately $1,506 in service fees. In 2015, the Flates terminated their relationship with Mr. Savage. They have worked with two financial advisors since then, neither of whom charged them service fees relating to the annuities. The weight of the credible evidence shows that Mr. Savage provided numerous services to the Flates. Each year, he met with them to go over their account, provided them with account analyses, analyzed reallocation and, the two to three times they agreed with his recommendations, he handled the paperwork. He handled withdrawals and address changes for them when requested, and he provided them with information as to changes in tax law and estate planning, though they did not believe that was necessary since they had tax and estate lawyers. The Flates understood that Mr. Savage was available to answer their questions and provide the services if they asked. Count IX – FINRA Disciplinary Proceeding On July 14, 2016, two former clients of Mr. Savage’s filed a Statement of Claim with FINRA alleging that he had recommended investments that were not suitable for them. Over Mr. Savage’s objections to proceeding with the hearing as scheduled, the arbitration panel awarded the clients over $725,000 in damages, fees, and costs. The clients filed a petition in Florida circuit court to approve the arbitration award. Mr. Savage responded in opposition and moved to vacate the arbitration award on grounds that it violated his due process rights. On November 9, 2017, the circuit court issued a final judgment awarding over $769,000. On December 4, 2017, Mr. Savage appealed the circuit court’s order to the Second District Court of Appeal. On June 12, 2018, while the appeal was pending, Mr. Savage signed a Letter of Acceptance, Waiver and Consent (“AWC”) with FINRA. The AWC stated that Mr. Savage accepted and consented, without admitting or denying, the following findings: Wall Street failed to apply for a material change in its business operations, i.e., to sell oil and gas interests, private placements, and non-traded real estate investment trusts, before engaging in more than 50 such transactions, many of which were consummated by Mr. Savage; Mr. Savage failed to timely update his FINRA Form U4 within 30 days of the Statement of Claim being filed against him in July 2016; Mr. Savage failed to timely respond to FINRA’s requests for information relating to an upcoming examination of Wall Street; and Wall Street failed to maintain the minimum net capital requirements of $5,000 while engaging in securities transactions. Mr. Savage agreed to three sanctions: (1) a five- month suspension from associating with any FINRA registered firm; (2) a three-month suspension from association with any FINRA registered firm in a principal capacity, to be served following the five-month suspension; and (3) a $30,000 fine. The AWC confirmed that Mr. Savage waived his procedural rights relating to these alleged violations and made clear that it would become part of his permanent disciplinary record that could be considered in future actions brought by FINRA or other regulators. He was precluded from taking positions inconsistent with the AWC in proceedings in which FINRA was a party, but was not precluded from taking inconsistent positions in litigation if FINRA was not a party. The five-month suspension began on June 13, 2018, and ended on November 17, 2018. The three-month suspension began on November 18, 2018, and ended on February 17, 2019. In the interim, on August 16, 2018, FINRA notified Mr. Savage by letter that it was suspending his securities license indefinitely for his “failure to comply with an arbitration award or settlement agreement or to satisfactorily respond to a FINRA request to provide information concerning the status of compliance.” This letter is not in the record and, as such, it is unclear whether Mr. Savage had an avenue to challenge that suspension directly. Mr. Savage had challenged the underlying arbitration award, which remained pending on appeal in the Second District Court of Appeal. On November 7, 2018, the Second District affirmed the circuit court’s arbitration order. On November 20, 2018, Mr. Savage put the Department on notice of the FINRA disciplinary actions, including the AWC from June 2018 and the decision of the Second District affirming the arbitration award.
Conclusions For Petitioner: David J. Busch, Esquire Department of Financial Services Room 612, Larson Building 200 East Gaines Street Tallahassee, Florida 32399-0333 For Respondent: Michael Buchholtz, Esquire The Law Office of Michael Buchholtz Post Office Box 13015 St. Petersburg, Florida 33777
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Financial Services issue a final order suspending Mr. Savage’s license as an insurance agent for twelve months. DONE AND ENTERED this 30th day of September, 2019, in Tallahassee, Leon County, Florida. S ANDREW D. MANKO 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 30th day of September, 2019.
