The Issue The issues for determination in this case are whether Respondent violated the law as charged by Petitioner in its Administrative Complaint, and, if so, what discipline is appropriate.
Findings Of Fact Petitioner is the state agency with the statutory authority and duty to license and regulate insurance agents in Florida. Respondent holds license D033674 as a life and health insurance agent. At the time of the events which are the subject of this case, Respondent also held a license to sell securities. At the time of the events which are the subject of this case, Respondent was employed by First Liberty Group and sold life insurance, annuities, and viatical settlement purchase agreements ("viaticals"). A viatical is a written agreement which provides for an investor's purchase of an interest in the proceeds of a life insurance policy of an anonymous insured person, the "viator." The agreement provides for the amount of money that the investor will receive upon the death of the viator. One general principle underlying a viatical is that it provides a means for a terminally ill person who needs money to sell or assign the proceeds of a life insurance policy that would be paid upon his or her death. Another general principle is that the viator, due to the terminal illness, has been diagnosed to have a short life expectancy. Although the identity of the viator is not revealed to the investor, the investor is provided information about the viator's gender, age, illness, and life expectancy. Facts Common to All Counts A company that "viaticates" life insurance policies and arranges for diagnoses of life expectancies by medical doctors is called a "viatical settlement provider." For all the viaticals sold by Respondent, the viatical settlement provider was Mutual Benefits Corporation. Mutual Benefits Corporation was charged with and ultimately determined to have committed fraud with respect to its practices as a viatical settlement provider. The nature of the fraud was not made a part of the record in this case. Mutual Benefits Corporation was placed in a receivership to manage the remaining assets, liabilities, and contracts of the company. Respondent's employer, First Liberty Group, advertised that it offered a certificate of deposit (CD) at a very competitive annual interest rate. Potential customers who came in to inquire about or to purchase a CD were also informed about annuities and viaticals. Petitioner referred to this as a "bait and switch" technique. However, although the CD interest rate might have been the bait, there was no switch. Customers who wanted CDs were able to and did purchase CDs from First Liberty Group through Respondent at the advertised interest rate. Some customers also purchased annuities and viaticals. In the advertising materials provided to the investors by Respondent and in the Viatical Settlement Purchase Agreements signed by the investors, the amount the investors would receive upon the death of the insured is described as "fixed." For example, the return on an investment in a viaticated insurance policy for a viator with a three-year life expectancy was represented to be 42 percent. The 42 percent return was fixed in the sense that on an investment of $20,000, for example, the investor would receive 42 percent of $20,000, or $8,400, when the viator died. If the viator died six months after the purchase of the viatical, the investor would receive $8,400. If the viator died three years later, the investor would receive $8,400. If the viator died ten years later, the investor would receive $8,400. The viatical sales literature that Respondent gave to customers disclosed that the life expectancy of the viator, as determined by a doctor, was not guaranteed. Therefore, the amount of the return on the viatical investment was not fixed in the sense of an annual interest rate. In the examples given above, the annualized rate of return to the investor if the insured died six months later would be 84 percent (42 divided by .5 years). The annualized rate of return if the viator died three years later would be 14 percent (42 divided by 3 years). The annualized rate of return if the viator died ten years later would be 4.2 percent (42 divided by 10 years). Petitioner charged Respondent with not explaining to the investors that "the real rate of return on the investment was tied to the viator's date of death." However, Petitioner failed to prove this charge. Respondent did not tell the investors that the 42 percent return, for example, was an annual rate of return. The viatical sales materials provided to customers by Respondent did not describe the return on the investment as an annual rate of return. The effect that the date of the viator's death would have on the rate of return on the viatical is obvious. The sooner the viator died, the better the return; the later the viator died, the worse the return. The investors did not need specialized knowledge to understand this simple concept. No investor in this case said they did not understand that their return would be affected by when the viator died. None of the investors said they thought the "fixed rate" figure, such as 42 percent for a three-year viatical, was a guaranteed annual return. Each investor signed a Viatical Settlement Purchase Agreement that included a statement that the returns "are fixed and not annualized returns." (Emphasis in the original). Another factor affecting the actual return on a viatical investment is the possibility provided for under the terms of the viatical contract that the investor might have to pay a portion of the premiums on the life insurance policy in the event the viator lived longer than his or her life expectancy. Any payment of an insurance premium by the investor would cause a reduction in the return on the viatical investment. In the example given above, if the investor was required to pay $2,000 in premiums, his return on the $20,000 would no longer be $8,400, but only $6,400. The annualized return on the investment would be correspondingly reduced. In a worse case scenario, the possibility exists that the requirement to make premium payments could completely eliminate any potential return to the investor and even jeopardize the principal. The viatical advertising materials that Respondent provided to customers did not describe the possibility or impact of having to make premium payments as discussed above. The advertising materials generally downplayed the risks associated with a viatical. For example, one sales document described the viatical as appropriate for a conservative investor and suggested that viaticals are investments that provide "peace of mind." It was reasonable for Respondent and the sales materials to describe the insurance companies that issued the insurance policies as reliable and secure. However, it was not reasonable, nor accurate, to describe the viaticals as conservative investments because of the possibility that the insured person would live many years beyond his or her life expectancy and the possibility that the investor would have to make premium payments. Viaticals have the potential to provide a much better investment return than other types of investments. However, in conformance with the general rule that the higher the potential return on an investment, the greater the risk, the relatively high potential return on a viatical comes with a relatively high risk.1/ Respondent disclosed to the investors that there was a possibility they might have to make future premium payments, and it was described in paragraphs 20 and 21 of the Viatical Settlement Purchase Agreements signed by the investors under the heading "Payment of Future Premiums." The agreement states that the payment of insurance premiums beyond the life expectancy of the viator is at the discretion of Mutual Benefits Corporation. Respondent told the investors that Mutual Benefits Corporation had a reserve or escrow fund that was managed in a way that created a premium "pool" so that the early death of a viator provided a surplus of money that could be used to pay premiums on the insurance policies of viators who lived beyond their life expectancies. Respondent also told the investors that 85 percent of the viators died early, which created a large surplus in the escrow fund to pay future premiums. The viatical contracts, however, only stated that unused premiums "may" be retained in the reserve fund by Mutual Benefits Corporation. At some point after the investors involved in this case purchased viaticals from Respondent, Mutual Benefits Corporation was the subject of enforcement action for fraud and placed in receivership. There was evidently no longer a surplus or reserve fund to pay premiums on insurance policies associated with viators who lived beyond their life expectancy, and that burden fell on the investors. All the investors involved in this case told Respondent they were conservative investors with a low tolerance for risk. There is a commonality in their perceptions of viaticals derived from their discussions with Respondent, that viaticals were safe and conservative investments. However, viaticals are relatively risky investments due to their illiquidity and the fundamental conditions affecting the return and the security of the principal that are beyond the control of the investor. Respondent knew or should have known, through the exercise of reasonable diligence on behalf of the customers who purchased viaticals, that viaticals are relatively high-risk investments. Respondent misrepresented the risk character of viaticals in his discussions with the investors involved in this case. He had a motive to downplay the true risk character of the viaticals, because he received a commission for every sale of a viatical. If Respondent had informed the investors of the true risk character of viaticals, the investors might not have purchased the viaticals. The definition of "security" in Section 517.021, Florida Statutes, was amended in 2006 to specifically identify "viatical settlement investment" as a type of security. Respondent does not dispute that a viatical is a security. There is no dispute that the viaticals sold by Respondent, which are the subject of this case, were not registered securities when Respondent sold them in 2003. Count I - Simons Charles Simons was 81 years old in 2003. He has eight years of education. He used to work as a truck driver in a quarry associated with a cement plant, but is now retired. He owns real estate and has an annual income over $100,000 and a net worth of $600,000 to $700,000. Mr. Simons saw the CD advertised by First Liberty Group and came in with his wife to invest $100,000 he had acquired from the recent sale of real estate. They met with Respondent in July 2003. Mr. and Mrs. Simons invested $50,000 in two or more CDs and an annuity. They also purchased two viaticals for $50,000. Mr. and Mrs. Simons purchased two three-year viaticals, meaning that medical doctors who had purportedly examined the medical records of the insured persons expected them to die of their terminal illnesses within three years. The Simons invested $25,000 in each of the viaticals. Although four years have passed since the Simons purchased the three-year viaticals, neither of the insured persons has died. Mr. Simons has had to make a premium payment of approximately $2,000 on one of the underlying policies.2/ Count II – Lenois Allan Lenois was 70 years old in 2003. He is a high school graduate, studied accounting and taxation, and worked for a lumber company where he supervised 300 employees. His wife, Marion, was an accountant. They are now retired. In August 2003, Mr. and Mrs. Lenois went to see Respondent after seeing the CD advertisement in the newspaper. While in Respondent's office, they noticed a poster advertisement on the office wall about viaticals and asked Respondent about them. Mr. Lenois' deposition testimony that Respondent called the viaticals "guaranteed" is not persuasive, given Respondent's testimony at the final hearing that he used these kinds of words to describe the industry rating of the insurance companies involved and the federal-insured reserve fund account, not the viatical itself. However, as previously found, Respondent misrepresented the viaticals to be relatively conservative investments to all the investors. Mr. and Mrs. Lenois invested $20,000 in an annuity. In a deposition of Mr. Lenois, he stated that he thought he had purchased a CD from Respondent, not an annuity, and was surprised that he had to pay a surrender penalty. Petitioner makes this same allegation in its Proposed Recommended Order, but Mr. Lenois' testimony is not persuasive because he signed a disclosure document that states "I understand that I have purchased an annuity . . . and not a Bank Certificate of Deposit," and the word "annuity" is written on the personal check used to purchase the annuity. Furthermore, the allegation was not included in the Administrative Complaint. Mr. and Mrs. Lenois purchased one three-year viatical for $10,000. Although four years have passed since they purchased the viatical, the viator is still alive. Mr. and Ms. Lenois have not yet had to make a premium payment associated with their viatical. Count II – Luenberger Floy Leuenberger is a retired school teacher. She has a master's degree in counseling and education. Her husband is a retired bank employee. The Leuenbergers have a net worth just over $500,000. The Leuenbergers saw the CD advertised by First Liberty Group and came in to invest $75,000. They met with Respondent in October 2003. They saw a poster on the wall of Respondent's office about viaticals and asked Respondent about them. The Leuenbergers invested $50,000 in CDs and purchased two viaticals for $12,500 each. One of the viaticals purchased by the Leuenbergers "paid out" because the viator died, and they received the return Respondent quoted to them. The other viatical they purchased from Respondent has not yet paid out. The Leuenbergers have had to make a premium payment of approximately $1,500 on the remaining viatical. Count III – Berge Oscar Berge is retired from the United States Air Force and from a subsequent job as a maintenance supervisor for a health care facility. Mr. Berge obtained a college degree in avionics instrument technology while in the Air Force. Mr. Berge saw the CD advertised by First Liberty Group. He and his wife met with Respondent in late 2002 and, in January 2003, invested in two annuities and five viaticals. Mr. and Mrs. Berge purchased two three-year viaticals for $30,000 each and three five-year viaticals for $30,000 each; a total investment of $150,000. Although four years have passed since the Berges purchased the three-year viaticals, the two viators have not died. The Berges have had to make two premium payments totaling approximately $5,000.
Recommendation Based on the Findings of Fact and Conclusions of Law set forth above, it is RECOMMENDED that a final order be entered which finds that Respondent Bradley Kline violated Subsections 626.611(5), (7), (9), and (16) and 626.621(9), Florida Statutes, and revokes his license as an insurance agent. DONE AND ENTERED this 9th day of October, 2007, in Tallahassee, Leon County, Florida. S BRAM D. E. CANTER 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 9th day of October, 2007.
Findings Of Fact Petitioner is a dealer in heavy construction equipment and has been since its incorporation on August 1, 1946. Among petitioner's competitors are Dewind Machinery Company, Florida Equipment Company of Jacksonville, Florida- Georgia Tractor Company, Inc., Great Southern Equipment Company, Inc., Pilot Equipment Company, Inc., Ring Power Corporation and Joseph L. Rozier Machinery Company. Like its competitors, petitioner frequently leases equipment to its customers, giving them an option to purchase, rather than selling them the equipment outright. Petitioner's exhibit No. 1 reflects one such transaction. On April 19, 1973, petitioner quoted Houdaille Duval Wright Company (Houdaille) a purchase price of twenty-two thousand dollars ($22,000.00) plus sale's tax, and monthly rent of fourteen hundred dollars ($1,400.00) plus sales tax on a diesel powered, self-propelled vibratory roller. After negotiations between petitioner and Houdaille, the purchase price dropped to seventeen thousand dollars ($17,000.00), but the monthly rental remained unchanged. Houdaille agreed to lease the vibratory roller from petitioner on these terms. With respect to its option to purchase, Houdaille specified that: 100 percent of all rentals to apply towards purchase price of $17,000.00 less 10 percent discount on remaining outstanding balance at time of purchase. Interest to accrue at a rate 7 1/2 percent simple. Houdaille made lease payments for nine months, totaling twelve thousand six hundred dollars ($12,600.00), before electing to exercise its option to purchase. In calculating the amount of money Houdaille was to pay to close out the transaction, petitioner began by treating the payments Houdaille had made under the lease as if they had been payments made in repayment of a loan, outstanding for the period of the lease, in the amount of seventeen thousand dollars ($17,000.00), at 7 1/2 percent per annum. Petitioner allocated portions of each lease payment to principal and to interest, calculated on the declining principal balance, aggregating eleven thousand nine hundred ten dollars and fifty-four cents ($11,910.54) to principal, and six hundred eighty-nine dollars and fourty-six cents ($689.46) to interest. Petitioner then calculated the 10 percent discount by multiplying one tenth times the difference between the original price ($17,000.00) and the amount aggregated to principal ($11,910.54), which yielded five hundred eight dollars and ninety-five cents ($508.95). This figure was subtracted from the original contract price ($17,000.00) to ascertain the' discounted price ($16,491.05) against which the lease payments were credited in their entirety ($12,600.00), yielding the figure three thousand eight hundred ninety-one dollars and five cents ($3,891.05), on which petitioner calculated 4 percent sales tax. In addition, petitioner required Houdaille, in exercising its option to purchase, to pay six hundred eighty-nine dollars and forty-six cents ($689.46), the aggregate amount of lease payments petitioner had allocated to interest. In every respect pertinent to the dispute between petitioner and respondent, this transaction between petitioner and Houdaille is typical of the transactions on which contested portions of the tax assessments were based. The same is true of petitioner's lease and sale of a truck crane to Poston Bridge & Iron, Inc. (Poston), the transaction reflected in exhibit No. 2 (although petitioner's agreement with Poston did not involve a discount.) The terms of the lease purchase agreement, as stated on respondent's exhibit No. 2, were: Option Price $124,855.00 with 100 percent of paid rentals to apply to purchase price less interest at 8.5 percent simple. After making lease payments totalling twenty-six thousand dollars ($26,000.00), Poston exercised its option to purchase. At this point the lease payments were recast as installment sales payments, portions being allocated to principal and interest accordingly. Respondent collected sales tax on the amount of money Poston paid in exchange for title, after electing to purchase, less the aggregate amount of lease payments petitioner had allocated to interest. Petitioner has been entering into lease purchase agreements of this kind with various customers since 1946 or 1947, and, when customers exercised purchase options, petitioner ordinarily calculated sales tax in the manner it employed in connection with the sale of the vibratory roller to Houdaille, and the truck crane to Poston. In at least one instance, however, petitioner calculated sales tax as 4 percent of all the money a customer, Misener Marine Construction, Inc., paid when exercising its option to purchase a truck crane, including portions of lease payments petitioner had allocated to interest. On the lease payments themselves, petitioner regularly collected 4 percent sales tax which it regularly remitted to respondent. For federal income tax purposes, petitioner treated payments from customers under a lease purchase agreement as lease payments for every tax year in which the option to purchase was not exercised. For the tax year in which the option to purchase was exercised, the lease payments were treated as payments under an installment sale contract, for federal income tax purposes. When respondent audited petitioner's rentals for the period May 1, 1970, to April 30, 1973, and earlier when respondent performed a general audit of petitioner's books for the period July 1, 1959, to February 28, 1962, no mention was mace of petitioner's sales tax treatment of lease purchase agreements under which lessees had exercised purchase options. Before the audit which eventuated in the assessments now in controversy, however, the auditors were given a copy of a letter from L. N. Hansen to Thomas D. Aitken dated December 9, 1974. Mr. Hansen was formerly director of respondent's sales and use tax division. In the fall of 1974, he was one of a group or "board" of respondent's employees who considered questions arising under the tax laws and formulated policy for respondent. His letter to Mr. Aitken, which came in evidence as, petitioner's exhibit No. 5, was written on behalf of respondent after its substance was discussed at a meeting of respondent's policy group. It pertains to lease purchase agreements entered into by Joseph L. Rozier Machinery Co. (Rozier). Mr. Hansen's letter stated that Rozier was "not correct in reducing the taxable sales price by the rental payments and thereafter adding an interest charge which, if it was incurred at all, was incurred prior to the time of sale." Petitioner's exhibit No. 5, p. 1. The foregoing findings of fact should be read in conjunction with the statement required by Stucky's of Eastman, Georgia vs. Department of Transportation, 340 So.2d 119 (Fla. 1st DCA 1976), which appears as an appendix to the order.
Recommendation Upon consideration of the foregoing, it is RECOMMENDED: That respondent abandon the uncollected portions of its deficiency assessments. DONE and ENTERED this 31st day of August, 1977, in Tallahassee, Florida. ROBERT T. BENTON, II Hearing Officer Division of Administrative Hearings Room 530, Carlton Building Tallahassee, Florida 32304 APPENDIX Petitioner's proposed findings of fact Nos. 1, 4-8, and 10 have been adopted, in substance, insofar as relevant. Petitioner's proposed finding of fact No. 2 is irrelevant insofar as it differs from petitioner's proposed finding of fact No. 7, and for that reason has not been adopted where it differs from petitioner's proposed finding of fact No. 7. Petitioner's proposed finding of fact No. 3 has not been adopted because it is not relevant. Petitioner's proposed finding of fact No. 9 has not been adopted because what motivated respondent's employees is not relevant and because it was not proven what would have happened "[b]ut for the Hansen letter." Petitioner's proposed findings of fact Nos. 11 and 12 have not been adopted because they are irrelevant. Petitioner's proposed finding of fact No. 13 has not been adopted as such because it is actually a proposed conclusion of law. The first paragraph of respondent's proposed findings of fact has been adopted, in substance, except that exercise of the purchase option may be said to relate back to the beginning of the contract. Significantly, respondent proposes as a finding of fact that the "amount termed 'Interest' . . . is payable for the use of the money during the rental/lease period." Paragraphs two through seven, nine and ten of respondent's proposed findings of fact have been adopted, in substance, insofar as relevant. The eighth paragraph of respondent's proposed findings of fact has not been adopted; it is actually a proposed conclusion of law. COPIES FURNISHED: Mr. Daniel S. Dearing, Esquire Post Office Box 1118 424 North Calhoun Street Tallahassee, Florida 32302 Ms. Patricia S. Turner, Esquire Assistant Attorney General Department of Legal Affairs The Capitol Tallahassee, Florida 32304
The Issue Whether Respondent committed the violations alleged in the Administrative Complaint, and, if so, the penalty that should be imposed.
Findings Of Fact Petitioner is the state agency charged with the licensure and regulation of real estate brokers and salespersons in the State of Florida pursuant to chapters 455 and 475, Florida Statutes. At all times material to this action, Respondent was licensed a real estate sales associate in the State of Florida. On November 18, 2010, Petitioner filed an Administrative Complaint against Respondent, which reads in pertinent part: On or about October 5, 2007, Respondent prepared a sales purchase contract on behalf of Anne Vincent (Buyer) and Donald Gilchrest (Seller) for a property known as 6521 SW 9th Street, Pembroke Pines, Florida 33023 for $250,000. Respondent represented in the sales and purchase contract for the Subject Property that a $2,000 deposit was held in escrow by Title Sense Inc. Respondent communicated to the Sellers that he had received a check in the amount of $2,000 from the Buyer. * * * 10. Respondent failed to place with Respondent's registered employer any funds entrusted to Respondent by the Buyer for the Subject Property. * * * 12. Respondent failed to deliver a copy of the sales and purchase contract to Respondent's Broker, Edgar Rhenals. Based upon the foregoing, Petitioner alleged that Respondent violated section 475.25 (1)(b), (1)(e), and (1)(k), Florida Statutes, as well as Florida Administrative Code Rule 61J2-14.009. As discussed in the preliminary statement of this Recommended Order, Petitioner's sole witness at the final hearing was Ms. Krystal Cordo, an investigator employed with the Division of Real Estate. Other than Ms. Cordo's description of statements made by Respondent during the investigation——in which Respondent denied all wrongdoing——Ms. Cordo's testimony and investigative report consisted entirely of hearsay, with no applicable hearsay exceptions. In light of the complete absence of incriminating non-hearsay evidence, Petitioner properly conceded that Respondent's guilt could not be established in connection with any of the charges.2 Accordingly, the undersigned finds, as a matter of ultimate fact, that Respondent is not guilty of Counts I, II, and III of the Administrative Complaint.
Recommendation Based upon the foregoing findings of fact and conclusions of law, it is RECOMMENDED that Petitioner enter a final order dismissing the Administrative Complaint against Respondent. DONE AND ENTERED this 28th day of March, 2011, in Tallahassee, Leon County, Florida. S EDWARD T. BAUER 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 28th day of March, 2011.
Findings Of Fact In September of 1976, Mr. and Mrs. Robert B. Kenney went to 8521 Madonna Place in Sarasota, Florida, in response to a newspaper advertisement. There they found respondent, who showed them through the house at that address, saying she was a friend of the owners who were offering it for sale. Respondent told the Kenneys that she was a registered real estate salesperson employed by Marjorie McCrory Real Estate, and gave them her card. But she said there would be no commission on any sale, because the owners were her friends and had helped her with babysitting. On October 2, 1976, the Kenneys entered into a written agreement with Mr. and Mrs. Robert C. Tritschler, owners of the house respondent had shown them. By this con tract, which was received in evidence as petitioner's exhibit No. 3, the Kenneys agreed to buy the house in the event that they were able to sell their mobile home within thirty days' time and in the event that they were able to obtain financing for 80 percent of the agreed purchase price. The Kenneys were unable to obtain such financing and were also unable to sell their mobile home within thirty days of the signing of the contract. On October 5, 1976, the Kenneys drew a check to respondent's order in the amount of one thousand dollars ($1,000.00), on which was written "Earnest Money-Escrow." The check was delivered to respondent. On October 6 1976, respondent endorsed the check arid deposited it in a savings account. Afterwards, she showed the Kenneys her newly acquired pass book, on which was written "Sherry Gayer, Escrow Account for Robert L. Kenney." After the Kenneys' efforts to meet the conditions of the contract proved unavailing, they demanded the return of the money they had given respondent. Her refusal resulted in litigation which was settled when the Kenneys agreed to accept five hundred dollars ($500.00), plus the interest that had accrued on the entire one thousand dollars ($1 000.00) while it had been on deposit in respondent`s account. The other five hundred dollars ($500.00) went to the Tritschlers, in accordance with the terms of the settlement agreement.
Recommendation Upon consideration of the foregoing, it is RECOMMENDED: That petitioner suspend respondent's license for sixty (60) days. DONE and ENTERED this 10th day of March, 1978, in Tallahassee, Florida. ROBERT T. BENTON, II Hearing Officer Division of Administrative Hearings Room 530 Carlton Building Tallahassee, Florida 32304 904/488-9675 COPIES FURNISHED: Mr. Joseph A. Doherty, Esquire Florida Real Estate Commission 400 West Robinson Avenue Orlando, Florida 32801 Ms. Sherry L. Gayer 2116-59th Street Sarasota, Florida 33580
Findings Of Fact By Stipulated Settlement and Mutual Release executed December 22, 1988, (Ex. 1) signed by Mike Gresham, Director, Division of Administration, Department of Insurance and John Machules, the parties agreed to settle all issues and conclude the litigation and all claims in this case. The Deputy Commissioner approved the agreement on December 28, 1988, making it final with respect to both parties. In consideration of the Department agreeing to pay Machules the salary he would have earned plus compensation for the leave he would have earned between February 1, 1935 and December 31, 1988, in the gross amount of $76,713.33, Machules agreed to: Waive any and all present or future claims against the Department concerning the abandonment action; Waive the right to hearing in this matter and to dismiss with prejudice the case currently pending before the Division of Administrative Hearings; Voluntarily tender his resignation from employment with the Department effective at 5:00 p.m. on December 31, 1988; and Release the Department from all acts or omissions alleged or which could have been alleged in this cause of action or any derivative or collateral action at law or in equity. On December 22, 1988, Machules tendered his resignation effective 5:00 pm. December 31, 1988, (Ex. 1). On December 22, 1988, Machules, in consideration of the sum of $76,71.33 minus standard deductions (Ex. 1) executed a RELEASE releasing the Department from all claims arising from the termination of his employment with the Department. By letter dated December 9, 1988, (Ex. 2) Machules was advised by the Department that all details of the settlement had to be accepted and approved prior to the end of December 1988, that the Department could not credit him with an additional year of credible service (to qualify Machules for retirement) and if this was a condition he insisted upon, the case would proceed to hearing. By letter dated January 4, 1989, (Ex. 3) from the Department to Petitioner's then acting attorney, Machules was advised that the Comptroller's office needed a new W-4 form from Machules and affidavit of his earnings during the period the Department had agreed to pay him. By letter dated February 1, 1989, (Ex. 4) from the Department to Petitioner's attorney, Machules was advised of an IRS levy on Machules' salary and requested documentation that the delinquent taxes had been paid. By letter dated February 27, 1989, (Ex. 4) from the Department to Petitioner's attorney, the attorney was advised that Machules had telephoned the Department lawyer regarding the IRS lien and that he had advised Machules that his attorney should make the contact and further advised Machules that the information on this lien could be obtained from the Comptroller's office. The attorney was also advised that Machules had requested subpoenas for the earlier scheduled March 1, 1989, hearing. By letter dated March 17, 1989, (Ex. 5) the Comptroller's office advised the Department that all issues in the Machules' back pay award had been resolved except for Machules' interim earnings during the back pay period. By letter dated March 21, 1989, (Ex. 6) the Department forwarded a copy of the Comptroller's letter (Ex. 5) to Machules' attorney requesting income tax returns for the years 1986, 1987 and 1988 or W-2 forms for those years, either of which would be acceptable to the Comptroller. By letter dated March 31, 1989, (Ex. 8) the Department forwarded to Machules' attorney a copy of a letter and affidavits received by the Comptroller's office from Machules and advised the attorney that more specific information was required by the Comptroller before Machules' claim could be paid. By letter dated April 3, 1989, (Ex. 9) Machules wrote to Respondent's attorney acknowledging receipt of a copy of Exhibit 8 and stating, among other things, that since he had not received the $76,000.00 by December 31, 1988, "The tentative settlement agreement was NULL and VOID." However, he included a list of one place "employed from 1971 to present" and part-time employment at other places in 1987 and 1988. No specific earnings were provided. By letter dated April 12, 1989, (Ex. 10) the Department replied to Exhibit 9 emphasizing to Machules that it was the Comptroller that needed to be satisfied about Machules' interim earnings before it could pay his claim and he would not be paid until he satisfied the Comptroller on this point. By letter dated April 13, 1989, (Ex. 11) Machules forwarded to the Department copies of 1099-MISC and W-2's for 1987 and 1988. Receipt of this letter which provided the information previously requested was acknowledged by Respondent on April 18, 1989 (Ex. 12). By letter dated April 20, 1989, (Ex. 13) the Department forwarded to Machules' attorney a warrant dated 4/19/89 in the amount of $50,572.33 payable to John J. Machules with a Retroactive Payment Schedule showing a deduction for interim earnings, withholding tax and social security tax. By separate letter dated April 20, 1989, (Ex. 14) the Department advised Machules that the check settling his claim for back pay had been forwarded to Machules' attorney. By letter dated May 11, 1989, (Ex. 15) to Machules' attorney, the Department inquired if Machules had received payment so this case could be closed. By letter dated May 9, 1989, (Ex. 17) Machules was advised by AFSCME that the check being held for him would be returned to the Department if he did not pick it up before May 22, 1989. By letter dated May 13, 1989 (Ex. 17) Machules requested AFSCME to forward the check to him. This was done on May 25, 1989, (Ex. 17). On June 1, 1989, (Ex. 17) Machules acknowledged receipt of the check "as part payment for a future settlement." By letter dated June 23, 1989, (Ex. 16) AFSCME legal counsel advised that the union would not provide legal counsel at an abandonment hearing but would provide a representative to assist him at such a hearing. On the witness stand Petitioner acknowledged signing the settlement agreement and his letter of resignation from the Department; and that he received and cashed a check in the amount of $50,572.33. He also received an accounting of all deductions from the $76,717.33 noted in the stipulated settlement. Petitioner contends that because he didn't receive $76,717.33 in December 1988 the settlement stipulation became void as well as did his resignation. He could point to no line of either document indicating the stipulated settlement was void or voidable if all conditions were not met by December 31, 1988. In fact, Petitioner testified that he really didn't expect to get the check until January 1989, at the earliest. Delays in cutting the warrant and paying Petitioner the funds due under the settlement was due to Petitioner's failure to promptly provide proof to the Comptroller of his other earnings between February 1985 and December 1988. Respondent has fully complied with the terms of the settlement stipulation.
Recommendation It is recommended that all claims of John J. Machules resulting from the charges of abandonment of position in February, 1985, be dismissed. ENTERED this 19th day of July, 1989, in Tallahassee, Leon County, Florida. K. N. AYERS 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 19th day of July, 1989. COPIES FURNISHED: John Zajac AFSCME 1703 Tampa Street, Suite 1 Tampa, Florida 33602 John Hale, Esquire 200 East Gaines Street 4l3-B Larson Building Tallahassee, Florida 32399-0300 Honorable Tom Gallagher State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Don Dowell, Esquire General Counsel Department of Insurance and Treasurer The Capitol, Plaza Level Tallahassee, Florida 32399-0300
The Issue This issue in this case is whether Petitioner has jurisdiction to prosecute a viatical settlement sales agent for conduct relating to transactions involving viatical settlement purchase agreements, which Petitioner contends were “investment contracts”——and hence securities——subject to regulation under the Florida Securities and Investor Protection Act.
Findings Of Fact Petitioner Department of Financial Services, Office of Financial Institutions and Securities Regulation (the “Office”), as successor to the Division, is the state agency charged with administering and enforcing the Florida Securities and Investor Protection Act, Chapter 517, Sections 517.011-517.32, Florida Statutes. Respondent David H. Kligfeld (“Kligfeld”) was, at all relevant times, a Florida-licensed life and health agent subject to the regulatory jurisdiction of the Department of Insurance. Respondent Dhalco Financial Services, Inc. (“Dhalco”) was, at all relevant times, a Florida corporation of which Kligfeld was a director. The evidence does not establish that Dhalco engaged in any conduct distinct from Kligfeld’s in connection with the transactions at issue. Therefore, Respondents will be referred to collectively as “Kligfeld.” During a period of about one year, from early 1998 through early 1999, Kligfeld arranged for some of his clients to purchase equitable interests in life insurance policies that had been the subject of viatical settlement contracts. The following explanation of the viatical settlement business will put these deals in proper context. A traditional viatical settlement occurs when a person who is terminally ill, known as a “viator,” sells to an investor the right to receive death benefits under his life insurance policy. The investor pays a discount off the face value of the policy that reflects the viator’s life expectancy. For example, if the viator were expected to live for three more years, the investor might pay $.40 on the dollar (e.g. $40,000 for a $100,000 policy), whereas he might pay $.60 on the dollar for a policy insuring a person whose life expectancy is one year.1 Typically, the investor is responsible for paying any premiums that come due under the policy, which is known as a “viaticated policy” after the sale. His return——the death benefits less the total amount invested in the policy——is realized when the viator dies, the sooner the better. Under Florida law, a person who invests in a viatical settlement as just described is called a “viatical settlement provider.” In the instant case, one party to the subject transactions was a viatical settlement provider called American Benefits Services, Inc. (“ABS”). As a viatical settlement provider, ABS acquired——or purported to acquire——an inventory of viaticated policies. ABS in turn sold “interests” in these viaticated policies to other investors. The evidence shows that these investors——who are known under Florida law as “viatical settlement purchasers”—— bought death benefit dollars at a discounted price reflecting the viator’s life expectancy. Before going into greater detail about the viatical settlement purchase transactions that are at the heart of this case, it is important to note that viatical settlement purchasers do not enter into a traditional viatical settlement because they do not deal directly, or even indirectly, with the viator. In effect, viatical settlement purchasers buy at “retail” a product (death benefit dollars) that the viatical settlement provider has acquired in the “wholesale” market. To make money, the viatical settlement provider, like any retailer, must charge more per dollar of coverage (its product) than it paid for that dollar. In the instant case, the Office established that Kligfeld arranged for ten investors (hereafter, the “Investors”) to purchase death benefit dollars from ABS in 18 separate transactions.2 What follows is a general description of these transactions. ABS offered viatical settlement purchasers the option of investing in either a “growth” plan or an “income” plan. Because all but one of the 18 transactions at issue involved the growth plan, it will be discussed first. The growth plan offered an investor a choice between three levels of risk based on life expectancy. These were: Life Expectancy 2 years or less (28%) Life Expectancy 2½ years or less (35%) Life Expectancy 3 years or less (42%) The percentages in the parentheses reflect the discounted price per dollar of death benefit in each category of risk. To explain, for the “three-year” growth plan, an investor would pay $1.00 for $1.42 worth of death benefits, or a bit more than $.70 on the dollar——roughly a 30% discount.3 Thus, an investment of $100,000 would purchase $142,000 in death benefits, resulting in a net return to the investor, when the underlying policy matured, of $42,000 ($142,000 - $100,000)——a 42% increase in his money. The actual yield upon such an investment naturally would depend on the viator’s lifespan. For example, if the viator lived for 10 more years instead of three, thereby deferring the $142,000 payoff for 10 years, the net return of $42,000 would be worth far less, due to the time-value of money, than if the viator passed away within a year. The income plan, in contrast, offered only one level of risk, namely, the “three years or less” life expectancy. As well, the price per benefit dollar under the income plan was much higher than under the corresponding “three-year” growth plan: approximately $.77 per dollar for “income” versus about $.70 per dollar for “growth.” The income investor, however, was entitled to receive from ABS up to (but no more than) 36 monthly payments, calculated to return 9.86% simple interest annually on his investment, making a net return, at the end of three years, equal to 29.58% of the amount invested. At that point, he would receive no further payments until the viator’s death caused the underlying policy to mature, triggering a distribution of the death benefits. (As with the growth plan, the actual yield upon the income investor’s investment would not be known until the underlying policy matured and his equity was returned. Also, keep in mind that an investor would not “make money” unless and until he got back all of this original capital, which would not happen until the policy matured.) If the policy in which the income investor held an interest happened to mature before the end of three years, then he would be paid the amount of death benefits he had purchased, less the monthly distributions already paid. Thus, for example, an investment of $100,000 in the income plan would purchase $129,580 worth of death benefits. The investor would be entitled to receive up to 36 monthly payments of $821.66. If he received all 36 payments, then at the time the policy matured he would receive a final payment of $100,000 (returning his equity), producing a yield upon investment that would depend on the length of time he had waited for the payoff. If, on the other hand, the policy matured after, say, only two years, he would receive a final payment of $109,860——which, together with the previous distributions totaling $19,720, would make a net return on his investment of $29,580, producing a relatively high yield. Although not described as such in any of the documents or testimony in evidence, the income plan, in economic substance, called for ABS to lend money to the investor as an advance against the anticipated payout under the viaticated policy. This meant that ABS retained some of the risk that the policy would mature outside the projected timeframe4——a risk that, in contrast, ABS passed along in full to the growth investors.5 The element of risk to ABS coupled with the concomitantly reduced risk to the investor explains why the income plan was quite a bit more expensive. Whether the Investor chose the growth plan or the investment plan, the deal was structured the same way, using the same basic transaction documents. The core instrument was the Participation Agreement, to which the parties were ABS and the individual Investor.6 The Participation Agreement provided in pertinent part: Whereas, AMERICAN BENEFITS SERVICES, INC. (hereinafter ABS) is in the business, on behalf of other individuals, of finding and securing Viaticated Insurance Benefits (hereinafter VI Benefits); and, Whereas, PARTICIPANT [i.e. the investor] wants to have ABS make available VI Benefits that have been assigned to an independent third-party escrow company. All VI Benefits must meet the criteria set forth herein. Now then, in consideration of the foregoing, it is agreed by the parties: TERMS OF PARTICIPATION PARTICIPANT and ABS agree to the terms of this PARTICIPATION AGREEMENT, as expressed herein. This agreement incorporates by reference, as if set forth fully herein, pages 10 and 11, of the VIATICATED INSURANCE BENEFITS PARTICIPATION DISCLOSURE, entitled DESCRIPTION OF THE PARTICIPATION.[7] * * * ACKNOWLEDGMENTS, REPRESENTATIONS AND WARRANTIES PARTICIPANT warrants and represents that PARTICIPANT has read this agreement and understands it, along with the 13 page VIATICATED INSURANCE BENEFITS PARTICIPATION DISCLOSURE, and, specifically, the DESCRIPTION OF THE PARTICIPATION. PARTICIPANT warrants and represents that PARTICIPANT understands that PARTICIPANT will not receive his or her principal and interest until the maturity of the policy (which occurs at the death of the insured) and, therefore, the PARTICIPANT may not receive his or her VI Benefits within the 36 month life expectancy. For this reason, PARTICIPANT will not be able to liquidate this participation except as set forth in the PARTICIPATION DISCLOSURE under DESCRIPTION OF THE PARTICIPATION.[8] PARTICIPANT warrants and represents that, in reaching his or her decision regarding this participation, PARTICIPANT has not relied on any statement of AMERICAN BENEFITS SERVICES, INC. or its agents, except for those statements which are made in this Participation Agreement or in the VIATICATED INSURANCE BENEFITS PARTICIPATION DISCLOSURE. GENERAL PARTICIPATION PROVISIONS A. ENTIRE UNDERSTANDING OF PARTICIPATION: This Agreement constitutes the entire understanding of the parties and there are no representations, warranties, covenants, or undertakings other than those expressly set forth herein. In addition to the Participation Agreement, each Investor also executed a Disbursement Letter of Instruction and a Letter of Instruction to Trust. The former directed the escrow agent, to whom the Investor’s funds were remitted, to disburse the invested funds to Financial Federated Title & Trust, Inc. (“FinFed”) upon his receipt of certain documents (e.g. proof that the viaticated policy was in full force and effect). The latter instructed FinFed——which evidently held legal title to the viaticated policy, in the capacity of trustee——to establish a trust, or “fractionalized interest” in a trust, for the benefit of the Investor.9 The Participation Agreement, Disbursement Letter of Instruction, and Letter of Instruction to Trust will hereafter be referred to collectively as the “Contract.” It is undisputed that the Investors lost all or most of the money they had invested under the Contracts. They did not lose their money as a direct and proximate result of anything that Kligfeld had done or failed to do, however, but rather because, as it turned out, ABS was perpetrating a massive fraud on its victims, including the Investors and Kligfeld, who had also purchased death benefits from ABS.10 It should be stressed, too, that the Office did not charge Kligfeld with fraud of any kind. Despite this, the Office has argued, or at least insinuated, in its Proposed Recommended Order that Kligfeld misrepresented the nature of the transaction, or the terms of the deal, when soliciting the Investors. Given the specific violations alleged, however, no findings in this regard are required. Along the same line, some of the Investors who testified at the final hearing described representations and promises that they believed were part of the deal, but which are not contained in, and indeed contradict the unambiguous provisions of, the Contract. It is difficult to tell whether such representations were really made——or whether the testimony simply reflects fading memories, a lack of understanding on a given Investor’s part regarding the actual details of the deal, or some combination thereof. Since fraud was not charged, however, and because each Contract speaks for itself as to the terms and conditions of the deal, it is not necessary to make any findings of fact concerning whether extra-contractual promises were made.11
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Office enter a final order dismissing all charges against Respondents. DONE AND ENTERED this 25th day of March, 2003, in Tallahassee, Leon County, Florida. JOHN G. VAN LANINGHAM Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 25th day of March, 2003.
Findings Of Fact 2. On April 16, 2008, the Department conducted an investigation and found Respondent conducting business at 1301 Seminole Blvd., Building C, Ste. 126, Largo, FL 33770. 3. At the time of the investigation Sal Cannatella was the general manager of the Respondent responsible for the operations at the foregoing business location. 4. Sixteen of Respondent’s employees at the above location made commercial telephone solicitations on behalf of Respondent. 5. At the time of the investigation Respondent was not registered with the Department. Respondent also was not licensed by the Office of Financial Regulation under Chapters 516 or 520, Part II, Florida Statutes, nor was Respondent a consumer finance lender supervised by any other governmental entity. 1 Filed May 29, 2009 1:42 PM Division of Administrative Hearings. 6. During the investigation Respondent produced a consumer finance license (#510102) and a retail installment seller license (#510522), both in the name of Interface Management, Inc. (“Interface”), and claimed to be an affiliate of Interface. Both licenses were issued by the Office of Financial Regulation. Respondent also produced a purported contract with an entity known as “Beginning Again, Inc.” 7. Respondent was a not a subsidiary of nor controlled Interface or Beginning Again. Conclusions of Law 8. The Department has authority to enforce Chapter 501, Part IV, Florida Statutes, the Florida Telemarketing Act (“Act”) and to enter this Settlement Agreement. §§120.57(4) and 501.612, Fla. Stat. (2007). 9. Respondent claimed it was exempt from the Act under §501.604(7), Florida Statutes, which states: 501.604 Exemptions.--The provisions of this part, except ss. 501.608 and 501.616(6) and (7), do not apply to: (7) Any supervised financial institution or parent, subsidiary, or affiliate thereof. As used in this section, "supervised financial institution” means any commercial bank, trust company, savings and loan association, mutual savings bank, credit union, industrial loan company, consumer finance lender, commercial finance lender, or insurer, provided that the institution is subject to supervision by an official or agency of this state, of any state, or of the United States. For the purposes of this exemption, "affiliate’ means a person who directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, a supervised financial institution. 10. Chapter 516, Florida Statutes, states in pertinent part: 516.02 Loans; lines of credit; rate of interest; license.-- (1) A person must not engage in the business of making consumer finance loans unless she or he is authorized to do so under this chapter or other statutes and unless the person first obtains a license from the office. $16.05 License.— (3) Only one place of business for the purpose of making loans under this chapter may be maintained under one license, but the office may issue additional licenses to a licensee upon compliance with all the provisions of this chapter governing issuance of a single license. 11. Chapter 520, Part II, Florida Statutes, states in pertinent part: §20.32 Licenses,-- (1) A person may not engage in or transact the business of a retail seller engaging in retail installment transactions as defined in this part or operate a branch of such business without a license, except that a license is not required for a retail seller whose retail installment transactions are limited to the honoring of credit cards issued by dealers in oil and petroleum products licensed to do business in this state. 12. | Whether Respondent claimed to be a “supervised financial institution” or an affiliate of Interface or Beginning Again, Respondent was required to have a separate license for its business location under Chapters 516 or 520, Part II, Florida Statutes. By failing to do so, Respondent was not exempt from the Act and was required to be licensed. §§501.604(7), 501.605(1), Fla. Stat. (2007). Settlement Terms 13. To resolve these matters without further legal proceedings, the Department and Respondent expressly agree as follows: a. Respondent shall pay a total of Two Thousand Five Hundred and No/100 Dollars ($2,500.00). Payment is due upon Respondent’s execution and return of this Settlement Agreement. b. Respondent shall not engage in commercial telephone solicitation without first being properly exempt or licensed under the Act. c. If Respondent is found engaging in commercial telephone solicitation without being properly licensed or exempt under the Act, Respondent admits such conduct constitutes an immediate threat to the safety and welfare of Florida consumers and consents to the immediate entry and service of an order by the Department requiring Respondent to cease and desist all activities in violation of the Act. Respondent waives all contested issues of material fact under §120.57(1), Florida Statutes, and consents to proceedings only under §120.57(2), Florida Statutes. In such proceedings, if Respondent is found in violation of the Act, Respondent consents to the entry of a final order imposing administrative fines of $10,000.00 per violation. 14. This Settlement Agreement shall be construed in accordance with Florida law. 15. Each party shall bear their own costs and fees. 16. Venue for any action arising from this Settlement Agreement shall be in Leon County, Florida. 17. This Settlement Agreement constitutes the entire agreement between the Department and Respondent, including anyone acting for, associated with, or employed by either of them, concerning only the matters specified above and supersedes any prior discussions, agreements, or understandings; there are no promises, representatioris, or agreements between the parties other than as set forth herein. No modification or waiver of any provision shall be valid unless a written amendment to the Settlement Agreement is completed and properly executed by the parties. 18. This is an agreement of settlement and compromise, recognizing the parties may have different or incorrect, information, understandings, or contentions as to facts and law, with each party compromising and settling all such information, understandings, and contentions as to fact and law, so that no misunderstanding or misinformation shall be grounds for rescission of this Settlement Agreement. 19. Respondent expressly waives in this matter its rights to any hearing under Chapter 120, Florida Statutes, the making of findings of fact and conclusions of law by the Department, and all other proceedings, including appeals, to which Respondent may be entitled regarding any and all issues raised in this case. 20. This Settlement Agreement is and shall be deemed jointly drafted and written by all parties to it and shall not be construed or interpreted against any party. 21. To the extent any provision of this Settlement Agreement is prohibited by law for any reason such prohibition shall not affect any other provision of this Settlement Agreement. 22. — This Settlement Agreement shall inure to the benefit of and be binding on each party’s successors, assigns, heirs, administrators, representatives, and trustees. 23. All times stated herein are of the essence of this Settlement Agreement. 24. Approval Authority: This Settlement Agreement shall be valid and binding on the Department only upon acceptance and approval of its terms as shown through the execution below by the Department’s authorized representative. Florida Department of Agriculture and Consumer Services LW Il Eric H. Miller, Senior Attorney 2005 Apalachee Parkway Tallahassee, FL 32301 (850) 410-3775 (850) 410-3797 (facsimile) Date: [iw reeg National Consumer Services, Inc. SS _ La Print Name: SAL Te ANNATELLA Off Date: Yor © a
