The Issue Whether the Respondent committed the offenses alleged in the Amended Administrative Complaint, and, if so, the penalty that should be imposed.
Findings Of Fact At the final hearing, the Department made allegations in its opening statement and presented evidence regarding wrongful acts of the Respondent that were not specifically alleged in its Complaint. As explained in the Conclusions of Law, below, only the specific factual allegations in the Department's Complaint are properly in dispute in this case. The findings of fact in this Recommended Order must be confined to the proof or lack of proof of those factual allegations. Evidence regarding wrongful acts of the Respondent not specifically alleged in the Department's Complaint will not support a finding of fact or a recommendation for disciplinary action. Based on the oral and documentary evidence presented at the final hearing and on the entire record of this proceeding, the following findings of fact are made: Findings Applicable to All Counts The Department is the state agency charged with administration of the Insurance Code of the State of Florida, including Chapter 626, Florida Statutes (2004). Clinton Mitchell Alford is licensed in Florida as an insurance agent. He holds license number A003524, under which he is authorized to handle several lines of insurance, including variable annuities. Mr. Alford was employed by and maintained an office at Mercantile Bank in Orlando, Florida. Customers of Mercantile Bank were sometimes directed to Mr. Alford by bank employees if the customers had questions about or expressed an interest in investment products that Mr. Alford handled. Mr. Alford was also an employee of UVEST Financial Services ("UVEST"), a financial investment firm that provides investment advisory services. Mr. Alford was not an employee of Lincoln Benefit Life Company ("Lincoln Life") of Lincoln, Nebraska, but he was an authorized agent for Lincoln Life. All of the counts in the Department's Complaint involve annuities handled by Mr. Alford as the agent for Lincoln Life. Lincoln Life paid commissions to UVEST when Mr. Alford acted as agent in the sale of a Lincoln Life annuity policy. How those commissions were then divided between Mr. Alford and UVEST would have been pursuant to an agreement between Mr. Alford and UVEST. No evidence was presented regarding the terms of that agreement. Mr. Alford also received "production bonuses" from Lincoln Life, in the form of cash and a vacation cruise, for the sale of policies for which Mr. Alford acted as the agent. The annuity policies sold by Lincoln Life that are the subject of this case involved the deposit of "initial premiums" with Lincoln by the purchasers of the annuities, in return for which the purchasers, or "annuitants," would receive a guaranteed rate of interest for a stated time period, the "guarantee period." Upon the death of the annuitant, the policies provide a stream of payments to the annuitant's beneficiaries. Each annuity policy involved in this case included terms to discourage the early withdrawal of funds deposited with Lincoln Life. In general, an annuitant could withdraw his or her money from Lincoln Life after the guarantee period without restriction. If an annuitant withdrew funds before the end of the guarantee period, however, a "surrender charge," also called a "withdrawal charge," would be imposed by Lincoln Life. The surrender charge was a stated percentage of the funds withdrawn. This surrender charge was greatest in the first year of the guarantee period and then decreased in subsequent years so that a withdrawal near the end of the guarantee period had the smallest associated surrender charge. The shorter the guarantee period in which a surrender charge would be imposed, the more advantageous and attractive the annuity would be to a customer. The procedure generally applicable to the sale of annuity policies by Lincoln Life was as follows: an annuity application would be prepared by an agent in a meeting with the customer; the agent would then send the application to Lincoln Life along with a check for the initial premium to be deposited to the customer's account; Lincoln Life would determine whether the application was sufficient and, if so, print out a policy for the customer; Lincoln Life would then send the policy to the agent for delivery to the customer. When Lincoln Life discovered discrepancies in annuity application and policy documents, as described below, it honored the terms of the policies as represented to the annuitants and allowed the annuitants to elect to terminate the policies without penalty. No damages other than frustration and anxiety were suffered by these annuitants as a result of the alleged unlawful acts of Mr. Alford. They suffered no financial losses. Count II - Peter Dempsey In November 2002, Lincoln Life received an application for an annuity policy prepared and signed by Mr. Alford that purported to be on behalf of Peter Dempsey and signed by Mr. Dempsey. Following its receipt of the annuity application for Mr. Dempsey and a $100,000 cashier's check issued by Mercantile Bank for the initial premium payment, Lincoln Life issued annuity policy LBF1111304 to Mr. Dempsey. Peter Dempsey says he has no recollection of ever meeting Mr. Alford. Mr. Dempsey says he had no knowledge of and did not consent to the annuity application that was received by Lincoln Life. Mr. Dempsey says he had no knowledge of and did not consent to the withdrawal of $100,000 from his Mercantile Bank account and the submittal of a cashier's check in that amount to Lincoln Life for the purchase of an annuity policy. Lincoln Life subsequently received a hand-written letter purported to be from Mr. Dempsey and signed by Mr. Dempsey requesting that his annuity policy be canceled. Mr. Dempsey denies creating or signing the letter. The letter was undated, but refers to a "10 day free look" allowed under the terms of the annuity policy, suggesting that the letter was prepared soon after the issuance of the annuity policy by Lincoln Life. Lincoln Life cancelled Mr. Dempsey's policy and returned his $100,000 premium payment. Pursuant to the policies and procedures of Lincoln Life, Mr. Alford could have received credit for the sale of a Lincoln Life policy to Mr. Dempsey even though the policy was subsequently cancelled. Although any commission paid to an agent by Lincoln Life would normally have to be repaid when a policy was cancelled, the agent could still receive credit toward a production bonus. The theory behind Count II of the Department's Complaint is that Mr. Alford, in order to get credit from Lincoln Life toward a production bonus, created the bogus application for Mr. Dempsey, managed to withdraw $100,000 from Mr. Dempsey's bank account to send to Lincoln Life with the application, then quickly cancelled the policy with a forged letter and deposited the $100,000 back into Mr. Dempsey's bank account. There are some holes in this theory. A deposit of $101,428 was made to Mr. Dempsey's Mercantile Bank account on January 7, 2003, using a deposit slip pre-printed with Mr. Dempsey's name. The deposit slip indicates that the total amount deposited comprised three checks: $100,000 (from Lincoln Life), $950 (a check to Mr. Dempsey's wife) and $478 (a check to Mr. Dempsey). The use of a personal deposit slip and the deposit of two other checks strongly suggests that Mr. Dempsey or his wife (it was a joint account) made the deposit, not Mr. Alford. The Department did not present evidence to the contrary. Mr. Dempsey says he was not aware of the $100,000 transaction until it was brought to his attention by the Department in 2004 in the course of its investigation of annuity policies for which Mr. Alford acted as agent. However, if Mr. Dempsey was not involved in the $100,000 transaction, it is difficult to understand why he was not perplexed and did not make inquiries to find out why he had received a $100,000 check from Lincoln Life, a company he supposedly had no dealings with. There is a more credible explanation - Mr. Dempsey purchased the Lincoln Life annuity policy in 2002 and then cancelled it, but he has since forgotten that he did. Mr. Dempsey was 80 years old in 2004 when the Department interviewed him as part of its investigation of Mr. Alford's alleged unlawful acts. He admitted that his memory sometimes fails him. His mental acuity might also be diminished. He stated that it was not his signature on a document that the Department's investigator testified she saw him sign in her presence. Obviously, if Mr. Dempsey does not recognize his own signature, it calls into question his testimony that the signatures on the Lincoln Life annuity application and cancellation letter were not authentic. It appears plausible from the record evidence that when the Department contacted Mr. Dempsey in 2004 to inquire about his dealings with Mr. Alford, Mr. Dempsey denied any knowledge of the Lincoln Life annuity because he had forgotten the transaction. The Department accepted Mr. Dempsey's denial because the Department had other evidence of wrongdoing by Mr. Alford. The Department deduced, therefore, that Mr. Alford had fabricated and forged Mr. Dempsey's annuity documents and withdrew the $100,000 from Mr. Dempsey's bank account to fund the annuity. The circumstances surrounding Mr. Dempsey's annuity policy remain uncertain on this record. The Department's evidence was not clear and convincing that Mr. Alford prepared the annuity application without Mr. Dempsey's knowledge or consent, withdrew money from Mr. Dempsey's bank account without Mr. Dempsey's knowledge or consent, or forged a letter requesting that the annuity policy be cancelled. Count IV - Barbara Kirkland Mr. Alford was the insurance agent who assisted Barbara Kirkland in purchasing an annuity policy from Lincoln Life in January 2004. The policy number was LBF1129343. Mr. Alford told Ms. Kirkland that the guarantee period for the Lincoln Life annuity she purchased, during which she would not be able to withdraw her money without a surrender charge, was two years. That was a misrepresentation because Lincoln Life did not sell an annuity with a guarantee period of only two years. The actual guarantee period for the annuity purchased by Ms. Kirkland was six years. In Ms. Kirkland's presence, Mr. Alford filled out a Lincoln Life annuity application form for Ms. Kirkland that contained, along with other information, the two-year guarantee period he had misrepresented to her. Ms. Kirkland signed the application form. Based on Mr. Alford's misrepresentation that the guarantee period was two years, Ms. Kirkland purchased an annuity policy from Lincoln Life and deposited an initial premium of $100,000. Ms. Kirkland would not have purchased the Lincoln Life annuity but for Mr. Alford's misrepresentation that the guarantee period was only two years. Lincoln Life did not receive the annuity application Mr. Alford prepared in the presence of Ms. Kirkland and that Ms. Kirkland signed. Lincoln Life received a different application that indicated the correct six-year guarantee period offered by Lincoln Life under the particular annuity policy purchased by Ms. Kirkland. Ms. Kirkland had no knowledge of and did not consent to the altered annuity application that was received by Lincoln Life. Thomas Vastrick, an expert forensic document examiner, compared the hand printing on Ms. Kirkland's altered application with samples of Mr. Alford's hand printing and concluded that the hand printing had "common authorship." Therefore, it was proven that Mr. Alford prepared the altered Kirkland application. Mr. Alford's preparation of the altered application proves that his statement to Ms. Kirkland that the guarantee period was two years was not merely a mistake, but was a willful misrepresentation and a willful deception. However, Mr. Alford's alteration of the annuity application will not support a finding that he lacked fitness or trustworthiness, or that he engaged in a fraudulent or dishonest practice, because the Department did not allege in its Complaint that Mr. Alford altered Ms. Kirkland's annuity application. Similarly, evidence presented by the Department that Mr. Alford altered the annuity policy issued by Lincoln Life before delivering it to Ms. Kirkland in order to conceal the six-year guarantee period in the policy, will not support a finding of fact because the Department did not allege in its Complaint that Mr. Alford altered the annuity policy. The Department alleged in its Complaint that Mr. Alford forged Ms. Kirkland's signature on a "related document." The Respondent stipulated that the signature on the altered application was a forgery. The Department presented no evidence, however, regarding the identity of the person who forged Ms. Kirkland's signature. The circumstantial evidence in the record is not sufficient in this disciplinary case to prove that Mr. Alford was the person who forged Ms. Kirkland's signature on the Benefits Summary. Count V - Richard Wissusik Mr. Alford was the insurance agent that assisted Richard Wissusik in purchasing an annuity policy from Lincoln Life in March 2003. The policy number was LBF1118978. Mr. Alford told Mr. Wissusik that the guarantee period for the annuity he purchased from Lincoln Life, during which he would not be able to withdraw his money without a surrender charge, was two years. That was a misrepresentation because Lincoln Life did not sell an annuity with a guarantee period of only two years. The actual guarantee period for the annuity purchased by Mr. Wissusik was five years. In Mr. Wissusik's presence, Mr. Alford filled out a Lincoln Life annuity application form for Mr. Wissusik that contained, along with other information, the two-year guarantee period he had misrepresented to Mr. Wissusik. Mr. Wissusik signed the application form. Based on Mr. Alford's misrepresentation that the guarantee period was two years, Mr. Wissusik purchased an annuity policy from Lincoln Life with an initial premium deposit of $30,016.73. Mr. Wissusik would not have purchased the Lincoln Life annuity but for Mr. Alford's misrepresentation that the guarantee period was only two years. Mr. Alford did not send the annuity application he prepared in the presence of Mr. Wissusik and that was signed by Mr. Wissusik to Lincoln Life. Lincoln Life received a different application that indicated the correct five-year guarantee period offered by Lincoln Life under the particular annuity policy purchased by Mr. Wissusik. Mr. Wissusik had no knowledge of and did not consent to the altered annuity application that was received by Lincoln Life. Thomas Vastrick, an expert forensic document examiner, compared the hand printing on Mr. Wissusik's altered application with samples of Mr. Alford's hand printing and concluded that the hand printing had "common authorship." Therefore, it was proven that Mr. Alford prepared the altered Wissusik application. Mr. Alford's preparation of the altered application proves that his statement to Mr. Wissusik that the guarantee period was two years was not merely a mistake, but was a willful misrepresentation and a willful deception. However, Mr. Alford's alteration of the annuity application to indicate a five-year guarantee period will not support a finding that he lacked fitness or trustworthiness, or that he engaged in a fraudulent or dishonest practice, because the Department did not allege in its Complaint that Mr. Alford altered the guarantee period stated in the application. Similarly, evidence presented by the Department that Mr. Alford altered the annuity policy issued by Lincoln Life before delivering it to Mr. Wissusik in order to conceal the five-year guarantee period in the policy, will not support a finding of fact because the Department did not allege in its Complaint that Mr. Alford altered the annuity policy. The Department alleged in its Complaint that Mr. Alford forged Mr. Wissusik's signature on the altered annuity application. The Respondent stipulated that the signature on the altered application was a forgery. The Department presented no evidence, however, regarding the identity of the person who forged Mr. Wissusik's signature. The circumstantial evidence in the record is not sufficient in this disciplinary case to prove that Mr. Alford was the person who forged Mr. Wissusik's signature on the altered annuity application. Count VII - Beaver Street Foundation, Inc. Mr. Alford was the insurance agent that assisted Beaver Street Foundation, Inc. ("the Foundation"), in purchasing an annuity policy from Lincoln Life in January 2003. The policy number was LBF1114198. Paulette Rocher is an employee of Beaver Street Fisheries and was the administrative assistant to Hans Frisch and Alfred Frisch, the owners of Beaver Street Fisheries. Hans Frisch and Alfred Frisch are directors of the Foundation. Ms. Rocher worked directly with Mr. Alford in discussing by telephone the terms of the Lincoln Life annuity policy purchased by the Foundation. Mr. Alford told Ms. Rocher that the guarantee period for the annuity purchased by the Foundation, during which it would not be able to withdraw its money from Lincoln Life without a surrender charge, was two years. That was a misrepresentation because Lincoln Life did not sell an annuity with a guarantee period of only two years. The actual guarantee period for the annuity purchased by the Foundation was five years. Based on Mr. Alford's misrepresentation that the guarantee period was two years, the Foundation purchased an annuity policy with Lincoln Life with an initial premium deposit of $560,000. The Foundation would not have purchased the Lincoln Life annuity but for Mr. Alford's misrepresentation that the guarantee period was only two years. Based on her discussions with Mr. Alford, and using a Lincoln Life annuity application form, Ms. Rocher typed in the information for the Foundation, including the two-year guarantee period. Hans Frisch signed the application on behalf of the Foundation. Mr. Alford did not send the annuity application typed by Ms. Rocher and signed by Hans Frisch to Lincoln Life. Lincoln Life received a hand-written application that indicated the correct five-year guarantee period offered by Lincoln Life under the particular annuity policy purchased by the Foundation. The Foundation had no knowledge of and did not consent to the altered annuity application that was received by Lincoln Life. Thomas Vastrick, an expert forensic document examiner, compared the hand printing on six altered annuity applications with samples of Mr. Alford's hand printing and concluded that Mr. Alford had prepared the six altered applications. However, Mr. Vastrick apparently was not provided the Foundation's altered annuity application to include in his analysis. Nevertheless, I find that Mr. Alford prepared the altered Foundation annuity application based on 1) the obvious similarity of the hand printing, 2) the pattern established by Mr. Alford's fabrication of annuity applications for six other annuitants under almost identical circumstances, and 3) Mr. Alford's submittal of the Foundation's altered application to Lincoln Life. Mr. Alford's preparation of the altered application proves that his statement to Ms. Rocher regarding the two-year guarantee period was a willful misrepresentation and a willful deception. However, Mr. Alford's alteration of the annuity application to indicate a five-year guarantee period will not support a finding that he lacked fitness or trustworthiness, or that he engaged in a fraudulent or dishonest practice, because the Department did not allege in its Complaint that Mr. Alford altered the annuity application. There was some evidence presented by the Department regarding the forgery of Hans Frisch's signature on the altered annuity application. The Department, however, did not allege in its Complaint that Mr. Alford forged Han Frisch's signature. Therefore, no finding is made as to forgery. The Department alleged in Count VII of its Complaint that Mr. Alford "fabricated an Annuity Data document" for the Foundation. The Annuity Data document was admitted into evidence as part of Petitioner's Exhibit 27, but there was no testimony elicited from any witness to explain who created the document, its purpose, how it was used, or who received it. The evidence in the record is insufficient to prove Mr. Alford fabricated the document. Count VIII - Riverside and Associates, Ltd. Mr. Alford was the insurance agent that assisted Riverside and Associates, Ltd. ("Riverside"), in purchasing an annuity policy from Lincoln Life in January 2003. The policy number was LBF1115101. Paulette Rocher was the administrative assistant to Hans Frisch and Alfred Frisch who were officers of Riverside. Ms. Rocher worked directly with Mr. Alford by telephone in discussing the terms of the Lincoln Life annuity policy purchased by Riverside. Mr. Alford told Ms. Rocher that the guarantee period for the annuity purchased by Riverside, during which it would not be able to withdraw its money from Lincoln Life without a surrender charge, was two years. That was a misrepresentation because Lincoln Life did not sell an annuity with a guarantee period of only two years. The actual guarantee period for the annuity purchased by Riverside was five years. Based on her discussions with Mr. Alford, and using a Lincoln Life annuity application form, Ms. Rocher typed in the information for Riverside, including the two-year guarantee period. Alfred Frisch signed the application on behalf of the Riverside. Based on Mr. Alford's misrepresentation that the guarantee period was two years, Riverside purchased an annuity policy with Lincoln Life with an initial deposit of $900,000. Riverside would not have purchased the Lincoln Life annuity but for Mr. Alford's misrepresentation that the guarantee period was only two years. Mr. Alford did not send the annuity application typed by Ms. Rocher and signed by Alfred Frisch to Lincoln Life. Lincoln Life received a hand-written application that indicated the correct five-year guarantee period offered by Lincoln Life under the particular annuity policy purchased by Riverside. Riverside had no knowledge of and did not consent to the altered annuity application that was received by Lincoln Life. Thomas Vastrick, an expert forensic document examiner, compared the hand printing on six altered annuity applications with samples of Mr. Alford's hand printing and concluded that Mr. Alford had prepared the six altered applications. However, Mr. Vastrick apparently was not provided Riverside's altered annuity application to include in his analysis. Nevertheless, I find that Mr. Alford prepared the altered Riverside annuity application based on 1) the obvious similarity of the hand printing, 2) the pattern established by Mr. Alford's fabrication of annuity applications for six other annuitants under almost identical circumstances, and 3) Mr. Alford's submittal of Riverside's altered application to Lincoln Life. Mr. Alford's preparation of the altered application proves that his statement to Riverside regarding the two-year guarantee period was a willful misrepresentation. However, Mr. Alford's alteration of the annuity application to indicate a five-year guarantee period will not support a finding that he lacked fitness or trustworthiness, or that he engaged in a fraudulent or dishonest practice, because the Department did not allege in its Complaint that Mr. Alford altered the annuity application. There was some evidence presented by the Department regarding the forgery of Alfred Frisch's signature. The Complaint, however, did not allege that Mr. Alford had forged Alfred Frisch's signature. Therefore, no finding is made as to forgery. The Department alleged in Count VIII of its Complaint that Mr. Alford "fabricated an Annuity Data document" for the Riverside. The Annuity Data document was admitted into evidence as part of Petitioner's Exhibit 29, but there was no testimony elicited from any witness to explain who created the document, its purpose, how it was used, or who received it. The evidence in the record is insufficient to prove Mr. Alford fabricated the document. Counts IX, XII, and XIII - Alfred Frisch Living Trust Three separate Lincoln Life annuity policies were purchased by the Alfred Frisch Living Trust in February, May, and June 2003. Mr. Alford was the insurance agent for all three annuities. The policy numbers for the three annuity policies were LBF1116531 (issued February 26, 2003), LBF1121912 (issued May 29, 2003), and LBF1121839 (issued June 16, 2003). Paulette Rocher was the administrative assistant to Hans Frisch and Alfred Frisch. Alfred Frisch died in December 2004. Ms. Rocher worked directly with Mr. Alford by telephone in discussing the terms of the three Lincoln Life annuity policies purchased by the Alfred Frisch Living Trust. Mr. Alford told Ms. Rocher that the guarantee period for the annuity policies purchased by the Alfred Frisch Living Trust, during which the Trust would not be able to withdraw its money from Lincoln Life without a surrender charge, was two years. That was a misrepresentation because Lincoln Life did not sell an annuity with a guarantee period of only two years. The actual guarantee period for the three annuity policies purchased by the Alfred Frisch Living Trust was five years. Based on her discussions with Mr. Alford, and using a Lincoln Life annuity application form, Ms. Rocher typed in the information on the annuity application for the Alfred Frisch Living Trust, including the two-year guarantee period. Alfred Frisch signed all three applications on behalf of the Trust. Based on the misrepresentations by Mr. Alford that the guarantee period was two years, the Alfred Frisch Living Trust purchased the three annuity policies with Lincoln Life with initial premium deposits of $375,000 for policy LBF1116531; $330,000 for policy LBF1121912; and $290,000 for policy LBF1121839. The Alfred Frisch Living Trust would not have purchased the Lincoln Life annuity policies but for the misrepresentations of Mr. Alford that the guarantee period was only two years. Mr. Alford did not send the three annuity applications typed by Ms. Rocher for the Alfred Frisch Living Trust to Lincoln Life. Lincoln Life received different hand-written applications that contained the correct five-year guarantee period offered by Lincoln Life under the particular annuity policies purchased by the Alfred Frisch Living Trust. The Alfred Frisch Living Trust had no knowledge of and did not consent to the altered annuity applications that were received by Lincoln Life. Thomas Vastrick, an expert forensic document examiner, compared the hand printing on the altered annuity applications dated January 31, 2003, and May 27, 2003, for the Alfred Frisch Living Trust with samples of Mr. Alford's hand printing and concluded that they were of "common authorship." Therefore, it was proven that Mr. Alford prepared these two altered applications for the Alfred Frisch Living Trust. Mr. Vastrick apparently was not provided the altered annuity application for the third annuity policy purchased by the Alfred Frisch Living Trust (LBF1121839) to include in his hand printing analysis. Nevertheless, I find that Mr. Alford prepared the third altered annuity application based on 1) the obvious similarity of the hand printing, 2) the pattern established by Mr. Alford's fabrication of annuity applications for six other annuitants under almost identical circumstances, and 3) Mr. Alford's submittal of the third altered application for the Alfred Frisch Living Trust to Lincoln Life. Mr. Alford's preparation of the altered application proves that he knew his statements to Ms. Rocher regarding the two-year guarantee period in the three annuity policies were willful misrepresentations and willful deceptions. However, Mr. Alford's alteration of the annuity applications to indicate a five-year guarantee period will not support findings that he lacked fitness or trustworthiness, or that he engaged in a fraudulent or dishonest practice, because the Department did not allege in its Complaint that Mr. Alford altered the annuity application. There was some evidence presented by the Department regarding the forgery of Alfred Frisch's signature on the altered annuity application for the Alfred Frisch Living Trust. The Complaint, however, did not allege that Mr. Alford had forged Alfred Frisch's signature. Therefore, no finding is made as to forgery. The Department alleged in Counts IX, XII, and XIII of its Complaint that Mr. Alford had "fabricated an Annuity Data document" for each of the three Alfred Frisch Living Trust annuities. The Annuity Data documents were admitted into evidence as part of Petitioner's Exhibits 31, 37, and 39, respectively, but there was no testimony elicited from any witness to explain who created the documents, their purpose, how they were used, or who received them. The evidence in the record is insufficient to prove Mr. Alford fabricated the documents. Count X - Steven M. Frisch Trust Stephen M. Frisch is the grandson of Hans Frisch. Mr. Alford was the insurance agent that assisted the Steven M. Frisch Trust in purchasing an annuity policy from Lincoln Life in May 2003. The policy number was F0187626. Paulette Rocher was the administrative assistant to Alfred Frisch and Hans Frisch. Ms. Rocher worked directly with Mr. Alford in discussing by telephone the terms of the Lincoln Life annuity policy purchased by the Steven M. Frisch Trust. Mr. Alford told Ms. Rocher that the guarantee period for the annuity purchased by the Steven M. Frisch Trust, during which it would not be able to withdraw its money from Lincoln Life without a surrender charge, was two years. That was a misrepresentation because Lincoln Life did not sell an annuity with a guarantee period of only two years. The actual guarantee period for the annuity purchased by the Steven M. Frisch Trust was five years. Based on her discussions with Mr. Alford, and using a Lincoln Life annuity application form, Ms. Rocher typed in the information for the Steven M. Frisch Trust, including the two- year guarantee period. Eldad Frisch and Benjamin Frisch (the father and uncle of Steven Frisch) signed the annuity application on behalf of the Steven M. Frisch Trust. Based on Mr. Alford's misrepresentation that the guarantee period was two years, the Steven M. Frisch Trust purchased a Lincoln Life annuity policy with an initial premium deposit of $50,000. The Steven M. Frisch Trust would not have purchased the Lincoln Life annuity but for Mr. Alford's misrepresentation that the guarantee period was only two years. Mr. Alford did not send the annuity application typed by Ms. Rocher and signed by Eldad Frisch and Benjamin Frisch to Lincoln Life. Lincoln Life received a different application that contained the correct five-year guarantee period offered by Lincoln Life under the particular annuity policy purchased by the Steven M. Frisch Trust. The Steven M. Frisch Trust had no knowledge of and did not consent to the altered annuity application that was received by Lincoln Life. Thomas Vastrick, an expert forensic document examiner, compared the hand printing on the altered application for the Steven M. Frisch Trust with samples of Mr. Alford's hand printing and concluded that the hand printing had "common authorship." Therefore, it was proven that Mr. Alford prepared the altered application for the Steven M. Frisch Trust. Mr. Alford's preparation of the altered application proves that his statement to Ms. Rocher regarding the two-year guarantee period was a willful misrepresentation and a willful deception. However, Mr. Alford's alteration of the annuity application to indicate a five-year guarantee period will not support a finding that he lacked fitness or trustworthiness, or that he engaged in a fraudulent or dishonest practice, because the Department did not allege in its Complaint that Mr. Alford altered the annuity application. There was some evidence presented by the Department regarding the forgery of Steven Frisch's signature. The Complaint, however, did not allege that Mr. Alford had forged Steven Frisch's signature. Therefore, no finding is made as to forgery. The Department alleged in Count X of its Complaint that Mr. Alford had "fabricated an Annuity Data document" for the Steven M. Frisch Trust. The Annuity Data document was admitted into evidence as part of Petitioner's Exhibit 33, but there was no testimony elicited from any witness to explain who created the document, its purpose, how it was used, or who received it. There is insufficient evidence in the record to prove Mr. Alford fabricated the document. Count XI - Hans Frisch Living Trust Mr. Alford was the insurance agent that assisted the Hans Frisch Living Trust in purchasing an annuity policy from Lincoln Life in May 2003. The policy number was F0187627. Paulette Rocher is the administrative assistant to Hans Frisch and Alfred Frisch. Ms. Rocher who worked directly with Mr. Alford in discussing the terms of the annuity policy purchased by the Hans Frisch Living Trust. Mr. Alford told Ms. Rocher that the guarantee period for the annuity purchased by the Hans Frisch Living Trust, during which it would not be able to withdraw its money from Lincoln Life without a surrender charge, was two years. That was a misrepresentation because Lincoln Life did not sell an annuity with a guarantee period of only two years. The actual guarantee period for the annuity purchased by the Hans Frisch Living Trust was five years. Based on her discussions with Mr. Alford, and using a Lincoln Life annuity application form, Ms. Rocher typed in the information for the Hans Frisch Living Trust, including the two-year guarantee period. Hans Frisch signed the annuity application on behalf of the Trust. Based on Mr. Alford's misrepresentations that the guarantee period was two years, the Hans Frisch Living Trust purchased an Lincoln Life annuity policy with an initial deposit of $80,000. The Hans Frisch Living Trust would not have purchased the Lincoln Life annuity but for Mr. Alford's misrepresentation that the surrender period was only two years. Mr. Alford did not send the annuity application typed by Ms. Rocher and signed by Hans Frisch to Lincoln Life. Lincoln Life received a different application that indicated the correct five-year guarantee period offered by Lincoln Life under the particular annuity policy purchased by the Hans Frisch Living Trust. The Hans Frisch Living Trust had no knowledge of and did not consent to the altered annuity application that was received by Lincoln Life. Thomas Vastrick, an expert forensic document examiner, compared the hand printing on the altered application for the Hans Frisch Living Trust with samples of Mr. Alford's hand printing and concluded that the hand printing had "common authorship." Therefore, it was proven that Mr. Alford prepared the altered application for the Hans Frisch Living Trust. Mr. Alford's preparation of the altered application proves that his statement to the Hans Frisch Living Trust regarding the two-year guarantee period was a willful misrepresentation and a willful deception. However, Mr. Alford's alteration of the annuity application to indicate a five-year guarantee period will not support a finding that he lacked fitness or trustworthiness, or that he engaged in a fraudulent or dishonest practice, because the Department did not allege in its Complaint that Mr. Alford altered the annuity application. There was some evidence presented by the Department regarding the forgery of Hans Frisch's signature on the altered annuity application. The Complaint, however, did not allege that Mr. Alford had forged Han Frisch's signature. Therefore, no finding is made as to forgery. The Department alleged in Count XI of its Complaint that Mr. Alford "fabricated an Annuity Data document" for the Hans Frisch Living Trust. The Annuity Data document was admitted into evidence as part of Petitioner's Exhibit 35, but there was no testimony elicited from any witness to explain who created the document, its purpose, how it was used, or who received it. There is insufficient evidence in the record to prove Mr. Alford fabricated the document.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Financial Services enter a final order that: finds Clinton Mitchell Alford violated Subsections 624.11(1); 626.611(5), (7), (9), and (13); 626.621(2), (6), and (9); and 626.9541(1)(a)1., Florida Statutes (2003), and revokes Mr. Alford's license, and imposes a fine against Mr. Alford of $90,000. DONE AND ENTERED this 14th day of September, 2005, 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 14th day of September, 2005. COPIES FURNISHED: Greg S. Marr, Esquire Department of Financial Services 200 East Gaines Street Tallahassee, Florida 32399-0333 Calvin J. Domenico, Jr., Esquire William R. Klein, Esquire William R. Klein, P.A. 1900 Main Street, Suite 310 Sarasota, Florida 34236 Honorable Tom Gallagher Chief Financial Officer Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Carlos G. Muñiz, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0307
The Issue The issue is whether disciplinary action should be taken against Respondents’ licenses based on the allegations set forth in Petitioner’s Administrative Complaint.
Findings Of Fact Background on Annuities In general, annuities are contracts in which the purchaser, usually an individual, makes one or more premium payments to the seller, usually an insurance company, in return for a series of payments that continue for a fixed period of time or for the life of the purchaser or a designated beneficiary. In re May, 478 B.R. 431, 433 (Bankr. D. Colo. 2012); Lander v. Hartford Life & Annuity Ins. Co., 251 F.3d 101, 104 (2d Cir. 2001). “For traditional or ‘fixed annuities,’ the stream of payments begins immediately or soon after the contract is purchased. The contract will specify the amount of interest that will be credited to the [buyer]’s account as well as the amount of payments to be received under the contract.” Lander, 251 F.3d at 104. Fixed annuities are similar to certificates of deposit in that the seller of a fixed annuity guarantees that the purchaser will earn a minimum rate of interest over time. Am. Equity Inv. Life Ins. Co. v. SEC, 613 F.3d 166, 168 (D.C. Cir. 2009). In other words, fixed annuities do not lose money. Fixed annuities are typically thought of as insurance products because the purchaser receives a guaranteed stream of income for life, and the seller assumes “mortality risk.” The seller’s risk arises from the possibility that the purchaser will live longer than expected, thereby receiving benefits that exceed the amount paid to the seller. Id. In re May, 478 B.R. at 434 (noting that “a person typically purchases an annuity to avoid the risk associated with living an unexpectedly long life and running short of financial resources.”). A fixed annuity is appropriate for someone who desires a guaranteed interest rate without incurring the risk associated with the stock market. Because there is little to no risk, the returns on fixed annuities tend to be lower than the types of annuities discussed below. In contrast to a fixed annuity, the stream of payments associated with a variable annuity does not start upon purchase of the contract. Instead, the purchaser makes a single payment or a series of payments that are invested in securities of the purchaser’s choosing. Those securities are typically mutual funds or other types of investments that reflect the purchaser’s investment objectives. Lander, 251 F.3d at 104-05. From the time that a variable annuity is purchased to the time it begins to pay out, the annuity’s value will fluctuate depending on the performance of the underlying securities in which the purchaser’s principal is invested. Id. at 105. After a defined number of years, the variable annuity will mature and begin paying benefits to the purchaser. The purchaser is not guaranteed a particular payout. Instead, the payout will vary depending on the value of the portfolio at the annuity’s maturity and the purchaser’s life expectancy. Id. A variable annuity has characteristics that make it like an insurance product. By providing periodic payments that continue for the purchaser’s life, a variable annuity provides a hedge against the possibility that the purchaser will outlive his or her assets after retirement. Id. However, a variable annuity is also like a stock mutual fund in that the amount of benefits paid to the purchaser depends on the performance of the investment portfolio. As a result, many purchasers use variable annuities to accumulate greater retirement funds through market speculation. See In re May, 478 B.R. at 434 (explaining that “[m]any annuities are now ‘variable’ rather than fixed, and contemplate that the premiums collected will be invested in stocks or other equities, and that benefit payments to the annuitant will vary with the success of the annuity’s investment policy. In other words, the annuitant is not guaranteed a fixed level of benefits, rather the payment amount will vary depending upon the value of the stock portfolio upon maturity. Such variable annuities are considered akin to an investment contract, because they place all the investment risk on the [purchaser] and guarantee nothing to the annuitant except an interest in a portfolio of common stocks or other equities . . . .”)(internal citations omitted). A fixed index annuity is a hybrid financial product that combines some of the benefits of fixed annuities with the earning potential associated with a security. Am. Equity Inv. Life Ins. Co., 613 F.3d at 168. Like fixed annuities, fixed index annuities provide downside protection through a minimum guaranteed rate of return. However, the seller of the annuity “credits the purchaser with a return that is based on the performance of a securities index, such as the Dow Jones Industrial Average, Nasdaq 100 Index, or [the] Standard & Poor’s 500 Index.” Id. Therefore, depending on the index’s performance, the return on a fixed index annuity might be much higher than the guaranteed return. Id. The fixed index annuity may have a participation rate that limits the buyer’s upside. For example, if a particular fixed index annuity has an 80 percent participation rate and is tied to the Standard and Poor’s 500, then that annuity would return 8 percent if the Standard and Poor’s 500 rose 10 percent that year. In short, a fixed index annuity provides principal protection in a down stock market. While the potential return is less than what one would expect from a variable annuity, it is greater than what one would expect from a certificate of deposit or a fixed annuity. Therefore, a fixed index annuity appeals to someone who desires an opportunity to experience gains in a good market while also receiving protection from market downturns. For an additional fee, a purchaser can customize an annuity through the addition of “riders.” For example, an annuity with a guaranteed income rider provides a guaranteed amount of income for the annuity owner’s life. That income stream continues even if declines in the stock market cause the principal to dissipate. That guaranteed income stream does not start until it is activated by the annuity owner. Until activation, the money associated with the rider grows at a guaranteed rate of return, known as the “roll-up rate,” so long as the annuity owner does not activate the income stream. That guaranteed income stream can be destroyed if the annuity owner takes a withdrawal from the annuity’s principal. Surrender charges are another annuity feature and provide that the buyer will be penalized if he or she withdraws money from the annuity. Surrender charges usually apply during the first five to ten years after the annuity’s purchase and gradually decline over time. For example, an annuity could have a 10 percent surrender charge if the owner withdraws money during the first three years after purchase. During the next three-year period, that surrender charge may decrease to 7 percent. By the tenth year after purchase, the surrender charge could have decreased to 3 percent. Before a sale is completed, Florida law requires that insurance agents ensure that an annuity is “suitable” for the client. For example, section 627.4554(4)(a), Florida Statutes (2012), imposed the following duty on insurers and insurance agents: In recommending to a senior consumer the purchase of an annuity or the exchange of an annuity that results in another insurance transaction or series of insurance transactions, an insurance agent, or an insurer if no insurance agent is involved, shall have reasonable grounds for believing that the recommendation is suitable for the senior consumer on the basis of the facts disclosed by the senior consumer as to his or her investments and other insurance products and as to his or her financial situation and needs. The current version of section 627.4554 does not limit the suitability analysis to senior consumers and sets forth additional detail about the content of a suitability analysis: When recommending the purchase or exchange of an annuity to a consumer which results in an insurance transaction or series of insurance transactions, the agent, or the insurer where no agent is involved, must have reasonable grounds for believing that the recommendation is suitable for the consumer, based on the consumer’s suitability information, and that there is a reasonable basis to believe all of the following: The consumer has been reasonably informed of various features of the annuity, such as the potential surrender period and surrender charge; potential tax penalty if the consumer sells, exchanges, surrenders, or annuitizes the annuity; mortality and expense fees; investment advisory fees; potential charges for and features of riders; limitations on interest returns; insurance and investment components; and market risk. The consumer would benefit from certain features of the annuity, such as tax-deferred growth, annuitization, or the death or living benefit. The particular annuity as a whole, the underlying subaccounts to which funds are allocated at the time of purchase or exchange of the annuity, and riders and similar product enhancements, if any, are suitable; and, in the case of an exchange or replacement, the transaction as a whole is suitable for the particular consumer based on his or her suitability information. In the case of an exchange or replacement of an annuity, the exchange or replacement is suitable after considering whether the consumer: Will incur a surrender charge; be subject to the commencement of a new surrender period; lose existing benefits, such as death, living, or other contractual benefits; or be subject to increased fees, investment advisory fees, or charges for riders and similar product enhancements; Would benefit from product enhancements and improvements; and Has had another annuity exchange or replacement, including an exchange or replacement within the preceding 36 months. § 627.4554(5)(a), Fla. Stat. (2018). Despite section 627.4554, the suitability analysis tends to be subjective in nature. Extreme circumstances notwithstanding, it is fair to say that reasonable people could reach different conclusions about what annuity would be best for a certain person. The Parties The Department is the state agency responsible for regulating and licensing insurance agents and agencies. That responsibility includes disciplining licensed agents and agencies for violations of the statutes and rules governing their profession. At all times relevant to the instant case, Ms. Dorrell was a Florida-licensed insurance agent selling fixed annuities and fixed index annuities. She owns SFS, a licensed insurance agency located in The Villages, Florida. Ms. Dorrell is not licensed to conduct securities business. Count I – Frederic Gilpin Frederic Gilpin was born in 1940 and worked in the automobile industry, primarily as a service manager in dealerships, for 44 years before retiring in 2006. Mr. Gilpin purchased a Prudential variable annuity in 2006 through Bryan Harris, an investment advisor in Maryland, for $260,851.14. By September 30, 2007, the value of Mr. Gilpin’s Prudential variable annuity had increased to $326,557.31. On December 31, 2007, its value had fallen to $319,877.84. On December 31, 2008, Mr. Gilpin’s Prudential variable annuity was worth only $200,989.32. By March 31, 2009, its value had fallen to $183,217.37. The decrease in the annuity’s underlying value coincided with the precipitous declines experienced by the stock market in 2008 and 2009. On May 1, 2009, Mr. Gilpin exercised a rider in the Prudential annuity contract that guaranteed a yearly income of $15,625. That annual income would continue for the rest of his life regardless of the stock market’s performance. The guaranteed income stream would only be destroyed if Mr. Gilpin withdrew from the annuity’s principal. Mr. Gilpin and his wife met with Ms. Dorrell in 2012 to discuss their financial situation. Mr. Gilpin reported that he was very concerned with income, preservation of assets, and maximizing growth. According to Ms. Dorrell, Mr. Gilpin “did express to me that he was concerned about a downturn [in the stock market] because he had already gone through one in [2007 and 2008] and lost quite a bit of money in the annuity.” Mr. Gilpin also told her that he and his wife had committed “financial suicide” because “he had taken excess withdrawals from his variable annuity when they went to buy [their home in Florida] and that they were constantly invading their investments to help their children and they needed to stop that.” As recommended by Ms. Dorrell, Mr. Gilpin surrendered the Prudential annuity and used the proceeds to purchase a fixed index Security Benefit annuity. The purchase price of approximately $205,000 for the Security Benefit annuity was allocated between two accounts whose performance was tied to the Standard and Poor’s 500. Mr. Gilpin filled out a Department form titled “Annuity Suitability Questionnaire” on September 26, 2012, and reported that he was purchasing the Security Benefit annuity for “safety of principal + guarantee.” He also reported that he planned to keep the Security Benefit annuity for 10 years. At the time of this transaction, the Prudential annuity had four more years of surrender charges, and Mr. Gilpin started a new 10-year period of surrender charges associated with the Security Benefit annuity.4/ Mr. Gilpin incurred a surrender charge of $13,077.56 for surrendering the Prudential annuity. The surrender charge was more than offset by the 8 percent bonus (i.e., $16,000) he earned by purchasing the Security Benefit annuity. However, the 8 percent bonus was subject to recapture for the first six years. With the Security Benefit annuity, Mr. Gilpin could withdraw 10 percent of the money without penalty after the first year. If Mr. Gilpin waited until 2016 to take income from the Security Benefit annuity, then he would be getting over $17,000 a year in guaranteed income for his lifetime. If he died, then the guaranteed income stream would continue for his wife’s lifetime. Mr. Gilpin had no pressing need for income in 2012 because he had used the sale from his home in Maryland to acquire a home in Florida, and he had $50,000 left over. The Prudential annuity did not have a home healthcare doubler, and the Security Benefit annuity did. That feature increases the annuity purchaser’s income stream if he or she becomes disabled. The Security Benefit annuity had a 100-percent participation rate, and a 7-percent roll up rate. In contrast the Prudential annuity only offered a 5-percent roll up rate. In retrospect, Mr. Gilpin considers the move from the Prudential annuity to the Security Benefit annuity to be unwise. In recent years, Mr. Gilpin and his wife have experienced significant health issues. By purchasing the Security Benefit annuity and extending the amount of time that their funds were committed to relatively illiquid annuities, the Gilpins would likely have incurred substantial penalties if they had needed to use those funds to finance their medical treatment. Fortunately, the Gilpins are well-insured and were not compelled to take such drastic measures. Mr. Gilpin is also critical of Ms. Dorrell for recommending that he move his money from a variable annuity to a fixed index annuity. As a result, his holdings did not appreciate as much when the stock market rebounded from the lows of the most recent recession. Given that the Prudential annuity guaranteed him annual income of $15,625 regardless of valuations in the stock market, Mr. Gilpin stated “[t]here’s no way in the world [the Security Benefit annuity] could have been better for me, especially since the stock market has gone up.” This criticism is unfounded. It is exceedingly difficult to predict whether the stock market will go up or down, and Mr. Gilpen’s testimony enjoys the benefit of “20/20 hindsight.” A strongly contested point between the Department and Ms. Dorrell concerns whether Mr. Gilpin destroyed his guaranteed income stream by taking an excess withdrawal from the Prudential annuity. If he had, then it would be more difficult for the Department to argue that the Security Benefit annuity was not a suitable replacement for the Prudential annuity. In that regard, there is evidence suggesting that Mr. Gilpin took an excess withdrawal in 2010 and/or 2011. For example, Mr. Gilpin appeared to acknowledge during his testimony that he had taken an excess withdrawal from the Prudential policy in order to assist his daughter with purchasing a condominium.5/ Mr. and Mrs. Gilpin’s income tax return for 2010 indicates that they received $44,423.00 from “pensions and annuities.” That amount is listed separately from $15,626 attributed to “IRA distributions.” The Gilpin’s 2011 income tax return indicates they received $32,005.00 from “IRA distributions” and $43,778.00 from “pensions and annuities.” The evidence indicating that Mr. Gilpin may have taken an excess withdrawal corresponds with when the Gilpins moved to Florida and bought a house in 2011. According to Ms. Dorrell, Mr. Gilpin stated during a meeting with her on September 21, 2012, that “he had made an excess withdrawal to buy the house in Florida, because when they were down here, they found something and they didn’t want to lose out, so they took extra money out.” Also, Ms. Dorrell testified that she called Prudential and confirmed that he took an excess withdrawal in 2011. However, even if Mr. Gilpin had not destroyed the guaranteed income from the Prudential annuity, the evidence does not clearly and convincingly establish that the Security Benefit annuity was not a suitable replacement for the Prudential annuity. In sum, the Department failed to prove by clear and convincing evidence that Ms. Dorrell or SFS violated any statutes or rules in conducting business with Mr. Gilpin. Count IV – Deborah Gartner’s Annuities Deborah Gartner is a 71-year old widow who met Ms. Dorrell at an SFS seminar in 2007. Ms. Gartner filled out an SFS form indicating that her net worth was between $500,000 and $1 million. In January of 2008, Ms. Gartner met with Ms. Dorrell in order to seek financial advice. Ms. Gartner had $201,344.14 in a Guardian Trust account and $195,182.44 in a Guardian Trust IRA. In addition, Ms. Gartner owned an $80,000 certificate of deposit. On a monthly basis, Ms. Gartner was receiving $1,381 from social security, $786.15 from a pension, and $4,500 from investment withdrawals. The latter came from depleting principal rather than interest. Ms. Gartner also earned income from teaching one to three Zumba classes a week. One hundred people would attend those classes and pay $10 a person. At the time of the January 2008 meeting, the stock market was declining, and Ms. Gartner was adamant about getting out of equities. Ms. Dorrell told Ms. Gartner that annuities would be appropriate if she was interested in principal protection and guaranteed income. Because she lacked a securities license, Ms. Dorrell could not legally recommend or instruct Ms. Gartner to liquidate her equity investments, and Ms. Dorrell credibly denies doing so. Ms. Gartner was able to liquidate her Guardian Trust accounts without incurring any fees. The funds from the Guardian Trust accounts were used to purchase two Allianz and two American Equity annuities on February 1, 2008. The Department criticizes Ms. Dorrell for directing Ms. Gartner’s funds into four annuities rather than just two. Ms. Dorrell explained that this was intended to increase Ms. Gartner’s income: Q: Now, Mr. Davis this morning was explaining the reason for having multiple annuities. And if I understood him, it was that if you have multiple annuities and you want to either take a withdrawal or whatever other thing, you have to do it at a specific amount based upon the amount of the annuity; is that correct? A: Yes, that’s correct. It’s - - - Q: Well, for example, if you’re going to take a 10 percent penalty-free withdrawal, if you have a $75,000 annuity, you take $7,500. A: Right. Q: If you had a $150,000 annuity, you’re stuck at 15,000. A. Right. Q: But if you’ve got two $75,000 annuities, you could take it from one and leave the other one without being reduced? A: Yeah, some of the companies – some of the companies only allow a penalty-free withdrawal after the first year, but then once somebody makes a penalty-free withdrawal, some of the companies make them wait around another 12 months before they could make another one. So if she only needed $7,500 and she had 15,000 available, but then she needed the rest of it before the 12 months went by, she might have a problem. So that’s the reason I staggered the accounts for her and for many clients that are taking income. Q: In your opinion, was this suitable for Ms. Gartner at that time? A: Yes, it was. Q: Did you believe it was in her best interest? A: Yes. In March of 2008, Ms. Gartner used the $80,000 from her certificate of deposit to purchase a Reliance Standard fixed index annuity. At that time, the certificate of deposit was coming due and had been paying 3.9 percent. The Reliance Standard annuity offered 4.5 percent along with an additional 1 percent for the first year. The minimum guaranteed rate was 3 percent. As for why she recommended that Ms. Gartner purchase the Reliance Standard annuity, Ms. Dorrell testified as follows: Deborah was very sensitive to creditor protection. Due to what her husband had done for a living, he often told her about making sure your assets are creditor-protected. She had a son that had a problem with being – having assets seized. I believe it was in a divorce or some sort of lawsuit. And so one of her things that she liked about the annuities is that they gave her creditor protection. So she still had the CD at the bank that was at risk if for some reason something happened and she needed her assets protected. It wasn’t paying as much. She wanted to get more income, and she wanted principal protection and safety. By January of 2011, Ms. Gartner wanted more income, and Ms. Dorrell recommended that the Reliance Standard annuity be split into two annuities. Surrendering the Reliance Standard annuity caused Ms. Gartner to incur a $5,132.56 surrender charge and left her with $72,496.03 from the initial $80,000 purchase. She used $43,815 of the $72,496.03 to purchase an American Equity annuity that offered a guaranteed minimum interest rate of 3 percent. However, the American Equity annuity also had 16 years of surrender charges, and the surrender charge for the first year was 20 percent. Ms. Gartner used $26,185 of the $72,496.03 to purchase a North American annuity. As for the reasoning behind recommending the surrender of the Reliance Standard annuity, Ms. Dorrell testified as follows: A: I recommended, because she wanted more income, and my concern was she was getting to the point where she might be having to live on her IRA monies, which would be a taxable event. So I made a recommendation that we do a split annuity with the money that was in the Reliance to give her more income and less taxes. Q: Can you explain how that’s done? A: Yes. So, a split annuity is like a bucket concept. In her case we use two buckets. One was going to be the immediate annuitization in the North American that would then give her $150 more a month in income with much less taxation. Only a small portion of that payment would be taxable. And then on the other side was the American Equity which was purchased for accumulation over that same 5-year time frame that the North American would be paid out, so when the North American balance went to zero, she’d have the same amount of money in her American Equity policy as she started with when she bought both of them. Q: So how long a period of time would this provide the same income for her? * * * A: For the rest of her life. That was the reason for buying the American Equity, because it would remain – when we used the rider on that side, it would give her guaranteed income for as long as she lived and she was concerned about that because her parents were both in their nineties. Q: In your opinion, were these purchases suitable for her? A: Yes, they were. Q: And the surrender of the Reliance Standard, was that suitable? A: Yes. Q: Because that was a source of the funds to obtain the other two annuities; is that right? A: Yes. Ms. Dorrell also addressed the Department’s allegation that it was ill-advised to incur a $5,132.56 charge for surrendering the Reliance Standard annuity: Q: It’s been alleged that the liquidation of the Reliance Standard annuity cost Ms. Gartner $5,132.56 and, apparently, that it shouldn’t have cost her or that it was a bad idea to surrender the policy. Does that take into account what’s known as the market value adjustment? A: No. So many just straight fixed annuities and some fixed index annuities, in particular we’re speaking of the Reliance Standard fixed annuity, they come with what’s called a market value adjustment. It’s really something that an insurance company determines if they’re going to give them a positive market value adjustment or a negative value adjustment. So a negative market value adjustment could make a higher surrender charge and a positive market value adjustment could make a lower surrender charge, and they’re sort of driven by interest rates. So at that time, if you remember, you know, 2011 interest rates were, you know, still very low. But it was a good time, if you had an annuity with a market value adjustment, it was a good time to consider changing it because they would still have positive market value adjustments, which by the next year, the next six months later, exactly what I knew would happen is all those market value adjustments went negative. So not only would it have cost her the percentage rate on the surrender penalty to get out, she would have paid an additional negative market value adjustment. And this way it was timed to better her annuity anyway and she ended up in the positive. Q: Was there a positive market value adjustment? A: Yes. Q: $1,700? A: Correct. Q: And was there also a bonus on the American Equity? A: Yes. Q: And do you know what the bonus was? A: 10 percent. Q: And what was that, about $3,000? A: I think she put 43,000 in there, so it was about $4,300. Q: So after the surrender, taking into account the market value adjustment, taking into account the bonus on the American Equity, in fact, wasn’t she $1,000 ahead? A: Yes. The Department argues that Ms. Dorrell gave investing advice to Ms. Gartner and that Ms. Dorrell’s actions led to a depletion of Ms. Gartner’s assets. Ms. Dorrell addressed those allegations as follows: Q: It’s alleged in the administrative complaint that Ms. Gartner’s assets were depleted by the exchange of policies and also that you gave securities advice. First of all, were her assets in any way depleted? A: No. Q: She takes at the beginning $300,000 cash. She buys $300,000 worth of annuities. And the annuity companies add 10 percent, so initially she takes $300,000, truly liquid asset[s], but earning very little, and now she’s got $330,000 in the annuities; is that right? A: Yes. Q: Is there any depletion of her assets there? A: No. Q: Two months later, March of 2008, she takes an $80,000 CD and buys an $80,000 Reliance Standard annuity. Is there any depletion of assets there? A: No. Q: Later on she takes the $80,000 Reliance Standard annuity and converts it to a total of almost $80,000 in American Equity and National American? A: North American, yes. Q: North American? Is there any depletion of assets there? A: No. Q: Do all of these annuities actually earn income? A: Yes. Q: Did the principal balance of any of these assets decline? A: No. Q: In comparison to the stock market where there’s volatility up and down and your account may vary, did Ms. Gartner’s accounts ever vary or get lower? A: No. Q: Do you know the difference between giving advice on insurance and on securities? A: Yes. Q: Now, honestly, I’m not quite sure what is advice on securities, but I assume it is sell this one and buy another one? A: Right. Q: Did you make any recommendation that she sell a particular security? A: No, I did not. Q: Did you make a recommendation that she buy a particular stock? A: No, I did not. Q: Other than advising her that she needs to get the source of some funds to buy the annuities, and they would have to come from her accounts, is that the only advice you gave her? A: Yes. In sum, the Department failed to prove by clear and convincing evidence that Ms. Dorrell or SFS violated any statutes or rules in conducting business with Ms. Gartner. Count V – Gartner’s Real Estate Ms. Gartner and Ms. Dorrell became friends, and Ms. Gartner sought Ms. Dorrell’s advice in 2012 about selling her home in Summerfield, Florida. At that time, Ms. Gartner wanted to acquire a smaller home in The Villages, Florida. However, Ms. Gartner was having difficulty selling the Summerfield home. Along with referring Ms. Gartner to a real estate agent, Ms. Dorrell allegedly advised her to stop paying the mortgage on her Summerfield home and to do a short sale.6/ Ms. Dorrell denies making either recommendation. Ms. Dorrell spent $3,100 on “staging” the Summerfield home in order to make it appear more attractive to potential buyers. Ms. Gartner and Ms. Dorrell informally agreed that Ms. Gartner would select a house in The Villages, Ms. Dorrell would purchase it, and Ms. Gartner would then buy the house from her. Ms. Dorrell made the initial purchase because Ms. Gartner lacked funds and/or a good credit rating following the short sale. Ms. Gartner and Ms. Dorrell discussed Ms. Gartner purchasing the villa from Ms. Dorrell, but they never reached a formal agreement on terms. Because a short sale would have a negative impact on her credit rating, Ms. Dorrell allegedly advised Ms. Gartner to buy a new car prior to executing the short sale. Ms. Gartner sold her 2003 Mazda Tribute to Ms. Dorrell for $10,000, and Ms. Gartner purchased a new car. Ms. Dorrell then gave the Mazda Tribute to Diana Johnson, an SFS employee. Ms. Dorrell deemed the car to be income, and Ms. Johnson declared it on her tax return. Ms. Gartner selected a villa in The Villages, and Ms. Dorrell purchased it for $229.310.78 on November 1, 2012. Of the aforementioned amount, Ms. Gartner paid $10,000, and Ms. Dorrell paid the remaining $219,310.78. At this point in time, Ms. Dorrell was the legal owner of the villa. Ms. Gartner could not move into the villa immediately after the sale because it was being rented, and the tenants’ lease extended through April of 2013. Ms. Dorrell received the rental payments of $1,800 per month and paid the expenses associated with the villa between November of 2012 and April of 2013. Those expenses included items such as home insurance, cable television, lawn maintenance, and utilities. By May of 2013, Ms. Gartner had completed a short sale of her Summerfield home. She received a short sale benefit of $36,775.00 and a seller assistance payment of $3,000.00. Ms. Gartner moved into the villa in May of 2013. At that point in time, there was no formal agreement between Ms. Gartner and Ms. Dorrell about when Ms. Dorrell would sell the villa to Ms. Gartner or how Ms. Gartner would pay Dorrell for it. Ms. Gartner paid no rent to Ms. Dorrell from May of 2013 through April of 2014. In November of 2014, Ms. Dorrell sold the villa to Ms. Gartner for approximately $219,000, the same price that Ms. Dorrell paid for it. In order to finance the sale, Ms. Gartner executed a promissory note that would pay Ms. Dorrell $100,000 with 4-percent interest. Ms. Dorrell did not record that promissory note.7/ In order to finance the remainder of the purchase price, Ms. Gartner obtained a reverse mortgage. Ms. Dorrell allegedly pressured Ms. Garter to obtain the reverse mortgage, but Ms. Dorrell denied having any discussions with Ms. Gartner about a reverse mortgage. There is a substantial amount of disagreement between Ms. Gartner and Ms. Dorrell as to who was entitled to receive the rental payments. They also disagree about the expenses associated with maintaining the villa prior to Ms. Gartner moving in. This is not surprising given the lack of a written agreement between them. The Department’s Exhibit 185J purports to be an accounting of the rental income and expenses associated with the villa prior to Ms. Gartner moving in, and it suggests that Ms. Gartner should have received or been credited for an additional $17,950.51. Ms. Dorrell had Diana Johnson prepare Exhibit 185J, but there is substantial reason to question Ms. Johnson’s credibility about the interpretation of Exhibit 185J.8/ Ms. Gartner ultimately sold the villa for $285,000. Ms. Dorrell filed a mortgage foreclosure action against Ms. Gartner in order to recover the balance of the money Ms. Gartner owed her. Part of that litigation involved a reconciliation of expenses associated with the villa prior to Ms. Gartner moving in. Following a mediation conference on June 6, 2017, Ms. Gartner agreed to pay $97,500 to Ms. Dorrell in settlement of the foreclosure action. In the Administrative Complaint, the Department alleges that Ms. Dorrell acted “wrongfully” through the following actions: (a) advising Ms. Gartner to stop making mortgage payments on the Summerfield home; (b) advising Ms. Gartner to buy a new car and purchasing Ms. Gartner’s used car; (c) arranging for the purchase of the villa and accepting a $10,000 deposit from Ms. Gartner without giving her credit for it; (d) not crediting Ms. Gartner for paying expenses associated with taking possession of the villa; (e) directing Ms. Gartner to sign a $100,000 promissory note; (f) making Ms. Gartner responsible for all of the property taxes owed for the villa in 2014; pressuring Ms. Gartner to procure a reverse mortgage; and arranging for Ms. Gartner to use funds from an IRA account to pay off the promissory note. Ms. Dorrell’s failure to have a written agreement governing her acquisition and subsequent sale of the villa to Ms. Gartner was foolhardy. Without such an agreement, conflicts regarding the villa were inevitable. However, the evidence does not clearly and convincingly establish that Ms. Dorrell violated any statutes or rules in her dealings with Ms. Gartner. Count VI – Earl Doughman Earl Doughman was born on December 6, 1934. After completing a two-year stint of military service in 1958, Mr. Doughman spent the next 40 years managing a company’s inventory. At some point after his retirement, Mr. Doughman and his wife moved from Cincinnati, Ohio to The Villages. On August 4, 2008, Mr. Doughman purchased a Midland National Deferred Annuity (“the Midland annuity”) from Ms. Dorrell. That annuity provided a 5.25-percent guaranteed interest rate for five years. The annuity did not have an income rider or a home healthcare doubler. In 2013, Mr. Doughman visited SFS to inquire about purchasing another annuity. According to Mr. Doughman, he dealt exclusively with Diana Johnson and never met with Ms. Dorrell about his finances.9/ Ms. Johnson allegedly advised Mr. Doughman to utilize 10-percent penalty free withdrawals from the Midland annuity and a Fidelity and Guaranty annuity to fund the acquisition of a Security Benefit annuity for $29,492. The Department asserts that the Security Benefit annuity was not a suitable replacement for the Midland annuity. The Midland annuity was a fixed annuity and the Security Benefit was a fixed index annuity. The Midland annuity had five more years of surrender charges, and the surrender charge for each year was 10 percent. The purchase of the Security Benefit annuity resulted in Mr. Doughman beginning a new 10-year term of surrender charges. Those surrender charges were 10 percent for the first five years, but gradually declined to 0 percent by year 10. As noted above, Mr. Doughman could withdraw 10 percent a year from the Midland annuity without incurring a penalty. With the Security Benefit annuity, he would incur a 10 percent surrender charge after the first year. The Midland annuity provided a minimum guaranteed interest rate of 1 percent, and the Security Benefit Annuity had no minimum guarantee. However, the Security Benefit annuity came with a 9-percent bonus based on the premium amount. As a result, Mr. Doughman received approximately $2,654.28 upon purchasing the Security Benefit annuity. The Midland annuity had a 5.25-percent interest rate cap for the first year. By 2013, the Midland annuity was paying 3 percent. The participation rate in both annuities was 100 percent. The Security Benefit annuity had a home healthcare doubler, and the Midland annuity did not.10/ However, the Midland annuity had a death benefit and a terminal illness rider that would result in the waiver of surrender penalties if they were activated. Ms. Dorrell testified as follows as to why the Security Benefit annuity was more suitable for Mr. Doughman than the Midland annuity: Q: Why is the Security Benefit [annuity] a better product for Doughman? A: Because it has the home healthcare doubler that he desperately needed. It has the income rider. It has the upside potential in the stock market with not any downside potential whatsoever. It has a fixed account inside of it that would have paid close to the same amount that the Midland had renewed out at 3 percent. So why wouldn’t he buy something that he can get a bonus on, not lose anything from the Midland, and have the ability to make more money than what he was going to make if he stayed at Midland? It makes perfect sense to move that. Mr. Doughman was concerned about whether he was actually earning 4 percent on the annuity contract amount as had allegedly been represented to him. Therefore, Mr. Doughman asked Don Geist, an insurance agent with Financial Solutions Group of Florida, to review the terms of this Security Benefit annuity. Mr. Geist is a competitor of Ms. Dorrell’s and determined that the 4-percent interest rate applied only to the annuity’s income rider.11/ With Mr. Geist’s assistance, Mr. Doughman wrote a letter to Security Benefit on April 14, 2014, seeking the termination of the Security Benefit annuity and a refund of the $29,492.30 he paid to acquire that annuity.12/ Security Benefit refunded the money that Mr. Doughman had paid to acquire the Security Benefit annuity. Ms. Dorrell learned of Mr. Doughman’s complaint in April of 2014. In response, she had Ms. Johnson use SFS’s records to prepare a chronology and description of Mr. Doughman’s meetings with SFS. Ms. Johnson then transmitted the following e-mail to Ms. Dorrell’s attorney on April 29, 2014, indicating that Ms. Johnson did not sell an annuity to Mr. Doughman: Hi Jed, Here is a timeline of when the Doughmans came to our office and who they met with: July 17, 2012 attended Seminar, which Jean was the speaker. July 31, 2012, met with Goldie, who was a licensed agent and discussed annuities. August 28, 2013, met with Jean for a review and purchased annuity. August 29, 2013, brought in beneficiary information and gave to Diana. October 3, 2013, met with Jean for policy delivery. February 21, 2014, met with Diana and the Doughmans expressed concern re: a salesman that came to their door inquiring about their finances and dropped off card from Don & Tim Geist from Financial Solutions. The Department alleges that Ms. Dorrell committed wrongdoing by having unlicensed agency personnel (i.e., Diana Johnson): (a) perform prohibited sales activities with respect to Mr. Doughman’s transactions of insurance; (b) unreasonably recommend the partial surrender of senior consumer Doughman’s existing annuities to fund the purchase of the Security Benefit annuity; (c) misrepresent the percentage return on the Security Benefit policy by including a costly rider to the policy; and (d) advising Mr. Doughman that the cap on the indexed Security Benefit policy was two points lower than the cap on his indexed Midland annuity. The evidence does not clearly and convincingly establish that Ms. Dorrell or SFS violated any statutes or rules in dealing with Mr. Doughman. Count VII – Margaret Dial Margaret Dial was born in 1950 and earned a high school diploma. She was married for 42 years. During her marriage, she worked as a bookkeeper until she took an early retirement to care for her mother. Ms. Dial receives income from a pension and social security. Ms. Dial met Ms. Dorrell in July of 2007 and purchased multiple annuities from her. One of those annuities was an Old Mutual annuity that she purchased on November 11, 2007. In 2013, Ms. Dorrell advised Ms. Dial to surrender the Old Mutual annuity and use the proceeds to purchase a Security Benefit annuity. After incurring $16,560.39 in surrender charges, Ms. Dial received $129,901.21 in the form of a check mailed to her home. Ms. Dial then wrote a check for $130,000 to purchase a Security Benefit annuity. The difference between the purchase price of the Security Benefit annuity and the proceeds from the surrender of the Old Mutual annuity was $98.79. On March 12, 2013, Ms. Dial signed an application to purchase the Security Benefit annuity recommended by Ms. Dorrell for $130,000. The application associated with the Security Benefit annuity was incorrect because it did not show that it was a replacement for the Old Mutual annuity. The Department asserts in its proposed recommended order that: [t]he manner in which [the Old Mutual annuity] was replaced shows that it was a smokescreen to avoid Old Mutual conservation efforts and to make the new purchase look like it was accomplished by fresh money. By replacing her own business, Dorrell sold the same money twice, making commissions each time, while Ms. Dial incurred a $16,000 surrender penalty. Instead of encouraging the sale, Dorrell should have conserved the Old Mutual business. “Conservation” is the term used to describe an insurance company’s effort to retain existing business. As for why it was problematic that the Security Benefit annuity was not identified as a replacement, Mr. Spinelli testified as follows: A: Because this case – the first contract, [Old Mutual], was written by Dorrell, and she’s replacing her own business to move it to – having the check sent to the client’s house to avoid a conservation effort because it’s saying that she’s surrendering the policy for cash. A proper replacement, if it was a legitimate replacement, would have been a 1035 exchange from one company to another, therefore, avoiding any taxable events. If it was gains in this policy, which there might have been, by surrendering it, it could have created a tax event. And it also avoided the conservation effort that [Old Mutual] was trying to perform. And then adding $99 created a different amount that was surrendered. So that’s a big smokescreen to the company that it was a different amount than was surrendered. Q: So it looks like fresh money, so to speak? A: Correct. And there was [a] $16,604 surrender charge when that transaction was done. The – that’s the case of that money being sold twice. Dorrell sold that money twice there. She sold it with [Old Mutual} and then she turned around and sold it again with Security Benefit. She made commission twice on that. Q: If that were – if, in fact, that had been indicated as a replacement, how do companies look upon – do they look upon these kinds of replacements with a jaundiced eye, so to speak? I’m talking about where the real facts are set forth. A: The company I work for, they do. They take conservation very seriously, especially in a situation like this where the money’s being sent to somebody’s home. Q: And so isn’t the reason for the comparison sheet between the two annuities, to try to point out to the underwriting people that, if the facts are true, then they may or may not allow for issuance of the annuity, the replacement annuity; correct? A: Well, they have to eventually comply with the client’s wishes. If the client insists on surrendering that and making a terrible mistake and paying $16,000 surrender charges, there’s nothing the company can do to stop it. But they can have the agent try to conserve the business. Q: And that’s what the agent should be doing? A: Correct. ALJ: I’ve heard the term conserve. I have a pretty good idea – think I know what it means, but no one’s actually defined it for me. Could you formally define what conserve is? A: Yeah. Conserve, conservation, you’re conserving the business on the books for that company for your clients. You should be conserving the business for your clients. Why are they leaving? You know, quality companies have a high retention rate in their business. It’s because of conservation efforts. ALJ: Okay. Thank you. A: If you have more business leaving the company, your ratings are going to go down. It’s going to be detrimental to the company. Not just the company, but to the clients they serve. Ms. Dorrell acknowledged during her direct testimony that she failed to make the proper notation on the application form. However, she disputed Mr. Spinelli’s assertion that her failure prevented Old Mutual from initiating conservation efforts: Q: Now, on that third page with respect to the question, “Does this proposed contract replace or change any existing annuity or life insurance policy,” the answer is no. Is that incorrect? A: It’s incorrect, yes. Q: Did you notice that when the application was completed and was shown to Margaret Dial? A: I did not. Q: Were you with Margaret Dial when the application was shown to her? A: Yes. * * * Q: At some point did you discover that there was an error on the application before the administrative complaint was filed? A: No. Q: Okay. Now, what impact would that incorrect answer have in regard to the transaction? * * * A: Well, it’s a replacement. I should have checked yes. I mean, that was an error on my part. Q: Did you do that intentionally? A: No. Q: Okay. So, again, did this have an impact on Margaret Dial, financial impact? A: No. Simply because we had discussed that she would pay a surrender charge, and she knew that she was paying it, and she knew what the bonus was as presented in my illustration to her on the Security Benefit annuity. It showed her the bonus. It showed her how her money grew at 7 percent each year, what the value would be, so she knew it took about a year to get back to where she was, and she was willing to pay that surrender penalty because of all the other benefits she was getting. Q: I understand. Mr. Spinelli testified though that if an application is not marked that it is a replacement, that there might not be the conservation letter sent to the policy holder. A: No, there’s a conservation letter sent regardless of that. No insurance company wants to lose business so they – as far as I know, all the companies I work with, they send conservation letters out to the client because they don’t want to lose the business, so they want to make sure that they’re informing the client what they may be giving up. Q: So in other words, the Old Mutual that was being surrendered, whether it was being replaced or just being surrendered and Ms. Dial was taking the money, Old Mutual would still send her a conservation letter. A: Yes. Q: Because she was cancelling the policy. A: Yes, and they didn’t want to lose the business. Q: And it’s irrelevant, really, whether it’s being replaced or whether it’s just being cashed out. A: Right. They send it regardless. * * * Q: And this conservation letter that went to Ms. Dial advises her of the surrender charge, doesn’t it? A: Yes. Q: $16,560.39? A: Yes. The evidence does not clearly and convincingly demonstrate that Ms. Dorrell or SFS violated any statutes or rules in the dealings with Ms. Dial. Count VIII - Unlicensed Activities The Department alleges under Count VIII of the Administrative Complaint that Ms. Dorrell and/or SFS employees performed work without having the proper licensure. Specifically, the Department alleges that SFS employees wrote Lady Bird deeds and wills without being licensed attorneys. A Lady Bird deed enables a person to designate a child or some other beneficiary as the person who will take possession of the designator’s property after death. The Department also alleges that Ms. Dorrell and/or SFS employees encouraged clients to liquidate security holdings without being licensed investment professionals. The Department’s case largely depends on two former SFS employees with questionable credibility. Laura Wipperman began working for SFS in July of 2010, providing support to Ms. Dorrell as an administrative assistant. Ms. Wipperman did not have an insurance license. Ms. Wipperman left SFS in March of 2013, supposedly because of Ms. Dorrell’s harsh treatment of her employees. Nevertheless, Ms. Wipperman later returned to SFS as a receptionist. Ms. Wipperman separated from SFS a second time in June of 2014. Ms. Dorrell was upset that Ms. Wipperman failed to timely prepare a file. After Ms. Dorrell had a tense confrontation with Ms. Wipperman, she told Diana Johnson to fire her. Because Ms. Wipperman and Ms. Johnson were friends, Ms. Dorrell’s direction probably led to tension between Ms. Dorrell and Ms. Johnson. In approximately June of 2014, Ms. Dorrell fired Ms. Johnson for stealing money from SFS’s petty cash fund. Ms. Wipperman and Ms. Johnson filed a complaint a few weeks later with the Department alleging that Ms. Dorrell had engaged in improper conduct. Ms. Johnson also joined Ms. Gartner in reporting improper conduct by Ms. Dorrell to an organization called Seniors Versus Crime. Ms. Johnson unsuccessfully pursued a claim alleging that Ms. Dorrell did not pay her what she was owed after the firing. Ms. Johnson acquired an insurance license and began working for an SFS competitor in December of 2014. Ms. Johnson and Ms. Wipperman had obvious reasons to hold a grudge against Ms. Dorrell, and that cast a great deal of doubt on the credibility of their testimony. In addition, the undersigned found their testimony to be unpersuasive and unsupportive of the allegations made in Count VIII. Ms. Dorrell credibly testified that SFS refers clients needing wills and/or deeds to attorneys. Also, there was no sufficiently credible testimony to clearly and convincingly demonstrate that Ms. Dorrell instructed clients to liquidate their securities holdings. In sum, the Department failed to prove its allegations under Count VIII by clear and convincing evidence. Count IX - SFS Employees Performing Unlicensed Insurance Activites The Department’s allegations under Count IX also substantially rely on the testimony of Ms. Wipperman and Ms. Johnson. They testified that they performed activities that should have been handled by someone with an insurance license. Those alleged activities included tasks such as selling insurance, reviewing products with clients, and encouraging clients to use penalty-free withdrawal money to acquire new annuities. As found above, the undersigned does not find the testimony provided by Ms. Wipperman or Ms. Johnson to be credible or persuasive. In sum, the Department failed to prove any of its allegations under Count IX by clear and convincing evidence.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Financial Services enter a final order dismissing the Administrative Complaint. DONE AND ENTERED this 5th day of November, 2018, in Tallahassee, Leon County, Florida. S G. W. CHISENHALL 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 5th day of November, 2018.
Findings Of Fact The Petitioner is the surviving spouse of Huldah C. Roach. At the time of her death, Mrs. Roach was a retired member of the Florida Retirement System, and was receiving retirement benefits pursuant to Chapter 121, Florida Statutes. The Respondent, Division of Retirement, sent Mrs. Roach her retirement benefits for the month of June, 1977, at the end of that month. The warrant for the retirement benefit was received by the Petitioner on or about June 30, 1977, and was deposited by him in the joint account which he had shared with Mrs. Roach. On June 8, 1977, Mrs. Roach died. By letter dated July 4, 1977, the Petitioner advised the Respondent of his wife's death. He also advised the Respondent that he was holding the benefit warrant, but in a telephone conversation on August 22, 1977, he advised the Respondent that the warrant had been deposited in the joint account. By letter dated August 24, 1977, the Respondent advised the Petitioner that Mrs. Roach was entitled to retirement benefits only up to the date of her death, and that $330.81 of the June payment thus represented an overpayment. The letter included a demand for repayment of the asserted overpayment. The Respondent made no effort to collect the asserted overpayment between August 24, 1977, and December 5, 1979, when the Respondent, through counsel, forwarded a demand letter to the Petitioner. The petitioner was not able to identify what expenses he paid from the June, 1977, retirement benefit. Mrs. Roach received retirement benefits in excess of her total contributions to the Florida Retirement System, and under the retirement option that she selected, she was entitled to no additional benefits after the day of her death. The Respondent has consistently interpreted provisions of the Florida Retirement Law as allowing payment of retirement benefits only through the date of a retiree's death.
The Issue The issue to be determined is whether Respondent committed the violations alleged in the Administrative Complaint, and if so, what penalties should be imposed?
Findings Of Fact At all times relevant to this proceeding, Sarah Fuquay (now known as Sarah Fowler) has been licensed as a life and health insurance agent holding license number E082826. The Department is the state agency with responsibility for licensing and regulation of insurance licenses and appointments. At all times relevant to these proceedings, Respondent was employed or affiliated with and appointed by Bankers Life & Casualty Company (Bankers Life), working out of the company's offices in Jacksonville, Florida. She is a captive agent, meaning she works only for Bankers Life. In 2006, Frank Hemwey was a resident of the Jacksonville area and was approximately 84 years old. He was retired and was looking to invest the proceeds from the sale of some real estate. In November 2006, Mr. Hemwey received a postcard in the mail which stated: Important! Are you like the majority of our clients and notice a drastic reduction in your income due to decreasing interest rates? At Banker's Life and Casualty Company, we offer an Alternative to a CD. Our Security Builder Bonus Annuity (Policy LA-06T) has a 1st year Interest rate of 7%, Available thru November 30, 2006. (Includes Cash, CD's, Money Market IRA and Mutual Fund Rollovers) You have to call me to believe it! To take advantage of this limited time offer, Call Frank Fowler, Licensed Agent [904-400 3662] Mr. Hemwey called the number provided. Respondent responded to the inquiry and set up an appointment at Mr. Hemwey's home for November 27, 2006. During the meeting with Mr. Hemwey, Respondent filled out a written assessment used by Bankers Life to collect information about potential clients and to make recommendations regarding appropriate investments. Information gathered included information about the family's background and financial history, current expenses and tax liabilities, estate planning options and long term care needs. During their conversation, Mr. Hemwey was totally focused on the prospect of the seven percent return mentioned in the postcard. Respondent explained to him that the product was not a certificate of deposit; Bankers Life does not issue certificates of deposit; and that the insurance company only issues annuities. A brochure was provided to the Hemweys describing the annuity product advertised. Respondent advised Mr. Hemwey several times that the annuity was not a one-year investment; that the seven percent interest rate applied only to the first year; and that a lower guaranteed rate applied after that point. However, because of his focus on the seven percent, he paid little or no attention to what she told him. In his words, "I don't remember . . . anything else because I wasn't interested in anything else." In the section called "Additional Information and Follow-Up Notes," Respondent recorded, "Frank says they understand annuities. Kept cutting me off says he knows. Tried to get him to leave interest in to possibly cut down on taxes & compound interest. Frank said they don't need the $, but might as well take it. Setting up direct deposit of interest." On or about November 28, 2006, Mr. Hemwey contacted Respondent and indicated he wanted to purchase the product they had discussed. Arrangements were made for him to execute the necessary documents at the Bankers Life Jacksonville office. On November 29, 2009, Respondent again met with Mr. Hemwey. At that time, she reviewed the contents of the Fact Finder with him, and he signed the attestation which stated: To the best of my knowledge, the information I have provided in this Fact Finder represents an accurate picture of my current situation and beliefs. . . . I understand that any recommendations made by the agent are based on these responses. Despite this attestation, Mr. Hemwey had not divulged that he and his wife already owned an annuity account. He did include the interest from that account in his estimation of current income, but did not feel that his having an annuity was any of the company's business, as long as the interest received was included in the estimated income. Respondent also went over an Annuity Suitability Questionnaire with Mr. Hemwey, which he signed. This document included the following Owner's Statement: To the best of my knowledge and belief, all statements and answers on this form are true and complete. The information on this worksheet has been explained to me and I have been provided a copy of an Annuity Buyer's Guide. I believe that the proposed annuity will meet my current financial planning objectives. I understand that if I am not satisfied with the policy once I receive it, I may return it for a full refund according to the terms of the policy. (Emphasis added.) Finally, Respondent went over the application with Mr. Hemwey. The front page of the policy specifically identifies Mr. Hemwey as an annuitant and contains the following notices: THIRTY DAY RIGHT TO RETURN THIS POLICY If the Owner is not satisfied with this policy, he or she may return it to Us within 30 days after getting it. The Owner may return it to Us by mail or to the agent who sold it. We will then refund any premium paid. This policy will then be void. THIS POLICY AND THE DATE IT BEGINS This policy is a legal contract between the Owner and Us. It consists of this and the following pages. READ THIS POLICY CAREFULLY. See the POLICY GUIDE on page 1A of this policy. The policy, which Mr. Hemwey signed, repeatedly indicated that it was an annuity contract and identified the rate of return for the first year and succeeding years. For example, on page seven Mr. Hemwey signed in the box marked "signature of annuitant." At the top of that page, it reads, "I hereby apply for an annuity. . . ." The page entitled "Schedule" identifies Mr. Hemwey as the annuitant and states that the guaranteed period is one year, with an interest rate of seven percent. After the first year, the Schedule indicates that the minimum guaranteed interest rate is 2.5 percent for the first ten policy years, and three percent for policy years 11 and after. This page also provides the withdrawal percentage applicable for withdrawal charges, which are explained in detail on page four, following the signature page.2/ Respondent credibly testified that she explained the terms and conditions related to the annuity to Mr. Hemwey in conjunction with filling out the application and related paperwork. Mr. Hemwey tendered $100,000 for the premium required to purchase the annuity. He named his wife as a beneficiary to the annuity. The policy was delivered to Mr. Hemwey's home on or about December 18, 2006. Although he signed a receipt for the annuity, he does not remember the event. When the annuity document was delivered, Respondent went over the contents of the documents with Mr. Hemwey, specifically calling attention to the 30-day cancellation provision on page one and going over the contract summary page with him. She also prepared an annuity withdrawal request, which would enable Mr. Hemwey to receive the interest on the annuity through systematic deposits in his checking account. Mr. Hemwey did not read the annuity contract documents provided to him upon receipt. In October 2007, approximately ten months into the annuity, he called Bankers Life to determine what the next year's interest rate would be. When the company could not provide that information immediately, he requested instructions on canceling the contract. His intent was to move the funds to another vehicle if he could obtain a better interest rate. Mr. Hemwey was advised that withdrawal of the annuity funds would be subject to the withdrawal schedule specified in the annuity contract, i.e., eight percent after the first year. Mr. Hemwey was dissatisfied with this response. Respondent then went to see him, reminded him of the terms of the annuity and tried to see if there was anything that would satisfy him. Mr. Hemwey wanted to continue to earn seven percent. Mr. Hemwey also spoke to Respondent's supervisor, Keith Lozowski, about his confusion regarding the terms of the annuity. He did not claim at that time that Respondent had made any misrepresentation. He maintained that he wanted to continue to receive the seven percent introductory interest rate. Mr. Lozowski explained to Mr. Hemwey that he did not have the authority to guarantee such a rate, and that his contract did not provide for seven percent beyond the first year. At hearing, Mr. Hemwey insisted that he did not know he was purchasing an annuity. His testimony simply is not credible in this regard. He responded to an advertisement for an annuity and signed a document that indicated prominently its status as an annuity. Simply put, Mr. Hemwey paid attention to the advertised introductory interest rate and ignored everything else told or provided to him. He received $7,000 in interest the first year; $3,700 in interest the second year; and is receiving 3.6% interest in the third year. His original investment of $100,000 remains in the annuity. No evidence was presented to indicate that, had Mr. Hemwey been able to withdraw the original investment, he could have received a higher return on his money elsewhere. Respondent did not misrepresent, either by commission or omission, the characteristics of the annuity product that Mr. Hemwey purchased. She did not pressure him to purchase the product he chose.
Recommendation Upon consideration of the facts found and conclusions of law reached, it is RECOMMENDED: That a final order be entered dismissing the Administrative Complaint. DONE AND ENTERED this 10th day of August, 2009, in Tallahassee, Leon County, Florida. S LISA SHEARER NELSON 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 10th day of August, 2009.
