The Issue The issues for determination in this case are whether Respondent violated the law as charged by Petitioner in its Administrative Complaint, and, if so, what discipline is appropriate.
Findings Of Fact Petitioner is the state agency with the statutory authority and duty to license and regulate insurance agents in Florida. Respondent holds license D033674 as a life and health insurance agent. At the time of the events which are the subject of this case, Respondent also held a license to sell securities. At the time of the events which are the subject of this case, Respondent was employed by First Liberty Group and sold life insurance, annuities, and viatical settlement purchase agreements ("viaticals"). A viatical is a written agreement which provides for an investor's purchase of an interest in the proceeds of a life insurance policy of an anonymous insured person, the "viator." The agreement provides for the amount of money that the investor will receive upon the death of the viator. One general principle underlying a viatical is that it provides a means for a terminally ill person who needs money to sell or assign the proceeds of a life insurance policy that would be paid upon his or her death. Another general principle is that the viator, due to the terminal illness, has been diagnosed to have a short life expectancy. Although the identity of the viator is not revealed to the investor, the investor is provided information about the viator's gender, age, illness, and life expectancy. Facts Common to All Counts A company that "viaticates" life insurance policies and arranges for diagnoses of life expectancies by medical doctors is called a "viatical settlement provider." For all the viaticals sold by Respondent, the viatical settlement provider was Mutual Benefits Corporation. Mutual Benefits Corporation was charged with and ultimately determined to have committed fraud with respect to its practices as a viatical settlement provider. The nature of the fraud was not made a part of the record in this case. Mutual Benefits Corporation was placed in a receivership to manage the remaining assets, liabilities, and contracts of the company. Respondent's employer, First Liberty Group, advertised that it offered a certificate of deposit (CD) at a very competitive annual interest rate. Potential customers who came in to inquire about or to purchase a CD were also informed about annuities and viaticals. Petitioner referred to this as a "bait and switch" technique. However, although the CD interest rate might have been the bait, there was no switch. Customers who wanted CDs were able to and did purchase CDs from First Liberty Group through Respondent at the advertised interest rate. Some customers also purchased annuities and viaticals. In the advertising materials provided to the investors by Respondent and in the Viatical Settlement Purchase Agreements signed by the investors, the amount the investors would receive upon the death of the insured is described as "fixed." For example, the return on an investment in a viaticated insurance policy for a viator with a three-year life expectancy was represented to be 42 percent. The 42 percent return was fixed in the sense that on an investment of $20,000, for example, the investor would receive 42 percent of $20,000, or $8,400, when the viator died. If the viator died six months after the purchase of the viatical, the investor would receive $8,400. If the viator died three years later, the investor would receive $8,400. If the viator died ten years later, the investor would receive $8,400. The viatical sales literature that Respondent gave to customers disclosed that the life expectancy of the viator, as determined by a doctor, was not guaranteed. Therefore, the amount of the return on the viatical investment was not fixed in the sense of an annual interest rate. In the examples given above, the annualized rate of return to the investor if the insured died six months later would be 84 percent (42 divided by .5 years). The annualized rate of return if the viator died three years later would be 14 percent (42 divided by 3 years). The annualized rate of return if the viator died ten years later would be 4.2 percent (42 divided by 10 years). Petitioner charged Respondent with not explaining to the investors that "the real rate of return on the investment was tied to the viator's date of death." However, Petitioner failed to prove this charge. Respondent did not tell the investors that the 42 percent return, for example, was an annual rate of return. The viatical sales materials provided to customers by Respondent did not describe the return on the investment as an annual rate of return. The effect that the date of the viator's death would have on the rate of return on the viatical is obvious. The sooner the viator died, the better the return; the later the viator died, the worse the return. The investors did not need specialized knowledge to understand this simple concept. No investor in this case said they did not understand that their return would be affected by when the viator died. None of the investors said they thought the "fixed rate" figure, such as 42 percent for a three-year viatical, was a guaranteed annual return. Each investor signed a Viatical Settlement Purchase Agreement that included a statement that the returns "are fixed and not annualized returns." (Emphasis in the original). Another factor affecting the actual return on a viatical investment is the possibility provided for under the terms of the viatical contract that the investor might have to pay a portion of the premiums on the life insurance policy in the event the viator lived longer than his or her life expectancy. Any payment of an insurance premium by the investor would cause a reduction in the return on the viatical investment. In the example given above, if the investor was required to pay $2,000 in premiums, his return on the $20,000 would no longer be $8,400, but only $6,400. The annualized return on the investment would be correspondingly reduced. In a worse case scenario, the possibility exists that the requirement to make premium payments could completely eliminate any potential return to the investor and even jeopardize the principal. The viatical advertising materials that Respondent provided to customers did not describe the possibility or impact of having to make premium payments as discussed above. The advertising materials generally downplayed the risks associated with a viatical. For example, one sales document described the viatical as appropriate for a conservative investor and suggested that viaticals are investments that provide "peace of mind." It was reasonable for Respondent and the sales materials to describe the insurance companies that issued the insurance policies as reliable and secure. However, it was not reasonable, nor accurate, to describe the viaticals as conservative investments because of the possibility that the insured person would live many years beyond his or her life expectancy and the possibility that the investor would have to make premium payments. Viaticals have the potential to provide a much better investment return than other types of investments. However, in conformance with the general rule that the higher the potential return on an investment, the greater the risk, the relatively high potential return on a viatical comes with a relatively high risk.1/ Respondent disclosed to the investors that there was a possibility they might have to make future premium payments, and it was described in paragraphs 20 and 21 of the Viatical Settlement Purchase Agreements signed by the investors under the heading "Payment of Future Premiums." The agreement states that the payment of insurance premiums beyond the life expectancy of the viator is at the discretion of Mutual Benefits Corporation. Respondent told the investors that Mutual Benefits Corporation had a reserve or escrow fund that was managed in a way that created a premium "pool" so that the early death of a viator provided a surplus of money that could be used to pay premiums on the insurance policies of viators who lived beyond their life expectancies. Respondent also told the investors that 85 percent of the viators died early, which created a large surplus in the escrow fund to pay future premiums. The viatical contracts, however, only stated that unused premiums "may" be retained in the reserve fund by Mutual Benefits Corporation. At some point after the investors involved in this case purchased viaticals from Respondent, Mutual Benefits Corporation was the subject of enforcement action for fraud and placed in receivership. There was evidently no longer a surplus or reserve fund to pay premiums on insurance policies associated with viators who lived beyond their life expectancy, and that burden fell on the investors. All the investors involved in this case told Respondent they were conservative investors with a low tolerance for risk. There is a commonality in their perceptions of viaticals derived from their discussions with Respondent, that viaticals were safe and conservative investments. However, viaticals are relatively risky investments due to their illiquidity and the fundamental conditions affecting the return and the security of the principal that are beyond the control of the investor. Respondent knew or should have known, through the exercise of reasonable diligence on behalf of the customers who purchased viaticals, that viaticals are relatively high-risk investments. Respondent misrepresented the risk character of viaticals in his discussions with the investors involved in this case. He had a motive to downplay the true risk character of the viaticals, because he received a commission for every sale of a viatical. If Respondent had informed the investors of the true risk character of viaticals, the investors might not have purchased the viaticals. The definition of "security" in Section 517.021, Florida Statutes, was amended in 2006 to specifically identify "viatical settlement investment" as a type of security. Respondent does not dispute that a viatical is a security. There is no dispute that the viaticals sold by Respondent, which are the subject of this case, were not registered securities when Respondent sold them in 2003. Count I - Simons Charles Simons was 81 years old in 2003. He has eight years of education. He used to work as a truck driver in a quarry associated with a cement plant, but is now retired. He owns real estate and has an annual income over $100,000 and a net worth of $600,000 to $700,000. Mr. Simons saw the CD advertised by First Liberty Group and came in with his wife to invest $100,000 he had acquired from the recent sale of real estate. They met with Respondent in July 2003. Mr. and Mrs. Simons invested $50,000 in two or more CDs and an annuity. They also purchased two viaticals for $50,000. Mr. and Mrs. Simons purchased two three-year viaticals, meaning that medical doctors who had purportedly examined the medical records of the insured persons expected them to die of their terminal illnesses within three years. The Simons invested $25,000 in each of the viaticals. Although four years have passed since the Simons purchased the three-year viaticals, neither of the insured persons has died. Mr. Simons has had to make a premium payment of approximately $2,000 on one of the underlying policies.2/ Count II – Lenois Allan Lenois was 70 years old in 2003. He is a high school graduate, studied accounting and taxation, and worked for a lumber company where he supervised 300 employees. His wife, Marion, was an accountant. They are now retired. In August 2003, Mr. and Mrs. Lenois went to see Respondent after seeing the CD advertisement in the newspaper. While in Respondent's office, they noticed a poster advertisement on the office wall about viaticals and asked Respondent about them. Mr. Lenois' deposition testimony that Respondent called the viaticals "guaranteed" is not persuasive, given Respondent's testimony at the final hearing that he used these kinds of words to describe the industry rating of the insurance companies involved and the federal-insured reserve fund account, not the viatical itself. However, as previously found, Respondent misrepresented the viaticals to be relatively conservative investments to all the investors. Mr. and Mrs. Lenois invested $20,000 in an annuity. In a deposition of Mr. Lenois, he stated that he thought he had purchased a CD from Respondent, not an annuity, and was surprised that he had to pay a surrender penalty. Petitioner makes this same allegation in its Proposed Recommended Order, but Mr. Lenois' testimony is not persuasive because he signed a disclosure document that states "I understand that I have purchased an annuity . . . and not a Bank Certificate of Deposit," and the word "annuity" is written on the personal check used to purchase the annuity. Furthermore, the allegation was not included in the Administrative Complaint. Mr. and Mrs. Lenois purchased one three-year viatical for $10,000. Although four years have passed since they purchased the viatical, the viator is still alive. Mr. and Ms. Lenois have not yet had to make a premium payment associated with their viatical. Count II – Luenberger Floy Leuenberger is a retired school teacher. She has a master's degree in counseling and education. Her husband is a retired bank employee. The Leuenbergers have a net worth just over $500,000. The Leuenbergers saw the CD advertised by First Liberty Group and came in to invest $75,000. They met with Respondent in October 2003. They saw a poster on the wall of Respondent's office about viaticals and asked Respondent about them. The Leuenbergers invested $50,000 in CDs and purchased two viaticals for $12,500 each. One of the viaticals purchased by the Leuenbergers "paid out" because the viator died, and they received the return Respondent quoted to them. The other viatical they purchased from Respondent has not yet paid out. The Leuenbergers have had to make a premium payment of approximately $1,500 on the remaining viatical. Count III – Berge Oscar Berge is retired from the United States Air Force and from a subsequent job as a maintenance supervisor for a health care facility. Mr. Berge obtained a college degree in avionics instrument technology while in the Air Force. Mr. Berge saw the CD advertised by First Liberty Group. He and his wife met with Respondent in late 2002 and, in January 2003, invested in two annuities and five viaticals. Mr. and Mrs. Berge purchased two three-year viaticals for $30,000 each and three five-year viaticals for $30,000 each; a total investment of $150,000. Although four years have passed since the Berges purchased the three-year viaticals, the two viators have not died. The Berges have had to make two premium payments totaling approximately $5,000.
Recommendation Based on the Findings of Fact and Conclusions of Law set forth above, it is RECOMMENDED that a final order be entered which finds that Respondent Bradley Kline violated Subsections 626.611(5), (7), (9), and (16) and 626.621(9), Florida Statutes, and revokes his license as an insurance agent. DONE AND ENTERED this 9th day of October, 2007, in Tallahassee, Leon County, Florida. S BRAM D. E. CANTER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 9th day of October, 2007.
The Issue The issues in this case are whether Respondent violated sections 626.611(7), 626.611(9), 626.611(16), 626.621(2), 626.621(6), 626.9541(1)(e)1., 626.9927(1), 626.99275(1)(b), and 626.99277(6), Florida Statutes (2003),1/ and, if so, what discipline should be imposed.
Findings Of Fact At all times material to the Administrative Complaint, Mr. McCloskey was licensed in Florida as an insurance agent. He currently is licensed as a life and variable annuity agent and health agent, life and variable annuity insurance agent, life insurance agent, life and health insurance agent, non-resident life and health and variable annuity agent, non-resident life insurance agent, and a general lines insurance agent. He has been working in the insurance business for approximately 24 years. No prior disciplinary actions have been taken against Mr. McCloskey. In the latter part of 2003, a representative from Mutual Benefits Corporation (Mutual Benefits) visited Mr. McCloskey to discuss the offering of Mutual Benefits' viatical settlement products to Mr. McCloskey's clients. A viatical settlement (viatical) is the purchase of an interest in the death benefits of a life insurance policy for an economic benefit. Mr. McCloskey was not familiar with viaticals. He checked on Mutual Benefits by researching Mutual Benefits on the internet. He called the Department's predecessor, the Department of Insurance, and also looked on the Department of Insurance's website. When he contacted the Department of Insurance, he was advised that viaticals were regulated by the Department of Insurance. Everything that he learned led him to believe that Mutual Benefits was a legitimate business. Mr. McCloskey also called the office of Mutual Benefits and talked to representatives who seemed to be familiar with insurance products and who answered questions that he had concerning Mutual Benefits. After researching Mutual Benefits, Mr. McCloskey decided to offer viaticals from Mutual Benefits to his customers. On October 9, 2003, Mr. McCloskey entered into a Sales Representative Agreement with Mutual Benefits. The agreement contained the following provision: Representative [Mr. McCloskey] hereby warrants to MBC that he/she has obtained and holds valid and current securities and/or insurance licenses that are required by the law of a prospective purchaser's and Representative's respective state of residence, if any, to market, solicit, offer, or sell viatical or life settlements to that prospective purchaser. Mr. McCloskey understood that he would be selling the viaticals pursuant to his life insurance license. Mr. McCloskey understood that there were many other insurance agents in Florida who were selling Mutual Benefits' viatical products. When Mr. McCloskey sold a viatical from Mutual Benefits, he received a commission. The total percentage of his income derived from the sale of viaticals was approximately five percent of his total business income. The viatical settlement purchase agreement forms at issue in this case had been approved for use by the Department of Insurance on February 5, 2002. The viatical settlement purchase agreements provided: This Agreement covers the purchase of an interest in the death benefit of a life insurance policy or policies insuring the life of persons who are either terminally ill or have an estimated life expectancy of 72 months or less. * * * WHEREAS, both parties understand and agree that neither Mutual Benefits Corp., nor any representative of Mutual Benefits Corp., is in any way acting as an insurance agent, broker, dealer, or representative, or a securities broker, dealer or representative, and the parties further agree that this transaction does not constitute the offer for sale or the sale of a security. * * * The only benefit the Purchaser will receive pursuant to this Agreement will be payment of the agreed portion of the death benefit upon maturity of the life insurance policy(ies). Policies are priced at a discount of the death benefit which depends on the projected life expectancy of each insured. Mutual Benefits Corp. makes no representation or warranty as to the specific date when a policy will mature. The return realized by the Purchaser does not represent an annual return. An annual return cannot be determined until the policy(ies) in which the Purchaser obtains an interest matures. * * * Purchaser hereby represents and warrants that he/she is sophisticated in financial matters and/or has access to professional services, has adequate means for providing for current financial needs and possible personal contingencies, and also acknowledges that once the policy closes the funds committed are not liquid and the funds are not available until the policy matures. Purchaser hereby also acknowledges that the life expectancy(ies) provided by the reviewing physicians are only estimates. Mutual Benefits Corp. does not make any warranties regarding the accuracy of these estimates. Purchaser further acknowledges that the policy may mature before or after the projected life expectancy. Purchaser also represents that he/she is able to bear the risk of the purchase of a policy(ies) for an indeterminate period and will only commit himself/herself to a purchase which bears a reasonable relationship to his/her net worth. * * * This agreement is voidable by the Purchaser at any time within three (3) days after the disclosures mandated by Florida Statute § 626.99236 are received by the Purchaser. * * * Pursuant to the terms of the Viatical Settlement Purchase Agreement, Mutual Benefits Corp. will escrow with a trustee funds for future premium payments for a minimum of the projected life expectancy of the insured, or longer at the company's discretion, and has agreed that the interest on those funds and any unused premiums may be retained as a reserve for payment on those policies where the insured outlives his/her projected life expectancy. Additionally, Viatical Services, Inc., a company the Purchaser may select to perform post closing services, has agreed to establish a premium reserve account to pay unpaid premiums for those policies that exceed their projected life expectancy if the above referenced trustee premiums are ever exhausted. Viatical Services, Inc.'s agreement to pay any unpaid premiums is limited to the exhaustion of the funds in its premium reserve account. In the event the trustee and Viatical Services Inc.'s respective premium reserve accounts are exhausted, the Purchaser may be responsible for a payment of his/her pro rata share of any unpaid premium. In the event the Purchaser is required to pay premiums, such payments will reduce the fixed returns referenced above. * * * The purchase of the death benefit of one or more life insurance policies should be not be considered a liquid purchase. While every attempt is made to determine the insured's life expectancy at the time of purchase, it is impossible to predict the exact time of the insured's demise. As a result, the Purchaser's funds will not be available until after the death of the insured. It is entirely possible that the insured could outlive his/her life expectancy, which would delay payment of the death benefits under the Viatical Settlement Purchase Agreement. Mutual Benefits estimated the life expectancies of the insureds and determined which policies would meet the estimated life expectancies chosen by the purchasers. The choice of which policies would be purchased would be done after the closing of the purchase agreement between the purchaser and Mutual Benefits. Mutual Benefits would provide the medical records of the insureds to the purchasers after the execution of the purchase agreement. In some instances, the purchasers would not be purchasing a full interest in the insurance benefits, but would be one among others who were purchasing interests in a specific insurance policy. Mutual Benefits would determine the amount that needed to be escrowed for the payment of future premiums, and the escrow agent would disburse the funds for the premiums as they came due. The viaticals offered by Mutual Benefits were investment contracts that were required to be registered in accordance with chapter 517. At the time that Mr. McCloskey offered the viaticals to his clients, he did not understand that the viaticals could be considered as securities which had to be registered. Neither Mutual Benefits nor Mr. McCloskey was registered with the Office of Financial Regulation (OFR) of the Financial Services Commission at the time the viaticals at issue were sold. In December 2003, George Bode, who was retired and approximately 74 years old, saw a newspaper advertisement placed by Mr. McCloskey concerning various types of investments. Mr. Bode contacted Mr. McCloskey and made an appointment to meet with Mr. McCloskey at his office in Melbourne, Florida, to discuss potential investments for Mr. Bode. One of the types of investments that was discussed was viaticals. Mr. McCloskey never represented that viaticals were securities and made no guarantees concerning the outcome of the purchase of viaticals. Mr. Bode understood that there was some risk involved in the purchase of the viaticals and that the insured might not die within the estimated life expectancy. Mr. Bode was also aware that he might have to pay additional funds for premiums depending on the longevity of the insured. On December 9, 2003, Mr. Bode entered into a Viatical Settlement Purchase Agreement with Mutual Benefits. The purchase price was $10,000.00. The estimated life expectancy of the insured was 36 months. The rate of return if the insured died within the 36 months was 42 percent. The insured did not expire within the estimated 36 months, and Mr. Bode was required to pay for additional premiums for the viaticated insurance policy after the expiration of the 36 months. Sometime in November 2003, Alan Clemente (Mr. Clemente) saw an advertisement placed in a newspaper by Mr. McCloskey. The advertisement was for annuities. Mr. Clemente went to Mr. McCloskey's office to discuss possible investments. Mr. Clemente told Mr. McCloskey that he had lost $100,000.00 with a financial planner and was looking for a safe investment. Mr. McCloskey talked with Mr. Clemente about several types of products that his agency offered, including annuities, certificates of deposit, and viaticals. Mr. Clemente was not interested in certificates of deposits, but was very interested in annuities, such as Mr. McCloskey had advertised in the newspaper. Mr. Clemente was also interested in viaticals, and Mr. McCloskey made a presentation to Mr. Clemente concerning viaticals. Mr. Clemente did not make a purchase at the first meeting with Mr. McCloskey. A few weeks after his initial visit with Mr. McCloskey, Mr. Clemente came to Mr. McCloskey's office and purchased an annuity for $50,000.00. The annuity policy was delivered to Mr. Clemente on December 5, 2003, at Mr. McCloskey's office. When Mr. Clemente came to pick up his annuity policy, he again discussed viaticals with Mr. McCloskey. Mr. Clemente understood that a viatical was the purchase of an insurance policy of someone who was terminally ill and when the person died that he would get his money back plus a return on the investment depending on when the person died. He wanted to invest in a viatical for which the insured's life expectancy was estimated at three years, which would result in a 42 percent return on his money. He also understood that he would be responsible for the payment of the premiums on the policy until the insured died. Mr. McCloskey went over the Viatical Settlement Purchase Agreement with Mr. Clemente. He told Mr. Clemente that he thought it was a good investment. Mr. McCloskey never guaranteed that Mr. Clemente would get a 42 percent return on his money. Mr. McCloskey told Mr. Clemente that "in the last ten years that no one [had] lost any money in the contracts, principal and interest, and no one [had] to pay premiums." Mr. Clemente entered into a Viatical Settlement Purchase Agreement with Mutual Benefits on December 5, 2003. The purchase price was $20,539.00 for two policies for insureds whose life expectancies were estimated to be three years. The return listed in the policy was 42 percent. This return was conditioned on the insureds dying within the three-year period. Mr. Clement initialed each page of the agreement and signed the agreement. Additionally, Mr. Clemente executed a Purchaser Suitability Questionnaire which stated: I have carefully examined my financial resources, investment objectives, and tolerances for risk. After conducting this examination and reviewing the terms of the Viatical Settlement Purchase Agreement, I have determined that this purchase is appropriate for me. I sufficiently understand the risk factors and objectives associated with this investment, either independently or as explained to me by one or more professional financial advisors not affiliated with or in any way compensated by Mutual Benefits Corporation or its representatives. I have adequate means of providing for my current financial needs and personal contingencies, have no need for liquidity of this investment, and I am able to bear the financial risk of a purchase of life insurance policy death benefits for an indefinite period of time. In the early part of 2004, Carol Mauter (Ms. Mauter) came to Mr. McCloskey's office seeking some information about products that would generate an income for her mother, Julia Teny (Ms. Teny). Mr. McCloskey discussed various products with Ms. Mauter, including single premium immediate annuities and viatical settlements. A few days after Ms. Mauter's initial visit, she returned to Mr. McCloskey's office with Ms. Teny, who was approximately 87 years old. On March 3, 2004, Ms. Teny purchased a single premium immediate annuity for $30,000.00. This annuity was purchased to provide an income stream for Ms. Teny for five years. Mr. McCloskey discussed the purchase of a viatical settlement for an insured whose life expectancy was 48 months. It was decided that the purchase of the viatical would suit Ms. Teny's needs since it was estimated that the return on the viatical purchase would occur shortly before the annuity ended, and the proceeds from the viatical could be used to purchase another single premium immediate annuity to continue a stream of income for Ms. Teny. Mr. McCloskey gave Ms. Mauter and Ms. Teny a brochure from Mutual Benefits concerning viaticals. He did not guarantee a return on the purchase of the viatical nor did he guarantee that Ms. Teny would never have to pay any premiums on the policy. He did tell Ms. Mauter and Ms. Teny that as of the date of their visit to his office persons purchasing viatical settlements from Mutual Benefits had not lost any principal or interest or paid any premiums. There was no evidence presented to show that this statement was not true or that Mr. McCloskey knew that the statement was not true at the time the statement was made. On March 8, 2004, Ms. Teny executed a Viatical Settlement Purchase agreement with Mutual Benefits for policies on insureds whose life expectancies were estimated to be 48 months. The purchase price was $70,000.00. Ms. Teny initialed each page of the purchase agreement, but she relied on the judgment of her daughter concerning the understanding of the terms of the purchase agreement. On May 3, 2004, the Securities and Exchange Commission (SEC) filed in the United District Court of the Southern District of Florida an Ex Parte Motion for Temporary Restraining Order and Other Relief and Entry of Preliminary Injunction against Mutual Benefits and others, claiming Mutual Benefits was defrauding investors by offering unregistered securities in the form of investment interests in viatical settlement contracts. The motion for a temporary restraining order was granted. On February 14, 2005, the court entered an Order Granting Motion for Preliminary Injunction, finding that there was sufficient evidence of fraud committed by Mutual Benefits, specifically that the announced life expectancies of the insureds were a product of fraud. The court enjoined Mutual Benefits from further violations of the anti-fraud and registration provisions of the Federal Securities Laws in connection with the offering of viatical settlement products. SEC v. Mutual Benefits, Corp., No. 04-60573-CIV-Moreno (S.D. Fla. February 14, 2005)(order granting preliminary injunction). On May 4, 2005, the court entered an Order Appointing Receiver for Mutual Benefits. SEC v. Mutual Benefits, No. 04-60573-CIV-Moreno (S.D. Fla. May 4, 2005)(order appointing receiver). Mr. Clemente received notice about a year and a half after he entered into the viatical settlement agreement with Mutual Benefits that Mutual Benefits had been placed in receivership. He was instructed by the receiver that premiums were due on the insurance policies that were covered by Mr. Clemente's viatical settlement agreement and that in order to preserve his investment, Mr. Clemente would be required to pay the premiums on the policies. Due to the high cost of the premiums, Mr. Clemente elected to forfeit three of the policies covered by his viatical settlement agreement. Mr. Clemente is currently paying the premiums on one policy. To date, the receivership had paid Mr. Clemente approximately $5,000.00 out of his original purchase price. Sometime after Ms. Teny purchased her viatical, she began receiving letters requesting her to pay the policy premiums on the policies covered by her viatical settlement agreement. Ms. Teny did not know who sent the requests, but given the timing of the appointment of the receiver, it can be inferred that the receiver was requesting the payments. Ms. Teny initially paid the premiums, but as the amounts of the premiums increased to as much as over $10,000.00 in 2008, Ms. Teny allowed the policies to lapse and lost her entire investment of $70,000.00. Mr. Bode was also requested to make premium payments on the policies covered by his viatical settlement agreement. Mr. Bode made some payments, but stopped making payments and forfeited his purchase price of $10,000.00.
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 finding that Mr. McCloskey did not violate sections 626.611(7), 626.611(9), 626.621(2), 626.621(6), 626.9541(1)(e)1., 626.9927(1), 626.99275(1)(b), and 626.99277(6); finding that Mr. McCloskey violated section 626.611(16); and suspending his license for two months for each of the three violations for a total of six months. DONE AND ENTERED this 18th day of April, 2012, in Tallahassee, Leon County, Florida. S SUSAN BELYEU KIRKLAND 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 18th day of April, 2012.
The Issue The issues in this case are whether Respondents, Donald J. Denton and Strategic Strategies, Inc. (hereinafter "Respondents," "Denton," or "Strategic Strategies"), are guilty of selling or offering for sale securities in Florida that were not registered pursuant to Chapter 517, Florida Statutes, in violation of Section 517.07(1), Florida Statutes; whether Respondents are guilty of acting as unregistered dealers, associated persons, or issuers by having sold or offered for sale any securities from this state, in violation of Section 517.12(1), Florida Statutes; and, if so, what penalties are appropriate and should be imposed. All references to Florida Statutes are for the years 1998 and 1999.
Findings Of Fact Based upon the observation of the witnesses and their demeanor while testifying, the documentary evidence received in evidence, and the entire record complied herein, the following relevant and material facts are found: The Department is the agency charged with the enforcement and administration of the provisions of Chapter 517, Florida Statutes, the "Securities and Investors Protection Act," and the rules promulgated there under (hereinafter the "Securities Act"). As authorized by the Securities Act, the Department conducted an investigation of the activities of Respondents. At no time pertinent, material, and relevant hereto were Respondents, Denton or Strategic Strategies, licensed or registered by the Department pursuant to the provisions of the Securities Act in any capacity. Specifically, Respondents were not licensed or registered in Florida as a broker/dealer, registered representative, or investment advisor. At all times pertinent, material, and relevant hereto, Denton, whose address is 139 East Park Drive, Celebration, Florida 34747-5052, was licensed as a Health Agent under license No. AO666272 issued by the Florida Department of Insurance. At all times pertinent, material and relevant hereto, Strategic Strategies was an Ohio corporation, now dissolved, whose company business address was Post Office Box 341470, Columbus, Ohio 43234. Strategic Strategies was served the Administrative Complaint via its agent in Ohio. The Department was advised by Strategic Strategies' agent that the company would not further respond to the charges. From November 1, 1998, through July 21, 1999, Denton, in Florida as an agent, offered and sold to investors, investment contracts purportedly being interests in viaticated life insurance policies known as settlement agreements with titles such as, "Viatical Insurance Benefits Participation Agreement." The interests in viaticated life insurance policies were represented to be provided by Accelerated Benefits Services (hereinafter ABS). Denton engaged in sales with four Florida investors in four transactions through Strategic Strategies during the period of March 15, 1999, through July 27, 1999. Denton engaged in 26 sales with 26 Florida investors in 26 transactions. On or about January 21, 1999, Dr. Kerry L. Neal, a Florida investor, paid $50,000 for an investment sold to him by Denton. The investment was represented as safe, insured by the state of Florida, and consisting of an interest in the ABS trust with a participation of $25,000 in two viaticated insurance settlement agreements as a 14.2 percent fractional interest in the insurance policies' face value. A monthly income program was offered in the participation disclosure materials provided to Dr. Neal by Denton. Dr. Neal was promised a guaranteed rate of return of 42 percent, with the option of getting the principal back after 36 months with a 15 percent return if the viator (the person insured by the insurance policy) did not die during the 36-month period and the policies had not matured. Of his $50,000 investment, Dr. Neal has only received approximately $8,000 as disbursements from the ABS bankruptcy trustee resulting in Dr. Neal having suffered a present financial loss of $42,000. On or about January 3, 1999, Dr. Theodore F. Hoff, a Florida investor, paid $200,000 for an investment sold to him by Denton. The investment was represented as safe, insured by the state of Florida, and consisting of an interest in the ABS trust with fractional interests in eight viaticated life insurance settlement agreements. A monthly income program was offered in the participation disclosure materials provided Dr. Hoff together with a guaranteed rate of return of 42 percent, with the option of getting the principal back after 36 months with a 15 percent return if the viator did not die during the 36-month period and the polices had not matured. Of his $200,000 investment, Dr. Hoff has only received a total of approximately 15 percent in disbursement from the ABS bankruptcy trustee, thereby resulting in a present financial loss to Dr. Hoff of approximately $170,000. On or about March 23, 1999, Dr. Paul Richard Williamson, a Florida investor, paid $50,000 for an investment sold to him by Denton. The investment was represented as safe, insured by the state of Florida, and consisting of an interest in the ABS trust with fractional interests in two viaticated life insurance settlement agreements. A monthly income program was offered in the participation disclosure materials provided to Dr. Williamson together with a guaranteed rate of return of 42 percent, with the option of getting the principal back after 36 months with a 15 percent return if the viator did not die during the 36-month period and the polices had not matured. Of his $50,000 investment, Dr. Williamson has only received $8,253.68 in disbursement from the ABS bankruptcy trustee, thereby resulting in a present financial loss to Dr. Williamson of approximately $41,746.32. On or about January 4, 1999, Dr. Samuel Preston Martin, a Florida investor, paid $100,000 for an investment sold to him by Denton. The investment was represented as safe, insured by the state of Florida, and consisting of an interest in the ABS trust with fractional interests in two viaticated life insurance settlement agreements. A monthly income program was offered in the participation disclosure materials provided to Dr. Martin together with a guaranteed rate of return of 42 percent, with the option of getting the principal back after 36 months with a 15 percent return if the viator did not die during the 36-month period and the polices had not matured. Of his $100,000 investment, Dr. Martin has only received $16,000 in disbursements from the ABS bankruptcy trustee, thereby resulting in a present financial loss to Dr. Martin of approximately $84,000. On or about November 10, 1999, Dr. Gilbert Principe, a Florida investor, paid $125,000 for an investment sold to him by Denton. The investment was represented as safe, insured by the state of Florida, and consisting of an interest in the ABS trust with fractional interests in two viaticated life insurance settlement agreements. A monthly income program was offered in the participation disclosure materials provided Dr. Principe together with a guaranteed rate of return of 42 percent, with the option of getting the principal back after 36 months with a 15 percent return if the viator did not die during the 36-month period and the polices have not matured. Of his $125,000 investment, Dr. Principe has only received approximately $20,000 (16 percent) in disbursement from the ABS bankruptcy trustee, thereby resulting in a present financial loss to Dr. Principe of $105,000. The above investors, Drs. Neal, Hoff, Williamson, Martin and Principe, were clients of Denton who held himself out as a financial advisor. By special and private invitations from Denton, they were invited twice yearly to attend investment seminars conducted by Denton. Denton directly or indirectly represented that the viatical investment would make money for the above named investors; he represented to each investor that the return could be 9.86 percent per year for three (3) years paid monthly as a income program. The above-named investors lost their money as victims of a Ponzi scheme run by principals of ABS involving the sale of viatical agreements in Florida. Ray Levy was the owner of ABS, a viatical settlement brokerage company that raised funds for the purchase of viatical settlements. Jeffery Pains, Esquire, was the escrow agent for ABS. Levy, Paine and others were convicted in federal court of fraud since approximately 90 percent of the $208 million obtained from thousands of investors solicited nationwide was used for the purchase of real estate and items for personal use.1 ABS offered and sold its viaticals to thousands of investors in Florida and in other states. There were approximately a total of 7,000 ABS transactions. The Department filed charges against ABS and Ray Levy that resulted in a Final Order adopting a stipulated settlement. ABS and Ray Levy agreed to comply with Florida law, stop offering the income program, return $900,000 to certain investors, and pay $60,000 to the Department for costs. Other agents (insurance, financial advisors, etc.) that sold the interests in the ABS viaticals have been charged with violations of the Securities Act by the Department, resulting in cease and desist orders being issued and fines being imposed. Denton offered the following defenses to his conduct: sales were exempt securities; sales were insurance policies; investors were wealthy and experienced; his reliance upon ABS's printed literature absolved him from personal liability; and the Department had an obligation to communicate to him personally any knowledge of problems with business practices of ABS, all of which are without merit. The undisputed evidence of record, clearly and convincingly supports that: First, Respondent, Denton, while not registered in the securities business, intentionally or knowingly, solicited and sold unregistered securities; and second, Respondent, Strategic Strategies, had four sales and Denton has 26 sales.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that The Department of Banking and Finance enter its final order finding Respondents guilty of violations of Sections 517.07(1) and 517.12(1), Florida Statutes; it is further RECOMMENDED that The Department of Banking and Finance order Respondent to cease and desist from engaging in any transaction constituting the sale of securities in Florida; it is further RECOMMENDED that The Department of Banking and Finance order Respondent, Strategic Strategies, Inc., be fined in the amount of $40,000; and, it is finally RECOMMENDED that The Department of Banking and Finance order Respondent, Donald J. Denton, be fined in the amount of $260,000. DONE AND ENTERED this 20th day of November, 2002, in Tallahassee, Leon County, Florida. FRED L. BUCKINE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 20th day of November, 2002.
Findings Of Fact The previously described Agency Statements allegedly defined as rules constitute efforts by Petitioner to paraphrase information found in the Administrative Complaint in Case No. 89790-07-AG. When contrasting the allegations within the petition at paragraphs 12.1. through 12.5., they are comparable to paragraphs within the Administrative Complaint which state: General Allegations * * * At all times material hereto, you, GEORGE MARSHALL SMITH, offered for sale and sold viatical settlement purchase agreements on behalf of Mutual Benefits Corporation ("MBC"). The viatical settlement purchase agreements you, GEORGE MARSHALL SMITH, offered for sale and sold on behalf of MBC were securities, as defined under section 517.021(20)(q), Florida Statutes (2003). The viatical settlement purchase agreements that you, GEORGE MARSHALL SMITH, offered for sale and sold on behalf of MBC were not registered with the State of Florida Department of Banking and Finance, as required by Section 517.07, Florida Statutes, and were not exempt from such registration requirements, either under the provisions of sections 517.051 or 517.61, Florida Statutes. You, GEORGE MARSHALL SMITH, were not registered in this state to sell securities, as required by Section 517.12, Florida Statutes. * * * 20. On or about September 17, 2002, you, GEORGE MARSHALL SMITH, sold D.M. and V.M. of The Villages, Florida, five viatical settlement purchase agreements issued by MBC. The total purchase price of the viatical settlement purchase agreements was over $70,000. * * * IT IS THEREFORE CHARGED that you, GEORGE MARSHALL SMITH, have violated or are accountable under the following provisions of the Florida Insurance Code and Rules of the Chief Financial Officer which constitute grounds for the suspension or revocation of your license(s) and eligibility for licensure: * * * Sale of an unregistered security that was required to be registered, pursuant to chapter 517. [Section 626.611(16), Florida Statutes (2003)]; * * * 31. On or about March 18 and April 7, 2003, you, GEORGE MARSHALL SMITH, sold G.A. and E.A. of Lady Lake, Florida, eight viatical settlement purchase agreements issued by MMBC. The total purchase price of the viatical settlement purchase agreements was at least nearly $88,000. * * * IT IS THEREFORE CHARGED that you, GEORGE MARSHALL SMITH, have violated or are accountable under the following provisions of the Florida Insurance Code and Rules of the Chief Financial Officer which constitute grounds for the suspension or revocation of your license(s) and eligibility for licensure: * * * (d) Sale of an unregistered security that was required to be registered, pursuant to Chapter 517. [Section 626.611(16), Florida Statutes (2003)]; * * * 42. On or about June 9 and September 9, 2003, you, GEORGE MARSHALL SMITH, sold D.C. and W.C. of the Villages, Florida, five viatical settlement purchase agreements issued by MBC. The total purchase price of the viatical settlement purchase agreements was $135,000. * * * IT IS THEREFORE CHARGED that you, GEORGE MARSHALL SMITH, have violated or are accountable under the following provisions of the Florida Insurance Code and Rules of the Chief Financial Officer which constitute grounds for the suspension or revocation of your license(s) and eligibility for licensure: * * * (d) Sale of an unregistered security that was required to be registered, pursuant to chapter 517. [Section 626.611(16), Florida Statutes (2003)]; Chapter 2005-237, Laws of Florida, effective July 1, 2005, added at Section 1., a definition within Section 517.021, Florida Statutes, as follows: 517.021 Definitions.--When used in this chapter, unless the context otherwise, indicates, the following terms have the following respective meanings: * * * (w) A viatical settlement investment. (23) "Viatical settlement investment" means an agreement for the purchase, sale, assignment, transfer, devise, or bequest of all or any portion of a legal or equitable interest in a viaticated policy as defined in chapter 626. The term does not include: The transfer or assignment of an interest in a previously viaticated policy from a natural person who transfers or assigns no more than one such interest in 1 calendar year. The provision of stop-less coverage to a viatical settlement provider, financing entity, or related provider trust, as those terms are defined in s. 626.9911, by an authorized or eligible insurer. The transfer or assignment of a viaticated policy from a licensed viatical settlement provider to another licensed viatical settlement provider, a related provider trust, a financing entity, or a special purpose entity, as those terms are defined in s. 626.9911, or to a contingency insurer provided that such transfer or assignment is not the direct or indirect promotion of any scheme or enterprise with the intent of violating or evading any provision of this chapter. The transfer or assignment of a viaticated policy to a bank, trust company, savings institution, insurance company, dealer, investment company as defined in the Investment Company Act of 1940, pension or profit-sharing trust, or qualified institutional buyer as defined in United States Securities and Exchange Commission Rule 144A, 17 C.F.R. 230.144A(a, or to an accredited investor as defined by Rule 501 of Regulation D of the Securities Act Rules, provided such transfer or assignment is not for the Securities Act Rules, provided such transfer or assignment is not for the direct or indirect promotion of any scheme or enterprise with the intent of violating or evading any provision of this chapter. The transfer or assignment of a viaticated policy by a conservator of a viatical settlement provider appointed by a court of competent jurisdiction who transfers or assigns ownership of viaticated policies pursuant to that court's order. 3. Chapter 2005-237, Laws of Florida at Sections 7., 8., 10., 11., and 14. state in pertinent part: Section 7. Subsection (10) of section 626.015, Florida Statutes, is amended to read: 626.015 Definitions.--As used in this part: (10) "Life agent" means an individual representing an insurer as to life insurance and annuity contracts, or acting as a viatical settlement broker as defined in s. 626.9911, including agents appointed to transact life insurance, fixed-dollar annuity contracts, or variable contracts by the same insurer. Section 8. Paragraph (b) of subsection (1) of section 626.112, Florida Statutes, is amended to read: 626.112 License and appointment required; agents, customer representatives, adjusters, insurance agencies, service representatives, managing general agents.-- (1) (b) Except as provided in subsection (6) or in applicable department rules, and in addition to other conduct described in this chapter with respect to particular types of agents, a license as an insurance agent, service representative, customer representative, or limited customer representative is required in order to engage in the solicitation of insurance. For purposes of this requirement, as applicable to any of the license types described in this section, the solicitation of insurance is the attempt to persuade any person to purchase an insurance product by: Describing the benefits or terms of insurance coverage, including premiums or rates of return; Distributing an invitation to contract to prospective purchasers; Making general or specific recommendations as to insurance products; Completing order or applications or insurance products; or Comparing insurance products, advising as to insurance matters, or interpreting policies or coverages; or Offering or attempting to negotiate on behalf of another persona a viatical settlement contract as defined in s. 626.9911. * * * Section 10. Subsection (2) of section 626.331, Florida Statutes, is amended to read: 626.331 Number of appointments permitted or required.- (2) An agent shall be required to have a separate appointment as to each insurer by whom he or she is appointed as an agent. An agent must appoint himself or herself before performing the functions of a viatical settlement broker. Section 11. Subsection (17) is added to section 626.611, Florida Statutes, to read: 626.611 Grounds for compulsory refusal, suspension, or revocation of agent's, title agency's, adjuster's, customer representative's, service representative's, or managing general agent's license or appointment.--The department shall deny an application for, suspend, revoke, or refuse to renew or continue the license or appointment of any applicant, agent, title agency, adjuster, customer representative, service representative, or managing general agent, and it shall suspend or revoke the eligibility to hold a license or appointment of any such person, if it finds that as to the applicant, licensee, or appointee any one or more of the following applicable grounds exist: (17) In transactions related to viatical settlement contracts as defined in s. 626.9911: Commission of a fraudulent or dishonest act. No longer meeting the requirements for initial licensure. Having received a fee, commission, or other valuable consideration for his or her services with respect to viatical settlements that involved unlicensed viatical settlement providers or persons who offered or attempted to negotiate on behalf of another person a viatical settlement contract as defined in s. 626.9911 and who were not licensed life agents. Dealing in bad faith with viators. * * * Section 14. Section 626.9911, Florida Statutes, is amended to read: 626.9911 Definitions.--As used in this act, the term: * * * (11) "Viatical settlement investment" has the same meaning as specified in s.517.021. The petition also discusses similar administrative complaints against persons other than Mr. Smith brought by the Department, a point upon which there is agreement, evidence the case, Department of Financial Services v. Bradley Wayne Kline, Case No. 849567-07-AG. Final order (filed 12/21/07), pertaining to the Recommended Order in DOAH Case No. 07-1218PL. In association with paragraphs 12.8 and 12.9 alleged to constitute Agency Statements defined as rules, evidence to support that allegation is as reflected in Exhibit "2" to the petition which states: FLORIDA DEPARTMENT OF FINANCIAL SERVICES ALEX SINK CHIEF FINANCIAL OFFICER September 06, 2007 JACKSON NATIONAL LIFE INSURANCE COMPANY BETH WRIGHT PO BOX 24068 LANSING MI 48909-4068 Re: GEORGE MARSHALL SMITH License Number DO34447 Dear Sir or Madam: This letter serves as official notice that the Department filed an Administrative Complaint against the above referenced individual on 08/22/2007. If you wish to receive a copy of the above referenced Administrative Complaint, you may return a copy of this letter with our request to the Department of Financial Services, Document Processing Section, PO Box 5320, Tallahassee FL 32314-5320 or fax your request to (850) 488-3429. They will retrieve the document(s) and invoice you as to the amount owed. Once the fee is received, the document(s) will be sent to you. If you have any questions concerning this matter, you should contact our legal division at (850) 413-3137. Bureau of Licensing FLDFS BUREAU OF LICENSING 200 EAST GAINES STREET*TALLAHASSEE, FLORIDA 32399-0319*(850) 413-3137 HTTP//WWW.FLDFS.COM This example is perceived as the form of "official notice" of an Administrative Complaint filed against George Marshall Smith and others similarly situated and the practice of invoicing and charging for copies of documents sent to persons who inquire about Administrative Complaints in this case or others of a similar nature.
The Issue The issue for determination is whether Proposed Rule 69O-204.101 is an invalid exercise of delegated legislative authority.
Findings Of Fact Respondent, Office of Insurance Regulation (hereinafter referred to as "OIR"), is an agency of the State of Florida, created within the Financial Services Commission (hereinafter referred to as "Commission"). § 20.121(3)(a)1., Fla. Stat. (2007).2 Pursuant to Subsection 21.121(3)(a), the OIR is responsible for all activities concerning insurers and other risk-bearing entities, including licensing, rates, policy forms, market conduct, claims, issuance of certificates of authority, solvency, viatical settlements, premium financing, and administrative supervision, as provided under the Florida Insurance Code or Chapter 636. The Florida Insurance Code includes Chapters 624 through 632. The Commissioner of Insurance Regulation is the agency head of the OIR. However, the Commission is the agency head for purposes of rulemaking. § 20.121(3)(c). The matter at issue in this proceeding is Respondent's Proposed Rule 69O-204.101 entitled, "Disclosures to Viator of Disbursement" (the "Proposed Rule"). The Commission advertised the text of the Proposed Rule on November 30, 2007, in Volume 33, Number 48, of the Florida Administrative Weekly, and, subsequently, filed a Notice of Change to the Proposed Rule on February 15, 2008, and, again, on February 22, 2008. A final public hearing regarding the Proposed Rule was conducted by the Commission on March 25, 2008, at which time the Commission approved the Proposed Rule for final adoption. According to the published notice, the purpose and effect of Proposed Rule 69O-204.101 is "to establish disclosures to viators of reconciliation of funds." The text of the Proposed Rule, as noticed for final adoption, reads as follows: 69O-204.101 Disclosures to Viator of Disbursement. Prior to or concurrently with a viator's execution of a viatical settlement contract, the viatical settlement provider shall provide to the viator, in duplicate, a disclosure statement in legible written form disclosing: The name of each viatical settlement broker who receives or is to receive compensation and the amount of each broker's compensation related to that transaction. For the purpose of this rule, compensation includes anything of value paid or given by or at the direction of a viatical settlement provider or person acquiring an interest in one or more life insurance policies to a viatical settlement broker in connection with the viatical settlement contract; and A complete reconciliation of the gross offer or bid by the viatical settlement provider to the net amount of proceeds or value to be received by the viator related to that transaction. For the purpose of this rule, gross offer or bid shall mean the total amount or value offered by the viatical settlement provider for the purchase of an interest in one or more life insurance policies, inclusive of commissions, compensation, or other proceeds or value being deducted from the gross offer or bid. The disclosure statement shall be signed and dated by the viator prior to or concurrently with the viator's execution of a viatical settlement contract with the duplicate copy of the disclosure statement to be retained by the viator. If a viatical settlement contract has been entered into and the contract is subsequently amended or if there is any change in the viatical settlement provider's gross offer or bid amount or change in the net amount of proceeds or value to be received by the viator or change in the information provided in the disclosure statement to the viator the viatical settlement provider shall provide, in duplicate, an amended disclosure statement to the viator, containing the information in paragraphs (1)(a) and (b). The amended disclosure statement shall be signed and dated by the viator with the duplicate copy of the amended disclosure statement to be retained by the viator. The viatical settlement provider shall obtain the signed and dated amended disclosure statement. Prior to a viatical settlement provider's execution of a viatical settlement contract, the viatical settlement provider must have obtained the signed and dated disclosure statement and any amended disclosure statement required by this rule. In transactions where no broker is used the viatical settlement provider must have obtained the signed and dated disclosure statement from the viator. The documentation required in this rule shall be maintained by the viatical settlement provider pursuant to the provisions set forth in Subsection 626.9922(2), Florida Statutes, and shall be available to the office at any time for copying and inspection upon reasonable notice to the viatical settlement provider. The Proposed Rule cites Subsection 624.308(1) and Section 626.9925 as specific authority for the Proposed Rule. The Proposed Rule cites Sections 626.9923, 626.9924, and 626.9925 as the law implemented by the Proposed Rule. The Proposed Rule involves regulation of viatical settlement providers pursuant to Florida's Viatical Settlement Act, Part X, Chapter 626 (hereinafter referred to as the "Act"). The Act regulates both viatical settlements and life settlements. The Act does not define "viatical settlement" or "life settlement." However, both types of transactions involve the sale of the ownership interest in life insurance policies. A "viatical settlement" involves the sale of an ownership interest in a life insurance policy by a person who is expected to live for less than two years. A "life settlement" involves the sale of the ownership interest in a life insurance policy by a person who is expected to live longer than two years after the date of the sale. Viatical settlements and life settlements are regulated in essentially the same manner and each of the foregoing transactions are included in the definition of "viatical settlement contract" as defined in the Act. Therefore, references to "viatical settlements" under Florida law refer to both life settlements and viatical settlements. Subsection 626.9911(10) defines "viatical settlement contract" as follows: (10) "Viatical settlement contract" means a written agreement entered into between a viatical settlement provider, or its related provider trust, and a viator. The viatical settlement contract includes an agreement to transfer ownership or change the beneficiary designation of a life insurance policy at a later date, regardless of the date that compensation is paid to the viator. The agreement must establish the terms under which the viatical settlement provider will pay compensation or anything of value, which compensation or value is less than the expected death benefit of the insurance policy or certificate, in return for the viator's assignment, transfer, sale, devise, or bequest of the death benefit or ownership of all or a portion of the insurance policy or certificate of insurance to the viatical settlement provider. A viatical settlement contract also includes a contract for a loan or other financial transaction secured primarily by an individual or group life insurance policy, other than a loan by a life insurance company pursuant to the terms of the life insurance contract, or a loan secured by the cash value of a policy. In a viatical settlement transaction, the "viatical settlement provider" is the purchaser of the ownership interest in a life insurance policy, including the right to receive the policy proceeds upon the death of the insured. Also see § 626.9911(12).3 The "viator" is the owner of an insurance policy who sells the ownership interest in the policy. Also see § 626.9911(14).4 The term "viatical settlement broker" is defined in Subsection 626.9911(9), as follows: (9) "Viatical settlement broker" means a person who, on behalf of a viator and for a fee, commission, or other valuable consideration, offers or attempts to negotiate viatical settlement contracts between a viator resident in this state and one or more viatical settlement providers. Notwithstanding the manner in which the viatical settlement broker is compensated, a viatical settlement broker is deemed to represent only the viator and owes a fiduciary duty to the viator to act according to the viator's instructions and in the best interest of the viator. The term does not include an attorney, licensed Certified Public Accountant, or investment adviser lawfully registered under chapter 517, who is retained to represent the viator and whose compensation is paid directly by or at the direction and on behalf of the viator. Pursuant to Subsection 626.9911(9), the "viatical settlement broker" is an agent of the viator and, as such, owes a fiduciary duty to the viator to obtain the best price for the insurance policy. Thus, typically, the viatical settlement broker solicits bids from multiple viatical settlement providers on behalf of the viator. The Proposed Rule requires viatical settlement providers to furnish viators with a detailed accounting of all funds involved in viatical settlement transactions and to ensure that viators are aware of the accounting. The issues of disclosures required for viatical settlement contracts and transactions are addressed in two provisions of the Act, Sections 626.99181 and 626.9923. Section 626.99181, Florida Statutes, requires a viatical settlement broker to disclose its compensation and states, "[a] viatical settlement broker shall disclose to a prospective viator the amount and method of calculating the broker's compensation." That provision states the "compensation" includes "anything of value paid or given to a viatical settlement broker for the placement of a policy." Section 626.9923 addresses viatical settlement contracts and required disclosures to viators and states that: Viatical settlement contracts; required disclosures.--The viatical settlement broker, or the viatical settlement provider in transactions in which no broker is used, must inform the viator by the date of application for a viatical settlement contract: That there are possible alternatives to viatical settlement contracts for persons who have a catastrophic or life-threatening illness, including, but not limited to, accelerated benefits offered by the issuer of a life insurance policy. That proceeds of the viatical settlement could be taxable, and assistance should be sought from a personal tax advisor. That viatical settlement proceeds could be subject to the claims of creditors. That receipt of viatical settlement proceeds could adversely affect the recipient's eligibility for Medicaid or other government benefits or entitlements, and advice should be obtained from the appropriate agencies. That all viatical settlement contracts entered into in this state must contain an unconditional rescission provision which allows the viator to rescind the contract within 15 days after the viator receives the viatical settlement proceeds, conditioned on the return of such proceeds. The name, business address, and telephone number of the independent third- party escrow agent, and the fact that the viator may inspect or receive copies of the relevant escrow or trust agreements or documents. Petitioner is an established trade association in the life settlement industry and is comprised of over 175 member companies, some of which include Florida-licensed viatical settlement providers who would be subject to the Proposed Rule. Petitioner's members would be substantially affected by the Proposed Rule because it would require them to make disclosures to viators in addition to the disclosures required by the Act.
The Issue The issue to be determined in this proceeding concerns whether the Respondent's licenses as an insurance agent in the State of Florida should be subjected to discipline and sanction for alleged violations of certain provisions of the Florida Insurance Code as set forth in the First Amended Administrative Complaint and treated herein.
Findings Of Fact The Respondent was licensed by the Department at all times material hereto as a as a life, health and variable annuity agent. Sometime in 1993 the Respondent met future client Margaret Buchholz, at a financial services seminar conducted in part by the Respondent. Upon the conclusion of that seminar, Ms. Buchholz told the Respondent that she would like to make an appointment with him to discuss her financial situation and financial services she might need. She had recently lost her husband and had moved to Florida from Minnesota. She was retired at the time and remains so. She had certain investments she had undertaken while living in Minnesota apparently consisting of mutual funds. She was dissatisfied with the services of her broker in that state concerning management of that investment. She desired to liquidate that investment and re-invest her funds in an appropriate investment through a Florida broker or agent. She also wished assistance in settling medical bills from her husband's last illness, particularly in determining the amount of her liability for those bills versus that which should be paid by medicare. She requested the Respondent's assistance in this regard as well. Sometime in 1993 or 1994, the company the Respondent was affiliated with performed an estate plan for Ms. Buchholz. Additionally, because she desired a safe investment for the proceeds of the investments she had liquidated after ending her relationship with the Minnesota broker, the Respondent and his wife Thelma Franzoni, who is also an agent, sold Ms. Buchholz a total of six annuities. The total money invested in the six annuities was $167,256.15. The commission for the sale of these annuities totaled $15,191.44. That amount was paid to the agency involved, Ameri-Life and Health Services, the broker with which the Franzonis were employed at the time. The total commissions paid to the Respondent from that broker, Ameri-Life, was $7,227.52. Through the course of their dealings and contacts a friendly relationship developed between the Franzonis and Ms. Buchholz. After Ms. Buchholz purchased the annuities the Franzonis visited her on a number of occasions. During one of those occasions a home health care product was sold to Ms. Buchholz by Ms. Franzoni. Sometime after that sale a new product which included long-term care or "nursing home care" was introduced to the market and Ms. Franzoni felt that this would be a more comprehensive plan and would be more cost effective and suitable to Ms. Buchholz. Ms. Franzoni contacted Ms. Buchholz and arranged an appointment. During that appointment an application was taken for that new insurance product and during the meeting Ms. Buchholz complained to the Respondent concerning the low interest rate she was earning on her annuities. She asked if he had anything that would pay her better than that. (This meeting was sometime in 1999, 4-5 years after she purchased the annuities.) The Respondent told Ms. Buchholz that indeed he had a new product called a viaticated insurance benefit. Ms. Buchholz asked that he explain it to her and he explained the product and left a viaticated insurance benefits participation disclosure statement or booklet with Ms. Buchholz, asking her to read it. He asked her after reading it to list any questions that she might have. He reviewed the complete disclosure package with her, explaining it to her. At a subsequent meeting the questions Ms. Buchholz had were presented to the Respondent and he explained the viaticated insurance benefit type of investment to her again. In response to Ms. Buchholz's concern about the low income or low interest rate of return, the Respondent recommended that she could liquidate some of her annuities and use the proceeds to fund the viaticated insurance benefit investment he recommended to her. Consequently, at his recommendation she liquidated three of her annuities to use the proceeds for that purpose. Pursuant to the annuity contracts entered into in approximately 1994, the surrender charges, at the stage of the life of the annuities when Ms. Buchholz surrendered or cashed them, totaled $12,103.38. Ms. Buchholz maintains that the Respondent failed to disclose those surrender charges to her and that those surrender penalties would have prevented her from deciding to liquidate those annuities and re-investing the proceeds had she been aware of them. The Respondent maintains that he did disclose the surrender penalties and that moreover, Ms. Buchholz knew of them because on three separate occasions she either signed or received official letters, documents or notices indicating to her the fact of and the amounts of the surrender charges involved in her "cashing in" of the subject annuities, starting with the original annuity contracts entered into in approximately 1994. She signed for and received the checks for the cashing of the annuities, which were accompanied by a disclosure of the surrender penalty amounts and details, by which she could again learn before she elected to receive and negotiate the checks. Ms. Buchholz received the annuity checks some three weeks before the viaticated insurance benefit investment was made. The Respondent contends that during those three weeks she could have still returned the money to the annuity company and cancelled her surrender of those annuities. In fact, she was advised in writing by companies that she actually had 60 days to return the funds and reinstate her annuities without penalties. This was after she had been informed in writing of the surrender charges. The Respondent explained the viaticated insurance benefits participation disclosure booklet or statement to Ms. Buchholz. He advised her also to read it after he left their meeting concerning the investment issue and to write down any questions he might have to present to him at a later meeting. He reviewed the complete "due diligence packet" with her, explaining it as well. The questions that she had were then presented to the Respondent and he answered them at a subsequent meeting. The viaticated insurance benefits were discussed between Mr. and Mrs. Franzoni and Ms. Buchholz on at least two meetings or occasions. At one of those meetings, the later one, she decided to purchase the viaticated insurance benefits. At a third meeting the application was completed. In the course of discussion of the prospect of investing in the viaticated insurance benefits investments or contracts, the Respondent did represent to Ms. Buchholz that she could earn or would have an opportunity to earn a rate of return of approximately 14 percent per year or 42 percent over the three-year maturity period or life of the viaticated benefit investment contracts. The record is not clear, however, that the Respondent represented the 14 percent return as an absolute guarantee to Ms. Buchholz. Indeed, the subject participation agreements or contracts, in evidence, provided to her by the Respondent, show that 14 percent was not an actual guarantee because, although it would be so if the investment contract matured in the projected three-year period (i.e. the viator died), if the maturity date extended longer than that, because the viator had not yet expired, the annualized return rate or percentage would be correspondingly lower. Conversely, if the viator expired sooner than the three-year period referenced in the agreements, the corresponding annual rate of return percentage would be higher. In any event, she had the opportunity to earn a higher return than the four and one-half percent she was receiving on the previous annuity investments. In the event, the viaticated insurance benefit did not mature in the three-year period, a "bailout provision" was provided in the contract whereby she would be paid if she "cashed out" of the contracts at the rate of 15 percent for the three-year period or a guaranteed five percent per year (simple interest) on the bailout provision. Ms. Buchholz used the proceeds from the liquidation of the annuities to purchase four viatical benefit contracts through the Respondent as sales agent, through Jeffery Paine, the escrow agent for American Benefits Services (ABS) and Financial Federation Title and Trust Company (FinFed). Additionally, she used "qualified," tax deferred proceeds from the surrender of the annuities to purchase viatical benefit contracts through the Respondent as sales agent, through Pensco, Inc., an administrator of self-directed IRA's and pension funds. The total amount for the viaticals purchased through Pensco was $61,788.12. An additional $26,764.00 was held by Pensco in a cash account to fund mandatory monthly IRA disbursements. Ms. Buchholz gave the Respondents two checks, one in the amount of $88,582.12 payable to Jeffery Paine, and one in the amount of $42,344.02 payable to Pensco pension services. These checks were in payment for the purchase of the viatical insurance benefit contracts at issue. Ultimately, it was revealed that the principals of ABS and FinFed. the viatical settlement brokers, were engaging in a "Ponzi scheme" whereby more viaticated investment contracts were sold to investors, such as Ms. Buchholz, than the companies ABS and FinFed had policies or funds with which to pay off investors. Consequently, through federal criminal proceedings, several of these principals were convicted and incarcerated. Ms. Buchholz ultimately lost approximately $100,000.00. The ABS/FinFed companies are in bankruptcy and the trustee in bankruptcy has paid investors including Ms. Buchholz, at the present time, approximately 23 percent of the investment principal. More reimbursements may be in the offing as the bankruptcy administration progresses. The escrow agent for the companies and the investors was Jeffery Paine, an attorney licensed by the Florida Bar Association. It was his duty and responsibility, as stated in the viaticated insurance benefits participation agreement disclosures, to ensure that the policies actually existed and were paid up in full force and effect. He was responsible to ascertain that they had survived the typical two-year contestable period, and that the life expectancies of the terminal viators had been investigated and documented by a state certified medical professional or physician. This was not the responsibility of the Respondent or other agents like him. Indeed agents such as the Respondent do not have access to medical records of viators. The duty to examine them is performed by the viatical settlement provider or escrow agent. The Respondent was not responsible for payment of premiums on any policies because the viatical settlement provider or escrow agent had a premium reserve account to provide payment of any necessary premiums. Indeed most of the policies involved in the subject case were covered under "waiver of premium" provisions, whereby, as is typically the case with life insurance policies, when the insured person becomes terminally ill or disabled, the premium is waived by the insurance company, It is probably true that Ms. Buchholz did not totally understand the nature of viatical investments and did not understand all risks associated with the investment; she rather relied on the Respondent based upon his representation. She admitted to not remembering everything about the details of the transactions and the documents she signed and admitted that she did not read much, if any, of the documents related to the viatical investments or to the annuities which she had owned previously. For his part, the Respondent made a fairly detailed due diligence investigation, as did his wife (who reported to him), to ascertain that the policies and the companies with whom he would be dealing in selling viatial benefit contracts were bona fide, duly-licensed and reputable companies, operating in good faith. This evidence by the Respondent tends to be borne out as to its creditability because the Respondent's wife, after this due diligence investigation, invested $51,000.00 of her own money and the Franzonis also sold viatical benefit contracts to several of their own family members. The Respondent's showing that he was unaware of the "Ponzi scheme" and illegal and criminal acts of the principals of the company he represented is deemed credible and is accepted.
Recommendation Having considered the foregoing Findings of Fact, Conclusions of Law, the evidence of record, the candor and demeanor of the witnesses, and the pleadings and arguments of the parties, it is, therefore, RECOMMENDED: That a Final Order be entered dismissing the subject Amended Administrative Complaint. DONE AND ENTERED this 27th day of June, 2003, in Tallahassee, Leon County, Florida. P. MICHAEL RUFF 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 27th day of June, 2003. COPIES FURNISHED: Richard J. Santurri, Esquire Department of Financial Services 200 East Gaines Street Tallahassee, Florida 32399-0333 Augustus Peter Franzoni 43 Cimmaron Drive Palm Coast, Florida 32313 Honorable Tom Gallagher Chief Financial Officer Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Mark Casteel, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300
The Issue The issue in this case is whether Respondent, James Robert Stiffler, knowingly made untrue statements of material facts to induce Frank Galasso to purchase two viatical settlement agreements. Essentially, the charges are that Respondent, in his solicitations and negotiations with Frank Galasso, stated that viatical settlement agreements were, "guaranteed," "no risk," "fully secured," "risk free," "non-speculative," and promised a "fixed rate of return;" and that Respondent provided viatical settlement agreement literature containing one or more the above the prohibited phrases, for the purpose of inducing Frank Galasso to purchase, and Frank Galasso did purchase, two viatical settlement agreements for money paid.
Findings Of Fact The background activities pertinent to the dates and occurrences between Respondent and Mr. Galasso are presented. Simultaneous activities by the Federal Bureau of Investigation (hereinafter FBI) investigating other companies, including principals of American Benefits Services, Inc. (hereinafter "ABS") involved in the sale of viatical agreement in Florida are summarized. FRANK GALASSO and RESPONDENT At an unspecified time in mid 1998, Frank Galasso, a retired licensed real estate and casualty insurance agent, had his first exposure to viatical purchases while watching "60 Minutes" on television. In October of 1998, Frank Galasso, in response to a newspaper advertisement, called Respondent's listed phone number and left a message expressing his interest in viatical and requested a return phone call. In a January 1999 return phone call to Mr. Galasso, Mr. Galasso advised Respondent that he was not quite ready and needed more time to consider the purchase. A subsequent follow-up phone call in April 1999, resulted in Respondent and Mr. Galasso discussing diversifying Mrs. Galasso's portfolio with the possibility of investing in a viatical settlement agreement purchase. In May of 1999, Respondent met with Mr. Galasso at Mr. Galasso's residence and explained the viatical purchase agreement "from start to finish." Respondent gave Mr. Galasso a package of literature and other information provided Respondent by ABS. After a two-and-one-half-hours of discussion Mr. Galasso purchased a $13,429.93 viatical agreement for Mrs. Galasso's Individual Retirement Account. A receipt of purchase and the agreement of purchase were given to Mr. Galasso. On June 11, 1999, Respondent met again with Mr. Galasso for discussion of and consummation of a second purchase of a viatical settlement agreement. Respondent assured Mr. Galasso that he would receive interest payments of 9.85 percent, per annum, paid monthly for 36 months and when the viator died, he, Mr. Galasso, would receive his principal investment of $25,000 back. Respondent further assured Mr. Galasso that after one year he could rescind the viatical purchase agreement, retain all interest paid, and get his principal back by sending a written request at least 30 days prior to the anniversary date of purchase. In June 1999, ABS informed Mr. Galasso that the State of Florida, Department of Banking and Finance, filed an administrative complaint alleging violations by ABS of the state's "Securities Act" and that a stipulation and consent to Final Order Agreement was entered, effective August 10, 1999. In July of 1999, Mr. Galasso, reading the Herald Tribune, became aware that ABS and Financial Federated were under investigation by the FBI. In August of 1999, Mr. Galasso made several written attempts to exercise his option to rescind his viatical purchase agreements without success. FBI AGENT, ANTHONY YANKETIS, and VIATICAL SALES ENTITIES Unknown to Respondent and Mr. Galasso, in May/June of 1998, Anthony Yanketis, FBI special agent of the economic crimes division, initiated an investigation regarding a viatical settlement as a result of information received from an investor in a viatical purchase agreement situation. In January 1999, the FBI confirmed that Ray Levy was the owner of ABS, a viatical settlement brokerage company that raised funds for the purchase of viatical settlements, that generated approximately six million ($6M) of investors funds each month. In June 1999, Jeffery Paine, Esquire, escrow agent for ABS, admitted that he merely rubber-stamped written representations from Financial Federated that insurance policies had been purchased and actual medical overviews conducted and released money held in escrow. In August 1999, FBI investigations revealed that approximately 90 percent of money obtained from investors were used for the purchase of personal benefits and the purchase of real estate; and that lulling letters were sent to insurance agents, attorneys, and viatical investors. FEDERAL GRAND JURY and VIATICAL SALES ENTITIES In September 2000, the Federal Grand Jury, Southern District of Florida, West Palm Beach Division, returned a True Bill Indictment. The indictment introductory allegation states: At all times relevant and material to this indictment: Viatical settlements are the purchase of life insurance policies or their benefits at a discounted rate from a terminally ill person. The beneficial interest in the insurance policies purchase is sold or reassigned to an investor. A viatical investor receives the full benefits when the ill person dies. Count 9. From at least as early February, 1996, Viatical Asset Management, Asset Base Management, and later ABS operated as viatical settlement brokerage companies engaged in the business of locating investors who would purchase interests in viatical settlements. ABS obtained investors' funds through a network of independent insurance agents and financial consultants. Count 10. In connection with its viatical settlement brokerage business ABS used one or more participation disclosure documents that described the viatical settlement program it was offering for sale to investors. OBJECT OF THE SCHEME AND ARTIFICE TO DEFRAUD The object of the scheme and artifice to defraud was that defendants, together with others known and unknown to the Grand Jury, would unlawfully enrich themselves by knowingly and willfully making false and fraudulent representations and promises, and . . . concealing material facts from prospective investors, inducing them to send personal checks, bank checks, wire transfers or money orders to Financial Federated, Viatical Asset Management, Asset Base Management, American Benefits Services, Inc, and the escrow agent. . . MANNER & MEANS OF EXECUTING THE SCHEME TO DEFRAUD "Under false and fraudulent pretenses defendants, FREDRICK C. BRANDAU, and MARY ANNE BILLINGHURST, together with other persons . . . participated in recruiting insurance agents to solicit investors in viaticated insurance policies . . ." (a) . . . investor funds obtained by American Benefits Services . . . would be used to purchase viaticated insurance benefits; (b). . . investors was guaranteed a 42% rate of return within 36 months on his or her investment if the insured party died. (a) While over $115 million in investors funds were transferred to Financial Federated for the primary purpose of purchasing insurance policies, less then $6 million was actually used to purchase policies . . . the vast majority of such monies was used to fun commissions for ABS and Financial Federated employees, and to purchase real and personal property around the United States that had nothing to do with viatical business. (f) the defendants knew that the irrevocable assignment of trust benefits was not a "guaranteed receivable from the insurance company." The defendants knew that 90% of the investors funds had been used to buy real and personal property, and not insurance policies. Accordingly, the defendants knew that the vast majority of the assigned "trust benefits" were worthless, and not a "guaranteed receivable" since most investors had no underlying insurance policy securing their investment. OVERT ACTS (t) In or about June 1998 . . . FREDRICK C. BRANDAU, and MARY ANN BILLINGHURST attended a meeting with numerous insurance agents for the purpose of promoting the activities of FINANCIAL FEDERATED. (Respondent's Exhibit "C") James Robert Stiffler, at all times pertinent and material hereto, was licensed in Florida as a life insurance agent, therefore authorized by Section 626.992(4), Florida Statutes, to perform the functions of a viatical settlement agent. At all times pertinent and material hereto, James Robert Stiffler, d/b/a/ "James Financial Inc.," worked for ABS through U.S. Investors Group and Seniors Financial Resources. At all times pertinent and material hereto, Rafael Levy, a/k/a Ray Levy, was the principal of ABS. Fred Brandau, convicted on 42 counts of fraud in United States District Court and awaiting sentencing, was the head of Financial Federated. ABS sales agents would procure investors to provide money to Financial Federated. Financial Federated provided the viaticals to ABS, which were in turn sold by Respondent to Frank Galasso. Respondent, in May of 1999, solicited and sold a viatical settlement agreement to Frank Galasso for Mrs. Galasso's IRA. During solicitation and sale Respondent represented and made untrue statements of material fact to Frank Galasso that the viatical were "secure," "had no risk," and "was safe." Respondent, in October 1998, gave to Frank Galasso literature provided by ABS containing statements and assertions, which were untrue, deceptive, and misleading. On June 11, 1999, Respondent solicited and sold a viatical settlement purchase agreement to Frank Galasso for $25,000. During the solicitation and sale Respondent represented and made the following untrue statements of material fact: (a) that Frank Galasso would receive his principal back when the viator died; (b) that if the viator did not die within 36 months, Frank Galasso would be able to get his principal back; (c) that before expiration of one year from the purchase date, Frank Galasso would be able to rescind the purchase agreement, retain monthly interest paid, and get full refund of his principal; (d) that the investment was safe, and had no risk and until the viatical had been purchased he could receive his money back; and (e) that the $25,000.00 purchase price would go to an attorney, in trust, to be used to purchase a viatical. Respondent, on two separate occasions during the sales of viatical purchases agreements, presented literature provided by ABS to Mr. Galasso containing written assertions, to wit: (a) an investment with a "fixed 42 percent return"; (b) "Guaranteed"; (c) "no risk investment"; and (d) the principal is "safe." Respondent's defense that Frank Galasso was an experienced investor and therefore could not be persuaded into an investment he did not want is without merit. Respondent's defense that Frank Galasso's reliance upon ABS printed literature absolved him from liability is without merit. Respondent's defense that Frank Galasso purchased two viatical agreements based upon the representations made in the disclosure documents provided by ABS and presented by Respondent to Mr. Galasso is without merit. Respondent's defense that his inquiries and phone calls to the Department of Insurance resulted in no negative information concerning ABS is without merit. Respondent's defense that once the Department of Insurance became aware of problems with the business practices of ABS it had a duty to communicate that information to licensed agents, such as Respondent, is without merit.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that the agency enter its final order finding Respondent, James Robert Stiffler, guilty of violations of Sections 626.611(1),(7) and (8); 626.99275(2)(b) and (c); 626.99277(6); 626.9541(1)(b); 626.99235(1), and 626.621.(2) and (6) Florida Statutes, and that Respondent, James Robert Stiffler's, license as an insurance agent in this State be suspended for a period of (91) days. DONE AND ENTERED this 8th day of November, 2000, in Tallahassee, Leon County, Florida. FRED L. BUCKINE 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 8th day of November, 2000.
