The Issue The issue in this case is whether Respondent, Joseph John Ripa, committed the offenses alleged in a First Amended Administrative Complaint issued by Petitioner, the Department of Financial Services, on May 11, 2006, and amended on October 16, 2006, and, if so, what penalty should be imposed.
Findings Of Fact The Parties. Petitioner, the Department of Financial Services (hereinafter referred to as the "Department"), is the agency of the State of Florida charged with the responsibility for, among other things, the investigation and prosecution of complaints against individuals licensed to conduct insurance business in Florida. Ch. 626, Fla. Stat.1 Respondent Joseph John Ripa was, at the times relevant, licensed in Florida as a life and health (2-18) insurance agent. Mr. Ripa's license number is A220906. At the times relevant to this matter, Mr. Ripa was associated as an agent with Fidelity Assurance, Inc. (hereinafter referred to as "Fidelity Assurance"), an insurance agency. As an agent for Fidelity Assurance, Mr. Ripa sold annuities, including equity indexed annuities, to a target clientele of individuals 65 years of age or older. Equity Indexed Annuities. Very broadly speaking, an "annuity" is an insurance/investment product whereby a person invests money in exchange for regular payments over a period certain, over one or more specified individuals' lifetimes, or over a combination of life(s) and a period certain. There are two primary types of annuities: one is called a "fixed" annuity because payments are made in fixed amounts or in amounts that increase by a fixed percentage; the other is called a "variable" annuity because payments vary according to the investment performance of a specific type of investments, typically bond and equity mutual funds. Fixed annuities maybe "deferred" or "immediate." With a deferred fixed annuity, an investment of money is made and the earnings thereon are deferred both in payment and for tax purposes until payment at a later time. An immediate fixed annuity is one where an investment of money is made and payments (a potion of principal and earnings) begin immediately. Immediate annuities usually have "mortality" component also: upon the death of the annuitant, payments are made to a beneficiary. Within the past ten years or so, equity indexed deferred annuities, a form of fixed annuity, has been developed and marketed in Florida. The features of this type of annuity are far more complex than the traditional fixed annuity. For any annuity, and especially an equity indexed deferred annuity, a prospective annuitant must understand a number of things about the annuity: (a) the overall product features; (b) investing; (c) tax impacts of the annuity; (d) the projected rates of return and how certain those rates are; (e) the risks associated with the insurance company, or "credit risk"; (f) liquidity of the investment; and (g) fees or costs associated with the annuity. There are several features of deferred annuity products, including equity indexed deferred annuities, which can have adverse consequences for some annuitants: (a) it is far more complex than traditional fixed annuities; (b) the uncertainty of the return on the annuitant's investment; (c) the treatment of income from the annuity as ordinary income rather than capital gains; (d) the treatment for tax purposes to beneficiaries (no stepped-up basis or capital gains); (e) the lack of liquidity and surrender charges; (f) inflexibility in changing or "rebalancing" the mix of assets invested in; and (g) fees associated with the annuity. Count I: The VandenBosch Transactions. In December 2003 Mr. Ripa met with Emil and Georgette VandenBosch at their Boynton Beach, Florida home. Emil was 88 years of age at the time and Georgette was 89 years of age. While the evidence failed to prove their exact net worth, they were retired and of relatively modest means.2 As a consequence of the December 2003 meeting, Mr. Ripa sold a fixed deferred annuity in the amount of $108,900.69, contract number 449001, from American Investors Life Insurance Company (hereinafter referred to as "American Investors")(hereinafter referred to as the "First VandenBosch Annuity"). The annuitant was Georgette VandenBosch. The First VandenBosch Annuity, while allowing up to a 10 percent withdrawal from the annuity, after the first year the annuity was in force, once a year. For any other withdrawal from the annuity the contract provided for a 12 percent, 12-year declining surrender charge. Consequently, in order for the VandenBosches to fully access the annuity without penalty, Ms. VandenBosch would have to live until she was at least 101 years of age. Her life expectancy at the time she purchased the First VandenBosch Annuity was only 5.35 years, a fact that Mr. Ripa knew or should have been aware of. The sale of the First VandenBosch Annuity generated commissions of $7,895.30 for Mr. Ripa or his agency, Fidelity Assurance. In January 2004, Mr. Ripa again met with the VandenBosches, this time selling them a $26,520.11 deferred annuity, half in a traditional fixed annuity and half in an equity indexed annuity, contract number 449729, from American Investors (hereinafter referred to as the "Second VandenBosch Annuity"). The annuitant was Emil VandenBosch. Within four months after purchasing the Second VandenBosch Annuity, Mr. VandenBosch, through Mr. Ripa, invested an additional $22,200.00 into the annuity, for a total investment of $48,620.11. The Second VandenBosch Annuity, while allowing up to a 10 percent withdrawal of the annuity once a year after the first year, provided for a 12 percent, 10-year declining surrender charge for any other withdrawals. Consequently, in order for Mr. VandenBosch to fully access the annuity without penalty, Mr. VandenBosch would have to live until he was at least 99 years of age. His life expectancy at the time he purchased his annuity was only 4.85 years, a fact that Mr. Ripa knew or should have been aware of. The sale of the Second VandenBosch Annuity generated commissions of $4,862.02 for Mr. Ripa or his agency, Fidelity Assurance. It has been the practice of the VandenBosches, that Mr. VandenBosch handled all financial transactions impacting the family. It is, therefore, inferred that Mr. VandenBosch was responsible for the purchase of the First and Second VandenBosch Annuities. While neither Emil nor Georgette VandenBosch testified at the hearing of this matter,3 one of their children, Donald VandenBosch did. While much of his testimony constituted hearsay, not subject to any exception under Chapter 90, Florida Statutes,4 he did testify credibly that Mr. VandenBosch was, at the times relevant to this matter, experiencing declining health. His declining health included macular degeneration, which impacted his eye sight, and a decline in his mental capacity. While the evidence failed to prove clearly and convincingly that Mr. VandenBosch was unable to read the documents involved with the purchase of the First and Second VandenBosch Annuities, it is found that, due to his declining mental capacity and the complexity of the contracts for the annuities, Mr. VandenBosch relied heavily, if not exclusively, on Mr. Ripa's representations concerning the policies Mr. Ripa sold them. In January 2005, the VandenBosches, along with their son, Donald VandenBosch, arranged to meet with Ripa. During that meeting the VandenBosches told Mr. Ripa that they desired to access their investments and needed his assistance to avoid the high penalties associated with withdrawals.5 Mr. Ripa accurately explained that the only way to avoid the surrender penalties and access their investments currently would be to make a once-a-year withdrawal of up to 10 percent of the annuities. After emphasizing to Mr. Ripa that they did not want to incur any penalties, Mr. Ripa was instructed to arrange for them to make a 10 percent withdrawal from the First VandenBosch Annuity, which Mr. Ripa explained would amount to the equivalent of approximately $950.00 to $970.00 per month. At no time during the meeting was their any instruction given to Mr. Ripa to arrange for the cancellation of either of the annuities or the purchase of any other product. Mr. Ripa agreed to prepare the necessary paperwork to carry out the VandenBosches' instructions. The events of the January 2005 meeting support a finding that the First and Second VandenBosch Annuities did not meet the VandenBosches' financial goals and were not suitable investments for them. In particular, it is inferred that the VandenBosches did not want to invest in a product that so severely restricted their access to their assets. Despite the clear instructions to Mr. Ripa concerning the VandenBosches' wishes,6 Mr. Ripa presented the VandenBosches with forms for their execution subsequent to their January 2005 meeting which resulted in the cancellation of the First VandenBosch Annuity and the purchase of a new immediate fixed annuity from American Investors, contract number 473129. As a result of these transactions, the VandenBosches incurred a surrender penalty of $11,301.65, the very result they had explicitly told Mr. Ripa they wished to avoid. The monthly payments received by the VandenBosches through the newly purchased fixed annuity were very close to the amount of money they would have received by taking a penalty- free yearly withdrawal and dividing that amount on a monthly basis. There was, therefore, no apparent reason why the VandenBosches would have incurred the penalty of $11,301.65 imposed upon them for canceling the First VandenBosch Annuity. These transactions were carried out by Mr. Ripa despite instructions to contrary, despite the severe penalty incurred by the VandenBosches, and without any discernable reason. It is, therefore, inferred that Mr. Ripa, at best, simply failed to adequately explain the transactions or, at worst, deceived the VandenBosches into believing the documents he provided for their signature were consistent with their instructions during the January 2005 meeting. Count II: The Tuinstra Transaction. In May of 2004, Gerald Tuinstra met with Mr. Ripa at his Boynton Beach home. Mr. Tuinstra was 83 years of age at the time. His wife, Marcella, was 80 years of age and had recently moved into a nursing home. Mr. Tuinstra contacted Mr. Ripa because he was interested in creating an income source with money he had received from the sale of some property. He wanted to create an income source in order to help with the funding of his wife's nursing home expenses, while avoiding the exhaustion of his limited assets. Additionally, Mr. Tuinstra was interested in protecting his property against possible loss which might be caused by the need to seek government funding for his wife's nursing home costs. At the time of his meeting with Mr. Ripa, the money which Mr. Tuinstra was interested in investing was deposited in a bank where it was earning approximately 4 percent interest. Mr. Tuinstra explained his investment goals to Mr. Ripa during their meeting and Mr. Ripa assured him that both goals could be achieved through products offered by Mr. Ripa. As to the goal of creating an income source, Mr. Ripa told Mr. Tuinstra that he would earn 7.37 percent interest on his investment for the first year and would likely earn more in following years. Mr. Ripa told Mr. Tuinstra that he would receive $391.05 per month, writing this amount on notes he left with Mr. Tuinstra. Mr. Ripa did not inform Mr. Tuinstra that the annuity he was proposing was subject to the risk of earning even less then he was currently earning from his bank account or even earning nothing. Mr. Ripa also assured Mr. Tuinstra that his investment would be protected, meeting his second investment goal. Based upon Mr. Ripa's representations, which were, at best, misleading, Mr. Tuinstra purchased a $40,000.00 equity indexed deferred annuity from American Investors, contract number 458412, recommended by Mr. Ripa (hereinafter referred to as the "Tuinstra Annuity"). Mr. Tuinstra's wife was made the annuitant. The money used to make this purchase constituted substantially all of Mr. Tuinstra's liquid assets. The commission on the sale of the Tuinstra Annuity was $4,200.00. The Tuinstra Annuity provided for a 17 percent surrender charge for the first three years of the contract, declining to a 3 percent charge in the 13th year. Mr. Tuinstra's life expectancy at the time of the purchase was 6.65 years. Mr. Tuinstra was not informed of these provisions of the contract by Mr. Ripa during their meeting. In fact, Mr. Ripa led Mr. Tuinstra to believe that he would be receiving monthly payments throughout the term of the annuity. The Tuinstra Annuity that Mr. Ripa had assured Mr. Tuinstra would provide the monthly income he desired, actually failed to provide for any payment. The only provision for a return of his investment without penalty during the first 13 years of the contract was the allowance of a 10 percent withdrawal, after the first year of the contract, on an annual basis, which was not what Mr. Tuinstra asked for or was told he was limited to. When the actual contract for the Tuinstra Annuity was received by Mr. Tuinstra from American Investors, he read the contract and realized that much of what Mr. Ripa had told him about what he was purchasing was incorrect. He then began making efforts to cancel the policy, which he was ultimately able to do. It was during these efforts that he learned for the first time about the withdrawal penalties, not from reading the rather lengthy contract, but from an unidentified man he spoke to about the contract at Fidelity Assurance. Count III: The Putnam Transaction. In March of 2005, the son of Louis Bruno, who was 90 years of age at the time, was pursuing court proceedings to be appointed Mr. Bruno's guardian. Mr. Bruno was living in Boyton Beach, Florida at the time with his companion of 15 or so years, Irene Putnam. Due to his advanced age and lack of short-term memory, Mr. Bruno was unable to manage his own finances, instead, relying upon Ms. Putnam, who had a power of attorney from Mr. Bruno. Ms. Putnam was 82 years of age at that time. At some time shortly before a hearing was scheduled to be held on the guardianship matter, Ms. Putnam and Mr. Bruno discussed the upcoming proceeding with Mr. Ripa, whom Mr. Bruno and Ms. Putnam had known as a friend for a number of years. Mr. Ripa agreed to testify at the court proceeding on behalf of Mr. Bruno. At some point during their discussion, Mr. Ripa asked Mr. Bruno and Ms. Putnam whether they realized that, if Mr. Bruno lost the court proceeding, his son would have authority over all of his assets, including $18,000.00, which Mr. Bruno maintained in two separate bank accounts. This money represented Mr. Bruno's liquid assets at the time. The possibility of losing control of his money was not something that Mr. Bruno or Ms. Putnam had considered and, in response to Mr. Ripa's warning, they asked him if he knew how they could avoid this result. Mr. Ripa told Mr. Bruno and Ms. Putnam that he knew how the money could be protected until after the proceeding. They unequivocally explained to Mr. Ripa that they did want to protect the money, but for only a short period of time. Their intent, which was fully explained to Mr. Ripa, was to re-take possession of the money immediately after the guardianship proceeding ended, in which they expected to prevail. Instead of carrying out Mr. Bruno's clear, unequivocal goal, Mr. Ripa, no more than two or three days before the March 2005 guardian proceeding, sold Mr. Bruno an $18,000.00 equity indexed deferred annuity from American Investors, contract number 476076, with Ms. Putnam as the annuitant7 (hereinafter the "Putnam Annuity"). The Putnam Annuity provided for penalties for withdrawal of the annuity during the first 10 years of the contract, starting at 12 percent during the first year and declining thereafter. Ms. Putnam, whose life expectancy was 8.45 years, would have had to survive to age 92 in order to withdraw the full annuity without penalty. Mr. Bruno would have had to live to age 100 to do so. The commission on the sale of the Putnam Annuity was $1,800.00. Following Mr. Bruno's successful defense of the guardianship proceeding, Ms. Putnam spoke to Mr. Ripa about the retrieval of the $18,000.00 investment. Having received the actual contract, however, Ms. Putnam realized that the Putnam Annuity was not what Mr. Bruno and she had believed they were purchasing. Indeed, having relied totally on Mr. Ripa to protect Mr. Bruno's money for a very short time, including allowing him to complete all of the paperwork for them, she had not even realized that Mr. Bruno had purchased an annuity of any kind prior to receiving the contract. In response to her inquiry, Mr. Ripa suggested that Ms. Putnam have Mr. Bruno surrender another annuity which he owned, one without surrender charges, thereby obtaining cash for his immediate needs and avoiding any surrender charges on the Putnam Annuity. While this suggestion would have allowed Mr. Bruno to replace the $18,000.00 he had tied up in the Putnam Annuity, it was not an option that had ever been discussed with Mr. Bruno or Ms. Putnam and was contrary to what they had requested that Mr. Ripa do with the $18,000.00. Count IV: The LaValley Transactions. In September 2005, Mr. Ripa met with Virginia LaValley at her Boyton Beach, Florida home. Ms. LaValley, who lived alone, was 75 years of age at the time. Ms. LaValley had been evidencing signs of dementia as early as 2003, and her symptoms had continued to increase up to the time Mr. Ripa met with her.8 She had begun to have difficulty remembering simple words to describe objects as early as 2003. During 2005 (prior to September), she had expressed the belief that a computer-generated form letter had been personally written to her; she had begun piling her mail on the dining room table rather than deal with it; she believed that she would "go to jail" if she threw out any of the mail sent to her; she had sealed return envelopes from solicitations she had received and written words to the effect that she would not mail them until the addressees provided her with stamps, a demand that the addressees could not be aware of without the letters being mailed to them, a fact that Ms. LaValley did not understand; and she had stopped reconciling her checkbook or otherwise keeping up with her personal finances.9 Janet Yocum, a friend and an individual who had sold annuities to Ms. LaValley in the 1990's, noticed as early as 2003 that Ms. LaValley was having difficulty following simple instructions concerning the completion and return of a form that Ms. Yocum had sent to Ms. LaValley. It was obvious to Ms. Yocum, although she did not see Ms. LaValley on a regular basis, that Ms. LaValley was losing her ability to understand even simple matters long before Mr. Ripa's meeting with Ms. LaValley. While Mr. Ripa was not aware of some of the foregoing events, it is found that Ms. LaValley's state of health in September 2005 should have been evident to Mr. Ripa when he met with her. If nothing else, Mr. Ripa should have realized that Ms. LaValley was not capable of understanding the complexities of fixed annuity contracts, much less equity indexed deferred annuity contracts. Despite what must have been obvious to him, Mr. Ripa convinced Ms. LaValley during his September 2005 meeting to surrender six annuities which she had purchased from Jackson National Life Insurance Company (hereinafter referred to as "Jackson National") between 1993 and 1997. Mr. Ripa also convinced Ms. LaValley to use the proceeds from the Jackson National annuities, which were old enough to avoid any surrender charges for their surrender and provided for a minimum return of at least 3 percent, to purchase two American Investors annuities (hereinafter referred to jointly as the "LaValley Annuities"). One of the LaValley Annuities, contract number 499901, was an equity indexed deferred annuity for which Ms. LaValley paid $19,500.00. The other, contract number 500794, was also an equity indexed deferred annuity in the amount of $19,079.49. Both provided surrender penalties over 15 years, with a penalty for the first year of 19 percent. Ms. LaValley, whose life expectancy at the time was 12.6 years, would have to live until she was 91 years of age to avoid any surrender penalty. The minimum interest on the annuities was 2 percent compared to the minimum 3 percent rate of the Jackson National policies. During his meeting with Ms. LaValley, Mr. Ripa gave her a company brochure from American Investors' parent, "Amerus." There were a number of handwritten notations on the brochure written by Mr. Ripa. One notation indicates "7%" and is followed by Mr. Ripa's initials. Next the heading "Fixed Strategy" is the notation "3%." While there was no evidence explaining what was said about these notations, they all emphasize "positive" aspects or selling points for the annuity products sold to Ms. LaValley. What Ms. LaValley took from the meeting and, likely, the notations, is that she would be earning 7 percent each year on the LaValley Annuities.10 As further evidence of her declining mental state, when Ms. LaValley received a letter from American Investors' parent company within two weeks after purchasing the LaValley Annuities congratulating her on her purchases. Ms. LaValley, apparently not realizing what the letter meant, wrote a note dated "10/4/200[5]"11 on it stating that "I do not want American Investors Life. Please Cancel." Her signature followed this note. This letter, with her handwritten reply, was returned to American Investors. Whether Ms. LaValley intended to "cancel" the LaValley Annuities or simply thought the letter was a solicitation to purchase insurance is not clear. If the former, she clearly evidenced intent to cancel the LaValley Annuities; if the latter, she evidenced a lack of understanding about what she had done only two weeks before. American Investors apparently treated Ms. LaValley's instructions literally as evidence of her intent to cancel the LaValley Policies, apparently informing Mr. Ripa. Mr. Ripa then revisited Ms. LaValley and prepared a letter for her signature repudiating her attempt to cancel the annuities. The letter, Petitioner's Exhibit 10, was faxed from Fidelity Assurance's fax machine on October 13, 2005. The Unsuitability of the VandenBosch, Tuinstra, Putnam and LaValley Annuities. Given the ages of the annuitants at the time of the purchase of the various annuities at issue in this case (all except one of which were equity indexed deferred annuities; the other was a deferred fixed annuity), their relatively modest financial situations, the long-term nature of the annuities and the high penalties associated with accessing their investments should the need arise (all of the individuals involved would have had to outlive their life expectancies in order to access their investments without penalty), the VandenBosch Annuities, the Tuinstra Annuity, the Putnam Annuity, and the LaValley Annuities were not suitable investments for those individuals, a fact which Mr. Ripa knew or should have known. The foregoing conclusion is also supported by the VandenBosches' efforts not too long after purchasing their annuities to unsuccessfully access their investments and their expression of disappointment upon learning of the severe withdrawal penalties associated with accessing their investments; Mr. Tuinstra's explanation of his intended investment goals when he purchased his annuity and the failure of the Tuinstra Annuity to meet those goals; Ms. Putnam's and Mr. Bruno's explanation of their intended short-term investment goal when the Putnam Annuity was purchased and the failure of the Putnam Annuity to meet that goal; and Ms. LaValley's obvious impaired ability to understand the nature of the transactions carried out by Mr. Ripa, transactions that make no sense from a financial point of view. Finally, the conclusion that the investments at issue in this case were sold to inappropriate purchasers is based upon the obvious failure of Mr. Ripa to perform a basic suitability analysis at the time he sold the annuities to the any of the individual involved or, if he did perform such an analysis, his failure to recognize that the annuities were not a suitable investment for those individuals. The VandenBosches, the Tuinstras, Ms. Putnam and Mr. Bruno, and Ms. LaValley were all individuals of somewhat advanced age and modest financial resources. It is hard to imagine how Mr. Ripa could have performed the type of financial risk analysis he should have performed for these individuals and still concluded that the annuities sold to them were appropriate. None of the individuals were looking for such long-term investments and it was proved that some expressed interest in short-term investments or investments that would create an immediate income stream: the VandenBosches expressed their desire for a return of their funds shortly after Mr. Ripa sold them their annuities; Mr. Tuinstra testified convincingly of his desired investment outcome (income producing and asset protection); and Ms. Putnam testified convincingly that she and Mr. Bruno only wanted to protect his funds for a few weeks. Despite these known goals, Mr. Ripa sold the VandenBosches, the Tuinstras, and Ms. Putnam and Mr. Bruno a product which did nothing but thwart those goals. Jurisdiction.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that a final order be entered by the Department finding that Joseph John Ripa violated the provisions of Chapter 626, Florida Statutes, described, supra, requiring that he pay an administrative fine of $40,000.00 and revoking his licensure as a life and health agent. DONE AND ENTERED this 16th day of May, 2007, in Tallahassee, Leon County, Florida. S LARRY J. SARTIN 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 16th day of May, 2007.
The Issue The issue in the case is whether the allegations of the Administrative Complaints filed by the Petitioner against the Respondents are correct and if so, what penalty should be imposed.
Findings Of Fact The Petitioner is the state agency responsible for licensure and regulation of limited surety agents (bail bondsmen) operating in the State of Florida. The Respondents are individually licensed as limited surety agents in Florida and are officers and directors of "Big John Bail Bonds, Inc.," a bail bond agency. In November of 1999, Gustavo Porro contacted the Respondents regarding bail for Jessie James Bray, a friend of Mr. Porro's son. Mr. Porro did not know Mr. Bray. Based on the charges against Mr. Bray, four bonds were issued, two for $1,000 each and two for $250 each, for a total bond amount of $2,500. The $1,000 bonds were related to pending felony charges and the small bonds were related to pending misdemeanor charges. Mr. Porro signed a contingent promissory note indemnifying American Bankers Insurance Company for an amount up to $2,500 in the event of bond forfeiture. Bray did not appear in court on the scheduled date and the two $1,000 bonds were forfeited. For reasons unclear, the two $250 bonds were not forfeited. The contingent promissory note signed by Mr. Porro provided that no funds were due to be paid until the stated contingency occurred, stated as "upon forfeiture, estreature or breach of the surety bond." After Bray did not appear for court, the Respondents contacted Mr. Porro and told him that the bonds were forfeited and he was required to pay according to the promissory note. On April 15, 2000, Mr. Porro went to the office of Big John Bail Bonds and was told that he owed a total of $2,804, which he immediately paid. Mr. Porro was not offered and did not request an explanation as to how the total amount due was calculated. He received a receipt that appears to have been signed by Ms. Vath. After Mr. Porro paid the money, Ms. Vath remitted $2,000 to the court clerk for the two forfeited bonds. The Respondents retained the remaining $804. Bray was eventually apprehended and returned to custody. The Respondents were not involved in the apprehension. On July 11, 2000, the court refunded $1,994 to the Respondents. The refund included the $2,000 bond forfeitures minus a statutory processing fee of $3 for each of the two forfeited bonds. On August 9, 2000, 29 days after the court refunded the money to the Respondents, Mr. Porro received a check for $1,994 from the Respondents. Mr. Porro, apparently happy to get any of his money back, did not ask about the remaining funds and no explanation was offered. In November of 2000, Ms. Vath contacted Mr. Porro and informed him that a clerical error had occurred and that he was due to receive additional funds. On November 6, 2000, Mr. Porro met with Ms. Vath and received a check for $492. At the time, that Ms. Vath gave Mr. Porro the $492 check she explained that he had been overcharged through a clerical error, and that the additional amount being refunded was the overpayment minus expenses. She explained that the expenses included clerical and "investigation" expenses and the cost of publishing a notice in a newspaper. There was no documentation provided of the expenses charged to Mr. Porro. At the time the additional refund was made, there was no disclosure that the two $250 bonds were never forfeited. At the hearing, the Respondents offered testimony asserting that the charges were miscalculated due to "clerical" error and attempting to account for expenses charged to Mr. Porro. There was no reliable documentation supporting the testimony, which was contradictory and lacked credibility.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is recommended that the Department of Insurance enter a Final Order requiring that the Respondents be required to refund $318 to Mr. Porro, which, combined with the previous payments of $1,994 and $492, will constitute refund of the total $2,804 paid by Mr. Porro to the Respondents. It is further recommended that the limited surety licenses of Matilda M. Vath and John L. Vath be suspended for a period of not less than three months or until Mr. Porro receives the remaining $318, whichever is later. DONE AND ENTERED this 22nd day of February, 2002, in Tallahassee, Leon County, Florida. WILLIAM F. QUATTLEBAUM 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 22nd day of February, 2002. COPIES FURNISHED: James A. Bossart, Esquire Department of Insurance Division of Legal Services 200 East Gaines Street, Room 612 Tallahassee, Florida 32399 Joseph R. Fritz, Esquire 4204 North Nebraska Avenue Tampa, Florida 33603 Mark Casteel, General Counsel Department of Insurance The Capitol, Lower Level 26 Tallahassee, Florida 32399-0307 Honorable Tom Gallagher State Treasurer/Insurance Commissioner Department of Insurance The Capitol, Plaza Level 02 Tallahassee, Florida 32399-0300
Findings Of Fact Petitioner is the administrative agency charged with responsibility for administering and enforcing the provisions of Chapter 493, Florida Statutes. Respondent, Mortgage Refunds Research and Consulting ("Mortgage"), is a Florida corporation that is wholely owned by Respondent, Richard Vidair. Respondent has sole responsibility for the direction, control, operation, and management of Mortgage. Respondent is not licensed as a private investigator and Mortgage is not a licensed private investigative agency. Respondent is considered by the United States Department of Housing and Urban Development to be a third party tracer. Respondent and his agency locate persons who may be owed refunds for mortgage insurance premiums. From sometime in August, 1990, through May 2, 1991, Respondent contacted individuals who may be owed mortgage insurance refunds by the federal government. Respondent solicited a fee contingent upon actual receipt of the mortgage refund from the federal government. Respondent obtained from the United States government a list of persons owed mortgage refunds. Such lists are available to anyone for a nominal processing fee. Respondent determined the whereabouts of persons named on the list. Respondent either telephoned or mailed a letter to the person named on the list and informed that person of the service offered by Respondent. Respondent included in the letter sent to the person a finder's fee agreement to be signed by the person on the list. Once the contract was signed and returned to Respondent, Respondent provided the person on the list with additional documents to be filled out for the purpose of filing a claim with the federal government. Government refunds were mailed directly to the person on the list. The terms of the finder's fee agreement required the person on the list to pay Respondent's fee within three days of the date the person received his or her money from the government. The agreement further provided that if Respondent's fee was not paid within 30 days, Respondent was entitled to a fee equal to 50 percent of the government refund. Finally, the agreement provided that all collection and legal expenses incurred by Respondent in collecting the finder's fee must be paid by the other party. Respondent received a letter in March, 1991, from the Division of Licensing notifying Respondent that his activities required licensure. After conferring with his attorney, Respondent terminated his activities in Florida but continued his activities outside the state. On October 14, 1987, an attorney for the Division of Licensing issued an internal legal opinion to then Division Director Dave Register. The opinion concluded that persons who engage in the business of locating individuals to whom mortgage insurance premium refunds are due from the federal government are not required to be licensed pursuant to Chapter 493, Florida Statutes. On October 30, 1987, Ken Rouse, General Counsel, Department of State, issued a legal opinion which rescinded the prior internal opinion and concluded that such activities must be licensed.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner enter a Final Order finding Respondent guilty of violating Section 493.6118(1)(g), Florida Statutes, and Florida Administrative Code Rule 1C-3.122(1), imposing an administrative fine of $500 pursuant to Florida Administrative Code Rule 1C-3.113(1)(a)2, imposing an administrative fine of $150 pursuant to Florida Administrative Code Rule 1C- 3.113(1)(b)2, and ordering Respondent to cease all investigative activities until Respondent is properly licensed in accordance with Chapter 493. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 23 day of January 1992. DANIEL MANRY Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 23th day of January 1992.
The Issue The issue to be determined is whether Petitioner (“Senior Financial Security”)1/ is entitled to an award of attorney’s fees and costs pursuant to section 57.111, Florida Statutes (2019).2/ Senior Financial Security is entitled to such an award if: (a) the Department of Financial Services’(“the Department”) actions were not substantially justified; or (b) no special circumstances exist that would make an award of fees and costs unjust.
Findings Of Fact Based on the oral and documentary evidence adduced at the final hearing, matters subject to official recognition, the Recommended Order and the Final Order from the underlying proceeding, and the entire record in the instant case, the following Findings of Fact are made: The Parties The Department is the state agency responsible for regulating and licensing insurance agents and agencies. That responsibility includes disciplining licensed agents and agencies for violations of the statutes and rules governing their industry. At all times relevant to the instant case, Jean-Ann Dorrell was a Florida-licensed insurance agent selling fixed annuities and fixed index annuities. She owns Senior Financial Security, a licensed insurance agency located in The Villages, Florida. Ms. Dorrell is not licensed to conduct securities business. The Initiation of the Department’s Investigation At all times relevant to the instant case, Susan Alexander was the regional administrator for the Department’s Jacksonville field office. Prior to becoming a Department employee in 1998, Ms. Alexander had been an insurance agent and financial advisor who held insurance licenses pertaining to life, health, variable annuities, and property and casualty. She also held a Series 6 investment license. At the time of the final hearing in the instant case, she still possessed the aforementioned licenses, but they were “on hold.” On July 1, 2014, Ms. Alexander received a complaint forwarded to her from the Department’s Division of Insurance Fraud. The complaint was from Laura Wipperman who had recently worked for Ms. Dorrell at Senior Financial Security. Ms. Wipperman’s complaint alleged that Ms. Dorrell regularly engaged in the following practices: (a) participating in the sale or delivery of annuities only for new clients, clients with money to move, or existing clients who insisted on meeting with her; (b) giving investment advice without having the necessary licensure; (c) instructing clients to procure reverse mortgages and use the resulting funds to purchase annuities; (d) instructing clients to surrender annuities and replace them with ones that are less suitable for them; and (e) encouraging clients to engage in financially disadvantageous transactions so that Ms. Dorrell would receive commissions. Ms. Wipperman executed an affidavit on July 29, 2014, alleging that Ms. Dorrell had her acting as an agent for Senior Financial Security clients between July of 2010 and March of 2013 despite the fact that she lacked the required licensure. Diana Johnson, another former employee of Senior Financial Security, also provided the Department with an affidavit on July 29, 2014, stating that: I began working for Jean-Ann Dorrell at Senior Financial Security about June of 2010, and I was the receptionist at that time. In the first part of 2013, I was promoted to [] office manager. I do not have and have not been licensed to sell insurance in Florida. . . . When I was promoted to the position of [] office manager, agent Dorrell expanded my duties to include, meeting with clients to review the client’s insurance coverage Agent Dorrell had a motto, “Don’t leave any money on the table.” If a client had an annuity that had a penalty free withdrawal available, I was instructed to contact the client to have them come in for a review. I would then solicit the sale of either another annuity or a life insurance policy and tell the client that funds are available and they will not incur a penalty to withdraw the funds from their policy. If the client made the decision to purchase a policy that I recommended, I would complete the application and have the client sign the paperwork along with the forms to have the funds withdrawn from the existing policy. Agent Dorrell instructed me to explain policies and the benefits. When a policy was issued, I would have the client come to the office and I would deliver the contract to them. . . . I would also answer any questions the client may have [had] about the insurance policy. Many times an appointment was made for agent Dorrell to meet with the client and when the client arrived at the scheduled time, agent Dorrell would make an excuse that she was not able to meet with the client and I was instructed to handle the sale of the policy and then complete the application. I am aware of certain situations where a client passed away and agent Dorrell would have me contact the relatives or beneficiaries to complete the paperwork to receive the death benefits. Agent Dorrell told [me] to sell some type of an insurance policy to the beneficiary using the proceeds from the death benefits. Janet Barbuto was a client who passed away that I remember. I sold an annuity policy to each of her two daughters, Elizabeth Barbuto and Maria Erb, using the proceeds from Janet’s policy. . . . Agent Dorrell would also have me review any client’s brokerage account they may have. Agent Dorrell would have me convince the client to either liquidate their account to cash or transfer the funds to her brokerage house account Agent Dorrell’s ultimate goal is to use funds from the client’s brokerage account to sell the client an annuity or life insurance policy. . . . I have prepared several Lady Bird deeds at the instruction of agent Dorrell. . . . I have taken several insurance company product training classes online for agent Dorrell. Agent Dorrell would send an email to me instructing me to take a particular product training course online. I would log onto the company’s website as agent Dorrell and complete the training course. Agent Dorrell would consistently berate me for not selling life insurance policies because the client would not want to purchase one after I had asked the client if they would be interested in a policy. Agent Dorrell told me that the client does not know what they want and that I needed to learn how to sell policies. Agent Dorrell would say that if I did not learn how to sell, our door would not be open if all the clients said no to my recommendations. Matthew Plunkitt, another former employee of Ms. Dorrell, executed the following affidavit on December 11, 2014: During the time that I worked in agent Dorrell’s office there were a number of issues and regular business practices which made me decide to find a new job. . . . I sat in on several appointments at agent Dorrell’s direction where she would tell the consumer that they should be concerned about the stock market, that a stock market correction was coming, that they were going to lose a lot of money, and that they needed to get out of the market right away. Agent Dorrell was absolutely talking about investments which I knew that she was not licensed to talk to the consumer about. Agent Dorrell would then suggest that if the consumer would transfer their account to Van Guard Capital, the funds could then be turned into cash to purchase annuities, which would make the money safe and the consumer would not lose anything when the market made the correction which was coming. . . . When new clients would come into the office, agent Dorrell would sit with them for usually the first two appointments. Afterwards clients would then meet with usually Diana Johnson, the office manager and sometimes myself. Agent Dorrell was not in the office often, so Diana Johnson, as the office manager was required to handle everything in agent Dorrell’s absence. . . . I remember that on the appointments that I sat in on, everyone was sold an income rider on their annuity whether it was necessary or not. I do not know what the reasoning was behind the rider. . . . Being employed in agent Dorrell’s office was extremely stressful and she was frequently verbally abusive to her staff, threatening to fire them for not following her exact instructions. When objections would be raised about her instructions or office procedure, they would be told that we need to listen to her and not the clients or the insurance companies or the rules. I can’t remember the name of the client, but I remember that at one point she instructed me to pretend to be someone’s grandson to get the information she needed on a stock account. Her attitude made it impossible to discuss many of the issues in the office with her. Ms. Alexander supervised Ruth Williams, the Department’s lead investigator for this matter. Prior to her employment with the Department, Ms. Williams spent 10 years in the insurance industry and had acquired life insurance, health insurance, and variable annuity licenses. She also dealt with indexed annuities. The investigation of Ms. Dorrell was assigned to Ms. Williams, and Ms. Alexander received regular updates on the status of Ms. Williams’s investigation. At the close of a typical investigation, Ms. Alexander would review the evidence and the investigator’s recommendation. She could then decide that a case should be closed without any disciplinary action or that the case should be forwarded to the Legal Processing Unit in Tallahassee for an assessment of the allegations and evidence. If the Legal Processing Unit did not close the case, then the case would be forwarded to the Department’s General Counsel’s Office. Count I – Frederic Gilpin Frederic Gilpin was born in 1940 and worked in the automobile industry, primarily as a service manager in dealerships, for 44 years before retiring in 2006. Mr. Gilpin purchased a Prudential variable annuity in 2006 through Bryan Harris, an investment advisor in Maryland, for $260,851.14. On December 31, 2008, Mr. Gilpin’s Prudential variable annuity was worth only $200,989.32. By March 31, 2009, its value had fallen to $183,217.37. The decrease in the annuity’s underlying value coincided with the precipitous declines experienced by the stock market in 2008 and 2009. On May 1, 2009, Mr. Gilpin exercised a rider in the Prudential annuity contract that guaranteed a yearly income of $15,625.00. That annual income would continue for the rest of his life regardless of the stock market’s performance. The guaranteed income stream would only be destroyed if Mr. Gilpin withdrew from the annuity’s principal. Mr. Gilpin and his wife met with Ms. Dorrell in 2012 to discuss their financial situation. As recommended by Ms. Dorrell, Mr. Gilpin surrendered the Prudential annuity and used the proceeds to purchase a fixed index Security Benefit annuity. The purchase price of approximately $205,000.00 for the Security Benefit annuity was allocated between two accounts whose performance was tied to the Standard and Poor’s 500. Ms. Alexander obtained a letter that Mr. Gilpin wrote to Security Benefit on April 22, 2013, asking that the aforementioned purchase be rescinded: Please accept this letter as indication that I would like my annuity that was rolled over from Prudential and into Security Benefit on January 4th, 2013 rescinded and put back into the contract that we rolled it over from. . . . My agent, Jean Dorrell misrepresented the facts and did not disclose to me the guarantee that I would be giving up when I moved the money over. . . . I put my trust in Ms. Dorrell, and I believe that she did not do what was in my best interest and was simply looking to get paid by moving my annuity contract over. She listed in a letter to me that I was paying $15,000 per year in fees, as a big reason why I should move the money. I have since discovered that was a gross overstatement of the fees that I was paying in my Prudential contract. Upon closer examination, it looks more like my fees were closer to $7,000 per year, not $15,000 and my Management and Expense fee was set to drop from 1.65% to 0.65% when I hit my 10 year marker in 2016 (also not disclosed by Jean). I also paid a $13,077 surrender charge when I moved the contract. Jean told me not to worry about it because with the 8% bonus it would offset the fee that I was paying to move the money. While it appears that this is true, she didn’t take into consideration that I now am in a new contract with a new 10 year surrender charge both on my contract and the bonus I received with not as much liquidity on my money after the move. Probably the most egregious representation is that she stated to me that the old Prudential contract had no guarantees, and I have since come to understand that I had a very valuable lifetime income guarantee that gave me protected income for life based on a protected income base of $312,513.80, which guaranteed lifetime income of $15,625.69. . . . Now that I have moved the funds over, I have forfeited that guarantee. . . . The Department’s April 25, 2017, Administrative Complaint alleged that Ms. Dorrell violated multiple provisions of the Florida Insurance Code and the Florida Administrative Code by using misleading and/or false assertions to induce Mr. Gilpin to purchase an unsuitable annuity. The Findings of Fact from the Recommended Order demonstrate that the Department had valid reasons to question the suitability of the Security Benefit annuity. At the time of the exchange, the Prudential annuity only had four more years of surrender charges, and Mr. Gilpin started a new 10-year period of surrender charges with the Security Benefit annuity. Mr. Gilpin incurred a surrender charge of $13,077.56 for surrendering the Prudential annuity. While that surrender charge was more than offset by an eight percent bonus (i.e., $16,000.00) he earned by purchasing the Security Benefit annuity, that eight percent bonus was subject to recapture for the first six years. The Security Benefit annuity had a 100- percent participation rate, and a seven percent roll-up rate. In contrast, the Prudential annuity only offered a five percent roll-up rate. Also, Mr. Gilpin and his wife experienced significant health issues during the relevant time period and were fortunate to be well-insured. However, they would have likely incurred substantial penalties if they had been forced to use funds from the relatively illiquid Security Benefit annuity to finance their treatment. In addition, moving Mr. Gilpin’s funds from a variable Prudential annuity to the fixed index Security Benefit annuity cost Mr. Gilpin when the stock market rebounded from the lows of the most recent recession. Finally, a significant factor in assessing the suitability of the two annuities was whether Mr. Gilpin destroyed his guaranteed lifetime income stream of $15,625.69 by taking an excess withdrawal from the Prudential annuity. If he had not, then it becomes much easier to argue that the Security Benefit annuity was not a suitable replacement for the Prudential annuity. At the time it issued the Administrative Complaint, the Department possessed statements from Prudential indicating that Mr. Gilpin’s guaranteed income stream was intact as late as September 30, 2012. However, Mr. Gilpin’s hearing testimony, his 2010 and 2011 income tax returns, and Ms. Dorrell’s testimony called that into question. While the totality of the evidence presented at the final hearing did not clearly and convincingly demonstrate that Ms. Dorrell committed the violations alleged in Count I, Mr. Gilpin’s letter to Prudential, the Prudential statements, and a comparison of the Prudential and Security Benefit annuities provided the Department with a reasonable basis for pursuing Count I. This analysis is further discussed in paragraphs 81 through 84 in the Conclusions of Law. Counts II and III – Elizabeth Barbuto and Maria Erb Elizabeth Barbuto executed the following affidavit on November 10, 2014: My mom, Janet Barbuto passed away on April 16, 2014. My aunt, Marlene Brisco and my mom were both clients of agent Jean Ann Dorrell and Senior Financial Security. After the funeral, my aunt, Marlene Brisco, set up an appointment for my sister Maria Erb and me to meet with agent Dorrell to review my mom’s investments with agent Dorrell. When we got to the appointment, Diana Johnson and Matthew Plunkitt were waiting to meet with us. Agent Dorrell came in for a few moments and then left to meet with other clients. When I went into this appointment, I did not realize that I would be making any major decisions that day. I thought that I was going over my mom’s things, and that I would have time to make any major decisions afterwards. In the meeting, I was sitting next to Matthew and my sister Maria was sitting next to Diana. Diana did the majority of the talking. If there was something that I didn’t understand or needed to read Matthew would help me out, but he did not really explain anything about what we were seeing or signing. I remember filling out a form which appeared to be a new client form, asking about my risk tolerance and things. I thought that I would be signing some paperwork to have Mom’s policies placed into my name. Instead I now know that the paperwork, which Diana already had prepared, was paperwork to have new annuity contract[s] issued in my name, not transferring the contracts mom had [set] up into my name. The only thing I remember is that I was told that I would need to keep one for 10 years. I believe that one of the policies was placed with Athene and one was placed with Equitrust. I received a huge packet from Athene, but by the time that I opened it, it was too late to free look the policy. Since that time, I have paid more attention and have spoken to a family friend and financial advisor, David Hodge, who explained to me that I could have made different choices with my inheritance. In looking back on that day, I was still grieving the loss of my mother and cannot believe that paperwork was already prepared to move my financial future without anyone ever having talked with me beforehand to see what I was thinking about doing. At the Department’s request, EquiTrust and Athene offered refunds to Ms. Barbuto. Ms. Erb executed an affidavit on October 30, 2014, that mirrored her sister’s: My mom, Janet Barbuto, passed away in Florida in April, 2014. She was a client of agent Jean Ann Dorrell’s. While I was in Florida a few days after my mom’s passing, my sister Elizabeth Barbuto and I went to agent Dorrell’s office to discuss my mom’s estate. We had a meeting with two people, Diana and Matthew. I do not know either of their last names. Diana did most of the talking. Matthew did not say much. She explained to us that Mom had several Roth and IRA accounts. At sometime during that meeting agent Dorrell came into the office, talked for a few minutes, offered her sympathy, and then left. Agent Dorrell did not discuss any of the policies or accounts with us. Shortly after that one meeting, I returned to Oregon and haven’t been back to Florida to see agent Dorrell since. I think at that first meeting, I may have signed some papers, but I was still in shock, so I am not sure what I signed. At that point, the office of agent Dorrell emailed me some documents to be signed. I know that Mom’s two IRA’s needed to have mandatory withdrawals taken from them, before we could proceed with anything else. Most of Mom’s annuities were with American Equity and I remember at some point either Diana or Matthew informed me that American Equity did not do inherited IRA annuities for people who lived outside Florida, so it would be necessary for me to place my inheritance with another company. My sister is a Florida resident so this problem did not pertain to her. I am not sure if my sister is doing business with agent Dorrell’s office or not. I did receive two packages with contracts from agent Dorrell’s office and I signed where I was instructed to sign and returned everything to the office as instructed. The annuity policies which agent Dorrell selected for me were with Athene. After thinking about it, I contacted my financial planner in Pennsylvania, and found out that the paperwork I had signed was for a 10 year annuity, which I did not want to keep. A portion of Diana Johnson’s July 29, 2014, affidavit corroborated the affidavits from Ms. Barbuto and Ms. Erb: I am aware of certain situations where a client passed away and agent Dorrell would have me contact the relatives or beneficiaries to complete the paperwork to receive the death benefits. Agent Dorrell told [me] to sell some type of an insurance policy to the beneficiary using the proceeds from the death benefits. Janet Barbuto was a client who passed away that I remember. I sold an annuity policy to each of her two daughters, Elizabeth Barbuto and Maria Erb, using the proceeds from Janet’s policy. Counts II and III of the Department’s Administrative Complaint alleged that Ms. Dorrell violated the Florida Insurance Code and the Florida Administrative Code by: (a) directing an unlicensed person, Diana Johnson, to sell annuities to Ms. Barbuto and Ms. Erb; (b) failing to perform any insurance agent services for Ms. Barbuto’s transactions; falsely informing Ms. Barbuto that it was necessary to exchange her late mother’s IRA contracts for new financial instruments so that Ms. Dorrell could obtain a commission; and falsely stating to Ms. Erb that her non-Florida residency made it necessary for her mother’s IRA contracts to be liquidated with the resulting funds being used to purchase an annuity from Athene. The Department noted in the pre-hearing stipulation submitted prior to the final hearing in the underlying case that it would be dropping Counts II and III. Nevertheless, the affidavits from Ms. Barbuto, Ms. Erb, and Ms. Johnson provided a reasonable basis to support the Department’s allegation that Ms. Dorrell utilized unlicensed personnel to sell annuities. Ms. Johnson’s affidavit described how she would engage in the unlicensed sale of insurance products, and she specifically named Ms. Barbuto and Ms. Erb as examples of how Ms. Dorrell instructed her to sell products to the beneficiaries of death benefits. As explained in paragraphs 85 and 86, under the Conclusions of Law, the Department’s action against Petitioner as set forth in Counts II and III was, at the time that action was taken, substantially justified. Count IV – Deborah Gartner’s Annuities At the time of the final hearing in the underlying case, Deborah Gartner was a 71-year-old widow who met Ms. Dorrell at a Senior Financial Security seminar in 2007. Ms. Gartner filled out a form indicating that her net worth was between $500,000.00 and $1 million. In January of 2008, Ms. Gartner met with Ms. Dorrell in order to seek financial advice. Ms. Gartner had $201,344.14 in a Guardian Trust account and $195,182.44 in a Guardian Trust IRA. In addition, Ms. Gartner owned an $80,000.00 certificate of deposit. On a monthly basis, Ms. Gartner was receiving $1,381.00 from social security, $786.15 from a pension, and $4,500.00 from investment withdrawals. The latter came from depleting principal rather than interest. At the time of the January 2008 meeting, the stock market was declining, and Ms. Gartner was adamant about getting out of equities. Ms. Dorrell told Ms. Gartner that annuities would be appropriate if she was interested in principal protection and guaranteed income. Because she lacked a securities license, Ms. Dorrell could not legally recommend or instruct Ms. Gartner to liquidate her equity investments. On June 24, 2014, Ms. Gartner requested assistance from “Seniors vs. Crime,” a special project of the Florida Attorney General. Jon Hartman handled her case, and Mr. Hartman had extensive experience in finance. For example, he previously worked as the director of investments for the K-Mart Corporation’s pension savings plan and managed approximately $2 billion in assets. After leaving K-Mart, Mr. Hartman worked as the chief financial officer for a retail telecommunications company. His last position, prior to retiring from full-time employment, involved advising high net worth individuals on their investments. While Mr. Hartman has never sold insurance or held a brokerage license, he is a chartered financial analyst, and he described that credential as “the gold standard for people who wish to manage money on a professional level.” His November 20, 2014, investigative report from “Seniors vs. Crime” states that on December 31, 2007, Ms. Gartner had $394,814 invested in relatively liquid assets such as stock mutual funds, a short term bonds, and one or more money market funds. The report suggests that Ms. Dorrell arranged for the vast majority of the aforementioned money to be transferred into relatively illiquid annuities. The following paragraph from the report questions the wisdom behind transferring Ms. Gartner’s funds to annuities and whether subsequent annuity purchases enriched Ms. Dorrell at the expense of excessively limiting Ms. Gartner’s liquidity: While some investments in annuities may be appropriate, prudent financial management does not recommend that anyone place 90+% of their investable assets in annuities or any other single investment. All investors should maintain a well-diversified portfolio based upon their risk tolerances and liquidity needs. Further, we are troubled by the fact that annuities typically carry high commission rates for agents. Information that we obtained from the insurance company web sites indicates that the commission rates for these types of annuities are 7-9%. . . . Further, we are curious to know the reasoning behind the transfer of the Reliance Standard annuities to different insurance companies [in] 2011. It appears that these transactions were motivated by additional commissions for Ms. Dorrell. It is our understanding that the current surrender charge for the two Allianz MasterDex 10 contracts is 7.50%, decreasing by 1.25% per year. The surrender charge will not drop to zero until February, 2019. For the two American Equity contracts, the current surrender charge is 16% and will not drop to zero until February, 2024. However, withdrawals limited to 10% annually from Allianz and American Equity may be taken without incurring a surrender charge on the anniversary date of the policies. Thus, the annuities severely restrict Ms. Gartner’s liquidity position. One of the conclusions in Mr. Hartman’s report stated that: It is our opinion that Ms. Dorrell “churned” Ms. Gartner’s investment portfolio for her benefit to earn commission income. As evidenced by the Guardian Trust statements as of December 31, 2007, Ms. Gartner had two different accounts totaling $394,814 that were invested approximately two-thirds in different equity mutual funds and the remaining one-third in short bond funds and money market funds. As stated on page 2 of this report, it is our opinion that no reputable financial advisor would place 90% or more of any client’s assets in any single investment vehicle. Ms. Gartner executed an affidavit on October 7, 2014, indicating that she completely relied on Ms. Dorrell to manage her finances after her husband’s death: To the best of my knowledge, everything that my husband had set up was in the stock market. Most of the funds were in IRA’s in his name. Nothing was in my name until he passed away. After Agent Dorrell had my portfolio transferred, everything was placed into Van Guard Capital Account number 5XG- 153754. . . . When I did meet with Agent Dorrell in the beginning when the accounts were fresh, Agent Dorrell would get out her chalkboard and explain and [] I didn’t understand what she was talking about, but it sounded good. So I would do what Agent Dorrell suggested. I trusted her like she was my sister, and so whatever Agent Dorrell suggested, I would go along with. I had no reason to question what was happening with my accounts. I was getting a monthly allowance of $2500.00 and I thought everything was fine. . . . Pretty soon, after I had some questions, and I would make an appointment with Agent Dorrell, and in would walk Goldie and she would take over. This went on for about two years. It was always Goldie. I’m not sure where the money was coming from. I am assuming that the money came from one of my annuities or my other accounts. I trusted Agent Dorrell to take care of everything and Goldie and Diana worked for her. They were getting instructions from Agent Dorrell on my behalf. In Count IV of the Administrative Complaint, the Department alleged that Ms. Dorrell: (a) operated without a brokerage registration and gave investment advice that led to the depletion of Ms. Gartner’s funds via the conversion of liquid brokerage assets into illiquid annuities; (b) recommended the liquidation of an annuity that caused Ms. Gartner to incur a substantial loss due to surrender charges; and (c) falsified information on annuity application forms. Thus, the Department accused Ms. Dorrell of violating the Florida Insurance Code and the Florida Administrative Code by disseminating false information and by demonstrating a lack of trustworthiness and expertise. Ms. Gartner’s assertions about how she relied on Ms. Dorrell to manage her money corroborated the portion of Mr. Plunkitt’s affidavit in which he stated that Ms. Dorrell gave investment advice without having the proper licensure. While the Recommended Order from the underlying proceeding indicates that the allegation that Ms. Dorrell gave investment advice turned on a credibility determination, the affidavits from Ms. Gartner and Mr. Plunkitt provided a reasonable basis for Count IV. Also, the report from “Seniors vs. Crime” presented a solid basis for concluding that Ms. Dorrell had mishandled Ms. Gartner’s funds. The substantial justification for pursuing Count IV is discussed further in paragraphs 87 through 89, under the Conclusions of Law. Count V – Deborah Gartner’s Real Estate Transactions Ms. Gartner and Ms. Dorrell became friends, and Ms. Gartner sought Ms. Dorrell’s advice in 2012 about selling her home in Summerfield, Florida. At that time, Ms. Gartner wanted to acquire a smaller home in The Villages, Florida. However, Ms. Gartner was having difficulty selling the Summerfield home. Along with referring Ms. Gartner to a real estate agent, Ms. Dorrell allegedly advised her to stop paying the mortgage on her Summerfield home and to do a short sale. Ms. Gartner and Ms. Dorrell informally agreed that Ms. Gartner would select a house in The Villages, Ms. Dorrell would purchase it, and Ms. Gartner would then buy the house from her. Ms. Dorrell made the initial purchase because Ms. Gartner lacked funds and/or a good credit rating following the short sale. Ms. Gartner and Ms. Dorrell discussed Ms. Gartner purchasing the villa from Ms. Dorrell, but they never reached a formal agreement on terms. Because a short sale would have a negative impact on her credit rating, Ms. Dorrell allegedly advised Ms. Gartner to buy a new car prior to executing the short sale. Ms. Gartner sold her 2003 Mazda Tribute to Ms. Dorrell for $10,000.00, and Ms. Gartner purchased a new car. Ms. Gartner selected a villa in The Villages, and Ms. Dorrell purchased it for $229,310.78 on November 1, 2012. Of the aforementioned amount, Ms. Gartner paid $10,000.00 and Ms. Dorrell paid the remaining $219,310.78. At this point in time, Ms. Dorrell was the legal owner of the villa. Ms. Gartner could not move into the villa immediately after the sale because it was being rented, and the tenants’ lease extended through April of 2013. Ms. Dorrell received the rental payments of $1,800.00 per month and paid the expenses associated with the villa between November of 2012 and April of 2013. Those expenses included items such as home insurance, cable television, lawn maintenance, and utilities. By May of 2013, Ms. Gartner had completed a short sale of her Summerfield home. She received a short sale benefit of $36,775.00 and a seller assistance payment of $3,000.00. Ms. Gartner moved into the villa in May of 2013. At that point in time, there was no formal agreement between Ms. Gartner and Ms. Dorrell about when Ms. Dorrell would sell the villa to Ms. Gartner or how Ms. Gartner would pay Ms. Dorrell for it. Ms. Gartner paid no rent to Ms. Dorrell from May of 2013 through April of 2014. In November of 2014, Ms. Dorrell sold the villa to Ms. Gartner for approximately $219,000.00, the same price that Ms. Dorrell had paid for it. In order to finance the sale, Ms. Gartner executed a promissory note that would pay Ms. Dorrell $100,000.00 with four percent interest. Ms. Dorrell did not record that promissory note. In order to finance the remainder of the purchase price, Ms. Gartner obtained a reverse mortgage. Ms. Gartner stated in her October 7, 2014, affidavit that “all of a sudden I received paperwork from Agent Dorrell stating that I owed her all kinds of money and if I did not pay up she could take my home.” Mr. Hartman’s report also covered the aforementioned transactions and reached the following conclusions: It is our opinion that Ms. Dorrell gave Ms. Gartner very poor investment advice in that she convinced Ms. Gartner to enter into a short sale without investigating other alternatives. Second, Ms. Dorrell either kept very poor records or deliberately kept Ms. Gartner “in the dark” regarding her financial obligations. Third, Ms. Dorrell did not formulate a reasonable exit strategy for Ms. Gartner to pay off her obligations to Ms. Dorrell. Apparently, her strategy was to force Ms. Gartner into applying for a reverse mortgage, using those proceeds to pay off the promissory note, and then get the rest of her money from Ms. Gartner’s IRA account [when] Ms. Gartner turned 70 and ½. That strategy would have a negative impact on Ms. Gartner’s income tax situation as it would increase her adjusted gross income, making her social security payments 85% taxable. It is our opinion that Ms. Dorrell has willfully and deliberately overstated her claims for monies due from Ms. Gartner. Further, we documented that Ms. Dorrell was not being truthful with us regarding her relationship with Ms. Gartner during our meeting on August 14, 2014. The true amount of the financial obligation that Ms. Gartner has to Ms. Dorrell is unknown. Ms. Gartner had signed a promissory note for $100,000. Beyond that, some amount is due Ms. Dorrell. However, we do not have sufficient information to make an accurate determination of the additional amount due. The Department’s Administrative Complaint alleged that Ms. Dorrell committed several wrongful acts such as: (a) advising Ms. Gartner to stop making mortgage payments on the Summerfield home; (b) arranging for the purchase of the villa and accepting a $10,000.00 deposit from Ms. Gartner without giving her credit for that payment; (c) failing to record the promissory note; and (d) pressuring Ms. Gartner to apply for a reverse mortgage and arranging to obtain the balance from Ms. Gartner’s IRA account in order to pay off the promissory note. According to the Department, the aforementioned allegations amounted to a violation of Florida Administrative Code Rule 69B-215.210 which declares that all life insurance agents must always place the policyholder’s interests first. The Department also concluded that the aforementioned allegations demonstrated a lack of trustworthiness to engage in the business of selling insurance. Ms. Gartner’s affidavit along with the report from “Seniors vs. Crime” provided a reasonable basis for the Department to pursue the allegations under Count V. The substantial justification for pursuing Count V is discussed further in paragraphs 90 and 91 under the Conclusions of Law. Count VI – Earl Doughman Earl Doughman was born in 1934 and was a client of Ms. Dorrell’s. He wrote the following letter to the Security Benefit Life Insurance Company on April 14, 2014: This letter is to file a formal complaint concerning the Total Value Annuity dated 9/30/2013. Jean A. Dorrell is the listed agent on my annuity. After a recent phone call to [acquire] information regarding my annuity, I discovered that I was extremely misled and all the important details of this contract were never disclosed to me. This links to Elder Financial Abuse. Jean A. Dorrell was never present during the presentation and sale of my annuity. Jean A. Dorrell was not present during the delivery of my annuity. Jean A. Dorrell never witnessed any process involved with my annuity. Diane Johnson did everything involved with the sale, presentation and delivery of my annuity. Why is Jean A. Dorrell the listed agent on my contract? Why did Jean A. Dorrell sign as agent on 8/28/2013? I never saw Jean A. Dorrell on 8/28/2013. I thought Diane Johnson was my agent. During the presentation, I asked Diane Johnson, “Why should I move from Midland National? Midland is paying me 3% guaranteed fixed interest.” Diane told me, “You are going from 3% to 4%.” Diane NEVER disclosed to me that this is a Rider with an ANNUAL initial charge of 0.95% and maximum charge of 1.80%. Diane presented the 4% interest as fixed guaranteed. This makes me very upset! The initial current interest rate is 1.5% with the Security Benefit Total Value Annuity. As I mentioned before, my Midland National annuity was earning 3% guaranteed. Also, the cap on my index with Midland was 5.25%. The cap with the Total Value Annuity is only 3.25%. This is not a good replacement from an annuity to annuity. Selling the Total Value Annuity to me was never suitable. This appears to be illegal and is definitely Elder Financial Abuse. It is my hope that this contract be terminated and my initial Purchase Payment of $29,492.30 be paid out immediately, with no penalties, because I was misled into purchasing this contract under false details regarding the Total Value Annuity. Security Benefit responded to Mr. Doughman’s letter on May 13, 2014, by notifying him that it would cancel the contract and refund the purchase price. The Department’s Administrative Complaint alleged that Ms. Dorrell violated numerous provisions governing insurance agents by having an unlicensed employee sell an unsuitable annuity to Mr. Doughman. Mr. Doughman’s letter describing how an unlicensed employee, Diana Johnson, sold him an annuity corroborated the affidavits of former employees of Senior Financial Security as to how Ms. Dorrell facilitated unlicensed activities. The aforementioned documents were a reasonable basis for pursuing Count VI, and the substantial justification for pursuing Count VI is discussed further in paragraph 92 under the Conclusions of Law. Count VII – Margaret Dial Margaret Dial was born in 1950. Ms. Dial met Ms. Dorrell in July of 2007 and purchased multiple annuities from her. One of those annuities was an Old Mutual annuity that she purchased on November 11, 2007. In 2013, Ms. Dorrell advised Ms. Dial to surrender the Old Mutual annuity and use the proceeds to purchase a Security Benefit annuity. After incurring $16,560.39 in surrender charges, Ms. Dial received $129,901.21 in the form of a check mailed to her home. On March 12, 2013, Ms. Dial signed an application to purchase the Security Benefit annuity recommended by Ms. Dorrell for $130,000.00. The application associated with the Security Benefit annuity was incorrect because it did not show that it was a replacement for the Old Mutual annuity. Ms. Dial’s surrender of the Old Mutual annuity and purchase of the Security Benefit annuity was problematic for multiple reasons. For instance, Ms. Dorrell sold the Old Mutual annuity to Ms. Dial and then encouraged her to surrender it and use the proceeds to acquire the Security Benefit annuity. In effect, Ms. Dorrell earned two commissions on the same money. Also, the manner in which the Security Benefit annuity was purchased could have potentially prevented Old Mutual from engaging in conservation efforts. “Conservation” is the term used to describe an insurance company’s effort to retain existing business. Ms. Dial filed a complaint with Security Benefit in April of 2016 stating that “Jean Dorrell had me CLOSE the account to transfer my monies with a great LOSS to Security Benefit.” Security Benefit responded with a June 8, 2016, letter offering to cancel the Security Benefit annuity and return Ms. Dial’s purchase payment. Security Benefit then issued the following letter to Ms. Dorrell on June 20, 2016: Security Benefit Life Insurance Company (“Security Benefit”) recently received and addressed a complaint from Margaret Dial, to whom you presented a Secure Income Annuity for sale in 2013. As part of our investigation, Security Benefit directed that you provide a statement addressing the complaint, which you furnished through your attorney. In the course of investigating Ms. Dial’s complaint, Security Benefit learned that despite the application and Annuity Suitability form for the Contract indicating otherwise, Ms. Dial’s purchase of the Contract had in fact involved the replacement of an existing annuity contract she owned (said contract was issued by Fidelity & Guaranty Life Insurance Company). Your statement indicated that the transaction was not disclosed to Security Benefit as a replacement due to clerical error on the part of your office staff. As you should know, the proper handling of proposed annuity replacements is a continuing focus of insurance regulators, including the Florida Office of Insurance Regulation. As such, the failure to disclose that a replacement will occur is a very serious matter and one that Security Benefit does not take lightly whether due to clerical error or otherwise. By this letter, Security Benefit is notifying you that any further failure to disclose replacement activity will result in the termination of your appointment and the enforcement of any other remedies available to Security Benefit under the terms of your Producer Agreement. (emphasis added) The Department’s Administrative Complaint generally alleged that Ms. Dorrell violated several governing statutes by transmitting false information and displaying a lack of trustworthiness. In addition to the fact that Ms. Dorrell had admitted to Security Benefit that she had failed to disclose the source of the funds that would be used to purchase the annuity, the Department knew that Ms. Wipperman had specifically named Ms. Dial as a client who had been misinformed about the amount of their surrender charges. That information provided a reasonable basis for pursuing Count VII against Ms. Dorrell. The substantial justification for pursuing Count VII is discussed further in paragraphs 93 and 94 under the Conclusions of Law. Count VIII – Unlicensed Activities The Department alleged under Count VIII of the Administrative Complaint that Ms. Dorrell and/or her employees performed work without having the proper licensure. Specifically, the Department alleged that Ms. Dorrell’s employees wrote Lady Bird deeds3/ and wills without being licensed attorneys. The Department also alleged that Ms. Dorrell and/or her employees encouraged clients to liquidate security holdings without being licensed investment professionals. The affidavits from Laura Wipperman, Diana Johnson, and Matthew Plunkitt provided a reasonable basis for the Department to pursue Count VIII. The substantial justification for pursuing Count VIII is discussed further in paragraphs 95 through 100 under the Conclusions of Law. Count IX – Performance of Unlicensed Insurance Activities The Department alleged in Count IX that Ms. Dorrell had Ms. Wipperman and Ms. Johnson perform acts that could only be performed by a licensed insurance agent. Those allegations were reasonably supported by the affidavits of Ms. Wipperman, Ms. Johnson, and Mr. Plunkitt. The substantial justification for pursuing Count IX is discussed further in paragraph 101 under the Conclusions of Law. Count X – Failure to Report Administrative Actions The Department dismissed Count X, but alleged in the Administrative Complaint that Ms. Dorrell violated Florida Law by failing to report to the Department two administrative actions taken against her by the states of Nevada and Wisconsin. This allegation was supported by a March 14, 2008, letter from Ms. Dorrell to Reliance Standard Life Insurance Company. That letter provided a reasonable basis for pursuing Count X, and the substantial justification for pursuing Count X is discussed further in paragraphs 102 and 103 under the Conclusions of Law.
The Issue Whether Respondent owes $1,568,399.00 or $2,323,765.60 as a penalty for failing to secure workers' compensation insurance for its employees, as required by Florida law.
Findings Of Fact Based on the evidence adduced at hearing, and the record as a whole, the following findings of fact are made to supplement and clarify the sweeping factual stipulations set forth in the parties' June 1, 2005, Joint Stipulation3: Legislative History of the "Penalty Calculation" Provisions of Section 440.107(7), Florida Statutes Since October 1, 2003, the effective date of Chapter 2003-412, Laws of Florida, Section 440.107(7)(d)1., Florida Statutes, has provided as follows: In addition to any penalty, stop-work order, or injunction, the department shall assess against any employer who has failed to secure the payment of compensation as required by this chapter a penalty equal to 1.5 times the amount the employer would have paid in premium when applying approved manual rates to the employer's payroll during periods for which it failed to secure the payment of workers' compensation required by this chapter within the preceding 3-year period or $1,000, whichever is greater. Prior to its being amended by Chapter 2003-412, Laws of Florida, Section 440.107(7), Florida Statutes, read, in pertinent part, as follows: In addition to any penalty, stop-work order, or injunction, the department shall assess against any employer, who has failed to secure the payment of compensation as required by this chapter, a penalty in the following amount: An amount equal to at least the amount that the employer would have paid or up to twice the amount the employer would have paid during periods it illegally failed to secure payment of compensation in the preceding 3-year period based on the employer's payroll during the preceding 3- year period; or One thousand dollars, whichever is greater. The Senate Staff Analysis and Economic Analysis for the senate bill that ultimately became Chapter 2003-412, Laws of Florida, contained the following explanation of the "change" the bill would make to the foregoing "penalty calculation" provisions of Section 440.107(7), Florida Statutes4: The department is required to assess an employer that fails to secure the payment of compensation an amount equal to 1.5 times, rather than 2 times, the amount the employer would have paid in the preceding three years or $1,000, which is greater. There was no mention in the staff analysis of any other "change" to these provisions. The NCCI Basic Manual The National Council on Compensation Insurance, Inc. (NCCI) is a licensed rating organization that makes rate filings in Florida on behalf of workers' compensation insurers (who are bound by these filings if the filings are approved by Florida's Office of Insurance Regulation, unless a "deviation" is permitted pursuant to Section 627.11, Florida Statutes). The NCCI publishes and submits to the Office of Insurance Regulation for approval a Basic Manual that contains standard workers' compensation premium rates for specified payroll code classifications, as well as a methodology for calculating the amount of workers' compensation insurance premiums employers may be charged. This methodology is referred to in the Basic Manual as the "Florida Workers Compensation Premium Algorithm" (Algorithm). According to the Algorithm, the first step in the premium calculating process is to determine the employer's "manual premium," which is accomplished by applying the rates set forth in the manual (or manual rates) to the employer's payroll as follows (for each payroll code classification): "(PAYROLL/100) x RATE)." Adjustments to the "manual premium" are then made, as appropriate, before a final premium is calculated. Among the factors taken into consideration in determining the extent of any such adjustments to the "manual premium" in a particular case are the employer's loss experience, deductible amounts, premium size (with employers who pay "larger premium[s]" entitled to a "Premium Discount"), and, in the case of a "policy that contains one or more contracting classifications," the wages the employer pays its employees in these classifications (with employers "paying their employees a better wage" entitled to a "Contracting Classification Premium Adjustment Program" credit). Petitioner's Construction of the "Penalty Calculation" Provisions of Section 440.107(7), Florida Statutes In discharging its responsibility under Section 440.107(7), Florida Statutes, to assess a penalty "against any employer who has failed to secure the payment of compensation as required," Petitioner has consistently construed the language in the statute, "the amount the employer would have paid," as meaning the aggregate of the "manual premiums" for each applicable payroll code classification, calculated as described in the NCCI Basic Manual. It has done so under both the pre- and post-Chapter 2003-412, Laws of Florida, versions of Section 440.107(7). This construction is incorporated in Petitioner's "Penalty Calculation Worksheet," which Florida Administrative Code Rule 69L-6.027 provides Petitioner "shall use" when "calculating penalties to be assessed against employers pursuant to Section 440.107, F.S." (Florida Administrative Code Rule 69L-6.027 first took effect on December 29, 2004.) Penalty Calculation in the Instant Case In the instant case, "1.5 times the amount the [Respondent] would have paid in premium when applying approved manual rates to [Respondent's] payroll during periods for which it failed to secure the payment of workers' compensation" equals $2,323,765.60.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner order Respondent to pay a $2,323,765.60 penalty for failing to secure workers' compensation insurance for its employees. DONE AND ENTERED this 5th day of August, 2005, in Tallahassee, Leon County, Florida. S STUART M. LERNER Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 5th day of August, 2005.
Findings Of Fact At all material times, Respondent Sauer was licensed in Florida as an ordinary life agent working for Money-Plan International, Inc. (Money-Plan) and selling National Western Life Insurance Company (National Western) insurance and annuity contracts. From October 10, 1984, until sometime prior to the events in question, Respondent Sauer had been an agent for Northern Life Insurance Company (Northern Life). Respondent Sauer had about five years' relevant job experience at the time of the events in question. At all material times, Respondent Connell was licensed in Florida as an ordinary life agent working for Money-Plan and selling National Western insurance and annuity contracts. Respondent Connell had no significant job experience prior to his employment with Money-Plan about three months prior to the events in question. His principal employment at all material times has been as a real estate broker. During the spring of 1986, Money-Plan was soliciting employees of the Manatee County School District for the purchase of two types of National Western annuity contracts. The flexible-premium annuity contract permits periodic contributions in such amounts and at such times as the policyholder selects. The single-premium annuity contract involves only a single premium, such as in the form of a rollover from another tax-qualified retirement plan. The Manatee County School Board had approved these National Western contracts and an annuity contract offered by Northern Life for sale to Manatee County School District employees, who could pay the premiums by a payroll-deduction plan. Each client described below, except for Jack Dietrich, is a schoolteacher employed by the Manatee County School Board; Mr. Dietrich is a principal of a Manatee County elementary school. Each Respondent used the same general sales procedure. First, he would contact the client, set up an appointment, make the sales presentation, and often obtain a signed application at the end of the appointment. He would then leave the client a copy of the application and a National Western brochure. Upon delivery of the annuity contract some weeks later, the client would have a chance to review the specific provisions and, if she did not like them, reject the contract without cost or further obligation. The front side of the two-sided, one-page application requires some basic identifying information concerning the annuity contract selected and the applicant. The back side contains five disclosure paragraphs in somewhat larger print than that on the front side. The first disclosure paragraph does not apply to the annuity contracts sold by Respondents in these cases. The last disclosure paragraph reminds the policyholder to review annually the tax status of the contract. The second disclosure paragraph applies to the single-premium contract. This paragraph warns that: a) a withdrawal of more than 10% of the Cash Value during the first seven years after the contract is issued will result in the loss of 10% of the contribution and b) if the policyholder fails to use one of the approved settlement options, the contribution will earn interest at the lower Cash Value rate rather than the higher Account Balance rate. The third disclosure paragraph applies to the flexible-premium annuity contract. This paragraph provides: FLEXIBLE PREMIUM ANNUITY FORM 01-1063 If, prior to the annuity date, I withdraw my contributions in excess of the renewal contributions made during the previous twelve months or if I do not use one of the retirement benefit options under the policy for distribution of my account on the annuity date, my account will be subject to the following: (a) a charge of twenty percent (20%) will be made against my contributions during the first contract year and all contribution increases during a twelve (12) month period from the date of any increase (a contribution increase occurs when the new contribution is greater than the initial contribution plus the sum of all prior increases) unless such contributions are not withdrawn prior to the end of the seventh (7th) contract year following the year of receipt, and (b) interest will be credited on my contributions at rates applicable under the Cash Value provisions and not the Account Balance provisions. The fourth disclosure paragraph applies to both the single-premium and flexible-premium annuity contracts. This paragraph identifies two types of guaranteed interest rates. Four guaranteed annual rates, ranging from 9 1/2% for the first year after issuance of the contract to 4% after ten years, apply to the Account Balance. A single guaranteed annual rate of 4% applies to the Cash Value. The brochure describes the flexible-premium contract as having: "Stop and Go privileges: Contributions are fully flexible and nay be increased, decreased or stopped, subject to employer rules and IRS regulations." Elsewhere, the brochure states: "To avoid the surrender charge, the participant simply annuitizes the contract and elects one or more settlement options." (Emphasis supplied.) The brochure states that the policyholder is not currently taxed on the portion of her salary deducted by the employer to pay for the premium or, as to both types of contract, the interest earned by the premiums within the annuity contract. National Western offers in the brochure to calculate for any policyholder the maximum amount of salary that she may defer so as to avoid current income tax on her periodic contributions. The brochure explains how a policyholder may, subject to restrictions imposed by law, borrow her annuity funds without the loan being treated as a taxable distribution. The brochure cautions that the loan must be repaid within five years unless the proceeds are used for certain specified purposes relating to a principal residence. The brochure states in boldface: "Each participant will have an Account Balance and a Cash Value Balance." The Account Balance is defined as all of the contributions or premiums with interest from the date of receipt to the annuity starting date (of, if earlier, the death of the annuitant). The brochure explains: "The Account Balance is the amount available when the participant retires or [elects to begin receiving payments] and selects one or more of the approved settlement options." In such event, "[t]here are no charges or fees deducted from the Account Balance ..." The Cash Value for the flexible-premium contract is defined as 80% of the first-year premiums and 100% of renewal premiums with interest from the date of receipt to the date of withdrawal. If the policyholder increases the amount of her premiums in any year, the amount of the increase is treated as first-year premiums. The policyholder vests as to the remaining 20% of the first-year premiums seven years after the issuance of the contract or, if applicable, seven years after the year in which the premiums are increased. The brochure explains: The Cash Value is the amount received if the participant surrenders the contract without electing one of the approved settlement options, which are described in the next section of the brochure. The brochure offers no explanation of the provisions governing the vesting of 10% of the Cash Value of the single-premium contract. The brochure sets forth the differences in interest rates between the Account Balance and Cash Value in a clear boldface table. The table notes that the Cash Value guaranteed interest rate may be higher for the first year if a higher rate is in effect at the time of the issuance of the contract. Neither the application or the brochure mentions the interest rate applicable to policy loans. The flexible-premium annuity contract generally conforms to the above- described provisions of the application and brochure. This is the type of contract that the Respondents sold to each of the clients described below. No sample of the single-premium annuity contract was offered into evidence. This is the type of contract that Respondent Sauer sold to Mr. Dietrich, in addition to a flexible-premium contract. The flexible-premium annuity contract adds an important additional requirement for the policyholder to vest in the remaining 20% of the first-year premiums when calculating the Cash Value. The flexible-premium contract requires that the policyholder pay, in the six years following the first anniversary of the contract, sufficient additional premiums so that the accrued Cash Value, immediately before the 20% credit, equals anywhere from four to seven times the total first-year premium, depending upon the age of the policyholder when the contract is issued. In the case of a policyholder with an issue age of 57 years or less, the multiple is four. No such requirement would be applicable to a single-premium contract where the parties intend from the start that there shall be no additional premiums. More favorable to the policyholder, the flexible-premium annuity- contract provides that, after ten years, the annual interest rate on the Cash Value will be the greater of the guaranteed rate or one point less than the rate then credited to the Account Balance. Concerning policy loans, the flexible-premium annuity contract states that the policyholder may obtain a loan "using the contract as loan security." The amount borrowed may not exceed 90% of the Cash Value. Interest on the loan must be paid in advance. The rate of interest, which remains in effect for an entire contract year, is the greater of the Moody's Corporate Bond Yield Average, which is determined twice annually, or one point greater than the Cash Value interest rate in effect on the contract anniversary. The initial annual loan rate stated in the annuity contract issued to Rebecca McQuillen was 10 1/2%. Each flexible-premium annuity contract issued contains a statement of benefits. The one-page statement contains four columns showing, by Cash Value and Account Balance, the accrual of benefits if guaranteed interest rates apply or if current interest rates apply. The statement warns: "This contract may result in a loss if kept for only 3 years, assuming withdrawal values are based on guaranteed rate and not on current rate." The initial guaranteed rates were, for a contract issued on April 15, 1986, 10 1/2% on the Account Balance and 8% on the Cash Value and, for a contract issued on May 15, 1986, 10% and 7 1/2%, respectively. Respondent Connell visited Ms. McQuillen and Virginia Taylor on separate occasions in the spring of 1986 for the purpose of selling National Western annuity contracts. During these visits, Henry James Jackson, Jr. accompanied Respondent Connell and made the sales presentations to the clients as part of the training that Respondent Connell was then undergoing. Mr. Jackson is the vice-president of Money-Plan and supervisor of Respondent Sauer, who manages the Sarasota office of Money-Plan and supervises four or five agents, including, at the time, Respondent Connell. Respondent Connell signed the applications of Ms. McQuillen and Ms. Taylor, as the selling agent, in order to receive the credit for the sales. Respondent Connell earned this credit by arranging the appointments. In their applications, Ms. McQuillen projected periodic contributions totalling, on an annual basis, $2400 from her to the flexible-premium contract, and Ms. Taylor projected a total annual contribution of $2280. Respondent Connell subsequently visited Linda Rush, to whom he was referred by Ms. McQuillen. Respondent Connell himself made the sales presentation to Ms. Rush. In his meeting with Ms. Rush, Respondent Connell explained the mechanics of the flexible-premium annuity contract. He discussed the current interest rates and how they were set by market conditions. Although he did not discuss the specifics of the Account Balance versus the Cash Value, he gave Ms. Rush a copy of the application and the brochure. He also discussed generally that the annuity contract was primarily a retirement policy and that Ms. Rush would not enjoy all of its benefits, partly due to penalties, if she failed to keep it until retirement. Ms. Rush signed an application at the conclusion of their meeting. She projected a total annual contribution of $1200. Later, at Ms. McQuillen's request, Respondent Connell attended a meeting with her and a friend of hers named Mike Donaldson, who represents Northern Life. Mr. Donaldson had informed the clients of both Respondents, directly or indirectly, that his company's annuity contract was superior to those of National Western because of the latter's "two-tiered" interest rate whereby a lower rate of interest was credited to the Cash Value than the Account Balance. Respondent Connell did not perform well in the confrontation with his more experienced counterpart. Subsequently, the three above-described clients timely cancelled their contracts at no cost to themselves. In the spring of 1986, Respondent Sauer made a sales presentation to Mr. Dietrich. Mr. Dietrich's issue age was 56 years and he had owned a 15-year old tax-sheltered annuity with a surrender value of $8200. Meeting with Mr. Dietrich six times for a total of six to eight hours, Respondent Sauer discussed at length tax-sheltered annuities, as well as life insurance. The discussions involved the flexible-premium annuity contract that was purchased by all of the other clients involved in these cases, as well as a single-premium annuity contract for the $8200 rollover contribution. With regard to the flexible-premium annuity contract, Respondent Sauer discussed with Mr. Dietrich the lower interest rate used if the policyholder surrendered the contract, the penalty of 20% of the first-year premiums if the contract was surrendered in the first seven years, and the various ways that the policyholder could avoid the penalties. Respondent Sauer explained generally the similar penalties and lower interest rate applicable to a prematurely terminated single-premium annuity contract. In making the sales presentations to Mr. Dietrich, Respondent Sauer emphasized the loan options available with the these tax-sheltered annuities. Respondent Sauer stressed the small margin between the interest credited on the contract and the interest charged on a policy loan and stated that, at times, a National Western policyholder could borrow his annuity funds at a lower interest rate than he was being paid on the funds by the company. He also informed Mr. Dietrich that he did not need to pay back the loan, but could instead roll it over every five years. The loan options in the National Western annuity contracts are a major selling point and offset to some degree the so-called "two-tiered" interest rate. These tax-sheltered annuities compare favorably to other annuity contracts because the National Western policyholder does not earn a lower interest rate on that portion of the policy balance encumbered by the loan. Also, National Western has historically maintained a more favorable margin than that maintained by other companies between the loan rates charged and the interest paid on the Account Balance. At the time of the hearing, for example, the interest paid annually on the Account Balance was 9.5% and the interest charged annually on policy loans was 9.09%. Mr. Dietrich signed two applications. In the application for a flexible-premium contract, he projected a total annual contribution of $3850. In the application for a single-premium contract, he projected a rollover contribution of $8200. Respondent Sauer left Mr. Dietrich a copy of the application and the brochure. In the spring of 1986, Respondent Sauer made a sales presentation of the flexible-premium contract to Noah Frantz. Respondent Sauer explained to Mr. Frantz the different interest rates applicable to the Account Balance and the Cash Value, as well as the 20% penalty for early surrender. The sales presentation to Mr. Frantz took place shortly after the confrontation between Respondent Connell and Mr. Donaldson representing Northern Life. Respondent Sauer therefore found it necessary to inform Mr. Frantz that Respondent was familiar with the Northern Life tax-sheltered annuity because he used to sell it. Respondent Sauer emphasized the point by showing his Northern Life license to Mr. Frantz. Respondent Sauer obtained a signed application for a flexible-premium contract from Mr. Frantz, who projected a total annual contribution of $300. Respondent Sauer left Mr. Frantz a copy of the application and brochure. Subsequently, Mr. Dietrich and Mr. Frantz timely cancelled their annuity contracts at no cost to themselves. An important feature of the tax-sheltered annuities is their favorable federal income tax treatment. Within certain limits, the policyholder is able to exclude front his gross income the amount of his salary used to pay the premiums. The contributions, whether periodic or one-time, then earn tax-free interest, which is taxed when distributed later in the form of annuity payments. The Tax Equity and Fiscal Responsibility Act (TEFRA) imposes certain requirements on loans involving tax-sheltered annuities. In general, if these requirements are not satisfied, a nontaxable loan is converted into a taxable distribution. Both before and after TEFRA, however, a loan would be converted into a taxable distribution if the borrower, at the time of taking out the loan, had no intention of repaying it. An intent to roll over the loan periodically rather than repay it is evidence of a taxable distribution rather than a true loan. The use of a tax-sheltered annuity as security for a loan increases the risk that the policyholder will be forced to surrender prematurely the contract. In such event, the interest rate on the policy loan would generally be greater than the interest rate credited to the Cash Value because the loan interest rate is at least one point over the current Cash Value interest rate. The only time that a favorable margin could develop would be if, subsequent to setting the loan rate for the next year, the Cash Value rate increased by more than one point. It is more likely that a favorable margin would exist between the higher Account Balance interest rate and the loan interest rate. However, in April, 1986, the two stated rates were equal, although the effective rate charged on loans would presumably be somewhat higher because the annual interest is paid in advance at the beginning of each year. The viability of the strategy of borrowing at lower rates than are credited to the contract during the term of the loan depends upon the ability of National Western to establish and maintain a favorable margin between the Account Balance rate and the loan rate and the ability of the policyholder to retain his eligibility for the higher Account Balance rate. Neither Respondent made any material misrepresentations or omissions with respect to the flexible-premium contracts sold to Ms. McQuillen, Ms. Taylor, Ms. Rush, or Mr. Frantz. Each sales presentation gave an accurate and reasonably complete description of a somewhat complicated insurance product. Any possible material omissions in the presentation, or in the client's understanding of the material presented, were substantially cured by the application and brochure. The sales presentation to Mr. Dietrich was inaccurate with respect to Respondent Sauer's recommendation that Mr. Dietrich could, by continually rolling over loans, borrow against his contract without ever repaying the loan. By neglecting to mention the possible adverse tax consequences of such a strategy, Respondent Sauer inadvertently misled Mr. Dietrich. The sales presentation to Mr. Dietrich concerning the flexible-premium contract contained another omission. There was no mention in the application, brochure, or sales presentation of the requirement that Mr. Dietrich contribute, in the next four years, a sum equal to four times the amount of his first-year contributions in order to vest the unvested 20% of his first-year contributions when calculating his Cash Value. To the contrary, the brochure emphasized the flexibility accorded the policyholder in setting the amount of his contributions, as described in Paragraph 11 above. Although this omission occurred in all of the presentations, it had greater significance in the case of Mr. Dietrich, who planned on making- significantly greater first-year contributions than the other clients planned to make. In purchasing the flexible-premium annuity, Mr. Dietrich was obligating himself to contribute, based on his projected first-year contributions, an additional $15,400 over the next six years into what he had assumed was a flexible-premium contract.
Recommendation In view of the foregoing, it is hereby RECOMMENDED that a Final Order be entered finding Respondent Connell and Respondent Sauer not guilty and dismissing the Administrative Complaint filed against each of them. ENTERED this 30th day of November, 1988, in Tallahassee, Florida. ROBERT E. MEALE Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 30th day of November, 1988. APPENDIX TO RECOMMENDED ORDER, CASE NOS. 88-3302, 88-3303 Treatment Accorded Petitioner's Proposed Findings 1-4. Adopted in substance. Rejected as irrelevant. Adopted. 7 & 9. Rejected as unsupported by the evidence. 8. First sentence adopted. Second and third sentences rejected as recitation of testimony. Fourth sentence rejected as unsupported by the evidence. Rejected as recitation of evidence. First sentence adopted. Second and fourth sentences rejected as unsupported by the evidence. Third sentence rejected as legal argument. & 14. Adopted in substance. & 15-16. Rejected as irrelevant, except that last eight words of first sentence of Paragraph 16 are adopted. 17 & 21. Rejected as unsupported by the evidence. Adopted. Rejected as irrelevant. Adopted in substance, except that first 16 words arerejected as unsupported by the evidence. Treatment Accorded Respondent's Proposed Findings 1-3 & 6. Adopted. 4 & 5. Rejected as subordinate. 7-11. Adopted in substance. Rejected as recitation of evidence. Adopted through word "policy." Remainder rejected asirrelevant. Last sentence rejected as subordinate. Remainder rejected as recitation of testimony. Rejected as recitation of evidence and legal argument. First sentence adopted. Remainder rejected as recitation of evidence. Rejected as irrelevant. 18-19. Rejected as recitation of evidence. 20. First two sentences adopted, except that from "and" through end of first sentence rejected as irrelevant. Last sentence rejected as not finding of fact. 21-22 & 25. Adopted in substance. 23-24. Adopted. 26. Rejected as unsupported by the evidence. 27-28. Rejected as recitation of testimony. 29-31. Adopted in substance. 30. Adopted. 32. Rejected as irrelevant through "policy." Remainder adopted in substance. 33-34. Adopted in substance, except that first sentence ofParagraph 34 is rejected as recitation of testimony. Rejected as irrelevant. Rejected as unsupported by the evidence, except that the first and tenth sentences are adopted. Adopted in substance. Rejected as irrelevant. COPIES FURNISHED: William W. Tharpe, Jr., Esquire Office of Legal Services 413-B Larson Building Tallahassee, Florida 32399-0300 Richard R. Logsdon, Esquire 1423 South Fort Harrison Avenue Clearwater, Florida 34616 Hon. William Gunter State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Don Dowdell, Esquire General Counsel The Capitol, Plaza Level Tallahassee, Florida 32399-0300 =================================================================
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 has been licensed as a life including variable annuity and health agent, life insurance agent, and life and health insurance agent. At the time of the events which are the subject of this case, Respondent held the aforementioned licenses and was the president of Seniors Financial International, Inc., an insurance agency located in Vero Beach. Storfer is licensed to sell fixed annuities for most of the insurance companies licensed to transact business in the State of Florida, including Allianz, IMG, Aviva, North American, Old Mutual, and American Equity. Storfer keeps himself abreast of the suitability requirements and features of annuities by regularly attending and participating in the quarterly, if not monthly, training presented by insurance companies. The companies also provide seminars at Storfer's office. He goes to their offices or views webinars that can last two-to-three hours. The companies also offer assistance by providing people in-house to answer questions about their products. Even though Storfer could have the option for each client to submit cases to the companies for the company to help prepare and work to find a suitable product for each customer/individual, there was no testimony he did so with the individuals in this case. He also testified that he understood and was knowledgeable about all the products sold, relating to the three clients, from which the AC stems. Storfer regularly holds luncheon/dinner workshops and seminars at restaurants in and around Vero Beach that focus on financial issues. He invites the attendees by mailing them a flier. Each attendee receives a free meal while listening to Storfer's financial presentation. During the luncheons, Storfer does not offer any investment products for sale. However, attendees are asked to complete a "Senior Financial Survival Workshop Evaluation Form" and are invited to request an in- office appointment if they are interested in discussing specific investment products. The form elicits information including family background, financial history, current expenses, and tax liabilities. The attendees are asked to put "yes" or "no" at the top of the form. If an attendee puts yes, then a follow-up appointment is scheduled in Storfer's office. Storfer's wife picks up the forms and sets the appointment. Storfer's procedures at the appointment typically start by filling out a client profile. He goes through the form with the client and asks the client questions to obtain the details regarding age, contact information, beneficiaries, health, estate, plans for money, rate of return, percentage of life saving willing to lose, risk tolerance, liquidity, income needed form investment accounts, what needs to be fixed, income, assets and liability inventory, life insurance, and long-term care insurance/disability insurance. After completing the profile, Storfer reviews the documents that he has requested the client bring in to the appointment. This includes tax returns, an investment portfolio, and list of how much money they have and where it is, including life insurance or long-term care. There is no fee for the appointment. Typically, after the first meeting, Storfer reviews the documents and the client returns for a second appointment. At the client's next appointment, Storfer has reviewed everything and put together a product that he wants to sell the client. He also provides an illustration of the product demonstrating the product's growth and how it would work. If the client decides to go forward and invest in one of the products Storfer has recommended, Storfer gets an application for the product and his wife fills it out.2 After the application has been completed, Storfer's office procedure is to submit it to the company the same day to await approval. Once the application has been approved, then the policy is funded either by transferring from another type of product (direct transfer rollover) or by a 1035 exchange. The policy can not be issued if not funded. Once the policy is funded and issued, the company mails the policy and the documents for the client to sign to Storfer, as the agent to deliver. Storfer's operating procedure is to call the client to set an appointment for policy delivery. The appointment's purpose is to go over the policy with the client, including the amount of money that went into the policy, where the funds came from and what the policy will do for them, including liquidation and charges. Storfer keeps documents which he refers to as client notes in each client's file. After client meetings, he uses a service to dictate what he wants as a summary of the client meeting. The service types up what he says and emails it back to him. It is printed, reviewed, and scanned into his system. Alberto and Celina Grubicy Celina Grubicy ("C.G."), a native of Argentina, was born on April 6, 1940. She was married at age 19 to Alberto Grubicy ("A.G."), who was also born and raised in Argentina. They moved to the United States in 1965; English is their second language. The Grubicys opened a repair shop in New York in 1964. Then, they went in the construction business in Connecticut for about ten years before retiring to Florida. In both successful businesses, C.G. handled the paper work and kept the books. The Grubicys retired in the early 90's and purchased a condominium in Florida, where they now reside. On February 5, 2007, the Grubicys attended Respondent's luncheon seminar at Carrabbas Italian Grill in Vero Beach. At the seminar, the Grubicys listened to the presentation and completed the seminar evaluation form confirming an estate in excess of one million dollars. At the time, A.G. was 65 years old and C.G. was 66 years old. The Grubicys thought the presentation sounded good, so they made an appointment to see Storfer in his office. Prior to any interaction with Storfer, C.G. was the owner of a Transamerica variable annuity with a contract date of September 23, 2002, an AXA Equitable variable annuity with a contract date of June 17, 2005, and a Hartford variable annuity with a contract date of July 25, 2005. Each of the annuities was doing well and approaching dates when surrender charges would no longer apply. The Grubicys met with Storfer on February 7, 2007. At the meeting, the Grubicys informed Respondent that their investment goals were two-fold. They explained that their primary financial goal was safety. Their plan included selling their residential building complex from which they were currently collecting rental payments for income.3 Their goal in five years was to have an investment that would provide their income after they sold the property.4 The Grubicys wanted an investment to replace the rental money that they would no longer receive after the sale of their building. The Grubicys also stressed to Storfer that the security of the investment was a paramount concern. C.G. wanted out of variable annuities because she was concerned about the stock market risk and did not want annuitization to take place. At their second meeting on February 12, 2007, knowing the Grubicys' goals, Storfer misrepresented the advantages for the product he recommended with a graphic illustration on a blackboard. He showed the MasterDex annuity with Allianz in such a fashion, that, when the market advanced in relation to a base line, the return on the annuity would also advance, up to a three percent cap per month on the gain, but that when the market fell below the base line, there would be a zero percent return, but never a loss of the gain made in the previous months, or a loss of invested capital. Storfer recommended and proceeded to sell the Grubicys the Allianz MasterDex 10 ("MasterDex") policy, being fully aware of the Grubicys' goals. He insisted that was the way for the Grubicys to invest because they would never lose their principal compared to the other annuities that have high risk plus excess fees. Storfer did not provide the Grubicys any other investment option. The annuity was a long-term investment that provided for surrender penalties on a declining scale for fifteen years even though Storfer told the Grubicys that the Allianz annuity would mature in five years from the day it started.5 Storfer assured the Grubicys that they were not going to lose anything by investing in the MasterDex annuity with Allianz. They were not accurately informed of the provisions in the contract by Storfer during the meeting nor did Storfer fully review the relevant terms and conditions, including the length of the policy.6 The Grubicys knew that when they surrendered the three variable annuities there would be surrender charges. However, Storfer told them that the product he was selling them had a 12 percent bonus that would offset the monetary lost from surrender penalties of the transferring funds.7 The Grubicys decided to follow Storfer's recommendation with his assurances that they wouldn't lose money, and they surrendered their three annuities to purchase two MasterDex annuities in excess of about one million dollars. After Storfer completed the numerous forms and documents, the Grubicys authorized the transfers of money to Allianz by way of assignment on or about March 2, 2007, and authorized him to buy the new policies. Storfer allocated 100 percent to the Standard & Poors ("S&P") 500 instead of allocating the total investment among three possible choices in smaller increments. Respondent's 100 percent allocation choice on the Supplemental Application contravenes both of the Grubicys' requests on each of their Liquidation Decision forms, which specifically state "the decision to liquidate . . . based solely on . . . desire to eliminate market risk and fees " The annuity product Storfer sold the Grubicys provided for three different values: annuitization value, cash surrender value, and guaranteed minimum value. The Statement of Understanding provided: * * * Annuitization value The annuitization value equals the premium you pay into the contract, plus a 10% premium bonus and any annual indexed increases (which we call indexed interest) and/or fixed interest earned. This will usually be your contract's highest value. Withdrawals will decrease your contract's annuitization value. Cash surrender value The cash surrender value is equal to 87.5% of premium paid (minus any withdrawals) accumulated at 1.5 percent interest compounded annually. The cash surrender value does not receive premium bonuses or indexed interest. The cash surrender value will never be less than the guaranteed minimum value (which we define below). The cash surrender value will be paid if you choose to receive a) annuity payments over a period of less than 10 years for Annuity Option D and five years for Alternate Annuity option IV, or over a period of less than 10 years for all other annuity options, b) annuity payments before the end of the first year for Alternate Annuity Option IV or before the end of the fifth policy year for all other annuity options, or c) a full surrender at any time. Guaranteed minimum value. The guaranteed minimum value will generally be your lowest contract value. The guaranteed minimum value equals 87 5% of premium submitted, minus any withdrawals. The guaranteed minimum value grows at an annual interest rate that will be no less than 1% and no greater than 3%. (emphasis in original) The Grubicys signed the numerous forms and documents without reading them because they trusted Storfer and he sounded as if he knew what he was talking about. They relied on his advice. Storfer sold the Grubicys a policy completely different from what he had described.8 The monthly cap was opposite of the way Storfer explained it. A description of the "monthly cap" stated: Although there is a monthly cap on positive monthly returns, there is no established limit on negative monthly returns. This means that a large decrease in one month could negate several monthly increases. Actual annual indexed interest may be lower (or zero) if the market index declines from one month anniversary to the next, even if the market index experienced an overall gain for the year. (emphasis in original) The Grubicys later learned that the advice Storfer provided them regarding how the MasterDex annuity worked was erroneous. Respondent provided them misleading representations regarding the sale of the annuity products. On April 5, 2007, C.G. received her annuity contract for a MasterDex annuity for approximately $1,123,000, and she executed a Policy Delivery Receipt, Liquidation Decision Form and a Policy Review and Suitability Form. On April 12, 2007, A.G.'s annuity contract for a MasterDex annuity for approximately $35,000 was delivered and he executed a Policy Delivery Receipt, Liquidation Decision Form and a Policy Review and Suitability Form. The sale of the Allianz annuities generated commissions of approximately $95,000.00 for Storfer or his agency, Senior Financial International, Inc. The Grubicys became concerned about the MasterDex product Storfer sold them while watching television at home one day, and seeing a class action lawsuit advertisement about their purchased product. They called Storfer immediately to discuss Allianz. He set up an appointment with the Grubicys to meet with him about their concerns. When Storfer met with the Grubicys, he assured them that they didn't need to change anything, their product was fine. He also informed them that their product was six percent up and not to worry because if the S&P 500 went down, they didn't have to worry because they had already made six percent. In May 2007, the Grubicys went to Connecticut and attended another investment seminar. Afterwards, they set up a meeting with the financial advisor, Mr. Ray ("Ray"). The Grubicys took their investment paperwork to Ray and he reviewed it. Ray explained how the MasterDex worked and called an Allianz customer service representative while they were in the office to further explain how the product worked. The Grubicys were informed that there was a monthly cap of three percent when it went up but no monthly cap on stock market losses. Such a description of the cap combined with the description in the contract support a finding that the MasterDex annuity did not meet the Grubicys' financial goals and was not a suitable investment for them. In particular, the Grubicys had been clear that they did not want to have any market risk. Subsequently, the Grubicys contacted Storfer again and questioned his declaration regarding the cap on stock market losses. Respondent continued to describe the crediting method incorrectly and told them Ray was just trying to sell them something. He insisted that the S&P 500 is the way he explained it earlier and that Ray's interpretation was wrong. Ray eventually sent the Grubicys an article from the Wall Street Journal, which they testified reemphasized that the investment worked completely different from what Storfer continued to tell them. The Grubicys requested a refund from Allianz. Approximately one year later, Allianz eventually set the contract aside and refunded the investment principal, surrender charges for the three annuities, and some interest. The evidence convinces the undersigned that Storfer knowingly made false representations of material facts regarding the MasterDex annuity and its downside cap. Kikuko West Kikuko West ("K.W."), a native of Japan, was born in 1933. She marrried a U.S. soldier and moved to the United States when she was 18 years old. Together they had four children. She is now married to Robert West ("R.W."). K.W.'s employment history started with her working in a bakery, then as a waitress in a Chinese restaurant, and her ultimately owning and operating a successful flower shop for over 30 years in West Warwick, Rhode Island. She sold it in 2006. K.W. sold her house in Rhode Island and used the money to invest in a Smith-Barney mutual fund and an AXA Equitable Life Insurance Company (AXA) annuity (contract # 304 649 121), which she purchased in June 30, 2004. West purchased a condominium in Florida and has been a permanent resident for the past five years. On January, 15, 2008, Robert and Kikuko West ("Wests") attended Respondent's seminar. They scheduled an appointment for January 23, 2008, but didn't show. They attended a second workshop on or about June 3, 2008, and scheduled a meeting for July 9, 2008, but didn't show. The Wests rescheduled their appointment with Storfer on August 4, 2008, and met with him in his office for the first time. Even though K.W.'s husband attended the meeting, the focus of the meeting was her finances. K.W. explained that their monthly income was $2,900 and their monthly living expenses were $2,100, but a majority of it came from her husband's pension so she was worried about income if he passed. She only received $600 a month in social security and wanted income in the future. She had $100,000 for emergencies in a money market account. K.W. also informed Storfer that when she dies she wants her four daughters and six grandchildren to inherit her money. K.W. wanted to stop receiving various statements from each of her numerous investment accounts and bundle her assets. She told Storfer that she wanted to keep everything that she had and would be happy with a rate of return of four or five percent. She emphasized she had zero risk tolerance. K.W. provided the following information for her asset/liability inventory: an AXA variable annuity(non- qualified) in the amount of about $119,589.58; mutual fund (non- qualified) of $253,289.55; IRA (qualified) $80,039.33; CDs (nonqualified) for $25,000 and $35,000; a Fidelity and SunTrust (nonqualified) totaling $40,000; and a Vanguard equaling $60,000. West explained that she didn't have life insurance but had prepaid funeral. Her husband had three life insurance policies. K.W. had a second meeting with Storfer on August 6, 2008. At that meeting, K.W. provided income tax and other paperwork to detail the stocks that she wanted consolidated into one statement.9 Storfer went over the financial illustrations and company profiles he had compiled as proposed investments. Unbeknowest to the Wests, Storfer's plan for restructuring K.W.'s reinvestments was to transfer funds from her variable annuity (approximately $215,000) to a fixed annuity and transfer assets from K.W.'s existing brokerage accoung (approximately $80,000) to a new brokerage account, which were both with American Equity. During the meeting, Storfer also introduced the Wests to Kevin Kretzmar, a broker for Summit Brokerage Services, by speakerphone.10 The discussion consisted of how the money would be transferred.11 The Wests thought Kretzmar worked for Storfer as his assistant and were unaware that he brokered for a separate company. Storfer brought Kretzmar into the transaction to handle the brokerage account because he was not a broker, but he did not make this plain to the Wests. In the meeting, Strofer emphasized to the Wests that K.W. was paying too much in income tax and her investments should be set up to reduce the income tax. Storfer also informed the Wests that K.W. would get a guaranteed eight percent interest each year and would be able to withdraw 10 percent a year with no penalty,12 which K.W. relied upon in deciding to follow Storfer's recommendation to purchase the American Equity annuity selected by Storfer. Respondent provided two letters to K.W. on Seniors Financial International, Inc., letterhead that stated: Kikuko: This would replace the Mutual Funds $253, 289.00. You will receive a bonus w[h]ich is added the first day of $25,329.00. Your account will start with $278,618.00. With an 8% guaranteed growth for income. With no risk. Mitchell Kikuko This would replace the AXA Variable Annuity $119,589.00. You will receive a bonus w[h]ich is added the first day of $11, 959.00. Your account will start with $131,548.00. With an 8% guaranteed growth for income. With no risk. Mitchell After the meeting, the Wests decided to go forward with Storfer's recommendation for K.W.'s investments. On August 8, 2008, the Wests returned to Storfer's office and K.W. agreed to transfer the funds. She signed the applications and contracts including 14 documents, which would transfer the money and invest in the annuity. K.W. did not read everything that she was signing because she couldn't understand all the terminology and trusted and relied upon Storfer. Storfer told K.W. that even after she signed, if she didn't like the product, she could call and everything would get put back to the way it was before. K.W. thought she was purchasing one policy. Respondent sold her two policies numbered 693752 ("the SunTrust transfer" or "the 80K contract") and 693755 ("the AXA transfer" or "the 215K contract"). Both applications indicate each is replacing an AXA policy. K.W.'s SunTrust is not mentioned in the 80K application. The documents attached to the applications K.W. signed without reading also detail that the American Equity Bonus Gold (BG) has a 10 percent bonus; Various "values"; and the minimum guaranteed interest rate is only one percent. The Lifetime Income Benefit Rider (LIBR) document states "a lifetime income that you cannot outlive" is tied to the owner's age. On the BG contract, the income account value (IAV), the second option, was checked at a rate of eight percent rider guaranteed income. The cash surrender penalty listed for the BG contract in the application is 80 percent of the first year premiums.13 The BG application also described a nine percent interest crediting method. Out of the nine options listed, Respondent admitted that he chose the S&P monthly Pt. to Pt. w/Cap & AFR for K.W. The option was not defined in the application, and K.W. had to rely solely on Storfer to define and explain the product. Specific terms and conditions of the annuity such as the penalty free withdrawals14 were defined in the policy contracts, which K.W. never received.15 In the car on the way home from the August 8, 2008, meeting, K.W. looked at the back page of the brochure for American Equity Insurance and read that she could only earn one percent a year with the annuity. This caused her some concern. Subsequently, K.W. called her son-in-law, a director at Merrill Lynch on Wall Street, who agreed to review the documents during K.W.'s upcoming visit to New York. K.W. then called Storfer's office back and left a message not to process the applications. The Wests also attempted to fax Storfer a letter that stated, "I do have to hold off on any changes . . . do no process until I review all papers." On Saturday, August 9, 2008, the Wests met briefly with Storfer in his office16 to request the original paperwork back that had been signed on Friday and stop the process. K.W. instructed Storfer to do nothing until her son-in-law approved it. She and her husband were pleased that Storfer agreed not to process the forms until her son looked at them and said that the investment was good.17 Stofer gave K.W. a yellow manila envelope with copies of the paperwork West had signed and a note. At some point, Storfer processed K.W.'s application for the purchase of the American Equity annuity, contrary to his agreeing not to finalize the purchases until the Wests gave the go-ahead.18 The Wests left for North Carolina to start their vacation on Sunday, August 10, 2008. While on vacation, K.W. opened the manila envelope and discovered that it did not contain the originals of the signed forms she had requested. Additionally, a letter was enclosed dated August 11, 2009,19 on Seniors stationary that stated: Dear Kikuko, Attached is transfer paperwork to transfer the brokerage account from Suntrust to us. We will not sell any investments until you approve them. If you and your son in law have any questions please contact me I will be more then happy to assist. Sincerely, K.W. had her son-in-law review the investment paperwork and requested that he talk to Storfer. After K.W. talked to her son, she decided the investment was not good for her. Ultimately, K.W. learned that her money had been transferred out of the Suntrust account without her permission. She called Storfer's office numerous times to get him to cancel the annuity transactions, but was unable to reach him.20 K.W. was eventually provided Kretzmar's contact information and he instructed her how to reverse the transfer of funds. K.W. had communications with Kretzmar and representatives from American Equity that lead to her funds being refunded. The American Equity annuities were ultimately cancelled. Viewing the evidence as a whole, the undersigned determines that Respondent made false promises not to process K.W.'s annuity applications in connection with the investments and did so contrary to K.W.'s instructions, as well as made false misrepresentations to her regarding the details of the annuity. Doris Jorgensen Ms. Doris Jorgensen ("Jorgensen") was born in New York City on December 20, 1921. She grew up in Connecticut. She married William Jorgensen. While married she owned and operated an antique shop out of her house in Connecticut. She started investing with her husband, William, before he passed in 1999. She and her husband would discuss their investments and decide how to invest together. She has no children and lives alone in Sebastian, Florida. Prior to meeting with Storfer, Jorgensen was the owner of an Integrity Life Insurance Company (Integrity) variable annuity with a contract date of July 28, 2003, and Aviva Life and Annuity Company (Aviva; formerly AmerUs) deferred annuity with a contract date of December 26, 2003. Jorgensen's net worth, before meeting Respondent was approximately a million dollars. Jorgensen attended two luncheon seminars presented by Respondent on April 2, 2007, and on October 23, 2007. She was 86 years old at the time. At the first seminar, Jorgensen filled out a Senior Financial Survival Workshop Evaluation Form, indicating she was a widow, had an estate from $25,000-$200,000, and had concerns in the area of Social Security Tax Reduction, Variable Annuity Rescue, and Equity Index Annuity. When Jorgensen attended the second workshop, she filled out the form identical to the previous one, except she also circled Asset Protection from Nursing Home as a concern. On or about November 5, 2007, Jorgensen met Storfer in his office for the first time. Storfer prepared her client profile and Jorgensen described her risk tolerance as "none" and indicated that she was unwilling to lose any of her life savings through investments. She also informed him that she intended to leave her entire estate to numerous charities and had set up a trust for that purpose. Jorgensen provided Storfer income information at the meeting that indicated that she lived off her monthly social security and pension payments, a total monthly income of $1,800.00, and her expenses were $1,100.00. She also had $120,000 cash and a net worth of $900,000.00. At another meeting, Jorgensen provided Storfer her financial portfolio to review. One meeting Jorgensen had with Storfer was attended by her brother, who did not provide her any advice regarding what to do with her investments. Ultimately, Storfer recommended and sold Jorgensen an Allianz Life Insurance Company Equity Indexed Annuity. Upon his advice, Jorgensen surrendered her $208,015.74 Integrity Life Policy #2100073292 issued on July 28, 2003. The transfer resulted in the initial funding of the Allianz MasterDex,21 which became effective November 16, 2007. Jorgensen told Respondent that she had a problem with monetary loss and Storfer said he could make it up with the Allianz Life. The policy provided that she could start withdrawing the money in five years and then must annuitize the policy and withdraw the money over a 10-year period. The Allianz annuity was delivered on December 12, 2007. The Allianz Life contract, a MasterDex, contract #70610993, included a 10 percent bonus. Respondent placed 100 percent of Jorgensen's funds in the S&P 500 index like the Grubicys. Later, on or about January 16, 2008, Storfer also had Jorgesen authorize an additional transfer of $306,507.21 in funds from her Aviva/AmerUS policy purchased December 1, 2003, to Allianz. The policy was $330,137.95. Surrender charges on the AmerUs annuity would have expired December 1, 2014. On February 4, 2008, the money was sent to Allianz into contract #70610993. Together, Jorgensen's transfers totaled over half-a million dollars and she incurred surrender charges totaling in excess of $29,000. Jorgensen was unable to understand the annuity application and contract language. She trusted Storfer and took him at his word and signed a lot of forms without filling them out or asking questions. Jorgensen testified that she always followed the directions of whoever gave her business advice. Jorgensen also testified in this matter that she was "not certain," "I don't really remember," and "I have no idea whether it was or not" regarding numerous questions relating to the transactions and policy receipts. At some point, Jorgensen attended another investment seminar presented by insurance agent, Ms. Jones ("Jones").22 On February 11, 2008, Allianz gave Jorgensen a receipt for her payment of $306,423.03. Jorgensen contacted Allianz and directed the company to return the transferred funds to Aviva. Jorgensen directed Allianz to "rescind this policy in full." On or about February 14, 2008, Jones also helped Jorgensen with a typewritten letter dated February 15, 2009, from Jones' office to Allianz following up the request. Jorgensen ultimately dealt with Storfer instead of Jones regarding rescission of the Aviva/AmerUs to Allianz transaction. Storfer ultimately placed the funds with Old Mutual/OM Financial annuity ("OM"). An application, transfer/1035 exchange, was executed in Jorgensen's name and other documents relating to the OM annuity on or about March 14, 2008. The policy is signed Doris Jorgensen not "Doris R. Jorgensen." Jorgensen testified she typically signs her name to include the middle initial "R" "Doris R. Jorgensen" on official papers.23 Jorgensen discovered the policy when she received the annuity confirmation letters from OM. Respondent earned a commission of nearly $7,000 on the OM transaction. The policy delivery receipt dated May, 1, 2008, six weeks after the purchase date of the OM policy, also has a signature without a "R" initial and Jorgensen denies the signature is hers. Storfer's signature is not on OM's required policy delivery certification form. The Delivery Receipt for the OM policy is dated May 1, 2008. Jorgensen still has the OM annuity. The undersigned finds that the evidence fails to show that Storfer misrepresented the sale of the two annuities or made false representations regarding the annuities sold to Jorgensen.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED the final order be entered by the Department (1) finding that Mitchell Storfer violated the provisions of Chapter 626, Florida Statutes, described, supra, and (2) revoking his licensure. DONE AND ENTERED this 31st day of December, 2009, in Tallahassee, Leon County, Florida. JUNE C. McKINNEY 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 31st day of December, 2009.
