Findings Of Fact At all times pertinent to the issues herein, the Department of Insurance was the government agency in Florida responsible for the licensing of insurance agents and the regulation of the practice of the insurance profession in this state. Respondent, Alan Chappuis, was licensed in Florida as a life insurance agent, health insurance agent, general lines agent, and a life, health and variable annuity contracts salesman. Erna Swan, an 84 year old twice widowed lady, and the individual to whom Respondent sold the annuity policies in question, was unable, at the time of the hearing, to recall the names of either of her former husbands or when they passed away. She recalls that both husbands worked in insurance and that she has lived in the Pinellas County area for a long time, but cannot recall for how long. Mrs. Swan lives alone and can cook for herself and bathe and dress herself, but does not know how much her current income is or the source of that income. She was able to recognize Respondent as her insurance agent of several years standing, but cannot recall whether she ever purchased anything from him, and she does not know what Guarantee Trust Life Insurance Company is. She does not know what an annuity is or whether she ever wanted to buy one from the Respondent. By the same token, she cannot recall if he ever tried to sell her an annuity. Mrs. Swan has known Nadine Hopkins, a close friend, for about 10 years. She also recognizes Mr. Wells and Mr. Tipton, her attorney and stock broker respectively, but does not know what they do. Mrs. Swan maintains a room in her condominium apartment which she uses for an office where, before she was placed under the guardianship of Ms. Hopkins, she paid her bills and kept her business records, such as they were. She recalls that she had a brokerage account with Merrill Lynch but cannot remember what it was for or what type of securities were in it. She is familiar with Bayridge Baptist Church, of which she is a member, and she recognizes that she has given money to the church over the years. Mrs. Swan's driver's license was cancelled several years ago because, according to Ms. Hopkins, she felt she could not take the test required to renew it. Mrs. Swan does not recall this though she remembers she used to own a car. She cannot remember what kind it was. Mrs. Swan's apartment is paid for. There are no mortgage payments. She claims she still writes checks for her monthly bills by herself, but also notes that Ms. Hopkins does it. More likely it is the latter. She still answers her phone, answers her mail, and reads the newspaper. She is, however, obviously incompetent to testify to the nature of an annuity, and it is quite clear that at this time she would be unable to understand the provisions of an annuity contract and the difference between an annuity contract and an investment portfolio in another product. Mr. Tipton, formerly a stock broker with Merrill Lynch, first met Mrs. Swan in the early 1960's through a family member who worked at the family insurance agency. At that time Mrs. Swan and her husband had purchased the agency from his family, and in the years following the Swans stayed as friends of Mr. Tipton. Mr. Tipton became an investment advisor in 1981 to Mr. Swan who passed away sometime in either 1985 or 1986. He started buying U.S. Government bonds and thereafter moved to tax free investments. When Mr. Swan passed away, Mrs. Swan became the owner of the account. During 1992 and 1993, Mr. Tipton would see Mrs. Swan once or twice a month. At that time, toward the end of 1993, it was clear to him that her memory appeared to be slipping. She would not remember things they had talked about and was unable to participate fully in the decisions made on her investments. At the end of 1993, Mrs. Swan's portfolio with Merrill Lynch was valued at approximately $360,000, plus a money market balance of $18,000. The account statement for October, 1993 reflected she had 5 municipal bonds valued at $80,000, tax free bond funds valued at $273,620, and approximately $18,000 in money market funds. Her estimated annual income from the bonds was approximately $6,631, or approximately $520.00 per month. Her tax free bond funds income returned approximately $1,200 per month, and her Nuveen Fund, approximately $50.00 per month, giving her a grand total of approximately $1,800 per month investment income in addition to her Social Security monthly payment of somewhat in excess of $650. On December 20, 1993, Mr. Tipton, as a representative of Merrill Lynch, received a letter moving Mrs. Swan's account to another brokerage firm, located in Texas, but with a local representative. At that time, Mr. Tipton tried to stop the transfer by contacting his main office, but was advised that by the time he had received the letter, the transfer had been completed. Mr. Tipton wanted to stop the transfer because when he called Mrs. Swan to inquire about it, she indicated to him that she did not want her account moved. Several weeks later, Mrs. Swan called Mr. Tipton to find out where her Merrill Lynch monthly account statement was. She did not recall at that time that her Merrill Lynch account had been closed and the securities therein transferred to the Texas brokerage concern. Because of this call, sometime in early January, 1994, Mr. Tipton called Mr. Wells, Mrs. Swan's attorney, and set up a meeting for the three of them. There were approximately three meetings of the three of them between January and March, 1994. The substance of their discussions was the fact that the broker to whom the Merrill Lynch account had been transferred had liquidated her entire account and used the proceeds thereof to pay for the annuities sold to Mrs. Swan by Mr. Chappuis and his associate, Mr. Mednick. According to Mr. Tipton, up until this time, Mrs. Swan had never indicated any dissatisfaction with the interest and income she was earning on her Merrill Lynch brokerage account. Mr. Tipton absolutely denies there was any churning of her account to garner more commissions. The only transfer was a sale at a premium in February, 1993 of bonds of the Jacksonville Electric Authority to create more capital for investment to provide greater income. The brokerage account owned by Mrs. Swan was not insured against loss of principal though many of the particular funds in which much of the money was invested were, however, individually insured. In 1990, Mrs. Swan's account, which had been in her name individually, was transferred to a trust account of which she was the beneficiary for life, with the provision that at her death, the funds therein would be distributed to various religious organizations and a few friends. Mrs. Swan had no family heirs. No commission was earned by Mr. Tipton on the transfer, though he did receive a commission on both the above-mentioned sale of the Jacksonville Electric bonds and the purchase of a tax free bond fund with the proceeds. Her brokerage account permitted her to write checks on the funds in the money fund. Mr. Tipton claims he never engaged in a transaction regarding Mrs. Swan's account without first talking to her about it. In his opinion, whenever he did make a change she appeared alert and aware enough to participate effectively. The last major transaction was the 1990 bond sale, however. Mrs. Hopkins and Mrs. Swan attend the same church. In late 1993 or early 1994, Respondent's business card was always on Mrs. Swan's refrigerator. At no time did she ever speak disparagingly of him to Mrs. Hopkins, or complain about any insurance product he sold her. Mrs. Hopkins was not Mrs. Swan's guardian at that time and Mrs. Swan was paying her own bills, however not effectively. She was late getting them out and complained it was becoming difficult for her to type out the checks. According to Mrs. Hopking, Mrs. Swan was not extravagant in her spending. She did not take cruises, go to expensive restaurants or buy a lot of clothes. Mrs. Swan, in Ms. Hopkins' opinion, lived comfortably. She was generous in the terms of her charitable contributions. Since being appointed Mrs. Swan's guardian, Mrs. Hopkins had seen her financial records and she knows that Mrs. Swan donated a lot of money to various churches and religious organizations. Mrs. Swan received many requests for donations and indicated that as long as she had the money to give she would do so. In later years, however, as Mrs. Hopkins recalls, it became a physical and mental burden for Mrs. Swan to write the checks, and she frequently commented on this. Mr. Wells is Mrs. Swan's attorney, specializing in estate and trust planning. He met Mrs. Swan through a friend in 1990 and began to serve as her estate planner. In the spring of 1994 Mr. Wells met with Mr. Tipton and Mrs. Swan regarding the Respondent's sale of her security portfolio and the purchase of the two annuities in issue here with the proceeds. At that time Mrs. Swan seemed to have no knowledge of the transaction. As a result, he called Guarantee Trust Life Insurance Company to get some information on what needed to be done in order to bring about a recision of the policies, but before any action was taken, the entire matter was turned over to Mr. Keirnan, another attorney, who does trial work. As a result of Keirnan's efforts, approximately two weeks before the hearing, Mr. Wells, on behalf of Mrs. Swan, received a check in the amount of approximately $372,000 from Guarantee Trust and Life Insurance Company as full reimbursement of the premiums paid for the two annuities in issue. From the time the annuities were issued in December, 1993 and January, 1994, Mrs. Swan had only her Social Security check to live on. She also received a check from Guarantee for $5,000, at her request, at the time the policies were issued as the balance in her brokerage account over the amount required as premiums for the annuities. She received nothing from her annuities which, as set up, did not call for the payment of any monthly income. As a result, Mr. Wells felt it necessary to borrow between $15,000 and $20,000 at 8 percent for Mrs. Swan from other trusts he managed to provide funds for Mrs. Swan to live on. From the documents which Mr. Tipton and Mrs. Swan brought to him in March, 1994, Wells could determine that the two annuities were purchased for her but she, at that time, did not seem to know anything about them. Though the annuities offered several options to permit period withdrawal of principal and interest, none had been selected by Mrs. Swan and as they then existed, she would draw no income from them until she was 100 years of age. When Mr. Tipton and Mrs. Swan came to Mr. Wells' office and brought the paperwork showing she had sold her securities to buy the annuities, Mr. Wells called Respondent to find out what had happened to Mrs. Swan's money. About the same time, he drafted a letter to Respondent at Mrs. Swan's request in which she requested Respondent not contact her any more. This letter was written because Mrs. Swan had said Respondent had "pestered" her at home and upset her on some occasions before the letter was written. Guarantee's manager of Government Relations and Compliance, Mr. Krevitzky, identified the two policies issued to Mrs. Swan. According to Mr. Krevitzky, an annuity is a savings vehicle which holds funds over a period at interest with provision for single or periodic pay out. Interest on both annuities in issue here was guaranteed at a rate of 4.5 percent per year or higher. The first year, the policies earned only the guaranteed 4.5 percent interest, and the income was credited to the policy from January, 1994 until the policies were surrendered as a part of the litigation settlement on March 25, 1995. At that point, since it was considered that the policies were rescinded and therefore void ab initio, the interest earned was forfeited and not paid. Only the premiums paid in were refunded in total. The commission paid to the Respondent and his associate, Mr. Mednick, was paid out of company funds and not Mrs. Swan's funds. The annuity contracts sold by the Respondent to Mrs. Swan had options for five different pay-outs, some of which would have returned income to her during the pendency of the contract. However, none of these was selected by Mrs. Swan and there was no evidence to indicate that Respondent ever explained any of them to her. As they existed as of the date they were cancelled, and at all time up until then, Mrs. Swan would receive no income until the annuity matured at her age 100. This is an unreasonable situation for an individual of Mrs. Swan's age and situation. Mr. Krevitzky contends that the potential pay out options could have provided Mrs. Swan with a substantial income equal to or exceeding the income she was received from her securities portfolio. Most of these options would have included a partial return of principal, however, whereas the income from the prior held portfolio was interest only with her principal remaining intact. One option provided an income for a guaranteed period which, in some circumstances, could have resulted in her receiving more than the amount paid in for the contract. The ultimate fact remains, however, that at the time of sale, and at all times thereafter, notwithstanding the fact that Mr. Chappuis was directed to stay away from Mrs. Swan, he had failed to assist her in the selection of any income option and she was receiving no current income at all from the annuities. In each of the two years prior to the purchase, for 1992 and 1993, she had regular tax free investment income of between $26,000 and $27,000, in addition to the capital gains of approximately $23,000 from the sale of the bonds in 1992. It matters not that she needed little to live on or donated a great portion of her income to charity. This decision was hers to make. By the same token, it matters not that no request for income was made, during the pendency of the annuities, by or on behalf of Mrs. Swan. Annuities have several benefits over other types of investments, according to Mr. Krevitzky. One is the tax deferment provision for interest earned on the annuity. Another is the fact that, subject to local law, the principal of the annuity is not subject to garnishment. A third is the guaranteed return of principal at the end of the annuity which permits older annuitants to provide for their heirs while maintaining income during their lifetimes. Many senior citizens look to the safety of their investment rather than the taxability of the interest. Therefore, in selling annuities to seniors, the agents stress these factors and the no-probate consideration. David W. Johnson has been an independent contractor with Respondent's broker, Professional Systems Associates, since 1989 and is the annuity manager for the firm. Mr. Johnson indicates that there has been an increase in the annuity business with seniors in 1993 - 1994. Funds for the purchase of the annuities usually comes from bank certificates of deposit, but sometimes, like in the instant case, the funds come from a brokerage account. In his experience, seniors choose annuities over certificates of deposit and brokerage accounts. According to Mr. Johnson, if Mrs. Swan had wanted to stop the transfer from her account she could have done so up until the transaction was completed, even after the securities had been liquidated and the funds sent to Guarantee. This is so, he claims even though Mrs. Swan gave authority to make the transfer in the documentation accompanying her application for the annuities. Mr. Johnson indicated it takes about two weeks after the receipt of the premium before Guarantee issues the annuity contract and at any time before issue, the transaction could be cancelled and the money returned. Even after issue, there is a "free look" period during which the contract may be cancelled without penalty. Though the contract may be cancelled and the premium returned, the former securities are still liquidated and the brokerage account closed. According to Mr. Johnson, there was nothing in the paperwork regarding these annuities which he saw which would raise any flag for consideration. He did not feel it necessary to call Mrs. Swan to see if she really wanted the policy and he never received a call from her or anybody else regarding it. Mr. Chappuis' partner in this sale was Scott Mednick who has been a licensed insurance agent since 1984 and who is an independent contractor with the same agency. Mr. Mednick was solicited to accompany Mr. Chappuis to Mrs. Swan's home in December, 1994 because of his expertise in the annuity field. Respondent had described Mrs. Swan to him as a long time customer. Respondent claimed that Mrs. Swan had indicated she was concerned about her brokerage account and he wanted to show her some product, annuities, she might be interested in. Mr. Mednick has known Respondent for eleven years and knows him to be a top producer. Respondent's reputation is that he is cheap and close with the dollar. Nonetheless, Mr. Mednick claims he was not surprised that Respondent was willing to share the commission on this sale in order to be sure the client got the proper product. Mrs. Swan let Mr. Mednick examine her monthly statement from Merrill Lynch. It appeared to Mr. Mednick that the account had not grown over the years. This is not surprising in that the portfolio was made up solely of tax free bond funds, tax free municipal bonds and tax free money marts, the volatility of and fluctuation in price of which is minimal. Mr. Mednick cannot now recall if Mrs. Swan indicated she knew about her stocks. However, he relates that he and the Respondent suggested she look into annuities as an alternative which Respondent explained to her. In addition, he claims they provided her with a lot of written material. Based on Mrs. Swan's action, words and attitudes expressed, Mr. Mednick believed she completely understood what was explained to her and wanted to make the change. It was his belief she seemed to understand she would pay no commission on the purchase; that she would have a guaranteed income that she could not outlive; that the annuity avoided the volatility of the stock market; and it was not attachable by creditors. As structured and sold to Mrs. Swan, however, she was to get no income at all from this product until she reached the age of 100/. Mr. Mednick asserts that at no time did he feel that Respondent had less than the best interests of Mrs. Swan at heart and he can recall no time when Respondent lied to Mrs. Swan. All representations made by either Respondent or Mednick allegedly came from the brochures left with her. Mednick indicates that during their conversation, Mrs. Swan did not seem concerned about getting her principal out of the investment. She was most concerned about her desire to leave the principal to the church. Mednick claims that at the time of the sale, the two agents asked Mrs. Swan if she wanted her interest paid quarterly but she said to let it accrue. This representation, in light of the other evidence, is not credible. Taken together, Mednick's testimony does nothing to detract from Respondent's sale of this product, inappropriate as it was for this client, to Mrs. Swan. Mr. Mednick's credentials are somewhat suspect, and his credibility poor, however. By his own admission, he has been administratively fined by the Department on two occasions based on allegations of misconduct. He denies any misconduct, however, claiming he accepted punishment only as an alternative to a prolonged contest of the allegations. The allegations herein were referred to an investigator of the Department to look into. As is the custom of the Department, he did not interview the Respondent but merely sought to gather facts concerning each allegation to be sent to the Department offices in Tallahassee where the analysis and determination of misconduct is made. By the same token, he did not call or speak with Mrs. Swan, Mr. Mednick, or anyone at Professional Systems. He spoke with Mr. Tipton, Mr. Wells, Mrs. Hopkins and with Mr. Keirnan a couple of times.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is, therefore: RECOMMENDED that the insurance licenses and the eligibility for licensure of the Respondent herein, Alan Chappuis, be suspended for nine months. RECOMMENDED this 22nd day of August, 1995, in Tallahassee, Florida. ARNOLD H. POLLOCK, 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 22nd day of August, 1995. APPENDIX TO RECOMMENDED ORDER The following constitutes my specific rulings pursuant to Section 120.59(2), Florida Statutes, on all of the Proposed Findings of Fact submitted by the parties to this case. FOR THE PETITIONER: 1. - 21. Accepted and incorporated herein. 22. & 23. Accepted and incorporated herein. 24. - 27 Accepted and incorporated herein. FOR THE RESPONDENT: Respondent's post hearing submittal was entitled "Respondent's Final Argument." However, because it makes specific Findings of Fact, the submittal will be treated as though it were Proposed Findings of Fact which will be ruled upon herein. First sentence accepted. Balance rejected as contra to the weight of the evidence. & 3. Accepted that Mr. Krevitzky testified and that there was nothing in the contract which would cause Respondent to misrepresent. The product may well be a worthy product for someone in a different financial position than Ms. Swan, and the issue is whether Respondent fully explained the implications and ramifications of the contracts to her. Rejected as a misconception of the nature of the witness' testimony. Rejected as contra to the weight of the evidence. First sentence accepted. Second sentence rejected. Irrelevant. Accepted as a summary of the witness' testimony. First and second sentences accepted. Balance rejected as an unwarranted conclusion drawn from the evidence. Accepted but irrelevant. COPIES FURNISHED: James A. Bossart, Esquire Department of Insurance 612 Larson Building Tallahassee, Florida 32399-0300 Alan Chappuis, Pro se P. O. Box 86126 Madiera Beach, Florida 33738 The Honorable Bill Nelson State Treasurer and Insurance Commissioner The Capitol, Plaza Level Tallahassee, Florida 32399-0300 Dan Sumner Acting General Counsel Department of Insurance The Capitol, PL-11 Tallahassee, Florida 32399-0300
The Issue The issue presented for decision herein is which of several claimants to payments from the Mortgage Brokerage Guaranty Fund are now entitled to payment and, if any, the amount of the payments due from the fund. A related issue concerns the priority of claims and/or whether certain claimants have waived or abandoned their claims.
Findings Of Fact Based upon my observation of the witnesses and their demeanor while testifying, stipulations of the parties, documentary evidence received and the entire record compiled herein, I make the following relevant factual findings. One of the provisions of the Mortgage Brokerage Act, Chapter 494, Florida Statutes, provides that the Department of Banking and Finance (Department) is charged with the responsibility and duty of administering the Fund, which includes the duty to approve or deny applications for payment from the fund as set forth in Section 494.042(2), Florida Statutes. The "fund" was created in 1977 to provide recovery for any person who meets all of the conditions prescribed in section 494.043, Florida Statutes. The Department is obliged to disburse from the fund pursuant to section 494.044, Florida Statutes. Section 494.042, Florida Statutes (Supp. 1986) provides: (1)(a) Effective September 1, 1977, the Treasurer shall establish a Mortgage Brokerage. Guaranty Fund. A fee of $50 shall be added to the fee for both application and renewal of a mortgage brokerage business registration, and a fee of $10 shall be added to the fee for both application and renewal of mortgage broker licenses. This fee shall be in addition to the regular application or renewal fee and shall be transferred to or deposited in the Mortgage Brokerage Guaranty Fund. From October 1, 1985, until the balance in the fund first reaches the sum of $1.5 million, the fees provided for in paragraph (a) shall apply only to an applicant who has not previously been issued a license or registration under this chapter. If the fund at any time exceeds $1.5 million, collection of special fees for this fund shall be discontinued, and such special fees shall not be reimposed unless the fund is reduced below $500,000 by disbursement made in accordance with s. 494.044. (2) The Mortgage Brokerage Guaranty Fund shall be disbursed as provided in s. 494.044, upon approval by the division, to any party to a mortgage financing transaction who is adjudged by a Florida court of competent jurisdiction to have suffered monetary damages as a result of any violation of this chapter committed by a licensee or registrant. Section 494.043, Florida Statutes (Supp. 1986) provides: Any person who was a party to a mortgage financing transaction shall be eligible to seek recovery from the Mortgage Brokerage Guaranty Fund if: The person has recorded a final judgment issued by a Florida court of competent jurisdiction in any action wherein the cause of action was based on s. 494.042(2); The persona has caused to be issued a writ of execution upon such judgment and the officer executing the same has made a return showing that no personal or real property of the judgment debtor liable to be levied upon in satisfaction of the judgment can be found or that the amount realized on the sale of the judgment debtor's property pursuant to such execution was insufficient to satisfy the judgment; The person has made all reasonable searches and inquiries to ascertain whether the judgment debtor possesses real or personal property or other assets subject to being sold or applied in satisfaction of the judgment, and by his search he has discovered no property or assets or he has discovered property and assets and has taken all necessary action and proceedings for the application thereof to the judgment, but the amount thereby realized was insufficient to satisfy the judgment; The person has applied any amounts recovered from the judgment debtor, or from any other source, to the damages awarded by the court. The person, at the time the action was instituted, gave notice and provided a copy of the complaint to the division by certified mail; however, the requirement of a timely giving of notice may be waived by the department upon a showing of good cause; and The act for which recovery is sought occurred on or after September 1, 1977. Recovery of the increased benefits allowable pursuant to the amendments to S. 494.044 which are effective October 1, 1985, shall be based on a cause of action which arose on or after that date. The requirements of paragraphs (1)(a), (b), (c), and (e) are not applicable if the licensee or registrant upon which the claim is sought has filed for bankruptcy or has been adjudicated bankrupt; however, in such event the claimant shall file a proof of claim in the bankruptcy proceedings and shall notify the department by certified mail of the claim by enclosing a copy of the proof of claim and all supporting documents. Section 494.044, Florida Statutes, (Supp. 1986) provides: (1) Any person who meets all of the conditions prescribed in s. 494.043 may apply to the department for payment to be made to such person from the Mortgage Brokerage Guaranty Fund in the amount equal to the unsatisfied portion of that person's judgment or judgments or $20,000, whichever is less, but only to the extent and amount reflected in the judgment as being actual or compensatory damages. As to claims against any one licensee or registrant, payments shall be made to all persons meeting the requirements of s. 494.043 upon the expiration of 2 years from the date the first complete and valid notice is received by the department. Persons who give notice after 2 years from the date the first complete and valid notice is received and who otherwise comply with the conditions precedent to recovery may recover from any remaining portion of the $100,000 aggregate, in an amount equal to the unsatisfied portion of that person's judgment or $20,000, whichever is less, but only to the extent and amount reflected in the judgment as being actual or compensatory damages, with claims being paid in the order notice is received until the $100,000 aggregate has been fully disbursed. * * * (3) Payments for claims shall be limited in the aggregate to $100,000, regardless of the number of claimants involved, against any one mortgage broker or registrant. If the total claims exceed the aggregate limit of $100,000, the department shall prorate the payment based on the ratio that the person's claim bears to the total claims filed. Licensees Apt and Caldwell have filed for bankruptcy. Accordingly, claimants whose claims were unperfected as of September 1, 1986 are not required to satisfy the requirements of section 494.043(1), Florida Statutes (Supp. 1986). However, pursuant to subsection 494.043(2)(Supp. 1986), claimants must provide the Department a proof of claim by certified mail. All claimants proceeding against licensees Schleusener, Sprague, Wright and Backhoff are required to satisfy section 494.043(1) as there is no showing that they have filed for bankruptcy. At all times material hereto, Petitioners, Apt Mortgage Corporation, Lee Caldwell, Beverly Backhoff, Wilma Sprague and Harry Wright were licensed Mortgage Brokers under Chapter 494, Florida Statutes, having been issued licenses by the Department. On March 30, 1987, the Department received a letter dated March 27, 1987 from attorney John C. Rayson, Esquire on behalf of the Zinni Claim against Lee Caldwell with the attached proof of claim. Thereafter on March 31, 1987, the Department's counsel, in conversation with attorney Rayson's secretary, was advised that the proof of claim letter mailed to the Department respecting the Zinni's was sent by certified mail but that the returned receipt part had fallen from the letter. An examination of the envelope submitted reveals that the letter was, in fact, sent by certified mail and contained the proper proof of claim. Additionally, by certified letter dated March 31, 1987, the Department received on April 2, 1987, a second letter from John C. Rayson on behalf of the Zinni's, against Caldwell with the attached "proof of claim". On March 30, 1987, the Department received by certified mail from Stephen F. Kessler, Esquire, on behalf of the Campbell and Ferdinand Claims: Schlaugat Claim. On October 14, 1986, the Department received by certified mail an Amended Complaint against Apt in Case No. 86 15853CB, which was filed on August 29, 1986. On March 23, 1987, the Department received by certified mail a recorded Final Declaratory Judgment in Case No. 86-15853CB against Apt in the principal amount of $50,000 plus 18 percent interest from January 18, 1984. On March 16, 1987, the Department received an Amended Complaint against Backhoff in Case No. 86-15856CH. On March 16, 1987, the Department received an Amended Complaint against Schleusener, Caldwell, Wright and Sprague in Case No. 86-11072CY. Hebl Claim. On October 14, 1986, the Department received by certified mail an Amended Complaint against Apt in Case No. 86-15853 CB, which was filed on August 29, 1986. On March 23, 1987, the Department received, by certified mail, a recorded Final Judgment in Case No. 86-15853 CB against Apt in the principal amount of $10,000 plus interest at 18 percent from December 29, 1983. Holdheim Claim. By certified mail dated March 27, 1987, the Department received a letter on April 3, 1987 from Attorney Arthur N. Wolff, on behalf of Evelyn M. Holdheim with the attached documents: Proof of Claim by Evelyn M. Holdheim against Doretha Lee Caldwell, Balloon Mortgage Note dated April 11, 1983, Complaint in Foreclosure in the 17th Judicial Circuit, Case No. 84- 7037CV by Evelyn M. Holdheim against Ernest Schleusener and Doretha Lee Caldwell, Mortgage Deed dated April 11, 1983, Proof of Claim; acceptance or rejection of claim by Evelyn M. Holdheim against Doretha Lee Caldwell, Letter dated March 31, 1987, by attorney Arthur N. Wolff to Clerk of U.S. Bankruptcy Court, Proposed Order and Motion. On October 15, 1986, the Department received a recorded Final Judgment against Schleusener, Case No. 84-7037 CV, which has been assigned to the Department. On April 27, 1987, the Department received a Withdrawal of Motion regarding Caldwell in the Bankruptcy Court wherein it is represented that it would be a useless effort to proceed against Caldwell in Case No. 84-7037 CV. See Exhibit A. Fuhrman and LaCotche Certified mail notice that an action will be instituted against Apt received by the Department on May 4, 1984. Complaint against Apt, Case No. 84-15882, was received by the Department on October 3, 1985. Complaint filed July 12, 1984. On October 15, 1987, the Fuhrman and LaCotche claims were dismissed from circuit court for lack of prosecution. Campbell Claim. On March 30, 1987, the Department received by certified mail: Proof of Claim by L. D. Mervyn Campbell against Doretha Lee Caldwell. Partial Final Judgment in the Circuit Court of the 17th Judicial Circuit against Doretha Lee Caldwell entered on August 4, 1986, Proof of Claim by Cecil Ferdinand against Doretha Lee Caldwell, Partial Final Judgment in the Circuit Court of the 17th Judicial Circuit against Doretha Lee Caldwell was entered on August 4, 1986, Proof of Claim by L. D. Mervyn Campbell against Apt, Proof of claim by Cecil Ferdinand against Apt. A Proof of Claim regarding Caldwell in the federal bankruptcy court, Case No. 85-01060, and a Partial Final Judgment against Caldwell in Case No. 86- 11362 DF, and A Proof of Claim against Apt in the federal bankruptcy court, Case No. 84-01247. Ferdinand Claim. On March 30, 1987, the Department received by certified mail: A Proof of Claim regarding Caldwell in the federal bankruptcy court, Case No. 85-01060, and a partial Final Judgment against Caldwell in Case No. 84- 11149 Co, and 39 . A Proof of Claim against Apt in the federal bankruptcy court, Case No. 84-01247. Stuart, Kutik and Marques Claim No significant documentation has been filed with the Department. Paine Complaint against Schleusener, Caldwell, Wright, Backhoff and Sprague, Case No. 84-18235 CX, received by the Department on August 29, 1984. Complaint filed August 8, 1984. 1/ Notice by certified mail received by the Department on September 10, 1984. Schiavone et al. Claim Certified mail notice of an action against Apt, Schleusener, Sprague, and Wright received by Department on March 22, 1985. Certified mail notice with complaint against Schleusener, Caldwell, Wright, and Sprague, received by the Department on April 14, 1986. Case No. unknown. Zinni Certified mail notice against Apt, Schleusener, Caldwell, Wright received by the Department on April 8, 1985. Complaint filed on April 18, 1984. Final Summary Judgment, Case No. 84-8669 CG, entered on June 24, 1986, against Caldwell and Wright. Turner Certified mail notice with complaint against Apt, Caldwell, Wright, and Sprague, Case No. 85-28746 CM, received by the Department on January 8, 1986. Complaint filed November 21, 1985. Mitchell Claim No significant documentation has been filed with the Department. Anglada Claim On July 3, 1986, the Department received certified mail notice of an action against Sprague, Case No. 85-6531, which was filed on July 15, 1985. Complaint, Case No. 85-6531, against Sprague and Wright received by Department on August 4, 1986. Judgment against Wright and Sprague entered on July 7, 1986. Certified mail notice of a judgment against Wright received by Department on August 18, 1986. Writ of Executions against Sprague and Wright returned nulla bona on September 3, 1986. Interrogatories served on August 1986, have not been answered and Certificate of Non-Attendance at Depositions of Sprague and Wright dated September 2, 1986. Judgment recorded October 9, 1986. Proof of Claim against Debtor Apt, Case No. 84-01247, dated September 9, 1984, in the Bankruptcy Court received by the Department on August 18, 1986, by regular mail. Smith Proof of Claim against Debtor Apt, Case No. 84-01247, dated August 28, 1984, in Bankruptcy Court received by the Department on October 6, 1986, by certified mail. Certified mail notice of an action against Caldwell, Wright Sprague, and Apt received by the Department on November 5, 1986. Case No. Unknown. APT/SCHLEUSENER 2/ Date certified Mail Received Claimant(s) Case No., if Known, and Proof of Claim Claim Amount 1. 3/29/84 Schlaugat 86-15853CB against Apt $10,000* 2. 5/4/84 Fuhrman & LaCotche 84-15882 against Apt 10,000 3. 9/10/84 Paine 84-18235CX against Schleusener 10,000 4. 3/22/85 D&R Schiavone Suit against 10,000 Paul, Schleusener 10,000 Miller, 10,000 Barron, 10,000 Margerite 10,000 5. 4/8/85 Zinni 84-8669CG against Schleusener 10,000* 6. 1/8/86 Turner 85-28746CM against Apt 10,000 7 a. b. 8/1/86 8/1/86 Schlaugat Hebl 86-11072CY against Schleusener 86-11072CY against 10,000* 10,000* c. 8/1/86 Schlaugat Schleusener Apt Proof of Claim 10,000* d. 8/1/86 Hebl Apt Proof of Claim 10,000* 8. 10/6/86 Smith Apt Proof of Claim 10,000* 9. 10/14/86 Hebl 86-15853 CB against Apt 10,000* 10. 11/5/86 Smith Against Apt 10,000* 11 a. 3/30/87 Zinni Apt Proof of Claim 10,000* b. 3/30/87 Campbell Apt Proof of Claim 10,000 c. 3/30/87 Ferdinand Apt Proof of Claim 10,000 12. 4/2/87 Zinni Apt Proof of Claim 10,000* CALDWELL Case No., if Date Certified Mail Received Claimant(s) Known, and Proof of Claim Claim Amount 1. 5/22/84 Campbell 84-11362DF $10,000* 2. 5/24/84 Ferdinand 84-11149 10,000* 3. 9/10/84 Paine 84-18235CX 10,000 4. 4/8/85 Zinni 84-8669CG 10,000 5. 1/8/86 Turner 85-2876CM 10,000 6. 4/14/86 D&R Schiavone unknown 10,000 Paul, unknown 10,000 Miller, unknown 10,000 Barron, & unknown 10,000 Margerite unknown 10,000 7 a. 8/1/86 b. 8/1/86 Schlaugat Hebl 86-11072CY and Proof of 86-11072CY Claim 10,000 10,000 and Proof of Claim 8. 11/5/1986 Smith Case No. unknown 10,000 9 a. 3/30/87 Campbell Proof of Claim 10,000* b. 3/30/87 Ferdinand Proof of Claim 10,000* SPRAGUE Date Certified Mail Received Claimant(s) Case NO. Claim Amount 1. 9/10/84 Paine 84-18235CX $10,000 2. 3/22/85 D&R Schiavone, unknown 10,000 Paul, unknown 10,000 Miller, unknown 10,000 Barron, unknown 10,000 & Margerite unknown 10,000 3. 1/8/86 Turner 85-28746CM 10,000 4. 7/3/86 Anglada 85-6531 10,000 5 a. 8/1/86 Schlaugat 86-11072CY 10,000 b. 8/1/86 Hebl 86-11072CY 10,000 6. 11/5/86 Smith unknown 10,000 D. BACKHOFF Date Certified Mail Received Claimant(s) Case No. Claim Amount 1. 9/10/84 Paine 84-18235CX $10,000 2. 7/22/86 Schlauqat 86-15856CH 10,000 3 a. 9/8/86 Campbell 86-10964CK 10,000 b. 9/8/86 Ferdinand 86-10964CK 10,000 E. WRIGHT Date Certified Mail Received Claimant(s) Case No. Claim Amount 1. 9/10/87 Paine 84-18235CX $10,000 2. 3/22/85 D&R Schiavone, unknown 10,000 Paul, unknown 10,000 Miller, unknown 10,000 Barron, & unknown 10,000 Margerite unknown 10,000 3. 4/8/85 Zinni 84-8669CG 10,000 4. 1/8/86 Turner 85-28746CM 10,000 5 a. 8/1/86 Schlaugat 86-11072CY 10,000 b. 8/1/86 Hebl 86-11072CY 10,000 6. 8/4/86 Anglada 86-6531 10,000 7. 11/5/86 Smith unknown 10,000 III STATUS OF CLAIMS NOT PERFECTED WITHIN TWO-YEAR PERIOD APT/SCHLEUSENER Claimant(s) Provisions Satisfied Provisions Not satisfied 1. Schlaugat s. 494.042(2), 494.043(1)(f) 494.043(2) (Supp. 1986) & s. 494.044(2) 2. Furhman & LaCotche 494.043(1)(f) 494.042(2), (Supp. 1986) 494.043(2), & 494.044(2) (Supp. 1986) 3. Paine 494.043(1)(e) & (f)(Supp. 1986) 494.043(1)(a)-(d) & 494.044(2) (Supp. 1986) 4. D&R Schiavone, Paul, Miller, 494.043(1)(e) & 494.043(1)(a)-(d) Barron, & Margerite (f)(Supp. 1986) & 494.044(2) (Supp. 1986) 5. Zinni 494.043(1)(e) (Sup. 1986) & (f) 494.043(1)(a)-(d) & 494.044(2) (Supp. 1986) 6. Turner 494.043(1)(f) (Supp. 1986) 494.042(2), 494.043(2), & 494.044(2) (Supp. 1986) 7 a. b. Schlaugat Hebl 494.043(1)(e) (Supp. 1986) 494.043(1)(e) & & (f) (f) 494.043(1)(a)-(d) & 494.044(2) (Supp. 1986) 494.043(1)(a)-(d) c. Schlaugat (Supp. 1986) See paragraph 1 & 494.044(2) (Supp. 1986) d. Hebl 494.043(1)(f) (Supp. 1986) & (2) 494.042(2) & 494.044(2) (Supp. 1986) 8. Smith 494.043(1)(f) (Supp. 1986) & (2) 494.042(2) & 494.044(2) (Supp. 1986) 9. Hebl 494.042(2) & 494.043(1)(f) & (2) 494.044(2) (Supp. 1986) (Supp. 1986) 10. Smith 494.043(1)(f) (Supp. 1986) & (2) 494.042(2) & 494.044(2) (Supp. 1986) 11 a. b. c. Zinni Campbell Ferdinand 494.043 (1)(f) & (2) (Supp. 1986) 494.043(1)(f) & (2) (Supp. 1986) 494.043(1)(f) & (2) (Supp. 1986) 494.042(2) & 494.044(2) (Supp. 1986) 494.042(2) & 494.044(2) (Supp. 1986) 494.042(2) & 494.044(2) (Supp. 1986) Zinni See paragraph 11a CALDWELL Claimant(s) Provisions Satisfied Provisions Not Satisfied 1. Campbell s. 494.042(2) & 494.043 (1)(f) & (2) - (Supp. 1986) s. 494.044(2) (Supp. 1986) 2. Ferdinand 494.042(2) & 494.043 (1)(f) & (2)(Supp. 1986) 494.044(2) (Supp. 1986) 3. Paine 494.043(1)(f)(Supp. 1986) 494.042(2), 494.043(2), & 494.044(2) (Supp. 1986) 4. Zinni 494.042(2) & 494.043(1)(f) (Supp. 1986) 494.043(2) & 494.044(2) (Supp. 1986) 5. Turner 494.043(1)(f) (Supp. 1986) 494.042(2), 494.043(2), & 494.044(2) (Sup. 1986) 6. D&R Schiavone, 494.043(1)(f) Paul, Miller, (Supp. 1986) Barron, & Margerite 494.042(2), 494.043(2) & 494.044(2) (Supp. 1986) 7 a. b. Schlaugat Hebl 494.043(1)(f) (Supp. 1986) 494.043(1)(f) & & (2) (2) 494.042(2) & 494.044(2) (Supp. 1986) 494.042(2) & c. Schlaugat (Supp. 1986) 494.043(1)(f) & (2) 494.044(2) (Supp. 1986) 494.042(2) & (Supp. 1986) 494.044(2) (Supp. 1986) d. Hebl 494.043 (1)(f) (Supp. 1986) & (2) 494.042(2) & 494.044 (2) (Supp. 1986) 8. Smith 494.043(1)(f) (Supp. 1986) 494.042(2), 494.043(2) & 494.044(2) (Supp. 1986) SPRAGUE Claimant(s) Provisions Satisfied Provisions Not Satisfied 1. Paine s. 494.043(1)(e) (Supp. 1986) & (f) 494.043(1)(a)-(d) & 494.044(2) (Supp. 1986) 2. D&R Schiavone, Paul, Miller, Barron, & Margerite 494.043(1)(e) (Supp. 1986) & (f) 494.043(1)(a)-(d) & 494.044(2) (Supp. 1986) 3. Turner 494.043(1)(e) (Supp. 1986) & (f) 494.043(1)(a)-(d) & 494.044(2) (Supp. 1986) 4. Anglada 494.043(1) (Supp. 1986) 494.044(2) (Supp. 1986) 5 a. Schlaugat 494.043(1)(e) (Supp. 1986) & (f) 494.043(1)(a)-(d) & 494.044(2) (Supp. 1986) b. Hebl 494.043 (1)(e) & (f) (Supp. 1986) 494.043(1)(a)-(d) & 494.044(2) (Supp. 1986) 6. Smith 494.043(1)(e) & (f) 494.043(1)(a)-(d) (Supp. 1986) & 494.044(2) (Supp. 1986) BACKHOFF Provisions Provisions Claimant(s) Satisfied Not Satisfied 1. Paine s. 494.043(1)(e) & (f) s. 494.043(1)(a)-(d) (Supp. 1986) & 494.044(2) (Supp. 1986) 2. Schlaugat 494.043(1)(e) & (f) 494.043(1)(a)-(d) (Supp. 1986) & 494.044(2) (Supp. 1986) 3 a. Campbell 494.043(1)(e) & (f) 494.043(1)(a)-(d) (Supp. 1986) & 494.044(2) (Supp. 1986) b. Ferdinand 494.043(1)(e) & (f) 494.043(1)(a)-(d) (Supp. 1986) & 494.044(2) (Supp. 1986) WRIGHT Provisions Provisions Claimant(s) Satisfied Not Satisfied 1. Paine s. 494.043(1)(e) & (f) s. 494.043(1)(a)-(d) (Supp. 1986) & 494.044(2) (Supp. 1986) 2. D&R Schiavone, 494.043(1)(e) & (f) 494.043(1)(a)-(d) Paul, Miller, (Supp. 1986) & 494.044(2) Barron, & (Supp. 1986) Margerite 3. Zinni 494.043(1)(a), (e) & 494.043(1)(b), (c) (f)(Supp. 1986) & (d) & 494.044 (2)(Supp. 1986) 4. Turner 494.0431)(e) & (f) 494.043(1)(a)-(d) (Supp. 1986) & 494.044(2)(Supp. 1986) 5 a. Schlaugat 494.043(1)(e) & (f) 494.043(1)(a)-(d) (Supp. 1986) & 494.044(2)(Supp. 1986) b. Hebl 494.043(1)(e) & (f) 494.043(1)(a)-(d) (Supp. 1986) & 494.044(2)(Supp. 1986) 6. Anglada 494.043(1)(Supp. 494.044(2) 1986) (Supp. 1986) 7. Smith 494.043(1)(e) & (f) 494.043(1)(a)-(d) (Supp. 1986) & 494.044(2)(Supp. 1986) *Although some claimants have filed more than one notice by certified mail, pursuant to Fla. Stat. Section 494.044(1), each claimant is only entitled to $10,000 per licensee.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED: That the Department of Banking and Finance, Office of Comptroller, enter a Final Order determining that claimants Holdheim, Schlaugat, Hebl, Campbell, Ferdinand, Anglada perfected their claims against the licensees as noted herein. Such claimants are entitled to recover from the fund the statutory limit in effect at the time of $10,000 per licensee since the cause of action for each claimant commenced before October 1, 1985. As to all remaining claimants whose claims were not perfected within the two (2) year period but have since completed all prerequisites for recovery from the fund, it is recommended that the Department evaluate such claims at this time and take appropriate action. 3/ DONE and RECOMMENDED this 14th day of December, 1987, in Tallahassee, Florida. JAMES E. BRADWELL Hearing Officer Division of Administrative Hearings The Oakland Building 2009 Apalachee Parkway Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 14th day of December, 1987.
Findings Of Fact Petitioner is the administrative agency charged with responsibility for administering and enforcing the provisions of Chapter 626, Florida Statutes. At all times material to this proceeding, Respondent has been licensed and eligible for appointment in Florida as a life and variable annuities agent, a life, health, and variable annuities agent, and a general lines agent. The City of Port St. Lucie (the "City") has had a City-funded pension plan in effect for its employees since October 1, 1977 (the "plan"). The City funds the plan with a contribution of 10.5 percent of the gross income of each employee who is enrolled in the plan (the "participant"). The monthly contributions by the City are sent directly to The Prudential Insurance Company ("Prudential"). The plan is participant directed. It allows each participant to direct the investment of his or her share of the City's contribution into either an investment account or a split investment account. If a participant elects an investment account, all of the City's contributions for that participant are used to purchase an annuity contract. If a participant elects the split investment account, a portion of the City's contribution for that participant is invested in an annuity contract and a portion is invested in whole life insurance issued by Prudential. Each whole life policy builds a cash value and provides benefits not available in the annuity contract, including disability benefits. Each participant is completely vested in the plan after he or she has been enrolled in the plan for five years. Prudential issues annuity contracts and insurance policies on participants and provides plan services to the administrator and trustees of the plan. 1/ The City is the owner of both the annuity contracts and the insurance policies. Both the annuity contracts and insurance policies are maintained in the City offices of the plan administrator. Participants do not receive copies of either annuity or insurance contracts and do not receive certificates of insurance. Beginning in 1984, each participant has received monthly Confirmation Statements in their paycheck envelopes. The Confirmation Statements are prepared by Prudential and disclose the net investment activity for the annuity contract. From the inception of the plan, each participant has received an annual Employee Benefit Statement which is prepared by Prudential and discloses the amount of the employer contributions that were allocated to the annuity contract and the amount that was allocated to insurance. Participants are eligible to enroll in the pension plan after six months of service. Biannual enrollment dates are scheduled in April and October each year. Prior to each biannual enrollment date, the City conducts an orientation meeting to explain the pension plan to prospective participants. The City sends a notice to each eligible employee in his or her payroll envelope. The notice informs the employee of his eligibility and the date and time of the orientation meeting. At the City-run orientation meeting, eligible employees are told that the pension plan is a participant directed plan in which each of them must elect either a straight annuity investment or a split investment involving an annuity and life insurance. Thirty to forty percent of the prospective participants do not attend the City-run orientation meeting. Subsequent to the orientation meeting, Respondent meets individually with each eligible employee in a room located on the premises of the City. The enrollment sessions are scheduled by the City so that Respondent has approximately 30 minutes to meet individually with each prospective participant. During that 30 minutes, Respondent provides each eligible employee who enrolled in 1987 and thereafter with a copy of the Summary Plan Description. 2/ Respondent explains the investment options, answers questions, asks the participants for the information contained in the applications and has the participants sign the appropriate applications. 3/ Each participant elects his or her investment option during the 30 minute enrollment session with Respondent. 4/ There is no separate written form evidencing the participant's election. The only written evidence of the election made by the participant is the application for annuity contract and, if the participant elects the split investment option, the application for insurance. If a participant elects the straight annuity investment option, Respondent completes and has the participant sign only one application. That application is for an annuity contract. If the split investment option is elected, Respondent completes and has the participant sign a second application. The second application is for life insurance. An application for an annuity contract is completed by Respondent and signed by the participant regardless of the investment option elected by the individual participant. 5/ An application for an annuity contract is clearly and unambiguously labeled as such. The top center of the application contains the following caption in bold print: Application For An Annuity Contract [] Prudential's Variable Investment Plan Series or [] Prudential's Fixed Interest Plan Series The participant must determine as a threshold matter whether he or she wishes to apply for a variable investment or fixedinterest annuity contract. Respondent then checks the appropriate box. The front page of the application for annuity contract contains an unnumbered box on the face of the application that requires a participant who applies for a variable investment annuity contract to select among seven investment alternatives. The unnumbered box is labeled in bold, capital letters "Investment Selection." The instructions to the box provide: Complete only if you are applying for a variable annuity contract of Prudential's Variable Investment Plan Series Select one or more: (All % allocations must be expressed in whole numbers) [] Bond [] Money Market [] Common Stock [] Aggressively Managed Flexible [] Conservatively Managed Flexible [] Fixed Account [] Other TOTAL INVESTED 100 % The application for annuity contract is two pages long. Question 1a is entitled "Proposed Annuitant's name (Please Print)." Question 4 is entitled "Proposed Annuitant's home address." Question 10, in bold, capital letters, is entitled "Annuity Commencement Date," and then states "Annuity Contract to begin on the first day of." There is an unnumbered box on the application relating to tax deferred annuities. Question 12 asks, "Will the annuity applied for replace or change any existing annuity or life insurance?" (emphasis added) The caption above the signature line for the participant is entitled "Signature of Proposed Annuitant." An application for insurance is also completed by Respondent and signed by the participant if the split investment option is elected. The application for insurance is clearly and unambiguously labeled as such. The upper right corner of the application for insurance contains the following caption in bold print: Part 1 Application for Life Insurance Pension Series to [] The Prudential Insurance Company of America [] Pruco Life Insurance Company A Subsidiary of The Prudential Insurance Company of America The term "proposed insured" also appears in bold print in the instructions at the top of the application for insurance. The application for insurance is approximately five pages long. 6/ It contains questions concerning the participant's treating physician, medical condition, driving record, and hazardous sports and job activities. 7/ Question 1a is entitled "Proposed Insured's name - first, initial, last (Print)." Question 7 asks for the kind of policy for which the participant is applying. Question 9 asks if the waiver of premium benefit is desired. Question 12 asks, "Will this insurance replace or change any existing insurance or annuity in any company?" (emphasis added) Question 21 asks, "Has the proposed insured smoked cigarettes within the past twelve months?" The caption under the signature line for the participant is entitled "Signature of Proposed Insured," as is the signature line for the Authorization For The Release of Information attached to the application for insurance. Respondent met with each of the participants in this proceeding during the time allowed by the City for the enrollment sessions. Mr. Robert Riccio, Respondent's sales manager, was present at approximately 70 percent of those enrollment sessions. Respondent provided each participant who enrolled in 1987 and thereafter with a copy of the Summary Plan Description. Respondent explained the investment options, and answered any questions the participants had. The name, occupation, and date of the enrollment session of the participants involved in this proceeding are: (a) Edmund Kelleher Police Officer 3-16-88 (b) Raymond Steele Police Officer 9-29-88 (c) Mark Hoffman Police Officer 10-29-86 (d) Joseph D'Agostino Police Officer 3-12-88 (e) Charles Johnson Police Officer 9-24-84 (f) Donna Rhoden Admin. Sec. 3-26-87 (g) John Gojkovich Police Officer 10-2-84 (h) John Skinner Police Officer 9-14-84 (i) John Sickler Planner 3-14-90 (j) James Lydon Bldg. Inspect. 9-13-89 (k) Robert McGhee Police Officer 9-18-84 (l) Richard Wilson Police Officer 3-21-89 (m) Lorraine Prussing Admin. Sec. 9-6-84 (n) Helen Ridsdale Anml. Cntrl. Off. 9-14-84 (o) Sandra Steele Admin. Sec. 4-3-85 (p) Linda Kimsey Computer Op. 3-18-89 (q) Jane Kenney Planner 3-13-85 (r) Alane Johnston Buyer 3-18-89 (s) Paula Laughlin Plans Exam. 3-18-89 Helen Ridsdale Anml. Cntrl. Super. 9-14-84 Jerry Adams Engineer 3-16-88 Cheryl John Records Super. for the Police Dept. 9-14-84 Each participant in this proceeding elected the split investment option during his or her enrollment session with Respondent and signed applications for both an annuity contract and an insurance policy. Each participant signed the application for insurance in his or her capacity as the proposed insured. The City paid 10.5 percent of each participant's salary to Prudential on a monthly basis. The payments were sent to Prudential with a form showing the amount to be invested in annuities and the amount to be used to purchase insurance. Each participant who enrolled in 1987 and thereafter received with his or her paycheck a monthly Confirmation Statement and all participants received an annual Employee Benefit Statement disclosing the value of the investment in annuities and the value of the investment in life insurance. The participants in this proceeding, like all participants, did not receive copies of annuity contracts and insurance policies and did not receive certificates of insurance. The annuity and insurance contracts were delivered to the City, as the owner, and maintained in the offices of the City's finance department. The participants in this proceeding had no actual knowledge that they had applied for insurance during the enrollment session with Respondent. Most of the participants had other insurance and did not need more insurance. Each participant left the enrollment session with Respondent with the impression that they had enrolled in the pension plan and had not applied for insurance. The lack of knowledge or misapprehension suffered by the participants in this proceeding was not caused by any act or omission committed by Respondent. Respondent did not, either personally or through the dissemination of information or advertising: wilfully misrepresent the application for insurance; wilfully deceive the participants with respect to the application for insurance; demonstrate a lack of fitness or trustworthiness; commit fraud or dishonest practices; wilfully fail to comply with any statute, rule, or order; engage in any unfair method of competition or unfair deceptive acts or practices; knowingly make false or fraudulent statements or representations relative to the application for insurance; or misrepresent the terms of the application for insurance. No clear and convincing evidence was presented that Respondent committed any act or omission during the enrollment sessions which caused the participants to believe that they were not applying for insurance. 8/ None of the participants testified that Respondent prevented them or induced them not to read the applications they signed. 9/ All of the participants affirmed their signatures on the application for insurance, but most of the participants did not recognize the application for insurance signed by them. Some participants could not recall having signed the application. The participants could not recall being hurried or harassed by Respondent and could not recall if Respondent refused to answer any of their questions. 10/ None of the participants provided a clear and convincing explanation of how Respondent caused them to sign an application for insurance without their knowledge or described in a clear and convincing fashion the method by which Respondent prevented them or induced them not to read or understand the contents of the documents they were signing. 11/ Eleven of the 22 participants cancelled their insurance policies after "learning" that they had insurance policies. Eight participants cancelled their policies on August 23, 1990. Two cancelled their policies on February 5, 1991, and one cancelled her policy on April 18, 1991. Financial adjustments required by the cancellations have been made and any remaining contributions have been invested in annuity contracts. Since 1983, Respondent has assisted Prudential and the City in the administration of the pension plan, including the enrollment of all participants. Prior to 1990, there was only one incident in which a participant complained of having been issued an insurance policy without knowing that she had applied for an insurance policy. The policy was cancelled and the appropriate refund made. Respondent has a long and successful relationship with the City and has no prior disciplinary history with Petitioner. Respondent is the agent for Prudential. The pension plan was intended by Prudential and the City to provide eligible employees with investment opportunities for annuities and life insurance. Respondent generally makes higher commissions from the sale of insurance than he does from the sale of annuities. 12/ Mr. Riccio receives 14 percent of the commissions earned by Respondent. Respondent encourages all participants to elect the split investment option by purchasing both annuities and insurance. If a participant states that he or she does not want life insurance, Respondent asks them for their reasons and explains the advantages of life insurance. If the participant then rejects life insurance, Respondent enrolls the participant in a straight annuity investment. Such practices do not constitute fraud, deceit, duress, unfair competition, misrepresentations, false statements, or any other act or omission alleged in the one count Administrative Complaint.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner should enter a Final Order finding Respondent not guilty of the allegations in the Administrative Complaint and imposing no fines or penalties. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 14th 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 14th day of January 1992.
The Issue The issue for determination is whether Respondent committed the offenses set forth in the administrative complaint, and if so, what action should be taken.
Findings Of Fact At all times material hereto, Allison Kay Werner (Respondent) was licensed by the Department of Insurance and Treasurer (Petitioner) as a life and variable annuity contracts and life insurance agent. She was issued license number 106486443 in 1989. Prior to being licensed in Florida, in or around 1981 Respondent was a licensed agent in the State of New York. On February 15, 1991, Ms. Estelle Lewis went to the California Federal Bank (Bank), located at 4601 Sheridan Street, Hollywood, Florida, to redeem a $10,000 Certificate of Deposit (CD) which had matured. Ms. Lewis was 81 years old. Also, she was unemployed even though, in her earlier years, she worked. Through the years, Ms. Lewis engaged in short term, two year investments, not long term investments. Nor did she invest in annuities for her belief was that annuities were for young people who are planning towards retirement. Being a senior citizen and unemployed, Ms. Lewis needed her money for income, using the proceeds from her investments as income. She did not want to tie-up her money for long periods of time. Ms. Lewis approached the teller at the Bank to redeem her CD. The teller referred Ms. Lewis to Respondent to discuss re-investing her money. It was not unusual for a teller at the Bank to refer a Bank customer to Respondent. Also, at times, Bank employees assisted with scheduling appointments with Respondent. Respondent's office was located inside the Bank, within a glass enclosure, and could be seen from the teller's location. A sign identified Respondent's office as Kemper-Invest Financial Corporation for which Respondent was a representative. Respondent provided Ms. Lewis with her business card which only identified Respondent as an Invest Financial Corporation (Invest) representative located at the Bank. No where on the business card was Respondent identified as an insurance agent. No where on the business card were the terms "insurance" or "annuity." Furthermore, Respondent did not inform Ms. Lewis that she was an insurance agent. Ms. Lewis trusted the Bank and her trust extended to Respondent even though Ms. Lewis understood that Respondent was a representative of Invest and not employed by the Bank. Because the Bank teller had referred Ms. Lewis to Respondent and because Respondent's office was located within the Bank, Ms. Lewis believed that Respondent had a connection with the Bank. Without this trust, Ms. Lewis would not have engaged in any business with Respondent. Ms. Lewis informed Respondent that she wanted a two year investment. Respondent was not unfamiliar with discussing investments with senior citizens for most of her clients were age 70 and above. Ms. Lewis agreed upon a two year investment at a return of eight percent. Unbeknownst to Ms. Lewis, she had invested in an annuity which would mature in 20 years. The annuity also had an investment time of seven years, which meant that the annuity could be surrendered without a surrender charge in its seventh year. The maximum issuance age for the annuity was 85 which meant that anyone up to age 85 could purchase the annuity. That same day, February 15, 1991, Respondent completed an account application for the investment, which included writing Ms. Lewis' responses to questions on the application which included Ms. Lewis' age and date of birth. Respondent submitted the application to Ms. Lewis for her review. Ms. Lewis skimmed the application only for responses that she felt were important, i.e., her name and social security number. Finding those items correct, she signed the account application. No where on the account application were the terms "life insurance" or an "annuity" mentioned. Invest Financial Corporation and Kemper Fiancial Services were clearly displayed on the application. Also, the investment objective indicated on the application was growth instead of income. An application for an annuity, referred to as the All Savers Plan on the application, was also completed on that same date. However, this application contained the terms life insurance and annuity. Believing that life insurance or an annuity did not apply to her since neither were requested and were not agreed upon, Ms. Lewis signed this second application. Additionally, on February 15, 1991, Ms. Lewis gave Respondent the $10,000 and Respondent provided Ms. Lewis a receipt for the $10,000. The receipt contained a notation that the money was received for "Kemper All Savers." Invest and Kemper Financial Services were displayed on the receipt. No where on the receipt were the terms annuity or life insurance. As with other annuities sold by Respondent, she received a commission for the annuity that she sold Ms. Lewis. Paying commissions to insurance agents for annuities sold is a common practice. Subsequently, Ms. Lewis received an undated letter of thanks from Respondent for obtaining the services of Invest. The letter was on Invest letterhead, with Kemper Financial Services indicated on it. Additionally, on the letter Respondent identified herself as an Invest representative. The letter made no mention of what services Ms. Lewis had obtained or of life insurance or an annuity. Further, Ms. Lewis received two letters dated February 20, 1991 and February 28, 1991 from Kemper. The letters were on "Kemper Investors Life Insurance Company" letterhead and referenced Ms. Lewis' investment as an annuity. Ms. Lewis did not believe that the two letters applied to her since she had not purchased an annuity or life insurance. Consequently, she ignored the letters. Ms. Lewis received a copy of the annuity policy in the mail but did not read it. She filed it away with the rest of her documents associated with the transaction. Ms. Lewis received account summaries regarding her investment. The summaries indicated that they reflected the activity for an annuity called Kemper All Savers Annuity and that they were from the Kemper Investors Life Insurance Company. The summaries showed the performance of her investment. Ms. Lewis ignored the summaries as reflecting activities for an annuity in which she had invested. She continued to believe that she had not invested in an annuity. On or about February 15, 1993, approximately two years after the transaction, Ms. Lewis returned to Respondent's office located in the Bank to redeem her investment. At that time, Ms. Lewis was informed by Respondent that a penalty fee of $525.89 would be assessed for early withdrawal. Respondent advised Ms. Lewis further that she had an annuity which could be cashed-in at no penalty (no surrender charges) after seven years. The meeting on February 15, 1993, was the first time that Ms. Lewis was informed of a penalty by Respondent. Also, the meeting was the first time that Respondent had informed Ms. Lewis that she had purchased an annuity and that the annuity was a seven year investment. Ms. Lewis did not want to wait the additional years to avoid the penalty and insisted on surrendering what she knew now to be an annuity. Subsequently, Ms. Lewis received her $10,000 plus interest less the penalty. Respondent has vast experience in annuities. She has sold annuities since around 1981 when she was employed with Merrill Lynch and Shearson in New York. At all times material hereto, Ms. Lewis had no mental or physical infirmity which interfered with her mental capacity to think and understand. At all times material hereto, Ms. Lewis could read and write. Ms. Lewis has never been offered restitution or a refund of the penalty.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Insurance and Treasurer enter a final order suspending the license of Allison Kay Werner for one-year. DONE AND ENTERED this 1st day of March, 1996, in Tallahassee, Leon County, Florida. ERROL H. POWELL 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 1st day of March, 1996.
The Issue Whether Respondent misrepresented or failed to disclose material terms and conditions pertaining to annuities that he sold to two senior citizens; if so, whether discipline should be imposed on Respondent's license to transact business as a life and health insurance agent.
Findings Of Fact At all times relevant to this proceeding, Breiman has been licensed in Florida as an annuity and insurance agent. The Department is the state agency with the responsibility for licensing and regulating agents, such as Breiman, and for taking disciplinary action for violations of the laws in its charge. This case arises from the sale of three Equitrust annuities, all fixed equity indexed deferred annuities, to Robert and Frances Wexler. Broadly speaking, an annuity is a contractual arrangement pursuant to which an insurance company, in exchange for a premium, agrees to pay the owner a specified income for a period of time. Annuities are generally classified as "fixed" or "variable." Under a fixed annuity, the benefit is paid according to a predetermined interest rate. With a variable annuity, the premium is invested on the owner's behalf, and the amount of the benefit, when paid, reflects the performance of that investment. Fixed annuities can be either "immediate" or "deferred." An immediate fixed annuity is one under which the insurer begins paying the benefit upon purchase of the annuity. Under a deferred annuity, in contrast, the premium is allowed to grow over time, until the contract "matures" or is "annuitized" and the insurer begins paying the benefit. The equity index annuities which Breiman sold to the Wexlers are considered fixed deferred annuities. An equity index annuity is a contract under which the insurer agrees to pay a benefit based on a premium that earns interest at a rate determined by the performance of a designated market index, in this case, the S&P 500. The premium is not invested in the market for the owner's account. Rather, the interest rate rises or falls in relation to the index's performance, within predetermined limits. It is undisputed that the equity index annuities which Breiman sold to the Wexlers were approved for sale to senior investors by the Department at the time these transactions took place. Equity index annuities are typically long-term investments. Owners of such annuities have limited access to the funds invested and accumulating in their accounts, although some equity index annuities, such as the Equitrust annuities sold in this case, permit yearly penalty-free withdrawals at set percentages. The accrued interest is generally not taxed until the funds are withdrawn or the benefit is paid under annuity. Besides taxes, the purchaser may incur substantial surrender penalties for canceling the contract and receiving his funds ahead of a specified date. Some equity index annuities identify a date——often many years in the future——on which the insurer will "annuitize" the contract if it has not done so already at the purchaser's request. This date is sometimes called the "maturity date." The benefit payable under the annuity is determined based on the account's value as of the maturity date, and the payments to the owner of the annuity begin at that time. The Wexlers Robert Wexler was born in Brooklyn, New York, in 1930. He was 75 years old when these transactions with Breiman took place. His wife, Frances Wexler, was born in Bronx, New York, in 1932; she was 74 when the transactions took place. Each finished high school and took some college courses. The Wexlers married after Mr. Wexler joined the Air Force. While in the Air Force, Mr. Wexler studied electronics, which ultimately led to his career in that field in the private sector. He worked for IBM, Univac, and General Electric before he retired in 1994. The Wexlers spent 40 years living in the same home in Pennsylvania, and raised three children. Mrs. Wexler worked for a small family owned printing firm for over 26 years. While living in Pennsylvania, the Wexlers saved money by using Mrs. Wexler's salary to pay their living expenses, and saving most of Mr. Wexler's earnings in a retirement account. They never bought annuities, but did trade stocks, which resulted in financial loss. For many years, the Wexlers visited Florida as "snow birds", and eventually purchased a condominium in a gated community in Deerfield Beach, Florida. Mr. Wexler retired in 1994, Mrs. Wexler retired in 1997, and in 1998, the Wexlers sold their home in Pennsylvania, liquidated the stocks they owned, and bought a bigger condominium in the same Deerfield Beach gated community. They moved permanently to Florida in 1998, with approximately $500,000 in liquid assets. As part of an estate plan prepared by an attorney, the Wexlers met two agents in Florida, Mr. Plonsky and Mr. Wolfe, who sold the Wexlers annuities. In 2002, the Wexlers bought four Allianz Life Insurance Company of North America annuities, totaling approximately $180,000 in premium payments. These payments were made by rolling over their combined IRA funds. The Allianz annuities allowed the Wexlers to withdraw a lifetime amount of up to 15 percent after the first year, without penalty. Withdrawals in excess of the penalty free withdrawals began at a rate of 10 percent and decreased yearly to 0 percent by the 13th year. In 2004, Mr. Wolfe sold the Wexlers a Sun Life Assurance Company of Canada non-qualified single premium annuity for a $35,000 cash payment. Since Mr. Wexler had lost money in the stock market while in Pennsylvania, his purpose for purchasing these annuities, including the ones he eventually purchased through Breiman, was to avoid the loss of any principal, and have the ability to withdraw money if needed. The Breiman Transactions In 2006, the Wexlers met Breiman, and told him that they had purchased the Allianz and Sun Life annuities a few years back. Breiman reviewed the five annuities, and encouraged the Wexlers to surrender the annuities they already owned, and purchase Equitrust annuities. Breiman explained the surrender penalties to the Wexlers, and explained that transferring the annuities would result in an immediate loss of capital. The surrender charges for all the annuities combined totaled approximately $45,000. On August 22, 2006, the Wexlers wrote a letter to Allianz, stating that because they had been told by Allianz that they had already reached the 15 percent lifetime withdrawal limit contained as a term of the Allianz annuities, they wished to surrender the annuities. Mr. Wexler wrote: My wife Fran and I Robert Wexler have instructed Mark S. Breiman to... exchange the following policies...These four policies mentioned above are all power based indexed annuities, my wife Frances and I were told by Alliance [sic] Insurance Co.[sic] we have met our maximum fee withdrawal, except for RMV. We are not happy to realize that the contracts mentioned above have a lifetime 15 percent free withdrawal. Frances and I, Robert Wexler, are fully aware of penalties, surrender charges and expenses, please transfer as [sic] ASAP. DO NOT send a conservation letter. Upon meeting with Breiman on more than one occasion in 2006, the Wexlers agreed to purchase three equity index Equitrust annuities, for premiums of approximately $230,000, with the majority of that money coming from the transfer of the Allianz policies. The Equitrust annuities allowed a 10 percent annual withdrawal, with no penalty. By purchasing these particular products, the Wexlers were eligible for a bonus of approximately 10 percent of the premium paid, which was added to the accounts. If they surrendered these annuities during the first 14 years, however, the Wexlers would pay a penalty, starting at 20 percent for a cancellation during the first year and declining each year thereafter until the fifteenth year, when the surrender penalty would be 0 percent. The maturity date on one annuity was May 8, 2036; for the second annuity, it was October 2, 2036; and for the third, it was October 2, 2037. Because Mr. and Mrs. Wexler would be 89 and 88 years old by the time the maturity dates would arrive, the Wexlers could have planned to annuitize the contract before the maturity date, and begin to receive the annuity payments. The Wexlers were not required to keep their funds invested until the maturity date. The fact that the maturity date was beyond the Wexlers expected lifespan is not, of itself, compelling proof that the annuity was an unsuitable investment for Mr. and Mrs. Wexler. In applying for the Equitrust annuities, the Wexlers executed an Annuity Application, which contained the following language: If this annuity is replacing an existing annuity, it is important that you compare the two, taking into account whatever changes you may incur on the surrender of the existing annuity and your need to access your funds. For information about your existing annuity, contact the issuing company. The application also contained an Applicant Statement, which read in part: By signing below, I acknowledge I have read, or have been read, this document and understand I am applying for an equity indexed annuity, I also acknowledge that the annuity meets my financial objectives. I have received a copy of this document, as well as any advertisement that was used in connection with the sale of this annuity. The Wexlers signed and dated the Annuity Application. The Wexlers also executed a Fixed Annuity Needs Analysis form, which indicated that the Wexlers were surrendering annuities which had been held for 1-3 years, and would incur a 9-10 percent surrender charge. Mr. Wexler signed and dated this form as well. The Equitrust annuity contract, which the Wexlers agreed they received, but never read, indicated as follows: READ YOUR CONTRACT CAREFULLY. This is a legal Contract between you, the Owner, and us, the Insurer. RIGHT TO EXAMINE AND RETURN THIS CONTRACT Right to cancel. If you are not satisfied, you may cancel your Contract by returning it within 15 days after the date you receive it...This Contract will then be void from its start. Any premium will be refunded. On Page 3 of the contracts, the Annuity Dates in 2036 were plainly disclosed, as was the "Surrender Charge" for each policy year from the first year (20 percent) to the fourteenth year (2 percent) and fifteenth year (0 percent). The provisions of the Equitrust annuity which the Department alleges Breiman misrepresented or failed to disclose to the Wexlers were clearly stated, unambiguously, in the contract itself. The evidence fails to establish that Breiman misrepresented or failed truthfully to disclose to the Wexlers any of the Equitrust annuity contract's material terms and conditions, knowingly made other false representations of material fact about the products, or otherwise made any false promises in connection with the investment. Breiman is not guilty of any of the following offenses with which he was charged: (a) violating the Wexler's trust and not serving their best interests by presenting every fact essential to a client's decision as required by Florida Administrative Code Rule 69B-215.210; (b) making false or misleading statements misrepresenting the advantages of the Equitrust contracts as prohibited by Florida Administrative Code Rule 69B-215.230(1); (c) making untrue, deceptive or misleading statements, assertions, or representations to a client as prohibited by Florida Administrative Code Rule 69B-215.230(2); (d) willfully misrepresenting the terms of any annuity contract as proscribed in section 626.611(5), Florida Statutes; (e) demonstrating a lack of fitness or trustworthiness to engage in the business of insurance, which is punishable under section 626.611(7), Florida Statutes; (f) engaging in fraudulent or dishonest practices, a disciplinable offense pursuant to section 626.611(9), Florida Statutes; (g) willfully failing to comply with, or of violating, a provision of law, which is punishable under section 626.611(13), Florida Statutes; (h) engaging in unfair methods of competition and unfair or deceptive trade practices as prohibited by section 626.621(6), Florida Statutes; (i) making any estimate, statement, sales presentation, omission, or comparison which misrepresents the benefits, advantages, conditions, or terms of any insurance policy as prohibited by section 626.9541(1)(a), Florida Statutes; (j) making false statements or placing before the public any false material statement as prohibited by section 626.9541(1)(e); (k) knowingly making any misleading representations or incomplete or fraudulent comparisons or fraudulent material omission for the purpose of inducing any client to surrender or convert any insurance policy to take out a policy of insurance with another insurer, as prohibited by section 626.9541(1), Florida Statutes. Moreover, although Breiman did not have the burden to prove his innocence in any respect, the greater weight of the evidence nevertheless establishes that Breiman fulfilled the obligations he owed to the Wexlers under section 627.4554, Florida Statutes, which governs transactions involving sales of annuities to senior consumers.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is hereby RECOMMENDED that the Department of Financial Services dismiss the Administrative Complaint against Respondent. DONE AND ENTERED this 22nd day of February, 2012, in Tallahassee, Leon County, Florida. S JESSICA ENCISO VARN Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 22nd day of February, 2012.
The Issue Whether Respondent, an insurance agent licensed in Florida, violated specified Florida Statutes and agency rules in the sale of an annuity to two senior citizens, as charged in the Administrative Complaint, and, if so, the penalty that should be imposed against Respondent's license.
Findings Of Fact The Parties At all times relevant, Respondent was licensed by Petitioner as an annuity, health, and life insurance agent in Florida. Petitioner is the state agency charged with licensing and regulating insurance agents and taking disciplinary action for violations of the laws and rules it administers. Background Annuities This case arises from Respondent's sale of an Aviva equity index annuity ("Aviva annuity") to Robert and Frances Wexler on or about May 22, 2008. An annuity is a contract under which an insurance company, in exchange for a premium, agrees to pay the owner a specified income for a period of time. Annuities generally are classified as "fixed" or "variable." Under a fixed annuity, the benefit is paid according to a predetermined interest rate. Under a variable annuity, the premium is invested on the owner's behalf, and the amount of the benefit, when paid, reflects the performance of that investment. The annuities at issue in this case are fixed annuities. Fixed annuities can be either "immediate" or "deferred." Under an immediate fixed annuity, the insurer begins paying the benefit upon purchase of the annuity. Under a deferred annuity, the premium is allowed to grow over time until the contract matures or is annuitized and the insurer begins paying the benefit. The annuities at issue in this case are deferred annuities. Annuities may be "equity index" annuities. This means that the insurer pays a benefit to the insured based on a premium that earns interest at a rate determined by the performance of a designated market index. The premium is not invested in the market for the owner's account; rather, the interest rate rises or falls in relation to the index's performance, within predetermined limits. Equity index annuities typically are long-term investments. Owners of equity index annuities have limited access to the funds invested and accumulating in their accounts, although some equity index annuities permit yearly penalty-free withdrawals at specified percentages. The accrued interest generally is not taxed until the funds are withdrawn or the benefit is paid under annuity. The purchaser may incur surrender charges for withdrawing funds or canceling the contract before a specified date. The annuities at issue in this case are equity index annuities. Generally, equity index annuities identify a maturity date, often many years in the future, on which the insurer will "annuitize" the contract if the purchaser has not already opted to do so. The benefit paid under the annuity is determined based on the account's value as of the maturity date, and the payments to the owner of the annuity begin at that time according to a payment plan. The Wexlers Robert Wexler was born on November 12, 1930. His wife, Frances Wexler, was born on March 5, 1932. Both Wexlers finished high school and took some college courses. They married after Mr. Wexler joined the Air Force. While in the Air Force, Mr. Wexler studied electronics, which ultimately led to his career in that field in the private sector. He worked for IBM, Univac, and General Electric before retiring in 1994. Mrs. Wexler worked for a small family-owned printing firm for over 26 years, and retired in 1997. The Wexlers raised three children, and they lived in the same home in Pennsylvania for 40 years. While living in Pennsylvania, the Wexlers saved money by using Mrs. Wexler's salary to pay their living expenses and saving most of Mr. Wexler's earnings in a retirement account. They never bought annuities, but did trade stocks, which resulted in financial loss. For many years, the Wexlers visited Florida as "snowbirds" and eventually purchased a condominium in a gated community in Deerfield Beach, Florida. In 1998, the Wexlers sold their home in Pennsylvania, liquidated the stocks they owned, and bought a larger condominium in the same gated community. They moved permanently to Florida in 1998, with approximately $500,000 in liquid assets. The Wexlers consider themselves conservative investors. Their financial objectives included safe investing of their money, ensuring that they had readily accessible money if they needed it at some point, and having money to pass on to their family. For these reasons, they specifically chose to invest in annuities. Prior Annuity Purchases Before purchasing the Aviva annuity at issue in this case, the Wexlers had purchased many other annuities——perhaps as many as 16——from different insurance agents, including Stephen Wolfe, Brian Plonsky, Fredric Armold, and Mark Breiman between 2002 and 2008. In May 2008, the Wexlers purchased the Aviva annuity at issue in this case from Respondent. The Wexlers purchased the annuity using the money they received from surrender of an EquiTrust annuity (EquiTrust 708F) that Mark Breiman sold them in 2006. Subsequently, the Wexlers became confused about their numerous annuities. In October 2008, Mr. Wexler sent a letter to Petitioner's Consumer Services Department, requesting assistance in determining what products the Wexlers had purchased and whether the purchased annuities were necessary or beneficial to them. As a result, Petitioner initiated an investigation that culminated in administrative complaints being filed against some of the agents, including Respondent, who sold annuities to the Wexlers. The Administrative Complaint The Administrative Complaint alleges, in pertinent part, that Respondent committed the following acts, which violate specified provisions of the Florida Insurance Code: 17. In the process of inducing the purchase of the Aviva annuity, [Respondent] willfully misrepresented and/or omitted material information regarding the sale of that annuity. The misrepresentations, both by omission of material information and commission of false statement, include, but are not limited to the following: [Respondent] verbally asserted to the Wexlers that the nearly $16,000 in surrender charges Robert Wexler incurred in surrendering Equitrust 708F, would be offset by a bonus gained from the purchase of the Aviva annuity. [Respondent], when completing the Aviva annuity application, listed the percentage of charges and penalties incurred by sale of the EquiTrust annuity as 20%, "not less any applicable bonus percentage received on the new [Aviva] annuity," so as to falsely assert in writing that the Wexlers would receive a positive market adjustment of $10,910.83 on the Aviva annuity that would offset the nearly $16,000 surrender penalty on the EquiTrust 708F. [Respondent], when completing the Aviva annuity application, listed the amount of the Wexlers liquid assets as being $320,000, when [he] either knew or should have known that most of the Wexlers' assets were tied up in non-liquid investments (primarily annuities)and they had very limited access to readily available funds totally less than a third of that amount. [Respondent] failed to advise Robert Wexler that the guaranteed cash surrender value of the Aviva annuity would not equal the May 2008 accumulated value of EquiTrust 708F until at least May 2018, assuming the Wexlers did not need to make any withdrawals from the Aviva annuity during that ten year period. [Respondent] failed to advise the Wexlers that surrender penalties would apply for 10 years following the purchase of the Aviva annuity, including the company's recapture of the bonus, when Robert Wexler would be 87 years old. [Respondent] falsely assured the Wexlers that the Aviva annuity was suitable to their needs. The Administrative Complaint further alleges that Respondent's willful misrepresentations were false and material misstatements of fact and Respondent was fully aware of the falsehoods; that given Respondent's position as a licensed life insurance agent, the Wexlers justifiably relied on Respondent's representations and information in purchasing the Aviva annuity and they would not have purchased that annuity but for Respondent's misrepresentations; that the sale of the Aviva annuity was not in the Wexlers' best interests, was neither necessary nor beneficial for persons of their age and financial condition, was without demonstrable benefit to them, and was done by Respondent for the sole purpose of earning a fee, commission, money, or other benefit; and that the Wexlers have suffered financial harm by not being able to access their retirement assets for housing, health care costs, or general living expenses without incurring substantial surrender charges. The Annuities at Issue The 2006 EquiTrust Annuity The Wexlers purchased the EquiTrust 708F annuity2/ from Mark Breiman on May 8, 2006. At the time, Mr. Wexler was 75 years old and Mrs. Wexler was 74 years old. The Wexlers paid a premium of $32,565.68 for the EquiTrust annuity. Over the two years that the Wexlers owned the annuity, they added three separate cash payments totaling $40,844.42, for a total premium of $73,410.10 paid for the annuity. The EquiTrust annuity was a fixed index annuity having a maturity period of 30 years. Interest on the premium was earned according to performance of the market indices in which the premium was invested. After the annuity's first year anniversary date, invested funds could be transferred on the contract's anniversary date between indexed market accounts and fixed rate accounts to reduce exposure to market volatility. The annuity featured a ten percent bonus paid on the amount of the premium paid on the initial contract date.3/ The Wexlers paid a premium of $32,565.68 for the annuity, so the premium bonus was $3,256.58. Pursuant to the contract terms, the premium bonus was allocated proportionately across the investment strategies in the same manner as the premium; it was not paid to the Wexlers as cash. Because the bonus was invested back into the annuity, it, like other sources of funds invested in the annuity, became accessible upon maturity or if the policy was annuitized. The annuity had a 14-year surrender charge period. During this period, if the Wexlers withdrew their money from the annuity in an amount greater than the free withdrawal amount allowed under the contract, ten percent of the contract's current accumulation value,4/ a surrender charge would be imposed. The surrender charges started at 20 percent and gradually declined over the 14-year period. The annuity did not contain terms waiving withdrawal charges in case of diagnosis of terminal illness or confinement in a hospital, hospice, or convalescent facility. Sale of the Aviva Annuity to the Wexlers in 2008 In 2008, Respondent's firm, Cherry and Cherry, Inc., invited the Wexlers to a luncheon at which a program on investment in annuities was presented. The Wexlers attended and made contact with Ronald Cherry, Respondent's father. Subsequently, Respondent arranged to meet with the Wexlers in their home to discuss annuities investments. As a result of that meeting, Respondent sold the Wexlers an Aviva annuity.5/ The Wexlers applied for the Aviva annuity in late April 2008, and the sale became effective on May 22, 2008. Mr. Wexler was 77 years old and Mrs. Wexler was 76 years old when they purchased the Aviva annuity. The Wexlers purchased the Aviva annuity using the money they received from surrender of the EquiTrust annuity that Mark Breiman sold them in 2006. They surrendered the EquiTrust annuity on May 21, 2008, just over two years after purchasing it. At surrender, the EquiTrust annuity's accumulated value was $84,179.97. The Wexlers were assessed a surrender charge of $15,994.19, which constituted 20 percent6/ of the annuity's accumulation value as of May 21, 2008. However, a positive market value adjustment ("MVA")7/ of $7,658.56 was provided upon surrender, so the Wexlers received a total of $75,844.42 for surrender of the EquiTrust annuity. When the Wexlers applied to purchase the Aviva annuity, they completed a "Notice to Applicant Regarding Replacement of Life Insurance" form.8/ The form advised prospective purchasers that the "decision to buy a new policy and discontinue or change an existing policy may be a wise choice or a mistake. Get all the facts." The form further informed prospective purchasers that under Florida law, they could elect to receive a written Comparative Information Form summarizing policy values, which would enable comparison of the existing annuity and the annuity being considered for purchase. The Wexlers elected not to receive the Comparative Information Form. At hearing, Mr. Wexler credibly testified that in selling him the annuity, Respondent discussed the Wexlers' financial objectives to safely invest their money, have ready access to funds if needed, and to leave some money for their family. Mr. Wexler initially testified that when Respondent sold the Wexlers the Aviva annuity, Respondent failed to cover several items, including reviewing the Wexlers' other annuities, and did not provide a comparison of the Aviva and EquiTrust annuities. However, Mr. Wexler subsequently acknowledged that he could not remember whether Respondent covered these matters with him. Respondent credibly testified that he covered these matters with the Wexlers. Mr. Wexler testified that Respondent told the Wexlers that they would incur a substantial surrender charge on surrender of the EquiTrust annuity, but that they would make it up through and the positive MVA that would be realized upon surrender of the annuity and the Aviva ten percent premium bonus. He initially testified that Respondent did not tell the Wexlers that they would not obtain the Aviva policy's premium bonus as an immediate cash payment, but that instead it would be invested in the annuity so would be available only at maturity of the policy; ultimately, however, Mr. Wexler conceded that he could not recall whether Respondent had explained this matter. Respondent credibly testified that he covered this matter with the Wexlers. As an essential part of purchasing the Aviva annuity, on April 24, 2008, Respondent filled out, and the Wexlers executed, a Customer Identification and Suitability Confirmation Worksheet. On the portion of the form requesting a statement of the applicant's liquid assets, Respondent wrote "$320,000." Respondent credibly testified that the Wexlers provided him this figure. His testimony is consistent with, and bolstered by, the Wexlers' written confirmation, by signing the form, that the information filled in on the form regarding their financial status and investment objectives was complete and accurate to the best of their knowledge. Further, by signing the form, the Wexlers each confirmed that they understood that the Aviva annuity was a long-term investment with substantial penalties for early withdrawal, and they believed the Aviva annuity was suitable for them. The Wexlers reconfirmed these statements in their hearing testimony. Terms of the 2008 Aviva Annuity The Aviva annuity was a fixed index deferred annuity, with the premiums allocated to selected investment strategies. The Aviva annuity had a 20-year maturity period and a ten-year surrender charge period. During the surrender charge period, the Wexlers would be assessed a penalty, termed a "withdrawal charge," if they withdrew funds in an amount greater than ten percent of the annuity's accumulated value as of the contract anniversary date for that year. The withdrawal charges were determined based on a withdrawal charge rate schedule and a premium bonus recapture schedule.9/ The annuity allowed the transfer of unused free partial withdrawals to subsequent years, so if the Wexlers did not use the free partial withdrawal in one year, they could transfer it to the following year, enabling them to withdraw up to 20% of the contract's accumulated value for that year without incurring a surrender charge. The annuity also provided for waiver of withdrawal charges, subject to specified conditions, if the insured parties were diagnosed with a terminal illness or if the insured parties were confined to a hospital, hospice, or convalescent care facility. The Aviva annuity featured a ten percent bonus payable on the initial premium and on subsequent premiums paid within the first two years of the contract. The bonus on the initial premium was allocated to the selected index investment strategies, and the bonus on additional premiums was credited to the fixed strategy and then transferred to the selected index investment strategies on the next contract anniversary date. The bonus under the annuity was not paid as cash, so became accessible only upon maturity of the policy or if the policy was annuitized. Respondent informed the Wexlers that there would be a charge for surrendering the EquiTrust annuity, and represented that the surrender charge would be offset by the positive MVA derived from surrender of the EquiTrust annuity and the ten percent premium bonus they would receive by purchasing the Aviva annuity. As of its date of issuance, the Aviva policy had an accumulated value of $83,429.00. This value was derived from payment of the $75,844.42 premium consisting of the funds obtained from surrender of the EquiTrust annuity, plus the ten percent bonus of $7,584.44. Respondent credibly testified that a key reason he recommended that the Wexlers surrender the EquiTrust policy and purchase the Aviva policy was that he believed that they had too much money invested in one company, and that this was not in their best interest given the ominous financial climate in May 2008. He also testified, credibly, that another reason he suggested they surrender the EquiTrust policy was that information had been disseminated within the life insurance industry that the EquiTrust Life Insurance Company's financial strength rating was going to be downgraded. This information ultimately proved to be correct; on September 28, 2008, the company, its affiliate, and its parent company all were downgraded by A.M. Best Company. The press release announcing the downgrade specifically identified concern over EquiTrust's capital position and its difficulty in accessing liquidity as the reasons for the downgrade. Comparison of the EquiTrust and Aviva Annuities The EquiTrust and Aviva annuities both are fixed deferred equity index annuities. They offered similar investment strategies, and both provided 100 percent participation in the selected investment strategies, with substantially similar caps on earnings under those strategies. Both annuities had long-term maturity periods; however, the EquiTrust annuity had a 30-year maturity period, compared to the Aviva annuity's substantially shorter 20-year maturity period. Thus, assuming the Wexlers held the Aviva annuity to maturity, it would begin providing payments eight years sooner10/ than the EquiTrust annuity. The Aviva annuity's surrender charge provisions were substantially more favorable for the Wexlers than those in the EquiTrust annuity. Specifically, the EquiTrust annuity had a 14-year surrender period, compared to the Aviva annuity's ten- year surrender period. The EquiTrust annuity's surrender charges also were substantially higher than those under the Aviva annuity, starting at 20 percent for the first two contract years and thereafter decreasing by one or two percent for the remaining 12 years of the surrender period; by contrast, the Aviva annuity's surrender charge rate started at 12 percent for the first two contract years and then decreased by one or two percent per year for the remaining eight years of the surrender period. The Aviva annuity allowed any unused free partial withdrawal to be carried over to the following policy year and accumulated with that year's free partial withdrawal; the EquiTrust annuity did not allow such carryover. The Aviva annuity also provided for waiver of withdrawal fee, subject to conditions, for diagnosis with a terminal illness or confinement in a hospital, hospice, or convalescent facility, while the EquiTrust annuity did not. The annuities' minimum guaranteed contract values11/ were calculated in a similar manner. However, the EquiTrust annuity had a more favorable guaranteed rate of return of three percent, while the Aviva annuity guaranteed a one percent rate of return. Given the difference in financial conditions between 2006, when the Wexlers purchased the EquiTrust annuity, and 2008, when they purchased the Aviva annuity, relative policy performance is not particularly useful in determining which was policy was better for the Wexlers. In 2006, financial conditions were favorable. The Wexlers paid an initial premium of $32,565.68 for the EquiTrust annuity and received a ten percent bonus of $3,256.58 on that premium, for an initial accumulation policy value of $35,822.26. Over the two years the Wexlers owned the EquiTrust annuity, they added $40,844.42 in premiums, for a total of $73,410.10 paid into the annuity. By the time they surrendered the EquiTrust annuity in May 2008, its accumulation value was $84,179.97; thus, the policy earned approximately $10,769.87 in accumulation value for the Wexlers during the two years they owned it. By the time the Wexlers purchased the Aviva annuity in May 2008, financial conditions had significantly deteriorated. This is reflected in the Aviva annuity's annual statement of annuity showing no earnings for the 2008-2009 year. However, given the similarity of the policies' indexed investment strategies, it is reasonable to infer that the Wexlers would not have earned much, if any, more under the EquiTrust annuity than they did under the Aviva annuity for the 2008-2009 year. The Aviva annuity had greater relative financial strength than the EquiTrust policy. When Respondent sold the Wexlers the Aviva annuity, the EquiTrust Life Insurance Company's financial strength rating was in the process of being downgraded. Petitioner argues that the company still enjoyed an excellent rating in spite of the downgrade.12/ Notwithstanding, the evidence shows that at the time Respondent sold the Wexlers the Aviva annuity, he reasonably believed that the EquiTrust annuity's financial soundness was questionable, and, in fact, the Aviva annuity ultimately was the more financially sound policy.13/ When the Wexlers surrendered the EquiTrust annuity on May 21, 2008, its accumulated value was $84,179.97 and its cash surrender value was $75,844.42. When the Aviva annuity was issued on May 22, 2012, its accumulated value was $83,429.00 and its cash surrender value was $67,027.00——$8,817.34 lower than the EquiTrust policy's cash surrender value. The Wexlers immediately lost $8,817.34 on this transaction; however, the persuasive evidence shows that if they hold the Aviva policy to maturity, they not only will make up this loss, but will earn substantially more. In any event, the persuasive evidence establishes that Respondent told the Wexlers were about this issue and they chose to purchase the Aviva policy. On balance, the Aviva annuity appears more suitable for the Wexlers than the EquiTrust annuity. The EquiTrust annuity had a surrender charge period of 14 years, with extremely high surrender charge rates. The Wexlers would have had to keep the EquiTrust policy seven more years for its surrender charge rate to decline to the rate immediately applicable to withdrawals under the Aviva policy. Had the Wexlers held onto the EquiTrust policy and withdrawn funds in an amount greater than the free withdrawal limit even once during this seven-year period, they likely would have incurred surrender charges in an amount greater than the $8,817.34 they lost by surrendering the EquiTrust policy on May 21, 2008.14/ Ultimate Findings of Fact Regarding Alleged Violations As more specifically addressed below, the undersigned determines, as a matter of ultimate fact, that Petitioner did not demonstrate, by clear and convincing evidence, that Respondent violated sections 626.611 (5), (7), (9), or (13); 626.621(6); 626.9541(1)(e)1, or (1)(l); 627.4554(4)(a) or (c)2.; or rules 69B-215.210 or 69B-215.230.15/ Alleged Violations of Section 627.611 Section 626.611 sets forth violations for which suspension or revocation of an insurance agent's license is mandatory. Petitioner has charged Respondent with violating section 626.611(5), (7), (9), and (13). Petitioner did not prove, by clear and convincing evidence, that Respondent violated any of these provisions. Section 626.611(5) makes the willful misrepresentation of any insurance policy or annuity contract or the willful deception with regard to any such policy or contract a ground for suspending or revoking an agent's license. Petitioner did not prove that Respondent willfully misrepresented any aspect of the Aviva annuity or willfully deceived the Wexlers regarding the Aviva annuity. As discussed above, the persuasive evidence establishes that with respect to the key issue in this proceeding——the large surrender charge——Respondent accurately represented to the Wexlers that the surrender charge would be offset by the positive MVA and the Aviva premium bonus, and that the bonus would have to be earned over the life of the Aviva annuity.16/ Section 626.611(7) makes the demonstrated lack of fitness or trustworthiness to engage in the business of insurance a ground for suspending or revoking an agent's license. The persuasive evidence did not clearly and convincingly establish that Respondent violated any aspect of the Florida Insurance Code in selling the Aviva annuity to the Wexlers; accordingly, Petitioner did not prove, by clear and convincing evidence, that Respondent violated this provision. Section 626.611(9) makes fraudulent or dishonest practices in conducting business under an insurance agent license grounds for suspension or revocation of the license. Again, since the persuasive evidence did not clearly and convincingly establish that Respondent violated any aspect of the Florida Insurance Code in selling the Aviva annuity to the Wexlers, Petitioner did not prove, by clear and convincing evidence, that Respondent violated this subsection. Section 626.611(13) provides that willful failure to comply with, or willful violation of, Petitioner's orders or rules, or any willful violation of any provision of the Florida Insurance Code constitutes a basis for suspending or revoking an insurance agent license. Again, Petitioner failed to prove, by clear and convincing evidence, that Respondent willfully violated its rules or orders, or willfully violated the Florida Insurance Code, in connection with the sale of the Aviva annuity to the Wexlers. Thus, Petitioner failed to prove, by clear and convincing evidence, that Respondent violated section 626.611(13). Alleged Violations of Section 626.9541 Section 626.9541 is entitled "unfair methods of competition and unfair or deceptive acts or practices defined." This statute defines the types of acts that constitute unfair methods of competition and unfair or deceptive acts or practices in the insurance industry, but it does not independently authorize disciplinary action. Werner v. Dep't of Ins., 689 So. 2nd 1211, 1214 (Fla. 1st DCA 1997). Petitioner has charged Respondent with engaging in acts set forth in section 626.9541(1)(a)1.——specifically, that Respondent knowingly made, issued, circulated, or caused to be made, issued, or circulated, any estimate, illustration, circular, statement, sales presentation, omission, or comparison which misrepresents provides that making any estimate, statement, sales presentation, omission, or comparison which misrepresents the benefits, advantages, conditions, or terms of any insurance policy. As discussed above, the evidence does not clearly and convincingly establish that Respondent knowingly engaged in any of these acts. Accordingly, Petitioner did not prove, by clear and convincing evidence, that Respondent engaged in unfair methods of competition or unfair or deceptive acts as prohibited in section 626.9541(1)(a)1. Petitioner also charged Respondent with engaging in acts delineated in section 626.9541(1)(e)1. This section requires, as a predicate for the imposition of discipline, a finding that the licensee knowingly made false material statements through a variety of acts set forth in that provision. Again, the evidence does not establish that Respondent knowingly engaged in any of these acts. Thus, Petitioner did not prove, by clear and convincing evidence, that Respondent engaged in unfair methods of competition or unfair or deceptive acts as provided in section 626.9541(1)(e)1. Petitioner has charged Respondent with twisting, which is defined in section 626.9541(1)(l) as knowingly making any misleading representation or incomplete or fraudulent comparisons or fraudulent material omissions of or with respect to any insurance policies for the purposes of inducing, or tending to induce, any person to surrender, terminate, or convert any insurance policy or to take out a policy of insurance in another insurer. Again, there is no persuasive evidence that Respondent knowingly committed any of the acts described in this statute. Thus, Petitioner did not prove, by clear and convincing evidence, that Respondent engaged in twisting under section 626.9541(1)(1), Florida Statutes. Alleged Violation of Section 626.621 Section 626.621 sets forth violations for which suspension or revocation of an insurance agent's license is discretionary.17/ Petitioner has charged Respondent with violating section 626.621(6) by engaging in unfair methods of competition or in unfair or deceptive acts or practices, as prohibited by part IX of chapter 626, or having otherwise shown himself to be a source of injury or loss to the public or detrimental to the public interest. For the reasons previously discussed, the evidence does not clearly and convincingly establish that Respondent engaged in any actions that could be considered unfair methods of competition or deceptive acts or practices under chapter 626, part IX. Accordingly, Petitioner has not shown, by clear and convincing evidence, that Respondent engaged in acts under section 626.621(6) that justify the suspension or revocation of his insurance agent's license. Alleged Violation of Section 627.9521 Petitioner has charged Respondent with violating section 626.9521. This statute prohibits persons from engaging in trade practices that are determined to be an unfair method of competition or an unfair or deceptive act or practice involving the business of insurance, and imposes fines for violations of the Unfair Insurance Trade Practices Act, part IX of chapter 626, Florida Statutes. As discussed above, Petitioner did not prove that Respondent violated section 626.9541 or any other provision in chapter 626 charged under the Administrative Complaint. Accordingly, Petitioner has not shown, by clear and convincing evidence, that Respondent violated section 626.9521 and thus should be fined under that statute. Alleged Violation of Section 627.4554 Petitioner has charged Respondent with violating section 627.4554(4)(a) and (c)2. Section 627.4554(4)(a) requires that an insurance agent, in recommending a senior consumer purchase or exchange an annuity, have reasonable grounds for believing that the recommendation is suitable for the senior consumer on the basis of facts disclosed by the senior consumer regarding the consumer's other investments, other insurance products, and financial circumstances. Section 627.4554(4)(c)2. further requires that the insurance agent's recommendation be reasonable under all circumstances actually known to the agent at the time of the recommendation. As discussed above, Respondent recommended that the Wexlers surrender the EquiTrust annuity and purchase the Aviva annuity on the basis of the information they provided him regarding their liquid assets, other annuities, and financial goals. The evidence further shows that Respondent's recommendation was reasonable, based on the financial information the Wexlers provided and on his determination that the Aviva policy's terms and conditions were comparatively more favorable for the Wexlers than were the EquiTrust policy's terms and conditions. Accordingly, Petitioner has failed to demonstrate that Respondent violated section 627.4554(4)(a) or (c)2. Alleged Violations of Agency Rules Petitioner charged Respondent with violating rules 69B-215.210 and 69B-215.230. Rule 69B-215.210 declares that the business of life insurance is a public trust in which all agents have a common obligation to work together to serve the best interests of the insuring public, to understand and observe laws governing the life insurance business by accurately and completely presenting every fact essential to a client's decision, and to be fair in all relations with colleagues and competitors, always placing the policyholder's interest first. Rule 99B-215.230 declares misrepresentation to be unethical, and prohibits a range of acts regarding the making and disseminating of statements that misrepresent the terms of insurance policies or that misrepresent the insurance business or with respect to any person in the conduct of his insurance business. For the reasons previously discussed, the evidence does not clearly and convincingly establish that Respondent committed any acts that constitute violations of these rules.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is hereby RECOMMENDED that the Department of Financial Services enter a Final Order dismissing the Administrative Complaint against Respondent. DONE AND ENTERED this 27th day of September, 2012, in Tallahassee, Leon County, Florida. S CATHY M. SELLERS Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 27th day of September, 2012.
The Issue The issue in this case is whether the Respondent, William Robert Pearson, should be disciplined for alleged statutory and rule violations for his role in several insurance transactions.
Findings Of Fact The Respondent is licensed in Florida as a life including variable annuity agent (2-14), life including variable annuity and health agent (2-15), life agent (2-16), life and health agent (2-18), and health agent (2-40), regulated by the DFS's Division of Insurance Agent and Agency Services. He was so licensed at all times pertinent to this case. He was first licensed in 1988 and has been disciplined once, in September 2002, when he was given a Letter of Guidance for misrepresenting to a Pinellas Park resident that an annuity he sold her would generate interest in excess of 6.8 percent, when the guaranteed rate was three percent for the first year. During the transactions alleged in the Amended Administrative Complaint, the Respondent also was registered with OFR's Division of Securities as a Financial Industry Regulatory Authority (FINRA) broker representative associated with Transamerica Financial Advisors, Inc. (Transamerica). On August 21, 2012, based on some of the same facts alleged in this case, OFR charged the Respondent with failing to observe high standards of commercial honor and just and equitable principles of trade because he: participated in the liquidation of variable and fixed annuities on behalf of several elderly customers referred by insurance agents not licensed as FINRA broker representatives; executed the liquidations recommended to the customers by insurance agent Richard Carter; failed to appropriately record the transactions on the books and records of Transamerica; failed to review the transactions, or have them reviewed by Transamerica, as to suitability; and provided Agent Carter with blank Transamerica letterhead to be used to facilitate the transactions. A Stipulation and Consent Agreement was entered on December 18, 2012, in which the Respondent admitted the OFR charges and agreed to never seek a license or registration as a dealer, investment advisor, or associated person under the Florida Securities and Investor Protection Act, chapter 517, Florida Statutes. A Final Order incorporating the settlement agreement was entered on January 11, 2013. (This Final Order is the basis for Count IX, which was added to the charges in this case, as well as for one of the Respondent's affirmative defenses.) Count I-–Geraldine Busing Geraldine Busing was born on December 1, 1930. She has a high school education. Her husband of 44 years died in 2001. When alive, he handled the family finances. Mrs. Busing's income is from a pension of $728 a month and social security payments of $1,090 a month. In addition, she had substantial investments in two Schwab accounts. During the market decline of 2007-2008, Mrs. Busing became dissatisfied with the performance of her Schwab accounts. An insurance agent named Richard Carter recommended that she invest in annuities, which would reduce her taxes. (In her deposition, testimony was elicited from Mrs. Busing that Agent Carter told her that the Respondent would do her taxes for free for the rest of her life. It is not likely that he made such a representation, and there is no evidence that the Respondent knew about such a representation.) Mrs. Busing followed Agent Carter's recommendation. Agent Carter did not have a FINRA license and approached the Respondent, who worked for Transamerica, to facilitate the liquidation of Mrs. Busing's Schwab accounts, so she could follow Agent Carter's recommendations. The Respondent agreed. The Petitioner alleged that the Respondent provided blank Transamerica forms to Agent Carter and that Agent Carter "shuffled" the forms together with an EquiTrust Life Insurance Company (EquiTrust) annuity application and suitability forms and requested Mrs. Busing's signatures (although, it is alleged, one or more of the signatures on the Transamerica forms were not hers.) It is alleged that, unbeknownst to Mrs. Busing, Agent Carter gave the Respondent these forms, as well as a copy of her Schwab account statements, so he could liquidate her accounts, which totaled $627,000 at the time, "dump" the proceeds into a Transamerica account, and then "funnel" the liquidated assets into two EquiTrust annuities. It is alleged that Mrs. Busing became aware of these transactions in September 2010 after discussions with her accountant. Mrs. Busing testified that she has never met the Respondent and does not know him. She testified that she gave all of her Schwab account information to Agent Carter and did not expect him to share it with the Respondent. She testified that Agent Carter had her hurriedly sign a stack of papers without giving her a chance to review them. She said she was surprised when her stock broker, Barry Tallman, called to tell her that her Schwab accounts had been liquidated and used to open a Transamerica account. She denied ever receiving or signing the Schwab bank check dated July 7, 2010, used to open the Transamerica accounts; denied ever providing the Respondent and Transamerica with information for her customer account information (CAI) form used to open the Transamerica accounts; and denied that several of the Geraldine Busing signatures on the Transamerica documents used for the transactions were her signatures. She admitted to signing a Transamerica check dated August 13, 2010, which was used to purchase the EquiTrust policies. The Respondent testified that he telephoned Mrs. Busing at Agent Carter's request. He testified that she told him she wanted to implement Agent Carter's recommendation to liquidate the Schwab accounts and purchase annuities. He testified that he told her his services were not required because her current broker (Mr. Tallman) could handle it for her, unless she just wanted to avoid confronting her current broker. He said she wanted the Respondent to handle it, and he replied essentially that he would do whatever she and Agent Carter wanted him to do for her. The Respondent testified that he then mailed Mrs. Busing forms she had to fill out, sign, and return to him. He testified that he talked to her briefly by telephone about 15 to 20 times to answer questions she had about the forms. When she told him she received a Schwab check in the amount of about $150,000 and asked if she should mail it to him, he cautioned her that it would be better not to mail it and offered to drive to her house to get the check, which he did and returned immediately to Transamerica to open a Transamerica account with it. He testified that the Transamerica funds were used to purchase EquiTrust annuities at the direction of Agent Carter and Mrs. Busing. The evidence was not clear and convincing that Mrs. Busing's version of the facts is true and that the Respondent's version is untrue. To the contrary, Mrs. Busing's memory did not seem to be very good, and she seemed confused during her testimony. The evidence was not clear and convincing that the Respondent made any investment or insurance recommendations or misrepresentations to Mrs. Busing. The Petitioner's own witnesses (DFS and OFR investigators, Karen Ortega and Mercedes Bujans) testified that the Respondent never acted as Mrs. Busing's insurance agent. It was not proven by clear and convincing evidence that Mrs. Busing incurred tax and commission charges as a result of her Schwab account being liquidated, other than Transamerica's standard "ticket charge" for the transactions, which the Respondent admitted. There was no evidence that the Respondent received any remuneration on the EquiTrust annuity sales. Those commissions went to Agent Carter. The Petitioner contended in its proposed recommended order that the Respondent listed Mrs. Busing's annual income to be between $25,000 and $50,000, her investment objective as growth and income, and her investment time horizon as long-term. (Busing Deposition Exhibit 87). There was no testimony to put the exhibit in context or explain it. On its face, Busing deposition Exhibit 87 was a request from Transamerica to the client to confirm certain information. The form had the Respondent's name printed on it, but it was not signed by either the Respondent or Mrs. Busing, and the evidence did not prove who completed the form. (The CAI form contained similar information and had both their signatures.) The Petitioner contends that the information on the confirmation request was "absurd," because it listed Mrs. Busing's annual income as between $25,000 and $50,000, when her taxable income was $11,108 for 2009 and $8,251 for 2010. There was evidence that her total annual income was about $48,000 for 2007, $32,600 for 2008, $22,358 for 2009, and $19,001 for 2010, with the decline due to the decline in the stock market. The evidence was not clear and convincing that the income information on that form or the CAI form was absurd. The investment objective and investment time horizon on the forms were questionable, but the evidence was not clear and convincing that these were misrepresentations by the Respondent. The Transamerica account was a Pershing money market account used to facilitate the purchase of annuities. The evidence was that a separate suitability analysis would be required by the insurance company offering the annuity. The evidence was not clear that the information in the forms signed by the Respondent was used for the purchase of EquiTrust annuities on behalf of Mrs. Busing. Those purchases were recommended and executed by Agent Carter. The evidence was not clear and convincing that switching Mrs. Busing's investments from Schwab to EquiTrust annuities was not suitable for Mrs. Busing or in her best interest. No expert witness testified to that effect. Counts II through IV–-The Kesishes In 2010, William Kesish and his wife, Josefa, owned several annuities. Mr. Kesish had managed their business affairs before he developed Parkinson's disease and dementia in his old age. After that, Mrs. Kesish cared for him and took over the family's finances by default. Mr. Kesish died on November 26, 2010. Mrs. Kesish was born in Spain in 1937. English is her second language. In 2010, she had difficulty conversing and reading in English and was unable to write in English. After her husband became mentally disabled, she used their bank account to provide for their needs, but she had no investment acumen beyond knowing generally that it was better to make more money from their investments than to make less or to lose money. She was recovering from cancer treatment in 2010 and was physically frail. On May 25, 2010, Paula Rego, a professional guardian, met with an attorney who believed the Kesishes were being exploited and in need of a guardian. Ms. Rego reviewed documentation provided by the attorney and, in June 2010, agreed to Mrs. Kesish's voluntary request to become the guardian of the Kesishes' property. On July 8, 2010, Ms. Rego became aware of the Respondent's involvement in the Kesishes' financial business. She telephoned the Respondent to explain her guardianship role and faxed him on July 15, 2010, to direct him to cancel any investment transactions that were underway. The Petitioner presented the testimony of Ms. Rego to explain her review of the documentation she collected in her research to attempt to piece together the financial transactions involving the Kesishes. She also testified as to the surrender charges and, to some extent, the tax liabilities that resulted from them. She also related statements made by Mrs. Kesish to her and, to some extent, to the DFS and OFR investigators, Karen Ortega and Mercedes Bujans, who also related some of the statements Mrs. Kesish made to them. The Petitioner also introduced an affidavit prepared by Ms. Ortega and signed by Mrs. Kesish on March 31, 2011. All of Mrs. Kesish's statements were hearsay. The hearsay cannot itself support a finding of fact.3/ In general, the hearsay demonstrated that Mrs. Kesish did not have a clear recollection of her interactions with the Respondent at the time of her statements. Agent Carter introduced the Respondent to Mrs. Kesish in March 2010. The Petitioner alleged essentially that Agent Carter schemed and collaborated with the Respondent to exploit the Kesishes by tricking them into financial and insurance transactions that would not be in their best interest, but would generate commissions and fees for them. It was alleged that, as with Mrs. Busing, the Respondent's FINRA licensure was required to buy and sell securities in furtherance of the scheme. The Respondent testified that Agent Carter told him about his clients, the Kesishes, and that he went to meet Mrs. Kesish in person because he had difficulty communicating with her over the telephone due to her hard-to-understand Spanish accent and limited proficiency in spoken English. He testified that she told him she wanted to get out of the stock market and was unhappy with her current stockbroker, Doreen Scott. (That part of the Respondent's testimony was corroborated by Ms. Rego, who concurred that Mrs. Kesish did not like dealing with Ms. Scott because she talked down to her.) The Respondent testified that he went to Mrs. Kesish's house, asked if he could be of assistance to her, and discussed her financial situation with her. He testified that he then returned to his Transamerica office and mailed forms for her to fill out and sign.4/ Similar to his dealings with Mrs. Busing, the Respondent testified that he spoke to Mrs. Kesish several times by telephone to answer questions about the forms. It is reasonable to infer that the Respondent knew Agent Carter would be helping her. The Respondent testified that when the completed forms were returned to him by mail, he telephoned Mrs. Kesish to verify the information on the forms and, in some cases, get information that was omitted to add it to the forms. The Petitioner attempted to prove that the Respondent knew or should have known Mrs. Kesish was mentally disabled and incapable of voluntarily instructing the Respondent to effectuate financial transactions on her behalf. Mrs. Kesish lacked knowledge in investing and was susceptible to being misled and exploited, but it was not proven that Mrs. Kesish was mentally incapacitated or unable to consent to Agent Carter's recommendations or instruct the Respondent. Ms. Rego herself did not find it necessary to initiate involuntary proceedings to establish a plenary guardianship of Mrs. Kesish's person and property until October 2013. (Count II) One of the Kesishes' investments was a Genworth Life and Annuity Insurance Company (Genworth) variable annuity (G-58), which they bought on October 31, 2008, for $86,084.89. It was designed to begin paying monthly income on October 31, 2022. It provided a waiver of surrender charges if either Kesish was hospitalized, admitted to a nursing facility, or died. As of March 31, 2010, G-58 had a contract value of $102,954.90. Mrs. Kesish signed a form on letterhead of the Respondent and Transamerica that expressed her desire for the Respondent to be their insurance agent on G-58. On May 27, 2010, the Respondent used an automated account transfer (ACAT) to liquidate G-58 and transfer the funds to a Transamerica brokerage account he opened for the Kesishes on the same date. The Respondent did not independently determine whether the liquidation was suitable or in the Kesishes' best interest. He relied on Agent Carter to do this. The Respondent and the Kesishes signed the CAI form to open the brokerage account. The surrender of G-58 took effect on June 14, 2010. As a result of the liquidation, the Kesishes were assessed a surrender charge of $4,576.91 and federal tax was withheld, and the net proceeds from the liquidation were $90,314.19. On June 29, 2010, the funds in Mrs. Kesish's Transamerica account were added to an EquiTrust policy Agent Carter had sold her (E-92F). The Respondent testified that this was done at the direction of Agent Carter and Mrs. Kesish. The Respondent did not act as the Kesishes' EquiTrust agent and received no commissions. The Petitioner alleged and proposed a finding that the liquidation of G-58 allowed Agent Carter to represent to EquiTrust that the Kesishes had no other annuities and that the addition to E-92F was not replacing another annuity, which allowed Agent Carter to avoid having Genworth attempt to "conserve" G-58 (i.e., question the Kesishes as to whether they wanted to reverse the liquidation within the grace period for doing so). The evidence cited in support of the allegation and proposed finding is documentation of the initial purchase of E-92F in April 2010, not the addition in June 2010. There was no clear and convincing evidence that actions taken by the Respondent resulted in Agent Carter circumventing the replacement notice requirement, or that the Respondent should be held responsible for what Agent Carter did or did not do regarding the EquiTrust annuity. According to the Respondent, he made no investment recommendations to Mrs. Kesish, and all such recommendations were made by Agent Carter. He testified that he only took action in accordance with the wishes of Mrs. Kesish, who was being advised by Agent Carter. He denied that his purpose was to generate commissions or fees for himself or for Agent Carter, or to enable Agent Carter to conceal the replacement of the Genworth annuity. It was not proven by clear and convincing evidence that the Respondent's testimony was false. The Petitioner's proposed recommended order cites the testimony of Tarek Richey regarding his concerns about the Respondent's use of an ACAT to liquidate annuities, transfer of the proceeds to Pershing accounts at Transamerica, and use of those funds to purchase other annuities. Mr. Richey is a FINRA- licensed securities broker at Questar Capital Corporation, who employed and supervised the Respondent for about a month in early 2011, after he left Transamerica in December 2010. While supervising the Respondent, Mr. Richey was advised of OFR's investigation of the Respondent and reviewed the Respondent's documentation on the subject of OFR's investigation. One of Mr. Richey's concerns from his review of the Respondent's documentation was the use of ACAT, which would not guarantee that the client is aware of resulting surrender charges and tax consequences. He also was concerned that ACAT could have been used to bypass and avoid the use of forms required to analyze the suitability of annuities purchased for the Kesishes (and other clients). While he expressed these concerns, Mr. Richey had no personal knowledge and did not testify that the Kesishes (or the other clients) actually were unaware of surrender charges and tax consequences, or that liquidation was not suitable or in their best interest. Another of Mr. Richey's concerns was that the use of ACAT could result in the replacement of annuities without completing the required forms that would provide notice to the insurance company that its annuity was in the process of being replaced and give it an opportunity to conserve its annuity. Mr. Richey did not know that the use of ACAT actually resulted in the bypass of the replacement policy notice requirements for the Kesishes and other clients. He also did not testify that the Respondent should be held responsible for what Agent Carter did or did not do regarding replacement notices. Ms. Rego testified (based in part on discussions with a financial planner who did not testify) that she did not think the Genworth and EquiTrust transactions were not in the best interest of the Kesishes, mainly because of the Genworth surrender charge and tax consequences. There was no other expert testimony on the subject, and the evidence was not clear and convincing that those transactions were unsuitable or not in their best interest. (Count III) The Kesishes owned a Riversource Life Insurance Company (Riversource) annuity (R-30) that they bought on October 5, 2006. The contract had declining withdrawal charge rates that held at eight percent for the first four years. It had a death benefit rider. On March 23, 2010, a letter on the Respondent's Transamerica letterhead, written in English and signed by Mrs. Kesish, directed Riversource to list the Respondent as the Kesishes' financial advisor. On April 23, 2010, Mrs. Kesish signed a form directing Riversource to liquidate R-30. She also signed a form saying she knew there would be surrender charges. On April 26, 2010, Riversource sent the Kesishes a check for $26,430.07 (which was net after $2,454.30 in surrender charges). The testimony from Ms. Rego as to whether the liquidation of the Riversource annuity was contrary to the Kesishes' best interest, unsuitable, or in violation of suitability form or replacement notice requirements, was similar to her testimony with respect to the Genworth liquidation. There was no other expert or other clear and convincing evidence. (Count IV) The Kesishes also had Great American Life Insurance Company (Great American) annuities in the amounts of approximately $560,854 (GA-25) and $28,785 (GA-00), which were purchased in January 2010. GA-25 was owned by the Kesishes' trust, with Mrs. Kesish as trustee; GA-00 was owned by Mr. Kesish. By June 4, 2010, they had contract values of $580,854.71 and $29,970.46, respectively. On June 18, 2010, Agent Carter took Mrs. Kesish to lunch. A letter dated June 18, 2010, signed by Mrs. Kesish for her and her husband, written in English on the Respondent's Transamerica letterhead, directed the transfer of GA-25 to a Transamerica Pershing account (TA-25). An ACAT form dated June 20, 2010, signed by Mrs. Kesish and the Respondent, directed the liquidation of Mr. Kesish's GA-00 and the transfer of the proceeds to the Kesishes' Transamerica Pershing account. This transaction took effect on July 7, 2010.5/ After becoming involved through Attorney Hook, Ms. Rego had numerous discussions with Mrs. Kesish and with Agent Carter regarding the Kesishes' investments. Agent Carter attempted to explain and justify his actions to Ms. Rego and blame other insurance agents who he claimed had essentially stolen his clients by tricking them into replacing Allianz Life Insurance Company of North America (Allianz) annuities sold to them by him with GA-25 and GA-00. Ms. Rego's research notes evidence her understanding that the Great American sales to the Kesishes were unsuitable. During Ms. Rego's discussions and research throughout June 2010, the Respondent's name did not come up, and Ms. Rego was unaware of the Respondent having anything to do with the Kesishes. When she learned about the Respondent's role on July 8, 2010, she attempted to contact him. On July 15, 2010, she faxed the Respondent to instruct him to stop acting on behalf of the Kesishes. There is no clear and convincing evidence that the Respondent did not follow Ms. Rego's instructions.6/ On July 17, 2010, Great American sent Mr. Kesish a conservation letter urging him not to surrender GA-00. Ms. Rego then contacted Great American and had the surrender of GA-25 and GA-00 stopped. Had the transactions not been stopped, the Kesishes $60,000 in surrender charges would have been imposed. There was no other expert testimony or other clear and convincing evidence that the liquidation of the Great American annuities was contrary to the Kesishes' best interest, unsuitable, or in violation of suitability form or replacement notice requirements. Counts V through VI–-Edith Paz Edith Paz was born on January 20, 1926, and lives in Sun City Center. She has a high school diploma and held various jobs, from retailing to making plates in a dental office. Mrs. Paz married a GI returning from World War II. Her husband was successful in business before his retirement. Meanwhile, Mrs. Paz founded a successful real estate business and invested in the stock market. Mr. Paz died in 1999. In 2001, Mrs. Paz created a revocable trust with herself as trustee. When Mrs. Paz retired, she moved to Sun City Center. She did some investing, but was dissatisfied with her investments and her financial representative at the time. About that time, she met Glenn Cummings, an insurance agent who was a less experienced associate of Agent Carter and also not FINRA- licensed. After several conversations, Agent Cummings gained her trust and advised her to liquidate and consolidate her assets before deciding what other financial products to purchase. He referred her to the Respondent for that purpose. Agent Cummings and Mrs. Paz testified that he referred Mrs. Paz to the Respondent on the advice of Agent Carter to save "exit fees" on liquidating her investments. The evidence was not clear as to how the Respondent would be able to do this. The Respondent testified to his understanding that Mrs. Paz wanted to get out of the stock market and switch to more stable investments and that she had a bad relationship with her stockbroker. The Respondent's testimony is consistent with Mrs. Paz's actual losses in the stock market and her testimony that she listened to and followed the advice of Agent Cummings because she was dissatisfied with her prior financial advisor, a Mr. Shrago. Mrs. Paz testified that she spoke to the Respondent just once, briefly. That conflicts with the testimony of the Respondent and Agent Cummings. Their testimony was that there were several telephone conversations after the initial contact. They related that the Respondent mailed Mrs. Paz the forms that needed to be filled out, that Agent Cummings was with Mrs. Paz when she filled out the forms, and that both spoke to the Respondent several times during the process. According to Agent Cummings, this happened on July 29, 2010, when he visited Mrs. Paz to show her illustrations regarding the annuities he was recommending. While there, he helped her complete the forms the Respondent had sent to have her investments liquidated and consolidated into a Transamerica Pershing account. There also was conflict in the testimony as to whether anyone explained investment options and consequences to Mrs. Paz. She testified that no one gave her any explanation. Agent Cummings testified that he explained everything in detail to Mrs. Paz and that she also talked to the insurance agents who represented the companies whose annuities she would be surrendering. He testified that Mrs. Paz knew exactly what she was doing. The Respondent testified that he had no involvement in those explanations. He testified that he simply made sure he understood what Mrs. Paz wanted him to do for her. (Count V) In May 2007, Mrs. Paz purchased a Jackson National Life Insurance Company (Jackson National or JNL) annuity (JNL-42A) on the advice of Mr. Shrago. The initial premium was $100,000, and it was issued with a five-percent bonus. As of May 25, 2007, it had an account balance of $105,017.01 and was receiving an annual rate of return of 7.75 percent. On July 12, 2010, Mrs. Paz signed a letter directing Jackson National to make the Respondent, who held an appointment to represent Jackson National, her agent-of-record on JNL-42A. The change took effect on July 15, 2010. On July 29, 2010, Jackson National faxed the Respondent a statement of account for JNL-42A, listing the balance as $108,253.48 (which reflected a prior withdrawal of $2,500 by Mrs. Paz). The statement disclosed the surrender charges in effect. After her discussions with Agent Cummings, Mrs. Paz signed forms requesting that JNL-42A be liquidated and the proceeds rolled over into a Great American Life Insurance Company (Great American or GA) annuity (GA-61). The Respondent facilitated the rollover. As a result of the rollover, Mrs. Paz incurred surrender charges of $4,871.41 and a partial recapture of the initial bonus in the amount of $2,706.34, for a total loss of $7,577.75. The Petitioner alleged, and Mrs. Paz testified, that the Respondent never discussed with her that there would be surrender charges. The Respondent did not disagree, but explained that he understood Agent Cummings already had done so and that he just made sure he was following Mrs. Paz's wishes. Concurring, Agent Cummings testified that he did explain the surrender charges to Mrs. Paz. The Petitioner alleged that the Respondent's actions "insulated M[r]s. P[az] from comparative financial counseling by her then current Jackson National insurance agent Gary Mahan." This was not proven by clear and convincing evidence. To the contrary, there was evidence that it was Mrs. Paz's choice to change agents, that Mr. Mahan knew about the change, and that he had no objection to the Respondent taking over for him as agent of record on the policy. The Petitioner also alleged that the Respondent "provided [Agent Cummings] with the Transamerica brokerage application, transfer forms and letter of instructions to transfer JNL 42A" to the Respondent as account representative. It was not proven that these documents were not mailed to Mrs. Paz in accordance with the Respondent's testimony. There was no expert testimony or other clear and convincing evidence that the liquidation of Mrs. Paz's Jackson National annuity and purchase of a Great American annuity was contrary to her best interest, unsuitable, or in violation of suitability form or replacement notice requirements. Mrs. Paz testified that Agent Cummings initially told her she would have to pay the Respondent $1,500 as a fee for his services with respect to JNL-42a and later told her the fee would be $2,600. Agent Cummings testified that the Respondent told her what his fee would be during the telephone conversation on July 29, 2010. Regardless who told Mrs. Paz what the Respondent's fee would be, or what she was told it would be, Mrs. Paz made out a $2,607.28 check to Agent Cummings' company, Big Financial, on July 29, 2010. On August 2, 2010, Big Financial gave the Respondent a check made out to the Respondent for $2,530, with the notation "Paz." (It is not clear from the evidence why the Big Financial check was made out for $2,530. When the DFS investigator questioned the discrepancy, Agent Cummings reimbursed Mrs. Paz $77.28.) The Respondent deposited the check the next day. The Allianz compliance guide prohibited agents from charging an additional fee for services that customarily are associated with insurance products. The Great American compliance guide prohibited fraudulent acts. By accepting the check from Big Financial, the Respondent received a fee from Mrs. Paz that was not authorized. (Count VI) Prior to meeting Agent Cummings or the Respondent, Mrs. Paz had investment accounts with Wedbush (WB-37) and Wells Fargo. There were two Wells Fargo accounts, an IRA (WF-15), and a trust account (WF-70). As of June 30, 2010, the Wedbush account (WB-37) had a balance of $349,438.11. The Wells Fargo IRA account (WF-15) had a net value of $51,737.11 prior to June 30, 2010. The Wells Fargo trust account (WF-70) had a balance of $332,798.76 prior to June 2010. The Respondent and Mrs. Paz communicated in the same manner they did for the Jackson National transaction. Mrs. Paz signed forms that enabled the Respondent to transfer the funds in the Wedbush and Wells Fargo accounts into two Transamerica brokerage accounts (TA-02) and (TA-86) using ACAT. Some of the forms referred to the Respondent as Mrs. Paz's "investment professional," but the sole purpose of the Respondent's involvement was to use Transamerica as a funnel to transfer funds from one investment to another. By August 11, 2010, the funds in the TA-02 account were used to purchase an Allianz annuity sold by Agent Cummings in the amount of $335,589.65. The funds in the TA-86 account were used to purchase a Great American annuity (GA-60) sold by Agent Cummings in the amount of $45,769.38. There was no expert testimony or other clear and convincing evidence that the liquidation of Mrs. Paz's Wedbush and Wells Fargo accounts and purchase of an Allianz annuity was contrary to her best interest, unsuitable, or in violation of suitability form or replacement notice requirements. Counts VII and VIII-–The Penwardens Wayne Penwarden was born on December 4, 1943. His wife, Sandra, was born on October 10, 1939. They inherited some money and decided to invest it. As of August 31, 2009, they had Morgan Stanley investment accounts that totaled close to half a million dollars. They also had an annuity with ING USA Annuity and Life Insurance Company (ING) purchased for $150,000 on April 24, 2008. Agent Carter became acquainted with the Penwardens and introduced them to the Respondent. The Amended Administrative Complaint alleged that the Respondent provided required forms to Agent Carter for him to get the Penwardens signatures and, then, used funds from their Transamerica accounts to fund the purchase of Allianz annuities, which was deceitful and against the wishes of the Penwardens. The Petitioner's proposed recommended order proposed no such findings, and there was no clear and convincing evidence that the Respondent was guilty of those acts, that he said or did anything to deceive or mislead or withhold information from them, or took any action regarding them without their full knowledge and consent. (Count VII) On September 30, 2009, the Penwardens signed a change of agent request to make the Respondent their new ING insurance agent. They also signed CAI forms to open Transamerica brokerage accounts and transfer the funds from the Morgan Stanley investment accounts into them, using ACAT. The funds in the Transamerica accounts were then used to purchase Allianz's indexed annuities sold to the Penwardens by Agent Carter. On September 23 and October 16, 2009, the Penwardens purchased two Allianz MasterDex X annuities (MD-47) and (MD-24), respectively, with initial premium payments of $141,269.40 for MD-47 and $373,979.59, plus a premium bonus of $37,397.96, for MD-24. On June 17, 2010, acting on instructions from Agent Carter on behalf of the Penwardens, the Respondent liquidated the ING annuity. On June 30, 2010, the Penwardens added the $115,281.47 proceeds from the liquidation of the ING annuity to MD-47. The Petitioner proposed a finding that the surrender of the ING annuity cost $6,000 in surrender charges, which is true. The Petitioner omits from its proposed finding that the Penwardens received a premium bonus on the Allianz policy that more than offset the ING surrender charge. There was no expert testimony or other clear and convincing evidence that the liquidation of the Penwardens' Morgan Stanley accounts and ING annuity and purchase of Allianz annuities was contrary to their best interests, unsuitable, or in violation of suitability form or replacement notice requirements. (Count VIII) The Penwardens became dissatisfied with Agent Carter, and on November 9, 2010, signed a letter drafted by the Respondent on Transamerica letterhead to substitute him for Agent Carter as their sole financial advisor. On November 12, 2010, the Respondent was notified by Allianz that he would receive no commissions as servicing agent on policies sold to the Penwardens by another agent. On or about November 22, 2010, $37,408.54 was transferred from the Allianz MD-47 annuity into a new Nationwide Life and Annuity Insurance Company (Nationwide or NW) annuity (NW-08). The Respondent also effected a partial Internal Revenue Code, section 1035, exchange from the MD-47 annuity to a new annuity purchased from Nationwide (NW-09) for $23,746.19. On November 7, 2011, the Respondent faxed a request to transfer funds from the MD-24 annuity to fund a North American Company for Life and Health Insurance (North American or NA) annuity (NA-68). The Petitioner proposed a finding that the Respondent undertook these transactions on November 22, 2010, and on November 7, 2011, in order to benefit himself alone by generating commissions to replace the servicing agent commissions he was not getting on the Allianz policies. This was not proven by clear and convincing evidence. To the contrary, the Respondent explained that the transactions were done for the Penwardens' benefit after discussions regarding the benefits of diversifying out of the Allianz annuity into other annuities, which was accomplished cost-free. There was no clear and convincing evidence that these transactions were contrary to the Penwardens' best financial interest or that they were done solely to benefit the Respondent. There was no expert testimony or other clear and convincing evidence that the partial transfers from the Penwardens' Allianz annuities to other Nationwide and North American annuities were contrary to their best interest, unsuitable, or in violation of suitability form or replacement notice requirements. In early December 2011, Mr. Penwarden replaced the Respondent with another insurance agent. The Petitioner alleged that the Respondent went to the Penwardens home to harangue them for two hours about their decision to switch agents. The only evidence on this allegation was the deposition testimony of Mr. Penwarden and the testimony of the Respondent. Mr. Penwarden's testimony as to what occurred was vague. The Respondent agreed that he was disappointed that the Penwardens were switching agents, but testified that he went to the home to retrieve the policies he sold to the Penwardens, which would have to be returned to the insurance companies to cancel at no cost during the "free-look" period. He testified that he waited for an hour or more while Mr. Penwarden tried to find the policies in his home. The evidence was not clear and convincing, and the Petitioner did not propose a finding as to this allegation. Count IX and Related Affirmative Defenses Count IX is based on the Final Order entered in OFR's securities case against the Respondent as an additional ground for discipline under section 626.621(13), Florida Statutes. The Respondent cites it in his affirmative defenses of res judicata and collateral estoppel on Counts I through VIII. See Finding 2, supra. The Respondent also argues that the additional charge is barred by the ex post facto clause of the Florida constitution and due process clauses of the United States and Florida constitutions. As to the due process argument, the Respondent admitted the OFR Final Order in his answer to the original charges. He also had ample opportunity to demonstrate prejudice from the added charge, which he could not, and to present legal arguments, which he did. As to ex post facto, section 626.621(13) was added to the Florida Statutes, effective June 1, 2011. See Ch. 175, §§ 47 and 53, Laws of Fla. (2010). That was before the Respondent entered into the Stipulation and Consent Agreement that formed the basis for the OFR Final Order. Disciplinary guidelines for section 626.621(13) were added to the Florida Administrative Code on March 24, 2014. Fla. Admin. Code R. 69B-231.090(13). As to the collateral estoppel defense, the Respondent testified that he entered into the settlement with OFR because he was under heightened supervision by his employer due to securities violations, and he did not think any employer wanted to provide the required supervision (which he referred to as "baby-sitting.") The Respondent did not testify that he relied on the OFR Final Order to bar charges by DFS or that he believed the OFR Final Order would bar DFS charges.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Financial Services, Division of Agent and Agency Services, enter a final order finding the Respondent guilty of violating section 626.611(7) and rule 69B-215.210 under Count V, and section 626.621(13) under Count IX, dismissing the other charges, and suspending the Respondent's insurance licenses for 12 months. DONE AND ENTERED this 15th day of October, 2014, in Tallahassee, Leon County, Florida. S J. LAWRENCE JOHNSTON Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 15th day of October, 2014.
The Issue The issue is whether disciplinary action should be taken against Respondents’ licenses based on the allegations set forth in Petitioner’s Administrative Complaint.
Findings Of Fact Background on Annuities In general, annuities are contracts in which the purchaser, usually an individual, makes one or more premium payments to the seller, usually an insurance company, in return for a series of payments that continue for a fixed period of time or for the life of the purchaser or a designated beneficiary. In re May, 478 B.R. 431, 433 (Bankr. D. Colo. 2012); Lander v. Hartford Life & Annuity Ins. Co., 251 F.3d 101, 104 (2d Cir. 2001). “For traditional or ‘fixed annuities,’ the stream of payments begins immediately or soon after the contract is purchased. The contract will specify the amount of interest that will be credited to the [buyer]’s account as well as the amount of payments to be received under the contract.” Lander, 251 F.3d at 104. Fixed annuities are similar to certificates of deposit in that the seller of a fixed annuity guarantees that the purchaser will earn a minimum rate of interest over time. Am. Equity Inv. Life Ins. Co. v. SEC, 613 F.3d 166, 168 (D.C. Cir. 2009). In other words, fixed annuities do not lose money. Fixed annuities are typically thought of as insurance products because the purchaser receives a guaranteed stream of income for life, and the seller assumes “mortality risk.” The seller’s risk arises from the possibility that the purchaser will live longer than expected, thereby receiving benefits that exceed the amount paid to the seller. Id. In re May, 478 B.R. at 434 (noting that “a person typically purchases an annuity to avoid the risk associated with living an unexpectedly long life and running short of financial resources.”). A fixed annuity is appropriate for someone who desires a guaranteed interest rate without incurring the risk associated with the stock market. Because there is little to no risk, the returns on fixed annuities tend to be lower than the types of annuities discussed below. In contrast to a fixed annuity, the stream of payments associated with a variable annuity does not start upon purchase of the contract. Instead, the purchaser makes a single payment or a series of payments that are invested in securities of the purchaser’s choosing. Those securities are typically mutual funds or other types of investments that reflect the purchaser’s investment objectives. Lander, 251 F.3d at 104-05. From the time that a variable annuity is purchased to the time it begins to pay out, the annuity’s value will fluctuate depending on the performance of the underlying securities in which the purchaser’s principal is invested. Id. at 105. After a defined number of years, the variable annuity will mature and begin paying benefits to the purchaser. The purchaser is not guaranteed a particular payout. Instead, the payout will vary depending on the value of the portfolio at the annuity’s maturity and the purchaser’s life expectancy. Id. A variable annuity has characteristics that make it like an insurance product. By providing periodic payments that continue for the purchaser’s life, a variable annuity provides a hedge against the possibility that the purchaser will outlive his or her assets after retirement. Id. However, a variable annuity is also like a stock mutual fund in that the amount of benefits paid to the purchaser depends on the performance of the investment portfolio. As a result, many purchasers use variable annuities to accumulate greater retirement funds through market speculation. See In re May, 478 B.R. at 434 (explaining that “[m]any annuities are now ‘variable’ rather than fixed, and contemplate that the premiums collected will be invested in stocks or other equities, and that benefit payments to the annuitant will vary with the success of the annuity’s investment policy. In other words, the annuitant is not guaranteed a fixed level of benefits, rather the payment amount will vary depending upon the value of the stock portfolio upon maturity. Such variable annuities are considered akin to an investment contract, because they place all the investment risk on the [purchaser] and guarantee nothing to the annuitant except an interest in a portfolio of common stocks or other equities . . . .”)(internal citations omitted). A fixed index annuity is a hybrid financial product that combines some of the benefits of fixed annuities with the earning potential associated with a security. Am. Equity Inv. Life Ins. Co., 613 F.3d at 168. Like fixed annuities, fixed index annuities provide downside protection through a minimum guaranteed rate of return. However, the seller of the annuity “credits the purchaser with a return that is based on the performance of a securities index, such as the Dow Jones Industrial Average, Nasdaq 100 Index, or [the] Standard & Poor’s 500 Index.” Id. Therefore, depending on the index’s performance, the return on a fixed index annuity might be much higher than the guaranteed return. Id. The fixed index annuity may have a participation rate that limits the buyer’s upside. For example, if a particular fixed index annuity has an 80 percent participation rate and is tied to the Standard and Poor’s 500, then that annuity would return 8 percent if the Standard and Poor’s 500 rose 10 percent that year. In short, a fixed index annuity provides principal protection in a down stock market. While the potential return is less than what one would expect from a variable annuity, it is greater than what one would expect from a certificate of deposit or a fixed annuity. Therefore, a fixed index annuity appeals to someone who desires an opportunity to experience gains in a good market while also receiving protection from market downturns. For an additional fee, a purchaser can customize an annuity through the addition of “riders.” For example, an annuity with a guaranteed income rider provides a guaranteed amount of income for the annuity owner’s life. That income stream continues even if declines in the stock market cause the principal to dissipate. That guaranteed income stream does not start until it is activated by the annuity owner. Until activation, the money associated with the rider grows at a guaranteed rate of return, known as the “roll-up rate,” so long as the annuity owner does not activate the income stream. That guaranteed income stream can be destroyed if the annuity owner takes a withdrawal from the annuity’s principal. Surrender charges are another annuity feature and provide that the buyer will be penalized if he or she withdraws money from the annuity. Surrender charges usually apply during the first five to ten years after the annuity’s purchase and gradually decline over time. For example, an annuity could have a 10 percent surrender charge if the owner withdraws money during the first three years after purchase. During the next three-year period, that surrender charge may decrease to 7 percent. By the tenth year after purchase, the surrender charge could have decreased to 3 percent. Before a sale is completed, Florida law requires that insurance agents ensure that an annuity is “suitable” for the client. For example, section 627.4554(4)(a), Florida Statutes (2012), imposed the following duty on insurers and insurance agents: In recommending to a senior consumer the purchase of an annuity or the exchange of an annuity that results in another insurance transaction or series of insurance transactions, an insurance agent, or an insurer if no insurance agent is involved, shall have reasonable grounds for believing that the recommendation is suitable for the senior consumer on the basis of the facts disclosed by the senior consumer as to his or her investments and other insurance products and as to his or her financial situation and needs. The current version of section 627.4554 does not limit the suitability analysis to senior consumers and sets forth additional detail about the content of a suitability analysis: When recommending the purchase or exchange of an annuity to a consumer which results in an insurance transaction or series of insurance transactions, the agent, or the insurer where no agent is involved, must have reasonable grounds for believing that the recommendation is suitable for the consumer, based on the consumer’s suitability information, and that there is a reasonable basis to believe all of the following: The consumer has been reasonably informed of various features of the annuity, such as the potential surrender period and surrender charge; potential tax penalty if the consumer sells, exchanges, surrenders, or annuitizes the annuity; mortality and expense fees; investment advisory fees; potential charges for and features of riders; limitations on interest returns; insurance and investment components; and market risk. The consumer would benefit from certain features of the annuity, such as tax-deferred growth, annuitization, or the death or living benefit. The particular annuity as a whole, the underlying subaccounts to which funds are allocated at the time of purchase or exchange of the annuity, and riders and similar product enhancements, if any, are suitable; and, in the case of an exchange or replacement, the transaction as a whole is suitable for the particular consumer based on his or her suitability information. In the case of an exchange or replacement of an annuity, the exchange or replacement is suitable after considering whether the consumer: Will incur a surrender charge; be subject to the commencement of a new surrender period; lose existing benefits, such as death, living, or other contractual benefits; or be subject to increased fees, investment advisory fees, or charges for riders and similar product enhancements; Would benefit from product enhancements and improvements; and Has had another annuity exchange or replacement, including an exchange or replacement within the preceding 36 months. § 627.4554(5)(a), Fla. Stat. (2018). Despite section 627.4554, the suitability analysis tends to be subjective in nature. Extreme circumstances notwithstanding, it is fair to say that reasonable people could reach different conclusions about what annuity would be best for a certain person. The Parties The Department is the state agency responsible for regulating and licensing insurance agents and agencies. That responsibility includes disciplining licensed agents and agencies for violations of the statutes and rules governing their profession. At all times relevant to the instant case, Ms. Dorrell was a Florida-licensed insurance agent selling fixed annuities and fixed index annuities. She owns SFS, a licensed insurance agency located in The Villages, Florida. Ms. Dorrell is not licensed to conduct securities business. Count I – Frederic Gilpin Frederic Gilpin was born in 1940 and worked in the automobile industry, primarily as a service manager in dealerships, for 44 years before retiring in 2006. Mr. Gilpin purchased a Prudential variable annuity in 2006 through Bryan Harris, an investment advisor in Maryland, for $260,851.14. By September 30, 2007, the value of Mr. Gilpin’s Prudential variable annuity had increased to $326,557.31. On December 31, 2007, its value had fallen to $319,877.84. On December 31, 2008, Mr. Gilpin’s Prudential variable annuity was worth only $200,989.32. By March 31, 2009, its value had fallen to $183,217.37. The decrease in the annuity’s underlying value coincided with the precipitous declines experienced by the stock market in 2008 and 2009. On May 1, 2009, Mr. Gilpin exercised a rider in the Prudential annuity contract that guaranteed a yearly income of $15,625. That annual income would continue for the rest of his life regardless of the stock market’s performance. The guaranteed income stream would only be destroyed if Mr. Gilpin withdrew from the annuity’s principal. Mr. Gilpin and his wife met with Ms. Dorrell in 2012 to discuss their financial situation. Mr. Gilpin reported that he was very concerned with income, preservation of assets, and maximizing growth. According to Ms. Dorrell, Mr. Gilpin “did express to me that he was concerned about a downturn [in the stock market] because he had already gone through one in [2007 and 2008] and lost quite a bit of money in the annuity.” Mr. Gilpin also told her that he and his wife had committed “financial suicide” because “he had taken excess withdrawals from his variable annuity when they went to buy [their home in Florida] and that they were constantly invading their investments to help their children and they needed to stop that.” As recommended by Ms. Dorrell, Mr. Gilpin surrendered the Prudential annuity and used the proceeds to purchase a fixed index Security Benefit annuity. The purchase price of approximately $205,000 for the Security Benefit annuity was allocated between two accounts whose performance was tied to the Standard and Poor’s 500. Mr. Gilpin filled out a Department form titled “Annuity Suitability Questionnaire” on September 26, 2012, and reported that he was purchasing the Security Benefit annuity for “safety of principal + guarantee.” He also reported that he planned to keep the Security Benefit annuity for 10 years. At the time of this transaction, the Prudential annuity had four more years of surrender charges, and Mr. Gilpin started a new 10-year period of surrender charges associated with the Security Benefit annuity.4/ Mr. Gilpin incurred a surrender charge of $13,077.56 for surrendering the Prudential annuity. The surrender charge was more than offset by the 8 percent bonus (i.e., $16,000) he earned by purchasing the Security Benefit annuity. However, the 8 percent bonus was subject to recapture for the first six years. With the Security Benefit annuity, Mr. Gilpin could withdraw 10 percent of the money without penalty after the first year. If Mr. Gilpin waited until 2016 to take income from the Security Benefit annuity, then he would be getting over $17,000 a year in guaranteed income for his lifetime. If he died, then the guaranteed income stream would continue for his wife’s lifetime. Mr. Gilpin had no pressing need for income in 2012 because he had used the sale from his home in Maryland to acquire a home in Florida, and he had $50,000 left over. The Prudential annuity did not have a home healthcare doubler, and the Security Benefit annuity did. That feature increases the annuity purchaser’s income stream if he or she becomes disabled. The Security Benefit annuity had a 100-percent participation rate, and a 7-percent roll up rate. In contrast the Prudential annuity only offered a 5-percent roll up rate. In retrospect, Mr. Gilpin considers the move from the Prudential annuity to the Security Benefit annuity to be unwise. In recent years, Mr. Gilpin and his wife have experienced significant health issues. By purchasing the Security Benefit annuity and extending the amount of time that their funds were committed to relatively illiquid annuities, the Gilpins would likely have incurred substantial penalties if they had needed to use those funds to finance their medical treatment. Fortunately, the Gilpins are well-insured and were not compelled to take such drastic measures. Mr. Gilpin is also critical of Ms. Dorrell for recommending that he move his money from a variable annuity to a fixed index annuity. As a result, his holdings did not appreciate as much when the stock market rebounded from the lows of the most recent recession. Given that the Prudential annuity guaranteed him annual income of $15,625 regardless of valuations in the stock market, Mr. Gilpin stated “[t]here’s no way in the world [the Security Benefit annuity] could have been better for me, especially since the stock market has gone up.” This criticism is unfounded. It is exceedingly difficult to predict whether the stock market will go up or down, and Mr. Gilpen’s testimony enjoys the benefit of “20/20 hindsight.” A strongly contested point between the Department and Ms. Dorrell concerns whether Mr. Gilpin destroyed his guaranteed income stream by taking an excess withdrawal from the Prudential annuity. If he had, then it would be more difficult for the Department to argue that the Security Benefit annuity was not a suitable replacement for the Prudential annuity. In that regard, there is evidence suggesting that Mr. Gilpin took an excess withdrawal in 2010 and/or 2011. For example, Mr. Gilpin appeared to acknowledge during his testimony that he had taken an excess withdrawal from the Prudential policy in order to assist his daughter with purchasing a condominium.5/ Mr. and Mrs. Gilpin’s income tax return for 2010 indicates that they received $44,423.00 from “pensions and annuities.” That amount is listed separately from $15,626 attributed to “IRA distributions.” The Gilpin’s 2011 income tax return indicates they received $32,005.00 from “IRA distributions” and $43,778.00 from “pensions and annuities.” The evidence indicating that Mr. Gilpin may have taken an excess withdrawal corresponds with when the Gilpins moved to Florida and bought a house in 2011. According to Ms. Dorrell, Mr. Gilpin stated during a meeting with her on September 21, 2012, that “he had made an excess withdrawal to buy the house in Florida, because when they were down here, they found something and they didn’t want to lose out, so they took extra money out.” Also, Ms. Dorrell testified that she called Prudential and confirmed that he took an excess withdrawal in 2011. However, even if Mr. Gilpin had not destroyed the guaranteed income from the Prudential annuity, the evidence does not clearly and convincingly establish that the Security Benefit annuity was not a suitable replacement for the Prudential annuity. In sum, the Department failed to prove by clear and convincing evidence that Ms. Dorrell or SFS violated any statutes or rules in conducting business with Mr. Gilpin. Count IV – Deborah Gartner’s Annuities Deborah Gartner is a 71-year old widow who met Ms. Dorrell at an SFS seminar in 2007. Ms. Gartner filled out an SFS form indicating that her net worth was between $500,000 and $1 million. In January of 2008, Ms. Gartner met with Ms. Dorrell in order to seek financial advice. Ms. Gartner had $201,344.14 in a Guardian Trust account and $195,182.44 in a Guardian Trust IRA. In addition, Ms. Gartner owned an $80,000 certificate of deposit. On a monthly basis, Ms. Gartner was receiving $1,381 from social security, $786.15 from a pension, and $4,500 from investment withdrawals. The latter came from depleting principal rather than interest. Ms. Gartner also earned income from teaching one to three Zumba classes a week. One hundred people would attend those classes and pay $10 a person. At the time of the January 2008 meeting, the stock market was declining, and Ms. Gartner was adamant about getting out of equities. Ms. Dorrell told Ms. Gartner that annuities would be appropriate if she was interested in principal protection and guaranteed income. Because she lacked a securities license, Ms. Dorrell could not legally recommend or instruct Ms. Gartner to liquidate her equity investments, and Ms. Dorrell credibly denies doing so. Ms. Gartner was able to liquidate her Guardian Trust accounts without incurring any fees. The funds from the Guardian Trust accounts were used to purchase two Allianz and two American Equity annuities on February 1, 2008. The Department criticizes Ms. Dorrell for directing Ms. Gartner’s funds into four annuities rather than just two. Ms. Dorrell explained that this was intended to increase Ms. Gartner’s income: Q: Now, Mr. Davis this morning was explaining the reason for having multiple annuities. And if I understood him, it was that if you have multiple annuities and you want to either take a withdrawal or whatever other thing, you have to do it at a specific amount based upon the amount of the annuity; is that correct? A: Yes, that’s correct. It’s - - - Q: Well, for example, if you’re going to take a 10 percent penalty-free withdrawal, if you have a $75,000 annuity, you take $7,500. A: Right. Q: If you had a $150,000 annuity, you’re stuck at 15,000. A. Right. Q: But if you’ve got two $75,000 annuities, you could take it from one and leave the other one without being reduced? A: Yeah, some of the companies – some of the companies only allow a penalty-free withdrawal after the first year, but then once somebody makes a penalty-free withdrawal, some of the companies make them wait around another 12 months before they could make another one. So if she only needed $7,500 and she had 15,000 available, but then she needed the rest of it before the 12 months went by, she might have a problem. So that’s the reason I staggered the accounts for her and for many clients that are taking income. Q: In your opinion, was this suitable for Ms. Gartner at that time? A: Yes, it was. Q: Did you believe it was in her best interest? A: Yes. In March of 2008, Ms. Gartner used the $80,000 from her certificate of deposit to purchase a Reliance Standard fixed index annuity. At that time, the certificate of deposit was coming due and had been paying 3.9 percent. The Reliance Standard annuity offered 4.5 percent along with an additional 1 percent for the first year. The minimum guaranteed rate was 3 percent. As for why she recommended that Ms. Gartner purchase the Reliance Standard annuity, Ms. Dorrell testified as follows: Deborah was very sensitive to creditor protection. Due to what her husband had done for a living, he often told her about making sure your assets are creditor-protected. She had a son that had a problem with being – having assets seized. I believe it was in a divorce or some sort of lawsuit. And so one of her things that she liked about the annuities is that they gave her creditor protection. So she still had the CD at the bank that was at risk if for some reason something happened and she needed her assets protected. It wasn’t paying as much. She wanted to get more income, and she wanted principal protection and safety. By January of 2011, Ms. Gartner wanted more income, and Ms. Dorrell recommended that the Reliance Standard annuity be split into two annuities. Surrendering the Reliance Standard annuity caused Ms. Gartner to incur a $5,132.56 surrender charge and left her with $72,496.03 from the initial $80,000 purchase. She used $43,815 of the $72,496.03 to purchase an American Equity annuity that offered a guaranteed minimum interest rate of 3 percent. However, the American Equity annuity also had 16 years of surrender charges, and the surrender charge for the first year was 20 percent. Ms. Gartner used $26,185 of the $72,496.03 to purchase a North American annuity. As for the reasoning behind recommending the surrender of the Reliance Standard annuity, Ms. Dorrell testified as follows: A: I recommended, because she wanted more income, and my concern was she was getting to the point where she might be having to live on her IRA monies, which would be a taxable event. So I made a recommendation that we do a split annuity with the money that was in the Reliance to give her more income and less taxes. Q: Can you explain how that’s done? A: Yes. So, a split annuity is like a bucket concept. In her case we use two buckets. One was going to be the immediate annuitization in the North American that would then give her $150 more a month in income with much less taxation. Only a small portion of that payment would be taxable. And then on the other side was the American Equity which was purchased for accumulation over that same 5-year time frame that the North American would be paid out, so when the North American balance went to zero, she’d have the same amount of money in her American Equity policy as she started with when she bought both of them. Q: So how long a period of time would this provide the same income for her? * * * A: For the rest of her life. That was the reason for buying the American Equity, because it would remain – when we used the rider on that side, it would give her guaranteed income for as long as she lived and she was concerned about that because her parents were both in their nineties. Q: In your opinion, were these purchases suitable for her? A: Yes, they were. Q: And the surrender of the Reliance Standard, was that suitable? A: Yes. Q: Because that was a source of the funds to obtain the other two annuities; is that right? A: Yes. Ms. Dorrell also addressed the Department’s allegation that it was ill-advised to incur a $5,132.56 charge for surrendering the Reliance Standard annuity: Q: It’s been alleged that the liquidation of the Reliance Standard annuity cost Ms. Gartner $5,132.56 and, apparently, that it shouldn’t have cost her or that it was a bad idea to surrender the policy. Does that take into account what’s known as the market value adjustment? A: No. So many just straight fixed annuities and some fixed index annuities, in particular we’re speaking of the Reliance Standard fixed annuity, they come with what’s called a market value adjustment. It’s really something that an insurance company determines if they’re going to give them a positive market value adjustment or a negative value adjustment. So a negative market value adjustment could make a higher surrender charge and a positive market value adjustment could make a lower surrender charge, and they’re sort of driven by interest rates. So at that time, if you remember, you know, 2011 interest rates were, you know, still very low. But it was a good time, if you had an annuity with a market value adjustment, it was a good time to consider changing it because they would still have positive market value adjustments, which by the next year, the next six months later, exactly what I knew would happen is all those market value adjustments went negative. So not only would it have cost her the percentage rate on the surrender penalty to get out, she would have paid an additional negative market value adjustment. And this way it was timed to better her annuity anyway and she ended up in the positive. Q: Was there a positive market value adjustment? A: Yes. Q: $1,700? A: Correct. Q: And was there also a bonus on the American Equity? A: Yes. Q: And do you know what the bonus was? A: 10 percent. Q: And what was that, about $3,000? A: I think she put 43,000 in there, so it was about $4,300. Q: So after the surrender, taking into account the market value adjustment, taking into account the bonus on the American Equity, in fact, wasn’t she $1,000 ahead? A: Yes. The Department argues that Ms. Dorrell gave investing advice to Ms. Gartner and that Ms. Dorrell’s actions led to a depletion of Ms. Gartner’s assets. Ms. Dorrell addressed those allegations as follows: Q: It’s alleged in the administrative complaint that Ms. Gartner’s assets were depleted by the exchange of policies and also that you gave securities advice. First of all, were her assets in any way depleted? A: No. Q: She takes at the beginning $300,000 cash. She buys $300,000 worth of annuities. And the annuity companies add 10 percent, so initially she takes $300,000, truly liquid asset[s], but earning very little, and now she’s got $330,000 in the annuities; is that right? A: Yes. Q: Is there any depletion of her assets there? A: No. Q: Two months later, March of 2008, she takes an $80,000 CD and buys an $80,000 Reliance Standard annuity. Is there any depletion of assets there? A: No. Q: Later on she takes the $80,000 Reliance Standard annuity and converts it to a total of almost $80,000 in American Equity and National American? A: North American, yes. Q: North American? Is there any depletion of assets there? A: No. Q: Do all of these annuities actually earn income? A: Yes. Q: Did the principal balance of any of these assets decline? A: No. Q: In comparison to the stock market where there’s volatility up and down and your account may vary, did Ms. Gartner’s accounts ever vary or get lower? A: No. Q: Do you know the difference between giving advice on insurance and on securities? A: Yes. Q: Now, honestly, I’m not quite sure what is advice on securities, but I assume it is sell this one and buy another one? A: Right. Q: Did you make any recommendation that she sell a particular security? A: No, I did not. Q: Did you make a recommendation that she buy a particular stock? A: No, I did not. Q: Other than advising her that she needs to get the source of some funds to buy the annuities, and they would have to come from her accounts, is that the only advice you gave her? A: Yes. In sum, the Department failed to prove by clear and convincing evidence that Ms. Dorrell or SFS violated any statutes or rules in conducting business with Ms. Gartner. Count V – Gartner’s Real Estate Ms. Gartner and Ms. Dorrell became friends, and Ms. Gartner sought Ms. Dorrell’s advice in 2012 about selling her home in Summerfield, Florida. At that time, Ms. Gartner wanted to acquire a smaller home in The Villages, Florida. However, Ms. Gartner was having difficulty selling the Summerfield home. Along with referring Ms. Gartner to a real estate agent, Ms. Dorrell allegedly advised her to stop paying the mortgage on her Summerfield home and to do a short sale.6/ Ms. Dorrell denies making either recommendation. Ms. Dorrell spent $3,100 on “staging” the Summerfield home in order to make it appear more attractive to potential buyers. Ms. Gartner and Ms. Dorrell informally agreed that Ms. Gartner would select a house in The Villages, Ms. Dorrell would purchase it, and Ms. Gartner would then buy the house from her. Ms. Dorrell made the initial purchase because Ms. Gartner lacked funds and/or a good credit rating following the short sale. Ms. Gartner and Ms. Dorrell discussed Ms. Gartner purchasing the villa from Ms. Dorrell, but they never reached a formal agreement on terms. Because a short sale would have a negative impact on her credit rating, Ms. Dorrell allegedly advised Ms. Gartner to buy a new car prior to executing the short sale. Ms. Gartner sold her 2003 Mazda Tribute to Ms. Dorrell for $10,000, and Ms. Gartner purchased a new car. Ms. Dorrell then gave the Mazda Tribute to Diana Johnson, an SFS employee. Ms. Dorrell deemed the car to be income, and Ms. Johnson declared it on her tax return. Ms. Gartner selected a villa in The Villages, and Ms. Dorrell purchased it for $229.310.78 on November 1, 2012. Of the aforementioned amount, Ms. Gartner paid $10,000, and Ms. Dorrell paid the remaining $219,310.78. At this point in time, Ms. Dorrell was the legal owner of the villa. Ms. Gartner could not move into the villa immediately after the sale because it was being rented, and the tenants’ lease extended through April of 2013. Ms. Dorrell received the rental payments of $1,800 per month and paid the expenses associated with the villa between November of 2012 and April of 2013. Those expenses included items such as home insurance, cable television, lawn maintenance, and utilities. By May of 2013, Ms. Gartner had completed a short sale of her Summerfield home. She received a short sale benefit of $36,775.00 and a seller assistance payment of $3,000.00. Ms. Gartner moved into the villa in May of 2013. At that point in time, there was no formal agreement between Ms. Gartner and Ms. Dorrell about when Ms. Dorrell would sell the villa to Ms. Gartner or how Ms. Gartner would pay Dorrell for it. Ms. Gartner paid no rent to Ms. Dorrell from May of 2013 through April of 2014. In November of 2014, Ms. Dorrell sold the villa to Ms. Gartner for approximately $219,000, the same price that Ms. Dorrell paid for it. In order to finance the sale, Ms. Gartner executed a promissory note that would pay Ms. Dorrell $100,000 with 4-percent interest. Ms. Dorrell did not record that promissory note.7/ In order to finance the remainder of the purchase price, Ms. Gartner obtained a reverse mortgage. Ms. Dorrell allegedly pressured Ms. Garter to obtain the reverse mortgage, but Ms. Dorrell denied having any discussions with Ms. Gartner about a reverse mortgage. There is a substantial amount of disagreement between Ms. Gartner and Ms. Dorrell as to who was entitled to receive the rental payments. They also disagree about the expenses associated with maintaining the villa prior to Ms. Gartner moving in. This is not surprising given the lack of a written agreement between them. The Department’s Exhibit 185J purports to be an accounting of the rental income and expenses associated with the villa prior to Ms. Gartner moving in, and it suggests that Ms. Gartner should have received or been credited for an additional $17,950.51. Ms. Dorrell had Diana Johnson prepare Exhibit 185J, but there is substantial reason to question Ms. Johnson’s credibility about the interpretation of Exhibit 185J.8/ Ms. Gartner ultimately sold the villa for $285,000. Ms. Dorrell filed a mortgage foreclosure action against Ms. Gartner in order to recover the balance of the money Ms. Gartner owed her. Part of that litigation involved a reconciliation of expenses associated with the villa prior to Ms. Gartner moving in. Following a mediation conference on June 6, 2017, Ms. Gartner agreed to pay $97,500 to Ms. Dorrell in settlement of the foreclosure action. In the Administrative Complaint, the Department alleges that Ms. Dorrell acted “wrongfully” through the following actions: (a) advising Ms. Gartner to stop making mortgage payments on the Summerfield home; (b) advising Ms. Gartner to buy a new car and purchasing Ms. Gartner’s used car; (c) arranging for the purchase of the villa and accepting a $10,000 deposit from Ms. Gartner without giving her credit for it; (d) not crediting Ms. Gartner for paying expenses associated with taking possession of the villa; (e) directing Ms. Gartner to sign a $100,000 promissory note; (f) making Ms. Gartner responsible for all of the property taxes owed for the villa in 2014; pressuring Ms. Gartner to procure a reverse mortgage; and arranging for Ms. Gartner to use funds from an IRA account to pay off the promissory note. Ms. Dorrell’s failure to have a written agreement governing her acquisition and subsequent sale of the villa to Ms. Gartner was foolhardy. Without such an agreement, conflicts regarding the villa were inevitable. However, the evidence does not clearly and convincingly establish that Ms. Dorrell violated any statutes or rules in her dealings with Ms. Gartner. Count VI – Earl Doughman Earl Doughman was born on December 6, 1934. After completing a two-year stint of military service in 1958, Mr. Doughman spent the next 40 years managing a company’s inventory. At some point after his retirement, Mr. Doughman and his wife moved from Cincinnati, Ohio to The Villages. On August 4, 2008, Mr. Doughman purchased a Midland National Deferred Annuity (“the Midland annuity”) from Ms. Dorrell. That annuity provided a 5.25-percent guaranteed interest rate for five years. The annuity did not have an income rider or a home healthcare doubler. In 2013, Mr. Doughman visited SFS to inquire about purchasing another annuity. According to Mr. Doughman, he dealt exclusively with Diana Johnson and never met with Ms. Dorrell about his finances.9/ Ms. Johnson allegedly advised Mr. Doughman to utilize 10-percent penalty free withdrawals from the Midland annuity and a Fidelity and Guaranty annuity to fund the acquisition of a Security Benefit annuity for $29,492. The Department asserts that the Security Benefit annuity was not a suitable replacement for the Midland annuity. The Midland annuity was a fixed annuity and the Security Benefit was a fixed index annuity. The Midland annuity had five more years of surrender charges, and the surrender charge for each year was 10 percent. The purchase of the Security Benefit annuity resulted in Mr. Doughman beginning a new 10-year term of surrender charges. Those surrender charges were 10 percent for the first five years, but gradually declined to 0 percent by year 10. As noted above, Mr. Doughman could withdraw 10 percent a year from the Midland annuity without incurring a penalty. With the Security Benefit annuity, he would incur a 10 percent surrender charge after the first year. The Midland annuity provided a minimum guaranteed interest rate of 1 percent, and the Security Benefit Annuity had no minimum guarantee. However, the Security Benefit annuity came with a 9-percent bonus based on the premium amount. As a result, Mr. Doughman received approximately $2,654.28 upon purchasing the Security Benefit annuity. The Midland annuity had a 5.25-percent interest rate cap for the first year. By 2013, the Midland annuity was paying 3 percent. The participation rate in both annuities was 100 percent. The Security Benefit annuity had a home healthcare doubler, and the Midland annuity did not.10/ However, the Midland annuity had a death benefit and a terminal illness rider that would result in the waiver of surrender penalties if they were activated. Ms. Dorrell testified as follows as to why the Security Benefit annuity was more suitable for Mr. Doughman than the Midland annuity: Q: Why is the Security Benefit [annuity] a better product for Doughman? A: Because it has the home healthcare doubler that he desperately needed. It has the income rider. It has the upside potential in the stock market with not any downside potential whatsoever. It has a fixed account inside of it that would have paid close to the same amount that the Midland had renewed out at 3 percent. So why wouldn’t he buy something that he can get a bonus on, not lose anything from the Midland, and have the ability to make more money than what he was going to make if he stayed at Midland? It makes perfect sense to move that. Mr. Doughman was concerned about whether he was actually earning 4 percent on the annuity contract amount as had allegedly been represented to him. Therefore, Mr. Doughman asked Don Geist, an insurance agent with Financial Solutions Group of Florida, to review the terms of this Security Benefit annuity. Mr. Geist is a competitor of Ms. Dorrell’s and determined that the 4-percent interest rate applied only to the annuity’s income rider.11/ With Mr. Geist’s assistance, Mr. Doughman wrote a letter to Security Benefit on April 14, 2014, seeking the termination of the Security Benefit annuity and a refund of the $29,492.30 he paid to acquire that annuity.12/ Security Benefit refunded the money that Mr. Doughman had paid to acquire the Security Benefit annuity. Ms. Dorrell learned of Mr. Doughman’s complaint in April of 2014. In response, she had Ms. Johnson use SFS’s records to prepare a chronology and description of Mr. Doughman’s meetings with SFS. Ms. Johnson then transmitted the following e-mail to Ms. Dorrell’s attorney on April 29, 2014, indicating that Ms. Johnson did not sell an annuity to Mr. Doughman: Hi Jed, Here is a timeline of when the Doughmans came to our office and who they met with: July 17, 2012 attended Seminar, which Jean was the speaker. July 31, 2012, met with Goldie, who was a licensed agent and discussed annuities. August 28, 2013, met with Jean for a review and purchased annuity. August 29, 2013, brought in beneficiary information and gave to Diana. October 3, 2013, met with Jean for policy delivery. February 21, 2014, met with Diana and the Doughmans expressed concern re: a salesman that came to their door inquiring about their finances and dropped off card from Don & Tim Geist from Financial Solutions. The Department alleges that Ms. Dorrell committed wrongdoing by having unlicensed agency personnel (i.e., Diana Johnson): (a) perform prohibited sales activities with respect to Mr. Doughman’s transactions of insurance; (b) unreasonably recommend the partial surrender of senior consumer Doughman’s existing annuities to fund the purchase of the Security Benefit annuity; (c) misrepresent the percentage return on the Security Benefit policy by including a costly rider to the policy; and (d) advising Mr. Doughman that the cap on the indexed Security Benefit policy was two points lower than the cap on his indexed Midland annuity. The evidence does not clearly and convincingly establish that Ms. Dorrell or SFS violated any statutes or rules in dealing with Mr. Doughman. Count VII – Margaret Dial Margaret Dial was born in 1950 and earned a high school diploma. She was married for 42 years. During her marriage, she worked as a bookkeeper until she took an early retirement to care for her mother. Ms. Dial receives income from a pension and social security. Ms. Dial met Ms. Dorrell in July of 2007 and purchased multiple annuities from her. One of those annuities was an Old Mutual annuity that she purchased on November 11, 2007. In 2013, Ms. Dorrell advised Ms. Dial to surrender the Old Mutual annuity and use the proceeds to purchase a Security Benefit annuity. After incurring $16,560.39 in surrender charges, Ms. Dial received $129,901.21 in the form of a check mailed to her home. Ms. Dial then wrote a check for $130,000 to purchase a Security Benefit annuity. The difference between the purchase price of the Security Benefit annuity and the proceeds from the surrender of the Old Mutual annuity was $98.79. On March 12, 2013, Ms. Dial signed an application to purchase the Security Benefit annuity recommended by Ms. Dorrell for $130,000. The application associated with the Security Benefit annuity was incorrect because it did not show that it was a replacement for the Old Mutual annuity. The Department asserts in its proposed recommended order that: [t]he manner in which [the Old Mutual annuity] was replaced shows that it was a smokescreen to avoid Old Mutual conservation efforts and to make the new purchase look like it was accomplished by fresh money. By replacing her own business, Dorrell sold the same money twice, making commissions each time, while Ms. Dial incurred a $16,000 surrender penalty. Instead of encouraging the sale, Dorrell should have conserved the Old Mutual business. “Conservation” is the term used to describe an insurance company’s effort to retain existing business. As for why it was problematic that the Security Benefit annuity was not identified as a replacement, Mr. Spinelli testified as follows: A: Because this case – the first contract, [Old Mutual], was written by Dorrell, and she’s replacing her own business to move it to – having the check sent to the client’s house to avoid a conservation effort because it’s saying that she’s surrendering the policy for cash. A proper replacement, if it was a legitimate replacement, would have been a 1035 exchange from one company to another, therefore, avoiding any taxable events. If it was gains in this policy, which there might have been, by surrendering it, it could have created a tax event. And it also avoided the conservation effort that [Old Mutual] was trying to perform. And then adding $99 created a different amount that was surrendered. So that’s a big smokescreen to the company that it was a different amount than was surrendered. Q: So it looks like fresh money, so to speak? A: Correct. And there was [a] $16,604 surrender charge when that transaction was done. The – that’s the case of that money being sold twice. Dorrell sold that money twice there. She sold it with [Old Mutual} and then she turned around and sold it again with Security Benefit. She made commission twice on that. Q: If that were – if, in fact, that had been indicated as a replacement, how do companies look upon – do they look upon these kinds of replacements with a jaundiced eye, so to speak? I’m talking about where the real facts are set forth. A: The company I work for, they do. They take conservation very seriously, especially in a situation like this where the money’s being sent to somebody’s home. Q: And so isn’t the reason for the comparison sheet between the two annuities, to try to point out to the underwriting people that, if the facts are true, then they may or may not allow for issuance of the annuity, the replacement annuity; correct? A: Well, they have to eventually comply with the client’s wishes. If the client insists on surrendering that and making a terrible mistake and paying $16,000 surrender charges, there’s nothing the company can do to stop it. But they can have the agent try to conserve the business. Q: And that’s what the agent should be doing? A: Correct. ALJ: I’ve heard the term conserve. I have a pretty good idea – think I know what it means, but no one’s actually defined it for me. Could you formally define what conserve is? A: Yeah. Conserve, conservation, you’re conserving the business on the books for that company for your clients. You should be conserving the business for your clients. Why are they leaving? You know, quality companies have a high retention rate in their business. It’s because of conservation efforts. ALJ: Okay. Thank you. A: If you have more business leaving the company, your ratings are going to go down. It’s going to be detrimental to the company. Not just the company, but to the clients they serve. Ms. Dorrell acknowledged during her direct testimony that she failed to make the proper notation on the application form. However, she disputed Mr. Spinelli’s assertion that her failure prevented Old Mutual from initiating conservation efforts: Q: Now, on that third page with respect to the question, “Does this proposed contract replace or change any existing annuity or life insurance policy,” the answer is no. Is that incorrect? A: It’s incorrect, yes. Q: Did you notice that when the application was completed and was shown to Margaret Dial? A: I did not. Q: Were you with Margaret Dial when the application was shown to her? A: Yes. * * * Q: At some point did you discover that there was an error on the application before the administrative complaint was filed? A: No. Q: Okay. Now, what impact would that incorrect answer have in regard to the transaction? * * * A: Well, it’s a replacement. I should have checked yes. I mean, that was an error on my part. Q: Did you do that intentionally? A: No. Q: Okay. So, again, did this have an impact on Margaret Dial, financial impact? A: No. Simply because we had discussed that she would pay a surrender charge, and she knew that she was paying it, and she knew what the bonus was as presented in my illustration to her on the Security Benefit annuity. It showed her the bonus. It showed her how her money grew at 7 percent each year, what the value would be, so she knew it took about a year to get back to where she was, and she was willing to pay that surrender penalty because of all the other benefits she was getting. Q: I understand. Mr. Spinelli testified though that if an application is not marked that it is a replacement, that there might not be the conservation letter sent to the policy holder. A: No, there’s a conservation letter sent regardless of that. No insurance company wants to lose business so they – as far as I know, all the companies I work with, they send conservation letters out to the client because they don’t want to lose the business, so they want to make sure that they’re informing the client what they may be giving up. Q: So in other words, the Old Mutual that was being surrendered, whether it was being replaced or just being surrendered and Ms. Dial was taking the money, Old Mutual would still send her a conservation letter. A: Yes. Q: Because she was cancelling the policy. A: Yes, and they didn’t want to lose the business. Q: And it’s irrelevant, really, whether it’s being replaced or whether it’s just being cashed out. A: Right. They send it regardless. * * * Q: And this conservation letter that went to Ms. Dial advises her of the surrender charge, doesn’t it? A: Yes. Q: $16,560.39? A: Yes. The evidence does not clearly and convincingly demonstrate that Ms. Dorrell or SFS violated any statutes or rules in the dealings with Ms. Dial. Count VIII - Unlicensed Activities The Department alleges under Count VIII of the Administrative Complaint that Ms. Dorrell and/or SFS employees performed work without having the proper licensure. Specifically, the Department alleges that SFS employees wrote Lady Bird deeds and wills without being licensed attorneys. A Lady Bird deed enables a person to designate a child or some other beneficiary as the person who will take possession of the designator’s property after death. The Department also alleges that Ms. Dorrell and/or SFS employees encouraged clients to liquidate security holdings without being licensed investment professionals. The Department’s case largely depends on two former SFS employees with questionable credibility. Laura Wipperman began working for SFS in July of 2010, providing support to Ms. Dorrell as an administrative assistant. Ms. Wipperman did not have an insurance license. Ms. Wipperman left SFS in March of 2013, supposedly because of Ms. Dorrell’s harsh treatment of her employees. Nevertheless, Ms. Wipperman later returned to SFS as a receptionist. Ms. Wipperman separated from SFS a second time in June of 2014. Ms. Dorrell was upset that Ms. Wipperman failed to timely prepare a file. After Ms. Dorrell had a tense confrontation with Ms. Wipperman, she told Diana Johnson to fire her. Because Ms. Wipperman and Ms. Johnson were friends, Ms. Dorrell’s direction probably led to tension between Ms. Dorrell and Ms. Johnson. In approximately June of 2014, Ms. Dorrell fired Ms. Johnson for stealing money from SFS’s petty cash fund. Ms. Wipperman and Ms. Johnson filed a complaint a few weeks later with the Department alleging that Ms. Dorrell had engaged in improper conduct. Ms. Johnson also joined Ms. Gartner in reporting improper conduct by Ms. Dorrell to an organization called Seniors Versus Crime. Ms. Johnson unsuccessfully pursued a claim alleging that Ms. Dorrell did not pay her what she was owed after the firing. Ms. Johnson acquired an insurance license and began working for an SFS competitor in December of 2014. Ms. Johnson and Ms. Wipperman had obvious reasons to hold a grudge against Ms. Dorrell, and that cast a great deal of doubt on the credibility of their testimony. In addition, the undersigned found their testimony to be unpersuasive and unsupportive of the allegations made in Count VIII. Ms. Dorrell credibly testified that SFS refers clients needing wills and/or deeds to attorneys. Also, there was no sufficiently credible testimony to clearly and convincingly demonstrate that Ms. Dorrell instructed clients to liquidate their securities holdings. In sum, the Department failed to prove its allegations under Count VIII by clear and convincing evidence. Count IX - SFS Employees Performing Unlicensed Insurance Activites The Department’s allegations under Count IX also substantially rely on the testimony of Ms. Wipperman and Ms. Johnson. They testified that they performed activities that should have been handled by someone with an insurance license. Those alleged activities included tasks such as selling insurance, reviewing products with clients, and encouraging clients to use penalty-free withdrawal money to acquire new annuities. As found above, the undersigned does not find the testimony provided by Ms. Wipperman or Ms. Johnson to be credible or persuasive. In sum, the Department failed to prove any of its allegations under Count IX by clear and convincing evidence.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Financial Services enter a final order dismissing the Administrative Complaint. DONE AND ENTERED this 5th day of November, 2018, in Tallahassee, Leon County, Florida. S G. W. CHISENHALL Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 5th day of November, 2018.
