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.
The Issue The issues in this case are whether Respondents violated various provisions in Sections 626.611, 626.621, and 626.9541, Florida Statutes (2006),1 as charged in the Administrative Complaints, and, if so, what discipline should be imposed.
Findings Of Fact At all times relevant to this proceeding, Respondents have been licensed in Florida as annuity and insurance agents in the following categories: life and variable annuity agent; life and variable annuity and health agent; life and health insurance agent; health insurance agent; and life insurance agent. Ms. Cleary has been licensed since 2000, and Mr. Houck has been licensed since 1999. According to Petitioner's certified licensure records, Respondents' licensure histories are clear of any prior discipline and clear of any active or inactive investigations or administrative complaints, with the exception of those pending here. Petitioner is the state agency with the responsibility for licensing and regulating agents, such as Respondents, and for taking disciplinary action for violations of the laws in its charge. Sometime before January 2007, Phyllis Nagle completed and mailed in a card to request information on investments for seniors. The card included the home address for Mrs. Nagle and her husband, Joseph Leo Nagle, and their ages, then 82 and 87, respectively. Respondents worked together as a team in the Nagles' area of Ellenton, Florida. Respondents' practice, upon receiving a card requesting information, was to go to the person's address identified on the card, show the card they received, and ask to set up an appointment at a later time, unless the person wanted to meet with them then and there. In early January 2007, in accordance with their practice, Respondents went to the Nagles' home to follow up on the card Mrs. Nagle had submitted to ask if they could set up an appointment. When Respondents showed Mrs. Nagle the card that she had filled out, she recognized it and invited Respondents into the Nagles' home. For the first 20 minutes, Mrs. Nagle took Respondents on a tour through the home to show off the Nagles' many collections, including figurines, clocks, brass items that Mr. Nagle made in his workshop and music that Mrs. Nagle collected to use when teaching line dancing in the clubhouse of the mobile home park where they lived. After the tour, Mrs. Nagle introduced Respondents to Mr. Nagle, explaining to him that Respondents were there because of a card she sent to request information. They all sat down at a round table in the Nagles' Florida room. For more than an hour, Respondents and the Nagles discussed the Nagles' financial situation, their age, their investment objectives, and their concerns. The Nagles told Respondents that they were concerned about the yield they were making on their money in different accounts at the bank. One of these "bank" accounts was a fixed-rate annuity issued by an insurance company, and the Nagles were not happy with its yield. Respondents talked about the annuity investment product they were selling, but only in general terms at that meeting because the Nagles said that they did not make their financial decisions; instead, they allowed their son to make their financial decisions. The Nagles asked Respondents to call their son, Robert Nagle, and gave his phone number to Respondents.2 Another issue the Nagles talked about at that first meeting was their concern about qualifying for Medicaid. Having observed other seniors who had gone through a spend-down of their assets to qualify for Medicaid, the Nagles learned that while they would be allowed to keep one vehicle, there was an issue regarding whether their mobile home would be considered a vehicle. The Nagles had been told there was a document they could use to designate their mobile home as their domicile and not a vehicle, so they could keep both the home and a vehicle during Medicaid spend-down. Ms. Cleary had heard of the same document, and in the days following the meeting, Ms. Cleary took it upon herself to research and find the appropriate document for the Nagles called a Declaration of Domicile. Meanwhile, on the day after meeting the Nagles, Respondents called Robert Nagle, who knew that Respondents had met with his parents and was expecting their call. Respondents made an appointment to meet Robert Nagle at his residence in Indian Rocks Beach. That meeting took place a few days later. At their first meeting with Robert Nagle, Respondents introduced themselves and discussed Robert's parents' financial status and investment objectives. They discussed Robert's parents' investments held in IRAs, CDs, and annuities and the Nagles' investment concern of making a better yield. Robert added his concern that he thought it was time for all of his parents' investments to be changed over to just his mother's name because of his father's age. They also talked about Robert's investments in CDs and an IRA, for which he had the statement out to review with Respondents. Respondents told Robert about the company, Allianz, whose products they were offering, and Respondents went through an Allianz product brochure with Robert, which they left with him for his further review. Respondents also gave Robert Nagle a financial disclosure from Allianz for the previous year. In addition, since Robert was very computer-savvy, Respondents gave him Allianz' website address so he could check out the company for himself. Respondents reviewed with Robert Nagle the features of the MasterDex 5 annuity product, which was the product they suggested. This product allowed the purchaser to allocate their investment among three different choices: a Standard & Poor's (S&P) 500 index, a Nasdaq-100 index, and/or a fixed interest investment. The two stock market-based components had a greater potential upside return, but, also, a greater risk if the stock market did not perform well. One benefit of this annuity product, as Respondents explained, was that if the stock market went down, the initial investment would not lose value (as it would for direct stock purchases). Robert Nagle had invested in stocks and mutual funds, and so he understood the concept of greater-risk, greater-reward potential inherent in stock investments, versus fixed interest investments. To show the actual recent performance of MasterDex 5 annuity investments, Respondents showed Robert Nagle actual annual statements recently received by clients whose names were blacked out. The actual yields shown on these statements ranged from a low of around five percent to a high of around 14 percent. Respondents also reviewed the terms of the annuity, which was considered a long-term investment of over ten years. Respondents reviewed the various options for withdrawals before the end of the annuity's term. Up to ten percent of the initial investment could be withdrawn annually without penalty or surrender charge. Alternatively, after the first year, a five-year payout option could be invoked, allowing withdrawal of the entire initial investment, with interest, payable in six installments (one immediately, and then one each year for five years). Respondents also reviewed the surrender charges that would apply for early withdrawal of the whole investment, set forth in a schedule of decreasing surrender charges shown in the product brochure. Respondents' first meeting with Robert Nagle lasted approximately 90 minutes. At the end of the meeting, they agreed that since Robert Nagle was looking for a job and was about to leave town for an interview, Respondents would initiate the next contact by calling Robert in a few days to see if he had any questions about the Allianz material. Respondents' next encounter with any of the Nagles was a few days later, after Ms. Cleary had found the Declaration of Domicile form that had been of such concern to the senior Nagles. Respondents had another appointment in the area, and so they volunteered to drop off the form at the Nagles' home. Respondents did not discuss annuities with the Nagles that day; they simply dropped off the form. A few days after they dropped off the form, Respondents called Robert Nagle back, as agreed. Robert said that he had gone over the Allianz product brochure and had also reviewed the company's website. Robert added that he had contacted his parents to give them his recommendation that they should fill out paperwork to purchase an annuity contract. Robert then said he was leaving town again, and when he got back, he wanted to set up another meeting with Respondents because he was probably going to purchase a contract of his own. Respondents then called the Nagles to schedule the next appointment. The Nagles had spoken with their son and knew his recommendation, so they set up the appointment for January 11, 2007. Respondents received a warm reception when they returned to the home of the Nagles for their appointment. Mrs. Nagle expressed excitement that Robert Nagle had given the go-ahead, and they were ready to go through the paperwork. Respondents went over, in detail, all of the paperwork to be filled out, going through each question and answer on each form and filling them out side-by-side with the Nagles. The paperwork included a five-page application, a statement of understanding, and a suitability form. Respondents also showed the Nagles the same actual recent annual statements showing yields earned in MasterDex 5 annuity investments, with client names blacked out, that they had shown the Nagles' son, Robert. The application was completed for the MasterDex 5 annuity in the name of Phyllis Nagle alone, based on Robert's recommendation that his parents should transition all of their accounts to Phyllis Nagle's name alone. The application also included the beneficiary designation, and Joseph Nagle was named the sole primary beneficiary. Even though the Nagles have three children, with Robert being the youngest, for some reason that was not explained, their son Robert Nagle was named the sole contingent beneficiary. Finally, the application included the Nagles' investment allocation among the three options, and they chose 50 percent in the S&P 500 index, 25 percent in the Nasdaq 100 index, and 25 percent in the lower-risk fixed- interest category. The completed application form was signed by Phyllis Nagle on January 11, 2007, immediately below a statement of agreement that included the following: It is agreed that (1) All statements and answers given above are true and complete to the best of my knowledge, . . . (5) I understand that I may return my policy within the free look period (shown on the first page of my policy) if I am dissatisfied for any reason, and (6) I believe this annuity is suitable for my financial goals. Although the policy was not introduced in evidence, the undisputed testimony was that the "free look period" referred to in Mrs. Nagle's acknowledgement was 30 days. The second document that was completed to submit with the annuity application was the statement of understanding. This document, reviewed with the Nagles, is a five-page detailed summary of the terms of the MasterDex 5 annuity contract. The summary sets forth the investment allocation options, guarantees, withdrawals, contract cancellation, and surrender charges. The last page included a chart illustrating how the terms would work for a hypothetical investment, with a column showing the decreasing surrender charges over the years from issuance of the annuity through the tenth contract anniversary. This chart is on the same page as, and immediately above, Mrs. Nagle's signature as the annuity owner, who acknowledged the following by signing the document: I have received a copy of this Statement of Understanding. The agent has answered my questions. I have also received the MasterDex 5 Annuity consumer brochure. I understand that any values shown, other than Guaranteed Minimum Values, are not guarantees, promises, or warranties. I understand that I may return my policy within the free-look period (shown on the first page of the contract) if I am dissatisfied for any reason. The third document that was completed for submission with the annuity application was the product suitability form. This document calls for information about the financial status of the annuity purchaser, including annual income and net worth (defined on the form as total assets, not including home and automobile, minus total debts). In addition, the form asks the purchaser to identify the financial objectives in purchasing the annuity. Finally, in a section called "Accessing your money," the form asks the purchasers how and when they expect to take money out of the annuity. The product suitability form was reviewed by reading the questions and answer options aloud, with Ms. Cleary and Mrs. Nagle reading the form together sitting side-by-side. Mrs. Nagle would discuss the answer with Mr. Nagle, and they agreed on the correct response for Ms. Cleary to check on the form. For annual income, the Nagles agreed that the correct response was $25,000 to $49,999. For net worth excluding home and automobile, the Nagles discussed the answer option categories and agreed that the category $150,000 to $199,999 was the correct response. Respondents did not ask for back-up documentation to prove that the Nagles' income and net worth answers were accurate, as neither Allianz, nor Petitioner requires proof of the purchasers' answers. The Nagles identified the following as their financial objectives in purchasing the annuity: first, to pass on to beneficiaries; and second, for the guarantees provided. With respect to the guarantees, the Nagles considered that for the stock-market-indexed portion of their investment (75 percent of the total investment), the product guaranteed that they would not lose any of their principal, even if the stock market dropped. That was important to the Nagles, who liked the prospect for a higher return than fixed-interest investments allow, but without risking losing their principal if the stock market dropped (as it did in the year following their investment). The product suitability form represented that the Nagles currently, or previously owned, financial products that included certificates of deposit and fixed annuities, but that the source of the premium for this annuity purchase would not be an annuity, certificate of deposit, or other investment; instead, it would be "other." That category was selected, because the premium was going to be paid by check from funds on deposit in a regular bank account.3 The product suitability form also represented that the Nagles had sufficient available cash, liquid assets, or other sources of income for monthly living expenses and emergencies other than the money they planned to use to purchase the annuity contract. Both Phyllis and Joseph Nagle were in agreement that they considered this to be a long-term investment, meaning ten years or more. That is because their goal was not to use the funds, but, rather, to have the investment to pass on to their beneficiaries. Therefore, the Nagles answered the questions about accessing their money by stating that they intended the money to be taken out of the annuity in a lump sum, in ten or more years. After the form was filled out, Ms. Cleary read aloud the questions and the answers she marked down to confirm that she had marked the correct responses. The Nagles confirmed that the answers were completed correctly. Phyllis Nagle signed the completed product suitability form, acknowledging as follows by her signature: I acknowledge that I have read the Statement of Understanding for the product listed and believe it meets my needs at this time. To the best of my knowledge and belief, the information above is true and complete. When Robert Nagle returned to town, he met with Respondents and completed the same set of paperwork to apply for his own MasterDex 5 annuity contract. On his application, he designated his two sisters as primary beneficiaries (33 percent each), and a friend, Cheri Davis, as the third primary beneficiary (34 percent). He allocated 75 percent of his annuity investment to the S&P 500 index choice and the remaining 25 percent to the Nasdaq-100 index choice, thus, taking the higher-risk, higher-potential reward avenue. Robert Nagle signed his application on January 22, 2007, agreeing to the same statements that his mother agreed to by signing her application. Robert Nagle did not complete all the paperwork or fund his annuity that day. Instead, he wanted to read through the statement of understanding again before signing it, while deciding what source he was going to use to fund the annuity. He ultimately decided to cash in a certificate of deposit earning 1.5 percent interest. He met again with Respondents one week later, when he signed the same five-page statement of understanding that Phyllis Nagle had signed, summarizing the terms of the MasterDex 5 annuity. Just as on the form signed by Mrs. Nagle, Robert Nagle's signature appears immediately below a chart that illustrates how the terms would apply to a hypothetical investment over the years, with a column showing the decreasing surrender charges that would apply if the entire initial investment were withdrawn before the tenth anniversary. By his signature on January 29, 2007, Robert Nagle acknowledged: I have received a copy of this Statement of Understanding. The agent has answered my questions. I have also received the MasterDex 5 Annuity consumer brochure. I understand that any values shown, other than the Guaranteed Minimum Values, are not guarantees, promises, or warranties. I understand that I may return my policy within the free-look period (shown on the first page of the contract) if I am dissatisfied for any reason. Robert Nagle wrote a check to Allianz for $30,000 for his MasterDex 5 annuity contract on January 29, 2007. Respondents delivered Robert Nagle's policy to him on February 15, 2007, and he signed a receipt acknowledging its delivery. After a delay, because of some minor surgery Mrs. Nagle had on March 6, 2007, Mrs. Nagle wrote a check to Allianz for $35,000 for her MasterDex 5 annuity contract. As they had done for Robert Nagle, Respondents personally delivered Phyllis Nagle's policy to her shortly thereafter in March 2007, as the Nagles acknowledged. On April 7, 2007, Phyllis Nagle responded to an Allianz request that she complete a questionnaire about her recent annuity purchase. Mrs. Nagle's responses indicated that she found the service provided by Respondents to be "extremely" helpful and that she found the Allianz product descriptions and sales material to be "extremely" helpful. The questionnaire also sought to establish Mrs. Nagle's understanding of the terms of the product she purchased. In this regard, Mrs. Nagle's responses showed that she knew the annuity would provide tax-deferred savings, that surrender charges are imposed on premature full withdrawal, that the investment options she chose include a guaranteed minimum interest rate, and that she "consider[s] this annuity to be a long-term investment and do[es] not intend to use these funds to meet current expenses." Mrs. Nagle also responded that the source of funds used to purchase her annuity was savings, either savings account or certificates of deposit. Finally, Mrs. Nagle acknowledged that Respondents reviewed her financial status, tax status, investment objectives, and other pertinent information to determine whether the annuity purchase was suitable for her and that Respondents personally delivered her policy to her. Mrs. Nagle's only additional comment or suggestion was that she would like statements more than once a year. Neither Robert, nor Phyllis Nagle raised any questions or concerns or voiced dissatisfaction with their annuity contracts within the 30-day free look period during which they could have cancelled their contracts without penalty or surrender charges. Robert Nagle received his annual statement shortly after his one-year contract anniversary. The annual statement showed a yield of 5.00 percent for the policy year beginning January 28, 2007, and ending January 27, 2008. Mr. Nagle had no complaints and voiced no concerns about this annual statement in the month following his receipt of the statement. Phyllis Nagle received her annual statement shortly after her one-year contract anniversary. The annual statement shows a yield of 5.66 percent for the policy year beginning March 7, 2007, and ending March 6, 2008. Inexplicably, Phyllis Nagle believed that her statement showed a yield of only one percent or 1.5 percent. Joseph Nagle also was under the impression that they had received an annual statement that reflected a yield of only one percent or 1.5 percent. But the only annual statement for Phyllis Nagle offered in evidence--part of Petitioner's certified investigation file--plainly shows a yield of 5.66 percent, and nowhere shows a yield of one percent or 1.5 percent. The Nagles were shown the annual statement in evidence and agreed that it shows rather clearly a yield of 5.66 percent. They did not have any explanation for their misunderstanding of what the statement plainly showed. The Nagles seemed to think there was a different statement or some other paper out there that showed a different yield of one percent or 1.5 percent, but the Nagles acknowledged that they only received one annual statement, which they did not have because they said that they turned over all of their papers, presumably to Petitioner. The Nagles were very upset because of their misimpression that the Allianz annuity had only yielded one percent or 1.5 percent in its first year. Mr. Nagle testified that he did not expect the performance to be as high as what he had seen in 2007 on the other recent annual statements and that "I figured at worst it wouldn't be any more than four or five [percent]." Instead, "[i]t was either one or one-and-a-half percent, and I was shocked." Based on their misimpression, the Nagles took action to complain to the state, after talking to their son. But, Mr. Nagle made it clear that they would not have complained or taken any action if they had realized the annual statement showed a yield of 5.66 percent: "I would not have done anything if it was [five] point or whatever percent. . . I wouldn't have cancelled everything out. But when I saw the figures that they showed me, [the yield was] one to one-and-a-half." When asked who showed him those figures, he said he got the information in the mail, and it was not five percent. When asked if it was on another statement, Mr. Nagle said no, but then he said he was not sure where the information came from. As to the 5.66 percent yield he saw clearly on the annual statement in evidence, Mr. Nagle said, "that does not ring a bell at all. I don't understand it. Because that was average money at the time for investments." The Nagles immediately complained to Respondents. Ms. Cleary spoke with Mrs. Nagle, who was very irate about her misimpression of the yield shown on the annual statement and started demanding complete return of the entire investment. Ms. Cleary attempted to remind Mrs. Nagle of the annuity terms that allowed limited withdrawals without surrender charges, and Mrs. Nagle got angrier and ended the conversation. Apparently upon consultation with Robert Nagle's and, possibly, attorneys, the Nagles agreed to complain to Petitioner. The Nagles complained to Allianz and to Petitioner. Robert Nagle complained to Respondents' agency and to Petitioner. These complaints asserted that the Nagles were told by Respondents that their investments were entirely liquid after the first year and could be completely withdrawn without penalty or surrender charge. The statement of understanding that Phyllis Nagle and Robert Nagle each signed plainly says otherwise. When he was asked at the final hearing about the numerous references in the papers he signed and in the brochure he reviewed to surrender charges for premature full withdrawal, with limited options for penalty-free partial withdrawals, Robert Nagle had no response other than to suggest that he was assured by Respondents that the written terms in the documents he signed would not apply. Robert Nagle's testimony, in this regard, was not credible. Instead, he apparently had a change of heart about his intent to make a long-term investment.4 The Administrative Complaints charge that Respondents misrepresented the yields that the MasterDex 5 annuity would earn for the Nagles. The more credible testimony on this subject was that Respondents did not make any such misrepresentations. Instead, Respondents showed the Nagles' actual client annual statements for investments in the same MasterDex 5 annuity, with the client names blacked out, to demonstrate actual yields that others had obtained recently, and those yields ranged from approximately five percent to 14 percent.5 The Nagles testified that their review of these statements led them to expect they could make the same yields. But Respondents credibly testified that they never represented to any of the Nagles what their yields would be and never represented that their yields would be as high as the yields shown on any of the actual statements. Instead, Respondents represented the statements as what they were--actual statements showing yields recently earned by actual clients who purchased the same annuity product. The most credible evidence establishes only that the three Nagles optimistically inferred what they hoped would be true--that the recent past performance would repeat itself. Instead, they experienced the "higher- risk" part of the "higher-risk, higher reward potential" of investments tied to stock market performance. But as promised, they did not lose any part of their initial investment, unlike those who directly invested in a dropping stock market. The Administrative Complaints also charged Respondents with misrepresenting to the Nagles that they could withdraw their entire investment after one year with no penalty or surrender charges. But, Respondents credibly testified that they never made any such representation to any of the Nagles. Instead, Respondents reviewed the annuity's terms summarized in the consumer brochure and the statement of understanding multiple times with the Nagles, and with Robert Nagle. Indeed, the signature page of the statement of understanding shows, right above the signatures, a chart detailing the surrender charges by year, decreasing according to the schedule shown, for complete withdrawal before the end of the annuity's term. The Nagles' complaint of not being able to withdraw their entire investment after one year without penalty was not based on any misrepresentation by Respondents. Instead, the complaint appears contrived after-the-fact, after the Nagles apparently misread their first annual statement as reporting a one percent or 1.5 percent yield, when, in fact, the annual statement reports a 5.66 percent yield. Mr. Nagle testified unequivocally that if he understood the yield was really 5.66 percent and not 1.5 percent, they would not have complained and would have been satisfied to keep the annuity product (consistent with their original long-term intent). It was only when they attempted cancellation upon being dissatisfied with an imagined 1.5 percent yield that they first decided the goal of liquidity, with immediate access to their funds, was an objective that was important to them. That the senior Nagles' complaints are contrived and based solely on their misreading of their annual statement, is clear from the consumer survey completed by Mrs. Nagle on April 7, 2007, after the annuity purchase, but before the first anniversary. This completed survey, in evidence as part of Petitioner's certified investigation file for Respondents, was provided by Allianz upon Petitioner's request. Mrs. Nagle's survey responses show she knew that "Surrender charges are imposed on premature full withdrawal"; and "I consider this annuity to be a long-term investment and do not intend to use these funds to meet current expenses." Further, she confirmed that Respondents reviewed her "financial status, tax status, investment objectives, and other pertinent information to determine whether this annuity purchase" was suitable for the Nagles. Finally, the Administrative Complaints charge Respondents with misrepresenting the Nagles' net worth on the product suitability form. Petitioner presented absolutely no evidence to substantiate the charge that Respondents made any such misrepresentation. Petitioner elicited from Mrs. Nagle the testimony that the product suitability form falsely indicated the Nagles' net worth as in the range of $150,000 to $199,000; Mr. Nagle was more equivocal, saying only that the report range was "[u]ntrue, I think." However, the only evidence in the record as to the source of the net-worth information was Ms. Cleary's detailed description of how the forms were completed, when she clearly and credibly testified that the Nagles discussed and determined what the correct answer was to the net worth question. Moreover, Petitioner failed to establish that, in fact, the information on the product suitability form was a misrepresentation (by the Nagles) at the time it was made. Perhaps the net worth information was accurate in January 2007 when Mrs. Nagle signed the form and acknowledged that the information on it was accurate. Mr. Nagle testified that they probably had certificates of deposit at that time, and Mrs. Nagle could not remember. There was also testimony that the Nagles were working on a spend-down of assets for Medicaid qualification, so their net worth may well have been intentionally reduced after January 2007. In any event, if the net worth information on the form signed by Mrs. Nagle was inaccurate, that inaccuracy was the fault of the Nagles and was not, as charged, a misrepresentation made by Respondents.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is hereby: RECOMMENDED that a final order be entered by Petitioner, Department of Financial Services, dismissing all charges in the Administrative Complaints against Respondents, Judith C. Cleary and Charles B. Houck. DONE AND ENTERED this 22nd day of December, 2010, in Tallahassee, Leon County, Florida. S ELIZABETH W. MCARTHUR 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 December, 2010.
Findings Of Fact Anthony DuVal agreed to purchase from Irene J. Elia the entire capital stock, at the time 50 shares, of Redwing Enterprises, Inc., the corporate owner of an establishment known as Red Road Lounge and Package Store. At the same time, Anthony DuVal agreed to purchase from Mrs. Elia and/or her husband Frank the entire capital stock of Penn Realty, Inc., whose only asset was the building in which the Red Road Lounge and Package Store is located. Both of these purchase agreements called for transfer of the stock to Anthony DuVal or assignees. Neither agreement was contingent on the transfer of any beverage license. The transaction closed in accordance with these agreements, and the stock was transferred to Anthony DuVal and Barbara DuVal, his wife. Thereafter, fifty percent of the stock of both companies was transferred to one Juanita Hester, wife of somebody Anthony DuVal intended to take in as a partner. When he changed his mind, Juanita Hester relinquished her interest in favor of the DuVals. Eventually, Anthony DuVal acquired all the stock of both companies. At the time the DuVals acquired their stock ownership, the building owned by Penn Realty, Inc. was encumbered by a mortgage in favor of Commercial Bank and Trust Company, securing Penn Realty's corporate indebtedness in the approximate amount of $72,000.00. The agreed upon purchase price for the capital stock of both companies was $145,000.00 less this indebtedness. As part of the transaction, both corporations agreed to pay Frank and Irene J. Elia the bulk of the Elias' equity, some $55,000.00, in weekly installments over a period of years. This obligation was secured by respondent's assets, under a financing statement covering "[a]ll present and future furniture, fixtures, equipment, stock in trade, inventory, all Beverage and Liquor and other licenses and all successor licenses." Petitioner's exhibit No. 6. The financing statement was signed by Anthony DuVal on behalf of each company. Anthony DuVal never personally guaranteed any obligation of respondent. He did put money over and above the purchase price into respondent's business. On March 27, 1977, Penn Realty, Inc., entered into a written lease agreement with Redwing Enterprises, Inc., in which respondent undertook to pay $794.60 monthly either to Penn Realty, Inc., or to Commercial Bank and Trust Company, plus all state and county real property taxes levied on the property. Penn Realty, Inc., has paid sales tax on all rental payments respondent has made. By order entered January 31, 1978, petitioner denied Anthony DuVal's application for transfer of respondent's license No. 4-COP #23-2867, on the grounds that Anthony DuVal (formerly Anthony Anello) lacked good moral character. Petitioner's exhibit No. 9. Anthony DuVal then conveyed his entire interest in respondent to his daughter Yvette. Consideration for this conveyance was substantially less than fair market value. At the time of the hearing, however, no gift tax return had been filed. Mr. O'Neal, a public accountant retained by respondent, testified that he was awaiting certain records before estimating the value of the interest conveyed for gift tax purposes. At the time of the hearing, Redwing Enterprises, Inc., had only one share outstanding and Yvette owned it. Anthony DuVal also made gratuitous transfers to Yvette and to his son Danny of shares of Penn Realty, Inc., while retaining a substantial number of Penn Realty shares for himself. In June of 1978, Yvette DuVal took over the management of the Red Road Lounge and Package Store, after on-the-job training under Freddie Magnole and Carlene Sundell, who stayed on as night manager. Yvette had worked as a cashier at Pantry Pride, in an office for Pantry Pride, where she had charge of the payroll for 120 employees, and as a secretary at an insurance company. Yvette is a high school graduate; she has finished two years of junior college. The lounge and package store are open from 10:00 o'clock a.m. to 5:00 o'clock a.m. Yvette works on the premises every day of the week, sometimes as long as eight hours a day. When she took over the ownership of respondent, she put about $8,000.00 of her own money into the business. On behalf of respondent, she has personally seen to the making of mortgage payments to Commercial Bank and Trust Company. When payments have been late, somebody at the bank has telephoned Yvette. She has also personally seen to it that the Eliases are paid $125.00 every Saturday morning, against the indebtedness secured by the financing statement. Petitioner's exhibit No. 6. Since June of 1978, Anthony DuVal has maintained the building owned by Penn Realty, Inc., but has put no money into respondent's business, and has taken no part in the day-to-day management of business. On June 23, 1978, petitioner received a certificate of incumbency and declaration of stock ownership, petitioner's exhibit No. 7, reciting that Yvette DuVal owned all of respondent's stock; that Yvette was president of respondent; and that Carlene Sundell was secretary and treasurer of respondent. Petitioner then initiated an investigation to determine what interest, if any, Anthony DuVal might still have in respondent. Towards the end of the investigation, petitioner subpoenaed Yvette DuVal and Carlene Sundell. On January 5, 1979, Anthony DuVal telephoned petitioner's offices, saying that Yvette and Carlene had quit, and asking that they be released from the subpoenas. Fred Magnole called petitioner's office with the same report on January 8, 1979. As a result, petitioner terminated its investigation into the transfer of respondent's license. On January 12, 1979, Anthony DuVal, A. C. Lowery (a lawyer friend of Mr. DuVal's), Frank Elia and Carlene Sundell conferred with petitioner's Captain Harris and Officer del Monte. Anthony DuVal said Yvette and Carlene Sundell had resigned and that he would consider reapplying himself for transfer of respondent's license. He agreed to file an application within ten days, if he decided to reapply. Captain Harris wrote Mr. Lowery on January 18, 1979, summarizing the meeting that took place on the 12th and reciting that "Carlene Sundell and Yvette DuVal resigned as officers and directors of Redwing Enterprises." Petitioner's exhibit No. 10. Petitioner heard nothing from Mr. DuVal or respondent and eventually instituted the present proceedings by filing charges. Carlene Sundell quit respondent's employ in early 1979, but never resigned her position as secretary and treasurer of respondent in writing. No other person has been named secretary or treasurer of respondent since Carlene Sundell. Ms. Sundell never served as a director of Redwing Enterprises, Inc. Yvette DuVal has managed the Red Road Lounge and Package Store continuously since June of 1978. She never resigned her position as president of respondent or as respondent's sole director in writing, although she had second thoughts about running a bar as her life's work about the time she received petitioner's subpoena. Yvette DuVal has held the single share representing the complete ownership of respondent ever since she acquired it.
Recommendation Upon consideration of the foregoing, it is RECOMMENDED: That petitioner revoke respondent's license. DONE AND ENTERED this 17th day of October 1979 in Tallahassee, Florida. ROBERT T. BENTON, II Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 17th day of October 1979. COPIES FURNISHED: Dennis E. LaRosa, Esquire Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32301 Lister Witherspoon, IV, Esquire 45 Southwest 36th Court Miami, Florida 33135
Findings Of Fact Petitioner is the administrative agency charged with responsibility for administering and enforcing the provisions of Chapter 493, Florida Statutes. Respondent, Mortgage Refunds Research and Consulting ("Mortgage"), is a Florida corporation that is wholely owned by Respondent, Richard Vidair. Respondent has sole responsibility for the direction, control, operation, and management of Mortgage. Respondent is not licensed as a private investigator and Mortgage is not a licensed private investigative agency. Respondent is considered by the United States Department of Housing and Urban Development to be a third party tracer. Respondent and his agency locate persons who may be owed refunds for mortgage insurance premiums. From sometime in August, 1990, through May 2, 1991, Respondent contacted individuals who may be owed mortgage insurance refunds by the federal government. Respondent solicited a fee contingent upon actual receipt of the mortgage refund from the federal government. Respondent obtained from the United States government a list of persons owed mortgage refunds. Such lists are available to anyone for a nominal processing fee. Respondent determined the whereabouts of persons named on the list. Respondent either telephoned or mailed a letter to the person named on the list and informed that person of the service offered by Respondent. Respondent included in the letter sent to the person a finder's fee agreement to be signed by the person on the list. Once the contract was signed and returned to Respondent, Respondent provided the person on the list with additional documents to be filled out for the purpose of filing a claim with the federal government. Government refunds were mailed directly to the person on the list. The terms of the finder's fee agreement required the person on the list to pay Respondent's fee within three days of the date the person received his or her money from the government. The agreement further provided that if Respondent's fee was not paid within 30 days, Respondent was entitled to a fee equal to 50 percent of the government refund. Finally, the agreement provided that all collection and legal expenses incurred by Respondent in collecting the finder's fee must be paid by the other party. Respondent received a letter in March, 1991, from the Division of Licensing notifying Respondent that his activities required licensure. After conferring with his attorney, Respondent terminated his activities in Florida but continued his activities outside the state. On October 14, 1987, an attorney for the Division of Licensing issued an internal legal opinion to then Division Director Dave Register. The opinion concluded that persons who engage in the business of locating individuals to whom mortgage insurance premium refunds are due from the federal government are not required to be licensed pursuant to Chapter 493, Florida Statutes. On October 30, 1987, Ken Rouse, General Counsel, Department of State, issued a legal opinion which rescinded the prior internal opinion and concluded that such activities must be licensed.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner enter a Final Order finding Respondent guilty of violating Section 493.6118(1)(g), Florida Statutes, and Florida Administrative Code Rule 1C-3.122(1), imposing an administrative fine of $500 pursuant to Florida Administrative Code Rule 1C-3.113(1)(a)2, imposing an administrative fine of $150 pursuant to Florida Administrative Code Rule 1C- 3.113(1)(b)2, and ordering Respondent to cease all investigative activities until Respondent is properly licensed in accordance with Chapter 493. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 23 day of January 1992. DANIEL MANRY Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 23th day of January 1992.
The Issue Whether the Petitioner, Edward J. Miller, is entitled to be licensed as a resident life and variable annuity insurance agent.
Findings Of Fact The Petitioner, Edward J. Miller, is employed at Washington Mutual Bank. His supervisor is Tracy Tarach. It was Ms. Tarach's desire that Mr. Miller become licensed as a resident life and variable annuity insurance agent. To that end, she and Mr. Miller filed the necessary papers with Washington Mutual Bank to approve the application process as well as the course to become licensed. The process of having the bank issue the check to cover the licensing procedure was timely. Additionally, the Petitioner could only be scheduled for the licensure class and completion of the licensing process when the bank took favorable action on the request. Accordingly, for this Petitioner the licensing process was dragged out over the course of several months. In January 2003 the Petitioner completed the state application for licensure but did not transmit it to the state. He submitted the request to the bank for course approval and planned to submit the paperwork when it was successfully completed. At that time, the Petitioner did not have any criminal charges pending against him and the answers noted on the application were all correct and truthful. In February 2003 the Petitioner was stopped for DUI. The next workday the Petitioner went to his supervisor and fully disclosed the arrest as well as the charge. The Petitioner made no effort to hide the arrest from his employer and the employer considers the Petitioner a valuable employee, despite the incident. In March 2003 the Petitioner was formally charged with DUI, a misdemeanor. Meanwhile, the bank approved the Petitioner's request to take the course for licensure. The forty-hour course in another work location required the Petitioner to travel to the school site and reside in a hotel for a week while the course work was completed. Obviously the Petitioner's supervisor was willing to invest the costs of licensure school and accommodations for the Petitioner with full knowledge of the Petitioner's pending criminal matter. After successfully completing the licensure course in April 2003 the Petitioner submitted the license application to the state. He failed to double-check the forms. He failed to correct an answer that was now incorrect. That is, he failed to fully disclose the arrest. Subsequently, the criminal case went to hearing, and the Petitioner entered a plea and was placed on probation. The resolution of the DUI charges was completed after the application was submitted. Section 3 of the license application asks several screening questions of applicants for licensure. Applicants are required to answer "yes" or "no", depending on the information sought. In this case, it is undisputed that the Petitioner failed to correct his answers to the questions posed in Section 3. More specifically, the Petitioner failed to truthfully disclose that he had been arrested for DUI. This failure was an oversight on the Petitioner's part, and not intended to deceive the Department. The answers should have been corrected when the Petitioner amended the application form to include the information regarding his completion of the Gold Coast School of Insurance class on April 11, 2003. He did not do so. When the Department reviewed the Petitioner's application and discovered the false answer, it took action to deny the licensure request. That denial was entered on January 22, 2004. A notice of the denial was provided to the Petitioner and he timely challenged the proposed action. On October 31, 2003, the Petitioner completed all of the terms of his court-ordered probation and the entire DUI incident was put to rest.
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 granting the Petitioner's application for licensure. DONE AND ENTERED this 30th day of July, 2004, in Tallahassee, Leon County, Florida. S ___________________________________ J. D. PARRISH Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 30th day of July, 2004. COPIES FURNISHED: Honorable Tom Gallagher Chief Financial Officer Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Pete Dunbar, General Counsel Department of Financial Services The Capitol, Plaza Level 11 Tallahassee, Florida 32399-0300 Dana M. Wiehle, Esquire Department of Financial Services 612 Larson Building 200 East Gaines Street Tallahassee, Florida 32399 Edward J. Miller 6205 Northwest West Deville Circle Port St. Lucie, Florida 34986
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 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.
