The Issue Did Mr. Carter violate sections 627.4554(4)(a), 627.4554(4)(c)2., 626.611(5), 626.611(7), 626.611(9), 626.611(13), 626.621(2), 626.621(6), 626.9541(1)(a)1., and 626.9541(1)(e)1., Florida Statutes (2006, 2009, 2010); section 626.9521(2), Florida Statutes (2006, 2010); sections 626.9541(1)(k)2., 626.9541(1)(l), and 626.9521(2), Florida Statutes (2009, 2010); section 626.621(9), Florida Statutes (2010); and Florida Administrative Code Rule 69B-215.210? If so, what discipline should be imposed?
Findings Of Fact At all times material to this proceeding, the Legislature has vested the Department with the authority to administer the disciplinary provisions of Chapter 626, Florida Statutes. § 20.121(2)(g) and (h)1.d., Fla. Stat. (2011). At all times material to his proceeding, Mr. Carter was licensed by the Department as a Florida life (including variable annuity) agent (2-14), life including variable annuity and health agent (2-15), life insurance agent (2-16) and life and health agent (2-18). He has been appointed as an agent for several different life insurance companies, including Allianz, EquiTrust and Great American, but not RiverSource. Counts I through V--W.K. and J.K. 2006, J.K. and W.K., and the MasterDex 10 J.K. was born in 1937 in Madrid Spain, where she finished high school. Spanish is J.K.'s native tongue. She cannot write in English and does not speak or understand English well. When J.K. was 17, she met W.K., a member of the United States' armed services. They married in Spain. Six months after the marriage, the newlyweds moved to Brooklyn, New York, W.K.'s home. They later relocated to Florida. W. K. constructed a mall in New Port Richey containing 18 stores that included a restaurant and a frame shop. J.K. ran the frame shop. Wal-Mart eventually bought the mall. By 2006, J.K. and W.K. had accumulated approximately two million dollars in brokerage investments. Until the decline of his health and mental faculties in 2008, W.K. handled all financial matters for the couple. J.K. did not understand them or have any interest in them. In 2006, J.K. and W.K. met Mr. Carter, who began marketing annuities to them. J.K.'s testimony demonstrated that her memory was significantly impaired. That fact, combined with the fact that W.K. had died several years before the hearing, limit the ability to determine what representations Mr. Carter made to J.K. and W.K. or what information or instructions they gave him. On July 25, 2006, W.K. applied for a MasterDex 10 annuity policy from Allianz Life Insurance Company of North America. He paid an initial premium of $603,470.34 for the policy. W.K. was 73 years old at the time. W.K. obtained the money to fund the policy from the couple's Merrill Lynch brokerage account. Mr. Carter knew this. As part of the annuity application process, Mr. Carter submitted an Allianz "Product Suitability Form" for W.K. Completion of the form is a prerequisite to processing the application and issuing the policy. The stated purpose of the form is "to confirm that your [the applicant's] annuity purchase suits your current financial situation and long-term goals." The form, signed by W.K. and Mr. Carter, stated that an annuity was the source of the funds for payment of the annuity's premium. This statement was not accurate. Mr. Carter knew that it was not accurate. Signing and submitting the application with the suitability form containing this known incorrect statement was a willful deception by Mr. Carter with regard to the policy. Signing and submitting the application with the suitability form containing this known incorrect statement was a dishonest practice in his conduct of the business of insurance. The suitability form also indicated that W.K. expected the annuity to provide him a steady stream of income in six to nine years. Allianz accepted the application and issued the policy. Mr. Carter received a commission of $66,381.73. The MasterDex 10 is a complex financial product with many difficult to understand restrictions, conditions, interest options, bonuses, penalties, and limitations. The MasterDex 10 that W.K. and J.K. purchased paid interest linked to the performance of the Standard and Poors 500 stock market index. It also guaranteed interest of at least one percent. A "Nursing Home Benefit" was one of the options the MasterDex 10 provided. The "benefit" permitted the policy holder to receive payments of the full "annuitization" value of the policy over a period of five years or more if the holder was confined to a nursing home for 30 out of 35 consecutive days. The "annuitization value" is the maximum value that the policy can reach. It is the total of all payments that would be made to the holder if he either (1) let the premium and interest earned accumulate for a minimum of five contract years and then took ten years of interest only payments, followed by a lump sum payment of the annuitization value or (2) equal payments of principal and interest over ten or more years. Policy holders could make additional premium payments to increase the policy value. The policy also permitted limited withdrawals without penalty. After holding the policy for 12 months after the most recent premium payment, a holder could, without penalty, withdraw up to ten percent of the premium paid once a year until a maximum of 50 percent of the premium had been withdrawn. This meant that after one year passed, W.K. could make five annual withdrawals of $60,347.03. The policy also provided for loans on the annuity. In the years following this transaction, Mr. Carter maintained contact with W.K. and J.K. by periodically asking them to join him at a restaurant for lunch. Decline of W.K.'s Health While visiting his mother in Greece in 2008, W.K. fell and hit his head. Afterwards his health declined. On June 3, 2008, W.K. was diagnosed with Alzheimer's disease and determined to be unable to make sound financial and medical decisions. From June 2008, forward, J.K. was very worried about W.K.'s health, caring for him, and making him as comfortable as possible. On November 5, 2008, W.K., at Mr. Carter's suggestion, executed a Durable Power of Attorney, prepared for her by a lawyer, giving J.K. broad authority to act on his behalf in financial matters. At some point, W.K. was admitted to the Bear Creek Skilled Nursing Center and resided there for a period of time. On April 4, 2010, he was discharged from Bear Creek. W.K. resided in Bear Creek for a period of time. Although there is some hearsay evidence about when W.K. entered Bear Creek, the evidence does not corroborate direct evidence or hearsay evidence that would be admissible over objection in circuit court, sufficient to prove when W.K. entered Bear Creek. Consequently, the evidence does not establish the length of time that W.K. spent in the facility and does not establish that W.K. would have been eligible for the "Nursing Home Benefit" described in paragraph 16. After W.K. returned home in April, J.K. engaged an enterprise called "Granny Nannies" to provide caretakers at home. The services cost approximately $12,000 per month. During this period J.K.'s health also declined markedly. Among other things, she had appendicitis and breast cancer. Treatment of the cancer required chemotherapy, which left her in pain and exhausted. During this time Mr. Carter obtained a copy of the power of attorney executed by W.K. in favor of J.K. On June 18, 2010, the court appointed Paula Rego as guardian for W.K and J.K. with authority to act on their behalf in all matters affecting property rights. On November 26, 2010, W.K. died in hospice care after a short hospital stay. The Events of 2010 In December 2009, J.K. met with insurance sales agents and sisters Kimberly Trotter and Chandra Valdez. J.K. had responded to a mail solicitation by them. During the meeting, J.K. and Mss. Trotter and Valdez realized that J.K. knew them because J.K. and W.K. had rented space to the sisters' parents. Capitalizing on the connection and J.K.'s concerns about paying the monthly costs of care for W.K., Ms. Trotter and Ms. Valdez began providing financial advice and marketing annuity products that they sold. They advocated liquidating W.K.'s and J.K.'s existing annuities, including the MasterDex 10. In December 2009, Ms. Trotter and Ms. Valdez sold W.K. and J.K. two annuities with Great American for approximately $661,098. On January 28, 2010, W.K. authorized J.K. and Ms. Trotter to access policy information. In January 2010, Ms. Trotter attempted to liquidate the MasterDex 10 policy and transfer the funds to Great American. Allianz notified Mr. Carter of this in February 2010. He intervened to stop the transfer. On March 3, 2010, Allianz received another request to liquidate the MasterDex 10 from J.K. Allianz sent her what it calls a "conservation letter." The purpose of the letter is to "conserve" the business with the company. The letter also identified needed information, including a copy of J.K.'s power of attorney for W.K. On March 4, 2010, Allianz notified Mr. Carter of the liquidation request. He contacted J.K. and began a successful effort to obtain a letter asking to reverse the liquidation. On March 17, 2010, Ms. Trotter or Ms. Valdez again convinced J.K. to liquidate the MasterDex 10 funds and transfer them to Great American. Again Mr. Carter acted to stop the liquidation. On March 23, 2010, J.K. signed a letter written by Mr. Carter asking for William Pearson to be her new financial advisor. Mr. Carter sent the letter to RiverSource, a company that issued another annuity policy of J.K's. J.K. did not know who Mr. Pearson was. She only signed the letter because Mr. Carter told her that it would help her save money. On March 26, 2010, J.K. submitted a liquidation request form for the MasterDex 10 signing it on behalf of herself and W.K. J.K. submitted the request at the urging of Ms. Trotter and/or Ms. Valdez. Allianz received the request on March 31, 2010. It began processing the full liquidation of the annuity policy. On April 1, 2010, Mr. Carter sent Allianz a letter saying that J.K. did not want to liquidate W.K.'s MasterDex 10 policy. The letter claimed that this was the second time that competing agents had tried to cancel the policy. Allianz reinstated the policy. On April 1, 2010, Mr. Carter sent a handwritten letter to Great American stating that J.K. did not want the MasterDex 10 policy canceled. The letter refers to having previously provided the power of attorney. Mr. Carter signed the letter. J.K. signed the letter on behalf of W.K. and herself. On April 7, 2010, Great American received a typewritten letter addressed to "To Whom It May Concern" stating that J.K. and W.K. wanted to transfer their funds to Great American since "December and January" and that J.K. did not see Mr. Carter on April 1 and did not sign a letter that he sent. On April 9, 2010, Mr. Carter wrote and sent a letter, signed by J.K. at his request, asking Great American to cancel the policies sold by Ms. Trotter and Ms. Valdez and waive all surrender charges. The letter states that J.K. is fighting cancer and that the agents forced her to sign the policy documents. Mr. Carter included with the letter a Withdrawal/Surrender Request Form completed by him and signed by J.K. On April 23, 2010, Mr. Carter wrote a letter to Allianz stating that J.K. needed more than ten percent of the value of the MasterDex 10 policy (the penalty-free withdrawal permitted) to provide the funds needed to take care of W.K. The letter states that W.K. and J.K. wished to change ownership of the policy to J.K. only and then to fully surrender the policy. Mr. Carter's letter is signed by J.K. on her behalf and on behalf of W.K. Mr. Carter enclosed forms with the same date, which he prepared for J.K.'s signature, requesting the change of ownership and liquidation. Allianz sent J.K. a letter, with a copy to Mr. Carter, on April 29, 2010, identifying alternatives to liquidating MasterDex 10 for getting the money needed to care for W.K. The Allianz letter also disclosed that liquidating the policy would result in a substantial loss of money. In part, the letter stated: We understand you wish to surrender your annuity policy. As we review your request, we want to be certain you are aware of all the alternatives that are available to you. This information can help you make an informed decision based on your best financial interests. It is possible for you to access a portion of your policy's value while your policy remains in deferral. This would allow its value to continue to grow tax-deferred, and still provide the cash you need. Your annuity may permit you to take a free withdrawal, policy loan, or partial surrender. Finally, it's important to realize exactly how much you will be giving up should you decide to fully surrender your policy. Your policy's current Accumulation Value is $751,566.07 and its Surrender Value is $585,014.49. By surrendering your policy now, you are giving up the difference between these two values [$166,551.58]. Any one of these options could provide you with needed cash while allowing you to receive your full accumulation value in cash after your policy's 10-year surrender charge period. The letter provided a ten-day period, called a conservation period, during which J.K. could withdraw her request to liquidate the policy. Mr. Carter called Allianz on April 30, 2010, and spoke to Amber Hendrickson. In the recording of the conversation, Mr. Carter sounds agitated and speaks forcefully. J.K. participated in the telephone call. She is quiet and deferential. In the call, J.K. waives the ten-day "conservation" period. Mr. Carter insists that Allianz process the surrender swiftly. Allianz processed the liquidation of the MasterDex 10 on April 30, 2010. It wired funds from the liquidated annuity to J.K.'s Regions Bank account the same day. On April 30, 2010, J.K. signed a check for $475,000 to EquiTrust Life Insurance Company to purchase an annuity. Mr. Carter wrote the check. Also on April 30, 2010, J.K. signed an EquiTrust annuity application completed by Mr. Carter. The form indicates that the policy is not replacing an existing annuity contract. This is not an accurate representation. On April 30, 2010, Mr. Carter also completed an Annuity Suitability Questionnaire for J.K. to sign and submit with the EquiTrust application. He indicated that J.K. had income from a pension. Mr. Carter knew that this was not accurate. Mr. Carter also indicated that J.K.'s income was adequate to cover all expenses, including medical. He knew this was not accurate because he was fully aware of the cost of W.K.'s caregivers and J.K.'s concern about them. The form, as completed by Mr. Carter, is misleading about the source of the funds for purchase of the annuity. He made the technically correct representation that the funds come from a checking account. But the funds were from the liquidation of the MasterDex 10 and were placed in the checking account the same day the application was completed. The funds were actually from the liquidation of the MasterDex 10 annuity. The form also stated that the proposed annuity would not replace any product. Mr. Carter knew this was not accurate also. He knew that the EquiTrust annuity was replacing the MasterDex 10, albeit in a lower amount, because J.K. kept some cash and lost a good deal of money in surrender costs. A letter Mr. Carter sent to EquiTrust on August 16, 2010, when it was investigating complaints about J.K.'s purchase of the annuity, demonstrates that he knew the EquiTrust annuity was replacing the MasterDex 10. Mr. Carter's letter described the surrender and purchase this way: "An amount of $475,000 was placed into the EquiTrust Annuity (Market Power Bonus Index's Fixed account), the remaining balance of $110,038.75 was sent to her checking account, plus two other accounts valued at $50,000 that were closed, and a Jefferson National check that wasn't cashed for $3,500." Also, on April 23, 2010, J.K. signed, on behalf of herself and W.K., a Surrender/Withdrawal Request to RiverSource asking for the full withdrawal of the net accumulation value of their annuity contract with RiverSource. RiverSource sent J.K. a check for $26,430.07. It deducted $2,158.32 for a withdrawal charge and $295.98 for a "rider charge" from the full value of $28,884.37. On May 5, 2010, EquiTrust received J.K.'s policy application documents and check. EquiTrust required additional documents including a financial needs analysis form. Mr. Carter sought an exception to the requirement for a financial needs analysis form. He did not receive the exception. On May 6, 2010, Mr. Carter sent EquiTrust the required financial needs analysis form. He completed the form for J.K., who was 72 at the time. J.K. also signed this form. The form repeats some of the incorrect statements of the previous forms. It is also includes additional incorrect statements. The instructions for the section about "Replacements" states, "complete if an existing life insurance policy or annuity contract will be used to fund this product." Mr. Carter checked "no" as the response to the question: "Is the agent assisting you with this annuity purchase the same agent on the life insurance policy or annuity contract being replaced?" This indicates he is aware that the policy replaces the MasterDex 10. The response was also a representation that he knew to be false, because he was the agent on the policy being replaced. Mr. Carter also indicated on the needs analysis form that the source of funds for the EquiTrust annuity purchase was "Stocks/Bonds/Mutual Funds." Mr. Carter knew that this representation was not correct. It was also inconsistent with the statement on the suitability questionnaire that the funds came from a checking account. On May 18, 2010, J.K. signed a letter, written by Mr. Carter, asking for William Pearson to be her new financial advisor. Mr. Carter sent the letter to Genworth, a company holding another annuity policy of J.K's. J.K. did not know who Mr. Pearson was and only signed the letter because Mr. Carter told her that it would help her save money. J.K. signed a letter, dated May 20, 2010, instructing EquiTrust to cancel the annuity she had with it. On May 23, 2010, Mr. Pearson submitted a form, signed by J.K., using the power of attorney, asking Genworth to liquidate an annuity held for W.K. On May 26, 2010, EquiTrust received the request to cancel J.K.'s policy and advised Mr. Carter. On May 31, 2010, Mr. Carter sent EquiTrust a letter saying that J.K. did not want to cancel and enclosed a letter he prepared, dated May 26, 2010, and signed by J.K. asking EquiTrust to withdraw the cancelation request. The letter also stated that an agent who provided her untruthful information initiated the request. On June 2, 2010, at Mr. Carter's urging, J.K. sent EquiTrust a letter saying she wanted to keep the EquiTrust policy. On June 2, 2010, Mr. Carter sent, by facsimile, a letter written by him and signed by J.K. asking Great American to make Peter Gotsis her annuity agent. J.K. did not know Peter Gotsis and only signed the letter because Mr. Carter asked her to. On June 29, 2010, EquiTrust received a check for an additional $90,302.19 premium for J.K.'s policy. In July 2010, with the assistance of employees at her bank and others, J.K. contacted an attorney. The attorney, Joan Hook, contacted Mr. Carter and the various companies with annuities. Due to the efforts of Ms. Hook, J.K.'s guardian, Ms. Rego, Ms. Karen Ortega of the Department, and others, the series of transactions were undone and J.K. returned to her position before the liquidation of the MasterDex 10 annuity. From December 2010 forward, it was clear to Mr. Carter or anyone else having regular dealings with J.K. that she is confused, uninformed about financial matters, compliant, reasoning poorly, and not capable of making sound decisions. J.K.'s testimony demonstrated that her memory was significantly impaired. That fact combined with the fact that W.K. died several years before the hearing, makes it impossible to determine what representations Mr. Carter made to W.K. and J.K. and to determine what information or instructions they gave him. Much of the evidence related to Counts I through V is hearsay evidence that would not be admissible over objection in a civil action. In addition, there is no expert testimony evaluating the facts of record and analyzing the suitability of the investments advocated by Mr. Carter. Also, there is no evidence of the life expectancy of W.K. and J.K., which is an important factor in evaluating suitability of annuity products. Consequently, the record is inadequate for determining the reasonableness or suitability of the various products promoted by Mr. Carter or of the liquidation of the MasterDex 10. Mr. Carter willfully misrepresented information with regard to the applications for the Allianz and the EquiTrust annuities. This was dishonest. In the process, Mr. Carter also demonstrated a lack of trustworthiness to engage in the business of insurance. These willful misrepresentations were false material statements knowingly delivered to Allianz and EquiTrust. Count VI--G.D. and K.D. G.D. lives in New Port Richey, Florida, where she moved from New York about 40 years ago. She was born on January 17, 1935, and has a ninth-grade education. G.D. had worked as a courier. Her investment experience consists of funding certificates of deposit (CDs), placing money in a mutual fund, and purchasing a Transamerica annuity. She is frugal and a conservative investor. G.D. is married to K.D. who was born April 12, 1927. Both are retired. G.D. met Mr. Carter in January 2010, when she responded to a postcard that he sent suggesting that he could save her money on taxes on social security payments. At that time, G.D. was 75 years old and K.D. was 83. G.D. was and is in bad health due to having suffered four strokes. She had difficulty speaking to Mr. Carter during his sales presentations. G.D. and K.D. disclosed to Mr. Carter that their total monthly family income, including social security and K.D.'s pension income, was approximately $2,400.00. They also disclosed that their assets included approximately $325,000.00 in CDs held with Suncoast Schools Federal Credit Union. G.D. and K.D. each owned an annuity, one with Hartford and one with Transamerica, which they told Mr. Carter about. Together, the annuities had a value of approximately $85,000. G.D. and K.D. also had approximately $66,000 in a money market account. Mr. Carter convinced G.D. and K.D. to liquidate their CDs to purchase two Allianz annuities called a MasterDex 10 Plus. One required payment of a $38,219.39 premium. The other required payment of a $287,365.00 premium. The couple applied for the annuities for G.D., with K.D. as the beneficiary, because he was the older of the two. Mr. Carter completed the applications, which they signed. Part six of the applications is titled: "Replacement (this section must be completed)." It asks two questions. The first is: "Do you have existing life insurance or annuity contracts?" Mr. Carter checked "no" as an answer. This was not correct, and he knew it. The second question asks: "Will the annuity contract applied for replace or change existing contract or policies?" This Mr. Carter correctly answered "no." Section six also asks for the amount of coverage in force. Mr. Carter did not provide this information. Mr. Carter also completed the Florida Senior Consumer Suitability Form Questionnaire for G.D. and K.D., which they signed. The form accurately reflects the couple's net worth, liquid assets, and income. It reports correctly that they owned or had owned CDs, fixed annuities, and variable annuities. The completed form also accurately reflects the couple's desire for guaranteed income. The form discloses that the annuity must be owned a minimum of 15 years to receive its maximum value. The MasterDex 10 Plus annuity is a complicated financial product with a ten percent "bonus" that the buyer does not receive unless she holds the policy for 15 years. In fact, holding the policy for 15 years is the only way to get the full benefit of the policy. While money may be withdrawn earlier, that results in losses of the benefits and in some cases penalties. For instance, if a policy holder chooses to liquidate the policy, the value she receives is only 87.5 percent of the premium paid with one percent interest for the period held. These provisions have a substantial financial effect on the benefits of the annuity. For example, in the fifth year, the cash surrender value of the $38,219.49 premium policy is $36,027.00. About ten months after purchasing the annuities, G.D. and K.D. began having second thoughts about the purchase of the annuities. G.D. consulted with the financial advisor "Wayne" at her bank. G.D. later concluded that she had also misunderstood the interest rate. Mr. Carter had shown her sales material with the ten percent "bonus," which generated a high interest rate of 13.3 percent for one year. But G.D. did not understand that the interest rate only applied in one year, and the money was not immediately available. On November 17, 2010, G.D., with Wayne's help, composed a complaint letter to Allianz that summarized her complaints and requested that her premium payments be returned without fees. On November 28, 2010, Carter responded with a letter to Allianz defending his annuity sales. On December 17, 2010, Allianz's employee, Mary Lou Fleischacker, advised G.D. by letter that the "free look" period for cancelling the contracts had passed. But Fleischacker did request further information about the sales. By two letters dated January 10, 2011, Allianz advised G.D. that she would suffer over $80,000 in penalties if she canceled the contracts. G.D.'s efforts to terminate the annuities prompted Carter to come uninvited into G.D.'s home and insistently demand that G.D. telephone Allianz and cancel her attempt to rescind the contracts. He also asked her, without explanation, to wait one week before liquidating the policies. G.D. refused. Carter repeatedly telephoned G.D. and returned uninvited to the house several times making the same demand. G.D. refused to answer her door. Mr. Carter came to G.D.'s daughter's house uninvited one evening, told her that her mother was going to lose a lot of money, and revealed her mother's financial matters to her. Mr. Carter demanded that G.D.'s daughter deliver to her mother for signature a letter he wrote rescinding the liquidation requests. G.D.'s daughter agreed to get Carter to leave. G.D.'s daughter feared for her mother's safety because of Mr. Carter's harassing telephone calls to her and her mother. She urged her mother to call the police. G.D. called the police and a New Port Richey officer told Mr. Carter to cease the harassment, and then filed a report on January 13, 2011. Mr. Carter did not contact G.D. or her daughter after that. Eventually, with the assistance of Department Investigator Ortega, G.D. was able to obtain the return of her funds from Allianz. There is no expert testimony evaluating the facts of record and analyzing the suitability of the investments advocated by Mr. Carter. Also, there is no evidence of the life expectancy of G.D. and K.D., which is an important factor in evaluating suitability of annuity products. Consequently, the record is inadequate for determining the reasonableness or suitability of the liquidation of the CDs and purchase of the MasterDex 10 Plus annuities as promoted and sold by Mr. Carter. Mr. Carter willfully misrepresented information with regard to the applications for the MasterDex 10 Plus annuity. This was dishonest. In the process, Mr. Carter also demonstrated a lack of trustworthiness to engage in the business of insurance. These willful misrepresentations were false material statements knowingly delivered to Allianz. Mr. Carter's repeated, persistent, and overbearing efforts to require G.D. to speak with him about the cancelation and withdraw it demonstrate a lack of fitness to engage in the business of insurance. Count VII--G.B. G.B. was born on January 14, 1930. She has a high school education. G.B. worked at and retired from Lucent Technology wiring telephone boards. She receives a small pension. Her husband, K.B., managed their financial affairs before he died ten years ago. Before K.B.'s death, the couple maintained investment accounts with Schwab. After K.B.'s death, Schwab employee, Barry Tallman, recommended that G.B. seek financial advice from Christopher Trombetta, CPA. She did so. Mr. Carter and a colleague, Christopher Drew, met with G.B. on June 29, 2010. She was 70 years old, timid, and easily confused. G.B. had responded to a promotional postcard she received from them purporting that the law governing taxes on social security income had changed and that they could lower her taxes. Mr. Carter was the person who presented G.B. information and persuaded her to purchase an annuity in the course of a meeting that lasted one to two hours. The evidence does not permit a determination of what representations and information Mr. Carter presented in his sales meeting with G.B. Her memory of the meeting was not distinct. She was confused about the meeting and did not remember facts precisely or explicitly. Mr. Carter completed applications for EquiTrust annuity products. G.B. signed the applications. Mr. Carter also completed financial needs analyses. G.B. signed them also. A box that asks if the applicant is aware that the annuity may be "a long-term contract with substantial penalties for early withdrawal" was checked "yes." The form also accurately represented that the source of funds for the annuity premium was stocks, bonds, or mutual funds. The other representations in the form were accurate. Mr. Carter persuaded G.B. to purchase two EquiTrust Market Power Plus annuities. G.B. signed two EquiTrust annuity contracts ending with 29F (E-29F) and 30F (E-30F). The initial premium for E-29F was $458,832.71. The initial premium for E-30F was $118,870.34. Both annuities were designed to provide G.B. with income in 2036. The funds for the premium came from the liquidation of her stock brokerage account. Both contracts had 20 percent surrender charges for the first two years of ownership. G.B. could not have surrendered the contract with its full financial benefits without a penalty until she was 95 years old. Mr. Carter delivered the annuity contracts to G.B. on August 6, 2010. The contracts provided G.B. the right to cancel the annuity by returning it within 15 days of the date she received it. Soon afterwards, Barry Tallman notified G.B. that her Schwab accounts had been liquidated. Transamerica Agent William Pearson had liquidated the accounts to transfer the money for purchase of the EquiTrust annuities. She was surprised. G.B. grew concerned about the annuities and consulted Mr. Trombetta and a financial advisor named Judith Gregory on September 20, 2010. With their assistance, G.B. wrote a complaint letter to EquiTrust asserting that Mr. Carter had assured her, among other things, that the annuities would protect her money should she enter a nursing home. G.B. wanted to cancel the annuities and have her full premium returned. G.B.'s letter to EquiTrust said, "I do not want any calls or visits from the agent or the agent's office." Mr. Carter learned of the effort to cancel the annuities. On November 15, 2010, at Mr. Carter's suggestion, he and Mr. Drew returned to G.B.'s home uninvited and unannounced. Mr. Carter insisted on entering and speaking to G.B. Mr. Carter began loudly and forcefully arguing with G.B. She telephoned Mr. Trombetta and asked that he speak to Mr. Carter. Mr. Carter yelled at Mr. Trombetta. Mr. Trombetta credibly describes part of the conversation as follows: And before I could barely get that out, Rick exploded on me. He snapped and he started cursing up and down. F'n me up one side and down the other. And "you don't F'n know what you are talking about. You don't care about this person. You don't f'n know what you are doing;" and this and that. When G.B. returned to the telephone to speak with Mr. Trombetta, he advised her to call the police if Mr. Carter did not leave her house within five minutes. Mr. Carter and Mr. Drew left. EquiTrust eventually returned over $600,000 to G.B. There is no expert testimony evaluating and analyzing the suitability of the investments advocated by Mr. Carter. Also, there is no evidence of G.B.'s life expectancy which is an important factor in evaluating suitability of annuity products. Consequently, the record is inadequate for determining the reasonableness or suitability of the two annuities Mr. Carter sold G.B. Mr. Carter's conduct, in his unannounced visit to G.B. to try to persuade her to change her plans to liquidate the annuities and his conversation with Mr. Trombetta, demonstrated a lack of fitness to engage in the business of insurance.
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 revoking the licenses of Richard Edward Carter. DONE AND ENTERED this 28th day of November, 2012, in Tallahassee, Leon County, Florida. S JOHN D. C. NEWTON, II 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 28th day of November, 2012.
The Issue The issues for determination in this case are whether Respondent violated the law as charged by Petitioner in its Administrative Complaint, and, if so, what discipline is appropriate.
Findings Of Fact Petitioner is the state agency with the statutory authority and duty to license and regulate insurance agents in Florida. Respondent has been licensed as a life including variable annuity and health agent, life insurance agent, and life and health insurance agent. At the time of the events which are the subject of this case, Respondent held the aforementioned licenses and was the president of Seniors Financial International, Inc., an insurance agency located in Vero Beach. Storfer is licensed to sell fixed annuities for most of the insurance companies licensed to transact business in the State of Florida, including Allianz, IMG, Aviva, North American, Old Mutual, and American Equity. Storfer keeps himself abreast of the suitability requirements and features of annuities by regularly attending and participating in the quarterly, if not monthly, training presented by insurance companies. The companies also provide seminars at Storfer's office. He goes to their offices or views webinars that can last two-to-three hours. The companies also offer assistance by providing people in-house to answer questions about their products. Even though Storfer could have the option for each client to submit cases to the companies for the company to help prepare and work to find a suitable product for each customer/individual, there was no testimony he did so with the individuals in this case. He also testified that he understood and was knowledgeable about all the products sold, relating to the three clients, from which the AC stems. Storfer regularly holds luncheon/dinner workshops and seminars at restaurants in and around Vero Beach that focus on financial issues. He invites the attendees by mailing them a flier. Each attendee receives a free meal while listening to Storfer's financial presentation. During the luncheons, Storfer does not offer any investment products for sale. However, attendees are asked to complete a "Senior Financial Survival Workshop Evaluation Form" and are invited to request an in- office appointment if they are interested in discussing specific investment products. The form elicits information including family background, financial history, current expenses, and tax liabilities. The attendees are asked to put "yes" or "no" at the top of the form. If an attendee puts yes, then a follow-up appointment is scheduled in Storfer's office. Storfer's wife picks up the forms and sets the appointment. Storfer's procedures at the appointment typically start by filling out a client profile. He goes through the form with the client and asks the client questions to obtain the details regarding age, contact information, beneficiaries, health, estate, plans for money, rate of return, percentage of life saving willing to lose, risk tolerance, liquidity, income needed form investment accounts, what needs to be fixed, income, assets and liability inventory, life insurance, and long-term care insurance/disability insurance. After completing the profile, Storfer reviews the documents that he has requested the client bring in to the appointment. This includes tax returns, an investment portfolio, and list of how much money they have and where it is, including life insurance or long-term care. There is no fee for the appointment. Typically, after the first meeting, Storfer reviews the documents and the client returns for a second appointment. At the client's next appointment, Storfer has reviewed everything and put together a product that he wants to sell the client. He also provides an illustration of the product demonstrating the product's growth and how it would work. If the client decides to go forward and invest in one of the products Storfer has recommended, Storfer gets an application for the product and his wife fills it out.2 After the application has been completed, Storfer's office procedure is to submit it to the company the same day to await approval. Once the application has been approved, then the policy is funded either by transferring from another type of product (direct transfer rollover) or by a 1035 exchange. The policy can not be issued if not funded. Once the policy is funded and issued, the company mails the policy and the documents for the client to sign to Storfer, as the agent to deliver. Storfer's operating procedure is to call the client to set an appointment for policy delivery. The appointment's purpose is to go over the policy with the client, including the amount of money that went into the policy, where the funds came from and what the policy will do for them, including liquidation and charges. Storfer keeps documents which he refers to as client notes in each client's file. After client meetings, he uses a service to dictate what he wants as a summary of the client meeting. The service types up what he says and emails it back to him. It is printed, reviewed, and scanned into his system. Alberto and Celina Grubicy Celina Grubicy ("C.G."), a native of Argentina, was born on April 6, 1940. She was married at age 19 to Alberto Grubicy ("A.G."), who was also born and raised in Argentina. They moved to the United States in 1965; English is their second language. The Grubicys opened a repair shop in New York in 1964. Then, they went in the construction business in Connecticut for about ten years before retiring to Florida. In both successful businesses, C.G. handled the paper work and kept the books. The Grubicys retired in the early 90's and purchased a condominium in Florida, where they now reside. On February 5, 2007, the Grubicys attended Respondent's luncheon seminar at Carrabbas Italian Grill in Vero Beach. At the seminar, the Grubicys listened to the presentation and completed the seminar evaluation form confirming an estate in excess of one million dollars. At the time, A.G. was 65 years old and C.G. was 66 years old. The Grubicys thought the presentation sounded good, so they made an appointment to see Storfer in his office. Prior to any interaction with Storfer, C.G. was the owner of a Transamerica variable annuity with a contract date of September 23, 2002, an AXA Equitable variable annuity with a contract date of June 17, 2005, and a Hartford variable annuity with a contract date of July 25, 2005. Each of the annuities was doing well and approaching dates when surrender charges would no longer apply. The Grubicys met with Storfer on February 7, 2007. At the meeting, the Grubicys informed Respondent that their investment goals were two-fold. They explained that their primary financial goal was safety. Their plan included selling their residential building complex from which they were currently collecting rental payments for income.3 Their goal in five years was to have an investment that would provide their income after they sold the property.4 The Grubicys wanted an investment to replace the rental money that they would no longer receive after the sale of their building. The Grubicys also stressed to Storfer that the security of the investment was a paramount concern. C.G. wanted out of variable annuities because she was concerned about the stock market risk and did not want annuitization to take place. At their second meeting on February 12, 2007, knowing the Grubicys' goals, Storfer misrepresented the advantages for the product he recommended with a graphic illustration on a blackboard. He showed the MasterDex annuity with Allianz in such a fashion, that, when the market advanced in relation to a base line, the return on the annuity would also advance, up to a three percent cap per month on the gain, but that when the market fell below the base line, there would be a zero percent return, but never a loss of the gain made in the previous months, or a loss of invested capital. Storfer recommended and proceeded to sell the Grubicys the Allianz MasterDex 10 ("MasterDex") policy, being fully aware of the Grubicys' goals. He insisted that was the way for the Grubicys to invest because they would never lose their principal compared to the other annuities that have high risk plus excess fees. Storfer did not provide the Grubicys any other investment option. The annuity was a long-term investment that provided for surrender penalties on a declining scale for fifteen years even though Storfer told the Grubicys that the Allianz annuity would mature in five years from the day it started.5 Storfer assured the Grubicys that they were not going to lose anything by investing in the MasterDex annuity with Allianz. They were not accurately informed of the provisions in the contract by Storfer during the meeting nor did Storfer fully review the relevant terms and conditions, including the length of the policy.6 The Grubicys knew that when they surrendered the three variable annuities there would be surrender charges. However, Storfer told them that the product he was selling them had a 12 percent bonus that would offset the monetary lost from surrender penalties of the transferring funds.7 The Grubicys decided to follow Storfer's recommendation with his assurances that they wouldn't lose money, and they surrendered their three annuities to purchase two MasterDex annuities in excess of about one million dollars. After Storfer completed the numerous forms and documents, the Grubicys authorized the transfers of money to Allianz by way of assignment on or about March 2, 2007, and authorized him to buy the new policies. Storfer allocated 100 percent to the Standard & Poors ("S&P") 500 instead of allocating the total investment among three possible choices in smaller increments. Respondent's 100 percent allocation choice on the Supplemental Application contravenes both of the Grubicys' requests on each of their Liquidation Decision forms, which specifically state "the decision to liquidate . . . based solely on . . . desire to eliminate market risk and fees " The annuity product Storfer sold the Grubicys provided for three different values: annuitization value, cash surrender value, and guaranteed minimum value. The Statement of Understanding provided: * * * Annuitization value The annuitization value equals the premium you pay into the contract, plus a 10% premium bonus and any annual indexed increases (which we call indexed interest) and/or fixed interest earned. This will usually be your contract's highest value. Withdrawals will decrease your contract's annuitization value. Cash surrender value The cash surrender value is equal to 87.5% of premium paid (minus any withdrawals) accumulated at 1.5 percent interest compounded annually. The cash surrender value does not receive premium bonuses or indexed interest. The cash surrender value will never be less than the guaranteed minimum value (which we define below). The cash surrender value will be paid if you choose to receive a) annuity payments over a period of less than 10 years for Annuity Option D and five years for Alternate Annuity option IV, or over a period of less than 10 years for all other annuity options, b) annuity payments before the end of the first year for Alternate Annuity Option IV or before the end of the fifth policy year for all other annuity options, or c) a full surrender at any time. Guaranteed minimum value. The guaranteed minimum value will generally be your lowest contract value. The guaranteed minimum value equals 87 5% of premium submitted, minus any withdrawals. The guaranteed minimum value grows at an annual interest rate that will be no less than 1% and no greater than 3%. (emphasis in original) The Grubicys signed the numerous forms and documents without reading them because they trusted Storfer and he sounded as if he knew what he was talking about. They relied on his advice. Storfer sold the Grubicys a policy completely different from what he had described.8 The monthly cap was opposite of the way Storfer explained it. A description of the "monthly cap" stated: Although there is a monthly cap on positive monthly returns, there is no established limit on negative monthly returns. This means that a large decrease in one month could negate several monthly increases. Actual annual indexed interest may be lower (or zero) if the market index declines from one month anniversary to the next, even if the market index experienced an overall gain for the year. (emphasis in original) The Grubicys later learned that the advice Storfer provided them regarding how the MasterDex annuity worked was erroneous. Respondent provided them misleading representations regarding the sale of the annuity products. On April 5, 2007, C.G. received her annuity contract for a MasterDex annuity for approximately $1,123,000, and she executed a Policy Delivery Receipt, Liquidation Decision Form and a Policy Review and Suitability Form. On April 12, 2007, A.G.'s annuity contract for a MasterDex annuity for approximately $35,000 was delivered and he executed a Policy Delivery Receipt, Liquidation Decision Form and a Policy Review and Suitability Form. The sale of the Allianz annuities generated commissions of approximately $95,000.00 for Storfer or his agency, Senior Financial International, Inc. The Grubicys became concerned about the MasterDex product Storfer sold them while watching television at home one day, and seeing a class action lawsuit advertisement about their purchased product. They called Storfer immediately to discuss Allianz. He set up an appointment with the Grubicys to meet with him about their concerns. When Storfer met with the Grubicys, he assured them that they didn't need to change anything, their product was fine. He also informed them that their product was six percent up and not to worry because if the S&P 500 went down, they didn't have to worry because they had already made six percent. In May 2007, the Grubicys went to Connecticut and attended another investment seminar. Afterwards, they set up a meeting with the financial advisor, Mr. Ray ("Ray"). The Grubicys took their investment paperwork to Ray and he reviewed it. Ray explained how the MasterDex worked and called an Allianz customer service representative while they were in the office to further explain how the product worked. The Grubicys were informed that there was a monthly cap of three percent when it went up but no monthly cap on stock market losses. Such a description of the cap combined with the description in the contract support a finding that the MasterDex annuity did not meet the Grubicys' financial goals and was not a suitable investment for them. In particular, the Grubicys had been clear that they did not want to have any market risk. Subsequently, the Grubicys contacted Storfer again and questioned his declaration regarding the cap on stock market losses. Respondent continued to describe the crediting method incorrectly and told them Ray was just trying to sell them something. He insisted that the S&P 500 is the way he explained it earlier and that Ray's interpretation was wrong. Ray eventually sent the Grubicys an article from the Wall Street Journal, which they testified reemphasized that the investment worked completely different from what Storfer continued to tell them. The Grubicys requested a refund from Allianz. Approximately one year later, Allianz eventually set the contract aside and refunded the investment principal, surrender charges for the three annuities, and some interest. The evidence convinces the undersigned that Storfer knowingly made false representations of material facts regarding the MasterDex annuity and its downside cap. Kikuko West Kikuko West ("K.W."), a native of Japan, was born in 1933. She marrried a U.S. soldier and moved to the United States when she was 18 years old. Together they had four children. She is now married to Robert West ("R.W."). K.W.'s employment history started with her working in a bakery, then as a waitress in a Chinese restaurant, and her ultimately owning and operating a successful flower shop for over 30 years in West Warwick, Rhode Island. She sold it in 2006. K.W. sold her house in Rhode Island and used the money to invest in a Smith-Barney mutual fund and an AXA Equitable Life Insurance Company (AXA) annuity (contract # 304 649 121), which she purchased in June 30, 2004. West purchased a condominium in Florida and has been a permanent resident for the past five years. On January, 15, 2008, Robert and Kikuko West ("Wests") attended Respondent's seminar. They scheduled an appointment for January 23, 2008, but didn't show. They attended a second workshop on or about June 3, 2008, and scheduled a meeting for July 9, 2008, but didn't show. The Wests rescheduled their appointment with Storfer on August 4, 2008, and met with him in his office for the first time. Even though K.W.'s husband attended the meeting, the focus of the meeting was her finances. K.W. explained that their monthly income was $2,900 and their monthly living expenses were $2,100, but a majority of it came from her husband's pension so she was worried about income if he passed. She only received $600 a month in social security and wanted income in the future. She had $100,000 for emergencies in a money market account. K.W. also informed Storfer that when she dies she wants her four daughters and six grandchildren to inherit her money. K.W. wanted to stop receiving various statements from each of her numerous investment accounts and bundle her assets. She told Storfer that she wanted to keep everything that she had and would be happy with a rate of return of four or five percent. She emphasized she had zero risk tolerance. K.W. provided the following information for her asset/liability inventory: an AXA variable annuity(non- qualified) in the amount of about $119,589.58; mutual fund (non- qualified) of $253,289.55; IRA (qualified) $80,039.33; CDs (nonqualified) for $25,000 and $35,000; a Fidelity and SunTrust (nonqualified) totaling $40,000; and a Vanguard equaling $60,000. West explained that she didn't have life insurance but had prepaid funeral. Her husband had three life insurance policies. K.W. had a second meeting with Storfer on August 6, 2008. At that meeting, K.W. provided income tax and other paperwork to detail the stocks that she wanted consolidated into one statement.9 Storfer went over the financial illustrations and company profiles he had compiled as proposed investments. Unbeknowest to the Wests, Storfer's plan for restructuring K.W.'s reinvestments was to transfer funds from her variable annuity (approximately $215,000) to a fixed annuity and transfer assets from K.W.'s existing brokerage accoung (approximately $80,000) to a new brokerage account, which were both with American Equity. During the meeting, Storfer also introduced the Wests to Kevin Kretzmar, a broker for Summit Brokerage Services, by speakerphone.10 The discussion consisted of how the money would be transferred.11 The Wests thought Kretzmar worked for Storfer as his assistant and were unaware that he brokered for a separate company. Storfer brought Kretzmar into the transaction to handle the brokerage account because he was not a broker, but he did not make this plain to the Wests. In the meeting, Strofer emphasized to the Wests that K.W. was paying too much in income tax and her investments should be set up to reduce the income tax. Storfer also informed the Wests that K.W. would get a guaranteed eight percent interest each year and would be able to withdraw 10 percent a year with no penalty,12 which K.W. relied upon in deciding to follow Storfer's recommendation to purchase the American Equity annuity selected by Storfer. Respondent provided two letters to K.W. on Seniors Financial International, Inc., letterhead that stated: Kikuko: This would replace the Mutual Funds $253, 289.00. You will receive a bonus w[h]ich is added the first day of $25,329.00. Your account will start with $278,618.00. With an 8% guaranteed growth for income. With no risk. Mitchell Kikuko This would replace the AXA Variable Annuity $119,589.00. You will receive a bonus w[h]ich is added the first day of $11, 959.00. Your account will start with $131,548.00. With an 8% guaranteed growth for income. With no risk. Mitchell After the meeting, the Wests decided to go forward with Storfer's recommendation for K.W.'s investments. On August 8, 2008, the Wests returned to Storfer's office and K.W. agreed to transfer the funds. She signed the applications and contracts including 14 documents, which would transfer the money and invest in the annuity. K.W. did not read everything that she was signing because she couldn't understand all the terminology and trusted and relied upon Storfer. Storfer told K.W. that even after she signed, if she didn't like the product, she could call and everything would get put back to the way it was before. K.W. thought she was purchasing one policy. Respondent sold her two policies numbered 693752 ("the SunTrust transfer" or "the 80K contract") and 693755 ("the AXA transfer" or "the 215K contract"). Both applications indicate each is replacing an AXA policy. K.W.'s SunTrust is not mentioned in the 80K application. The documents attached to the applications K.W. signed without reading also detail that the American Equity Bonus Gold (BG) has a 10 percent bonus; Various "values"; and the minimum guaranteed interest rate is only one percent. The Lifetime Income Benefit Rider (LIBR) document states "a lifetime income that you cannot outlive" is tied to the owner's age. On the BG contract, the income account value (IAV), the second option, was checked at a rate of eight percent rider guaranteed income. The cash surrender penalty listed for the BG contract in the application is 80 percent of the first year premiums.13 The BG application also described a nine percent interest crediting method. Out of the nine options listed, Respondent admitted that he chose the S&P monthly Pt. to Pt. w/Cap & AFR for K.W. The option was not defined in the application, and K.W. had to rely solely on Storfer to define and explain the product. Specific terms and conditions of the annuity such as the penalty free withdrawals14 were defined in the policy contracts, which K.W. never received.15 In the car on the way home from the August 8, 2008, meeting, K.W. looked at the back page of the brochure for American Equity Insurance and read that she could only earn one percent a year with the annuity. This caused her some concern. Subsequently, K.W. called her son-in-law, a director at Merrill Lynch on Wall Street, who agreed to review the documents during K.W.'s upcoming visit to New York. K.W. then called Storfer's office back and left a message not to process the applications. The Wests also attempted to fax Storfer a letter that stated, "I do have to hold off on any changes . . . do no process until I review all papers." On Saturday, August 9, 2008, the Wests met briefly with Storfer in his office16 to request the original paperwork back that had been signed on Friday and stop the process. K.W. instructed Storfer to do nothing until her son-in-law approved it. She and her husband were pleased that Storfer agreed not to process the forms until her son looked at them and said that the investment was good.17 Stofer gave K.W. a yellow manila envelope with copies of the paperwork West had signed and a note. At some point, Storfer processed K.W.'s application for the purchase of the American Equity annuity, contrary to his agreeing not to finalize the purchases until the Wests gave the go-ahead.18 The Wests left for North Carolina to start their vacation on Sunday, August 10, 2008. While on vacation, K.W. opened the manila envelope and discovered that it did not contain the originals of the signed forms she had requested. Additionally, a letter was enclosed dated August 11, 2009,19 on Seniors stationary that stated: Dear Kikuko, Attached is transfer paperwork to transfer the brokerage account from Suntrust to us. We will not sell any investments until you approve them. If you and your son in law have any questions please contact me I will be more then happy to assist. Sincerely, K.W. had her son-in-law review the investment paperwork and requested that he talk to Storfer. After K.W. talked to her son, she decided the investment was not good for her. Ultimately, K.W. learned that her money had been transferred out of the Suntrust account without her permission. She called Storfer's office numerous times to get him to cancel the annuity transactions, but was unable to reach him.20 K.W. was eventually provided Kretzmar's contact information and he instructed her how to reverse the transfer of funds. K.W. had communications with Kretzmar and representatives from American Equity that lead to her funds being refunded. The American Equity annuities were ultimately cancelled. Viewing the evidence as a whole, the undersigned determines that Respondent made false promises not to process K.W.'s annuity applications in connection with the investments and did so contrary to K.W.'s instructions, as well as made false misrepresentations to her regarding the details of the annuity. Doris Jorgensen Ms. Doris Jorgensen ("Jorgensen") was born in New York City on December 20, 1921. She grew up in Connecticut. She married William Jorgensen. While married she owned and operated an antique shop out of her house in Connecticut. She started investing with her husband, William, before he passed in 1999. She and her husband would discuss their investments and decide how to invest together. She has no children and lives alone in Sebastian, Florida. Prior to meeting with Storfer, Jorgensen was the owner of an Integrity Life Insurance Company (Integrity) variable annuity with a contract date of July 28, 2003, and Aviva Life and Annuity Company (Aviva; formerly AmerUs) deferred annuity with a contract date of December 26, 2003. Jorgensen's net worth, before meeting Respondent was approximately a million dollars. Jorgensen attended two luncheon seminars presented by Respondent on April 2, 2007, and on October 23, 2007. She was 86 years old at the time. At the first seminar, Jorgensen filled out a Senior Financial Survival Workshop Evaluation Form, indicating she was a widow, had an estate from $25,000-$200,000, and had concerns in the area of Social Security Tax Reduction, Variable Annuity Rescue, and Equity Index Annuity. When Jorgensen attended the second workshop, she filled out the form identical to the previous one, except she also circled Asset Protection from Nursing Home as a concern. On or about November 5, 2007, Jorgensen met Storfer in his office for the first time. Storfer prepared her client profile and Jorgensen described her risk tolerance as "none" and indicated that she was unwilling to lose any of her life savings through investments. She also informed him that she intended to leave her entire estate to numerous charities and had set up a trust for that purpose. Jorgensen provided Storfer income information at the meeting that indicated that she lived off her monthly social security and pension payments, a total monthly income of $1,800.00, and her expenses were $1,100.00. She also had $120,000 cash and a net worth of $900,000.00. At another meeting, Jorgensen provided Storfer her financial portfolio to review. One meeting Jorgensen had with Storfer was attended by her brother, who did not provide her any advice regarding what to do with her investments. Ultimately, Storfer recommended and sold Jorgensen an Allianz Life Insurance Company Equity Indexed Annuity. Upon his advice, Jorgensen surrendered her $208,015.74 Integrity Life Policy #2100073292 issued on July 28, 2003. The transfer resulted in the initial funding of the Allianz MasterDex,21 which became effective November 16, 2007. Jorgensen told Respondent that she had a problem with monetary loss and Storfer said he could make it up with the Allianz Life. The policy provided that she could start withdrawing the money in five years and then must annuitize the policy and withdraw the money over a 10-year period. The Allianz annuity was delivered on December 12, 2007. The Allianz Life contract, a MasterDex, contract #70610993, included a 10 percent bonus. Respondent placed 100 percent of Jorgensen's funds in the S&P 500 index like the Grubicys. Later, on or about January 16, 2008, Storfer also had Jorgesen authorize an additional transfer of $306,507.21 in funds from her Aviva/AmerUS policy purchased December 1, 2003, to Allianz. The policy was $330,137.95. Surrender charges on the AmerUs annuity would have expired December 1, 2014. On February 4, 2008, the money was sent to Allianz into contract #70610993. Together, Jorgensen's transfers totaled over half-a million dollars and she incurred surrender charges totaling in excess of $29,000. Jorgensen was unable to understand the annuity application and contract language. She trusted Storfer and took him at his word and signed a lot of forms without filling them out or asking questions. Jorgensen testified that she always followed the directions of whoever gave her business advice. Jorgensen also testified in this matter that she was "not certain," "I don't really remember," and "I have no idea whether it was or not" regarding numerous questions relating to the transactions and policy receipts. At some point, Jorgensen attended another investment seminar presented by insurance agent, Ms. Jones ("Jones").22 On February 11, 2008, Allianz gave Jorgensen a receipt for her payment of $306,423.03. Jorgensen contacted Allianz and directed the company to return the transferred funds to Aviva. Jorgensen directed Allianz to "rescind this policy in full." On or about February 14, 2008, Jones also helped Jorgensen with a typewritten letter dated February 15, 2009, from Jones' office to Allianz following up the request. Jorgensen ultimately dealt with Storfer instead of Jones regarding rescission of the Aviva/AmerUs to Allianz transaction. Storfer ultimately placed the funds with Old Mutual/OM Financial annuity ("OM"). An application, transfer/1035 exchange, was executed in Jorgensen's name and other documents relating to the OM annuity on or about March 14, 2008. The policy is signed Doris Jorgensen not "Doris R. Jorgensen." Jorgensen testified she typically signs her name to include the middle initial "R" "Doris R. Jorgensen" on official papers.23 Jorgensen discovered the policy when she received the annuity confirmation letters from OM. Respondent earned a commission of nearly $7,000 on the OM transaction. The policy delivery receipt dated May, 1, 2008, six weeks after the purchase date of the OM policy, also has a signature without a "R" initial and Jorgensen denies the signature is hers. Storfer's signature is not on OM's required policy delivery certification form. The Delivery Receipt for the OM policy is dated May 1, 2008. Jorgensen still has the OM annuity. The undersigned finds that the evidence fails to show that Storfer misrepresented the sale of the two annuities or made false representations regarding the annuities sold to Jorgensen.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED the final order be entered by the Department (1) finding that Mitchell Storfer violated the provisions of Chapter 626, Florida Statutes, described, supra, and (2) revoking his licensure. DONE AND ENTERED this 31st day of December, 2009, in Tallahassee, Leon County, Florida. JUNE C. McKINNEY Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 31st day of December, 2009.
The Issue The issue is whether Petitioner is eligible for services under the Home Care for Disabled Adults Program.
Findings Of Fact Based upon the testimony and evidence received at the hearing, the following findings are made: Parties Petitioner is a 41-year-old retired State of Florida employee. She retired on disability in August 2002 as a result of "extreme" and "terminal" medical problems, the precise nature of which is not reflected in the record. At the time of her retirement, Petitioner was working for the Department. She had worked for the Department and its predecessor, the Department of Health and Rehabilitative Services, for slightly more than ten years and she was a member of the Florida Retirement System (FRS). The Department is the state agency responsible for administering the Home Care for Disabled Adults Program ("HC/DA Program"). HC/DA Program The HC/DA Program is a state-funded program related to the federal supplemental security income (SSI) program. As such, the HC/DA Program is referred to as an "SSI-related program." The HC/DA Program is intended to provide an alternative to institutional or nursing home care for disabled adults. It does so by providing monthly support and maintenance payments for the care of eligible disabled adults in family-type living arrangements in private homes. The income threshold for the HC/DA Program is 300 percent of the SSI federal benefit rate, which is currently $552.00 per month. Accordingly, the income threshold for the HC/DA Program is $1,656.00 per month. An individual who has income in excess of $1,656.00 per month is ineligible for services under the HC/DA Program, no matter how significant his or her needs are. It is undisputed that Petitioner meets all of the other eligibility requirements for the HC/DA Program except the income threshold. Petitioner's Income and the Health Insurance Subsidy Petitioner does not receive SSI benefits. Her only sources of income are a disability benefit she receives from the federal Social Security Administration (SSA) and a pension benefit she receives from the FRS. Petitioner's SSA disability benefit is $983.00 per month. Petitioner's gross FRS pension benefit is $701.00 per month. Her net benefit is only $410.00 per month as a result of health insurance premiums which are paid to Blue Cross and Blue Shield of Florida (BC/BS) by Petitioner through "payroll deductions." Included in Petitioner's gross FRS pension benefit is a health insurance subsidy of $50.40 per month. The subsidy amount is based upon the number of years of creditable service that Petitioner had with the State. It is calculated at a rate of $5.00 for each year of service. The subsidy may only be used by Petitioner to purchase health insurance. The subsidy does not cover the entire cost of Petitioner's health insurance. Even with the subsidy, Petitioner pays approximately $240.00 per month to BC/BS for health insurance. The subsidy is "optional" in the sense that Petitioner was required to separately apply for it under the FRS. However, upon application, the subsidy is legally owed to Petitioner as a result of her ten years of service to the State. The subsidy is paid directly to Petitioner, although Petitioner never actually receives the money since she has chosen to have it (and the remainder of her insurance premium) transferred to BC/BS through a “payroll deduction” from her monthly FRS check. Petitioner's total income is $1,684.00 per month if the health insurance subsidy is included, and it is $1,633.60 per month if the subsidy is excluded. Department's Review of Petitioner's HC/DA Application and Determination of Ineligibility On March 5, 2003, Petitioner met with Tracy Seymour, an adult services counselor with the Department, to determine whether she might be eligible for services under the HC/DA Program. Ms. Seymour helped Petitioner complete the application for the HC/DA Program, and gathered general income information from Petitioner. Petitioner's application was then forwarded to the Department's economic self-sufficiency unit for review. That unit is responsible for determining income eligibility where, as here, the applicant is not receiving SSI benefits. To determine income eligibility, the economic self- sufficiency caseworker verifies the income and resource information provided by the applicant on the application. Pamela Bolen was the caseworker responsible for reviewing Petitioner's application. Ms. Bolen contacted the SSA and obtained a print-out detailing Petitioner's disability benefit. That print-out confirmed that Petitioner received an SSA benefit in the amount of $983.00 per month. Ms. Bolen next called the Division of Retirement (DOR) to obtain information related to Petitioner's FRS pension benefit. Ms. Bolen was told that Petitioner's benefit was $650.60 per month with an additional $50.40 per month being paid towards Petitioner’s health insurance by the State. Later, Ms. Bolen received a print-out from DOR which reflected Petitioner's gross FRS pension benefit as being $701.00. That figure is the sum of $650.60 and $50.40. Because Ms. Bolen had not previously done an income eligibility determination for the HC/DA Program, she was unsure as to whether the $50.40 insurance subsidy was to be included or excluded when determining Petitioner's income. As a result, she contacted the economic self-sufficiency "help desk" for guidance. Roger Menotti, an administrator with 18 years of experience in the economic self-sufficiency unit, responded to Ms Bolen's inquiry. Mr. Menotti researched those portions of the Department's policy manual that relate to the HC/DA Program. The policy manual is not adopted by rule, nor is it incorporated by reference in any Department rule. However, the policy manual is consistent with the Department rules governing the HC/DA Program as well as the federal SSI rules. Section 2640.0115.02 of the policy manual provides that "gross income is used to determine eligibility" for the HC/DA Program. Section 1840.0102 of the policy manual provides that "[s]ome deductions withheld from gross income must be included as income" and that section specifically lists health insurance premiums as an example of such a deduction. Section 1840.0118 of the policy manual provides: A vendor payment is a money payment made for SFU [sic] expenses by an individual or organization outside of the SFU [sic] from funds not legally owed to the SFU [sic]. Vendor payments are excluded as income. . . . * * * Direct payments to a creditor or vendor on behalf of an individual are vendor payments and are excluded as available income to the individual with exception. When a vendor payment results in the individual directly receiving income, the income is included. . . . (Emphasis supplied.) Section 1440.1400 of the policy manual provides that: Individuals must apply for and diligently pursue to conclusion an application for all other benefits for which they may be eligible as a condition of eligibility [for the HC/DA Program]. Need cannot be established nor eligibility determined upon failure to do so. Section 1440.1400 specifically identifies retirement benefits and health insurance payments as examples of the other benefits for which the applicant must apply. Based upon his review of the policy manual, and particularly the sections quoted above, Mr. Menotti concluded that the health insurance subsidy is not a "vendor payment" and that it must be included in Petitioner’s gross income. Mr. Menotti conveyed this conclusion to Ms. Bolen. Thereafter, Ms. Bolen updated her calculations to reflect Petitioner's total monthly income as $1,684.00, which exceeds the income threshold for the HC/DA Program. Ms. Bolen then returned the application to Ms. Seymour. Based upon the economic self-sufficiency unit's determination that Petitioner's income exceeded the threshold for the HC/DA Program, Ms. Seymour notified Petitioner in writing on March 20, 2003, that she was "financially ineligible" to receive home care services. Ms. Bolen knew Petitioner when she was a Department employee. She and Ms. Seymour are continuing to work with Petitioner to identify Department programs for which Petitioner may be eligible. As of the date of the hearing, those efforts had resulted in Petitioner being found eligible for the Department's Medical Needy Program. Upon learning that her income exceeded the threshold for the HC/DA Program, Petitioner considered giving up the health insurance subsidy in order to reduce her income below the threshold. Ms. Bolen advised her not to do so. Ms. Bolen's advice was based upon Section 1440.1400 of the policy manual which does not allow an applicant for services under the HC/DA program to turn down other benefits or assistance that they may be eligible for. Had Ms. Bolen not given Petitioner this advice, Petitioner would have given up the health insurance subsidy for no reason. In a final effort to determine whether there was any means by which Petitioner could be found eligible for services under the HC/DA Program, Petitioner’s case was referred to Lynn Raichelson, an adult services policy specialist with the Department's Tallahassee office, for review. Ms. Raichelson contacted DOR to obtain information regarding the operation of the health insurance subsidy. She also contacted the Atlanta office of the SSA, which is the federal agency responsible for administration of the SSI program. Based upon information that she received from those sources, Mr. Raichelson concluded that the subsidy must be included as income in determining eligibility for services under the HC/DA Program.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Children and Family Services issue a final order denying Petitioner's application for services under the Home Care for Disabled Adults Program because her income level exceeds the threshold for the program. DONE AND ENTERED this 30th day of July, 2003, in Tallahassee, Leon County, Florida. S T. KENT WETHERELL, II 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, 2003.
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 Petitioner is the administrative agency charged with responsibility for administering and enforcing the provisions of Chapter 626, Florida Statutes. At all times material to this proceeding, Respondent has been licensed and eligible for appointment in Florida as a life and variable annuities agent, a life, health, and variable annuities agent, and a general lines agent. The City of Port St. Lucie (the "City") has had a City-funded pension plan in effect for its employees since October 1, 1977 (the "plan"). The City funds the plan with a contribution of 10.5 percent of the gross income of each employee who is enrolled in the plan (the "participant"). The monthly contributions by the City are sent directly to The Prudential Insurance Company ("Prudential"). The plan is participant directed. It allows each participant to direct the investment of his or her share of the City's contribution into either an investment account or a split investment account. If a participant elects an investment account, all of the City's contributions for that participant are used to purchase an annuity contract. If a participant elects the split investment account, a portion of the City's contribution for that participant is invested in an annuity contract and a portion is invested in whole life insurance issued by Prudential. Each whole life policy builds a cash value and provides benefits not available in the annuity contract, including disability benefits. Each participant is completely vested in the plan after he or she has been enrolled in the plan for five years. Prudential issues annuity contracts and insurance policies on participants and provides plan services to the administrator and trustees of the plan. 1/ The City is the owner of both the annuity contracts and the insurance policies. Both the annuity contracts and insurance policies are maintained in the City offices of the plan administrator. Participants do not receive copies of either annuity or insurance contracts and do not receive certificates of insurance. Beginning in 1984, each participant has received monthly Confirmation Statements in their paycheck envelopes. The Confirmation Statements are prepared by Prudential and disclose the net investment activity for the annuity contract. From the inception of the plan, each participant has received an annual Employee Benefit Statement which is prepared by Prudential and discloses the amount of the employer contributions that were allocated to the annuity contract and the amount that was allocated to insurance. Participants are eligible to enroll in the pension plan after six months of service. Biannual enrollment dates are scheduled in April and October each year. Prior to each biannual enrollment date, the City conducts an orientation meeting to explain the pension plan to prospective participants. The City sends a notice to each eligible employee in his or her payroll envelope. The notice informs the employee of his eligibility and the date and time of the orientation meeting. At the City-run orientation meeting, eligible employees are told that the pension plan is a participant directed plan in which each of them must elect either a straight annuity investment or a split investment involving an annuity and life insurance. Thirty to forty percent of the prospective participants do not attend the City-run orientation meeting. Subsequent to the orientation meeting, Respondent meets individually with each eligible employee in a room located on the premises of the City. The enrollment sessions are scheduled by the City so that Respondent has approximately 30 minutes to meet individually with each prospective participant. During that 30 minutes, Respondent provides each eligible employee who enrolled in 1987 and thereafter with a copy of the Summary Plan Description. 2/ Respondent explains the investment options, answers questions, asks the participants for the information contained in the applications and has the participants sign the appropriate applications. 3/ Each participant elects his or her investment option during the 30 minute enrollment session with Respondent. 4/ There is no separate written form evidencing the participant's election. The only written evidence of the election made by the participant is the application for annuity contract and, if the participant elects the split investment option, the application for insurance. If a participant elects the straight annuity investment option, Respondent completes and has the participant sign only one application. That application is for an annuity contract. If the split investment option is elected, Respondent completes and has the participant sign a second application. The second application is for life insurance. An application for an annuity contract is completed by Respondent and signed by the participant regardless of the investment option elected by the individual participant. 5/ An application for an annuity contract is clearly and unambiguously labeled as such. The top center of the application contains the following caption in bold print: Application For An Annuity Contract [] Prudential's Variable Investment Plan Series or [] Prudential's Fixed Interest Plan Series The participant must determine as a threshold matter whether he or she wishes to apply for a variable investment or fixedinterest annuity contract. Respondent then checks the appropriate box. The front page of the application for annuity contract contains an unnumbered box on the face of the application that requires a participant who applies for a variable investment annuity contract to select among seven investment alternatives. The unnumbered box is labeled in bold, capital letters "Investment Selection." The instructions to the box provide: Complete only if you are applying for a variable annuity contract of Prudential's Variable Investment Plan Series Select one or more: (All % allocations must be expressed in whole numbers) [] Bond [] Money Market [] Common Stock [] Aggressively Managed Flexible [] Conservatively Managed Flexible [] Fixed Account [] Other TOTAL INVESTED 100 % The application for annuity contract is two pages long. Question 1a is entitled "Proposed Annuitant's name (Please Print)." Question 4 is entitled "Proposed Annuitant's home address." Question 10, in bold, capital letters, is entitled "Annuity Commencement Date," and then states "Annuity Contract to begin on the first day of." There is an unnumbered box on the application relating to tax deferred annuities. Question 12 asks, "Will the annuity applied for replace or change any existing annuity or life insurance?" (emphasis added) The caption above the signature line for the participant is entitled "Signature of Proposed Annuitant." An application for insurance is also completed by Respondent and signed by the participant if the split investment option is elected. The application for insurance is clearly and unambiguously labeled as such. The upper right corner of the application for insurance contains the following caption in bold print: Part 1 Application for Life Insurance Pension Series to [] The Prudential Insurance Company of America [] Pruco Life Insurance Company A Subsidiary of The Prudential Insurance Company of America The term "proposed insured" also appears in bold print in the instructions at the top of the application for insurance. The application for insurance is approximately five pages long. 6/ It contains questions concerning the participant's treating physician, medical condition, driving record, and hazardous sports and job activities. 7/ Question 1a is entitled "Proposed Insured's name - first, initial, last (Print)." Question 7 asks for the kind of policy for which the participant is applying. Question 9 asks if the waiver of premium benefit is desired. Question 12 asks, "Will this insurance replace or change any existing insurance or annuity in any company?" (emphasis added) Question 21 asks, "Has the proposed insured smoked cigarettes within the past twelve months?" The caption under the signature line for the participant is entitled "Signature of Proposed Insured," as is the signature line for the Authorization For The Release of Information attached to the application for insurance. Respondent met with each of the participants in this proceeding during the time allowed by the City for the enrollment sessions. Mr. Robert Riccio, Respondent's sales manager, was present at approximately 70 percent of those enrollment sessions. Respondent provided each participant who enrolled in 1987 and thereafter with a copy of the Summary Plan Description. Respondent explained the investment options, and answered any questions the participants had. The name, occupation, and date of the enrollment session of the participants involved in this proceeding are: (a) Edmund Kelleher Police Officer 3-16-88 (b) Raymond Steele Police Officer 9-29-88 (c) Mark Hoffman Police Officer 10-29-86 (d) Joseph D'Agostino Police Officer 3-12-88 (e) Charles Johnson Police Officer 9-24-84 (f) Donna Rhoden Admin. Sec. 3-26-87 (g) John Gojkovich Police Officer 10-2-84 (h) John Skinner Police Officer 9-14-84 (i) John Sickler Planner 3-14-90 (j) James Lydon Bldg. Inspect. 9-13-89 (k) Robert McGhee Police Officer 9-18-84 (l) Richard Wilson Police Officer 3-21-89 (m) Lorraine Prussing Admin. Sec. 9-6-84 (n) Helen Ridsdale Anml. Cntrl. Off. 9-14-84 (o) Sandra Steele Admin. Sec. 4-3-85 (p) Linda Kimsey Computer Op. 3-18-89 (q) Jane Kenney Planner 3-13-85 (r) Alane Johnston Buyer 3-18-89 (s) Paula Laughlin Plans Exam. 3-18-89 Helen Ridsdale Anml. Cntrl. Super. 9-14-84 Jerry Adams Engineer 3-16-88 Cheryl John Records Super. for the Police Dept. 9-14-84 Each participant in this proceeding elected the split investment option during his or her enrollment session with Respondent and signed applications for both an annuity contract and an insurance policy. Each participant signed the application for insurance in his or her capacity as the proposed insured. The City paid 10.5 percent of each participant's salary to Prudential on a monthly basis. The payments were sent to Prudential with a form showing the amount to be invested in annuities and the amount to be used to purchase insurance. Each participant who enrolled in 1987 and thereafter received with his or her paycheck a monthly Confirmation Statement and all participants received an annual Employee Benefit Statement disclosing the value of the investment in annuities and the value of the investment in life insurance. The participants in this proceeding, like all participants, did not receive copies of annuity contracts and insurance policies and did not receive certificates of insurance. The annuity and insurance contracts were delivered to the City, as the owner, and maintained in the offices of the City's finance department. The participants in this proceeding had no actual knowledge that they had applied for insurance during the enrollment session with Respondent. Most of the participants had other insurance and did not need more insurance. Each participant left the enrollment session with Respondent with the impression that they had enrolled in the pension plan and had not applied for insurance. The lack of knowledge or misapprehension suffered by the participants in this proceeding was not caused by any act or omission committed by Respondent. Respondent did not, either personally or through the dissemination of information or advertising: wilfully misrepresent the application for insurance; wilfully deceive the participants with respect to the application for insurance; demonstrate a lack of fitness or trustworthiness; commit fraud or dishonest practices; wilfully fail to comply with any statute, rule, or order; engage in any unfair method of competition or unfair deceptive acts or practices; knowingly make false or fraudulent statements or representations relative to the application for insurance; or misrepresent the terms of the application for insurance. No clear and convincing evidence was presented that Respondent committed any act or omission during the enrollment sessions which caused the participants to believe that they were not applying for insurance. 8/ None of the participants testified that Respondent prevented them or induced them not to read the applications they signed. 9/ All of the participants affirmed their signatures on the application for insurance, but most of the participants did not recognize the application for insurance signed by them. Some participants could not recall having signed the application. The participants could not recall being hurried or harassed by Respondent and could not recall if Respondent refused to answer any of their questions. 10/ None of the participants provided a clear and convincing explanation of how Respondent caused them to sign an application for insurance without their knowledge or described in a clear and convincing fashion the method by which Respondent prevented them or induced them not to read or understand the contents of the documents they were signing. 11/ Eleven of the 22 participants cancelled their insurance policies after "learning" that they had insurance policies. Eight participants cancelled their policies on August 23, 1990. Two cancelled their policies on February 5, 1991, and one cancelled her policy on April 18, 1991. Financial adjustments required by the cancellations have been made and any remaining contributions have been invested in annuity contracts. Since 1983, Respondent has assisted Prudential and the City in the administration of the pension plan, including the enrollment of all participants. Prior to 1990, there was only one incident in which a participant complained of having been issued an insurance policy without knowing that she had applied for an insurance policy. The policy was cancelled and the appropriate refund made. Respondent has a long and successful relationship with the City and has no prior disciplinary history with Petitioner. Respondent is the agent for Prudential. The pension plan was intended by Prudential and the City to provide eligible employees with investment opportunities for annuities and life insurance. Respondent generally makes higher commissions from the sale of insurance than he does from the sale of annuities. 12/ Mr. Riccio receives 14 percent of the commissions earned by Respondent. Respondent encourages all participants to elect the split investment option by purchasing both annuities and insurance. If a participant states that he or she does not want life insurance, Respondent asks them for their reasons and explains the advantages of life insurance. If the participant then rejects life insurance, Respondent enrolls the participant in a straight annuity investment. Such practices do not constitute fraud, deceit, duress, unfair competition, misrepresentations, false statements, or any other act or omission alleged in the one count Administrative Complaint.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that Petitioner should enter a Final Order finding Respondent not guilty of the allegations in the Administrative Complaint and imposing no fines or penalties. DONE AND ENTERED in Tallahassee, Leon County, Florida, this 14th day of January 1992. DANIEL MANRY Hearing Officer Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-1550 (904) 488-9675 Filed with the Clerk of the Division of Administrative Hearings this 14th day of January 1992.
The Issue Should Petitioner impose discipline against Respondent's insurance agent's license for violation of various provisions within Chapters 624 and 626, Florida Statutes (2004)?
Findings Of Fact License On April 2, 1997, Respondent was licensed in Florida as a non-resident life and health agent (Type class 8-18). Respondent continues to have active appointments in Florida for American Heritage Life Insurance Company. Money Tree Money Tree Lending Group, Inc. (Money Tree) was licensed by the Department of Financial Services, Office of Financial Regulation as a mortgage lending company. Its license type was CL. The license number was Reg. License I.D.: L100000236977. Money Tree was the subject of court action in State of Florida, ex. rel., the Department of Financial Services of the State of Florida, Relator, vs. The Money Tree Lending Group, Inc., a Florida corporation, Respondent, in the Circuit Court of the Second Judicial Circuit in and for Leon County, Florida, Case No. 2005 CA 1103. In that matter, on May 11, 2005, the circuit court judge entered an order to seize Respondent's property. Under the court order, the Relator took possession and control of "property, books, documents, accounts, including bank accounts, and other records . . . " of Money Tree. Beyond that date Money Tree was not allowed to transact business, except with the Relator's written consent under terms in the court order. On June 23, 2005, the circuit court judge in Case No. 2005 CA 1103 entered an "Order Appointing the Florida Department of Financial Services Receiver of the Money Tree Lending Group, Inc., for Purposes of Liquidation, Injunction and Notice of Automatic Stay." As the order contemplates, Petitioner was granted authority to "take immediate possession of all the property, assets, and estate, and all property of every kind whatsoever and wherever located belonging to Respondent . . . ", referring to Money Tree. The Relator was further allowed to liquidate the assets of Money Tree. Patti Turpin is employed by Petitioner in its Division of Rehabilitation and Liquidation. She served as a receiver for Money Tree under authority in Circuit Court Case No. 2005 CA 1103. Ms. Turpin also is aware that Money Tree was never issued a certificate of authority from Petitioner authorizing the sale of insurance or annuities. As of the hearing date, Money Tree was still in liquidation and Petitioner was preparing to offer additional distribution of monies recovered from Money Tree. In advance of the liquidation, Petitioner has paid out monies to annuitants who purchased annuities from Money Tree. Money recovered on behalf of Money Tree amounts to approximately $850,000.00, with the expectation that 80 percent of monies paid for the original investments in annuities be returned to the annuitants. The possibility exists that an additional five percent would be returned to the annuitants. Respondent was affiliated with Money Tree in a manner that will be explained. Ms. Turpine, as receiver in association for Money Tree, has not received any return of money from Respondent pertaining to his affiliation with Money Tree. Respondent earned approximately $130,000.00 in commissions for selling annuities for Money Tree. The level of his involvement is reflected in Petitioner's Exhibit numbered seven, which shows approximately 90 sales of annuities through Respondent's association with Money Tree, the amount invested by customers and the rate of return. Affiliation On March 2, 2005, Petitioner wrote Respondent care of his company First Capital Financial Incorporated (First Capital), asking that a response be made to Petitioner's Division of Consumer Services. The basis of the inquiry was pertaining to an investigation of Money Tree. The inquiry stated: It has been brought to our attention that you are selling an investment for a three year term. The product resembles an annuity but appears not to be. We are further advised that you are selling this product while operating out of The First Capital Financial Incorporated in Winter Haven, FL. Your licensing record suggests you hold a non-resident license that lists your permanent address as Hahira, GA. We ask that you provide our office with complete documentation of this product offered by the Money Tree. This should include a definition of what it is, under what regulatory authority it falls and how you are able to offer it in Polk County, FL while a resident of Hahira, GA. So that we may properly respond to this request, please furnish us with a complete report of your position on the matter, including any documentation that supports your position. Please reference Service Request number 1-100931056 on all reports and attachments. Your complete reply, to Daniel G. Amend, must be received by March 17, 2005. On March 3, 2005, a fax was sent from Jerry Patterson an employee with Petitioner, in which he asked Respondent to "Please provide the Florida License Company Code Number of the Money Tree Lending Group, Inc., or the annuity company they use. As you know they must be licensed in the State of Florida." In turn Phil Sampiere, president of Money Tree, told Respondent to send information to the Petitioner that had been prepared by Mr. Philip A. Sampiere, Jr. Respondent dispatched that information to Petitioner. The information prepared by Mr. Sampiere is reflected in Respondent's Exhibit Numbered 11. The document is on a letterhead by the Money Tree and in the body its states: Fees. When you buy a fixed immediate annuity, you will pay no loads or management fees. That's generally true for many kinds of "fixed" annuities. But if you buy a "variable" annuity, however, you will pay what's known as a "mortality and expense" fee plus an investment management fee to cover the cost of managing the underlying investments. You may also pay an annual account maintenance fee. THE EXEMPTIONS LISTED BELOW ARE SELF- EXECUTING AND DO NOT REQUIRE ANY FILING WITH THE DEPARTMENT EXEMPT SECURITIES 517.051 Exempt Securities.- The exemptions provided herein from the registration requirements of s. 517.07 are self-executing and do not require any filing with the department prior to claiming such exemption. Any person who claims entitlement to any of these exemptions bears the burden of proving such entitlement in any proceeding brought under this chapter. The registration provisions of s. 517.07 do not apply to any of the following securities: (10) Any insurance or endowment policy or annuity contract or optional annuity contract or self-insurance agreement issued by a corporation, insurance company, reciprocal insurer, or risk retention group subject to the supervision of the insurance commissioner, or any agency or officer performing like functions, of any state or territory of the United States or District of Columbia. The Money Tree Lending Group, Inc., is supervised by the State of Florida Department of Financial Services and believes it is correct in claiming this exemption according to Florida state law. If you need further explanation please contact Philip Sampiere at the corporate office 941-764-6767 at extension 204. The Money Tree Lending Group, Inc. Philip A. Sampiere, Jr. President Mr. Sampiere had also faxed Respondent a copy of Section 517.051, Florida Statutes (2004), with emphasis placed on Subsection (10), to Petitioner to answer its inquiry concerning the sale of annuities through Money Tree. Respondent was aware of Section 517.051, Florida Statutes (2004), and its language. Respondent was also aware of information of the Petitioner in its Office of Financial Regulation concerning the Money Tree license type CL, ID L1000005023697. A Randy Menne had also provided Respondent with the language of Section 517.051, Florida Statutes (2004), and licensing information from the Department of Financial Services, Office of Financial Regulation pertaining to Money Tree and its license type CL. In responding to Petitioner concerning Respondent's Georgia residence, and his affiliation with Money Tree, on March 16, 2005, Respondent wrote Petitioner. In that correspondence he said: Dear Sir: I have lived in Georgia for over 47 years. Because I live less than 20 miles from the Florida State line I have held a Florida non-resident license for many years. For the last several years I was a State Manager or District Manager for several major insurance companies, over-seeing Georgia and Florida. In my earlier years, when I obtained my non-resident license I was told that if I had a permanent address in Georgia that I only qualified for a non- residence license for Florida. During this last year I have traveled to Winter Haven Florida, where I have family and decided to sell annuities a few days a week in that county. I drive down and spend a few nights and go back to my home in Georgia. I have attached documents showing that I do live in Hahira Georgia. If I have misunderstood Florida's non-resident license procedures, please call me, and I will do whatever is necessary to correct the problem. To answer your question about the Money Tree Lending Group, Inc., I am only a sales rep with that company. I signed on with them a few months ago, and I feel I am not qualified to answer your questions regarding the product issued by The Money Tree Lending Group, Inc. without their consent. I have contacted the owner of The Money Tree Lending Group, Inc., Philip Sampiere of Port Charlotte Florida on this matter. Because I was in Georgia the last week and 1/2 I only received your letter on March 14, 2005. In order to send something to you before the deadline, Mr. Sampiere faxed me these 3 pages and told me to please tell you that if this does not answer your questions and concerns to please contact him so that he may better explain, in detail, and let you speak with his contacts within your department. Philip A. Sampiere, Jr. 3400 Tamiami Trail Suite 203 Port Charlotte, FL 33952 Phone: 941-764-6767 Fax: 941-764-7660 E-mail: TLendingGR@aol.com If I can be of any help, or you need further information, please call or send me a fax. Sincerely, F. Gene Turner After Respondent wrote Petitioner, Mr. Sampiere wrote Respondent on March 30, 2005, concerning this subject. In that letter Mr. Sampiere stated: Gene, I wanted to let you know that I have contacted the State of Florida regarding the letter they sent you about our annuity products. As far as your License and status with the State we hope you are addressing this issue. But with regards to supplying additional information about our products I wanted to let you know that we are and have fully opened our book records, etc to the State for them to review. To date they have not been able to issue a letter claiming any violation of any rules or exemption we are governed to follow. Our attorney has been in touch with the State head legal advisor how [sic] could not give him a reason or rule that we are in violation of this was about mid day Wed the 30th of March 2005. So until we are given the rules we are in violation of or a letter demanding we stop selling our products. We will continue to accept application [sic] from the public and thru our third party annuity sales force. Respondent became aware of correspondence dated May 5, 2005, from Gary Klein, Esquire, attorney for Money Tree addressed to Mr. Sampiere. In pertinent part Mr. Klein in his advice to the client Mr. Sampiere said "In issuing an annuity contracts [sic], I am of the opinion that your Company meets the exemption under Florida Statute 517.051(10), as it is written. Your Company is a Florida Corporation, is issuing annuities and is regulated by the bank regulator." Later Mr. Klein states " . . . I believe your annuity sales are legal under the controlling law of the State." On May 9, 2005, Mr. Klein wrote to Ronald K. Lovejoy, Special Investigator, Bureau of Investigation of the Petitioner, questioning the regulatory activities of Petitioner in relation to Money Tree sales agents and the sale of annuity products. Respondent became aware of this correspondence. On August 10, 2005, Respondent wrote Petitioner on the subject of the sales of annuities of Money Tree. In that correspondence he stated: August 10, 2005 Re. CS# 8591CA#15628 To the Department of Financial Services: I am writing this letter in hopes that you will in some way be able to understand that I did everything in my power and everything I knew how to make sure The Money Tree Lending Group was a known, reputable company in good standing with the State of Florida. I first learned about The Money Tree Lending Group around the first of June 2004 when Randy Menne, the manager of another company I represent called me and told me about an advertisement in the newspaper for a short term annuity. He agreed to check the company out thoroughly and get back with me about his findings. Two weeks later Randy called to inform me that he and his agents were going to start marketing the product because "everything was good with the company and they checked out okay". That same week I drove two hours to meet with Randy and his agents so that we could go over all paper work, I was interested to see what he had done to investigate this company. Randy showed me several documents stating that the Money Tree was a legitimate company. After leaving Randy's office I still felt hesitant about the company and the product, so Randy said he would have the President of the company call me and discuss my concerns. This really impressed me, I had never had the president of a company call me personally before. After speaking with the president I was convinced that the company was truly exempt from certain requirements. After reviewing all documentation and speaking with the president I decided to call the State of Florida Department of Financial Services and ask to speak with someone who understood the "exemption rule". I spoke with Earl Saulter for a very lengthy amount of time and he answered all of my questions in great detail, and just as I hoped, he confirmed that the type of annuity was exempt. At this point everything seemed to be good and I was eager to start marketing this product. I started selling this product in October 2004. On April 29, 2005, Mr. Ron Lovejoy came into my office. I was not in at the time, however, my secretary called me and I spoke with Mr. Lovejoy over the phone for quite some time to find out what was going on. I was dumbfounded to learn of the situation. Mr. Lovejoy asked that I not contact my manager nor Money Tree at this time. I cooperated and opened my office up for a full investigation. Mr. Lovejoy revisited my office on May 4, 2005, he stated that he believed Money Tree had moved their money somewhere and that no one knew where it was. At this time I managed to find a new check in one of my client's files which allowed the state to find new routing numbers. I can assure you that if I had knowledge of any wrong doing from the Money Tree, I would have never sold this product. Furthermore, when I first realized that there could be a potential problem with the Money Tree, I immediately stopped marketing this product on my own. I do feel that I used all of the resources available to me in making the decision to sell the annuity that The Money Tree offered, for example: speaking with a representative from the Department of Financial Services, the president of the Money Tree, and other agents who were currently marketing this product; as well as written documents including information on The State of Florida website, and an active status letter from the State Florida Dept. of Financial Services and a letter from a Florida State Attorney. All of these documents stated that The Money Tree was in good standing with The State of Florida. I have enclosed all of this documentation and I feel that it is pertinent information that confirms the actions I took to check out The Money Tree are as I have stated in this letter. In closing I would like to add that I am an honest person trying to run an honest company who respects the State of Florida. I would never jeopardize the well-being of my family or my business. If I can help in any way to resolve this matter please let me know. Sincerely, Gene Turner Concerning a possible conversation Respondent had with Mr. Saulter, at hearing Respondent said that Mr. Saulter told Respondent about Money Tree "that they were exempt from the securities, that I could sell them from this company, they were in good standing." This is in reference to the sale of annuities. Then Respondent said that he was not sure whether Mr. Slater used the words "securities" or that Mr. Saulter used the word "insurance" in the conversation. Respondent also stated at hearing that Mr. Saulter told him that Money Tree was " . . . a good, legitimate company, no actions taken against them, no disciplinary action and their status was active." The conversation, if it took place, had nothing to do with Money Tree being licensed as a mortgage broker or mortgage lender when Respondent spoke to Mr. Saulter. Respondent in his testimony said that Mr. Saulter told Respondent ". . . I could sell the annuities . . . ." This is understood to mean sell the annuities offered by Money Tree. As established in his post-hearing deposition, Mr. Saulter works for the Petitioner in its Division of Securities. He reviews securities offerings. He addresses questions related to exemptions recognized in Section 517.051, Florida Statutes. He had those responsibilities at times relevant to this inquiry. Mr. Saulter's duties do not include the regulation of annuities or insurance products pertaining to license requirements to participate in those activities. He would not be authorized to answer questions concerning the opportunity to sell annuities. The securities exemption from registering securities as reflected in Chapter 517, Florida Statutes, is unrelated to the provisions within the Florida Insurance Code found in Chapters 624 through 628, Florida Statutes. In Mr. Saulter's experience he is not involved with the Florida Insurance Code. Before taking the deposition, Mr. Saulter had never heard the name Money Tree Lending Group. He does not remember speaking to Respondent. He does not remember speaking to Mr. Sampiere. Having considered the testimony of Respondent at hearing and remarks set forth in his August 10, 2005 correspondence concerning his alleged conversations with Mr. Saulter and the deposition testimony from Mr. Saulter, either no conversation took place or the conversation did not transpire as represented by Respondent. Transactions J.C.T., Jr. and S.J.T. The Ts, husband and wife, reside in Avon Park, Florida. Mr. T. was born on April 10, 1935; Mrs. T. was born April 6, 1936. They are retired. Mr. T. is a retired farmer, and, and Ms. T. retired from her profession as an interior decorator. The Ts had received an inheritance from Mr. T's father of $374,000.00. They were interested in investing some of the money. The Ts saw an advertisement in a newspaper related to the purchase of certificates of deposit (CDs). The advertisement was in association with First Capital, Respondent's company. The Ts were considering purchasing a CD from a bank and perceived the opportunity from First Capital as an alternative for purchasing the CD. The Ts met with Respondent in his office in Winter Haven, Florida. Respondent asked the Ts what they were interested in by way of an investment. They explained that they were interested in immediately accessing the money that was invested, should they need the money. In particular they were concerned about the ability to address the financial needs of their 46-year-old son, who suffers with rheumatoid arthritis. They also were interested in being able to assist another son, who farms for a living and has cash-flow problems at times in putting out his crop. Instead of purchasing a CD from Respondent, the Ts bought three Money Tree annuities from him. Respondent told the Ts that Money Tree was a new company. Respondent told the Ts that the annuities were a good product, although they were not insured. In particular Respondent told the Ts that the annuities were not FDIC insured. He commented that they were "solid." Respondent explained the annuities return on investment, as contrasted with the amount of return on the CD he offered. The Ts determined that the annuities were a better choice of investment. Respondent in discussing the annuities purchased made no mention of the prospect that the Ts might lose money in the investment. Had they known that was a possibility, the Ts would have been concerned. The Fixed Annuity Disclosure Statements associated with the purchases made it clear that the annuities offered by Money Tree were not a bank deposit, and were not FDIC insured or insured by any federal government agency. Altogether the Ts bought $200,000.00 worth of annuities; two in increments of $50,000.00 and one for $100,000.00. The annuities were purchased utilizing application forms from Money Tree as executed by the Ts and Respondent by providing their signature on February 7, 2005. The first of the fixed annuities was for $50,000.00, at four percent return for 18 months, as reflected in the Fixed Annuity Disclosure Statement and Fixed Interest and Term Annuity Contract. The second $50,000.00 annuity was for four and one- half percent return for a period of 24 moths. It also involved a Fixed Annuity Disclosure Statement and Fixed Interest and Term Annuity Contract. Finally, the $100,000.00 annuity, as reflected in the Fixed Annuity Disclosure Statement was for five and a quarter percent return at 36 months. It had the associated Fixed Interest and Term Annuity Contract as part of the transaction. All Fixed Annuity Disclosure Statements were signed by the Ts and Respondent. In these transactions involving the annuities, Respondent was acting as the agent for Money Tree. In separate installments, the Ts have recovered $142,000.000 and approximately $20,000.00 of their purchase price from the Money Tree receiver. J.H.C. Mrs. J.H.C., born June 7, 1934, lives in Lake Placid, Florida. She retired from the real estate business she conducted in Miami, Florida. Mrs. J.H.C. and her husband Mr. R.L.C. saw ads in the newspapers. One of those ads referred to 12-month CDs that were FDIC insured with a 3.70 annual percentage rate of return. The ad referred to First Capital and Respondent's business address in Winter Haven, Florida. A second newspaper advertisement was similar in nature, with the exception that it referred to a 3.84 annual percentage rate of return. The Cs went to Respondent's office in Winter Haven, Florida. They discussed the CDs that had been advertised. Mrs. C. wanted to roll-over monies from an individual retirement account (IRA) to place in CDs. Respondent told her he could not do that. He told her that he could put the money into an annuity which would be very safe. At the time Mrs. C. had no precise understanding of what an annuity was or how an annuity functioned as an investment. She relied upon Respondent's expertise in that connection. On February 14, 2005, Mrs. C. purchased a $10,000.00 annuity from Respondent for an 18-month period, with a four percent interest rate of return. The annuity was through Money Tree. The purchase was made upon a Money Tree application form for the fixed annuity. Mrs. C. made the payment for the annuity to The Money Tree by a check in the amount of $10,000.00. The check that was written by Mrs. C. in the memo section said that it was in relation to "IRA Fixed Annuity." In completing the transaction, a Fixed Annuity Disclosure Statement upon a form provided by Money Tree was signed by both Mrs. C. and Respondent and a Fixed Interest and Term Annuity Contract was entered into related to the Money Tree annuity. The Fixed Annuity Disclosure Statement made it clear that the annuity offered by Money Tree was not a bank deposit, was not FDIC insured or insured by any federal government agency. In addition, a form was executed related to First Capital and signed by Respondent and Mrs. C., that referred to the guaranteed rate of return, on what was described in the form as a individual deferred annuity certificate. It explains surrender charges, withdrawal privileges, the free look period, and information about taxes. The check in payment for the annuity was cashed and the money taken out of Mrs. C's checking account. Respondent did not tell Mrs. C. that she might lose some part of her investment when entering into the annuity contract. The possible loss of investment was an important consideration to her. Mrs. C. had $7,067.00 in one check and an additional $1,000.00 in a second check returned to her from the Money Tree receiver, pertaining to her $10,000.00 annuity purchase. G.R.H. and M.E.H. Mr. G.R.H. and Mrs. M.E.H., his wife, live in Sebring, Florida. He was born January 31, 1935; she was born July 1, 1938. Mr. H. is a retired automobile assembly worker. Mr. H. saw an advertisement in a newspaper which offered a 12-month CD at 3.65 percent rate of return. It referred to First Capital. It gave Respondent's business address at Winter Haven, Florida. Mr. H. was impressed with the fact that the CD advertised was at a higher rate of return than he could receive at local banks where he lived. This advertisement was made sometime in October of 2004. Mr. H. called Respondent's office. The Hs drove to meet with Respondent in his Winter Haven office. Once there, Respondent in discussing the CD advertisement asked Mr. H. if he had access to email. The answer was no. Respondent then told Mr. H. that he could not get the CD in the advertisement because it was not a CD offered locally. Respondent told Mr. H. if Mr. H. had access to email, there would not have been a problem with the purchase. This led to a discussion of an annuity at a 3.75 percent rate of return for an 18-month period as offered through Money Tree. An annuity was purchased by the Hs in the amount of $25,000.00. It was based upon the completion of the Money Tree Fixed Annuity Application, as signed by the Hs and Respondent on October 7, 2004. A Fixed Annuity Disclosure Statement was also executed and signed by the Hs and Respondent, indicating that the annuity offered through Money Tree was not a bank deposit, not FDIC insured and not insured by any other federal government agency. A Fixed Interest and Term Annuity Contract was entered into in the transaction. The Hs paid the $25,000.00 cost by a check written by Mrs. H. During the transaction Mr. H. told Respondent that he did not really believe in annuities. In reply Respondent told Mr. H. that he did not need to worry about it because in 18 months it would mature and be surrendered and the principal paid for the annuity with the accrued interest would be returned. Ultimately Mr. H. thought it was a safe investment to buy the annuity given the short turn around in the maturity date. The Money Tree receiver reimbursed the Hs in an amount in excess of $20,000.00 for their purchase. Other Customers Respondent concedes the sale of Money Tree annuities to 89 to 90 customers. In the transactions his explanation of risk factors was left to the written information that was provided, saying that the investment was not FDIC insured, implying in his mind that there were some risks. No other explanation was made concerning risks for making an investment in the annuities. For verification of his standing with Money Tree, Respondent relied on explanations provided to him by Mr. Sampiere and Mr. Menne; a review of the underlying information, as Respondent described the process involved with the annuities; a conversation Respondent said that he had with a State of Florida employee and a review of information on a web- cite concerning Money Tree. Respondent believed Money Tree was is good-standing with the State of Florida and was not the subject of ongoing disciplinary action. Once problems arose concerning the Money Tree business, Respondent made himself available in his office or by telephone for a period of several weeks to address his customers' concerns.
Recommendation Upon consideration of the facts found and the conclusions of law reached, it is RECOMMENDED: That a final order be entered finding Respondent in violation of Sections 624.11(1), 626.611(7), 626.621(2) and (6), 626.901(1) and 626.9541(1)(a)1., Florida Statutes (2004), and suspending Respondent's non-resident life and health agent (Type class 8-18) license for a period of six months. DONE AND ENTERED this 26th day of September, 2007, in Tallahassee, Leon County, Florida. S CHARLES C. ADAMS 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 26th day of September, 2007. COPIES FURNISHED: James A. Bossart, Esquire Department of Financial Services Division of Legal Services 200 East Gaines Street Tallahassee, Florida 32399-0333 Felton Eugene Turner 8464 Vickers Road Hahira, Georgia 31632 Honorable Alex Sink Chief Financial Officer Department of Financial Services The Capitol, Level 11 Tallahassee, Florida 32399-0300 Daniel Sumner, General Counsel Department of Financial Services The Capitol, Level 11 Tallahassee, Florida 32399-0307
The Issue Whether the Respondent committed the violations alleged in the Administrative Complaint and, if so, what penalty should be imposed.
Findings Of Fact The Department is the state agency charged with the responsibility of regulating the insurance industry within the State of Florida. At all times material to the allegations of this case, the Respondent was licensed in Florida as a life and variable annuity agent; life, health and variable annuity agent; life insurance agent; life and health insurance agent; and health insurance agent. All such activities are regulated pursuant to Chapter 626, Florida Statutes. Aurore Giroux is approximately 86 years of age. She currently lives in an assisted living facility in Waltham, Massachusetts. At all times material to the allegations of this case, Mrs. Giroux resided at 12 Cozumel Lane, Port St. Lucie, Florida. By way of her background, Mrs. Giroux attended grade school but did not complete high school. Although well spoken, she is not well-educated either by formal school or training. She has limited retirement income, and is not particularly well versed in investment opportunities. At the time of her husband's death in 1989, Mrs. Giroux had a life savings of approximately $230,000. This was accomplished primarily due to her modest life style and careful spending habits. At all times material to the allegations of this case, Mrs. Giroux's income was limited to social security and her husband's retirement. Her total monthly income does not exceed $1,300. In order to afford the costs of her current residence, Mrs. Giroux must use portions of her savings every month. Mrs. Giroux is an independent person and has never wanted to rely on others for her financial care. Although she maintains close relationships with her children, Mrs. Giroux has always written checks on her account to pay her own bills and has managed her own funds without the interference of the children. Following her husband's death, Mrs. Giroux began spending two months in the summer with her daughter, Elaine O'Toole, in Massachusetts. Mrs. O'Toole also would visit her mother in Florida on occasion. After Mr. Giroux passed away, the Respondent contacted Mrs. Giroux under the guise of offering her Medicare supplement insurance. Mrs. Giroux purchased a supplement from the Respondent. Thereafter, the Respondent would from time to time go by and visit Mrs. Giroux. Over the course of time the Respondent developed a relationship with Mrs. Giroux and he offered her other insurance products for purchase. Among those known are the annuities and the viatical which are the subject of the instant case. Additionally, the Respondent sold Mrs. Giroux a second Medicare supplement policy in 1998 that contained a life insurance benefit in the amount of $2500. The premium for that life insurance benefit was $50 per month. Although she spent over $60,000 to purchase the viatical from the Respondent, Mrs. Giroux did not recall investing that amount and is unable to explain what the product is. Although she signed a "Statement of Understanding of Viaticals" dated September 21, 1998, Mrs. Giroux was unaware of the illiquid nature of the viatical product. Moreover, if the viator lives more than 12 months beyond his estimated date of demise, Mrs. Giroux was unaware that she would be required to remit the premiums to the insurance company for the policy. Failing same, Mrs. Giroux will lose her entire investment. To attempt to cover the questionable prudence of the viatical investment, the Respondent had Mrs. Giroux write and sign several documents, none of which were remembered by her. Similarly, the Respondent sold Mrs. Giroux two annuities. She liquidated certificates of deposit to purchase the annuities based upon documents the Respondent brought her to sign. Again, Mrs. Giroux has no recollection of signing the authorization forms that were presented to the bank. Prior to selling Mrs. Giroux the viatical and the annuities, the Respondent did not perform a written client financial analysis to determine if there were valid tax reasons for either type of investment. In fact, there are no tax advantages to Mrs. Giroux. Although the annuities were subsequently refunded to her, there is no credible evidence that they would have been preferable to the return earned by the certificates of deposit. As to the viatical, unless the viator dies within 12 months of the estimate dated of death, Mrs. Giroux will have to remit the premium amounts to keep the policy in effect just to preserve her investment. Thus the unknown return and illiquid nature of the investment may prove a significant hardship for her. Family concerns regarding Mrs. Giroux's investments arose after Mrs. O'Toole learned of the viatical purchase. During a visit to Florida Mrs. O'Toole met with the Respondent to attempt to gather information regarding her mother's investments. Of particular concern was the fact that Mrs. Giroux's understanding of the terms of the annuities did not match the paperwork Mrs. O'Toole was able to locate. Mrs. Giroux's annuities did not allow for any annual withdrawal of principal despite the Respondent's assertions that Mrs. Giroux could draw down funds. When challenged on that point, the Respondent maintained that the company issued the wrong policy. He did not take responsibility for the error until the administrative charges were filed with the Department by Mrs. O'Toole. He then assisted all parties in securing the refund of the annuity amounts. In fact, as of the date of hearing, such amounts had been refunded to Mrs. Giroux. As to the viatical, Mrs. Giroux does not know who the viator is. Presumably the viator is alive. How her estate would benefit should Mrs. Giroux predecease the viator is unknown. It is known, however, that Mrs. Giroux is not in a tax bracket mandating tax consideration of tax deferred income opportunities. The total amount of funds invested by Mrs. Giroux in reliance on the Respondent's suggestions was $131,000, over one-half of her life savings. The Respondent has had his insurance license previously disciplined for misrepresentation. Nevertheless, prior to allowing Mrs. Giroux, an elderly, uneducated, and unsophisticated investor to purchase the products described herein, he did nothing to encourage her to seek the independent advice that might be obtained from an accountant, a lawyer, a banker, or family member.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Insurance enter a final order revoking the Respondent's license and eligibility for license. DONE AND ENTERED this 26th day of October, 2001, in Tallahassee, Leon County, Florida. 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 26th day of October, 2001. COPIES FURNISHED: David J. Busch, Esquire Department of Insurance 645A Larson Building 200 East Gaines Street Tallahassee, Florida 32312 Lawrence H. Sussman 56 Southwest Riverway Boulevard Palm City, Florida 34990 Honorable Tom Gallagher State Treasurer/Insurance Commissioner Department of Insurance The Capitol, Level 02 Tallahassee, Florida 32399-0300 Mark Casteel, General Counsel Department of Insurance The Capitol, Lower Level 26 Tallahassee, Florida 32399-0307
The Issue The issues are whether Respondent, as a licensed insurance agent, is guilty of various violations of law in the sale of an annuity policy and the failure to remit to the insurer $4607.22 in premiums, and, if so, what penalty should be imposed.
Findings Of Fact At all material times, Respondent has held licenses as a life and health agent (2-18) and health insurance agent (2-40). Respondent has held licenses issued by Petitioner or its predecessor agency for 21 years. Respondent has never been disciplined, except for a consent order dated February 25, 2008, requiring Respondent to pay a $250 administrative fine for failing to comply with the continuing-education requirements for the period ending November 30, 2007. Daphne Isaacs, who was born in 1940, moved from Jamaica to the United States in 1970. She completed the equivalent of high school while in Jamaica. For many years, Ms. Isaacs worked as a collateral clerk in the accounts receivable department for CIT in New York. Formerly known as Commercial Investment Trust, CIT is a finance corporation. During the period described below, Ms. Isaacs resided with her daughter and her daughter's husband. Also living in the home were two disabled sons of Ms. Isaacs, who was their primary means of support. While employed by CIT, Ms. Isaacs participated in a pension plan. In 1995, Ms. Isaacs suffered injuries in an accident and drew benefits from a long-term disability policy for the next ten years. Retiring from CIT in 2005, Ms. Isaacs elected a cash payout of $124,000, rather than annuity-like payments, from her pension plan. At the time of her retirement, Ms. Isaacs also had a 401(k) plan, but she later closed this account. From 2005 to present, Ms. Isaacs' sole sources of income were the investments described below and the Social Security Administration, which paid her about $12,000 annually. On June 21, 2005, Ms. Isaacs invested $90,000 in an AXA Equitable annuity policy and purchased certificates of deposit from Wachovia Bank with $20,000-$25,000 of the remaining $34,000. Although she knew Respondent at the time through church, Ms. Isaacs decided instead to invest with an AXA Equitable insurance agent located at the Wachovia Bank branch where she conducted business. One year after the issuance of the AXA Equitable annuity policy, the insurance agency employing the agent represented to the insurer that it had issued Ms. Isaacs the wrong annuity policy. After the insurance agency delivered an indemnification to AXA Equitable, on July 6, 2006, AXA Equitable retroactively changed Ms. Isaacs' policy to a policy with a guaranteed minimum income benefit. Several factors belie the agency's claim that it had issued the wrong policy. First, the AXA Equitable agent testified at the hearing. He is a highly competent professional who is attentive to detail. It is highly unlikely that he would have permitted the agency to order and the insurer to issue the wrong policy. Second, Ms. Isaac's application for the guaranteed minimum income policy was dated June 17, 2006. One would expect that the application would have been dated in 2005, or else the agency might not have been able to confirm that Ms. Isaacs actually had applied for the guaranteed minimum income policy in 2005. In a striking example of thoughtful ambiguity, the AXA Equitable agent testified that he sold the guaranteed income policy in "2005 or 2006." On these facts, it is at least as likely that, after purchasing the original AXA Equitable annuity policy, Ms. Isaacs told her agent that she changed her mind and demanded the guaranteed minimum income annuity policy, and the agency did what it had to do to effect this change at no cost to Ms. Isaacs. At the time of the 2005 and 2006 transactions, the AXA Equitable agent explained to Ms. Isaacs that the annuity policies that she was purchasing were long-term investments and imposed substantial cash surrender penalties for several years. The AXA Equitable agent also explained that she could rescind the transactions, at no cost, for a short period after receiving the annuity policies. Ms. Isaacs understood these disclosures. Notwithstanding her knowledge of the cash surrender penalties attached to her AXA Equitable annuity policy, Ms. Isaacs decided to cancel this policy and replace it with the AIG annuity policy. The primary reason for the switch was Ms. Isaacs' need for monthly income payments--and, of course, her decision to maintain a large fraction of her financial resources in an annuity policy. The need for more frequent payments of income arose, ironically, by Ms. Isaacs' decision, four months earlier, to exchange her original AXA Equitable annuity policy for the AXA Equitable annuity policy with guaranteed minimum income. This decision changed Ms. Isaacs' income payments from monthly to annual. Compare Section 7.01 with the second paragraph under "Conditions of this Rider." As a model of succinctness, the AIG annuity policy admitted into evidence seems to omit any provision concerning the frequency of income payments, but Respondent testified that it paid income monthly, and an AIG brochure accompanying the policy advises that "[i]ncome payments are usually made monthly." This is early evidence of Ms. Isaacs' bad decisionmaking as to her annuity investments. Ms. Isaacs failed to establish by her testimony any fault on Respondent's part in her purchase of the AIG annuity policy. Ms. Isaacs admitted that, in trying to make the sale, Respondent suggested that he, she, and the AXA Equitable agent meet to discuss the two annuity policies. Respondent's testimony that he warned Ms. Isaacs of the cash surrender penalty on the AIG policy, as reflective of its status as a long-term investment, is credited over the testimony of Ms. Isaacs that he failed to make this disclosure. Respondent candidly admitted that he did not know if the AXA Equitable policy had a cash surrender penalty, but his failure to mention this fact is irrelevant because Ms. Isaacs knew that this policy carried such a charge, as she had received this warning, for a second time, from her AXA Equitable agent just four months earlier. It is unclear whether Respondent specifically mentioned the 30-day free look period for the AIG policy. As was the case with the cash surrender penalty, though, the AXA Equitable agent had recently explained a similar provision in the AXA Equitable policy, so Ms. Isaacs was aware of the existence of such a provision. More importantly, this provision was featured prominently on the first page of the AIG policy immediately below the contract data, so any testimony from Ms. Isaacs that she did not know about this provision cannot be credited. Ms. Isaacs also testified that Respondent failed to deliver timely her election to cancel the AIG annuity policy. She purchased the policy on October 24, 2006. By contract, Ms. Isaacs had 30 days from receipt to cancel the AIG annuity at no cost. The record does not contain documentary evidence of the date on which Ms. Isaacs received the AIG annuity policy. Respondent recalled meeting with Ms. Isaacs three times: to deliver the policy, to have her sign the "ownership change form," and to have her sign or receive additional forms. The testimony suggested that these events occurred in this sequence. The "ownership change form" is the Request to Transfer Funds, which Ms. Isaacs signed on October 24. The evidence thus fails to establish that Ms. Isaacs received her copy of the AIG annuity policy after October 24. At different times, Ms. Isaacs has offered different versions of when she tried to cancel the AIG annuity policy. In an undated letter to AIG (Petitioner Exhibit 24), Ms. Isaacs claimed that she told Respondent on November 7, 2006, that she wanted to cancel the annuity policy that she had purchased two weeks earlier. At hearing, Ms. Isaacs testified that she first tried to cancel the annuity policy on December 7, 2006. A letter from Ms. Isaacs to AIG dated May 23, 2007, briefly mentions her attempt to cancel the annuity policy in December 2006, but focuses mostly on her receipt of a check for $833 in January 2007 and her inability to live off 3.5% annual income. Referring to the low interest rate of the AIG annuity policy, the letter states: "I needed this issue to be resolved or my money moved back to AXA and my $6300 (AXA Equitable cash surrender fee) returned to me." On this record, it is impossible to find that Ms. Isaacs unequivocally attempted to cancel the AIG annuity policy at anytime during the 30-day free look period. The May 2007 letter also suggests that Ms. Isaacs had decided, after purchasing the AIG annuity policy, that the frequency of income payments was not as important as the interest rate paid under the policy. For a complainant, Ms. Isaac was an oddly uncooperative witness. Her evasiveness at the hearing is consistent with some discomfort at testifying that she could recall nothing, except that she trusted Respondent, or that Respondent hounded her into purchasing the AIG annuity policy. Neither claim harmonizes easily with the fact that Ms. Isaacs resisted Respondent's sales efforts 18 months earlier when she purchased the first AXA Equitable annuity policy. Three or four times, when responding to a question, Ms. Isaacs paused to recall the facts and appeared ready to start an answer--before retreating to her preferred response of claiming not to remember and that she had trusted Respondent. Even after the Administrative Law Judge warned her to be more responsive, Ms. Isaacs continued to respond evasively to questions. In its proposed recommended order, Petitioner claims that Respondent replaced a qualified annuity policy with an nonqualified annuity policy, thus potentially exposing Ms. Isaacs unnecessarily to income tax liability. This is a potentially serious claim, but one that was not made in the Administrative Complaint. The Administrative Complaint alleges that Respondent failed to explain how the AIG annuity policy would affect her income, but the omission of any mention of "taxable income" guides the reader to consideration of such issues as guaranteed interest rates and cash surrender penalties. Petitioner may thus not predicate liability on the tax treatment of the exchange of annuity policies. Even if the Administrative Complaint had alleged a failure by Respondent to explain the tax treatment of the exchange of the AXA Equitable annuity policy for the AIG annuity policy, Petitioner's proof would have been insufficient. Respondent testified that he explained to Ms. Isaacs that the AIG policy was nonqualified, but, given Respondent's long history in industrial life insurance, as discussed below, and his general knowledge level, it is doubtful whether Respondent understands the difference between a qualified and nonqualified annuity. More to the point, Petitioner failed to prove the materiality of any change in tax status of Ms. Isaacs' annuity policy or the failure to disclose such a change. Even though the liquidation of a qualified annuity followed by the purchase of a nonqualified annuity would presumably have generated substantial taxable income, Ms. Isaacs did not pay any income tax resulting from the AIG transaction, which, as noted below, was later unwound, but not by the deadline for filing income tax returns for 2006. Petitioner does not satisfy its burden by relying implicitly on taxpayer noncompliance, in the face of comprehensive reporting requirements. On the other hand, given Ms. Isaacs' modest income, additional deductions for disabled dependents, and the vestigial progressivity of the federal personal income tax, the ongoing annuity payments would possibly escape taxation. In attempting to portray Respondent's sale of the AIG annuity policy as inappropriate, Petitioner attempted to prove that Ms. Isaacs had been justly satisfied with her (second) AXA Equitable annuity. Toward this end, the AXA Equitable agent testified that Ms. Isaacs had no complaints about her AXA Equitable product(s). But this testimony failed to account for the facts that Ms. Isaacs canceled her first AXA Equitable annuity policy after one year and her second AXA Equitable annuity policy after only four months. Given Ms. Isaacs' modest resources, her desire for monthly, not annual, income payments was reasonable and justified her preference for the AIG annuity policy over the second AXA Equitable annuity policy, notwithstanding other advantages that the second AXA Equitable annuity policy may have had over the AIG annuity policy. In the final analysis, Ms. Isaacs emerges, not as an unsophisticated annuity consumer, but as someone who could not decide what she wanted in an annuity contract, even after she had purchased several. Counting her decision to take cash rather than annuity-like payments from her CIT pension, in a little over 18 months, Ms. Isaacs changed the form of her annuity investments three times. Her long experience with security agreements held by a major finance corporation necessarily taught her two things--the importance of documentation and that there are no free lunches, especially when dealing with the financial industry. It is thus impossible to portray Ms. Isaacs as naïve in the matter of purchasing annuities. To the contrary, although Ms. Isaacs understood that annuity contracts all contained a complex set of bargained-for rights and responsibilities, she was quite willing, after closing on her purchases, to repudiate her agreements and attempt to negotiate new terms and conditions. What is noteworthy about Ms. Isaacs is her success in post-closing negotiations. As noted above, she managed, at no cost, to replace her original AXA Equitable annuity policy with the second AXA Equitable annuity policy. And, as noted below, she managed this feat a second time. Without doubt, Ms. Isaacs understood the long-term nature of annuity investments and the cash surrender penalties attached to all three of her annuity policies. Even if she somehow did not know of the 30-day free-look period attached to the AIG annuity policy, she should have known of this provision, given her recent experience with her AXA Equitable agent and the prominent disclosure of this right in the AIG annuity policy. But, for Ms. Isaacs, the free-look period extended far beyond 30 days, as reflected by these facts: 1) 18 months after purchasing the AIG annuity policy, Ms. Isaacs was still trying to negotiate, post-purchase, a more favorable interest rate and 2) AIG and AXA Equitable eventually yielded to Ms. Isaacs' demands and restored her, at no cost, to where she was immediately prior to the exchange of the second AXA Equitable annuity policy for the AIG annuity policy. Thus, Petitioner's proof concerning the adequacy of the disclosures concerning the long-term nature of the AIG contract, the cash surrender penalties of the AXA Equitable contract, and the 30-day free- look period for the AIG contract fails for another reason, unique to the circumstances of this case: in retrospect, these cash-surrender and free-look provisions were entirely immaterial to Ms. Isaacs, as neither insurer enforced its cash surrender provision, and AIG did not enforce the 30-day limit to the right to rescind. Most of Respondent's insurance career has been spent in selling industrial life insurance, which is also known as debit or burial insurance. From the insured's perspective, industrial life insurance provides low-value policies with limited death benefits and high premiums that are often collected in person by the agent. In the past, agents visited insureds to collect the premiums on a weekly basis, but agents now collect the premiums mostly on a monthly basis. Industrial life insurance imposes on the agent considerable responsibilities in collecting the premiums and remitting them to the insurer and preventing lapses through nonpayment of premiums and imposes relatively few responsibilities in originating new policies. The industry nomenclature reflects these responsibilities: sales agents are also known as debit agents, the agent's policyholders are known as the debit book, and the route to collect premiums from the policyholders is known, simply, as the debit. See NLRB v. United Ins. Co. of Amer., 390 U.S. 254 (1968); United Ins. Co. v. Dienno, 248 F. Supp. 553 (E.D. Pa. 1965). Respondent has worked with several industrial life insurance insurers that, through a series of transactions, eventually became Monumental. Over a 15-year span, Respondent was employed for two years as a sales agent, eight years as a sales manager, and four years as a district manager. While district manager of the Miami office, Respondent managed 30 sales agents handling $4 million of premiums annually. After leaving Monumental, Respondent worked about six years for AIG selling employee benefit packages and later general insurance products. It is during this latter period that Respondent sold the AIG annuity policy to Ms. Isaacs, described above. Respondent enjoyed little success and, in September 2007, perhaps fancifully describing his departure from AIG as a "retirement," Respondent rejoined Monumental as a sales agent. Assigned the only available debit, which was in Belle Glade, Respondent resided in the Miami area and had to drive 100 miles one way to reach his closest debit account. The Belle Glade debit was in bad shape when Respondent acquired it. The previous sales agent had not maintained the accounts accurately. However, Respondent soon exacerbated the situation by his own poor bookkeeping practices. Respondent admits that he did not use the laptop computer that his sales manager, Michael Weintraub, had assigned to him for use in recording payments collected on the debit and deposits in the Monumental bank account, as well as making reconciliations. Respondent testified that the laptop was too heavy to lug around and did not have enough battery power. Although Mr. Weintraub gave him an AC adapter so the Respondent's car could power the computer, Respondent complained that none of the agents used the adapter. The insubstantiality of these excuses require no elaboration. Upon receipt of payments from policyholders, the debit agent is required to issue receipts. This requirement is especially important due to the large number of cash transactions. Regardless of the form of payment, though, Monumental requires each of its debit agents to deposit in its bank account all of the collections by the end of the second day after inputting these payments into the computer. Prohibiting its agents from withholding their commissions from these deposits, Monumental pays the commissions separately after it has received the gross premiums. Each morning, Respondent left his home at 7:30 am or 8:00 am. Many debit accounts are serviced at the policyholders' homes, but many policyholders are not home until they finish work. This meant that Respondent often had to work after dinner riding his debit. Although Respondent could key in collections in an office in Belle Glade and at the few homes of policyholders equipped with the internet, Respondent often had to input the collections after returning home late into the evening or very early the following morning. Weary, Respondent invited trouble by sometimes relying on his memory, rather than notes, for making these date entries and reconciliations, which required him to allocate collections among premiums, repayments of principal on policy loans, payment of interest on policy loans, and payment of other fees and charges. Then, by 8:00 am the next day, Respondent was back on the road, again riding his debit. Respondent complained that, at some point while Respondent was assigned the Belle Glade debit, Mr. Weintraub added to Respondent's debit book more policyholders, many of whom were slow-paying and none of whose accounts had recently been audited. This complaint has more merit than the complaints about the laptop computer, but not much more. Respondent was uniquely qualified, given his years' experience in selling industrial life insurance, to examine this new business and identify shortfalls in individual accounts, but he never did so. Instead, Respondent applied his haphazard means of accounting for payments to these troublesome new accounts. Late in 2008, Mr. Weintraub decided to perform an audit of Respondent's debit book. Although Mr. Weintraub was now a district manager--a position that he held for one year before Monumental restored him to his previous position as a sales manager--he did not wish to rely on an inexperienced sales manager to perform the audit. Mr. Weintraub found errors in every account of Respondent and recommended that Monumental terminate Respondent. Without delay, Monumental did so, effective November 7, 2008, and Mr. Weintraub "turned off his computer and fired him." Following the termination of Respondent, Monumental conducted a three-month audit of Respondent's debit book, in which Mr. Weintraub or another Monumental employee visited each policyholder, and found that Respondent had issued receipts for about $4600 in premiums that had never been remitted to Monumental. Monumental paid these premiums and reinstated the three life insurance policies that had been lapsed. Many other persons claimed to have paid premiums to Respondent, but failed to produce receipts, and Monumental denied all of their claims for credit or reinstatement. Monumental subsequently demanded repayment of the unremitted $4600, and Respondent has declined to do so. Respondent seemed more intent on showing that he did not steal money than that he competently discharged his duties. Toward the end of the hearing, Respondent asked when he and a Monumental representative would get together to arrive at the exact shortfall, revealing that he may have understood that he owes at least some of the $4600, but also that he has treated casually his obligation to repay this sum. The problem for Respondent's defense as to Count II is that the evidence establishes: 1) Respondent negligently and recklessly handled his debit accounts; 2) Respondent's handling of these accounts was inexcusable, and 3) as a result, Respondent failed to remit to Monumental about $4600 in payments from policyholders, even after Monumental demanded payment of this sum. The first two findings are sufficient to establish Respondent's unfitness to engage in the business of insurance, and the third finding is sufficient to establish that Respondent unlawfully withheld money owed an insurer.
Recommendation It is RECOMMENDED that Petitioner enter a final order dismissing Count I, finding Respondent guilty of violating section 626.611(10) in Count II, and suspending Respondent's insurance licenses for 15 months. DONE AND ENTERED this 24th day of April, 2012, in Tallahassee, Leon County, Florida. S ROBERT E. MEALE 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 24th day of April, 2012. COPIES FURNISHED: David J. Busch, Esquire Department of Financial Services Division of Legal Services 612 Larson Building 200 East Gaines Street Tallahassee, Florida 32399 david.busch@myfloridacfo.com Andrew O'Niel Bryan 17635 Southwest 32nd Street Miramar, Florida 33029-2328 Julie Jones CP, FRP, Agency Clerk Division of Legal Services Department of Financial Services 200 East Gaines Street Tallahassee, Florida 32399-0390