The Issue The issues in this case are whether Respondents, Donald J. Denton and Strategic Strategies, Inc. (hereinafter "Respondents," "Denton," or "Strategic Strategies"), are guilty of selling or offering for sale securities in Florida that were not registered pursuant to Chapter 517, Florida Statutes, in violation of Section 517.07(1), Florida Statutes; whether Respondents are guilty of acting as unregistered dealers, associated persons, or issuers by having sold or offered for sale any securities from this state, in violation of Section 517.12(1), Florida Statutes; and, if so, what penalties are appropriate and should be imposed. All references to Florida Statutes are for the years 1998 and 1999.
Findings Of Fact Based upon the observation of the witnesses and their demeanor while testifying, the documentary evidence received in evidence, and the entire record complied herein, the following relevant and material facts are found: The Department is the agency charged with the enforcement and administration of the provisions of Chapter 517, Florida Statutes, the "Securities and Investors Protection Act," and the rules promulgated there under (hereinafter the "Securities Act"). As authorized by the Securities Act, the Department conducted an investigation of the activities of Respondents. At no time pertinent, material, and relevant hereto were Respondents, Denton or Strategic Strategies, licensed or registered by the Department pursuant to the provisions of the Securities Act in any capacity. Specifically, Respondents were not licensed or registered in Florida as a broker/dealer, registered representative, or investment advisor. At all times pertinent, material, and relevant hereto, Denton, whose address is 139 East Park Drive, Celebration, Florida 34747-5052, was licensed as a Health Agent under license No. AO666272 issued by the Florida Department of Insurance. At all times pertinent, material and relevant hereto, Strategic Strategies was an Ohio corporation, now dissolved, whose company business address was Post Office Box 341470, Columbus, Ohio 43234. Strategic Strategies was served the Administrative Complaint via its agent in Ohio. The Department was advised by Strategic Strategies' agent that the company would not further respond to the charges. From November 1, 1998, through July 21, 1999, Denton, in Florida as an agent, offered and sold to investors, investment contracts purportedly being interests in viaticated life insurance policies known as settlement agreements with titles such as, "Viatical Insurance Benefits Participation Agreement." The interests in viaticated life insurance policies were represented to be provided by Accelerated Benefits Services (hereinafter ABS). Denton engaged in sales with four Florida investors in four transactions through Strategic Strategies during the period of March 15, 1999, through July 27, 1999. Denton engaged in 26 sales with 26 Florida investors in 26 transactions. On or about January 21, 1999, Dr. Kerry L. Neal, a Florida investor, paid $50,000 for an investment sold to him by Denton. The investment was represented as safe, insured by the state of Florida, and consisting of an interest in the ABS trust with a participation of $25,000 in two viaticated insurance settlement agreements as a 14.2 percent fractional interest in the insurance policies' face value. A monthly income program was offered in the participation disclosure materials provided to Dr. Neal by Denton. Dr. Neal was promised a guaranteed rate of return of 42 percent, with the option of getting the principal back after 36 months with a 15 percent return if the viator (the person insured by the insurance policy) did not die during the 36-month period and the policies had not matured. Of his $50,000 investment, Dr. Neal has only received approximately $8,000 as disbursements from the ABS bankruptcy trustee resulting in Dr. Neal having suffered a present financial loss of $42,000. On or about January 3, 1999, Dr. Theodore F. Hoff, a Florida investor, paid $200,000 for an investment sold to him by Denton. The investment was represented as safe, insured by the state of Florida, and consisting of an interest in the ABS trust with fractional interests in eight viaticated life insurance settlement agreements. A monthly income program was offered in the participation disclosure materials provided Dr. Hoff together with a guaranteed rate of return of 42 percent, with the option of getting the principal back after 36 months with a 15 percent return if the viator did not die during the 36-month period and the polices had not matured. Of his $200,000 investment, Dr. Hoff has only received a total of approximately 15 percent in disbursement from the ABS bankruptcy trustee, thereby resulting in a present financial loss to Dr. Hoff of approximately $170,000. On or about March 23, 1999, Dr. Paul Richard Williamson, a Florida investor, paid $50,000 for an investment sold to him by Denton. The investment was represented as safe, insured by the state of Florida, and consisting of an interest in the ABS trust with fractional interests in two viaticated life insurance settlement agreements. A monthly income program was offered in the participation disclosure materials provided to Dr. Williamson together with a guaranteed rate of return of 42 percent, with the option of getting the principal back after 36 months with a 15 percent return if the viator did not die during the 36-month period and the polices had not matured. Of his $50,000 investment, Dr. Williamson has only received $8,253.68 in disbursement from the ABS bankruptcy trustee, thereby resulting in a present financial loss to Dr. Williamson of approximately $41,746.32. On or about January 4, 1999, Dr. Samuel Preston Martin, a Florida investor, paid $100,000 for an investment sold to him by Denton. The investment was represented as safe, insured by the state of Florida, and consisting of an interest in the ABS trust with fractional interests in two viaticated life insurance settlement agreements. A monthly income program was offered in the participation disclosure materials provided to Dr. Martin together with a guaranteed rate of return of 42 percent, with the option of getting the principal back after 36 months with a 15 percent return if the viator did not die during the 36-month period and the polices had not matured. Of his $100,000 investment, Dr. Martin has only received $16,000 in disbursements from the ABS bankruptcy trustee, thereby resulting in a present financial loss to Dr. Martin of approximately $84,000. On or about November 10, 1999, Dr. Gilbert Principe, a Florida investor, paid $125,000 for an investment sold to him by Denton. The investment was represented as safe, insured by the state of Florida, and consisting of an interest in the ABS trust with fractional interests in two viaticated life insurance settlement agreements. A monthly income program was offered in the participation disclosure materials provided Dr. Principe together with a guaranteed rate of return of 42 percent, with the option of getting the principal back after 36 months with a 15 percent return if the viator did not die during the 36-month period and the polices have not matured. Of his $125,000 investment, Dr. Principe has only received approximately $20,000 (16 percent) in disbursement from the ABS bankruptcy trustee, thereby resulting in a present financial loss to Dr. Principe of $105,000. The above investors, Drs. Neal, Hoff, Williamson, Martin and Principe, were clients of Denton who held himself out as a financial advisor. By special and private invitations from Denton, they were invited twice yearly to attend investment seminars conducted by Denton. Denton directly or indirectly represented that the viatical investment would make money for the above named investors; he represented to each investor that the return could be 9.86 percent per year for three (3) years paid monthly as a income program. The above-named investors lost their money as victims of a Ponzi scheme run by principals of ABS involving the sale of viatical agreements in Florida. Ray Levy was the owner of ABS, a viatical settlement brokerage company that raised funds for the purchase of viatical settlements. Jeffery Pains, Esquire, was the escrow agent for ABS. Levy, Paine and others were convicted in federal court of fraud since approximately 90 percent of the $208 million obtained from thousands of investors solicited nationwide was used for the purchase of real estate and items for personal use.1 ABS offered and sold its viaticals to thousands of investors in Florida and in other states. There were approximately a total of 7,000 ABS transactions. The Department filed charges against ABS and Ray Levy that resulted in a Final Order adopting a stipulated settlement. ABS and Ray Levy agreed to comply with Florida law, stop offering the income program, return $900,000 to certain investors, and pay $60,000 to the Department for costs. Other agents (insurance, financial advisors, etc.) that sold the interests in the ABS viaticals have been charged with violations of the Securities Act by the Department, resulting in cease and desist orders being issued and fines being imposed. Denton offered the following defenses to his conduct: sales were exempt securities; sales were insurance policies; investors were wealthy and experienced; his reliance upon ABS's printed literature absolved him from personal liability; and the Department had an obligation to communicate to him personally any knowledge of problems with business practices of ABS, all of which are without merit. The undisputed evidence of record, clearly and convincingly supports that: First, Respondent, Denton, while not registered in the securities business, intentionally or knowingly, solicited and sold unregistered securities; and second, Respondent, Strategic Strategies, had four sales and Denton has 26 sales.
Recommendation Based on the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that The Department of Banking and Finance enter its final order finding Respondents guilty of violations of Sections 517.07(1) and 517.12(1), Florida Statutes; it is further RECOMMENDED that The Department of Banking and Finance order Respondent to cease and desist from engaging in any transaction constituting the sale of securities in Florida; it is further RECOMMENDED that The Department of Banking and Finance order Respondent, Strategic Strategies, Inc., be fined in the amount of $40,000; and, it is finally RECOMMENDED that The Department of Banking and Finance order Respondent, Donald J. Denton, be fined in the amount of $260,000. DONE AND ENTERED this 20th day of November, 2002, in Tallahassee, Leon County, Florida. FRED L. BUCKINE Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (850) 488-9675 SUNCOM 278-9675 Fax Filing (850) 921-6847 www.doah.state.fl.us Filed with the Clerk of the Division of Administrative Hearings this 20th day of November, 2002.
Conclusions THE PARTIES resolved all disputed issues and executed a Settlement Agreement. The parties are directed to comply with the terms of the attached settlement agreement. Based on the foregoing, this file is CLOSED. DONE and ORDERED on this the day of --+-h+----"-''----,,,'f---' Tallahassee, Florida. 200_, m Agency for Health Care Administration 1 Filed July 7, 2009 1:05 PM Division of Administrative Hearings. A PARTY WHO IS ADVERSELY AFFECTED BY THIS FINAL ORDER IS ENTITLED TO A JUDICIAL REVIEW WHICH SHALL BE INSTITUTED BY FILING ONE COPY OF A NOTICE OF APPEAL WITH THE AGENCY CLERK OF AHCA, AND A SECOND COPY ALONG WITH FILING FEE AS PRESCRIBED BYLAW, WITH THE DISTRICT COURT OF APPEAL IN THE APPELLATE DISTRICT WHERE THE AGENCY MAINTAINS ITS HEADQUARTERS OR WHERE A PARTY RESIDES. REVIEW PROCEEDINGS SHALL BE CONDUCTED IN ACCORDANCE WITH THE FLORIDA APPELLATE RULES. THE NOTICE OF APPEAL MUST BE FILED WITHIN 30 DAYS OF RENDITION OF THE ORDER TO BE REVIEWED. Copies furnished to: Karen Dexter, Esquire Agency for Health Care Administration (Laserfiche) Louise Jeroslow 6075 Sunset Drive, Suite 201 Miami, Florida 33143 (U.S. Mail) Claude B. Arrington Administrative Law Judge Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 Ken Yon, Chief, Medicaid Program Integrity Fred Becknell, Medicaid Program Integrity Finance and Accounting CERTIFICATE OF SERVICE I HEREBY CERTIFY that a true and correct copy of the foregoing has been furnished to the above named addressees by U.S. Mail on this the f ;t , 200.?' Richard Shoop, Esquire Agency Clerk State of Florida Agency for Health Care Administration 2727 Mahan Drive, Building #3 Tallahassee, Florida 32308-5403 (850) 922-5873
Conclusions r , THE PARTIES resolved all disputed issues and executed a Settlement Agreement. The parties are directed to comply with the terms of the attached settlement agreement. Based on the foregoing, this file is CLOSED. DONE and ORDERED on this the JI!..!:day of 2010, in Tallahassee, Florida. Thomas W. Arnold, Secret Agency for Health Care Administration A PARTY WHO IS ADVERSELY AFFECTED BY THIS FINAL ORDER IS ENTITLED TO A JUDICIAL REVIEW WHICH SHALL BE INSTITUTED BY FILING ONE COPY OF A NOTICE OF APPEAL WITH THE AGENCY CLERK OF AHCA, AND A SECOND COPY ALONG WITH FILING FEE AS PRESCRIBED BY LAW, WITH THE DISTRICT COURT OF APPEAL IN THE APPELLATE DISTRICT Filed August 25, 2010 2:23 PM Division of Administrative Hearings. , WHERE THE AGENCY MAINTAINS ITS HEADQUARTERS OR WHERE A PARTY RESIDES. REVIEW PROCEEDINGS SHALL BE CONDUCTED IN ACCORDANCE WITH THE FLORIDA APPELLATE RULES. THE NOTICE OF APPEAL MUST BE FILED WITHIN 30 DAYS OF RENDITION OF THE ORDER TO BE REVIEWED. Copies furnished to: Monica Ryan, Assistant General Counsel Agency for Health Care Administration (E-Mail) L. William Porter, II, Assistant General Counsel Agency for Health Care Administration (E-Mail) Michael J. Glazer, Esquire Ausley & McMullen 227 South Calhoun Street Post Office Box 391 Tallahassee, Florida 32302 (U.S. Mail) The Honorable Stuart M. Lerner Division of Administrative Hearings The DeSoto Building 1230 Apalachee Parkway Tallahassee, Florida 32399-3060 (U.S. Mail) Mike Blackburn, Bureau Chief, Medicaid Program Integrity Agency for Health Care Administration (E-Mail) Finance and Accounting Agency for Health Care Administration (E-Mail) Health Quality Assurance Agency for Health Care Administration (E-Mail) CERTIFICATE OF SERVICE I HEREBY CERTIFY that a true and correct copy of the foregoing has been furnished to the above named addressees by U.S. Mail and/e-mail on this the z,ifa;of /1<.Lc; , 2010. J Richard Shoop, Esquire Agency Clerk Agency for Health Care Administration 2727 Mahan Drive, Mail Stop #3 Tallahassee, Florida 32308-5403 Phone: (850) 412-3650 Fax: (850) 921-0158
The Issue Whether Petitioner is entitled to the amounts claimed in the challenges to the IRR determinations as set forth in the cost settlement documents.
Findings Of Fact Petitioner, Sunrise Community, Inc., is a non-profit organization that offers assistance and support to people with developmental disabilities. It specializes in residential services but also provides day programs, supported living services, and other programs to assist people in the lower functioning ranges of mental retardation. Respondent, Agency for Health Care Administration, is the state agency charged with the responsibility of administering and supervising Medicaid reimbursements. At all times material to this cause, Petitioner was an authorized Medicaid provider. The quality of care provided by Petitioner and its facilities has never been disputed in this cause. The disputes in this matter arose due to challenges to the rates of reimbursement to Petitioner and its facilities. In Florida, Medicaid providers such as Petitioner are reimbursed on a prospective basis. Each provider gets a rate for reimbursement that is established based upon the actual allowable costs from a prior, fixed period of time which is then utilized to pay for a subsequent time period. For convenience of review this rate is sometimes thought of as the "budgeted rate" in this record. It assumes costs from past experience will be incurred in the future and provides for a known, fixed amount of compensation to hopefully cover such expenses. All Medicaid providers are required to disclose their actual costs for an entire reporting period. A cost report must be prepared using the accrual basis of accounting in accordance with generally accepted accounting principles as set forth in the rules governing Medicare reimbursement. After the fact, providers then "settle up" with the Agency by comparing the actual allowable costs incurred in the rate period with the rate. Providers cannot make a profit or excess revenue on the rate. Where a rate for a given period proves to be too low or inadequate, the cost settlement procedure is designed to adjust the amounts owed to cover the deficit funding. Thus each Medicaid facility receives a rate which must be "cost settled" separately based upon its actual allowable expenses. Petitioner and its related facilities are entitled to rates that will cover the actual allowable costs of doing business. Petitioner is not entitled to a profit nor is it required to operate at a loss. Should a provider be overpaid, that is, if it is established during cost settlement that the rate received by the provider was more than the actual allowable costs incurred for the rate period, then the provider "repays" the overage to the Agency. Otherwise, the rate is fixed for the time period it relates to unless an IRR is approved to increase the rate. IRRs are submitted to the Agency when a provider’s rate does not provide adequate compensation. An approved interim rate is to give assurance that the original rate can be adjusted to accommodate the new costs incurred by the provider. Approved interim rates are also cost settled after the rate period as with budgeted rates. In 1995 Petitioner sought approval of interim rate increases from the Agency. Such requests were denied by the Agency but successfully appealed by Petitioner. Thereafter, because the period governed by the rates had passed, the Agency sought to cost settle the amounts owed to Petitioner. When the Agency refused to remit the court-ordered interim rate Petitioner lost the amount of the rate increase as well as an opportunity for use of those funds during the pending cases. The parties attempted to resolve the amounts claimed by Petitioner through the cost settlement process. As to each denied claim, Petitioner sought an administrative review and the matter was forwarded to the Division of Administrative Hearings. IRRs are designed to give providers relief so that unanticipated costs can be reimbursed. This is important since laws may change which require providers to offer additional programs or services the costs of which are not encompassed in the budgeted rate in effect at the time of the change in law. At the time of settlement, if there is an overpayment of the difference between the approved interim rate and the actual allowable costs, the provider refunds the overpayment. Similarly, if there is an underpayment as a result of the actual allowable cost being greater than the interim rate, the provider is entitled to receive additional payment. Petitioner is entitled to additional payments. The amount of the payments is the center of the disputes in this cause. First, the Agency has refused to remit monies associated with interest payments on a bond issue. The Agency refused to include payment for the bond interest because it maintains that, while bond interest expense is an actual allowable cost incurred by Petitioner, it was reported twice in the cost reports. The bond interest disallowed is itemized in Petitioner's Exhibit 17. Such exhibit accurately lists the amounts that the Agency should have approved for the IRR cost settlements for the facilities listed. The bond interest is appropriately allocated to the facilities listed and was not claimed or duplicated by another entity for the periods noted. Thus each of the listed facilities should have received an adjusted rate with the bond interest cost included in the calculation. Secondly, Petitioner claims that had the Agency timely remitted the funds associated with the IRR, it would have had the benefit of those monies for the interim period of time. As such, it maintains it should be paid interest on the monies not paid. The basis for the lost interest claim arguably stems from the Medicare rule that allows interest in some situations. Florida historically has not remitted interest on underpayment amounts. In calculating the amounts owed to Petitioner, interest lost on the IRR was therefore disallowed. There is no provision governing the Florida Medicaid plan that specifies the payment of interest on a rate. A provider’s rate can be broken down into four cost components: operating, resident care, property, and return on equity. Had Petitioner received the full IRR it might have been given a "return of equity" or "use allowance." It might have resulted in a positive average equity. Petitioner has not established through credible evidence that factually this "return of equity" would have been applicable to the situations of the facilities affected by the IRRs. Speculation as to the financial posture of the facilities has not been deemed persuasive. The third dispute in this cause relates to the computation of the amounts owed for the Pablo facility. The Pablo facility incurred expenses over a 140-day period which were annualized over a 366-day period to compute the interim rate amount. In so doing, the Agency abandoned the methodology previously utilized to compute the rate owed and determined that the actual allowable costs in the subsequent period (which were known) had to be considered. Had the Agency used the established methodology it claims it would have overpaid the provider in the subsequent period. While mathematically accurate in this single example, such methodology has not been used except in this instance (when it benefited the Agency). The abandonment of the methodology also ignores the cost settlement process that is designed to reconcile amounts after the fact. The plan used by these parties recognizes the settlement process as the procedure by which all actual allowable costs are reconciled. If after having received an inflated rate the Pablo facility had owed monies back, such funds would have been remitted through the cost settlement process. Of course in this case, the Agency did not remit an increased rate so the crux of the problem is to resolve the dispute artificially as if from one point in time to another the rate had been appropriately increased. The settlement should have utilized the 140-day period to calculate the rate. That is, the per diem should have used the expense amount divided by 140 not 366 to compute the daily expense. The fourth disputed amount is the IRR for Country Meadows. The Agency has conceded that this IRR could have been granted with an accounting clarification. The final disputed amount relates to attorney's fees. Petitioner maintains it is entitled to include an amount of attorney's fees that is based upon a contingency fee agreement. Although the Agency does not dispute that providers may include attorney's fees as an allowable cost, it argues that such costs are not reported until incurred. Moreover, such costs must be what a prudent buyer would pay and relate to the IRR. In this instance the plan provides that: Implicit in any definition of allowable costs is that those costs do not exceed what a prudent and cost-conscious buyer pays for a given service or item. If costs are determined by AHCA, utilizing the Title XVIII principles of reimbursement, HCFA PUB 15-1 (1993), and this plan to exceed what a prudent buyer would pay, then the excess costs shall not be reimbursable under this plan. Attorney's fees are considered part of the operating component of the rate calculation. It is an administrative cost and is reported on a provider’s cost report as such. In selecting the attorneys to represent it, Petitioner did not interview applicants, solicit proposals, or inquire of other attorneys as to a reasonable fee for this type of representation. Petitioner presented no credible evidence of the reasonable fee for representation in this type of proceeding. Petitioner’s lead counsel served on its Board of Directors at the time the contingency fee agreement was entered into. The contingency fee agreement provided for an alternative method of payment in the amount of $250.00 per hour. The attorney's fee agreement provided, in pertinent part: The attorney’s fee shall be 40% of the total of all funds received as a result of the reversal of the wrongful denial of the interim rate request covering the period from the date of filing the interim rate request through the date of final settlement. The lawyer shall have no claim on the future value of the interim rate request past the date of settlement. If an appeal is required the fee shall be 50% instead of 40%. If, due to circumstances beyond the control of the parties to this fee agreement, such as changes in law, or constructions of law inconsistent with this agreement, including constructions of law that would not permit the reimbursement of attorney's fees to Sunrise Community, Inc., the parties agree that in no event shall the fee be less than a reasonable fee based on the hours of work multiplied by the rate of $250.00 per hour. The attorney's fee agreement was executed on October 25, 1995 on behalf of Sunrise Community, Inc. Such agreement did not name the facilities whose IRRs were governed by the agreement. The agreement did not specify how the attorney fee would be allocated among the providers who would be affected by the successful challenge to the IRR denials. The opinion of the First District Court of Appeal that upheld the IRRs and directed the Agency to grant them was entered on January 27, 1998.
Recommendation Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Agency for Health Care Administration enter a Final Order that grants the bond interest as claimed by Petitioner; denies the interest on unpaid IRR amounts; grants the amounts claimed by Petitioner for Pablo; grants the Country Meadows IRR; and denies the attorney's fees. DONE AND ENTERED this 30th day of December, 1999, 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 30th day of December, 1999. COPIES FURNISHED: Steven M. Weinger, Esquire Kurzban, Kurzban, Weinger & Tetzeli, P.A. 2650 Southwest 27th Avenue Second Floor Miami, Florida 33133 Steven A. Grigas, Esquire Agency for Health Care Administration Fort Knox Building 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308-5403 Ruben J. King-Shaw, Director Agency for Health Care Administration 2727 Mahan Drive, Suite 3116 Tallahassee, Florida 32308 Julie Gallagher, General Counsel Agency for Health Care Administration Fort Knox Building 3 2727 Mahan Drive, Suite 3431 Tallahassee, Florida 32308
