02-002370PL
Department Of Insurance vs.
Sean Darin Hoyt
Status: Closed
Recommended Order on Friday, October 25, 2002.
Recommended Order on Friday, October 25, 2002.
1STATE OF FLORIDA
4DIVISION OF ADMINISTRATIVE HEARINGS
8DEPARTMENT OF INSURANCE, )
12)
13Petitioner, )
15)
16vs. )
18) Case No. 02 - 2370PL
24SEAN DARIN HOYT, )
28)
29Respondent. )
31)
32RECOMMENDED ORDER
34Administrative Law Ju dge (ALJ) Daniel Manry conducted the
43administrative hearing of this case on August 6, 2002, in
53Clearwater, Florida, on behalf of the Division of
61Administrative Hearings (DOAH).
64APPEARANCES
65For Petitioner: James A. Bossart, Esquire
71Department of Insur ance
75Room 612, Larson Building
79200 East Gaines Street
83Tallahassee, Florida 32399
86For Respondent: Elihu H. Berman, Esquire
92Post Office Box 6801
96Clearwater, Florida 33758
99STATEMENT OF THE ISSUES
103The issues presented are whether two separate sales of
112unregistered securities to elderly persons demonstrate a lack
120of fitness or trustworthiness to engage in the business of
130insurance in violation of Section 626.611(7), Florida Statutes
138(2001); and, if so, what penalty, if any, should Petitioner
148impose against Respondent's license. (All chapter and section
156references are to Florida Statutes (2001) unless otherwise
164stated.)
165PRELIMINARY STATEMENT
167On May 1, 2002, Petitioner filed an Administrative
175Complaint ag ainst Respondent. Respondent timely requested an
183administrative hearing.
185At the hearing, Petitioner presented the testimony of
193four witnesses and submitted 12 exhibits for admission into
202evidence. Respondent testified in his own behalf, called an
211additi onal witness, and submitted four exhibits for admission
220into evidence.
222The identity of the witnesses and exhibits, and any
231attendant rulings, are set forth in the Transcript of the
241hearing filed on August 21, 2002. Petitioner and Respondent
250timely filed t heir Proposed Recommended Orders ("PRO"),
260respectively, on October 20 and 19, 2002.
267FINDINGS OF FACT
2701. Respondent is currently licensed in this state as an
280insurance agent pursuant to license number A124652. The
288license authorizes Respondent to perform the duties of an
297agent for health and life insurance and variable annuity
306agent. Respondent is not licensed to sell securities.
3142. Petitioner is the state agency responsible for
322regulating the business of insurance in this state.
330Petitioner is not aut horized to regulate the sale of
340securities.
3413. On September 18, 1998, Respondent sold eight shares
350of unregistered securities in Palm Beach Investment Group,
358Inc. (Palm Beach) to Mr. and Mrs. Anthony and Lucille Fusco
369(Fusco) for $40,000. On January 5, 1998, Respondent sold 18
380shares of unregistered securities in Palm Beach to Mrs. Gladys
390Speth (Speth) for $90,000.
3954. The Department of Banking has jurisdiction over the
404sale of unregistered securities by unlicensed individuals.
411The Department of Bank ing disciplined Respondent for the sales
421of unregistered securities to Fusco and Speth. On November
43010, l999, Respondent and the Department of Banking entered
439into a Settlement Stipulation and Final Order whereby
447Respondent admitted he violated Sections 5 17.07 and 517.12 by
457offering for sale or selling unregistered securities while he
466himself was not authorized to sell securities. Respondent did
475not dispute these facts at the administrative hearing of this
485case.
4865. The Administrative Complaint alleges t hat Respondent
494violated Sections 626.611(7)(9)(13), 626.621(2)(3) and (6),
500and 626.9541(1)(e)1 when he sold unregistered securities to
508Fusco and Speth. In Petitioner's PRO, however, Petitioner
516admits that Respondent could not have violated any statute
525oth er than Section 626.611(7) because Respondent did not
534engage in the business of insurance when he sold securities to
545Fusco and Speth. In relevant part, Petitioner states:
553Petitioner concedes that the alleged
558conduct does not involve insurance
563transactions and therefore cannot be
568considered transactions under Respondents
572[sic] insurance licenses. As a result, no
579violation of the other enumerated statutes
585has occurred.
587Petitioner's PRO at 11, paragraph 5.
5936. The only remaining issue that Petitioner asse rts is
603whether Respondent violated Section 626.611(7). A licensee
610violates Section 626.611(7) if he or she demonstrates a lack
620of fitness or trustworthiness to engage in the business of
630insurance. Petitioner asserts that Respondent violated
636Section 626.6 11(7) by engaging in a business other than the
647business of insurance in a manner that demonstrates a lack of
658fitness or trustworthiness to engage in the business of
667insurance.
6687. Neither Fusco nor Speth are experienced investors.
676Neither buys or sells s tock or securities and neither has any
688training or education in investing. Mr. and Mrs. Fusco are
698retirees, as is Speth. Fusco invested $40,000 of their life
709savings, and Speth invested $90,000 from a personal injury
719settlement.
7208. Mrs. Fusco had never purchased shares of stock
729before. Her father had lost a great deal of money in the l929
742market crash and there was a long - standing family prejudice
753against stock.
7559. Fusco had business experience with Respondent prior
763to the time that Respondent sold Pa lm Beach securities to
774Fusco. That prior experience is relevant to the perspective
783and understanding that Fusco brought to the Palm Beach
792transaction.
79310. Sometime in l998, while Respondent worked with a
802previous employer, Respondent solicited Fusco to i nvest funds
811in a Certificate of Deposit (CD). Fusco did so and believed
822they were completing a similar transaction when they later
831purchased Palm Beach securities from Respondent.
83711. After Respondent sold the CD to Fusco, but still in
848l998, Respondent changed his employment to Evergreen National
856(Evergreen). Respondent telephoned Fusco and informed them
863that he had moved to Evergreen and that he was selling a very
876good security that they might be interested in purchasing.
885Mrs. Fusco explained to Resp ondent that they were not
895interested in securities, but they would be interested in
904purchasing a CD similar to the one they had previously
914purchased from Respondent.
91712. Fusco made an appointment to visit Respondent at his
927office. At Respondent's office , Mrs. Fusco stated
934unequivocally that Fusco desired to purchase only a CD. Fusco
944wanted no risk to their funds, and they made that clear to
956Respondent.
95713. Respondent represented to Fusco that Respondent was
965selling a CD that was fully guaranteed and insured against any
976loss. Respondent represented that Fusco would be investing in
985a proportionate share of a jumbo CD issued by Palm Beach, that
997they would enjoy a 14 percent return on their investment, and
1008that their investment was insured by the Federal Deposit
1017Insurance Corporation (FDIC) and the Great American Insurance
1025Company (Great American).
102814. Respondent provided Fusco with various brochures
1035about the investment that verified Respondent's
1041representations that the investment was an insured, saf e way
1051to earn a high interest rate. Fusco relied on the
1061representations contained in those brochures and those made by
1070Respondent.
107115. Fusco was still somewhat hesitant to invest their
1080funds. Respondent then brought into his office Darrin
1088Carlson, the p resident of Evergreen (Carlson). Carlson
1096reiterated to Fusco that the investment was insured and was
1106completely safe and without risk.
111116. Fusco elected to invest $40,000 to purchase a CD.
1122They gave a check to Respondent, and Respondent promptly
1131remitte d the check to Palm Beach.
113817. On September 18, 1998, Fusco signed a document
1147entitled Subscription Agreement. The terms of the
1154Subscription Agreement state that it is an application for
1163Fusco to purchase shares of stock in Palm Beach. The
1173agreement is clearly not an application to purchase a CD. In
1184fact, no reference is made in the document to any CD or to
1197Fusco's $40,000.
120018. Fusco did not understand the terms of the
1209Subscription Agreement. Respondent did not explain the terms
1217of the agreement to them. Fusco relied on the representations
1227made by Respondent.
123019. Approximately three weeks later, Fusco received a
1238stock certificate in the mail issued by Palm Beach showing
1248that they owned eight shares of stock in Palm Beach. The
1259certificate makes no reference to any CD or Fusco's $40,000
1270investment. Fusco was confused and upset.
127620. The stock certificate does not document that the
1285Fusco's owned any CD or any share in a CD. Furthermore,
1296Respondent offered no evidence of the use of the funds by Pal m
1309Beach.
131021. Fusco contacted Respondent. Respondent assured
1316Fusco that this was the "way things were done," and their
1327investment was safe. Fusco trusted Respondent and relied on
1336the representation by Respondent.
134022. In May of l999, Fusco received a l etter from Palm
1352Beach informing Fusco that they would receive a full refund of
1363their money plus interest as of June 7, l999. Palm Beach did
1375not deliver on its promise.
138023. When Fusco did not receive any money from Palm
1390Beach, Fusco contacted Respondent . Respondent assured Fusco
1398that their investment as safe, that they were insured, and
1408that they would soon receive their money.
141524. Fusco has never received the original $40,000 or any
1426interest payment from Palm Beach. Palm Beach has never
1435provided an accounting to Fusco showing the value of their
1445investment. Fusco has suffered a loss of $40,000 plus
1455accumulated interest at a fair market value rate.
146325. Respondent also sold unregistered securities to
1470Speth. Sometime in January l999, Respondent visi ted the home
1480of Speth. Speth had recently received $90,000 as a personal
1491injury settlement and was looking for a secure investment.
150026. Speth wanted a risk - free investment. She told
1510Respondent that she would purchase a CD, but had no interest
1521in purcha sing stock. Respondent suggested that Speth invest
1530in a proportionate share of a jumbo CD to be issued by Palm
1543Beach that would yield a 14 percent return. Respondent
1552represented that the CD would be insured and risk free.
156227. Respondent showed Speth va rious brochures claiming
1570that the investment was fully insured by the FDIC as well as
1582other insurance companies. Respondent did not inform Speth
1590that there was a risk she could lose her entire investment.
160128. Speth gave Respondent a check for $90,000 made out
1612to Palm Beach to invest in a CD with a one - year maturity date.
1627Speth subsequently received a stock certificate in the mail
1636from Palm Beach showing that she owned 18 shares of Palm Beach
1648stock. Speth was puzzled, telephoned Respondent, and told h im
1658that she thought she had purchased a CD. Respondent
1667represented to Speth that her money was safe and fully
1677insured.
167829. Speth has not received either her original
1686investment or any interest on that investment. Palm Beach has
1696not provided Speth with an accounting showing the value of her
1707investment. Speth has suffered a loss of $90,000 plus
1717accumulated interest at a fair market value rate.
172530. Respondent sold investments to Fusco and Speth that
1734were not appropriate for their age, skill, and invest ment
1744objectives. Both Fusco and Speth clearly expressed the
1752maximum aversion to risk. Neither Fusco nor Speth would have
1762invested in Palm Beach if they knew they were investing in
1773stock. Both Fusco and Speth intended to purchase a CD or a
1785proportionate share of a CD that was insured by the FDIC and
1797Great American. At no time were their investments insured by
1807the FDIC or any insurance company.
181331. Respondent had actual knowledge of the investment
1821goals and skill of Fusco and Speth. Respondent believe d that
1832he was selling an investment vehicle that was appropriate to
1842the knowledge, skill, and goals of Fusco and Speth.
185132. Prior to selling any securities in Palm Beach,
1860Respondent undertook several independent inquiries that are
1867fairly characterized as a form of due diligence. Some of
1877Respondent's efforts toward due diligence are relevant to the
1886unauthorized sale of unregistered securities. Other efforts
1893are relevant to the nature of the investment as a secured
1904investment.
190533. Palm Beach represented in a letter to Respondent
1914that the securities offered for sale were exempt from
1923registration. Carlson believed the securities were exempt and
1931assured Respondent that Respondent did not need a license to
1941sell the securities. Carlson went on - line to the w eb site of
1955the Securities and Exchange Commission (SEC) and obtained a
1964letter from private securities attorneys stating that the
1972securities were exempt.
197534. Carlson believed that the securities were insured by
1984Great American and obtained a copy of a fin ancial institution
1995bond with a limit of $5 million. Carlson represented to
2005Respondent that any investment in Palm Beach securities was an
2015insured investment. Respondent thought that he had verified
2023the matter by telephoning the office of Great American a nd
2034obtaining verbal assurances that the Palm Beach investment was
2043insured.
204435. Respondent had a good faith belief that the
2053securities he offered to Fusco and Speth, in part, were
2063appropriate to the clients' investment goals because
2070Respondent believed the securities satisfied the risk aversion
2078expressed by Fusco and Speth. Respondent believed the
2086securities were risk - free because he believed they were
2096insured.
209736. Respondent knew the Palm Beach securities he offered
2106to Fusco and Speth, in part, were not appropriate to the
2117clients' investment goals because the securities were stock in
2126a company and that neither Fusco nor Speth wanted to invest in
2138securities. The first paragraph of the Securities Agreement
2146clearly states that the investor is purchasing sto ck in Palm
2157Beach. Respondent had actual knowledge that he was selling
2166securities to Fusco and Speth and that neither wanted to
2176purchase securities.
217837. Respondent has demonstrated in two separate
2185transactions a willingness to sell a product to a person t hat
2197the person did not desire to purchase. Even though the
2207products sold were securities, rather than insurance, and even
2216though Respondent believed the products represented the risk -
2225free investment sought by Fusco and Speth, the willingness to
2235sell secur ities to persons who have expressly stated that they
2246do not want to purchase that type of product demonstrates a
2257lack of fitness or trustworthiness to engage in the business
2267of insurance within the meaning of Section 626.611(7).
227538. Respondent sold a pr oduct to Fusco and Speth that,
2286in fact, was not risk - free. Respondent's due diligence prior
2297to the sale did not include an independent attempt to
2307ascertain whether Palm Beach in fact purchased a jumbo CD with
2318the investments made by Fusco and Speth. Resp ondent did not
2329disclose his omission to Fusco or Speth. After Respondent
2338entered into a stipulation and final order with the Department
2348of Banking, Respondent continued to represent to Fusco and
2357Speth that their money was safe and that they would receive
2368their money. Respondent has no prior discipline against his
2377insurance license.
2379CONCLUSIONS OF LAW
238239. DOAH has jurisdiction over the subject matter and
2391the parties in this proceeding. Section 120.57(1). DOAH
2399provided the parties with adequate notice of the
2407administrative hearing.
240940. The ALJ reserved ruling on two evidentiary issues.
2418One issue involves Petitioner's Exhibit 10, and the other
2427issue involves the judicial doctrine of collateral estoppel.
243541. Petitioner's Exhibit 10 is a letter from the FDIC
2445dated March 24, l999. The FDIC is an agency of the federal
2457government. Respondent's objection to the admissibility of
2464Petitioner's 10 is overruled. The letter is self -
2473authenticating pursuant to Section 90.902(2). The letter
2480bears the signature of an employee of the Federal Deposit
2490Insurance Corporation, acting in her capacity as Deputy
2498Regional Counsel. The letter also qualifies as an exception
2507to hearsay under Section 90.803(8).
251242. The parties disagreed at the administrative hearing
2520on the issue of whether the doctrine of equitable estoppel
2530precludes an independent determination that Respondent sold
2537securities to Fusco and Speth. The issue is moot. Petitioner
2547admits in its PRO that Respondent sold securities and,
2556therefore, did not engage in the business of insurance.
2565Respondent claims as a defense that he sold securities and,
2575therefore, did not engage in the business of insurance. In
2585any event, the Final Order entered by the Department of
2595Banking and Finance and evidenced by Petitioner's Exhibit 2
2604does not bar Respondent, pursuant to the doctrine of
2613collateral estoppel, from contesting the issues included in
2621the Final Order. The Final Order was the result of a
2632stipulated settlement between the parties rather than an
2640adversarial proceedin g in which the issues of fact and law
2651were adjudicated.
265343. Petitioner has the burden of proof in this
2662proceeding. Petitioner must show by clear and convincing
2670evidence that Respondent committed the acts alleged in the
2679Administrative Complaint and the re asonableness of any
2687proposed penalty. Ferris v. Turlington , 510 So. 2d 292 (Fla.
26971987).
269844. Petitioner satisfied its burden of proof.
2705Petitioner showed by clear and convincing evidence that
2713Respondent demonstrated a lack of fitness or trustworthiness
2721to engage in the business of insurance by selling products to
2732individuals in two separate transactions that the individuals
2740expressly stated they did not want to purchase.
274845. If the facts were to have shown that the unwanted
2759securities that Respondent s old to Fusco and Speth were risk -
2771free, the risk - free nature of the securities would not have
2783precluded a determination that Respondent was guilty of
2791selling securities to individuals who did not want securities.
2800The risk - free nature of the securities, in such a
2811hypothetical, would have reduced the harm to the purchasers
2820but would not have altered the fact that Respondent sold
2830products to individuals who did not want that particular
2839product.
284046. Florida Administrative Code Rule 4 - 231.030(6)
2848authorizes ra nge of penalties in this case. The authorized
2858penalties include the suspension of Respondent's license for a
2867period that ranges from 6 to 18 months.
287547. Rule 4 - 231.160 sets forth aggravating and mitigation
2885factors that may be considered in determining the penalty to
2895be imposed in a particular case. The significant financial
2904harm to Fusco and Speth are aggravating factors. In
2913mitigation of the penalty to be imposed, Respondent undertook
2922his own independent due diligence before selling any product
2931to Fu sco and Speth; received flawed information from the
2941president of Evergreen, a private securities law firm, and
2950Gulf American; and believed in good faith that he was selling
2961a risk - free investment to Fusco and Speth. Respondent has no
2973prior discipline agai nst his license as an insurance agent.
2983RECOMMENDATION
2984Based on the foregoing Findings of Fact and Conclusions
2993of Law, it is
2997RECOMMENDED that Petitioner enter a Final Order finding
3005Respondent guilty of violating Section 626.611(7) and
3012suspending Responden t's license for nine months.
3019DONE AND ENTERED this 25th day of October, 2002, in
3029Tallahassee, Leon County, Florida.
3033___________________________________
3034DANIEL MANRY
3036Administrative Law Judge
3039Division of Administrative Hearings
3043The DeSoto Building
30461230 Apala chee Parkway
3050Tallahassee, Florida 32399 - 3060
3055(850) 488 - 9675 SUNCOM 278 - 9675
3063Fax Filing (850) 921 - 6847
3069www.doah.state.fl.us
3070Filed with the Clerk of the
3076Division of Administrative Hearings
3080this 25th day of October, 2002.
3086COPIES FURNISHED :
3089Elihu H. Ber man, Esquire
3094509 South Greenwood Avenue
3098Post Office Box 6801
3102Clearwater, Florida 33758
3105James A. Bossart, Esquire
3109Division of Legal Services
3113Department of Insurance
3116200 East Gaines Street, Room 612
3122Tallahassee, Florida 32399 - 0333
3127Honorable Tom Gallaghe r
3131State Treasurer/Insurance Commissioner
3134Department of Insurance
3137The Capitol, Plaza Level 02
3142Tallahassee, Florida 32399 - 0300
3147Mark Casteel, General Counsel
3151Department of Insurance
3154The Capitol, Lower Level 26
3159Tallahassee, Florida 32399 - 0307
3164NOTICE OF RI GHT TO SUBMIT EXCEPTIONS
3171All parties have the right to submit written exceptions within
318115 days from the date of this Recommended Order. Any
3191exceptions to this Recommended Order should be filed with the
3201agency that will issue the Final Order in this case .
- Date
- Proceedings
- PDF:
- Date: 10/25/2002
- Proceedings: Recommended Order issued (hearing held August 6, 2002) CASE CLOSED.
- PDF:
- Date: 10/25/2002
- Proceedings: Recommended Order cover letter identifying hearing record referred to the Agency sent out.
- Date: 08/21/2002
- Proceedings: Transcript filed.
- Date: 08/06/2002
- Proceedings: CASE STATUS: Hearing Held; see case file for applicable time frames.
Case Information
- Judge:
- DANIEL MANRY
- Date Filed:
- 06/14/2002
- Date Assignment:
- 07/24/2002
- Last Docket Entry:
- 11/21/2002
- Location:
- Clearwater, Florida
- District:
- Middle
- Agency:
- ADOPTED IN TOTO
- Suffix:
- PL
Counsels
-
Elihu H. Berman, Esquire
Address of Record -
James A. Bossart, Esquire
Address of Record