02-002370PL Department Of Insurance vs. Sean Darin Hoyt Status: Closed Recommended Order on Friday, October 25, 2002.

Summary: Insurance agent who sold unwanted product to elderly persons in the form of securities demonstrated lack of fitness or trustworthiness to sell insurance even though agent did not engage in the business of insurance when he sold securities.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF INSURANCE, )

)

Petitioner, )

)

vs. )

) Case No. 02 - 2370PL

SEAN DARIN HOYT, )

)

Respondent. )

)

RECOMMENDED ORDER

Administrative Law Ju dge (ALJ) Daniel Manry conducted the

administrative hearing of this case on August 6, 2002, in

Clearwater, Florida, on behalf of the Division of

Administrative Hearings (DOAH).

APPEARANCES

For Petitioner: James A. Bossart, Esquire

Department of Insur ance

Room 612, Larson Building

200 East Gaines Street

Tallahassee, Florida 32399

For Respondent: Elihu H. Berman, Esquire

Post Office Box 6801

Clearwater, Florida 33758

STATEMENT OF THE ISSUES

The issues presented are whether two separate sales of

unregistered securities to elderly persons demonstrate a lack

of fitness or trustworthiness to engage in the business of

insurance in violation of Section 626.611(7), Florida Statutes

(2001); and, if so, what penalty, if any, should Petitioner

impose against Respondent's license. (All chapter and section

references are to Florida Statutes (2001) unless otherwise

stated.)

PRELIMINARY STATEMENT

On May 1, 2002, Petitioner filed an Administrative

Complaint ag ainst Respondent. Respondent timely requested an

administrative hearing.

At the hearing, Petitioner presented the testimony of

four witnesses and submitted 12 exhibits for admission into

evidence. Respondent testified in his own behalf, called an

additi onal witness, and submitted four exhibits for admission

into evidence.

The identity of the witnesses and exhibits, and any

attendant rulings, are set forth in the Transcript of the

hearing filed on August 21, 2002. Petitioner and Respondent

timely filed t heir Proposed Recommended Orders ("PRO"),

respectively, on October 20 and 19, 2002.

FINDINGS OF FACT

1. Respondent is currently licensed in this state as an

insurance agent pursuant to license number A124652. The

license authorizes Respondent to perform the duties of an

agent for health and life insurance and variable annuity

agent. Respondent is not licensed to sell securities.

2. Petitioner is the state agency responsible for

regulating the business of insurance in this state.

Petitioner is not aut horized to regulate the sale of

securities.

3. On September 18, 1998, Respondent sold eight shares

of unregistered securities in Palm Beach Investment Group,

Inc. (Palm Beach) to Mr. and Mrs. Anthony and Lucille Fusco

(Fusco) for $40,000. On January 5, 1998, Respondent sold 18

shares of unregistered securities in Palm Beach to Mrs. Gladys

Speth (Speth) for $90,000.

4. The Department of Banking has jurisdiction over the

sale of unregistered securities by unlicensed individuals.

The Department of Bank ing disciplined Respondent for the sales

of unregistered securities to Fusco and Speth. On November

10, l999, Respondent and the Department of Banking entered

into a Settlement Stipulation and Final Order whereby

Respondent admitted he violated Sections 5 17.07 and 517.12 by

offering for sale or selling unregistered securities while he

himself was not authorized to sell securities. Respondent did

not dispute these facts at the administrative hearing of this

case.

5. The Administrative Complaint alleges t hat Respondent

violated Sections 626.611(7)(9)(13), 626.621(2)(3) and (6),

and 626.9541(1)(e)1 when he sold unregistered securities to

Fusco and Speth. In Petitioner's PRO, however, Petitioner

admits that Respondent could not have violated any statute

oth er than Section 626.611(7) because Respondent did not

engage in the business of insurance when he sold securities to

Fusco and Speth. In relevant part, Petitioner states:

Petitioner concedes that the alleged

conduct does not involve insurance

transactions and therefore cannot be

considered transactions under Respondents

[sic] insurance licenses. As a result, no

violation of the other enumerated statutes

has occurred.

Petitioner's PRO at 11, paragraph 5.

6. The only remaining issue that Petitioner asse rts is

whether Respondent violated Section 626.611(7). A licensee

violates Section 626.611(7) if he or she demonstrates a lack

of fitness or trustworthiness to engage in the business of

insurance. Petitioner asserts that Respondent violated

Section 626.6 11(7) by engaging in a business other than the

business of insurance in a manner that demonstrates a lack of

fitness or trustworthiness to engage in the business of

insurance.

7. Neither Fusco nor Speth are experienced investors.

Neither buys or sells s tock or securities and neither has any

training or education in investing. Mr. and Mrs. Fusco are

retirees, as is Speth. Fusco invested $40,000 of their life

savings, and Speth invested $90,000 from a personal injury

settlement.

8. Mrs. Fusco had never purchased shares of stock

before. Her father had lost a great deal of money in the l929

market crash and there was a long - standing family prejudice

against stock.

9. Fusco had business experience with Respondent prior

to the time that Respondent sold Pa lm Beach securities to

Fusco. That prior experience is relevant to the perspective

and understanding that Fusco brought to the Palm Beach

transaction.

10. Sometime in l998, while Respondent worked with a

previous employer, Respondent solicited Fusco to i nvest funds

in a Certificate of Deposit (CD). Fusco did so and believed

they were completing a similar transaction when they later

purchased Palm Beach securities from Respondent.

11. After Respondent sold the CD to Fusco, but still in

l998, Respondent changed his employment to Evergreen National

(Evergreen). Respondent telephoned Fusco and informed them

that he had moved to Evergreen and that he was selling a very

good security that they might be interested in purchasing.

Mrs. Fusco explained to Resp ondent that they were not

interested in securities, but they would be interested in

purchasing a CD similar to the one they had previously

purchased from Respondent.

12. Fusco made an appointment to visit Respondent at his

office. At Respondent's office , Mrs. Fusco stated

unequivocally that Fusco desired to purchase only a CD. Fusco

wanted no risk to their funds, and they made that clear to

Respondent.

13. Respondent represented to Fusco that Respondent was

selling a CD that was fully guaranteed and insured against any

loss. Respondent represented that Fusco would be investing in

a proportionate share of a jumbo CD issued by Palm Beach, that

they would enjoy a 14 percent return on their investment, and

that their investment was insured by the Federal Deposit

Insurance Corporation (FDIC) and the Great American Insurance

Company (Great American).

14. Respondent provided Fusco with various brochures

about the investment that verified Respondent's

representations that the investment was an insured, saf e way

to earn a high interest rate. Fusco relied on the

representations contained in those brochures and those made by

Respondent.

15. Fusco was still somewhat hesitant to invest their

funds. Respondent then brought into his office Darrin

Carlson, the p resident of Evergreen (Carlson). Carlson

reiterated to Fusco that the investment was insured and was

completely safe and without risk.

16. Fusco elected to invest $40,000 to purchase a CD.

They gave a check to Respondent, and Respondent promptly

remitte d the check to Palm Beach.

17. On September 18, 1998, Fusco signed a document

entitled Subscription Agreement. The terms of the

Subscription Agreement state that it is an application for

Fusco to purchase shares of stock in Palm Beach. The

agreement is clearly not an application to purchase a CD. In

fact, no reference is made in the document to any CD or to

Fusco's $40,000.

18. Fusco did not understand the terms of the

Subscription Agreement. Respondent did not explain the terms

of the agreement to them. Fusco relied on the representations

made by Respondent.

19. Approximately three weeks later, Fusco received a

stock certificate in the mail issued by Palm Beach showing

that they owned eight shares of stock in Palm Beach. The

certificate makes no reference to any CD or Fusco's $40,000

investment. Fusco was confused and upset.

20. The stock certificate does not document that the

Fusco's owned any CD or any share in a CD. Furthermore,

Respondent offered no evidence of the use of the funds by Pal m

Beach.

21. Fusco contacted Respondent. Respondent assured

Fusco that this was the "way things were done," and their

investment was safe. Fusco trusted Respondent and relied on

the representation by Respondent.

22. In May of l999, Fusco received a l etter from Palm

Beach informing Fusco that they would receive a full refund of

their money plus interest as of June 7, l999. Palm Beach did

not deliver on its promise.

23. When Fusco did not receive any money from Palm

Beach, Fusco contacted Respondent . Respondent assured Fusco

that their investment as safe, that they were insured, and

that they would soon receive their money.

24. Fusco has never received the original $40,000 or any

interest payment from Palm Beach. Palm Beach has never

provided an accounting to Fusco showing the value of their

investment. Fusco has suffered a loss of $40,000 plus

accumulated interest at a fair market value rate.

25. Respondent also sold unregistered securities to

Speth. Sometime in January l999, Respondent visi ted the home

of Speth. Speth had recently received $90,000 as a personal

injury settlement and was looking for a secure investment.

26. Speth wanted a risk - free investment. She told

Respondent that she would purchase a CD, but had no interest

in purcha sing stock. Respondent suggested that Speth invest

in a proportionate share of a jumbo CD to be issued by Palm

Beach that would yield a 14 percent return. Respondent

represented that the CD would be insured and risk free.

27. Respondent showed Speth va rious brochures claiming

that the investment was fully insured by the FDIC as well as

other insurance companies. Respondent did not inform Speth

that there was a risk she could lose her entire investment.

28. Speth gave Respondent a check for $90,000 made out

to Palm Beach to invest in a CD with a one - year maturity date.

Speth subsequently received a stock certificate in the mail

from Palm Beach showing that she owned 18 shares of Palm Beach

stock. Speth was puzzled, telephoned Respondent, and told h im

that she thought she had purchased a CD. Respondent

represented to Speth that her money was safe and fully

insured.

29. Speth has not received either her original

investment or any interest on that investment. Palm Beach has

not provided Speth with an accounting showing the value of her

investment. Speth has suffered a loss of $90,000 plus

accumulated interest at a fair market value rate.

30. Respondent sold investments to Fusco and Speth that

were not appropriate for their age, skill, and invest ment

objectives. Both Fusco and Speth clearly expressed the

maximum aversion to risk. Neither Fusco nor Speth would have

invested in Palm Beach if they knew they were investing in

stock. Both Fusco and Speth intended to purchase a CD or a

proportionate share of a CD that was insured by the FDIC and

Great American. At no time were their investments insured by

the FDIC or any insurance company.

31. Respondent had actual knowledge of the investment

goals and skill of Fusco and Speth. Respondent believe d that

he was selling an investment vehicle that was appropriate to

the knowledge, skill, and goals of Fusco and Speth.

32. Prior to selling any securities in Palm Beach,

Respondent undertook several independent inquiries that are

fairly characterized as a form of due diligence. Some of

Respondent's efforts toward due diligence are relevant to the

unauthorized sale of unregistered securities. Other efforts

are relevant to the nature of the investment as a secured

investment.

33. Palm Beach represented in a letter to Respondent

that the securities offered for sale were exempt from

registration. Carlson believed the securities were exempt and

assured Respondent that Respondent did not need a license to

sell the securities. Carlson went on - line to the w eb site of

the Securities and Exchange Commission (SEC) and obtained a

letter from private securities attorneys stating that the

securities were exempt.

34. Carlson believed that the securities were insured by

Great American and obtained a copy of a fin ancial institution

bond with a limit of $5 million. Carlson represented to

Respondent that any investment in Palm Beach securities was an

insured investment. Respondent thought that he had verified

the matter by telephoning the office of Great American a nd

obtaining verbal assurances that the Palm Beach investment was

insured.

35. Respondent had a good faith belief that the

securities he offered to Fusco and Speth, in part, were

appropriate to the clients' investment goals because

Respondent believed the securities satisfied the risk aversion

expressed by Fusco and Speth. Respondent believed the

securities were risk - free because he believed they were

insured.

36. Respondent knew the Palm Beach securities he offered

to Fusco and Speth, in part, were not appropriate to the

clients' investment goals because the securities were stock in

a company and that neither Fusco nor Speth wanted to invest in

securities. The first paragraph of the Securities Agreement

clearly states that the investor is purchasing sto ck in Palm

Beach. Respondent had actual knowledge that he was selling

securities to Fusco and Speth and that neither wanted to

purchase securities.

37. Respondent has demonstrated in two separate

transactions a willingness to sell a product to a person t hat

the person did not desire to purchase. Even though the

products sold were securities, rather than insurance, and even

though Respondent believed the products represented the risk -

free investment sought by Fusco and Speth, the willingness to

sell secur ities to persons who have expressly stated that they

do not want to purchase that type of product demonstrates a

lack of fitness or trustworthiness to engage in the business

of insurance within the meaning of Section 626.611(7).

38. Respondent sold a pr oduct to Fusco and Speth that,

in fact, was not risk - free. Respondent's due diligence prior

to the sale did not include an independent attempt to

ascertain whether Palm Beach in fact purchased a jumbo CD with

the investments made by Fusco and Speth. Resp ondent did not

disclose his omission to Fusco or Speth. After Respondent

entered into a stipulation and final order with the Department

of Banking, Respondent continued to represent to Fusco and

Speth that their money was safe and that they would receive

their money. Respondent has no prior discipline against his

insurance license.

CONCLUSIONS OF LAW

39. DOAH has jurisdiction over the subject matter and

the parties in this proceeding. Section 120.57(1). DOAH

provided the parties with adequate notice of the

administrative hearing.

40. The ALJ reserved ruling on two evidentiary issues.

One issue involves Petitioner's Exhibit 10, and the other

issue involves the judicial doctrine of collateral estoppel.

41. Petitioner's Exhibit 10 is a letter from the FDIC

dated March 24, l999. The FDIC is an agency of the federal

government. Respondent's objection to the admissibility of

Petitioner's 10 is overruled. The letter is self -

authenticating pursuant to Section 90.902(2). The letter

bears the signature of an employee of the Federal Deposit

Insurance Corporation, acting in her capacity as Deputy

Regional Counsel. The letter also qualifies as an exception

to hearsay under Section 90.803(8).

42. The parties disagreed at the administrative hearing

on the issue of whether the doctrine of equitable estoppel

precludes an independent determination that Respondent sold

securities to Fusco and Speth. The issue is moot. Petitioner

admits in its PRO that Respondent sold securities and,

therefore, did not engage in the business of insurance.

Respondent claims as a defense that he sold securities and,

therefore, did not engage in the business of insurance. In

any event, the Final Order entered by the Department of

Banking and Finance and evidenced by Petitioner's Exhibit 2

does not bar Respondent, pursuant to the doctrine of

collateral estoppel, from contesting the issues included in

the Final Order. The Final Order was the result of a

stipulated settlement between the parties rather than an

adversarial proceedin g in which the issues of fact and law

were adjudicated.

43. Petitioner has the burden of proof in this

proceeding. Petitioner must show by clear and convincing

evidence that Respondent committed the acts alleged in the

Administrative Complaint and the re asonableness of any

proposed penalty. Ferris v. Turlington , 510 So. 2d 292 (Fla.

1987).

44. Petitioner satisfied its burden of proof.

Petitioner showed by clear and convincing evidence that

Respondent demonstrated a lack of fitness or trustworthiness

to engage in the business of insurance by selling products to

individuals in two separate transactions that the individuals

expressly stated they did not want to purchase.

45. If the facts were to have shown that the unwanted

securities that Respondent s old to Fusco and Speth were risk -

free, the risk - free nature of the securities would not have

precluded a determination that Respondent was guilty of

selling securities to individuals who did not want securities.

The risk - free nature of the securities, in such a

hypothetical, would have reduced the harm to the purchasers

but would not have altered the fact that Respondent sold

products to individuals who did not want that particular

product.

46. Florida Administrative Code Rule 4 - 231.030(6)

authorizes ra nge of penalties in this case. The authorized

penalties include the suspension of Respondent's license for a

period that ranges from 6 to 18 months.

47. Rule 4 - 231.160 sets forth aggravating and mitigation

factors that may be considered in determining the penalty to

be imposed in a particular case. The significant financial

harm to Fusco and Speth are aggravating factors. In

mitigation of the penalty to be imposed, Respondent undertook

his own independent due diligence before selling any product

to Fu sco and Speth; received flawed information from the

president of Evergreen, a private securities law firm, and

Gulf American; and believed in good faith that he was selling

a risk - free investment to Fusco and Speth. Respondent has no

prior discipline agai nst his license as an insurance agent.

RECOMMENDATION

Based on the foregoing Findings of Fact and Conclusions

of Law, it is

RECOMMENDED that Petitioner enter a Final Order finding

Respondent guilty of violating Section 626.611(7) and

suspending Responden t's license for nine months.

DONE AND ENTERED this 25th day of October, 2002, in

Tallahassee, Leon County, Florida.

___________________________________

DANIEL MANRY

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apala chee 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 25th day of October, 2002.

COPIES FURNISHED :

Elihu H. Ber man, Esquire

509 South Greenwood Avenue

Post Office Box 6801

Clearwater, Florida 33758

James A. Bossart, Esquire

Division of Legal Services

Department of Insurance

200 East Gaines Street, Room 612

Tallahassee, Florida 32399 - 0333

Honorable Tom Gallaghe r

State Treasurer/Insurance Commissioner

Department of Insurance

The Capitol, Plaza Level 02

Tallahassee, Florida 32399 - 0300

Mark Casteel, General Counsel

Department of Insurance

The Capitol, Lower Level 26

Tallahassee, Florida 32399 - 0307

NOTICE OF RI GHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of this Recommended Order. Any

exceptions to this Recommended Order should be filed with the

agency that will issue the Final Order in this case .