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


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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.

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 .

Select the PDF icon to view the document.
PDF
Date
Proceedings
PDF:
Date: 11/21/2002
Proceedings: Exceptions to Proposed Recommended Order filed by Respondent.
PDF:
Date: 11/20/2002
Proceedings: Final Order filed.
PDF:
Date: 11/19/2002
Proceedings: Agency Final Order
PDF:
Date: 10/25/2002
Proceedings: Recommended Order
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.
PDF:
Date: 09/20/2002
Proceedings: Recommended Order filed by Petitioner.
PDF:
Date: 09/19/2002
Proceedings: Proposed Recommended Order filed by Respondent.
Date: 08/21/2002
Proceedings: Transcript filed.
Date: 08/06/2002
Proceedings: CASE STATUS: Hearing Held; see case file for applicable time frames.
PDF:
Date: 07/31/2002
Proceedings: Pretrial Stipulation filed by Petitioner
PDF:
Date: 06/28/2002
Proceedings: Notice of Hearing issued (hearing set for August 6, 2002; 9:00 a.m.; Clearwater, FL).
PDF:
Date: 06/28/2002
Proceedings: Order of Pre-hearing Instructions issued.
PDF:
Date: 06/25/2002
Proceedings: Joint Response to Initial Order filed.
PDF:
Date: 06/17/2002
Proceedings: Initial Order issued.
PDF:
Date: 06/14/2002
Proceedings: Election of Proceedings filed.
PDF:
Date: 06/14/2002
Proceedings: Response to Administrative Complaint filed.
PDF:
Date: 06/14/2002
Proceedings: Administrative Complaint filed.
PDF:
Date: 06/14/2002
Proceedings: Agency Referral filed.

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

Related Florida Statute(s) (5):