02-003578PL Department Of Financial Services, F/K/A Department Of Insurance vs. Augustus Peter Franzoni Status: Closed Recommended Order on Friday, June 27, 2003.

Summary: Agency did not prove that sales agent knew of "ponzi" scheme perpetrated by principals of the viatical broker company. He made required disclosures to client with due diligence inquiry. No fraud, misrepresentation, or untrustworthiness.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL )

SERVICES, )

)

Petitioner, )

)

vs. ) Case No. 02 - 3578PL

)

AUGUSTUS PETER FRANZONI, )

)

Respondent. )

)

RECOMMENDED ORDER

T his cause came on for formal hearing, pursuant to notice,

before P. Michael Ruff, duly - designated Administrative Law Judge

of the Division of Administrative Hearings. The hearing was

conducted in Bunnell, Florida on January 7, 2003. The

appearances were as follows:

APPEARANCES

For Petitioner: Richard J. Santurri, Esquire

Department of Financial Services

200 East Gaines Street

Tallahassee, Florida 32399 - 0333

For Respondent: Augustus Peter Franzoni, pro se

43 Cimmaron Dri ve

Palm Coast, Florida 32313

STATEMENT OF THE ISSUES

The issue to be determined in this proceeding concerns

whether the Respondent's licenses as an insurance agent in the

State of Florida should be subjected to discipline and sanction

for alleg ed violations of certain provisions of the Florida

Insurance Code as set forth in the First Amended Administrative

Complaint and treated herein.

PRELIMINARY STATEMENT

This cause arose when the Department of Financial Services

(Department) filed a one - coun t complaint against the Respondent,

Augustus Peter Franzoni, a licensed Florida insurance agent, on

August 20, 2002. The complaint alleged that he violated certain

provisions of the Insurance Code. On September 9, 2002,

Respondent elected to request a fo rmal proceeding pursuant to

Section 120.57(1), Florida Statutes. On September 23, 2002, the

Department moved for leave to amend the Administrative Complaint

and that unopposed motion was granted on October 10, 2002. The

First Amended Administrative Compl aint superceded the original

Administrative Complaint.

The First Amended Complaint contains one count alleging

that the Respondent failed to advise a consumer of material

facts, made material misrepresentations of fact to a consumer,

sold a consumer an un suitable product and failed to use due

diligence before advising a consumer to purchase a product.

The cause came on for hearing as noticed. The Petitioner

introduced 24 documents into evidence, numbered 1 through 21, as

well as Petitioner's 23, 25 and 3 1. All of those exhibits were

admitted into evidence. The Respondent introduced 18 exhibits

into evidence marked as Exhibits 1 through 18. The Respondent's

Exhibits 1 - 4, 6, 7, 9 - 13, 15, 16, 17b, 17g, 17h, and 17i were

admitted without objection. The Re spondent's exhibits 5, 8, 14,

17a, 17c, 17d, 17e, and 17f were admitted only as corroborative

hearsay. The Petitioner presented four witnesses and the

Respondent two witnesses.

Upon concluding the proceeding, a transcript was ordered

and proposed recommen ded orders were timely filed, after the

granting of one extension of time. The proposed recommended

orders have been considered in the rendition of this Recommended

Order.

FINDINGS OF FACT

1. The Respondent was licensed by the Department at all

times m aterial hereto as a as a life, health and variable

annuity agent. Sometime in 1993 the Respondent met future

client Margaret Buchholz, at a financial services seminar

conducted in part by the Respondent. Upon the conclusion of

that seminar, Ms. Buchholz told the Respondent that she would

like to make an appointment with him to discuss her financial

situation and financial services she might need. She had

recently lost her husband and had moved to Florida from

Minnesota. She was retired at the time and r emains so.

2. She had certain investments she had undertaken while

living in Minnesota apparently consisting of mutual funds. She

was dissatisfied with the services of her broker in that state

concerning management of that investment. She desired to

liq uidate that investment and re - invest her funds in an

appropriate investment through a Florida broker or agent. She

also wished assistance in settling medical bills from her

husband's last illness, particularly in determining the amount

of her liability fo r those bills versus that which should be

paid by medicare. She requested the Respondent's assistance in

this regard as well.

3. Sometime in 1993 or 1994, the company the Respondent

was affiliated with performed an estate plan for Ms. Buchholz.

Additio nally, because she desired a safe investment for the

proceeds of the investments she had liquidated after ending her

relationship with the Minnesota broker, the Respondent and his

wife Thelma Franzoni, who is also an agent, sold Ms. Buchholz a

total of six annuities. The total money invested in the six

annuities was $167,256.15. The commission for the sale of these

annuities totaled $15,191.44. That amount was paid to the

agency involved, Ameri - Life and Health Services, the broker with

which the Franzoni s were employed at the time. The total

commissions paid to the Respondent from that broker, Ameri - Life,

was $7,227.52.

4. Through the course of their dealings and contacts a

friendly relationship developed between the Franzonis and

Ms. Buchholz. After Ms. Buchholz purchased the annuities the

Franzonis visited her on a number of occasions. During one of

those occasions a home health care product was sold to

Ms. Buchholz by Ms. Franzoni. Sometime after that sale a new

product which included long - term care or "nursing home care" was

introduced to the market and Ms. Franzoni felt that this would

be a more comprehensive plan and would be more cost effective

and suitable to Ms. Buchholz. Ms. Franzoni contacted

Ms. Buchholz and arranged an appoi ntment.

5. During that appointment an application was taken for

that new insurance product and during the meeting Ms. Buchholz

complained to the Respondent concerning the low interest rate

she was earning on her annuities. She asked if he had anything

th at would pay her better than that. (This meeting was sometime

in 1999, 4 - 5 years after she purchased the annuities.) The

Respondent told Ms. Buchholz that indeed he had a new product

called a viaticated insurance benefit. Ms. Buchholz asked that

he expl ain it to her and he explained the product and left a

viaticated insurance benefits participation disclosure statement

or booklet with Ms. Buchholz, asking her to read it. He asked

her after reading it to list any questions that she might have.

He review ed the complete disclosure package with her, explaining

it to her. At a subsequent meeting the questions Ms. Buchholz

had were presented to the Respondent and he explained the

viaticated insurance benefit type of investment to her again.

6. In response to Ms. Buchholz's concern about the low

income or low interest rate of return, the Respondent

recommended that she could liquidate some of her annuities and

use the proceeds to fund the viaticated insurance benefit

investment he recommended to her. Conseq uently, at his

recommendation she liquidated three of her annuities to use the

proceeds for that purpose.

7. Pursuant to the annuity contracts entered into in

approximately 1994, the surrender charges, at the stage of the

life of the annuities when Ms. Buchholz surrendered or cashed

them, totaled $12,103.38. Ms. Buchholz maintains that the

Respondent failed to disclose those surrender charges to her and

that those surrender penalties would have prevented her from

deciding to liquidate those annuities a nd re - investing the

proceeds had she been aware of them. The Respondent maintains

that he did disclose the surrender penalties and that moreover,

Ms. Buchholz knew of them because on three separate occasions

she either signed or received official letters, documents or

notices indicating to her the fact of and the amounts of the

surrender charges involved in her "cashing in" of the subject

annuities, starting with the original annuity contracts entered

into in approximately 1994. She signed for and receive d the

checks for the cashing of the annuities, which were accompanied

by a disclosure of the surrender penalty amounts and details, by

which she could again learn before she elected to receive and

negotiate the checks.

8. Ms. Buchholz received the annuit y checks some three

weeks before the viaticated insurance benefit investment was

made. The Respondent contends that during those three weeks she

could have still returned the money to the annuity company and

cancelled her surrender of those annuities. In fact, she was

advised in writing by companies that she actually had 60 days to

return the funds and reinstate her annuities without penalties.

This was after she had been informed in writing of the surrender

charges.

9. The Respondent explained the via ticated insurance

benefits participation disclosure booklet or statement to

Ms. Buchholz. He advised her also to read it after he left

their meeting concerning the investment issue and to write down

any questions he might have to present to him at a later

meeting. He reviewed the complete "due diligence packet" with

her, explaining it as well. The questions that she had were

then presented to the Respondent and he answered them at a

subsequent meeting. The viaticated insurance benefits were

discussed be tween Mr. and Mrs. Franzoni and Ms. Buchholz on at

least two meetings or occasions. At one of those meetings, the

later one, she decided to purchase the viaticated insurance

benefits. At a third meeting the application was completed.

10. In the cours e of discussion of the prospect of

investing in the viaticated insurance benefits investments or

contracts, the Respondent did represent to Ms. Buchholz that she

could earn or would have an opportunity to earn a rate of return

of approximately 14 percent p er year or 42 percent over the

three - year maturity period or life of the viaticated benefit

investment contracts. The record is not clear, however, that

the Respondent represented the 14 percent return as an absolute

guarantee to Ms. Buchholz. Indeed, th e subject participation

agreements or contracts, in evidence, provided to her by the

Respondent, show that 14 percent was not an actual guarantee

because, although it would be so if the investment contract

matured in the projected three - year period (i.e. t he viator

died), if the maturity date extended longer than that, because

the viator had not yet expired, the annualized return rate or

percentage would be correspondingly lower. Conversely, if the

viator expired sooner than the three - year period reference d in

the agreements, the corresponding annual rate of return

percentage would be higher.

11. In any event, she had the opportunity to earn a higher

return than the four and one - half percent she was receiving on

the previous annuity investments. In the ev ent, the viaticated

insurance benefit did not mature in the three - year period, a

"bailout provision" was provided in the contract whereby she

would be paid if she "cashed out" of the contracts at the rate

of 15 percent for the three - year period or a guaran teed five

percent per year (simple interest) on the bailout provision.

12. Ms. Buchholz used the proceeds from the liquidation of

the annuities to purchase four viatical benefit contracts

through the Respondent as sales agent, through Jeffery Paine,

the escrow agent for American Benefits Services (ABS) and

Financial Federation Title and Trust Company (FinFed).

Additionally, she used "qualified," tax deferred proceeds from

the surrender of the annuities to purchase viatical benefit

contracts through the R espondent as sales agent, through Pensco,

Inc., an administrator of self - directed IRA's and pension funds.

The total amount for the viaticals purchased through Pensco was

$61,788.12. An additional $26,764.00 was held by Pensco in a

cash account to fund m andatory monthly IRA disbursements.

Ms. Buchholz gave the Respondents two checks, one in the amount

of $88,582.12 payable to Jeffery Paine, and one in the amount of

$42,344.02 payable to Pensco pension services. These checks

were in payment for the purch ase of the viatical insurance

benefit contracts at issue.

13. Ultimately, it was revealed that the principals of ABS

and FinFed. the viatical settlement brokers, were engaging in a

"Ponzi scheme" whereby more viaticated investment contracts were

sold t o investors, such as Ms. Buchholz, than the companies ABS

and FinFed had policies or funds with which to pay off

investors. Consequently, through federal criminal proceedings,

several of these principals were convicted and incarcerated.

Ms. Buchholz ulti mately lost approximately $100,000.00. The

ABS/FinFed companies are in bankruptcy and the trustee in

bankruptcy has paid investors including Ms. Buchholz, at the

present time, approximately 23 percent of the investment

principal. More reimbursements may be in the offing as the

bankruptcy administration progresses.

14. The escrow agent for the companies and the investors

was Jeffery Paine, an attorney licensed by the Florida Bar

Association. It was his duty and responsibility, as stated in

the viaticat ed insurance benefits participation agreement

disclosures, to ensure that the policies actually existed and

were paid up in full force and effect. He was responsible to

ascertain that they had survived the typical two - year

contestable period, and that the life expectancies of the

terminal viators had been investigated and documented by a state

certified medical professional or physician. This was not the

responsibility of the Respondent or other agents like him.

15. Indeed agents such as the Respondent do not have

access to medical records of viators. The duty to examine them

is performed by the viatical settlement provider or escrow

agent. The Respondent was not responsible for payment of

premiums on any policies because the viatical settlement

provid er or escrow agent had a premium reserve account to

provide payment of any necessary premiums. Indeed most of the

policies involved in the subject case were covered under "waiver

of premium" provisions, whereby, as is typically the case with

life insuranc e policies, when the insured person becomes

terminally ill or disabled, the premium is waived by the

insurance company,

16. It is probably true that Ms. Buchholz did not totally

understand the nature of viatical investments and did not

understand all ris ks associated with the investment; she rather

relied on the Respondent based upon his representation. She

admitted to not remembering everything about the details of the

transactions and the documents she signed and admitted that she

did not read much, if any, of the documents related to the

viatical investments or to the annuities which she had owned

previously. For his part, the Respondent made a fairly detailed

due diligence investigation, as did his wife (who reported to

him), to ascertain that the po licies and the companies with whom

he would be dealing in selling viatial benefit contracts were

bona fide, duly - licensed and reputable companies, operating in

good faith. This evidence by the Respondent tends to be borne

out as to its creditability becau se the Respondent's wife, after

this due diligence investigation, invested $51,000.00 of her own

money and the Franzonis also sold viatical benefit contracts to

several of their own family members. The Respondent's showing

that he was unaware of the "Ponz i scheme" and illegal and

criminal acts of the principals of the company he represented is

deemed credible and is accepted.

CONCLUSIONS OF LAW

17. The Division of Administrative Hearings has

jurisdiction of the subject matter of and the parties to this

proceeding. Sections 120.569 and 120.57(1), Florida Statutes.

The standard of proof to discipline a licensee such as the

Respondent is one of clear and convincing evidence. Ferris v.

Turlington , 510 So. 2d 292 (Florida 1987).

18. Section 626.611, Flo rida Statutes, provides, in

pertinent part:

The Department shall deny, suspend, revoke,

or refuse to renew or continue the license

of any agent, solicitor, or adjuster or the

permit of any service representative,

supervising or managing general agent, or

c laims investigator, and it shall suspend or

revoke the eligibility to hold a license or

permit of any such person, if it finds that

as to the applicant, licensee, or permittee

any one or more of the following applicable

grounds exist:

(5) Willful misr epresentation of any

insurance policy or annuity contract or

willful deception with regard to any such

policy or contract. [Section 626.611(5),

Florida Statutes.]

(7) Demonstrated lack of fitness or

trustworthiness to engage in the business of

insurance .

(8) Demonstrated lack of reasonably

adequate knowledge and technical competence

to engage in the transactions authorized by

the license or permit.

19. Section 626.621, Florida Statutes, provides, in

pertinent part:

The Department may, in its discret ion, deny,

suspend, revoke, or refuse to renew or

continue the license of any agent,

solicitor, or adjuster or the permit of any

services representative, supervising or

managing general agent, or claims

investigator, and it may suspend or revoke

the eligib ility to hold a license or permit

of any such person, if it finds that as to

the applicant, licensee, or permittee any

one or more of the following applicable

grounds exist under circumstances for which

such denial, suspension, revocation, or

refusal is no t mandatory under Section

626.611:

(2) Violation of any provision of this code

or of any other law applicable to the

business of insurance in the course of

dealing under the license or appointment.

(5) Violation of the provision against

twisting, as de fined in Section

626.9541(1)(1).

(6) In the conduct of business under the

license or appointment, engaging in unfair

methods of competition or in unfair or

deceptive acts or practices, as prohibited

under part IX of this chapter, or having

otherwise show n himself or herself to be a

source of injury or loss to the public.

(9) If a life agent, violation of the code

of ethics.

20. Section 626.9541, Florida Statutes, provides, in

pertinent part:

(1) The following are defined as unfair

methods of competi tion and unfair or

deceptive acts or practice.

(a)1 Misrepresentations and false

advertising of insurance policies.

Knowingly making, issuing, circulating, or

causing to be made, issued, or circulated,

any estimate, illustration, circular,

statement, sa les presentation, omission, or

comparison with misrepresents the benefits,

advantages, conditions, or terms of any

insurance policy.

(k)1 Knowingly making a false or fraudulent

written or oral statement or representation

on, or relative to, an applicatio n or

negotiation for an insurance policy for the

purpose of obtaining a fee, commission,

money, or other benefit from any insurer,

agent, broker, or individual.

(1) Twisting. -- Knowingly making any

misleading representations or incomplete or

fraudulent co mparisons or fraudulent

material omissions of or with respect to any

insurance policies or insurers for the

purpose of inducing, or tending to induce,

any person to lapse, forfeit, surrender,

terminate, retain, pledge, assign, borrow

on, or convert any ins urance policy or take

out a policy of insurance in another

insurer.

21. Section 626.9911, Florida Statutes, provides, in

pertinent part:

(4) "Viatical settlement broker" means a

person who, on behalf of a viator and for a

fee, commission, or other valu able

consideration, offers or attempts to

negotiate viatical settlement contracts

between a viator resident in this state and

one or more viatical settlement providers .

. . . a viatical settlement broker is deemed

to represent only the viator and owes a

f iduciary duty to the viator to act

according to the viator's instructions and

in the vest interest of the viator.

(5) "Viatical settlement contract" means a

written agreement entered into between a

viatical settlement provider, or its related

provider tr ust, and a viator. The agreement

must establish the terms under which the

viatical settlement provider will pay

compensation or anything of value, which

compensation or value is less than the

expected death benefit of the insurance

policy or certificate, in return for the

viator's assignment, transfer, sale, devise,

or bequest of the death benefit or ownership

of all or a portion of the insurance policy

or certificate, in return for the viator's

assignment, transfer, sale, devise, or

bequest of the death b enefit or ownership of

all or a portion of the insurance policy or

certificate of insurance to the viatical

settlement provider. A viatical settlement

contract also includes a contract for a loan

or other financial transaction secured

primarily by an indi vidual or group life

insurance policy, other than a loan by a

life insurance company pursuant to the terms

of the life insurance contract, or a loan

secured by the cash value of a policy.

(7) "Viator" means the owner of a life

insurance policy or a certi ficate holder

under a group policy insuring the life of an

individual with a catastrophic or life -

threatening illness or condition who enters

or seeks to enter into a viatical settlement

contract. This term does not include a

viatical settlement purchaser or a viatical

settlement provider or any person acquiring

a policy or interest in a policy from a

viatical settlement provider, nor does it

include an independent third - party trustee

or escrow agent.

(9) "Viatical settlement purchase

agreement" means a contract or agreement,

entered into by a viatical settlement

purchaser, to which the viator is not a

party, to purchase a life insurance policy

or an interest in a life insurance policy,

which is entered into for the purpose of

deriving an economic benefit .

(11) "Viatical settlement sales agent"

means a person other than a licensed

viatical settlement provider who arranges

the purchase through a viatical settlement

purchase agreement of a life insurance

policy or an interest in a life insurance

policy.

22. Section 626.9912, Florida Statutes, provides, in

pertinent part:

(1) After July 1, 1996, a person may not

perform the functions of a viatical

settlement provider as defined in this act

or enter into or solicit a viatical

settlement contract without f irst having

obtained a license from the Department.

23. Section 626.99235, Florida Statutes, provides, in

pertinent part:

(1) No personal shall misrepresent the

nature of the return or the duration of time

to obtain the return of any investment

related to one or more viatical settlements

sold by a viatical settlement provider or

related provider trust.

(2) The viatical settlement provider and

the viatical settlement agent, themselves or

through another person, shall provide in

writing the following di sclosures to any

viatical settlement purchaser or purchaser

prospect:

(a) That the return represented as being

available under the viatical settlement

purchase agreement is directly tied to the

projected life span or one or more insureds.

(b) If a retu rn is represented, the

disclosure shall indicate the projected life

span of the insured or insureds whose life

or lives are tied to the return.

(c) If required by the terms of the

viatical settlement purchase agreement, that

the viatical settlement purch aser shall be

responsible for the payment of insurance

premiums on the life of the insured, late or

surrender fees, or other costs related to

the life insurance policy on the life of the

insured or insureds which may reduce the

return.

(d) The amount of any trust fees,

commissions, deductions, or other expenses,

if any, to be charged to the viatical

settlement purchaser.

(e) The name and address of the person

responsible for tracking the insured.

(f) The group policies may contain

limitations or caps in the conversion

rights, that additional premiums may have to

be paid if the policy is converted, and the

party responsible for the payment of such

additional premiums shall be identified.

(g) That the life expectancy and rate of

return are only estim ates and cannot be

guaranteed.

(h) That the purchase of a viatical

settlement contract should not be considered

a liquid purchase, since it is impossible to

predict the exact timing of its maturity and

the funds may not be available until the

death of th e insured.

(i) The name and address of the person with

the responsibility for paying the premium

until the death of the insured.

The written disclosure required under this

subsection shall be conspicuously displayed

in any viatical settlement purchase

a greement and in any solicitation material

furnished to the viatical settlement

purchaser by such viatical settlement

provider, related provider trust, or person,

and shall be in contrasting color and in not

less than 10 - point type or no smaller than

the la rgest type on the page if larger than

10 - point type. The department is authorized

to adopt by rule the disclosure form to be

used. The disclosures need not be furnished

in an invitation to inquire, the objective

of which is to create a desire to inquire

further about entering into a viatical

settlement purchase agreement. The

invitation to inquire may not quote rates of

return, may not include material attendant

to the execution of any specific viatical

settlement purchase agreement, and may not

relate t o any specific viator.

24. Section 626.9927, Florida Statutes, provides, in

pertinent part:

(1) A violation of this act is an unfair

trade practice under Section 626.9521 and

626.9541 and is subject to the penalties

provided in the insurance code. Par t X of

this chapter applies to a licensee under

this act or a transaction subject to this

act as if a viatical settlement contract and

a viatical settlement purchase agreement

were an insurance policy.

25. Section 626.99277, Florida Statutes, provides, in

pertinent part:

(1) It is unlawful for a person in the

advertisement, offer, or sale of a viatical

settlement purchase agreement to

misrepresent that such an agreement has been

guaranteed, sponsored, recommended, or

approved by the state, or any agency or

officer of the state or by the United States

or any agency or officer of the United

States.

(6) A person may not represent that the

investment in a viatical settlement purchase

agreement is "guaranteed," that the

principal is "safe," or that the inve stment

is free of risk.

* * * *

26. The undersigned has carefully considered and weighed

the testimony adduced by the Petitioner and the Respondent on

direct and cross - examination and has conducted a thorough and

repetitive review and reading of the re levant agreements,

disclosure statements, and other documents (transactional

documents) involved in both the surrender of Ms. Buchholz's

annuity, investments and related to her investments in the

viatical contracts. Although Ms. Buchholz testified that if she

had known she would incur the surrender penalties or charges

from the liquidation of the annuities that she would have not

liquidated them and would have not entered into the viatical

investments, her testimony can be accorded little weight in

relatio n to the documentary evidence which belies it. In her

testimony, particularly on cross - examination, she revealed very

little clarity of memory concerning the details of the

transactions involved in the surrender of the annuities and

involved in engaging i n and undertaking the viatical investments

at issue.

27. She maintains she did not know about the surrender

charges associated with cashing in her annuities. However, the

documentary evidence clearly shows that on at least three

occasions she was advised in writing of the itemization

associated with the return of her investment monies related to

the surrender of the annuities. This advice included

itemization of the surrender charges, the net money due her from

liquidating the annuities, as well as the t otal investment value

credited to her in the annuities at the point of their

liquidation. Moreover, upon being tendered the net check

represented by the liquidation of her investment in the

annuities, she was again advised by the annuity companies that

sh e still had 60 days in which she could elect to change her

mind and return the funds or the checks and re - instate the

annuities, if she so desired. She elected not to do so, but

instead to proceed with investment in the viatical contracts at

issue.

28. The testimony of Mr. Canover, her companion, although

he was present at some of the meetings, does not reveal that he

was privy to or heard all of the conversations, nor that he was

present at all of the meetings between the Respondent, his wife

and Ms. B uchholz. Thus his testimony is not deemed to

corroborate her contention in her testimony that she did not

know about the surrender penalties and that she would not have

liquidated the annuities if she had known of the surrender

charges. While she may not have recalled that the surrender

charges were levied against her annuity investments or deducted

therefrom, at the time of her testimony at hearing, she

certainly had to have known at the time of the transactions

because she was supplied the information c oncerning them in

writing and signed the relevant documents necessary to liquidate

her annuities. Thus, she is charged with knowledge of the

surrender penalties and with her acquiescence in the liquidation

of the annuities and their re - investment in the v iatical

agreements or contracts. Clear and convincing, persuasive

evidence that the Respondent made a material misrepresentation

by failing to disclose the surrender penalties or charges or to

discuss this information with Ms. Buchholz has not been

establ ished. The statutory sections charged in the Amended

Complaint and referenced in paragraph 13 of the Petitioner's

Proposed Recommended Order, Conclusions of Law, have not been

proven to have been violated.

29. Due to the same or similar considerations r egarding

the weight, creditability and credibility of the above -

referenced testimony and evidence, it has not been established

with clarity and persuasiveness that the Respondent actually

told Ms. Buchholz's that the purported viatical investments were

a safe, low risk investment, guaranteed to earn a 14 percent

return per year. It was not clearly and convincingly

established that this was a misrepresentation of material facts

nor that the representation was made in this manner.

30. Ms. Buchholz, who qui te understandably has ample

reason to wish to find the Respondent blameworthy, testified

that the Respondent told her that the investments were

guaranteed "to earn 14 percent per year." The Petitioner

maintains that the Respondent represented that the via ticals

were a low - risk investment, guaranteed to earn 14 percent a year

and that this was a misrepresentation of material facts, that

viaticals are really high - risk investments that do not pay a

guaranteed yearly rate of return. The Petitioner contends th at

had Ms. Buchholz known that viaticals were a high - risk

investment she would not have invested in them.

31. This postulation is not supported by the clear,

convincing, persuasive evidence however. In this regard

Ms. Buchholz's memory is not very extensive concerning the

events surrounding these transactions and the meetings she had

with the Respondent. It is thus not very clear concerning what

the Respondent actually said or represented to her concerning

the rate of return and whether or not it was guaranteed. He may

well have referenced 14 percent per year as an annualized

calculation, based upon the contractually provided 42 percent

return over the three - year maturity date or period of the

viatical investments involved (measured by the medical ly -

estimated life expectancies of the terminally ill viators or

insureds involved in the life insurance policies which underlie

the investment contracts at issue). The transaction documents

in evidence, including the viaticated insurance benefits

particip ation disclosure documents, clearly disclosed that a 36

month maturity date applied to the viatical investment contracts

at issue, determined by the appropriately credentialed medical

person making such an estimate of the remaining life expectancy

of the t erminally ill viators involved in the subject policies.

32. Thus, the difference between the amount Ms. Buchholz

invested and the amount she would receive from the life

insurance policy benefits once the policy benefits were paid on

the death of the viat ors involved, would be a 42 percent

appreciation. If it were paid to her at the end of the three -

year expected maturity date then the return would be 14 percent

per year. If it were paid before that time, because the viator

died earlier than expected in a given situation, then the

annualized return would be greater. Correspondingly it would be

less if the viator died beyond the three - year expected or

estimated maturity date.

33. The transactional documents in question provided

written disclosure to M s. Buchholz that the viatical investments

provided 42 percent total return over and above her original

investment (the annualized amount representing each year of the

investment might vary for the above - stated reason). It was also

thus disclosed that, at the end of the three - year maturity

period, she could elect not to wait for maturity (measured by

the death of the viator), if that had not occurred at the end of

the three - year period, but rather she could elect to "cash out"

her investments and receive, i nstead, a guaranteed five percent

simple interest per year return for the three - year life of the

investment at that point, or a total of 15 percent simple

interest.

34. Under these circumstances, demonstrated by the

evidence, it cannot be truly conclud ed that these were high - risk

investments. They were short term, (approximately three - years)

and paid a very favorable return, which was contractually

guaranteed to the investor based upon, in effect, a security

interest in life insurance policies irrevoca bly issued by

reputable "A" or better - rated insurance companies. The policies

were irrevocably assigned to the benefit of the investors such

as Ms. Buchholz, according to the contractual documents and all

the representations made by ABS/FinFed, the viatic al settlement

broker for whom the Respondent was sales agent. These

representations were made both to the Respondent and to

Ms. Buchholz. Had not the fraud and criminal activity with

regard to the investors' money been perpetrated by certain

office rs and staff of the viatical settlement broker company,

the investment would likely have performed just as it was

represented.

35. The fraud and misrepresentation was not that of the

Respondent in this regard, but rather the fraudulent and

criminal misre presentations and conduct perpetrated against both

the Respondent and Ms. Buchholz by the officials of the company

which employed the Respondent. Thus clear and convincing,

persuasive evidence that the Respondent represented the viatical

investments in qu estion as guaranteed, low risk - investments,

paying a guaranteed rate of return, as a misrepresentation of

material facts which induced Ms. Buchholz to make an alleged

"high risk investment" has not been established. Thus,

violations of the statutory provi sions cited at paragraph 14 of

the Petitioner's Proposed Recommended Order, Conclusions of Law,

have not been proven.

36. Section 626.99235(1) and (2), Florida Statutes, are

quoted above and provide generally that no person shall

misrepresent the nature of the return or the duration of time to

obtain the return of any investment related to viatical

settlements and that a viatical settlement provider or sales

agents, themselves, or through another person, shall provide in

writing the disclosures enumerated at paragraphs (2)(a) through

(i); the disclosures depicted and quoted above.

37. It has not been demonstrated by clear and convincing

persuasive evidence that the Respondent misrepresented the

nature of the viatical return and the duration of time to ob tain

the viatical return. It has not been thus shown that the

Respondent failed to provide in writing to Ms. Buchholz the

various disclosures quoted above and set forth at Section

626.99235(1) and (2), Florida Statutes. The Respondent "or

other person" ( such as the escrow agent and other principals of

the company, through the transactional documents referenced

herein) provided to Ms. Buchholz disclosure that the rate of

return was directly related to the projected life span of the

insureds; what the proje cted life spans of the insureds were

expected to be, as shown by the maturity dates referenced in the

transactional documents, and identified the person responsible

for tracking the insureds and for making payment of any

additional premiums should such be necessary. Disclosure was

thus made of the person responsible for paying a premium until

the death of the insureds as to each policy. In fact the

policies in most of these cases would appear to be on "waiver -

of - premium" status, since insurance companies commonly have a

waiver - of - premium rider in their life insurance policies which

waive payment of any premium once an insured becomes terminally

ill or disabled, as was the case with the viatical investments

at issue.

38. It was also disclosed in writing t hat the life

expectancy and rate of return were only estimates and could not

be guaranteed. This is clearly the case because of the

inclusion of the option that the investor, such as Ms. Buchholz,

could elect not to wait for ultimate maturity, brought on by the

death of the relevant insured, but could elect to cash out the

investment at the end of the 36 - month, normally - expected

maturity period, if the viatical investment had not yet matured

by the death of the viator at that point. She could then take

th e lesser, guaranteed five - percent simple interest per year

rate of return. Thus the documents clearly disclosed that the

life expectancy and rate of return were only estimates.

39. It was also disclosed thusly, in writing, that the

purchases of t he viatical settlement contracts could not be

considered liquid investments, since it was impossible to

predict the exact timing of the maturity (based upon when the

viator would die) and that the funds may not be available until

the ultimate death of the insured, which was not capable of

being ascertained with precision. The name and address of the

person responsible for paying the premiums until the death of

the insured were not the investors, situated as Ms. Buchholz,

but rather was the escrow agent and such was disclosed to

Ms. Buchholz in writing. In summary it has not been clearly and

convincingly demonstrated that the Respondent violated the above

provisions and therefore, derivatively, the other statutory

provisions cited at paragraph 15 of th e conclusions of law in

the Petitioner's Proposed Recommended Order.

40. The Petitioner contends that the Respondent should

have exercised due diligence in reviewing the insurance policies

to determine whether the policies existed, whether they were

unde rwritten by reputable companies, their face value, the terms

of the policies and the dates they were written. It also

contends that the Respondent should have reviewed the medical

data of the insureds and the insureds' life expectancies. It

has not been demonstrated, however, that the Respondent had any

legal access to the medical data of the insureds through signed

releases or otherwise, nor to the insureds life expectancy

information. Moreover, it was not shown to be the duty of the

Respondent to revie w the insurance policies that the investments

were to be placed in. Rather, it was the obligation of the

viatical settlement provider to be sure that the policies

existed, that the insurance companies were reputable, that the

policies were past the contes table period and that the life

expectancy was conducted and determined by an appropriate

physician or medical personnel. This duty, under the viaticated

insurance benefits participation disclosure in evidence as

Petitioner's Exhibit 14, was provided in wr iting to be the

responsibility of the viatical settlement provider companies'

escrow agent. Thus, clear and convincing evidence has not shown

that the Respondent failed to conduct appropriate due diligence

investigation in this regard.

41. Beyond that, t he Respondent and his fellow agent, his

wife, Mrs. Franzoni, conducted a due diligence inquiry into the

bona fide, good - faith status of the ABS/FinFed and its licensure

status with the Department of Insurance and, as to the escrow

agent, with the Florida B ar. The Respondent journeyed to the

home office in the Fort Lauderdale area to learn more about the

operations and product of the viatical settlement provider,

ABS/FinFed Company. At a seminar or meeting with company

representatives, the Respondent and o ther agents asked numerous

questions designed to ascertain all possible information

concerning the operations of the company and its financial

operational and licensure status. The Respondent received no

information from the Department, the Florida Bar or otherwise to

indicate to him that the ABS/FinFed and related persons or

entities were other than properly licensed and in good standing

in their operations.

42. Contractually, the Respondent was not permitted access

to or possession of any of the medical information or insurance

policies, but rather relied on the escrow agent and other

company personnel for assurances as to the specifics of the

policies, their coverage and the other items concerning diligent

inquiry referenced above. Thus, clear and conv incing,

persuasive evidence has not demonstrated that the Respondent

failed to exercise due diligence before recommending the subject

viatical investments.

43. Finally, it was not shown by clear and convincing

evidence that the viatical investment was tot ally unsuitable for

Ms. Buchholz. Because of the above findings and conclusions it

was not established that the investments themselves were a high -

risk investment. Rather, it was revealed by hindsight that the

company purveying those investments duped th e Respondent,

Ms. Buchholz and other investors like her. The company and its

chief operatives were themselves the "high - risk" attendant to

the investment transactions and not the investments and related

contractual relationships themselves. In more p lain terms, the

"high - risk" was not the investments, but the criminals who were

managing the investments.

44. It is not shown by clear and convincing persuasive

evidence that the investment contracts themselves were high - risk

investment instruments and t ransactions. Although one might

question whether the Respondent exercised flawed judgment in

selling such an investment to a 74 - year - old retired widow, who

may not, and indeed probably did not understand all the

technical details and ramifications of it, it has not been

demonstrated that in doing so he violated Section

626.611(7)(8)(9), Section 626.621(2), and Section 626.621(5),

Florida Statutes, by clear, convincing, persuasive evidence.

45. In summary, the undersigned has carefully weighed and

consider ed the testimony and judged its credibility,

creditability and competency and has done likewise with regard

to the related documentary evidence. The plight of Ms. Buchholz

and the other investors is certainly sad and regrettable. The

fact that the Respon dent's own wife and family members were also

investors and victims in the subject arrangement lends

credibility to the Respondent's premise that he had no deceitful

or otherwise nefarious intent and did not engage in the subject

transactions in an unfit an d untrustworthy manner. The overall

probative value of the evidence is more supportive of the

Respondent's positions than that of the Petitioner.

RECOMMENDATION

Having considered the foregoing Findings of Fact,

Conclusions of Law, the evidence of record, the candor and

demeanor of the witnesses, and the pleadings and arguments of

the parties, it is, therefore,

RECOMMENDED:

That a Final Order be entered dismissing the subject

Amended Administrative Complaint.

DONE AND ENTERED this 27th day of June, 2003, in

Tallahassee, Leon County, Florida.

___________________________________

P. MICHAEL RUFF

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675 SUNCOM 278 - 96 75

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 27th day of June, 2003.

COPIES FURNISHED :

Richard J. Santurri, Esquire

Department of Financial Services

200 East Gaines Street

Tallaha ssee, Florida 32399 - 0333

Augustus Peter Franzoni

43 Cimmaron Drive

Palm Coast, Florida 32313

Honorable Tom Gallagher

Chief Financial Officer

Department of Financial Services

The Capitol, Plaza Level 11

Tallahassee, Florida 32399 - 0300

Mark Casteel, Ge neral Counsel

Department of Financial Services

The Capitol, Plaza Level 11

Tallahassee, Florida 32399 - 0300

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions within

15 days from the date of this Recommended Ord er. Any exceptions

to this Recommended Order should be filed with the agency that

will issue the final order in this case.