05-004158PL Department Of Financial Services vs. Michael Carroll Gainer Status: Closed Recommended Order on Friday, June 2, 2006.

Summary: Respondent willfully sold a non-insurance product and the customer lost money.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF FINANCIAL )

SERVICES, )

)

Petitioner, )

)

vs. ) Case No. 05 - 4158 PL

)

MICHAEL CARROLL GAINER, )

)

Respondent. )

)

RECOMMENDED ORDER

N otice was provided and on March 13 , 200 6 , a formal hearing

was held in this case. Authority for conducting the hearing is

set forth in Sections 120.569 and 1 20.57(1), Florida Statutes

(200 5 ). The hearing location was the Jacksonville Regional

Service C enter, Building D, 921 North Davis Street,

Jacksonville, Florida . Charles C. Adams , Administrative Law

Judge, conducted the hearing .

APPEARANCES

For Petitioner: David J. Busch, Esquire

Department of Financial Services

200 East Gaines St reet , Room 612

Tallahassee, Florida 32399 - 0333

For Respondent: Christopher A. White, Esquire

1 05 Solana Road, Suite C

Pon t e V edra Beach , Florida 32 082

STATEMENT OF THE ISSUE

Should Petitioner impose discipline on Respo ndent's health

agent (2 - 40), life agent ( 2 - 16), life and health agent (2 - 18),

life including variable annuity and health agent (2 - 15 ), and

life including variable annuity agent (2 - 14) , licenses issued by

Petitioner ?

PRELIMINARY STATEMENT

Through an Ame nded Administrative Complaint dated

October 20, 2005, before the Department of Financial Services,

Case No. 60585 - 03 - AG , Petitioner accused Respondent of various

violations pertaining to his licenses. The Amended

Administrative Complaint contained two cou nt s, the second of

which was withdraw n at hearing. Count I remains in dispute. It

contains allegations concerning Respondent's affiliation with

Twenty - first Century Satellite Communications , Inc. (21st

Century) , as account representative or agent and the claim that

Respondent in that capacity offered for sale and sold securities

as defined in Section 517.012( 1 8), Florida Statutes ( 1997 )

(sic) . In particular , Respondent is alleged to have "convinced"

S.R. to invest $50,000.00 in 21st Century on or around

December 1, 1998, by willfully using his insurance license to

circumvent the Florida Insurance Code (the Code) through S. R.'s

trust in Respondent as her insurance agent. This allegedly

c aused S.R. to suffer a loss of $50,000.00 in principal , with an

addit ional loss of $5,355.00 in interest income . For these acts

Respondent allegedly violated Sections 626.611 (4) , (7) , (8) and

(13) and 626.621 (6), Florida Statutes (199 7 ).

Respondent was given the opportunity to elect a response to

the allegations. He chose to dispute the factual allegations by

requesting a hearing pursuant to Section 120.57(1), Florida

Statutes (2005) , a s indicated in a certificate of service of the

election of rights made by his attorney dated November 4, 2005,

together with a req uest for formal hearing as contemplated by

Florida Administrative Code Rule 28 - 106.201 served on the same

day.

O n November 14, 200 5 , the Division of Administrative

Hearings (DOAH) received the Amended Administrative Complaint

and request for formal heari ng by Respondent . The matter was

assigned as DOAH Case No. 05 - 4158PL and proceeded before the

undersigned.

The hearing was originally noticed to be held on February 8

and 9, 2006 . Upon Respondent's unopposed motion it was

continued to March 13, 2006.

Petitioner moved to allow copies to be used of exhibits

previously sealed and certified in DOAH Case No. 03 - 4664PL ,

involving the same parties , which had been closed. At the same

time , Petitioner indicated its intention not to prosecute Count

II to the Amended Administrative Complaint of the present case,

as confirmed at the final hearing. The motion to allow copies

noted that Respondent had no objection as to the authenticity of

the copies, while reserving the right to object to the ad mission

of those materials based on o ther grounds . On February 24,

2006, the motion to allow copies was granted as to their

authenticity, in accordance with Section 120.569(1)(h), Florida

Statutes (2005).

Petitioner requested official recognition, pursuant to

Section 90.203, Florida Statutes (2005) of the final order, in

In Re: 21st Century Satellite Communications, Inc. , DBF No.

0568 - I - 2/01 before the State of Florida, Office of Financial

Regulation; the final judgment in Securities and Exchange

Commission, Plaintiff , vs. 21st Century Satellite

Communications, Inc., Robert Byrch and Spencer Tyrrell,

Defendants , Case No. 8:0 1 - CN - 1875 - T - 30 before the United States

District Court, Middle District of Florida (Tampa Division) ,

October 3, 2001 , and the final order in State of Florida,

Department of Banking and Finance, Petitioner vs. Michael

Carroll Gainer, Respondent , DBF No. 0655 - I - 2/02 before the State

of Florida, Office of Financial Regulation entered July 22,

2002 ; these E xhibits numbered 3 through 5 respectively we re

attached to the m otion. On March 8, 2006, an o rder was entered

officially recognizing those documents.

On March 6, 2006, Respondent moved for official recognition

of the recommended order and final order I n the M atter of:

Oscar Brown, Jr., Case No. 60 582 - 03 - AG before the Department of

Financial Services, ( DOAH Case No. 05 - 0765PL ) . When the final

hearing commenced official recognition was made of the

recommended order and final order related to the Oscar Brown ,

Jr. case.

Consistent with the re quirements in the prehearing order,

the parties prepared a prehearin g stipulation. In response to

p aragraph 3E within the prehearing order , the parties stipulated

to certain facts. Those stipulations are set forth in the

findings of fact to the Recommend ed Order.

At hearing , Petitioner presented Linda Ann Davis as its

witness . Petitioner's Exhibits numbered 1, and 5 through 14

were admitted. 1/ The video - taped deposition of S.R., and the

transcription of that deposition taken on February 20, 2006,

were admitted upon Petitioner's request. Ruling was reserved on

Petitioner's Exhibits numbered 3 and 4. They correspond to the

similar exhibits by reference number that were officially

recognized as authentic on March 8, 2006. By contrast, at

hearing Petiti oner offered these exhibits to support elements of

proof , specifically related to the present case. In that

connection Petitioner's Exhibits numbered 3 and 4 are denied

admission. This ruling takes into consideration the oral and

written arguments of the parties on the subject. Respondent

testified in his own behalf and presented John David Theus as

his witness .

On April 6, 2006, the hearing t ranscript was filed. The

parties submitted proposed recommended order s within 30 days of

that filing as allowe d. Those pr oposed recommended orders have

been considered in preparing the Recommended Order.

FINDINGS OF FACT

Stipulated Facts

1. Respondent is licensed by Petitioner as a health agent

(2 - 40), a life agent (2 - 16), life and health agent (2 - 18), life

including variable annuity and health agent (2 - 15), and life

including variable annuity agent (2 - 14).

Additional Facts

2. Respondent has been licensed as a Florida insurance

agent since 1979 and has worked in the insuranc e industry in

Florida on a full - ti me basis beginning i n 1988. At present ,

Respondent d oes business under his life and health lice nse

(2 - 18) .

3. While in business , Respondent formed a corporation with

Steven Brown sometime in either 1989 or 1990. Mr. Brown was

president of the corpo ration , and Respondent was the vice -

president. It was a closely held corporation, an S corporation.

Neither individual served as the supervisor for the other

person. At times , they split sales and clients in conducting

the business.

4 . In the past , R espondent was also licensed under Chapter

517, Florida Statutes, the "Florida Securities and Investor

Protection Act" as an "associated person." While acting as an

associated person , Respondent was affiliated with Tower Square

Securities Inc. (Tower Squar e) between August 26, 1998 , and

June 22, 2000. Beyond that affiliation , Respondent was an

associated person with Horner, Townsend & Kent (HTK) between

June 23, 2000, and July 5, 2001. This license in relation to

securities had been issued by the State of Florida, Department

of Banking and Finance. The regulatory function for securities

has since become the province of the State of Florida,

Department of Financial Services, Office of Financial

Regulation.

5. Upon the entry of the final order in the case State of

Florida, Department of Banking and Finance, Petitioner, vs.

Michael Carroll Gainer, Respondent , DBF No. 0655 - I - 2/02 ,

accepting a stipulation and consent agreement , Respondent's

application for registration by the Department of Banking and

Finance to become an associated person of High Mark Securities,

Inc. (High Mark) was withdrawn by High Mark. As of February 25,

2002, through th e stipulation and consent agreement , Respondent

agreed that he would not apply for licensure or registration in

any capa city pertaining to the Florida Securities and Investor

Protection Act for a period of ten years from the date of the

entry of the final order in that cause. The matters

contemplated by the case before the Department of Banking and

Finance were in relation to 21st Century, the company implicated

in the present case , found to be involved with unregistered

securities . To resolve the disciplinary action before the

Department of Banking and Finance , Respondent , through the

stipulation and consent agreement , ne ither admitted n or denied

the allegations concerning the nature of the transactions

involved with that prosecution; however, Respondent agreed to

cease and desist all present and future violations of Chapter

517, Florida Statutes, and the administrative ru les promulgated

under that chapter.

6 . At the t ime Respondent worked with Tower Square as an

associated person, the broker - dealer supervising Respondent and

the company itself through other personnel made no mention of

industry problems related to promi ssory notes.

7 . While employed at HTK in November 2000 , Respondent

attended a compliance meeting. This activity included the

completion of a questionnaire. Among the questions was one

concerning "notes." Respondent indicated that he had experience

wi th "notes." This reference to "notes" made by Respondent was

also reported to Tower Square. This episode in November 2000

came at a time outside the period contemplated by the present

Amended Administrative Complaint involving "notes" related to

21st Cen tury.

8 . Respondent first became aware of 21st Century when he

received a telephone call sometime in 1997. A couple of people

that Respondent knew told Respondent about the 21st Century

business. In the beginning , Respondent was not interested in

pu rsuing opportunities with 21st Century. About a year later ,

he changed his mind. He ma de an appointment to visit 21st

Century offices sometime in 1998.

9 . Through his involvement , Respondent learned that the

21st Century program dealt with a note, a c ollateralized note.

10. When Respondent went to Tampa, Florida, to check out

21st Century , he met with the c ompany vice - president, Spencer

Tyrrell. Respondent toured 21st Century facility, looked at

equipment, and had an on - site engineer explain the n ature of the

21st Century program. Mr. Tyrrell took Respondent and others to

installation sites that 21st Century had completed.

11. In his tour of the 21st Century facilities , Respondent

also visited the billing department for the company. They

appea red busy.

12 . During the tr ip , Respondent found out that 21st

Century was engaged in the business of the sale, installation,

maintenance, and servicing of what it referred to as Satellite

Master Antenna Television (SMATV) systems to private property

ow ners. To conduct thi s business , financing was needed for the

necessary equipment and installations. As 21st Century put it,

the funds loaned for the financing of equipment and

installation s would be derived from investors, whose investment

would be secur ed by a collateral mortgage on the equipment and

the income derived from its installation, as confirmed by a

UCC - 1 filing and corporate promissory note. It was anticipated

that Respondent and others like him would be involved in the

promotion and obtaini ng of funding for 21st Century to pursue

its business through the investment vehicle that has been

described.

1 3 . In addition to visiting the company and sites where

the SMATV systems had been installed, Respondent spoke to an

attorney associated with 2 1st Century. He also spoke with

someone who m was responsible for holding investment money,

qualified money , in an escrow account. Respondent spoke with

someone who m he understood was performing an audit on the

business as a member of an accounting firm. Respondent spoke to

several other 21st Century company officers, not to include

Mr. Tyrrell.

14 . The attorney that Respondent spoke to was Byron Nenos,

who acted as a disbursement agent for 21st Century . Respondent

discussed with Mr. Nenos any diff iculties that the attorney was

aware of that had been experienced in the provision of quarterly

interest payments to the investors in the SMATV systems. At

that time , no problems were revealed by Mr. Nenos on this topic.

1 5 . The escrow company responsi ble for maintaining the

qualified money was Retirement Accounts, Incorporated, who acted

as trustee of the investment funds. The trustee would release

money to 21st Century to further its purposes. The investor

would receive a quarterly statement concern ing the investment

and would be billed an administrati ve charge by the escrow firm.

Respondent was familiar with Retirement A ccounts , Incorporated

by reputation , in that he understood that this was a nationwide

firm.

1 6 . Respondent also checked with th e Better Business

Bureau to ascertain any complaints that had been made against

21st Century with that organization . He was told that

complaints had not been received.

1 7 . Respondent invested $16,000.00 in the 21st Century

SMATV s ystems for his own purp oses under the terms that have

been described .

18. Respondent received subsequent memos from the company

concerning the subscriber base for the 21st Century product.

1 9 . Respondent was introduced to S.R. around 1998.

Respondent sold S.R. mutual fund s and a tax shelter ed annuity .

The application for the tax shelter ed annuity was made in

May 1998 with the funds distribution to begin in August 1998.

The investment in the mutual funds took place around September

1998.

20 . The subject of 21st Cen tury as an investment for S.R.

was brought up in the fall of 1998. S.R. told Respondent that

she had a lot of money in CDs and would like to do something

different with that money and wanted to know if Respondent had

anything to offer other than mutual fu nds. Respondent suggested

a government securities fund. S.R. rem a ined interested in some

other possible alternative investment opportunity. Respondent

brought up the 21st Century investment. He provided material to

S.R. for her review concerning 21st C entury .

21. S.R. made no decision concerning 21st Century until

December 1998. In this connection, Respondent arranged for S.R.

to visit the 21st Century headquarters and/or talk with persons

at 21st Century by telephone. S.R. did not avail herself of

t hose opportunities. To this point , Respondent was unaware of

any problems with the 21st Century investment.

22. Ultimately, S.R. decided to invest $50,000.00 in 21st

Century and that was arranged by Respondent in December 1998.

23. When S.R. invested her money in 21st Century ,

Respondent understood that this was extra money coming due from

a CD or similar investment. In deciding upon an investment in

21st Century , Respondent and S.R. went through details

concerning her financial position. S.R. was th e first person

that Respondent sold the 21st Century product.

24. In his dealings with S.R. , Respondent explained that

the 21st Century investment was not secured. The risk would be

that if S.R. needed the money she would invest within the five

year pe riod contemplated by the terms of her agreement with 21st

Century , she would not be able to get the money. The inability

to re acquire the princip al within the period of the investment

was not a concern to S.R. , as she remarked to Respondent .

25. The in vestment by S.R. was, as Respondent describes

it , "collateralized." By this he meant that the investment was

in association with one facility or community , in which there

w ere sufficient numbers of investors within a subscriber base

for the equipment to m ake the site profitable. The UCC - 1

reference meant that the state - maintained website would allow

confirmation that the client 's name was listed in relation to

the property that was being invested in. S.R. 's name was on the

property she invested in, accor ding to the Secretary of State's

records under the UCC - 1.

2 6 . In connection with the UCC - 1 filing, Respondent had

financed a nother business on his own and filed the UCC - 1 for

equipment. With the experience in mind, Respondent perceived

the UCC - 1 filing as being associated with collateral related to

the equipment involved with 21st Century . Respondent eventually

found out that there was a limit on the value of equipment as

collateral , in that it was over - collateralized limiting the

return on investment.

27. Respondent understood that he was selling a promissory

note to S.R. for 60 months. Respondent proceeded with the

assumption that it was exempt from the requirement to be

registered as a security based upon conversations with attorney

Nenos , the di sbursement agent for 21st Century . This was not

the true status of the promissory note.

2 8 . Respondent told S.R. that he r investment with 21st

Century was a relatively low risk. S.R. considered that her

investment was a capital investment.

2 9 . As Respondent recalls, problems began with 21st

Century when it was late on its interest payment for the third

quarter 2000. This was in relation to the five - year loan

agreement program that S.R. participated in, calling for a

monthly fixed and guaranteed interest payment of 13 percent,

plus an additional 25 percent of the annual profits generated by

installation of the SMATV systems, both disbursements paid in

quarterly installments. When the problems commenced , Respondent

told S.R. that he was available if she needed his assistance and

committed himself to provide information to her that he received

concerning the difficulties experienced by 21st Century . Later

Respondent also offered to assist S.R. in relation to bankruptcy

proceedings that had been co mmenced in relation to 21st Century

and its creditors that are ongoing.

30 . In a deposition , S.R. explained her understanding of

the transaction with 21st Century through Respondent . She

understood it as a n opportunity in which four times a year she

wo uld receive a check, which represented interest payments and

at the end of five years the princip a l investment would be

returned. S.R. expected to receive 13 percent annual return on

the investment.

31. Respondent told S.R. that he had also invested in 2 1st

Century .

32. S.R. recalls Respondent arranging for an on - site visit

at the 21st Century business location which she was unable to

meet because of her schedule. Respondent told S.R. about his

visit to the facility and that by its appearance it seeme d very

solid, a growing opportunity. S.R. never spoke directly with

anyone in management or otherwise at 21st Century .

33 . As she explained, S.R. 's investment came from an

inheritance left to her by her mother , who had died in 1998.

34 . The $50,000. 00 investment by S.R. constituted about 25

percent of her available cash.

35 . Petitioner 's Exhibit numbered 8 is a copy of the

brochure Respondent provided to S.R. explaining 21st Century and

the investment opportunity . The brochure describes the na ture

of the sale, installation, maintenance and servicing of SMATV

s ystems to private owners and the need for financing of the

equipment and installations. The brochure highlights the

investment opportunity where it states:

Real Opportunities in Communi cations

21st Century Satellite Communications, Inc.

is offering on a limited and selected basis,

the following opportunity to participate in

its SMATV installation programs. For both

qualified and non - qualified funds, the

Company is offering a 5 year Loa n Agreement

program, whereby individuals can receive an

attractive income on funds loaned to the

Company. Loan repayments consist of a

monthly fixed and guaranteed interest

payment of 13 percent, plus an additional 25

percent of the annual profits generat ed by a

spread of installations, all payable in

quarterly installments. (Important Note:

Profits are a direct result of the number of

subscribers per installation, hence profits

are calculated over a series of

installations, rather than any one

location) .

For qualified monies, accumulations would

grow on a tax deferred basis, providing

interest on the principal, together with

interest on the accumulating interest!

Each Loan Agreement is backed up by the

Uniform Commercial Code, which provides a

lien on both the equipment and income

derived therefrom.

. All Lenders receive a Promissory Note backed

by the assets of 21st Century Satellite

Communications, Inc.

. Each installation will be subject to an

annual accounting.

. The average installation is between 500 to

600. Companies are currently offering

$1,000 to $1,500 to purchase a subscriber.

Even a small installation of 400 subscribers

could be sold for $400,000 (twice the

original investmen t). It is anticipated

that installations will average between 400

to 1,000 subscribers.

36. Consistent with i t s obligation 21st Century paid S.R.

four checks for interest due and then it ceased making payment s .

3 7 . On October 12, 2000, through its vice - president and

CFO, Gabe Panepinto, 21st Century wrote to S.R. restating the

status of the account pertaining to the note and the interest

rate. S.R. confirmed by her signature the status of the account

on the form at the bottom of the letter for retu rn to the

company.

3 8 . On October 12, 2000, a letter was generally written to

the men and women who invested with 21st Century by its chairman

Robert S. B y rch , explaining the financial problems experienced

by that company. It d e scrib ed several option s to the investors,

to include S.R. , where it said:

A s a noteholder, your choices are simple.

You may either do nothing and retain your

promissory note, or you may tender your note

to the Company and request that your note be

converted into equity in ac cordance with the

instructions and subject to the conditions

set forth in the Exchange Offer Memorandum.

The terms of the preferred stock are not yet

finalized b ut will be specified in the

Exchange Offer Memorandum.

3 9 . On November 13, 2000, in c orrespondence from Mr. B y rch

as chairman of the board for 21st Satellite , directed to the

investor s , S.R. among them, the investors were told that the

company was in default on its obligation under its note program

to make quarterly interest payments. The letter referred to the

intent to change the nature of the investment opportunity from

one of a noteholder to a stockholder in the company.

40 . On November 14, 2000, S.R. , among other investors ,

received a letter from Mr. Nenos pertaining to 21st Centur y .

The correspondence referred to an October 27, 2000 , letter sent

to 21st Century notifying the company of the default status of

the promissory notes held by S.R. and other investors and a

demand for payment made by Mr. Nenos . Th e correspondence from

Mr . Nenos tol d the investors that 21st Century had not paid its

obligation and advis ed the investors that they should seek legal

counsel to enforce the terms of the promissory notes and to

protect t heir interest in the collateral.

41 . On December 7, 2000, in a letter by Spencer G.

T yrre l l , Director, and Robert S. By rch, Chairman for 21st

Century , they asked the investors to communicate:

1. Whether you would be willing to convert

you r note, or a portion of your note, to

preferred stock; or

2. Whether you would be willing to modify

the terms of the original note; or

3. Whether you are unwilling to convert your

note or modify the terms of the existing

note.

42 . On September 20, 2001, Respondent wrote S.R. with an

enclosure from a Glenn Liberatore th at was being submitted to

the creditors committee, taken to be in relation to 21st

Century . It gave a telephone number for S.R. to call and

comment to Mr. Liberatore on this topic. A personal handwritten

note was att ached to this correspondence w h ich sai d, "S. please

call me or write to let me know you are o.k. - I haven't heard

from you in a while."

4 3. In what appears to be correspondence dated

November 30, 2001, Respondent again wrote S.R. on the subject of

having received official notice regarding 2 1st Century 's

reorganization through Chapter 11 , offering to assist S.R. in

processing her claim in that proceeding. Respondent indicated

that he was filing a claim and encouraged S.R. to do the same.

To that end , S.R. has retained counsel to protect her interest

in the bankruptcy proceeding s .

CONCLUSIONS OF LAW

44 . The Division of Administrative Hearings has

jurisdiction over the parties and the subject matter of this

proceeding i n accordance with Sections 120.569 and 120.57(1),

Florida Statut es (200 5 ) .

45 . This is a disciplinary case . T herefore, P etitioner

has the burden to prove the allegations in the Amended

Administrative Complaint by clear and convincing evidence. See

Department of Banking and Finance , Division of Securities and

Inv estor Protection v. Osborne Stern and Co. , 670 So. 2d 932

(Fla. 1996); Ferris v. Turlington , 510 So. 2d 292 (Fla. 1987);

and Pou v. Department of Insurance and Treasurer , 707 So. 2d 941

(Fla. 3rd DCA 1998).

46 . The meaning of clear and convincing evi dence is

explained in In re: Davey , 645 So. 2d 398 (Fla. 1994) , quoting

with approval from Slomowitz v. Walker , 429 So. 2d 797 (Fla. 4th

DCA 1983) .

4 7 . The factual allegations in the Amended Administrative

Complaint that are at issue state:

3 . At al l times pertinent to the dates and

occurrences referred to herein, you, MICHAEL

C. GAINER, were associated with and acted as

' account representative ' or agent for a

company known as 21st Century Satellite

C ommunications, Inc. (hereafter ' 21st

Century ' ).

4. You, MICHAEL C. GAINER, offered for sale

and sold to Florida residents, various

promissory notes and lease agreements

(hereaft er collectively referred to as

' investments ' ) in 21st Century through a

Florida corporation known as Brown - Gainer &

Associate s, Inc. (hereafter ' Brown - Gainer ' ),

in which you have served as a Vice -

president.

5. The investments issued, offered for sale

and sold by you, MICHAEL C. GAINER, as agent

for 21st Century , are securities as defined

in Section 517.012(18), Florida S tatutes .

6. The investments issued, offered for sale

and sold by you, MICHAEL C. GAINER, as agent

for 21st Century , were not registered with

the State of Florida Department of Banking

and Finance ('DBF' ), as required pursuant to

Section 517.07, Florida Statutes , and were

not exempt from such registration

requirements, either under the provisions of

sections 517.051 or 517.061, Florida

Statutes .

7. In each count alleged herein, you,

MICHAEL C. GAINER, provided the investor

with 21st Century sa les mat erials

advertising that ' each lease or loan

agreement is backed up by the Uniform

Commercial Code' ; that funds lent by

investors to 21st Century are ' secured by

collateral mortgage on the equipment and the

income derived from it, confirmed by a UCCI

and a corporate promissory note '; that lease

payments ' would consist of a monthly fixed

and guaranteed interest payment of 1

percent, plus an additional 25 percent of

the annual profit s generated by the

installation' ; and a table showing that a

typical $100,000 investment would result in

a net return to th e investor of $84,445 over

a fi ve year period ; and that investors would

[sic] entitled to take 100% depreciation on

the ' installation equipment ' over a five -

year period.

8. These advertisement materials were

designed to leave all purchasers with the

impression that funds invested would be

safely held.

9. You, MICHAEL C. GAINER, sold 21st

Century promissory notes and lease

agreements, earning you substantial

commissions. These individual transactions,

mo re particularly described below, not only

resulted in the loss of the invested funds

in the sum of $90,000 but also in $3,712.52

in penalty fees or surrender charges due to

you, MICHAEL C. GAINER, twisting your

insurance clients' annuity and life

insurance contracts and retirement accounts,

and at least $5,355.00 in lost interest

income payments.

10. Pursuant to Chapter 626, Florida

Statutes , the Florida Department of

financial Services has jurisdiction over

your insurance licenses and appointments.

COUNT I

11. The above General Allegations are

hereby realleged and fully incorporated by

reference.

12. On or around May 1998, you, MICHAEL C.

GAINER, sold to S.R. of Tolla, Florida (DOB

July 21, 1961) mutual funds as well as a

tax - sheltered US&G Ann uity & Life Company

annuity.

13. On or around December 1, 1998, you

MICHAEL C. GAINER, convinced S.R. to invest

$50,000.00 in 21st Century . S.R. had

confidence in making that investment be c ause

of her prior insurance relationship with

you, MICHAE L C. GAINER.

14. In conclusion as to this count, you,

MICHAEL C. GAINER, willfully used your

insurance license to circumvent the Florida

Insurance Code by using S.R. 's trust in you,

as her insurance agent, to convince her to

invest in an unregistered security, at a

loss of $50,000. With the same investment,

you caused S.R. to suffer a loss of an

additional $5,355 of interest income, for a

total loss to S.R. of $55,355.00.

48 . As a consequence, Respondent is alleged to have

violated the follow ing provisions of the C ode, which if proven

would subject the Respondent to suspension or revocation of his

insurance agent licenses. Those grounds for discipline under

Chapter 626, Florida Statutes (1997 ) , are:

626.611 Grounds for compulsory refusal,

suspension, or revocation of agent's, title

agency's, solicitor's, adjuster's, customer

representative 's, service representative's,

managing general agent's, or claims

investigator's license or appointment. -- The

department shall deny an application for,

s uspend, revoke, or refuse to renew or

continue the license or appointment of any

applicant, agent, title agency, solicitor,

adjuster, customer representative, service

representative, managing general agent, or

claims investigator and it shall suspend or

re voke the eligibility to hold a license or

appointment of any such person, if it finds

that as to the applicant, licensee, or

appointee any one or more of the following

applicable grounds exist:

* * *

(4) If the license or appoint ment is

willfully used, or to be used, to circumvent

any of the requirements or prohibitions of

this code.

* * *

(7) Demonstrated lack of fitness or

trustworthiness to engage in the business of

insurance.

(8) Demonstrated lac k of reasonably

adequate knowledge and technical competence

to engage in the transactions authorized by

the license or appointment.

* * *

(13) Willful failure to comply with, or

willful violation of, any proper order or

rule of t he department or willful violation

of any provision of this code.

4 9 . In addition , Respondent is a lleged to have violated

Section 62 6.621(6), Florida Statutes (1997 ), that would allow

the imposition of discipline at Petitioner's discretion , to

inc lude suspension or revocation of the insurance age nt licenses

held by Respondent :

(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 X of this chapter, or having

otherwise shown himself or herself to be a

source of injury or loss to the public or

detrimental to the public interest.

50 . The investment opportunity Respondent marketed for

21st Century to S.R. involving a promiss ory note issued by 21st

Century to S.R. , to support loan repayments on a monthly basis

at a fixed and guaranteed interest rate of 13 percent, together

with 25 percent of annual profits g enerated, if any, constituted

a security as defined in Section 517.021 (19), Florida Statutes

(1997 ). See also Securities and Exchange Commission v. W.J.

Howey Company , 328 U.S. 293, 66 S. Ct. 1100, 90 L. Ed. 1244

(1946); Mehl v. Office of Financial Regulation , 859 So. 2d 1260

(Fla. 1st DCA 2003 ); Farag v. National Data Bank Subscriptions,

Inc. , 448 So. 2d 1098 (Fla. 2d DCA 1984); Le Chateau Royal

Corporation v. Pantaleo , 3 70 So. 2d 1155 (Fla. 4th DCA 1979);

Levine v. I.R.E. Properties, Inc. , 344 So. 2d 938, 940 (Fla. 3rd

DCA 1977) . The marketing and sale to S.R. did not inv olve

exempt securities or an exempt transaction as described in

Sections 517.051 and 517.061, Florida Statutes (199 7 ) ,

respectively.

51 . Recognizing that Respondent was an "associated person"

as defined in Section 517.021(2), Florida Statutes (1997 ) , when

he marketed and sold the 21st Century investment opportunity to

S.R. , it is reasonable to assume that Respondent did recognize

or should have recognized that the product was a security,

defined in Section 517.021(19), Florida Statutes (1997 ) ,

althou gh he denies knowledge of that fact . See G anter v.

Department of Insurance , 620 So. 2d 202, 204 ( Fla. 1st DCA 1993).

As such, the security did not constitute any form of insurance

recognized within the provisions of Chapter 626, Florida

Statutes (1997 ), t hat Respondent could market and sell under

terms of existing insurance agent licenses he held. The issue

to be resolved concerns the consequences, if any exist , for

selling a product unrelated to the sale of insurance, in this

case the sale of unregistere d securities.

52 . Because this case is penal in nature, the statutes

cited as grounds for imposing discipline are strictly construed.

See State v. Pattishall , 99 Fla. 296 126 So. 147 (Fla. 1930) ;

Elmariah v. Department of Business and Professional Re gulation ,

574 So. 2d 164 (Fla. 1st DCA 1990); and Lester v. Department of

Professional and Occupational Regulation, State Board of Medical

Examiners , 348 So. 2d 923 (Fla. 1st DCA 1977) .

53 . In resolving this case, it is with an awareness that

there is the concept of stare de c i si s in administrative law in

Florida . See Gessler v. Department of Business and Professional

Regulation , 627 So. 2d 501 (Fla. 4th DCA 1993). Consistent with

that legal concept , Respondent has argu ed the importance of

Oscar Brown , Jr. , supra , while Petitioner perceives the case as

in significant. This di sp u te concerns itself with the

comparability of the fact s found in the Oscar Brown , Jr. case ,

to the facts found here , and if sufficiently comparable , what

pertinence the legal conc lusions reached in the final order in

the prior case concerning Section 626.611(7), Florida Statutes

(1999), would have. T he language in Section 626.611(7 ), Florida

Statutes (1999) , i s the same as Section 626.611(7), Florida

Statutes (1997 ). The final or der in Oscar Brown , Jr. , supra ,

established that it w as not necessary to find an insurance

connection or engagement "in the conduct of business under the

license" for the provision to relate. It would be possible to

discipline an insurance agent for selli ng an unregistered

security, dependent upon a factual finding that the accused was

untrustworthy, that he evidenced "wrongful intent, willfulness

or engaged in fraud , " all according to the legal conclusion

reached in the final order entered in Oscar Brown , Jr . The

factual findings in the r ecommended o rder , adopted in the final

order in that case , were seen by the agency as not establishing

untrustworthiness by the Respondent or as has been more

spec ifically defined earlier in the summary of the final order

entered in the prior case .

5 4 . The only meaningful distinction between Oscar Brown,

Jr. , and his activities in association with 21st Century and

that of this Respondent , is the license held by the present

Respondent as an associated person pursuant to Chapter 517,

Florida Statutes (1997 ). With the knowledge expected of

Respondent Gainer in his capacity as an associated person, did

he proceed with wrongful intent, willfulness or engage in fraud

in his relationship with S.R. , wherein he sold her securit ies

from 21st Century ? The standard for addressing the conduct

described as "willfulness" is recognized in Hartnett v.

Department of Professional Regulation , 406 So. 2d 1480 (Fla. 1st

DCA 1981). Respondent Gainer did not proceed with wrongful

intent, nor was he engaged in fraud when transacting business

for 21st Century with the customer S.R. But his pursuit of that

business was willful when considering Section 626.611(7),

Florida Statutes (1997). See Dezel v. King , 91 So. 2d 624

(Fla. 1956; , and Sta te Department of Highway Safety and Motor

Vehicles v. Taylor , 456 So. 2d 550 (Fla. 3rd DCA 1984).

5 5 . It has been proven that Respondent violated Section

626.611(7), Florida Statutes (1997), that would relate to h is

lack of fitness or trustworthiness to engage in the business of

insurance by virtue of his involvement with 21st Century in the

securities sales to S.R.

5 6 . It has not been proven that Respondent willfully used

his insurance license to circumvent requirements or prohibitions

within the C ode, in violation of Section 626. 611 (4), Florida

Statutes (199 7 ). No requirements we re stated in the Code in

relat ion to sale of securities, nor we re there prohibitions

stated against their sale under the law in effect at that time .

57 . It has not be en proven that Respondent violated

Section 626.611(8 ) , Florida Statutes (199 7 ). The sale of

securities to S.R. in no manner speak s to Respondent 's knowledge

and technical competence in engaging in the transactions that

are authorized by his license , the s ale of insurance .

5 8 . It has been proven that Respondent violated Section

626.611(13), Florida Statutes (199 7 ), by willful violation of

Section 621.611(7), Florida Statutes (1997), in association with

the sale of securities to S.R. This is a derivati v e violation.

5 9 . It has not been proven that Respondent violated

Sections 626.621(6), Florida Statutes (1997 ) , through the

conduct of business under the terms of his license or

appointment as an insurance agent, by engaging in unfair methods

of competi tion or unfair or deceptive acts or practices in

relation to insurance sales . Respondent has not otherwise shown

himself to be a source of injury or loss to the public or

detrimental to the public interest in association with the

conduct of i n s urance busi nes s under his insurance license. In

effect , Respondent was acting independent of his insurance

license involving a product that was not insurance , an activity

not addressed in this provision .

6 0 . B eyond the time addressed in this case , an amendment

w as made to the regulatory chapter to add Section 626.611(16),

Florida Statutes (2001) , which created grounds for discipline

for:

S ale of an unregistered security that

was required to be registered, pursuant

to Chapter 517.

Prior to tha t enactment involvement by an insurance agent with

securities was not prohibited conduct, per se , and could o n ly be

regarded as grounds for discipline i f the facts unique to the

case established a violation of Section 626.611(7), Florida

Statutes (1997).

61 . Pursuant to the guidelines set forth in Florida

Administrative Code Rule 69B - 231.080, the penalty for the

violation should be a six - month suspension of the insurance

licenses held by Respondent . No aggravating or mitigatin g

circumstances warrant i ncreases or decreases in the punishment

under criteria found in Florida Administrative Code Rule 69B -

231.160.

RECOMMENDATION

Upon consideration of the facts found and the conclusions

of law reached, it is

RECOMMENDED:

That a final order be entered finding violations of Section

621.611 (7) and (13), Florida Statutes (1997), dismissing the

other alleg ed violations and suspending Respondent 's insurance

licenses for six months.

DONE AND ENTERED this 2nd day of June , 2006 , in

Tallahassee, Leon County, Florida.

S

___________________________________

CHARLES C. ADAMS

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 9675 SUNCOM 278 - 9675

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 2nd day of June , 2006 .

ENDNOTE

1/ Petitioner's Exhibit numbered 2 was withdrawn but was left

with the other exhibits and i s forwarded with the Recommended

Order.

COPIES FURNISHED :

David J. Busch, Esquire

Department of Financial Services

200 East Gaines Street, Room 612

Tallahassee, Florida 32399 - 0333

Christopher A. White, Esquire

1 05 Solana Road, Suite C

Ponte Vedra Beach , Florida 32 082

Honorable Tom Gallagher

Chief Financial Officer

Department of Financial Services

The Capitol, Plaza Level 11

Tallahassee, Florida 32399 - 0300

Carlos G. Mu ? niz, General Counsel

Department of Financial Services

The Capitol, Plaza Level ll

Tallahassee, F lorida 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 Order. Any exceptions

to this Recommended Order should be filed with the agency that

will issue the final order in this case.