17-005444 Office Of Financial Regulation vs. Pmf, Inc., D/B/A Pioneer Mortgage Funding And Scott Cugno Status: Closed Recommended Order on Friday, June 29, 2018.

Summary: OFR established that Respondents violated various statutes and rules. Mortgage broker license suspended for six months and fine imposed.

STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

OFFICE OF FINANCIAL REGULATION,

Petitioner,

vs. Case No. 17 - 5444

PMF, INC., d/b/a PIONEER

MORTGAGE FUNDING, AND SCOTT

CUGNO,

Respondents.

_______________________________/

RECOMME NDED ORDER

Administrative Law Judge D. R. Alexander conducted a hearing

in this case by video teleconferencing at sites in Tampa and

Tallahassee, Florida, on March 30, 2018.

APPEARANCES

For Petitioner: Scott R. Fransen, Esquire

Office of Financial Regulation

Suite 615

1313 North Tampa Street

Tampa, Florida 33602 - 3328

For Respondent: Scott Cugno, pro se

PMF, Inc., d/b/a Pioneer Mortgage Funding

Suite 11 8

142 West Platt Street

Tampa, Florida 33606 - 2315

STATEMENT OF THE ISSUE

The issue is whether PMF, Inc. Ó s (PMF) , mortgage broker

license should be revoked and an administrative fine imposed on

PMF Ó s principal loan origi nator, Scott Cugno, for the reasons

stated in an Administrative Complaint (Complaint) issued by the

Office of Financial Regulation (OFR) on January 18, 2017.

PRELIMINARY STATEMENT

In an eight - count Complaint, OFR proposes to revoke the

mortgage broker lice nse of PMF for the violation of various

statutes and rules observed during an audit of its operations.

OFR also proposes to assess a $53, 3 00.00 administrative fine on

Mr. Cugno, who is the sole owner, president, and principal loan

originator of PMF. Resp ondents initially asked that the dispute

be resolved by an informal hearing, but later requested a formal

hearing. The matter was then referred by OFR to the Division of

Administrative Hearings requesting that a formal hearing be

conducted.

At the final hearing, OFR presented the testimony of three

witnesses. OFR Exhibits 1, 2, 4 through 13, 15 through 18, 20,

and 22 through 24 were accepted in evidence. Until May 2, 2018,

Respondents were represented by Mr. Cugno, who testified on their

behalf. Respo ndents Ó Exhibit 1 was accepted in evidence. 1/ Also,

o fficial recognition was taken of chapter 494, Florida Statutes;

Florida Administrative Code Chapter 69V - 40; Form OFR - 494 - 14; and

the number of days (304) in the audit period, July 1, 2014, to

April 30, 2015. More than a month after the hearing, counsel

entered an appearance on behalf of Respondents.

A one - volume Transcript of the hearing has been prepared.

The parties submitted proposed recommended order s (PRO s ), which

h ave been considered. 2/

FINDING S OF FACT

A. Background

1. OFR is the state agency charged with administering and

enforcing the provisions of chapter 494, which regulates loan

originators, mortgage lenders, and mortgage brokers. Rules

implementing the statutory law are found in chapte r 69V - 40.

To ensure compliance with the law, OFR conducts periodic audits

of the records and activities of all licensees.

2. In early 2012, Mr. Cugno assumed ownership of PMF.

From January 25, 2012, until January 1, 2015, PMF was a licensed

mortgage lender with its principal office located at 142 West

Platt Street, Suite 118, Tampa. Besides the principal office,

PMF operated five branch offices. As a mortgage lender, PMF

could offer credit to an applicant, make the mortgage loan, and

close the loan in its own name. § 494.001(23), Fla. Stat. To

settle an earlier disciplinary action, PMF surrendered its lender

license in December 2014. Pet Ó r Ex. 5.

3. On December 30, 2014, PMF was issued mortgage broker

license number MBR 1689, which still remain s active. A mortgage

broker conducts loan originator activities through one or more

licensed loan originators employed by the broker. § 494.001(22),

Fla. Stat. A broker shops an applicant Ó s credit and loan

application to different lenders, but unlike a mortgage lender,

it cannot close loans in its own name. § 494.001(17), Fla. Stat.

4. Mr. Cugno is the sole owner of PMF and its principal

loan originator. By definition, he is the control person of PMF.

§ 494.001(6)(a), (b), and (f), Fla. Stat. A co ntrol person is

subject to administrative penalties if the broker or lender

engages in prohibited acts set forth in section 494.00255(2).

5. An audit of PMF Ó s business records and activities was

conducted by OFR for the period July 1, 2014, through Apri l 30,

2015. After the audit was concluded, a formal Report of

Examination (Report) was forwarded to Mr. Cugno on February 25,

2016. Pet Ó r Ex. 1. The Report stated that it contained a series

of findings Ð that may be violations of Chapter 494, Florida

Sta tutes. Ñ Therefore, it recommended that management thoroughly

review the matter and promptly respond in writing stating any

exceptions or disagreements it had, any action taken to correct

the possible violations, and any mitigating evidence. A written

res ponse was filed by Mr. Edgar, PMF Ó s independent consultant,

who interacted with the auditors on behalf of PMF during the

examination and responded to document requests. Pet Ó r Ex. 2.

After receiving Mr. Edgar Ó s response, the Complaint was issued by

OFR on January 18, 2017.

6. Although the Report contains 13 findings that may be

violations of chapter 494, the Complaint relies on only eight.

Based upon the scope and nature of the violations, the charging

document seeks to revoke PMF Ó s mortgage broker li cense and to

impose a $53,300.00 administrative fine on Mr. Cugno, as the

control person of the lender and broker. No action is proposed

regarding Mr. Cugno Ó s loan originator license. The thrust of the

Report is the failure of Mr. Cugno to have complete control over

the operations of the business.

7. In determining the merits of the charges, the

undersigned has considered: a) Mr. Cugno Ó s responses to OFR Ó s

Requests for Admissions, which admit the allegations in five

Counts 3/ ; b) Mr. Edgar Ó s written re sponse to the Report, which

essentially admits all of the violations and outlines the

proposed corrective action that PMF intends to implement; and

c) the evidence in the record.

B. The Charges

i. Count I

8. Count I alleges that during the audit per iod, PMF

operated a branch office in Delray Beach, Florida, without a

license. Each branch office is required to be separately

licensed. § 494.0011(2), Fla. Stat.; Fla. Admin. Code R. 69V -

40.036.

9. A branch office is defined in section 494.001(3) as a

location, other than a mortgage lender Ó s or mortgage broker Ó s

principal place of business, where business is conducted under

chapter 494, and one of the following is true:

a) Business cards, stationery, or

advertising references a licensee Ó s name

associ ated with a location that is other than

the licensee Ó s principal place of business ;

b) Advertising, promotional materials, or

signage using a licensee Ó s name suggests that

mortgage loans are originated, negotiated,

funded, or serviced at a location that is

other than the licensee Ó s principal place of

business; or

c) Mortgage loans are originated,

negotiated, funded or serviced by the

licensee at a location that is other than its

principal place of business.

10. The Delray Beach location was not licens ed as a branch

office. Without a license, PMF was not authorized to use the

Delray Beach address on any materials used in its mortgage

business or to originate loans from that location.

11. During the audit period, a PMF employee, Bryan J.

Mittler, the n a recently admitted attorney who had worked for PMF

since around 2012, was using business stationery and business

cards under the name of PMF that referenced his name and the

Delray Beach location, 2236 Bloods Grove Circle. Pet Ó r Ex. 10.

The printed ma terial contained statements such as Ð We Ó re your key

to financing your new home Ñ and Ð For a free no - obligation

consultation and instant pre - approval call us anytime! Ñ Id.

Another business card identifies Mr. Mittler as an attorney and

branch manager of PM F. Id. None of these materials mention the

address of the principal office in Tampa. They support a finding

that Mr. Mittler was using promotional materials to originate,

negotiate, fund, or service mortgage loans at the Delray Beach

location.

12. Ot her indicia of operating a branch office are found in

Mr. Mittler Ó s response to a written inquiry by the auditor in

September 2015, in which he signed the letter as Ð Branch

Manager. Ñ Pet Ó r Ex. 8. Mr. Mittler Ó s letter states in part that

Ð [w]e became a br anch in November 2012 with the first loan

disposition in December 2012. Ñ Id. He also acknowledges that

Ð [o]ur branch Ó s loan files are maintained at 2236 Bloods Grove

Circle, Delray Beach, FL. Ñ Id. In yet another letter to the

auditor, Mr. Mittler ident ifies himself as Branch Manager. Pet Ó r

Ex. 10. The Delray Beach office also maintained its own bank

account and identified it as a branch bank account. Pet Ó r

Ex. 11. Finally, internet advertising by PMF during the audit

period states that Mr. Mittler Ð was chosen to head our new,

Delray Beach branch office. Ñ Pet Ó r Ex. 13.

13. In response to a request by the auditor that PMF

provide a list of all PMF employees, on September 29, 2015,

Mr. Edgar submitted a list of employees as of that date, which

ident ifies Mr. Mittler as the branch manager of the Delray Beach

office. It describes his duties as Ð manag[ing] all operations of

branch office [and] Originating Mortgages. Ñ Pet Ó r Ex. 7.

14. Finally, Mr. Edgar Ó s response to the Report states that

Ð I am sur prised to find that the Delray Beach office was not

licensed as a branch. Ñ Pet Ó r Ex. 2. He characterizes this as

Ð negligence Ñ on the part of PMF and represents that PMF intends

Ð to license this branch and be in full compliance. Ñ Id. PMF was

eventually issued a branch license for the Delray Beach office in

March 2016.

15. At hearing, Mr. Cugno denied that PMF was operating a

branch office in Delray Beach. He testified that even though

there was no branch office, Mr. Mittler was allowed to use the

title of branch manager because Mr. Mittler did not want to be

given a less important title. Mr. Cugno also explained that a

Ð statute Ñ or Ð regulation, Ñ later identified in Respondents Ó PRO

as Rule 1 - 3.3, The Rules Regulating the Florida Bar, required

Mr. Mitt ler to provide his Delray Beach address on all documents

and materials that he prepared or was using. While the rule

requires that an attorney Ó s official bar name Ð be used in the

course of a member Ó s practice of law, Ñ it does not specifically

require that a member Ó s address be reflected on all documents

prepared. Assuming that the rule imposes this requirement,

nothing in the record suggests, much less proves, that

Mr. Mittler Ó s activities on behalf of PMR were part of his

practice of law, he was employe d as an attorney for PMF, or a law

office was even located at the Delray Beach address. The PRO

contends the Delray Beach location Ð may Ñ have been a law office

which caused confusion in PMF Ó s Ð paperwork. Ñ These arguments

have been rejected.

16. By clear and convincing evidence, OFR has established

that during the audit period, the Delray Beach location was a

branch office within the meaning of section 493.001(3), and it

operated without a license.

ii. Count II

17. Each mortgage broker and lender must m aintain a

Mortgage Brokerage and Lending Transaction Journal (Journal)

which, at a minimum, contains the name of the mortgage loan

applicant, date of the application, disposition of the

application, and the name of the lender, if applicable.

§ 494.0016(1 ), Fla. Stat.; Fla. Admin. Code R. 69V - 40.265(1).

Count II alleges that during the audit period, PMF violated the

statute and rule by failing to maintain a complete and accurate

Journal of all transactions at its Tampa office.

18. PMF Ó s response to the Report states that, to correct

the deficiency described in Count II, the firm would begin

Ð implementing controls Ñ and making Ð periodic audits Ñ to ensure

that a current Journal would be maintained in the future. Pet Ó r

Ex. 2. Also, in its response to the Requests for Admissions, PMF

admits that it maintained separate Journals for each of the

branch offices, and the principal office Journal was incomplete

or inaccurate. Finally, unrefuted testimony by the auditor at

hearing established that an examination of PMF Ó s Journal revealed

that certain loans were not listed and Ð entries that were part of

the requirements of the loan journal were not made. Ñ Notably,

out of more than 470 transactions identified in PMF Ó s mortgage

loan report (a quarterly report that m ust be filed by licensed

companies indicating their loan activity), the Journal listed

only 182 loans. Pet Ó r Ex. 20. At hearing, Mr. Cugno testified

that PMF did not know how to fill out a j ournal, and efforts by

his former compliance manager to get inst ructions from OFR were

unsuccessful. However, this does not excuse the violation.

19. By clear and convincing evidence, the charge in

Count II is sustained.

iii. Count III

20. A mortgage broker is required to maintain at its

principal place of bus iness the complete documentation of each

mortgage loan transaction/application for three years from the

date of the original entry. § 494.0016(1), Fla. Stat.; Fla.

Admin. Code R. 69V - 40.175(8). The Complaint alleges that PMF

violated this requirement by failing to maintain at its principal

office all records of email and electronic communications between

PMF and its borrowers.

21. The evidence shows that during the audit period,

complete documentation of every application/transaction was not

maintained a t the Tampa office. For example, some loan

originators at branch offices had individual email accounts

through which they were communicating and transmitting documents

for loan files, but they did not copy those email communications

to the principal offic e. Pet Ó r Ex. 23 and 24. In his response

to the Requests for Admissions, Mr. Cugno admitted that certain

documentation for loan applications was kept at locations other

than their Tampa office. In his response, Mr. Edgar also

acknowledged that PMF did no t comply with the statute and rule

and represented that PMF would utilize a new Ð email usage policy

and procedure Ñ to correct the problem. While Respondents allege

the information from the Tampa and branch offices was available

on - line, this does not sati sfy the requirement that complete

documentation be maintained at the principal office.

22. By clear and convincing evidence, the allegations in

Count III have been established.

iv. Count IV

23. Section 494.00165(2) requires that a licensee maintain

a re cord of samples of each of its advertisements for examination

by OFR for two years after the date of publication or broadcast.

The purpose of this requirement is to enable the auditor to

verify that the licensee Ó s advertisements are not deceptive or

misle ading. To comply with the statute, PMF was required to

maintain for two years in a central file a copy of each

advertisement.

24. During the examination, the auditor requested that PMF

provide its complete file of advertisements during the audit

period . PMF initially responded that there was no corporate

advertising and therefore no samples were kept on file. Pet Ó r

Ex. 12. A subsequent audit of the branch offices revealed that

business cards, flyers, placards, posters, and internet were used

by the b ranch offices for advertising purposes. Pet Ó r Ex. 10,

11, 13, 15, and 17. The auditor also found entries on PMF Ó s

books reflecting advertising expenses of over $200,000.00 during

the audit period.

25. In his response to the Report, Mr. Edgar admitted that

due to operating the business as a Ð decentralized model, Ñ PMF did

not have proper supervision of the marketing activities of loan

officers. Mr. Edgar went on to state that he was Ð surprised Ñ to

learn that Ð several Loan Officers appear to have engaged in

either limited advertising campaigns or hosting their own

independent activities. Ñ He promised that PMF would Ð begin to

exercise more control over the marketing activities of all

employees Ñ and to ensure that all documentation related to

advertising w ould be sent to the Tampa office for centralized

storage.

26. At hearing and in their PRO, Respondents took a

different tac k and argued that: it is technically impossible to

provide the auditor with every single copy of material that could

be character ized as a marketing activity; the $200,000.00

advertising expense on their books was a Ð coding error Ñ ; and

during the audit period, Respondents misunderstood what OFR

considers to be advertising, and once this misconception was

cleared up, they submitted Ð a more fulsome response. Ñ These

arguments have been considered and rejected as being contrary to

the clear and convincing evidence.

27. By clear and convincing evidence, the charge has been

sustained.

v. Count V

28. Section 494.00165(1)(e) prohibits li censees from

engaging in misleading advertisements regarding mortgage loans,

brokering services, or lending services. Count V alleges that

after January 1, 2015, PMF continued to advertise itself as a

lender even though its lender license had been surrend ered. 4/

29. As of January 1, 2015, PMF was a licensed mortgage

broker and no longer held a mortgage lender license.

30. Advertising by the Fort Myers branch office after

January 1, 2015, identified PMF as a Ð full correspondent lender Ñ

and listed the old mortgage lender license number. Pet Ó r Ex. 15.

Also, as late as February 2016, advertising posters were on the

windows at the Tampa office, visible to the public, reflecting

that PMF was an approved VA lender. Pet Ó r Ex. 17. Finally, OFR

witness Slis z testified that as of March 30, 2018, the Fort Myers

branch office still was advertising itself as a full

correspondent lender. By advertising in this manner, PMF implied

to consumers that it would originate the loan, negotiate the

terms of the loan, and determine the fees that would be charged,

things it could not do as a broker.

31. In his response to the Report, Mr. Edgar admitted that

PMF did not comply with the statute Ð due entirely to [its]

negligence in updating PMF Ó s logo and promotional material s after

the change in licensing that occurred [on January 1, 2015]. Ñ

Pet Ó r Ex. 2. However, he asserted there was no intent to deceive

or mislead customers. In their PRO, Respondents also concede

Ð there were a few months where this advertisement occurred , Ñ but

maintain there is no evidence that any consumer had been

impacted. Finally, in their response to the Requests for

Admissions, Respondents admit that after January 1, 2015, PMF

continued to represent itself as a licensed mortgage lender. In

mitigat ion, Mr. Cugno pointed out that no customer was harmed.

Also, he blamed the advertising signs in the windows at PMF Ó s

Tampa office on the building manager, who he says put the signs

up for a few days to block the sun while new blinds were being

installed.

32. By clear and convincing evidence, OFR has established

that the charges in Count V are true.

vi. Count VI

33. Section 494.0025(7) provides that a licensee cannot

Ð pay a fee or commission in any mortgage loan transaction to any

person or entity oth er than a licensed mortgage broker or

mortgage lender, or a person exempt from licensure under this

chapter. Ñ The statute is designed to ensure that every person

receiving fees in a transaction is licensed. Count VI alleges

that during the audit period, Respondents paid commissions or

fees from mortgage loan transactions to entities that were not

licensed brokers or lenders.

34. During the audit period, several loan originators

established separate entities that were not licensed but were

paid fees or commissions for various transactions. Pet Ó r Ex. 18.

In its response to the Report, Mr. Edgar conceded that such fees

were paid incorrectly because PMF Ð mistakenly believed Ñ that its

practice of paying a loan officer Ó s separate business entity was

equival ent to paying the loan officer personally. The response

added that in the future, Ð only licensed individuals will be paid

commissions on mortgage loan transactions Ñ and Ð no separate loan

entities will be compensated any amount for any work performed on

mo rtgage loan transactions. Ñ Pet Ó r Ex. 2. Respondents also

acknowledge in their response to the Requests for Admissions that

they paid fees, costs, and expenses to persons or entities that

did not hold loan originator licenses. Finally, at hearing,

Mr. Cugno admitted that unlicensed entities were Ð definitely Ñ

paid, but there was no intent to deceive customers.

35. By clear and convincing evidence, OFR has established

that the allegation in Count VI is true.

vii. Count VII

36. Section 494.00665(1) re quires each mortgage lender

business to be operated by a principal loan originator who is to

have full charge, control, and supervision of the business. The

Complaint alleges that Mr. Cugno was not in full charge, control,

and supervision of PMF when it h eld a mortgage lender license.

37. PMF was a licensed mortgage lender during the first six

months of the audit period, July 1, 2014, through December 30,

2014. During that time, Mr. Cugno was PMR Ó s principal loan

originator.

38. The Complaint alleges t hat while Mr. Cugno was the

control person in 2014, PMF engaged in two or more of the

following acts:

a) Operated a branch office without a

license;

b) Failed to maintain complete and accurate

Mortgage Lending Transaction Journal;

c) Failed to maintain complete documentation

at its principal place of business; and

d) Advertised without maintaining a record

of samples of each advertisement.

39. The significance of having committed Ð two or more Ñ

violations was not explained. As previously found, howe ver, all

of these charges have been established by clear and convincing

evidence. Respondents contend they did not have proper notice as

to which of the four acts OFR relies upon to prove this charge.

But items (a) through (d) simply track Counts I throu gh IV in the

Complaint.

40. In his response to the Requests for Admissions, except

for the branch office allegation, Mr. Cugno admitted that the

other allegations are true. The response to the Report states

that Respondents are Ð embarrassed Ñ by the audi tor Ó s findings and

that new policies and procedures will be implemented to address

the deficiencies. The response acknowledges that PMF Ð has been

without a committed and proactive compliance professional in a

full time capacity for some time, Ñ and represe nts that Mr. Edgar

will become PMF Ó s Vice President of Compliance and Human

Resources and apply for a license as a loan originator. Pet Ó r

Ex. 2. At hearing, Mr. Cugno did not directly respond to the

charges. Instead, he testified that he would defer to the

undersigned Ó s judgment in deciding whether the charges are true.

41. By clear and convincing evidence, the allegations in

Count VII have been proven.

viii. Count VIII

42. Section 494.0035(1) requires each mortgage broker

business to be operated by a principal loan originator who is to

have full charge, control, and supervision of the mortgage

broker.

43. PMF was a licensed mortgage broker during the last four

months of the audit, January 1, 2015, through April 30, 2015.

During this same time period , Mr. Cugno was the principal loan

originator.

44. The Complaint alleges that Mr. Cugno was not in full

charge, control, and supervision of PMF when it engaged in two or

more of the following acts:

a) Operated a branch location without a

license;

b) Fa iled to maintain complete and accurate

Mortgage Brokerage Transaction Journals;

c) Failed to maintain complete documentation

at its principal place of business;

d) Advertised without maintaining a record

of samples of each advertisement;

e) Inaccurat ely advertised themselves as a

lender; and

f) Paid fees or commission from mortgage

loan transactions to entities that were not

licensed mortgage brokers or mortgage

lenders.

45. Items (a) through (f) are the six violations described

in Counts I through VI of the Complaint. Although the

significance of having committed Ð two or more Ñ violations was not

explained, each of these allegations has been proven by clear and

convincing evidence. Even the response to the Report admits that

Mr. Cugno did not exer cise full control over the operations of

the business during the audit period.

46. By clear and convincing evidence, the allegations in

Count VIII have been proven.

C. Disciplinary Guidelines

47. Rule 69V - 40.111 adopts by reference a range of

penalti es that may be imposed on a mortgage loan originator and

mortgage entity for violating each of the 102 statutory

provisions that OFR enforces. See Form OFR - 494 - 14. Depending on

the nature of the violation, the administrative fines are

categorized as Leve l A ($1,000.00 to $3,500.00), B ($3,500.00 to

$7,500.00), and C ($7,500.00 to $10,000.00).

48. In determining an appropriate penalty that falls within

the penalty guidelines, OFR must consider the mitigating and

aggravating factors set forth in subsecti on (3) of the rule.

Mitigating factors to be considered are as follows:

1. If the violation rate is less than 5%

when compared to the overall sample size

reviewed;

2. No prior administrative actions by the

Office against the licensee or control person

within the past 10 years;

3. If the licensee detected and voluntarily

instituted corrective responses or measures

to avoid the recurrence of a violation prior

to detection and intervention by the Office;

4. If the violation is attributable to a

single control person or employee, and if the

licensee removed or otherwise disciplined the

individual prior to detection or intervention

by the Office;

5. If the licensee is responsive to the

Office Ó s requests or inquiries or made no

attempt to impede or delay the Office in its

examination or investigation of the

underlying misconduct; or

6. Other control, case - specific

circumstances.

49. Aggravating factors to be considered in assessing a

penalty are as follows:

1. If the violation rate is more than 95%

w hen compared to the overall sample size

reviewed (sample size must be equal to or

greater than 25 transactions and cover a date

range of at least 6 months);

2. The potential for harm to the customers

or the public is significant;

3. Prior administrativ e action by the Office

against the licensee or an affiliated party

of the licensee within the past 5 years;

4. If the licensee Ó s violation was the

result of willful misconduct or recklessness;

5. The licensee attempted to conceal the

violation or misle ad or deceive the Office;

or

6. Other control relevant, case - specific

circumstances.

50. In its PRO, OFR maintains that PMF Ó s broker license

should be revoked, and an administrative fine in the amount of

$53,300.00 should be imposed on Mr. Cugno. On th e other hand,

Respondents Ó PRO contends that revocation of the broker license

is not warranted, and Ð a fine of no more than $10,000.00 total

for all matters in the Administrative Complaint is a fair

outcome. Ñ

51. The worksheet used by OFR in determining the proposed

penalties would be helpful, but it is not in the record. Also,

at hearing, neither party addressed in detail the mitigating and

aggravating factors. However, testimony by OFR Ó s Director of the

Division of Consumer Finance, Mr. Oaks, briefly explained the

rationale for OFR Ó s proposed disciplinary action.

52. For operating a branch office without a license, the

rule calls for a penalty of $1,000.00 per day, with a maximum

penalty of $25,000.00. Because this violation occurred every day

dur ing the 304 - day audit period, Mr. Oaks explained that OFR is

proposing the maximum penalty of $25,000.00.

53. For failing to maintain a complete and accurate Journal

at the principal office, the guidelines call for a penalty

ranging from $1,000.00 to $3,5 00.00 and suspension or revocation

of the license. Mr. Oaks testified that after reviewing all

mitigating and aggravating circumstances, the maximum penalty of

$3,500.00, and license revocation, are appropriate for the

violations described in Count II.

54. For failing to maintain at its principal place of

business the complete documentation of each mortgage loan

transaction/application for three years from the date of original

entry, the disciplinary guidelines call for a fine ranging from

$1,000.00 to $3,500.00 and suspension or revocation of the

license. Mr. Oaks testified that OFR is extremely dependent on

records when conducting a compliance examination. If complete

and accurate records are not kept at the principal place of

business, OFR cannot en sure that the business is operating in a

lawful manner. Where there is an absence of records, there is

potential for great consumer harm. Given the circumstances

presented here, he proposes a $2,700.00 penalty and revocation of

the license.

55. For fail ing to maintain a record of samples of each

advertisement for a period of two years, the disciplinary

guidelines call for a fine ranging from $1,000.00 to $3,500.00

and suspension or revocation of the license. In this case, PMF

had no samples of advertise ments at its principal office. When

no samples are maintained, OFR is unable to determine whether a

licensee is engaging in misleading or deceptive advertising. For

this reason, Mr. Oaks proposes a fine of $3,500.00 and revocation

of the license.

56. For engaging in misleading advertising, the

disciplinary guidelines call for a fine ranging from $3,500.00 to

$7,500.00 and suspension or revocation of the license. Mr. Oaks

characterized PMF Ó s advertising after January 1, 2015, as

Ð completely misleading Ñ because it erroneously represented to the

public that PMF was a correspondent lender. For this reason, he

proposes the maximum penalty of $7,500.00 and revocation of the

license.

57. For paying a fee or commission in any transaction to a

person or entit y other than a lender or broker, the disciplinary

guidelines call for a fine ranging from $3,500.00 to $7,500.00

and suspension or revocation of a broker Ó s license.

58. Mr. Oaks explained that the licensing process is

designed to protect consumers from un licensed individuals and to

ensure that only licensed individuals will be involved in the

transaction. For violating the statute, Mr. Oaks proposes a fine

of $4,100.00 and revocation of the license.

59. If a principal loan originator fails to have comple te

control over the operations of a mortgage lender, the

disciplinary guidelines call for a penalty ranging from $1,000.00

to $3,500.00. Because of the number and nature of violations,

Mr. Oaks concluded that Mr. Cugno did not have control of his

business and did not take adequate steps to ensure that the

business was Ð being run lawfully. Ñ

60. Besides Mr. Oaks Ó testimony, OFR witness Slisz, the

Tampa area financial manager, also concluded there was a lack of

complete control by Mr. Cugno based on loan o riginators Ð using

emails not on the company server Ñ ; an Ð unlicensed location Ñ ;

Ð loan originators taking freedom to advertise on their own

without approval Ñ ; and PMF Ó s inability Ð to produce a log of the

loans that the company received applications for. Ñ OF R seeks the

maximum penalty of $3,500.00.

61. If a principal loan originator fails to have complete

control over the operations of a broker, the disciplinary

guidelines call for a penalty ranging from $1,000.00 to

$3,500.00. For the reasons enunciated by Mr. Oaks and

witness Slisz, OFR seeks the maximum penalty of $3,500.00.

62. Besides the foregoing testimony, the evidence shows

that there was a potential for harm to customers or the public;

most of the violations proven were Ð serious Ñ ; PMF has one p rior

disciplinary action in December 2014, which was resolved by PMF

surrendering its lender license and paying a $2,500.00 fine; and

PMF was issued a notice of non - compliance regarding its late

filing of quarterly reports for the year 2012. Pet Ó r Ex. 4.

63. In mitigation, there is no evidence that any specific

customer was harmed or misled. There is no evidence that the

violations were the result of willful misconduct or recklessness

on the part of Respondents, or that they attempted to conceal a

viol ation or mislead or deceive OFR. The violations cited by the

auditor appear to be due to a lack of oversight by management,

neglect, or a failure to understand OFR regulations. Although

Respondents did not detect or voluntarily institute corrective

actio n or measures prior to the audit, there is evidence that

beginning with his assumption of control of the business in 2012,

and during the audit, Mr. Cugno occasionally contacted the Tampa

district office seeking advice on how to comply with OFR statutes

an d rules. Finally, there is no evidence that PMF attempted to

impede or delay the examination or investigation of the

underlying misconduct, or that any customer was harmed.

64. Considering the aggravating and mitigating factors on

which the parties pre sented evidence, the undersigned determines

that the mortgage broker license should be suspended for six

months and a $20,000.00 administrative fine imposed on Mr. Cugno.

D. Procedural Issues

65. In their PRO, Respondents focus largely on the argument

that Mr. Cugno was not qualified to represent himself or PMF, and

therefore the case should be reopened to allow Respondents, with

the assistance of counsel, Ð to make [their] record and better

present the facts and the circumstances. Ñ PRO at 16.

66. Mr . Cugno is the owner and president of the

corporation. As such, he may represent the corporation in an

administrative proceeding, even though he is not an attorney.

See The Magnolias Nurs ing & Convalescent Ctr. v. Dep Ó t of Health

& Rehab. Servs. , 428 So . 2d. 256, 257 (Fla. 1st DCA 1982)( Ð it is

clear that self - representation by corporations is permissible in

administrative hearings Ñ ). Because Mr. Cugno is not a Ð qualified

representative Ñ under rule 28 - 106.106, there is no requirement

that a preliminary d etermination be made that he is " qualified "

to represent his corporation. Likewise, the rule does not

require that a preliminary determination be made that an

individual, acting pro se, is qualified to represent himself.

67. Mr. Cugno is an experienced o perator of a mortgage

business, having been in that field for 22 years. Besides PMF Ó s

operations in Florida, Mr. Cugno testified that he operates

Ð businesses Ñ in Alabama, Tennessee, Kentucky, Minnesota, and

Georgia. Mr. Cugno acknowledged receipt of the Complaint on

February 6, 2017. After initially requesting that an informal

telephonic hearing under section 120.57(2) be conducted to

contest the application of the law, on September 28, 2017, he

asked that he be given a formal hearing under section 120.5 7(1)

to contest the factual findings in the Complaint.

68. During the seven - month informal phase of this

proceeding, Mr. Cugno elected to represent himself and the

corporation. After the proceeding was converted to a formal

proceeding, an Initial Order was issued on September 29, 2017,

which informed Mr. Cugno that a Ð party may appear personally or

be represented by an attorney or other qualified representative. Ñ

Notwithstanding this information, Mr. Cugno voluntarily decided

to continue to represent h imself and the corporation. Prior to

the hearing, he participated in three depositions taken by OFR;

he deposed OFR witness Quaid; he responded to discovery requests;

and he served discovery on OFR. At hearing, he engaged in

extensive cross - examination o f the OFR auditor. Finally, in a

letter to OFR dated August 19, 2015, Mr. Cugno stated that PMF

has its own Ð legal department, Ñ see Petitioner Ó s Exhibit 12 ; and,

at hearing, he testified that PMF employed three attorneys, on at

least a part - time basis, as loan originators. If these

representations are true, legal advice was not far away. In any

event, Respondents are not entitled to a second hearing.

CONCLUSIONS OF LAW

69. OFR is charged with administering and enforcing the

provisions of chapter 494, an d conducting examinations and

investigations to determine whether any provision in chapter 494

has been violated. §§ 494.0011(1) and 404.0012(3), Fla. Stat.

70. Section 494.00255(1)(u) provides that a Ð failure to

comply with, or violations of, any provis ion of this chapter Ñ is

a ground for disciplinary action.

71. Because OFR seeks to revoke the license of PMR and

impose an administrative fine on Mr. Cug n o, it has the burden to

prove, by clear and convincing evidence, that Respondents

committed the viola tions alleged in the Complaint and the penalty

sought to be imposed is appropriate. See, e.g. , Dep Ó t of Banking

& Fin. v. Osborne Stern & Co. , 670 So. 2d 932, 935 (Fla. 1996).

72. As previously found, by clear and convincing evidence,

OFR has proven th e allegations in Counts I through VIII.

73. Pursuant to rule 69V - 40.111(2), depending on the

severity and repetition of the specific violations, OFR may

impose a fine, a suspension, or revocation of a license; impose a

cease and desist order, a suspension , or both; or impose a more

severe penalty after considering a person Ó s disciplinary history

for the past five years.

74. Based on the evidence in the record, the undersigned

concludes that PMF Ó s mortgage broker license should be suspended

for six months and an administrative fine of $20,000.00 be

imposed on Mr. Cugno.

75. Respondents Ó Motion to Reopen Proceeding is denied.

As previously found, from February 7, 2017, until May 2, 2018,

Mr. Cugno voluntarily chose to represent himself and his

corporatio n rather than engaging the services of an attorney.

Even after participating in a six - month run - up to the final

hearing that involved multiple depositions and written discovery,

he still elected not to hire an attorney. Apparently

dissatisfied with the r ecord in this case, he now requests a

second evidentiary hearing, this time with counsel, to shore up

any evidentiary shortcomings caused by his representation. He

argues that under rule 28 - 106.106(4), the undersigned was

required to conduct a preliminary inquiry to determine if he was

Ð qualified and capable Ñ to represent himself or PMF. But

Mr. Cugno is not, and has not requested to be, a qualified

representative; rather, he is appearing pro se on his own behalf

and as the owner and president of his corporation. Despite what

counsel characterizes as his Ð total lack of legal acumen, Ñ he is

not entitled to a second bite at the apple.

RECOMMENDATION

Based on the foregoing Findings of Fac t and Conclusions of

Law, it is

RECOMMENDED that the Office of F inancial Regulation enter a

final order sustaining the charges in Counts I through VIII;

suspending PMF Ó s mortgage broker license for six months; and

imposing an administrative fine on Mr. Cugno in the amount of

$20,000.00.

DONE AND ENTERED this 29 th day of June , 2018 , in

Tallahassee, Leon County, Florida.

S

D. R. ALEXANDER

Administrative Law Judge

Division of Administrative Hearings

The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399 - 3060

(850) 488 - 967 5

Fax Filing (850) 921 - 6847

www.doah.state.fl.us

Filed with the Clerk of the

Division of Administrative Hearings

this 29 th day of June , 2018 .

ENDNOTE S

1/ Respondents' Exhibit 1 consists of t wo emails dated

February 26 and 29, 2016 , from Mr. Edgar , PMF's independent

consultant, to the auditor . Because they were not pre - filed with

the undersigned, Mr. Cugno was instructed to late - file a copy.

Tr. at 134. However, a copy was never filed. During his case -

in - chief, Mr. Cugno also offered into evidenc e a letter dated

March 5, 2017, authored by Mr. Edgar. OFR Ó s objection was

sustained on the ground the letter was not submitted to counsel

or the undersigned prior to hearing, as required by the Order of

Pre - hearing Instructions and instructions in the No tice of

Hearing by Video Teleconference. However, it turns out that,

with no accompanying explanation, a copy of the letter was

previously filed by Respondents on February 12, 2018, and was

treated as an ex parte communication. See Order, Feb. 20, 2018.

The thrust of the letter is that after he became aware that a

Complaint had been filed against Respondents, Mr. Edgar regrets

admitting that all of the findings in the audit were true. He

goes on to state that these admissions were made only to

establish Ð a good working relationship Ñ with OFR. The letter has

been considered by the undersigned but does not change any

finding or conclusion in this Recommended Order.

2/ PROs were originally due 14 days after the Transcript was

filed, or by May 4, 2018. C ounsel for Respondents filed her

N otice of A ppearance on May 2, 2018. Counsel requested that she

be given a Ð brief stay, Ñ or in the alternative, 45 to 60 days to

Ð evaluate Ñ the record and for Ð the parties to speak to one

another, Ñ and the right to reopen the record Ð to address the

matter of pro se representation at the final hearing. Ñ Except

for a one - week extension of time to file PROs, OFR opposed the

requested relief. The due date for filing PROs was initially

extended to May 11, and then to May 18, 2 018, but all other

relief was denied. See Orders, May 4 and 15, 2018. Both parties

filed a PRO on May 18, 2018. Respondents also filed an amended

PRO on May 21, 2018. Incorporated into the amended PRO is a

Motion to Reopen Evidence, which again argues that the case

should be reopened.

3/ Respondents correctly argue that admissions can be withdrawn.

However, Mr. Cugno never requested that his responses to the

Requests for Admissions be withdrawn or amended. Even if they

were, there is clear and convin cing evidence that Respondents are

guilty of the allegations in Counts I through VIII.

4/ At hearing, Mr. Cugno contended that Count V duplicates the

charges in the prior disciplinary action, in which PMF

surrendered its lender Ó s license and paid a $2,50 0.00 fine.

However, the earlier action was based on PMF Ó s failure to fulfill

statutory requirements for audited financial statements and

minimum net worth. It did not relate to misleading advertising.

Pet Ó r Ex. 5; Tr. at 184.

COPIES FURNISHED:

Scott R. Fransen, Esquire

Office of Financial Regulation

Suite 615

1313 North Tampa Street

Tampa, Florida 33602 - 3328

(eServed)

Jo Ann Palchak, Esquire

The Law Office of Jo Ann Palchak

1725 1/2 East 7th Avenue

Tampa, Florida 33605

(eServed)

Miriam S. Wilkins on, Esquire

Office of Financial Regulation

Fletcher Building, Suite 550

101 East Gaines Street

Tallahassee, Florida 32399

(eServed)

Scott Cugno

PMF, Inc., d/b/a Pioneer Mortgage Funding

Suite 118

142 West Platt Street

Tampa, Florida 33606 - 2315

(eServed)

Drew J. Breakspear, Commissioner

Office of Financial Regulation

200 East Gaines Street

Tallahassee, Florida 32399 - 0350

(eServed)

Anthony Cammarata, General Counsel

Office of Financial Regulation

The Fletcher Building, Suite 118

200 East Gaines Street

Tallahassee, Florida 32399 - 0370

(eServed)

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 wi th the agency that

will issue the Final Order in this case.