Consumer eViews
FLORIDA CHIEF FINANCIAL OFFICER TOM GALLAGHER'S WEEKLY NEWSLETTER

Volume 2, Number 25, June 20, 2005    

I joined Gov. Bush at our Cabinet meeting in Fort Myers on Thursday in signing into law a measure that will better protect consumers from fraudulent viatical companies.  Viatical settlement providers match those who want to sell their life insurance policies at a discount with investors willing to buy the rights to those policies. 

Our purpose in pushing for this legislation was to allow us to effectively root out and prosecute the fraudulent operators in this industry.  No longer will Floridians be duped out of their hard earned savings because of pie-in-the-sky promises made by dishonest viatical operators.

John and Alice Romanus of Port Charlotte consider the bill a major victory in their fight to keep other investors from their painful experience. They had personally invested thousands with Mutual Benefits Corporation, which was shut down last May by state and federal regulators and is now charged with investor fraud and racketeering. More than $25,000 of their life savings went into this supposedly "risk-free" investment, only to have it disappear as part of a scam - a doctor was falsifying reports about the health of the insureds who weren't actually close to dying.

"I didn't want them to get away with scamming people, especially elderly people, out of their life savings," John Romanus said, reflecting on seven years of intense work helping us change the law.

Citizens like John and Alice Romanus are to be commended for speaking out about fraud in this industry. It is my hope that better oversight and tougher prosecution will put an end to these schemes.

                     -- Tom Gallagher
 


GALLAGHER APPLAUDS SIGNING OF VIATICAL LEGISLATION

Bill a Response to Investor Abuse and Fraudulent Activity 

Florida’s Chief Financial Officer Tom Gallagher today joined Gov. Jeb Bush who signed into law a measure that will better protect consumers from fraudulent viatical companies.  The new law will define viatical settlements as “securities” and place regulatory authority over the viatical industry with the Office of Financial Regulation.  Viatical settlement providers match those who want to sell their life insurance policies at a discount with investors willing to buy the rights to those policies. 

“Our purpose in pushing for this legislation was to allow us to effectively root out and prosecute the fraudulent operators in this industry,” said Gallagher, who at the bill signing stood with investor victims Arnold and Alice Romanus from Port Charlotte.  The Romanus’ had personally invested thousands with Mutual Benefits Corporation, which was shut down last May by state and federal regulators and is now being charged with investor fraud and racketeering.  “No longer will Floridians be duped out of their hard earned savings because of pie-in-the-sky promises made by dishonest viatical operators.” 
 

The bill was sponsored in the House by Rep. Dudley Goodlette, of Naples, and in the Senate by Sen. Rudy Garcia, of Hialeah.  “Too many Floridians have lost thousands of dollars, or worse, some of them have been robbed of their life savings,” Goodlette said.  “This is a valuable consumer protection which is why the House passed it unanimously, and the Senate gave it overwhelming approval.” 

The legislation will require investments in viatical settlements to be subject to Florida securities statutes.  For investors, the new law would mean access to company information.  Promises made to investors would also have to be documented and approved by state regulators, and a determination of the investment’s suitability would have to be considered, including the purchaser’s financial and tax status, and the purchaser’s investment objectives. 

Additionally, to better protect investors from fraud, the bill requires individuals who estimate the life expectancies on policies purchased by investors to be registered with the Office of Insurance Regulation. 

Viatical settlement companies would also be required to provide regulators the names of the life expectancy providers it has used.   The legislation would also require brokers selling viaticals to be licensed with the Office of Financial Regulation.

It is estimated that viatical fraud has cost investors $2 billion since 1996.  Before today’s bill signing, Florida had been only one of four states not to have regulated viatical investments as securities.  The average age of those defrauded by viatical companies is 70 and the average amount swindled is $40,000. 

Arlene Kaplan, a Ft. Lauderdale woman getting ready to retire, lost more than $15,000 of her life savings after investing in Mutual Benefits Corporation.  Kaplan’s 85-year old mother was also bilked out of $20,000 by the same company.

Mutual Benefits Corporation also bilked Lincoln Emery from Naples out of more than $15,000 plus administrative fees.  Emery said he was told by the company that they were licensed and approved by the state of Florida.

Lillian Herndon and her late husband Ernest of Orlando, invested $20,000 with Wm. Page & Associates, one of the country’s oldest viatical companies.  At the time of their purchase in 1995, they were told that the insureds in both cases had only 24 months to live.  Ten years later, Ms. Herndon continues to pay premiums to keep from losing her investment. She believes at the outset the investment was misrepresented to her and her husband. 
 


CFO GALLAGHER RELEASES ANNUAL TOP 10 FRAUD LIST

2004-2005 Top 10 cases add up to more than $2.7 million in losses

Florida’s Chief Financial Officer Tom Gallagher today released the Department of Financial Services’ annual Top 10 Fraud List, which summarizes 10 of the costliest or boldest securities, financial and insurance fraud scams that resulted in arrests or convictions by the Division of Insurance Fraud during the fiscal year that began July 1, 2004, and ends June 30, 2005. 

“Fraud schemes are becoming more complex and more costly, and the cost is passed on to every consumer in higher insurance premiums and higher costs for goods and services,” said Gallagher, who oversees the department. “But working together, we can fight back against these criminals and hit back hard.  The most important thing consumers can do is verify before they buy.”

This year’s Top 10 fraud schemes ranged from title insurance trickery to the perennial list maker, Personal Injury Protection auto insurance fraud, or PIP fraud.  On the list is one PIP fraud case in which eight individuals posed as journalists to gain access to police accident reports in order to solicit crash victims to go to unscrupulous medical clinics.  In another, more than two dozen individuals were arrested in a complex scheme that involved staging crashes in order to create “patients” for fraudulent medical clinics.  The ringleader is suspected of staging more than 90 auto crashes.  The 10 cases, listed in no particular order, add up to more than $2.7 million in financial losses.  Additional potential losses in these 10 cases – losses that may have occurred if an arrest had not been made when it was – add up to more than $1 million.

The department has a number of online resources, including a Verify Before You Buy page that includes links that allow consumers to check the licensure status of an insurance or financial services company, broker or agent; a Senior Resource Center that specifically addresses concerns and needs of Florida’s senior citizens facing important financial decisions; and a Service Point link where consumers can ask a question or file a complaint and track the status of their request.  These resources and more can be found at www.MyFloridaCFO.com or by calling 1-800-342-2762. 

Gallagher also said that the department is willing to pay up to $25,000 for information that directly leads to an arrest or conviction in a fraud scheme.   “That’s very likely a whole lot more than one might make participating in one of these schemes, and we want to award law-abiding citizens who get involved and help make a difference.”

So far this fiscal year, the department’s Division of Insurance Fraud has made more than 700 arrests.

The release of the annual Top 10 Fraud List coincides with the 14th annual Florida Insurance Fraud Education Council Conference, which continues through tomorrow in Orlando.  Hundreds of insurance fraud investigators and prosecutors are expected to attend the three-day conference to learn about the latest insurance fraud schemes and investigative techniques. 

On Thursday in Ft. Myers, Gallagher asked Gov. Jeb Bush and other Cabinet members to sign a resolution declaring June as Fraud Awareness Month.  The signing took place during the Cabinet meeting at “Capital for a Day.” 

2004-2005 DEPARTMENT OF FINANCIAL SERVICES’ TOP 10 FRAUD LIST

Not Flying Straight

SARASOTAAn attorney who continued to work while collecting more than $130,000 in disability benefits likely won’t get a chance to cash in his frequent flyer miles anytime soon.  Peter W. Martin, 58, faces up to 15 years in prison after insurance fraud detectives uncovered that he submitted false information on a disability claim.  Martin reported that, following a motor vehicle accident, he became partially disabled and that his condition deteriorated making him totally disabled in September 2003.  Detectives, however, found that Martin had continued to practice law in Florida as well as in New York while he collected disability benefits.

This is Not Monopoly

CLERMONT—A title agent accused of stealing more than $1.1 million in customer escrow funds took the money – along with her boyfriend and coworkers – on a Las Vegas junket, but didn’t bet on getting caught.  Kathryn Knight, 37, also known as Kathryn Weed, was operating Weed & Associates Title Services when American Pioneer Title Insurance Company conducted an audit and discovered discrepancies in Weed & Associates’ escrow account.  Fraud detectives determined that Knight misappropriated in excess of $1.1 million from the escrow account and used these funds to buy vehicles, the Las Vegas getaway and make a down payment on a $9 million Lake County land purchase.  Her title agent license was immediately revoked and she faces up to 60 years in prison if convicted on the charges.

The Reporter’s Instinct

PLANTATION—Eight individuals who illegally obtained traffic accident reports from police departments throughout Palm Beach, Broward and Dade counties posed as reporters to gain access to the reports.  They used the information in the reports to solicit accident victims to go to medical clinics and auto body shops for the purpose of collecting money on fraudulent auto insurance claims.  They pretended to work for media publications such as Impact News Weekly, South Florida Journal and Greek American Herald

Home Repairs the Cheating Way (or Huff and Puff)

COCOA BEACH—A Brevard County homeowner claimed that renovation work to his home was the result of hurricane damage, but the work had begun almost a month before the hurricane hit.  Robert Milliken, 60, filed the fraudulent claim last September with Citizens Property Insurance Corporation for his home at 423 S. Atlantic Ave., claiming that Hurricane Frances caused nearly $60,000 in personal property damage.  Detectives, however, determined that Milliken contracted with Mack Mosier of Trade Wind Builders to remodel his residence, and the work, which involved the removal of all of Milliken’s furniture as well as the roof and windows, began on Aug. 10, 2004.  Hurricane Frances struck the Treasure Coast on September 5, 2004 

Fake Cards, Real Money

RIVIERA BEACH—A man who sold fake motor vehicle insurance cards to nearly 200 South Florida drivers was sentenced to three years in prison.  Howard M. McKinon, 58, of 481 W. 30th St., pleaded guilty to nine counts of marketing a false or fraudulent motor vehicle insurance card and one count of organized scheme to defraud. State fraud investigators determined that McKinon issued at least 196 cards, most of them to drivers in West Palm Beach and Riviera Beach.  The cards appeared to be issued by Progressive Insurance Company and purported to carry the minimum statutory levels of Personal Injury Protection and Property Damage coverage.  The cards had the same policy number, with different personal and vehicle information typed on them. 

The World is Your Stage

MIAMI—Fraud detectives in February arrested 25 individuals believed to have been involved in a ring that staged at least a dozen auto crashes and fraudulently billed insurance companies for $1 million.  If convicted, they will face a minimum mandatory sentence of two years in prison for organizing the staged crashes, and up to 15 years in prison on all charges.  The 53-year-old suspected ringleader Wilfred Cyriaque, also known as “Lopez” or “Blanc,” is charged with 51 counts each of insurance fraud and grand theft, four counts of staging an accident, and organized scheme to defraud.  Investigators believe Cyriaque may have staged as many as 90 crashes during the last several years. 

Now You Can Panic

POMPANO BEACHA man who allegedly lied on his application for disability income insurance and then filed a claim one week after getting the policy is facing felony charges that could land him up to 65 years in prison.  Bruce Sutherland, 43, had a real estate license but claimed he was unable to work due to panic attacks.  Department detectives said medical and hospital records confirmed that Sutherland provided false information regarding his medical history, and documents from the Social Security Administration indicated he provided false salary information as well.  Based on his application, Sutherland was issued a Disability Income policy that provided a monthly disability benefit of $3,000 until he turned 65.  Sutherland’s maximum benefit for disability would have been approximately $828,000.  The claim was denied.

Who Are You?

ST. PETERSBURG—A couple and a relative are facing felony insurance fraud charges after state fraud detectives determined they fraudulently collected $39,000 from their insurance coverage stemming from a staged automobile accident.  Detectives determined that Azem Jakupaj, 41, his wife, Fikreta, 36, and Edin Muratovic, 26, gave false information to their insurance company following a January 2004 staged crash at 8th Street and 94th Avenue North.  The Jakupajes said they did not know Muratovic, who was in the other car, but a witness said they were seen talking prior to the accident, and the investigation revealed that they are related.  The Jakupajes’ two young daughters were in the car at the time of the staged accident.    

Angling for Annuities

JACKSONVILLE—An insurance agent who stole $366,000 by convincing at least six elderly clients to cash in their annuities and reinvest in other insurance products was sentenced to three years in prison and order to pay restitution.  Thomas Larry Griggs, 48, operated Griggs Financial Services in Jacksonville and was a licensed insurance agent.  He persuaded several elderly victims to surrender their annuities and reinvest into other insurance products sold by Griggs, but insurance fraud detectives determined that once Griggs received the surrender proceeds from the annuities, he converted the monies to his own personal use.   Two of the victims, who ranged in age from 68 to 79, have since died. 

Land Ho

PLANTATION—Three South Floridians bamboozled a title insurance company out of $1.2 million by playing with the paperwork.  Anthony Phillips, Suzanne Destefano and Chena Henry are accused of conspiring to steal $1.2 million from Attorney’s Title Insurance Fund through a fictitious purchase of property.  The lending agent was advised to wire the money to an unlicensed broker (Chena Henry) for the property.  Henry then followed the instructions of Anthony Phillips and wired the money to Phillips and Suzanne Destefano in prescribed amounts.  Phillips used the stolen money to purchase property in which he had an interest in Miami-Dade County.

Please note: $2.7 million is the estimated amount of losses in these 10 cases only. 


GALLAGHER CALLS ON FLORIDA’S FIREFIGHTERS TO ‘STAND DOWN’ FOR SAFETY 

Florida’s Chief Financial Officer and State Fire Marshal Tom Gallagher is calling for Florida’s firefighters to join fellow responders across the nation in a “stand down” on Tuesday and suspend all non-emergency activity to focus on safety.

“Firefighters and their families accept that there is a lot of risk in this job, but they should not have to accept unnecessary risk,” Gallagher said.  “I am urging every fire department to use this day as an opportunity to review procedures and to tap into resources available through the State Fire Marshal’s office.”

In conjunction with the Florida Fire Chiefs’ Association and the Florida Professional Firefighters, the State Fire Marshal’s office is encouraging all fire department members, career and volunteer, to take time from their normal duties to closely look at what can be done to reduce the death and injury rate for firefighters.  Gallagher is urging fire departments to ask, “What can we do today, from firefighter to chief, to improve safety?

As of May 1, the nation’s fire departments have suffered 50 line-of-duty firefighter deaths–10 more than at this same time last year, according to the International Association of Fire Chiefs (IAFC) who is organizing the stand down with 14 partnering fire service organizations.

In Florida, three firefighters have died so far this year.  In the last three years, nine Florida firefighters died as a result of injuries sustained in the line of duty.  Hundreds of Florida firefighters are injured every year.

Two years ago, the Legislature adopted the Florida Firefighter Occupational Safety and Health Act to better protect Florida’s firefighters and to regulate safety requirements including training, with responsibility for implementation vested in the State Fire Marshal’s office.  Several new resources specific to the stand down will be added to the State Fire Marshal’s office web page to help local fire departments and individual crews plan for a successful safety stand down. To view them, go to www.MyFloridaCFO.com/SFM and click on the Firefighter Safety link. 

With firefighters’ safety in mind, Gallagher has also called for training for first responders on how to identify, investigate and dismantle “meth” labs, a growing threat to Florida’s first responders. More than 150 law enforcement officers and firefighters from throughout Florida and other states have signed up for the free training, with the first course to begin on Tuesday at the Florida State Fire College in Ocala. 


GALLAGHER ANNOUNCES NORTH FLORIDA WINNERS IN CONTEST PROMOTING FINANCIAL LITERACY AMONG TEENS

Florida’s Chief Financial Officer Tom Gallagher today announced the names of three students who were the top picks in an essay contest aimed at encouraging financial literacy among middle and high school students. 

The contest, “Cash in on Your Money Smarts,” asked students, ages 14 to 18, to submit at least a 750-word essay on why they considered themselves money smart and offered students a chance at more than $7,500 in prizes statewide.  First, second and third place prizes are being awarded to teens in five geographic regions, for a total of 15 winners statewide.  Nearly 600 students participated this year.

“This essay contest was a great way to encourage Florida’s young people to show off their financial knowledge and writing skills, and reward them for it,” Gallagher said.  “Learning these valuable skills now will pave the way for a lifetime of financial success." 

The winners named today represent one (Region 1) of the five regions that competed in the contest.  Region 1 covered a 16-county area, including Escambia, Santa Rosa, Okaloosa, Walton, Holmes, Washington, Bay, Jackson, Calhoun, Gulf, Liberty, Franklin, Gadsden, Leon, Wakulla and Jefferson.  The winners are: 

First Place:  Kathryn Scanlan, 17, just completed 11th grade at Niceville High School in Niceville

Second Place:  Matthew Harper, 16, just completed 10th grade at Lawton Chiles High School in Tallahassee

Third Place:   David Taveirne, 16, just completed 11th grade at Gulf Breeze High School in Gulf Breeze.

First, second and third place winners will receive $750, $500 and $250 respectively.  The winning essays can be read by clicking on the Cash in on Your Money Smarts button to the left.

The essay contest is part of Gallagher’s statewide public education initiative, Your Money, Your Life, which is designed to help Floridians of all ages and income levels avoid debt and build assets, including savings, investing and home ownership.  Gallagher started the program last fall in response to a survey reporting that many Floridians put themselves at financial risk by waiting too late to save and by running up debt.  The program includes a comprehensive educational website available at
www.yourmoneyyourlife.org.

Judging the contest were representatives from the Florida Council on Economic Education, a non-profit organization that supports financial education initiatives in schools and businesses statewide.  In addition, department employees Fred Varn and Greg Thomas, who serve on their area school boards, participated in the judging process.

Gallagher said he plans to hold another essay contest for teens this fall and will pose a question that encourages teens to research and creatively invest $100,000.

Financial support for the “Cash in on Your Money Smarts” essay contest is provided by a grant from the Investor Protection Trust (IPT).  The IPT is a nonprofit organization devoted to investor education. Since 1993, the IPT has worked with the States to provide the independent, objective investor education needed by all Americans to make informed investment decisions. Their website is
www.investorprotection.org.
 


CAPITAL FOR A DAY IN FORT MYERS

Florida's Chief Financial Officer Tom Gallagher, along with the Governor, the Commissioner of Agriculture and the Attorney General, recognized Fort Myers as Capital for a Day recently as the Harborside Event Center served as the meeting venue. CFO Gallagher offered a resolution highlighting the history of Ft. Myers and honoring the City for serving as the host for this annual event.

Before a standing-room-only crowd, the Governor and Cabinet voted on issues ranging from corporate income tax rules to acquisition of environmentally sensitive land. However, the acquisition of a conservation easement adjacent to Letchworth Mounds State Park was deferred. Both CFO Gallagher and Governor Bush questioned the proposed purchase price and timing of a conservation easement. "We have a limited source of funding to acquire land for environmental preservation so we must ensure we maximize the public's dollars, especially since the Letchworth Mound itself is already protected under state ownership. This property had been on the state's acquisition list for 15 years, sold to a private developer 18 months ago and now we are considering buying it. I have concerns about that." That concern was shared by the governor and Cabinet leading to a deferral of consideration.

An item of particular local interest, Naples Bay Marina, was also considered by the Governor and Cabinet. The Capital for a Day meeting concluded with unanimous approval to convert this former boatyard to a marina as part of City of Naples economic development initiative.
 



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