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FLORIDA CHIEF FINANCIAL OFFICER TOM GALLAGHER'S WEEKLY NEWSLETTER Volume 2, Number 26, June 27, 2005 It has become apparent that Allstate Insurance Company plans to file a 28 percent statewide average rate hike in July, but has already begun sending the bills to Florida homeowners. Allstate's move to implement a rate hike and then file for approval blatantly ignores a new law that requires a public hearing for any rate request exceeding 15 percent. This is unconscionable. Just one month ago, Allstate announced the non-renewal of 95,000 Floridians. Now they are hitting their remaining policyholders with a rate hike that they are afraid to hold up to public scrutiny. With these actions, Allstate has broken faith with their policyholders and the people of Florida. This conduct is even more reprehensible considering just four months ago Allstate’s chairman Edward Liddy characterized the company’s 2004 financial performance as a 'great year for Allstate’ and ‘We’re growing and generating solid returns for our shareholders.’ This is a company that says one thing to analysts and investors and something else to its policyholders when it sticks them with the bill. I am urging Insurance Commissioner Kevin McCarty to do everything in his power under Florida law to stop Allstate from circumventing the law and to tell Allstate to cease and desist billing this unapproved rate increase to Florida homeowners. Allstate’s policyholders and the people of Florida deserve straight answers from the company and we intend to hold Allstate accountable. -- Tom Gallagher
GALLAGHER URGES FLORIDIANS TO CELEBRATE SAFELY ON JULY 4 Florida’s Chief Financial Officer and State Fire Marshal Tom Gallagher is urging Floridians to think about fire safety as they make their Fourth of July plans. “The Fourth of July is a great time for families and friends to relax together and reflect on the freedoms we all enjoy,” Gallagher said. “But don’t let the celebration turn to tragedy. If you're buying fireworks to celebrate, remember that if it launches or explodes, it is illegal in Florida."
Gallagher is encouraging Floridians to instead attend a professional fireworks display or enjoy any of the hundreds of legal sparklers listed on the State Fire Marshal’s web site at www.MyFloridaCFO.com/sfm. Illegal fireworks include shells and mortars, multiple tube devices, Roman candles, rockets and firecrackers. Floridians should not sign “waivers” in order to purchase fireworks. Signing a waiver will not clear you of responsibility should you be caught using them, and using fireworks illegally is a first-degree misdemeanor punishable by up to one year in jail and a $1,000 fine. Even if you are using legal sparklers there is still a risk of injury. When lit, some sparklers can reach temperatures between 1,300 and 1,800 degrees, which is at least 200 degrees hotter than a standard butane lighter. Illegal fireworks aren’t the only fire hazard facing Floridians looking to celebrate this Fourth of July weekend. Gallagher said grills and campfires also can pose real risks. The Consumer Product Safety Commission reports that each year about 30 people die and 100 people are injured as a result of charcoal and gas grill fires, explosions and misuse. Many of these fires and explosions occur when consumers first use a grill that has been left idle for a period of time or just after refilling and reattaching the grill's gas container.
Meanwhile, campers can suffer serious and fatal burn injuries if they use candles, portable stoves, cigarettes, lanterns, matches around camping tents and sleeping bags. Sparks can also blow from a nearby campfire and ignite a tent or sleeping bag.
Gallagher advises Floridians to follow these precautions to celebrate safely:
Sparklers - Use sparklers and other legal novelties on a flat, hard surface. Do not light them on grass.
- Use sparklers in an open area. Keep children and pets at least 30 feet away from all ignited sparklers.
- Light only one item at a time and never attempt to re-light a “dud.”
- Don’t use any unwrapped items or items that may have been tampered with.
- Keep a fire extinguisher or water hose on-hand for emergencies. It’s a good idea to drop used sparklers in a bucket of water.
Grills - Check the tubes that lead into the burner for any blockage from insects, spiders, or food grease. Use a pipe cleaner or wire to clear blockage.
- Check for gas leaks, following the manufacturer's instructions, if you smell gas or when you reconnect the grill to the LP gas container. If you detect a leak, immediately turn off the gas and don't attempt to light the grill until the leak is fixed.
- Check grill hoses for cracking, brittleness, holes, leaks or sharp bends.
- Move gas hoses as far away as possible from hot surfaces and dripping hot grease. If you can't move the hoses, install a heat shield to protect them.
- Never use a grill indoors. Use the grill at least 10 feet away from your house or any building.
- Never burn charcoal inside of homes, vehicles, tents, or campers. Charcoal should never be used indoors, even if ventilation is provided.
Camping - Check cooking, heating and lighting equipment to make sure it is in good repair. Read instructions carefully and obey any warning labels.
- Use flame-retardant tents and sleeping bags. Keep tents and sleeping bags away from all flame sources.
- Never bring a stove, lantern or candles inside the tent. Tell youngsters afraid of the dark to keep a flashlight handy and not to use candles.
- Place stoves and campfires away from the tent. Extinguish all fires before going to sleep.
- Make sure that the stove, heater or lantern is stable and will not topple while it is being filled or during use.
- Use caution when storing or transporting fuel. Some stoves require that the reservoir be emptied to avoid leakage while carrying. Use safety cans to transport fuel.
Gallagher also reminds Floridians to check the batteries in their smoke detectors.
GALLAGHER CALLS FOR REJECTION
OF UNSUPPORTED RATE INCREASE
TALLAHASSEE – Florida’s Chief Financial Officer Tom Gallagher today urged Insurance Commissioner Kevin McCarty to reject a 36.7 percent rate increase requested by Cincinnati Indemnity Company/Insurance Company. “After directing our Consumer Advocate’s office to review the request for an increase, our team revealed deficiencies and unsupported claims in Cincinnati’s rate filing,” Gallagher said. “Cincinnati has not justified the numbers it submitted for projected losses and reinsurance costs.” Gallagher has asked his consumer advocate to present the findings of the independent review at a public hearing on Wednesday, June 22, at the Sarasota-Bradenton International Convention Center in Sarasota. Gallagher concluded, “We will be vigilant in protecting against unwarranted and unsubstantiated rate increase requests. I urge Commissioner McCarty to reject this rate request." Initial Review of CIC FL HO Filing
LIFETIME CAPITAL, INC., PRINCIPALS SENTENCED TO COLLECTIVE 22 YEARS IN PRISON ON FRAUD CHARGES$21 million to be forfeited; restitution expected to surpass $100 million
Florida’s Chief Financial Officer Tom Gallagher announced today that three individuals affiliated with LifeTime Capital, Inc., a viatical company that once operated out of Dayton, Ohio, and South Florida, have been sentenced to a collective 22 years in prison for their roles in a large-scale money laundering conspiracy. The sentences were handed down late Thursday afternoon in the United States District Court, Northern District of Florida.
The convictions stem from an investigation by the Department of Financial Services, Division of Insurance Fraud, which Gallagher oversees, as well as the Office of Financial Regulation’s Division of Investigations and the Federal Bureau of Investigation. The United States Attorney’s Office for the Northern District of Florida prosecuted the charges. U.S. Federal District Judge M.C. Rodgers handed down the sentences.
“Viatical fraud poses a serious financial risk for both consumers and investors, many of whom are senior citizens who invest their life savings in these policies,” said Gallagher, who worked with LifeTime victims to demonstrate the need for legislation to regulate viaticals as a security. That legislation passed this year and Gallagher joined Governor Jeb Bush for the bill signing last week. 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.
“No longer will Floridians be duped out of their hard earned savings because of pie-in-the-sky promises made by dishonest viatical operators,” Gallagher said.
The investigation determined that David W. Svete was the principal owner of the companies used to commit the frauds and launder the money, and that Ron Girardot was one of Svete’s chief lieutenants in the scheme.
The two were found guilty of conspiring to fraudulently obtain money from investors by representing that the viatical contracts were on terminally ill patients and that the investors could not lose. Instead, investigators determined that Svete and Girardot arranged to launder the fraudulently obtained funds through overseas locations to conceal and disguise the nature, location, source, ownership, and control of these funds.
Svete was sentenced to 200 months in prison to be followed by 36 months of supervised probation. As part of the sentencing he is to surrender $21 million in laundered funds.
Girardot was sentenced to 60 months in prison and 36 months of supervised probation. He and Svete will be responsible for restitution to be set later based on a combination of the lost investments and promised returns. The restitution could be as much as $200 million. Svete and Girardot will serve their time in Ohio.
A third defendant, Charme Austin, pleaded guilty prior to the nine-week trial that ended in March and was sentenced to 15 months in prison to be followed by 36 months of supervised probation.
The new viatical law will require investments in viatical settlements to be subject to Florida securities statutes. For investors, this will 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 law now requires individuals who estimate the life expectancies on policies purchased by investors to be registered with the Office of Insurance Regulation. Viatical settlement companies will also now be required to provide regulators the names of the life expectancy providers it has used. The legislation will 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 the bill signing, Florida had been one of only 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.
GALLAGHER ANNOUNCES SOUTHEAST FLORIDA WINNERS IN CONTEST PROMOTING FINANCIAL LITERACY AMONG TEENS Florida’s Chief Financial Officer Tom Gallagher 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 5) of the five regions that competed in the contest. Region 5 covered a nine-county area, including Okeechobee, St. Lucie, Martin, Glades, Hendry, Palm Beach, Broward, Miami-Dade and Monroe. The winners are: First Place: Avi Leavitt, 17, just completed 11th grade at West Boca Raton Community High School in Boca Raton Second Place: Brian Lee, 16, just completed 11th grade at Coral Reef Senior High School in Miami Third Place: Jake Rothstein, 16, just completed 11th grade at Dr. Michael M. Krop Senior High School in Miami
First, second and third place winners will receive $750, $500 and $250 respectively. The winning essays can be read at Cash in on your Money Smarts Essays.
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 web site 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.
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