ALJDEC-ready for issuance on10/29/01 at 7:00 a.m.

01A-197-INS · Department of Insurance · 2001-10-09

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: October 9, 2001 APPEARANCES: Trisha Kirtley-Wells, Esq. on behalf of Petitioner Jeffrey Thomas Conway; Assistant Attorney General Kathryn Leonard on behalf of the Arizona Department of Insurance ADMINISTRATIVE LAW JUDGE: Lewis D. Kowal _____________________________________________________________________ FINDINGS OF FACT 1. On September 13, 1989, the Third Judicial District Court of Minnesota issued a Complaint in State of Minnesota v. Jeffrey Thomas Conway, District Court, Third Judicial District, Case No. K8-89-357 (Case No. K8-89-357), charging the Petitioner with 15 counts of securities violation and 15 counts of theft. On March 15, 1990 the Petitioner, into a entered a plea agreement in Case No. K8-89-357 wherein Petitioner pled guilty to four counts of Theft, a felony. As a condition in the plea agreement, on March 16, 1990, an Amended Complaint was issued, charging the Petitioner with four counts of Theft, a felony. On May 10, 1990, the Petitioner was convicted of four counts of Theft in Case No. K8-89-357. The Court sentenced Petitioner to a prison terms of 1 year and 1 day for Count 1; 15 months for Count 2; 36 months for Count 3; and 42 months for Count 4. The Court stayed execution of the prison sentence and placed the Petitioner on probation for a period not to exceed years.

As conditions of probation in Case No. K8-89-357, the Court ordered Petitioner to serve 8 months in the Waseca County Jail, to pay restitution in the amount of $50,342.31, to pay a fine and surcharge in the amount of $5,500.00, and to perform 500 hours of community service. In the Departure Report in Case No. K8-89-357, the Court found that the Petitioner’s offenses constituted the theft of over $90,000.00 over a two year period of time, demonstrating a high degree of planning and consisting of 30 or more separate acts of theft from 15 different individuals. The Court found that some of this money was used to repay earlier victims. The Court also found that the Petitioner kept well over $50,000 of stolen money. The Court specifically determined that Petitioner used his position of trust as an investment advisor and prominent member of the Waseca community to facilitate the commission of the offenses. As an aggravating factor, the Court noted that that several of the victims were elderly and/or physically handicapped and were particularly vulnerable On November 9, 1998, the Court in Case No. K8-89-357 discharged Petitioner from probation. On May 3, 1989, the Petitioner entered into a Consent Order In the Matter of Securities Agent’s License of Jeffrey Thomas Conway, License No. 857697, Case No. SE 8902550, with the Minnesota Department of Commerce, revoking the Petitioner’s securities license no. 857697, as of May 5, 1989. In the above-mentioned Consent Order, the Minnesota Commissioner of Commerce determined that Petitioner failed to remit investment funds paid by clients to IDS Financial Services, Inc. (IDS), that he deposited the funds in his business account and converted the funds to his own personal use. The Minnesota Commissioner of Commerce ordered Petitioner to make full restitution to his victims as a condition precedent to any future license application. 9. On May 3, 1989, the Petitioner entered into a Consent Order, In the Matter of Insurance Agent’s License of Jeffrey Thomas Conway, License No. 0662736, Case No. SE 8902550, with the Minnesota Department of Commerce, revoking the Petitioner’s insurance license, as of May 5, 1989. The Minnesota Commissioner of Commerce determined that Petitioner failed to promptly remit investment funds made payable to IDS., and converted the funds to his own personal use. The Minnesota Commissioner of Commerce ordered that the Petitioner make full restitution to his victims and obtain a $5,000.00 bond as conditions precedent to any future license application.

10. On October 15, 1999, the Petitioner filed an application (the “First Application”) for a life and disability insurance agent’s license with the Arizona Department of Insurance (Department). 11. In the First Application, Petitioner disclosed his felony conviction of theft and disclosed the revocation of his Minnesota insurance and securities licenses. 12. On November 18, 1999, the Department denied the First Application. As a result of Petitioner filing a request for a hearing on the Department’s denial of the First Application, an administrative hearing was held before Administrative Law Judge Casey Newcomb. 13. On February 23, 2000, Administrative Law Judge Casey Newcomb issued a Recommended Decision, wherein he recommended that Petitioner be issued a life and disability insurance agent’s license. 14. On March 14, 2000, the Director of the Department issued an Order adopting the recommended Findings of Fact, adopting paragraphs 1-5 of the Conclusions of Law and rejecting paragraph 6 of the Conclusions of Law, rejecting the Recommended Decision and affirming the denial of the First Application. 15. Petitioner appealed the above-mentioned Order of the Department’s Director in Jeffrey Thomas Conway v. State of Arizona, Maricopa County Superior Court Case No. CV2000007359. Following oral argument, the Court issued a Minute Entry Order wherein the Court affirmed the Order of the Department’s Director denying the First Application. 16. On July 26, 2001, Petitioner filed an application for a life and disability insurance agent’s license (Second Application) with the Department. 17. In the Second Application, Petitioner disclosed his felony conviction for four counts of Theft by Swindling and his revocation of his Minnesota insurance and securities licenses. 18. On August 3, 2001, the Department denied the Second Application. 19. On August 14, 2001, the Department received Petitioner’s request for a hearing on the Department’s denial of the Second Application, resulting in the instant hearing. 20. During the hearing of this matter, Petitioner testified that he was born and raised in Waseca, Minnesota, where he and his family had an excellent reputation. After attending college and performing various jobs, Petitioner moved away from Waseca and became a high school teacher and principal. In 1978, Petitioner’s wife became seriously ill , causing Petitioner to move back to Waseca, Minnesota so his wife could be treated at the Mayo Clinic. 21. Petitioner testified that in 1978 he began his career as an agent and financial planner with IDS, a company that provided financial planning and investment services to its clients. Petitioner worked at IDS for over 10 years where he built a successful career. 22. Petitioner testified that he was elected as a state representative for his district in Minnesota and became a very successful politician. Petitioner also testified that he was voted Freshman Legislator of the Year. 23. Petitioner testified that the medical treatment for his wife amounted to large medical bills, causing him to sustain financial hardship. Petitioner further testified that one of his daughters, who was deaf, also required costly medical care. 24. Petitioner testified that while working at IDS, one client gave him money to invest. The Petitioner testified that he used the client’s funds to pay for personal expenses. Petitioner testified that at the time he took the money that he believed he would be able to repay it back shortly with interest. However, Petitioner testified that he had to steal money from another client to make the investment for the first client from whom he had stolen funds. Petitioner testified that this escalated with the end result being that he stole over $90,000.00 from 15 different families over an 18 month period. 25. Petitioner testified that he used some of the $90,000.00 to repay some of the clients from whom he had stolen funds. The above-mentioned plea agreement in Case No. K8-89-357 established that Petitioner stole and kept for himself over $50,000.00 of the stolen funds. 26. Petitioner testified that the above-mentioned conduct was wrong and against his religious values and personal ethics. Petitioner testified that he is remorseful for his prior criminal activity, that he has successfully completed probation, that he did not have any prior criminal convictions, that he has not had any subsequent criminal convictions, and that he would never commit theft again. 27. Petitioner testified that he made full restitution and other payments as ordered in Case No. K8-89-357. Petitioner testified that he also successfully performed the court ordered 500 hours of community service. Petitioner testified that he taught GED classes, delivered speeches to community groups about his prior criminal experience. 28. Petitioner testified that, except for the revocations resulting from the above-mentioned felony conviction, he had no violations regarding his Minnesota insurance license and securities license. 29. Petitioner testified that his wife divorced him and that he has almost no relationship with his daughters because of the felony conviction. Petitioner further testified that he ruined his and his family’s good reputation in the Waseca community. Petitioner testified that he contacted all 15 of his victims to apologize and that 13 of his 15 victims forgave him. 30. Petitioner testified that he resigned in disgrace from the Minnesota State Legislature because of the felony conviction. Petitioner testified that the media provided extensive coverage of his conviction and resignation from the legislature. Petitioner testified that the negative coverage was humiliating and embarrassing to him and his family. As a result of the above-mentioned felony conviction, it was very difficult for Petitioner to find suitable employment in Minnesota. 31. Petitioner testified that he obtained a job with Redwing Shoe Company (“Redwing”) after his release from jail. Petitioner testified that he was the Director of Training and Development at Redwing. Petitioner testified that he created training programs for new employees, he wrote speeches for Redwing’s president, and controlled a million dollar budget. Petitioner testified that he obtained employment with Redwing through his former high school football coach, who was aware of his conviction. Petitioner also testified that the Redwing management knew of his felony conviction before he was hired. 32. Petitioner worked at Redwing for five years. He subsequently accepted a position as a trainer and salesman with Donnelly Stucco & Windows (“Donnelly”). Petitioner testified that handled finances in that position. Petitioner testified that he was hired at Donnelly because the owner of Donnelly was a personal friend of his who knew him prior to his felony conviction. Petitioner testified that Donnelly knew of his felony conviction before he was hired. 33. Petitioner successfully completed his probation in November of 1998, which allowed him the opportunity to move away from Minnesota. Petitioner testified that he moved to Arizona because he wanted a fresh start . 34. Through an advertisement, Petitioner obtained a job at Liberty Estate Management as a Trust Agent. Petitioner testified that as a Trust Agent he conducted home visits to potential customers to offer legal services involving trusts, wills and estate planning. 35. In June of 1999, the Petitioner accepted a job as a Trust Agent for Estate Planning Services (“EPS”). Kathy Johnson (Ms. Johnson) is an owner of EPS. Ms. Johnson testified at the administrative hearing before Administrative Law Judge Newcomb. A copy of that transcript was presented upon stipulation as admitted into the evidentiary record (Exhibit E). Petitioner offered the testimony of Ms. Johnson in the prior administrative proceeding as evidence of his good character. Department’s counsel maintained that such testimony should be considered within the context of the entire prior administrative proceeding and asserted that it should be given no weight because the testimony occurred more than a year ago. According to the Department, without Ms. Johnson’s appearance at the instant hearing, there is no assurance that Ms. Johnson would testify similarly as to Petitioner. 37. The Administrative Law Judge concurs with the Department’s position concerning Ms. Johnson’s testimony in a prior administrative proceeding before Administrative Law Judge Newcomb. Testimony elicited in a prior administrative proceeding over one year ago does not contain relevant information as to Petitioner’s current character nor is there any degree of reliability that Ms. Johnson’s prior testimony would be the same or similar one year later. This could have been addressed by Ms. Johnson appearing either in person or telephonically at the instant proceeding. However, without clarification from Ms. Johnson, the testimony of Ms. Johnson merely establishes that over a year ago she had an opinion of Petitioner. 38. Petitioner presented the testimony of Edward Kanemoto (Mr. Kanemoto), one of the principal owners of Trust America, LLC (Trust America), in support of his good character. Trust America is where Petitioner currently works. Mr. Kanemoto is licensed as an insurance agent in the States of Arizona and California. 39. The evidence presented concerning the business of Trust America and of Petitioner’s current duties and anticipated duties was presented in a vague manner. The evidence established that Petitioner is organizing seminars for Trust America to sell living trusts to senior citizens. However, at this time, Trust America has not held or scheduled any seminars in the State of Arizona. Further, Mr. Kanemoto testified that Petitioner also performs other duties for a California company owned and operated by Mr. Kanemoto in California, though Petitioner is not an employee of that company. 40. Mr. Kanemoto testified that if Petitioner were to be licensed in the State of Arizona, he would implement safeguards and policies to maintain supervision over Petitioner. However, Trust America does not have any such policies currently in place. Further, the employment contract Trust America has with Petitioner is one of at will where there is no stated period of employment. Thus, once licensed, Petitioner would not be contractually obligated to remain employed at Trust America. Thus, there is no assurance as to the degree of supervision or control over Petitioner’s future activities if he were to become licensed as an insurance agent. 41. The weight of the evidence of record established that Mr. Kanemoto’s testimony to be biased as he would receive an economic benefit if Petitioner were to obtain his insurance agent’s license in the State of Arizona. Thus, Mr. Kanemoto’s testimony is given little weight and is not persuasive of Petitioner’s good character. 42. Petitioner testified that he will never steal from his customers again. Petitioner testified that he lost everything because of his criminal behavior. The Petitioner testified that he lost his wife and relationship with his daughters, he lost his business and political career, and he ruined his reputation. Petitioner testified that he has learned his lesson and that he just wants the opportunity to start all over. 43. The testimony of Petitioner is determined to be credible to some degree and such evidence only supported by a biased character witness does not present the Administrative Law Judge with sufficient evidence as to Petitioner’s good character to overcome the above-mentioned criminal conviction. This is because the nature of the criminal activity, that Petitioner used a position of trust and stole funds from clients, particularly those vulnerable due to age and/or physical handicap, was egregious conduct. Further, Petitioner testified that when confronted by IDS management about his activities, he initially denied it. Additionally, some of the funds Petitioner obtained from clients were obtained upon providing them providing them with false information as to his need for such funds. 44. Petitioner’s counsel queried this Tribunal as to how much time has to elapse between Petitioner’ criminal activity leading to the conviction for him to obtain an insurance agent’s license. Time alone is not the criteria nor is it the determining factor. Evidence of complete rehabilitation and of Petitioner’s current good character and trustworthiness is. 45. Letters of character submitted by Petitioner were submitted by Petitioner in support of his appeal. Those letters contain statements not made under oath, and were authored in 1998. The authors of those letters could not be cross-examined by Department’s counsel, the Administrative Law Judge did not have an opportunity to observe the demeanor of those individuals nor obtain information as to the facts and circumstances surrounding the drafting those letters. Thus, the letters are not persuasive evidence of Petitioner’s good character. 46. The fact that Petitioner now seeks licensure so as to engage in insurance business activity targeted to the same class of individuals who were previously his victims is not something that this Administrative Law Judge feels comfortable approving based upon Petitioner’s testimony as to his rehabilitation, without more. Thus the Administrative Law Judge is not persuaded based on Petitioner’s evidence that he should be provided an opportunity to engage in the business of insurance in the State of Arizona. CONCLUSIONS OF LAW 1. Petitioner has the burden of proof, and the standard of proof on all issues is by a preponderance of the evidence. Culpepper v. State, 187 Ariz. 431, 930 P.2d 508 (App. 1996). A "preponderance of the evidence is evidence which is of greater weight or more convincing than the evidence which is offered in opposition to it; that is, evidence which as a whole shows that the fact sought to be proved is more probable than not." Black's Law Dictionary, 1182 (6th ed. 1990). 2. The Minnesota Commissioner’s 1989 Consent Order revoking the Petitioner’s insurance and securities licenses and Petitioner’s 1990 conviction for Theft represent that Petitioner has a record of dishonesty in business or financial matters within the meaning of A.R.S. §20- 290(B)(2). 3. The Minnesota Commissioner’s 1989 Consent Order revoking the Petitioner’s insurance license and the Petitioner’s 1990 conviction for Theft represents that Petitioner has record of conduct under an insurance license showing him to be a source of injury and loss to, or repeated complaints by, the public or any insurer within the meaning of A.R.S. §20- 290(B)(4). 4.The Minnesota Commissioner’s 1989 Consent Order revoking the Petitioner’s insurance license established that Petitioner has a record of revocation of an insurance license in any jurisdiction within the meaning of A.R.S. §20- 290(B)(5). 5. Petitioner’s 1990 felony conviction constitutes a record of conviction by final judgment of a felony involving moral turpitude within the meaning of A.R.S. §20-290(B)(6). 6. Grounds exist to deny the Petitioner’s 1999 Application pursuant to A.R.S. §20-290(B)(2),(4),(5) and (6) 7. The Administrative Law Judge determines that Petitioner has not met his burden of showing by a preponderance of the evidence that the Department’s denial of the Second Application should be reversed or that, at this time, he is qualified to hold a life and disability insurance agent’s license: RECOMMENDED 0RDER Based on the above, it is recommended that the Department’s denial of the Second Application be affirmed.

Done this day, October 29, 2001.

______________________________________ Lewis D. Kowal Administrative Law Judge

Original transmitted by mail this ____ day of October 2001, , to:

Charles R. Cohen Department of Insurance ATTN: Curvey Burton 2910 North 44th Street, Ste. 210 Phoenix, AZ 85018

By ___________________________

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Office of Administrative Hearings 1400 West Washington, Suite 101 Phoenix, Arizona 85007 (602) 542-9826