ALJDEC decisions subject to certification as final

08F-BD020-BNK · Arizona Department of Financial Institutions · 2007-12-28

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

HEARING: December 10, 2007 APPEARANCES: Assistant Attorney General Craig Raby appeared on behalf of the Arizona Department of Financial Institutions; Cine Johnson did not appear at the hearing. ADMINISTRATIVE LAW JUDGE: Lewis D. Kowal _____________________________________________________________________ FINDINGS OF FACT 1. From October 2005 through September 2006, Cine Johnson (“Ms. Johnson”) was an escrow officer with LandAmerica Transnation Title, Inc. (“LandAmerica”). 2. At all times material to this matter, LandAmerica was licensed as an escrow agent by the Arizona Department of Financial Institutions (“Department”). 3. LandAmerica terminated Ms. Johnson’s employment on September 7, 2006, after an audit conducted by LandAmerica showed that Ms. Johnson had misappropriated funds from escrow accounts. 4. Connie Tang (“Ms. Tang”), Document Manager and Custodian of Records with Desert Schools Federal Credit Union (“Desert Schools”), testified that on April 10, 2004, Ms. Johnson was added as a co-owner on an account with Desert Schools. 5. The Department presented evidence obtained from documents subpoenaed from Desert Schools and documents received from LandAmerica. This evidence showed that for certain escrow accounts containing stale checks or checks for which a stop payment order had been issued, Ms. Johnson had caused checks to be issued from LandAmerica payable to Desert Schools, and have escrow funds applied as credits to her account at Desert Schools. 6. Ms. Tang confirmed that seven checks issued by LandAmerica between January 17, 2006 and August 16, 2006, were co-signed by Ms. Johnson and the funds were applied to Ms. Johnson’s account with Desert Schools. Of the seven checks, four of them appeared to have been presented to Desert Schools by Ms. Johnson. 7. Bill Rose (“Mr. Rose”), Branch Manger of American General Financial Services, testified that certain checks issued by LandAmerica between December 30, 2005 and August 31, 2006, were co-signed by Ms. Johnson, and the funds were applied to Ms. Johnson’s account with American General Financial Services. 8. The Department presented evidence obtained from documents subpoenaed from American General Financial Services and documents received from LandAmerica that showed that certain escrow accounts with LandAmerica contained stale checks or checks for which a stop payment order had been issued. Ms. Johnson caused checks to be issued from LandAmerica’s escrow payable to American General Financial Services. The funds from those escrow accounts were applied as a credit to Ms. Johnson’s account with American General Financial Services. 9. Jack Golab (“Mr. Golab”), LandAmerica’s County Manager for Maricopa and Pima Counties in Arizona, testified: a. Ms. Johnson was placed in a position of trust and acted as an escrow officer, which required her to deal with escrow accounts containing stale checks. b. Stale checks are checks that were written on escrow accounts that were not cashed by the payee, who was usually the buyer or seller named in the escrow account file. After a period of time, an escrow officer, such as Ms. Johnson, should investigate the stale checks and, if the payee could be located, the stale check would be voided or a stop payment order issued and the escrow officer would cause the check to be reissued. c. In this particular case, the internal audit revealed that checks Ms. Johnson caused to be issued that were made payable to certain entities such as Desert Schools and American General Financial Services, were being applied to Ms. Johnson’s accounts with the entities. d. The audit also revealed that checks were issued from escrow accounts made payable to persons not associated with the escrow accounts. Routinely, checks are made payable to the person or entity entitled to the funds from the escrow account. e. When Mr. Golab approached Ms. Johnson about the results of the audit, she stated that “she did not know what to say” and she was aware of what it looked like. f. Ms. Johnson was terminated because of her misappropriation of funds from LandAmerica’s escrow accounts. Ms. Johnson did not contest the termination. g. LandAmerica terminated Ms. Johnson because of her dishonesty and misappropriation of funds. 10. Wade Herman, an auditor with LandAmerica, testified that LandAmerica’s records show that during Ms. Johnson’s employment with LandAmerica, she stole $30,000.00 from escrow accounts and either had the funds applied to her accounts at various entities or had checks issued from escrow accounts to persons who were not named on or associated with the accounts. 11. The documentary evidence submitted by the Department corroborates the testimony of the Department’s witnesses. Consequently, the Administrative Law Judge concludes that the testimony of those witnesses, as set forth above, is found to be credible. 12. LandAmerica brought Ms. Johnson’s defalcation to the attention the Department. Based on the information presented by LandAmerica, the Department decided to institute disciplinary action against Ms. Johnson. This resulted in the instant hearing being brought before the Office of Administrative Hearings. 13. Robert Charlton (“Mr. Charlton”), Assistant Director of the Department, testified: a. The Department proceeds against a person under A.R.S. § 6-161 when the public or the industry licensed by the Department are at risk. b. In this particular case, there is a risk that Ms. Johnson could be employed by companies licensed by the Department and Ms. Johnson could be placed in a position of trust that would afford her an opportunity to misappropriate additional funds, which would negatively impact the licensed industry and the public. c. The exposure to such harm and Ms. Johnson’s personal dishonesty make it is necessary to ensure that Ms. Johnson is not able to be employed within the licensed industry. 14. The testimony of Mr. Charlton, as set forth above, is determined to be credible. 15. Ms. Johnson did not appear at the hearing and offered no evidence to refute or rebut the evidence presented by the Department. 16. The evidence of record established that funds from LandAmerica escrow accounts were misappropriated by Ms. Johnson. CONCLUSIONS OF LAW 1. Pursuant to A.R.S. Title 6, Chapter 7, the Superintendent of the Department is authorized and has the duty to regulate all persons engaged in the escrow agent business and is to enforce the statutes, rules and regulations applicable to escrow agents. 2. The weight of the evidence of record established that Ms. Johnson violated the provisions of A.R.S. § 6-834(A) by failing to maintain monies deposited in escrow to be delivered on the close of escrow or on any other contingency in a bank, savings and loan association doing business in the State of Arizona and by failing to keep escrow monies separate, distinct and apart from monies belonging to the escrow agent. 3. The weight of the evidence of record established that Ms. Johnson, as an employee of an escrow agent, violated the provisions of A.R.S. § 6- 841.01(A) by breaching a fiduciary duty owed as a trustee to the owner of monies received or collected and held in escrow and by knowingly and negligently commingling trust monies with the escrow agent’s monies or with monies held in any capacity. 4. The weight of the evidence of record established that Ms. Johnson’s conduct, as set forth above, constitutes acts, omissions, and practices which demonstrate personal dishonesty and unfitness to continue in office or to participate in the conduct of the affairs of any financial institution or enterprise within the meaning of A.R.S. § 6-161(A)(1) . Such conduct constitutes grounds for removal and the prohibition of Ms. Johnson from participating in any manner in the conduct of the affairs of any financial institution or enterprise within the meaning of A.R.S. § 6- 161(A)(1). 5. Ms. Johnson’s violation of the above-mentioned statutes constitute grounds for the removal and prohibition of Ms. Johnson from participating in any manner in the conduct of the affairs of any financial institution or enterprise pursuant to A.R.S. § 6-161(A)(6). 6. The Superintendent of the Department has the authority to order the removal and prohibition of Ms. Johnson from further participation in any manner as a director, officer, employee, agent or other person in the conduct of the affairs of any financial institution or enterprise pursuant to A.R.S. § 6-161. ORDER On the effective date of the Order entered in this matter, Ms. Johnson shall be removed and prohibited from further participation in any manner as a director, officer, employee, agent or other person in the conduct of the affairs of any financial institution or enterprise pursuant to A.R.S. § 6-161. Done this day, December 28, 2007.

______________________________________ Lewis D. Kowal Administrative Law Judge

Original transmitted by mail this ____ day of ____________, 2007, to:

Arizona Department of Financial Institutions Felecia Rotellini, Superintendent ATTN: Susan L. Ross 2910 North 44th Street, Suite 310 Phoenix, AZ 85018

By ___________________________ -----------------------

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