ALJDEC decisions subject to certification as final

21A-035-FIN · Department of Insurance and Financial Institutions - Financial · 2022-02-03

IN THE OFFICE OF ADMINISTRATIVE HEARINGS

In the Matter of

Balagat, Francine,

Respondent.

No. 21A-035-FIN

ADMINISTRATIVE LAW JUDGE DECISION

HEARING: January 18, 2022 at 1:30 PM.

APPEARANCES: Assistant Attorney General Lynette Evans, Esq., appeared on behalf of the Department of Insurance and Financial Institutions (“Department”) with Jodi Bohr, Esq., Mirza Penez, and Richard Fergus as witnesses. No appearance(s) by or on behalf of Francine Balagat (“Respondent”).

ADMINISTRATIVE LAW JUDGE: Jenna Clark.

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Having heard the evidence and testimony and having considered the record in this matter, the undersigned Administrative Law Judge hereby makes the following Findings of Fact and Conclusions of Law and issues the following Recommended Order to the Director of the Department.

FINDINGS OF FACT

Background and Procedure

The Department was created and enabled by the State of Arizona to administer enumerated State laws by protecting the public interest through licensure and regulation of the consumer lender profession.

Quick Source Capital LLC (“QSC”) is a financial enterprise licensee of the Department. On May 16, 2013, the Department issued License No. BK-0923515 to QSC. The license is currently active, in good standing, and renewed through December 31, 2022.

On March 24, 2013, Respondent was hired by QSC as a Bookkeeper. Respondent was terminated on March 25, 2021, after her employer discovered Respondent’s embezzlement of approximately $294,000.00 between April 2019 and March 2021.

After the Department was notified of Respondent’s conduct, an investigation was opened to determine the confirmable facts.

On September 23, 2021, the Department referred this matter to the Office of Administrative Hearings (“OAH”), an independent state agency, for an evidentiary hearing on November 17, 2021. Per the October 06, 2021, Notice of Hearing the issues to be determined are whether grounds exist to prohibit Respondent from participating in any of the affairs of any financial institution or enterprise and to order any other remedy necessary or proper for the enforcement of statutes and rules relating to financial institutions and enterprises in the State of Arizona pursuant to Ariz. Rev. Stat. §§ 6-123 and 6-131.

Hearing Evidence

The Department called Jodi Bohr, Mirza Penez, and Richard Fergus as witnesses and submitted Exhibits 1-8. The Notice of Hearing was also admitted as its own exhibit. The substantive evidence of record is as follows:

QSC is a private mortgage bank that specializes in hard money loans. Its clientele is exclusively comprised of real estate property “flippers.”

Embezzlement of Money Orders

On or about March 24, 2021, while Respondent was away on vacation, one of QSC’s administrators discovered two (2) money orders from separate QSC borrowers in Respondent’s desk. Respondent’s name was written on the “Pay to the Order of line” on both money orders, and her signature was endorsed on each as well. Both money orders belonged to QSC.

Upon investigation it was discovered that neither money order had been deposited into any bank account owned by QSC. After QSC’s owner, Mr. Mepez, and corporate counsel, Ms. Bohr, were notified, a full scale investigation was launched to uncover the depth of Respondent’s conduct.

On March 25, 2021, when Respondent returned to work, she was confronted with the money orders and admitted to depositing the money into her personal bank account. Respondent initially claimed her embezzlement began in 2021, but later admitted it started in 2018.

Respondent provided her employer with bank statements from January 2018 through March 2021.

Upon review, QSC discovered that Respondent had deposited no less than 658 of its money orders into her personal checking account during that time period totaling $411,252.17

Based on additional missing money orders, Respondent was also presumed to have stolen approximately $73,673.60 from QSC.

Embezzlement of Cash

On March 25, 2021, while Ms. Bohr was interviewing Respondent about her theft of QSC’s money orders, a renter from one of Mr. Penez’s commercial properties, Fuad Dogic, came to the QFC office to pay his rent. Although Respondent normally collected rental payment in the course of her duties, Mr. Penez met with Mr. Dogic because Respondent was otherwise indisposed. It was at that time Mr. Penez was first informed that for the past two years Respondent had instructed all of Mr. Penez’s renters to make their monthly payments in cash, even though it was company policy to only accept payments electronically.

Mr. Penez confronted Respondent with Mr. Dogic’s cash payment. After initially denying any cash theft, Respondent admitted that she did not always deposit cash rental payments into ARH’s bank account(s).

Ultimately, it was determined that in just under two years Respondent stole approximately $20,200.00 in cash payments from ARH.

Promissory Note

On April 07, 2021, Respondent signed a Promissory Note for the repayment of $290,000.00 to QSC for “theft, embezzlement, and fraud.”

Although Respondent promised to make monthly $500.00 payments to QSC beginning June 05, 2021, and relinquish all State and Federal tax returns until the debt was repaid in full, Respondent has made no such payment(s) to date.

Department’s Additional Concerns

Although the Arizona Attorney General’s office was notified of Respondent’s conduct on or about September 22, 2021, it remains unclear whether there are any criminal charges pending against Respondent.

Respondent is currently employed by another mortgage banker that is a licensee of the Department. Respondent possess a serious risk to her new employer, and may also pose a risk to the public.

Although none of QSC’s or ARH’s customers were negatively impacted by Respondent’s conduct, Mr. Penez’s company suffered a loss of over $500,000.00 due to Respondent’s actions.

Respondent has not had any contact with Mr. Penez, QSC, or ARH in an attempt to honor the Promissory Note she signed, or make alternative repayment arrangements.

In closing, the Department asked the Tribunal to issue a decision banning Respondent from participating in any of the affairs of any financial institution or enterprise under its jurisdiction for the next thirty (30) years, through and until 2052.

CONCLUSIONS OF LAW

The Department was created and enabled to administer certain laws of the State of Arizona by protecting the public interest through the regulation of financial institutions and enterprises.

The Director of the Department is vested with the authority to regulate all persons engaged in mortgage banking and has the duty to enforce statutes and rules relating to these activities. The matter was properly brought before OAH for adjudication.

The Notice of Hearing the Department mailed to Respondent’s address of record is sufficient, and Respondent is deemed to have received notice of the hearing in this matter. Because the Department mailed all correspondence to Respondent in the same manner and failed to receive any mail returned as undeliverable, Respondent is deemed to have received all correspondence regarding this matter from the Department as well.

The Department bears the burden of proof to establish that cause to sanction Respondent’s license by a preponderance of the evidence. Respondent bears the burden to establish factors in mitigation of the penalty and affirmative defenses by the same evidentiary standard.

“A preponderance of the evidence is such proof as convinces the trier of fact that the contention is more probably true than not.” A preponderance of the evidence is “[t]he greater weight of the evidence, not necessarily established by the greater number of witnesses testifying to a fact but by evidence that has the most convincing force; superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of the issue rather than the other.”

Ariz. Rev. Stat. § 6-161 provides, in pertinent parts, that the Department has the authority to prohibit a person from participating in any of the affairs of any financial institution or enterprise if the person engages in any of the following conduct:

(1) Any act, omission or practice in any business transaction which demonstrates personal dishonesty or unfitness to continue in office or participate in the conduct of the affairs of the financial institution or enterprise.

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(4) A conviction of a crime, an essential element of which is fraud, misrepresentation or deceit.

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(6) Any violation of this title relative to the financial institution or enterprise.

(7) Any act, practice or transaction that in any way would jeopardize the safety and soundness of the financial institution.

Ariz. Rev. Stat. § 6-947 provides, in pertinent parts, as follows:

(L) A mortgage banker shall not make a false promise or misrepresentation or conceal an essential or material fact in the course of the mortgage banker business.

(M) A mortgage banker shall not fail to truthfully account for the monies belonging to a party to a mortgage loan or mortgage banking loan transaction of fail to disburse monies in accordance with his agreements.

The material facts in this case are undisputed.

It is undisputed that Respondent was permitted to engage in mortgage banking activities under her employer QSC’s license, and that while doing so she converted or misappropriated over $500,000.00 in funds intended for QSC and/or ARH for her own personal use without her employer’s permission. It is also undisputed that when originally presented with evidence of her wrongdoing, Respondent did not tell the truth and take accountability for her actions. It is further undisputed that Respondent has not remit any payments pursuant to her signed Promissory Agreement.

Respondent’s refusal to participate in this duly noticed hearing is a factor in aggravation, and evinces her unwillingness to submit to regulation by the Department.

Respondent’s dishonest conduct demonstrates her unfitness to participate in the affairs of any financial institution or enterprise within the State of Arizona. It also poses the potential for great harm to her current and future employers.

Because the Department has established violation(s) of Ariz. Rev. Stat. § 6-161, they have also established grounds to prohibit Respondent from participating in any of the affairs of any financial institution or enterprise in the State of Arizona.

However, due to the severity of Respondent’s conduct and the lack of remorse she displayed throughout the course of QSC’s investigation, as well as a lack of mitigating evidence in the record, the undersigned is not inclined to grant the Department’s request to bar Respondent from participating in any of the affairs of any financial institutions or enterprises for thirty (30) years.

RECOMMENDED ORDER

Based on the foregoing,

IT IS RECOMMENDED that on the effective date of the Final Order in this matter, Respondent Francine Balagat be immediately and indefinitely prohibited from participation in the affairs of any financial institution or enterprise within the State of Arizona.

IT IS FURTHER RECOMMENDED that this Final Order shall not be vacated until thirty (30) years from its effective date and sufficient proof is provided to the Department that Respondent fulfilled the terms of the Promissory Note she signed on April 07, 2021.

In the event of certification of the Administrative Law Judge Decision by the Director of the Office of Administrative Hearings, the effective date of the Final Order will be 40 days from the date of that certification.

Done this day, February 03, 2022.

Office of Administrative Hearings

/s/ Jenna Clark

Administrative Law Judge

Transmitted electronically to:

Evan G. Daniels, Director

c/o Deian Ousounov, Regulatory Legal Affairs Officer

Department of Insurance and Financial Institutions - Financial