2nd Quarter 2005

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2nd Quarter 2005 Powered By Docstoc
					Office of Financial Regulation
           Quarterly Report to

  The Financial Services Commission

            Don B. Saxon
             June 30, 2005
                                               Office of Financial Regulation
             The Office of Financial Regulation (Office or OFR) is dedicated to safeguarding the private financial
           interests of the public by licensing, chartering, examining and regulating depository and non-depository
              financial institutions and financial service companies. The Office protects consumers from illegal
               financial activities of non-depository institutions and companies, while preserving the integrity of
                                         Florida’s markets and financial service industries.
                     Major Initiatives
                                                                                  Significant Events
Cosponsored OFR/North American Securities Administrators
Association (NASAA) 20th Annual Broker Dealer Training Session      Commissioner Saxon was appointed to the board of the
in Ft. Lauderdale. This year’s total attendance topped out at 200    Conference of State Bank Supervisors (CSBS) at its 2005
participants and guest speakers from 42 jurisdictions, including     Annual Meeting
Canada and the Bahamas.                                             Attended Florida Securities Dealers Association (FSDA)
In May, the Bureau of Finance Regulation hosted a joint             Quarterly Meeting
Nationwide Examiner Training School with the National Association   Attended NASAA Spring Conference
of Consumer Credit Administrators (NACCA).           The training   Spoke at OFR Finance Annual Examiner Training
program focused on Terrorism Financing, New Federal                 Spoke at NACCA Annual Conference
Regulations, Fraudulent Mortgage Transactions, and Working          Participated in NASAA/Central Registration Depository
Together as a Team.
                                                                     (CRD) Steering Committee Meeting
                158 Final Orders Issued                             Met with representatives from NASAA and the National
                      (4/01 – 06/30/2005)                            Association of Securities Dealers (NASD)
                                                                    Spoke at OFR Attorney/Investigator Training
                                                                    Attended NASAA/Licensing Review Committee (LRC)
                                5                                    Steering Meeting
                                                                    Spoke at the FSDA Annual Conference
           13                                Financial              Attended OFR/NASAA 2005 Broker Dealer Training
        Securities                          Institutions            Attended NASD Florida White Collar Roundtable Meeting
                                                                    Met with the Florida Bar Association Securities and
                                                                     Financial Services Committee
                                                                    Attended Federal Reserve Bank of Atlanta 2005 Interagency

                                                                                           Financial Institutions
                                     Ensure the safety and soundness of the state financial institution system. Support efforts
                                          to promote Florida’s domestic and international financial services industries.
                                                                                                                            Significant Events
                                                                                                   100% of new banks in Florida during FY 04-05 were state chartered
              Number of Institutions (as of June 30, 2005)                                         76% of customer satisfaction surveys returned rated OFR 2 or
                                                                                                    better on a scale of 1-5 (1 being highest, 5 being lowest)
                                                                                                   Institutions Under Formal Administrative Action: 6
200                                                                                                Application for Flagship Community Bank (Clearwater) filed April 15th
                                                                                                   Application for Gateway Bank of Florida (Ormond Beach) filed May 9th
150                                                                                                Application for First Bank of Palm Beaches (West Palm Beach) filed June 6th
                                                                                                   Application for Floridian Bank (Ormond Beach) filed June 27th
                                                                                                   Application for First American Bank of Florida (Naples) filed June 28th
                                    50                                                             Freedom Bank of America (St. Petersburg) opened April 4th
                                                                                    18             Seaside Bank & Trust (Orlando) withdrew application April 6th

                                                                                                   Freedom Bank (Bradenton) opened May 17th
         Credit Union        Foreign Bank Office       Bank                  Trust Company         South Bank of Florida (Orlando) opened June 20th

                             Financial Data (as of 3/31/05)                                                        Licensing & Chartering: April 1 - June 30, 2005

50                                                                                                   8
                                                                                                                                                 6   6
40                                                                                                   6
35                                                                                 Credit Unions
30                                                                                 Foreign Bank      4
                                                                                   Offices                                                                              3   Complete
20                                                                                                                          2            2   2             2
         16.2 16.9                                                                                   2
15                                  13.8 13.8
                                                                                                           1   1                                                 1
                                                                             5.5                                    0
5                                                                                                    0
                                                                                                           Acquisition          Branch       De Novo           Merger
             Assets                    Deposits                    Capital
                                                      Bureau of Financial Investigations
                    Conduct financial investigations into allegations of fraudulent and unlicensed activity.
                                                                                                       Significant Events
                                                               MIAMI - AAA Real Estate Investors Group, Inc. – On May 26, Harry Anthony Rolle entered a plea
                                                               agreement with Miami-Dade County State Attorney’s Office and plead guilty to 2 counts of mortgage fraud.
Fiscal Year 04-05 April 1 – June 30, 2005                      Rolle used fraudulent income and employment information to qualify applicants for mortgage loans and
                                                               misappropriated mortgage closing fees. Rolle was sentenced to 1 year in state prison and 3 years
Investigations Opened: 140                                     probation.Co-defendant, Gisela Sardina Otero, previously entered into a plea agreement and received 1 year
Investigations Closed: 277
                                                               ORLANDO - Xtreme Mortgage, Inc. - On April 28, Melissa Sant, principal mortgage broker at Xtreme
Enforcement Actions: 114 Cases Closed with Actions             Mortgage Associates, Inc., was arrested on charges of organized fraud, grand theft and mortgage fraud for
                                                               allegedly defrauding lenders out of $20 million. Sant allegedly submitted false income and employment
130 Years Prison and 117.7 Years Probation Imposed             verifications to lenders, in some instances utilizing fictitious employer she created. This joint investigation
                                                               with FDLE is being prosecuted by Office of Statewide Prosecutions (OSP).
******************************************                     PENSACOLA - Woodford Green, LLC - On May 12, David Mathieson, of Woodford Green, LLC, was
                                                               arrested on 3 separate charges of securities fraud. Search warrant was executed at his Pensacola residence
On-going investigations: 365 *                                 where numerous documents and computer were seized. Woodford Green is allegedly operating an
                                                               international Ponzi scheme involving over 6,000 investors, including 200 Florida residents. Woodford Green
* Note – Includes Preliminary Investigative Reviews            was originally located in Nashville, Tennessee, but moved to Pensacola after being shut down by the
                                                               Tennessee Attorney General’s Office. Investigators from Tennessee traveled to Pensacola to assist with
                                                               investigation and the execution of the search warrant.
          Open Investigations by Type                          TALLAHASSEE - Florida Auto Loans – On May 24, OFR and the Office of Attorney General (OAG)
        87                        83                           entered a Final Order and Settlement Agreement with Fast Payday Loans, formerly known as Florida Auto
     Finance -                   Other                         Loans (FAL), ending a 4 year investigation into its lending practices. FAL agreed to $3.5 million in restitution
    Unlicensed                                5                to thousands of Florida consumers who borrowed from the company. FAL has agreed to pay $200,000 in
                                          Banking -            investigative and legal costs to OFR and OAG and take steps to comply with the Money Transmitter Statutes.
                                                               TAMPA - Millennium Investment Trust, Inc. – On April 21, after a 2 month trial, sales agents Joseph
                                                       1       Cuciniello, Dean Sinibaldi, and Gene Tyrrell were convicted in U.S. District Court of conspiracy to commit
                                                   Banking -   securities fraud, sale of unregistered securities, mail fraud, and money laundering. Millennium Investment
                                                  Unlicensed   and related entity named Stonehedge offered 8 month promissory notes and fraudulently sold $18 million
                                                               worth of investments. The criminal prosecution evolved from a 1999 civil action by then Department of
                                                               Banking & Finance, which resulted in an injunction and receivership.
                                         Securities -
                                         Registered            WEST PALM BEACH - American Income Real Estate Investments, Inc. – On May 17, Thomas
                                                               Andrew Masciarelli and Steven Petrarca, insurance agents, were arrested on 1 count of Aggravated White
                                                               Collar Crime and 1 count of Fraudulent Investment Transactions. Masciarelli and Petrarca sold promissory
     Finance -
                                      142                      notes to 31 insurance clients, raising over $1 million. Investors were told the money would be used to
                                   Securities -                purchase undervalued properties to rehabilitate and sell for profit, and were guaranteed returns of 7-9%. The
                                  Unregistered                 investigation revealed the real estate was never purchased and money was used to operate a Ponzi scheme and
                                                               for personal use. This is a joint investigation with DFS Insurance Fraud and is being prosecuted by OSP.
                                                 Bureaus of Finance and Securities Regulation
                                           Regulate non-depository financial service companies & related industries; protect
                                       consumers from illegal financial activities; protect the investing public from investment &
                                                   securities fraud while facilitating capital formation in the State.
                                                                                                     Significant Events
                            Number of Exams
                                                                            Frank Michelin, former CEO and President of expelled brokerage firm L.H. Ross,
                 Securities            Finance     Money Transmitters       was arrested by the FBI on June 23, as he attempted to board an overseas flight at the
      80                                                                    Miami International Airport. Michelin was charged with Securities Fraud in connection
      70                                                                    with the sale of L.H. Ross’ $14 million self-funding private placement offering. This
      60                                                               69   case was worked jointly by the FBI and OFR examiners in 5 different regional offices.
      50                                                                    Additional charges against Michelin and other individuals affiliated with L.H. Ross may
      40                                                                    be filed in the near future.
                                  27                   32                   Utilizing a multi-regional examination team from the Bureau of Finance Regulation,
      20         26
                                                                            the Office was successful in obtaining a temporary injunction and an Agreed Order
      10                                                        12          Appointing Receiver for Robert Kurland Mortgage Company, Inc. signed on
       0                                                                    June 13. The Receivership was put in place due to violations of Chapter 494, FS
                       Opened                                 Closed        (Mortgage Broker and Mortgage Lending), lack of a principal to run the company, and
                                                                            concern over investor funds. The sole owner and employee, Robert Kurland, was
                                                                            deceased prior to commencement of the examination.

                          Number of Complaints                              The Bureau of Finance Regulation recently initiated a procedure to identify mortgage
                                                                            broker and lender licensees who are out of compliance with certain statutes and rules,
                 Securities        Finance        Money Transmitters
                                                                            (i.e., no principal broker, no quarterly reports filed). During the 4th quarter, the Bureau
           300                                                              issued 682 Notices of Non-Compliance against licensed Mortgage Lenders and
                                                                            Correspondent Lenders for failure to comply with Chapter 494, FS.
           250            284                           265

                                                                            The Office issued 56 Final Orders against various entities regulated by the Bureau of
                                                                            Finance Regulation, assessing 51 administrative fines totaling $106, 750.


            50                                    68
                                  11                              9
                         Opened                        Closed
                                                                                         Bureau of Regulatory Review
                    Review all applications to conduct business as a financial service company or securities
                  firm; review license applications for individuals; and impose licensing restrictions or deny
April 1 – June 30, 2005                           licensure based on findings.
Licenses Approved 87,431                                 Renewals, Filings & Public Record
Denied/Withdrawn       3,265                              Requests Received:        86,955                                         Significant Events
Licensed w/Restrictions 94
                                                                                                            The Bureau of Regulatory Review took action against 40 Retail Installment
                                       Applications Processed
                                                                                                             (Chapter 520, FS) entities for unlicensed activity resulting in administrative
       2,264                                                                     351
 Money Transmitters                                                         Pre-need Sales
                                                                                                             fines totaling $86,250. Of these 40 entities, 27 were against motor
                          52                                                                                 vehicle retail installment sellers and 13 were against retail installment sellers.
                  Securities Issues

                                                                                                            In May, the Bureau took action against Colonial Brokerage, Inc., a securities
                                                                                                             broker dealer firm, for operating unregistered branches in the state. Colonial
       12,846                                                                                                Brokerage was fined $25,000 and subsequently registered all branches with
       Finance                                                                                               the Office.

                                                                                                            On April 20, the Office implemented an on-line web application for
                                                                                                             individuals seeking a mortgage broker license. This service provides
                                                                                                             individuals the ability to complete the application form and pay their application
       Securities Dealers
                                                                                        Securities Agents
                                                                                                             and fingerprint card fees electronically through the Office’s website. It is
                                                                                                             expected this new technology will reduce the manual entry of application
                                                                                                             data by Office staff and allow for greater focus on the substantive review of
                                 Mortgage Broker Exam                                                        applications. Since its deployment, approximately 63% of Mortgage Broker
                                                      2004 - 2005                                            applicants have voluntarily elected to submit their applications via the web.
                                                                                                             This new process is critical to the efficient operations of the licensing process
3000                                                                                                         since the Office has experienced a 294% increase in mortgage broker
                                                                                                             applications over the last 4 years.

2000                                                                                                        The Bureau is continuing its efforts to move towards a “paperless”
       1,712   1,633   1,474   1,470    1,702   1,486   1,366    1,656   1,947   2,156 1,996     2,149       environment through use of imaging technology. During the 4th quarter, 57
                                                                                                             cubic feet of application and other required documents were imaged and

                                                                                                             subsequently destroyed. This has resulted in enhanced accessibility to data
       711       672   759     720      727     731     628      668     815     884       958   1,161       for staff statewide, as well as for the public.

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