STATE OF MICHIGAN

DEPARTMENT OF INSURANCE AND FINANCIAL SERVICES

Before the Director of Insurance and Financial Services

Department of Insurance and Financial Services Petitioner

v Docket No. 15-050943 Case No. 15-966-L

Radwaan A. Khazaal and

Active Title Agency, Inc. Respondents

lss~d and entered this~ day of August 2016

by Patrick M. McPharlin Director

FINAL DECISION

I. BACKGROUND

Respondent Radwaan A. Khazaal is a resident insurance producer w ith a qualification in

title insurance. Respondent Acti ve Title Agency, Inc. is a resident insm ance producer agency

with a qualification in title insurance. Respondent Khazaal is the Designated Responsible

Licensed Producer, resident agent, and authori zed representati ve of Active Title Agency, Inc. as

required under Section 1205(2) o f the Michigan Insurance Code (Code), MCL 500.1 205(2). At

all times pertinent to this case, Respondent Khazaal conducted business through Active Title

Agency, Inc. Respondent Khazaal is the onl y licensed indiv idua l affi liated with Acti ve Title

Agency, Inc.

This matter concerns an enforcement action taken by the Department of Insurance and

Financial Serv ices (DlFS) staff against the Respondents alleging violations of the Code MCL

500.100, et seq. A hearing was held on May 10, 2016. The Respondents were represented by

counsel at the hearing. A Proposa l for Decision (PFD) was issued June 15, 2016. Neither party

fil ed exceptions to the PFD.

II. FINDINGS OF FACT ANO CONCL USIONS OF LAW

Except as described belovv, the Proposal for Decision is adopted.

The Director does not adopt that portion of the PFD's Conclusions o f Law beginning

with the last paragraph on page 12 (" Petitioner argued on the reco rd .. . . ") a nd ending with final

Docket No. 15-050943 Case No. 15-966-L Page2

paragraph of the Conclusions of Law on page 13 ("Under the statutes cited ...."). That portion of the PFD concerns the relevance of a "I 033 waiver" to this enforcement case.

As a part of his federal court sentence Respondent Khazaal was prohibited from acting as a fiduciary of a bank or title company. Respondent Khazaal requested from DIFS a waiver of this restriction (a "1033 waiver" described in the federal statute). The request was denied by DIFS in a letter dated July 23, 2015 (Hearing Exhibit 8).

The waiver request and denial are not controlling with respect to the present enforcement case. The central issue in this administrative hearing is whether the Respondents violated the Code and, if so, what disciplinary measures should be imposed. This matter must be resolved independently of the approval or denial of a 1033 waiver.

Section 1239(1) of the Code, MCL 500.1239(1), provides:

In addition to any other powers under this act, the [Director] may place on probation, suspend, or revoke an insurance producer's license or may levy a civil fine under section 1244 or any combination of actions, and the commissioner shall refuse to issue a license under section 1205 or 1206a, for any 1 or more of the following causes:

* * * (f) Having been convicted of a felony.

(g) Having admitted or been found to have committed any insurance unfair trade practice or fraud.

(h) Using fraudulent, coercive, or dishonest practices or demonstrating incompetence, untrustworthiness, or financial irresponsibility in the conduct of business in this state or elsewhere.

Respondent Khazaal was convicted of the felony of Misprision of Bank Fraud in connection with a title insurance transaction in violation of Section 1239(1)(f) of the Code. Specifically, Respondent Khazaal concealed his knowledge of the fact that no funds had been produced by the purchaser at the closing of a home sale. The concealment of this information from the proposed lender, a California bank, allowed the transfer of ownership and loan funding to proceed. Had the bank been aware of the true facts, the loan would not have been approved and the transaction would not have closed. Because the buyer had failed to provide the required $726,326.91 to support the closing and did not have sufficient income to meet the mortgage payment, the property went into foreclosure and the bank suffered a financial loss.

Respondent Khazaal's conduct constitutes an insurance fraud in violation of Section 1239(l)(g) of the Code. Respondent Khazaal's federal court plea establishes that the Respondent

Docket No. 15-050943 Case No. 15-966-L Page 3

acted intentionally to conceal hi s knowledge of the bank fraud. Further, h is conduct

demonstrates that he lacks the trustworthiness required o f a title insurance agent, in violation of

Section 1239(1 )(h) of the Code. His unlawful conduct was not remote fro m his work as a title

agent. Rather, his untrustworthy actions occurred during a transaction invo lving title insurance.

Based on these violations, revocation of Respondent Khazaal's insurance producer license is

appropriate .

Section 1239(3) of the Code, MCL 500. 1239(3), provides:

The license of a business entity may be suspended, revoked, or refused if the [Director] finds, after hearing, that an individual licensee's violation was known or should have been known by I or more of the partners, offi cers, or managers acting on behalf of the partnership or corporation and the violation was neither reported to the [Director] nor corrective action taken.

Respondent Active Title Agency, Inc. was obligated to report Respondent Radwaan

Khazaal 's unlawfu l conduct to the Director. Respondent Active Title Agency, Inc. fa iled to

report that conduct to the Director. Respondent Acti ve Title Agency, Inc. vio lated Section

1239(3) of the Code. Based on thi s violation, revocation of Respondent Active Title Agency,

lnc's agency license is also appropriate.

Ill. ORDER

Effecti ve on the date of this Order:

1. The insurance producer license of Respondent Radwaan Khazaal is revoked;

2. The agency license of Respondent Acti ve Title Agency is revoked.

~ Director

v

STATE OF MICHIGAN MICHIGAN ADMINISTRATIVE HEARING SYSTEM

IN THE MATTER OF: Docket No.: 15-050943

Department of Insurance and Financial Case No.: 15-966-L Services,

Petitioner Agency: Department of Insurance and Financial Services

Radwan A. Khazaal Active Title Ag ency, Case Type: DIFS-lnsurance Inc. ,

Respondent Filing Type: Appeal

Issued and entered this 1S =~, day of June, 2016

by : Thomas A. Halick Administrative Law Judge

PROPOSAL FOR DECISION

PROCEDURAL HISTORY

This proceeding under the Michigan Insurance Code of 1956, being 1956 PA 218, as amended, MCL 500.100 et seq. (hereafter "Insurance Code"), commenced with the issuance of a Notice of Hearing dated September 9, 2015, schedu ling a contested case hearing concerning a Complaint issued by the Staff of the Department of Insurance and Financial Services, Petitioner, regarding the resident insurance producer license of Radwan A. Khazaal and Active Tile Agency, Respondents.

The l\Jotice of Hearing was issued pursuant to a Request for Hearing received by the Michigan Administrative Hearing System on September 3, 20 15, and an Order Referring Complaint for Hearing, dated September 1, 2015, issued by Teri L. Morante, Chief Deputy Commissioner. The Notice of Hearing scheduled a hearing date of October 13, 2015.

On October 7, 2015, Administrative Law Judge ("ALJ") Renee A. Ozburn entered an Order Converting Hearing to Telephone Pre-Hearing Conference.

On October 15, 20 15, ALJ Ozburn entered an Order Denying Motion for Summary Disposition which also scheduled the hearing for December 2, 2015.

15-050943 Page 2

On December 11, 2015, ALJ Andre Friedlis entered an Order Reassigning Case and Granting Adjournment which rescheduled the hearing for February 4, 2016.

On January 13, 2016, ALJ Halick entered an Order Granting Adjournment upon Respondent's unopposed motion and rescheduled the hearing.

On May 10, 2016, the hearing was held as scheduled. Conrad Tatnall, Attorney, appeared as representative for Petitioner. Also present was Debra Ganja, Deputy General Counsel for Department of Insurance and Financial Services. Edward C. Wishnow, Attorney, appeared as representative for Respondent.

Petitioner called no witnesses.

The parties offered the following, stipulated exhibits that were admitted into evidence:

1. Exhibit No. 1: Licensed Individual Full History; Khazaal, Radwan.

2. Exhibit No. 2: Licensed Individual Full History: Active Title Agency, Inc.

3. Exhibit No. 3: Rule 11 Plea Agreement, United Stated District Court.

4. Exhibit No. 4: Stipulation and Order Amend Order Setting Conditions of Release (Doc 26); United States District Court.

5. Exhibit No. 5: Respondent's self-report via email to DIFS of his October 30, 2012, felony conviction, Plea Agreement, and the March 2013, Stipulation and Order to Amend Order Setting Conditions of Release.

6. Exhibit No. 6: Notice of Opportunity to Show Compliance and Respondent's Answer.

7. Exhibit No. 7: Application for DIFS' Written Consent to Engage in the Business of Insurance and Addendum.

8. Exhibit No. 8: Director's Denial of Respondent's application for Written Consent to Engage in the Business of Insurance.

Respondent testified on his own behalf. Respondent also called Mr. Walter W. Quillico as a witness. Mr. Quillico is the President of Home Title Connect LLC, a Michigan Limited Liability Company.

15-050943 Page 3

ISSUES AND APPLICABLE LAW

The issues presented in the Complaint are whether sanction(s) are properly imposed under Section 1244(1 )(a)-(d) on Respondent's license based on violation of Sections 1239(1 )(f)&(h) of the Insurance Code, supra, which provide as follows:

Sec. 1239. (1) In addition to any other powers under this act, the

commissioner may place on probation. suspend. or revoke an insurance producer's license or may levy a civil fine under section 1244 or any combination of actions, and the commissioner shall refuse to issue a license under section 1205 or 1206a. for any 1 or more of the following causes: * * *

* * *

(f) Having been convicted of a felony.

***

(h) Using fraudulent, coercive, or dishonest practices or demonstrating incompetence, untrustworthiness, or financial irresponsibility in the conduct of business in this state or elsewhere. MCL 500.1239(1)(a),{c),(f)&(h). (Emphasis supplied).

Sec. 1244. (1) If the commissioner finds that a person has violated this

chapter, after an opportunity for a hearing pursuant to the administrative procedures act of 1969, 1969 PA 306, MCL 24.201 to 24.328, the commissioner shall reduce the findings and decision to writing and shall issue and cause to be served upon the person charged with the violation a copy of the findings and an order requiring the person to cease and desist from the violation. In addition, the commissioner may order any of the following:

(a) Payment of a civil fine of not more than $500.00 for each violation. However, if the person knew or reasonably should have known that he or she was in violation of this chapter, the commissioner may order the payment of a civil fine of not more than $2,500.00

15-050943 Page4

for each violation. An order of the comm1ss1oner under this subsection shall not require the payment of civil fines exceeding $25,000.00. A fine collected under this subdivision shall be turned over to the state treasurer and credited to the general fund of the state.

(b) A refund of any overcharges. (c) That restitution be made to the insured or other

claimant to cover incurred losses, damages, or other harm attributable to the acts of the person found to be in violation of this chapter.

(d) The suspension or revocation of the person's license. MCL 500.1244(1 )(a)-(d).

SUMMARY OF TESTIMONY

Radwan A. Khazaal

Respondent Khazaal took the witness stand and was placed under oath. Mr. Khazaal is the president of Active Title Agency located in Dearborn Heights, Michigan.

Mr. Khazaal acknowledged that he pied guilty to the federal crime of misprision of a felony and was sentenced to one year probation, which has been successfully completed. He currently pays $400 per month pursuant to an order of restitution issued by Federal District Judge Battani.

He verified that on March 13, 2013, United States District Judge Marianne 0. Battani issued an order prohibiting him from acting as a fiduciary of a bank or title company. However, he was permitted to engage in transactions that do not involve loans from any financial institutions or lending institution of any kind ("cash deals"). Mr. Khazaal has abided by the limitations of that order from March 13, 2016, until the present.

Since 2008, Mr. Khazaal has worked for Mr. Quillico of Title Connect located in Farmington Hills and currently works for him as an independent contractor. Title Connect has an office in Dearborn Heights were Mr. Khazaal works. Mr. Khazaal only handles cash transactions. He does not deal with financial institutions and does not issue title policies. The limitations on his license ceased to have any legal effect as of the date of sentencing, but he has voluntarily complied with those limitations since that date. All of his business is handled through Title Connect.

With regard to the events of May 3, 2007, Mr. Khazaal testified that the real estate closing lasted approximately one hour. His decision to proceed with the transaction was a lapse of judgment on his part. The buyer was supposed to bring a check for $726,326.91 to the closing, but he did not have the money. The seller was willing to

15-050943 Pages

close the deal without payment. However, in order to induce the lender to fund the loan, it was necessary to fax a copy of the check to the lender, which led the lender to believe that the funds had transferred from the buyer to the seller. Mr. Khazaal did not believe it was a fraudulent check, but he did know that it would not be cashed. The actual check was not present in his office, but rather the buyer's wife faxed a copy of the check to the office. The buyer filled out the faxed check, making it payable to the seller as a down payment. The HUD statement shows that the buyer gave a direct check to the seller, and the buyer brought zero dollars to the closing. Mr. Khazaal knew that no money was paid to the seller. Mr. Khazaal was responsible for the HUD statement.

Mr. Khazaal assisted in closing the transaction because the seller did not object to not receiving the funds, "the buyer and seller were both sitting at the table, and they agreed to it ...." Mr. Khazaal did not know the buyer but he was aware that the seller owned a large title company which led him to believe that it was a legitimate deal. This was his first transaction with these sellers.

At the time of the transaction, he believed that the buyer was legitimate, and that he intended to live in the house, but that he did not have the money to pay the down payment.

As of the date of the hearing and presently, Mr. Khazaal realizes that the whole transaction between the buyer and seller was fraudulent, from the building of the house until the closing. The proceeds of the loan were distributed to various people involved in the transaction. However, Mr. Khazaal received only the usual fees charged to close a real estate transaction. He did not receive any portion of the proceeds of the loans.

Mr. Khazaal did not believe that the owner of the large title company (the seller) would not engage in a fraudulent transaction.

Walter Quillico

Walter Quillico is an attorney and owner of Title Connect, a title insurance company. He has known Mr. Khazaal for approximately eight years. Mr. Khazaal markets and brings in business for Title Connect. He closes cash transactions only. Mr. Quillico has had a good working relationship with Mr. Khazaal with no complaints. He believes Mr. Khazaal has complied with all of his company policies. Title Connect audits its files on a monthly basis.

All title work is handled by Title Connect at the main office; the branch offices do not handle the title work or any funds. Mr. Khazaal has no access to escrow funds and cannot wire funds or cut checks.

15-050943 Page6

Mr. Quillico understands that Mr. Khazaal currently is licensed by the State of Michigan to engage in the business of title insurance, and he needs that license it to continue working. He believes that the license constitutes permission from the State to engage in business.

He did not know that Mr. Khazaal had submitted a "1033 waiver" request, which was denied.

FINDINGS OF FACT

Based on the entire record in this matter, including the witness testimony and admitted exhibits, the following findings of fact are established by stipulation of the parties:

1. At all relevant times, Radwan A. Khazaal (hereinafter Respondent Khazaal) was an active resident insurance producer with a qualification in Title and his license is currently active. Respondent Khazaal is the Designated Responsible Licensed Producer (DRLP), resident agent and authorized representative for Active Title Agency, Inc. See Exhibit 1.

2. At all relevant times, Active Title Agency, Inc. (hereinafter Respondent Active Title) was an active resident insurance producer agency with a qualification in Title and its license is still active. See Exhibit 2.

3. On October 30, 2012, Respondent Khazaal pied guilty to Count 1 of a federal indictment, Misprision of Bank Fraud, a felony. Respondent Khazaal was sentenced to one year probation, fined $100, and ordered to pay restitution in the amount of $1,975,000. See Exhibit 3.

4. The elements of the offense of Misprision of Bank Fraud, 18 U.S.C. Section 4, are:

a. Defendant had knowledge of the actual commission of a felony cognizable by a federal court; and

b. Defendant affirmatively acted to conceal the felony, and did not make it known to a judge or other person with civil or military authority conferred by the United States as soon as possible. See Exhibit 3.

5. As part of his plea, Respondent Khazaal pied to the following (Factual Basis Plea):

15-050943 Page7

a. On May 3, 2007, D. M. sold the property at in Novi, Michigan to a straw buyer, B.C., whose credit worthiness was falsely inflated to allow him to obtain mortgage loans from Washington Mutual Bank (WaMu) to complete the purchase. The transaction was subsequently closed by Radwan Khazaal, a title company agent in Dearborn Heights, Michigan. Given the many misrepresentations, B.C. ultimately defaulted on the loans, which he never had the ability to repay, and the home eventually went into foreclosure.

b. The HUD 1 settlement statement dated 5/3/07 showed that the property was sold by D. and K. M. for $3,250,000 to B.C., who obtained two mortgages in the amounts of $2,437,500 and $162,500 from WaMu (now known as Chase Bank).

c. The HUD 1 settlement statement also shows that B.C. brought $726,326.91 to the closing as a down payment. The sellers, D. and K. M. received $925,819.96 noted on the HUD 1 as "cash to seller."

d. According to the supporting documents submitted to the lender, the $726,326.91 down payment was purported to be a personal check (#4628) from B.C. made payable to D. M.

e. However, check #4628 was never cashed and the relevant account never had enough funds to cover that check. In fact, there was never a check exchanged at closing, rather, a copy of that check was faxed to the closing company and filled out to make it appear as a copy of an actual check. Once filled out, this check was faxed by the closing agent, Khazaal, from Michigan to the lender in the State of California in order to get the loan approved. Khazaal knew that the $726,326.91 down payment was fictitious and was meant to induce the lender WaMu to fund the loan. Nonetheless, instead of stopping the transaction and/or reporting it to the appropriate authorities, Khazaal allowed it to proceed. See Exhibit 3.

6. Respondent Khazaal failed to report his conviction within 30 days of the initial pretrial hearing date.

7. As a licensee, Respondent Khazaal knew or had reason to know that Section 1247(2) of the Code, MCL 500.1247(2), states that:

15-050943 Page 8

(2) Within 30 days after the initial pretrial hearing date, an insurance producer shall report to the commissioner any criminal prosecution of the insurance producer taken in any jurisdiction. The report shall include a copy of the initial complaint filed, the order resulting from the hearing, and any other relevant legal documents.

8. On March 13, 2013, United States District Judge Marianne 0. Battani ordered that the Order Setting Conditions of Relief for Respondent Khazaal be amended by adding the following language after the words ··Defendant will not act as the fiduciary of a bank or title company":

The defendant may, in his capacity with Active Title Agency, engage in transactions that do not involve loans from any financial institutions or lending institution of any kind ("cash deals"), and, to the extent that funding for past transactions has already been legally obtained and the transactions are "in the pipeline" of Active Title Agency or Title Connect, the defendant may assign an employee to complete those transactions by disbursing funds to disclosed parties to the transactions. See Exhibit 4.

9. On May 17, 2013, Respondent Khazaal reported, via an email to DIFS Staff, his October 30, 2012, felony conviction, Plea Agreement, and the March 13, 2013, Stipulation and Order to Amend Order Setting Conditions of Release. See Petitioner's Exhibit 5.

10.As a licensee, Respondent Khazaal knew or had reason to know that Section 1239(1 )(h) of the Code, MCL 500.1239( I )(h), states that:

(1) In addition to any other powers under this act, the commissioner may place on probation, suspend, or revoke an insurance producer's license or may levy a civil fine under section 1244 or any combination of actions, and the commissioner shall refuse to issue a license under section 1205 or 1206a, for any 1 or more of the following causes:

* * *

15-050943 Page 9

(h) Using fraudulent, coercive or dishonest practices or demonstrating incompetence, untrustworthiness, or financial irresponsibility in the conduct of business in this state or elsewhere.

11. By affirmatively acting to conceal B.C.'s fraudulent conduct as described above, Respondent Khazaal used fraudulent and dishonest practices, and demonstrated untrustworthiness and financial irresponsibility in the conduct of business in this state, thereby providing justification for sanctions.

12. Respondent Khazaal provided justification for sanctions, pursuant to Section 1239(1)(h) of the Code, MCL 500.1239(1 )(h), by concealing the balance of the two bank accounts and providing fraudulent verification of the deposit statements that were submitted with the corresponding loan packages.

13. As licensees, Respondents knew or had reason to know that Section 1239(3) of the Code, MCL 500.1239(3), states that:

(3) The license of a business entity may be suspended, revoked, or refused if the commissioner finds, after hearing, that an individual licensee's violation was known or should have been known by 1 or more of the partners, officers, or managers acting on behalf of the partnership or corporation and the violation was neither reported to the commissioner nor corrective action taken.

14. Respondent Active Title has provided justification for sanctions pursuant to Section 1239(3) of the Code, MCL 500.1239(3) because one or more of its officers or managers either knew or should have known of Respondent Khazaal's conduct and should have reported it to the Director and/or taken corrective action, but did neither.

15. Based upon the actions listed above, Respondents have committed acts that provide justification for the Director to order the payment of a civil fine, and/or other licensing sanctions, including revocation of licensure.

16. On August 4, 2014, a Notice of Opportunity to Show Compliance was mailed by first class mail to Respondents at the following addresses on file:

Mr. Radwan Khazaal 22028 Ford Road Dearborn Heights. Ml 48127

15-050943 Page 10

Active Title Agency, Inc. c/o Radwan Khazaal 22028 Ford Road Dearborn Heights, Ml 48127-2418

Mr. Radwan Khazaal 22920 Hollander St. Dearborn, Ml 48128-1369

17. Respondent Khazaal replied to the NOSC, but failed to show compliance with the Code. See Exhibit 6.

18. Respondent's knew or had reason to know that Section 1239(1)(t) of the Code, MCL 500.1239(1 )(t), states that:

(1) In addition to any other powers under this act, the commissioner may place on probation, suspend, or revoke an insurance producer's license or may levy a civil fine under section 1244 or any combination of actions, and the commissioner shall refuse to issue a license under section 1205 or 1206a, for any 1 or more of the following causes:

***

(f) Having been convicted of a felony.

19. In addition, Respondents knew or had reason to know that 18 USC Section 1033, in relevant part, prohibits a person from participating in the business of insurance if he she has been convicted of a felony that involves dishonesty or a breach of trust. The statute further allows a person who has been convicted of such a felony to seek a waiver of prohibition.

20. On or about May 1, 2015, Respondent Khazaal forwarded to DIFS for review an application for Written Consent to Engage in the Business of Insurance Pursuant to 18 USC Sections 1033 and 1034 along with attachments (1033 waiver). See Exhibit 7.

21. On July 23, 2015, the Director denied Respondent Khazaal's application for a 1033 waiver. See Petitioner 's Exhibit 8

15-050943 Page 11

22. Respondent Khazaal did not appeal the denial despite being advised that the denial was a final agency decision that could be appealed in accordance with Section 631 of the Revised Judicature Act, MCL 600.631 and that his appeal rights were time sensitive.

CONCLUSIONS OF LAW

As the complaining party, Petitioner has the burden to prove the truth of the factual and legal allegations set forth in the Complaint by a preponderance of evidence. As the Michigan Supreme Court has stated, "[p]roof by a preponderance of the evidence requires that the fact finder believe that the evidence supporting the existence of the contested fact outweighs the evidence supporting its nonexistence." Blue Cross and Blue Shield of Michigan v Milliken, 422 Mich 1; 367 NW2d 1 (1985).

Pursuant to Section 1239(1) of the Insurance Code, supra, the Commissioner (now Department Director per Executive Order 2013-1) may sanction a license of a resident insurance producer for "having been convicted of a felony" and/or "[u]sing fraudulent, coercive, or dishonest practices or demonstrating incompetence, untrustworthiness, or financial irresponsibility in the conduct of business in this state or elsewhere." MCL 500.1239(1 )(f)& (h).

At the hearing, Petitioner moved for a voluntary dismissal of the claim in the Complaint alleging a violation of MCL 500.1247(2) [failure to report prosecution for a felony within 30 days of the first scheduled pretrial conference]. That claim is dismissed.

Based on the above findings of fact, Petitioner has shown by a preponderance of evidence that Respondent violated Section 1239(1 )(h) of the Insurance Code as alleged in the Complaint. The record evidence shows that Respondent knowingly engaged in a fraudulent and dishonest practice demonstrating untrustworthiness or financial irresponsibility in the conduct of business, and was convicted of a felony. Therefore, Petitioner has established that the provisions of MCL 500.1239(3) properly apply for sanction upon Respondent's resident insurance producer license under MCL 500.1244, supra.

At the hearing, Petitioner argued that Respondents are precluded from engaging or participating in the business of insurance because Respondent denied the application for written consent to engage in the business of insurance, under 18 USC 1033, which provides as follows:

(2) A person described in paragraph (1 )(A) may engage in the business of insurance or participate in such business if such person has the written consent of any insurance regulatory official authorized to regulate the insurer, which consent specifically refers to this subsection. 18 USC 1033(e)(2).

15-050943 Page 12

On May 1, 2015, with assistance of legal counsel, Respondent Khazaal submitted an application for written consent to engage in the business of insurance. On July 23, 2015, Respondent provided written notice to Respondent Khazaal denying his application, citing his criminal conviction for misprision of bank fraud, in violation of 18 USC 4, and also Itani v Ashcroft, 298 F3d 1213 (11th Cir. 2002). In Itani, the court ruled that federal misprision of a felony is a crime involving moral turpitude and dishonesty. The waiver was denied because of the "direct correlation of the conviction to the field of insurance, the grievous action, dishonesty and breach of trust" which made the "standard of rehabilitation ... exceptionally high." Exh. 8. Further, Respondents did not prove to DIFS that they had a propensity to serve the public in a fair, honest, and trustworthy manner. Exh. 8.

The notice informed Respondent Khazaal that the denial of his application was a final decision that could be appealed pursuant to MCL 600.631, and further that "You may wish to seek legal counsel as your appeal rights may be time sensitive." Exh. 8. Respondents submitted the application for a 1033 waiver with the assistance of legal counsel. Exh. 7.

MCL 600.631 authorizes an appeal from a final agency decision. The appeal is governed by the Michigan Court Rules. The time limit for filing an appeal as of right is jurisdictional. See MCR 7 .104(a). MCR 7 .119 "governs an appeal to the circuit court from an agency decision where MCL 24.201 et seq. applies." An appeal of right must be filed within 60 days of the agency decision and a late appeal by leave must be filed no later than six months after the decision. It is undisputed that no appeal was filed within the time frames provided by the court rules. The 60-day time period for filing an appeal of the Director's decision expired on September 21, 2015.

On September 1, 2015 (prior to the expiration of the appeal period for the 1033 application) Petitioner filed an Administrative Complaint against Respondents, seeking suspension or revocation of Respondents' license, based on an alleged violation of MCL 500.1239(1 )(h), which prohibits "fraudulent, coercive, or dishonest practices or demonstrating incompetence, untrustworthiness, or financial irresponsibility in the conduct of business ... ."Id. At the hearing, DIFS' counsel argued that the revocation is mandatory. Neither the Complaint nor the Statement of Factual Allegations refer to the denial of the application for a 1033 waiver. Although the parties stipulated to the facts pertaining to the 1033 application and its denial, Petitioner's complaint filed in this matter did not cite 18 USC 1033 as grounds for imposing sanctions.

On September 7, 2015, Respondents filed an Answer to Statement of Factual Allegations.

Respondents have cited no law to support the argument made on the record that the denial of the 1033 application under 18 USC 1033 is not a final agency decision.

15-050943 Page 13

Petitioner argued on the record that its "hands are tied" and that Respondents are precluded as a matter of law from engaging in the business of insurance. It is clear that Respondents shall not engage or participate in the business of insurance without a waiver. It is also clear that Petitioner denied the waiver and no appeal was taken to circuit court, which has exclusive appellate jurisdiction. This Tribunal (MAHS) has no authority to rule upon, alter, modify, or stay the effect of Respondent's final decision to deny the waiver request. Respondents have cited no law to the contrary. Therefore, having been denied the waiver, in the absence of any legal authority to demonstrate that Respondents have a right to challenge the finality of that final decision, this Tribunal has no authority to render a judgment that would permit them to engage in the business of insurance. Furthermore, the issue of the 1033 waiver denial was not pied in the Complaint, is not at issue in this proceeding, and has no bearing on the factual and legal issues decided in this Proposal for Decision.

Petitioner's counsel acknowledged in closing argument that Mr. Khazaal appeared to be remorseful for his conduct and is currently working in the industry to make a living. However, Petitioner argues that he cannot retain his license as a matter of law, because the 1033 waiver was denied, and not timely appealed. That matter is final and he cannot work in the financial services industry.

Respondent's counsel asserts that the appropriate sanction is to require Mr. Khazaal to continue under the same limitations that were imposed by Judge Battani for a probationary period of one year (having already operated for three years under those restrictions). He also cites the numerous character letters that "paint a wonderful picture ... of a wonderful person" who is a friend to many and considered trustworthy by his friends, family, and the community.

Based on observation of Respondent Khazaal's demeanor during direct and cross examination, this ALJ finds the testimony to be credible and sincere.

Under the statutes cited in the Complaint and the Notice of Opportunity to Show Compliance, the director has discretion to impose various sanctions, including revocation, suspension, probation, limitations, or civil fines. See MCL 500.1239(1 )(h), and MCL 500.1244(1 )(a-d) cited in the Complaint, p 2. Petitioner has cited no law to support a conclusion that revocation of the license is mandatory.

PROPOSED DECISION

The undersigned Administrative Law Judge proposes that the above findings of fact and conclusions of law be adopted, and that a sanction or sanctions be ordered by the Department Director in a final decision and order.

15-050943 Page 14

EXCEPTIONS

Any Exceptions to this Proposal for Decision should be filed in writing with the Department of Insurance and Financial Services, Division of Insurance, Attention: Dawn Kobus, P.O. Box 30220, Lansing, Michigan 48909, within twenty-one (21) days of the issuance of this Proposal for Decision. An opposing party may file a response within fourteen (14) days after Exceptions are filed .

/7A-ll l~ Thomas A. Halick """' Administrative Law Judge