May 17, 2012
Texas Department of Banking
2601 North Lamar Boulevard
Austin, Texas 78705
The Prepaid Funeral Guaranty Fund Advisory Council (GFAC) met on Thursday, May 17, 2012, in the Conference Room of the Finance Commission Building at 2601 N. Lamar Boulevard, Austin, Texas.
Members in Attendance:
Sandy Booth, Consumer Representative
Tom Elam, Insurance Representative
Dick Owens, Industry Representative
Others in Attendance:
Russell Reese, Director, Special Audits Division, Texas Department of Banking
Kaylene Ray, General Counsel, Texas Department of Banking
Debby Loomis, Assistant General Counsel, Texas Department of Banking
Dan Wood, Assistant General Counsel, Texas Department of Banking
Jesse Saucillo, Review Examiner, Texas Department of Banking
Stephanie Newberg, Investment Officer and Deputy Commissioner, Texas Department of Banking
Members Not in Attendance:
Charles G. Cooper, Chair and Banking Commissioner, Texas Department of Banking
With a quorum present, Deputy Commissioner Stephanie Newberg convened the meeting of the Prepaid Guaranty Fund Advisory Council at 1:31 p.m.
Discussion of and Possible Vote to Approve Minutes of the June 1, 2011 Prepaid Funeral Guaranty Fund Advisory Council Meeting
Tom Elam made a motion to approve the minutes of the June 1, 2011 Prepaid Guaranty Fund Advisory Council meeting as presented. Dick Owens seconded and the motion passed unanimously.
Discussion of and Possible Vote to Approve the Activity of the Funds and the Investment Officer Reports for the Period March 1, 2011 to February 29, 2012
Review Examiner Jesse Saucillo outlined the activity of the Insurance-Funded Guaranty Fund for the period March 1, 2011 through February 29, 2012. Deposits totaling $70,492 were placed in the fund for assessments collected and interest earned; no claims were paid for this period. The balance for the Insurance-Funded Guaranty Fund as of February 29, 2012 is $96,036.80.
Review Examiner Saucillo also outlined the activity of the Trust-Funded Guaranty Fund for the period of March 1, 2011 through February 29, 2012. Claims totaling $28,978.33 were paid relating to four prepaid funeral contracts sold by Walker-Mora Funeral Home, and one prepaid funeral contract sold by Gordon-Foster-Brown Funeral Home. Restitution totaling $1,100.00 was also received from DJ Turner, Turner Bros Undertakers, Mount Pleasant. The balance for the Trust-Funded Guaranty Fund as of February 29, 2012 is $1,274,861.86.
Dick Owens made a motion to approve the report of the Guaranty Funds’ activities and the Investment Officer Reports for the period March 1, 2011 to February 29, 2012 as presented by Jesus “Jesse” Saucillo, Review Examiner. Sandy Booth seconded and the motion passed unanimously.
Discussion of and Possible Vote to Review and Ratify Claims under $6,500 Paid From the Guaranty Fund
Director Russell Reese reported on the claims paid by the Department for the period of March 1, 2011 to February 29, 2012 that were under $6,500. He also noted that the Department has the authority to process these claims without Guaranty Fund approval since they are below the $6,500 threshold.
The first claim paid of $1,207.41 is related to Gordon-Foster-Brown Funeral Home, Athens, Texas. This claim was made on behalf of a purchaser of a prepaid funeral benefit contract (PFC) from Gordon-Foster-Brown Funeral Home, Athens, Texas. The contract was sold by the funeral home while it had an active permit with the Department.
The remaining three claims paid totaling $6,705 are related to Walker-Mora Funeral Home, Alice, Texas. These claims were made on behalf of purchasers of prepaid funeral benefit contracts (PFCs) from Walker-Mora Funeral Home, Alice, Texas. The contracts were initially sold by Walker-Mora while it had an active permit. The purchaser is attempting to recover the $950 that he paid.
Attorney Debby Loomis provided an overview on the previous seizure of Walker Mora Funeral Home, Alice, Texas. Two administrative hearings awarded $37,000 in restitution to the contract holders and penalties to the Department from the owners, Mr. Ramirez and his mother. An abstracted judgment was filed in Travis County and also in Alice, Texas, where the funeral home is located; however, there are no assets to satisfy the judgment.
Deputy Commissioner Newberg stated that Mr. Ramirez has never paid any restitution. Mr. Ramirez has continued selling contracts while working as a car dealer. Attorney Loomis said that the Department will have an administrative hearing and will also send a letter to the Travis County District Attorney’s Office and the Texas Attorney General’s Office and ask them to pursue Mr. Ramirez criminally.
Dick Owens made a motion to ratify the claims paid from the Guaranty Fund as presented by Russell Reese, Director of Special Audits. Tom Elam seconded and the motion passed unanimously.
Discussion of and Possible Vote to Approve Administrative Memorandum 2016
Review Examiner Saucillo reported that we are required to review Administrative Memorandum 2016 which relates to the Investment Policy for Funds Under the Oversight of the Guaranty Fund Advisory Council every two years. In 2011, there were some statutory amendments to the Public Funds Investment Act. Although the Guaranty Funds are not subject to the Public Funds Investment Act, we changed our policy to emulate the guidelines stipulated under the Act to the extent it affected current policy.
As a side note, Deputy Commissioner Newberg stated that the Guaranty Funds were audited by our internal auditor, Garza-Gonzales and Associates. The audit was completed and presented at the April 2012 Finance Commission meeting. Essentially all of the information that is brought to the Council was reviewed and verified by the auditors. The internal auditors had no findings in the audit. We will provide a copy of the audit to the Council members.
Sandy Booth made a motion to approve amended Administrative Memorandum 2016 as presented by Jesus “Jesse” Saucillo, Review Examiner. Tom Elam seconded and the motion passed unanimously.
Discussion of and Possible Vote to Approve a Claim Related to Walker-Mora Funeral Home, Inc., Alice, Texas
Director Reese discussed a claim related to Walker-Mora Funeral Home, Alice, Texas. At the last Guaranty Fund Advisory Council meeting, there was a detailed discussion related to the Guaranty Fund possibly authorizing a disbursement to pay the difference of yesterday’s cost to today’s cost to ensure that consumer got the service and merchandise paid for.
After two failed attempts for funeral providers to bid on the Walker-Mora PFC’s, the Department contacted Roberson Funeral Home, Inc., Alice, Texas. After discussing the matter with the Roberson Funeral Home’s owner, Steven Roberson, he agreed to honor and service the PFCs if additional funds were awarded. Specifically, Mr. Roberson requested the difference between Roberson Funeral Home’s current prices and the prices on the prepaid contracts. Consequently, a claim funding the difference between current prices and PFC pricing on the eight contracts previously awarded to Roberson Funeral Home was approved by the Guaranty Fund Advisory Council at the prior meeting held in June 2011.
In October 2011, Mr. Roberson presented information that Roberson Funeral Home had performed the service for Maria Rios. Documentation presented revealed that Ms. Rios purchased a PFC from Walker-Mora Funeral Home while it had an active permit; however this PFC was not found in the records seized. As part of the initial agreement to assume the Walker-Mora Funeral Home, Inc. PFC’s, Mr. Roberson is requesting that the difference in the Walker-Mora PFC and his current cost of honoring the contract for Ms. Rios be paid to him. The difference is $1,535. This claim totaling $1,535 is being presented to the Guaranty Fund Advisory Council for review and consideration.
After much discussion, Council Member Tom Elam wanted to modify the motion to approve a claim in the amount of $1,535 related to Walker-Mora Funeral Home, Alice, Texas to reflect that for all future claims on contracts that the maximum amount that the Guaranty Fund will be responsible for paying out is an amount limited to a maximum payment of $5,000.
Dick Owens made a revised motion to approve a claim in the amount of $1,535 made by Mr. Roberson related to Walker-Mora Funeral Home, Alice, Texas; but for all future claims on contracts, the maximum amount that the Guaranty Fund will pay out is $5,000. Sandy Booth seconded and the motion passed unanimously.
Tom Elam made a new motion to pay an additional 10% of the original contract price on any future claims made to the Guaranty Fund and the difference in out of pocket costs on cash advance items for contracts sold by Walker-Mora Funeral Home, Alice, Texas and claims made by Mr. Roberson of Roberson Funeral Home, Alice, Texas. Dick Owens seconded and the motion passed unanimously.
Discussion of Potential Claims to Guaranty Fund
Director Reese provided an overview of a potential Guaranty Fund claim. In June 2011, the Department issued an Emergency Cease and Desist and Seizure Order against Howell-Doran Funeral Home, Inc., San Saba, Texas for failing to properly account for and deposit money collected from the sale of prepaid funeral contracts. The Department recently finalized its review of the seized records of Howell-Doran and was able to ascertain the amount of funds that were collected by the owner, Mr. Keeney that were either not trusted properly or forwarded to the insurance-funded permit holder as required. In March 2012, the Department met with representatives from the San Saba County District Attorney’s office in Llano, Texas to discuss taking criminal action against the Mr. Keeney. A departmental administrative hearing for this seizure has been postponed pending the completion of the criminal proceedings.
There are approximately 58 trust funded PFC contracts totaling $198,058 that were not reported during our examinations. Additionally, there were additional payments collected on properly reported PFCs totaling $32,686, but they were not deposited and Mr. Keeney did not report them under the quarterly reconciliations. The Department was able to make this determination through consumer account verifications. The Department seized funds of $19,449 from an operating account, $19,397 from a certificate of deposit, and $90,265 in interest that was applicable to the properly reported PFCs. Deputy Commissioner Newberg stated that the potential claim to the Guaranty Fund would be approximately $104,633 to fund the entire principal, but we may be required to pay someone interest for taking it.
There was also about $27,000 that was sold when Keeney was not a valid agent of the insurance company. These monies will not be paid by an insurance provider. A criminal investigator with the Texas Department of Insurance verified that if you’re not a valid agent appointed by an insurance company, then the company has no liability to fund any mishandled funds; the Department agreed with this determination.
Approximately 32 Insurance Funded PFCs were sold and $115,000 in insurance premiums was collected and was not properly reported to the insurance permit holders as required. These contracts have all been funded.
There were also 15 PFCs that were written after Howell-Doran’s PFC permit was restricted from selling new contracts which as a result, do not qualify for Guaranty Fund coverage. Further, four individuals were unable to provide complete documentation; therefore, claims to the Guaranty Fund cannot be made for these individuals either.
Attorney Dan Wood reported that the San Saba District Attorney was able to get a grand jury indictment and arrest Mr. Keeney on the insurance fraud; there is now a pending criminal trial. On March 20, 2012, he, Attorney Loomis and Director Reese met with the Assistant District Attorney and he indicated that he would like to take our material for the trust funded contracts and get a second separate indictment. When Attorney Wood talked to the Assistant District Attorney a day ago, he anticipated July 2012 as a date to get a second indictment for the trust contracts.
Discussion of Collection Efforts
Review Examiner Saucillo went over the collection efforts and summary of restitution paid for the period of March 1, 2011 to February 29, 2012. The Department tracks monthly payments received to ensure everybody is current, and sends out letters demanding payment for those who are non-compliant.
Discussion of Future Meeting Dates
The next meeting of the Guaranty Fund Advisory Council will be determined at a later date.
The meeting of the GFAC was adjourned at 3:12 p.m.
/s/ Stephanie Newberg for
Charles G. Cooper
Chair of the Guaranty Fund Advisory Council and Banking Commissioner
/s/ Brenda Medina
Executive Assistant to the Guaranty Fund Advisory Council