Order No. 2010-015

Docket No. B-2985-08-243

In The Matter Of:
Daniel L. Brothers, Individually,
and as Vice-President of Lake Road Cemetery, Inc.
dba Killeen Memorial Park

Before The Banking Commissioner of Texas
Austin, Travis County, Texas

Agreed Order

On this day, the matter of Daniel L. Brothers, Individually, and as Vice-President of Lake Road Cemetery, Inc. dba Killeen Memorial Park (Respondent or Brothers), was submitted to me, Charles G. Cooper, Texas Banking Commissioner (Commissioner), for consideration and action. Respondent and the Texas Department of Banking (Department) jointly request the Commissioner to dispose of this matter pursuant to the provisions of Texas Government Code, § 2001.056 by entering this Agreed Order (Order).

  1. Respondent agrees to this Order solely for the purpose of this proceeding, and without admitting or denying any violations of law or regulations.

  2. From August 11, 2004 to at least October 16, 2007, Respondent was the vice-president and a director of Lake Road Cemetery, Inc. Lake Road Cemetery, Inc. is owned by Heritage Maintenance Systems, L.C., which in turn is owned by Timothy Gaffney (Gaffney). At all relevant times, Lake Road Cemetery, Inc. owned Killeen Memorial Park and Mausoleums (KMP), located in Killeen, Texas. KMP is a cemetery with a funeral home on the property. On information and belief, Gaffney conveyed KMP via a deed in lieu of foreclosure and special warranty deeds to new owners in June, 2008.

  3. From 2003 through 2007, Brothers sold preneed funeral benefits contracts (PFBCs) for KMP. Brothers has never personally held a permit to sell PFBCs.

  4. KMP originally sold trust-funded PFBCs under Permit No. 804. In Commissioner’s Order No. 2004-039, the Commissioner approved Lake Road Cemetery Inc.’s application to convert its trust-funded PFBCs to ones funded by insurance issued by Funeral Directors Life Insurance Company (FDLIC), under Texas Department of Banking (Department) permit number 673 held by FDLIC’s affiliate, Funeral Agency, Inc. (FAI).

  5. KMP violated Commissioner’s Order No. 2004-039 by failing to convert forty-one (41) of its trust-funded contracts. Brothers personally sold eleven (11) of these contracts for which customers paid $29,803.81. Brothers knew or should have known that these funds were not properly converted to pay for insurance policies and that the funds received were not put in trust for the purchasers.

  6. Brothers either sold or signed as the representative of KMP sixty-six (66) of the insurance-funded contracts that were not forwarded to the selling permit holder (FAI) or insurance company (FDLIC). He collected $182,450.24 on these contracts. Brothers knew or should have known that these funds were not remitted to the insurance company as the statute requires.

  7. Funds or payments received by Brothers from the sale of preneed funeral benefits contracts were not placed in trust or submitted to either a preneed insurance funded permit holder or their approved preneed insurance company as insurance premiums in accordance with Texas Finance Code §§ 154.203 or 154.253. Brothers knew that the money collected under the 77 preneed funeral benefits contracts that he either sold personally or approved as the authorized KMP representative was misappropriated in violation of Texas Finance Code §§ 154.203 and 154.253.

  8. Brothers’ failure to properly convert the trust-funded contracts he sold personally to insurance-funded contracts, and his failure as vice-president and a director of KMP to properly convert all of the trust-funded contracts to insurance-funded contracts constitute violations of Commissioner’s Order No. 2004-039 and 7 Texas Administrative Code § 25.25.

  9. On June 24, 2008, the Commissioner issued an Order to Cease and Desist Activity, Order No. 2008-020, against Brothers, which required him to cease and desist from engaging in the sale of prepaid funeral benefits contracts, until and unless he pays restitution as determined in an administrative hearing. The cease and desist order also ordered that an administrative hearing be scheduled to determine the appropriate amount of restitution and penalties, if any, to be assessed against Brothers. The cease and desist order is final and unappealable. Brothers has admitted receiving the order.

  10. The $29,803.81 that Brothers took for trust-funded contracts and for which the Department seeks restitution should be paid to the Department for the benefit of the purchasers of the trust-funded contracts.

  11. On December 31, 2009, the Department notified Respondent that a hearing would be held to determine whether restitution and penalties should be ordered for these violations. On January 23, 2010, Respondent was served with an amended notice of hearing.

  12. Respondent acknowledges that he was duly served with these notices of hearing.

  13. The Department has jurisdiction over Respondent and the subject matter of this proceeding pursuant to Texas Finance Code, Chapter 154, and §§ 2001.171 et seq., Texas Government Code.

  14. The Commissioner has the authority to issue this Order and to assess restitution pursuant to § 154.411, Texas Finance Code.

  15. The statutory provisions at issue in the administrative hearing pending against Respondent include §§ 154.051, 154.101, 154.102, 154.159, 154.160, 154.201, 154.202, 154.203, 154.253, 154.406, 154.4061, and 154.411, Texas Finance Code.

  16. Any violation of this Order could subject Respondent to additional regulatory or enforcement actions authorized by §§ 154.401 to 154.414, Texas Finance Code. Nothing in this Order diminishes the regulatory or enforcement powers of the Department, the Commissioner, or the Finance Commission of Texas under Chapters 35 and 154, Texas Finance Code, or other applicable law.

  17. For purposes of this proceeding, Respondent knowingly and voluntarily waives:

    1. Service upon Respondent of this Order;

    2. The right to present defenses to the allegations;

    3. Notice and hearing prior to imposition of an administrative penalty and an order for restitution;

    4. The filing of proposed findings of fact and conclusions of law;

    5. The issuance of a proposal for decision by an administrative law judge;

    6. The filing of exceptions and briefs with respect to such proposal for decision;

    7. Any review of this Order by the Texas Finance Commission; and

    8. Judicial review of this Order as provided by §§ 2001.171 et seq., Texas Government Code, and any other challenge to the validity of this Order.

  18. The Commissioner has considered the matter and finds that Respondent violated §§ 154.101, 154.102, 154.159, 154.160, 154.203, and 154.253, Texas Finance Code, by failing to have a prepaid funeral benefits permit and failing to deposit the funds in trust or to submit the funds to an insurance company licensed to sell prepaid contracts.

  19. The Commissioner has authority to require that restitution be paid by Respondent pursuant to § 154.411, Texas Finance Code.

  20. Respondent has agreed to make restitution in the amount of $29,803.81.

  21. The Commissioner finds that it is in the best interest of the Department and the purchasers of PFBCs that the Department settle this matter without the imposition of penalties and for the amount agreed upon.

Order

It is hereby ORDERED, ADJUDGED AND DECREED that:

  1. Respondent shall not engage in activities in violation of Texas Finance Code, Chapter 154.

  2. Respondent is liable for the payment of $29,803.81 as restitution to be paid to the Department for the benefit of purchasers of trust funded contracts.

  3. The payment of restitution shall be as follows:

    1. $100.00 within thirty (30) days of the effective date of this Order.

    2. $100.00 due on the first day of each succeeding month until the total amount is paid.

    3. Failure to make a monthly payment by the 5th of the month shall cause the balance to be immediately due and payable.

    4. If the balance should become immediately due and payable, Respondent’s failure to pay the balance within thirty (30) days will result in the referral of this matter to the Office of the Attorney General for collection.

  4. This Order does not restrict the Department with respect to any enforcement action or other recourse regarding any other past, current, or future violations by Respondent that come to the attention of the Department.

Effective Date

This Order against Respondent is effective on the date signed by the Commissioner and, subject to its terms, Respondent may not appeal.

Signed this 12th day of March, 2010.

/s/ Charles G. Cooper            
Charles G. Cooper
Texas Banking Commissioner

APPROVED AS TO FORM:

/s/ Deborah H. Loomis                                              March 12, 2010  
Deborah H. Loomis                                                   Date
Assistant General Counsel
Texas Department of Banking

I AGREE TO ALL THE TERMS OF THIS ORDER AND TO ITS ENTIRE FORM AND SUBSTANCE.

/s/ Daniel L. Brothers                                               March 11, 2010  
Daniel L. Brothers                                                    Date

State of Texas                       (
                                              (
County of Bell                        (

Sworn to and subscribed before me on the 12th day of March, 2010, by Daniel L. Brothers.

/s/ Deborah M. Otis                     
Notary Public’s signature