Unstrained Mercy Gently Rains Down After FINRA Bar

9. FINRA began an investigation, which its attorneys pursued aggressively. Tr. 27. Mr. Schumaker learned that even if [he] avoided being barred from association with FINRA, the process would be expensive. Id. He heard from one individual who spent approximately $100,000.00 in attorneys' fees, costs, and fines. Id. Accordingly, Mr. Schumaker did not contest or otherwise participate in the investigation. Ex. 5. Under FINRA' rules, nonparticipation leads to a bar against further association with FINRA. Id. FINRA's attorneys and his own counsel assured him he could continue in his insurance business, he just could no longer sell securities. Tr. 27-28. 

"Disciplinary and Other FINRA Actions" (November 2014), 

http://www.finra.org/sites/default/files/publication_file/november%202014%
20disciplinary%20action.pdf states under the heading "Individuals Suspended for Failure to Provide Information or Keep Information Current Pursuant to FINRA Rule 9552(d)" that Jeffrey Alan Schumaker was suspended effective September 22, 2014.

"Disciplinary and Other FINRA Actions" (February 2015), http://www.finra.org/sites/default/files/02_February_Disiplinary
%20Actions_15.pdf

states under the heading "Individuals Barred for Failure to Provide Information or Keep Information Current Pursuant to FINRA Rule 9552(h)" that Jeffrey Alan Schumaker' was barred effective December 2, 2014.

On September 14, 2016, the ALJ held a hearing. In November 2016, the ALJ issued Findings of Fact, Conclusions of Law and Order. The ALJ found, "[i]n response to Question 2, of his application for renewal to [the Department] Schumaker made a full and complete disclosure of the FINRA bar and the circumstances leading thereto."5 Appellant's Appendix Volume II at 35. The ALJ found that no evidence was presented that Schumaker has ever committed any conduct that is fraudulent, coercive, dishonest, incompetent, untrustworthy, or financially irresponsible in the conduct of his insurance business or any other business venture. The ALJ also found "the evidence in this case demonstrates that Schumaker took $8300 from the homeowners' association bank account with the intent to repay it" and "[w]hile dishonest, all evidence presented at the hearing was that this was a singular issue, out of character for Schumaker, and not part of a pattern of deceit or a series of ‘practices' in either his personal or professional life." Id. at 37. The ALJ recommended that the order of nonrenewal be reversed on the conditions that Schumaker's license be granted on a two-year probationary basis and that he pay a civil penalty of $1,000.

1. Mr. Schumaker concentrates his business in life and health insurance, disability and Medicare supplement insurance. Ex. 5. In his insurance business, Mr. Schumaker does not handle any cash for insureds. Tr. 35. Instead, the insured pays all premiums directly to the insurance company. Id. The only funds Mr. Schumaker deals with are his own commission checks from which he pays his salary and his office expenses. Id. 

2. At the time of the administrative hearing, Mr. Schumaker had held a license from the Department for 26 years and was serving about 300 customers. Ex. 5. He has never [had] a complaint relating to [the] manner in which he conducted his business. Id. 

. . .

18. Mr. Schumaker is the sole financial supporter for his family, which includes his wife, two sons in college, his mother-in-law who lives with him, and a young family member placed in their home by family services. Tr. l l-12; Tr. 53. Losing his producer income would be devastating to the family, Ex. 5; And, at age 53 with 26 years in the insurance industry, Mr. Schumaker does not know what he would do to replace that income. Ex. 5; see also Tr. 37. 

10. The appropriate remedy in this case is not, however, simply a remand. There is no dispute what the facts are or any suggestion that they could be found differently on remand. Once the Commissioner's erroneous reliance on Ind. Code § 27-1-15.6- 12(b)(8) is removed, all that is left of the case is an inadvertent failure to report the FINRA suspension, which was voluntarily reported, unprompted, on the next renewal application. 

11. It would be unreasonable, and an abuse of discretion, to deny the renewal of Mr. Schumaker's license based on tardiness alone, particularly when that tardiness was inadvertent. 

12. At the hearing, Mr. Schumaker's lawyer suggested that the appropriate remedy would be for the Court to order Mr. Schumaker's license renewed, in accordance with the ALJ's proposed order. Unfortunately, the Court cannot order such relief and must remand to the Commissioner under Indiana State Bd. of Health Facility Adm'rs v. Werner, 841 N.E.2d 1196 (Ind. Ct. App. [(2006)]), decision clarified on reh'g, 846 N.E.2d 669 (Ind. Ct. App. 2006). 

13. While the Court has held that Mr. Schumaker did not engage in "fraudulent, coercive or dishonest practices" under the statute, and has further found that non-renewal is too harsh a sanction, the Commissioner has other remedies he can impose. For example, the Commissioner can "reprimand, levy a civil penalty, [or] place an insurance producer on probation. . ." Ind. Code § 27-1-15.6-12(b). Other statutory sanctions, such as a revocation or suspension are either inapplicable in the circumstance where a producer does not have a current license or are, like non-renewal, too harsh for a minor reporting violation. Nevertheless, the Commissioner must be afforded an opportunity to determine whether to reprimand Mr. Schumaker or place him on probation and whether to impose a civil penalty. That choice belongs to the Commissioner on remand. 

Ind. Code § 27-1-15.6-12(b)(8) provides the Commissioner may take action with respect to a producer's license for the causes of "[u]sing fraudulent, coercive, or dishonest practices, or demonstrating incompetence, untrustworthiness, or financial irresponsibility in the conduct of business in Indiana or elsewhere." The ALJ found, and the Commissioner does not dispute, that Schumaker's action of taking funds from his homeowners association did not occur "in the conduct of business." Thus, the subsection is inapplicable in this case to the extent the phrase "in the conduct of business" modifies each of the causes listed in subsection (8). Even assuming the phrase "in the conduct of business" does not modify the phrase "[u]sing fraudulent, coercive, or dishonest practices," we note that the ALJ found as noted by the trial court that Schumaker "took $8300 from the homeowners' association bank account with the intent to repay it" and that, "[w]hile dishonest, all evidence presented at the hearing was that this was a singular issue, out of character for Schumaker, and not part of a pattern of deceit or a series of ‘practices' in either his personal or professional life." Appellant's Appendix Volume II at 37. The evidence supports the conclusion that Schumaker's action of taking money from his homeowners association, under the specific circumstances of this case as set forth in the administrative record, did not constitute "practices" in Schumaker's professional or personal life which warrant the severe sanction of refusal to renew his insurance producer license.

Also, the ALJ found that Schumaker "made a full and complete disclosure of the FINRA bar and the circumstances leading thereto" in his application for renewal, and the Commissioner, in its decision, adopted this finding and noted that the Department's objection to the ALJ's recommended order challenged in relevant part the ALJ's conclusions related to subsection (8), not subsection (1), of Ind. Code § 27-1-15.6-12(b). Id. at 35. To the extent that he did not timely report the FINRA action to the Department and was required to do so, Schumaker testified that, because he was going through everything with FINRA, he assumed FINRA shared all of that information with the Commissioner, that he did not realize that was something he needed to do as well, and that as soon as he went online to complete his renewal he provided an explanation for what had happened. We agree that any delay does not merit the strict sanction of nonrenewal of Schumaker's license. We do not disturb the trial court's ruling.

• FINRA
• Insurance
• Renewal
• Rule 9552
• Indiana Superior Court
• Indiana Court of Appeals
• Nonrenewal
• BrokeAndBroker
• Bill Singer