Producer’s Misrepresentation Regarding Paying Child Support Results in $5,500 Fine

On May 23, 2016, Stephen M. Summers, a Division of Insurance Hearing Officer fined Germone A. Gadsden, of Charlotte, North Carolina a total of $5,500 arising out of a license misrepresentation regarding the payment of child support. The Hearing Officer also entered orders under General Laws Chapter 175, § 166B, revoking and ordering the return of any and all producer licenses Mr. Gadsden held, to cease transacting any insurance business in Massachusetts, and to dispose of any interests in Massachusetts as a proprietor, partner, stockholder, officer, or employee of any licensed insurance producer.

One state checks and finds Mr. Gadsden’s answer on child support payments is not true

In 2013, Mr. Gadsden, apparently as the result of starting employment in December 2012, with a subsidiary of Teachers Insurance and Annuity Association of America, (TIAA-CREF”), made application for nonresident licenses to several states including Indiana, South Dakota, Vermont, Delaware, Virginia, Kansas, Maine, and Massachusetts.

As part of this process, Mr. Gadsden completed the National Association of Insurance Commissioners (“NAIC”) Uniform Application for Individual Producer License/Registration. The application includes as its Question 7, an inquiry on child support obligations asking:

Do you have a child support obligation in arrearage?

If you answer yes,

a) by how many months are you in arrearage?

b) are you currently subject to and in compliance with any repayment agreement?

c) are you the subject of a child support related subpoena/warrant?

(If you answered yes, provide documentation showing proof of current payments or an approved repayment plan from the appropriate state child support agency.)

On his applications to the states listed above, Mr. Gadsden did answer Question 7 correctly, affirming that he had a child support obligation in arrears. However, Mr. Gadsden stated that he was disputing some of the payments but was making voluntary monthly payments to the “South Carolina Department of Social Services” or the “South Carolina Child support administration.”

All the state insurance divisions, except one, approved his nonresident producer applications.

The South Dakota Division of Insurance, before issuing the license checked with the South Carolina Department of Social Services and on March 14, 2013, wrote to Mr. Gadsden with regard to his January 17, 2013 application stating, “The Division has contacted that [child support] office, and payments from you are not forthcoming.”

While affording Mr. Gadsden an opportunity to explain his apparent application misstatement, the South Dakota Division of Insurance advised Mr. Gadsden that:

Based on the above information, your application is denied…for incompleteness, attempting to obtain an insurance license through misrepresentation or fraud, and for failing to comply with a child support obligation.

The South Dakota Division also advised Mr. Gadsden that its denial was:

…considered an administrative action which will be reported to the database maintained by the National Association of Insurance Commissioners. If an administrative action occurs, an insurance producer may be required to report the action to any and all states in which an insurance license is held and in accordance with the time-frames and requirements of each state.

According to Mr. Gadsden’s brokerage records with the Financial Industry Regulatory Authority (“FINRA”), his employment with TIAA-CREF’s subsidiary terminated on March 20, 2013, almost immediately after North Dakota denied his license application for misstatements.

Chain reaction of revocations from North Dakota license denial

Mr. Gadsden made an application to Massachusetts for a nonresident producer license on February 14, 2013. In his application, Mr. Gadsden answered Question 7, similar to the way he had earlier answered the same question for his North Dakota application. He answered affirmatively to the question: “Do you have a child support obligation in arrears?”

However, Mr. Gadsden stated in a letter that accompanied his February 14th Massachusetts application that he was disputing some of the child care arrearage, but was making voluntary monthly payments to the “South Carolina Child support administration.”

Apparently, the Division did not seek to verify the veracity of Mr. Gadsden’s answer and issued him his nonresident producer license on February 21, 2013.

Following South Dakota’s lead, other states began to revoke Mr. Gadsden’s nonresident producer licenses for his misstatements or for his failure to report, as required, administrative actions against his nonresident producer licenses. Following South Dakota’s decision to report its license denial to the NAIC regulatory action database, over the course of the next two years, Indiana, Vermont, Delaware, Virginia, Kansas, and Maine, all revoked Mr. Gadsden’s authority to write insurance in their states.

Massachusetts seeks license revocation and civil penalties for misrepresentation and non-reporting of other state proceedings

On November 10, 2015, the Massachusetts Division of Insurance filed a 26-count Order to Show Cause against Mr. Gadsden arising from his misrepresentation and the actions of the six other states to act on his nonresident producer licenses. The Division alleged that Mr. Gadsden was liable for:

1. a “violation” of G.L. c. 175, § 162R(a)(1), for providing incorrect, misleading, incomplete or materially untrue information in his Massachusetts insurance producer license application regarding child support payments (First Claim).
2. Seven violations of the insurance laws of seven jurisdictions: Indiana (Twelfth Claim and Nineteenth Claim), South Dakota (Thirteenth Claim), Vermont (Fourteenth Claim), Delaware (Fifteenth Claim), Virginia (Sixteenth Claim), Kansas (Seventeenth Claim), and Maine (Eighteenth Claim) as constituting violations G.L. c. 175, § 162R(a)(2).
3. Obtaining or attempting to obtain licenses through misrepresentation or fraud, in violation of G.L. c. 175, § 162R(a)(3) with regard to Mr. Gadsden falsely stating he was making monthly child support payments on his Massachusetts insurance producer license application (Second Claim), on his South Dakota insurance producer license application (Twenty-sixth Claim), and on his Vermont insurance producer application (Twenty-seventh Claim).
4. Unfair insurance practices as determined by the South Dakota Department of Insurance pursuant to § 162R(a)(7) (Third Claim).
5. Seven violations of G.L. c. 175, § 162R(a)(9), based on Mr. Gadsden being denied an insurance producer license by the state of South Dakota (Fourth Claim), and had insurance producer licenses revoked by Vermont (Twentieth Claim), Delaware (Twenty-first Claim), Virginia (Twenty-second Claim), Kansas (Twenty-third Claim), Maine (Twenty-fourth Claim), and Indiana (Twenty-fifth Claim).
6. Seven violations of the reporting requirement set out in G.L. c. 175, §162V(a), for failing to report administrative actions in South Dakota (Fifth Claim), Vermont (Sixth Claim), Delaware (Seventh Claim), Virginia (Eighth Claim), Kansas (Ninth Claim), Maine (Tenth Claim), and Indiana (Eleventh Claim).

Hearing Officer enters orders against Mr. Gadsden and fines him $5500

Not surprisingly, Mr. Gadsden did not contest the Order to Show Cause filed against him based upon the undisputed facts that he had not accurately disclosed his failure to comply with his child support orders. As a result, the Hearing Officer defaulted him.

The Hearing Officer, however, did not grant the Division all the relief it sought against Mr. Gadsden, as the Hearing Officer declined to impose any civil penalties for violations of the insurance laws of other states. Also, the Hearing Officer denied the Division’s request to find that the alleged determination by the South Dakota Division of Insurance that Mr. Gadsden had committed an unfair insurance trade practice made him liable for discipline in Massachusetts.

After making findings of fact and conclusions of law entered the following orders and fines, the Division’s Hearing Officer determined:

1. That Germone A. Gadsden shall cease and desist from the conduct complained of in the Order to Show Cause;
2. That any and all insurance producer licenses issued to Germone A. Gadsden by the Massachusetts Division of Insurance are hereby revoked;
3. That Germone A. Gadsden shall return to the Massachusetts Division of Insurance any licenses in his possession, custody or control;
4. That Germone A. Gadsden is, from the date of this Decision and Order, prohibited from directly or indirectly transacting any insurance business or acquiring, in any capacity whatsoever, any insurance business in the Commonwealth of Massachusetts;
5. That Germone A. Gadsden shall comply with the provisions of Chapter 175, § 166B, and dispose of any and all interests in Massachusetts as proprietor, partner, stockholder, officer or employee of any licensed insurance producer; and
6. That Germone A. Gadsden shall pay to the Massachusetts Division of Insurance within 30 days of the entry of this Decision and Order a civil penalty of Five Thousand Five Hundred Dollars ($5,500.00) pursuant to Chapter 175, §§ 162V(a), 162R(a), and § 194; and Chapter 176D, § 7. (Emphasis in original).

Is the Division fining someone who cannot pay his child support obligations a good idea?

There is no sympathy at Agency Checklists for someone who does not fulfill their child support obligations. However, there are two types of persons who do not pay what they owe for their children: those who cannot and those who will not.

There is nothing in the records available from Mr. Gadsden’s license proceedings here in Massachusetts or elsewhere that Agency Checklists could find that put him in the latter category. His job history from FINRA showing ten employers in the last ten years would seem to indicate that he more likely falls in the former category.

Out of the eight states that refused or revoked his licenses as a consequence of his misstatements on child support, only Massachusetts apparently elected to fine him. His misrepresentation makes him deserving of having his license revoked, but fining him seems to only make a bad financial situation for his children worse.

Unfortunately, if the Commonwealth of Massachusetts actually did collect anything from Mr. Gadsden (which seems highly unlikely), it would seem any money collected would better have gone towards his child support arrears than into this state’s general fund.