By the Division of Banks

COMMONWEALTH OF MASSACHUSETTS

Suffolk, SS.

COMMISSIONER OF BANKS
MORTGAGE BROKER
LICENSING
Docket No. 2009-016-OTSC

ORDER TO SHOW CAUSE
AND NOTICE OF RIGHT
TO A HEARING


In the Matter of
AMERICAN ADVISORS GROUP
Irvine, California

Mortgage Broker License No.: MB5106


ADMINISTRATIVE COMPLAINT

The Commonwealth of Massachusetts Division of Banks (the "Division"), by and through the Commissioner of Banks of the Commonwealth of Massachusetts (the "Commissioner "), for its Order to Show Cause and Notice of Right to a Hearing ("Order and Notice"), alleges as follows:

  1. The Division brings this action under Massachusetts General Laws chapter 255E, section 6 to obtain temporary, preliminary, and permanent injunctive relief, ordering AMERICAN ADVISORS GROUP ("American Advisors" or the "Corporation"), a licensed mortgage broker under Massachusetts General Laws chapter 255E, section 2 and its implementing regulation 209 CMR 42.00 et seq., to cease and desist from transacting business in the Commonwealth as a mortgage broker; revocation of American Advisors' Massachusetts mortgage broker license, number MB5106; and such other equitable relief as may be necessary due to American Advisors' failure to maintain and exercise the financial responsibility, character, reputation, integrity, and general fitness that would warrant the belief that its business will be operated honestly, fairly, soundly, and efficiently in the public interest in violation of Massachusetts General Laws chapter 255E, section 4 and the Division's regulation 42.06(2)(c).

    JURISDICTION AND VENUE

  2. The Division, through the Commissioner, is an agency of the Commonwealth of Massachusetts with jurisdiction over matters relating to the licensing and operation of those persons engaged in the business of a mortgage broker pursuant to Massachusetts General Laws chapter 255E.
  3. The Division, through the Commissioner, also has jurisdiction over the licensing and regulation of persons engaged in the business of a mortgage loan originator in Massachusetts pursuant to Massachusetts General Laws chapter 255F, section 2 and its implementing regulation 209 CMR 41.00 et seq.
  4. At all relevant times, American Advisors has been engaged in the business of a mortgage broker of residential property in Massachusetts.

    RESPONDENT

  5. At all relevant times, American Advisors has been a foreign corporation conducting business in the Commonwealth of Massachusetts with its main office is located at 16808 Armstrong Avenue, Suite 220, Irvine, California.
  6. American Advisors is licensed by the Commissioner as a mortgage broker under Massachusetts General Laws chapter 255E, section 2. According to records maintained on file with the Division, the Commissioner initially issued a mortgage broker license, license number MB5106 to American Advisors to engage in the business of a mortgage broker on or about May 20, 2008. License number MB5106 authorized American Advisors to conduct its mortgage broker business from the Corporation's main office located at 16808 Armstrong Avenue, Suite 220, Irvine, California.

    REGULATORY BACKGROUND

  7. On September 24, 2008, the Division issued a TEMPORARY ORDER TO CEASE AND DESIST, Docket No. 2008-022 (the "Temporary Order"), against American Advisors based upon information reflected in a consumer solicitation regarding reverse mortgage loans received by Massachusetts consumers from American Advisors which contained language that had the tendency to be false or misleading.
  8. On October 21, 2008, American Advisors entered into a STIPULATION AND CONSENT TO THE ISSUANCE OF A CONSENT ORDER ("Consent Order") with representatives of the Division, to resolve matters identified in the Temporary Order. The Consent Order is incorporated herein by reference.

    (i) Substantial Non-Compliance with the Terms of a Consent Order

  9. Paragraph 1(a) of the Consent Order states:

    American Advisors shall revise its advertising practices and procedures to ensure that all solicitations and advertising materials used by the Corporation do not contain any representations or statements that could be considered false, misleading, or have the tendency or capacity to be misleading.

    1. American Advisors shall take all necessary steps to ensure that the Solicitation or any similar solicitation is not published or distributed to consumers in Massachusetts;
  10. Paragraph 8 of the Consent Order states:

    Failure to comply with the terms of this Consent Order shall constitute grounds for license suspension and/or revocation pursuant to applicable provisions of the General Laws of the Commonwealth of Massachusetts.

  11. Massachusetts General Laws chapter 93A, section 2(a) states:

    Unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful.

  12. The Attorney General's regulation 940 CMR 8.06(1) states, in part:

    It is an unfair or deceptive act or practice for a mortgage broker or lender to make any representation or statement of fact if the representation or statement is false or misleading or has the tendency or capacity to be misleading.

  13. On or around April 15, 2009, the Division received from a consumer, a copy of a reverse mortgage loan solicitation ("Solicitation") received by a Massachusetts consumer from American Advisors. A copy of the Solicitation is attached as Exhibit 1 pdf format of aag06292009.pdf
. The format of the Solicitation forwarded to the Division was in a similar format to the consumer solicitation previously issued by American Advisors and referenced in Paragraph 7 of this Order and Notice.
  14. The Solicitation was mailed from the "Administrative Offices" of the Corporation and contained a header, entitled "2009 Economic Stimulus Plan-HECM PROGRAM," and contained a reference to a property identification number. The body of the Solicitation referenced a "2009 Increased Lending Limit" of $417,000, a dollar amount that was inaccurate based upon an additional reference to the American Recovery and Reinvestment Act which increased the reverse mortgage maximum claim amount to $625,500. The Solicitation further indicated that the increased lending limit would only be available through the end of 2009. The Solicitation also included information that outlined the "Estimated Qualification Based on FHA Lending Limits," which reflected information about the targeted consumers age, monthly disbursement, lump sum payment qualification as well as the available credit line, under a reverse mortgage program. The reflected information included a reference to a footnote located adjacent to each of the aforementioned factors-age, monthly disbursement, lump sum payment qualification and credit line-in a font size that was significantly smaller to the pertinent information. The information that was contained in the footnote was located on the reverse side of the Solicitation and was in a lighter color text and set in a light background, which made the information difficult to read.
  15. The information reflected in the footnote of the Solicitation discussed the potential factors that would limit the payment streams including a final appraisal of the property and other ancillary costs associated with obtaining a reverse mortgage loan, concerns that were raised by the Division at the time of the issuance of the Temporary Order previously issued by the Division and referenced in Paragraph 7 of this Order and Notice, since this information was cited as critical information that would be important for a consumer to know prior to entering into a reverse mortgage transaction.
  16. On or around April 21, 2009 the Division was forwarded a copy of another consumer solicitation received by a Massachusetts consumer that contained similar language to the April 15, 2009 Solicitation forwarded to the Division. The format of the April 21, 2009 solicitation was a duplicate of the past mailing forwarded by the Corporation, to Massachusetts consumers and referenced in Paragraph 13 of this Order and Notice, however the April 15, 2009 solicitation contained a reference to the proceeds of the reverse mortgage being "TAX FREE income" with a footnote reference in a font that was smaller advising the consumer to seek advice from a tax advisor, this additional information was also located on the reverse side of the Solicitation in a lighter color text and set in a light background, which made the information difficult to read. A copy of the Solicitation is attached as Exhibit 2
  17. Both Solicitations forwarded to Massachusetts consumers notified consumers that additional information would be provided to the consumer, without risk or obligation if the consumer contacted the Corporation before April 24, 2009.
  18. The Division's review of the Solicitations referenced in Paragraph 13 and 16 of this Order and Notice and mailed to Massachusetts consumers revealed that the Solicitations were significantly similar to the consumer solicitation mailed to Massachusetts and referenced in Paragraph 7 of this Order and Notice.
  19. On or around April 24, 2009, the Division's representatives contacted American Advisors via teleconference to discuss the concerns raised by the events referenced in Paragraphs 13 through 17 of this Order and Notice. During the teleconference, American Advisors informed the Division's representatives that only a "couple of thousand" Solicitations had been mailed to Massachusetts consumers.
  20. In a letter dated May 1, 2009 to the Division, American Advisors indicated that approximately 16,000 Solicitations had been mailed to Massachusetts consumers, in a subsequent communication with the Division, American Advisors indicated that approximately 20,000 solicitations had been mailed to consumers.
  21. On or around May, 11, 2009, the Division forwarded a request via e-mail to American Advisors and requested that the following items be forwarded to Division by May 15, 2009:
    1. A complete loan list of all loans originated to Massachusetts consumers since October 1, 2008 to present;
    2. A complete listing of all 16,000 consumers who received the Solicitations;
    3. American Advisors current financial statements; and
    4. Copies of the policies and procedures implemented by the Corporation to approve the Solicitations.
  22. On May 15, 2009, in response to the Division's request, American Advisors forwarded the requested information to the Division. The information provided revealed that approximately 24,576 Solicitations had been forwarded to Massachusetts consumers.

    (ii) Failure to Disclose Mortgage Broker License Number

  23. The Division's regulation 209 CMR 42.15 states in part;

    A Licensee shall also disclose the type and number of its license(s) in all advertisements.

  24. The Solicitations forwarded to Massachusetts consumers and referenced in Paragraphs 13, and 16 of this Order and Notice included an incorrect reference to the Massachusetts mortgage broker license held by American Advisors.

    (iii) Failure to Provide Notification of Regulatory Actions

  25. The Division's regulation at 209 CMR 42.12(1)(c) states, in part:
    1. A Licensee shall notify the Commissioner immediately, and in writing within one business day, of the occurrence of any of the following significant developments: . . . (c) Receiving notification of the institution of license denial, cease and desist, suspension or revocation procedures, or other formal or informal regulatory action, in any state against the Licensee, and the reasons thereof.
  26. On December 16, 2008, the State of Washington's Department of Financial Institutions issued a Statement of Charges (Docket No.: C-08-353-08-SC01), ("Statement of Charges") against American Advisors, Reza Jahangiri, sole owner of American Advisors and two additional individuals associated with the Corporation.
  27. The Statement of Charges alleged that:
    1. American Advisors engaged in unfair or deceptive practices by engaging in false and deceptive advertising by mailing approximately 72,000 Washington state consumers a direct mail solicitation designed to resemble a government mailing, similar to that mailed to Massachusetts consumers and referenced in Paragraph 7 of this Order and Notice;
    2. American Advisors engaged in apparent violations of the Federal Trade Commission Act as a result of the information contained in the direct mailings forwarded to approximately 72,000 consumers; and
    3. American Advisors failed to notify the Director of State of Washington's Department of Financial Institutions within 10 days of the filing of the Temporary Order issued by the Division and referenced in Paragraph 7 of this Order and Notice.
  28. As of the effective date of this Order and Notice, the Division has not received notification from American Advisors of the occurrence of the events referenced above in Paragraphs 26 and 27 of this Order and Notice.

    (iv) Failure to Implement and Maintain Required Revised Procedures

  29. Paragraph 1(c) of the Consent Order states:

    American Advisors shall revise its advertising practices and procedures to ensure that all solicitations and advertising materials used by the Corporation do not contain any representations or statements that could be considered false, misleading, or have the tendency or capacity to be misleading.

    American Advisors shall establish, implement and maintain policies and procedures to ensure that all advertisements are thoroughly reviewed by senior management prior to publication or distribution to consumers. Such procedures shall include a review of the criteria utilized to generate mailing lists to ensure that targeted solicitations are appropriate for the consumers to whom such solicitations are distributed;

  30. A review of the Solicitations distributed by American Advisors to approximately 24,000 Massachusetts consumers revealed that American Advisors forwarded Massachusetts consumers Solicitations that contained an inaccurate reference to the Corporation's license and inaccurate information about the provisions of the American Recovery and Reinvestment Act as they related to reverse mortgages.
  31. A review of the information provided to the Division pursuant to Paragraph 21 of this Order and Notice, specifically, the Corporation's marketing policies and procedures revealed that American Advisors failed to ensure that all advertisements were reviewed by senior management prior to publication and distribution, as the policies and procedures provided to the Division simply indicated that the "Compliance Department" reviewed all marketing pieces prior to external counsel reviewing the document.

    (v) Failure to Provide Access to Books and Records

  32. Massachusetts General Laws chapter 255E, section 8 states, in part, that:

    Each licensee shall, when directed by said commissioner, permit said commissioner or his duly authorized representative to inspect its relevant records and evidence of compliance with the provisions of this chapter or any rule or regulation issued hereunder and with any other law, rule or regulation applicable to the conduct of the business for which it is licensed under this chapter . . . . For the purposes of such inspection, said commissioner or his representative shall have access to the offices and place of business, books, accounts, papers, records and files of all such licensees.

  33. The Division's regulation governing the maintenance of books and records, at 209 CMR 48.04 states, in part:

    "Each Licensee shall keep and use its books, records, and accounts within the Commonwealth, except, however, that with the prior approval by the Commissioner of a written plan, a Licensee may keep such books, records, and accounts at a location, or locations, outside of the Commonwealth. Such written plan shall contain:

    (1) an agreement to provide access, within 72 hours of an official request, to any requested books, records, and accounts to a suitable and mutually agreed upon location within the Commonwealth for the purpose of examination…"

  34. Pursuant to the Division's regulation 209 CMR 48.04, the Commissioner approved American Advisors out-of-state record keeping plan, allowing the Corporation to maintain its books and records at its main office in Irvine, California.
  35. The out-of-state record keeping plan referenced in Paragraph 34 of this Order and Notice provides that, in response to a request from the Division, American Advisors shall send requested books, records and accounts to the Division's offices in the Commonwealth for the Division's examination/inspection purposes.
  36. On Thursday, February 26, 2009, pursuant to Massachusetts General Laws chapter 255E, section 8, the Division requested access to American Advisor's books and records for the purpose of assessing the Corporation's level of compliance with applicable Massachusetts statutes and the Division's regulations governing the conduct of those engaged in the business of a mortgage broker in the Commonwealth.
  37. On February 26, 2009, the Division's examiner e-mailed American Advisors a "first-day letter" to an e-mail address provided by the Corporation to the Division and maintained in the Division's records. The "first day letter" required that the requested information be made available to the Division no later than ten business days from the date of the letter. The records requested included, but were not limited to:
    1. Copies of four (4) Massachusetts owner-occupied residential loan files in their entirety processed by the Corporation; and
    2. A list of all loans processed for owner-occupied residential property in Massachusetts since being licensed.
  38. As of the April 24, 2009, teleconference held with American Advisors and referenced in Paragraph 19 of this Order and Notice, the Corporation had not complied with the Division's request for books and records.
  39. On or around April 27, 2009, the Division notified American Advisors of the Corporation's failure to comply with the Division's request and American Advisors thereafter forwarded the requested files to the Division, which were subsequently received on June 1, 2009.

    VIOLATIONS

    NOW THEREFORE, the Division hereby sets for the Charges against American Advisors:

  40. The Division re-alleges and incorporates by reference Paragraphs 1 through 39 of this Order and Notice as though fully set forth.
  41. CHARGE ONE: American Advisors has failed to demonstrate the character, reputation, integrity, and general fitness that would warrant the belief that the business will be operated honestly, fairly, and soundly in the public interest in violation of Massachusetts General Laws chapter 255E, section 4 and the Division's regulation 209 CMR 42.06(2)(c).
  42. CHARGE TWO: By mailing Massachusetts consumers Solicitations containing false or misleading language, or language that had the tendency to be false or misleading, including inaccurate statements regarding the lending limits for reverse mortgage transactions, American Advisors has violated Massachusetts General Laws chapter 93A, section 2(a), and the Office of the Attorney General's implementing regulation 940 CMR 8.06(1) and the Consent Order.
  43. CHARGE THREE: By mailing Massachusetts consumers Solicitations that failed to disclose the license number held by American Advisors, the Corporation has violated the Division's regulation 209 CMR 42.15.
  44. CHARGE FOUR: American Advisors failed to notify the Commissioner in writing, within one business day, that on December 16, 2008 the State of Washington's Department of Financial Institutions issued a Statement of Charges against American Advisors in violation of the Division's Regulation 209 CMR 42.12(1)(c).
  45. CHARGE FIVE: American Advisors failed to establish, implement and maintain policies and procedures to ensure that all advertisements were thoroughly reviewed by senior management prior to publication and distribution to consumers in violation of Paragraph 1(c) of the Consent Order.
  46. CHARGE SIX: American Advisors failed to provide the Division's representatives with access to the Corporation's books, accounts, records and files to permit an inspection of such records, in violation of Massachusetts General Laws chapter 255E, section 8.
  47. CHARGE SEVEN: American Advisors failed to provide the Division's representatives with access to the Corporation's books, accounts, records and files to permit an inspection in violation of the Division's regulation 209 CMR 48.04(1), which requires that such records be provided within 72 hours of an official request and in violation of American Advisors' out-of-state record keeping plan approved pursuant thereto.
  48. CHARGE EIGHT: Had the facts and conditions found therein existed at the time of American Advisors' original mortgage broker license application, the Commissioner would have been warranted in refusing to issue such license. Further, the facts and conditions set forth in Paragraphs 1 through 39 present sufficient grounds for the revocation of American Advisors' mortgage broker license pursuant to Massachusetts General Laws chapter 255E, section 6 and the Division's regulation at 209 CMR 42.07(2)(b).

    PRAYER FOR RELIEF

  49. WHEREFORE, the Division, by and through the Commissioner , prays for a final decision as follows:
    1. For a final Agency decision awarding temporary and preliminary injunctive relief, and any other ancillary relief, as may be necessary to protect the public interest during the pendency of this matter.
    2. For a final Agency decision in favor of the Division and against American Advisors for each Charge set forth in this Order and Notice.
    3. For a final Agency decision ordering American Advisors to cease and desist from transacting business in Massachusetts as a mortgage broker.
    4. For a final Agency decision ordering American Advisors to immediately place any pending residential mortgage loan applications and related files with an independent, licensed Massachusetts mortgage lender or other qualified lender in Massachusetts, with no costs to the applicant.
    5. For a final Agency decision revoking American Advisors' mortgage broker license, number MB5106 to conduct business as a mortgage broker in Massachusetts.
    6. For costs and fees of the Division's investigation of this matter; and
    7. For such additional equitable relief as the Presiding Officer may deem just and proper.

    NOTICE OF RIGHT TO A HEARING

  50. You or your authorized representative are required to file an Answer or otherwise respond to the Charges contained in this Order and Notice within twenty-one (21) days of the effective date of this Order and Notice, pursuant to the Standard Adjudicatory Rules of Practice and Procedure, 801 C.M.R. §§ 1.01 (6)(e). Failure to do so may result in a default judgment against you. The Answer, and any subsequent filings that are made in conjunction with this proceeding, shall be directed to the Administrative Hearings Officer, Division of Banks, with a copy to Prosecuting Counsel.

    All papers filed with the Division shall be addressed to the attention of:

    Administrative Hearings Officer
    Division of Banks
    One South Station, 3 rd Floor
    Boston, Massachusetts 02110
    Prosecuting Counsel for this matter is:

    Aimee Desai, Esq.
    Division of Banks
    One South Station, 3 rd Floor
    Boston, Massachusetts 02110

  51. You are further advised that American Advisors has the right to be represented by counsel or other representative, to call and examine witnesses, to introduce exhibits, to cross-examine witnesses who testify against American Advisors, and to present oral argument. The hearing will be held at a date and time to be determined and will be conducted according to Massachusetts General Laws, chapter 30A, sections 10 and 11, and the Standard Adjudicatory Rules of Practice and Procedure, 801 CMR 1.01 and 1.03.
  52. You or your representative may examine any and all Division records relative to this case prior to the date of the hearing, during normal business hours, at the office of the Prosecuting Counsel. If you elect to undertake such an examination, please contact the Division at (617) 956-1527 in advance to schedule a time that is mutually convenient.

BY ORDER AND DIRECTION OF THE COMMISSIONER OF BANKS.

Dated at Boston, Massachusetts, this 29th day of June, 2009

By: Steven L. Antonakes
Commissioner of Banks
Commonwealth of Massachusetts

This Order was terminated pursuant to a Consent Order on February 2, 2010.