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Home / Articles / News / Cover Story /  White Collar Greed Page 2
Cover Story

White Collar Greed Page 2

Some Utah businessmen say the Utah Division of Securities treats them like common thugs. What’s the problem?

By Eric S. Peterson
Posted // July 30,2008 - Make it hurt
After a recent state legislative audit subcommittee discussing the investigation of UDS ended, Bird was pumping hands triumphantly all around the Capitol meeting room. He had reason to celebrate. For two years, Bird had been sitting in similar committee rooms pitching a bill to overhaul the UDS. At a House Business and Labor Committee meeting last year, Bird read a quote from then-UDS Director Klein, where Klein was to have said that the division’s fines would be determined by what would “make it hurt.” Bird was outraged. “The idea of, ‘What are we going to do to make this individual pay?’ to me is wrong, has been wrong and will continue to be wrong,” Bird said at the time.

Bird feels the audit validates his rage. “The whole [division] is a huge mess, and it needs to be fixed,” he says, citing references in the audit that UDS lacked guiding rules. During their investigation, auditors found the most recent book of division policies and procedures was a discarded 1993 manual. Bird believes the dearth of guidelines allowed Klein to run wild with the division.?

Bird brought “Case No. 1” of the audit to a House committee last session. It dealt with Gary Teran, president of First Western Advisors, a longstanding Utah brokerage firm. Teran claims Securities ambushed his business in 2007.

“For two years, our company was under [UDS] investigation without our knowledge,” Teran testified last year. Teran says he first heard of the investigation when a reporter called for comment on fraud charges leveled against him in a UDS press release. The division alleged First Western misled investors into mutual fund options that gave fat commissions to Teran and his agents when there were better options available for investors that weren’t disclosed to them.

“They were trying to take my license away completely without notice,” Teran said. After 27 years in the business, Teran said he would fight the division to the end. On March 30, 2007—shortly after issuing its announcement—UDS dropped charges against Teran and apologized publicly for any damage the publicity caused.

“These guys weren’t upfront when they sent out the press release,” Bird says. “Well, when push came to shove, what did we find out? That [First Western was innocent], and the division issued a very rare apology. That’s a bitter pill to swallow.”

The Teran case was a black eye for UDS. In retrospect, Klein says, “I wish it had been handled differently.” But his regrets wouldn’t please his critics; Klein only wishes his agency had brought the case earlier.

“[Teran] talks about how wrong it was for First Western to be investigated,” Klein says “Yet, they all consented to orders to change their practices and offer refunds.”

While critics alleged Securities ran a “secret investigation” that flaunted all due process by not interviewing victims or suspects, Klein says UDS operated off evidence the federal Securities and Exchange Commission had collected in its own investigation of First Western.

That evidence included sworn testimony from an investor who told the SEC that Teran never disclosed different share options available for the $1.5 million he was placing with First Western. The investor wasn’t informed that Class A shares would have been a better deal over Class B shares, documents state. Teran netted $11,900 more in commissions by failing to inform the investor of the Class A option, according to documents. Teran disagrees with the SEC’s math on B shares versus A shares and says there wasn’t any clear industry standard to show he had done wrong.

Teran and three of his brokers did eventually settle with UDS without admitting any guilt. In turn, the division dropped charges and First Western agreed to offer investors their money back. Almost one year later, Klein would be forced out as UDS director over the ensuing furor, even though the Teran case had been with the agency prior to Klein’s employment.

Klein says that during his transition to the division the SEC’s evidence was lost in the shuffle for nearly a year and a half. When UDS pushed to revoke Teran’s license, the agency’s own hearing officer dropped the charges because investigators had failed to file the suit within a required 120 days of renewing Teran’s license. The option to fine and censure First Western was still available until the settlement, Klein says. Klein changed UDS policy after the Teran case to require investigators conduct their own interviews—even if they had evidence from another agency.

Teran emphasizes that some evidence went back to 1998. “They should have limitations on how long they let these things go before they bring an action.”

Klein was still sure of his evidence—confident enough to publish charges on UDS’s Website. “Our credibility in the government is that we don’t make allegations that we’re not sure we’re right on,” he says.

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REPLY TO THIS COMMENT
Posted // September 25,2008 at 12:11 Great article. I predict Bird will eventually be investigated for fraud.

 

REPLY TO THIS COMMENT
Posted // August 8,2008 at 08:47 While I had originally felt it was unnecessary to respond to the comments of Wayne Klein in the City Weekly of July 31st, 2008, I want to be sure that in all of the rhetoric that both sides of the story be fully considered so that we can move forward with Legislative proposals that reflect industry concerns. Hence my comments sent to the editor yesterday....nn nnTo the Editor:nn nnI want to hopefully correct some conclusions your readers may have drawn based on the quotes by Mr. Wayne Klein in your July 31st, 2008 article entitled “White Collar Greed”. Some of his quotes and my rebuttal are as follows:nn nn1-“Teran talks about how wrong it was to be investigated”. What I actually have said is that it was wrong for us to be investigated without our knowledge or for UDS to draw conclusions and file a case without speaking to us. We welcome being “investigated”. We have been audited on share class recommendations (and other issues) by the NASD (now FINRA) in 1999, 2001, 2003, 2005, and 2007 for up to two weeks at a time. The UDS did not contact us at any time prior to their filing.....ever. Had they bothered to ask us first, we would have told them that my client had added diversification, commission discounts for stocks, free mutual fund exchanges and performance that beat the S & P 500 during the period these mutual funds were held. UDS didn’t bother to check how our recommendations actually performed prior to filing a case. Perhaps their filing may have been different had they checked first.nn nn2-“Yet they all consented to orders that they change their practices and offer refunds”. Our clients were dragged into this without having complained to regulators (they didn’t know about the investigation either). We preferred to offer them a refund (some did not accept) after the State agreed to publish an apology for which we were appreciative. The refunds were hundredths of a per cent of the transactions we processed for them. That being said, we welcome regulatory suggestions and want to do better. If there is a problem, we want to fix it.nn nn3-Speaking of the subjects of his investigations he states, “Ok, you got me here’ the money back, do you not arrest him”? Yet later in the article he confesses that when he realized that holding a check violated a statute, he immediately turned it over to the state fund. Why wasn’t he immediately arrested? Is there a double standard for state employees who violate statutes?nn nn4-Speaking of UDS, he says, “You’re not going to be able to anticipate all of the policies you might need”. That’ ironic given that was exactly his position with First Western Advisors since we were being held accountable for actions going as far back as 1994.nn nn5-Klein notes that defendants could always request a hearing officer outside the Department of Commerce. What Klein didn’t note was that the defendant had to pay for an outside judge. So, in addition to paying the extraordinary cost of defense, they gave us the kind offer (sarcasm intended) of paying for the outside judge. I had never in my life heard of such a thing until our experience with the UDS.nn nn6-“Our credibility in the government is that we don’t make allegations that we’re not sure we’re right on”. Perhaps Mr. Klein should make a quick call to Dr. Steven Hatfill, the scientist wrongfully charged with the 2001 anthrax murders, now that Bruce Ivins has committed suicide in anticipation of an indictment. Dr. Hatfill might have some insight into the government’ ability to self assess its cases. Remember, Mr. Klein was to be the Judge of the First Western Advisors...he is basically saying he has rendered a verdict before hearing the case. His assertion that the “government” doesn’t make improper allegations should have been sufficient grounds for his dismissal had he not chosen to resign. It’ Orwellian.nn nnFortunately, Mr. Klein will never hear any other cases because he did resign. If the City Weekly has evidence otherwise (forced out), I am interested to see it. It is also fortunate because rarely have I encountered an individual so unwilling to recognize that we licensed representative are not the enemy of the state. It’ amazing how many times words like “investigation”, “thief”, “jail”, “punish”, “O.J.” , and “cop” (among others) find their way into his lexicon. Perhaps Mr. Klein should add another word to his vocabulary “prejudice”, a word that should never be appropriate in government oversight. We want to do the right thing but we want the same Constitutional protections afforded every citizen, due process, speedy justice, presumption of innocence, interviewing our accusers, et al. We were denied all of these protections in our case.nn nnFinally, I believe that with the help of the Legislature, positive changes will be made at the Division and at First Western Advisors and we look forward to working with the new UDS Director (Keith Woodwell) in making Utah one of the best places in the country for investors and advisors alike.nn nn nn nnGary W. TerannnPresident & CEOnn nnFirst Western Advisorsnn6440 S. Millrock Drive, Suite 150nnHolladay, UT 84121nnPhone: (801) 930-6500nnFax: (801) 930-6501nn nn nnInformation contained herein is gathered from sources deemed reliable but is not guaranteed nor is it intended as a solicitation or an offer to purchases or sell securities mentioned herein. Past performance does not guarantee future results.nn nnNOTICE REGARDING ENTRY OF ORDERS AND INSTRUCTIONS: Please do not transmit orders regarding your First Western Advisors (FWA) account(s) via e-mail. First Western Advisors will not accept orders transmitted by e-mail, and FWA will not be responsible for carrying out such orders and/or instructions. nn nnNOTICE REGARDING PRIVACY AND CONFIDENTIALITY: First Western Advisors has the regulatory responsibility to review incoming and outgoing correspondence of its customers. FWA therefore reserves the right to monitor and review the content of all e-mail communications sent and/or received.nn nnTo opt out of this email at any time, please submit an email request to compliance@fwainvest.com.

 

REPLY TO THIS COMMENT
Posted // August 8,2008 at 06:59 Top ten things hated by left wing liberal journalists:nn1. Godn2. Weak Coffeen3. Ironyn4. the White Collar classn5. the Sunn6. Popular Musicn7. Local Governmentn8. SUV’sn9. Holidaysn10. George Bushnnprevious to this article i thought local government would be closer to the top. but i’m always learning thanks to unbiased, and unprejudiced reporting. (oops i forgot to add sarcasm to the list.)

 

REPLY TO THIS COMMENT
Posted // August 4,2008 at 16:51 A completely objective third party legislative body of the Utah Government.nnSure. And if you believe that, then Rick Koerber has some land to sell you in the west desert - the development boom out there is right around the corner!

 

REPLY TO THIS COMMENT
Posted // August 4,2008 at 14:49 Yes, anonymous, but who wrote the audit? Paid staffers of Curtis, Bird, and Wimmer (and by proxy, paid staffers of the crooks who have those three, plus Shurtleff, in their back pocket)!nnActually it was Tim Osterstock, Susan Verhoef, and David Pulsipher, from the Office of the Legislative Auditor General. A completely objective third party legislative body of the Utah Government. Of course you would have known that had you read the Audit in the first place. nnSure it’s more fun to conjure up notions of conspiracies and corrupt legislators, but maybe in this case, Wimmer, Curtis, and Bird, (despite any political shortcomings) we’re actually dead on right about this one.

 

 
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