One critic who was instrumental in helping fuel the legislative audit is Chuck Newton (below), president of the Utah Financial Planners Association. Newton believes Commerce Department director Francine Giani, who oversees UDS, should be ousted. Giani, who declined comment for this story, has held various posts under three consecutive governors. Not surprisingly, she is frequently criticized in business circles for siding too often with consumers.
“Francine has been around a long time so why hasn’t she been fired?” asks Newton, rhetorically. “Is it because she’s a woman? Or is it because the governor is just a wussy more interested in his career on the national scene than the people of Utah?”
Newton is deeply critical of UDS because of its plodding investigation of convicted con artist Val Southwick, the Ogden businessman whose Vescor company headed an elaborate Ponzi scheme that bilked more than 800 investors of $140 million.
“They sat on that case for two or three years,” Newton says. “They don’t like to go after unlicensed people.” Newton points out that Nevada attorney Craig Orrock had warned Utah investigators Southwick was running a Ponzi scheme in 2004 and nothing came of it.
This warning, however, was brought to the Commerce department two directors before Giani or Klein came on board. Even before Giani had officially taken her position, she helped create a Vescor task force in July 2005. Klein later on took over the group and pushed for more resources to conduct the first full-blown investigation into Southwick in 2006. The probe eventually led to fraud charges against Southwick February 2008. He was convicted and sentenced to federal prison on June 9 on nine counts of fraud, each carrying up to 15 years.
“Giani might say that this happened before her time,” Newton says. “But that’s not so with these cases [specified in the legislative audit].” Critics contend that under Giani’s tenure, UDS targeted licensed securities agents rather than going after more difficult cases involving unlicensed securities sales. Yet the audit’s third case actually mentions one individual affiliated with the subject of case No. 3 who pleaded no contest to fraud charges resulting from the sale of unlicensed securities totalling $11 million.
The focus of the audit’s third case is Rick Koerber, a Utah County radio talk-show host and business owner who touts “ancient principles of prosperity” as the key to wealth. Koerber has long alleged being in the cross hairs of UDS investigators, especially Wayne Klein. On an Aug. 31, 2007, episode of his Free Capitalist AM radio show, Koerber claimed UDS was investigating him, brazenly insulting investigators by charging they had the “IQ of a rat” and challenging them: “I’m not asking any favors from listeners or government employees—I’ve got nothing to hide.”
Koerber is also being sued by an elderly couple in Colorado who named him as a “control person” at the head of a Ponzi scheme that allegedly conned them out of $170,000 from their home’s equity, credit card advances and meager retirement savings. (For more on Koerber, see “House of Cards,” March 6, City Weekly.)
In interviews with City Weekly in February, Koerber acknowledged sharing office space with former colleague Paul Bouchard who, sources indicate, was listed in the audit as the person who pleaded no contest to the sale of $11 million in unlicensed securities. Koerber says he had no idea Bouchard was committing fraud. Bouchard pleaded no contest to two second-degree felonies, including fraud, on Dec. 4, 2007.
Koerber concedes he is the subject of Case No. 3 in the audit, but is disappointed that auditors limited their examination of his case due to the ongoing fraud investigation. Koerber says his evidence confirms the audit’s criticism of heavy-handed UDS tactics. Before the audit began, Koerber was on the offensive, taking his evidence to key political players.
Koerber used his own political contacts to attack UDS. Counting on Rep. Carl Wimmer, R-Herriman, whom Koerber says was a former student of his American Founder’s University, Koerber was able to gain an audience with House Speaker Greg Curtis to push for expediting the legislative audit, which at the time had yet to be approved. Curtis spokesman Chris Bleak acknowledges the meeting occurred but denies it resulted in fast-tracking the audit.
Wimmer says he’s not ashamed of his friendship with Koerber and was happy to arrange meetings for him with house leadership and even with the attorney general’s office. Koerber presented his own evidence he had been collecting, alleging to have audio recordings proving UDS investigators had tried to coerce former Koerber employees into lying to build a case against him. Chief Deputy Attorney General Kirk Torgensen remembers meeting with Koerber and seeing transcripts of his evidence last spring. “I remember the transcripts he gave us,” Torgensen says. “And I remember they didn’t show what he said they would.” Koerber’s reaction: “Really? I hadn’t heard that. That’s disappointing.”
According to former Koerber employee Rachelle Taylor—the worker whom Koerber refers to when he says investigators tried to manufacture complaints against him—this story was a complete fabrication. “[UDS] never, ever tried to get us to lie,” Taylor says. Koerber denies this. “She can characterize it however she wants,” Koerber says. Rachelle and her husband Kyle couldn’t speak much of their dealings with Koerber because of the ongoing investigation—except to vent their frustrations. “He’s just playing the blame game,” Kyle Taylor says.
The ring of Gyges
In a debate over human nature, a student of the Greek philosopher Socrates told the story of Gyges, a man who discovered a corpse hidden in a cave. The corpse had a ring that when worn by Gyges made him invisible. Cloaked from sight, Gyges found he couldn’t resist the temptation to become evil, knowing no one could see him.
The concept that injustice mushrooms when hidden is the accusation both sides make in the debate over the future management of the Utah Division of Securities. Critics hold the audit as proof that when unchecked, UDS acted like oppressive secret police. Conversely, division supporters worry that over-regulating the regulators will impair their ability to look out for the interests of legitimate investors. There is enough rampant fraud in Utah, they say, to justify aggressive oversight of the securities industry.
“I’ve done securities work for a long time, and it’s satisfying work,” Klein says. “I help little old ladies get their money back. I put bad guys in jail, and I help the good deals go through,” he says. Yet Klein remains perplexed over the criticism that he directed the division too much, even though “director” was his job title.
“One of the problems I was trying to deal with when I came [to UDS] was I knew there were cases that weren’t being brought that should have been. If the director’s not going to be the one to say, ‘We need to do this,’ who is?”