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Home / Articles / News / Cover Story /  White Collar Greed Page 5
Cover Story

White Collar Greed Page 5

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 - The Blame Game
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?”

More: Revenge or Reform: Two Republican legislators are determined to short-leash state securities watchdogs

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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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