With the release earlier this month of a legislative audit blasting the Utah Division of Securities (UDS) for mismanagement and heavy-handed investigative tactics, Rep. Bird, R-West Jordan is calling for reform in the division. Bird’s colleague, Rep. Carl Wimmer, R-Herriman, says reform is not enough. Wimmer, a friend and associate of an individual under a UDS fraud investigation, is urging the state agency be dissolved.
The reforms Bird will be pushing in 2009 are the same ones he has advocated since he was first elected two years ago. Bird hopes the audit’s harsh criticism of UDS will give his bill new legs in the upcoming legislative session.
A securities salesman himself, Bird believes his bill is hardly controversial. “It would [create] a place where brokers can go and have their side of the investigation heard, that’s all that it is,” he says.
UDS currently has an advisory board that makes suggestions on budget and procedures. The board must approve of the division’s education fund and to sign off on actions taken against licensed securities agents. Bird’s legislation would convert the advisory board into an independent commission that could rule against the division before it files charges against an individual. The governor would appoint five members to the commission. Two members would come from the industry; one from the business community; one would be a lawyer and one would come from the general public.
Francine Giani, director of the state Department of Commerce (which oversees UDS) has assured the Legislature many of the audit’s recommendations have been put into place. The audit criticized the division for using outdated policy manuals; Giani says they have been updated. She maintains the only outstanding issue is how to set up the separate commission. Giani declined comment for this story but recently told the Daily Herald she would favor patterning the panel after Utah Board of Realtors, which is regulated by fellow real estate industry members, and is similar to Bird’s proposal.
Yet a critical difference exists between the two plans. Giani’s model would allow the commission to weigh in on cases of its own licensees, while Bird wants his commission to hear cases also of those accused of selling securities without a license. The clear majority of securities fraud cases involve unlicensed securities dealers who are still subject to securities laws.
Bird doesn’t believe as former Utah Division of Securities Director Wayne Klein does—that the new commission would impede the process of winnowing out the bad guys. “I don’t think [it would slow down investigations],” Bird says. “Most [cases] go to the advisory board now.”
The current advisory board, however, doesn’t deal with cases against dealers for selling unlicensed securities, so the new commission would have a much greater workload, indeed. Experts have indicated the ratio of licensed securities fraud to unlicensed fraud is roughly 9:1. Klein believes this heavy new caseload for the commission would bog down the process of already time-consuming investigations.
Bird’s reform would be significant if passed next session but would not be nearly as drastic as the legislation that Wimmer supports. “Ultimately, I would like to see the Division of Securities taken out of the Department of Commerce and moved into the Attorney General’s office,” Wimmer says. The move would effectively end the UDS’ autonomy and its ability to police investment fraud. Wimmer believes that with the stories he’s heard of the division’s overzealous tactics, a complete end is necessary.
A retired police officer, Wimmer is best known among legislators for criminal justice bills. Securities regulation is a relatively new focus for him, but he does have some friendly advice. Rick “The Free Capitalist” Koerber, a Utah county businessman, radio talk show host and subject of several lawsuits and an ongoing UDS fraud investigation, has long claimed Wimmer as an ally. Wimmer says he was a former student of Koerber’s American Founders University but is now just a friend and an associate. (For more on the Wimmer/Koerber connection check out this weeks feature here.)
It’s safe to say that Koerber has Wimmer’s ear, especially considering that Wimmer’s plan for dissolving the current division borrows from Koerber’s own demands for change he has posted on his online The Free Capitalist Daily News, under an article about the legislative audit headed with a crudely drawn cartoon depicting Gov. Jon Huntsman Jr. asleep at the wheel of a car labeled “Utah Government.” Koerber announced in this article he will be posting an online petition to have UDS moved under the Lieutenant Governors office with all securities investigations being taken over by the Attorney General’s office. Koerber also demands that all business owners who plead guilty to fraud through settlement with UDS in the past be given full pardon because of the audit’s criticism of investigators’ methods.
Wimmer feels justified in supporting his friend Koerber. “As a legislator, if a person brings an issue to me I take no position on their issue at the time. I will look at the issue with an open mind,” Wimmer says. Koerber himself doesn’t see how there could be any conflict of interest either. “I’m a citizen of Utah,” Koerber says. “And I think all citizens have a right to see the Securities Division functioning fairly.”
Still, Wimmer realizes pushing for shelving Securities under the AG’s office might be considered a conflict of interest because of his relationship with Koerber. So Wimmer offers a solution: He’ll just have some other legislator run the bill for him.
“I [wouldn’t] want to be in a piece of legislation where I am that personally involved,” Wimmer says.
One man who has had his struggles with UDS hopes for a more collaborative approach in the future. Gary Teran, who had settled with UDS in 2007 for allegedly misleading investors on mutual share options, believes communication between brokers and the division could solve a lot of problems. In his case, he wishes UDS would have made a rule against the types of shares he was selling instead of trying to make the point through prosecution. “Had they come and talked to us in advance [about rules against certain mutual shares] we would have adopted them,” Teran says. “Why wouldn’t we? We’ve been in the business for 27 years.”
Teran will be heading up a group called the Utah Securities Association that he hopes will work better with regulators in protecting the public. “We want to work jointly with the regulators,” Teran says. “We want to make [the system] better.”