Fraud Fighting Bills Face Sen. Business Committee | Buzz Blog

Wednesday, February 2, 2011

Fraud Fighting Bills Face Sen. Business Committee

Posted By on February 2, 2011, 11:42 AM

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The Senate Business and Labor Committee heard a bill to enhance penalties for affinity fraudsters and one to reward whistleblowers of fraud schemes. ---

Sen. Ben McAdams, D-Salt Lake City introduced a pair of fraud-fighting bills aimed at addressing Utah’s rampant fraud problem. “The FBI discovered over the past summer that investment fraud in Utah has taken more than $1.4 billion from investors,” McAdams told the committee. “To put that in perspective the Utah ski industry is valued at $700 million. Fraud is an issue we need to take seriously.”

The first bill McAdams pitched was Senate Bill 101 that would enhance criminal and administrative penalties against affinity fraudsters as well as fraudsters who prey on vulnerable adults—those with physical or mental impairments that affect their judgment in investing their money. The enhancements would target con artists who knowingly take investments from a person’s retirement fund or the equity from their primary residence. It would also target those who use a position of trust to solicit an investment. McAdams was quick to point out however that the bill would exclude those in an investment adviser position. (Click here for the rundown this bill received from a Dec. 1, 2010 Sentencing Commission hearing.) 

Sen. Karen Mayne, D-West Valley had reservation that the enhancement would affect family members of a vulnerable adult since, family are often charged with managing the finances of relations with disabilities. Keith Woodwell, Director of the Utah Division of Securities said the enhancement would indeed apply to those individuals—if they had already been convicted of securities fraud. “Sadly we do have cases like that where one family member has committed securities fraud against another family member,” Woodwell told the committee.

The bill passed unanimously out of the committee. McAdams’ second securities bill did not fare as well, although it was not shut out entirely as the meeting was adjourned in the midst of discussion. SB 100 was proposed as a kind of a whistleblower bill that would use funds from the Utah Division of Securities education fund to compensate fraud victims into coming forward about a scheme as soon as possible.

McAdams told the committee that many times fraudsters will threaten their victims by saying that complaining to the authorities will mean they won’t get their money back. “What I’m trying to do is reverse the economic incentive to stay quiet and create an incentive to come forward. That way we can collect a fine [from the fraudster] and use that to reward the reporter.”

Woodwell pointed out that if tips came in sooner his division would have more power to actually get investments back by freezing the fraudster’s assets. As it stands now most investors don’t report a scheme until the bitter end. “Most investors come to us when the hopes of recovery are nearly zero,” Woodwell told the committee.

The bill hit hurdles over how it would affect employers who might face state protections for their own employees that might blow the whistle. Paul Rogers, a lobbyist for Fidelity Investments told the committee his company would like to be exempted from such a law since they already follow federal whistleblower laws on top of having internal policies that require employees to report unethical or fraudulent behavior. Sen. John Valentine, R-Orem also had concerns about what he perceived as the bill’s ability to give employees too much power.

“Would this give employees a private action to enforce federal law? Is that something we want to do?” Valentine asked the sponsor. Woodwell noted that the bill was meant to allow a private employee to invoke federal protections only if their employer tried to punish them for whistle blowing on a fraudulent scheme by firing them or disciplining them in some other manner.

The committee clearly had reservations about how SB 101 might burden Utah businesses—a point which had to wait for the next meeting as the committee adjourned for Senate floor time.

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