Division of Securities Audit
Utah has a fraud problem, as illustrated by the recent Ponzi-scheme conviction of Val Southwick and the indictment of Rick Koerber, alleged Ponziist. Koerber stories often mention that criticism or pressure has been aimed at the Utah Division of Securities by 2 members of the Utah House of Representatives and by the AG’s office. More accurately, that criticism/pressure often is aimed at the Director of the Department of Commerce, Francine Giani. Some of the criticism is pretty heated, including a recent claim by one of the Representatives that the Division is “corrupt.” The criticism is vaguely shored up by passing reference to a legislative audit of the Division. Yet, at least as far as I’ve noticed, none of the stories actually link to the audit report. (And that’s a shame, when it is so easy to empower people with a link to source material).
Here is the audit report. (It is item #7 in the link; I linked to the main page for all 2008 audits, to give a flavor for the type of work performed by the Utah Legislative Auditor General’s office (“LAG”)). I am proud of the LAG. Our legislative auditors play a key role in making Utah a well-managed state. They are thorough, professional, and fair. Much good legislation and/or agency reform flows from the LAG’s findings and suggestions.
The Performance Audit of the Division of Securities should (and did) give pause and direction to the Division, the Department of Commerce, and the Legislature. However, the audit itself does not paint the nightmare scenario that Koerber and others attempt to paint by referencing “the audit.” Like most audits, problems were identified and course-corrections were suggested. Basically, the audit found that the Division did not have adequate policies and procedures; as a result, the Division suffered personnel problems, a confusion of roles, and it overreached in some instances. The problems identified have been corrected. And, concerning the present discussion, I fail to see how the audit could support in any way a claim that the Division acted inappropriately in investigating Koerber and in working with the United States Attorney to secure an indictment.
Successful Ponziists are charismatic, believable, and rich. Charismatic, believable, rich people are tough to investigate. Hence, investigators have to be tough. Francine Giani is tough. And she is professional, and she is fair. She has faced inappropriate obstacles in investigating and securing an indictment against Koerber. She continues to face inappropriate criticism for “the audit” (that no one seems to actually read when bumping forward broadbrush criticisms that have nothing to do with anything actually in the audit). It's not fair to her, but again it's a tough business, and fortunately Francine is not faint-hearted. Utah needs vigorous enforcement of laws against Ponziists and scammers. I am proud that Francine is on the job.
Here is the audit report. (It is item #7 in the link; I linked to the main page for all 2008 audits, to give a flavor for the type of work performed by the Utah Legislative Auditor General’s office (“LAG”)). I am proud of the LAG. Our legislative auditors play a key role in making Utah a well-managed state. They are thorough, professional, and fair. Much good legislation and/or agency reform flows from the LAG’s findings and suggestions.
The Performance Audit of the Division of Securities should (and did) give pause and direction to the Division, the Department of Commerce, and the Legislature. However, the audit itself does not paint the nightmare scenario that Koerber and others attempt to paint by referencing “the audit.” Like most audits, problems were identified and course-corrections were suggested. Basically, the audit found that the Division did not have adequate policies and procedures; as a result, the Division suffered personnel problems, a confusion of roles, and it overreached in some instances. The problems identified have been corrected. And, concerning the present discussion, I fail to see how the audit could support in any way a claim that the Division acted inappropriately in investigating Koerber and in working with the United States Attorney to secure an indictment.
Successful Ponziists are charismatic, believable, and rich. Charismatic, believable, rich people are tough to investigate. Hence, investigators have to be tough. Francine Giani is tough. And she is professional, and she is fair. She has faced inappropriate obstacles in investigating and securing an indictment against Koerber. She continues to face inappropriate criticism for “the audit” (that no one seems to actually read when bumping forward broadbrush criticisms that have nothing to do with anything actually in the audit). It's not fair to her, but again it's a tough business, and fortunately Francine is not faint-hearted. Utah needs vigorous enforcement of laws against Ponziists and scammers. I am proud that Francine is on the job.
posted by steve u. at 6/30/2009
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12 Comments:
Steve, I don't understand all of this, but I'm curious as to what role the Utah Attorney General (Mark Shurtleff) should have or did play in the investigation you are referring to? It seems like I recall him receiving some criticism for staying out of it or not wanting to pursue the investigation. Is this the one? If so, why and how would he justify this?
Senator Urquhart,
Thank you for bravely speaking up on this important topic. Fortunately, you have the education and experience to understand this issue, and we need more people like you explaining this complicated issue to everyone else. The harm I have seen ponzi schemes do to children, marriages and neighborhood stability far exceeds the harm from many other evils in our world. While we need good government investigators like Francine Giani, THE BEST DEFENSE IS EDUCATION. People need to understand that almost any investment that promises returns in excess of 20% a year, and is recruiting investors who will put in $100,000 or less, is more likely than not a ponzi scheme. Once they understand this, and also understand the dangers of relying on someone simply because they share the same religion as you, I think we could reduce the frequency of ponzi schemes in Utah considerably.
Thanks,
Joel Wright
Giani is a hero for standing up to bullies and cowards and doing the right thing. And Senator Urquhart is a hero for being one of those rare politicians who tells the truth.
Education absolutely is the key, but, as we saw with Madoff, a skilled Ponziist can even take in smart investors. Thus, rigorous enforcement is vital (and can contribute to the education process). Which brings us to Jon's question: why did the AG pass on this one?
The AG's office says that it requested more information, which it says never came. Securities says that it brought more information, and then went to the feds when it was convinced the AG's office wouldn't move. Obviously, those stories don't match up, and they need to be investigated.
A preliminary question is why the AG's office did not dig in and work with Securities to gather more information. It speaks to a fundamental problem somewhere along the line (in one of the 2 offices or in the relationship between the 2 offices), that something this big would elicit a "come back and see us some other time" response.
A more serious question is whether the AG's office, contrary to doing nothing, actually took steps to shut down Securities' investigation of Koerber.
After reading your blog I became curious about whether you have now coined a new term: "Ponziist." I did a quick Google search, and it appears that you have! (Sorry, I know you're blogging about issues more important than that, but still interesting.)
Nice post Senator.
Thanks for filling in the blanks.
So many of these Utah Ponzi schemers play on the LDS angle to lure their victims. Koerber is Exhibit A in a long list. I wish the Brethren would come out more directly and unequivocally say this: whenever anyone uses the church in any capacity as a reason to invest your money with them, you should reject that proposal on that basis alone. Period, end of story.
"whenever anyone uses the church in any capacity as a reason to invest your money with them, you should reject that proposal on that basis alone."
Sounds good on the surface, but what are the unintended consequences? How often is work/help thrown the way of a wardmember when they are down on their luck? Such a hard and fast rule undermines that community net.
The best defense is personal skepticism. As soon as one Ponziist is removed from operation, another will quickly come along. They are a permanent fixture, especially in Utah.
Rep U.,
Excellent post. Thanks for putting up the link. Koerber is trying to put Francine Giani and the government on trial instead of himself. It's a classic red herring. Posts like this go a long way to keeping the focus on the real issues at hand.
Sorry,
That should be SENATOR U! :-)
No disrespect intended! Old habits die hard!
I read the audit. I saw some grave concerns. Here is the question I have. Have any of these issues been resolved? I know some people who have dealt with the Division of Securities. What I read in the audit parallels what happened to them. Lies, bullying and threats! "You are going to jail!" Guilty! Even before court! Lives have been ruined and then charges dropped. Some have been charged with crazy stuff and then an offer to "make it all go away" was given. Sadly I know a few who have taken that offer. It didn't go away. The State lied and one person I know spent time in prison.
Just read the section titled in the audit "Division Lacks Guiding Policies and Procedures."
If these issues have been corrected ... maybe all is well, but I have seen no evidence of any correction taken. If nothing has been done to correct this problem then Francine Giani is anything but a “hero”.
You mentioned that “the problems identified have been corrected.” Please provide more information about that.
9:05 anon.,
As I wrote elsewhere -- my apologies, if I gave the impression that we didn't take action in response to the audit. Along with internal changes that Commerce/Securities made, the Legislature passed HB 78, to respond to issues raised in the audit and raised elsewhere.
I would agree that Francine Giani has taken a lot of pressure for doing her job. It is sad to see a public official take so much heat while trying to help Utah. I hope she would consider running for Utah’s Attorney General Office. It would be nice to have an attorney general that would actually do their job instead of helping crooks avoid justice.
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