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Utah senator wants cases targeting brokers off the Internet

Published December 21, 2012 10:57 am

Investment • The files hurt reputations, senator says; securities panel insists on access.
This is an archived article that was published on sltrib.com in 2012, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

A Utah senator wants state regulators to scrub from the Internet cases brought against investment brokers who he says are being unfairly smeared and having their reputations damaged due to the long reach of Google and other search engines.

Sen. Howard Stephenson, R-Draper, says some of those advisers admitted to committing "minor infractions," but now, those case files come up in an Internet search of their name and people "think my neighbor or my bishop is a criminal."

Moreover, Stephenson contends, many of those admissions of guilt were the result of "abuses" under the past Division of Securities director that were identified in a legislative audit in 2008.

The Utah Securities Commission has balked at limiting public access to case files, voting unanimously last month not to restrict access to records or limit access through Internet search engines.

"Many of us work in this industry and we know it very well and the idea that less access to information about brokers is good policy is not something we support," said Erik Christiansen, chairman of the commission.

"Utah has a billion-dollar fraud problem every year, and the idea that people who have admitted violating securities laws can, at some time, take that information and hide it from the public was not supported by the commission," Christiansen said.

But Stephenson criticized Department of Commerce staff Thursday, saying they grossly misrepresented his request to the commission.

Securities director Keith Woodwell presented Stephenson's request to the commission at their meeting last month, saying that it was, "I need to be careful about the adjective I use, an interesting request."

Woodwell said a certain senator had a constituent embarrassed that his securities case came up in a Google search and was trying to get his file expunged.

The Department of Commerce, in response to a Salt Lake Tribune records request, said only one person, Kelly Scott, had sought to have his case files removed from the Internet. The division alleged in 2007 that Scott offered seminars to seniors promising them 7 percent returns on certain retirement investments, misrepresenting various aspects of the service.

Scott, who actually lives just outside of Stephenson's district, agreed to pay a $100,000 fine, surrender his broker-dealer license until he is recertified, complete a series of continuing education programs, and provide refunds or settle complaints by customers.

Stephenson acknowledged he was approached by a constituent, but said fellow lawmakers have heard similar complaints from others, and his concerns are not about one person.

"That's what we're focusing on: How to add the people who were wrongly treated under the Klein administration," Stephenson said, referring to Wayne Klein, the previous Securities Division director.

Christiansen, a securities lawyer, said reviewing all of the cases during Klein's tenure — a couple hundred in all — and sifting out those deemed minor and determining if "abuses" were involved would take a tremendous amount of time.

And Woodwell said he isn't sure his office has the authority to pick a subset of cases and make sure they are not available to Web searches.

Rep. Jim Bird, R-West Jordan, who requested the 2008 audit of the division, expressed frustration with the unresponsiveness of the Securities Division and the commission, and suggested another audit of the division might be necessary to see if more changes are needed.

He pointed to the case of Richard Mack — Bird's former employer whose case was a subject of the audit — who was accused of not supervising an agent who defrauded customers. Mack fought the division to the Utah Supreme Court, which ruled the division failed to show Mack had committed securities fraud.

Bird said Mack no longer deals securities and the agency should remove the case from the website, but the administrative case file is still online through Web searches.

Mack told the Administrative Rules Committee he spent six years and $300,000 fighting the division. "It was a horrendous, very corrupt situation," he said.

"All I can say is this is BS. I spent 300 grand and someone needs to make an effort to get that [file] off there," he said. "If someone is exonerated, they need to move hell and Earth to get that stuff off there."

Sen. Mark Madsen, R-Eagle Mountain, said that if the division is going to have the record available, they should tell the whole story.

Department of Commerce Director Francine Giani agreed, and said after the hearing that agency officials would make sure the Supreme Court ruling dismissing Mack's case is made part of the file.

gehrke@sltrib.com

Twitter: @RobertGehrke