A group of investors is suing the state of Utah, alleging it failed to supervise a convicted felon on parole who defrauded them out of $27 million.
Richard Ames Higgins, 63, formed Madison Real Estate Group in 2005 after getting out of prison, where he was serving sentences of up to five years for fraud convictions in 1999 and 2000 from Utah and Washington counties. Higgins was also convicted of selling unregistered securities in Salt Lake County in 1988.
The Utah State Bar also revoked Higgins' right to practice law in the state.
But despite those multiple convictions, the Utah Board of Pardons and Parole failed to enforce conditions of his parole, which included having his employment approved by a parole officer and a prohibition on handling other people's money, according to the lawsuit filed in 3rd District Court in Salt Lake City.
The lawsuit asks for $27 million, plus punitive damages and attorneys' fees.
"We hear repeatedly from Utah officials decrying Utah's reputation as the nation's 'fraud capital,' " says the lawsuit filed by Salt Lake City attorney Marcus Mumford. "This action seeks to hold the state responsible for its own acts and omissions in allowing one of the more notorious and recent Utah frauds."
In a separate case, Mumford represents Rick Koerber, the Utah County businessman accused in a 21-count federal indictment of fraud, money laundering, the sale of unregistered securities and tax evasion. Koerber had pleaded not guilty and is likely to go to trial sometime this year.
Mumford said the state was negligent in not supervising Higgins and also didn't respond to a letter demanding compensation, thereby waiving any immunity protections from lawsuits.
"What we've alleged really speaks for itself, in terms of how could someone who was subject to these strict parole conditions carry on an open and notorious Ponzi scheme right under the noses of these state officials?" he said.
Assistant Utah Attorney General Reed Stringham, who is defending the state in the lawsuit, said he couldn't yet comment on the case because he had just received a copy of the lawsuit.
"But I can say that the state did not lose its immunity for the reason alleged," he said in an email.
The Utah Department of Corrections didn't immediately respond to a request for comment.
The same group of investors recently sued Zions Bank, alleging negligence in providing banking services to Madison Real Estate Group. That suit said the bank failed to conduct a proper investigation before opening accounts and didn't file required reports to federal agencies about large money transfers.
The latest lawsuit says that Higgins was behind a company that purportedly invested in real estate but, in reality, was a $60 million Ponzi scheme in which money from new investors went to pay off longer-term participants to make it appear the company was profitable.
As part of his 2005 parole, Higgins wasn't to leave the state without prior written permission or to handle other people's money. He was to maintain lawful full-time employment and not be self-employed or a principal of a limited-liability company.
Despite those restrictions, Higgins traveled extensively outside the state without permission, took in millions of dollars and openly operated Madison Real Estate Group, the lawsuit says.
"In this same time period, a federal court order was entered implicating Higgins in a prime bank Ponzi scheme and enjoining him from any further federal securities fraud violations â¦ thus putting defendant on further notice of the likelihood that Higgins would seek to harm and defraud plaintiffs," the suit says.
The people who filed the lawsuit informed the state in 2008 that Higgins may have violated his parole, and it was revoked. He was released again in March 2010.
Accused fraudster Higgins, 63, was previously convicted in these cases:
Salt Lake County • Faced 53 fraud charges in 1988, pleaded guilty to three, ordered to pay restitution.
Utah County • 22 charges in 1999, pleaded no contest to three counts, sentenced to prison for up to five years.
Washington County • One count of attempted fraud in 2000, sentence to run concurrently with the one from Utah County.
Disbarred • Utah State Bar revoked Higgins' right to practice law.