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Swallow took in $105,000 from donors in trouble with regulators

Published June 15, 2013 4:27 pm

Ethics • Questions arise because Swallow's office might have to prosecute some of the contributors.
This is an archived article that was published on sltrib.com in 2013, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

John Swallow took in $105,000 in campaign contributions from companies or individuals who already had run afoul of regulators — even though the attorney general's office he hoped to run could be called upon to prosecute some of those same donors.

Take the case of Nathaniel "Than" Merrill, a star of the A&E television series "Flip This House" and co-owner of FortuneBuilders, a real estate investment seminar company.

Sometime in May 2012, two investigators from the Utah Division of Consumer Protection showed up at the Draper office of Merrill's business to follow up on a tip that he was running an unlicensed telemarketing operation.

On May 19, Merrill gave $5,000 to Swallow's campaign for attorney general.

Six days later, the campaign recorded a $15,000 contribution from Merrill — the same day the division sent a letter to his telemarketing company saying it needed to register.

Investigators returned June 22 and found the telemarketing operation expanded but still unlicensed. On July 5, the division issued an administrative citation alleging the company had violated state law. Another Merrill donation to Swallow came 20 days later, this one for $10,000.

So Merrill gave $30,000 to Swallow during the time the company was under investigation by a state agency represented by the attorney general's office — where Swallow was the top lieutenant and soon would become the top dog.

Merrill's company ended up settling the case in August, admitting to violating state law and paying a $2,500 fine.

But Merrill's contributions to Swallow's successful $1.4 million campaign were hardly the only ones of that sort. A Salt Lake Tribune analysis shows Utah's attorney-general-in-waiting took in $105,000 from companies or individuals already in trouble with regulators and another $170,000 from companies or officers who later would be cited for infractions by state or federal authorities.

Those figures concern critics of Swallow, who succeeded Mark Shurtleff as attorney general in January, because his office represents, as the official legal counsel, the same state agencies that leveled the sanctions.

Traci Gundersen, former director of the Division of Consumer Protection, already has a complaint before the Utah State Bar alleging Swallow breached attorney-client ethics standards during a conversation with a telemarketer who had been cited by her division. In that call, which was recorded, Swallow said he planned to try to put the consumer division under the control of the attorney general's office.

Gundersen declined to comment on ethical questions surrounding the Merrill donations to Swallow. She did note, however, that the division had launched a campaign against unlawful telemarketers.

"The telemarketing industry," she said, "became aware, sometime in the early months of 2012, that the Consumer Protection Division was really starting to crack down on the unregistered telemarketers."

Merrill — a California resident who claims he was unaware that a telemarketing permit was required in Utah — said he donated to Swallow because the candidate was "pro-business" and added he did not expect any favorable treatment as a result of the contributions.

"Nobody ever suggested we could be helped by making a donation," Merrill wrote in an email. "Nor did John ever suggest anything."

But three Utah businessmen have alleged that Swallow, as a fundraiser for Shurtleff in 2009, had suggested that a donation to Shurtleff's campaign would win them special consideration in the attorney general's office if complaints arose about their operations.

While not commenting directly on the Swallow donations, University of Utah law professor Emily Chiang said it's fairly standard practice for law firms to check for possible conflicts of interest.

"Law firms screen for conflicts of interest as a routine matter," Chiang wrote in an email, "typically by consulting lists of existing clients before taking on new business to make sure nothing conflicts."

The attorney general's office spokesman, Paul Murphy, said the Division of Consumer Protection usually handles administrative citations without contacting his office, but he acknowledged the office can check for possible conflicts.

Jason Powers, a campaign adviser to Swallow, repeated earlier statements that all the donations were legal. He did not respond to questions about ethical issues surrounding them.

A Tribune analysis showed that 83 percent of Swallow's campaign donations of $5,000 or more — excluding contributions from Shurtleff's political-action committee and Republican Party sources — came from individuals or companies with ties to online marketing, multilevel marketing, telemarketing, payday loans or alarm companies — all of which frequently draw the attention of consumer watchdogs.

Nearly 62 percent of Shurtleff's $1.9 million in donations from 2008 through 2012 came from similar companies and individuals.

Besides Merrill — Swallow's fifth-largest donor, not counting Shurtleff's PAC and the party — here are some others who donated to Swallow after they already had been cited or sued by federal or state regulators:

• Henry S. Brock, of St. George, was cited in 2003 by the Division of Securities and reached a settlement in 2006. He was fined $100,000 for acting as an investment adviser while not licensed to do so and for fraud while soliciting investors. About 6½ years after the settlement, Brock donated $10,000 to the Swallow campaign through his Mutual Benefit International Group Ltd. Then, about four months later, attorneys for Brock sued the state alleging he was treated improperly in the 2003 actions.

• The Tax Club donated $20,000. It was cited in Utah in 2008 and then sued earlier this year by the Federal Trade Commission.

• Compadre Holdings kicked in $5,000. Owner Vincent Ney was cited in at least three states outside of Utah for violations related to payday loans.

• Barry Cloyd, who gave $15,000, was cited twice in 2010, once for securities violations and once by the Utah Division of Consumer Protection. The securities complaint was later dismissed. The consumer citation was dropped as well after restitution was paid.

• Armando Montelongo and Performance Advantage Group, cited in December 2011 in Texas, contributed $15,000.

• Scott Carter, of Goldline, donated $5,000. Goldline was investigated or cited in various states, including a criminal complaint in Southern California in 2011 accusing Carter of making false or misleading statements.

• Premier Mentoring Inc. gave $5,000. It was cited twice, in 2008 and 2009, by the Utah Division of Consumer Protection.

Swallow is under investigation by federal, state and county authorities for a series of alleged misdeeds. He has denied wrongdoing.

tharvey@sltrib.com

Twitter: @TomHarveySltrib