The state's investigation into the fund misappropriations led to the ouster of plan director Dale C. Hatch, who later pleaded guilty to a felony theft charge. On Thursday, the SEC filed a federal court complaint seeking a fast track to civil fines should Hatch ever engage in future financial misdeeds.
Under terms of the settlement, UESP agreed to fully refund investor accounts and undertake specific measures to correct defects in its system, the SEC said. The federal commission also ordered UESP to cease and desist from further violations.
But the SEC didn't impose a financial penalty or press criminal or civil charges against UESP or its officers, according to plan director Lynn Ward.
"We could have chosen to fight the SEC but that would be extremely expensive and time consuming," Ward said, noting the settlement was a business decision. "We settled because we were making the [mandated] changes anyway."
The SEC claimed the UESP provided inadequate disclosure about the flaws in its operations and accounting practices.
Ward says those problems have been solved. The changes began in January when she was tapped to be the new director, she said. As the new boss, Ward hired attorneys to ensure correct information was provided to current and potential account owners. She also retained an accounting firm to oversee and review the fund's computer system.
The state also has recovered the entire stolen $85,500 from Hatch or through insurance coverage, according to a UESP statement.
When state auditors reviewed UESP's financial statements in late 2004, everything balanced to the penny, she said.
"One person could [then] go in and make all kinds of changes," Ward said. "The new system will not allow one person to do everything."
The SEC's action was in response to UESP's 2004 internal investigation and the fallout from Hatch's firing. When the ex-college savings plan boss's actions were discovered July 1, 2004, Mark Spencer, interim executive director for Utah Higher Education Assistant Authority (UHEAA), suspended Hatch with pay, pending an investigation.
Six days later, Spencer fired Hatch, saying his termination was due to alleged questionable transactions involving administrative fees that parents and grandparents pay to open and manage accounts.
"None of the money deposited by individual investors was appropriated - no investor was harmed," Spencer said last July. These were some of the statements the SEC had a problem with.
State officials said Thursday their statements in question were issued with good intentions and with the best information at the time, although they conceded their comments could have been worded better.
Neither Spencer nor any UESP official was named in the SEC complaint.
UHEAA is a financial arm of the state Board of Regents, overseeing the state's college trust fund.
Hatch, an attorney, certified public accountant and former state budget director under Gov. Norm Bangerter, has been an employee of the state's higher education system for 14 years. He managed UESP for seven.
Under Ward's brief tenure, the plan has earned national recognition. In February, Morningstar, an investment research firm, rated Utah's college saving plan as one of the nation's best.
UESP's investment is stronger than ever, Ward said, noting it now has $1.1 billion invested. "Even with everything that happened over the last year, we still continue to grow the program."
The related complaint against Hatch filed in U.S. District Court in Salt Lake City on Thursday seeks to bar Hatch from future violation of security laws, but does not prevent Hatch from seeking employment in the financial industry, said Karen Martinez, an attorney with the SEC in Salt Lake City.
sykes@sltrib.com
UESP troubles
Utah Legislature created the state-sponsored college savings plan in 1996 to encourage investors to save for their children's college education. The plan has more than 58,000 accounts and $1.1 billion invested.
"Questionable transaction": In July 2004, Utah college savings fund Director Dale C. Hatch fired for alleged financial misappropriation. Financial audit/investigations begin.
Thousands missing: A Sept. 2004 report from state Auditor's Office says ousted director stole $85,500 and attempted to steal another $203,400
Criminal charge: In February, state prosecutors charged Hatch with one count of theft, a second-degree felony.
Plea: Hatch pleads guilty in March, admits stealing thousands of dollars from the college saving fund.
Sentence: Third District Judge Leslie Lewis in May sentenced Hatch to 30 days in jail, imposed a $500 fine and 100 hours community service and restitution.
