Regulators ‘gone wild'? Advisers sue state of Utah

Two former independent advisers seek $357.6M in damages, claiming that the Utah Division of Securities and others violated their civil rights

Jan 12, 2010 @ 3:52 pm

By Jessica Toonkel Marquez

In an apparent first, two former financial advisers have filed a lawsuit against a state government, claiming that it violated their civil rights.

Henry S. Brock and Jay Rice — who were both independent financial advisers licensed in Utah — filed the suit late last month. The pair allege that the Utah Division of Securities, among others, violated their right to due process and conducted unreasonable search and seizure, malicious prosecution, and cruel and unusual punishment enforced by extortion, bribery and witness tampering.

The defendant list in the complaint, which was filed in the United States District Court for the District of Utah, reads like a who's who of Utah politics. Defendants include Utah Gov. Gary Herbert, Attorney General Mark L. Shurtleff, Department of Commerce head Francine Giani, and former and current directors of the Utah Division of Securities: Wayne Klein, Keith Woodwell, Tony Taggart and George Robison.

Mr. Brock and Mr. Rice allege that the Utah Division of Securities heaped dozens of allegations on each of them (25 for Mr. Brock and 28 for Mr. Rice) without giving the advisers the ability to redress their grievances. According to the complaint, the Division of Securities came into Mr. Brock's home and without permission downloaded the contents of his computer from the past 15 years — even though the statutory limitation on prosecutions is five years.

This letter came to Mr. Brock three years after Division of Securiites' agents came to Mr. Brock's DOS "made an unreasonable search and seizure of his personal papers and effects" by downloading of the contents of his computer and seizing information from the pervious 15 years, according the Mr. Brock's attorney, JoAnn S. Secrist. (Read the letter, complete with Mr. Brock's comments.)

The two ex-advisers also allege that the Division of Securities posted false press releases claiming that the plaintiffs were “poster boys of securities fraud in Utah.” In addition, the two men assert that the Division of Securities paid search engine specialist Google a fee to make sure that the state's press releases would appear at the top of Google searches.

In the complaint, Mr. Rice claims that the Division of Securities offered one of his clients $35,000 if he didn't write a letter stating that he had no claim against Mr. Rice.

As a result of the Division of Securities' actions, both plaintiffs said, they have declared bankruptcy, and Mr. Rice has been put out of business. Mr. Brock, who was named one of America's top financial planners in 1987 by Money magazine and who served as president of the Financial Planning Association of Utah, still sells insurance.

The plaintiffs are seeking $357.6 million in damages.

The defendants were expected to be served with papers about the complaint today.

“This lawsuit is about civil-rights violations and Utah's Division of Securities gone wild,” said JoAnn Secrist, former Utah assistant attorney general and legal counsel for Mr. Brock and Mr. Rice.

This is not the first time securities regulators in the Beehive State have come under scrutiny. In 2007, Utah's legislative Auditor General's Office completed an audit of the Division of Securities, finding that there were numerous instances where the division overstepped its bounds. “The audit found that the division was running over people's rights,” Ms. Secrist said.

During that audit, Wayne Klein, a defendant in the case, resigned from his post as director of the Utah Division of Securities.

That division is part of the Utah Department of Commerce, which referred calls to the Utah Attorney General's office. Paul Murphy, a spokesman at the Attorney General's Office, said it had not yet been served with the lawsuit and thus couldn't comment. He added, however, that the AG's office would be representing all the defendants in the case.


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