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True to the state's recent designation as a "Ponzi hot spot," a court-appointed receiver in Utah is seeking millions of dollars from a Dallas-based securities broker, alleging it aided companies in operating a Ponzi scheme.

Attorney Wayne Klein, the receiver appointed to oversee three Utah companies, has sued Penson Financial Services Inc. in state court seeking damages in excess of $7.5 million that he said was lost through fraud.

The allegations are the latest in a string of financial schemes that has the FBI putting its Salt Lake City office in the top five nationwide for "Ponzi hot spots." It's keeping company with cities with much bigger populations — Los Angeles, New York, Dallas and San Francisco.

James Malpede, head of the white collar crime unit in the agency's Salt Lake City office, said it's hard to pinpoint why the state has such a high number of cases but he pointed to the prevalence of affinity fraud, in which criminals prey on members of a group who share a bond of trust, such as the pre-dominant LDS Church.

"Utah has a pretty trusting population as opposed to other places I've lived," he said Tuesday. "With that trust and a close and tight community that provides an easy area to exploit, the con men have found this is a target-rich environment."

This past summer, the Utah Securities Fraud Task Force, made up of local, state and federal agencies, said it was investigating cases that involved $1.4 billion and 4,400 people. The FBI office here also oversees Montana and Idaho, but most of the fraud cases it investigates originate in Utah.

The Penson Financial Services lawsuit alleges that it helped hide losses from trading options by Ascendus Capital Management, FFCF Investors and Smith Holdings, which Klein contends operated as a Ponzi scheme, a type of fraud in which money from new investors goes to pay off initial ones and make an enterprise appear to be sound.

He estimates that from 2003 to early 2006 there were 45 investors who put $9.7 million into accounts managed by Roger E. Taylor of Ascendus Capital, who earned commissions that ranged up to 30 percent of the supposed profits. The money was put into brokerage accounts at Penson, with Taylor then making trades using the accounts. But the trades resulted in significant losses that Taylor and others covered up with the help of Penson, according to the lawsuit.

"Some investors discovered that, in fact, the accounts were losing money," Klein said Tuesday. "So Ascendus took money [from other investors] to pay off people who were complaining and wanted their money out."

In 2005, Taylor decided to close Ascendus and start FFCF Investors for use in pooling funds and investing with a California brokerage called LBS Advisors. Klein, the former head of the Utah Division of Securities, alleges that to convince investors to move their money to the new company, Penson helped Taylor cover up loses suffered in Ascendus, including recording fictitious deposits and creating false documents.

Penson, through its in-house attorney, denied the allegations.

"The receiver's core allegations against Penson are false and inaccurate, and his legal claims are not supported by the law," Tim Davis, a senior vice president for Penson Financial Services, said in an e-mail. "We look forward to defending ourselves in the appropriate forum."

Taylor, 42, of Santa Clara, and Richard T. Smith, 43, of Orem, who was a manager at Ascendus and FFCF and also an owner of Smith Holdings, are facing criminal charges for the alleged fraud.

Tuesday, after a short hearing in their case, Taylor's attorney, Jerry Mooney, said his client did not intentionally defaud investors.

"I don't see this as a case where there was fraudulent intent to cheat a bunch of people," he said, adding that his client denies forging paperwork to facilitate the transfer of money from Penson to FFCF.

Mooney also said his client was seeking a resolution of the case, including "making whole" those who lost money. Another hearing is scheduled for Jan. 18.

Check before investing

O The Utah Division of Securities offers resources for researching potential investments. Go to http://www.securities.utah.gov. ­—

To read the lawsuit

To read the lawsuit against Penson Financial Services, go to: http://bit.ly/esw1Q2

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