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A bill before the Utah Legislature aims to close a loophole in state law that in effect has legalized some forms of fraud involving real estate investments, according to regulators.

Another bill that would provide financial incentives to Utahns to report financial fraud also is being considered, part of several measures taking aim at the state's huge scams problem.

Sen. Ben McAdams, D-Salt Lake City, a securities attorney sponsoring the legislation, said he's upset by the level of fraud in Utah, where a government task force said last summer it was investigating cases in which residents had lost $1.4 billion.

"I think for too long in Utah we've cracked jokes about being a center for fraud," McAdams said Thursday. "It's time to stop telling jokes and really crack down."

SB151 would reverse a change in state law approved in 2005 that made Utah the only state in the nation not treating real estate-related investments like other investments that are regulated by the Utah Division of Securities. Instead, they are regulated by the Division of Real Estate, which takes actions only against licensed agents, said Keith Woodwell, director of the Division of Securities.

"The real impact is there's a loophole for fraud," said Woodwell. "Under certain circumstances frauds are committed and there's no one in the state of Utah to enforce it."

He pointed to the case of Bill Hammons, a St. George resident facing trial this month on eight charges associated with his involvement in selling millions of dollars worth of investments for VesCor, the Ogden company run by Val Southwick who is serving a prison sentence for what appears to be the largest financial fraud in Utah history.

Hammons' attorney argues that his client should not be facing charges because he's exempt from prosecution under Utah law, given the investments involved an interest in real estate.

Chris Kyler, a lobbyist for the Utah Association of Realtors that backed the 2005 changes in Utah law, said he has not had time to study the bill introduced Wednesday and had no immediate comment on it.

Another McAdams bill, SB100, would create a fund from judgments and administrative fines obtained by the state, and authorize the Division of Securities to pay out up to 30 percent to the person who reported the fraud to authorities.

As things stand today, some victims see an incentive in not reporting they have been fleeced because they believe they will get more of their money back if the scam is not shut down. The bill also would provide incentives for employees of such operations to report them to investigators, similar to a federal whistle-blower law.

Mark Pugsley, another Salt Lake City securities attorney, said he supports the legislation because it would help regulators intervene earlier in fraud cases when more money might be recovered for victims.

"The problem now is nothing really gets to the Division of Securities until long after the money has been spent and is gone," said Pugsley.

A third measure, SB101, would boost penalties for people convicted of affinity fraud in which the scammer relies on a relationship of trust, such as a church affiliation, to convince people to invest money in schemes that turn out to be scams.

The bill would boost a conviction involving affinity fraud from a third degree felony to a second degree, meaning a potentially longer prison sentence. —

Status of anti-fraud bills

SB151 • Real Estate Transactions and Securities was awaiting committee assignment Thursday by the Senate Rules Committee.

SB100 • Securities Fraud Reporting Program Act is before the Senate Business and Labor Committee.

SB101 • Passed Business and Labor and was on the calendar for a vote by the full Senate.

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