Lawsuit • Former securities enforcement chief says accusations are reprisal for whistleblowing.
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A fired top Utah regulator gave special treatment to those suspected violating state investment laws if they were represented by attorneys with whom he had close personal ties, according to his former boss.
Michael Hines, the former head of enforcement for the Division of Securities, shared entire case files before any actions were taken, made unauthorized settlements on easy terms and, in one case, settled a case with no sanctions, even though he had noted that the case warranted a criminal theft charge. That is according to documents filed by the state in seeking to dismiss a lawsuit Hines filed after his firing last year.
In still another instance, Hines declined to open an investigation into an alleged fraud that resulted in millions of dollars of losses by investors. He did so because the company behind it had disclosed in an investor document that it would, in effect, be operating as an illegal Ponzi scheme. The accusations are made in a letter to Hines from Division of Securities Director Keith Woodwell, a copy of which was attached to the state's motion to dismiss the lawsuit.
Hines even referred targets of investigations to attorneys with whom he had close relationships, Woodwell wrote.
"Your bias toward selected attorneys undermines the division's ability to successfully prosecute violations of state securities laws," Woodwell wrote. "Turning over protected case summaries to select attorneys prior to the filing of any action completely compromises the division's ability to successfully enforce the securities laws and prosecute violators."
Hines was fired in January 2012 for violating Utah's records act by allegedly providing documents to attorneys defending the people targeted by division investigations. The dismissal was rescinded in September, though it's not clear why, and Hines was demoted to a post as an investigator in the Division of Professional Licensing. Instead, Hines resigned because, according to his lawsuit, the allegations made it impossible for him to work at the Department of Commerce.
Hines is suing the state, Department of Commerce Executive Director Francine Giani and Woodwell, claiming his firing was motivated by a complaint he filed against the department, which alleged that the agency was violating federal overtime laws and creating false time sheets for certain employees. The state counters that an audit found no serious violations of overtime laws or state procedures. Hines filed the complaint with state auditors four days after he received a letter stating the department's intent to fire him.
Rick Van Wagoner, an attorney who represents Hines, accused the Department of Commerce of refusing to mediate the dispute in good faith at a session last year, and of withdrawing his firing in favor of a demotion because the state "thought it could get away with a demotion."
"Mr. Hines did not buckle," Van Wagoner said in an email on Monday. "In order to justify the demotion, the state had to search for and come up with some new reasons, reasons the state had not used to justify the initial termination."
Van Wagoner contends that the state then attacked "Mr. Hines' counsel and two of the people on Mr. Hines witness list, claiming that the division [under Hine's direction] had given their clients some favorable treatment."
Van Wagoner is one of the attorneys who obtained special treatment for a client, according to the Woodwell letter.
Van Wagoner represented Jerome Anthony Moore, who after an investigation was alleged to have failed to disclose important information in soliciting an investment of $50,000 and then misappropriated the money for personal use, the letter said.
At first, Hines had noted that a criminal theft charge was warranted. But after Van Wagoner began representing Moore, Hines negotiated a settlement in which Moore was to repay the investor, and no action was to be taken by the division. Instead, a "Letter of Concern" would be issued, and the matter would not have to be disclosed to future investors, Woodwell wrote.
"The division had never previously (and has never since) agreed to drop a case in exchange for a 'Letter of Concern,' Woodwell wrote. "You knew that such a resolution would be meaningless, both in a legal and practical sense."
Van Wagoner called the state allegations "silly."
Rod Snow, another attorney mentioned in the letter, contends his special treatment consisted only of representing a witness in a case and asking Hines to help him get an appearance date changed after an investigator would not agree to a postponement, a standard courtesy extended in such cases.
"Using my situation as an example of 'favoritism' demonstrates the weakness of the state's case, in my judgment," Snow said in an email. "Anyone who knows Mike Hines and has worked with him can attest the assertion is unfounded. Mike was always professional but did not play hide the ball."
Woodwell's letter also points to an alleged example of bad judgment by Hines in a case in which Hines declined to open an investigation of a Ponzi scheme because the backers had disclosed, in what is called a private placement memorandum, that they indeed would be using some investor monies to pay returns to others.
"In essence, your argument was that a Ponzi scheme could continue to operate legally so long as the Ponzi payments were disclosed in the PPM," Woodwell wrote. "In fact, you went as far as to make this argument in training presentations that you gave. Only later, after the Licensing and Compliance section opened an investigation into this same case and found that many investors had not received a [memorandum] did you open an enforcement investigation."
Woodwell's letter also alleges bullying and other ill-treatment of employees that led to several resignations.