Audit: Corruption, Failure and Incompetence in Utah Government

ALPINE, UT | July 4, 2008 | A much anticipated legislative audit of the Utah Department of Commerce, whose sole elected oversight is Utah Governor Jon M. Huntsman, Jr. (R), reveals corruption, coercion, secrecy, retaliation, incompetence, abuse of power and miscarriages of justice.

Allegations of serious wrong doing in the Utah government were first reported by FreeCapitalist Radio on August 31, 2007 and the brewing scandal was subsequently reported on FreeCapitalist Daily on February 14, 2008)

The official audit report, released July 3, 2008 reveals at least two dozen serious problems in Utah’s most powerful bureaucracy which is headed by Francine Giani, Executive Director of the Department of Commerce, who as according to the official audit’s findings, been in charge of the department during the period of its most serious violations.

Ms. Giani immediately sought to reassure the public that changes are already implemented to solve the problems addressed, “except for one” she is quoted to have said in the local Salt Lake Tribune, “which will have to wait until the 2009 legislative session to address.”

Interestingly, at least ten major allegations of wrongdoing in her department remain unaddressed by Ms. Giani and the Division of Securities including the following revealed by the audit -

1. Regular practices by the division of knowingly making false allegations of criminal activity by Utah businesses thereby harming businesses and investors.
2. Use of intimidation and coercion by the enforcement division to obtain false confessions and false settlements from defendants.
3. Intentionally deceptive practices whereby Ms. Giani’s staff pressures defendants into settlement agreements in order to obtain confessions, with the State intentionally violating the terms of the settlement agreement afterwards, with legal impunity.
4. Ms. Giani’s own personal and departmental actions, according to the audit, which violated written department policy to the detriment of employees and the administration of department duties.
5. The practice of using fraudulent and falsified signatures on documents by the Division Director to hide internal conflicts of interest and miscarriages of justice.
6. The unreliability and lack of credibility of information related to the Division of Securities, and the Department of Commerce’s actual performance, in official government reports made to other agencies and to the public, according to the audit.
7. Ms. Giani’s personal interference with justice and engaging in known conflicts of interest within administrative proceedings.
8. Department employees fears of ongoing retaliation by Ms. Giani and her associates for cooperating with the audit.
9. The Department’s failure to adhere to or respect district court authority.
10. The division’s financial impropriety and mishandling/improper accounting of funds paid to the division as fines from defendants in administrative cases in an apparent effort to benefit the division.

These serious, and yet un-addressed revelations brought forth by the legislative audit also reveal that high level staff and employees in the department have engaged in activity that is classified by Utah Statute as “unlawful” suggesting that individuals who are guilty of such conduct are “guilty of a third degree felony.” There has, as of this date, been no indication by the Utah government of whether or not criminal charges will be filed against any employee of the Department of Commerce or the Securities Division as a result of these findings.

The Audit Manager Mr. Tim Osterstock warned against interpreting the audit findings as only an indictment of the division’s former director stating, “It’s not just a director, its an organization.”

While the Utah news media has reported on the audit -

• See “Audit Criticises Utah Division of Securities” – Deseret News
• See “Audit Blasts Securities Division” – Daily Herald
• See”Audit Rebukes Investor Monitor” – Salt Lake Tribune

The Utah Governor’s office, who selects and appoints Ms. Giani and is the only directly elected oversight over the Department of Commerce, has yet to comment on the findings or recommendations by the Utah Legislative Auditor General.

The only response from the executive branch of the Utah Government so far is Ms. Giani’s statement attached to the audit wherein she suggests that the most troubling aspect about the audit was not the findings of fact but that the audit didn’t interview Utah investors.

Ms. Giani is reported to have responded, oddly out of context saying, “It would have been nice to hear from the other side, to hear from victims who received money, and thinks the things the division does are good.” The audit report itself states its purpose was not to review the “legal issues of any of the cases” instead focusing on potential victims of the government’s own handling of its responsibilities. These victims were indeed interviewed at length by the audit staff. Additionally, the audit revealed that Ms. Giani’s own staff believes she and her administration are not trustworthy, are not fair in carrying out its duties and that changing the Division Director will not improve the situation.

The audit repeatedly indicts former Division Director Wayne Klein of wrongdoing, maliciousness, incompetence, and even at one point – engaging in systematic document fraud.

Mr. Klein was hired by Ms. Giani in 2005 and she repeatedly said in public statements that she believed he would be vindicated in the audit results. Ms. Giani’s predictions were inaccurate.

In February of this year Ms. Giani defended Klein at the time of his resignation, claiming, “he is one of the most knowledgeable, competent, and highly regarded people in the field” who she was sorry to see step down. While Ms. Giani reported to the media in February that she felt the controversy resulting in his resignation was a “mischaracterization” of how her department operates suggesting that the complaints about her, Klein, and her department were motivated by disgruntled defendants. However, the audit reveals that staff in her own department regularly substantiate the most serious complaints about internal malfeasance and that Ms. Giani had personal knowledge of several incidents of wrongdoing by Mr. Klein,
including his efforts to disobey her written policy statements in a letter addressed to him specifically, prior to making such statements.

Former director Klein issued a statement in response to the audit wherein he states the indictments made by the audit are, “akin to trying to evaluate the performance of a police department by interviewing only those people the agency had put in jail.”

Ironically, Mr. Klein who’s department does not have the legal authority to make criminal charges or put defendants in jail, is most directly indicted for an example case where he personally and repeatedly sought to prosecute a Utah business that had had Mr. Klein’s charges of wrongdoing dismissed by both an administrative law judge and a district court.

Against the advice of the Utah Attorney General’s office, according to the audit, Klein relieved the government’s attorney and acted on his own, likely outside of the law and clearly against government policy, to continue to try and punish the defending business. Both Klein and Giani continue to show a lack of appreciation for the fact that Utah business owners and operators also have civil rights that are,according to the audit, being violated by this rogue department.

Most of the defendants in cases brought by the Utah department are against Utah citizens who the government is legally charged to include in their protection without arbitrary, personally vindictive, subjective judgments of bureaucrats such as those revealed by the official audit.

MRFC Principle:

Action Items

1. Interview a local businessman about the effect regulation has on his/her business.

2. Interview a local businessman about any knowledge he/she might have about unjust regulatory action.

3. Write a letter to the editor about your findings, related to the effect of unjust bureaucratic interference in business.

4. Contact the Utah Attorney General and (if you are a Utah citizen) and demand that if criminal activity has occurred in the department, specifically material misrepresentation of facts by Government employees during the course of official action – that formal charges be brought, just like they would be against businessmen consistent with Utah Statute 61-1-16.

5. Write a letter to Utah Governor Jon M. Huntsman (R) demanding that Francine Giani be removed from office.

6. Sign the petition (that will be listed on the FreeCapitalist.com website) demanding that Utah Governor Jon M. Huntsman rectify the corruption and malfeasance that has taken lpace under his Department of Commerce, now beginning to be revealed by actions such as the recent audit, and pardon all businessmen who have plead guilty to any felony violation of State Law, where no judicial proceeding was initiated and where it was done as part of a settlement agreement with the Department of Commerce Division of Securities, give that the audit has show that the Department has shown disregard for its agreements, used coercion to get them, lied or misrepresented material facts to distort the power of its investigation and done so to pressure individuals who were protesting their innocence but who wanted to protect their business from the malicious behavior identified by the auditors. In granting a pardon the governor does not have to grant relief from the requirements that such businessmen obey the law, only that they not live for the rest of their lives as felons – being wrongfully accused under a system that committed felony violations of the law to obtain such confessions without due process, any involvement of the judiciary, and likely in violation of the Utah citizen’s right to equal protection under the law.

7. Write a letter to your local legislators (if you are in Utah) demanding that action be taken to reform the Utah Department of Commerce.

For your information the FreeCapitalist Project is working to put together draft legislation that will accomplish the following -

a) Place the Entire Department of Commerce under the direction of the Utah Lieutenant Governor. This is consistent with how other stats oversee bureaucratic matters such as these, it adds a layer of elective oversight so the citizens of Utah have a way to vote their displeasure if corruption continues.

b) Eliminate the Director position in the Department of Commerce. The position is a purely bureaucratic position. It costs Utah tax payers between $75,000 and $100,00o to pay Ms. Giani or her replacement, and there are no requirements that the position even require a person be competent in the law to oversee all of the regulations and regulatory agencies affecting Utah businesses. If the Department is placed under the direction of the Lieutenant Governor this provides a check against unqualified or incompetent service – having an election every four years rather than the enormous effort and years of politicking that is involved in getting an audit done, and political changes made by the legislature and the executive. Additionally, the legislature and the courts are already having an extremely difficult time getting Ms. Giani (who is unelected and essentially unaccountable) to be responsive where Utah has an excellent tradition of electing responsive Lieutenant Governors who are given too little respect, too little authority, and too little opportunity to make effective influence in our government.

c) Does NOT Convert the existing advisory board over the securities division to a commission (as is recommended by the audit – the audit itself suggests the problems in the Department of Commerce are systemic and leadership has been lacking for years) but instead creates a commission over the entire department that has full authority to scrutinize, review, overturn, approve or deny all administrative actions taken by the Department of Commerce or its divisions including any recommendations for criminal charges – adding an element of due process and fairness to the bureaucratic nightmare that currently exists in Utah’s Department of Commerce. This commission could also replace other redudent division specific commissions and further reduce bureaucracy and cost.

d) Transfer all criminal investigation and all investigations that have or reasonably are expected to have a criminal element to the case to the Utah Attorney General’s office ensuring a higher degree of professionalism and fairness in administering justice. Unelected bureaucrats are using coercision, deception and unfair practices to threaten businesses, citizens, and professionals with jail and other egregious consequence, according to the audit, including “focusing more on punishment than on compliance with the law” which behavior has not check in the Utah government. By placing te most serious investigations (involving suspected criminal behavior) under the Attorney General’s office a more well trained, and more strictly operated department is properly in charge where there is also appropriate judicial and voter oversight.

Weak-minded politicians and territory jealous appointees and bureaucrats want to implement small token changes here or there – but only a serious reform of Utah’s regulatory environment will solve the problem of governmental abuse and ineffective enforcement and administration of the law. If Utah wants a reputation for being both good for business and eliminating the idea of being a fraud center in America it will take courageous leadership, public pressure, and well thought out changes on the large level outlined above. It can be done, if Utahans want a more accountable, less corrupt and more effective government.