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Utah Division of SecuritiesSecurities Commission MeetingAugust 7, 20199:00 a.m. – 10:00 a.m.; 12:02 p.m. – 12:29 p.m.Room 451Division of Securities Staff Present:Tom Brady, Division DirectorSally A. Stewart, Acting Commission SecretaryDave Hermansen, Enforcement DirectorKenneth Barton, Compliance DirectorNathan Summers, for the Registration and Licensing DirectorChip Lyons, Securities AnalystFrancswai Davis, Securities AnalystDee Johnson, InvestigatorLiz Blaylock, InvestigatorSean Fuller, InvestigatorMegan Sybor, InvestigatorAaron Jaynes, InvestigatorKaren McMullin, Investors Education CoordinatorDepartment of Commerce:Bruce Dibb, Administrative Law JudgeAttorney General Staff Present:Jen Korb, Assistant Attorney GeneralPaula Faerber, Assistant Attorney GeneralTom Melton, Assistant Attorney GeneralCommissions Present:Gary Cornia, ChairpersonBrent A. CochranPeggy HuntLyndon RicksPublic Present:Brad Bertoch, VentureCapital.orgBrandon Stoddard, VentureCapital.orgWelcome and Call to Order:Chairperson Gary Cornia began the meeting at 9:00 a.m.Minutes:Brent Cochran made a motion to approve the minutes from the May 23rd, 2019 meeting. Peggy Hunt seconded themotion. The motion was unanimously approved.1
Director’s Report:Director Tom Brady reported on personnel changes within the Division. He noted that Sally A. Stewart was stilltemporarily filling in as the Commission Secretary. He indicated the position of administrative assistant wouldbe filled shortly as an offer had been made to and accepted by Sabrina Afridi. She will begin working as the newadministrative assistant and commission secretary on August 21st, 2019. He acknowledged that the threeInterns were leaving after a very successful summer. He also noted that a new investigator in the EnforcementSection, Tyler Hardman, will be starting on August 14th, 2019.He explained that H.B. 387 of the 2019 General Session requires all agencies to submit an annual report regardingtheir respective boards and commissions. The Division submitted its report which included some of the following: Hearings Heard: 9; Stipulation and Consent Orders written: 18; Various other Orders written: 4; and Grant Requests made and approved: 3.He continued on to explain the results of the 2018 Enforcement Survey: Total Number of Complaints: 173 (indicating the Division is on track for over 200 in 2019); Total Number of Investigations initiated: 57; Administrative Actions opened: 52; Civil Cases filed: 1; Criminal Filings: 10; Total Fines assessed: 4,971,493; Total Restitution Imposed: 1,157,254; and Total Amount Returned: 36,640 (#.2 %).The Top Violations according to the Survey were: Fraud; Unlicensed activity; Dishonest and unethical practices; and Failure to supervise.The Top Schemes according to the Survey were: Promissory Notes; Oil and Gas schemes; Ponzi schemes Stock schemes; and Affinity Fraud schemes.Enforcement Section Report:Enforcement Director Dave Hermansen reported that the number of Cases under investigation currently is 39cases; including 4 cases ready for review to determine if they should be referred for criminal prosecution. Thereare currently 29 cases that have not been assigned to an investigator yet. The Enforcement Section is currentlyworking on 18 Orders to Show Cause (OSC’s), 7 OSC’s needing to be drafted, and 4 Stipulation and ConsentOrders being submitted for approval by the Commission today. There are currently 22 Criminal Cases underprosecution, including 5 cases filed this month.There are a number of Criminal cases currently filed in several different jurisdictions. These include: On July 5th, 2019, Utah County Attorney, Tim Taylor, filed criminal charges against Thomas Sanford (aCalifornia resident) and Pattrick Hutton (a Florida resident) in Utah’s Fourth District Court. The charges2
consist of 1 count of securities fraud or in the alternative, communications fraud (a 2nd degree felony),along with the sale of an unregistered security and unlicensed activity (a 3rd degree felony). Arrestwarrants have been issued.On July 9th, 2019, the Utah Attorney General’s Office filed criminal charges in the matter of Richard RexBaldwin consisting of 1 count of securities fraud (a 2nd degree felony), 1 count of unlicensed sale of asecurity and 1 count of communications fraud. Baldwin has been arrested and has made his firstappearance in Third District Court.On July 26th, 2019, criminal charges filed against Jay Dick Frandsen by Cache County Attorney, TonyBaird. The Division’s investigation alleges Frandsen misused some of the investor’s 338,000 for hispersonal use.On July 26th, 2019, the Davis County Attorney filed criminal charges against William Ray Clemons inUtah’s Second District Court. The Division alleges that Clemons misused approximately 64% of theinvestor funds which includes expenditures for his personal expenses.On July 31st, 2019, criminal charges were filed against Fred Samuel Keele by the Utah Attorney General’sOffice in Utah’s Fourth District Court. The Division alleges that Keele used approximately 35,875 ofinvestor funds for his personal expenses and an additional 8,967 to make Ponzi payments.The Division has 22 cases being prosecuted criminally with five new cases filed last month. The Rust Rare Coincase has had indictments handed down on three primary individuals in that investigation. That case will beprosecuted in the Federal Courts and is proceeding.Compliance Section Report:Compliance Section Director Kenneth Barton reported that thus far in 2019 this Section has initiated thirty-one(31) compliance examinations; thirteen (13) exams were opened as a result of an investor complaint orregulatory agency referral with the remaining eighteen (18) being routine examinations. The year to datepercentage of for-cause exams is 42%. The Compliance Section’s rolling three-year annual percentage for forcause exams is 62%. This year so far routine exams comprise a higher than norm percentage which continues tobe good news. There have also been fifteen (15) new Investment Advisor licensing approval exams initiated.The Compliance Section has originated a total of forty-six (46) examinations opened since the beginning of theyear compared with the total of fifty-eight (58) exams in 2018. At the current rate we are on track to increaseCompliance examination in 2019 by approximately 35%. This increase is a result of being fully staffed for 2019.Another factor in a reduced number of Compliance Section complaints is that annuities are referred to theInsurance Department. An explanation of annuities versus securities and their respective jurisdictions wasgiven. Utah views variable annuity products and indexed annuities differently from some other states.The Compliance Section is currently working on one (1) administrative action and two (2) criminal actions: The administrative action on Eric Sampson is currently stayed pending completion of the sentencingphase of a criminal action. The sentencing is scheduled for September 2019 with the granting ofadditional time to raise funds for victim restitution. Jacob Strain is the Assistant U. S. Attorneyprosecuting the case with Francswai Davis as the current case examiner for the Division. On August 5th, 2019, Scott Stewart pled guilty to one count of Unlicensed Investment Adviser Activityand one count of Attempted Pattern of Unlawful Activity, both 3rd degree felonies. As part of the pleaagreement Stewart agreed to pay full investor restitution of 206,000, agreed to not seek a securitieslicense and not to act in a fiduciary capacity involving the handling of a person’s funds. Sentencing inthe case is scheduled for February 2020. Jessica Smith was the Utah Assistant Attorney Generalprosecuting the case with Ken Barton as the case examiner.3
Registration and Licensing Section Report:The Registration and Licensing Section report was provided by Nathan Summers, at the request of Bryan Cowley.He informed the Commission that while the number of filings remains relatively the same from year to year, therehave been statistical changes between the year ending June 2018 and June 2019 regarding individual licensereview. For the fiscal year ending in June 2018 there were 505 applicants escalated for further review while for thefiscal year ending June 2019, the total number of applicants escalated for further review was 503.The goal for the Division is for licensing cases to be closed within 30 days of application being made. This includeslicensing application that were escalated for further review due to prior disclosure history. For the fiscal yearending June 2018, the number approved or otherwise concluded within 30 days was 89.61% of cases. For the fiscalyear ending June 2019 the number approved or otherwise concluded within 30 days improved to 93.46%. Thisimprovement of 3.85% year over year is tracked to measure how well the Division is balancing the protection ofUtah investors while allowing the industry professionals to receive their licenses in a timely manner.A notable change for the Registration and Licensing section is that all files for individual licensing cases have beenswitched from physical files to electronic files. These electronic files include the Division’s correspondence with theapplicant’s firm, the applicant’s disclosure history, the applicant’s response and notes regarding the application. Allof this information had previously been in physical files in the office. This change has benefited the Division in thatwe have cut down the amount of paper used in the office, which reduces expenses. Also, we are able to samespace that had previously been used to store the physical files. Finally, it is easier to search electronic files if weneed the information at a later date.Investor Education and Training Fund Report:Investor Education Coordinator Karen McMullin presented this report, stating that since the Commission meetingin May, the Division had participated in sixteen (16) events. The estimated number of people from this outreach isapproximately 1,550. We partnered with AARP, Utah Retirement System, the Utah JumpStart Coalition, the UtahBar Securities Section and in a recent addition, with Public Employees Health Plan, known as PEHP.PEHP is a non-profit trust and a division of Utah Retirement Systems. PEHP provides health benefits to Utah’s publicemployees and their families. PEHP serves only the public sector; the employees and former employees of theState of Utah, its counties, cities, school districts and other public agencies. The PEHP Medicare Supplementprovides additional coverage to help with costs that Medicare doesn’t cover.In an effort to share both the Investor Protection and Consumer Protection messages to the senior population, theDepartment of Commerce has accepted the invitation to participate in 27 of the scheduled PEHP Medicare seminarsoffered August through November 2019. The first PEHP seminar was held in Farmington on July 9th, 2019 and about100 people attended. At the August 6th, 2019, PEHP seminar in Murray, there were approximately 120 seniors inattendance.Having the opportunity to distribute brochures and present a short outreach message at the PEHP Medicareseminars throughout the State over the next four months is of great value for both the citizens of Utah and theDivision of Securities and the Division of Consumer Protection.The Division of Securities has 14 events scheduled throughout the remainder of 2019, including the PEHP seminars,URS seminars and an opportunity to speak at the monthly meeting of the Southern Utah Estate Planning Council inSt. George in September.4
Education and Training Fund Report:Nathan Summers presented the Division of Securities Education and Training Fund Report. Commissioner BrentCochran made a motion to approve the report, seconded by Peggy Hunt. The motion passed unanimously.Grant Requests:A request was presented by Bradley B. Bertoch for a grant to VentureCapital.org in the amount of 20,000. Thisrequest is for continued educational events, seminars and forums providing mentoring assistance to companies on avoluntary basis. Mr. Bertoch indicated that in 2018 the attendance at the various events was over 1,400 in Utah and350 in Idaho. Approximately 14,000 mentoring hours we provided to approximately 100 businesses. The goal of theorganization is to teach proper investment fundraising to new business entrepreneurs. Questions from theCommission were addressed and a motion for approval requested. The motion was made by Commissioner PeggyHunt and seconded by Commissioner Brent Cochran. The motion passed unanimously for the requested amount.The Commission meeting was temporarily halted for the Hearing scheduled at 10:00 a.m.Hearing:In the matter of Clint Nordahl, SD-18-0042: Fine DeterminationJennifer Korb had arranged a telephonic hearing with Clint Nordahl at the Purgatory Correctional Facility inHurricane, Utah. Mr. Nordahl phoned at the pre-determined time of 10:00 a.m. Administrative Law Judge BruceDibb explained the differences between Criminal Action and Administrative Action. He stated that the purpose ofthe Hearing was to determine the amount of the fine only.The hearing continued until 12:02 p.m. including witnesses, documents and testimony from both sides. At theconclusion of the Hearing, Chairperson Commissioner Gary Cornia stated that the meeting would resume andconsideration of the Hearing matter would be delayed until after conclusion of the meeting.Back on the Meeting Record at 12:02 p.m.Consideration and Approval of Proposed Orders:1. Claudia Leticia Gonzalez, SD-19-0011: Stipulation and Consent OrderFrancswai Davis presented this Order with the assistance of Sean Fuller, the investigator in this case.The Order has been agreed to by Gonzalez and her attorney, Thomas Daynes Weber, neither of whomwere present. Under this Order, Gonzalez neither admits or denies the Division’s Findings of Facts andConclusions of Law; agrees to cease and desist from violating the Act and comply with the requirementsof the Act in all future business in the state of Utah; agrees to a bar from associating with any brokerdealer or investment adviser licensed in Utah; from acting as an agent for any issuer soliciting investorfunds in the state of Utah; and from being licensed in any capacity in the securities industry in the stateof Utah. Gonzalez agrees she shall cooperate with the Division’s investigation of MTC and providetestimony in this proceeding or others if requested. Gonzalez agrees she shall pay a total fine of 6,000.00 and restitution in the amount of 12,000.00; paying 4,000.00 in restitution to the twoinvestors within 10 days of the entry of the final Order and paying the remaining 8,000.00 to the twoinvestors in equal monthly payments over a period of thirty-six (36) months. Gonzalez shall pay the fineto the Division within thirty-six (36) months following this Order.Commissioner Lyndon Ricks made the motion to approve the Stipulation and Consent Order and fineamount. Commissioner Brent Cochran seconded the motion. The motion was approved unanimously.5
2. Leticia Miranda, SD-19-0012: Stipulation and Consent OrderFrancswai Davis presented this Order with the assistance of Sean Fuller, the investigator in this case.The Order has been agreed to by Miranda and her attorney, Rod Avery, neither of whom were present.Under this Order, Miranda neither admits or denies the Division’s Findings of Facts and Conclusions ofLaw; agrees to cease and desist from violating the Act and comply with the requirements of the Act in allfuture business in the state of Utah; agrees to a bar from associating with any broker-dealer orinvestment adviser licensed in Utah; from acting as an agent for any issuer soliciting investor funds inthe state of Utah; and from being licensed in any capacity in the securities industry in the state of Utah.Miranda agrees she shall cooperate with the Division’s investigation of MTC and provide testimony inthis proceeding or others if requested. Miranda agrees she shall pay a total fine of 6,000.00 andrestitution in the amount of 5,944; paying 1,500.00 in restitution to the two investors within 5 days ofthe entry of the final Order and paying an additional 1,500.00 to the two investors in 300.00 monthlypayments over a period of five (5) months. Miranda agrees to pay the remaining restitution amount of 2,944.00 to the two investors in equal monthly payments over a period of thirty-one (31) months.Gonzalez shall pay the fine to the Division within thirty-seven (37) months following this Order.Commissioner Lyndon Ricks made the motion to approve the Stipulation and Consent Order and fineamount. Commissioner Brent Cochran seconded the motion. The motion was approved unanimously.3. Israel Pineda, SD-19-0010: Motion for Entry of Default OrderPaula Faerber presented this Order. Under this Order, Pineda is ordered to cease and desist fromviolating the Act and comply with the requirements of the Act in all future business in the state of Utah;is permanently barred from associating with any broker-dealer or investment adviser licensed in Utah;and is ordered to pay restitution in the amount of 5,000.00 within thirty (30) days of the Order; and topay a fine to the Division in the amount of 9,000.00 within thirty (30) days of the Order.Commissioner Peggy Hunt made the motion to approve the Order of Default Order against RespondentIsrael Pineda and fine amount. Commissioner Brent Cochran seconded the motion. The motion wasapproved unanimously.4. Robert James Long, SD-14-0024: Stipulation and Consent OrderFrancswai Davis presented this Order with the assistance of Dee Johnson, the investigator in this case.The Order has been agreed to by Long and his attorney, Matthew Lewis, neither of whom were present.Under this Order, Long neither admits or denies the Division’s Findings of Facts and Conclusions of Law;agrees to cease and desist from violating the Act and comply with the requirements of the Act in allfuture business in the state of Utah; agrees to a bar from associating with any broker-dealer orinvestment adviser licensed in Utah; from acting as an agent for any issuer soliciting investor funds inthe state of Utah; and from being licensed in any capacity in the securities industry in the state of Utah.Long agrees he shall pay a total fine of 164,500.00; paying 12,500.00 within 5 days of the entry of thefinal Order and paying an additional 152,000.00 to the Division within a period of twelve (12) months.Up to 127,000.00 in restitution timely paid pursuant to the terms ordered in Long’s parallel criminalmatter may offset dollar for dollar towards the fine. If Long timely pays restitution ordered in theparallel criminal matter (on or before February 1, 2020), the Division will waive the remaining 25,000.00 of the fine.Commissioner Brent Cochran made the motion to approve the Stipulation and Consent Order and fineamount. Commissioner Lyndon Ricks seconded the motion. The motion was approved unanimously.6
5. Flannel Damage Holdings, LLC, SD-19-0004: Motion for Entry of Default OrderJen Korb presented this Order. Under this Order, Flannel Damage Holdings, LLC, is ordered to cease anddesist from violating the Act and comply with the requirements of the Act in all future business in thestate of Utah. Flannel Damage Holdings, LLC, is permanently barred from associating with any brokerdealer or investment adviser licensed in Utah.Commissioner Peggy Hunt made the motion to approve the Order of Default of Flannel DamageHoldings, LLC. Commissioner Brent Cochran seconded the motion. The motion was approvedunanimously.6. Brent Allen Morgan, SD-14-0039; Summit Development & Lending Group Inc., SD-14-0040: Stipulation andConsent OrderFrancswai Davis presented this Order with the assistance of Dee Johnson, the investigator in this case.The Order has been agreed to by Morgan, Summit Development & Lending Group (Respondents) andtheir attorney, Stephen K. Christiansen, neither of whom were present. Under this Order, theCommission’s sanctions from September 2015 Order is vacated and the Findings and Conclusions remainin effect. Respondents shall cease and desist from violating the Act and comply with the requirementsof the Act in all future business in the state of Utah; agree to a bar from associating with any brokerdealer or investment adviser licensed in Utah; from acting as an agent for any issuer soliciting investorfunds in the state of Utah; and from being licensed in any capacity in the securities industry in the stateof Utah. Respondents shall pay a total fine of 14,316.00 (of which 4,306.00 has already been paidwith a remaining balance of 10,000.00) and restitution in the amount of 53,850.00 within five (5) daysfollowing entry of the final Order.Commissioner Lyndon Ricks made the motion to approve the Stipulation and Consent Order and fineamount. Commissioner Peggy Hunt seconded the motion. The motion was approved unanimously.Motion to adjourn:Chairperson Commissioner Gary Cornia called for the meeting to adjourn so the Commission could deliberate on theNordahl Hearing. The Meeting was adjourned at 12:29 p.m. The next scheduled meeting or hearing date isNovember 7th, 2019.Date:Approved:Gary Cornia, Chairperson7
Aug 07, 2019 · approximately 1,550. We partnered with AA RP, Utah Retirement System, the Utah JumpStart Coalition, the Utah Bar Securities Section and in a recent addition, with Public Employees Health Plan, known as PEHP. PEHP is a non-profit trust and a division of Utah Retirement Systems. PEHP p
