Monthly Archives: May 2014

First Ever Whistleblower Award Given to Utah Man

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The Utah Securities Commission recently approved the first ever whistleblower award to a Utah man who provided information to the Utah Division of Securities which formed the basis of criminal charges. According to a Division of Securities press release, the Commission will pay $15,000.00 to a financial advisor in Saint George who reported a suspicious investment one of his clients had made that promised low risk and high returns. This is a very exciting development that demonstrates the Commission’s commitment to eliminating investment fraud in Utah.

The award was granted under the Securities Fraud Reporting Program Act, which was passed by the Utah legislature in 2011. The statute created a reward program designed to pay individuals who provide original information to the Division which forms the basis for a successful enforcement action for fraud or other violations of securities laws. Under the law, if the enforcement action results in the collection of monetary sanctions exceeding $50,000, the person who reported the violation may be entitled to a reward of up to 30% of the amount collected.

To qualify for an award, the individual must provide “original information” to the Division or the Commission, have a “reasonable belief” that the act being disclosed is a violation of securities laws, and provide the information in writing and in compliance with the Utah Administrative Rulemaking Act.

The law provides protections to individuals who report potential violations to the Division, particularly in the case of an employee of a company. Oftentimes, employees of companies that are violating securities laws are in the best position to make these reports, and can do so without fear of retribution.

The Dodd-Frank Wall Street Reform and Consumer Protection Act also created a whistleblower award program in federal cases. Its requirements are similar to those of the state law, but the monetary sanction imposed by the federal agency must exceed $1 million before a whistleblower qualifies for an award. In addition, under Dodd-Frank, the whistleblower may remain anonymous. However, if the whistleblower wishes to remain anonymous the law requires them to hire an attorney.

The lawyers in the Securities Litigation Section at Ray Quinney & Nebeker have experience filing whistleblower claims with both state and federal regulatory agencies. We are committed to ensuring you receive compensation for your decision to blow the whistle on fraud and will work closely with you throughout the entire process of filing the whistleblower claim, during the investigation, and through any appeals if your claim is not approved.

American Pension Services Lawsuit

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APSOn April 30, 2014 the Securities and Exchange Commission filed a lawsuit against a Utah-based company called American Pension Services, Inc. (“APS”) and alleged that the retirement plan administrator  defrauded investors.  This is not a Ponzi Scheme case (unlike many the SEC files in Utah) it is really about forgery and theft.   And it was not just any money that was stolen — APS was a third-party administrator for self-directed 401Ks and IRA’s which the securities industry and federal regulations work hard to protect.  Stealing someone’s retirement funds is like stealing money out of the contribution plate at church.   It’s just not done.

The SEC has alleged that the owner of APS, Curtis L. DeYoung of Riverton Utah took at least $22.7 million from client accounts and invested it in other Utah Ponzi schemes such as Impact Cash and Horizon Mortgage — both of which are being managed by Utah-based receiver and trustee Gil Miller. Impact Cash is in receivership at the request of the SEC and Horizon Mortgage is in bankruptcy.  According to the SEC’s complaint, DeYoung squandered investor funds on high-risk investments and hid the losses by issuing inflated account statements, allowing him to continue collecting fees and further victimizing his customers.  In addition to Impact Cash and Horizon, DeYoung allegedly invested with a friend of his named Michael Memmott who ran a company called  Innovative Equity Partners LLC, with Charlevoix Homes LLC in Arizona, and in another venture called Remington Commercial Advisors, LLC.  It is unclear whether these companies are solvent, but Charlevoix Homes is in bankruptcy.

According to the SEC Complaint this fraud scheme dates back to at least 2005 and targeted customers with retirement accounts holding non-traditional assets typically not available through traditional 401(k) retirement plans or other IRA custodians.  DeYoung allegedly used forged letters and signatures to invest these retirement funds on behalf of customers without their knowledge.  This is extremely troubling to say the least.

Among investment professionals that I work with APS has long had a reputation for providing an unusual amount of flexibility to investors for where they placed their self-directed funds.  So if you had an investment that you wanted to get into with your IRA and your current plan administrator would not permit it, you could always move your funds to APS who would let you do it.   Because of this flexibility there was a constant flow of IRA money into APS, and in many cases these transfers were at the urging of investment professionals who wanted to put their clients’ funds into investments that generated higher returns – but also had higher risk.   Presumably risk of theft by the owner of APS was not among the risks that were disclosed to investors.   Although it is unclear whether these investment professionals knew or should have known of the problems with APS, in my view the unusual flexibility APS offered should have been a red flag.

Surprisingly the SEC obtained an asset freeze of DeYoung’s account as well as all of the funds in APS (i.e. the funds which were not stolen) which will likely cause significant problems for those who have accounts there until things get sorted out.  Meanwhile DeYoung’s lawyer, Paul Moxley, is attempting to obtain release of some of these funds to pay for his legal defense.

The court appointed as receiver a California lawyer, Diane Thompson, who will be managing APS and the accounts.  The receiver’s website has a Frequently Asked Questions page with current information about investors’ access to their funds, among other things.  Presumably Ms. Thompson and her law firm will shortly disclose what actions she is taking to recover the missing $22 million.  APS depositors should consult this website frequently for updates and make sure the receiver has their correct contact information.

Moreover, I believe it is usually a good idea for investors or depositors in a receivership such as this to join together and hire experienced SEC receivership counsel to follow the case, appear in court if necessary, and ensure that their interests are protected.  SEC receivers have significant latitude in fashioning a plan of distribution for recovered funds (if any), but there are always winners and losers in those plans.  Good counsel can help ensure that you are treated fairly.

Copyright 2014 by Mark W. Pugsley.  All rights reserved.