Page 3 of 5The Punisher
For all the allegations characterizing Klein as a rogue securities cop playing fast and loose with the rules, the 52-year-old lawyer looks more like a tax attorney nearing retirement. From his new downtown law office at Lewis B. Freeman & Partners, Klein now does consulting on securities law. Still exasperated, Klein shakes his head when discussing the audit—especially the criticism of focusing on “punishment” instead of compliance.
“If you’re a cop and you catch a bank robber and the thief says, ‘OK, you got me, here’s the money back,’ do you not arrest him?” Klein asks.
“The way to encourage compliance is not by babysitting [offenders] and telling them what they need to do,” Klein says. “The motivation is that [if you’re not compliant], we are going to fine or punish you.” Deterrence is but one of many factors involved in determining fines, Klein says, reading from an instruction manual he wrote and has used for the last eight years in training investigators from across the country.
With more than 25 years in securities enforcement, including leading a 1993 fraud investigation in Idaho that helped bring $2 billion in restitution to victims, Klein knows securities regulation is a complicated subject. He concedes auditors had a difficult task in examining the division but worries their analysis is an after-the-fact criticism. “My concern is that if auditors are saying you need to have policies covering every possible scenario, it’s going to hamper the work of the division because [investigators] will be relegated to checking boxes.” Investigators, he says, will worry more about jumping through administrative hoops than following leads.
“You’re not going to be able to anticipate all the policies you might need, either. People will be afraid to go out and pursue some new lead because you don’t have policies and procedures to follow.”
Klein agrees the audit did identify some problems, including personality conflicts within the division and slow reaction to cases such as Teran’s. Klein admits he also was wrong to have the division hold onto a fee check, as the audit points out. By holding the check received at the end of fiscal 2007, Klein says he had hoped to keep the money for the UDS education fund. Utah law requires such remuneration go to the state’s general fund after the division’s fund reaches a certain cap in one fiscal year. Klein says he didn’t realize that holding the check violated statute and when he did, he turned it immediately over to the state fund.
The audit also faulted Klein for doing double duty by overseeing investigations and then acting as the administrative hearing officer on the same cases.
“They [auditors] may think it’s a bad idea, and if so, change the process, but that’s the way the system was set up.”
Klein notes that defendants could always request a hearing officer from outside the state Department of Commerce (the parent agency over UDS). But he believes violators were more interested in playing the “O.J. defense”—the system is corrupt, so why take part in it? “I think this was simply an excuse for people who didn’t want to be held accountable, who didn’t [want] to go to a hearing on their case,” Klein says.
The audit identifies one case where this argument spiraled into a legal battle, which for the defendant would be a David vs. Goliath struggle against big government. For UDS, it would be a painful lesson on the consequences of taking on a friend of a state legislator.