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Chris Myklebust, Colorado Securities Commissioner (Provided by Colorado Department of Regulatory Agencies)

Nineteen days after Gerald “Jerry” Rome told his boss in November that he planned to retire as Colorado’s Securities Commissioner, Chris Myklebust accepted the job as Rome’s replacement. 

Colorado Securities Commissioner Chris Myklebust (Provided by Colorado Department of Regulatory Agencies)

Myklebust had already served as the state’s bank commissioner and the state’s commissioner of financial services. But the sudden hire raised eyebrows, especially those of securities board members who say they were excluded from the hiring process.

Some members, who are responsible for providing oversight to the commissioner, immediately questioned whether Myklebust’s appointment to the civil service role was done legally. There was no job posting, no other candidates and no discussion with the board for a position that in the past took months to fill. And if the hiring is invalidated, there’s a threat that securities cases could be reversed.

Department of Regulatory Agencies Executive Director Marguerite Salazar, who was appointed by former Gov. John Hickenlooper, made the offer before leaving to become a top regulator in New Mexico.

“It appears to be a midnight patronage appointment with Marguerite Salazar leaving and going to a job in New Mexico. It appears she just gave this job to Chris without going through a posting and process,” said Kent Lund, a board member and a securities lawyer. “I think Chris’ job should be rescinded unless anybody can convince me that it wasn’t done improperly.” 

At the last board meeting in June, Deputy Attorney General Christopher Beall showed up to address the board’s concerns. He said he found that state statutes requiring such jobs be conducted through a competitive hiring process conflicted with the state constitution, which gives authority to the department’s executive director. 

He sided with the constitution. During the meeting, Beall said, “the facts are the executive director was not required by law to seek your advice pursuant to the constitution as opposed to the statute,” according to a recording obtained by The Colorado Sun under the Colorado Open Records Act.

But Lund and fellow board member Steven Price feel the statutes do not conflict with the constitution and are pushing Beall for a complete investigation of the hiring.  The two men filed their own open records request to find out how Myklebust got hired so quickly.

“It would be great if someone would say, here’s what the rules were and here’s specifically how each of them was followed,” said Price, who said he’s asked for evidence that rules were followed since December. “… If you ask me what should happen, either we should receive a detailed explanation of how this happened, or DORA should vacate the appointment and go about it correctly. If Chris is the best candidate after a comparative analysis of eligible applicants, then he should have the job.”

The Colorado Attorney General’s office “cannot confirm if there is an investigation,” spokesman Lawrence Pacheco said.

And DORA, now led by Patty Salazar (no relation to the past executive director), said it’s siding with Beall. “As the statements made by DORA’s legal counsel reflect, a review of the Constitution of the State of Colorado shows that the appointment of Securities Commissioner Chris Myklebust was lawfully conducted by the former executive director,” the agency said in an emailed statement.

Myklebust declined to comment for this story.

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Securities bar may challenge hire

But the securities community is wondering what’s going to happen and is asking Luke Ritchie, chair of the Colorado Bar Association’s Securities Law subsection. Ritchie said he plans to meet with some members this week to discuss the situation.

“It would be a big deal if the constitutional and statutory requirements for appointing the Securities Commission were not met, but at this point that question has not been determined – the appointment has not been challenged,” said Ritchie, a lawyer with Moye White. “I think securities law practitioners and board members are asking that question now, with the hope that if the appointment process was defective it can be corrected before any such formal challenge is made.”

The big concern among securities lawyers is whether fraud cases will be invalidated if Myklebust’s hiring was done illegally, said Herrick Lidstone, a lawyer with Burns Figa & Will PC who served on the state securities board for 15 of the past 20 years. 

“The big issue I see from this failure to meet the constitutional statute requirements in the appointment of Commissioner Myklebust is that everything the securities commission does is questionable, whether it’s on the enforcement side or regulatory side,” Lidstone said. “… As a person who’s practiced transactional law for 41 years, it bothers me.”

Lidstone pointed to a U.S. Supreme Court decision last year in the case of investment adviser Raymond J. Lucia. In 2012, the U.S. Securities & Exchange Commission charged the San Diego radio personality with spreading misleading financial information through his “Buckets of Money” seminars. The Supreme Court, however, ruled that the administrative law judge overseeing the SEC case was improperly appointed and threw the case out. That also left open possible reversal of similar cases decided by improperly appointed judges.

“Now I will tell you that I’ve spoken to litigators on this and they’ve got a different opinion. The litigators kind of smile and say, ‘Great, this gives us another defense,’” Lidstone said. “My goal as a transactional lawyer is certainty, and right now, I don’t feel I have it.”

What does the securities board do?

Back in the 1970s and 1980s, Colorado became a haven for investment fraud and penny stocks, the highly speculative stocks that typically trade for less than $1 per share. Some of that came crashing down by 1990. The Rocky Mountain News reported that year that the penny stock market “once claimed Denver as its capital” as Meyer Blinder, the founder of Denver-based Blinder, Robinson & Co, ended up in federal prison for “racketeering, stock fraud and money laundering through the manipulation of penny stock sales.”

That’s the environment Phil Feigin faced when he became the state’s securities commissioner in 1988, after serving as deputy for six years. He pushed for the Colorado Securities Act of 1990, which gave the state division power to require public offerings to be registered, brokers to be licensed and authority to discipline violators. 

“In 1982, Colorado was a financial version of gangland Chicago,” said Feigin, who is now retired. “It was a disaster and it got worse before it got better.” 

The new 1990 law also created the securities board, a group of five people appointed by the governor and ratified by the Senate, to provide “oversight to the securities commissioner.”

The board also has another job: the commissioner “shall be appointed by the executive director of the department of regulatory agencies, pursuant to the provisions of section 13 of article XII of the state constitution, and the securities board,” according to state statute

Section 13 of article XII of the state constitution says appointments must use a process based on merit, competence and competition with the person appointed ranked as the highest of three candidates, unless fewer than three are qualified for the job.  

“Colorado goes high up in having an anti-nepotism government,” Feigin said. “Almost everyone is a civil servant so if a new governor is elected, everyone doesn’t leave and you don’t have a bunch of gubernatorial appointments.”

When Feigin resigned in September 1998, the position stayed vacant for months. The search was restarted in January after finding only two finalists and “state personnel rules require three,” according to a Rocky Mountain News report at the time. Acting commissioner Fred Joseph, who’d been with DORA for 30 years and had served as commissioner for both the state’s securities and banking division, got the job about nine months after Feigin left.

Gerald “Jerry” Rome was appointed Colorado Securities Commissioner in 2014. He retired on Nov. 30, 2018. (Tamara Chuang, The Colorado Sun)

When Rome became commissioner in June 2014, he had already served as the deputy securities commissioner for a decade and stepped into the role as acting commissioner after Joseph retired. It took nearly six months before Rome got the job. 

Myklebust, too, has been with DORA for several years. Before becoming the state bank commissioner in July 2015, he served as the state’s commissioner of financial services since 2006. In that job, he helped develop a way for legal marijuana businesses to bank in 2014. He left DORA in 2017 to start his own consulting business. 

Rome said he gave his notice on Nov. 1, 2018. In an undated letter from Marguerite Salazar with the job offer, Myklebust accepted the offer and signed and dated it Nov. 19, according to documents shared under the Open Records Act.

According to the minutes of the March board meeting, board member and chair Thomas Kenning said he’d asked Marguerite Salazar about Myklebust’s appointment and “(Salazar) stated that the correct protocol was followed in the appointment of the commissioner.”

Reached by email, Kenning responded briefly: “I would only add that the board has worked hard to comply with the Colorado Open Meetings Law and everything that has been said is available to the public. We have not been in executive session this year.”

Board member Keith Olivia declined to comment. Curtis Winar, the fifth board member, could not be reached for comment.

At the request of Price and Lund, Feigin showed up at the June securities board meeting to explain the intent behind the language of the law. 

“It takes very experienced people educated in securities regulation and enforcement. I’d hate to see it undermined by leadership that doesn’t have the qualifications,” Feigin said in an interview with The Sun. “I don’t know if he (Myklebust) does or doesn’t, but he hasn’t been tested. The uncertainty is a problem. I know he has banking and securities experience, but … banking is about solvency and securities regulation doesn’t give a whit about solvency. They regulate to protect the public and investors.”

Tamara Chuang writes about Colorado business and the local economy for The Colorado Sun, which she cofounded in 2018 with a mission to make sure quality local journalism is a sustainable business. Her focus on the economy during the pandemic...