HELENA — State Auditor John Morrison agreed to have an outside attorney handle a securities fraud case in part because he earlier had an extramarital affair with a woman connected to the targeted companies, the Lee Newspapers State Bureau has learned.
Morrison, the leading Democrat in Montana’s U.S. Senate race, said that hiring an outside attorney is rare but not unprecedented. It was the best thing to do under the circumstances and led to a good result, he said.
The companies, operated by David Tacke of Kalispell, were ordered to offer refunds to investors and create an independent board of directors, among other punishments.
Tacke eventually ended up in federal prison with an order to repay investors nearly $1 million, Morrison noted, although investors have yet to receive any of that money.
“I was not influenced in my decision-making in this case by my acquaintance with anybody in this case,” he said in an interview last week. “Importantly, I did not influence this case, except perhaps to suggest that if we could save the (companies) while removing any cancer, to do so.”
Morrison said his past relationship with Suzanne Harding, who was Tacke’s fiancé at the time of the investigation, wasn’t the only reason for calling in the independent counsel.
He said he knew at least two other people connected with the Kalispell companies under investigation, the auditor’s office was swamped with other work, and that some investors in the company felt the auditor’s office was jeopardizing the company.
Morrison authorized the hiring of Beth Baker, a former state deputy attorney general, in early 2003 to handle the case against Tacke and his companies.
Baker said she was given broad leeway to decide how to proceed. She eventually recommended a settlement that was accepted and signed by Morrison’s office and Tacke in July 2003.
“I knew there were some personal relationships involved,” she said. “(Morrison) didn’t want those to have any effect on what happened with the case.
“He said he wanted a completely independent review. There’s nothing in the way he handled it that made me uncomfortable.”
Harding told the Lee Newspapers State Bureau she had a two-month relationship with Morrison in 1998 and that she called Morrison twice at his state office during the investigation of Tacke’s companies in 2001 and 2002.
Harding, 39, now married to Tacke, said she told Morrison that state investigators were being unreasonable and appeared to have a vendetta against Tacke and his companies.
“I said to (Morrison), ‘Would you please, John, find out what is going on and before any charges are filed or anything happens, call David,’ “ she said. “That never happened.”
During an interview with the Lee Newspapers State Bureau last Friday, Morrison said he spoke twice with Harding, but that the contacts didn’t change the direction of the investigation. His wife, Cathy, accompanied him at the interview.
Morrison said he was concerned about Harding’s allegations that investigators were being “heavy-handed,” but told his staff only to “make sure that everything we do is beyond reproach.”
“I think that was the only participation that I had in terms of communicating with any investigators,” he said.
Morrison refused to discuss his prior relationship with Harding, except to say he and his wife had “problems in our marriage at one time,” and that those problems “are far behind us.” Morrison and his wife have been married for 15 years.
“We are deeply committed to each other, to our children, to our faith and to the state of Montana,” he said. “That’s all I have to say about it. I’m not going to talk about ancient history. “
“Our marriage is a story of redemption, as many marriages are, if they’re fortunate.”
Morrison also acknowledged that he gave Harding $1,000 during their brief relationship in 1998, describing it as a loan to help a friend and single mother having financial difficulty.
Harding was going through a divorce and had a young son. She said the money was a gift from Morrison, not a loan.
Harding said her calls to Morrison during the investigation were the first time she’d spoken to him since 1999, when he called to tell her he was running for state auditor.
“He said, ‘You don’t have anything against me do you?”’ she recalled. “I said, ‘No, why?’ He said, “I’m running for state auditor and I just want to cover my bases.”’
Morrison said he recalled only that he called Harding to tell her he was running for state auditor.
Morrison, 44, has been auditor since 2001, winning re-election in 2004. He is one of five people running for the Democratic nomination for the seat held by U.S. Sen. Conrad Burns, R-Mont. Some independent polls have shown Morrison as the strongest Democratic candidate against Burns.
The other Democrats are state Senate President Jon Tester of Big Sandy, former state Rep. Paul Richards of Boulder, farmer Robert Candee of Richey and teacher Ken Marcure of Missoula.
As auditor, Morrison regulates the insurance industry and any local selling of “securities,” or stock, in companies. His office began investigating Tacke’s activities in mid-2001, after receiving complaints from investors and company employees.
Tacke had started companies that planned to place binoculars under individual seats in sporting arenas around the country and rent out use of the binoculars. He had solicited hundreds of thousands of dollars from investors, many in the Kalispell area. (See sidebar.)
State investigators searched Tacke’s business in late 2001 and later, Harding said, his home, seizing computers, records and other material. They suspected Tacke was skimming funds from the business for his personal use and that he’d been selling unregistered securities.
Harding said she called Morrison shortly after the investigation began and after the search. She said Morrison agreed that it looked as though “someone in this office has a vendetta against David,” and promised to look into it.
Morrison denied making that statement, and said he told Harding he couldn’t talk with her again about the case. He said he also told key staffers about the conversation and that he “knew several people very well in the case,” from when he grew up and lived in the area.
Morrison grew up in Whitefish and Missoula.
As the investigation proceeded in 2002, state officials tried to determine whether Tacke’s companies were legitimate. They negotiated with Tacke’s lawyers on how the company could continue to operate and comply with the law.
At the same time, state officials also told federal authorities about the case, saying it might involve fraud that affected investors from multiple states.
During 2002 and early 2003, many investors in the companies — and Tacke himself — complained bitterly to Morrison’s office, saying the investigation was harming a legitimate business on the verge of success.
By late 2002, negotiations between Tacke and the state broke down. Morrison’s office ordered Tacke to stop selling shares in the company and Morrison’s chief legal counsel, Betsy Griffing, proposed bringing in Baker as an outside counsel to handle the case.
Early in 2003, Morrison met with key staffers to talk about the case. Also attending was former state Deputy Auditor Dave Hunter, a long-time Democratic political operative who was planning to return as deputy auditor under Morrison later that year.
Hunter said Morrison spoke frankly about past personal relationships with people close to Tacke, including the affair with Harding, and whether he had a conflict of interest in the case.
Morrison said he also knew Wally Lengstorf, a boyhood friend who worked for Tacke’s VenueTech Systems, and Gabriel Perjessy, a Kalispell dentist and family friend who was involved in the companies. Lengstorf declined to comment, and Perjessy didn’t respond to State Bureau inquiries.
“He was using the other two to take the attention off of him having a personal relationship with me,” Harding said.
Morrison decided that Baker would handle the case and have the authority to take it to an administrative hearing or, if possible, arrange a settlement, Hunter said.
“In the end, John took the action that you hope an elected official would take when they have a conflict of interest,” said Hunter.
Baker said she began preparing the case for a hearing, which would have examined whether Tacke illegally sold securities, and could have led to a fine.
Instead, however, she decided to move toward a settlement, because it could give the companies a chance to survive and perhaps pay back investors who thought they’d been swindled.
Baker said she conducted the negotiations and spoke with Morrison several times, primarily to keep him abreast of what was happening.
Sources said Morrison was advised to stay out of the negotiations entirely, to avoid any appearance of conflict of interest.
Morrison acknowledged that he sat in on some discussions about settlement offers and details, but said he made no decisions. He noted that Hunter signed the final agreement as deputy state auditor, on July 30, 2003.
The settlement said Tacke had to notify all shareholders of financial problems with the company and his past legal problems, give them a chance for refunds, and create an independent board. It also barred Tacke from personally selling securities.
“Our first objective was to get people’s money back, if they wanted, and to give the company a chance, if it had a chance, while at the same time pursuing Tacke,” Morrison said.
Yet despite the requirements for the company, investors have not recovered any money, state and federal authorities said.
Karen Powell, Morrison’s staff attorney on the case, said the office did what it could to enforce the settlement, but “it turned out the funds weren’t there at this point.” The office is still hoping some payback options exist, she added.
Some former staffers told the Lee Newspapers State Bureau they were troubled by the fact that the settlement allowed Tacke to continue at the company and allow more shares to be sold, as part of an effort to pay off other investors. Tacke also wasn’t fined.
The alternative would have been to force Tacke out of the company — but many investors did not want that to happen, they said.
The federal investigation also continued, and a grand jury indicted Tacke in January 2005 on charges of fraud and money-laundering. He was convicted July 1 after a nine-day trial in Missoula. Tacke has appealed his conviction.
While Tacke has been ordered to repay $965,000 to more than two dozen investors, no payment has occurred. He’s serving a nine-year sentence at a minimum-security prison south of Portland, Ore. The company still operates as Opteks, Harding said. Neither she nor Tacke is involved, she added.
Marilyn Chastain, chief of Idaho’s Finance Department Securities Bureau, said the fact that Tacke is today sitting in a federal prison is a “feather in the cap,” of the Montana state auditor’s office.
Chastain, who was not involved in the case, said prosecuting securities fraud is messy business. Because state securities administrators like Morrison and she can’t prosecute frauds in a criminal court, it’s sometimes more effective to make sure federal investigators — who often have more money — get involved and ultimately get their guy. Chastain said she didn’t think the state’s settlement was soft-pedaled.
By cooperating with federal prosecutors, Montana’s auditor’s office made sure Tacke got serious prison time and a stiff fine. Such a case in Idaho, Chastain said, would be greeted as a “huge success.”
“I want to be able to put out that press release,” she said. “You bet.”
Harding said she and Tacke felt betrayed by Morrison and his office, because they felt the agreement promised there wouldn’t be investigations by agencies other than the auditor’s office.
The agreement says the auditor’s office won’t request any other agency to investigate, but says the state is not barred from cooperating with any other agency that requests information.
“(Tacke) never would have signed the agreement had he known they were talking to the feds,” she said.
“Whether he pushed too hard or didn’t push enough, he was remiss in his duty,” Harding said. “He was out to protect himself, period, without any care for anybody at the company or David or anyone else.”
Morrison said his only goal was to make sure the law was followed and that the companies, if legitimate, had a chance to survive.
“The general direction that I gave the agency on the case was enforce the securities laws and protect the public,” he said. “If you can preserve the company in the process, do it. In other words, if there’s a cancer, address the cancer but don’t kill the patient.”
Editor’s note: State Bureau reporter Jennifer McKee contributed to this story.
Correction: This article incorrectly reported that one of the firms, now known as Opteks, is part of Noot Group Inc. of Boise, Idaho.
Noot Group, an advertising firm, did some work for Opteks but is not affiliated with the company, said David Noot of Noot Group.
The story also incorrectly attributed a statement to Suzanne Harding that the two companies are affiliated. Harding did not say that Opteks is affiliated with Noot Group.