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HELENA — A $30 million fraud case against a former Butte investment broker took an unusual turn earlier this month when the investment company named in the suit accused the state auditor of playing both judge and prosecutor.

State Auditor John Morrison, who is also the state's commissioner of securities, stepped down in April as the final decision maker in a case accusing former broker Thomas O'Neill, a string of his bosses and his former employer, US Bancorp Piper Jaffray Inc., of fraud and unethical conduct. Morrison then assigned himself the role of lead prosecutor in the case.

O'Neill, who has lost his job, is accused of making more than 5,000 unauthorized trades on his clients' investments between 1997 and 2001. His higher-ups and the company itself are accused of allowing O'Neill to turn his clients' safe retirement accounts into risky portfolios heavy on mercurial tech stocks, a move that cost his 38 victims more than $2 million, said Betsy Griffing, the chief lawyer for the state auditor's office.

But there are problems with Morrison's role in the case, Piper Jaffray charged in new information filed May 9 in Helena District Court. The company says Morrison cannot step down as the department's decision maker, only to step up as the lead prosecutor, especially since Morrison personally appointed the new hearings examiner who will be hearing the case that Morrison will be arguing.

The company says it cannot possibly get a fair hearing on the matter, and it cannot get a final order in the case — which is pending in a kind of quasi-judicial administrative proceeding — because Morrison, as the securities commissioner, is required to sign all final orders, and he has stepped down.

Piper Jaffray has asked District Judge Jeff Sherlock to step in.

"We think the suit speaks for itself," said Erin Freeman, a spokeswoman for Piper Jaffray in Minneapolis, who declined to comment.

Griffing said the argument is bogus and designed to deflect heat from Piper Jaffray in a case that Griffing said is "one of the largest securities cases ever in the state of Montana."

"Our position is that they were fully aware of what (O'Neill) was doing and did nothing to stop it," Griffing said. "We have evidence that trades occurred in one man's account while he was in a coma, and one trade occurred after he died."

If the agency prevails, Piper Jaffray could be fined up to $30 million, in addition to repaying the $2 million that investors lost because of O'Neill's unauthorized trades.

The case dates to December of 2000, when a woman complained to the auditor's office that O'Neill had sold off all her mutual fund stocks and replaced them with riskier regular stock, all without her permission.

The state auditor's office started investigating, and according to the agency's official complaint, it found 38 cases in which O'Neill had transformed mostly retirement investment accounts into risky — and money-losing — tech-heavy accounts all without the client's permission. The complaint also states that O'Neill not only made more than 5,000 unauthorized stock transactions, he also charged his clients commission for the trades he was making without their permission or knowledge.

The complaint further states that O'Neill was engaging in excessive trading not to make money for his client but to enable him to charge commissions on all the trades. Stockbrokers make money through commissions both when they buy stock for customers and when they sell it for them, regardless of whether the customers made any money on the trade.

The complaint said Piper Jaffray knew or should have known what O'Neill was doing, especially since he'd had problems previously and was violating Piper Jaffray's own internal guidelines for appropriate stock transactions. Instead, the complaint said, the company rewarded and promoted him.

Griffing said Piper Jaffray will get a fair hearing. Morrison was not the hearings officer in the case to begin with, she said, and he does not generally serve as hearings examiner in such proceedings. Instead, she said, they always appoint someone outside the agency to serve as independent examiner, as has happened in this case.

Typically, Morrison would be the person to sign off on the judgment of the hearings examiner, but in this case, Morrison has excused himself from that role and allowed the hearings examiner himself to issue the agency's final judgment in the case.

In a deposition, Morrison said, "I'm a member of the department, just as any other member of the department is. So it would seem to me that in the absence of some provision that prohibits that, that I can represent our agency just as any other counsel can represent our agency."

O'Neill's lawyer, Roberta Anner Hughes, then said: "You'll have to admit, though, this is the only time it's ever been done."

Replied Morrison: "It's the only time the state auditor has ever been an attorney."

The department is now planning a hearing for September, which will be much like a trial.

Griffing said the case can still be appealed to another independent hearings officer and can also be appealed to District Court.

"What we are seeking in this case is corporate accountability," she said. "Piper Jaffray has a lot to lose."