The Kansas Department of Insurance knowingly employed as a senior fraud examiner a woman under Securities and Exchange Commission investigation for participation in a scheme to unlawfully sell a fitness apparel company's stock and for lying to federal agents to cover it up.

Natalie Bannister, who resided in Platte City, Mo., was implicated in a scam allegedly operated from August 2015 to March 2016. She was on the state payroll as an investigator in the insurance department's securities division until her firing in February just weeks after installation of a new Kansas insurance commissioner, Republican Vicki Schmidt.

Bannister had a 20-year professional relationship as a paralegal with the Arizona attorney at the center of the multimillion-dollar stock scandal, but said in an interview with The Topeka Capital-Journal that she was convinced the SEC investigation had nothing to do with her sudden dismissal from her state job. She expressed frustration that she was notified of her firing by voicemail while returning from a Las Vegas vacation, and posted to Facebook audio of the termination message in June.

It is unlikely anyone working in the administration of Insurance Commissioner Ken Selzer, who was replaced in January by Schmidt, would have disclosed information about the SEC case to Schmidt, she said.

"In no way, shape or form did it have anything to do with my termination," Bannister said. "There's absolutely no way because it wasn't public information. There's no reason that they (Schmidt) would have ever contacted any three-, four- or five-letter agencies to get anything about me."

Bannister asserted her removal was part of a larger effort to discharge enough Selzer-era staff to make room in the budget for Schmidt's political allies. Bannister also claimed Schmidt and Jeff Wagaman, appointed securities commissioner by Schmidt, told state employees during introductory meetings they had no expertise in the securities business.

"She just needed to come up with money to pay the entourage that she brought in. That's all it boils down to," Bannister said.

In response to a request for comment on Bannister's removal from the $65,000 job, an official with the state insurance department confirmed her July 2017 hiring and that her final day was in February.

"The department has provided the publicly available information, including that her unclassified employment ended on February 12. Beyond that information, we are unable to comment on personnel matters," said Lee Modesitt, a spokesman for Schmidt.

In a June interview that didn't touch on the Bannister controversy, Schmidt said her election in November prompted personnel changes throughout the insurance department.

"As an elected statewide official, you need to have confidence in your team," said Schmidt, a pharmacist who represented Topeka in the Kansas Senate for 14 years. "We have a lot of great people who work in the insurance department."

Bannister said her supervisor in the securities division, Randy Mullikin, knew of the federal investigation when he hired her two years ago. She said he spoke to her defense attorney about whether she should settle or fight with the SEC. Mullikin remains director of compliance and enforcement in the securities branch of the insurance department and supervises regulatory oversight of broker dealers and investment advisers.

The hiring of Bannister by Mullikin closely followed signing in 2017 by Republican Gov. Sam Brownback of a bill reforming the state securities commission in an attempt to make it more responsive to fraud and misconduct within the industry.

The GOP-controlled Kansas Legislature took steps to eliminate operational independence of the securities commission. The commission was split with prosecution of securities fraud placed in hands of the attorney general and regulation of the securities industry transferred to the insurance department.

The SEC enforcement division in New York City sent Bannister's attorney, Richard Nummi, of St. Petersburg, Fla., a letter in October 2018 revealing the SEC's preliminary decision to recommend filing a civil enforcement action against Bannister.

On July 12 in a complaint filed in U.S. District Court, the SEC charged attorney W. Scott Lawler, 57, of Chandler, Ariz., and Bannister, 44, with securities fraud and registration violations.

"We allege that through deception and fraud Lawler and Bannister prevented broker-dealers from performing critical gatekeeping functions, which here resulted in public stock sales that never should have occurred," said Marc Berger, director of the SEC’s New York regional office. "Attorneys must not misuse their specialized skills and knowledge of the securities laws to engage in fraud at the expense of unwitting investors."

In a complex operation outlined in a 65-page SEC document, Lawler allegedly engaged in manipulative activities to transfer control over shares of two publicly traded shell companies to his client. The SEC's complaint alleged Lawler represented his client on the purchase of Broke Out Inc., or BRKO, and the predecessor to Immage Biotherapeutics Corp., or IMMG.

The SEC said Bannister participated in the BRKO portion of the scheme by arranging the sale of BRKO to the client. Among other deceptive conduct, the complaint said Lawler directed and Bannister engaged in sham transactions.

Investigators at the SEC built a case indicating Lawler drafted bogus attorney-opinion letters, one of which Bannister submitted to a broker, to falsely represent that BRKO and IMMG stock could be immediately sold publicly once his client took control of the companies.

In addition, according to the SEC, Lawler and Bannister ensured a market for the BRKO stock when Bannister placed phony bids and offers for the stock at Lawler's direction.

"Bannister engaged in numerous acts in furtherance of the BRKO fraudulent scheme, including engaging in straw purchases of BRKO stock," the SEC said.

The SEC also accused Bannister of "lying to a government investigator after the fact to cover up the scheme."

Brokerage accounts associated with Lawler's client showed profits of more than $3 million before the SEC suspended trading. Trading of stock in BRKO, a Nevada corporation with a business address in Frankfort, Germany, was suspended in March 2016.

Bannister, who estimated she helped take 400 companies public during a 20-year career as a securities consultant, said she was no longer working in the industry. SEC documents said she worked for many years as an agent selling shell companies and was associated with penny-stock companies, including service as a compliance officer for an off-shore broker dealer.

It is unclear when or how the SEC's civil case would draw to a close, but Bannister said she was grateful it wasn't being handled as a criminal matter.

"It is civil, which is good," Bannister said. "I made $10,000 off the transaction and they want that $10,000."