Lawmakers question informal resolution of securities disputes

LITTLE ROCK — The head of the Arkansas Securities Department told a legislative panel Wednesday he is willing to refrain from making informal deals in securities disputes to send money to third parties after lawmakers said they were uncomfortable with the arrangements.

Securities Commissioner Heath Abshure appeared before the legislative Joint Performance Review Committee to explain the agency’s procedures amid allegations that he diverted settlement money to a nonprofit organization he headed.

Stephens Inc., Arkansas’ largest investment firm, told Arkansas Business last month it had filed a complaint with the state Ethics Commission alleging Abshure violated state law by directing contributions in lieu of fines in at least three cases, one of them a settlement totaling $150,000 and the others involving smaller amounts, to the North American Securities Administrators Association.

The company claims that in steering money to NASAA, Abshure personally benefited by enhancing his resume and his attractiveness to potential future employers. Abshure was president of NASAA from September 2012 to October 2013.

On Wednesday, Abshure told lawmakers that the Arkansas Securities Act permits informal disposition of proceedings in lieu of a formal hearing or securities sanctions. He said it is appropriate for such informal dispositions to include voluntary contributions to an organization like NASAA, which he said provides training to securities regulators in Arkansas and other states.

Rep. Bruce Westerman, R-Hot Springs, asked Abshure why the money from the settlements did not go into the state treasury. Abshure answered that while the Securities Act requires fines and money collected in lieu of fines to be deposited in the treasury, the state never collected the money that was donated to NASAA.

“That’s money that never came into the state,” he said, adding that if all money paid in every securities case had go into the treasury, then companies could never be ordered to pay restitution to victims.

Rep. Nate Bell, R-Mena, asked Abshure how the practice differs from a police officer pulling over a drunken driver and offering to “pretend this never happened” if the driver makes a donation to an organization that the officer heads.

“That’s essentially what it appears to me you’ve done here,” he said.

Abshure said one difference is that state law expressly authorizes him to negotiate informal dispositions. He also said the contributions in question were completely voluntary and were included in public consent orders that also included findings of violations of the law.

“Everything happens in the open,” he said.

Abshure provided the panel with documents showing that the practice is common across the country. According to the documents, over the last five years NASAA has received money as part of settlements negotiated by state regulators not only in Arkansas but also in Alabama, Colorado, Florida, Iowa, Maine, New Jersey, North Carolina, Texas and Washington.

Rep. Terry Rice, R-Waldron, said that even if the practice is legal, he was concerned about “the appearance of impropriety.”

Sen. Larry Teague, D-Nashville, told Abshure, “I’m not comfortable with the process.”

“Maybe I don’t understand enough about it to be comfortable yet, but my thought is that you should stop it until some of us get comfortable with it,” he said.

“I think we can do that,” Abshure said.

Stephens Inc. filed its complaint after agreeing in August to pay a $25,000 fine for failing to have written policies in place regarding the sale of certain exchange-traded funds. The company says that during negotiations, Abshure proposed that it make a $20,000 donation to NASAA in lieu of a fine, an offer that Stephens rejected.