Stephens Inc. Asks Legislators to Consider Changes to Securities Law

by Gwen Moritz  on Wednesday, Jan. 22, 2014 5:10 pm  

Securities Commissioner Heath Abshure

Suggested Reforms

In a document distributed at the hearing, Stephens Inc. recommended four "legislative reforms," starting with making it clear that the Securities Commissioner does not have the ability to "direct enforcement related contributions to third parties instead of the state treasury."

Stephens asserts that the practice is already forbidden by law, but Abshure has argued that the securities act gives him broad latitude to craft appropriate penalties. Requiring all monetary penalties to flow into the state treasury, Abshure has said, would not only forbid donations like the one Crews made but would also prevent him from ordering brokers or advisers to pay restitution to their victims.

Stephens also recommended that no fines or other payments flow directly to the Securities Department, which it says "creates a conflict of interest" for employees of the department. The law currently sends the first $150,000 in fines levied each year to a special fund for investor education; all fines collected in excess of $150,000 are forwarded to the state treasury.

Stephens also suggested that a provision be added to the law allowing judicial relief "in the event that a Securities Department investigative efforts appears to be undertaken in bad faith or for harassment purposes."

But the most far-reaching suggestion would require the commissioner "to bring enforcement actions in court before an impartial judge."

Under existing law, the securities commissioner serves as the hearing officer on cases investigated and documented by his staff. Although the same system was in place long before Abshure became commissioner in 2009, many of the legislators appeared surprised that the commissioner was also the hearing officer (although Abshure said he did not hear cases if he had been involved in the investigation or settlement negotiations).

After the hearing, Abshure said changing the law to limit his authority to deal with securities violations would be up to legislators. But he encouraged them to consider broader input when deciding whether to take "the benefits of the administrative process and throw it out the door."

"Right now," Abshure said, "they are only considering one investment bank and [their recommendations are] better for them."

Much smaller operations, including investment advisers, might prefer to continue working through violations directly with the regulator's office rather than in circuit court, Abshure said.

"Most IAs are one-man shops, so if every time we file it's in court, that's going to be very tough," he said.

(Correction, Jan. 22, 2014: Rep. Mark Lowery was misidentified in the original version of this article.)



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