by Gwen Moritz
Posted 3/11/2014 09:06 am
Updated 6 months ago
State securities regulators are seeking to suspend or revoke the registration of the Russellville firm and CEO that formerly employed the broker who allegedly bribed former State Treasurer Martha Shoffner.
The Arkansas Securities Department says Robert Keenan and his St. Bernard Financial Services Inc. failed to properly supervise Steele Stephens and his trades on behalf of Shoffner's office. Stephens was granted immunity in exchange for his testimony against Shoffner, whose trial on bribery and extortion charges continues Tuesday in federal court in Little Rock.
Keenan says the action is the ASD's way of retaliating for an ethics complaint he recently filed against the head of the department, Arkansas Securities Commissioner Heath Abshure. But that ethics complaint was filed three weeks after Keenan was notified of the ASD's plan to file its complaint (PDF).
The complaint filed against Keenan and St. Bernard (PDF), made Feb. 11 by ASD staff attorney Scott Freydl, asks Abshure, Freydl's boss, to consider whether the state registrations of Keenan and St. Bernards should be suspended or revoked and whether fines should be levied against them. Abshure had not yet taken action on it as of Monday.
In a related action, the ASD recently suspended the broker-dealer and investment adviser registrations of W. David Crain, a CPA who worked at St. Bernard, for failing to cooperate with the ongoing investigation.
Keenan, in a formal response filed by Russellville attorney John D. Van Kleef (PDF), denied any wrongdoing personally or by the firm, and said he and the firm "should not be held responsible for any falsehoods, lies or subterfuges, if any, of its agent, Stephens."
In emails to Arkansas Business, Keenan said that he expects Abshure, as "both the judge and the jury," to rule against him. Accordingly, he has "already made plans for appealing his ruling" to circuit court, which is the appeal process under the Arkansas Securities Act.
Abshure told Arkansas Business that he would not personally hear Keenan's case but would appoint a hearing officer.
(Click here for an article on a suggested change in the process.)
Complaint Against Abshure
Keenan also suggested that the ASD was retaliating for an ethics complaint — previously unreported — that he had filed against Abshure. Complaints filed with the Arkansas Ethics Commission are not public information until an official action is taken.
On Jan. 3, the ASD issued a written notice of its intention to file a complaint against Keenan and St. Bernard Financial. The notice, also written by Freydl, gave Keenan and his firm until Jan. 31 to submit evidence refuting the finding detailed in the notice.
Instead, Keenan filed his ethics complaint against Abshure (PDF) on Jan. 27. In it, Keenan alleges that Abshure contacted St. Bernard customers in December and attempted to get them to file complaints. In wording reminiscent of an ethics complaint filed against Abshure in November by Stephens Inc. of Little Rock, Keenan suggested that Abshure was trying to generate fines to benefit himself and the ASD. (Steele Stephens is not associated with Stephens Inc.)
Asked Monday afternoon if there was any basis for Keenan's charge, Abshure replied, "Zero. None."
Abshure said he never personally called any St. Bernard customers, and any customer contacts by the ASD were a "routine" part of an ongoing investigation of St. Bernard.
"A lot of times you have to talk to customers to see if there was a violation or not," Abshure said, particularly citing the question of whether a transaction was recommended by the broker or requested by the client.
According to Freydl's complaint, St. Bernard charged the state treasurer's office more than $3.23 million in commission for 85 securities trades executed by Steele Stephens, who left St. Bernard after participating in an FBI sting last year against then-Treasurer Martha Shoffner between July 2009 and December 2012.
"This amount resulted from the markups and markdowns St. Bernard charged the Arkansas treasurer's office that were much higher than the median markups and markdowns charged on similar trades in the same bonds during the same time period," Freydl wrote in the complaint against Keenan and St. Bernard.
In testimony on Monday, Stephens estimated his commissions at $2.5 million. Keenan told Arkansas Business that Stephens kept 85 percent of the commissions he generated, suggesting that Stephens' share of the total was closer to $2.75 million.
Keenan, as CEO, was supposed to conduct daily and monthly account reviews to determine the suitability of securities trading, but he failed to enforce St. Bernard's own written compliance policies, according to Freydl's findings. Also, Freydl wrote, Keenan failed to intervene when Steele Stephens sent material about proposed bond trades from which "the down side or negative aspects" of the trades had been deleted.
"Several of these bond trades involved bonds being sold prior to maturity or the call date," Freydl wrote in the complaint against Keenan and St. Bernard. "These bond trades were unsuitable because the Arkansas treasurer's office actually received no real profit or benefit from these trades. In many instances, the bond trades offered by [Steele] Stephens caused significant losses for the Arkansas treasurer's office while greatly benefiting Stephens and St. Bernard."
Abshure downplayed Keenan's suggestions of impropriety in his and the ASD's actions.
"I'm amazed, really, that Keenan decided that this was the tactic he would use when his agent is over there testifying in the Shoffner trial right now — to allege that I would seek to create complaints when there's a trial going on over there," Abshure said.
"That I'm not justified in looking into that, to me, is a little bit ridiculous," he said. "To allege that I have no reason to investigate St. Bernard — and that I'm only doing it to enhance my reputation or to generate fines — is crazy."
Abshure said the ethics complaints by Stephens Inc. and Keenan were the only ones that had been filed against him since he became securities commissioner in 2007.
"At the end of the day, I've got two complaints filed against me by entities that are mad that I'm doing my job," he said.
On Feb. 28, Abshure signed an order temporarily suspending W. David Crain's broker-dealer and investment adviser registrations, the day after two investigators were refused entry to his office.
Crain is a CPA who did securities sales part-time through St. Bernard Financial. Keenan, the CEO of St. Bernard, said Monday that Crain was no longer associated with the firm.
According to the complaint that Freydl filed with Abshure, investigators from the ASD had been trying to set up a visit to Crain's office for more than a month, but Crain tried to beg off until after tax filing season ends on April 15.
In a Feb. 26 email, Crain said he was getting out of the securities business anyway and "effective today, I am surrendering all my licenses."
Two investigators arrived at Crain's office on the afternoon of Feb. 27, only to be refused entry, prompting the temporary order of suspension.
"When someone's under investigation, you can't just say, 'I quit,'" Abshure told Arkansas Business.