SEC Penalizes Crews, Former CEO Harding for Conflict in Bond Deal


The U.S. Securities & Exchange Commission has assessed a $200,000 penalty against Crews & Associates, the Little Rock bond brokerage, and an additional $100,000 penalty against its former CEO, Rush F. Harding III, for "unfair dealing" in a West Virginia municipal bond tender offer dating back to 2015.

Harding, who stepped down as Crews' CEO at the end of 2019, was also ordered to disgorge $46,481 in commissions and imputed interest on the deal, while Crews was ordered to disgorge $44,072. Crews and Harding agreed to the orders "without admitting or denying the SEC's findings," according to a news release issued Thursday by the SEC.

Harding was also forbidden to participate in new municipal bond offerings or tender offers for a year and ordered to get training. Harding, 68, had no previous disciplinary history, according to the SEC.

The orders resulted from an SEC examination that was then turned over to the agency's Public Finance Abuse Unit.

Paul Maco, an attorney with the Bracewell LLP law firm in Washington, D.C., issued the following statement on behalf of Crews: "Crews & Associates is pleased to resolve this matter and is now looking to the future and devoting its full energy to serving existing clients, attracting new clients and continued growth."

According to a 12-page order against Harding and a 10-page order against Crews, the brokerage failed to disclose that it was buying and reselling bonds previously issued by Ohio County, West Virginia, at the same time the brokerage was advising the county to buy back the bonds at a premium in order to refinance at a lower interest rate. 

Crews had a bond underwriting relationship with Ohio County dating to 2007 and had twice assisted the county in refinancing bond debt through tender offers in 2012 and 2014. In the fall of 2015, according to the SEC, Harding got the ball rolling on another tender offer for bonds the county had issued in 2006.

While the tender offer was being considered, Crews & Associates began buying bonds from the series that its client was likely to buy back. The bonds were then resold — most of them to an affiliated company of which Harding was also CEO. Crews and the unnamed affiliate are both subsidiaries of First Security Bancorp of Searcy, of which First Security Bank is also a subsidiary.

And while Crews informed Ohio County that it might hold a position in the bonds, the SEC said, it never revealed to the county government that it had already acquired millions of dollars worth of them. Crews ultimately bought almost $6 million worth of the bonds at market prices, of which the affiliate retained nearly $3 million. 

As the county's underwriter, Crews also suggested the top price that the county government should pay for bonds tendered. On Crews' recommendation, this "maximum acceptable price" was set at 110% of the bonds' face value — higher than the market prices that Crews had paid (106.69% to 107.2%) but lower than other maximum prices that Crews considered recommending.

Crews' affiliate company offered to sell its bonds back to Ohio County only at the maximum price. "Since the County did not receive a sufficient number of tender offers at prices lower than the Maximum Acceptable Price, the County accepted the offer of the Affiliate," the SEC order says.
The affiliate's shares represented 71% of the shares tendered, according to the orders.

"The tender resulted in significant savings for the County," the SEC acknowledged. But it also benefited Harding and Crews. Harding personally received $36,524 in commissions; Crews made a net profit of $34,631; and the affiliate that Harding headed also cleared $27,153.

The SEC found that Harding personally, and Crews under his guidance, violated a number of Municipal Securities Rulemaking Board rules. It also found that Crews failed to properly supervise its employees, and held Harding, as CEO at the time, personally responsible for that.