Arbitration clauses and courtroom avoidance are common dispute resolution traits in the securities business.
That industry norm stands in glaring contrast to a not-so-modest proposal by Stephens Inc. to go straight to a judge to rule on enforcement actions by the Arkansas Securities Department.
That suggestion, first mentioned by the state’s largest broker dealer at a legislative hearing on Jan. 22, would require amending the Arkansas Securities Act. Instead of starting and typically ending enforcement actions through the in-agency administrative hearing process, a circuit court would be the first avenue for resolving alleged civil violations.
If such a change were made, there would be no more consent orders settling any possible securities law infractions with an investment firm or adviser neither admitting nor denying the findings of fact detailed in an order signed by the Arkansas Securities Commissioner.
Removing the administrative hearing process also would be a marked departure from the codified protocol of securities law on the books of states across the nation. It would also take the Arkansas Securities Department’s process out of step with other state agencies that similarly make the commissioner’s desk the first line of regulation, such as the Insurance Department and the State Bank Department.
“Do I think this has legs with the Legislature?” said Heath Abshure, Arkansas Securities Commissioner. “Absolutely. Anything Stephens proposes has legs over there.”
For now, the change remains only a possibility. No bills have surfaced to move the idea forward, and the current legislative session is limited to budget items.
Tom Harps, chief compliance officer with Arvest Asset Management of Lowell, said his firm doesn’t have an opinion on any of the suggested changes to the Arkansas Securities Act.
“We don’t think the system is broken,” Harps said. “But we haven’t had any run-ins with the Securities Department either.”
Stephens did have a run-in with Abshure and ASD in August, the company’s first since 1980. The consent order and $25,000 fine ended a 33-year streak of sanction-free business in Arkansas for Stephens.
The firm’s frustration with Abshure led to a meeting with the man who appointed him securities commissioner in December 2007: Gov. Mike Beebe.
Matt DeCample, spokesman for the governor’s office, confirmed that Stephens officials met with Beebe back in the fall.
“As far as the contents of the meeting, we don’t comment on that,” DeCample said.
DeCample said he couldn’t comment when specifically asked if, metaphorically, Stephens wanted Abshure’s head on a stick. “Or a pike or any other sharp object,” DeCample added.
None of the lead securities regulators in the six states bordering Arkansas is appointed directly by the governor. Beebe’s final term as governor ends this year.
The unofficial campaign by Stephens for a possible change in leadership at the Securities Department shifted to the Legislature.
Stephens directly raised questions about Abshure’s financial reporting ethics and indirectly raised questions about his ability to dispense impartial rulings given his background as a regulatory activist.
Jim Jones, president of Little Rock’s Crews & Associates, said any changes to the enforcement hearing process will have to be weighed against its effect on investment firms of all sizes.
“We think this is an important discussion,” said Jones, whose firm reached a consent order with the ASD last year. “Do you get a fair hearing? Do you have a chance for a fair appeal? Is it a fair process? If it does change, we want to make sure the process is fair.”
As it stands now under the Arkansas Securities Act, the court system comes into play as an appeals venue of a disputed order issued by the commissioner. The appeal would start in circuit court and go to the Arkansas Supreme Court on secondary appeal.
In the language of the law: “Any person aggrieved by a final order of the Securities Commissioner may obtain a review of the order in any state court of competent jurisdiction by filing in court, within 60 days after the entry of the order, a written petition praying that the order be modified or set aside in whole or in part …”
“The judgment of the court is final, subject to review by the Arkansas Supreme Court.”
Executives at nine other investment firms with operations in Arkansas declined comment or couldn’t be reached for comment.