CHICAGO — Grigsby & Associates Inc. owner Calvin Grigsby said he will vigorously fight accusations leveled by the Illinois secretary of state that he failed to properly supervise a former banker in the firm’s Chicago office who advised the Illinois Student Assistance Commission to invest in a bank that later failed.
Secretary of State Jesse White’s office has not filed formal charges in a public document alleging securities violations, but it outlined its evidence that could eventually lead to charges in a document Grigsby said he received this week.
White’s securities department last month entered a consent order imposing various penalties, including a $15,000 fine against former Grigsby public finance banker Alvin Boutte Jr.
The office last October temporarily suspended Boutte’s license, accusing him of providing misleading advice that led to ISAC’s $12.8 million investment for its pre-paid college tuition program in a 2008 public offering in ShoreBank Corp. Federal authorities seized the bank in 2010, rendering the commission’s investment worthless.
Though the office has not formally issued any charges against Grigsby, the Boutte consent order concluded that Boutte and the firm breached their fiduciary duty to ISAC. The order attributed the finding to Boutte and the firm’s failure “to prepare a complete and accurate offering analysis and prudence opinion that fairly and objectively evaluated the prudence” of the investment based on ISAC’s goals.
Calvin Grigsby said he received the “statement of evidence” document earlier this week from White’s office alleging that he failed to adequately supervise Boutte. It also alleges a breach of fiduciary duty on the firm’s part and seeks a written response from Grigsby.
Neither Calvin Grigsby nor his firm has been charged with any wrongdoing, but the document could represent a precursor to the possible filing of charges in the future.
A representative of the secretary of state’s office confirmed that it had sent Grigsby a document and said: “Mr. Grigsby is under investigation.” The spokesman said he could not comment further as the probe is pending and the document is not public.
Grigsby fired back.
“The charges regarding supervision are not violations under state securities laws,” he said. Grigsby has defended the firm’s advice, saying ISAC conducted its own due diligence and went forward with the investment. He has requested from the secretary of state’s office all documents, interview transcripts and other notes that led to the office’s development of the “statement of evidence” document.
The document — provided by Grigsby to The Bond Buyer — is dated Jan. 27 and reports that an ongoing investigation has disclosed evidence of a failure on Grigsby’s part to properly supervise research and offering analysis prepared on the ISAC investment and possible violations of state securities rules.
Grigsby serves as the firm’s chief compliance officer.
The statement of evidence alleges that Grigsby or another principal should have reviewed three offering analyses produced by Boutte before they were submitted to ISAC.
The document alleges the firm breached its fiduciary duty by failing to provide updated information on the number of bank failures in its last offering analysis completed prior to the September 2008 closing date of the investment. It also alleges that the firm — through Boutte — failed to inform ISAC of the significance of ShoreBank’s disclosure that it had missed financial goals. The document also questions Grigsby’s supervision in the firm’s prudence opinions, which labeled the investment a “prudent” one.
“The recommendations and investment advice to ISAC regarding the proposed investment in ShoreBank Corp. were unsuitable” and a violation of state securities law, the document reads. It also alleges that the firm did not conduct internal audits of its branches and failed to adequately maintain emails.
The document also alleges that during 2008 and 2009, Boutte provided Chicago Bulls and White Sox tickets to former ISAC executive director Andy Davis and an ISAC commissioner valued at more than $100, but the firm failed to maintain any records on the type, amount, and recipient in violation of regulatory rules.
The San Francisco-based firm ranked 70th last year as a co-manager nationally but did not make the rankings among co-managers in Illinois after finishing fourth in 2010. The firm ranked 122d nationally as a senior manager last year and was 33d in Illinois, according Thomson Reuters.
Boutte resigned to take a position at another firm last summer and has since resigned from that firm. Ongoing losses suffered by ISAC’s pre-paid college tuition program led Gov. Pat Quinn last year to overhaul its board and leadership.