CHICAGO — Allegations of securities violations against Calvin Grigsby should be dismissed, an Illinois hearing officer has recommended.
The state's accusations against longtime public finance banker Grigsby and his firm Grigsby & Associates stemmed from the firm's role in advising a state agency to invest in a bank that later failed.
Secretary of State Jesse White's Securities Department accused Grigsby of failing to supervise the lead banker working with the Illinois Student Assistance Commission, breaching the firm's fiduciary duties, misrepresenting and omitting material information, failure to conduct due diligence, and failure to disclose information on subcontractors.
The allegations - which Grigsby said this week "killed" his municipal business -- were laid out in a 2012 Notice of Hearing and the subject of multiple hearings during 2014 and 2015 as part of the state's ongoing investigation.
In a report dated May 4 that Grigsby sent to The Bond Buyer, hearing officer Jon K. Ellis concluded: "The record in this matter does not support a finding that any alleged act or failure to act, failure to disclose, practice, course of business, statement, opinion, representation, or omission of the respondents constitutes, or caused, a violation of subsection" of various state and federal securities rules.
"The Hearing Officer therefore recommends that a written final order of dismissal be entered in this matter," it continued. The hearing officer did not elaborate on the reasoning behind his finding.
The hearings stemming from the 2012 notice were to determine whether an order should be entered against Grigsby and his firm, suspending or revoking their licenses, and whether other sanctions including fines should be imposed.
The recommendation to dismiss the allegations is not necessarily the final word in the case.
"The Secretary of State is reviewing the order and the evidence that was presented in the hearing White's office said in a statement. "As with all 'recommendations' of hearing officers, the Secretary of State will determine whether the hearing officer's findings and conclusions are supported by the evidence presented at the hearing, and whether there are any additional or different findings that should have been made based on the evidence presented."
The office could adopt the recommendation and findings, put forth additional findings, and/or reject the hearing officer's findings.
"The Secretary of State will then issue a final, appealable order, following the review," the statement said. A decision is expected in the next 30 days.
"Many [of the claims] were legally meritless, others were factually unsupportable and some were both. Obviously, it is not easy for a small entity like Calvin's to get work with this out there," said Grigsby's attorney, Stephen Scallan of Staes & Scallan PC. "This case should be over."
White's office began pursing Grigsby shortly after entering a consent order imposing various penalties, including a $15,000 fine, against former Grigsby public finance banker Alvin Boutte Jr.
The Secretary of State's office had previously temporarily suspended Boutte's license, accusing him of providing misleading advice that led to ISAC's $12.8 million 2008 investment in ShoreBank Corp. for its pre-paid college tuition.
Federal authorities seized the bank in 2010, rendering the commission's investment worthless.
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.
White's office alleged that the firm failed to provide ISAC with a complete and accurate offering analysis and prudence opinion that fairly and objectively evaluated the prudence of the investment based on ISAC's goals.
Regulators said there was no record that a principal of the firm had reviewed the analysis submitted to ISAC as required.
State regulators – who conducted an audit of Grigsby and Associates' Chicago office in June 2011 -- charged that Boutte had not properly documented or kept records of due diligence he had said was conducted, including interviews with key bank personnel and bank branch visits.
The audit also faulted the company for not keeping records on its contract with a subcontractor who was paid $50,000 to help with the investment analysis and did not keep proper records of sporting event tickets provided to ISAC officials. The Chicago office was also accused of not keeping proper documentation of office emails and communications. ISAC paid the firm a contingent fee of $256,000.
"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 said. It also alleged that the firm did not conduct internal audits of its branches and failed to adequately maintain emails.
The pursuit of Boutte and Grigsby came after the public airing of ISAC's fiscal woes and news that the pre-paid tuition program's ongoing losses and aggressive investments were the subject of several regulatory and legislative probes that prompted then Gov. Pat Quinn to overhaul the agency.
In written closing arguments, Grigsby's lawyer highlights that key investors in ShoreBank included top national banks and insurance companies. None sought to blame their investment advisors.
Law firm Dykema Gossett and ISAC reviewed all documents and signed off on them and ISAC's former head testified during hearings that he did believe any malfeasance occurred in the investment. Grigsby also argued that some rules didn't apply to the transaction because it was a private stock placement.
"There are risks in all investments and financial institutions are no exception. ISAC should thoroughly examine the risk components prior to making a final decision," said a motion to dismiss.
Grigsby, an attorney who also worked on his defense, said he would like to put the allegations behind him. They came as he was recovering from a federal investigation and trial involving work for Miami-Dade County in the 1990s. Grigsby was acquitted.
"It was all over for my business. Here is a major state, Illinois, charging someone with fraud who had already been charged with bribery," Grigsby said. "We were just over the Miami stuff, and making a comeback, so this had a really chilling effect on our business."
Grigsby currently lacks a federal broker-dealer license but continues to work as a municipal advisor and provides mostly pro bono legal advice.
Grigsby said he resisted settling the case and decided to fight the allegations early on because "they were absolutely meritless." He believes the accusations stem from racism.
The Financial Industry Regulatory Authority revoked his license last year because he owes fines stemming from his performance of duties while not registered. He had failed to take a securities test when required to as part of an agreement dealing with a charge that the firm had filed to maintain a minimum level of net capital.
Grigsby also continues to represent a group of taxpayers in Jefferson County, Ala., challenging the county's Chapter 9 bankruptcy in 2011. They've argued that a massive debt amount owed by the county's sewer system was illegally issued and tainted by corruption. The county emerged from bankruptcy in December 2013, although Grigsby continues to represent the taxpayers in an appeal.
In July 2014, Grigsby filed a federal discrimination lawsuit against the Shreveport, La., City Council in a long-running flap over the council's claim that Grigsby overcharged the city for financial advisory fees. In the federal suit, which is still pending, Grigsby alleges that the council is guilty of breach of contract, fraud, unfair trade practices, malicious prosecution, defamation, and discrimination based on race.
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Corrected May 16, 2016 at 9:04AM: An earlier version included incorrect information about the precursors to Grigsby & Associates.