CHICAGO — The Illinois secretary of state has temporarily suspended former Grigsby & Associates Inc. public finance banker Alvin J. Boutte Jr.’s license, accusing him of providing misleading advice to the Illinois Student Assistance Commission in its $12.8 million investment in a failed Chicago bank.
Secretary of State Jesse White’s securities department
Boutte has 30 days to respond.
The order charges Boutte with violating his fiduciary duties and recommending an unsuitable investment in violation of state securities rules.
It temporarily prohibits him from “offering and-or selling securities and from the business of rendering investment advice in or from the state of Illinois until further order of the secretary of state.”
State regulators accuse Boutte of misrepresenting the safety to ISAC of a $12.8 million investment in 2008 in a private offering by ShoreBank Corp., which was shuttered by federal banking authorities in 2010.
He also failed to disclose conflicts of interest in offering his advice, according to the order. The investment was made on behalf of ISAC’s troubled $1.35 billion pre-paid college tuition program.
Boutte failed in his fiduciary duty by not providing a “complete and accurate” assessment of the investment and he failed to disclose to ISAC that he was working on behalf of ShoreBank to drum up other investors whose interest was contingent on ISAC’s participation in the offering, according to the order.
Boutte was registered with the state at Grigsby from February 2007 to September when he was terminated, according to the order. He was registered from September to October at M.R. Beal & Co., according to state and federal regulators.
Before joining Grigsby in 2007, Boutte worked at SBK Brooks Investment Corp. A representative of M.R. Beal did not return calls to comment. Boutte’s lawyer also did not return a call to comment.
Grigsby president Calvin Grigsby, who was not directly involved in reviewing the private-placement transaction, fired back at the secretary of state’s order, denying the firm failed in its responsibilites. Grigsby submitted a dozen documents that note ISAC had hired an independent firm, Dykema Gossett, to conduct due diligence on its behalf, its disclosure that the contingent fee could result in a conflict of interest, and statements that its analysis was based only on current information and not forward looking.
“I think the accusations are not based on any documentary evidence. They show that ISAC conducted its own review through an independent firm,” Grigsby said.
He added that he has dozens of emails with various documents he contends repeatedly support his position. He did not address the order’s accusation that Boutte failed to disclose that other investors’ participation in the offering was contingent on ISAC.
He said Boutte was not “terminated.” He submitted his resignation in August to move to move to M.R. Beal. Sources said Boutte resigned from Beal because of the state’s acton.
The investment saga begins in January 2008 when Boutte first floated an offering analysis of a potential investment in the privately held SBC. At the same time, Grigsby submitted a proposal as part of a competitive selection process undertaken by ISAC to establish a pool of bond underwriters.
Grigsby was the only broker-dealer to submit a proposal offering financial advice, investment banking and analysis services related to investments of assets held by ISAC’s 529 prepaid college tuition program.
At the time, ISAC’s rules did not allow for investments in private placements or offerings of restricted stock. Grigsby recommended a series of changes that paved the way for a loosening of investment standards in hopes of increasing earnings and the board approved them.
Grigsby submitted a revised SBC analysis in June. The ISAC board approved the investment in August and closed on it in September, when Boutte again submitted a revised SBC analysis that closely mirrored his previous reports.
In a September opinion, Boutte wrote: “Based on the information we gained during this extensive [due diligence] process and our understanding of the investment objective of your fund, it is the opinion of Grigsby & Associates that this investment as proposed is a prudent investment for ISAC’s prepaid college trust fund,” the order recounts. “We recommend it without qualification.”
A series of “significant” events after the board’s August approval “should have resulted in Boutte advising ISAC not to invest in SBC,” the order reads. In discussing bank failures in his investment analysis reports, Boutte said just three banks had failed in the United States between 2005 and 2007. The secretary of state’s order reports that the number was in fact 10.
Boutte also allegedly downplayed the bank’s ranking assigned by federal banking regulators and dismissed its missed financial marks, saying they were “no big deal” and the bank could “weather any storm.”
In August 2010, the Federal Deposit Insurance Corp. took over the bank — once hailed for its community lending and development efforts — as it faltered due to bad loans. The agency sold off its assets, wiping out the ISAC investment.
ISAC paid Grigsby a $255,000 fee for its work in December 2008. The fee was contingent on the investment and, unbeknownst to the ISAC board, Boutte had solicited other investors whose participation in the offering was contingent on ISAC’s investment.
The secretary of state’s office issued a subpoena in early September and though an attorney for Boutte responded, neither appeared at a hearing Sept. 21.
The secretary of state’s action was first reported in Crain’s Chicago Business Tuesday, which has chronicled the troubled college tuition program that suffered severe losses. Those losses prompted Illinois Gov. Pat Quinn to overhaul the board this year and oust its former executive director.
