EDWARDSVILLE — Madison County Treasurer Kurt Prenzler announced Monday that he agreed to settle a suit he filed against an Arkansas brokerage firm.
The firm will pay Madison County $340,000 in exchange for the settlement. The agreement wraps up the complaint filed by Prenzler with the Financial Industry Regulatory Authority against the firm, claiming it charged excessive commissions.
The agreement comes a day before a FINRA arbitration hearing was scheduled to start in St. Louis.
“This settlement is a victory for Madison County and a vindication of my actions in regards to the purchase and sale of these bonds,” Prenzler said in a press release. “I feel the $340,000 is a good settlement, although there were several factors that made it difficult to get more.”
Prenzler said first, there is an issue of comparative fault.
“Both former treasurers, Fred Bathon and Frank Miles, carried on an exclusive relationship with the Little Rock bond salesman without getting any competitive bids,” he said. “The taxpayers of Madison County should be aware of the past abuses of the Treasurer’s Office, including excessive commissions and needless investment activities.”
In contrast, Prenzler said he always gets at least three bids when buying bonds.
From 2001 until 2010, the county purchased $500 million in bonds from the Little Rock bond salesman. In 2010 under Frank Miles, Sterne Agee charged Madison County $473,302 in commissions. The commissions were 12 times higher than normal.
“The same volume of trades today that I have conducted would have cost the county only $35,000,” Prenzler said.
According to Prenzler’s brief, filed with the case, the investments by Bathon and Miles should never have occurred.
Prenzler first learned about Bathon’s and Miles’ relationship with Sterne Agee after he took office in December 2010. Prenzler also discovered irregularities with the county’s investment portfolio.
He found that $42 million of the county’s money was invested in risky, long-term bonds that had been purchased outside of the county’s written investment policy — a policy that was required by law.
Former treasurer Miles, who was appointed by County Board Chairman Alan Dunstan, purchased $36 million in long-term bonds shortly after the 2010 election, but before Prenzler could took office. During a two-month period surrounding the election, Miles made trades generating $282,595 in commissions.
Prenzler said the case could have been handled on a less costly contingent fee basis, but State’s Attorney Tom Gibbons refused to accept the treasurer’s recommendation. Instead, he said Gibbons washed his hands of the case and made Prenzler finance the case out of the treasurer’s budget, which cost nearly $200,000.
“Neither the state’s attorney nor the County Board chairman thought the case was worthwhile and refused to support my efforts to recover the excessive brokerage fees,” Prenzler said. “The county’s legal fees would have been about $85,000 less if Gibbons had followed my advice.”
Prenzler said the $340,000 was a good settlement.
“It could have been more, had former treasurers Bathon and Miles not been involved in the questionable transactions and had Gibbons followed my advice on the contingent fee arrangement,” he said. “I think the money should be used to help repay the homeowners defrauded by Bathon’s rigged tax sales.”
After Prenzler announced the settlement, two Madison County officials criticized what they called Prenzler's premature selling of the bonds and the subsequent lawsuit brought by the treasurer against Sterne Agee.
As part of the proposed settlement, Prenzler will admit the commissions charged by Sterne Agee were not excessive or illegal, according to a press release from Madison County Board Chairman Alan J. Dunstan.
Dunstan said Prenzler chose to enter into litigation by prematurely selling the bonds at a loss of more than $365,000.
“The settlement comes up far short of what Mr. Prenzler expected to receive and what this issue has cost Madison County,” Dunstan said.
“The proposed $340,000 settlement does not begin to approach the monetary loss to county taxpayers,” Dunstan said. “Mr. Prenzler never should have sold the Triple A-rated bonds in the first place. Madison County taxpayers incurred a loss when the bonds were sold, so the settlement does not even cover the initial loss. This whole issue has been a fool’s errand on the part of the treasurer.”
Madison County Auditor Rick Faccin agreed the bonds should never have been sold by the treasurer.
“It is a simple matter of basic math,” Faccin said. “Mr. Prenzler incurred a loss of approximately $365,000 when he prematurely sold the bonds. The opportunity loss is approximately $700,000, the amount of revenue the county would have received. And through December 2014, the treasurer has incurred more than $164,000 in litigation expenses and we think that amount will increase significantly as all charges are received.”