Gov. Scott quietly rakes in millions from stock sales; Florida’s blind trust law ineffective

By Dan Christensen, BrowardBulldog.org 

Gov. Rick Scott Photo: Joe Burbank, Orlando Sentinel

Gov. Rick Scott
Photo: Joe Burbank, Orlando Sentinel

Over the last 15 months, Gov. Rick Scott and his wife, Ann, through various entities, made more than $17 million selling hundreds of thousands of shares of Argan Inc., a publicly-traded company whose subsidiary, Gemma Power Systems, does business in Florida.

The Scotts’ Argan profits were magnificent, more than quadruple their investment.

Gov. Scott’s blind trust sold 140,976 of those Argan shares worth $2.54 million on Dec. 20, 2012. After the sale, the blind trust retained more than 520,000 Argan shares worth $9.43 million.

You aren’t supposed to know that. Gov. Scott isn’t supposed to know it either.

Not long after taking office in 2011, Scott put his personal portfolio of stocks including Argan, bonds and other financial assets into the blind trust that’s managed by others. The idea was to eliminate any appearance of a conflict of interest between the governor’s financial assets and his official duties by “blinding” him  – and the public – to the nature of his vast holdings.

Yet an investigation by BrowardBulldog.org has found that the governor’s blind trust, and Florida’s qualified blind trust law, have been ineffective. They have not prevented public disclosure of Gov. Scott’s personal riches.

MILLIONS IN BLIND TRUST ASSETS VISIBLE 

Millions of dollars of assets placed in the Richard L. Scott Blind Trust – securities, partnership interests and the like – are not veiled as the law intended. They are visible to Scott or anyone else who knows where to look. They are a matter of public record.

The reason: Florida’s blind trust law is trumped by the public reporting requirements of the U.S. Securities and Exchange Commission.

“The public is not benefiting from Florida’s so-called blind trust policies. It’s really not a blind trust. It’s more like a removable blindfold,” said Dan Krassner, executive director of the nonpartisan watchdog group Integrity Florida.

No one in the governor’s office, including General Counsel Peter Antonacci, would be interviewed for this story.

Gov. Scott and First Lady Ann Scott

Gov. Scott and First Lady Ann Scott

In response to emailed questions, Scott spokesman John Tupps said, “The governor’s blind trust is controlled by an independent trustee by law. He has no knowledge of any blind trust activity or transaction since his assets were placed in the blind trust on April 30, 2011.”

Still, publicly available SEC records show that just two weeks ago the governor and the First Lady cashed out another $10 million from the stock market when their five million shares in the publicly traded telecommunications firm NTS, held indirectly through several entities they control, were acquired in a merger. NTS changed is name from XFONE in 2012.

Gov. Scott’s blind trust accounted for a quarter of that total, or $2.5 million, the records show. Half of the Scotts’ stake, including the blind trust’s shares, were acquired at a bargain basement price directly from NTS on Nov. 2, 2011 – nearly one year to the day after Scott’s election.

The governor voluntarily created his blind trust about four months after his inauguration. Because public officials in Florida are not required to report spouses’ holdings, only financial assets owned directly in Scott’s name, or by the Richard L. Scott Revocable Trust, went into the trust.

Florida’s qualified blind trust law, signed by Gov. Scott last May 1, allows public officers to find legal safe harbor from prohibited conflicts of interest by using such trusts to hold their assets outside their knowledge or control.

Over the summer, Scott sought a ruling from the ethics commission that his blind trust met the new law’s standards and that he was entitled to its protection. In September, after Scott’s lawyers disclosed a list of initial assets placed into the trust, the ethics commission ruled that “under the circumstances presented,” Scott’s blind trust complies with state law.

So far, the extremely wealthy Scott is the only public official in Florida to create a qualified blind trust to shield his assets, according to the Commission on Ethics.

‘SECRECY APPROACH FAILED’

Today, however, the governor’s safe harbor seems in jeopardy because of the blind trust’s inability to keep his assets hidden from public view.

Dan Krassner, executive director of nonprofit Integrity Florida

Dan Krassner, executive director of nonprofit Integrity Florida

“The secrecy approach to accountability has failed and full disclosure is the solution. Lawmakers should repeal the blind trust law and instead have a policy of full disclosure of private financial interests of public officials,” said Integrity Florida’s Krassner.

The blind trust’s shortcomings would appear to create an immediate potential problem for Gov. Scott in his oversight role as chair of the State Board of Administration.

The SBA, with more than $176 billion in public money under management, invests widely on behalf of the Florida Retirement System and other funds, including the Lawton Chiles Endowment Fund, which manages the state’s tobacco settlement monies. The funds are run day-to-day by SBA staff and an executive director who serves at the pleasure of the SBA’s trustees – Gov. Scott, Chief Financial Officer Jeff Atwater and Attorney General Pam Bondi.

The pension fund and the Chiles fund own stock in hundreds of corporations. We now know, however, that includes stock in companies in which the governor’s blind trust is also heavily invested. One example is Argan. At the end of 2013, the SBA reported the state funds owned $260,000 in Argan shares.

Do Scott’s large investments in corporations whose shares are also owned by the pension plan and the Chiles fund create a conflict for him as SBA chair?

“The interests in question were acquired prior to (Scott’s) holding office. Interests such as these, residing in an office holder’s blind trust, do not create any conflict of interest,” spokesman Tupps said in an email.

The SEC generally considers beneficial ownership of more than five percent of a publicly traded company’s shares to be significant enough to report to the public. Persons who acquire such a large stake must promptly disclose, then file updates to reflect material sales or purchases. Insiders who own more than 10 percent of a company are subject to additional reporting rules.

SCOTT’S NET WORTH $83.8 MILLION

Gov. Scott reported a net worth of $83.8 million in June. His stock holdings sometimes amount to hundreds of thousands, even millions of shares – stakes large enough to trigger SEC public reporting requirements.

Reports filed at the SEC detail a number of large transactions involving stock beneficially owned by the governor, including shares of Argan and NTS.

The reports bear Scott’s electronic signature as the person who filed them.

Asked about that, the governor’s office said Scott didn’t personally file those reports, adding they were filed by an authorized trustee on his behalf.

SEC regulations, however, require insiders and large beneficial owners like Scott who use an authorized representative to disclose. Representatives are instructed by the SEC to use their typed signature and then indicate that they are signing on behalf of the person they represent. Authorizing documents, such as a power of attorney, must also be filed publicly with the SEC.

SEC reports about the Argan and NTS transactions are signed by one person, Scott. And a review of related SEC records filed by Scott and his blind trust trustee, Hollow Brook Wealth Management, found nothing that authorizes others to sign government forms or schedules on the governor’s behalf.

$10.8 MILLION IN ARGAN SALES IN JANUARY

As recently as seven weeks ago, an ownership report filed under the governor’s electronic signature reported the sale of another 350,000 Argan shares in seven transactions from January 10 to January 22. The reported price per share was between $30 and $30.45. The gross sales price: $10.8 million.

The report lists Hollow Brook Chief Executive Alan L. Bazaar only as a “person authorized to receive [SEC] notices and communications.”

Scott’s report does not identify the specific accounts, trusts or entities involved in those most recent sales of Argan shares. But a prior insider report about the December 2012 Argan sales show the Scott family has used a trio of entities to buy and sell the company’s shares – the blind trust, the F. Annette Scott Revocable Trust, named for Florida’s First Lady, and the Richard L. and F. Annette Scott Family Partnership.

Together, those three entities grossed $6.3 million selling Argan shares at that time, Scott reported.

The Scotts remain large stakeholders in Argan. In January, following the latest sales, the governor disclosed that he remains the beneficial owner of 965,255 Argan shares, or 6.8 percent of the company. At Wednesday’s closing price for Argan stock of $28.10 a share, that’s $27.1 million.

While the federal government deems Scott to be a beneficial owner of his wife of 41 years’ revocable trust and her share of the family partnership, Florida does not require him to report that ownership interest or place it in the blind trust. To protect him back home, Scott’s reports to the SEC about his beneficial ownership include a small print disclaimer that they should not be construed as an admission that he is actually a beneficial owner.

According to its literature, Argan’s primary business is designing and building power plants through its wholly owned subsidiary, Gemma Power Systems.

In the early 2000s, before Argan acquired it, Gemma constructed plants in Bartow, Arcadia and Wachula for Progress Energy and El Paso International. After 2005, Gemma let its registration to do business in Florida lapse for several years. Gemma reinstated its registration with the Division of Corporations in March 2011.

NTS, recently acquired by affiliates of a Connecticut private equity firm, does not do business in Florida. NTS boasts obtaining $100 million in federal stimulus funds to bring its internet access services to rural areas in Texas and Louisiana.

THE SCOTTS DOUBLE DOWN

Records show that on Nov. 2, 2011, the Scotts doubled their substantial NTS stake by taking advantage of an offering to existing shareholders to buy additional shares directly from the company at a discount to the market. The blind trust, the First Lady’s revocable trust and the family partnership paid $750,000 to acquire more than 2.5 million shares, Scott reported. The shares cost 30 cents each. Open market trades of NTS shares that day ranged from 40 to 41 cents a share.

Last month, the Scotts received $2 a share for each of the five million NTS shares they began accumulating in 2007. Profit: $2.5 million.

But the Scott’s NTS gains are eclipsed by profits from their investments in Argan.

In February 2011, about two months before the blind trust was created, Scott reported he was the beneficial owner of 1,673,000 Argan shares. Records show he’d acquired those shares, about 14 percent of the company, in a half dozen transactions by a limited liability company called Argan Investments since 2006.

In the fall of 2010, Argan Investments was dissolved and its holdings distributed to its members: the First Lady’s trust, the family trust and the Richard L. Scott Revocable Trust, which was later placed into the blind trust.

The Scotts paid $9.5 million for their Argan shares. In little more than a year they’ve sold less than half their stake for $17 million while retaining nearly a million shares worth many millions more.

SEC files contain public information about other stocks that were listed as assets in the governor’s blind trust in 2011.

MeetMe is a social networking company known as Quepasa Corp. when it was based in West Palm Beach. It was registered to do business in Florida from 2007 until last September.

MRS. SCOTT BUYS A MILLION SHARES AS 2013 LEGISLATURE CONVENES

The blind trust document valued the governor’s Quepasa investment at $1.4 million. That translated to about 167,000 shares at the time the trust was established.

While no subsequent reports were filed with the SEC regarding Scott’s MeetMe investment, the New York City investment firm Scott hired to manage his blind trust, Hollow Brook, reported holding 331,628 MeetMe shares at the end of 2012.

Hollow Brook has other clients and its report does not identify the owner or owners of those MeetMe shares. Still, MeetMe reported a few months later that in exchange for $2.75 million Richard L. Scott Investments had acquired one million MeetMe shares on the first day of the 2013 Legislative session.

Richard L. Scott Investments, now run by Ann Scott, changed its name this year to Columbia Collier Management. Among its other assets: the nine-passenger Cessna Citation business jet Gov. Scott uses to fly around Florida at his own expense, according to Federal Aviation Administration records.

Hollow Brook’s quarterly holdings report for the period ending Sept. 30, 2013 listed 1,331,628 MeetMe shares. By year end, however, Hollow Brook reported holding no MeetMe stock.

What happened to the MeetMe shares owned by the governor’s blind trust and Richard L. Scott Investments, now known as Columbia Collier? Were shares sold, transferred or otherwise disposed of?

SEC records don’t say. Scott’s office said the governor doesn’t know, and Hollow Brook Chief Executive Alan Bazaar declined to comment.

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