Gov. Scott’s blind trust deviates from U.S. model; Florida law omits federal safeguards

 

By Dan Christensen, BrowardBulldog.org 

Gov. Rick Scott

Gov. Rick Scott

When Florida’s Commission on Ethics OK’d Gov. Rick Scott’s blind trust last September it acted after being told by the governor’s lawyers that it was “modeled on the blind trust of the federal Office of Government Ethics.”

But the governor’s blind trust – packed with more than $70 million in Scott’s stocks, bonds and other financial assets – deviates substantially from the federal model.

BrowardBulldog.org compared Florida’s qualified blind trust statute, signed into law by Gov. Scott last May 1, with parallel federal regulations and found that Florida’s law omits more than a dozen federal requirements intended “to assure true blindness.”

“At first blush, the Florida qualified blind trust legislation appears to be a significant step forward,” said Jan Jacobowitz, director of the Professional Responsibility and Ethics Program at the University of Miami School of Law. “However, upon closer examination it becomes apparent that it lacks many significant federal safeguards. Without them, Florida’s law cannot render public officials fully accountable for potential and actual conflicts of interest.”

Perhaps the starkest difference between the federal and state rules is in who is allowed to serve as a trustee of a blind trust.

A QUESTION OF INDEPENDENCE

Federal law requires trustees and their employees to be “independent of and unassociated with any interested party so that it cannot be controlled or influenced in the administration of the trust.” Ex-employees are explicitly prohibited from administering a blind trust set up by their former employer.

Gov. Scott chose Hollow Brook Wealth Management and its chief executive, Alan Lee Bazaar, to manage the blind trust he created in April 2011, a few months after taking office. Before announcing his run for governor, however, Scott employed Bazaar for more than a decade as managing director and portfolio manager at Scott’s eponymous investment firm, Richard L. Scott Investments.

“Under this federal definition, the trustee in the instance you have described would not appear to qualify as independent given the past business association,” said Washington, D.C. attorney Robert L. Walker, former chief counsel and staff director of both the Senate and House ethics committees.

“A public official should not be able to circumvent or undermine the underlying public policy considerations for the law by appointing an institution as trustee where the CEO of that institution would fail to meet the requirements for being appointed,” said Jacobowitz.

First Lady Ann Scott

First Lady Ann Scott

Hollow Brook is similarly afflicted by its current and prior relationships with Scott and his family.

“Generally, a financial institution will be considered independent if you or your family has no relationship with it other than savings, checking or other types of similar accounts,” the Office of Government Ethics informs Executive Branch employees entering public service.

HOLLOW BROOKS ADVISES THE FIRST LADY, TOO

According to U.S. Securities and Exchange Commission records, however, Hollow Brook also serves as investment adviser to other multi-million dollar Scott holding entities – a family partnership controlled by First Lady Ann Scott and a revocable trust set up for her benefit. Gov. Scott is a beneficial owner of those entities, the records show.

Attorney Walker called that relationship “problematic” under the federal statute.

Further, the governor’s general counsel, Peter Antonacci, told the Florida Times Union in September that Gov. Scott was a Hollow Brook client before he took office. Antonacci, with tax lawyer James T. Fuller of Williams & Connolly in Washington, D.C., requested the ethics commission’s opinion last year.

The governor’s office was asked to explain why Florida’s blind trust law – passed unanimously by a Legislature controlled by Scott’s fellow Republicans – does not include the missing federal level safeguards, whether Gov. Scott was aware of those omissions when he signed the bill, and whether he believes the law as written is adequate or should be changed.

“Senate Bill 2, a top priority for legislative leadership last session, made critical reforms to Florida’s Code of Ethics, including the first blind trust requirement in Florida’s history. Governor Scott gladly signed the bill into law,” said spokesman John Tupps.

Hollow Brook likewise does not appear to meet federal eligibility rules to serve as a trustee for Executive Branch employees because its ownership is too concentrated. Federal rules, which Florida did not adopt, say financial institutions may serve as an independent trustee if they are “not more than 10 percent owned or controlled by a single individual.”

Alan Bazaar, CEO of Hollow Brook Wealth Management

Alan Bazaar, CEO of Hollow Brook Wealth Management

Hollow Brook, based in New York City, is a nine-employee firm with four owners, including Chairman Edgar Wayne Nordberg who owns at least 25 percent of the firm, according to SEC records filed in January. Bazaar owns at least 10 percent, but not more than 25 percent of Hollow Brook, the records say.

“The public is not benefiting from the legislature’s blind trust law that allows officials to hide their stock holdings,” said Dan Krassner, executive director of the nonpartisan government watchdog group Integrity Florida. “The blind trust concept created in Florida definitely would not comply with federal law that requires the trustee to be more independent.”

BLIND TRUST LAW PROTECTS GOV. SCOTT

The ethics commission’s recent ruling that Gov. Scott’s trust complied with state law means that as long as the governor stays in compliance he is entitled to the law’s protections, namely immunity from prohibited conflicts of interest.

Yet the differences between the tougher federal regulations and Florida’s approach serve to undermine the purpose of Florida’s blind trust law. That is, to eliminate conflicts of interest, or the appearance of conflicts, by putting a public officer’s assets outside his knowledge or control.

Likewise, the governor’s trust itself has been ineffective in preventing the disclosure of Scott’s assets. Three weeks ago, BrowardBulldog.org reported that public records at the SEC reveal millions of dollars in recent stock sales by the blind trust and show that in the case of one company, Argan Inc., Scott’s trust continues to own nearly a million shares worth in excess of $27 million.

Argan does business in Florida through it’s principal subsidiary, power-plant builder Gemma Power Systems.

Federal and state blind trust laws share certain features such as prohibiting public officials from attempting to influence asset management decisions or seeking information about their trust’s holdings. Both also require the disclosure of a complete list of assets initially placed in the trust.

But federal laws and rules regulating blind trusts include additional safeguards not found in Florida’s statute. Under the federal rules:

  • Executed trust agreements and any amendments to them are public records. The Legislature rejected an effort to require those agreements to be made public when the law was enacted last year, and Gov. Scott’s trust agreement with Hollow Brook remains hidden. The governor’s office denied a request to release it.
  • The director of the Office of Government Ethics (OGE) reviews and certifies federal qualified blind trusts, and has the authority to revoke approval of a trustee for violations of trust restrictions. In Florida, an eight-member ethics commission, five of whom were appointed by Scott, approved Scott’s blind trust. The commission has no statutory authority to remove a trustee for misconduct.
  • Federal trustees are required to send periodic reports about the trust’s performance to the OGE director, make the trust’s books available for OGE inspection, and file an annual certificate of compliance with the law by May 15. Florida law imposes no such requirements on trustees, nor does it authorize the ethics commission to review a blind trust’s books of account.
  • Within 30 days of the dissolution of a qualified trust, the interested party must file a current list of assets and values with the OGE. There is no such rule in Florida, despite a 2010 Statewide Grand Jury recommendation that any blind trust law include a rule requiring “full disclosure” when trusts terminate. Federal law defines an interested party as the government employee who established the blind trust, their spouse and dependent children.
  • Public officials, their spouses or independent trustees or other fiduciaries who violate obligations under the law or the trust instrument face civil penalties of up to $10,000 for knowing violations and $5,000 for negligent violations. Florida’s blind trust law imposes no penalties for violations.

“It’s interesting to note that Florida elected to pass a law without the additional federal requirements,” said Jacobowitz. “It would be interesting to know why so many of the federal requirements were discarded in the enacting of the Florida legislation and what role, if any, various lobbying interests might have played in influencing the final legislation.

TO DISCLOSE OR NOT DISCLOSE

Aside from the blind trust laws, a gulf continues to separate the U.S. and Florida about the proper scope of financial disclosure to be made by public officers. Florida does not require disclosure of the assets or income of a spouse or minor child. The federal government does.

In the case of Gov. Scott, that has led to a strange dichotomy.

In multiple documents filed at the U.S. Securities and Exchange Commission, Scott is identified as the “beneficial owner” of shares of stock worth many millions of dollars that are held by the Scott family partnership and the revocable trust for the benefit of Ann Scott, his wife of more than 40 years.

Back home in Florida, however, Gov. Scott is not obliged by law to publicly disclose his financial interest in those multi-million dollar entities, identify the specific investments they hold or say how much they’re worth.

Likewise, the public remains unaware of other assets those entities hold that may create conflicts of interest for Scott in his duties as governor.

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