A law firm that represents trust companies argued Wednesday for looser state regulations as a way to create jobs.
However, a top regulator told the Senate Commerce, Labor and Energy Committee that some provisions would undermine protections for the public.
Sen. Michael Roberson, R-Las Vegas and an attorney with Kolesar & Leatham, is sponsoring the measure, Senate Bill 198, which would relax regulations on trust companies.
“We need to create jobs here in Nevada and make Nevada more competitive,” Roberson said.
George Burns, commissioner of the Financial Institutions Division, said the bill would water down provisions that protect the public.
Nevadans often rely on trust companies to handle self-directed individual retirement accounts containing nontraditional investments, such as gold, real estate, insurance contracts and short-term hard-money loans to developers. In other cases, trust companies serve as trustees or administrators for family trusts.
In 2009, Burns persuaded the Legislature to enact a bill giving him tighter regulatory control over trust companies.
“Since enactment of the current statute, we have had the regulatory tools to avert another major loss to customers of Nevada retail trust companies,” Burns said.
Witnesses for Roberson’s bill complained that no new trust companies have opened in Nevada since 2009.
Trust company owner David Dunn said that 20 trust companies have opened for business in South Dakota, where regulators are friendly and sophisticated.
“What the Legislature has done here in the state of Nevada is discourage opening of new trust companies,” Dunn said.
Burns went through the bill identifying provisions he opposed. He wanted to retain his ability to stop a Nevada-based trust company from opening a branch in another state without a license or written approval from the other state.
He referred to his division’s case against Enterprise Trust Co. of Henderson in 2008. Enterprise was operating a branch outside of Nevada without state approval, according to government documents. Enterprise had no presence in Nevada other than the resident agent for the company, Kolesar & Leatham.
The Securities and Exchange Commission sued Enterprise in Chicago, accusing it of diverting $49 million in customer funds. A federal judge in Chicago froze Enterprise assets in March of 2008.
Burns also mentioned to the case of Triex Financial Services, another Kolesar & Leatham client.
Gary Bertacchi, president and secretary of Triex, had been president of Independent Trust Co., according to court documents. Independent Trust put client funds in an escrow account from which Intercounty Title Co. diverted $61 million in investor funds, according to information filed by the Nevada attorney general’s office.
At the time, Burns testified that Independent Trust was the largest trust failure in Illinois history. The Nevada financial division denied Triex license application.
There was no evidence that Bertacchi was criminally responsible, but the division concluded he bore administrative responsibility for overseeing operations. Triex appealed the license denial to the Nevada Supreme Court and lost.
Burns said some trust companies are “soiling the reputation of the state of Nevada by their questionable operations.”
Burns also opposed the bill provision that would allow trust companies to keep all of their shareholder equity in securities, including government bonds.
The commissioner said trust companies are likely to need the equity during financial downturns like the current one.
“Only cash is king in this circumstances,” Burns said, and it is difficult for regulators to liquidate securities to operate receiverships for trusts.
Burns wanted to continue requiring trust companies to keep half of their equity in cash in Nevada banks, but he acknowledged compromising with Roberson to require only 25 percent be kept in cash.
Committee Chairman Sen. Michael Schneider, D-Las Vegas, urged the committee to be careful in the ways it changes the law. Schneider said lack of regulation and lack of enforcement led to the failure of Bear Stearns, the investment banking firm where Dunn said he worked.
“Even though these are people with hefty financial sums outside of the state, we still have a moral obligation to protect these people,” Schneider said.
Roberson’s bill also would overturn a financial division advisory opinion that required banks to write off 10 percent of the value of a foreclosed property each year.
Contact reporter John G. Edwards at
email@example.com or 702-383-0420.