ShoreBank Scandal Fallout: Fines, Suspension, Supervision for College Illinois Fund Adviser

Crain’s Chicago Business reports that Alvin Boutte, Jr., the adviser who encouraged the state to invest in Democrats’ beloved ShoreBank as it was failing, has agreed to pay a fine, to have his securities license suspended, and to work under “heightened supervision” in the securities industry for the next year.

The ShoreBank scandal erupted in 2010 as Chicago Democrats, particularly Rep. Jan Schakowsky, tried to bail out the bank using any means necessary–whether federal, state, or private money. The bank’s closure was delayed several times–evidence, critics charged, of preferential treatment from the Obama administration.

Eventually, under pressure from the Tea Party and the media, a bailout was averted and federal regulators moved in.

Curiously, the bank’s management was permitted to buy ShoreBank’s serviceable assets and reconstitute the failed institution as Urban Partnership Bank, while taxpayers were obliged to carry the cost of dispensing with the rest.

Boutte’s involvement occurred during the tenure of former Illinois state treasurer Alexi Giannoulias, the Chicago Democrat and alleged “mob banker” who lost to Mark Kirk in the race for U.S. Senate in 2010, who was also blamed for losing hundreds of millions of dollars in parents’ tuition savings in a fund that invested in sub-prime mortgages. Boutte had donated to Giannoulias’s Senate campaign.

Crain’s notes:

The department’s findings, which Mr. Boutte officially did not admit or deny, were that he failed to notify the Illinois Student Assistance Commission, which runs the College Illinois prepaid tuition program, of the significance of ShoreBank’s missed financial targets in August 2008, just before ISAC invested nearly $13 million in the privately held bank.

“That should have resulted in Boutte advising ISAC not to invest in (ShoreBank),” according to the department’s consent order.

ISAC’s investment was wiped out in August 2010, when ShoreBank failed after a high-profile effort to save the well-known lender in low-income urban neighborhoods fell short.

The consent order issued by the Illinois Secretary of State’s Securities Department does not mention initial allegations against Boutte that suggested he had tried to solicit other investors on ShoreBank’s behalf. This week, Boutte renewed his claim that he had never done so.

The Securities Department did not comment on Boutte’s assertion of innocence but warned that “other parties” would be named in the continuing investigation, according to Crain’s.