Ruling on Local Government Center Due Anytime Now

With the Local Government Center (LGC) hearings ruling due out at anytime now, I thought this would be a good time to provide some more information and perhaps even an opinion or two.

As I was looking for more info I came across some great articles by Elizabeth Dinan who writes for Seacoastonline.com. Here’s the web site with a ton of her articles: http://sitesearch.seacoastonline.com/?a=Show+Results;i=1;q=lgc+hearings;source=scn

I believe that she presents a very clear picture of the nature of the complaints. So if you’re looking for background information on this hearing and you don’t have the time to peruse thousands and thousands of pages of exhibits, depositions and testimony this is a good place to get started.

Here in much condensed form are the charges brought by the Bureau of Securities Regulations(BSR):

*Attempted Merger of Prior Non Profit with LLC’s

This refers to the state statute that doesn’t allow non profits to be registered as a for profit corporation. Non profits can not be registered as LLCs.

There is also a requirement for Risk Pools to be solely NH corporations. The LLC was registered in Delaware.

*Requirement to Return Surplus.

This is the charge that has numerous components. I have stated earlier that I think the funds that were transferred to the Worker’s Comp Trust were clearly surplus. I believe the determination of reserves versus surplus becomes more difficult to sort out.

*Violations of the New Hampshire Security Act.

The door for this charge was opened when LGC improperly formed the LLC in Delaware. One has to ask if the LGC corrected this problem when outside counsel became aware of it, would the BSR be seeking any penalties for this charge.

*Statement of Law

 This charge relates to the State Statutes the BSR claims the LGC violated.

The Bureau of Securities Regulations is looking for a determination by the hearing officer that will find that the LGC broke the law, will have the LCG pay fines, will have them pay for administrative costs and restitution (return the surplus) to their members.

Let’s remember that the BSR is claiming LGC owes it members $100 million. And administrative costs for both parties have been estimated at $2 million. 

Adding to the States’s case, before the hearings started, both School Care and Primax settled with the state regarding the withholding of surplus funds.

To read the full charges against LGC: www.sos.nh.gov/securities/PDF/Enforcement_Orders/EnforcOrder-LGC_Petition.pdf

So where does this leave the two parties? If it leaves the Bureau of Securities Regulation on pins and needles, one can only imagine the tension at the Local Government Center. 

I think the $100 million number will be mitigated downward. How far I don’t know.  But if I were a betting man I would wager the $17.1 million loan(?) to the Worker’s Comp Trust is going back to the municipalities. Other than that amount I’m not sure how the hearing officer determines the differential between surplus and reserves.

The securities thing. Had LGC been unaware of the improper registration in Delaware or had their outside counsel advised them to correct this mistake when he became aware of it, this charge probably would have gone away with a caution from BSR to pay more attention to these types of matters in the future. That would have removed two of the charges, as I believe the Securities charges are related to the improper filing in Delaware. However none of that occurred and the ramifications may possibly lead to LGC seeking compensation from their outside counsel if the hearing officer rules against them.

No matter how the hearing officer rules on this, for either the Local Government Center or the Bureau of Securities Regulation, it is going to get a lot hotter this summer.