Warren Stephens' offshore investment turns up in Paradise Papers | Arkansas Blog

Tuesday, November 7, 2017

Warren Stephens' offshore investment turns up in Paradise Papers

Posted By on Tue, Nov 7, 2017 at 1:16 PM

WARREN STEPHENS: 'Paradise Papers' reveal his offshore investment in a lending operation that came under fire from federal regulators. - ARKANSAS BUSINESS
  • Arkansas Business
  • WARREN STEPHENS: 'Paradise Papers' reveal his offshore investment in a lending operation that came under fire from federal regulators.
Little Rock financial titan Warren Stephens figures prominently in the New York Times reporting project on the "Paradise Papers. It details offshore financial methods to avoid taxes and shield business from public scrutiny.

He figures in the opening of this article:

James H. Simons, a reserved mathematician and hedge fund operator from Boston now approaching 80, is a big Democratic donor. Warren A. Stephens, a 60-year-old golf enthusiast once called the king of Little Rock, Ark., inherited a family investment bank and became a booster of conservative Republicans.

But Mr. Simons and Mr. Stephens are both billionaires who have used the services of offshore finance, the trusts and shell companies that the world’s wealthiest people use to park their money beyond the reach of tax collectors and out of the public eye.

Mr. Simons was the main beneficiary of a private trust, never previously described, that was one of the largest in the world. In response to recent questions about the trust, Mr. Simons said that he had transferred his share to a Bermuda-registered charitable foundation.

Mr. Stephens used an opaque holding company to own an approximately 40 percent stake in a loan business accused by the federal Consumer Financial Protection Bureau of cheating working-class and poor Americans. While earning millions from the investment, Mr. Stephens helped finance a political onslaught against the bureau, never mentioning his personal connection to the fight.
The information comes from papers of a Bermuda law firm that came into the possession of a German newspaper and then shared with an international journalism consortium.

Stephens is in good company. The files include the likes of Queen Elizabeth, George Soros and Bono, among many others.

The article said representatives of Stephens and a partner, James Carnes, used Appleby, the Bermuda firm, to create offshore companies to help Indian tribes set up lending operations. The tribes can claim some legal immunity against legal challenges.

The new venture’s parent company, Hayfield Investment Partners, was incorporated in Delaware — considered a tax haven like a half-dozen other American states, underscoring that secrecy and tax advantages are not limited to palm-dotted tropical islands. Hayfield already had a separate subsidiary called Integrity Advance, an online payday loan company whose lending practices were coming into the cross hairs of regulators across the United States.

Documents in Appleby’s files show that Mr. Stephens and his funds owned 40 percent of Hayfield, which received additional investments from executives of Stephens Inc., the family investment bank, and acquaintances like the golf star Phil Mickelson, who contributed $12,000.

It did not take long for Integrity Advance to generate complaints from borrowers and regulators. People short of cash who took out small loans would later see large withdrawals from their bank accounts for interest and services fees that often far exceeded the amount they originally borrowed.

By November 2012, Integrity Advance had received cease-and-desist letters from state regulators in Connecticut, Kentucky, Illinois, Mississippi and South Carolina. In May 2013, a Minnesota district court ordered the company to pay nearly $8 million in civil penalties and victim restitution, saying that the firm had targeted financially vulnerable citizens with interest rates as high as 1,369 percent.

Stephens and Carnes sold part of Integrity Advance, but the Consumer Financial Protection Bureau accused Integrity Advance of "false and deceptive" tactics. An administrative judge recommended $51 million in fines and restitution, a decision being appealed. Throughout this, Stephens' stake in the company was never mentioned. Stephens declined comment for the article in the Times.

If he kept quiet about his role in the embattled payday loan business, he showed no similar reticence in attacking the consumer bureau. In June 2013, he told The Wall Street Journal that the C.F.P.B. bore some blame for lagging business growth. “The stories we hear about that are pretty scary,” the billionaire said.

During last year’s campaign, Mr. Stephens contributed $3 million to Club for Growth, a conservative political action committee that has pushed Congress to strip the C.F.P.B.’s enforcement powers. [Arkansas's congressmen have joined this fight on Stephens' side, inclduing Rep. French Hill, for whom Stephens was a campaign finance leader.]

Along with helping bankroll such Washington battles, Mr. Stephens has recently used his investment bank, Stephens Inc., to launch an online video series called “This Is Capitalism” to improve millennials’ opinion of free-market economics.

In his introduction, Mr. Stephens wrote that he hoped the series would counter the notion that the free market is “a system that enriches a few at the expense of the many.”

UPDATE: Stephens Inc. issued a statement Tuesday reported in the Arkansas Democrat-Gazette:

"Warren Stephens was a passive investor in Hayfield Investment Partners from mid-2008 until all of its assets were sold in late 2012 when it ceased all of its lending activities. Warren Stephens never had any involvement in, or knowledge of, the details of Hayfield's day-to-day activities.

"Neither Warren Stephens, nor any of his employees, had any role in retaining Appleby's services, nor were they involved in any discussions with Appleby. No business was ever conducted by any entity set up with the assistance of Appleby.

"No allegations of misconduct by Mr. Stephens were ever made by the [Consumer Financial Protection Bureau], or any other regulatory body regarding this matter. Furthermore, Mr. Stephens' contributions to the Club for Growth had nothing to do with the [Consumer Financial Protection Bureau] and were made several years after Hayfield ceased its lending operations."

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