Kansas senator calls for suspension of Beneficient’s new investment mechanism
TOPEKA — Democratic Sen. Tom Holland has called on state banking regulators to immediately suspend operations of a company unique to Kansas and created to provide wealthy individuals with the ability to obtain loans against assets that are hard to convert into cash.
Holland’s plea may fall on deaf ears, as legislation creating the foundation for Dallas, Kansas-based Beneficient’s business model was approved last year by Governor Laura Kelly and nearly all members of the Kansas Legislative Assembly. In the 2022 session, members of the House and Senate again voted to build on the state’s relationship with Beneficient.
The State Banking Commission also received part of a million dollars from the state-chartered Beneficient to develop rules and regulations to serve as safeguards against financial misconduct at the so-called TEFFI or Technology-based fiduciary financial institution. TEFFI is a specialized fiduciary company and offers services generally reserved for large institutional investors.
“I I ask your office to immediately order Beneficient to suspend operations,” Holland said. “Furthermore, I I also request that a joint investigation including the Kansas Securities Commission, the Kansas Bureau of Investigation and your office be conducted.
Holland said the investigation should include Beneficient and GWG Holdings, which was the parent company of Beneficient during the state-required pilot program for TEFFI. GWG Holdings and company officials are charged in a federal lawsuit with misleading investors and selling hundreds of millions of dollars in bonds now considered “worthless” in terms of market value.
GWG Holdings has also been embroiled in an investigation by the United States Securities and Exchange Commission. The SEC issued GWG Holdings a subpoena in October 2020 for documents and information.
GWG Holdings controlled Beneficient until November when Beneficient was spun off as an independent entity. In December, Beneficient completed the pilot program required by state law and began operations serving investors primarily from outside Kansas. Beneficient’s strategy is to provide liquidity to people whose wealth is tied to alternative assets.
In the letter sent to state bank officials on Friday, Holland referenced reports from the Kansas City Star this raised questions about the broad influence benevolent executives had over the details of the state’s regulatory approach to TEFFIs. The article highlighted a flurry of campaign contributions to Kelly, Attorney General Derek Schmidt and lawmakers tied to the formation of TEFFI.
“I also have a number of questions about the appearance of undue influence Beneficient and/or the Kansas Legislature may have had with your office to establish regulation of the TEFFI financial tool,” Holland said.
Representative Stephen Owens, a Republican from Hesston and a strong proponent of the TEFFI experiment, said the changes in state banking law needed to establish TEFFIs could turn Kansas into a magnet for investment in the how South Dakota grew its economy through credit card banking and Utah responded to the bank’s demand for industrial loans.
“The goal of the TEFFI Act is to meet this new market demand primarily from out-of-state investors while generating funding for our rural economies by providing a home for investors in alternative assets across the country,” said Owens said.
Beneficent chose to center its Kansas business operations in Hesston, the hometown of Beneficient President Brad Heppner. Beneficient investors aim to make money by evaluating fees and charging interest on loans made on special assets such as venture capital, structured credit, private real estate funds, natural resources and even paintings or good wine.
“I’m very excited about where we are right now,” Heppner said in an interview with the Kansas Reflector. “We’ve developed a framework here to really bring great industry to our state. And we can cut that out for Kansas and do it right.
Part of the lure for Kansas lawmakers was Beneficient’s commitment to pass on a slice of revenue to a foundation that would sponsor rural economic development.
In January, Beneficient, also known as Ben, announced that he had donated approximately $15 million to support rural communities in Kansas.
“I am proud of Ben’s critical work during our opening days in generating over 99% of his new business from outside investors seeking fiduciary funding from Ben and ensuring that locals Kansas directly benefit from the new home for the alternative assets they helped us create,” Heppner said.
Last week, the Kansas Senate approved a pair of bills amending the state’s TEFFI law. Both received overwhelming support. Holland and Sen. Tom Hawk, D-Manhattan, voted “pass” both out of concern for the SEC investigation and the lawsuit involving GWG Holdings.
One of the bills – House Bill 2489 – was introduced by the state Banking Commissioner to set out in legislation what would happen if a TEFFI was declared insolvent. Beneficient initially opposed this bill, but approved its passage after the insolvency text was removed.
This bill, also approved by the House, would reduce initial state fees for specialty companies such as Beneficient from the current $500,000 to $250,000 through July 2025 and $100,000 thereafter.
Derek Fletcher, chairman and chief trustee of Beneficient, urged the Legislature to approve House Bill 2547. This bill was passed by the Senate, but not by the House.
“We believe the statutory framework provided by HB 2547 will encourage TEFFIs to train Kansas captives rather than domicile those captives in other jurisdictions,” Fletcher said. “This will not only meet the needs of industry, but will also lead to the expansion of economic opportunity for the state of Kansas.”