Kansas banking regulators, Beneficient prepare for battle over cease-and-desist order

James Silk, chief executive officer of Beneficient, says the Kansas Legislature should preserve the special bank charter granted the company's subsidiary and withstand an assault by regulators of state law helpful to the alternative-asset firm. (Kansas Reflector screen capture of Legislature's YouTube channel)

TOPEKA — Kansas regulators allege a business reeling from fraud convictions of the company founder violated 32 banking provisions and recommend repeal of the related state law designed to transform Kansas into a magnet of alternative-asset dealmaking.

Kansas Bank Commissioner David Herndon said Beneficient Fiduciary Financial, a subsidiary of Dallas-headquartered Beneficient, refused to sign a consent order compelling BFF to abide by certain state bank laws and regulations. The deadlock prompted Herndon to file a cease-and-desist order against BFF, which is scheduled to be considered by an administrative law judge in November.

On Thursday, Herndon told a House and Senate oversight committee responsible for monitoring the Technology-Enabled Fiduciary Financial Institution Act, or Teffi Act, that the Kansas Legislature should revoke BFF’s one-of-a-kind state charter and repeal state statute shielding BFF from financial and management regulatory obligations of a typical bank.

In the 2026 legislative session, lawmakers passed a law forbidding the state from taking control of BFF if it was consumed by bankruptcy.

“Beneficient appears to be in what I and others called a financial death spiral that will likely take down BFF with it,” said Herndon, who plans to retire in October. “The writing is on the wall. The Legislature can avoid a prolonged legal battle by admitting the Teffi Act has been a failure and has not produced the hoped-for results.”

Beneficient reported a net loss of $6.8 million last quarter. The company’s stock price recently ranged from sub-$1 levels to a high of $3 per share. It was at $1.40 per share on Thursday.

Beneficient and BFF executives told legislators they would fight the cease-and-desist order and lobby to preserve its state bank charter. They accused Herndon of unfairly regulating BFF and claimed the Beneficient subsidiary agreed to 85% of the 32 demands made by the Office of the State Banking Commissioner.

“Regulation should be anchored in the law, to the intent of the Legislature,” said Derek Fletcher, president and chief fiduciary officer of Beneficient. “There should be rules that are clearly stated. Voluntary compliance should be accepted, not rejected in an all-or-nothing enforcement action. Accountability can’t run in one direction.”

Long-running conflict

Sen. Stephen Owens, a Hesston Republican and booster of BFF, sits on the Legislature’s oversight committee. He said Herndon may have orchestrated a conspiracy to damage BFF.

Owens said Herndon unsuccessfully opposed the Teffi Act from the outset and over the years sought to undermine BFF with regulatory levers. Owens theorized Herndon pivoted to the cease-and-desist order in a desperate bid to destroy BFF and the Teffi law.

“It seems like you can put these puzzle pieces together pretty clearly,” said Owens, who spoke directly to Herndon. “We go back a few years and, obviously, we disagree on a number of things. One thing we agree on is this, obviously, hasn’t worked out as intended.”

Herndon said he didn’t wish that regulated entities failed, but believed the state should recognize when a business concept was ill-advised.

Owens was among Republican and Democratic state legislators enthusiastic about Beneficient’s interest in creating an alternative-asset hub in Kansas. In 2021, Owens said Kansas could expect investment of $1 billion over a 10-year period by likeminded businesses serving wealthy clients from “California, Florida, Hong Kong, Russia, anywhere.”

No other company followed in BFF’s footsteps in Kansas.

Brad Heppner, a Kansas native who founded Beneficient, convinced the Legislature in 2021 to issue the special bank charter by also promising revenue from asset transactions and a unique regulatory fee would fund economic development in Kansas. Heppner pledged to bring a state-of-the-art grocery store and other businesses to Hesston where he grew up and where BFF would have offices.

At least $250,000 annually has been provided through BFF for community economic development grants, but revitalization of Hesston has remained a dream. There is no grocery store in Hesston, and Owens said 11 of 16 downtown properties were occupied by a business.

In May, Heppner was found guilty in federal court on felony charges of securities fraud, wire fraud, making false statements, and conspiracy to commit wire and securities fraud. The crimes didn’t directly involve BFF’s partnership with Kansas. They were part in a scheme to divert at least $150 million in assets for personal benefit. His sentencing has been scheduled for Oct. 21 in New York City.

Hints of Watergate

Nick Bunch, an attorney with the white-collar crime division of the Haynes Boone law firm, was brought to the Capitol by Beneficient executives to brief the committee about Beneficient’s view of the Heppner case. The company claimed Heppner was a rogue executive exclusively responsible for the fraud, he said.

Sen. Brenda Dietrich, a Topeka Republican and chairwoman of the Teffi oversight committee, said twists and turns of the case reminded her of the Watergate scandal.

“I feel like I’ve been hearing a synopsis of a made-for-TV movie. It’s amazing, isn’t it?” said Dietrich, who recalled the 1973 congressional hearings on Watergate. “Toward the end, they said, ‘Oh, what a tangled web we weave, when first we practice to deceive.’ I think this clearly shows that.”

On Wednesday, Beneficient announced a plan to eliminate contractual entanglements with Heppner. Since Heppner’s conviction in May, the company sought to negotiate a resolution to $88 million in loan principal and interest claimed by Heppner as well as hundreds of millions of dollars in company equity that he had claimed.

Beneficient CEO James Silk said wiping out “fabricated debt” shaped by Heppner would improve by $130 million the balance sheet of Beneficient — also referred to as BEN. If a deal cannot be struck with Heppner, Silk said, legal action would be taken.

“Our objective is a complete separation,” Silk said. “We believe that outcome is both just and necessary to protect Beneficient from further harm. Achieving it would transform our balance sheet, unlock substantial value for our stockholders and position the company and its operations to realize its full potential.”