Exemptive relief under Municipal Securities Rulemaking Board (MSRB) Rule G-37 is denied because the firm failed to develop and institute procedures reasonably designed to ensure compliance with the Rule.


December 2, 1997

 

A
Principal
Firm X
Address

 

Dear A:

 

This is in response to your letter received October 1, 1997 to MS of our District M office requesting an exemption for Firm X from the prohibition of engaging in municipal securities business contained in Municipal Securities Rulemaking Board (MSRB) Rule G-37 (Rule).

 

Based on your letter we understand the facts to be as follows. B, a member of the firm's management committee, sent a check in the amount of $250 to C who ran for a seat on the County Council. B and C have served on civic organization boards together and have known each other for several years, but C was a candidate for whom B was not entitled to vote. In your letter you indicate that B reported the contribution to the Firm X after B had already made the contribution, and then discovered that he/she was ineligible to make such a contribution without causing the firm to refrain from any negotiated municipal finance business with the County for two years. B requested a return of B’s contribution and B's check was returned, uncashed.

 

Since the contribution was discovered, the firm has undertaken additional educational efforts to remind all individuals who fall within the definition of "municipal finance professional" of their obligation to seek prior approval and report all relevant contributions. These efforts have included both written and verbal reminders by the Managing Principal.

 

As you know, the Rule make provision for a de minimis political contribution in instances when the political contribution is made to a person for whom the contributor is entitled to vote. However, there is no de minimis exemption when a political contribution is made to a person for whom the contributor is not entitled to vote.

 

The MSRB in filings with the SEC and its interpretations has made clear that the granting of exemptions to the Rule should only be done in very limited circumstances. It identifies only two specific examples that are appropriate for an exemption: (a) a contribution by a disgruntled employee to an issuer official for the purpose of injuring the member; or (b) a number of small contributions by an employee during an election cycle (e.g., four years) which, when consolidated slightly exceeds the $250 de minimis exemption, such as contributions totaling $255.

 

.Additionally, a factor which NASD Regulation, Inc. considers (see Rule G-37) in determining whether to grant an exemption is whether prior to the time of the contribution the firm had developed and instituted procedures reasonably designed to ensure compliance with the Rule.

 

It appears that the violation of the Rule, as described in your letter, relates directly to the failure of the firm to develop and institute procedures reasonably designed to ensure compliance of the Rule i.e., for the review and approval of political contributions by a municipal finance professional prior to making the contribution. Accordingly, the firm's request for an exemption is denied.

 

Be advised that the firm has fifteen (15) days in which to appeal this determination to NASD Regulation's Fixed Income Committee. Any such determination is subject to review by the NASD Regulation, Inc. Board of Directors. If you wish to do so, you should send the written appeal request to:

 

NASD Regulation, Inc.
c/o Mr. John Pilcher, Esq.
Office of the General Counsel
1735 K Street, NW
Washington, DC 20006-1500


Sincerely,

 

Malcolm P. Northam, Director
Fixed Income Securities Regulation

 

cc: NASD District Director
Christopher Taylor, MSRB