Name Not Public
Exemptive relief is granted based on representations that: the MFP and his spouse each intended to contribute $250 to the Candidate’s campaign; the MFP had pre-cleared a $250 contribution to the Candidate according to his Firm’s policies and procedures; the Firm identified the contribution through its supervisory process; the MFP requested and obtained a refund of the contribution; the Firm directed the Associate to refrain from certain communications involving the subject issuer; and the $500 contribution by the MFP and his spouse would not have triggered a ban on municipal securities business if the MFP and his spouse had both signed the check from their joint account or if they had written separate checks.
February 9, 2017
This is in response to your letter of January 10, 2017 (“Letter”) requesting, on behalf of FIRM (“FIRM” or the “Firm”) an exemption pursuant to Rule G-37(i) (the “Rule”) of the Municipal Securities Rulemaking Board (MSRB) and FINRA Rule 9610 from the prohibition in MSRB Rule G-37(b) (the “Ban”) from engaging in municipal securities business with the STATE (the “State”). After careful consideration of your request and taking into account all relevant factors, FINRA has determined that it would be consistent with the public interest, the protection of investors and the purposes of the Rule to grant the Firm the requested exemption.
The Firm has requested this exemption because on March 31, 2016, an employee and municipal finance professional (“MFP”) of the Firm named NAME (the “Associate” or “NAME”) wrote a single check for $500 (the “Contribution”)1 from his and his wife's joint account in support of the candidacy of CANDIDATE, the current Treasurer of STATE,2 for a U.S. Senate seat representing the STATE in the 2018 election. The check was hand-delivered to the “ORGANIZATION’S” campaign on April 22, 2016. As a resident of the State, the Associate is entitled to vote for CANDIDATE and therefore is permitted under MSRB Rule G-37(b) to make political contributions to CANDIDATE that in total do not exceed $250 per election without triggering the Ban. Since the Associate signed a single check representing a total Contribution in excess of $250, the Ban was triggered,3 causing the Firm to be prohibited from engaging in municipal securities business, as defined in MSRB Rule G-37(g)(vii), with the State until April 22, 2018 (i.e., two years from the date the campaign received the Contribution).
In support of your request that the Firm be granted an exemption, you made the following representations:
Both the Associate and his wife, SPOUSE, are residents of the STATE. SPOUSE is not an employee of or associated with the Firm or any of its affiliates.
For over 20 years, CANDIDATE has been a personal friend of both the Associate and his spouse. The Associate has maintained a personal interest in politics for at least 20 years, has supported various candidates for federal office dating to the late 1990s, and served as a delegate to the 2012 POLITICAL PARTY National Convention. The Associate’s political involvement is motivated entirely by his personal, political views and is unrelated to his work on behalf of the Firm.
SPOUSE has an extensive history of political activity, having served as an informal advisor on mental health issues to several political campaigns and as a delegate to the 2016 POLITICAL PARTY National Convention. In addition, she supports and contributes to candidates and causes to which her husband does not contribute.
When CANDIDATE announced his candidacy for U.S. Senate, both the Associate and his spouse decided to support his candidacy with early contributions. Both the Associate and his spouse recall that SPOUSE intended to make her own contribution to the CANDIDATE campaign in the amount of $250 and that the contribution was not directed by her husband. She has provided a written personal statement to that effect. As a STATE resident entitled to vote in this election, the Associate was aware that under the Rule he was allowed to make a contribution in an amount not exceeding $250. In accordance with the Firm’s applicable policies and procedures, the Associate requested and received permission from the Firm to make a $250 contribution to CANDIDATE’S campaign. In light of both his and his wife’s decisions to support CANDIDATE’S candidacy with personal contributions, the Associate wrote and signed a single check on his and his wife’s joint account addressed to the CANDIDATE Campaign in the amount of $500. Consistent with their intent, the Associate made a handwritten notation on the face of the check (in the memo space) that read: “1/2 NAME 1/2 SPOUSE.” The Associate represents that the check was hand-delivered to the CANDIDATE campaign on April 22, 2016. Copies of contribution receipt reports from the Federal Election Commission’s (FEC) website show that CANDIDATE’S 2018 campaign for U.S. Senate reported, consistent with the direction on the face of the check, that it received a contribution of $250 from NAME on April 22, 2016, and a separate contribution of $250 from SPOUSE on that same date.
You also represent that there is no connection whatsoever between the contributions made by the Associate and his wife and municipal securities business. Notwithstanding this, when the Firm uncovered “potential issues” arising from the manner in which the contribution check was executed on or about September 12, 2016, it notified the Associate. Upon learning of the questions being raised about the Contribution, the Associate requested a refund of the Contribution and received two refund checks, both dated September 27, 2016, from the “Citizens for CANDIDATE” campaign, each in the amount of $250 – one made out to NAME and the other made out to SPOUSE. Further, at that time, the Firm directed the Associate to refrain from any further communications or contacts with the STATE Treasurer’s Office regarding municipal securities business until further notice. The Firm also directed its Public Finance bankers who had been working on STATE negotiated bond issuances to refrain from participating in any subsequent STATE bond issues or communicating with the STATE Treasurer’s Office until further notice. Essentially, your request for exemptive relief on behalf of FIRM is based upon the premise that the Associate intended to restrict his contribution to the allowable $250 contribution limit, but inadvertently breached this threshold by the manner in which he and his wife jointly made contributions intended to be separate from each other. In other words, your position is that the Associate chose “an incorrect path to accomplish an allowable goal.” For example, you note that if the same check drawn on their joint account had also been signed by SPOUSE,4 the Ban would not have been triggered. Similarly, you contend that, under the circumstances, if two separate $250 checks had been drawn on the same joint account, one signed by each person, the Ban would not have been triggered.5
FINRA has considered your request for exemptive relief pursuant to the applicable standards.6 In reaching a determination, FINRA staff considered the representations made by the Firm, as described above, as well as the representation that the Firm will impose the following preventive steps until April 22, 2018 (two years following the date of the Associate’s contribution):
(1) The Firm will segregate the Associate from involvement with municipal securities business with the STATE, including by prohibiting the Associate from communicating with the STATE Treasurer’s Office regarding municipal securities business;
(2) The Firm will not allow the Associate to receive any compensation from the underwriting of any issuances by the STATE during this period;
(3) The Firm will not allow the Associate to have any communication with any Firm employee with respect to municipal securities business with the STATE;
(4) Within 15 days of the date the exemption is granted, the Firm will inform the following individuals in writing that NAME must be segregated from municipal securities business with the STATE until April 23, 2018: (i) MFPs and individuals assigned to the municipal syndicate desk who are based within, or involved in municipal securities business with, the STATE; and (ii) any other individuals directly or indirectly involved in soliciting municipal securities business from the STATE (together, “Affected Employees”);
(5) The Firm will give notice to the Associate and each Affected Employee instructing that discussions or communications (including, but not limited to, electronic mail or voicemail) between the Associate and any Affected Employee regarding such business are prohibited;
(6) The Firm will require all Affected Employees to certify in writing that they received, understand, and will comply with the terms of the notice described in (5) above, and will acknowledge that they may be subject to sanctions, including potential dismissal, in the event they fail to comply;
(7) To the extent the Firm hires new individuals who fit within the definition of an Affected Employee, the Firm will provide those individuals with all applicable written notifications and require them to complete the necessary certifications;
(8) The Firm will communicate each of these Steps to the Associate and to the Affected Employees and their supervisors;
(9) The Firm will require NAME to certify in writing that he has received, understands, and will comply with the terms of the notice described in (5) above, and acknowledge that he may be subject to sanctions, including potential dismissal, in the event he fails to comply. In addition, the Firm will require NAME to provide a quarterly certification of his compliance with the applicable restrictions and Steps described herein;
(10) The Firm’s Compliance Department will retain a copy of each certification and attestation required pursuant to these Steps; and
(11) The Firm will provide, after April 23, 2018, a one-time certification to its FINRA Regulatory Coordinator stating that it has complied with these Steps.
Based on the facts and circumstances as represented in your Letter and our application of the standards for exemptive relief in MSRB Rule G-37, FINRA concludes that it is appropriate to grant an exemption from the prohibition from municipal securities business as defined by Rule G-37, subject to the Firm’s compliance with the terms identified above. This exemption is based on our understanding of the facts as you have represented them. Our determination in this matter could be different if the facts are not as represented, if material facts have not been disclosed or if new information emerges.
Your request for relief asks that the Firm’s application for exemption, and FINRA’s decision on the application be kept confidential in their entirety. To the extent feasible and permitted under law, FINRA grants that request. However, our determination to provide exemptive relief will be available, with identifying information redacted, on the FINRA website with other FINRA responses to requests for exemptive relief under MSRB Rule G-37. By publishing the FINRA responses in redacted form, FINRA is able to provide confidentiality while informing and educating firms, issuers and investor communities of its decisions in this area and of the factors that FINRA may consider in granting or denying exemptive relief under the Rule. If you have any questions regarding the issues discussed herein, please contact the undersigned at 202-728-8133.
Cynthia M. Friedlander
Director, Fixed Income Securities Regulation
Regulatory Operations/Shared Services
1. The Firm stipulates that the Associate was deemed to be a municipal finance professional (as defined in MSRB Rule G-37(g)(vii)) at the time of the $500 contribution to CANDIDATE.
2. The Firm stipulates that “CANDIDATE, as Treasurer, is an official of the STATE who is directly or indirectly responsible for, or can influence the hiring of a broker, dealer or municipal securities dealer by the STATE for municipal securities business.” As such, CANDIDATE meets the definition of the term “official of an issuer” per MSRB Rule G-37(g)(vi) and, consequently, the Contribution to CANDIDATE triggered the Ban.
3. The determination that the Ban was triggered was based upon guidance found in Q&A II.20 of the MSRB publication “Questions and Answers Concerning Political Contributions and Prohibitions on Municipal Securities Business: Rule G-37” (“MSRB Q&A”) which states that: “If a municipal finance professional signs a check, whether the check was drawn on a joint account or not, and submits it as a contribution to an issuer official, then the municipal finance professional is deemed to have made the full contribution, regardless of any writing accompanying the check that provides or directs otherwise. Moreover, if this amount exceeds, or does not qualify for, the de minimis exception, then by making such a contribution the municipal finance professional will trigger the rule's ban on business thereby prohibiting his dealer/employer from engaging in municipal securities business with the particular issuer for two years.”
4. See MSRB Q&A II.21 which states that: “If a municipal finance professional and any other person both sign a check drawn on their joint account and submit it to an issuer official as a contribution, then each person is deemed to have made half of the contribution, regardless of any writing accompanying the check that provides or directs otherwise.”
5. See MSRB Q&A III.1 which states that contributions to issuer officials by municipal finance professionals’ spouses and household members are not covered by the rule “unless these contributions are directed by the municipal finance professional, which is prohibited by section (d) of the [R]ule.”
6. MSRB Rule G-37 permits FINRA to grant an exemption based on consideration of, among others, the following factors: (1) whether the exemption is consistent with the public interest, the protection of investors and the purposes of the Rule; (2) whether the broker, dealer, or municipal securities dealer: (A) prior to the time the contributions(s) which resulted in such prohibition was made, had developed and instituted procedures reasonably designed to ensure compliance with the Rule; (B) prior to or at the time the contribution(s) which resulted in the prohibition was made, had no knowledge of the contribution(s); (C) has taken all available steps to cause the person or persons involved in making the contribution(s) which resulted in such prohibition to obtain a return of the contribution(s); and (D) has taken such other remedial or preventive measures as may be appropriate under the circumstances, and the nature of such remedial or preventive measures directed specifically toward the contributor who made the relevant contributions and all employees of the broker, dealer, or municipal securities dealer; (3) whether, at the time of the contribution, the contributor was a municipal finance professional or otherwise an employee of the broker, dealer, or municipal securities dealer, or was seeking such employment; (4) the timing and amount of the contribution which resulted in the prohibition; (5) the nature of the election; and (6) the contributor's apparent intent or motive in making the contribution, as evidenced by the facts and circumstances surrounding such contribution.