Name Not Public
Exemptive relief is granted based on: the representation that at the time of the contribution the individual was not an MFP (as defined); the firm already has a significant business relationship with the governmental entities of which the contribution recipients were considered to be issuer officials; the firm has instituted information barriers on certain municipal business communications; the individual involved will be prohibited from the solicitation of certain new municipal business for a period of time.
June 10, 2009
This is in response to your March 20, 2009, April 20, 2009, and June 8, 2009 letters (“Letters”) requesting an exemption pursuant to FINRA Rule 9610(b) for your client Firm A from the prohibition of engaging in municipal securities business as defined in Municipal Securities Rulemaking Board (“MSRB”) Rule G-37 (“Rule”). You have requested this exemption because of three contributions1 (the “Contributions”) by Individual in support of Name, a member of the City Council of the City.
You represent that Firm A hired Individual as a municipal finance professional (“MFP”) on June 8, 2009 because of his prior experience in public finance. As an employee, Individual will be engaged in municipal securities business, and will solicit municipal securities business. However, Individual will not be allowed to have any involvement in connection with municipal securities business, including the solicitation and supervision of such business, regarding the City and any other governmental issuer as specified in Section 3(a)(29) of the Exchange Act (“Governmental Issuer”) for which Name is an “official of such issuer” as defined in MSRB Rule G-37 (an “Issuer Official “) for at least two years from Individual’s last contribution to Name. Further, you represent the following: Individual was employed as a public finance bond attorney at law firm until May 29, 2009, and Individual was not a MFP at the time of the Contributions. Individual was an MFP from August 2005 through July 2007 while he worked at Firm B. While at Firm B he was engaged in municipal securities business in connection with the underwriting of municipal securities for various Governmental Issuers.2
In support of your request, you state the following. At the time of the Contributions, neither Individual nor Firm A knew that Individual might eventually come to work for Firm A. Subsequent to Individual’s making the contributions, Firm A considered Individual for employment as a MFP. As part of its due diligence under MSRB Rule G-37 prior to making an offer of employment to Individual, Firm A discovered the Contributions. Individual has requested and received refunds of the Contributions. The Contributions were based solely on the personal friendship between Individual and Name , whom Individual has known for several years, and Individual’s personal political beliefs, and were in no way related to municipal securities business. You represent that Firm A already has a significant business relationship with the City. Firm A has served as Senior Manager for over $700 million worth of City bond issuances in the last few years and currently acts the Senior Manager Underwriting Pool for City Energy and the City Water System. All such relationships were entered into without knowledge that Individual might work for Firm A . Any future business will be separate from and unrelated to the Contributions.
FINRA has considered your request for exemptive relief pursuant to the applicable standards. A paramount issue in rendering our determination is whether an exemption is consistent with the public interest and the protection of investors.3 In reaching a determination, FINRA staff considered several key factors surrounding the Contributions. First, you represent that at the time of the Contributions, Individual was not a MFP. Second, you represent that before making an offer of employment Firm A conducted a due diligence review under Rule G-37, during which it discovered the Contributions. Third, you represent that Individual has requested and received a refund of the represented political contributions and the charitable fundraiser contribution. Fourth, you represent that Firm A already has a significant business relationship with City and that its municipal securities business with City was entered into prior to the Contributions and with no knowledge that it might hire Individual in the future. Fifth, you represent that, if granted an exemption, Firm A will take adequate preventive measures, including ensuring that Individual will not be involved in any way in municipal securities business (including any of the activities that are not “municipal securities business” as defined in the rule, but which would cause a person otherwise not an MFP to be a MFP, such as soliciting municipal securities business) with the City and any other Governmental Issuer for which Name is an Issuer Official for at least two years from the date of the last contribution. Sixth, you have represented that Individual’s Contributions were motivated by a personal relationship, and not an intent or desire to obtain or retain municipal securities business or future employment.
You represent that Firm A will institute the following preventive steps:
- For at least the period from November 2008 until November 2010, Individual will not be allowed to have any involvement with municipal securities business regarding the City and any other Governmental Issuer for which Name is an Issuer Official.
- Within 15 days of the date of this letter, Firm will inform in writing its MFPs and municipal syndicate desk (and others directly or indirectly involved with solicitation of municipal securities business) (as defined in the Rule) that Individual has, until November 2010, been segregated with respect to municipal securities business with the city and any other Governmental Issuer for which Name is an Issuer Official, and shall instruct each such employee that he or she may not have any discussions or communications (including e-mail or voice mail) with Hall regarding such business (“Information Restrictions”). All such employees shall certify that they received, understand and will comply with the notice, and will acknowledge that they may be subject to sanctions, including potential dismissal, in the event they fail to comply. The Firm A’s legal or compliance department will retain a copy of the certifications.
- Individual will receive written notification of the Information Restrictions and will be subject to an obligation to provide a quarterly certification of compliance. The Firm’s legal or compliance department will retain a copy of Individual’s certifications.
Based on the facts and circumstances as represented in your letter and our application of the standards for exemptive relief in the Rule, FINRA concludes that it is appropriate to grant an exemption from the prohibition from municipal securities business as defined by the Rule, subject to the Firm’s compliance with the undertaking identified above. This exemption is based on our understanding of the material 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 an exemption, the identity of the Firm, and the identity of the MFP remain confidential. 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 Rule G-37. By publishing the FINRA responses in redacted form, FINRA is able to provide confidentiality while informing and educating members, issuers, and investor communities 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, please contact me at 202-728-8085.
Malcolm P. Northam
1 In your Letters you represent that there were three contributions to Name: $250 on October 23, 2007; $100 on June 18, 2008; and $200 on November 17, 2008. Additionally, a $300 contribution was made by Individual for a name charitable fundraising event in February 2008. You represent that this $300 contribution was refunded by the Name campaign on February 29, 2008 and you provide a copy of a State Ethics Commission report of Political Expenditures to support this claim. Additionally, you have provided a copy of a Name Campaign Fund check number 332 dated April 14, 2009 in the amount of $650.00 payable to Individual which you represent is a refund of the three campaign contributions by Individual. You acknowledge that the amount refunded by Name exceeds the represented total campaign contributions by $100.00. You represent that this is an error, and that Individual does not intend to refund or repay this excessive amount.
2 In your Letters you represent that while employed by Firm B , Individual was not involved in underwriting business for the city or any other Governmental issuer for which Name is an Issuer Official. You do represent, however, that Individual acted as a co-financial advisor for City Utility and the City Water System, and was considered to be a MFP due to his involvement with underwriting for other issuers.
3 MSRB Rule G-37 permits FINRA to grant an exemption based on consideration of the following factors, among others: (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.