Name Not Public
This request for exemptive relief is granted based on the Firm's representation that the contributor has never solicited municipal securities business, as defined by MSRB Rule G-37, from the State or entities or agencies connected with the State of whom the contribution recipient is considered to be an issuer official, the Contribution was returned, and representations that the Firm has imposed certain limitations on the individual's municipal business solicitation, and receipt of compensation from the Firm's municipal securities business with the State or State agencies.
September 20, 2005
In response to your July 22, 2005 letter requesting an exemption pursuant to NASD Rule 9610(b) for Firm 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 a Contribution of $300 ("Contribution") made on June 11, 2005 by Name in support of Candidate's campaign for the governor of State.1
You represent that the Contribution was made based on a solicitation from a personal acquaintance and was not made in response to either a direct request from Candidate or from his campaign. You acknowledge that Name, a registered representative in the Firm's City, State office, was a municipal finance professional ("MFP") as defined by the Rule on the date of the Contribution.
You also represent that the Firm first became aware of the Contribution when Name contacted the Firm's Compliance Department on July 11, 2005. Under the Firm's compliance program with respect to the Rule, you represent that Name had an obligation to seek advance approval prior to making any political contribution. Had Name sought approval for the Contribution, it would not have been granted under the Firm's procedures because it was in an amount in excess of $250. Upon receipt of the Firm's quarterly request for information on political contributions, Name remembered that he had an obligation to report the Contribution. The Contribution has been returned.2 You represent that Name has been employed by the Firm for over three years and that during his employment with the Firm he has never engaged in the municipal securities business, as defined in the Rule, and he has never solicited municipal finance business from the State or entities or agencies connected with the State that, on a state-wide basis, issue or approve the issuance of municipal securities to fund various projects ("State agencies").3
NASD has considered your Firm's 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.4 In reaching a determination, NASD staff considered several key factors surrounding the Contribution. First, you have represented that, while registered with the Firm, Name has never engaged in the solicitation of municipal securities business (as defined by the Rule), and he has never solicited municipal finance business from any State agencies. Second, you have represented that the Firm has a long relationship with the State as it related to municipal securities business, and the Contribution was not necessary to obtain such municipal securities business.5 Third, you represent that the Firm took prompt remedial action by instituting a self-ban on engaging in municipal securities business with the issuers of which any recipient of Name's Contribution is an issuer official. Fourth, Name has taken personal responsibility for the Contribution and acknowledged his violations of the Firm's procedures in writing. Fifth, although a less weighty factor, the Contribution has been returned.
Important to our consideration is your representation that the Firm maintains and implements a detailed and comprehensive program to comply with the Rule. Among other things, the compliance program is represented to include an established contribution pre-clearance process, and a quarterly process for MFPs to report contributions and provide certifications as to their contributions or lack thereof. Moreover, we have considered that the Firm took prompt action once it became aware of the Contribution by circulating to each employee a political contribution compliance reminder, including the contribution pre-clearance requirement.
In addition, the Firm has agreed that it has adopted or will institute the following:
- For at least the period from June 11, 2005 to June 11, 2007, Name will be prohibited from soliciting municipal securities business (as defined in the Rule);
- For at least the period from June 11, 2005 to June 11, 2006, Name will be prohibited from making any political contributions; and
- For the period from June 11, 2005 to June 11, 2007, Name will be prohibited from participating in the profits of the Firm's municipal securities business (as defined by MSRB Rule G-37), from the State or State agencies.6
Based on the facts and circumstances as represented in your letter, and our application of the standards for exemptive relief in the Rule, we conclude 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. NASD grants that request. However, our determination to provide exemptive relief will be available, with identifying information redacted, on the NASD Web site with other NASD responses to requests for exemptive relief under Rule G-37. By publishing the NASD responses in redacted form, NASD is able to provide confidentiality while informing and educating members, issuers, and investor communities of the factors that NASD 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 You confirmed in your July 22, 2005 letter that Name is eligible to vote for issuer officials in the State.
2 You have enclosed a copy of a letter and a $300 check dated July 11, 2005 from the "Candidate for Governor" that you represent constitutes a refund of the Contribution.
3 In a September 8, 2005 telephone conversation between Courtney Dinsmore and Firm Compliance Officer, you confirmed these facts.
4 MSRB Rule G-37 (i) permits NASD to grant an exemption based on consideration of the following factors: (1) the exemption is consistent with the public interest, the protection of investors and the purposes of the rule; (2) 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 Rule G-37; (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 and 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.
5 You represent that during the period from 1996 to 2002, the Firm has managed or co-managed four State bond offerings in the aggregate amount of $48 million.
6 In a September 20, 2005 telephone conversation between Malcolm Northam and Firm Compliance Officer, the Firm agreed to this restriction.