Name Not Public
This request for exemptive relief is granted based on the Firm's representation that the Contributions were made prior to the individual's employment with the Firm, and that the individual was never engaged in municipal securities business, as defined by MSRB Rule G-37 ("Rule"), and the individual has never solicited municipal securities business from the City or City agencies of whom the Contribution recipients are issuer officials. The Firm agreed to institute certain information barriers, the individual will, for a period of time, be prohibited from soliciting municipal securities business as defined by the Rule, and the individual may not receive any compensation derived directly or indirectly from municipal securities business from City or certain City agencies for a period of time.
September 22, 2005
This is in response to your July 6, 2005 and August 19, 2005 letters 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 $150 Contribution by Name, an economic development specialist at your Firm, made on May 17, 2005 to a Candidate #1 for City City Council, and a $200 October 17, 2004 Contribution by Name to Candidate #2, a current City City Council member, and currently a candidate for election as Mayor of the City. You represent that Name is not eligible to vote for either of the Contribution recipients, and that the Contributions were made prior to Name's employment by you. You also represent that Name has not made any other contributions to candidates covered by the Rule within the past two years. You acknowledge that Name, as a Firm economic development specialist, is a municipal finance professional ("MFP") as defined by the Rule.
Prior to being hired by the Firm, Name was employed as an analyst at a City financial advisory firm. You represent that the Firm hired Name on September 19, 2005.1 You also represent that the Firm first became aware of the Contributions when Name disclosed them in response to the Firm's request that is part of the Firm's due diligence inquiry regarding the Rule used to screen job candidates and new hires. The Contribution made to Candidate #2 has been returned. Name requested the return of the contribution to Candidate #1.2 You represent that Name has never engaged in the municipal securities business, as defined in the Rule, and he has never solicited municipal finance business from the City or entities or agencies connected with the City that issue or approve the issuance of municipal securities to fund various projects ("City agencies").
Based on Rule G-37, NASD 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, NASD staff considered several key factors surrounding the Contributions. First, you have represented that Name, prior to being hired by the Firm, was not engaged in the solicitation of municipal securities business, as defined in the Rule. Second, you have represented that the Firm has a long relationship as an underwriter of municipal securities for the City, and neither the hiring of Name nor his Contributions were necessary to obtain municipal securities business from such issuers.4 Third, the Firm has agreed to institute preventive information barriers (as described below) to help avoid the potential for conflicting interests to exist and be used, or appear to be used, by the Firm or Name to obtain municipal securities business or compensation or other financial benefits related to such business. Fourth, although a less weighty factor, one of the Contributions has been returned, and, for the purposes of this exemption request, a reasonable effort was made to obtain the return of the other contribution.
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. The Firm became of aware of the Contribution as part of its new employee pre-screening process used to identify political contributions and a possible resulting prohibition on certain new municipal securities business.
In addition, the Firm has agreed that it has adopted or will institute the following:
- Name will be prohibited from soliciting municipal securities business (as defined in the Rule) from the City or City agencies until at least May 18, 2007;
- Name's compensation package will preclude him from receiving any compensation (including Firm-wide or other incentive compensation) derived, directly or indirectly, from municipal securities business, as defined in the Rule, from the City or City agencies until at least May 18, 2007;
- The Firm's State-based MFPs and the Firm's municipal syndicate desk (and others directly or indirectly involved with solicitation of City or City agencies) will be informed in writing that Name has, until at least May 18, 2007, been segregated with respect to City and City agencies municipal securities business, and instructed that they may not have any discussions or communications (including e-mail or voicemail) with Name 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; and
- Name will receive similar 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 Name'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, 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 undertakings 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 Confirmed in a September 20, 2005 letter.
2 You have enclosed a copy of a $200 check dated August 1, 2005 from Candidate #2 that you represent constitutes a refund of one of the Contributions. You have included as an attachment to your July 6, 2005 letter a copy of a June 30, 2005 letter from Name requesting a refund of the $150 Contribution made to Candidate #1. In a September 6, 2006 telephone conversation with Malcolm Northam, you confirmed that Name has been advised that Candidate #1 is not able to return the $150 Contribution.
3 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.
4 You represent that since at least 2001 the Firm has been named as a Senior Manager for both City Utility Obligations and Economic Development Obligations, and will maintain this position for at least 2005 and 2006. In support of this representation you have included a copy of a January 10, 2005 letter notifying the Firm of its inclusion as Senior Manager for the City's Utility and Economic Development transactions for 2005 and 2006.