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 government entity of which the contribution recipient was considered to be an issuer official; the firm has instituted information barriers on certain municipal business communications; the individual will be prohibited from the solicitation of certain new municipal business for a period of time.
September 7, 2010
This is in response to your May 21, 2010, letter (“Letter”) requesting an exemption under Rule G-37(i) of the Municipal Securities Rulemaking Board (“MSRB”) and FINRA Rule 9610 from the prohibition from engaging in municipal securities business in MSRB Rule G-37(b) for Firm. You have requested this exemption because Individual , a newly hired municipal finance professional (“MFP”), made contributions totaling $550 (“Contributions”)1 in support of Name, a member of the City Council within the two years prior to his employment by the Firm.
In support of your request that Firm be granted an exemption, you have made the following representations:
Firm hired Individual on April 12, 2010. He is engaged in municipal securities representative activities and is an MFP.
Firm hired Individual because of his prior experience in public finance and not because of any influence Individual may have with City based on the Contributions. At the time of the Contributions, neither Individual nor Firm knew that Individual might eventually come to work for Firm as an MFP.
Individual was not eligible to vote for Name (or any other candidate) in the election for City Council of City. 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. Since making the Contributions, Individual has made no further contributions to Name or any other “official of such issuer” (“Issuer Official”) as defined in MSRB Rule G-37 (“Rule”) or engaged in any municipal securities business with City. Individual has requested and received refunds of the Contributions.2
At the time Individual made the Contributions, he worked as a public finance bond attorney at Law Firm, a position he held from August 2007 through May 2009, and was not an MFP. From August 2005 through July 2007, prior to working at Law Firm and making the Contributions, Individual worked at Firm B as a junior analyst. In that position, Individual engaged in municipal securities business for various governmental issuers, as defined in Section 3(a)(29) of the Securities Exchange act of 1934 (“Governmental Issuer”), and thus was an MFP. However, Individual was not engaged in municipal securities business in connection with the underwriting of any municipal securities issued by City or any other Governmental Issuer for which Name is an Issuer Official. During this time period, Individual did act as a co-financial advisor for City Energy utility and the City Water System.3
You have stated that members of the Firm’s Public Finance Department other than Individual have significant relationships with City that are unrelated to Individual or the Contributions. These relationships were entered into prior to the Contributions or Name becoming an Issuer Official for City. You represent that Individual will not be allowed to have any involvement in municipal securities business, including the solicitation and supervision of such business, regarding City or any other Governmental Issuer for which Name is an Issuer Official for at least two years from Individual’s last contribution to Name.
You further represent that Firm has robust procedures designed to ensure compliance with the Rule. Firm discovered the Contributions during its due diligence review in connection with the hiring of Individual. Upon discovery of the Contributions and the hiring of Individual the Firm immediately took preventive steps to ensure that the Firm does not do business with City or any other Governmental Issuer for which Name is an Issuer Official. The Firm has not done any business with City since employing Hall.
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.4 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 the Firm has robust procedures designed to ensure compliance with the Rule and that the Firm discovered the Contributions during its due diligence review in connection with the hiring of Individual. Third, you represent that upon the discovery of the Contributions and the hiring of Individual, the Firm has not done any business with City. Fourth, Individual has requested and received a refund of the Contributions and the charitable fundraiser contribution. Fifth, you represent that members of Firm’s Public Finance Department had significant business relationships with the City prior to the Contributions and that its municipal securities business with City is unrelated to Individual or the Contributions. Sixth, you represent that, if granted an exemption, Firm 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. Seventh, 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 will institute the following preventive steps:
- Until at least November 17, 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, the 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 at least November 17, 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 Individual 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’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 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 the Rule. 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 Individual contributed $250 on October 23, 2007; $100 on June 18, 2008; and $200 on November 17, 2008. Additionally, on February 29, 2008, Individual received a refund of the Name’s half ($300) of a charitable donation to Individual’s neighborhood high school alumni association scholarship foundation, which Individual had paid for in advance. You represent that the donation and refund were not political contributions.
2 On April 14, 2009, Name’s campaign refunded $650 to Individual, representing the Contributions plus an excess of $100. The excess was an error by Name’s campaign.
3 Prior to coming to work for Firm, Individual worked at another municipal securities dealer where he engaged in municipal securities business and was an MFP. This prior employer obtained an exemption from the prohibition from municipal securities business as defined by the Rule.
4 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.