Name Not Public
Exemptive relief is granted based on: the representation that the individual did not solicit municipal securities business; the contribution being made prior to his employment at the Firm; the Firm's imposition of Firm-wide information barriers on certain municipal securities business communications: for a specified period, prohibition of the solicitation of new municipal securities business by the individual; and the commitment to a quarterly certification of compliance.
August 30, 2006
This is in response to your July 14, and August 11, 2006 letters requesting an exemption pursuant to NASD Rule 9610(b) for your client, 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 $1,000 made on or about March 2, 2006 by Name (the "Contribution") in support of Candidate's re-election campaign for the office of 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 the campaign.2 You also represent that at the time of the Contribution, Name was neither employed by the Firm, nor was he being considered for employment at the Firm. You represent the Firm became aware of the contribution as part of the Firm's pre-employment due diligence with respect to Rule G-37, and a refund of the Contribution has been received.3
You represent that the Firm hired Name as Head of Municipal Finance, a newly created position, on August 2, 2006 based on his management experience and leadership skills. You acknowledge that Name, as Head of Municipal Finance, is a municipal finance professional ("MFP") as defined by the Rule. You represent that prior to being hired by the Firm, Name was President of the hedge fund for Previous Firm, and prior to that was an advisor to the CEO of Previous Firm and part of the Previous Firm's Managing Board in Europe. You represent that Name has never been engaged in municipal securities business (as defined in the Rule), and he has never solicited municipal finance business. However in his position at the Firm he will be involved in municipal securities business, and in soliciting such business.
You represent that the Firm has had a regular presence in State and has a pre-established municipal finance business with the State.4 As such, neither the hiring of Name nor the Contribution were necessary to obtain municipal securities business from the State.
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.5 In reaching a determination, NASD staff considered several key factors surrounding the Contribution. First, you have represented that Name has never engaged in any solicitation of, or had any involvement in, municipal securities business (as defined by the Rule). Second, you have represented that the Contribution was made prior to Name being employed by the Firm, and in fact was made prior to either the Firm or Name considering his employment with the Firm. Accordingly, the Contribution was not made in an attempt to gain employment or to gain municipal securities business and the Firm had no knowledge of the Contribution at the time it was made. Third, you have represented that the Firm has substantial pre-established municipal securities business with State, and neither hiring Name, nor the Contribution were necessary to obtain municipal securities business from State. Fourth, you have represented that the Firm has a detailed and comprehensive compliance program in regards to Rule G-37, and the Contribution was discovered as a result of the program. Fifth, although a less weighty factor, you represented that Name has received a refund of the Contribution.
Important to our consideration is your representation that the Firm maintains and implements a detailed and comprehensive program to comply with the Rule and that the Contribution was discovered prior to Name commencing employment as a result of this program. Among other things, the compliance program is represented to include an effective pre-employment screening process, and an established contribution pre-clearance process, which requires approval from the MFP's manager, the Public Finance Department, and the Compliance Department. Additionally each MFP must to report contributions and provide certifications as to their contributions or lack thereof on a quarterly basis, and undergo annual Rule G-37 training.
In addition to the Firm's Rule G-37 compliance program you have represented that the Firm will take additional preventive measures with regard to Name. Specifically, you represented that for a at least two years from March 2, 2006, the date of the contribution, Name will not be involved in any way in municipal securities business with any issuer of which Candidate is an issuer official. The Firm will do this by:
- Prohibiting Name, at least until March 2, 2008, from soliciting municipal securities business (as defined in the Rule) from, or engaging in municipal securities business with, State, or any entity or agency for whom Candidate is considered an "official of such issuer" or "official of an issuer" as defined in MSRB Rule G-37(g)(vi) (the "Issuers");
- 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 by the Rule) that Name has, until March 2, 2008, been segregated with respect to municipal securities business of the Issuers, and instruct each such employee that he or she may not have any discussions or communications (including e-mail or voice mail) 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. The Firm's legal or compliance department will retain a copy of the certificates.
- Name will receive written notification of the Information Restrictions and will be subject to an obligation to provide 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 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 Name 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 In an August 8, 2006 telephone conversation between Courtney Dinsmore and Henry Almond of NASD Member Regulation and, counsel to the Firm, Firm Counsel confirmed that Name is eligible to vote for issuer officials in the State.
2 In an August 8, 2006 telephone conversation between Courtney Dinsmore, Henry Almond and Firm Counsel, Firm Counsel confirmed that Name made that Contribution after being referred to a member of the campaign's Finance Committee by a personal acquaintance.
3 A copy of the refund check was received by NASD Member Regulation on August 11, 2006.
4 Since 2003, the Firm has underwritten $5.7 billion of municipal bonds in State.
5 MSRB Rule G-37 permits NASD 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.