Name Not Public
Exemptive relief is granted based on: representations that at the time of the contribution the individual was not employed by the firm, was not an MFP, and did not anticipate an employment relationship with the firm; the firm already had a significant business relationship with the City of which the contribution recipient is an issuer official (as defined); the individual has attempted to obtain the return of the contribution; the firm has instituted barriers and controls around certain municipal business communications; and the individual will be prohibited from any involvement in municipal securities business with the City for a period of time.
December 14, 2015
This is in response to your letter of November 23, 2015 (the "Letter") requesting an exemption under Rule G-37(i) of the Municipal Securities Rulemaking Board (MSRB) and FINRA Rule 9610 from the prohibition in MSRB Rule G-37(b) from engaging in municipal securities business for Firm ("Firm") with the City of City, State (the "City"). You have requested this exemption because on February 21, 2015, Name (the "Banker"), whom the Firm hired on November 16, 2015 as a vice president of public finance, donated $100 (the "Contribution") to the 2015 Exploratory Campaign of the mayor of the City (the "mayor"). The Banker was not eligible to vote for the mayor at the time of the contribution.
By virtue of his role as vice president of public finance, the Banker meets the definition of "municipal finance professional" ("MFP") as defined in MSRB Rule G-37(g)(iv). Pursuant to MSRB Rule G-37(b), the Firm is currently prohibited from engaging in municipal securities business, as defined in MSRB Rule G-37(g)(vii), with the City until February 21, 2017.
You have represented that the Firm is currently retained as underwriter for a debt restructuring transaction involving the City scheduled to price and close in early 2016, and that this engagement became effective several months prior to the Banker's employment with the Firm.
In support of your request that the Firm be granted an exemption, you made the following representations:
On November 16, 2015, Firm hired the Banker as a vice president of public finance in the Firm's City, State office. The Banker will have no supervisory responsibilities in his initial role with the Firm. Before he was hired by the Firm, the Banker served as chief of staff to the mayor since November 20131. The Firm's first discussions with the Banker about joining Firm occurred in March 2015. During continuing discussions in May 2015, the Firm learned about the Contribution.
The Contribution was the result of the Banker's political beliefs and friendship with the mayor and was unrelated to any municipal securities business. At the time of the Contribution, the Banker was not an employee of the Firm or an MFP and neither the Firm nor the Banker anticipated a future employment relationship. The Banker has attempted to obtain a return of the Contribution from the mayor's campaign committee and is awaiting a response.
The Firm has procedures designed to ensure compliance with MSRB Rule G-37. The Firm discovered the Contribution during its due diligence review in connection with hiring the Banker. In addition, the Firm has implemented preventive steps to ensure the Firm does not do business with the City during the ban or until the requested exemption is granted.
Under state law and the City's ordinance, the Banker will be prohibited from working on any matter relating to the City for a period of one year following his departure from City employment.2 The Firm will further prohibit the Banker from having any involvement with municipal securities business regarding the City until at least February 21, 2017 (i.e., for two years following the date of the Contribution).
Firm has had a long relationship with the City, which pre-dates the Banker's employment with the City. The Firm's senior banker in City has been involved in the issuance of nearly $600 million of the City's debt securities over the past 30 years. He has helped Firm successfully underwrite over $284 million of the City's municipal debt. In addition, he has served the City in the roles of financial advisor, swap advisor, underwriter, and structuring agent under five different mayoral administrations.
FINRA has considered your request for exemptive relief pursuant to the applicable standards.3 A paramount issue in rendering our determination is whether an exemption is consistent with the public interest, the protection of investors, and the purposes of MSRB Rule G-37. In reaching a determination, FINRA staff considered the following representations you made in light of several key factors surrounding the Contribution:
- The Banker was not an MFP at the time of the Contribution.
- At the time of the Contribution, neither the Banker nor the Firm anticipated an employment relationship.
- The Firm had a long-standing business relationship with the City prior to the Contribution.
- The Contribution was unrelated to any municipal securities business.
- The Firm has procedures designed to ensure compliance with MSRB Rule G-37 and the Firm discovered the Contribution during its due diligence review in connection with the hiring of the Banker.
- The Firm has taken preventive steps to ensure that the Firm does not do business with the City until further notice.
- The Banker has requested a refund of the Contribution.
In addition, to ensure that the Banker will not be involved in the municipal securities business described above, you have represented that the Firm will institute the following preventive steps:
- At least until February 21, 2017, the Banker will not be allowed to have any involvement with municipal securities business regarding the City.
- Within 15 days of the date of this letter, the Firm will inform in writing its MFPs (including the Banker), the municipal syndicate desk, and others directly or indirectly involved with solicitation of municipal securities business (as such term is defined in MSRB Rule G-37) that the Banker has been segregated with respect to municipal securities business with the City until February 21, 2017. Further, the Firm shall give notice to each such employee instructing them that they may not have any discussion or communications (including, but not limited to, email or voice mail) with the Banker regarding such business. All such employees shall certify in writing that they received, understand, and will comply with the terms of 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 & Compliance Department will retain a copy of the certification.
- The Banker will be subject to an obligation to provide a quarterly certification of compliance with these preventive steps. The Firm's Legal & Compliance Department will retain a copy of the Banker's certifications.
- The Firm will communicate the preventive steps described herein to the Banker, the Firm's Public Finance Department, the Firm's MFPs responsible for covering the City, and the Firm's Underwriting Department. At the end of the certification period, the Firm will provide a one-time certification to its FINRA Regulatory Coordinator stating that it has complied with these steps.
Based on the facts and circumstances as represented in your Letter and our application of the standards for exemptive relief in MSRB Rule G-37, FINRA concludes that it is appropriate to grant an exemption from the prohibition from municipal securities business as defined by Rule G-37, subject to the Firm's compliance with the terms identified above. This exemption is based on our understanding of the 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 exemption, the identity of the Firm, and the identity of the MFP remain confidential. To the extent feasible and permitted under law, 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 MSRB Rule G-37. By publishing the FINRA responses in redacted form, FINRA is able to provide confidentiality while informing and educating firms, 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 herein, please contact me at 202-728-8133.
Cynthia M. Friedlander
Director, Fixed Income Securities Regulation
1 During a telephone conversation between Cynthia Friedlander and Compliance Officer on November 25, 2015, Compliance Officer confirmed that the Banker resigned as chief of staff to the mayor before becoming employed by Firm.
2 According to an email dated December 14, 2015 from Compliance Officer to Cynthia Friedlander, the Banker's final date of employment with the City was November 10, 2015.
3 MSRB Rule G-37 permits FINRA to grant an exemption based on consideration of, among others, the following factors: (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.