Name Not Public
Exemptive relief is granted based on: the representations that the contributions were made prior to employment; the individual did not engage in the solicitation of, or have involvement in, municipal securities business (as defined) for the prior six years; the firm had no knowledge of the contributions at the time they were made; the firm has established detailed and comprehensive compliance procedures and has developed information barriers surrounding the solicitation of certain municipal securities business.
June 29, 2007
This is in response to your May 9, June 5 and June 29, 2007 letters requesting an exemption pursuant to NASD Rule 9610(b) for your client, Firm , from the prohibition of engaging in municipal securities business for two years after a contribution is made by a municipal finance professional associated with the firm to an “official of such issuer” or “official of an issuer” (“Issuer Official”), as these terms are defined in Municipal Securities Rulemaking Board ("MSRB") Rule G-37 ("Rule"). You have requested this exemption because of contributions made by Individual, who was hired by Firm on June 29, 2007, and who made contributions totaling $2,292.79 in support of two political candidates, then-State Governor Name A and County Councilman Name B.1Individual made the first of these contributions on or about August 7, 2006 by transferring $2,252.79 from his fundraising committee, the Committee to Elect Individual (“Committee”), to Governor Name A re-election campaign.2Individual made a second contribution on or about August 28, 2006 in the amount of $40 in support of Councilman Name B’s election to the County Council.3
You represent that the contributions to Governor Name A and Councilman Name B were made solely of Individual’s own accord and that neither candidate, nor anyone acting on behalf of either candidate or their campaigns, directly or indirectly, requested these contributions. You represent that Individual has not requested a return of the Committee’s contribution to Governor Name A’s re-election campaign because the Committee was closed by the State Board of Elections on or about August 30, 2006 and consequently, there is no entity to which the Committee’s contribution can be returned.4 You represent that Individual has requested by letter dated May 6, 2007 a return of the $40 contribution he made from his personal account to a fundraiser for Councilman Name B.5
You represent that at the time of the contributions, Individual was neither seeking nor being considered for employment by Firm.6 You represent that Individual has been hired by Firm to develop a municipal finance practice with a focus on transportation, and that the decision to employ him is based on his experience and accomplishments while serving as State Secretary of Transportation, a position he held from January 2003 to January 2007. You represent that Individual has never engaged in the municipal securities business, as defined in the Rule, and has never solicited municipal finance business. You represent that Firm contemplates that Individual will head the Firm’s Ground Transportation and Port group, in which capacity he will be involved in municipal securities business and in soliciting such business. You represent that for a period of at least two years beginning August 28, 2006, Firm will not permit Individual to be involved in any way in, or receive any compensation (including Firm-wide compensation such as a bonus pool) derived directly or indirectly from, the Firm’s municipal securities business with either the State or County, or any entity or agency for whom either Governor Name A or Councilman Name B is, or was, considered to be an Issuer Official in the State.
You represent that Firm has engaged in a limited amount of municipal finance business in State during the past five years, including serving as: financial advisor to the City Convention Center Hotel from February 2004 to January 2006 in connection with the issuance of bonds; and as placement agent for the Different County Board of Education from June 2004 to June 2006 in connection with certain leasing transactions. You represent that the Firm also entered into a contract in February 2007 to be the financial advisor to the State Water Quality Financing Administration. You represent that Individual was not involved in the solicitation or grant of any of this business. As such, you state that neither the hiring of Individual nor his political contributions to Governor Name A or Councilman Name B were necessary to obtain municipal securities business from the State.
NASD has considered the 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.7 In reaching a determination, NASD staff considered the following key factors surrounding the contributions, as you have represented them:
- That during the last six years, and prior to being hired by Firm , Individual did not engage in the solicitation of, or have any involvement in, municipal securities business (as defined by the Rule);
- That the contributions were made prior to Individual being employed by Firm t, and as such, the Firm had no knowledge of the contributions at the time they were made;
- That Firm has a detailed and comprehensive compliance program in regards to Rule G-37, which includes a pre-employment screening process and an established contribution pre-clearance program under which the prior approval of the General Counsel and the President is required before any political contributions may be made. In addition, you represent that Firm will prohibit Individual , at least until August 28, 2008, from soliciting municipal securities business from, or engaging in municipal securities business with, any entity or agency for whom either Governor Name A or Councilman Name B is , or was, an Issuer Official. You represent that Firm contemplates that Individual will head the Firm’s Ground Transportation and Port group, in which capacity he will be involved in municipal securities business and in soliciting such business. You represent that for a period of at least two years beginning August 28, 2006, Firm will not permit Individual to be involved in any way in, or receive any compensation (including Firm-wide compensation such as a bonus pool) derived directly or indirectly from, the Firm’s municipal securities business with either the State or County, or any entity or agency for whom either Governor Name A or Councilman Name B is, or was, considered to be an Issuer Official in the State. You also represent that Firm has provided written notification to its municipal finance professionals and municipal syndicate desk, and others involved in municipal securities business, as defined by the Rule, of the restrictions on Individual’s business. You represent that Firm has instructed each such employee that he or she may not have any discussions or communications (including e-mail or voice mail) with Individual regarding the municipal securities business, and that Firm will, within 15 days of the date of this letter, require these employees to certify that they understand and will comply with the notice and acknowledge that they may be subject to sanctions, including potential dismissal, in the event they fail to comply. You represent that Individual will, within 15 days of the date of this letter, receive written notification of the restrictions on his business and will certify quarterly his compliance with the restrictions. You represent that Firm’s w legal or compliance department will retain a copy of the employees’ and Individual’s certifications; and
- That Individual has requested but not received a return of the contribution he made to Councilman Name B, and that Individual is unable to obtain a return of the contribution he made from his former campaign committee to Governor Name A because the Committee has been closed by the State Board of Elections and, consequently, there is no entity to which the Committee’s contribution can be returned.
We have considered the fact that, as represented in your correspondence, Individual has requested a return of his $40 contribution to Councilman Name B and that Individual is not able to effectuate the return of the $2,252.79 contribution he made to Governor Name A because, as required by State Election Law, Individual has closed his campaign finance committee. Based on these specific facts, and in applying 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 Firm’s compliance with the undertakings 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 Firm’s application for an exemption, the identity of the Firm, and the identity of Individual remain confidential. NASD grants that request to the extent permitted by law and our standard practices and policies regarding exemption requests. 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 your May 9, 2007 letter, you identify political contributions made by Individual within the past two years for which he is not seeking a Rule G-37 exemption, including: $250 on July 14, 2005 to Name C’s campaign for election to the State Senate; $50 on July 10, 2006 to Name D’s campaign for election to the State Senate; and $100 on September 23, 2006 to Name E’s campaign for election to the State House of Delegates. You represent that the recipients of these contributions were not Issuer Officials. Additionally, during a telephone call on May 15, 2007 between you and counsel at your firm, and Malcolm Northam and Michael Shaw of NASD, you indicated that Name C, as a member of the State House of Delegates, was entitled to cast one vote for the selection of the State Treasurer and that he did not have any heightened authority as Minority Leader of the State House of Delegates to influence the outcome of that selection. Consequently, you indicate that Individual’s contribution to Name C should not be deemed a contribution to an Issuer Official
Individual is also not seeking a Rule G-37 exemption for contributions he made to attend fundraising events within the past two years, including: $125 to the a County Republican Central Committee Dinner on March 24, 2006; $200 to the State Republican Party Dinner on November 7, 2005, and two contributions of $50 each to a County Central Committee Dinner on May 25, 2005. In a May 17, 2007 email from you to Messrs. Northam and Shaw, you represent that these functions were not sponsored by a dealer or municipal finance professional, nor were they intended to benefit an incumbent or a candidate seeking election to a position where they would be considered Issuer Officials.
2 In accordance with Section X-XXX of the State Election Law Article, contributions of up to $6,000 per election cycle are permitted to be transferred from one campaign finance entity to another. In your May 9, 2007 letter, you state that the Committee to Elect Individual was an “authorized candidate’s committee,” as defined by Section x-xxx of the State Election Law Article, which had been established to promote Individual’s candidacy when he ran for and won election to the State House of Delegates six times between 1986 and 2002.
3 You represent that Individual’s $40 contribution to Councilman Name B was made from Individual’s personal account rather than from the Committee to Elect Individual, and that $250 de minimis exception under Rule G-37(b)(i) does not apply to the $40 contribution because Individual was not entitled to vote for Councilman Name B.
4 In accordance with Section xx-xxx of the State Election Law Article, a campaign finance entity must terminate and file a final campaign finance report within eight years after the latest of: (1) the end of the individual’s most recent term of office; (2) the date of the election in which the individual last was a filed candidate; and (3) the payment of the final debt or other obligation of the entity that was incurred in connection with that candidacy. As represented in your letter dated June 5, 2007, Individual requested of the State Board of Elections on or about August 15, 2006 that the Committee be closed, and the State Board of Elections closed the Committee on or about August 30, 2006.
5 In your May 17, 2007 email and June 5, 2007 letter, you state that Individual has requested but not received a return of his $40 contribution to Councilman Name B’s campaign.
6 Attached to your May 9, 2007 letter is a May 25, 2006 Memorandum to State Employees and Officials relating to certain provisions of State Public Ethics Law that constrain State employees’ conduct when planning to leave State service while they continue in their State positions.
7 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.