Name Not Public
Exemptive relief is granted based on: the representation that the individual did not engage in the solicitation of municipal securities business; for the six years prior to being hired by the Firm; the Contributions were made prior to the individual being employed by the Firm; imposition by the Firm of extensive Firm-wide information barriers on certain municipal securities business communications; prohibition of, for a specified period of time, the individual's solicitation of new municipal securities business; and the commitment to a quarterly certification of compliance.
October 16, 2006
This is in response to your August 9, 2006, and October 16, 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 Contributions1 made on or about March 9, 2006 and June 10, 2006 by Name (the "Contributions") in support of Candidate.
You represent that the Contributions were made based on solicitations from personal acquaintances and were not made in response to either a direct request from Candidate or the Campaign.2 You also represent that Name is not eligible to vote for issuer officials in the City.3 You represent that at the time of the Contributions, Name was not employed by the Firm. You represent the Firm became aware of the Contributions as part of the Firm's pre-employment due diligence with respect to Rule G-37, and a refund of the Contributions has been received.4
You represent that the Firm hired Name as a Managing Director, on October 16, 2006 based on his management experience and leadership skills. You acknowledge that Name, as a Managing Director of Firm, will be involved in the Firm's municipal securities business, and is a municipal finance professional ("MFP") as defined by the Rule. You represent that prior to being hired by the Firm, Name was the Senior Vice President, Government Services, for Previous Employer, a computer software company located in City. Prior to that, he was Chief Administrative Officer for County. You represent that in that capacity he was responsible for managing a substantial budget and numerous employees, but not involved in the County's municipal securities business. You represent that Name has not been involved in municipal securities business (as defined in the Rule) for at least six years.
You represent that the Firm has had a regular presence in City. However, the Firm has not engaged in any municipal finance business with the City during at least the last five years. The Firm does not believe that the hiring of Name nor the Contributions were necessary to obtain municipal securities business from City.
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 Contributions. First, you have represented that for the last 6 years prior to being hired by Firm, Name did not engage in any solicitation of, or had any involvement in, municipal securities business (as defined by the Rule). Second, you have represented that the Contributions were made prior to Name being employed by the Firm, and as such, the Firm had no knowledge of the Contributions at the time they were made. Third, you have represented that the Firm has a detailed and comprehensive compliance program in regards to Rule G-37, and the Contributions were discovered as a result of the program. Fourth, although a less weighty factor, you represented that Name has received a refund of the Contributions.
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 Contributions were 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 Compliance Department approval for all contributions made by all employees.
In addition to the Firm's Rule G-37 compliance program you represent that the Firm will take additional preventive measures with regard to Name. Specifically, you represent that for at least two years from June 10, 2006, the date of the last 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 June 10, 2008, from soliciting municipal securities business (as defined in the Rule) from, or engaging in municipal securities business with, the City, 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 June 10, 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 The exemption request also discusses a contribution made on October 20, 2004 by Name to the campaign of Candidate. In regard to this contribution, the Firm has not requested an exemption pursuant to MSRB Rule G-37(i), and accordingly, under MSRB Rule G-37(b), you represent that the Firm will not engage in any municipal securities business with an issuer of which the Candidate is an official until October 21, 2006.
2 In an August 11, 2006 telephone conversation between Courtney Dinsmore and Henry Almond, Office of Regulation Policy, NASD and Firm Counsel, Firm Counsel confirmed that Name made the Contributions at the request of two personal acquaintances.
3 In an August 28, 2006 telephone conversation between Courtney Dinsmore and Firm Counsel, Firm Counsel confirmed that Name is not eligible to vote for issuer officials in the City.
4 A copy of the returned check was provided to NASD staff on October 11, 2006.
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.