Name Not Public
Exemptive relief is granted based on representations that: the MFP/MAP made the contribution during a period of retirement prior to his employment as an MFP/MAP; the Firm discovered the contribution through its pre-employment due diligence process; the MFP/MAP requested a refund of the contribution; the Firm hired the MFP/MAP for reasons unrelated to the contribution; the Firm has a long-standing relationship with the City ; the contribution was not related to any business with the City; and the MFP/MAP will be prohibited from involvement in municipal securities and municipal advisory business with the City for a period of time.
November 6, 2018
This is in response to your letter of August 22, 2018 (the “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 (“Firm” or the “Firm”) with City, State (or the “City”). You have requested this exemption because on August 15, 2017, Name (“Name”), whom the Firm hired on January 29, 2018 as a senior executive, made a $500 contribution (the “Contribution”) to the general election fund of a non-incumbent Candidate (“Candidate”) for Mayor of City, State. Candidate did not win the election.
By virtue of his role as senior executive, Name meets the definition of “municipal finance professional” (“MFP”) as defined in MSRB Rule G-37(g)(ii) and “municipal advisor professional” (“MAP”) as defined in MSRB Rule G-37(g)(iii). Pursuant to MSRB Rule G-37(b), the Firm is currently prohibited from engaging in municipal securities business and municipal advisory business, as defined in MSRB Rule G-37(g)(xii) and (g)(ix), respectively, with the City until August 15, 2019.
In support of your request that the Firm be granted an exemption from the G-37(b) prohibition, you have made the following representations:
Name’s contribution was not in any way related to Firm or to municipal securities or municipal advisory business. Name was retired from the securities business and not registered with any broker-dealer at the time of the Contribution. Name was not an MFP or a MAP and was not subject to MSRB Rule G-37 at the time of the Contribution. Rather, Name made the Contribution as a private citizen unaffiliated at the time with any municipal underwriter or municipal advisor. Subsequent to the Contribution, Candidate was not elected as Mayor of City, State.
At the time of the August 15, 2017 contribution to Candidate, Firm had not yet approached Name regarding possible employment. Rather, it was not until October 2017 that Firm spoke with Name about a potential Senior Executive role at Firm. Name was not hired to conduct municipal securities and advisory business. In the weeks before Name was hired and started at Firm, and in connection with Firm’s new hire process, he disclosed all political contributions made within the past two years. The Contribution, and the impact on municipal securities and advisory business, was discussed by the Legal and Compliance Departments. Firm hired Name on January 29, 2018.
Firm has procedures reasonably designed to ensure compliance with MSRB Rule G-37. Accordingly, on or about February 10, 2018, Firm’s Compliance Department spoke with the Director of the Public Finance Department, informing him of the Contribution. The Compliance Department gave instruction not to conduct or solicit any negotiated underwriting or municipal advisory business with the City until further notice. Also, pursuant to his discussions with Firm’s Legal and Compliance Departments regarding the impact of the Contribution, Name ultimately requested a return of the Contribution from Candidate. Firm has provided to FINRA a copy of this request, dated June 22, 2018.1 Firm has neither solicited nor engaged with the City in connection with any negotiated underwriting or municipal advisory business in 2017 or 2018.2
Firm has had a long relationship with the City that predates the Contribution. For instance, Firm has underwritten over $70 million in debt for the City between 2010 and 2017. Firm decided to hire Name for reasons completely unrelated to the Contribution. Firm represents that Name is well qualified for the position of Senior Executive in that he is professional in his demeanor, has a good reputation, and is known and respected in the securities industry. As Senior Executive of Firm and a member of Firm’s Executive Committee, Name’s focus is on advancing strategic opportunities across Firm’s platform, including the continued expansion of Firm’s Private Wealth Management business.
Analysis and Conclusion
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:
- Name was not an MFP or a MAP at the time of the Contribution.
- At the time of the Contribution, neither Name nor the Firm anticipated a future 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 or municipal advisory 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 Name.
- The Firm has taken preventive steps to ensure that the Firm does not do business with the City until further notice.
- Name has requested a refund of the Contribution.
In addition, to ensure that Name will not be involved in the municipal securities business described above, you have represented that the Firm will institute the following preventive steps:
- Firm will ensure that Name will be prohibited from soliciting or otherwise being involved in municipal securities and municipal advisory business with the City for at least two years from the date of the Contribution to Candidate (i.e., through August 15, 2019). Firm will do this by erecting ethical walls, pursuant to which Name will not: (1) solicit municipal securities or municipal advisory business from the City; (2) work behind the scenes regarding municipal securities or municipal advisory business with the City; (3) communicate with anyone regarding municipal securities or municipal advisory business with the City; or (4) otherwise be involved in any way in Firm’s municipal securities or municipal advisory business with the City. In addition, Name will not be permitted to receive compensation from Firm’s municipal securities or municipal advisory business with the City.
- Firm will inform in writing its MFPs, MAPs, municipal syndicate desk, and others directly or indirectly involved in solicitation of municipal securities and municipal advisory business, that Name must be segregated from municipal securities business with the City, State until at least two years from the date of the Contribution to Candidate.
- Firm will give notice to each such employee instructing that employee that discussions or communications (including, but not limited to, electronic mail or voicemail) with Name regarding such business are prohibited. All such employees will be required to certify in writing that they received, understand, and will comply with the terms of this notice, and will acknowledge that they may be subject to sanctions, including potential dismissal, in the event they fail to comply. Firm’s Compliance Department will retain a copy of each certification. To the extent Firm hires new MFPs, MAPs, employees on the municipal syndicate desk, or other employees directly or indirectly involved in the solicitation of municipal securities business, those individuals will be provided all applicable written notifications and required to complete the necessary certifications. Firm’s Compliance Department will retain a copy of each certification.
- Name will be obligated to provide a quarterly certification of his compliance with the applicable restrictions and preventive steps described above. Firm’s Compliance Department will retain a copy of each such certification.
- Lastly, Name, like other MFPs and MAPs, is subject to Firm’s MSRB Rule G-37 compliance procedures.
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 the Rule, subject to the Firm’s compliance with the terms 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 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
Senior Director, Fixed Income Securities Regulation
Member Supervision – Shared Services
1. FINRA staff questioned why nearly six months elapsed between the hire date and the request for reimbursement. In an email from Firm Representative to Cynthia Friedlander and Stephen Kasprzak dated September 10, 2018, the Firm represented that, upon learning of the Contribution, the Firm was unsure whether it would want to pursue exemptive relief under MSRB Rule G-37. If pursued, the firm would need to do additional research to determine the requirements to successfully file for exemptive relief because the firm had never sought such relief previously. As a result, the Firm spent significant time reviewing Rule G-37 and related interpretations, discussing the facts of a potential exemption request with both internal and external legal counsel, and reviewed prior exemptive relief submissions available on FINRA’s website. When it became apparent that exemptive relief was likely to be important to the Firm’s Public Finance Department, the Firm assisted Name in drafting a letter to Candidate requesting a refund of the contribution.
3. 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.