Name Not Public
Exemptive relief is granted based on representations that: although the MFP/MAP is deemed to be such by virtue of her appointment to the Firm’s Management Committee, she is not involved in the Firm’s municipal securities or municipal advisory business; although the MFP/MAP signed the $25 contribution check, she represents that the contribution was actually her husband’s and was motivated by his desire to support female political candidates, as evidenced by a pattern of small contributions to other female candidates; the MFP/MAP’s husband is not employed by the Firm or any of its affiliates; the MFP/MAP has obtained a refund of the contribution; and the Firm identified the contribution through its supervisory processes and has put additional processes in place to ensure the MFP/MAP will not be involved in municipal securities or municipal advisory business for two years from the date of the contribution.
October 21, 2020
This is in response to your letter of October 12, 2020 (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 and municipal advisory business for Firm (the “Firm”) with any issuer of which the governor of State (the “State”) is an “official of such municipal entity” as defined under Rule G-37(g)(xvi) (collectively, the “G-37 Issuers”).1
You have requested this exemption because on or around April 24, 2020, Name, the Firm’s Chief Marketing Officer, made a contribution in the amount of $25 to the campaign of Candidate (“Contribution”), a non-incumbent State gubernatorial candidate, from the joint checking account owned by Name and her husband, Spouse. In addition to her role as the Firm’s Chief Marketing Officer, Name is a member of the Firm’s Management Committee. By virtue of her appointment to the Firm’s Management Committee, Name is deemed to be a municipal finance professional (“MFP”) as defined in Rule G-37(g)(ii)(E) and a municipal advisor professional (“MAP”) as defined in Rule G-37(g)(iii)(E).
Name and Spouse are not eligible to vote for the governor of State. Although Name signed the check, she represents that the contribution is from her husband alone.2
Firm has determined that the automatic exemption described in MSRB Rule G-37(j) is not available with respect to the Contribution due to the limitation under Rule G-37(j)(iii) precluding more than one automatic exemption relating to contributions by the same person.3
Despite her positions within the Firm, Name is not involved in the Firm’s municipal securities or municipal advisory business and does not engage in the solicitation of any municipal securities or municipal advisory business.
In support of your request that the Firm be granted an exemption from the Rule G-37(b) prohibition, you and Name have made the following representations:
The Contribution was made by Spouse; his motive for making the Contribution was to support female political candidates. The Contribution is one of a number of other small contributions of $10 - $25 Name and Spouse made from their joint account between April and July of 2020 in support of female political candidates, of which only Candidate A and Candidate are officials of a municipal entity with dealer or municipal advisor selection influence. As a sociologist, Spouse is aware that women as a social group are underrepresented in both political parties, and Spouse is inspired by progressive, pro-women organizations such as Emily’s List to support a substantial number of individual candidates across the country. Spouse is not an employee of or associated with the Firm or any of its affiliates and there is no connection between the Contribution and any municipal securities or municipal advisory business. Name signs all checks from their joint account and, as a result, hers is the only signature on the Contribution check. Neither Name nor Spouse met or spoke with Candidate in connection with the contribution.
The Firm discovered the contribution on or around July 20, 2020, after a quarterly reminder notice was sent to Name regarding her obligation to report to the Firm any political contributions made by her. It was at this time that Name first reported the Contribution to the Firm. Other than Name’s own knowledge of the Contribution, Firm had no actual knowledge of the Contribution before she reported it to the firm.
Prior to the Contribution, Firm had developed and implemented policies and procedures reasonably designed to ensure compliance with the Rule. The policies and procedures include an established contribution pre-clearance process requiring all employees to obtain prior written approval for all political contributions made by employees or their immediate family members. The firm had also sent periodic reminders to all employees reminding them of their obligation to obtain pre-clearance for political contributions. In addition, on a quarterly basis, an email notice is sent to all Firm MFPs and MAPs to collect and review information on such political contributions so that the Firm may fulfill its quarterly reporting obligations under the Rule.
Name failed to obtain pre-clearance for the Contribution as required by Firm policy. It was as a result of the Firm’s established quarterly review and reporting procedures, whereby Name received a request from the Firm’s Compliance Department regarding any political contributions, that Name reported the Contribution to the Firm. Upon learning of such Contribution, the Firm notified Name of the potential issues arising under the Rule and instructed her to obtain a return of the Contribution, which she received on August 3, 2020. Since the date of the Contribution, Candidate lost the primary election and shut down her campaign.
While the Firm has previously engaged in competitive municipal securities business in the State, Firm has not conducted any municipal securities or municipal advisory business covered by the Rule in State from the date of the Contribution to the present. Further, the Firm directed its public finance bankers who had potential business in State to refrain from participating in any subsequent State bond issues until further notice.
FINRA has considered your request for exemptive relief pursuant to the applicable standards.4 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:
- Although Name is deemed an MFP and an MAP by virtue of her membership in the Firm’s Management Committee, she is not involved in the firm’s municipal securities or municipal advisory business and does not engage in soliciting municipal securities or municipal advisory business.
- Name represents that the contributions are her husband’s and are motivated by his desire to support female political candidates, as evidenced by a pattern of small contributions to other female candidates.
- Name has requested and received a refund of the Contribution.
- The Firm represents that Spouse is not employed by the Firm or any of its affiliates.
- The Contribution was unrelated to any municipal securities business or municipal advisory business.
- The Firm has procedures designed to ensure compliance with MSRB Rule G-37 and the Firm discovered the Contributions while enforcing these procedures.
You have represented that Firm has taken additional measures to remind employees of the Firm’s policies and procedures regarding political contribution pre-clearance and reporting obligations. Namely, the Firm has issued a notice to all employees requiring certification that they have read and understood the Firm’s policies on political contributions. The firm has already reminded all MFPs and MAPs of the importance of following all policies and procedures regarding the pre-clearance of all political contributions and the ramifications of failing to follow such policies and procedures. In addition, the Firm intends to provide training on the subject to all employees.
The Firm has issued Name a Letter of Education reflecting her violation of the relevant Firm policies and directing her to refrain from being involved in any municipal securities business or municipal advisory business with the State for a period of two years from the date of the Contribution. In addition, to ensure that Name will not be involved in the municipal securities business and municipal advisory business described above, the Firm will institute the following preventive steps:
- For a period of two years from the date of the Contribution (i.e., through April 24, 2022) the firm will maintain ethical walls pursuant to which Name will not: (1) solicit municipal securities business or municipal advisory business from the State; (2) work behind the scenes regarding municipal securities or municipal advisory business with the State; (3) communicate with anyone regarding municipal securities or municipal advisory business with the State; or (4) otherwise be involved in any way in the Firm’s municipal securities or municipal advisory business with the State. In addition, Name will not be permitted to receive compensation from the Firm’s municipal securities or municipal advisory business with the State.
- The Firm will inform in writing its MFPs, MAPs, municipal underwriting desk, and others directly or indirectly involved at the Firm in the solicitation of municipal securities and municipal advisory business, that solicitation of any municipal securities business or municipal advisory business with the State must be pre-approved in writing by Firm Representative, Managing Director and the Firm’s Supervisory Principal for Public Finance and Municipal Sales/Trading, until at least two years from the date of the Contribution. Upon any written approval to solicit municipal securities business or municipal advisory business in the State, Firm Representative will inform such MFP or MAP 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. A copy of each certification will be forwarded to and retained by the Firm’s Compliance Department. To the extent the Firm hires new MFPs, MAPs, employees on the municipal underwriting desk, or other employees directly or indirectly involved in the solicitation of municipal securities or municipal advisory business, those individuals will be provided all applicable written notifications and will be required to complete the necessary certifications. A copy of each certification will be forwarded to and retained by the Firm’s Compliance Department.
- Name will be obligated to provide a quarterly certification of her compliance with the applicable restrictions and preventive steps described above. The Firm’s Compliance Department will retain a copy of each such certification.
- Additionally, Name will be required, along with all other Firm employees, to execute a certification that she has read and understands the Firm’s political contributions policy.
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 and municipal advisory 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, and FINRA’s decision on the application, be kept confidential in their entirety. 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 Regulation
Office of General Counsel
1 See also MSRB Rule G-37(g)(xvi)(A) definition of the term “official of a municipal entity with dealer selection influence” and Rule G-37(g)(xvi)(B) definition of the term “official of a municipal entity with municipal advisor selection influence.”
2 As noted in MSRB Rule G-37 FAQ II.20, if an MFP signs a check and submits it as a contribution to an issuer official, then the MFP is deemed to have made the full contribution.
3 A contribution of $10 was made on or around June 13, 2020, from the joint account of Name and her husband to the campaign of Candidate A, a State A gubernatorial candidate for which Name is not eligible to vote. Pursuant to Rule G-37(j), Firm applied the automatic exemption to this contribution because it was discovered within four months of the date of the contribution, the contribution did not exceed $250, and Name and Spouse obtained a return of the contribution within 60 calendar days of the date of the discovery of the contribution.
4 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.