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 and was not an MFP; the firm already had a significant business relationship with the state of whom the contribution recipient is an issuer official 9as defined); the firm has instituted information barriers on certain municipal business communications; the individual will be prohibited from the solicitation of certain new municipal business for a period of time.
June 27, 2011
This is in response to your letter of May 5, 2011 (the “Letter”)1 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”) with the State(“State”). You request this exemption because Name made a $25 contribution (“Contribution”) on February 24, 2010 at a fundraising event for Individual, a candidate for governor of State2 at the time of the Contribution for whom Name was not entitled to vote3.
In support of your request that Firm be granted an exemption you made the following representations:
On February 14, 2011, Firmhired Name as a technical writer for the Firm’s Municipal Fixed Income Department’s Retail Desk (“Desk”). The Firm designates all employees of the Desk as municipal finance professionals (“MFP”) under MSRB Rule G-37(g) (iv). As a technical writer, Name prepares periodic desk analyses for financial advisors that form the basis of communications with retail customers and are made available to public investors. Name does not have any supervisory or sales responsibilities, and does not engage in soliciting municipal securities business from municipal issuers.
From November 2007 through February 13, 2011, Name, as a sole proprietor, provided executive coaching and consulting in communications and training. Prior to that, from 2001 through October 2007, Name was employed as the Chief Learning Officer at XXX Corporation. Thus, Name was not an MFP prior to his hiring on February 14, 2011.
At the time of the Contribution, neither Firm nor Name knew that Name might eventually work for the Firm as an MFP. Firm hired Name because of his communications experience and not due to any influence that Name may have with the State based on the Contribution. Name’s attendance at the Individual fundraising event and the Contribution were the result of his sister’s friendship with Individual’s wife, and were not connected with any municipal securities business.
Members of Firm’s Public Finance Department have significant relationships with the State that existed prior to Name hiring and have no connection to either Name or the Contribution. On September 3, 2009, the Firmwas selected by the State to participate as a co-manager in negotiated general obligation bond underwritings. As a result of this selection, the Firm participated in two financings for the State prior to the hiring of Name. These relationships preceded Name’s entry into the municipal securities business, Individual’s gubernatorial candidacy, and the Contribution.
Firm discovered the Contribution during the Firm’s due diligence review in connection with the hiring of Name. As part of compliance with MSRB Rule G-37, the Firmrequires newly hired employees to disclose all political contributions made prior to the hiring. Furthermore, Firm requires all employees to obtain prior approval for all political contributions and activities and all MFPs to attest quarterly to their prior quarter’s political contributions and activities.
Upon discovery of the facts and hiring of Name, Firm immediately took the following preventive steps to ensure that the Firm does not do business with the State until February 24, 2012:
- The Firm immediately notified the co-heads of Public Finance (and the bankers covering the State) that Firmwas under a ban from engaging in municipal business with the State.
- The Firm determined that the only contractual relationship that existed with the State at the time of Name’s hiring was the result of the Firm’s response to a request for proposal.
- The Firm advised the head of Public Finance (and the bankers covering the State), that Firm cannot engage in municipal securities business with the State until either the ban ends on February 24, 2012, or an exemption is granted to the Firm.
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 our 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 at the time of the Contribution.
- At the time of the Contribution, neither Name nor the Firm anticipated a future employment relationship.
- Members of Firm’s Public Finance Department had significant business relationships with the State prior to the Contribution and that its municipal securities business with the State is unrelated to Name or the Contribution.
- The Contribution was the result of Name’s sister’s relationship with Individual’s wife and was not connected with any municipal securities business.
- Any return of the Contribution would be impractical as Individual withdrew from the election and no current election commission exists.
- The Firm has implemented procedures designed to ensure compliance with MSRB Rule G-37, and that the Firm discovered the Contribution during its due diligence review in connection with the hiring of Name.
- Upon discovery of the Contribution, the Firm immediately took preventive steps to ensure that the Firm does not do business with the State until the end of the ban.
- If granted an exemption, Firm will take adequate preventive measures, including ensuring that Name will not be involved in any way in municipal securities business (including any of the activities that are not “municipal securities business” as defined in MSRB Rule G-37, but which cause a person otherwise not an MFP to be a MFP, such as soliciting municipal securities business) with the State for at least two years from the date of the last contribution.
In addition, to ensure that Name will not be involved in the municipal securities business described above and Firm will institute the following preventive steps:
- At least until February 24, 2012, Name will not be allowed to have any involvement with municipal securities business regarding the State.
- 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 in MSRB Rule G-37) that Name has, until February 24, 2012, been segregated with respect to municipal securities business with the State, and shall 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 certifications.
- Name will receive written notification of the Information Restrictions and will be subject to an obligation to provide a quarterly certification of compliance. The Firm’s legal or compliance department will retain a copy of Name’s certifications.
The Firm will communicate these preventive steps to both Name and the Firm’s Public Finance bankers who have a pre-existing relationship with the State.
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 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 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 members, 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, please contact me at 202-728-8085.
Malcolm P. Northam
Director, Fixed Income Securities Regulation
1 The Letter was supplemented by email from counsel of Firm, to Malcolm Northam of FINRA, dated June 2, 2011, as well as a June 17, 2011, phone call between Maureen Johansen of FINRA, and counsel, employee #1, and employee #2 of Firm.
2 After the Contribution was made and prior to the election, Individual withdrew from the race. As a result, the Firm represents that there are no known existing or continuing campaign committees representing Individual from which to request the return of the Contribution, nor is it likely that any such funds exist.
3 Name is, and at the time of the Contribution was, a resident of City, State #2.
4 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.