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 (as 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.
February 11, 2015
This is in response to your letter of November 25, 2014 (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”) with: (1) SCHOOL DISTRICT (the “SD”); and (2) CITY (the “City” and, together with the SD, the “Municipalities”). You request this exemption because NAME (the “Associate”) made a $100 contribution (the “City Contribution”) to the primary election campaign of INDIVIDUAL A (the “City Candidate”) and a $99 contribution (the “SD Contribution” and, together with the City Contribution, the “Contributions”) to the general election campaign of INDIVIDUAL B (the “SD Candidate” and, together with the City Candidate, the “Candidates”). The Associate was not eligible to vote for either of the Candidates.
In support of your request that the Firm be granted an exemption you made the following representations:
On November 10, 2014, the Firm’s Public Finance Department’s City Office hired the Associate as a municipal investment banking associate, a position that carries no supervisory responsibilities. The Firm hired the Associate because of her outstanding academic resume, prior municipal investment banking experience and recent experience leading a City-based non-profit, and not because of any influence the Associate may have with the Municipalities based on the Contributions. As the Associate has been hired to engage primarily in municipal securities business, the Firm has deemed the Associate a “municipal finance professional” as defined in Rule G-37(g)(iv) and stipulates that she is covered by this rule provision.
From September 2008 through October 2014, the Associate was Chief Executive Officer of Organization A, a charitable organization not associated with any municipal securities dealer; thus, she was not a municipal finance professional (an “MFP”), nor governed by any of the rules associated with municipal securities business.
During this time, around February 9, 2014 (the “City Contribution Date”), the Associate made the City Contribution. At the time of the City Contribution, Individual A held the office of City Vice Mayor and was running for City Mayor. A resident of City, State, the Associate was not eligible to vote in an election for either such office. The Associate made the City Contribution based solely on her political beliefs, and the City Contribution was in no way related to municipal securities business. Also, at the time of the City Contribution, neither the Associate nor the Firm knew that the Associate might eventually come to work for the Firm as an MFP. Finally, Individual A did not win the election.
During this time, around June 17, 2014 (the “SD Contribution Date” and, together with the City Contribution Date, the “Contribution Dates”), the Associate, through her association with Organization B, an organization promoting the development of not-for-profit executives, made the SD Contribution to the general election campaign of Individual B, an Organization B staff member. At the time of the SD Contribution, Individual B held no elective office and was running for a seat on the Board of the SD. A resident of City, State, the Associate was not eligible to vote in an election for such office. The Associate made the SD Contribution based solely on her friendship with Individual B, and the SD Contribution was in no way related to municipal securities business. Also, at the time of the SD Contribution, neither the Associate nor the Firm knew that the Associate might eventually come to work for the Firm as an MFP. Finally, Individual B did not win the election.
Members of the Firm’s Public Finance Department have significant relationships with the Municipalities which bear no relationship to the Associate or the Contributions. These relationships extend prior to the Associate ever working in the municipal securities business, prior to the Candidates’ short candidacies and prior to the Contributions. Further, the Associate will not be working in the same school district sector and will not be assigned to the Firm’s banking team that covers the Municipalities.
The Firm discovered the Contributions during the Firm’s due diligence review in connection with hiring the Associate. The Firm has robust procedures designed to ensure continuing compliance with MSRB Rule G-37.
Upon discovery of the facts described above and the hiring of the Associate, the Firm recognized its obligation not to engage in municipal securities business, as defined in MSRB Rule G-37(g)(vii), with the Municipalities until two years after each applicable Contribution Date (the “Ban”) and immediately took preventive steps to ensure that the Firm does not engage in such business with the Municipalities until the Ban ends.
The Firm further represents that, if it is granted an exemption from Rule G-37 pursuant to this request, it will take preventive steps until the end of each respective Ban. Such steps will be communicated both to the Associate and to the Firm’s Public Finance bankers who have a pre-existing relationship with the Municipalities and include the following:
- Segregating the Associate from involvement with municipal securities business with the Municipalities;
- Not allowing the Associate to have any communication with any Firm employee with respect to municipal securities business with the Municipalities; and
- Requiring the Associate to provide a quarterly attestation of compliance with these restrictions.
FINRA has considered your request for exemptive relief pursuant to the applicable standards.2 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 Contributions:
- The Associate was not an MFP at the time of the Contributions.
- At the time of the Contributions, neither the Associate nor the Firm anticipated a future employment relationship.
- Members of the Firm’s Public Finance Department had significant business relationships with the Municipalities prior to the Contributions.
- The Contributions were the result of the Associate’s political beliefs and friendship with the SD Candidate and were unrelated to any municipal securities 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 the Associate.
- Upon discovery of the Contributions, the Firm immediately took preventive steps to ensure that the Firm does not do business with the Municipalities until the end of the respective Bans.
In addition, to ensure that the Associate will not be involved in the municipal securities business described above, the Firm has represented that it will institute the following preventive steps:
- At least until February 9, 2016, the Associate will not be allowed to have any involvement with municipal securities business regarding the City.
- At least until June 17, 2016, the Associate will not be allowed to have any involvement with municipal securities business regarding the SD.
- Within 15 days of the date of this letter, the Firm will inform in writing its MFPs, including the Associate, the municipal syndicate desk, and others directly or indirectly involved with solicitation of municipal securities business (as such term is defined in MSRB Rule G-37) that the Associate has been segregated with respect to municipal securities business with the City until February 9, 2016 and the SD until June 17, 2016. Further, the Firm shall give notice to each such employee instructing them that they may not have any discussions or communications (including, but not limited to, e-mail or voice mail) with the Associate regarding such business. All such employees shall certify in writing that they received, understand, and will comply with the terms of 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 and/or compliance department will retain a copy of the certifications.
- The Associate will be subject to an obligation to provide a quarterly certification of compliance with these preventive steps. The Firm’s legal and/or compliance department will retain a copy of the Associate’s certifications.
The Firm will communicate these preventive steps to both the Associate and the Firm’s Public Finance bankers who have pre-existing relationships with the City and the SD. At the end of the certification period, the Firm will provide a one-time certification to its FINRA Regulatory Coordinator stating that it has complied with the steps described herein.3
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 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 202-728-8133.
Cynthia M. Friedlander
Director, Fixed Income Securities Regulation
1 Associate is, and at the time of the Contributions was, a resident of City, State.
2 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.
3 The level of detail outlined in this paragraph was not included in the Firm’s letter; however, these terms were communicated to the Firm during phone conversations between FINRA and Firm representatives Employee 1 and Employee 2 on December 15, 2014 and between FINRA and Firm representative Employee 1 on February 11, 2015.