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Name Not Public

Exemptive relief is granted based on representations that: the MFP made the contributions prior his employment as an MFP and before he was aware of Rule G-37; the Candidate is a personal friend of the MFP; the Firm discovered the contributions through its pre-employment due diligence process; the contributions were refunded; the Firm hired the MFP for reasons unrelated to the contributions; the Firm has a long-standing relationship with the State and the contributions are not related to any business; and the individual will be prohibited from involvement in municipal securities business with the G-37 Issuers for a period of time.

June 1, 2016

This is in response to your letter of March 1, 2016 (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 business for FIRM (“FIRM” or the “Firm”) with any issuer of which the Governor of STATE is an "official" as defined under Rule G-37 (collectively, the "G-37 Issuers").   You have requested this exemption because on June 1, 2016 the Firm hired an attorney named NAME as a public finance banker.  At issue are two political contributions (the “Contributions”) made by NAME.  Specifically, you have represented that NAME owns a 10% interest in COMPANY (“COMPANY”), a solar energy company in STATE and that, on April 24, 2015, he caused COMPANY to make a $1,000 contribution to the STATE gubernatorial campaign of STATE Public Service Commissioner CANDIDATE (the “Commissioner” or “Commissioner CANDIDATE”).  Subsequently, on July 15, 2015, NAME made a $5,000 contribution to the Commissioner's campaign in his own name.  Commissioner CANDIDATE did not win the election for Governor.

By virtue of his proposed role as a public finance banker, NAME would be considered a “municipal finance professional” (“MFP”) as defined in MSRB Rule G-37(g)(iv).  Pursuant to MSRB Rule G-37(b), hiring NAME in this capacity would cause the Firm to be prohibited from engaging in municipal securities business, as defined in MSRB Rule G-37(g)(vii), with the G-37 Issuers until July 15, 2017 (i.e., two years from NAME’S  most recent contribution to the Commissioner).  You have noted that FIRM is a well-established underwriter in STATE with a long history of underwriting in the state and that, between 2010 and 2015, FIRM underwrote a total value of $X million of municipal bonds in STATE.

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 contributions were not in any way related to FIRM or to municipal securities business.  Rather, NAME made and directed the contributions because of his ownership stake in COMPANY and his desire to help elect officials who support solar energy.  Moreover, NAME and Commissioner CANDIDATE are personal friends and have known each other for many years, first meeting when Commissioner CANDIDATE was employed by the Department of Natural Resources in 2007.  Furthermore, NAME has supported Commissioner CANDIDATE in prior campaigns for Public Service Commissioner. 

At the time of the ApriI 24, 2015 contribution to the Commissioner, FIRM had not yet reached out to NAME regarding possible employment.  Rather, it was not until July 9, 2015 that FIRM'S head of Public Finance met with NAME and another potential candidate to discuss potential employment opportunities with FIRM.  The subject of political contributions did not arise at this meeting and was not discussed until September 1, 2015 when NAME was asked whether he had made any political contributions within the past two years, and was asked to fully disclose these contributions in the Pre-Employment Questionnaire which was subsequently reviewed by FIRM’S Legal, Compliance and Human Resources Departments as part of FIRM’S pre-employment background review.  The Contributions were returned to NAME on November 13, 2015.

FIRM has decided to hire NAME for reasons completely unrelated to the Contributions.  Rather, FIRM feels NAME is well qualified for the job in that he is professional in his demeanor, has a good reputation and is known and respected in the local community.  Further, NAME understands the public finance business from the issuer side, having served as Chief Administrative Officer of the City of CITY for a period of eight years.  

FINRA has considered your 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, 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 and was not aware of Rule G-37 at the time of the Contributions.
  • At the time of the first contribution, neither NAME nor the Firm anticipated an employment relationship. The second of the two contributions was made prior to the Firm’s discussion of political contributions with NAME.
  • The Firm has had a long-standing business relationship with STATE prior to the Contributions.
  • The Contributions 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 Contributions during its due diligence review in connection with the pre-hire vetting process of NAME.
  • NAME has requested and received a refund of the Contributions.

You have represented that FIRM will ensure that NAME will be prohibited from soliciting or otherwise being involved in municipal securities business with any G-37 Issuers for at least two years from the date of his last contribution to Commissioner CANDIDATE (i.e., through July 15, 2017).  FIRM will do this by erecting ethical walls, pursuant to which NAME will not: (1) solicit municipal securities business from the G-37 Issuers; (2) work behind the scenes regarding municipal securities business with the G-37 Issuers; (3) communicate with anyone regarding municipal securities business with the G-37 Issuers; or (4) otherwise be involved in any way in the Firm's municipal securities business with the G-37 Issuers.  In addition, NAME will not be permitted to receive compensation (including firm-wide compensation such as a bonus pool) derived from FIRM’S' municipal securities business with any of the G-37 Issuers.

Further, FIRM will institute the following preventive measures:

  • FIRM will inform in writing its MFPs, municipal syndicate desk, and others directly or indirectly involved in solicitation of municipal securities business, that NAME must be segregated from municipal securities business with the G-37 Issuers until at least two years from the date of his last contribution to Commissioner 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.  The Firm's Compliance Department will retain a copy of each certification.  To the extent FIRM hires new MFPs, 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.  The 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.  The Firm's Compliance Department will retain a copy of each such certification.
  • FIRM will provide, upon the end of the ban 2-year time-frame, a one-time certification to its FINRA Regulatory Coordinator stating that it has complied with these steps.
  • Lastly, NAME, like other MFPs, will become subject to FIRM’S Rule G-37 compliance procedures going forward.

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 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
Director, Fixed Income Securities Regulation
Regulatory Operations/Shared Services

1 See MSRB Rule G-37(g)(vi) definition of the terms “official of such issuer” and “official of an issuer.”
2 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.