HomeMy WebLinkAbout12-582 Schaaf
ADVICE OF COUNSEL
December 31, 2012
Mary E. Schaaf
County Controller
Erie County Court House
140 West Sixth Street – Rm. 107
Erie, PA 16501-1029
12-582
Dear Ms. Schaaf:
This responds to your letter of November 9, 2012, received November 13, 2012,
by which you requested an advisory from the Pennsylvania State Ethics Commission.
Issue:
Whether the Public Official and Employee Ethics Act (“Ethics Act”), 65
Pa.C.S. § 1101 et seq., would impose any prohibitions or restrictions upon an individual
serving as the Erie County Controller, who in such public capacity also serves as a
Member and Secretary of the Erie County Employees’ Retirement Board, with regard to
voting on money managers for the Erie County pension fund, where: (1) in a private
capacity, the individual is an independent financial advisor with TLG Advisors; (2) the
individual and a broker associated with RBC Wealth Management are parties to a
verbal referral agreement regarding the individual’s former clients with a prior employer;
and (3) the proposed money managers would have no affiliations with TLG Advisors or
RBC Wealth Management.
Facts:
You request an advisory from the Pennsylvania State Ethics Commission
based upon submitted facts, the material portion of which may be fairly summarized as
follows.
On December 29, 2010, you retired from your employment as a fully registered
and licensed financial advisor with Merrill Lynch. You were elected as the Erie County
Controller (“Controller”) in November 2011, and you took office as the Controller in
January 2012. In your capacity as the Controller, you serve as a Member and
Secretary of the Erie County Employees’ Retirement Board (“Retirement Board”).
In June 2012, you became an independent financial advisor with TLG Advisors
(“TLG”) in order to maintain your FINRA registration. You state that you are devoted
full-time to your position as the Controller and that your work as an independent
financial advisor providing professional referrals is performed outside of your full-time
work as the Controller. In June 2012, your former Merrill Lynch team partner (“Former
Team Partner”) joined RBC Wealth Management (“RBC”), and in July 2012, you and
she agreed verbally to a referral agreement regarding your former clients, under which
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December 31, 2012
Page 2
any referral fee paid to you would come from your Former Team Partner’s
compensation and not RBC. You state that TLG and RBC are not affiliated but do have
an agreement that can process any referral fees. You further state that you issued a
statement of full disclosure to the Erie County Council, the Erie County Executive, and
the Retirement Board in August 2012.
You state that the Erie County pension fund (“Fund”) has a consulting contract
(“Contract”) with an RBC broker other than your Former Team Partner, and it is your
view that the Contract is a redundant and unnecessary expense for the Fund as the
Fund has Morrison Fiduciary Associates as its overall consultant. You state that TLG
does not do any business with Erie County or the Fund. You further state that you have
not engaged in any conduct regarding Erie County or the Fund which would financially
impact either TLG or RBC. You additionally state that you do not have a financial
interest in and would not receive any pecuniary benefit from any proposed or actual
contract with Erie County.
Based upon the above submitted facts, you seek guidance as to whether the
Ethics Act would impose any restrictions or prohibitions upon you with regard to voting
on money manager(s) for the Fund, where such money manager(s) would have no
affiliations with TLG or RBC.
Discussion:
It is initially noted that pursuant to Sections 1107(10) and 1107(11) of
the Ethics Act, 65 Pa.C.S. §§ 1107(10), (11), advisories are issued to the requester
based upon the facts that the requester has submitted. In issuing the advisory based
upon the facts that the requester has submitted, the Commission does not engage in an
independent investigation of the facts, nor does it speculate as to facts that have not
been submitted. It is the burden of the requester to truthfully disclose all of the material
facts relevant to the inquiry. 65 Pa.C.S. §§ 1107(10), (11). An advisory only affords a
defense to the extent the requester has truthfully disclosed all of the material facts.
As the Controller and as a Member and Secretary of the Retirement Board, you
are a public official as that term is defined in the Ethics Act, and therefore you are
subject to the provisions of the Ethics Act.
Sections 1103(a) and 1103(j) of the Ethics Act provide:
§ 1103. Restricted activities
(a)Conflict of interest.--
No public official or public
employee shall engage in conduct that constitutes a conflict
of interest.
(j)Voting conflict.--
Where voting conflicts are not
otherwise addressed by the Constitution of Pennsylvania or
by any law, rule, regulation, order or ordinance, the following
procedure shall be employed. Any public official or public
employee who in the discharge of his official duties would be
required to vote on a matter that would result in a conflict of
interest shall abstain from voting and, prior to the vote being
taken, publicly announce and disclose the nature of his
interest as a public record in a written memorandum filed
with the person responsible for recording the minutes of the
meeting at which the vote is taken, provided that whenever a
governing body would be unable to take any action on a
matter before it because the number of members of the body
required to abstain from voting under the provisions of this
section makes the majority or other legally required vote of
approval unattainable, then such members shall be
Schaaf, 12-582
December 31, 2012
Page 3
permitted to vote if disclosures are made as otherwise
provided herein. In the case of a three-member governing
body of a political subdivision, where one member has
abstained from voting as a result of a conflict of interest and
the remaining two members of the governing body have cast
opposing votes, the member who has abstained shall be
permitted to vote to break the tie vote if disclosure is made
as otherwise provided herein.
65 Pa.C.S. §§ 1103(a), (j).
The following terms related to Section 1103(a) are defined in the Ethics Act as
follows:
§ 1102. Definitions
"Conflict" or "conflict of interest."
Use by a public
official or public employee of the authority of his office or
employment or any confidential information received through
his holding public office or employment for the private
pecuniary benefit of himself, a member of his immediate
family or a business with which he or a member of his
immediate family is associated. The term does not include
an action having a de minimis economic impact or which
affects to the same degree a class consisting of the general
public or a subclass consisting of an industry, occupation or
other group which includes the public official or public
employee, a member of his immediate family or a business
with which he or a member of his immediate family is
associated.
"Authority of office or employment."
The actual
power provided by law, the exercise of which is necessary to
the performance of duties and responsibilities unique to a
particular public office or position of public employment.
"Business."
Any corporation, partnership, sole
proprietorship, firm, enterprise, franchise, association,
organization, self-employed individual, holding company,
joint stock company, receivership, trust or any legal entity
organized for profit.
"Business with which he is associated."
Any
business in which the person or a member of the person's
immediate family is a director, officer, owner, employee or
has a financial interest.
65 Pa.C.S. § 1102.
Pursuant to Section 1103(a) of the Ethics Act, a public official/public employee is
prohibited from using the authority of public office/employment or confidential
information received by holding such a public position for the private pecuniary benefit
of the public official/public employee himself, any member of his immediate family, or a
business with which he or a member of his immediate family is associated. The use of
authority of office is not limited merely to voting, but extends to any use of authority of
office including, but not limited to, discussing, conferring with others, and lobbying for a
particular result. Juliante, Order 809.
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December 31, 2012
Page 4
The Pennsylvania Supreme Court has held that in order to violate Section
1103(a) of the Ethics Act, a public official/public employee “must be consciously aware
of a private pecuniary benefit for himself, his family, or his business, and then must take
action in the form of one or more specific steps to attain that benefit.” Kistler v. State
Ethics Commission, 610 Pa. 516, 528, 22 A.3d 223, 231 (2011).
In each instance of a conflict of interest, a public official/public employee would
be required to abstain from participation, which would include voting unless one of the
statutory exceptions of Section 1103(j) of the Ethics Act would be applicable.
Additionally, the disclosure requirements of Section 1103(j) of the Ethics Act would have
to be satisfied in the event of a voting conflict.
Under the submitted facts, and particularly given that the proposed Fund money
manager(s) would have no affiliations with TLG or RBC, you are advised that you would
not have a conflict of interest under Section 1103(a) of the Ethics Act with regard to
voting on money manager(s) for the Fund subject to the condition that you would not be
consciously aware of any private pecuniary benefit for yourself, a member of your
immediate family, or a business with which you or a member of your immediate family is
associated, and your action would not constitute one or more specific steps to attain
such a benefit (Kistler, supra).
The propriety of the proposed conduct has only been addressed under the Ethics
Act; the applicability of any other statute, code, ordinance, regulation or other code of
conduct other than the Ethics Act has not been considered in that they do not involve an
interpretation of the Ethics Act. Specifically not addressed herein is the applicability of
the Erie County Home Rule Charter.
Conclusion:
Based upon the submitted facts that: (1) on December 29, 2010,
you retired from your employment as a fully registered and licensed financial advisor
with Merrill Lynch; (2) you were elected as the Erie County Controller (“Controller”) in
November 2011, and you took office as the Controller in January 2012; (3) in your
capacity as the Controller, you serve as a Member and Secretary of the Erie County
Employees’ Retirement Board (“Retirement Board”); (4) in June 2012, you became an
independent financial advisor with TLG Advisors (“TLG”) in order to maintain your
FINRA registration; (5) you are devoted full-time to your position as the Controller, and
your work as an independent financial advisor providing professional referrals is
performed outside of your full-time work as the Controller; (6) in June 2012, your former
Merrill Lynch team partner (“Former Team Partner”) joined RBC Wealth Management
(“RBC”), and in July 2012, you and she agreed verbally to a referral agreement
regarding your former clients, under which any referral fee paid to you would come from
your Former Team Partner’s broker’s compensation and not RBC; (7) TLG and RBC are
not affiliated but do have an agreement that can process any referral fees; (8) you
issued a statement of full disclosure to the Erie County Council, the Erie County
Executive, and the Retirement Board in August 2012; (9) the Erie County pension fund
(“Fund”) has a consulting contract (“Contract”) with an RBC broker other than your
Former Team Partner, and it is your view that the Contract is a redundant and
unnecessary expense for the Fund as the Fund has Morrison Fiduciary Associates as
its overall consultant; (10) TLG does not do any business with Erie County or the Fund;
(11) you have not engaged in any conduct regarding Erie County or the Fund which
would financially impact either TLG or RBC; and (12) you do not have a financial
interest in and would not receive any pecuniary benefit from any proposed or actual
contract with Erie County, you are advised as follows.
As the Controller and as a Member and Secretary of the Retirement Board, you
are a public official subject to the provisions of the Public Official and Employee Ethics
Act (“Ethics Act”), 65 Pa.C.S. § 1101 et seq. Under the submitted facts, and particularly
given that the proposed Fund money manager(s) would have no affiliations with TLG or
RBC, you would not have a conflict of interest under Section 1103(a) of the Ethics Act
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December 31, 2012
Page 5
with regard to voting on money manager(s) for the Fund subject to the condition that
you would not be consciously aware of any private pecuniary benefit for yourself, a
member of your immediate family, or a business with which you or a member of your
immediate family is associated, and your action would not constitute one or more
specific steps to attain such a benefit. Lastly, the propriety of the proposed conduct has
only been addressed under the Ethics Act.
Pursuant to Section 1107(11) of the Ethics Act, an Advice is a complete defense
in any enforcement proceeding initiated by the Commission, and evidence of good faith
conduct in any other civil or criminal proceeding, provided the requester has disclosed
truthfully all the material facts and committed the acts complained of in reliance on the
Advice given.
This letter is a public record and will be made available as such
.
Finally, if you disagree with this Advice or if you have any
reason to challenge same, you may appeal the Advice to the full
Commission. A personal appearance before the Commission will be
scheduled and a formal Opinion will be issued by the Commission.
Any such appeal must be in writing and must be actually
received at the Commission within thirty (30) days of the date of this
Advice pursuant to 51 Pa. Code § 13.2(h). The appeal may be
received at the Commission by hand delivery, United States mail,
delivery service, or by FAX transmission (717-787-0806). Failure to
file such an appeal at the Commission within thirty (30) days may
result in the dismissal of the appeal.
Sincerely,
Robin M. Hittie
Chief Counsel