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HomeMy WebLinkAbout85-547 McCulloughMr. Samuel A. McCullough President and Chief Executive Officer Meridian Bancorp, Inc. 35 N. 6th Street P.O. Box 1102 Reading, PA 19608 STATE ETHICS COMMISSION 308 FINANCE BUILDING P.O. BOX 11470 HARRISBURG, PA 17108 -1470 TELEPHONE (717) 783 -1610 May 28, 1985 ADVICE OF COUNSEL 85 -547 Re: Conflict of Interest, Bank Corporation, Governmental Body, Participation in Limited Partnership Dear Mr. McCullough: This responds to your request for advice from the State Ethics Commission dated May 17, 1985. Issue: Whether, within the purview of the State Ethics Act, a governmental body may invest in a limited partnership where the chariman of that body is also a chief executive officer in a banking institution that is also a member of the partnership. Facts: You are the chairman of the Public School Employee's Retirement Board. You are also the chief executive officer of Meridian Bancorp, Inc. The Public School Employee's Retirement' Board, hereinafter the Board, consists of fifteen (15) members and exercises broad powers regarding the control and management of retirement funds and accounts of public school employees._ 24 Pa. C.S.A. §8501; §8521. On February 27, 1985 Meridian Bancorp committed to invest $1 million in the NEPA Venture Fund. NEPA is a Pennsylvania limited partnership formed to provide venture capital to new and growing technology- oriented companies whose principal business operations are located in the Mid - Atlantic region of the United States, particularly northeastern Pennsylvania. Mr. Samuel McCullough May 28, 1985 Page 2 You have indicated that the Board has also been actively considering venture capital investments. As a result, the Public School Employee's Retirement System and representatives of NEPA have discussed the possibility of the system investing in the NEPA fund. You have also i ndi catd that based upon the system's investment coordinator's recommendation, NEPA, along with several other venture capital firms, have been interviewed as potential investment possibilities. You do not indicate, and we will assume that you did not participate in such interviews and /or recommendations. The Board held an executive session on April 26, 1985 at which time you fully disclosed to the Board the facts relating to the Meridian investment with NEPA. You informed the Board that you would not vote on any Board motion regarding the initiation of this investment. A regularly scheduled public meeting of the Public School Employee's Retirement Board was also held on April 26, 1985. At that meeting a rnotion was made that the Board invest $1 million in the NEPA fund. The motion was seconded by another Board member and passed unanimously. You abstained from voting on that motion. The result is that both the Board and Meridian Bancorp, Inc. will be limited patners in NEPA, each entity investing $1 million with the general partner. It is important to note that the general partner has almost complete control and discretion over the invested funds. It should also be noted that the Board will not be transferring funds to Meridian Bancorp, nor will Meridian be providing services to the Board or otherwise be employed by the Board. You have requested the advice of the State Ethics Commission regarding any restrictions that may be applicable to the above situation within the purview of the State Ethics Act. Discussion: At the outset, it must be noted that the Ethics Commission may only address your question within the parameters of the Ethics Act. The Commission will not offer advice with respect to any duties, obligations or restrictions that may be imposed by other provisions of law such as the State Adverse Interest Act, the Governors Code of Conduct or the Public School Employee's Retirement Code. a As a member and chairman of the Board, you are a public official as that term is defined in the State Ethics Act. 65 P.S. §402; Hershey, 80 -038; Cavill, 79 -041. As such, your conduct must conform to the requirements of the Act. Mr. Samuel McCullough May 28, 1985 Page 3 Generally, the Ethics Act provides that: Section 3. Restricted activities. (a) No public official or public employee shall use his public office or any confidential information received through his holding public office to obtain financial gain other than compensation provided by law for himself, a member of his immediate family, or a business with which he is associated. 65 P.S. 403(a). Within this provision you, as a public official, would be prohibited from taking any action that may be financially beneficial to yourself or a business with which you are associated. Thus, if the Board's participation in the limited partnership could be in any way financially beneficial to Meridian, you may not participate in any Board action regarding the investment. We also note that pursuant to Section 3(a) you may not use any confidential information obtained as a public official for similar purposes. Thus, if in your position with the Board you become privy to confidential information regarding the Boards investment in the partnership which may be of interest to or beneficial to Meridian, you may not within the above provisions, use such information to benefit Meridian. You have indicated that to date you have not participated in any action relating to this investment by the Board. As such, you have acted in accordance with the Ethics Act. We note that Meridian will not be employed by the general partner in any respect regarding this investment. This is an important factor and in the event that this situation should chapge, it may be advisable to seek the further advice of the Commission. In addition to the foregoing, the Ethics Act provides that: Section 3. Restricted activities. (c) No public official or public employee or a member of his immediate family or any business in which the person or a member of the person's immediate family is a director, officer, owner or holder of stock exceeding 5% of the equity at fair market value of the business shall enter into any contract valued at $500 or more with a governmental body unless the contract has been awarded through an open and public process, including prior public notice and subsequent public disclosure of all proposals considered and contracts awarded. Any contract made in violation of this subsection shall be voidable by a court of competent jurisdiction if the suit is commenced within 90 days of making of the contract. 65 P.S. 403(c). Mr. Samuel McCullough May 28, 1985 Page 4 While it does not appear that the Board will be directly contracting with Meridian, the business in which you are an officer, the Board, your governmental body, will technical ly be entering into a partnership arrangement with the corporation. This will be transacted we assume through the execution of a written investment agreement. Because of this, we believe that Section 3(c) of the Act is applicable. It should be emphasized, that even though Section 3(c) of the Ethics Act presents no absolute prohibition to the contract between NEPA and the Board certain requirements as to the open an public process must be met. In its opinions in Howard, 79 -044 and Fields, 82 -006, the Commission stated that an open and pub i'r c process in the traditional contract situation is met by applying the following standards: 1. prior public notice of the employment or contracting possibility; 2. sufficient time for a reasonable and prudent competitor /applicant to be able to prepare and present an application or proposal; 3. public disclosure of all applications or proposals considered; and 4. public disclosure of the terms of the final contract, (in this case, the investment). See also Cantor, 82 -004. In determining whether the requirements of Section 3(c) of the Ethics Act have been met, the Commission has adopted a "reasonableness test" which means that reasonable and prudent competitors of NEPA should be provided a sufficient time within which to submit their proposals and, of course, should have had prior notice of the opportunity to secure such a contract. Since you indicate that the Board has reviewed other investment sources and proposals in relation to this matter, we believe that this aspect of the open and public process requirements of the Ethics Act have been satisfied. It also suggested that conditions 3 and 4 above should be met. Such public disclosure of the Boards procedure will insure compliance with the Ethics Act. Finally, we note that the Ethics Commission may address other areas of possible conflict. 65 P.S. §403(d). .Generally, the Ethics Act is intended to insure that the financial interests of a public official,,are pot in conflict with the public trust and do not lend to the appearance of such a conflict. Such a conflict exists when an individual serves or attempts to serve competing or adverse interets. Alfano, 80 -007. Mr. Samuel McCullough May 28, 1985 Page 5 Here, such an appearance could develop if you were to participate in the Boards decisions regarding the partnership in which both Meridian and the Board are involved. Such an appearance may be avoided by abstaining canpletely from participation in any matter relating to the Boards decisions regarding this investment both now and in the future. In this way,, you would avoid both a conflict and the appearance of such. See Matson, No. 214. Conclusion: Under the facts as outlined herein, there would be no Ethics Act prohibition regarding the Board's proposed action. As a public official, you must conform your activities in relation to this matter to the requirements of the Act as set forth above. Pursuant to Section 7(9)(ii), this 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, providing the requestor 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 request that the full Commission review this Advice. A personal appearance before the Commission will be scheduled and a foimal Opinion from the Commission will be issued. Any such appeal must be made, in writing, to the Commission within 15 days of service of this Advice pursuant to 51 Pa. Code 2.12. JJC /sfb Sincerely, John J. ino Gen- -. Counsel