Loading...
HomeMy WebLinkAbout96-536 ButeraPeter M. Butera Financial Consultant Merrill Lynch Private Client Group 600 Baltimore Drive Wilkes Barre, PA 18702 Dear Mr. Butera: STATE ETHICS COMMISSION 309 FINANCE BUILDING P.O. BOX 11470 HARRISBURG, PA 1 71 08 -1 470 TELEPHONE (717) 783 -1610 ADVICE OF COUNSEL April 4, 1996 96 -536 Re: Conflict, Public Official /Employee, Hospital and Education Authority, Tax Exempt Bonds, Appointment of Underwriter. This responds to your letters of February 22, 1 996 and March 2, 1996 in which you requested advice from the State Ethics Commission. Issue: Whether the Public Official and Employee Ethics Law presents any prohibition or restrictions upon a Member of a Hospital and Education Authority with regard to his employer's prospective participation through the underwriter in the "selling group" that would sell tax exempt bonds issued by the Authority. Facts: As a volunteer member of the Northeastern Pennsylvania Hospital and Education Authority (NPHEA), you request an advice of counsel regarding your employer's prospective participation in the "selling group" for tax exempt bonds issued by the NPHEA. The facts which you have submitted are as follows. All Members of the NPHEA Board are appointed by a majority of the three Luzerne County Commissioners. NPHEA acts as a conduit to local hospitals and colleges, allowing them to issue tax exempt bonds. NPHEA has the power to issue its own bonds and the debt NPHEA incurs can be used to fund the projects of local hospitals and educational institutions. Those institutions then repay the bond issues for NPHEA. You state that NPHEA acts only as a conduit and has no assets of its own. NPHEA appoints the underwriter for each bond issue. However, you state that the underwriter is usually picked by the institution that is getting the bond proceeds. The colleges and hospitals tell NPHEA who they want to underwrite their bond issues. Butera, 96 -536 April 4, 1996 Page 2 The underwriter negotiates a fee with NPHEA. However, you state that in reality, the hospital or college negotiates the fee for NPHEA with NPHEA having to approve the fee. The underwriter can sell all of the bonds or can use other firms to help sell the bonds, in .which case such other firms are considered part of a "selling group." You provide the following illustration. If the fee is 2% or $20 per $ 1,000 bond, the underwriter can sell all the bonds and keep the whole $20 per bond or it can use other firms to help sell the bonds. If another firm other than the underwriter sells a bond, it may receive a commission of $10 per $1,000 bond with the other $10 per bond going to the underwriter. In your private capacity, you are employed as a Financial Consultant with Merrill Lynch in Wilkes Barre, Pennsylvania. You state that it is your understanding that Merrill Lynch cannot be an underwriter of any bond issue of NPHEA as long as you are a member of NPHEA since NPHEA awards the underwriter fee directly to the underwriter and Merrill Lynch would not allow that arrangement to occur. The specific question which you pose is whether Merrill Lynch could sell some bonds through the underwriter as part of a selling group and if so, whether you may sell such bonds. You note that in this arrangement, for those bonds Merrill would sell, the underwriter would still keep its fee but would give Merrill the commission. You have submitted a listing of the outstanding bond issues of NPHEA as of January 1, 1995, which document is incorporated herein by reference. Discussion: It is initially noted that pursuant to Sections 7(10) and 7(11) of the Ethics Law, 65 P.S. §§407(10), (11), advisories are issued to the requestor based upon the facts which the requestor has submitted. In issuing the advisory based upon the facts which the requestor has submitted, the Commission does not engage in an independent investigation of the facts, nor does it speculate as to facts which have not been submitted. It is the burden of the requestor to truthfully disclose all of the material facts relevant to the inquiry. 65 P.S. §§407(10), (11). An advisory only affords a defense to the extent the requestor has truthfully disclosed all of the material facts. As a Member of NPHEA, you are a public official as that term is defined under the Ethics Law, and hence you are subject to the provisions of that law. Section 3(a) of the Ethics Law provides: Section 3. Restricted Activities. (a) No public official or public employee shall engage in conduct that constitutes a conflict of interest. The following terms are defined in the Ethics Law as follows: Section 2. 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 Butera, 96 -536 April 4, 1996 Page 3 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. "Conflict" or "conflict of interest" 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 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. In addition, Sections 3(b) and 3(c) of the Ethics Law provide in part that no person shall offer to a public official /employee anything of monetary value and no public official /employee shall solicit or accept anything of monetary value based upon the understanding that the vote, official action, or judgement of the public official /employee would be influenced thereby. Reference is made to these provisions of the law not to imply that there has been or will be any transgression thereof but merely to provide a complete response to the question presented. Section 3(f) of the Ethics Law provides as follows: Section 3. Restricted activities (f) No public official or public employee or his spouse or child or any business in which the person or his spouse or child is associated shall enter into any contract valued at $500 or more with the governmental body with which the public official or public employee is associated or any subcontract valued at $500 or more with any person who has been awarded a contract with the governmental body with which the public official or public employee is associated, 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. In such a case, the public official or public employee shall not have any supervisory or overall responsibility for the implementation or administration of the contract. Any contract or subcontract made in violation of this subsection shall be voidable by a court of competent jurisdiction if the suit is commenced within 90 days of the making of the contract or subcontract. Butera, 96 -536 April 4, 1996 Page 4 In applying the above provisions of the Ethics Law to the circumstances which you have submitted, pursuant to Section 3(a) of the Ethics Law, 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. As your employer, Merrill Lynch is clearly a business with which you are associated. Pursuant to Section 3(a) of the Ethics Law, you would have a conflict of interest that would preclude your participation in matters where you would know or would have a reasonable expectation that you and /or Merrill Lynch would derive a pecuniary benefit. (See Garner, Opinion 93 -004; Snyder, Order No. 979 -2). For example, in appointing an underwriter for any particular bond issue, if you knew or reasonably expected that such underwriter would include Merrill Lynch in the selling group, you would have a conflict of interest. In each instance of a conflict of interest, you would be required to abstain fully from participation as a public official and you would also be required to fully satisfy the disclosure requirements of Section 3(j) as set forth above. Pursuant to Sections 3(b) and 3(c), obviously, there could be no improper understanding whereby, for example, an underwriter would agree to include Merrill Lynch in its selling group in exchange for action favoring its appointment as the underwriter or the approval of its fee. Again, this is not to suggest that any such improper conduct would occur, but is merely included in this advisory to provide a complete response. As for Section 3(f) of the Ethics Law, it appears under the facts which you have submitted, that any contracting involving Merrill Lynch would be with the underwriter rather than NPHEA, such that the restrictions of Section 3(f) would not apply. Your specific inquiries shall now be addressed. With regard to your first specific inquiry, as to whether Merrill Lynch could sell some bonds through the underwriter as part of a selling group, you are advised that Section 3(a) does not operate to restrict the conduct of a private business. Rather, it restricts the conduct of public officials /public employees in their public capacity -- in this case, you. Likewise, as to your second specific inquiry, Section 3(a) would not restrict you in your private capacity from selling such bonds as an employee of Merrill Lynch. Rather, your conduct in your public capacity would be restricted. It is recommended that you obtain legal advice as to the applicability of the Municipality Authorities Act. The State Ethics Commission does not have the statutory jurisdiction to interpret the Municipality Authorities Act, but that Act does provide, inter alia: D. No member of the Authority or officer or employee thereof shall either directly or indirectly be a party to or be in any manner interested in any contract or agreement with the Authority for any matter, cause or thing whatsoever by Butera, 96 -536 April 4, 1996 Page 5 53 P.S. §312(D). reason whereof any liability or indebtedness shall in any way be created against such Authority. If any contract or agreement shall be made in violation of the provisions of this section the same shall be null and void and no action shall be maintained thereon against such Authority. The propriety of the proposed conduct has only been addressed under the Ethics Law; the applicability of any other statute, code, ordinance, regulation or other code of conduct other than the Ethics Law has not been considered in that they do not involve an interpretation of the Ethics Law. Specifically not addressed herein is the applicability of the Municipality Authorities Act, although it has been recommended that you obtain legal advice in that regard. Conclusion: As a member of the Northeastern Pennsylvania Hospital and Education Authority (NPHEA), you are a public official subject to the provisions of the Ethics Law. Pursuant to Section 3(a) of the Ethics Law, you may not use the authority of your public position or confidential information you have access to by being in that position for a private pecuniary benefit for yourself, a member of your immediate family, or a business with which you are associated such as your employer, Merrill Lynch. You would have a conflict of interest in matters where you would know or would have a reasonable expectation that you and /or Merrill Lynch would derive a private pecuniary benefit, for example, by being part of the selling group for a bond issue by NPHEA. In each instance of a conflict of interest, you would be required to abstain fully and to fully satisfy the disclosure requirements of Section 3(j) as set forth above. Section 3(a) restricts your conduct in your capacity as a public official. Section 3(a) does not operate to restrict your conduct in your private capacity nor does it operate to restrict Merrill Lynch, a private business, from selling bonds. Section 3(f) would appear to have no applicability in that factually, it appears that Merrill Lynch would be contracting with the underwriter rather than NPHEA. Lastly, the propriety of the proposed conduct has only been addressed under the Ethics Law. Pursuant to Section 7(1 1), 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 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 1. The appeal may be received at the Commission by hand delivery, United States mail, delivery service, or Butera, 96 -536 April 4, 1996 Page 6 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. cerely, w-t›X Vincent J. opko Chief Counsel