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HomeMy WebLinkAbout1098 CowieIn Re: William Cowie STATE ETHICS COMMISSION 308 FINANCE BUILDING HARRISBURG, PENNSYLVANIA 17120 File Docket: X -ref: Date Decided: Date Mailed: Before: Daneen E. Reese, Chair Austin M. Lee, Vice Chair Julius Uehlein Louis W. Fryman John J. Bolger Frank M. Brown Susan Mosites Bicket 98- 009 -C2 Order No. 1098 12/15/98 12/29/98 This is a final adjudication of the State Ethics Commission. Procedurally, the Investigative Division of the State Ethics Commission conducted an investigation regarding a possible violation of the Public Official and Employee Ethics Law, Act 9 of 1989, P.L. 26, 65 P.S. §401 gt §gq., by the above - named Respondent. At the commencement of its investigation, the Investigative Division served upon Respondent written notice of the specific allegation(s). Upon completion of its investigation, the. Investigative Division issued and served upon Respondent a Findings Report identified as an "Investigative Complaint." An Answer was not filed and a hearing was waived. The record is complete. A Consent Agreement was submitted by the parties to the Commission for consideration which was subsequently approved. Effective December 15, 1998, Act 9 of 1989 was repealed and replaced by Chapter 11, Act 93 of 1998, which essentially repeats Act 9 of 1989 and provides for the completion of pending matters under Act 93 of 1998. This adjudication of the State Ethics Commission is issued under Act 93 of 1998 and will be made available as a public document thirty days after the mailing date noted above. However, reconsideration may be requested. Any reconsideration request must be received at this Commission within thirty days of the mailing date and must include a detailed explanation of the reasons as to why reconsideration should be granted in conformity with 51 Pa. Code §21.29(b). A request for reconsideration will not affect the finality of this adjudication but will defer its public release pending action on the request by the Commission. The files in this case will remain confidential in accordance with Chapter 11 of Act 93 of 1998. Any person who violates confidentiality of the Ethics Act is guilty of a misdemeanor subject to a fine of not more than $ 1,000 or imprisonment for not more than one year. Confidentiality does not preclude discussing this case with an attorney at law. Cowie, 98- 009 -C2 Page 2 I. ALLEGATION: That William Cowie, a public official /public employee, in his capacity as a member and chairman of the Upper Yoder Township Sewer Authority, Cambria County, violated Sections 3(a) and 3(f) of the State Ethics Law (Act 9 of 1989) when he used the authority of his office for the private pecuniary benefit of a member of his immediate family and /or a business with which a member of his immediate family is associated by participating in actions of the authority board including but not limited to making recommendations and participating in discussions resulting in the transfer of authority funds to a financial consulting firm which employs his son. 11. FINDINGS: 1. William Cowie has served on the Upper Yoder Township Authority (UYTA), Cambria County, since at least 1960. a. Cowie has served as UYTA Chairman for the past 10 years. . The Upper Yoder Township Authority (UYTA) was formed by the Upper Yoder Township Board of Supervisors in June, 1955, pursuant to the Municipal Authorities Act of 1945. a. The purpose of the UYTA is to acquire, hold, construct, improve, maintain, operate, own, lease sewers, sewer systems, a sewage' treatment works, including works for treating and disposing of industrial waste in Upper Yoder Township. Articles of Incorporation were filed with the Secretary of the Commonwealth on June 4, 1955. By -laws of the UYTA provide for the offices of Chairman, Vice- Chairman, Secretary, Treasurer and such other officers as may from time to time be elected by the board. a. Duties of the Chairman include conducting all meetings of the board, jointly with the secretary, execute all contracts and have general and active management of the affairs of the Authority.. . 4. Donald Cowie is the son of William Cowie and has been licensed to sell securities since 1984. 5. On several occasions between 1984 through 1997, Donald Cowie discussed with his father, William Cowie, and other Authority members the possibility of him providing investment advice of UYTA funds. a. The several UYTA members, including William Cowie, agreed to have his son placed on the agenda of an UYTA meeting to make a presentation. 6. At that time in 1997, the UYTA had not formally considered the refinancing of authority's investments. 7. Sometime prior to April. 1997 Donald Cowie contacted Tom Kimlin, of the firm Wilkinson, Kline, Kimlin & Lenhey, the UYTA's independent auditing firm. Cowie, 98- 009 -C2 Page 3 a. Cowie requested Kimlin [to] fax him the types of investments permitted by UYTA pursuant to the Municipal Authorities Act. 8. Prior to the April 21, 1997, UYTA meeting, William Cowie discussed with other authority members, his son, Donald Cowie, making an investment presentation. 9. During the April 21, 1997, UYTA meeting, Donald Cowie made a presentation to the board regarding the investment of UYTA funds. a. Cowie reviewed the UYTA's current investments of $107,000 in a Federated Adjustable Government Fund and $80,000 in T- Bills. Donald Cowie stressed diversification of investments and recommended the UYTA continue investing the $80,000 in the T- Bilis accounts. c. Cowie presented options so the Authority could earn a better rate of return by placing $50,000 with Alliance Bond Fund and $50,000 with the Colonial Federal Securities Fund, investment funds he sells. Cowie compared the rate of return of the current funds over the past 5 'h years with his proposal and estimated the return would have increased by $13,077. e. Cowie answered questions regarding loading fees and early withdrawal fees. f. No decision was made by the board during that meeting regarding Donald Cowie's proposal. William Cowie was present at the meeting and participated in the meeting. 10. At the time of Donald Cowie's presentation, the UYTA had funds invested with the Laurel Bank & Trust, formerly Johnstown Bank and Trust. g- a. Eighty Thousand ($80,000) was invested in Treasury Bills at a rate of 5.4 %. b. One hundred seven thousand ($107,000) was invested in the bank's Federated Adjustable Rate U.G. Government Fund (Class F) at a rate of 5.5 %. 11. In the spring of 1997, the UYTA had not formally considered changing the way Authority Funds were invested. a. There were no discussions during board meetings prior to April 1997. 12. After Donald Cowie's presentation, the UYTA board of directors did not consult with other investment planners regarding the investing of authority funds, although the law did not explicitly require them to do so. Cowie, 98- 009 -C2 Page 4 13. On May 19, 1997, the UYTA board approved resolutions authorizing $ 100,000 be invested with E.Q. Financial Consultants. 14. Resolution 5/19/97 -1 closed out the Fortress Account with Johnstown Bank and Trust in the amount of $107,000. a. The resolution passed by a 4 to 0 vote with one abstention. b. William Cowie abstained from the vote. c. Cowie gave no public disclosure during the meeting of his reasons for abstaining. 15. Resolution .5/19/97 -2 authorized placing $50,000 with Alliance Bond Fund and $50,000 with Colonial Federated. Securities Fund through E.Q. Financial Consultants. a. The resolution passed by. a 4 to 0 vote with one abstention. b. William Cowie abstained from the vote. 16. On May 20, 1997, the UYTA issued check number 1477 payable in the amount of $100,000 to E.Q. Financial Consultants for the investments in the Alliance Bond and Federated Securities Fund. a. The check was signed by UYTA members William Cowie and Mary Ringer. 17. During the October 20, 1997, meeting of the UYTA Chairman William Cowie reported interest rates of 5.08% from Johnstown Bank and Trust for the $80,000 T -Bills as compared to 12.77% of Equitable (E.Q. Financial Consultants). a. Chairman Cowie stated the Girard Street Pump Station funds of $81,903.00 will not be used for construction until the spring of 1998 and recommended transferring $80,000 to E. Q. Financial Consultants during the interim to earn more interest. b. A motion was approved by a 3 to 0 vote with one abstention to transfer $80,000 from. Laurel Bank to Equitable Financial Consultants to invest in the two E. Q. Financial Consultants accounts. William Cowie abstained from the vote. • 18. On October 20, 1997, the UYTA issued check number 000231 to E.Q. Financial for the investment of $80,000. The check was signed by members William Cowie and Mary Ringer. 19. No other investment planners were given the opportunity to make presentations to the UYTA regarding the re- investing of authority funds. a. The board did not solicit proposals from other companies. b. The board did not place advertisements seeking proposals. a. Cowie, 98- 009 -C2 Page 5 20. The only company considered for investing authority funds was Equitable /E.Q. Financial Consultants. 21. The reinvestment of the $80,000 on October 20, 1997, by the UYTA was done following board of directors discussion in which William Cowie participated. 22. As a result of the UYTA placing a total of $180,000 in authority funds with E.Q. Financial Consultants, Donald Cowie, received commissions and is eligible to receive fees known as trails. a. No trails were paid in 1997 to Donald Cowie for the UYTA investments. 23. Commissions were paid by E.Q. Financial Consultants/ Equitable to Donald Cowie for UYTA investments as follows: Date May 22, 1997 May 22, 1997 October 28, 1997 October 28, 1997 Fund Type Alliance Bond Fund Colonial Federal Securities Fund Alliance Bond Fund Colonial Federal Securities Fund TOTAL UYT Investment Commission Amount Received $ 50,000.00 $ 50, 000.00 $ 40, 000.00 $ 40.000.00 $ 180,000.00 $ 375.00 $ 500.00 $ 300.00 $ 400.00 $1,575.00 25. William Cowie used the authority of his office as UYTA Chairman when he participated in arrangements to have his son make a presentation to the Authority on April 21, 1997. a. Cowie discussed his son's presentation with board members prior to the meeting. William Cowie agreed to have Donald Cowie make the presentation of April 21, 1997.. c. On October 20, 1947, Cowie participated in the action and recommended the transfer of $80,000 of UYTA funds to an investment company which employed his son, Donald Cowie. d. William Cowie signed checks in the amount of $100,000 on May 20, 1997, and October 20, 1997, in an amount of $80,000 to E.Q. Financial Consultants. 27. William Cowie's actions resulted in a private pecuniary benefit to his son, Donald Cowie. a. Commissions, not including trails, totaling $1,575.00 have been paid to Donald Cowie as a result of the UYTA investments. Cowie, 98 -009 -C2 Page 6 28. Since refinancing the authority's investments with E.Q. Financial Consultants the UYTA has earned $16,503.47 interest on the investments of August 7, 1998. a. Value as of 08/07/98: $196,503.47 Amount Invested: $180.000.00 $ 16,503.47 III. DISCUSSION: At all times relevant to this matter, the Respondent, William Cowie, hereinafter Cowie, has been a public official subject to the provisions of the Public Official and Employee Ethics Act ( "Ethics Act "), Act 9 of 1989, Pamphlet Law 26, 65 P.S. §401, et seq. /Act 93 of 1998, Chapter 11. The issue before us is whether Cowie violated Sections 1103(a) and 1103(f) of the Ethics Act when he participated in actions of the authority board resulting in the transfer of authority funds to a financial consulting firm which employs his son. Section 1103(a) provides as follows: Section 1 103. Restricted activities. (a) Conflict of interest. —No public official or public employee shall engage in conduct that constitutes a conflict of interest. Section 1103(a), Act 93 of 1998, Chapter 11. Pursuant to Section 1103(a) of the Ethics Act quoted above, a public official /public employee is prohibited from engaging in conduct that constitutes a conflict of interest. The term "conflict of interest" is defined under the Ethics Act as follows: Section 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. Section 1102, Act 93 of 1998, Chapter 11. Section 1103(a) of the Ethics Act prohibits a public official /public employee from using the authority of public office /employment or confidential information Cowie" 98- 009 -C2 Page 7 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. Section 1103(f) of the Ethics Act imposes certain restrictions as to contracting: Section 1103. Restricted activities. (f) Contract. --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. Section 1103(f), Act 93 of 1998, Chapter 11. In addition, Section 1.103(f) of the Ethics Act specifically provides in part that no public official /public employee or spouse or child or business with which he or the spouse or child is associated may enter into a contract with his governmental body valued at five hundred dollars or more or any subcontract valued at five hundred dollars or more with any person who has been awarded a contract with the governmental body with which the public official /public employee is associated unless the contract is awarded through an open and public process including prior public notice and subsequent public disclosure. Having noted the issues and applicable law, we shall now summarize the relevant facts. Cowie has served on the Upper Yoder Township Authority (UYTA) since approximately 1960 and as Board Chairman for the last ten years. Cowie's son Donald, a licensed securities salesman, is employed by E.Q. Consultants. Between 1984 and 1997, Donald Cowie had discussions with his father and other UYTA members about the possibility of providing investment advice as to UYTA funds. Cowie also discussed with other Authority members the issue of having his son Donald make an investment presentation. Subsequently, a presentation by Donald Cowie was placed on the agenda for the April 21, 1997 UYTA meeting. At that meeting, Donald Cowie made a presentation regarding the investment of UYTA funds wherein he stated that only two investments were held by UYTA, that diversification of investments was recommended, and that options were available regarding other investments that could earn a higher rate of return. Cowie was present and participated at that UTYA Board meeting but no decisions were made regarding Donald Cowie's proposals. Cowie, 98- 009 -C2 Page 8 Without consulting any other investment planners, the UYTA Board on May 19, 1997 approved a resolution authorizing the investment of $100,000 to E.Q. Financial Consultants. That Resolution also authorized the closing of the existing UYTA account with the Johnstown Bank and Trust in the amount of $107,000. Cowie abstained as to the vote on that resolution but gave no public disclosure regarding the reasons for his abstention. A subsequent UYTA Board Resolution authorized investing $50,000 with Alliance Bond and $50,000 with Colonial Federated Securities Fund through E.Q. Financial Consultants: Cowie also abstained on that vote. Subsequently , UYTA issued a check, co- signed by Cowie, in the amount of $100,000 to E.Q. Financial Consultants. At an October 20, 1997 UYTA meeting, Cowie reported that certain funds earmarked for a pump station would not be used for construction until the spring of 1998. Cowie recommended transferring $80,000 to E.Q. Financial Consultants during the interim to earn more interest. A motion was approved to transfer the funds to E.Q. Financial Consultants. Cowie abstained on the vote. UYTA issued a check, co- signed by Cowie, to E.Q. Financial Consultants in the amount of $80,000. During the reinvestment process, no other investment planners were given the opportunity to make presentations to the UYTA Board. Further, the Board did not solicit proposals from other companies and did not place advertisements seeking proposals. The only company considered for investing UYTA funds was E.Q. Financial Consultants which received a total of $180,000 in UYTA funds. Donald Cowie was eligible for fees known as "trails" as a result of UYTA's investments with E.Q. Financial Consultants. Donald Cowie also received commissions of $1575 on the $180,000 in investments to E.Q. Financial Consultants. As to the $180,000 which was invested by the UYTA with E.Q. Financial Consultants, interest . of $1 was earned from the date of investment up to August 7, 1998. Having summarized the above relevant facts, we must now determine whether the actions of Cowie violated Sections 1103(a) and 1103(f) of the Ethics Act. As to Section 11 of the Ethics Act, there were uses of authority of office on the part of Cowie. In particular, Cowie discussed his son Donald's presentation with Board members prior to the meeting. Further, Cowie recommended the transfer of funds to E.Q. Financial Consultants. Cowie also co- signed checks that were payable to E.Q. Financial Consultants for the investment of UYTA funds. Such uses of authority of office by Cowie resulted in a private pecuniary benefit to his son Donald, consisting of the $1575 in commissions to Donald Cowie who, as Cowie's son, is a member of Cowie's immediate family as that term is defined under the Ethics Act. Hence, an unintentional violation of Section 1103(a) occurred when Cowie used the authority of office for the private pecuniary benefit of his son regarding the transfer of UYTA funds to a financial consulting firm which employs his son. Turning to Section 1103(f) of the Ethics Act, we find no violation as there appears to be no consideration and hence no agreement between the UYTA. and E.Q. Financial Consultants. Without such consideration, there was no contract. Thus, Cowie did not violate Section 1103(f) regarding E.Q. Financial Consultants, his son's employer, as to investments that E.Q. Financial Consultants made on behalf of the UYTA in that there was no contract between UYTA and E.Q. Financial Consultants. The parties have submitted a Consent Agreement together with a Stipulation of Findings wherein it is proposed to resolve the case by finding an unintentional violation Cowie, 98- 009 -C2 Page 9 of Section 1103(a) and no violation of Section 1103(f), together with a payment in the amount of $900 by Cowie to the UYTA. Accordingly, Cowie is directed to make payment of $900 through this Commission to the UYTA in a timely manner. Compliance with the foregoing will result in the closing of this case with no further action. Noncompliance will result in the institution of an order enforcement action. As to the Stipulation of Findings and Consent Agreement filed by the parties, we believe that the Consent Agreement is the proper disposition for this case based upon our review as reflected in the above analysis and the totality of the facts and circumstances. IV. CONCLUSIONS OF LAW: 1. Cowie, as a Member and Chairman of the Upper Yoder Township Sewer Authority (UYTA), Cambria County, is a public official subject to the provisions of Act 9 of 1989/Act 93 of 1998, Chapter 11. An unintentional violation of Section 1103(a) of the Ethics Act occurred when Cowie used the authority of office for a private pecuniary benefit by participating in actions of the UYTA Board resulting in the transfer of UYTA funds to a financial consulting firm which employs his son. 3. Cowie did not violate Section 1103(f) of the Ethics Act as to the investment of UYTA funds with E.Q. Financial Consultants, his son's employer, in that no contract existed between the UYTA and E.Q. Financial Consultants. In Re: William Cowie ORDER NO. 1098 File Docket: 98- 009 -C2 Date Decided: 12/15/98 Date Mailed: 12/29/98 1. Cowie, as a Member and Chairman of the Upper Yoder Township Sewer Authority (UYTA), Cambria County, unintentionally violated Section 1103(a) of the Ethics Act when he used the authority of office for a private pecuniary benefit by participating in actions of the UYTA Board resulting in the transfer of UYTA funds to a financial consulting firm which employs his son. 2. Cowie did not violate Section 1103(f) of the Ethics Act as to the investment of UYTA funds with E.Q. Financial Consultants, his son's employer, in that no contract existed between the UYTA and E.Q. Financial Consultants. 3. Cowie is directed to make payment of $900 through this Commission to the Upper Yoder Township Sewer Authority in a timely manner. a. Compliance with the foregoing will result in the closing of this case with no further action. b. Noncompliance will result in the institution of an order enforcement action. BY THE COMMISSION, o(Ymuw6 aug_,1 DANEEN E. REESE, CHAIR