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HomeMy WebLinkAbout00-006 ConfidentialOPINION OF THE COMMISSION Before: Daneen E. Reese, Chair Louis W. Fryman, Vice Chair Julius Uehlein John J. Bolger Frank M. Brown Susan Mosites Bicket DATE DECIDED: 06/20/00 DATE MAILED: 07/07/00 Re: Conflict; A of Department B; Director; Investment Company. 00 -006 This Opinion is issued in response to your letter dated May 23, 2000, by which you requested a confidential advisory from the State Ethics Commission. I. ISSUE: Whether the Public Official and Employee Ethics Act presents any prohibition or restrictions upon the A of Department B with regard to serving on the board of directors of an investment company. II. FACTUAL BASIS FOR DETERMINATION: As the A of Department B, you request a confidential advisory from the State Ethics Commission with regard to your possible service on the Board of Directors of C, an investment company. You submit the following facts for consideration. Department B administers a number of D, E, and F programs which are beneficial to local governments, non - profit organizations, and for - profit enterprises. Additionally, Department B provides administrative support to some Commonwealth authorities, including G, H, and I. In your capacity as A of Confidential Opinion, 00 -006 July 7, 2000 Page 2 Department B, you serve on the board of a number of Commonwealth authorities, agencies, and commissions, some of which you chair. C is an open- ended, diversified investment company that consists of two portfolios: the J and the K. Corporation L has been retained by C as an independent advisor for both portfolios. Corporation L is a wholly owned subsidiary of M. You serve on the Board of Directors of M without compensation. Corporation L and C have named Corporation N as a sub - advisor to manage the J. Corporation L also serves as administrator of C, providing services including accounting, transfer agency and administration of C's business affairs. The distributor for C is Corporation 0, which is wholly owned by the P of Q. All services to C are approved annually by C's Board of Directors. The Board meets four times per year and the Board meetings are expected to last no more than two hours each. Each Member of the Board receives compensation in the amount of $2,000 per year. Prior to your appointment as A of Department B, you were involved in the R in Pennsylvania for more than 40 years. Your participation on the Board of C would include offering advice based upon your S experience. You have enclosed a copy of C's Prospectus dated T for our review. You assure this Commission as to the following: 1. You will not be personally involved in any way with proceedings involving C, if any, before any agency, authority, or commission of the Commonwealth of Pennsylvania. 2. While you are serving on C's Board and as A of Department B, C will not enter into a U relationship with the Commonwealth or with any agencies, authorities, or commissions on whose boards you serve. 3. You will not use Commonwealth resources in furtherance of your activities for C. 4. You will not solicit participation in C from any person or entity which has any decision or application pending before Department B or before the boards of any authority, agency, or commission of which you are a member by reason of your position as A of Department B. 5. Whenever you act in your capacity as a member of C's Board, you will identify yourself only in that capacity and not as A of Department B. In this regard, you will use only C's letterhead and business cards with respect to C activities, and you will not use official Commonwealth stationery with respect to any such activities or for any purposes related to C. 6. You efforts for C will not interfere with or diminish your work as A of Department B or as a member of the board of any Commonwealth Confidential Opinion, 00 -006 July 7, 2000 Page 3 authority, agency, or commission on which you serve by virtue of your position as A of Department B. 7 In any situation in which C's Board would consider an action that would have even an appearance of a conflict with the Commonwealth or any of its agencies, authorities, or commissions, you would excuse yourself from participation in the discussions, consideration, and voting with respect to such an action. By letter dated May 30, 2000, you were notified of the date, time, and location of the executive meeting at which your request for an advisory Opinion was to be considered. III. 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 requestor based upon the facts which the requestor has submitted. In issuing the advisory based upon the facts which the requestor has submitted, this 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 Pa.C.S. § §1107(10), (11). An advisory only affords a defense to the extent the requestor has truthfully disclosed all of the material facts. As A of Department B, you are a public official and an executive -level state employee as defined in the Public Official and Employe Ethics Act ( "Ethics Act "), and hence you are subject to the provisions of that Act. See, Confidential Opinion, 97 -002; Confidential Opinion, 98 -005. Some pertinent provisions of the Ethics Act shall initially be set forth. Section 1103(a) of the Ethics Act provides: § 1103. Restricted activities (a) Conflict of interest. - -No public official or public employee shall engage in conduct that constitutes a conflict of interest. 65 Pa.C.S. §1103(a). The following terms 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 Confidential Opinion, 00 -006 July 7, 2000 Page 4 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. "Financial interest." Any financial interest in a legal entity engaged in business for profit which comprises more than 5% of the equity of the business or more than 5% of the assets of the economic interest in indebtedness. "Contract." An agreement or arrangement for the acquisition, use or disposal by the Commonwealth or a political subdivision of consulting or other services or of supplies, materials, equipment, land or other personal or real property. The term shall not mean an agreement or arrangement between the State or political subdivision as one party and a public official or public employee as the other party, concerning his expense, reimbursement, salary, wage, retirement or other benefit, tenure or other matters in consideration of his current public employment with the Commonwealth or a political subdivision. "Person." A business, governmental body, individual, corporation, union, association, firm, Confidential Opinion, 00 -006 July 7, 2000 Page 5 65 Pa.C.S. §1102. partnership, committee, club or other organization or group of persons. Section 1103(f) of the Ethics Act provides as follows: 65 Pa.C.S. §1103(f). § 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) does not operate to make contracting with the governmental body permissible where it is otherwise prohibited. Rather, where contracting /subcontracting is otherwise allowed or where there appears to be no express prohibitions to same, Section 1103(f) of the Ethics Act would require that an open and public process be used in all situations where a public official /public employee or a business with which he is associated is otherwise appropriately contracting with his own governmental body, or subcontracting with any "person" who has been awarded a contract with the governmental body, in an amount of $500.00 or more. This open and public process would require that the following be observed as to the contract with the governmental body: (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 Confidential Opinion, 00 -006 July 7, 2000 Page 6 (4) public disclosure of the contract awarded and offered and accepted. Section 1103(f) of the Ethics Act also requires that the public official /public employee not have any supervisory or overall responsibility as to the implementation or administration of the contract with the governmental body. Section 1103(g) of the Ethics Act provides: § 1103. Restricted activities (g) Former official or employee. - -No former public official or public employee shall represent a person, with promised or actual compensation, on any matter before the governmental body with which he has been associated for one year after he leaves that body. Section 1103(i) of the Ethics Act provides: § 1103. Restricted activities (i) Former executive -level employee. - -No former executive -level State employee may for a period of two years from the time that he terminates employment with this Commonwealth be employed by, receive compensation from, assist or act in a representative capacity for a business or corporation that he actively participated in recruiting to this Commonwealth or that he actively participated in inducing to open a new plant, facility or branch in this Commonwealth or that he actively participated in inducing to expand an existent plant or facility within this Commonwealth, provided that the above prohibition shall be invoked only when the recruitment or inducement is accomplished by a grant or loan of money or a promise of a grant or loan of money from the Commonwealth to the business or corporation recruited or induced to expand. Section 1103(j) of the Ethics Act provides as follows: § 1103. Restricted activities (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 Confidential Opinion, 00 -006 July 7, 2000 Page 7 65 Pa.C.S. §1103(j). 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 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. If a conflict exists, Section 1103(j) requires the public official /public employee to abstain and to publicly disclose the abstention and reasons for same, both orally and by filing a written memorandum to that effect with the person recording the minutes or supervisor. In applying the above provisions of the Ethics Act to the facts which you have submitted, 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. Section 1103(a) would not operate to preclude your acceptance of the directorship with C. However, upon your acceptance of the directorship, C would be deemed a business with which you would be associated, so as to present the potential for conflicts of interest in matters before you as a public official which would financially impact upon C or its investors. In applying Section 1103(a) (formerly Section 3(a) of Act 9 of 1989) in contexts involving business interests, this Commission has held that a private pecuniary benefit to the business or to a business client may afford a basis for a conflict of interest. Miller, Opinion No. 89 -024; Kannebecker, Opinion No. 92 -010. A reasonable and legitimate expectation that a business relationship will form may also support a finding of a conflict of interest. Amato, Opinion No. 89 -002; Garner, Opinion No. 93 -004; Snyder, Order No. 979 -2, affirmed Snyder v. SEC, 686 A. 2d 843 (Pa. Commw. Ct. 1996), allocatur den., No. 0029 M.D. Allocatur Docket 1997 (Pa. December 22, 1997). This Commission has also held that it is a conflict of interest under the Ethics Act for a public official /public employee to pursue a private business opportunity in the course of public action. Metrick, Order No. 1037. In each instance of a conflict of interest, the public official must abstain from participation as a public official. The abstention requirement is not limited to mere Confidential Opinion, 00 -006 July 7, 2000 Page 8 voting, but extends to any use of authority of office. In Juliante, Order No. 809, this Commission recognized that the use of authority of office as defined in the Ethics Act includes, for example, discussing, conferring with others, and lobbying for a particular result. In each instance of a conflict of interest, the public official must also satisfy the disclosure requirements of Section 1103(j) set forth above. It would appear that if you would become a Director of C, there could be many instances where conflicts of interest would exist for you in your public capacity as A of Department B. We note that you have represented and assured this Commission that you would abide by certain principles which you submitted and which are set forth in the facts above. However, should you serve as a Board member for C, in your capacity as A of Department B, you would have to be vigilant to avoid potential conflicts of interest. The facts which you have submitted reflect that the Department which you serve administers its programs not only as to governmental entities but also as to non - profit organizations and for - profit business enterprises. In your public capacity, you would have to be watchful to ensure that you would abstain and fully satisfy the disclosure requirements of the Ethics Act as to matters before the Department involving C and /or its investors. Moreover, a conflict of interest could potentially exist as to official action that would effectuate a detriment to competitors of C. See, Pepper, Opinion No. 87 -008. Thus, while Section 1103(a) of the Ethics Act would not preclude your acceptance of the directorship with C, you would have a conflict of interest in the instances noted above. In each instance of a conflict of interest, you would be required to abstain fully and to satisfy the disclosure requirements of Section 1103(j). As for Section 1103(f), the restrictions of that provision would have to be observed if and when applicable. Sections 1103(g) and 1103(i) would apply to restrict you upon termination of your service as A of Department B. The restrictions of these particular provisions are discussed fully in Confidential Opinion, No. 94 -011; Singel, Opinion No. 94 -012; and Confidential Opinion, No. 95 -003, and are incorporated herein by reference. The above provisions, precedents, and principles have been set forth to provide guidance as to your prospective directorship with C. Reference has been made to the above restrictions not to imply that there would be any transgression thereof, but merely to provide a thorough analysis as to your inquiry. In providing this Opinion, we have not addressed every possible issue or potential pitfall that may arise for you. Rather, we have given the overall parameters of the applicable provisions of the Ethics Act. We encourage you to seek further advice from this Commission as circumstances require, and we commend you for coming before this Commission at this time, prior to acceptance of the directorship with C. 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 V. Confidential Opinion, 00 -006 July 7, 2000 Page 9 IV. CONCLUSION: The A of Department B is a public official and an executive -level state employee subject to the provisions of the Public Official and Employee Ethics Act ( "Ethics Act "), 65 Pa.C.S. §1101 et seq. Section 1103(a) of the Ethics Act would not operate to preclude the A's acceptance of a directorship with C, an investment company. However, the restrictions of the Ethics Act as set forth above must be observed. In each instance of a conflict of interest, the A would be required to abstain fully and to satisfy the disclosure requirements of Section 1103(j) of the Ethics Act. Pursuant to Section 1107(10), the person who acts in good faith on this Opinion issued to him shall not be subject to criminal or civil penalties for so acting provided the material facts are as stated in the request. This letter is a public record and will be made available as such. Finally, a party may request the Commission to reconsider its Opinion. The reconsideration request must be received at this Commission within thirty days of the mailing date of this Opinion. The party requesting reconsideration must include a detailed explanation of the reasons as to why reconsideration should be granted in conformity with 51 Pa. Code §21.29(b). By the Commission, Daneen E. Reese Chair Vice Chair Louis W. Fryman did not participate in this matter. Commissioner John J. Bolger did not participate in this matter.