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Home My WebLink About92-621Kevin L. Passarello, Cindrich & Titus Twentieth Floor Four Gateway Center Pittsburgh, PA 15222 STATE ETHICS COMMISSION 309 FINANCE BUILDING P.O. BOX 11470 HARRISBURG, PA 17108 -1470 TELEPHONE (717) 783 -1610 ADVICE OF COUNSEL August 17, 1992 Esquire 92 -621 Re: Broker- Dealer; Municipal Bonds; Underwriting; Selling; Sections 3(b), (c); Payments to Public Officials /Employees. Dear Mr. Passarello: This responds to your letter of June 18, 1992 in which you requested an advisory from the State Ethics Commission. Issue: Whether the Public Official and Employee Ethics Law presents any prohibitions or restrictions upon a broker - dealer registered with the Securities Exchange Commission and the Pennsylvania Securities Commission with regard to paying government officials who are subject to the Ethics Law for alerting the broker - dealer of potential business prospects or of particular municipalities or agencies which have decided or are in the process of deciding to issue municipal bonds, in which case the government official might act as the broker- dealer's representative, liaison, guide, or in a similar capacity to assist in its appointment as underwriter or selling broker - dealer of the municipal bonds. Facts: You request an advisory on behalf of your client which you designate as "ABC," as to the propriety of proposed transactions between ABC and various public officials under the jurisdiction of this Commission. ABC desires to pay a fee to certain individuals in connection with ABC's proposal to underwrite transactions involving securities. The fee recipients may be public officials under the jurisdiction of this Commission. ABC is a broker - dealer registered with the Securities Exchange Commission and the Pennsylvania Securities Commission as required by the Securities Exchange Act of 1934, 15 USC SS78a through 78111 (1981 & Supp. 1991), and the Pennsylvania Securities Act of 1972, 70 Pa. Stat. Ann. SS1 -101 to 1 -704 (Purdon Supp. 1991), ABC has underwritten various bonds issued by municipalities and Kevin L. Passarello, Esquire August 17, 1992 Page 2 governmental or quasi - governmental agenci.e In addition to underwriting the bonds, ABC has , sold or effectuirtedtransactions.in securities. You state that a primary part of ABC's business is underwriting, selling and effeofting such .trantactions . ABC expects competition to become increasiggly "intense" among broker - dealers seeking appo nt*en:t as underwri ers ,and PiBC desires to increase its opportunities by working with consultants and other independent contractors who locate such business or ABC. ABC proposes to pay a fee rfrferred to as a "Finder Fee" to individuals referred to as "Consultants r " ABC would identify potent 1 Consultants who might . assist ABC in two ways First, a consultant could alert ABC that 4 municipality or agency has decided or is in the process of .deciding to ;i;sstue municipal bonds, i n which case the consul.ant might at as a representative, liaison, guide, or in a similar capacity to assist ABC's appoint- ment as underwriter o selling broker-dealer of the municipal bonds. Seco 4, ABC imi.ght pay Finder Fees to individuals who advise ABC regarding potential business prospects within various geographic areas, You state that a Cone4l.tant might inform ASC concerning the status of capital formuia plans for all major municipal governmental entities including authorities, .agencies, school, and taxing districts within counties throughout Pennsylvania. ABC might also request 1 regarding the process of approval - F1 €4�at3.oh red � for implementation as well as an "outline of the political framework" within each municipal entity. You further state that ABC mig ht see inf ormat .on retarding the current ' status and anticipated plans of the var#.qUs Pension funds and private endow ,nernts as we] 1 as gash management opportunities within specific geographic gee A C would also seek leads on corporate acquisition opportunities within the same regions including, but not limited t4, privately held PPMPanieS within non -high technology areas with annual sales in essess of $2 million and less than $25 million, various merger opportunities within the same generic class and potential equity and debt placement opportunities within similarly def ined categories. 413q would enter into art agreement with each possible Cont nsuit.a epeeifying the terMs and Conditions of the payment of a Finder Fee. A Cenanitant would net be an employee of ABC nor a person asseciated with a broker or dealer (as defined in applicable seoi}Fitier .awe) as tO Met . ,AC anticipates that a Finder Fee will be Paid tea Cenmatant in connection with only one transaction, but APC FPg9gni ens that a Censa3.t,ant may be involved in two 'armors t *e hsactiens . The relatienahip between ABC and the Consultant will be a peensulti#g relatiOAShiP - the Consultant would provide ,Renerai cpunsplling for a We-determined fee. The Consultant would generally avoid ongoing involvement in the transaction. Finally, Kevin L. Passarello, Esquire August 17, 1992 Page 3 any offering memorandum,. prospectus or other securities filing- in connection with the transaction: in which the Consultant participates on -an ongoing basis would disclose the relationship and the fee arrangement. Discussiuo: I.i initially noted that your request for an advisory may only be from the perspective of your client, ABC. Questions as to the propriety of the proposed conduct of government officials subject to the Ethics Law in performing such services for ABC may not be addressed because no such individual has joined in your request._ The authority of the Ethics Commission to issue an opinion /advice regarding a person's duties and r the Ethics Law is limited by statute, to those persons who request it relative to their duties or to the appointing authority of such persons or the employer of such persons at the request of the appointing authority or employer. Thus, the Commission cannot issue an opinion /advice concerning the duties of .a public official/ employee Ethics. Law unless the request is made by one of the above authorized persons or entities. As a broker - dealer registered with the Securities Exchange Commission and the Pennsylvania Securities Commission-, ABC is not a public official or a public employee as. those terms are defined under the Ethics Law.. Hence, ABC is subject to only those provisions ..of the Ethics Law which apply to persons or entities which are not within the definition of "public official" or "public employee." 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. Sections 3(b) .and 3 ('c)' .apply without regard to status as a public official /public employee: ABC would specifically be within the definition of the term "person" as set forth in the Ethics Law : Section 2. Definitions "Person." A business, governmental.bady, individual, corporation, union, association:,. firm partnership,. committee, club or', other. � :.� �;. 4/' organization or group of persons. -u 65 P.S. S 4 Therefore, ABC would be, subject to Sections 3(b) and 3(c) of the Ethics Law, ,would be required to comply with those provisions, and would be subject to the following penalties set forth in the Ethics Law for any violation of those Sections: Kevin L. Passarello, Esquire August 17, 1992 Page 4 Section 9. Penalties (a) w` Any person who - violated the. provisions of section 3(a), (b)" and (c) is guilty of a felony and shall be fined not more than $10,000 or imprisoned :. for not more than five years, or be both fined and imprisoned. (c) Any person who obtains financial' gain from violating any provision of this act, in addition to any other penalty provided by law, shall pay a sum of money equal to three times the amount of the financial gain ;resulting from such violation into the State Treasury or the treasury of the political subdivisiot _ Treble damages shall not be assessed against .a person who acted in good faith reliance on the advice of legal .counsel. 65 P.S. SS409(a), (c). In addition to obvious bribery situations, an example of conduct which could be deemed to.violate Sections 3(b) and /or 3(c) would be payments to a public official /public employee for non- public information accessed in his capacity as a public official/ public employee. This is only one example and is not exhaustive of the types of conduct which would violate Sections 3(b) and /or 3(c). 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. Conclusion: As a broker- dealer registered with the Securities Exchange Commission and the Pennsylvania Securities Commission, ABC is not a public official or a public employee. Therefore, ABC would be subject only to the provisions of the Ethics Law which apply to non- public officials /employees. With regard to ABC's proposed conduct of paying government officials who are subject to the Ethics Law for alerting ABC of prospective business prospects or of particular municipalities or agencies which may issue municipal bonds, in which case the officials might also assist in the appointment of ABC as underwriter or selling broker - dealer, ABC is subject to Sections 3(b) and 3(c) of the Ethics Law and must comply with those provisions as set forth above. Lastly, the propriety of the proposed conduct has only been addressed under the Ethics Law. Kevin L. Passarello, Esquire August 17, 1992 Page 5 Pursuant to Section 7(11), this Advice is i 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 the acts: complained of in reliance on the Advice given. such. This letter is a public record and will be made available as 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- formal Opinion from the Commission will be issued. Any such appeal must be in writing and must be received at the Commission within 15 days of the date of this Advice pursuant to 51 Pa. Code S2.12. Sincerely, AGl. Vincent J. Dopko Chief Counsel Y