Loading...
HomeMy WebLinkAbout80-001 YakowiczTO: DISCUSSION: f is rl.,d STATE ETHICS COMMISSION 308 FINANCE BUILDING HARRISBURG, PENNSYLVANIA 17120 Vincent X. Yakowicz Deputy Counsel State Treasurer's Office Harrisburg, PA 17120 January 17, 1980 OPINION NO. 80 -001 RE: Appointment of John T. Sullivan; Deputy State Treasurer, to the Pennsylvania Deposit Insurance Corporation Board FACTS: On May 30, 1979, you requested an opinion relating to the appointment of John T. Sullivan, Deputy State Treasurer, to the Board of Pennsylvania Deposit Insurance Corporation. On June 18, 1979 you followed up with a memorandum answering more specifically the questions placed to you relating to the statutory authority and the authority of the Deputy State Treasurer. Act 1, 1978 -255 established the Pennsylvania Deposit Insurance Corporation Act. John T. Sullivan is Deputy Treasurer of the office of the State Treasurer. The purpose of the Act is to provide insurance to the depositors of the four private banks which exist in the Commonwealth. Pursuant to Section 3(g) of the Act, the Treasurer is authorized to make loans to the PDIC, should PDIC insurance funds be insufficient to cover the deposits which are insured in the private bank. The purpose of the Act in designating a member of the Treasury to the Board appears to be to permit the Treasury to monitor the activities of the four private banks more directly. The Department of Banking will also have a role to play in the monitoring and regulation of these four private banks. On September 17, 1979, Vincent Yakowicz, Deputy Treasurer, wrote to the State Ethics Commission asking for reconsideration of the September 10 opinion. Mr. Yakowicz noted that there is no present conflict, only the potential for conflict in an event that a loan is negotiated by the Pennsylvania Deposit Insurance Corporation with the Treasurer's Office. The issue is whether an officer in the Treasury Department may be appointed as an officer in the Pennsylvania Deposit Insurance Corporation where it is potentially possible for him to be in a position of negotiating with himself for a loan up to $10,000,000 for the Pennsylvania Deposit Insurance Corporation. Vincent X. Yakowicz January 17, 1980 Page 2 The principal difficulty imposed by these facts lies in the number of private banks being insured. Should one of the four private banks fail, 25% of all the depositors may claim protection of the Board, thereby exhausting the insurance fund, and causing the Treasury to bail out the depositors pursuant to Section 3(c) of the Act. Prior to the enactment of the PDIC, depositors had no protection, and the use of their funds was not subject to regulation. In light of the almost universal insurance of bank deposits, the existence of the private banks presents an anomaly in this age. It would not be inappropriate to term substantial deposits in private banks as speculative investments. Tying together the high probability of failure of the PDIC should any private bank become insolvent, and the speculative nature of investments there -in, a question could be raised as to why taxpayers should insure these speculative investments in the first place. The wisdom of the Act, however, is not within the province of the Commission to pass judgement, except to note the potential for abuse. No statement was given to the Commission as to the Deputy Treasurer's personal investment in any of these four private banks. We will assume under the facts there is none within his "immediate family" as defined by the Act. Section 3(c) of the Act provides as follows: "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." The Commission notes, however, that there is no actual conflict but merely the potential for conflict in holding these two positions. Vincent X. Yakowicz January 17, 1980 Page 3 CONCLUSION: as such. PJS /rdp -2 John T. Sullivan, therefore, may act as State Treasurer appointee to the Board of the Pennsylvania Deposit Insurance Corporation providing: A) Mr. Sullivan's interest in any of the private banks does not exceed 5% of the equity of the banks. B) Mr. Sullivan is not a substantial depositor of the banks such that his deposits equal or exceed 5% of the deposits of any private bank; and further he may not be a bond - holder, debenture holder, or creditor of any private bank to the extent of 5% of the fair market value of the bank. C) Mr. Sullivan may not hold any office or position in any private bank as specified in section 3(c) of the Act. D) Mr. Sullivan, as a member of the State Treasury Office, must recuse himself as a member of the PDIC Board involving any decision to request funds from the office of the treasurer; further, he must recuse himself as Deputy Treasurer from making any decision in that capacity involving the release of funds to the PDIC. Pursuant to Section 7(9)(i), this opinion 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