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HomeMy WebLinkAbout1333 EspositoIn Re: Joseph Esposito File Docket: X -ref: Date Decided: Date Mailed: Before: Louis W. Fryman, Chair John J. Bolger, Vice Chair Daneen E. Reese Donald M. McCurdy Michael Healey Paul M. Henry Raquel K. Bergen 02- 044 -C2 Order No. 1333 6/8/04 6/22/04 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 Act, Act 9 of 1989, P.L. 26, 65 P.S. §§ 401 et seq., as codified by Act 93 of 1998, Chapter 11, 65 Pa.C.S. § 1101 et seq., by the above -named Respondent. At the commencement of its investi9ation, the Investigative Division served upon Respondent written notice of the specific allegation(s). Upon completion of its investi9ation the Investigative Division issued and served upon Respondent a Findings Report identified as an "Investigative Complaint." An Answer was filed and a hearing was held. The record is complete. Effective December 15, 1998, Act 9 of 1989 was repealed and replaced by Chapter 11 of Act 93 of 1998, 65 Pa.C.S. § 1101 et seq., which essentially repeats Act 9 of 1989 and provides for the completion of pending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. Esposito 02- 044 -C2 Page 2 I. ALLEGATION: That Joseph Esposito, a (public official /public employee) in his capacity as a Councilman for Exeter Borough, Luzerne County, violated the following provisions of the State Ethics Act (Act 93 of 1998) when he used the authority of his office for the private pecuniary benefit of himself and /or a business with which he is associated, including but not limited to, participating in discussions and /or actions and decisions of the Borough Finance and Insurance Committee and of borough council resulting in a business with which he is associated, Prudential Financial, being retained as advisor to the Exeter Borough Police Pension Fund; when he participated in committee decisions resulting in funds from the police pension plan remaining invested with Prudential Financial; when he failed to file Statements of Financial Interests for the 1999 and 2002 calendar years; and when he failed to list creditors on Statements of Financial Interests filed for calendar years 2000 and 2001; and when he failed to disclose all sources of income in excess of $1,300 on Statements of Financial Interests filed for the 2000 and 2001 calendar year. § 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). § 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. 65 Pa.C.S. § 1102. § 1104. Statement of financial interests required to be filed (a) Public official or public employee. - -Each public official of the Commonwealth shall file a statement of financial interests for the preceding calendar year with the commission no later than May 1 of each year that he holds such a position and of the year after he leaves such a position. Each public employee and public official of the Commonwealth shall file a statement of financial interests for the preceding calendar year with the department, agency, body or bureau in which he is employed or to which he is appointed or elected no later than May 1 of each year that he holds such a position and of the year after he leaves such a position. Any other public employee or public official shall file a statement of financial interests with the governing authority of the political subdivision by which he is employed or within Esposito 02- 044 -C2 Page 3 which he is appointed or elected no later than May 1 of each year that he holds such a position and of the year after he leaves such a position. Persons who are full -time or part -time solicitors for political subdivisions are required to file under this section. 65 Pa.C.S. §1104(a). § 1105. Statement of financial interests (b) Required information. - -The statement shall include the following information for the prior calendar year with regard to the person required to file the statement: (4) The name and address of each creditor to whom is owed in excess of $6,500 and the interest rate thereon. However, loans or credit extended between members of the immediate family and mortgages securing real property which is the principal or secondary residence of the person filing shall not be included. (5) The name and address of any direct or indirect source of income totaling in the aggregate $1,300 or more. However, this provision shall not be construed to require the divulgence of confidential information protected by statute or existing professional codes of ethics or common law privileges. 65 Pa.C.S. §1105(b). II. FINDINGS: A. Pleadings 1. The Investigative Division of the State Ethics Commission received a signed, sworn complaint alleging that Joseph Esposito violated provisions of the State Ethics Act (Act 93 of 1998). (See, Finding 88). 2. Upon review of the complaint the Investigative Division initiated a preliminary inquiry on April 24, 2002. 3. The preliminary inquiry was completed within sixty days. 4. On June 21, 2002, a letter was forwarded to Joseph Esposito by the Investigative Division of the State Ethics Commission informing him that a complaint against him was received by the Investigative Division and that a full investigation was being commenced. a. Said letter was forwarded by certified mail, no. 7001 0360 0001 4061 2511. b. The domestic return receipt bore the signature of Joseph Esposito, with a delivery date of June 25, 2002. 5. On November 14, 2002, the Investigative Division of the State Ethics Commission filed an application for a ninety day extension of time to complete the Investigation. 6. The Commission issued an order on December 4, 2002, granting the ninety day extension. Esposito 02- 044 -C2 Page 4 7. On February 12, 2003, the Investigative Division of the State Ethics Commission filed an application for a ninety day extension of time to complete the Investigation. 8. The Commission issued an order on February 27, 2003, granting the ninety day extension. 9. On April 4, 2003, a letter was forwarded to Joseph Esposito by the Investigative Division of the State Ethics Commission advising the allegations contained in the Notice of Investigation of June 21, 2002, were being amended. a. Said letter was sent by certified mail no. 7001 1940 0001 0179 4615. b. The domestic return receipt bore the signature of Joseph Esposito, with a delivery date of April 8, 2003. 10. On June 3, 2003, a letter was forwarded to Joseph Esposito by the Investigative Division of the State Ethics Commission advising that the allegations contained in the April 4, 2003, notice of investigation were being amended. a. Said letter was sent by certified mail no. 7000 1670 0005 2766 4975. b. The domestic return receipt bore the signature of J. Esposito, with a delivery date of June 7, 2003. 11. Periodic notice letters were forwarded to Joseph Esposito in accordance with the provisions of the Ethics Law advising him of the general status of the investigation. 12. The Investigative Complaint was mailed to the Respondent on June 16, 2003. 13. Joseph Esposito has served as a councilman for Exeter Borough (Borough) since January 1998. 14. The council president makes all committee assignments. a. Assignments are made based on individual council members [sic] expertise and interest. 15. Trustees were responsible for oversight of pension plan investments and were the contact for the plan's consultant. 16. Esposito is employed as a First Vice President of Investments for Prudential Securities. a. Esposito has been employed by Prudential since August 25, 1989. 1. Esposito was a registered agent associated with Thompson McKinnon Securities from September 5, 1978, until August 1989. 2. Thomas McKinnon Securities was bought out by Prudential. b. Esposito works out of Prudential's Scranton office. c. Esposito is registered with the National Association of Security Dealers (NASD) central registration depository no. 860964. 17. Joseph J. Esposito has been licensed by the Commonwealth of Pennsylvania's Insurance Department as a Resident Agent since February 22, 1983. Esposito 02- 044 -C2 Page 5 a. Esposito's current business address on file with the Insurance Commission is 32 Scranton Office Park, Scranton, PA 18507. 18. Esposito has active licenses to act on behalf of the Prudential Insurance Company, Travelers Life and Annuity Company, Pruco Life Insurance Company, Ohio National Life Insurance Company, Hartford Life Insurance Company, Golden American Life Insurance Company and Hartford Life and Annuity Company. a. Esposito has active licenses to offer life and fixed annuities and variable annuities on behalf of the Prudential Insurance Company. 19. Esposito's job duties and responsibilities include making investments for clients and to insure that he makes the most profit from the investments with the least amount of tax consequences. a. b. c. d. 1. This is the office address of Prudential Securities' Scranton office. Esposito provides advice to clients as to investments, including when to move accounts to minimize loss. Esposito will meet with clients, upon their request, to discuss the status of investments. Esposito's performance is rated, in part, on his ability to secure clients to invest with Prudential. Esposito's compensation is based on commissions, fees and finders fees. 20. Prudential Securities has ... [held] a portion of Exeter Borough's police pension fund since at least 1990. 21. Prior to his election to council, Esposito sought an advisory ruling from the State Ethics Commission's Legal Division regarding his role as investment advisor to the pension plan and his position on council. 22. By letter dated February 18, 1997, to Vincent Dopko, Chief Counsel to the State Ethics Commission, Esposito sought an Advice of Council: "I am currently running for the office of Councilman for the Boro of Exeter, PA. Also I am an Investment Management Consultant for the firm of Prudential Securities, Inc. In my course of business I was hired to do consulting on part of the Exeter Boro Police Pension Account. I do this by finding and selecting the proper money manager. I am not involved in the selection or trading of the securities, nor in the allocation of funds. I am writing to you, under the advise [sic] of Rep. Phyllis Munday, for an advisory ruling regarding, if any, a conflict of interest, if I am elected." 23. Advice of Counsel 97 -545 was issued on March 19, 1997, by the State Ethics Commission Legal Division to Esposito. a. The issue reviewed was whether the Public Official and Employee Ethics Law presents any prohibition or restrictions upon a borough council member with regard to doing consulting work as to the borough's police pension account. b. The Legal Division reviewed the request under Sections 1103(a), 1103(f) and 1103(j) of the State Ethics Act. Esposito 02- 044 -C2 Page 6 1. The advise [sic] also noted Section 46404 of the Borough Code as it relates to personal interest in contracts or purchases. 24. Advice 97 -545 concluded as follows: "If elected to the position of Council Member for the Borough of Exeter, you would be a public official subject to the provisions of the Ethics Law. Your employer, Prudential Securities, Inc. (Prudential), is a business with which you are associated. Pursuant to Section 3(a) of the Ethics Law, you would have a conflict of interest in matters involving services provided to the Borough by your employer and /or by you. Examples where such conflicts of interest would exist would include matters involving the Borough's continued securing of consulting services as to the Borough's Police Pension Account and its payment for such services rendered. In each instance of a conflict of interest you would be required to abstain fully and to satisfy the disclosure requirements of Section 3(j). The restrictions of Section 3(f) must be observed to the extent applicable. Lastly, the propriety of the proposed conduct has only been addressed under the Ethics Law." 25. In advising Esposito on the "use of the authority of office," Advice 97 -545 stated the following: "You are further advised that the use of authority of office is more than the mere mechanics of voting and encompasses all of the tasks needed to perform the functions of a given position. See, Juliante, Order No. 809. Use of authority of office includes discussing, conferring with others, lobbying for a particular result and /or any other use of the authority of office in which the result would be a private pecuniary benefit to a business with which a public official or a member of his immediate family is associated. Thus, in each instances [sic] of a conflict of interest, you would be required to abstain fully from participation and to satisfy the disclosure requirements of Section 3(j). 26. Exeter Borough administers a Defined Benefit Pension Plan known as the Borough of Exeter Police Pension Plan (Plan). a. The purpose of the Plan is to provide retirement benefits for employees of the police department who meet age and service requirements. b. The Plan is funded by contributions from employees, the borough and the Commonwealth. 27. The Plan operates pursuant to an ordinance approved by borough council. a. The ordinance has been amended on occasion, most recently on March 7, 2000. 28. The pension plan ordinance establishes benefits, policies, and funding requirements related to the plan's operation. a. The plan also provides for the appointment of trustees and a chief administrative officer. 29. The ordinance, section 3, authorizes the appointment of a trustee or trustees to invest and re- invest the fund and to make payments out of the fund in accordance with the provisions of the plan and trust agreement. a. Section 3 provides that a trustee may be a natural person or persons or corporation including a financial institution. Esposito 02- 044 -C2 Page 7 b. Since 1998, trustees have been members of the borough council, the police chief and borough secretary- treasurer. 30. Authorizations for plan funding are delineated in Section 8 as follows: a. Payments from the Commonwealth to the borough treasurer from taxes paid upon premiums by foreign casualty insurance companies for purposes of pension retirement for police officers. b. Monthly charge to each of the plan's participants equal to 5% of his or her monthly compensation. 1. If actuarial study shows that the condition of the fund is such that payments into the fund by the members may be reduced below 5% or eliminated, council may, on an annual basis, by ordinance or resolution, reduce or eliminate payments by the members. c. When necessary, by annual appropriation made by the Borough of Exeter. 31. Borough secretary /treasurer, Debra Serbin, serves as the Chief Administrative Officer (CAO) of the pension plan and fund. a. Section 2 of the ordinance as amended provides for such appointment with responsibilities to include administration, management, operation and application. b. Serbin's role as CAO has been limited to receiving monthly, quarter [sic] and annual statements from the plan's third party administrator, and from the companies who have been used to invest funds and completing census statements of the plan's participants. c. Serbin makes no investments or decisions where to invest. d. Serbin makes no decisions regarding the plan. 32. Exeter Borough has contracted with Administrative Services Corporation (ASCO) since 1990 to serve as administrative agent and investment management consultant for the plan. a. ASCO was contracted to provide initial and annual administration, accounting, record keeping and investment management consulting services. b. ASCO annually provides the borough with all record keeping functions, calculates the annual minimum funding obligation in compliance with Act 205. c. ASCO functions as the investment management consultant in all matters governing directed assisted placement and on -going management of the pension fund. 1. ASCO developed an Investment Policy Statement (IPS), asset allocation strategy, appointment portfolio, managers [sic] and monitors the investment management process of the fund on a quarterly basis. 2. The IPS provides that money managers shall have the discretion to temporarily invest a portion of the assets in cash reserves they deem appropriate. The managers will be evaluated against their peer on the performance of the total funds under their direct management and should consider themselves when positioning assets in cash. Esposito 02- 044 -C2 Page 8 d. ASCO has received commissions and fees for placing funds with Provident Mutual Life (PML). e. ASCO provides the borough with quarterly and annual statements regarding the plan's assets. 1. ASCO will meet with Borough officials to review the plan upon request. f. Donald Williamson, ASCO President, is the main contact for investment matters. 33. Metropolitan Life (Met Life) became affiliated with the borough's police pension fund in [or about late 1993 or] 1994. a. Account representative Steven Sokach made a presentation to members of council seeking an opportunity to invest a portion of the plan's funds. b. At that time, the borough was heavily invested with Prudential ... . 1. One of Prudential's funding accounts was Foxhall Investments, which later merged with Prudential. 34. [Prior to Respondent's service as an Exeter Borough Council Member,] the borough entered into an agreement with Provident Mutual Life Insurance Company ... for the investment of funds for the police pension account. a. The investments with Provident were made through Donald Williamson of ASCO. 1. As an independent broker, Williamson invested funds with Provident and its subsidiaries and affiliates. b. The Group Annuity Contract No. GR4450 -201 was issued to the trustees of the borough pension plan. c. An additional investment of $ 300, 000.00 to PM L's fixed income fund was made on or about December 28, 1997. 1. The borough had terminated the services of SAFECO Insurance and moved the assets to Provident. d. PML was acquired by Nationwide Financial Services in October 2002. 35. The Exeter Borough Police Pension Plan's net assets, based on ASCO annual reports, are as follows ... [for calendar years 1997- 2000]: December 1997 December 1998 December 1999 December 2000 Thomas Shannon $ 1,043,419.00 $ 1,155,680.00 $ 1,320,311.00 $ 1,200,423.00 36. By memo dated June 8, 1998, Met Life was advised that Daniel DeRoberto and Thomas Polacheck were no longer trustees of the plan. a. The memo signed by Esposito directed that the following be added as trustees: Esposito 02- 044 -C2 Page 9 Joseph Esposito b. Thomas Shannon is a member of borough council. c. The memo also notes that only one signature is necessary to process any future request for this plan. 37. Prior to the issuance of the June 8, 1998, notification to Met Life, a Resolution enacted . [in February 1992] by the borough required that two trustees or one trustee and the plan administrator must sign to approve changes to the plan. 38. Shannon deferred to Esposito on plan investments due to Esposito's experience with investments and that [sic] Esposito was Prudential's financial advisor to the borough. a. In 2000 both Met Life and Prudential began decreasing in value. b. Met Life decreased 7.324% in value while Prudential dropped 15.599% in value. 39. On January 24, 2001, Frank Procopio, ASCO Administrative Services Division, provided Serbin with a draft withdrawal form and advised her to retype the document on borough letterhead and forward it to Met Life. 40. On February 9, 2001, Met Life advised Esposito and Shannon that ... [a request to withdraw $100,000 from the Met Life account] could not be honored without completion of a withdrawal form signed by the trustees. 41. On February 27, 2001, an Authorization Withdrawal or Transfer Fund Asset was sent to Met Life by Exeter Borough directing that $100,000 of account no. 073270254AB be wire transferred to Provident Mutual Pension Department. a. The authorization was signed by Thomas Shannon, Trustee and Debra Serbin. 42. Esposito did not sign the Authorization because he was not listed on the borough's Authorized Signer's Certificate dated June 2, 1998, which noted as follows: "The undersigned does hereby certify that he or she is the duly appointed representative of the Borough of Exeter, Luzerne County, Pennsylvania, and the person(s) whose name(s) and signature(s) are listed below have been duly authorized to sign documents on behalf of the Borough of Exeter Police Pension Plan, and such authority has not been withdrawn, altered, amended or revoked. A copy of this signer's certificate is as valid as the original." a. Authorized signers included: Thomas Shannon; John Petrucci; John McNeil; Debra Serbin. b. Shannon and Petrucci are councilmen while McNeil is Exeter Borough Police Chief. 43. Both Met Life and Prudential are equity funds while PML is a fixed fund. a. Equity funds often yield higher returns but have greater risk than fixed funds. b. Council, by ordinance, had delegated . . . [the responsibility to effect a transaction] to the Trustees. 44. The move of funds was effected by Donald Williamson of ASCO after receiving authorization from the trustees. Esposito 02- 044 -C2 Page 10 45. At the time of the submission of the withdrawal request to Met Life, Prudential was losing funds at a greater rate than Met Life (15.599% to 7.324 %). a. Esposito's compensation was based on Prudential's share of the plan's assets. 46. ASCO Financial management reports for 1999 through 2001 confirm the market value of the plan's investments as follows: a. b. c. d. Market Value Market Value % of 1999 12131198 12131199 Change Met Life $162,120.19 $189,723.16 17.026% Prudential $487,747.05 $641,285.72 31.479% Provident $505,813.02 $489,302.99 11.596% Total $1,155,680.26 $1,320,311.93 14.245% 2000 12199 12100 % Change Met Life $189,723.16 $175,827.14 -7.324% Prudential $641,285.72 $541,251.03 - $15.599% Provident $489,302.99 $483,344.94 7.341% Total $1,320,311.93 $1,200,423.12 - 9.080% 2001 12100 12101 % Change Met Life $175,827.14 $54,409.23 *-69.055% Prudential $541,251.03 $482,670.11 - 10.823% Provident & $483,304.94 $573,619.77 Wells Reit *This loss is attributed mainly to the $100,000 withdrawal. 2002 Met Life Prudential Provident & Wells Reit 12101 $54,409.23 $482,670.11 $573,619.77 12102 $39,687.15 $351,195.23 $579,172.03 % Change - 27.06°k - 27.24% 1.96% 47. Prudential investment account no. ECU -95184 for the Exeter Borough Police Pension Plan had an account balance /value of $392,369.65 as of January 1, 1998, when Joseph Esposito took office as an Exeter Borough Councilman. 48. During the sixty (60) month period between January 1, 1998, and December 31, 2002, Prudential account number ECU -95184 had posted monthly losses thirty (30) times. 49. Under Esposito's control this fund lost $303,604.92 from its high [sic] balance of $654,800.20 on August 31, 2000. 50. Esposito took no action and would not meet with concerned borough officials regarding the Prudential losses. 51. A meeting was held with ASCO on May 24, 2000. 52. Petrucci was eventually criminally charged with Official Oppression, Obstructing the Administration of Law in relation to actions taken against ... [an] officer. Esposito 02- 044 -C2 Page 11 a. Petrucci stepped down as chairman of the committee on the advice of his private counsel. 53. On April 3, 2001, Exeter Borough Council approved Resolution 5 -2001, which changed the trustees of the Police Pension Plan to Richard Murawski, Thomas Shannon and Debra Serbin. 54. On November 14, 2001, at 6:00 p.m. Lenahan and his father, Patrick Lenahan, II, also a Solomon [sic] Smith Barney representative, met with members of the Exeter Borough Council and borough police officers in the boy scout meeting room. a. b. c. The ... [event] was arranged by Debra Serbin. Council members ... Chepalonis, Esposito, [and] Straub and Mayor Coyne [attended the presentation]. 1. Councilman -elect Daniel DeRoberto also attended. Police Chief McNeil, Officers Galli and Belza and Serbin also attended. 55. The Lenahan presentation included information about his company, Salomon Smith Barney. a. Lenahan's proposal described the company and the various options Salomon Smith Barney could provide. 56. Respondent denies the averment at paragraph 74 a of the Investigative Complaint/ Findings Report that he (Respondent) continually interrupted the Lenahan presentation and was argumentative, but he admits that he did ask questions of the presenters. (See, Investigative Complaint /Findings Report at paragraph 74 a; Answer to Investigative Complaint and Demand for Hearing, at paragraph 74 a). a. After the meeting Esposito approached the Lenahans and informed them that he had a letter from the Ethics Commission permitting him to continue as Prudential's financial advisor. 57. E s p o s i t o . .. [stated to the Lenahans] that we (borough) do not have to be concerned with the losses because the borough and state have to make up any losses. 58. McNeil met with Jerry Williamson and Joseph Perfilio of ASCO's investment division. a. Donald Williamson joined the meeting later. b. Esposito was present ... [for at least part of the meeting]. 59. Esposito advised to "ride out the storm." a. By December 2001, Prudential had lost $82,453 over the previous calendar year. b. No action was taken either by ASCO or the borough regarding Chief McNeil's concerns. 1. No report was made to council nor was the Smith Barney proposal considered. 60. As of June 15, 2003, the police pension funds remain invested, in part, with Prudential. Esposito 02- 044 -C2 Page 12 61. Esposito's compensation for this account is based on Prudential's portion of the plan's total assets. 62. Since obtaining Prudential's portion of the plan, Esposito has provided no advisory services to the borough or plan participants. 63. Prudential Securities utilized the services of Jennison Associates, 466 Lexigton [sic] Avenue, 18 Floor, New York, New York, to serve as the money manager for the Prudential Securities portion of the Exeter Borough Police Pension Account. a. Jennison selected the investents [sic] to be made and physically placed the trade. b. Jennison was compensated based on a percentage of the plan value. c. Jennison Associates has been a wholly owned subsidiary of Prudential Insurance Company since approximately 1985. The following findings relate to the allegations that Joseph Esposito failed to file Statements of Financial Interests and failed to disclose income on Statements of Financial Interests 64. Joseph J. Esposito in his official capacity as an Exeter Borough Councilman was annually required to file a Statement of Financial Interests form by May 1 S of each year containing information for the prior calendar year. a. Esposito is annually provided with a blank SFI form to complete by borough secretary Debra Serbin. b. The forms were provided in January of each year. 65. Respondent denies Paragraph 98 of the Investigative Complaint as stated, as well as certain of its subparagraphs, but admits the following narratives pertaining to his Statements of Financial Interests forms on file with Exeter Borough for calendar years 2000 and 2001: a. Calendar Year: Filed: Position: Occupation: Creditors: Direct /Indirect Income: Office, Directorship or Emp. in any Business: Financial Interests in any Business: All Other Financial Interests: b. Calendar Year: Filed: Position: Occupation: Creditors: Direct /Indirect Income: Office, Directorship or Emp. in any Business: 2001 02/26/02 on SEC Form 1/02 Councilman Financial Consultant None Prudential Securities Omega Realty Company, G.P. Omega Realty Company, G.P. None 2000 02/28/02 on SEC Form 1/01 Council /Candidate Financial Consultant None Prudential Securities Omega Realty, partner Esposito 02- 044 -C2 Page 13 Financial Interests in any Business: Omega Realty — 50% All Other Financial Interests: None (See, Investigative Complaint /Findings Report at paragraph 98 and subparagraphs b -c; Answer to Investigative Complaint and Demand for Hearing, at paragraph 98 and subparagraphs b -c). 66. Esposito also confirmed a vehicle loan in excess of $6,500, which was unreported on his Statement of Financial Interests. 67. Between January 1998 and March 2003 commissions totalling [sic] $51,760.03 have been received by Prudential, a business with which Esposito is associated. a. Esposito has received $6,223.20 of those fees. B. Testimony 68. Vincent J. Dopko ( "Dopko ") is Chief Counsel of the State Ethics Commission. a. ID -2, page 1 consists of an advisory request letter dated February 18, 1997, from Respondent to Dopko. (See, Finding 22). b. ID-2, pages 3 -8 consist of a true and correct copy of Esposito, Advice 97 -545, issued to Respondent on March 19, 1997. (See, Findings 23 -25). c. No appeal was filed as to Esposito, Advice 97 -545. 69. Debra Serbin ( "Serbin ") is secretary /treasurer for Exeter Borough, having served in that capacity since 1998. a. Serbin attends Exeter Borough Council meetings. b. Serbin's duties include preparing Borough Council meeting agendas, taking roll, and audiotaping and preparing the minutes of Council meetings. c. Serbin is the custodian of records of Exeter Borough documents and the audiotapes and minutes of Borough Council meetings. d. Serbin is the chief administrative officer of the Exeter Borough uniform and non- uniform pension plans. e. Serbin is the custodian of the "Blue Book," which is the official Borough record of the Exeter Borough Police Pension Plan. f. ID -4 consists of true and correct copies of W -2 Wage and Tax Statement Forms issued by the Borough of Exeter to Respondent for 1999 -2002. (See, Finding 95). ID -5 consists of two Statements of Financial Interests filed with Exeter Borough by Respondent for calendar years 2000 and 2001, together with a statement from Serbin dated June 4, 2003, asserting Serbin's inability to confirm or deny the filing of such a form by Respondent for 1998. (See, Finding 96). 1. Serbin testified that she attempted to locate Statement of Financial Interests filings by Respondent for the calendar years in question in this case but did not locate any other than those in ID -5. g. Esposito 02- 044 -C2 Page 14 2. Serbin testified that she was also not able to locate Statements of Financial Interests of some other Council Members. 3. Serbin testified that during renovation of the Borough building, Borough records were moved 2 -3 times and some Borough records were ruined and disposed of. 4. Serbin testified that some Borough records remain in disarray and cannot be easily and accurately searched. h. Serbin testified that Respondent was never on the pension committee for the Exeter Borough Police Pension. Serbin prepared the document in evidence as Esposito #2, which asserts that Respondent was never on the pension committee for the Exeter Borough Police Pension. (See, Finding 115). j. Serbin prepared the memo dated June 4, 2003, in evidence as Esposito #3, which asserts that no committee reports exist for the Exeter Borough Police Pension Plan. (See, Finding 116). k. During the years between 1998 through 2002, Respondent served on the Borough's finance committee, which at some point during Respondent's service was renamed the finance (pensions and grants) committee. 1. Serbin testified that the finance committee was concerned with the non- uniform pension but not the police pension. The Exeter Borough Police Pension Plan is administered by ASCO. 1. ID-8, pages 1 -8 consist of a true and correct copy of the Fee Agreement under which ASCO provides administrative services for the Exeter Borough Police Pension Plan. (See, Finding 99). m. The individuals at ASCO with whom Serbin had dealings were Frank Procopio and Tracy Carr. 1. Serbin testified that ASCO, and specifically Frank Procopio, directed her (Serbin) on the filing and paperwork necessary for the Borough Police Pension Plan. n. There are trustees of the Exeter Borough Police Pension Plan. o. Serbin testified that the Police Pension Plan trustees did not do much because there was very little for them to do. P. 1. The Police Pension Fund is overfunded. Serbin testified that Respondent never acted as a trustee of the Exeter Borough Police Pension Plan. 1. Serbin testified that any documents from Frank Procopio or Tracy Carr of ASCO listing Respondent as a trustee would not be accurate. Esposito 02- 044 -C2 Page 15 q. 2. Serbin testified that in the past, she has inaccurately identified Respondent as a trustee of the Police Pension Fund on various documents that she has prepared. Serbin initially testified that for Respondent to be a trustee of the Exeter Borough Police Pension Fund, his appointment as such would have to be reflected in the minutes. 1. On a subsequent hearing date, Serbin testified, "I've come to learn that all of council are the trustees." (2/26/04 Tr. at 938). r. ID -10, page 4 and the document in evidence as ID -26, page 1/ID -10, page 3/ID -31, page 9 consist of certain Borough documents pertaining to the Exeter Borough Police Pension Plan. (See, Finding 105). s. Serbin prepared a document identified as Esposito #1 (not offered into evidence), which she testified was an accurate summary of Borough records supporting her identification of the trustees appointed to the Exeter Borough Police Pension Plan from 1998 forward. t. When compiling Esposito #1, Serbin relied on documents identifying authorized signees, not trustees, and she did not review every document in the Blue Book. u. Esposito #11 consists of Exeter Borough records that Serbin retrieved to support Esposito #1. (See, Finding 119). 1. The documents comprising Esposito #11 do not identify Respondent as an authorized signer for the Exeter Borough Police Pension. (See, Finding 119 a). 2. Esposito #11, page 6 is an unsigned document that identifies Respondent as a trustee of the Exeter Borough Police Pension Plan. (See, Finding 119 b). (a) Serbin testified that Esposito #11, pages 5 -6 and 7 -8 consisted of two faxes sent by Frank Procopio of ASCO to Serbin as samples of two alternative ways to changes trustees. (b) Serbin testified that the listing of Respondent must have been somewhere in ASCO's files, and that she got it from ASCO. 3. Esposito #11, page 9 consists of Resolution 5 -2001 changing the trustees of the Exeter Borough Police Pension Plan. (See, Finding 119 c). (a) There is no mention of Respondent's name on Esposito #11, page 9. (See, Finding 119 c 1). v. The original document in evidence as ID -26, page 1 is a record of Exeter Borough that identifies Respondent as a trustee of the Exeter Borough Police Pension Plan. 1. There are additional copies of ID -26, page 1 in evidence as ID -10, page 3 and ID -31, page 9. (See, Finding 105 b 1). 2. ID -26, page 1/ID -10, page 3/ID -31, page 9 is a letter dated June 8, 1998, and is for the purpose of removing two former councilmen and Esposito 02- 044 -C2 Page 16 adding two current councilmen, including Joseph J. Esposito, as trustees of the Exeter Borough Police Pension Fund. 3. Serbin testified that this document pertained to a re- contracting with Met Life due to an error by Met Life. (a) The letter from Met Life that notified Exeter Borough of the Met Life error (ID-31, page 4) made no mention of any request by Met Life to change the trustees of the Exeter Borough Police Pension. 4. Met Life faxed ID -26, page 1 to Serbin on July 8, 1998. 5. The comment on the FAX cover sheet from Met Life (ID -26, page 3 /ID- 31, page 7) referred to the form as being needed in order to process Serbin's request, and did not make any mention of any request by Met Life to change the trustees. 6. Certain handwritten notes in evidence at ID -31, page 12, indicate that it was Serbin, not Met Life, who sought to remove the two trustees and add new ones. 7. Serbin acknowledged that the change in trustees was prompted by the fact that the letter from Met Life (ID -31, page 4) had been addressed to two trustees who were no longer Council Members and that it was her (Serbin's) intentions to remove those names so that the correspondence would be directed to current Council Members. 8. Serbin testified that ID -26, page 1/ID -10, page 3/ID -31, page 9 inaccurately reflected Respondent as a trustee. (a) Serbin testified that at the time of that document, she was new in the position of Borough Secretary and lacked sufficient information about the Exeter Borough Police Pension Plan to make decisions as to which names should have been on it. 9. Respondent signed the signature of his name that appears on ID -26, page 1, under the wording, "Please add the following names to be trustees." (See, Findings 90, 105 b). 10. Serbin faxed the completed form with Respondent's signature on it to Met Life on July 21, 1998, and Met Life responded by FAX that the change had been made on August 14, 1998. (ID -31, pages 9 -10). 11. Serbin does not have any document to show that anybody other than Respondent and Thomas Shannon were trustees of the Exeter Borough Police Pension Plan between July 1998 and April 2001. w. ID -8, page 9 /Esposito #7 is a letter that Serbin acknowledged receiving from Met Life in February 2001, which letter is addressed to the attention of "Thomas Shannon & Joseph Esposito Trustees." (See, Finding 100). x. The letters at ID -8, page 10, ID -10, page 6, and Joint Exhibit 1 pertaining to the Exeter Borough Police Pension Account refer to Respondent as both a Council Member and Pension Trustee. (See, Findings 92 b, 106). Esposito 02- 044 -C2 Page 17 Y. 1. Serbin testified that she believes that the letter at ID-8, page 10 was the attachment to ID -8, page 11, a memorandum that Serbin received from Frank Procopio of ASCO. (See, Findings 79 i, 101). 2. Serbin, who typed ID -10, page 6 and Joint Exhibit 1, testified that Respondent was inaccurately identified as a trustee on both. ID -12 includes account statements from 1998 through 12/31/02 for Exeter Borough's account with Met Life (account number 073270254 AB) relating to the Police Pension Fund. (See, Finding _108). 1. Each account statement at ID -12 bears the names "Thomas Shannon, Joseph Esposito, TTS." (See, Finding 108 a). (a) Serbin testified that this document does not accurately reflect who the trustees were. 2. ID-31, page 35 consists of a memorandum dated August 8, 2001, from Respondent requesting account statements from Met Life for the Exeter Borough Police Pension account. z. The audiotape for the April 3, 2001, meeting of Exeter Borough Council is in evidence as ID -23. (See, Finding 111). 1. The audiotape discussion of Resolution 5 -2001 includes the following commentary by Richard Murawski and Serbin: Mr. Murawski: Motion to pass Resolution 5 -2001 to change trustees of the Exeter Borough Police Pension Plan. Is there a motion? Ms. Serbin: What we're doing is we're taking off Mr. Esposito and replacing him with Richard Murawski. The other trustees will be Tommy Shannon and myself. (2/24/04 Tr. at 73). 2. Serbin testified that she does not know to what she was referring with her above comment regarding the removal of Respondent. 3. Serbin acknowledged that her comment did refer to Resolution 5 -2001 relating to the Police Pension Fund. 4. The audiotape discussion of Resolution 5 -2001 does not include any statement by Respondent regarding Serbin's comment or in any way denying status as a trustee of the Police Pension Fund. 5. The audiotape discussion of Resolution 5 -2001 does not include any negative votes or stated abstentions. (2/24/04 Tr. at 73 -74). aa. ID -9, pages 1 -50 consist of meeting minutes of Exeter Borough Council for the time period from September 1998 through January 6, 2003. (See, Finding 102). bb. The Exeter Borough Council meeting minutes for April 3, 2001, include the following action: Esposito 02- 044 -C2 Page 18 MOTION TO PASS RESOLUTION 5 -2001 TO CHANGE TRUSTEES OF THE EXETER BOROUGH POLICE PENSION PLAN TO RICHARD MURAWSKI, THOMAS SHANNON ' ONAND DEBRA SERBIN. 1 . MR. PETRUCCI, 2. MRS. CHEPALONIS AND UNANIMOUSLY CARRIED. (ID -9, page 22). (See, Finding 102 c). 1. Although the minutes as prepared by Serbin reflect that Respondent was p was resent at the meeting and that this vote was unanimous, Serbin f resent that the minutes do not show whether Respondent participated in this vote. cc. Serbin testified that one cannot tell whether a particular Council Member participated in a vote simply because the minutes indicate that the Member was present or the vote was unanimous. 1. Serbin testified that absent a roll call vote, one usually does not hear an abstention. 2. Serbin testified that there have been occasions when Pension Fund matters came up, that Respondent sat mute, walked away, or turned to do something else during the Council meeting. (a) Serbin testified that she had no way of knowing whether this occurred for the particular matter of Resolution 5 -2001 at the April 3, 2001, meeting. dd. Serbin testified that she has no independent recollection of Respondent ever acting with regard to the Exeter Borough Police Pension Fund. 1. Serbin testified that she does not have any recollection of Respondent contacting her concerning investments in the Police Pension Fund. ee. ID -10, pages 1 -2, and ID -8, page 12 consist of documents by which former Exeter Borough Police Chief Zavada was provided with a cost of living increase through the Borough Police Pension Plan. (See, Finding 104). ff. The minutes of the January 2, 2001, reorganization meeting of Exeter Borough Council include the following action: MOTION TO PASS RESOLUTION # 1 -2001, ACT 600, WHICH STATES FOR THE YEAR 2001 MEMBERS CONTRIBUTIONS TO THE EXETER BOROUGH POLICE PENSION FUND ARE HEREBY REDUCED TO ZERO (0) PERCENT OF THE MEMBERS COMPENSATION. 1 MR. STRAUB, 2" MR PETRUCCI AND UNANIMOUSLY CARRIED. (ID -9, page 19). (See, Finding 102 b). 1. Per the minutes, Respondent was present at the meeting, the vote was unanimous, and there were no abstentions. 2. Serbin testified that "unanimously carried" meant that the motion was not objected to, but that it did not conclusively mean that Respondent participated in the deliberation or vote. Esposito 02- 044 -C2 Page 19 3. Serbin testified that to her knowledge, this vote did not have any effect on any investment administered by ASCO. gg. Serbin testified that if she received any of the letters in evidence as ID -13, pages 1 -4, her instructions would have been to forward them to Attorney Joe Rudolph who was hired by Borough Council to negotiate the police contract. hh. Serbin testified that she does not have a recollection of whether she ever received the letters in evidence as ID -13, page 1 and ID -13, page 4. ii. Serbin testified that she believes that the letter in evidence as ID -13, page 2 was delivered to her. jj. Serbin testified that she does not recall forwarding ID -13, page 1 to anyone. kk. Serbin testified that she may have forwarded ID -13, page 2 to Joe Rudolph relative to the police contract(s). II. Serbin testified that she does not recall whether ID -13, pages 3 -4 were forwarded. mm. In 2001 a representative of Smith Barney made a sales call to the Exeter Borough office. nn. Subsequent to the initial sales call, but still in 2001, Patrick Lenahan, Sr., and Patrick Lenahan, Jr., gave a presentation regarding Smith Barney at the "Boy Scout Building" in Exeter, a building the Borough was using at the time due to work on the Borough Building. 1. Serbin attended the presentation and took the notes that are in evidence as ID -9, page 52. (See, Finding 103). 2. Serbin testified that in addition to herself, the only other individuals who attended the presentation were: Helen Chepalonis, Respondent Joseph Esposito, Joseph Coyne, John Straub, Daniel DeRoberto, Richard Belza, Leonard Galli, and John McNeil. (a) Sergeant Richard Belza, Sergeant Leonard Galli, and Chief John McNeil are employed with the Exeter Borough Police Department. (b) In November 2001 Daniel DeRoberto had been elected to Council but had not yet taken office. (c) Joseph Coyne is the Borough Mayor and does not vote. (d) Helen Chepalonis, Respondent, and John Straub were Borough Council Members at the time. (e) Serbin testified that Richard Murawski was not present at this presentation. 3. Serbin testified that this presentation was not a meeting of the trustees of the Police Pension Fund, a meeting of Borough Council, or a meeting of any committee of Exeter Borough. Esposito 02- 044 -C2 Page 20 pp. 4. Serbin testified that the presentation was educational only. (a) Serbin testified that to her knowledge, no specific proposal was submitted to Exeter Borough at this meeting. 5. Serbin's notes from the presentation include the following notation: "Who votes on this." (See, Finding 103 a). 6. Serbin initially testified that the presentation was for the purpose of introducing Smith Barney for administration of pensions. (a) Serbin subsequently testified that she did not know what role Smith Barney was interested in playing, but she believed that Smith Barney was interested in administering the Exeter Borough Police Pension Fund. (b) Serbin's notes from the presentation indicate: "Asco — Can still be administrator." (See, Finding 103 a). 7. At the time of the presentation, the three individuals who had been specifically named trustees of the Exeter Borough Police Pension Plan were Serbin, Richard Murawski, and Thomas Shannon. (a) Of these three individuals, only Serbin was present at the presentation. (b) Serbin has no ability to vote regarding the Exeter Borough Police Pension Plan. 8. Serbin testified that to her recollection, the Exeter Borough Police Pension Fund was not specifically discussed at the Smith Barney presentation. 9. Serbin testified that there were handouts at the presentation, which did not include information specific to the Police Pension Fund. oo. At the request of Police Chief McNeil, Serbin contacted the Exeter Borough Council Members (including Respondent) in advance, notifying them of the presentation. 1. Serbin testified that she did not know whether Respondent was invited to serve as a financial guide to explain terms to the people at the Smith Barney presentation. (2/24/04 Tr. at 148). Serbin has made inconsistent statements regarding Respondent's participation at the November 14, 2001, presentation by the Lenahans. 1. In a statement given on May 1, 2003, to State Ethics Commission investigator(s) with a Borough Council attorney present, Serbin stated that Respondent Esposito participated in the discussion at the November 14, 2001, Smith Barney presentation and asked specific questions of the Lenahans. (ID-24, pages 2 -3). (2/24/04 Tr. at 104, 106 -107). 2. At the February 24, 2004, hearing in this matter, Serbin gave conflicting testimony as follows. Esposito 02- 044 -C2 Page 21 (a) On direct examination, Serbin testified that she did not recall Respondent asking questions of the Lenahans. (2/24/04 Tr. at 97). (b) On cross - examination, when asked whether Respondent asked questions at the presentation, Serbin replied, "Sure." (2/24/04 Tr. at 151). (c) On cross - examination, when asked whether she had a recollection about whether Respondent's questions at the presentation helped her better understand the presentation, Serbin testified, ' I would say so, yes." (2/24/04 Tr. at 151). (d) Serbin further testified on cross - examination that Respondent's questions at the presentation were not abusive. (2/24/04 Tr. at 151). (e) On re- direct examination, Serbin testified that she did not recall her prior testimony that Respondent's questions were helpful and stated that she did not know what Respondent's questions had been but that they were not hurtful. (2/24/04 Tr. at 184). Serbin testified that the Lenahans were given sufficient time to make a presentation and Respondent did not cut off the Lenahans or prevent them from making their presentation. rr. Serbin testified that she has no knowledge of the Lenahans telephoning or writing following their November 14, 2001, presentation. qq. 1. Serbin was not the contact person for the Lenahans. ss. Serbin testified that to her knowledge, Respondent did not take action after the November 2001 presentation to call, block, impede, discourage or otherwise affect any further presentation by Smith Barney and the Lenahans. tt. Serbin testified that Borough Council never saw a proposal by Smith Barney from the Lenahans. uu. Esposito #5, page 5 is a document that Serbin typed and signed. 1. Esposito #5, page 5 directed the transfer of funds from the Exeter Borough Police Pension Plan account with Met Life to a successor custodian. (See, Finding 117). 2. The document does not mention Respondent. 3. Serbin testified that Respondent never authorized or purported to have the authority to authorize movement of funds from Met Life to another custodian. vv. Serbin testified that Respondent does not control Exeter Borough Council. ww. Serbin testified that Respondent does not control Exeter Borough Council with regard to financial matters relating to the Police Pension Fund. 70. Donald P. Williamson ( "Williamson ") is a financial advisor and the owner, president, and senior consultant of ASCO, having served as such since 1978. Esposito 02- 044 -C2 Page 22 a. ID -8 consists of the administrative services agreement between ASCO and Exeter Borough for the Exeter Borough Police Pension Plan. (See, Finding 99). b. The Exeter Borough Police Pension Plan is a defined benefit pension plan operating pursuant to Act 600 and Act 205 in Pennsylvania. c. To Williamson's knowledge, the Exeter Borough Police Pension Fund has been and currently is "surplus funded," meaning it has more assets than liabilities. d. ASCO manages the Exeter Borough Police Pension Plan assets invested with Wells Real Estate Investment Trust and Provident Mutual Life Insurance Company, now Nationwide, which are stable sections of the portfolio. e. ASCO does not provide investment management services for the Exeter Borough Police Pension Fund assets invested with Metropolitan Life Insurance Company or Prudential Securities, now Wachovia. f. Actions taken as to the Exeter Borough Police Pension Fund must be at the direction of the Exeter Borough Council, pension trustees, or chief administrative officer for the pension. The Exeter Borough Police Pension Plan trustees are not established by ASCO. g. h. Frank Procopio and Tracy Carr have worked in ASCO's administrative services division. 1. Neither of these individuals would have had any role in management decisions with respect to the Exeter Borough Police Pension Fund. Commencing in 2000, the equity markets became very volatile. Williamson testified that Exeter Borough Police Pension funds in the amount of $100,000 were transferred from the Met Life account and split evenly between Provident Mutual and the Wells Real Estate Investment Trust. k. Williamson testified that he believes that since 1988, when ASCO became involved with Exeter Borough, he has had four conversations with Respondent. Williamson testified that none of the conversations that he has had with Respondent have involved moving $100,000 from Met Life to some other investor. m. Williamson testified that he is not aware of any documents indicating that Respondent participated in any way in the decision to move the $100,000 from Met Life. n. The abbreviation "TTEE" stands for "trustee" or "trustees." 71. Jerome Joseph McHale ( "McHale ") is employed by ASCO as an account executive in the administrative division. a. ASCO takes its direction from Borough Council. Esposito 02- 044 -C2 Page 23 b. McHale testified that in or about 2001 he attended a meeting with Police Chief McNeil to discuss the Exeter Borough Police Pension Plan. 1. Respondent attended this meeting. 2. McHale did not recall whether Respondent was present during the entire meeting. 3. The topics discussed during the meeting included the Exeter Borough Police Pension Plan, how it functions, and its performance. 4. McHale testified that during the meeting, Respondent explained to Police Chief McNeil his (Respondent's) role in the plan. 72. Patrick J. Lenahan, III ( "Lenahan, Jr. ") is employed by Salomon Smith Barney (also referred to herein as "Smith Barney ") as a financial consultant /financial advisor and has been so employed since January 1995. a. Lenahan, Jr.'s father is also employed at Smith Barney. b. Smith Barney and Prudential (n /k/a Wachovia) are business competitors. c. Commencing in or about the summer of 2001, Lenahan, Jr. took actions to secure the police pension business in Exeter Borough. d. ID -11, pages 49 -53 consist of computerized notes of Lenahan, Jr. regarding sales activities relative to the Exeter Borough Police Pension Plan. e. Lenahan, Jr. initially contacted John Petrucci ( "Petrucci "), who told Lenahan, Jr. to handle the matter with Police Chief McNeil. f. Lenahan, Jr. participated in one or two informal meetings with Police Chief McNeil, Officer Belza, and Officer Galli. g. Subsequently, in the fall of 2001, Lenahan, Jr. and his father gave a formal presentation on behalf of Smith Barney at the Scout Building in Exeter. 1. The individuals in attendance at the meeting included Respondent, some other council members, Serbin, Police Chief McNeil, Officer Belza, and Officer Galli. 2. Both Lenahan, Jr. and his father participated in making the presentation. 3. ID-11, pages 1 -47 comprise a written handout in the nature of a general proposal or presentation that was provided by the Lenahans to those in attendance at the presentation. (a) This was a very general sales presentation. (b) The process was not to the point of specifics, such that no specific proposal as to the Police Pension Plan /Fund was presented. 4. Respondent participated in the discussions that occurred at the presentation. Esposito 02- 044 -C2 Page 24 h. Following the Lenahans' formal presentation at the Scout Building in Exeter, Lenahan, Jr. made follow -up contacts with members of the Exeter Borough Police Department regarding the Police Pension Plan. 1. Lenahan, Jr. testified that initially, the individuals he contacted did not have any answers as to where things stood with the Police Pension Plan, and eventually, his calls were not returned. 5. Lenahan, Jr. testified that it was his perception that during the presentation, he and his father were in a hostile, argumentative environment, primarily with Respondent. (a) Lenahan, Jr. testified that Respondent repeatedly asked questions of the Lenahans. (b) Lenahan, Jr. testified that Respondent asked 90% or more of the questions that were posed to the Lenahans. (c) Lenahan, Jr. testified that it was his perception that Respondent asked irrelevant or antagonistic questions. (d) Lenahan, Jr. testified that Respondent asked to see records from another Smith Barney municipal client's account. (1) It was Lenahan, Jr.'s belief that the records requested by Respondent were confidential. (e) Lenahan, Jr. did not witness anything that would indicate that persons in attendance at the presentation were prevented from asking any question that they wanted to ask. 6. Respondent answered some questions posed by others in attendance. 7. Lenahan, Jr. testified that although no one said the meeting was over, the Lenahans did not have enough time to do a presentation and were not given the opportunity to speak freely. 8. Lenahan, Jr.'s father raised the question of whether Respondent had a conflict of interest in the matter. 9. Respondent told the Lenahans that he had a letter from the State Ethics Commission. The Lenahans did not submit any proposal to the Borough of Exeter other than the general proposal /presentation at ID -11. During his testimony at the 2/24/04 hearing in this matter, Lenahan, Jr. was not able to answer questions posed to him regarding legislation under which the Exeter Borough Police Pension Fund was created and operates. 73. John McNeil (McNeil) is Chief of Police of Exeter Borough and has been employed by Exeter Borough for 29 years. (2/24/04 Tr. at 324). a. In the Exeter Borough Police Department, there are three Sergeants under McNeil, specifically, Sergeant Leonard Galli, Sergeant Richard Belza and Sergeant Michael Coolbaugh. Esposito 02- 044 -C2 Page 25 b. McNeil is a member of the Exeter Borough Police Pension. c. In approximately September- October 2001 Petrucci asked McNeil whether members of the Police Department wanted to set up a meeting to hear what Smith Barney had to offer as to the Exeter Borough Police Pension Plan. d. In approximately October 2001 representative(s) of Smith Barney gave a presentation to McNeil and the three sergeants from the Police Department regarding the Exeter Borough Police Pension Plan. e. In November 2001, the Lenahans gave another presentation on behalf of Smith Barney, which was attended by some Exeter Borough Council members. 1. McNeil and the three sergeants in the Police Department attended the presentation. 2. Respondent, John Straub, Serbin and De Roberto attended the presentation. 3. Respondent questioned the Lenahans during the presentation. 4. McNeil testified that Respondent's demeanor during the presentation was "argumentative." (2/24/04 Tr. at 334). 5. Sergeant Galli asked who would be responsible for the benefits if the Pension Plan went into default. (a) McNeil testified that Respondent answered Sergeant Galli's question, indicating that the Borough would be responsible. 6. The presentation lasted approximately one hour. 7. Respondent did not stop McNeil from asking questions during the presentation. 8. No one stopped the meeting. 9. McNeil testified that the November 2001 Smith Barney presentation was not at a Borough Council meeting. f. Immediately following the Smith Barney presentation, a conversation involving Respondent occurred outside of the Scout Building. 1. McNeil testified that in addition to Respondent and McNeil, Mayor Coyne and Sergeant Galli were present during this conversation. 2. McNeil testified that Respondent stated that he (Respondent) is in control of Borough Council and that not a dime of the money would be moved from the Pension Plan. g. Exeter Borough Council took no action with respect to Smith Barney's November 2001 presentation. h. Following the November 2001 presentation, McNeil received but did not return telephone calls from the Lenahan(s). Esposito 02- 044 -C2 Page 26 1. McNeil testified that he saw no point in returning the telephone calls because Exeter Borough Council has the final say on the Police Pension. i. Following the November 2001 Smith Barney presentation, but still in 2001, McNeil attended a meeting with ASCO representatives. 1. McNeil testified that he arranged for this meeting to discuss the intended use of $100,000 that had been transferred from the Police Pension's Met Life fund to ASCO. (a) McNeil testified that other matters relating to the Police Pension Fund were also discussed during the meeting. 2. McNeil did not request Respondent's presence at the meeting. 3. Respondent attended the meeting. 4. McNeil testified that when he (McNeil) asked questions of the ASCO representatives, Respondent answered the questions and the ASCO representatives provided what McNeil described as "secondary responses." (2/24/04 Tr. at 337). 5. When asked whether Respondent left part way through the meeting, McNeil stated that he did not remember Esposito leaving. 6. This meeting with ASCO was not a meeting of Borough Council or of the trustees of the Police Pension Plan. A copy of the letter in evidence as ID-13, page 1 was provided to McNeil. (See, Finding 109 d). k. McNeil testified that the letter in evidence as ID -13, page 4 was sent to Respondent. (See, Finding 109 c). 1. McNeil signed this document. There have been recent situations in which Respondent and the Exeter Borough Police have been on opposite sides of legal claims and disputes. 74. Leonard Galli ( "Galli ") is employed by the Exeter Borough Police Department and has been so employed for eighteen years. a. Galli was a member of the Exeter Borough Police Pension Plan in 2000 and 2001. b. In 2001, prior to November, Galli attended an initial sales presentation by the Lenahans of Smith Barney regarding the Exeter Borough Police Pension. c. On November 14, 2001, Galli attended the Smith Barney presentation at the Scout Building. 1. Other members of the Police Department attended the presentation. 2. Galli testified that Respondent, Shannon, Serbin, DeRoberto, and, he believed, Chepalonis also attended the presentation. Esposito 02- 044 -C2 Page 27 3. Galli testified that during the presentation, Respondent engaged in a heated debate with the Lenahans regarding the Fund and commissions /fees that were being charged. (a) Galli testified that Respondent was badgering the Lenahans and that it was "brutal." (b) Galli testified that Respondent kept "firing" questions at the Lenahans and that he interrupted them. 4. Sergeant Belza asked what would happen if the fund lost its money, and Respondent answered the question. 5. Galli testified that no one else present at the presentation asked as many questions of the Lenahans as Respondent asked, and that Respondent "chaired" the whole meeting. 6. Galli testified that the presentation was not a Borough Council meeting. 7. Galli testified that the presentation lasted from 45 minutes to one hour. d. After the November 14, 2001, Smith Barney presentation, a conversation involving Galli, McNeil and Respondent occurred outside the Scout Building. 1. Galli testified that Mayor Coyne was also present. 2. Galli testified that Respondent stated that the money is the Borough's, it is controlled by Council, he (Respondent) controls Council, and the police were not getting it. (2/24/04 Tr. at 364). 3. Galli testified that following this commentary by Respondent, he (Galli) returned to his office. (a) Galli testified that on that same evening, at some point after the Smith Barney presentation, Respondent went to Galli's office and asked Galli to let him (Respondent) explain the Fund to Galli, and indicated that what the Lenahans /Smith Barney wanted to do was wrong. (2/24/04 Tr. at 365). e. Galli testified that the police wanted the Pension Fund to be moved to Smith Barney. 1. Galli testified that Sergeant Belza expressed to Galli that a certain portion of the Pension money should be given to the Lenahans to see what their performance would be over a period of time, while Galli wanted to take the money out completely. f. After the November 14, 2001, Smith Barney presentation, Galli did not see any further proposals submitted by the Lenahans. g. Galli testified that ID-13, page one is a letter that he drafted and that was sent to Richard Murawski. (See, Finding 109 d). h. Galli testified that the letter at ID -13, page two was sent to the Exeter Borough Council. (See, Finding 109 a). 1. Galli testified that he believes that he drafted this letter. Esposito 02- 044 -C2 Page 28 g. 2. Galli testified that Sergeant Belza and Sergeant Coolbaugh read and signed this letter. Galli testified that he drafted the letter at ID -13, page three and that it was sent to Exeter Borough Council. (See, Finding 109 b). 1. Galli testified that Sergeant Belza and Sergeant Coolbaugh read and signed this letter. Galli testified that ID -13, page four is a letter that was presented to Galli by Sergeant Belza. (See, Finding 109 c). k. Recently, there have been disagreements between the Exeter Borough Police and Respondent. On one occasion, Galli relayed information pertaining to Respondent to the Pennsylvania State Police for investigation. 75. Thomas Michael Shannon ( "Shannon ") is a former Exeter Borough Council Member, having served on Council from 1992 through 2003. a. Shannon testified that he became a trustee of the Exeter Borough Police Pension in 1997 or 1998 and believed that he continued to so serve until 2002. b. The trustees of the Police Pension did not engage in much formal activity or discussion on the Council level. c. There were no minutes of the trustees of the Police Pension Fund while Shannon served as a trustee. d. Other than the transfer of $100,000 from the Met Life account, Shannon did not recall any changes made to the Police Pension Fund. e. Shannon testified that to his knowledge, Respondent did not have any responsibilities as to the Police Pension in his capacity as a Borough Council Member. f. Shannon testified that when Respondent was first elected, he (Respondent) stated to Council that he could not have anything to do with matters involving Prudential Securities. 1. Shannon testified that knowing of Respondent's aforesaid statement, he (Shannon) would have noted if Respondent had taken any action regarding the Prudential investment or the Police Pension Fund. Shannon testified that in his years of contact with the Police Pension Fund, he does not recall Respondent ever taking action relating to the Fund investments. h. Shannon testified that he does not recall Respondent ever speaking about moving any investments of the Fund. Shannon testified that he did not think Respondent served as a trustee of the Police Pension during the time that Shannon so served. Esposito 02- 044 -C2 Page 29 1. Shannon testified that status as a member of the finance committee did not make Respondent a trustee of the Police Pension Plan. A report from a May 29, 2003, interview with State Ethics Commission investigator(s) states that Shannon confirmed that Respondent did serve as a trustee from 1998 through 2001. (2/25/04 Tr. at 425, 451). 1. Shannon initially testified that he did not remember stating to State Ethics Commission investigator(s) that Respondent served as a trustee from 1998 to 2001. (2/25/04 Tr. at 425, 451). Shannon subsequently testified that he wasn't sure at that time whether Respondent was a trustee. (2/25/04 Tr. at 468). k. Shannon testified that on May 29, 2003, when Commission investigators interviewed him, he did not refresh his recollection by reviewing documents. (2/25/04 Tr. at 450 -451). 1. Shannon also testified that during the interview he was shown some documents concerning trusteeship. (2/25/04 Tr. at 469). I. The signature of Shannon's name that appears on ID -26, page 1 /ID -10, page 3/ID -31, page 9 is Shannon's signature. 1. Shannon was not aware of any reason why Respondent would sign this document other than being added as a trustee. m. When Shannon was asked whether he (Shannon) was a trustee of the Exeter Borough Police Pension at the time of the 2001 Smith Barney presentation, Shannon consulted a list of purported trustees year -by -year that he had brought into the hearing. p. q. 1. Shannon testified with certainty that he had received the list to which he was referring from Richard Murawski that very morning, specifically, February 25, 2004. 2. Shannon testified with certainty that he had not seen a copy of the list prior to February 25, 2004. n. The list provided to Shannon by Richard Murawski indicated that in 2000, the Police Pension trustees were Richard Murawski, Serbin, and John Petrucci. 1. Shannon testified that to his knowledge, Petrucci was not a trustee of the Police Pension Plan in 2000. o. The list provided to Shannon by Richard Murawski was identical to the list that Serbin had prepared and that she identified during her testimony (marked Esposito Number One, not offered into evidence) except that Serbin's list was on Borough letterhead and had a signature at the bottom. (See, Findings 69 s, 80 i). Shannon did not attend the November 14, 2001, Smith Barney presentation. After the November 14, 2001, Smith Barney presentation, Shannon asked someone what happened at the meeting and was told that nothing happened. 1. Shannon heard nothing further regarding Smith Barney's attempt to secure the Police Pension business. Esposito 02- 044 -C2 Page 30 r. Shannon was not aware of any official matters before Council regarding the Smith Barney presentation. s. Shannon testified that his signature on Esposito #5, page 5 appears to be his signature stamp. t. The signature of Shannon's name on Joint Exhibit 1 is not his signature and is not his signature stamp. u. Shannon testified that the Exeter Borough police officers dislike Respondent. v. Shannon testified that the Exeter Borough police do not have any role in administering the Police Pension Fund. 76. Helen Chepalonis ("Chepalonis') is a former Exeter Borough Council Member who served on Council from approximately April 1999 to 2002. a. Chepalonis was not involved with the Exeter Borough Police Pension. b. Chepalonis attended the Smith Barney presentation regarding the Police Pension. 1. Respondent was present at the meeting. 2. Respondent asked a lot of questions and asked most of the questions raised at the presentation. c. Chepalonis testified that she would not characterize the Smith Barney presentation as brutal, but that there were raised voices. d. Chepalonis testified that Respondent made a statement in Chepalonis' presence that he (Respondent) wanted Prudential to take control over the entire pension. 1. Chepalonis testified that she thought Respondent made this statement to the entire Council. 2. Chepalonis testified that she was not certain when Respondent made this statement, but that she thought it was at the Smith Barney presentation. 3. Only three Council Members were present at the Smith Barney presentation. 77. Joseph F. Coyne ( "Coyne ") is the Mayor of Exeter Borough, having served in that capacity for nine years. a. Coyne testified that Respondent attended Police Pension meetings. 1. Coyne testified that Council members are welcome to come to the meetings. b. Coyne attended the 2001 Smith Barney presentation. 1. Coyne testified that the presentation pertained to whether the Pension Fund would do better with Smith Barney. Esposito 02- 044 -C2 Page 31 2. The presentation lasted for most of an hour. 3. The presentation was not a Council meeting or a meeting of the Police Pension trustees. 4. Coyne testified that the presentation was not open to the public. 5. In addition to Coyne, Respondent, Chepalonis, John Straub, Councilman -elect Dan DeRoberto, and police officers were present at the presentation. 6. Respondent asked questions during the Smith Barney presentation. 7. Respondent's questions aided Coyne in understanding the presentation. 8. Coyne testified that Respondent interpreted terms relating to financial matters during the presentation. 9. To Coyne's knowledge, no one in the room was kept from asking questions during the presentation. c. Coyne testified that what went on at the Smith Barney presentation was not "brutal" or "hostile." d. Coyne testified that he (Coyne) was interested in receiving more information from the Lenahans. e. Coyne testified that if the Lenahans contacted the police, they should also have contacted the Borough secretary or someone from the Borough. f. Coyne was never contacted by the Lenahans. g. Coyne testified that immediately following the presentation, he and DeRoberto went to a coffee shop, and he did not hear any exchange between Respondent and the police. 1. Coyne testified that he did not hear Respondent state, on that night or ever, "I control Council." (2/25/04 Tr. at 518 -519). 2. Coyne testified that no one controls Council. h. Coyne testified that several members of the Exeter Borough Police Department do not like Respondent. On one occasion, Respondent asked Coyne if Coyne could have the police officers remove news clippings pertaining to Respondent that were posted within the Police Department. 1. Some of the news clippings pertained to the suspension of a part -time female police officer by Borough Council after the officer had arrested and refused to release a friend of Council Member Petrucci in a DUI situation. (a) Respondent and all six of the other Council Members voted to suspend the police officer. Esposito 02- 044 -C2 Page 32 (b) Criminal charges were brought against Council Member Petrucci for alleged conduct relating to this incident. 2. Some of the news clippings pertained to an $800 loan of Borough funds made by Respondent and Shannon to a Borough employee for purposes of paying off a personal loan and getting a commercial driver's license. Coyne testified that since Respondent became a member of Council, Respondent has never approached Coyne regarding the movement of any funds in the Police Pension Fund to Prudential. 78. Daniel DeRoberto ( "DeRoberto ") is an Exeter Borough Council Member, having served in that capacity from 1982 through 1997 and from 2002 to the present time. a. While a Councilman - elect, DeRoberto attended the2001 presentation by Smith Barney. 1. Respondent was present and asked questions. 2. DeRoberto testified that there weren't any arguments during the presentation, and that it would be inaccurate to characterize the discussions or questions involving Respondent as brutal. 3. DeRoberto testified that he did not believe that Respondent controlled the meeting. b. DeRoberto testified that following the Smith Barney presentation, he and Mayor Coyne were getting in a car across the street from where Respondent was talking with members of the Police Department. 1. DeRoberto testified that he did not hear what Respondent and the police were saying. c. DeRoberto testified that he has not heard anything regarding additional information from the Lenahans /Smith Barney since the night of the Smith Barney presentation. d. In a May 1, 2003, sworn statement to a Commission investigator, DeRoberto stated that Respondent was a trustee of the pension. e. DeRoberto testified that Respondent does not control him on Council or with regard to decisions relating to the Pension Fund. f. DeRoberto testified that the Exeter police are publicly critical of Respondent. 79. Frank Procopio ( "Procopio ") is a former employee of ASCO who worked for ASCO for 12 years until April 2002. a. At ASCO, Procopio performed administrative functions concerning municipal pensions. b. Procopio monitored the Exeter Borough Police Pension during the entire 12 years that he was employed by ASCO. c. Procopio's contact at Exeter Borough regarding the Police Pension Plan was Serbin. Esposito 02- 044 -C2 Page 33 d. Municipalities are responsible for the conduct of their pension plans, including investment and record keeping. e. In order for any transaction in a municipal pension fund to be authorized, it must be approved by the governing body of the municipality. f. It is always the municipality, not ASCO, which initiates action as to the municipality's pension plan. g. h. ID -8, page 12, which granted a cost of living increase to retiree Joseph Zavada, did not change any investment of ASCO specifically. 1. In Exeter Borough, such actions were initiated by contacts from Serbin. The governing body of the municipality, not ASCO, selects the chief administrative officer and the trustees of the pension plan. 1. ASCO asks the municipality to tell ASCO who the chief administrative officer and trustees of the pension plan are. i. ID -8, pages 10 -11, consist of a memo and enclosed letter produced by Procopio. 1. The names and designations "Joseph Esposito, Councilman /Pension Trustee" and "Thomas Shannon, Council /Pension Trustee" that appear on ID -8, page 10 were provided to Procopio by Serbin. Joint Exhibit 1, page 1 is substantively the same as ID -8, page 10 and is dated one day later than the date that appears on ID-8, page 10. k. ID -10, page 4, dated June 2, 1998, is a type of document that ASCO typically requested to tell ASCO who within Exeter Borough could sign authorizations on behalf of the police pension plan. 1. ASCO would send the Borough the paragraph and blank lines, and then the Borough would transfer or recreate it on Borough stationery and fill in the blanks. I. ID -26, page 1/ID -10, page 3/ID -31, page 9, dated June 8, 1998, is dated approximately six days after ID -10, page 4. 1. This document would not have been requested by ASCO. 2. Procopio does not know whether ASCO ever received a copy of this document. m. Procopio has not discussed Exeter Borough Police Pension matters with Respondent except possibly in the context of a quarterly or semiannual report by ASCO. n. Procopio cannot recall Respondent ever contacting Procopio suggesting that he (Respondent) was a trustee of the Exeter Borough Police Pension Plan. 80. Richard A. Murawski ( "Murawski ") is a member and Chairman of Exeter Borough Council. Esposito 02- 044 -C2 Page 34 a. Murawski has served as a member of Exeter Borough Council from 1988 through 1992 and from 1996 to the present time. b. Murawski has served as Chair of Exeter Borough Council for approximately six years. c. Exeter Borough Council has ultimate authority with regard to the Exeter Borough Police Pension Plan. d. Murawski testified that the trustees have not had a lot to do with regard to the Exeter Borough Police Pension Plan. e. The Chair of Exeter Borough Council has the authority to appoint committees, and Murawski has done so. f. Murawski made contradictory statements regarding his own service as a trustee of the Exeter Borough Police Pension Plan in 2003. 1. At the hearing in this matter on February 25, 2004, Murawski testified that he served as a trustee of the Exeter Borough Police Pension Fund in 2003. (2/25/04 Tr. at 596 -597, 628). 2. Murawski previously stated in a May 1, 2003, sworn statement to a Commission investigator that at that time, he was not a trustee for the Exeter Borough Police Pension Fund. (2/25/04 Tr. at 612 -613). g. Murawski made contradictory statements regarding Respondent's service as a trustee of the Exeter Borough Police Pension Plan. 1. In a May 1, 2003, sworn statement to a Commission investigator, Murawski stated numerous times that Respondent was a trustee of the Exeter Borough Police Pension Plan at that time. (2/25/04 Tr. at 613, 615 -616, 621 -623, 627, 643, 657). 2. At the hearing in this matter on February 25, 2004, Murawski initially testified that to his knowledge, Respondent has never been a trustee of the Exeter Borough Police Pension Plan. (2/25/04 Tr. at 597, 601 -602, 612). 3. Upon listening to a tape recording (ID -23) of the April 3, 2001, discussion and vote at an Exeter Borough Council meeting regarding Resolution 5 -2001, Murawski identified his own voice and Serbin's voice on the tape and stated that based upon the tape, but not upon independent recollection, he recalled replacing Respondent as atrustee of the Exeter Borough Police Pension Plan in 2001. (2/25/04 Tr. at 632 -636, 655 - 656, 659). h. Murawski testified that he must see documentation in order to be sure of the identity of the trustees. i. Murawski stated that his testimony that Respondent was never a trustee of the Police Pension Fund was based upon a list provided to him by Serbin. 1. The list was substantively identical to the list that Serbin had prepared and that she identified during her testimony (marked Esposito Number One, not offered into evidence), but Serbin's list was on Borough letterhead. (See, Findings 69 s, 75 o). Esposito 02- 044 -C2 Page 35 j. Murawski provided a copy of the list of purported trustees that he had received from Serbin to Council Member Shannon. (See, Finding 75 m). k. Although Shannon testified with certainty that Murawski provided the list to him on that very morning of February 25, 2004 —the day that both Shannon and Murawski testified in the hearing in this matter (see, Finding 75 m)— Murawski's testimony as to when he provided the list to Shannon was evasive and not credible. 2/25/04 Tr. at 614 -615, 620, 649 -651. Respondent serves on the Borough's finance committee. m. Murawski made contradictory statements regarding whether the finance committee dealt with the Exeter Borough Police Pension Plan. 1. At the hearing in this matter, Murawski testified that the finance committee does not deal with the Exeter Borough Police Pension Plan and that within his recollection, it has never dealt with the Exeter Borough Police Pension Plan. (2/25/04 Tr. at 600). 2. In a May 1, 2003, sworn statement to a Commission investigator, Murawski stated that the Exeter Borough Police Pension Plan came under the jurisdiction of the finance committee on which Respondent was serving. (2/25/04 Tr. at 622 -623). n. Murawski gave contradictory testimony as to whether Respondent ever made statements in Council meetings regarding a conflict of interest. 1. Murawski initially testified that he did not recall in any of the Council meetings witnessing statements by Respondent concerning conflicts. (2/25/04 Tr. at 594 -595). 2. Murawski subsequently testified that he did recall Respondent abstaining from votes on the Police Pension Plan and stating his involvement with Prudential as the reason for his abstention. (2/25/04 Tr. at 598, 647). o. Murawski testified that he does not have any personal recollection as to whether Respondent took action purporting to be a trustee or any person with the same powers as a trustee. p. q. Murawski testified that he does not have any recollection that Respondent has ever taken action relating to investments of the Police Pension Fund. Murawski testified that he does not have any recollection that Respondent personally spoke to him (Murawski) regarding moving investments to Respondent's employer, Prudential n /k/a Wachovia. r. Murawski testified that he does not have any recollection whether at any time during his (Murawski's) service, and particularly during early 2001, Respondent spoke to him (Murawski) regarding moving any investments of the funds relating to Met Life. s. Murawski did not attend the November 2001 Smith Barney presentation. 1. Although Murawski was Chairman of Exeter Borough Council and a trustee of the Exeter Borough Police Pension in November 2001, Esposito 02- 044 -C2 Page 36 Murawski testified that nobody told him anything about what transpired at the November 2001 Smith Barney presentation. t. Murawski testified that he did not have any recollection of receiving a document from any outside company that wished to discuss investments in the Exeter Borough Police Pension Plan. u. Murawski testified that there is no one person who controls Exeter Borough Council. v. Esposito Exhibits 4 -1, 4 -2, and 4 -3 are photographs of the basement of the Exeter Borough building depicting the status of the Borough records on October 13, 2003. 1. Murawski testified that the Borough records had been moved back into the Borough building from a trailer where they had been stored temporarily during remodeling of the Borough building. 2. The records were moved by workers of the Borough Street Department. 3. Murawski testified that while the records were stored in the trailer, the trailer roof leaked, and some of the records were destroyed. w. Murawski testified that the current relationship between Exeter Borough and the Exeter Borough police is "somewhat heated.' (2/25/04 Tr. at 610). 81. Daniel M. Bender ( "Bender ") is employed by the State Ethics Commission as a Special Investigator III. a. ID -16, pages 1 -2 consist of a demonstrative chart summarizing information contained in partial account statements for Prudential Account No. ECU -95184 (the Prudential account for the Exeter Borough Police Pension) for the period January 1, 1998, through December 31, 2002, which partial statements are in evidence as ID -6, pages 2 through 61. b. By stipulation, Respondent's fees /compensation from the Exeter Borough Police Pension account at Prudential are accurately calculated at 25% of the gross fees received by Prudential for the account, as reflected on ID -21. (2/26/04 Tr. at 702 -704, 715; 2/27/04 Tr. at 1180 - 1181). (See, Finding 91). 1. The quarterly fees are derived from Prudential records in evidence as ID -7. 2. During the period from June 8, 1998, until April 3, 2001, the fees /compensation paid to Prudential Securities and to Respondent with respect to the Exeter Borough Police Pension account at Prudential totaled $27,995.34 and $6,998.84 respectively. 3. During the period from January 2002 though March 31, 2003, the fees /compensation paid to Prudential Securities and to Respondent with respect to the Exeter Borough Police Pension account at Prudential totaled $11,956.47 and $2,989.13 respectively. 82. Robert P. Caruso ( "Caruso ") is employed by the State Ethics Commission as the Deputy Executive Director and Director of Investigations. Esposito 02- 044 -C2 Page 37 a. ID -5, pages 1 -2 consist of copies of Statements of Financial Interests filed by Respondent with Exeter Borough for calendar years 2000 and 2001. b. On Respondent's Statements of Financial Interests filed with Exeter Borough for calendar years 2000 and 2001, Respondent indicated in Block 9 that he had no creditors to disclose. (See, Finding 96 a). 1. There is a lien against Respondent's vehicle. c. On Respondent's Statements of Financial Interests filed with Exeter Borough for calendar years 2000 and 2001, Respondent indicated only one direct or indirect source of income in Block 10, specifically, Prudential Securities. (See, Finding 96 b). 1. In Blocks 13 and 14 of these forms, Respondent disclosed that he is a 50% partner in "Omega Realty." (See, Finding 96 c). 2. Respondent did not list Omega Realty Company as a source of income on these forms. d. The instructions that accompanied Statement of Financial Interests forms filed for the 2000 and 2001 calendar years stated as to block ten, pertaining to direct or indirect sources of income, that disclosure was required as to sources of income in the amount of $1,300 or more of gross income, and that rental income was a type of income required to be disclosed. (See, Finding 93 b). e. No Statements of Financial Interests for Respondent for calendar years 1999 and 2002 were located within the Exeter Borough records. 1. Caruso testified that there were Statements of Financial Interests on file with Exeter Borough for other individuals for calendar years 1999 through 2002. f. ID-4, pages 1 -4 consist of W -2 Wage and Tax Statements for Respondent from Exeter Borough for the years 1999 -2002. (See, Finding 95). 83. Richard G. Belza ( "Belza ") has been employed by the Exeter Borough Police Department since 1984. a. Belza has been a member of the Exeter Borough Police Pension Plan since 1990. b. Belza attended the November 14, 2001, Smith Barney presentation. 1. Belza testified that the Smith Barney presentation was not a meeting, but was a presentation. 2. Belza testified that in addition to himself and other members of the Police Department, the following individuals attended the presentation: Jim Serlin, the Borough Secretary, DeRoberto, Respondent, and Joe Kline. (a) Belza testified that he believed that the Mayor, Murawski, and General Counsel were present, but he was not sure. 3. During the presentation, questions were posed by officers and by the Respondent. Esposito 02- 044 -C2 Page 38 4. Belza testified that Respondent asked a number of questions regarding investments, and specifically asked most of the questions that were posed to the Lenahans. 5. Belza testified that the discussions between Respondent and the Lenahans turned into a debate. 6. Belza asked a question about the stability of the Fund, and Respondent answered the question, indicating that the Borough had to guarantee Belza's retirement and that he (Belza) would get his retirement even if the Fund had no money. c. Belza testified that approximately 15 or 20 minutes after the Smith Barney presentation had concluded, he (Belza) was involved in a conversation that included Respondent and DeRoberto. 1. Belza testified that during the conversation, he (Belza) suggested turning over a portion of the Police Pension Fund to Smith Barney to invest during a trial period, and at the end of the trial period, allowing whichever company performed better - -Smith Barney or Prudential - -to have the entire Pension Fund to invest. 2. Belza testified that in response to his suggestion, Respondent stated, "Council controls the money and you'll never see it. And I control council." (2/18/04 Tr. at 25). d. Belza testified that the Lenahans contacted Belza asking for additional opportunities to make a presentation to Belza /the Exeter Borough police. e. Belza was involved in preparing certain letters /memoranda regarding the Exeter Borough Police Pension. 1. Belza typed and signed the memorandum in Evidence as ID -13, page 2. (See, Finding 109 a). (a) Belza testified that this document was hand - delivered to the Borough Secretary. (b) No response to the memorandum was received. memorandum 2. Belza typed the in Finding 109 b). (a) No response to this memorandum was received. 3. Belza typed the letter in evidence as ID -13, page 4. (See, Finding 109 c). (a) evidence as ID -13, page 3 (See, Respondent's supervisor at Prudential Securities, Howard Buchler, was copied with this correspondence. (b) Belza testified that no response to this correspondence was received, either from Respondent or Mr. Buchler. 4. Belza testified that he did not type the letter that is in evidence as ID-13, page 1. (See, Finding 109 d). Esposito 02- 044 -C2 Page 39 (a) Belza did not know whether this letter was signed, delivered, or received by Murawski. f. The Exeter Borough Police have no control over the Police Pension Fund. g. Respondent has verbalized that he cannot: be involved in deliberations of votes on Pension Fund investments; vote regarding the Exeter Borough Police Pension; or exercise control over the Exeter Borough Police Pension. 1. Belza was aware of this in 2000 and 2001. 84. Howard A. Buchler ( "Buchler ") is Vice President and Branch Manager of the Northeastern Pennsylvania Branch of Wachovia Securities, LLC, located at 32 Office Park in Scranton, Pennsylvania. a. The Wachovia at this location was previously known as Prudential Securities. b. The change of company ownership occurred in or about July 2003 and did not in any way change Buchler's or Respondent's duties. c. Buchler is Respondent's direct supervisor and has served in that capacity since September 2002. d. Respondent served as the financial advisor on the Exeter Borough Police Pension account with Prudential Securities. 1. Respondent ceased being the financial advisor on the account on or about October 2002. e. The Exeter Borough Police Pension Fund account transferred out of Wachovia Securities in approximately November 2003. f. The Exeter Borough Police Pension account with Prudential Securities was managed by an outside money manager affiliated with Prudential Securities. 1. With the involvement of an outside money manager, all decisions as to the specific investments of the funds in an account are made by the outside money manager. 2. A financial advisor does not make buy or sell recommendations as to such an account, but monitors the account, answers client questions, and possibly serves as an information conduit between the outside money manager and the client. g. Smith Barney and Prudential (n /k/a Wachovia) are business competitors. h. ID -6, pages 2 -61 and ID -14, pages 1 -4 consist of portions of account statements issued by Prudential Securities for the Exeter Borough Police Pension account number ECU 95184. (See, Findings 97, 110). 1. These documents accurately reflect the opening and closing balances of the account for the indicated time periods. ID -7, pages 2 -23 consist of Prudential's reports of gross fees for the Exeter Borough Police Pension account number ECU 95184, during the indicated time periods. Esposito 02- 044 -C2 Page 40 j. Respondent was paid a percentage of the gross fees detailed in ID -7 as to the Exeter Borough Police Pension account. k. In the years 2000, 2001, and 2002, most retirement funds experienced losses as to their equity components. Buchler received a copy of the letter that is in evidence as ID -13, page 4. 1. Buchler discussed the letter with Respondent and asked him to respond to it. 2. Respondent told Buchler that he (Respondent) did respond to the letter. 85. John J. Petrucci, Jr. ( "Petrucci ") is a former Exeter Borough Council Member, having served in that capacity from 1992 to 2003. a. Petrucci testified that prior to Respondent being sworn in as a Council Member, he (Petrucci) explained to Respondent that Respondent would have to get a "paper" and that Respondent could not be involved in any of the Borough pensions. b. Petrucci testified that during his own service on Exeter Borough Council, he (Petrucci) was not involved with the Borough pensions. c. Petrucci testified that the Borough committee with primary responsibility for the Exeter Borough Police Pension Plan was the police committee. d. Petrucci and Respondent served on the Borough's finance committee. e. Petrucci testified that to his knowledge, Respondent never served as a member of the police committee. f. Petrucci testified that he did not know why, in minutes from 2000 (ID -9, page 11), the name of the finance committee was "Finance and Insurance (Pensions & Grants)," which was different than the committee name in 1998 (ID-9, page 1). g. 1. Petrucci testified that the reference in the name to Pensions would have been to the non - uniformed pension plan, although he believed that plan should have been under the street department. Petrucci testified that Police Pension matters seldom came before the Exeter Borough Council or Council committees. h. Petrucci testified that he does not remember Respondent participating in Police Pension matters. Petrucci testified that Respondent never talked to Petrucci about moving investments to Prudential. Petrucci testified that he does not recall Respondent ever talking to Petrucci about moving any investments of the Police Pension Fund to any other investor. k. Petrucci initially testified that he was not privy to whether Respondent was ever a police pension trustee. (2/26/04 Tr. at 777). Esposito 02- 044 -C2 Page 41 1. Petrucci subsequently testified that he imagined all seven members of Council are trustees. (2/26/04 Tr. at 805, 812). Petrucci testified that he did not recall removing Respondent as a Police Pension trustee. (2/26/04 Tr. at 804, 807). 1. Upon listening to a tape recording (ID -23) of the April 3, 2001, discussion and vote at an Exeter Borough Council meeting regarding Resolution 5 -2001, Petrucci identified his own voice, Murawski's voice, and Serbin's voice on the tape. (2/26/04 Tr. at 809). 2. Petrucci then testified that based upon his experience as a Council Member, there would not be any reason to remove an individual as trustee if he was not already a trustee. (2/26/04 Tr. at 810). 3. Petrucci subsequently testified that the reason Respondent would be removed as a Police Pension Plan trustee if he was not already one may have been that somebody else wanted to get on the committee or be a trustee, or because of his position. (2/26/04 Tr. at 812). m. Petrucci testified that a man from Smith Barney told Petrucci that he would like to talk to someone about the Police Pension. q. 1. Petrucci testified that he directed this man to Chief of Police John McNeil. n. Petrucci was not present at the November 14, 2001, Smith Barney presentation in Exeter Borough. o. Petrucci testified that Respondent did not control Petrucci or Exeter Borough Council. P. There was friction between the Exeter Borough Police and members of Council. 1. One incident that was the basis of such friction involved Petrucci's alleged role in attempting to get a part -time police officer to release a friend of Petrucci's who was involved in a DUI situation. (a) Petrucci was arrested and charged in this incident, and he accepted an ARD disposition with regard to the charge of obstruction of justice. (b) Petrucci testified that Council voted to "table" the officer. 2. Petrucci testified that both he and Respondent were arrested by the Exeter Borough police for loaning a Borough employee $800 of Borough money to enable the employee to get a driver's license back so he could drive a plow truck. (a) Petrucci testified that a Judge threw out the charges. Petrucci acknowledged that he (Petrucci) was the source of some of the friction with the police. 86. District Justice Joseph Carmody ( "Carmody ") served as Solicitor to Exeter Borough from 1998 to 2003, prior to being elected District Justice. Esposito 02- 044 -C2 Page 42 a. Carmody testified that he has observed Respondent indicating his abstention from matters pertaining to the Exeter Borough Police Pension. b. Carmody testified that Exeter Borough chooses the trustees of the Exeter Borough Police Pension Plan. c. ASCO never directs who is appointed as a trustee in the Exeter Borough Police Pension Plan. d. The documents in Esposito #11, including Authorized Signer's Certificates and a Resolution to Change Trustees, are the type authorized by Act 600 to appoint trustees and authorize signers of documents. (See, Finding 119). e. Carmody testified that when a draft document that has been forwarded to Exeter Borough by ASCO or Met Life is signed by the chief administrative officer or trustees, as applicable, and is returned to the sender with no further action on behalf of the Borough, that document becomes an official Borough document and is binding unless an applicable statute requires ratification. 1. Carmody testified that he believed that it would constitute ratification for a document to be passed on by Borough officials and acted upon with the Borough never rejecting or negating it. f. Carmody was not aware of any specific example in which a company such as ASCO sent a document to Exeter Borough requesting signatures from trustees or members of Council and the document was signed and returned yet did not become an Exeter Borough document. Carmody testified that when a Borough document is faxed, so that the original stays with the sender and the facsimile is transmitted to a third party, the faxing of such document is an act of the Borough. g. 87. Respondent Joseph Esposito has served as a councilman for Exeter Borough since January 1998. (See, Finding 13). a. Respondent is employed as a financial advisor by Wachovia Securities, formerly Prudential Securities. b. Respondent was awarded the contract for the Exeter Borough Police Pension account at Prudential Securities approximately eight or nine years before he became an Exeter Borough Council Member. c. Prior to taking office as an Exeter Borough Council Member, Respondent wrote to the State Ethics Commission for legal advice. 1. Respondent testified that if he had not been able to keep the Exeter Borough Police Pension account, he would have given it to someone else. d. Respondent testified that after receiving Esposito, Advice 97 -545 and speaking with the Commission Chief Counsel, he (Esposito) concluded that he should refrain from discussions, decisions, voting, and anything that had to do with the investment side of the Exeter Borough Police Pension account.. 1. Respondent testified that when it comes to the Exeter Borough Police Pension account, he does not get involved, does not listen about it, does Esposito 02- 044 -C2 Page 43 not talk about it, and does not involve himself with discussions about it. e. During the last 5 -7 years that Respondent was involved with the Exeter Borough Police Pension account at Prudential, Respondent had the title of financial advisor for the account. f. During the years that Respondent served as an Exeter Borough Council Member, the only function that Respondent performed in his professional capacity as to the Exeter Borough Police Pension Fund was to serve as a conduit of information. g. 1. The account was managed by Jennsion Funds, an outside money manager, which is a subsidiary of Prudential. 2. Respondent typically referred anyone requesting information on the account to ASCO. Despite doing what he characterized as "absolutely nothing" with regard to the Exeter Borough Police Pension Account for the past 10 ears, Respondent continued to receive what he described as quarterly finder's fees as to the account. (2/26/04 Tr. at 970; 2/27/04 Tr. at 1073 - 1074). 1. Respondent's fees were based in part upon the balance of the Prudential account, such that if the account would diminish, Respondent's fees would also diminish. 2. Respondent testified that he discounted his fees on the account. h. In 1998, after being sworn into office, Respondent was appointed to serve on Exeter Borough Council's finance committee. There was another committee in existence at that time known as the "Police and Pension" committee, which committee Respondent testified had the Exeter Borough's Pension account under it. j. Respondent testified that he never served on the Exeter Borough Police Pension Committee. k. Borough Council meeting minutes from 1998, 2000, and 2001 indicate that the "Police and Pension" committee existed in each of those years. (ID-9, pages 1, 11, 21). In 2000 and 2001, the name of the finance committee was "Finance and Insurance (Pensions & Grants)." (ID -9, pages 11, 21). 1. Respondent testified that the designation in this committee's name regarding pensions did not indicate any connection with the police pension plan. 2. Respondent testified that he believed the reference to pensions in this particular committee's name was to the non - uniformed pension, which at that time was a start -up plan requiring matching funds from the Borough and therefore the involvement of the finance committee. (a) Respondent testified that the non - uniformed pension plan funds were not invested in Prudential. Esposito 02- 044 -C2 Page 44 m. Respondent testified both that he was never a trustee of the Exeter Borough Police Pension and that at some point he became a stated trustee of the Pension contrary to what he would have requested. 1. It was Respondent's understanding that being a trustee of the Exeter Borough Police Pension Plan would be contrary to Esposito, Advice 97- 545. 2. Respondent testified that he did not know that he had become a stated trustee of the Police Pension until the instant matter. n. Respondent signed ID -26, page 1, a document that indicated his status as an Exeter Borough Police Pension Plan trustee. (See, Findings 90, 105 b). 1. Respondent testified that Met Life had made an error that required the re- issuance of a new contract and authorized signers for the new paperwork. (a) None of the documents cited by Respondent directed whom a trustee would be. 2. Respondent testified that: (1) he inadvertently signed this document; (2) he directed a person to retype the document, but the person mistakenly did not do so; (3) the document was mistakenly FAXed to Met Life; (4) Respondent became a trustee on this account contrary to what he would have requested; and (5) For approximately 2 /2 years, Respondent did not know that he was a trustee despite the fact that account statements identifying him as a trustee came to Exeter Borough and were received by Serbin. (a) Respondent testified that in approximately June 1998, the time he signed this document, he was going to the Borough on a weekly basis to sign papers, and he signed this document before reading it. (b) Respondent testified that after he read the document, he told a staff member that he could not be a trustee on the account and to retype or throw the document away. . (c) Respondent testified that he never knew this document went out. (d) Statements from this account were sent to the Exeter Borough Building addressed to "Thomas Shannon, Joseph Esposito, TTS." (1) "TTS" stands for trustees. (e) Respondent testified that he did not see the statements from this account (Met Life), which are in evidence as ID -12. (1) Respondent testified that the Borough was having difficulty getting Met Life to forward the statements. (2) Respondent testified that he had removed himself from Pension decisions or discussions and that nothing was ever given to him. Esposito 02- 044 -C2 Page 45 P. q. (3) Respondent testified that Serbin forwarded the statements directly to ASCO. o. Respondent testified that he has no recollection of Council's April 3, 2001, discussion and vote regarding Resolution 5 -2001, as recorded on ID -23. 1. Respondent seconded three of the four motions that immediately preceded Council's deliberation and vote as to Resolution 5 -2001. 2. Respondent testified that he did not hear a word about Resolution 5- 2001. 3. Respondent testified that whenever anything came up about the Exeter Borough Police Pension account, he would either walk out of the room, move, or move his chair back from the table and not listen. 4. Respondent also testified that it was sometimes difficult to hear during meetings. The signature of Respondent's name on Joint Exhibit 1 is not Respondent's signature. 1. Respondent testified that the signature of his name on Joint Exhibit 1 is a forgery that took place without his knowledge. 2. Respondent testified that he never saw the blank version or draft version of this letter, and that the first time he saw the letter was in 2003. 3. In a July 15, 2003, statement to Commission investigators, Respondent had stated that he did remember the letter and had told Serbin that he could not be a trustee and to take "it" off. (2/27/04 Tr. at 1117 - 1118). (a) Respondent testified that when he gave the statement to Commission investigators, he probably misunderstood and thought the investigators were talking about the 1998 letter (ID- 26, page 1). Respondent testified that he had nothing to do with the 2001 transfer of funds from Met Life to ASCO and subsequently to the Wells Real Estate Investment Trust and Provident Mutual. 1. Respondent testified that it was on the evening of the Smith Barney presentation that he first became aware that the funds had been moved. 2. Respondent testified that Williamson of ASCO made the correct decision based upon factors including the over - funded status of the Police Pension Account and the strategy of moving the most aggressive performing area to fixed income. r. Had Prudential funds been transferred instead of the Met Life funds, such would have had an effect on Esposito's fees /commission. s. Respondent testified that he never served as a signatory for the Exeter Borough Police Pension. t. In May 2000 Respondent signed an Authorization to provide a cost -of- living Esposito 02- 044 -C2 Page 46 increase to former Exeter Borough Police Chief Zavada. (ID -8, page 12). 1. Respondent's signature block indicates his status as Council Member. (ID -8, page 12). 2. Respondent testified that Williamson of ASCO stated that trustees did not need to sign this document. 3. Respondent testified that the increase paid to former Police Chief Zavada did not come from the Prudential account and that he was not aware of any impact from this action upon his personal finances. u. From 1998 to the present time, Smith Barney /Citicorp has been a business competitor of Prudential, n /k/a Wachovia. 1. Met Life, Provident Mutual Life Insurance Company, and the Wells Real Estate Investment Trust were not business competitors of Prudential, n /k/a Wachovia. v. Respondent attended the November 14, 2001, presentation by Smith Barney in Exeter Borough. 1. Respondent testified that he was contacted by Serbin who told him that there was going to be a seminar, mentioned that it was something about insurance, and asked him to attend to explain terms to her. (a) Respondent testified that he was not aware at the time he was invited that there was going to be any discussion of pensions or investments. 2. Respondent testified that the list of attendees as set forth in Serbin's notes is accurate. 3. Respondent testified that the presentation was open to the public. (a) Respondent's testimony that the presentation was open to the public was based upon his belief that the gathering was required to be open to the public under the Sunshine Act, 65 Pa.C.S. § 701 et seq. 4. There was no quorum of Council members or committee members at the presentation. 5. The presentation was not advertised. 6. Within a span of five questions and answers, Respondent gave contradictory testimony that there were "other people" at the presentation and that he did not know whether there were other people" at the presentation. (2/27/04 Tr. at 1139). (a) Respondent testified that he did not know whether there were citizens present who were not on Serbin's list. 7. Respondent testified that the presentation began at 6:00 p.m. and was over by 7:00 p.m. (a) Respondent testified that by 7:03 p.m., he was at his Wednesday Esposito 02- 044 -C2 Page 47 night poker game. 8. Respondent testified that he did not act in any way to terminate the presentation. 9. Respondent described the Lenahans' presentation as a very general description of who they are and what they do. 10. Respondent testified that the Lenahans did not have answers to questions posed by the police and Serbin. (a) Respondent answered a question posed by Belza regarding what would happen if the Police Pension lost its funding. 11. Respondent testified that from participating in the seminar, he (Respondent) concluded that the Lenahans knew very little if anything about Act 600 or Act 205 and were not "up to speed" on municipal pension accounts. 12. Respondent testified that he asked some questions, but that he believes that what he did during most of the presentation was interpret. (a) Respondent testified that he does not recall asking Patrick Lenahan questions concerning Act 600, but that he probably asked questions concerning Act 205. (b) Respondent testified that "ARC" and "M MO" (acronyms relevant to municipal pensions) were brought up by person(s) other than Respondent. 13. Respondent acknowledged that he answered questions posed by the police during the presentation. 14. Respondent testified that he spoke at a normal volume and did not act to cut off questions on the part of any person. 15. Respondent testified that Belza asked the Lenahans if they could show him an actual account with a five -year track record. (a) Respondent testified that Lenahan, Jr. was incorrect when he testified that it would not be legal to turn over such information. (b) Respondent testified that such municipal pension account information is public. 16. Respondent testified that he did not hear any discussion specifically about the Exeter Borough Police Pension Account during the meeting, but that approximately 10 minutes into the presentation, he believed that the presentation pertained to the Exeter Borough Police Pension. (a) Respondent stayed for the entire presentation. 17. Respondent testified that no proposal was given at the meeting and that ID -11 is not a proposal. 18. No motion was made nor was any vote taken at the presentation. Esposito 02- 044 -C2 Page 48 19. Respondent testified that he never received any follow -up documentation or proposal from Smith Barney. 20. Respondent testified that he does not remember the subject of the Lenahans' proposal or of movement of funds to Smith Barney arising at any Council meeting or work session. 21. Respondent testified that to his knowledge, Exeter Borough Council did not take any further action as to the Smith Barney presentation. w. Respondent testified that following the Smith Barney presentation, Galli was outside with McNeil and asked Respondent to explain to them what happened to the $100,000 transferred from Met Life. 1. Respondent testified that the police had with them a report from ASCO and that he (Respondent) went through the report and showed them what had happened to the funds. 2. Respondent testified that McNeil also asked him how to set up a meeting with ASCO to talk about retiring at age 50 with 75% of his base pay. 3. Respondent testified that he (Respondent) did state that Council has the final say in how the Police Pension money is invested. 4. Respondent denies that he suggested that he exercises any degree of control over Borough Council or that on Council, he exercises any degree of control over the Pension funds. x. Respondent testified that he has had three or four discussions with Police Chief McNeil regarding McNeil's desire to retire at 75% of his base pay as opposed to the 50% allowed by Act 600. 1. Respondent testified that he spoke to McNeil as a Councilman and friend. 2. Respondent testified that under current law, the only way for McNeil to receive the amount he would like to receive upon retirement would be for the Borough to make up the difference, which would be a matter for the finance committee on which Respondent serves. Y. Respondent testified that he (Respondent) scheduled the appointment with McNeil and ASCO. 1. Respondent testified that he was in the parking lot going to see two clients when McNeil was there to meet with ASCO. 2. Respondent testified that he went to ASCO with McNeil, introduced McNeil to ASCO, stayed for approximately 15 -20 minutes, and then left. (a) Respondent testified that while he was present, the discussion pertained to McNeil's desire to retire at 50 years of age with 75% of his pay. (1) Respondent testified that he told McNeil that McNeil cannot do this unless Act 600 is changed. Esposito 02- 044 -C2 Page 49 (b) Respondent testified that at that time, he did not discuss the finances, investments, or movement of investments of the Exeter Borough Police Pension funds. (c) Respondent testified that he did not answer questions that McNeil was directing to Jerry McHale, an ASCO participant in the meeting. z. Respondent testified that he received the letter in evidence as ID -13, page 4, and that he called Belza and sent Belza a handwritten note stating that anything to do with the pension account would have to go through ASCO, and that ASCO had the answers to the questions. aa. Respondent testified that he never saw any of the documents in evidence as ID-13, pages 1 -3, but sent them to Joe Rudolph, lead attorney for the Borough on union negotiations. bb. Respondent testified that nobody controls Exeter Borough Council. cc. Respondent testified that he timely filed with Exeter Borough Statements of Financial Interests for each of the calendar years in question in this case. dd. Respondent did not list the creditor for his automobile loan in Block 9 of his Statements of Financial Interests filed for calendar years 2000 and 2001. 1. Respondent testified that he did not think to list this creditor because his payments on the loan are automatically taken from his account. 2. Respondent testified that to his knowledge, there is no connection between Exeter Borough and this creditor. ee. Respondent did not list Omega Realty Company, a business entity of which he is a 50% partner, as a direct or indirect source of income in Block 10 of his Statements of Financial Interests for calendar years 2000 and 2001. (ID -5, pages 1 -2). ff. Esposito #8 consists of the Partnership Information Return for Omega Realty Company for 2001. (See, Finding 118). a. For 2001, the partnership reported gross receipts in the amount of $11,961. (Esposito #8, page 4). b. For 2001, the partnership reported a net loss. (Esposito #8, page 4). (See, Finding 118 c). 1. Respondent testified that he did not list Omega Realty Company as a direct or indirect source of income for calendar year 2001 because the partnership had reported a net loss for tax purposes. gg. For 2000, the gross receipts of Omega Realty Company were in excess of $2,600. C. Stipulations 88. The Investigative Division of the State Ethics Commission received a signed, sworn Esposito 02- 044 -C2 Page 50 complaint alleging that Joseph Esposito violated provisions of the State Ethics Act (Act 93 of 1998). (See, Finding 1). (2/26/04 Tr. at 756). 89. Despite handwritten date notations that appear on ID-22 and ID-23, the documents in ID -7 are authentic. (Buchler Deposition, 2 /18/04 Tr. at 63). 90. Respondent signed the signature of his name that appears on ID -26, page 1/ID -10, page 3/ID -31, page 9; ID -5, page 2; and ID -8, page 13. (2/26/04 Tr. at 822 -823). 91. Respondent's fees /compensation from the Exeter Borough Police Pension account at Prudential are accurately calculated at 25% of the gross fees received by Prudential, as reflected on ID-21. (2/26/04 Tr. at 702 -704, 715; 2/27/04 Tr. at 1180- 1181). (See, Finding 81 b). D. Documents 92. Joint Exhibit 1 consists of a letter dated August 9, 2000, from Exeter Borough to Met Life, regarding the Exeter Borough Police Pension Plan account at Met Life. a. The letter states that it is a request and authorization from the Exeter Borough Police Pension trustees to have Met Life provide monthly statements to the Plan's third party administrator, ASCO, and to forward to the Borough a cash withdrawal form. b. The signature block of the letter bears signatures of Respondent's and Shannon's names and designates as to each of them the capacity of "Council /Pension Trustee." 93. Joint Exhibits 2 and 3 consist of blank Statement of Financial Interests forms used for filings under the Ethics Act for calendar years 2000 and 2001 respectively, complete with the instructions that accompanied the forms. a. The instructions stated as to block nine, pertaining to creditors, that disclosure was to be made as to car loans if in excess of $6,500 in the calendar year. b. The instructions stated as to block ten, pertaining to direct or indirect sources of income, that disclosure was to made as to sources of income in the amount of $1,300 or more of gross income, and that rental income was a type of income required to be disclosed. 94. ID-2, pages 3 -8 consist of a true and correct copy of Esposito, Advice 97 -545, issued by the Commission's Chief Counsel to Respondent on March 19, 1997. 95. ID -4 consists of true and correct copies of W -2 Wage and Tax Statement Forms issued by the Borough of Exeter to Respondent for the years 1999 -2002. (See, Findings 69 f, 82 f). a. For each year from 1999 -2001, Respondent received compensation from Exeter Borough in the amount of $1200. (ID -4, pages 1 -3). b. For 2002, Respondent received compensation from Exeter Borough in the amount of $1800. (ID -4, page 4). 96. ID -5 consists of two Statements of Financial Interests filed with Exeter Borough by Respondent for calendar years 2000 and 2001 together with a statement from Serbin dated June 4, 2003, asserting her inability to confirm or deny the filing of such a form by Respondent for 1998. (See, Finding 69 g). Esposito 02- 044 -C2 Page 51 a. On both of these Statements of Financial Interests, Respondent indicated in Block 9 that he had no creditors to disclose. b. On both of these Statements of Financial Interests, Respondent indicated only one direct or indirect source of income in Block 10, specifically, Prudential Securities. c. In Blocks 13 and 14 of these forms, Respondent disclosed that he is a 50% partner in "Omega Realty." 97. ID -6 pages 2 -61 consist of portions of account statements from Prudential Securities Incorporated for the Exeter Borough Police Pension Fund account number ECU - 95184, for the time period from January 1, 1998, through December 31, 2002. (See, Finding 84 h). 98. ID-7 pages 2 -23 consist of commission reports from Prudential Securities Incorporated listing commission payments from the Exeter Borough Police Pension Fund account number ECU -95184 to Financial Advisor Joseph Esposito for the time period from January 1998 through April 2003. 99. ID-8, pages 1 -8 consist of a true and correct copy of the Fee Agreement under which ASCO provides administrative services for the Exeter Borough Police Pension Plan. (See, Findings 69 I, 70 a). a. Per the Fee Agreement, Exeter Borough assumes the duties and responsibilities as trustee and fiduciary for the Plan. (ID -8, page 2). b. Per the Fee Agreement, Exeter Borough is required to provide ASCO "with accurate and timely information on all matters relating to the operation of the Exeter Borough Police Pension Plan," and "is ultimately responsible for the accuracy of the data and information supplied" to ASCO. (ID -8, page 2). 100. ID -8, page 9 /Esposito #7 is a letter dated February 9, 2001, from a Met Life representative addressed to the attention of "Thomas Shannon & Joseph Esposito Trustees" stating that the signature of the Trustee(s) of the plan was required to process their request. 101. ID -8, page 11 is a memorandum from Procopio of ASCO to Serbin. (See, Finding 79 i). a. Like ID -8, page 10, the memorandum is dated August 8, 2000. b. The memorandum states, in pertinent part: Re: Exeter Borough Police Pension Plan Please copy or type the enclosed letter on to Borough stationery and have Joe and Tom sign it where indicated. Following signature, please fax it to Met Life at the following number: 1- 303- 672 -3694 as soon as possible. (ID -8, page 11). 102. ID -9, pages 1 -50 consist of meeting minutes of Exeter Borough Council for the time period from September 1, 1998 through January 6, 2003. (See, Finding 69 aa). Esposito 02- 044 -C2 Page 52 a. The Exeter Borough Council meeting minutes repeatedly reference the filing of copies of the committee reports, including reports of the Police and Pension committee. (ID -9, pages 1, 6, 11 -12, 14, 21, 24, 33, 37, 40). 1. Per the minutes, Respondent gave the report for the Police and Police Pension Committee at the December 8, 1998, Exeter Borough Council Meeting. (ID -9, page 6). b. The Exeter Borough Council meeting minutes for January 2, 2001, include the following action by Exeter Borough Council: MOTION TO PASS RESOLUTION # 1 -2001, ACT 600, WHICH STATES FOR THE YEAR 2001 MEMBERS CONTRIBUTIONS TO THE EXETER BOROUGH POLICE PENSION FUND ARE HEREBY REDUCED TO ZERO (0) PERCENT OF THE MEMBERS COMPENSATION. 1 MR. STRAUB, 2 D . MR PETRUCCI AND UNANIMOUSLY CARRIED. (ID -9, page 19). 1. Per the meeting minutes, Respondent was present and participated at various points during the meeting. 2. The minutes for January 7, 2002, include similar action as to Resolution 2 -2002, with Respondent present and the motion to pass the Resolution unanimously carried. (ID -9, page 31). 3. The minutes in evidence for January 6, 2003, include a similar entry for Resolution 1 -2003, but also bear a handwritten notation with the initials "D.S." indicating that these particular minutes had not been approved by Council as of 1- 30 -03. (ID -9, pages 45, 49). c. The Exeter Borough Council meeting minutes for April 3, 2001, include the following action: MOTION TO PASS RESOLUTION 5 -2001 TO CHANGE TRUSTEES OF THE EXETER BOROUGH POLICE PENSION PLAN TO RICHARD MURAWSKI, THOMAS SHANNON ' ONAND DEBRA SERBIN. 1 . MR. PETRUCCI, 2. MRS. CHEPALONIS AND UNANIMOUSLY CARRIED. (ID -9, page 22). 1. Per the meeting minutes, Respondent was present and participated at various points during the meeting. 103. ID-9, page 52 consists of handwritten notes that were taken by Serbin at the November 14, 2001, Smith Barney presentation given by Patrick Lenahan, Sr., and Patrick Lenahan, Jr. (See, Finding 69 nn 1). a. Serbin's handwritten notes are as follows: Pension Meeting 11 -14 -01 6:00 PM H. Chepalonis - J. Esposito - Joe Coyne • J. Straub D. DeRoberto - R. Belza - L. Galli • J. McNeil Esposito 02- 044 -C2 Page 53 Pat Lenahan Sr. Pat Lenahan Jr. Solomon Smith Barney. Overview of • Solomon Smith Barney. 1 for total $1 Million 1%% for $500 Thou Asco — Can still be administrator [indecipherable mark] "-REIT value on acct. Wells Ind. Manage acct = 1 Statement review qtr • access on web • Who votes on this (ID -9, page 52). 104. ID -10, pages 1 -2, and ID -8, page 12 consist of documents used to provide former Exeter Borough Police Chief Zavada with a cost of living increase through the Exeter Borough Police Pension Plan. (See, Finding 69 ee). a. ID -8, page 12 is an "Authorization to Provide COLA Benefit" form executed and dated May 8, 2000, which Respondent signed. (See, Finding 87 t). 105. ID -10, page 4 and the document in evidence as ID -26, page 1/ID -10, page 3/ID -31, page 9 consist of certain Borough documents pertaining to the Exeter Borough Police Pension Plan. (See, Finding 69 r, v). a. ID -10, page 4 is on Borough letterhead, is entitled "Authorized Signer's Certificate," is dated 6/2/98, and identifies the individuals who are authorized to sign documents on behalf of the Exeter Borough Police Pension Plan. 1. The printed names and signatures that appear on the Authorized Signer's Certificate include Thomas Shannon; John J. Petrucci, Jr.; John McNeil, Chief of Police; and Debra Serbin, Secretary/Treasurer. b. The document in evidence as I D -26, page 1/1D-10, page 3/1D-31, page 9 bears a date after the date of ID -10, page and provides as follows: June 08, 1998 Thomas Shannon, Trustee Exeter Borough Police 1101 Wyoming Avenue Exeter, PA 18643 RE: EGN 6601779 — Exeter Borough Police Pension Fund Contract # 073270254AB I am requesting for the following changes to be made on the above Plan. Esposito 02- 044 -C2 Page 54 Daniel DeRoberto and Thomas Polacheck are no longer trustees of this plan and their names are to be removed. Please add the following names to be trustees. Jprinted name Thomas Shannon] Jsigned name Thomas Shannon] (print) (signature) Jprinted name, Joseph Esposito] Jsigned name, Joseph J. Esposito] (print) (signature) (print) (signature) Only one signature is required from a trustee to process any future request for this plan. If you have any question, please call me at (717)- 654 -6816. Thank you Thomas Shannon Trustee (1) ID -10, page 3 and ID -31, page 9 are copies of the original document in evidence as ID -26, page 1. 106. The letters at ID -10, page 6, ID -8, page 10, and Joint Exhibit 1 are substantively the same. (See, Findings 69 x, 79 i). a. The wording of the letters is the same. b. Joint Exhibit 1 differs from ID -8, page 10 in that Joint Exhibit 1 is on Exeter Borough letterhead, is typed in capital letters, bears a date that is one day after the date of ID -8, page 10, and has signatures. c. Joint Exhibit 1 differs from ID -10, page 6 in that Joint Exhibit 1 is on Exeter Borough letterhead and has signatures. 1. Both letters are typed in capital letters and bear the date August 9, 2000. 107. ID -11, pages 1 -47 comprise a written handout in the nature of a general proposal or presentation that was provided by the Lenahans to those in attendance at the November 14, 2001, Smith Barney presentation in Exeter Borough. (See, Finding 72 g 3). a. The title page of the handout states, "Presentation to Exeter Borough Police Pension." (I D -11, page 2). 108. ID -12, pages 1 -66 include account statements and other account - related items from Met Life to Exeter Borough for the Exeter Borough Police Pension Fund, account number 073270254 AB. (See, Finding 69 y). Esposito 02- 044 -C2 Page 55 a. The account statements, which range from 1998 through 12/31/02, are all addressed to: "THOMAS SHANNON, JOSEPH ESPOSITO, TTS." 109. ID -13, pages 1 -4 consist of certain letters /memoranda regarding the Exeter Borough Police Pension. a. ID -13, page 2 consists of an unsigned copy of a memorandum dated January 14, 2002, from the Exeter Borough Police Department to Exeter Borough Council, stating that per the Police Contract, the Police Department wanted to negotiate the police pension benefits and requested a date for such negotiations to begin. b. ID -13, page 3 consists of an unsigned copy of a memorandum /letter dated January 28, 2002, from the Exeter Borough Police Department to Exeter Borough Council, noting the lack of any response to the p rior request for a meeting regarding the police pension section of contract, and again requesting such a meeting. c. ID -13, page 4 consists of a letter dated October 3, 2002, addressed to Respondent with a copy to Mr. Howard Buchler, which letter states in pertinent part: As of January 1, 2002, when you were again appointed to the finance and grants committee, we have submitted a written request on two separate occasions asking to meet with you to discuss the progress and future of our pension account which is currently with Prudential Securities. This now is the third time we are making the same request. Your expeditious handling of our request would be greatly appreciated. ID -13, page 4. 1. The letter bears signature lines for Chief McNeil and Sergeants Coolbaugh, Galli and Belza, but the copy that is in evidence is unsigned. d. ID -13, page 1 consists of an unsigned copy of a letter dated May 21, 2003, from Galli to Murawski, with copies to Serbin, Shannon, and McNeil, which letter states in pertinent part: I am writing to you on behalf of the department. It is the fifth time we are asking for a meeting with regard to the pension plan. Each time the request was made they went not only not answered, but also not acknowledged. In an attempt to find an amicable solution to this dilemma, we are once again asking to meet with the pension representatives to answer our questions and find resolution. Should this request go unanswered, we will have no other alternative but to address and debate this at an open council meeting. Perhaps using Mr. Espositos tactic of a public forum will be more productive. 110. ID -14 pages 1 -4 consist of portions of account statements from Prudential Securities Incorporated for the Exeter Borough Police Pension Fund account number ECU - 95184, for the time period from December 1, 1998, through December 31, 2002. (See, Finding 84 h). 111. ID -23 is an audiotape of the April 3, 2001, meeting of Exeter Borough Council. (See, Finding 69 z). Esposito 02- 044 -C2 Page 56 112. ID-24 is the cover page and pages 28 -29 of a statement by Serbin given under oath on May 1, 2003, to State Ethics Commission investigator(s) with a Borough Council attorney present. (See, Finding 69 pp 1). a. Serbin stated that Respondent Esposito participated in the discussion at the November 14, 2001, Smith Barney presentation and asked specific questions of the Lenahans. (See, Finding 69 pp 1). 113. The document in evidence as ID -26, page 1/ID -10, page 3/ID -31, page 9 was faxed back and forth between Met Life and Serbin. a. On July 8, 1998, the form was faxed to Serbin by Orlando Cruz of Met Life with the following comments: Debbie, Per our conversation earlier. Here is the form that needs to be completed and signed by Tom in order to process your request. Please call me if you have any questions. (ID -26, page 3). b. Under a cover sheet dated July 21, 1998, in evidence as ID -26, page 2, the form was faxed by Serbin to Orlando Cruz with the following comment: "Any question call (717) 654 - 6816." (ID -26, page 2). c. ID-31, page 10 consists of the FAX cover sheet in evidence as ID-26, page 2, but with the following additional handwritten notation: "Change done 8 -14 -98 O Cruz." 114. ID -27, pages 1 -12 consist of an Exeter Borough Ordinance enacted November 4, 1991, which pertains to the Exeter Borough Police Pension Plan and Fund. 115. Esposito #2 consists of a statement dated 7/23/03 signed by Serbin that states: I CAN VERIFY THAT MR. ESPOSITO WAS NEVER ON THE PENSION COMMITTEE FOR EXETER BOROUGHS [sic] POLICE PENSION. IN MAY OF 2002 COUNCILMAN MR. PETRUCCI RESIGNED FROM THE FINANCE COMMITTEE. AT THE NEXT MEETING MR. ESPOSITO INSTRUCTED ME TO REMOVE HIS NAME FROM THE AGENDA STATING HE IS ONLY FINANCE AND GRANTS. 116. Esposito #3 consists of a statement dated 6/4/03 signed by Serbin that states: AS PER THE REQUEST FROM THE STATE ETHICS COMMISSION. I DEBRA SERBIN SECRETARY AND TREASURER FOR EXETER BOROUGH DO HERE BY [sic] CERTIFY THAT NO COMMITTEE REPORTS EXIST FOR THE EXETER BOROUGH POLICE PENSION PLAN. 117. Esposito #5, page 5 is a document dated 2/27/01 on Exeter Borough letterhead that directed the wire transfer of $100,000 from the Exeter Borough Police Pension Plan account with Met Life to the successor custodian. (See, Finding 69 uu). Esposito 02- 044 -C2 Page 57 a. The document bears signatures for Shannon and Serbin and states that the Exeter Borough Police Pension Committee had approved the transfer. 118. Esposito #8 consists of the Partnership Information Return for Omega Realty Company for 2001. (See, Finding 87 ff). a. The partnership reported gross receipts in the amount of $11,961. (Esposito #8, page 4). b. The partnership reported expenses totaling $13,546, detailed as follows: advertising--$33; depreciation expense -- $2,160; insurance -- $1,450; legal and professional fees- -$295; mortgage interest paid to banks -- $1,907; taxes- - $3,310; utilities -- $4,173; postage - -$68; and bank charges- -$150. (Esposito #8, page 4). c. The partnership reported a net loss in the amount of $1,585. (Esposito #8, page 4). 1. Of the total reported net loss, Esposito reported a net loss of $793. (Esposito #8, page 6). 119. Esposito #11 consists of documents, including Authorized Signer's Certificates and a Resolution to Change Trustees, which are of the type authorized by Act 600 to appoint trustees and authorize signers of documents. (See, Finding 86 d). a. The documents comprising Esposito #11 do not identify Respondent as an authorized signer for the Exeter Borough Police Pension. (See, Finding 69 u 1). b. Respondent's name appears on Esposito #11, page 6 together with the designation "Trustee" under a signature line. (1) Esposito #11, page 6 is not executed. c. Esposito #11, page 9 consists of Resolution 5 -2001 changing the trustees of the Exeter Borough Police Pension Plan. (See, Finding 69 u 3). (1) There is no mention of Respondent's name on Esposito #11, page 9. (See, Finding 69 u 3(a)). E. Other Fact Findings 120. The Exeter Borough Committee with authority as to the Exeter Borough Police Pension was not the finance committee, or as it was later called, the "Finance and Insurance (Pensions & Grants) Committee," but rather, the Police and Pension committee. 121. Respondent served as a named trustee of the Exeter Borough Police Pension Plan /Fund from at least July 21, 1998, to April 3, 2001. 122. The signatures of the names of Respondent and Shannon that appear on Joint Exhibit #1 are not their signatures. 123. The Exeter Borough police have no control over the Exeter Borough Police Pension Plan /Fund. Esposito 02- 044 -C2 Page 58 124. There is animosity between members of the Exeter Borough Police Department and certain members of Exeter Borough Council, including Respondent. III. DISCUSSION: Since assuming office as an Exeter Borough Councilman in January 1998, Respondent Joseph Esposito (also referred to herein as "Respondent" or "Esposito ") has been a public official subject to the provisions of the Public Official and Employee Ethics Law, Act 9 of 1989, Pamphlet Law 26, 65 P.S. 401, et seq., as codified by the Public Official and Employee Ethics Act, Act 93 of 1998, Chapter 11, 65 Pa.C.S. § 1101 et seq., which Acts are referred to herein as the "Ethics Act." The allegations are that Respondent, as an Exeter Borough Councilman, violated Sections 1103(a), 1104(a), 1105(b)(4), and 1105(b)(5) of the Ethics Act: (1) when he used the authority of his office for the private pecuniary benefit of himself and /or a business with which he is associated, including but not limited to participating in discussions and /or actions and decisions of the Borough Finance and Insurance Committee and of borough council resulting in a business with which he is associated, Prudential Financial, being retained as advisor to the Exeter Borough Police Pension Fund; (2) when he participated in committee decisions resulting in funds from the police pension plan remaining invested with Prudential Financial; (3) when he failed to file Statements of Financial Interests for the 1999 and 2002 calendar years; (4) when he failed to list creditors on Statements of Financial Interests filed for calendar years 2000 and 2001; and when he failed to disclose all sources of income in excess of $1,300 on Statements of Financial Interests filed for the 2000 and 2001 calendar years. Pursuant to Section 3(a)/1103a) of the Ethics Act quoted above, a public official /public em loyee is prohibited from engaging in conduct that constitutes a conflict of interest. Section 3(a /1103(a) of the Ethics Act prohibits a public official /public employee from using the aut ority 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 4(a)/1104(a) of the Ethics Act quoted above provides that each public official /public employee must file a Statement of Financial Interests for the preceding calendar year, each year that he holds the position and the year after he leaves it. Section 5(b)(4)/1105(b)(4) of the Ethics Act requires that the filer list the name and address of each creditor to whom is owed in excess of $6,500 and the interest rate on each debt owed to such creditors. (5) Section 5(b)(5)/1105(b)(5) of the Ethics Act requires that the filer list the name and address of any direct or indirect source of income totaling in the aggregate $1,300 or more. Having noted the issues and applicable law, we shall now summarize the relevant facts. Respondent has served as a Member of Exeter Borough Council since January 1998. In his private capacity, Respondent has at all times relevant to this case been employed by Esposito 02- 044 -C2 Page 59 Prudential Securities, n /k/a Wachovia Securities. Approximately eight or nine years before Respondent became an Exeter Borough Councilman, a portion of the Exeter Borough Police Pension Fund was invested with Prudential. Respondent was the designated financial advisor for the account at that time, and he remained such until approximately October 2002. The account was managed by an outside money manager, but both Respondent and Prudential received quarterly fees for the account on an ongoing basis. The account remained at Prudential until approximately November 2003. Prior to becoming an Exeter Borough Council Member, Respondent wrote to this Commission for an advisory opinion as to conflicts of interest that could arise for him if were elected, specifically with regard to the Exeter Borough Police Pension account. On March 19, 1997, Esposito, Advice 97 -545 was issued to Respondent. Pertinent portions of the Advice are quoted at Findings 24 -25. Much of the evidence in this case focused upon whether Respondent served as a member of a Borough committee with oversight as to the Police Pension or as a trustee of the Plan /Fund. Other evidence focused upon: (1) whether Respondent was involved in certain actions involving the Police Pension; and (2) Respondent's participation at a seminar presented by a business competitor, Salomon Smith Barney ( "Smith Barney "), when Smith Barney attempted to secure the Police Pension business in Exeter Borough. It was established that the Borough committee with oversight as to the Police Pension was the Police and Pension committee, not the finance committee, or as it was later called, the "Finance and Insurance (Pensions & Grants) Committee." Respondent served on the latter committee. There was insufficient evidence to establish that Respondent served on the Police and Pension committee. However, it was established that from at least July 21, 1998, to April 3, 2001, Respondent served as a named trustee of the Exeter Borough Police Pension Plan /Fund. Respondent claims to have been unaware of his status as a trustee. The Exeter Borough Police Pension Plan is a defined benefit pension plan operating pursuant to Act 600 and Act 205 in the Commonwealth of Pennsylvania. At all times relevant to this case, the Exeter Borough Police Pension Fund has been 'surplus funded," meaning it has more assets than liabilities. Consequently, the trustees have had very little to do as to the Pension /Fund. Based upon the evidence before this Commission, the only significant action taken as to the Fund itself during the period under review was a transfer of $100,000 from a Met Life account to other Fund investments (not Prudential). The transfer was authorized in February 2001, while Respondent was still a trustee of the Police Pension Plan /Fund. The funds were transferred from Met Life due to the volatility of the equity markets at the time. In 2000 both the Met Life and Prudential portions of the Police Pension Fund began decreasing in value. Met Life decreased 7.324% in value while Prudential dropped 15.599% in value. Other portions of the Police Pension Fund were more stable, specifically, the Wells Real Estate Investment Trust and Provident Mutual Life Insurance Company, now Nationwide, which were managed by the Plan's administrator, ASCO. The $100,000 was transferred from the Met Life account to the more stable investments. It would appear to be the Investigative Division's theory that Respondent played a role in causing the monies to be transferred from Met Life rather than from Prudential, thereby financially benefiting both Prudential and himself by maximizing their ongoing receipt of fees from the Prudential account. Closing Statement of the Investigative Division, at 15. The funds were transferred per an Authorization signed by Council Member Thomas Shannon and Borough Secretary/Treasurer and Pension Chief Administrative Officer Debra Serbin, both of whom were trustees of the Plan /Fund. Respondent did not sign the Authorization. Esposito 02- 044 -C2 Page 60 The Authorization states that the Exeter Borough Police Pension Committee approved the transfer. This statement cannot be confirmed. Despite the fact that the Exeter Borough Council meeting minutes repeatedly reference the filing of Police and Pension committee reports, Serbin has asserted that no committee reports exist for the Exeter Borough Police Pension Plan, and there are no such reports in evidence. It is questionable whether the Police and Pension Committee had the authority to authorize the transfer. Donald Williamson, owner, president, and senior consultant ofASCO, testified that actions taken as to the Exeter Borough Police Pension Fund must be at the direction of the Exeter Borough Council, pension trustees, or chief administrative officer for the pension. However, as noted above, the Authorization bore the signatures of two trustees, one of whom also served as Chief Administrative Officer for the Pension. The only evidence that could be argued to link Respondent to the transfer is Joint Exhibit 1, an August 9, 2000, letter to Met Life that requested a cash withdrawal form. This letter bears signatures of the names of Respondent and Shannon with the designation "Council /Pension Trustee" under each name. However, neither signature is what it purports to be. That is, the signature of Respondent's name is not his signature, and the signature of Shannon's name is not Shannon's signature. We find that there is insufficient evidence to show a use of authority of office by Respondent as to the transfer of funds from Met Life. There is evidence indicating that Respondent participated in the approval of a cost -of- living increase for a Police Pension recipient, former Exeter Borough Police Chief Zavada, as well as decisions of Council to require zero contributions from Pension Plan members for certain years. No significant financial benefits flowed to Respondent or his employer as a result of these actions. With regard to the cost -of- living increase, the Investigative Division acknowledges that this probably did not have a substantial effect on Respondent's fees from the Police Pension. Closing Statement of the Investigative Division, at 16 Additionally, there is no evidence to indicate that the increase to this retiree was paid from anything but the ordinary source for payments to retirees. As for actions requiring zero contributions from Plan members, such actions appear to have had no financial impact upon Respondent or his employer, Prudential. We shall now review the material facts pertaining to Respondent's participation at the Smith Barney presentation in Exeter. From 1998 to the present time, Smith Barney has been a business competitor of Prudential. Commencing in or about the summer of 2001, Patrick Lenahan, III ( "Lenahan, Jr. ") of Smith Barney took actions to secure the police pension business in Exeter Borough. He initially contacted Council Member Petrucci, who told him to handle the matter with Police Chief McNeil. Following one or two informal meetings with Police Chief McNeil and other members of the Exeter Borough Police Department, Lenahan, Jr. and his father gave a formal presentation on behalf of Smith Barney at the Scout Building in Exeter. The presentation took place on November 14, 2001. At Police Chief McNeil's request, Borough Secretary/Treasurer Serbin contacted the Exeter Borough Council Members, including Respondent, in advance, notifying them of the presentation. Three Council Members, including Respondent, attended the presentation. There was no quorum of Council members or committee members at the presentation. Of the three individuals who served as named trustees of the Police Pension Plan at the time, Serbin was the only one present, and she had no ability to vote regarding the Police Pension Plan. The presentation was close to one hour in length. A written handout in the nature of a general proposal or presentation (ID-11) was provided by the Lenahans to those in attendance at the presentation. The title page of the handout stated, "Presentation to Exeter Borough Police Pension." However, this was a very general sales presentation. The process was not Esposito 02- 044 -C2 Page 61 to the point of specifics, such that no specific proposal as to the Police Pension Plan /Fund was presented. Respondent participated in the discussions that occurred at the presentation. Respondent asked numerous questions of the Lenahans. Respondent also answered some questions posed by others in attendance. It was the perception of Lenahan, Jr. that during the presentation, he and his father were in a hostile, argumentative environment, primarily with Respondent. It was the perception of Lenahan, Jr. that Respondent asked irrelevant or antagonistic questions. A sergeant of the Police Department who was present at the presentation described Respondent's participation as "badgering" and "brutal." This same witness and another sergeant from the Police Department described the exchange between Respondent and the Lenahans as a debate. Police Chief McNeil described Respondent's demeanor during the presentation as argumentative. Council Member Chepalonis testified that she would not characterize the Smith Barney presentation as brutal, but that there were raised voices. De Roberto, who at the time of the presentation was a Councilman - elect, testified that there weren't any arguments during the presentation, and that it would be inaccurate to characterize the discussions or questions involving Respondent as "brutal." Mayor Coyne testified that what went on at the presentation was not "brutal" or "hostile" and that he was aided by Respondent's questions. Respondent acknowledged that he asked some questions, but stated that he believes that what he did during most of the presentation was interpret. Respondent testified that he does not recall asking Patrick Lenahan questions concerning Act 600, but that he probably asked questions concerning Act 205. Respondent acknowledged that he answered questions posed by the police during the presentation. Respondent testified that he spoke at a normal volume and did not act to cut off questions on the part of any person. No motion was made nor was any vote taken at the presentation. Respondent testified that from participating in the seminar, he (Respondent) concluded that the Lenahans knew very little if anything about Act 600 or Act 205 and were not "up to speed" on municipal pension accounts. Following the Lenahans' November 14, 2001, presentation at the Scout Building in Exeter, Lenahan, Jr. made follow -up contacts with members of the Exeter Borough Police Department regarding the Police Pension Plan. Lenahan, Jr. testified that initially, the individuals he contacted did not have any answers as to where things stood with the Police Pension Plan, and eventually, his calls were not returned. Police Chief McNeil received but did not return such calls. McNeil testified that he saw no point in returning the telephone calls because Exeter Borough Council has the final say on the Police Pension. The Lenahans did not submit any proposal to the Borough of Exeter other than the general proposal /presentation at ID-11 provided to persons attending the November 14, 2001, presentation. Nothing further came before Exeter Borough Council regarding the Smith Barney presentation. Testimony as to three other events must be considered. The first event was a conversation that occurred on November 14, 2001, immediately following the Smith Barney presentation. The conversation occurred outside the Scout building and involved Respondent and members of the Exeter Borough Police Department. There was testimony that Mayor Coyne and DeRoberto were also present, but Mayor Coyne and DeRoberto both testified that they were leaving and did not overhear the conversation. Esposito 02- 044 -C2 Page 62 Members of the Police Department testified that Respondent stated to them that the money (Pension Fund) is the Borough's, it is controlled by Council, Respondent controls Council, and the police were not getting it. Respondent's version of the conversation is that Sergeant Galli was outside with Chief McNeil and asked Respondent to explain to them what happened to the $100,000 transferred from Met Life. Respondent testified that the police had with them a report from ASCO and that he (Respondent) went through the report and showed them what had happened to the funds. Respondent testified that McNeil also asked him how to set up a meeting with ASCO to talk about retiring at age 50 with 75% of his base pay. Respondent testified that he (Respondent) did state that Council has the final say in how the Police Pension money is invested. Respondent denies that he suggested that he exercises any degree of control over Borough Council or that on Council, he exercises any degree of control over the Pension funds. Thus, we have been presented with two very different versions of the conversation and no basis for resolving which is accurate. We would note that there is animosity between members of the Exeter Borough Police Department and Respondent. The second event was an alleged conversation between Respondent and Galli still later that same evening. (See, Finding 74 d 3). For the same reason noted above, we are unable to determine whether the alleged conversation between Galli and Respondent occurred. The third event was a meeting between ASCO representatives and McNeil that occurred in 2001 at some point after the November 14, 2001, Smith Barney presentation. McNeil testified that he arranged for this meeting to discuss the intended use of the $100,000 that had been transferred from the Police Pension's Met Life fund to ASCO, and that other matters relating to the Police Pension Fund were also discussed at the meeting. Respondent testified that he (Respondent) scheduled the meeting for McNeil and that McNeil was concerned about increasing his pay at retirement beyond the percentage allowed by law. Respondent attended at least part of the meeting. McNeil testified that when he (McNeil) asked questions of the ASCO representatives, Respondent answered the questions and the ASCO representatives provided what McNeil described as "secondary responses." Respondent advised to "ride out the storm." Given that the Exeter Borough Police had no control over the Police Pension Fund; ASCO did not manage the Prudential portion of the Police Pension Fund; and actions taken as to the Exeter Borough Police Pension Fund must be at the direction of the Exeter Borough Council, pension trustees, or chief administrative officer for the pension, this meeting would appear to be of no consequence for purposes of applying the Ethics Act to the allegations before us. Finally, the material facts regarding Respondent's Statements of Financial Interests are as follows. Respondent filed Statements of Financial Interests with Exeter Borough for calendar years 2000 and 2001. On both forms, Respondent indicated in Block 9 that he had no creditors to disclose. Respondent has admitted that he violated the Ethics Act by failing to list the creditor for his auto loan on both of these Statements of Financial Interests. Respondent Esposito's Post - Hearing Brief and Argument, at 42. Additionally, on both of these Statements of Financial Interests, Respondent indicated only one direct or indirect source of income in Block 10, specifically, Prudential Securities. In both years, Respondent was a 50% owner of Omega Realty Company, a partnership that reported gross receipts in excess of $2,600 for each of these years. Respondent noted his partnership interest in this entity in other blocks of the forms. Respondent contends that he did not intend to mislead the public or hide anything from those reviewing his Statements of Financial Interests. Respondent Esposito's Post - Hearing Brief and Argument, at 42. Esposito 02- 044 -C2 Page 63 Respondent testified that he did not list the partnership as a source of income because although its gross income in each year was over $2,600, it reported a net loss for each year for tax purposes. Respondent claims that he filed Statements of Financial Interests for calendar years 1999 and 2002, but no such forms have been located in the records of Exeter Borough. There is evidence that Borough records were moved and some Borough records were damaged and destroyed during renovations to the Borough building. Having summarized the above relevant facts, we shall now determine whether Respondent violated the Ethics Act as alleged in the Investigative Complaint. As we apply the facts to the allegations, due process requires that we not depart from the allegations. Pennsy v. Department of State, 594 A.2d 845(1991). Violations of the Ethics Act must be established by clear and convincing proof. 65 Pa.C.S. § 1108(g). Clear and convincing proof is "testimony that is so 'clear, direct, weighty, and convincing as to enable the trier of fact to come to a clear conviction, without hesitance, of the truth of the precise facts in issue. - In Re: Charles E.D.M., 550 Pa. 595, 601, 708 A.2d 88, 91 (Pa. 1998) (Citation omitted). We shall first consider the allegations pertaining to Section 1103(a) of the Ethics Act. The evidence establishes that Respondent served as a trustee of the Exeter Borough Police Pension Plan /Fund from at least July 21, 1998, to April 3, 2001. However, there is insufficient evidence to establish that Respondent took any significant action as a trustee. Specifically with regard to the Met Life transfer, there is insufficient evidence to establish any use of authority of office by Respondent as to the transfer of $100,000 from Met Life to other investments. While it was neither prudent nor advisable for Respondent to serve as a trustee of the Exeter Borough Police Pension Plan /Fund, Respondent's mere status as a trustee, without action, is insufficient to establish a violation of Section 1103(a ) of the Ethics Act. See, McGuire v. State Ethics Commission, 657 A.2d 1346 (Pa. Cmwlth. 1995). Based upon the evidence before us, the only significant action taken by Respondent in this case consisted of his participation at the November 14, 2001, Smith Barney presentation, which occurred when Respondent was no longer a named trustee of the Police Pension Plan /Fund. Again, it was neither prudent nor advisable for Respondent to participate at the Smith Barney presentation. However, we find no violation of Section 1103(a) based upon the particular facts in this case, specifically: the presentation was not any sort of official Borough meeting; there was no quorum of Borough Council members or committee members in attendance; of the three individuals who served as named trustees of the Police Pension Plan at the time, Serbin was the only one present, and she had no ability to vote regarding the Police Pension Plan; the presentation was general, and no specific proposal as to the Police Pension Plan /Fund was presented; there were dramatically differing accounts as to the nature of Respondent's participation at the presentation; and those who testified against Respondent consisted of a disappointed competitor and other individuals with an established animosity toward Respondent. Such facts preclude this Commission from coming "to a clear conviction, without hesitance, of the truth of the precise facts in issue." In Re: Charles E.D.M., supra. Accordingly, we find that Respondent did not violate Section 1103(a) of the Ethics Act as to alleged activities involving the Exeter Borough Police Pension Plan/ Fund, based upon a lack of clear and convincing proof. Given our disposition as to Section 1103(a), we need not address Respondent's legal arguments involving Bouch v. State Ethics Commission, No. 2372 C.D. 2003 (Pa. Cmwlth. April 28, 2004). Turning to the allegations pertaining to Respondent's Statements of Financial Interests, we find no violation of Section 1104(a) of the Ethics Act as to the allegation that Respondent failed to file Statements of Financial Interests for the 1999 and 2002 calendar years. Given the destruction of Borough documents during the remodeling of the Borough building, the fact Esposito 02- 044 -C2 Page 64 that such filings cannot now be located does not constitute clear and convincing proof that Respondent failed to file the forms. However, to the extent he has not already done so, Respondent shall be directed to file replacement Statements of Financial Interests with the Borough for the 1999 and 2002 calendar years, in order to restore the missing information. Respondent has admitted that he violated Section 11 05 b (4) of the Ethics Act when he failed to list the creditor for his auto loan on Statements of inancial Interests filed for calendar years 2000 and 2001. We find a violation of Section 1105(b)(4) of the Ethics Act in that regard. Finally, Respondent violated Section 1105(b)(5) of the Ethics Act when he failed to disclose Omega Realty Company as a source of income in excess of $1,300 on Statements of Financial Interests filed for the 2000 and 2001 calendar years. See, 51 Pa. Code § 17.10. For purposes of financial disclosure under the Ethics Act, Respondent is attributed with 50% of the gross income received by the partnership. Respondent was required to list Omega Realty Company as a source of income in block 10 of his Statements of Financial Interests for calendar years 2000 and 2001 because the partnership reported gross receipts in excess of $2,600 in both years. If Respondent has not already done so, he is directed to file, within 30 days of the date of mailing of this Order, replacement Statements of Financial Interests for calendar years 1999 and 2002 with Exeter Borough, providing complete disclosure as required by Section 1105 of the Ethics Act. The original of each such Statement of Financial Interests form is to be filed with the Borough, with one copy sent to the Administrative Division of this Commission for compliance verification purposes. If Respondent has not already done so, he is directed to file, within 30 days of the date of mailing of this Order, amended Statements of Financial Interests for calendar years 2000 and 2001 with Exeter Borough, providing complete disclosure as required by Section 1105 of the Ethics Act and this Order, and specifically with regard to creditors and sources of income. The original of each such amended Statement of Financial Interests form is to be filed with the Borough, with one copy sent to the Administrative Division of this Commission for compliance verification purposes. action. Noncompliance with the foregoing will result in the institution of an order enforcement IV. CONCLUSIONS OF LAW: 1. In his capacity as an Exeter Borough Councilman, Joseph Esposito ( "Esposito ") has been a public official subject to the provisions of the Ethics Act since January 1998. 2. Esposito did not violate Section 1103(a) of the Ethics Act as to alleged activities involving the Exeter Borough Police Pension Plan /Fund, based upon a lack of clear and convincing proof. 3. Esposito did not violate Section 1104(a) of the Ethics Act as to the allegation that he failed to file Statements of Financial Interests with Exeter Borough for the 1999 and 2002 calendar years, based upon a lack of clear and convincing proof. 4. Esposito violated Section 1105(b)(4) of the Ethics Act when he failed to list the creditor for his auto loan on Statements of Financial Interests filed with Exeter Borough for calendar years 2000 and 2001. 5. Esposito violated Section 1105(b)(5) of the Ethics Act when he failed to disclose Omega Realty Company as a source of income in block 10 of his Statements of Financial Interests filed with Exeter Borough for calendar years 2000 and 2001. In Re: Joseph Esposito ORDER NO. 1333 File Docket: 02- 044 -C2 Date Decided: 6/8/04 Date Mailed: 6/22/04 1. Joseph Esposito ("Esposito'), a public official in his capacity as an Exeter Borough Councilman, did not violate Section 1103(a) of the Ethics Act as to alleged activities involving the Exeter Borough Police Pension Plan /Fund, based upon a lack of clear and convincing proof. 2. Esposito did not violate Section 1104(a) of the Ethics Act as to the allegation that he failed to file Statements of Financial Interests with Exeter Borough for the 1999 and 2002 calendar years, based upon a lack of clear and convincing proof. 3. Esposito violated Section 1105(b)(4) of the Ethics Act when he failed to list the creditor for his auto loan on Statements of Financial Interests filed with Exeter Borough for calendar years 2000 and 2001. 4. Esposito violated Section 1105(b)(5) of the Ethics Act when he failed to disclose Omega Realty Company as a source of income in block 10 of his Statements of Financial Interests filed with Exeter Borough for calendar years 2000 and 2001. 5. If Esposito has not already done so, he is directed to file, within 30 days of the date of mailing of this Order, replacement Statements of Financial Interests for calendar years 1999 and 2002 with Exeter Borough, providing complete disclosure as required by Section 1105 of the Ethics Act. The original of each such Statement of Financial Interests form is to be filed with Exeter Borough, with one copy sent to the Administrative Division of this Commission for compliance verification purposes. 6. If Esposito has not already done so, he is directed to file, within 30 days of the date of mailing of this Order, amended Statements of Financial Interests for calendar years 2000 and 2001 with Exeter Borough, providing complete disclosure as required by Section 1105 of the Ethics Act and this Order, and specifically with regard to creditors and sources of income. The original of each such amended Statement of Financial Interests form is to be filed with Exeter Borough, with one copy sent to the Administrative Division of this Commission for compliance verification purposes. 7. Noncompliance with paragraphs 5 and 6 of this Order will result in the institution of an order enforcement action. BY THE COMMISSION, Louis W. Fryman, Chair