Elections

To the tune of a $100,000 fine and five year debarment against an individual broker, the Securities and Exchange Commission let it be known – again – that it is very serious about putting teeth behind its new pay-to-play rules. Yesterday, the SEC announced entry of a consent order by which former Goldman Sachs investment banker Neil Morrison accepted the largest individual penalty ever handed down for a federal pay-to-play violation of MSRB Rule G-37. What makes the settlement especially noteworthy are the fact that most of the "contributions" Mr. Morrison were alleged to have made were in the form of personal "in-kind" services to Massachusetts gubernatorial candidate Tim Cahill rather than just cash donations, the fact that Goldman Sachs had repeatedly warned its bankers about G-37 prior to Mr. Morrison's conduct, and the fact that Goldman self-reported the violation. (COMPLIANCE TIP: If you are an investment banker, don't send emails to your municipal clients saying "'as an advisor/consultant/friend...PLEASE don't give these (underwriter) slots away' to others because of all the campaign work I've done for you.") Loyal readers of this blog (humor me, I HAVE to keep telling myself there are some) will know that we have been riding through town on Brown Beauty warning that the SEC is really, really serious about enforcing MSRB Rule G-37. The Commission has previously entered into a $14 million consent judgment with Goldman Sachs over its alleged failure to supervise the activities of its bankers. MSRB Rule G-37, like its companion Rule 206(4)-5, has teeth, and the SEC has made it very, very clear that municipal underwriters and investment advisors must educate and control their personnel when it comes to their campaign activity. Have a compliance plan!! Train your people!! The penalty for insufficient action is debarment, dough, and "D'oh!" The Regulators are coming! The Regulators are coming!

AL.com reports: Following the money could soon become much easier in Alabama. Secretary of State Beth Chapman this morning demonstrated the state's new computerized campaign finance filing system designed to bring Alabama out of the disclosure dark ages. The electronic...

SEN. MCCONNELL ON IRS AND CFR. Here. “The First Amendment was not written to protect popular speech. It was written to protect speech that was not popular. The moment we lose sight of that, we betray the principle of equal justice that lies at the heart of our system. We can hope the president and all who do the work of government have relearned that lesson in recent days, but we can’t count on that. The American people need to remain vigilant against any effort by the powerful to stifle speech — and do everything they can to prevent it.” POST RESPONDS. Here. “The road to passage for any legislation this year is going to be uphill, but the push for greater openness deserves support. In a political system saturated with cash, transparency is the last, best hope for accountability.” WHAT’S IN A (SUPER PAC) NAME? HuffPo. “Federal law, in most cases, only permits political committees authorized by a candidate to use that candidate’s name — which super PACs, by definition, are not.” LERNER AND THE FIFTH. The Post. “While Internal Revenue Service official Lois G. Lerner invoked the Fifth Amendment in her refusal to testify before Congress Wednesday, the fact that she gave a lengthy opening statement defending her innocence infuriated some lawmakers and prompted them to suggest she had inadvertently waived her right against self-incrimination.” LERNER AT THE FEC. BuzzFeed. “In 1998, while heading the Federal Election Commission’s enforcement office, she was accused by the House Committee On Oversight and Government Reform of failing to investigate a fundraiser who had connections to then-Vice President Al Gore.” AL: VOTE ON CAP. News here. “Alabama lawmakers have agreed to a litany of changes to state election law, including eliminating the cap on corporate political contributions and making it easier for regulated utilities to influence campaigns.” CO: SELF-AUDIT. Story here. “Colorado Secretary of State Scott Gessler appears to have had himself audited.” NJ: EASY ETHICS FIXES. Here. “In a state where the media is obsessed with the relationship between government officials and campaign contributions, so many more obvious ethics issues with much easier fixes are ignored.” SC: SENATOR FIGHTS CHARGES. Here. “Sen. Robert Ford’s attorney said Wednesday that ethics allegations against the Charleston Democrat should be thrown out because he didn’t realize he was under investigation.” VA: GIFT DISCLOSURE ISSUE. The Post. “A Richmond prosecutor is investigating whether Virginia Gov. Robert F. McDonnell violated state gift and disclosure laws — a probe that was initiated by state Attorney General Ken Cuccinelli II.” HAVE A GREAT DAY. I’ll send around the next set of links on Tuesday. Have a nice weekend and I’ll see you then.

By Stefan Passantino & Ben Keane As readers of this blog know well, the avowed goal of the SEC's pay-to-play framework is to protect the integrity of the public procurement process by preventing registered investment advisors from improperly influencing the award of state and local contracts for the management of public investment funds. On its surface, Rule 206(4)-5, which bars investment advisors from managing public investment funds in jurisdictions where their political contributions or the contributions of their “covered associates” exceed $150 per election to elected officials who directly or indirectly oversee such funds, seems well suited to this task. The problem is that many covered by these provisions – and their helpful in-house compliance officers – erroneously believe that SEC restrictions apply to contributions to ALL candidates. This is incorrect. The language of Rule 206(4)-5 neither prohibits nor restricts investment advisors from contributing to federal candidates who presently hold no state or local office – only state "officials" from a "government entity" who have the power to directly or indirectly influence the outcome of the hiring of investment advisors (check out page 43 of the SEC's link above if you don’t believe me). As we, and others, have pointed out previously, this rule does not apply to contributions to sitting federal candidates or to private citizens running to replace those federal candidates. Likewise, the SEC's pay-to-play provisions place no restrictions on political donations from covered entities or individuals to state or municipal candidates who play no role in the direct or indirect oversight of public investment funds. Of course, state and local pay-to-play rules might still apply in certain circumstances – such as where a sitting state official is running for federal office, but there is no need (as a reaction to SEC pay-to-play regulations) to adopt caps that artificially restrict the ability of investment firm employees to engage in constitutionally-protected political speech. Much the same error of interpretation can be seen in the MSRB pay-to-play context. Like their brethren in the investment advisory world, many municipal finance professionals covered by Rule G-37 erroneously believe that its provisions restrict political contributions to ALL candidates. This is simply not the case. Rule G-37's candidate contribution provisions only restrict donations to "official(s) of any issuer" who can directly or indirectly influence the hiring of a municipal securities professional, or donations to state officials or candidates who have the authority to appoint persons with such influence. The MSRB's regulatory framework does not prohibit contributions to federal candidates who hold no state or local office, nor does it bar contributions to private citizens turned federal candidates. Keeping these points mind, we hope that our readers working in the investment advisory and municipal finance arenas take a moment to examine their current political contribution policies, and ensure that they successfully protect their business development interests without unnecessarily curbing otherwise legitimate and beneficial political activities. On the other hand, it could be that the SEC and MSRB pay-to-play rules are simply an inoffensive way to say "thanks, but no thanks" to your friendly neighborhood federal candidate. Can’t do anything about that…

BOLO-GATE DAY 12. Tax Prof Blog has the latest. CA: TRACFONE COMPLAINT. Press Release. “We have hereby requested that the FPPC investigate our claims in accordance with California’s ethics laws in order to determine the true sponsors of TCOV and whether the political process in California has been unduly subverted by corporate and/or political interests.” More here. CT: AIDE CONVICTED. Story here. “Robert Braddock Jr., the campaign finance director for former House Speaker Christopher Donovan, was convicted Tuesday of scheming to hide the sources of contributions to Donovan’s failed campaign for Congress.” NY: SOFT MONEY UPDATE. Here. “Contributions to New York’s limitless campaign accounts soared 24 percent over six years, jumping to a total of $87 million, a report Tuesday found.” NY: CAMPAIGN FINANCE AND REALITY TV. News here. “The CBS ‘reality’ series ‘Brooklyn D.A.’ is an illegal campaign contribution to incumbent District Attorney Charles Hynes, his Democratic primary challenger claims in court.” SC: OPPOSITION TO REFORM.News here. “South Carolina Gov. Nikki Haley is facing a bumpy political ride as she continues her push for a sweeping overhaul of the Palmetto State’s ethics laws.” HAVE A GREAT DAY.

In December, 2012, federal prosecutors failed to bring true justice to HSBC for massive, criminal money laundering because the giant UK bank was too big. An indictment, they thought, would ravage the financial sector. In January, 2013, with a full month to reflect about the non-prosecution of HSBC, Attorney General Eric Holder acknowledged the policy: “I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy. And I think that is a function of the fact that some of these institutions have become too large.” Since then, numerous bank regulators and Obama administration officials have attempted to refute their role in or even the accuracy of Holder’s assertion.  In testimony and speeches, officials from the Federal Reserve, FDIC, Comptroller of the Currency, and Treasury contradicted Holder’s claim that government deemed  some banks were just too big to jail.  Those denials may be explored when Justice Department official James M. Cole testifies before a House financial services subcommittee May 22. On May 15, Attorney General Holder himself seemed bent on correcting the record as to whether some banks are too big to jail. “Let me make something real clear right away. I made a statement I guess in a Senate hearing that I think has been misconstrued. I said it was difficult at times to bring cases against large financial institutions because [of] the potential consequences that they would have on the financial system. But let me make it very clear that there is no bank, there’s no institution, there’s no individual who cannot be investigated and prosecuted by the United States Department of Justice.” Notice that Holder did not disavow his earlier statement that it was difficult. He simply asserted that the department’s policy is to pursue warranted cases. “Let me be very, very, very clear,” Holder continued. “Banks are not too big to jail. If we find a bank or a financial institution that has done something wrong, if we can prove it beyond a reasonable doubt, those cases will be brought.” (“Very, very, very” clear?) But, the fact is, the Department of Justice did find such a bank. It was HSBC. In December, Holder’s own DoJ released a 30-page document in which it declared that HSBC violated anti-money laundering laws. In fact, the DoJ found at HSBC a “failure to adequately monitor over $200 trillion (yes, with a T) in wire transfers between 2006 and 2009 . . . including over $670 billion in wire transfers from HSBC Mexico.” Did the DoJ’s lawyers think they could prove this? Well, yes. “If this matter were to proceed to trial, the Department would prove beyond a reasonable doubt, by admissible evidence, the facts alleged below and set forth in the criminal Information attached to this Agreement,” the DoJ’s document said. http://www.justice.gov/opa/documents/hsbc/dpa-attachment-a.pdfevidence, the facts.” The government found not only that HSBC had done “something” wrong, to borrow Holder’s configuration, it found 200 trillion dollar’s worth of wrong.  But HSBC ended up paying a fine equal to a just month’s profit for numerous infractions. Meantime, in January, the DoJ caught a check-cashing manager of a small Los Angeles storefront failing to fill out the proper forms for $8 million in transactions. Her penalty? Five years in prison. Violating money laundering laws can’t be dismissed as a clerical oversight. Unaccountable mega-bank money launderers enable drug trafficking and associated gun violence. They facilitate terrorism. They abet tyrants. It isn’t a small infraction, and the punishment should fit the crime. Our insight into crucial decisions involving justice should not depend on a chance moment of candor by an attorney general. Any decision

AL.com reports: Acting state Democratic Party Chairwoman Nancy Worley lowered her head and slowly shook it side to side when summing up the financial condition of her once powerful party. "We're broke, broke, broke," Worley told the party's Executive Board...

AL.com reports: Alabama's law governing campaign finance would change in numerous ways under a bill approved by the Legislature tonight. The Senate and House of Representatives voted tonight to pass a compromise version of SB445 by Sen. Bryan Taylor, R-Prattville....

BACHMANN UPDATE. The Post. “The FBI is scheduling interviews related to allegations of financial impropriety in Rep. Michele Bachmann’s 2012 campaign.” WEINER WIFE WAIVER. NY Times. “The State Department, under Secretary Hillary Rodham Clinton, created an arrangement for her longtime aide and confidante Huma Abedin to work for private clients as a consultant while serving as a top adviser in the department.” COMMENT ON PROPOSED SEC MOVE ON POLITICAL CONTRIBUTIONS. HLS Forum on Corporate Governance and Financial Regulation. “The submitted Article puts forth a comprehensive, empirically-grounded case for the rules advocated in the Petition. The Article also provides a detailed response to each of the ten objections that have been raised by the Petition’s opponents, either in the comment file or elsewhere. The Article shows that none of these objections, either individually or collectively, provides a basis for opposing rules requiring public companies to disclose political spending.” MN: DISCLOSURE DROPPED. Story here. “Three provisions have been dropped from a campaign finance bill that would have required some political groups to say more about where their money is coming from and how it is being spent.” NV: MILLER AND CFR. Here. “An out-of-state conservative group wants you to call Democratic Nevada Secretary of State Ross Miller and tell him that you’re ‘sick of his costly hypocrisy.’” NV: TESTIMONY IN TRIAL. News here. “Two more of Harvey Whittemore’s former employees testified Monday they each voluntarily contributed $4,600 to Sen. Harry Reid’s campaign in 2007 at the suggestion of the wealthy ex-developer and lobbyist but didn’t fear for their jobs if they didn’t do so.” HAVE A GOOD DAY.

TICK TOCK DRIP. The Post. “The firestorm buffeting the Internal Revenue Service intensified Friday as lawmakers began what they promised would be an extensive effort to learn whether there was any political motivation or White House involvement in the agency’s recently acknowledged misdeeds.” CINCINNATI CONFUSED. The Times. “While there are still many gaps in the story of how the I.R.S. scandal happened, interviews with current and former employees and with lawyers who dealt with them, along with a review of I.R.S. documents, paint a more muddled picture of an understaffed Cincinnati outpost that was alienated from the broader I.R.S. culture and given little direction.” SHAKE UP IRS. Post. “Among the many investigations getting started, the Justice Department is beginning a criminal probe. More important than criminal convictions, however, is that investigators in the Obama administration and in Congress get answers, that the IRS sees genuine reform, and that those who betrayed the public trust — willingly or not — are removed from positions in which they could repeat their errors.” CAMPAIGN FINANCE: IT’S COMPLICATED. The Post. “How certain groups qualify for tax-exempt status as a 501(c)(4) organization — a distinction that allows them to keep both their donors and donations secret — is the focus of the week (thanks to the buffoonery, at best, of some IRS officials) but it opens up (or should open up) a conversation about the vagaries of campaign finance law.” SEC AND DISCLOSURE. The Post. “House Republicans repeatedly warned the chairman of the Securities and Exchange Commission on Thursday against dragging the agency into a political fray, evoking the scandal at the IRS over the targeting of conservative groups.” IL: RAHM REFUND. News here. “Mayor Rahm Emanuel has returned a $10,000 campaign donation from a lobbyist for a tech firm disqualified from a city program this week after the Tribune raised questions about potential violations of the mayor’s self-imposed limits on political fundraising, an Emanuel spokeswoman confirmed Thursday.” NJ: BOOKER FEES. NJ.com. “Mayor Cory Booker made $1.3 million on the speaking circuit between 2008 and 2013 and gave roughly $620,000 of it to charity, according to documents and disclosures he released yesterday.” VA: GIFT ISSUES IN VA. The Times. “While not on a par with Washington scandals unfolding around the I.R.S. and other agencies, which are commanding national and presidential attention, Virginia’s homegrown drama, now in its seventh week, has more outsize characters and soap opera turns.” VA: LOOSE RULES. Story here. ”The commonwealth is one of 10 states that places no cap on the size of personal gifts that officeholders can accept. Many, including Maryland and the District, prohibit elected officials from accepting any gift from a company with business before the government.” HAVE A GOOD DAY.