While sources are wallowing in the
exposure of a political figure in a "pay to play" scandal, I thought there
might be some lessons for other investment managers as states and perhaps the
SEC roll out limitations on political contributions.
The original story seemed mildly
interesting. The SEC warned firms that municipal securities rules
prohibiting pay-to-play apply to affiliated financial professionals, not just a
firm's employees. The story caught my eye because MSRB Rule G-37 was identified
as a model for the SEC's proposal on pay to play.
The SEC wanted to make it clear that
an "executive who supervises the activities of a broker, dealer, or municipal
securities dealer is not exempt from the MSRB's pay-to-play rule just because
he or she may be outside the firm's corporate governance structure."
The SEC report identified JP Morgan
and the Treasurer of the State of California, but did not name names. It did
not take much research to find out that Phil Angelides was treasurer at the
time of the incident. The Wall Street Journal identified the JP Morgan
executive as David Coulter who was the vice chairman who oversaw the bank's
"On September 10, 2002, the Vice
Chairman forwarded an invitation for the California Treasurer's New York
fundraising event to JP Morgan Chase's executive committee and to its Vice
President for Government Relations with a handwritten note stating that the
California Treasurer is an important client and soliciting their help in
raising $10,000 for the event."
That is exactly the sort of behavior
that the SEC wants to prohibit with MSRB Rule G-37 and its proposed pay to play
A key takeaway from the report is
that the SEC will look "to the activities, not merely the title, of an
associated person in determining whether the person is" subject to the pay to
The story gets juicy because Mr.
Angelides is currently the Chairman of the Financial
Crisis Inquiry Commission. The Financial Crisis Inquiry Commission
was established under the Fraud Enforcement and Recovery Act of 2009
to "examine the causes, domestic and global, of the current financial and
economic crisis in the United States." Perhaps his own situation will be an
example in the FCIC's report due on December 15.
Read more about corporate compliance
and ethics issues at Compliance Building.