Tuesday, January 31, 2012

Costs Associated with Investing in Mutual Funds

If you?ve invested in mutual funds, you should know that taxes can affect your investment, sometimes significantly reducing your net returns. To completely avoid federal taxes, consider investments such as tax free municipal bonds. Also be aware that some mutual fund investments are more tax efficient than others. Below is some basic information regarding mutual [...]

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Ambac & Others Agree to Pay $33M to Settle Fraud Allegations Surrounding Bond/Insurance Litigation

Ambac Financial Group Inc., as well as several of its banking underwriters and insurers, has agreed to pay a total of $33M in order to settle claims of investment fraud. According to investors who experienced significant financial loss, the parties involved hid risks from investors about the mortgage debt it guaranteed. The primary claimants in [...]

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Prince George's County, Maryland Adopts a Different Approach to Pay-to-Play

As we’ve observed here a few times before, nothing gets a legislator in the mood for regulatory action like press accounts of one of their own getting busted for pocketing a few dollars in exchange for government largess. One could hardly second guess Prince George’s County, Maryland for following this predictable pattern. In this case however, the funds forming the catalyst for action weren’t “pocketed” - they were “bra’d”.


Last November, the Washington, DC area was somewhat titillated by news reports that Prince George’s County Executive Jack B. Johnson and his wife, Prince George’s County Councilwoman-Elect Leslie Johnson had been arrested by the FBI in connection with an investigation into allegations that certain real estate developers in Prince George’s County, Maryland were bribing public officials in exchange for official acts benefitting the developers and their companies. The FBI moved in, it was reported, when their wiretaps overheard Johnson instruct his wife to flush a developer’s check for $100,000 down the toilet and to conceal another $79,600 in cash in her bra.


Regardless of where the money went, the result was inevitable - pay-to-play legislation.

In an interesting symbiotic pairing, corrective legislation is moving through the Maryland General Assembly at precisely the same pace as Prince George’s County Council member Leslie Johnson moves through the Maryland criminal justice system. On March 25, 2011, the very day the Justice Department filed new criminal charges against Johnson for conspiracy to commit witness and evidence tampering, Maryland’s House of Delegates passed House Bill 614 in response to the Johnson episode.


What makes the Maryland legislation unique is the approach taken to remedy the harm inflicted on public confidence in local government. The easy approach would have been to enact feel-good prohibitions against developer interactions with county executives. Such legislation is easy to pass but is exceedingly difficult for well-meaning citizens to comply with and often does little to prevent the truly nefarious bad actors who simply “find another way”. As the team at CityEthics.org correctly observed, the problem in Prince George’s County was not as much with the private sector but rather an inadequate ethics program and unique powers to hold up development unless a payoff is made:


But there can be no pay-to-play without special powers. Developers only pay when they have to. And there can be no special powers without a very poor ethics environment. It's a vicious circle, and it appears that Prince George's County is caught up in it.


House Bill 614 goes a long way towards addressing these issues, and does so by placing limitations where they belong, on the county executives who are perceived to have abused their far-reaching powers for personal gain. According to the Washington Post the County has long housed “complaints that past councils have operated secretively, threatening developers that their plans would be held up indefinitely unless they offered concessions or hired an associate of a council member.” If signed into law, the current legislation will severely curtail the County Council’s ability to shelve development deals and enhance the County’s ethics commission by installing a full time executive director and require regular meetings.


This strikes us a sensible approach, targeted to address a clearly identified problem, that does not place undue hardships on the honest 99% in the private sector who have succeeded in keeping their knickers clean.

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Starting a Company: One Needless Risk

Takeaway: Founding a company without a written, situation-specific contract between the owners is a massive risk that can not only kill the business but destroy relationships between business partners.  At the same time, this risk is easily avoidable by hiring a qualified, experienced corporate attorney to draft the document at the start. Starting a business can be financially challenging, and there is a strong temptation to “cut corners” with the company’s “foundational” or “core” legal documents that bind the members of  a new company together. 

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Best Wishes for an Ethical 2009

Regulation D: Some Important Points

Takeaway: Some of the SEC’s more commonly used registration exemptions for private offerings are found in “Regulation D.”  Two of the overarching themes of “Reg D” are (1) a prohibition against “general solicitation” and (2) the distinction drawn between “accredited” and “unaccredited” investors.  Understanding these two concepts is crucial when offering securities for sale under these exemptions. Back in February, I discussed the importance of ensuring compliance with SEC and state regulations surrounding the private offering of securities.  As an old industry adage goes, there

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Starting a Company: One Needless Risk

Takeaway: Founding a company without a written, situation-specific contract between the owners is a massive risk that can not only kill the business but destroy relationships between business partners.  At the same time, this risk is easily avoidable by hiring a qualified, experienced corporate attorney to draft the document at the start. Starting a business can be financially challenging, and there is a strong temptation to “cut corners” with the company’s “foundational” or “core” legal documents that bind the members of  a new company together. 

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Insurance Recruiters: Helping Your Company Hire Insurance Professionals

Unlike many other industries, the insurance industry is one industry that requires large numbers of highly skilled as well as qualified and certified people. In the current market scenario, this is translating into huge recruitment problems. There are many reasons for this. Some of the recruiting problems are discussed below and so are the solutions.
Types [...]

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HAPPY HOLIDAYS FROM GLI/GRIMES LEGAL INC.!

Wishing You and Yours Every Good Thing for the Holidays and the New Year!

http://grimeslegal.com/Site/GLIHolidayCard.pdf

Article courtesy of  Nancy Grimes - Founder GLI / Grimes Legal, Inc. - Legal Search Firm    Retained Legal Recruiters © Copyright 2008 Grimes Legal, Inc. | All rights reserved

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Ambac & Others Agree to Pay $33M to Settle Fraud Allegations Surrounding Bond/Insurance Litigation

Ambac Financial Group Inc., as well as several of its banking underwriters and insurers, has agreed to pay a total of $33M in order to settle claims of investment fraud. According to investors who experienced significant financial loss, the parties involved hid risks from investors about the mortgage debt it guaranteed. The primary claimants in [...]

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Halliburton Class Action for Securities Fraud, Case Reinstated ? a Victory for Claimants

According to a June 6, 2011 article by James Vicini for Reuters (?Halliburton securities fraud lawsuit reinstated?) the U.S. Supreme Court has reinstated a securities fraud class-action lawsuit filed against Halliburton in 2001 by pension and mutual fund investors on behalf of all buyers of Halliburton stock between June 1999 and December 2001. Claimants in [...]

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Costs Associated with Investing in Mutual Funds

If you?ve invested in mutual funds, you should know that taxes can affect your investment, sometimes significantly reducing your net returns. To completely avoid federal taxes, consider investments such as tax free municipal bonds. Also be aware that some mutual fund investments are more tax efficient than others. Below is some basic information regarding mutual [...]

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Monday, January 30, 2012

Christian Genitrini Fined and Suspended by FINRA

  Christian Genitrini (CRD #3277581, Registered Representative, New York, New York) submitted a Letter of Acceptance, Waiver and Consent in which he was fined $15,000, suspended from association with any FINRA member in any capacity for two years, and required to requalify by exam for Series 7 and Series 63 before becoming re-associated with a [...]

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Search Firms Know the Best Recruiting Techniques

In World War II, there was a need for Assessment Centers to identify those people among fresh recruits who were capable of handling critical jobs and heavy responsibilities. In today?s scenario, similar recruiting techniques are used by search firms to identify the best candidates for their clients? requirements. Just as finding the right people to [...]

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Legal Placement ? Some Do It Well?We Do It Right!!!!

Grimes Legal, Inc. (GLI) presents a unique approach among legal search firms, one which focuses on craftsmanship. We cover all disciplines within legal placement, which gives us the opportunity to work on a wide variety of projects. To us, effective recruiting is truly an art. It is the ability to be creative, to work outside [...]

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Pay-to-Play Disclosure For Government Contractors - UPDATE Strong Reactions and a Not-Too Transparent White House

Our last post focused on the trial balloon being floated by the White House to impose corporate political disclosure obligations on government contractors.  At the time of that post, all we had was a White House press secretary description.  Subsequently, draft orders have been floating around the internet including here.


If I do say so myself, I thought our firm’s government contracts department provided a pretty comprehensive analysis of the issue for our clients in a recent client alert.

 Notably, that alert observed:



The proposed executive order would require every federal contracting department and agency to require all entities submitting offers for federal contracts to disclose certain political contributions and expenditures made within two years of the submission date of the offer.  The disclosures would include all contributions to or on behalf of federal candidates, parties or party committees by the bidding entity, its directors or officers, or by any affiliates or subsidiaries.  Any contributions to third party entities (such as trade associations or industry groups) made with the expectation or intention that the parties would use those contributions to make independent expenditures or electioneering communications would have to be disclosed.  The FAR Council would be directed to adopt rules and regulations that would, among other things, require bidders to certify that the accuracy of the information disclosed as a condition of aw ard.


Reaction from all ends of the political spectrum has been immediate and prolific with objections to the proposal being found from Senator Collins in today’s Washington Post,others in the Senate, and the US Chamber of Commerce.  Most concerns surrounding the proposed executive order track those raised by the Chamber (and, of course, this blog which raised them first - wink) in observing that the order is of dubious constitutionality and a relatively clear effort to circumvent politi cal challenges in getting Congress to pass the DISCLOSE ACT in the wake of Citizens United v. FEC:


The executive order would make every company that tries to contract with the federal government disclose spending that is confidential and used to fund core, First Amendment-protected political speech. Also troubling is the executive order’s reach beyond companies to their individual officers and directors, who would be forced by the executive order to disclose personal political spending undertaken with their own assets. This aspect of the order will both impair individuals’ First Amendment freedoms and interfere with the relationships between companies and their employees.


On the other hand, public interest groups such as Democracy21 rose in defense of the proposed order and against the Chamber’s efforts to stifle it.  Groups like Care2 have pointed out:


Its [sic] easy to see why the Chamber of Commerce would want to stop the order; it would effect a large number of their big business clients. Corporations often want to keep their political spending quiet, hoping to avoid the negative press and boycotts like the one Target was hit with after their donation to an openly anti-gay candidate was leaked to the public.


From a process standpoint, there is a delicious irony in the fact that the White House is currently unwilling to discuss publicly its internal discussions concerning the need for an Executive Order imposing political transparency on government contractors.  The nature of trial balloons in politics is that one does not want one’s fingerprints on something until one is willing to take ownership of it.  This political phenomenon resulted in the following exchange during a May 12 joint Oversight and Small Business Committee hearing on the proposed Order:


"Does it strike you at all as being ironic to invoke confidentiality and not answering questions when we're having a hearing about transparency?" – Rep. Trey Gowdy (R-SC)


"It does not, sir. I think there are discussions, even about transparency and developing rules about transparency that we need to be able to have quietly and behind closed doors." – Hon. Daniel Gordon, Administrator of the Office of Federal Procurement Policy, Office of Management and Budget, Executive Office of the President


Let’s go to the videotape!


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Business custom funding

Atlanta Takes Another Shot at Procurement Restriction

Fulton County, Georgia – home county to the City of Atlanta - is poised once again to take up an ordinance designed to prohibit any corporation, officer, agent or individual who makes relevant campaign contributions or gifts from seeking county contracts. Just yesterday, the Fulton County Commission announced an agenda item for its August 17, 2011 recess meeting. Deep on page 12 of that agenda is a single line item styled:


Request approval of a Resolution amending the Fulton County Code of Laws regarding campaign contributions from entities doing business with, or seeking to do business with, Fulton County.


The resolution to be taken up, proposed by Commissioner Emma Darnell, closely mirrors a pay-to-play contract restriction proposed two years ago for the City of Atlanta by Common Cause Georgia.  In its current form, the proposed resolution provides that no corporation, entity, or individual will have the right to bid for, or hold, a county contract if it has either made a campaign contribution of $500 or more to a County Commissioner or has provided any direct or indirect gift or contribution to a County Commissioner or any Fulton County employee.

For the purposes of determining whether a person has reached the $500 threshold, Commissioner Darnell’s resolution proposes aggregating all contributions or gifts made by an individual, their parents, siblings, spouse, or children as well as by any company that the individual controls or holds a 10% stock interest in. With respect to company contributions and gifts, the proposed resolution would aggregate all contributions or benefits conferred by any “officers, directors, partners, members, or salaried employees of the entity, and of any affiliated or subsidiary entities.”


Yes, you read that right. Under the proposed resolution, a company such as Delta Air Lines would theoretically be debarred from contracting with Fulton County (they have an airport in Atlanta, don’t they?) if even one of its salaried employees pays for a birthday cake for a next door neighbor who just happens to be a Fulton County employee. (Transparency Note: Delta Air Lines is a client of our firm, but this example could just as easily apply to any corporation having any employee who inadvertently makes a $500 campaign contribution or any gift to a County Commissioner or county employee).


As this blog has noted before, well-meaning and good-intentioned efforts to restrict back room dealing almost always get hoisted upon the petard of the broad language necessary to prevent circumvention but predictably results in negative, unintended consequences. The Law of Good Intentions almost always loses out to the  Law of Unintended Consequences.  Under this proposal, compliance costs will skyrocket, as will the likelihood of unnecessary and inefficient bid protest litigation due to inadvertent violations. In light of these potential effects, simple disclosure of all campaign and gift activity in the contracting process strikes me as the much more sensible approach.


I also have concerns that such restrictions will needlessly limit campaign activity and chill political speech inside of Fulton County. The words I wrote two years ago here still ring true to my ear:


While few would argue that the procurement process in Atlanta doesn't need more sunshine, the Common Cause proposal appears to go a few steps to far. Most troublesome is the proposal to prohibit persons who make contributions of over [$500] from bidding on any … contracts for the next year, as the prohibition applies even if the contract in question was not in existence at the time of the contribution. Restricting contribution amounts in this manner would undoubtedly chill the making of political contributions for City of Atlanta elections altogether, as any person or entity with any potential interest in any City contract in the future could not make contributions without the fear of being locked out of all future business. This is the sort of broad restriction that has proven to be problematic in jurisdictions such as Colorado. Similarly problematic is the apparent willingness to consider contributions by spouses and children of contributors in making prohibition determinations. Again, Colorado should serve as a cautionary tale here.


Needless to say, Common Cause Georgia, and many others, do not share my concerns. Whether Fulton County’s proposed resolution passes tomorrow or not, however, the waves of “restriction as reform” continue to hit the beach.

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Second Quarter 2010 Report

Ambac & Others Agree to Pay $33M to Settle Fraud Allegations Surrounding Bond/Insurance Litigation

Ambac Financial Group Inc., as well as several of its banking underwriters and insurers, has agreed to pay a total of $33M in order to settle claims of investment fraud. According to investors who experienced significant financial loss, the parties involved hid risks from investors about the mortgage debt it guaranteed. The primary claimants in [...]

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Costs Associated with Investing in Mutual Funds

If you?ve invested in mutual funds, you should know that taxes can affect your investment, sometimes significantly reducing your net returns. To completely avoid federal taxes, consider investments such as tax free municipal bonds. Also be aware that some mutual fund investments are more tax efficient than others. Below is some basic information regarding mutual [...]

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Atlanta Takes Another Shot at Procurement Restriction

Fulton County, Georgia – home county to the City of Atlanta - is poised once again to take up an ordinance designed to prohibit any corporation, officer, agent or individual who makes relevant campaign contributions or gifts from seeking county contracts. Just yesterday, the Fulton County Commission announced an agenda item for its August 17, 2011 recess meeting. Deep on page 12 of that agenda is a single line item styled:


Request approval of a Resolution amending the Fulton County Code of Laws regarding campaign contributions from entities doing business with, or seeking to do business with, Fulton County.


The resolution to be taken up, proposed by Commissioner Emma Darnell, closely mirrors a pay-to-play contract restriction proposed two years ago for the City of Atlanta by Common Cause Georgia.  In its current form, the proposed resolution provides that no corporation, entity, or individual will have the right to bid for, or hold, a county contract if it has either made a campaign contribution of $500 or more to a County Commissioner or has provided any direct or indirect gift or contribution to a County Commissioner or any Fulton County employee.

For the purposes of determining whether a person has reached the $500 threshold, Commissioner Darnell’s resolution proposes aggregating all contributions or gifts made by an individual, their parents, siblings, spouse, or children as well as by any company that the individual controls or holds a 10% stock interest in. With respect to company contributions and gifts, the proposed resolution would aggregate all contributions or benefits conferred by any “officers, directors, partners, members, or salaried employees of the entity, and of any affiliated or subsidiary entities.”


Yes, you read that right. Under the proposed resolution, a company such as Delta Air Lines would theoretically be debarred from contracting with Fulton County (they have an airport in Atlanta, don’t they?) if even one of its salaried employees pays for a birthday cake for a next door neighbor who just happens to be a Fulton County employee. (Transparency Note: Delta Air Lines is a client of our firm, but this example could just as easily apply to any corporation having any employee who inadvertently makes a $500 campaign contribution or any gift to a County Commissioner or county employee).


As this blog has noted before, well-meaning and good-intentioned efforts to restrict back room dealing almost always get hoisted upon the petard of the broad language necessary to prevent circumvention but predictably results in negative, unintended consequences. The Law of Good Intentions almost always loses out to the  Law of Unintended Consequences.  Under this proposal, compliance costs will skyrocket, as will the likelihood of unnecessary and inefficient bid protest litigation due to inadvertent violations. In light of these potential effects, simple disclosure of all campaign and gift activity in the contracting process strikes me as the much more sensible approach.


I also have concerns that such restrictions will needlessly limit campaign activity and chill political speech inside of Fulton County. The words I wrote two years ago here still ring true to my ear:


While few would argue that the procurement process in Atlanta doesn't need more sunshine, the Common Cause proposal appears to go a few steps to far. Most troublesome is the proposal to prohibit persons who make contributions of over [$500] from bidding on any … contracts for the next year, as the prohibition applies even if the contract in question was not in existence at the time of the contribution. Restricting contribution amounts in this manner would undoubtedly chill the making of political contributions for City of Atlanta elections altogether, as any person or entity with any potential interest in any City contract in the future could not make contributions without the fear of being locked out of all future business. This is the sort of broad restriction that has proven to be problematic in jurisdictions such as Colorado. Similarly problematic is the apparent willingness to consider contributions by spouses and children of contributors in making prohibition determinations. Again, Colorado should serve as a cautionary tale here.


Needless to say, Common Cause Georgia, and many others, do not share my concerns. Whether Fulton County’s proposed resolution passes tomorrow or not, however, the waves of “restriction as reform” continue to hit the beach.

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A 2009 BigLaw Retrospective

Second Quarter 2010 Report

Sunday, January 29, 2012

Turning the Corner on the Big Roller Coaster Ride of BigLaw

Using a Recruiting Agency to Find Your Company?s Board of Directors?

A lot of new entrepreneurs dislike the idea of having a board of directors. They feel it is akin to handing over their powers to a group of people who may or may not share their vision. They also fear losing control over their own business and feel threatened by a board of directors in [...]

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Transparency Advocates Look to the SEC to Accomplish What Congress, The White House, and the IRS To-Date Have Not

By Stefan Passantino & Ben Keane


 


It has been almost exactly 19 months since the Supreme Court handed down its controversial decision in Citizens United v. Federal Election Commission, but the plot continues to thicken as those favoring mandatory corporate disclosure of political activities look for a non-judicial fix to the ruling. 


 


To date, the fields are littered with detritus of failed efforts at identifying a mechanism that compels corporations and wealthy individuals to disclose all exercise of their newly-recognized First Amendment freedoms. This blog has previously reported on failed efforts to mandate such disclosure in Congress, as well as the Obama White House’s proposed executive order circumventing both Congress and the Supreme Court.  To achieve these same goals, groups such as Democracy21 and the Campaign Legal Center have promoted changes to the Internal Revenue Code, while the American Bar Association has encouraged Congress to make pertinent amendments to the Lobbying Disclosure Act. 


 

Our latest contestants in this Sisyphean legal drama are a united band of like-minded law school professors looking to utilize the Securities and Exchange Commission (SEC) as a vehicle to counter the perceived negative impact of Citizens United. It appears this group has concluded that the imposing moniker “Committee on Disclosure of Corporate Political Spending” (the “Committee”) sounds more authoritative than “a united band of like-minded law school professors”. I think I agree with them on that. 


 


Under either moniker, this group has filed a petition for rulemaking with the SEC requesting draft regulations that require public companies to disclose to shareholders information regarding the use of corporate resources for political activities. The main gist of its petition – stricter SEC disclosure rules are necessary to ensure that corporate political activities are subject to the appropriate level of shareholder scrutiny in the wake of Citizen’s United. The Committee bases this conclusion on the following contentions:


 


First, it asserts that there is strong data indicating that public investors have become increasingly interested in receiving information about corporate political spending. To support this statement, the like-minded professors reference a 2006 Mason-Dixon poll indicating that 85% of shareholder respondents held that “there is a lack of transparency surrounding corporate political activity.” They also make note of a FactSet Research Systems analysis that indicates 50 out of 465 shareholder proposals appearing on public-company proxy statements in 2011 involved political spending issues.


 


Second, the Committee grounds its request in the belief that there is increasing momentum toward political spending transparency in the corporate community, as evidenced by the growing number of large public companies that have voluntarily adopted policies requiring disclosure of their political expenditures. To this point, and perhaps undercutting the urgency of their call to action, the professors highlight a study by the Center for Political Accountability indicating that nearly 60% of S&P 500 companies voluntarily provide shareholders with information regarding corporate spending on political activities.


 


Third and finally, the Committee bases its request on the idea that stricter SEC regulation of corporate political disclosure will lead to better corporate oversight and accountability mechanisms. At present, the professors assert, shareholders are unable to hold directors and officers accountable when they spend corporate funds on politics in a way that departs from the interests of the company. From the Committee’s point of view, this is due to the fact that public information regarding corporate political activity is out of the average shareholder’s reach (because it is either dispersed among too many regulatory bodies or not gathered at all). By requiring companies to disclose to one central entity (the SEC), it is the professors contention that there will be better information available to shareholders, and in turn, a subsequent improvement in corporate accountability.


 


Based upon these assertions, the Committee’s petition recommends that the SEC initiate a rulemaking project to adopt a series of regulations that mandate periodic disclosure of corporate political spending. Whether the SEC will take heed of the Committee’s request remains to be seen, but the petition itself has already begun to draw a mix of criticism and support from members of the business, legal, and academic communities.


 


For example, just a few days after the Committee’s petition was submitted, Keith Paul Bishop – the former California Commissioner of Corporations and an adjunct professor at the Chapman University School of Law – filed a response letter with the SEC refuting the professors’ contentions and requesting that no such rulemaking project be initiated by the Commission. In his response, Bishop contends that the Committee’s proposal will only add to the already extensive public disclosure burden faced by reporting companies and that it is unnecessary in light of the growing trend toward voluntary corporate disclosure. He also argues that it is not the role of the SEC to mandate corporate expenditure on public disclosure of political activity when statistics show that not even a third of 2011 proxy proposals on the subject enjoyed shareholder support.


 


In contrast, official comments filed by Mark Latham, founder of VoterMedia.org, and executives from the International Corporate Governance Network expressed strong support for the Committee’s request. Specifically, both comments revealed a common respect for the Committee’s belief that the disclosure of corporate political spending is necessary to help stave off abuse or the breach of business ethics by officers and directors.


 


The debate over who has the better side of the argument will rage on in the coming months as the SEC weighs the proposal and determines whether to take any action. One would have to expect the Obama Administration to lend its support to the Committee’s cause in it’s typical “no fingerprints here, I don’t know what you’re talking about” approach. The response from the corporate community will undoubtedly be more mixed and more direct, but it will be interesting to see what reaction emerges from groups such as the U.S. Chamber of Commerce and The Conference Board’s newly formed Committee on Corporate Political Spending (to which, BIAS ALERT, I am an advisor). Stay tuned….

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Deficit "Super Committee" Transparency - Will We Get to See the Budgetary Sausage in Production?


By Stefan C. Passantino and Benjamin P. Keane


 


Whether you agree with Justice Brandeis that sunlight is the “best of disinfectants” or with former American League of Lobbyists president Dave Wenhold that “too much sunlight causes cancer”, it should be readily apparent to the readers of this blog that public officials of all stripes have increasingly begun to listen to the chorus of voices calling out for more transparency in all levels of government. At PaytoPlayLawBlog, we often write about how the push for greater transparency at the federal, state and local levels is affecting the operation of government, as well as the interaction of the public with government officials. As strictly objective, rational observers (ahem), it seems to us that disclosure alone generally trumps both inaction and punitive regulation in the pay-to-play space. Over the past month or so, we have come to see new evidence of this welcome push for openness at the federal level, particularly with regard to the activities of the newly-formed Joint Select Committee on Deficit Reduction (or the so-called Deficit “Super Committee”).      

For those who have spent all of their time recently tracking satellite orbits and running calcu lations on their chance of having to make a potentially uncovered hom eowners claim, the Super Committee is a balanced delegation of six Democrats and six Republicans (split evenly between members of the U.S. House of Representatives and U.S. Senate) formed in August of this year as a means of permitting Congress and the White House the opportunity to avoid responsibility for identifying an additional $1.5 trillion in federal budgetary cuts over the next decade. Whether one agrees with the premise of granting 12 Members of Congress such extraordinary authority over federal, fiscal decision making, it is readily apparent that the ongoing work of the Super Committee has drawn a great deal of attention from political organizations and commentators across the ideological spectrum. Given the nature of the current (entirely justified) cynicism with the political process, and the enormity of the task before the Super Committee, it should not surprise readers of this blog to learn that much of this attention across the political continuum has been focused on increasing the political transparency of the Committee’s activities. 


One of the more prominent efforts to accomplish this goal has been organized by the Sunlight Foundation, a non-profit organization dedicated to using the “power of the Internet to catalyze greater government openness and transparency.” On August 3, 2011, the Foundation issued a letter to congressional leadership urging them to adopt a series of recommendations that the Foundation believes will ensure the Super Committee operates in a fully open and transparent manner. Those recommendations included: (1) holding live webcasts of all official Committee meetings and hear ings; (2) posting the Committee’s draft recommendations for at least 72 hours prior to a final committee vote; (3) promoting disclosure of every meeting held by Committee members with lobbyists and other “powerful interests”; (4) ensuring the immediate disclosure of all campaign contributions received by Committee members during their service on the Committee; and (5) demanding additional financial disclosure standards for Committee members and their staffers. In addition, the Foundation has teamed up with various transparency activists and supporters to launch a grassroots campaign designed to encourage greater accountability and openness from the Super Committee. The movement’s allies in this endeavor include such left-leaning organizations as The Bre nnan Center for Justice, the Project on Government Oversight, and Public Citizen.


Although not necessarily backing each of the Sunlight Foundation’s specific recommendations, many organizations and individuals on the conservative and libertarian end of the political spectrum have also echoed the Foundation’s calls for transparency in Super Committee activities. For example, Jim Harper of the CATO Institute and Rob Bluey of The Heritage Fou ndation’s Center for Media and Public Policy have both recently demanded that the Super Committee permit open public access to Committee meetings and legislative proposals as a means of ensuring that all citizens are kept abreast of the activities of this uniquely powerful legislative panel. Along those same lines, Harper and Bluey have also called for Committee transparency as a safeguard against the passage of expansive legislation that is subject to little or no debate or public input. 


All of this makes perfect sense. As we have previously observed here, efforts to govern matters such as this from behind closed doors can lead to embarrassing exchanges.


Bi-partisan support for greater Super Committee transparency has even begun to emerge within Congress itself. In fact, in early September, Representatives Mike Quigley (D-IL), Dave Loebsack (D-IA), and Jim Renacci (R-OH) introduced H.R. 2860, the Deficit Committee Transparency Act, which would implement six transparency reforms along the lines of those recommended by the Sunlight Foundation. Similarly, Senators David Vitter (R-LA) and Dean Heller (R-NV) have also introduced two separate bills, S. 1501 (the Budget Control Joint Committee Transparency Act) and S. 1498  (the Super Committee Sunshine Act), that are designed to ensure the openness of Super Committee meetings and greater transparency in the political fundraising of Committee members.


At present, none of the aforementioned bills have been acted upon in Congress, but there does appear to be growing support on both sides of the political aisle for a more open and forthright framework for Super Committee action. Recognizing the growing momentum in support of such transparency, the Committee has taken the initial step of keeping its three preliminary meetings open to the public (and also available for video review over the Internet). It remains to be seen, however, whether this policy will continue as the Committee gets deeper into the task of formulating its deficit-reduction proposals. Likewise, it remains to be seen whether any of the other aforementioned transparency proposals will gain any traction with the Committee itself. Stay tuned in the coming months to find out.

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Will the SEC File Investment Fraud Charges Against Credit-Rating Companies?

Image via Wikipedia According to the Wall Street Journal, in May 2011 the Securities and Exchange Commission (SEC) acknowledged that credit-rating agencies, desirous of pleasing the companies they rate, are sometimes less than objective in their evaluations. To mitigate this problem, the SEC has proposed that credit-rating firms operate under stricter guidelines. This month, the [...]

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First Quarter 2010 Report

Halliburton Class Action for Securities Fraud, Case Reinstated ? a Victory for Claimants

According to a June 6, 2011 article by James Vicini for Reuters (?Halliburton securities fraud lawsuit reinstated?) the U.S. Supreme Court has reinstated a securities fraud class-action lawsuit filed against Halliburton in 2001 by pension and mutual fund investors on behalf of all buyers of Halliburton stock between June 1999 and December 2001. Claimants in [...]

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A 2009 BigLaw Retrospective

Federal Appeals Court Upholds New York City Pay-to-Play Rules

Through its recent decision in Ognibene v. Parkes, the Second Circuit Court of Appeals has rejected a constitutional challenge of New York City’s political contribution limits on “lobbyists” and others having business dealings with the City (a/k/a the “pay-to-play” rules), finding that such limits do not violate First Amendment free speech rights.

 In 2007, the New York City Council adopted Local Law Number 34, which amended the City Campaign Finance Law to severely limit contributions from people having “business dealings with the City,” including “lobbyists.” The term “business dealings with the City&rd quo; is broadly defined to cover contracts with the City, concessions and franchises, and the acquisition of disposition of real property, among other activities.   As well as limiting the amount of contributions, the amendments to the Campaign Finance Law made such contributions ineligible for matching funds through the City’s publicly funded campaign finance program. And, the amendments extended the existing ban on corporate contributions to City candidates to contributions from LLCs, LLPs, and partnerships. 


Queens Republican and former lieutenant governor candidate Tom Ognibene, Democratic State Senator Martin Dilan, and the New York State Conservative Party, among others, sued the New York City Campaign Finance Board and City officials, challenging the “pay-to-play” restrictions as unduly burdening protected political speech and violating the equal protection clause of the Fourteenth Amendment; citing the U.S. Supreme Court’s landmark decision in Citizens United v. Federal Election Commission, 130 S. Ct. 876 (2010). Citizens United held that the government could not ban corporations and unions from expenditures to advocate for the election or defeat of a candidate.  


 


In the Ognibene suit, the U.S. District Court for the Southern District of New York found for the Campaign Finance Board and granted their motion for summary judgment, dually holding that the ‘doing business’ contribution limits served the important government interest of preventing actual and apparent corruption, and were narrowly drawn. The District Court also upheld the prohibition on matching funds and the extension of the contribution ban to various business entities.


In its Opinion issued on December 21, 2011, the Second Circuit Court of Appeals affirmed the district court, holding that the ‘doing business’ restrictions are an indirect constraint on protected speech, subject to the more lenient burden that the government demonstrate that the restrictions are justified by a legitimate state interest. 


 


“Contributions to candidates for City office from persons with a particularly direct financial interest in these officials’ policy decisions pose a heightened risk of actual and apparent corruption, and merit heightened government regulation,” Judge Paul A. Crotty wrote in the main opinion.  


The Second Circuit found that the restrictions served the City’s anti-corruption interest and were “closely drawn” to address that interest; distinguishing the contribution limits in the New York City Campaign Finance Law from the “expenditure” restrictions in Citizens United.


 


Despite this unanimous ruling from a three-judge panel of the Second Circuit, it may only be a matter of time before an appeal is lodged with the U.S. Supreme Court. Stay tuned to this blog moving forward for additional coverage…..  

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Internal Oversight, the SEC and BigLaw

Using a Recruiting Agency to Find Your Company?s Board of Directors?

A lot of new entrepreneurs dislike the idea of having a board of directors. They feel it is akin to handing over their powers to a group of people who may or may not share their vision. They also fear losing control over their own business and feel threatened by a board of directors in [...]

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FHFA Files Lawsuits Against 17 Financial Institutions to Recoup Investor Losses

In its roles as conservator for Freddie Mac and Fannie Mae, the Federal Housing Finance Agency (FHFA) filed securities lawsuits against 17 financial entities in federal court as well as in the state courts of Connecticut and New York in early September 2011. In the lawsuits the FHFA alleges that the financial institutions, which range [...]

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Saturday, January 28, 2012

California's New "Habit" of Pay-to-Play Regulation in the Public Employee Pension Fund Arena

By Stefan C. Passantino & Benjamin P. Keane


If it takes three times to make something a habit, it is safe to say that “pay-to-play” legislation in the State of California is getting to be a bit habitual.  For the third time in as many years, the California State Legislature has decided to ripple the “pay-to-play” regulatory waters by passing an “urgency” measure designed to clarify and modify the state’s existing restrictions on investment managers and investment placement agents who do business with California’s public employee pension funds, such as the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS).  The new piece of legislation, Senate Bill 398 (SB 398), was signed into law on October 9, 2011 by Governor Jerry Brown, and is designed to complement two other recently-passed bills regulating the activities of pension fund investment managers.

The first of those recently-passed bills was Assembly Bill 1584 (AB 1584), which was passed by the state legislature in 2009 as part of an effort to increase transparency in the management of public employee pension fund assets.  Specifically, AB 1584 required all California pension funds to adopt disclosure policies that would require the reporting of all campaign contributions and gifts made to pension fund board and staff members by “placement agents” and external investm ent managers.  Likewise, the bill mandated that all outside investment managers disclose information regarding the fees they pay to placement agents for the purpose of securing asset management business opportunities with state and local pension funds across California.  


 


The second of those complementary pieces of legislation was Assembly Bill 1743 (AB 1743), which was passed by the state legislature in 2010 as part of an effort to build on the transparency provisions of AB 1584 by explicitly restricting the ability of placement agents and external investment managers to engage in pay-to-play activities associated with California’s public employee pension funds.  As this blog highlighted at the time of the bill’s passage, AB 1743 placed a broad swath of placement agents, external investment managers, and external investment management firm staff under an obligation to register as lobbyists with the State of California.  In addition, AB 1743 banned these same individuals from making campaign contributions to the elected board members of California’s pension funds and prohibited them from setting up contingency fee arrangements to manage such pension fund assets.


 


While not as groundbreaking as either AB 1584 or AB1743, SB 398 does build upon each of those bills and make some noteworthy changes to California’s pay-to-play regulatory framework for pension fund placement agents and external investment managers.  Specifically, SB 398 modifies existing law in the following ways:


 


·                     The bill revises the definition of the terms “external manager”, “placement agent”, “investment fund”, and “investment vehicle” to clarify that almost all managers of securities and assets for California public employee pension funds, whether directly or through managed funds, are subject to the disclosure and lobbyist registration rules put in place by AB 1743 for external managers and placement agents.  Despite this fact, however, SB 398 does exempt investment management companies that are registered with the Secur ities and Exchange Commission (SEC) pursuant to the Investment Company Act of 1940 and that make public offerings of their securities from having to comply with the statutory disclosure and registration standards.


·                     The bill extends AB 1743’s “safe harbor” exemption from state-level lobbyist registration so that it also applies to local-level lobbyist registration requirements.  Under AB 1743’s safe harbor provision, investment managers of public pension funds need not pursue state-level lobbying registration if they meet three separate requirements: (1) they are registered with the SEC as investment advisers or broker-dealers; (2) they obtain their pension fund business through competitive bidding processes; and (3) they agree to be subject to the Cal ifornia fiduciary standard imposed on public employee pension fund trustees.  In turn, SB 398 extends a similar exemption to investment managers who would otherwise be required to register as local-level lobbyists on account of their management of local public employee pension fund assets.


Since SB 398 was passed by the state legislature and signed by the governor as an “urgency” measure, it is now the active law of the land in California.  It remains to be seen, however, what sort of impact it will actually have on the ethics of public pension fund asset management.  While its changes will certainly have some effect on investment managers and placement agents doing business with public employee pension funds in California, it will certainly not be as significant an effect as either AB 1584 or AB 1783.  After all, individuals working in the pension fund investment management business have to be slowly getting used to California’s growing pay-to-play regulation habit.


In light of this fact, perhaps the most interesting thing to watch in the wake of SB 398’s passage just might be the reaction of California localities to the extension of AB 1743’s safe-harbor exemption.  How will localities with a history of tackling pay-to-play issues (like Los Angeles) react to the state’s intrusion into municipal issues such as the regulation of local public employee pension fund management?  We shall see if any drama ensues in the Golden State… Stay tuned…

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Where Were the Lawyers?

Ambac & Others Agree to Pay $33M to Settle Fraud Allegations Surrounding Bond/Insurance Litigation

Ambac Financial Group Inc., as well as several of its banking underwriters and insurers, has agreed to pay a total of $33M in order to settle claims of investment fraud. According to investors who experienced significant financial loss, the parties involved hid risks from investors about the mortgage debt it guaranteed. The primary claimants in [...]

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Variable Annuity Contract Thief Gets 10-Year Sentence ? Hartford and Nationwide Life Insurance Companies

In October 2011, a former Agent for Hartford and Nationwide Life Insurance companies pled guilty to charges of theft and received a 10-year prison sentence. By Matthew J. Ryan?s own admission, he exploited weaknesses in the insurance companies? practices and procedures in order to steal from the variable annuity contracts Hartford and Nationwide issued to [...]

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Sales Recruiters: What Type of Positions Do They Fill?

In an economic crisis like the one we are facing today, sales jobs have become more important than ever. Companies may cut down on advertising and reduce expenditure on the marketing and promotion of their products, but they all need a strong sales force to keep them in business. Without a dependable sales force, companies [...]

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Philadelphia Gets Into the Ring on January 3, 2012

Cue the obligatory training montage and iconic theme music…Like its best known fictional sports hero, the City of Philadelphia is looking to pick itself up off the ethical mat and take a first step toward regaining the public trust when it comes to political decision making and government action. Battered and bruised by an ongoing ethics investigations against its former mayor, allegations of improper political activity on the part of city council staff, and a sordid history of pay-to-play corruption, it appears as if Philadelphia and its Board of Ethics are finally working to change the culture of politics in the City of Brotherly Love, one reform idea at a time.

The newest Philly reform effort of note is the city’s lobbyist registration regulation, which was signed into law in June 2010 but will not go into official effect until January 3, 2012. This regulation, labeled as Regulation No. 9 by the Philadelphia Board of Ethics, will for the first time in the city’s history require individuals who attempt to influence legislative or administrative action, or who endeavor to obtain city contracts, to register as lobbyists. In addition, the rule will place significant disclosure requirements on most lobbyists, lobbying firms, and lobbying principals operating in Philadelphia. Specifically, the regulation will require most registrants (those expending more than $2,500 or lobbying more than 20 hours per quarter) to periodically report their lobbying expenditures on gifts, hospitality, transportation, lodging and other associated activities. In addition, the new rule will mandate that registered Philadelphia lobbyists publically divulge basic information about the nature of their lobbying co ntacts and communications with city officials and employees. 

Beyond these fundamental disclosure requirements, Regulation No. 9 will also prohibit contingency fee lobbying among registrants, mandate lobbyist training, and impose a number of conflict-of-interest rules on city lobbyists. In addition, the regulation will prevent registered city lobbyists from serving as officers for the political committees and political action committees of candidates seeking elected office in Philadelphia. Also, interestingly, the new rule prohibits any registrant from transmitting, uttering, or publishing any false, forged, counterfeit or fictitious communication to a city official or employee for the purpose of influencing legislative or administrative action. How broadly the false statement provision will be enforced moving forward will be interesting to watch. All told, however, Regulation No. 9 appears to take significant steps toward bringing Philadelphia’s municipal lobbying rules up to speed with those in place in other major cities around the county.

Enactment of Philadelphia’s lobbyist registration regulation comes on the heels of another noteworthy reform put into place by the city council and Board of Ethics earlier this year. This reform, known as Regulation No. 8., went into effect in late March, and is designed to severely limit improper, partisan political activity on the part of city officers and employees. Like a mini-version of the federal Hatch Act, Regulation 8 seeks to prevent appointed Philadelphia officials and employees from using city resources to engage in partisan political activities. Likewise, the regulation seeks to prohibit city officials and employees from utilizing their status or tit le as a means of influencing or coercing participation in political activities. Along these same lines, Regulation 8 endeavors to prevent improper, partisan political behavior through the following mechanisms: (1) a ban on collecting, receiving, and soliciting political contributions for a partisan purpose; (2) a ban on membership in national, state, and local political party committees; (3) a ban on political campaigning and political management activities; (4) a ban on circulating nomination petitions or papers for political candidates; and (5) a ban on get-out-the-vote participation when such activities are organized or sponsored by a political party, candidate, or partisan political group.

In practice, these provisions are designed to preserve a proper separation between impartial policy making and partisan political activity by city government officials and employees … a line that has not always been so clear in Philadelphia. Whether Regulation 8 will accomplish this goal moving forward, however, remains to be seen. This is particularly the case in light of a few of the broad carve-outs contained within the regulation. Exceptions to the political activity restrictions discussed above exist for a wide range of partisan political behavior, including engaging in most political activities organized by civic, community, labor, and professional organizations, and campaigning for or against referendum questions and municipal ordinances. Likewise, the regulation also exempts city council employees from having to comply with several of the aforementioned prohibitions, including the exclusion on partisan political campaigning and manageme nt. It is doubtful that the loopholes in Regulation 8 are broad enough to swallow the entire rule, but how they affect overall compliance is certainly something to keep an eye on in the future. 

For many, reforms like Regulation No. 8 and Regulation No. 9 might seem like too little, too late on the part of the Philadelphia city government and Board of Ethics. After all, over the past few decades, the City of Brotherly Love has become an environment more synonymous with appearances of cronyism and corruption than transparency and good governance. But in a city known for its comeback stories, I wouldn’t count out meaningful political reform quite yet.

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Entertainment Recruiters ? Secrets to Hiring the Best

In the fast paced environment of media and entertainment, you need the most qualified employees on your team. This is where entertainment recruiters can help; recruiting agencies that specialize solely within this industry. Whether you are a public relations firm, an advertising agency, a production company, or the like, you know that having the [...]

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Labor Day Greetings and Kudos

FINRA CEO Says Brokers Must ?Push and Pull? for Private Placement Information

Often, investment advisors, stockbrokers and brokerages who unsuitably push Reg. D Private Placements on investors claim that any financial losses investors subsequently experience occur despite their due diligence. However, these private investments pay high fees that can induce some financial professionals to look the other way, focusing on the fifteen percent fee rather than the [...]

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January 2012 - A Glimpse Back and Ahead

Halliburton Class Action for Securities Fraud, Case Reinstated ? a Victory for Claimants

According to a June 6, 2011 article by James Vicini for Reuters (?Halliburton securities fraud lawsuit reinstated?) the U.S. Supreme Court has reinstated a securities fraud class-action lawsuit filed against Halliburton in 2001 by pension and mutual fund investors on behalf of all buyers of Halliburton stock between June 1999 and December 2001. Claimants in [...]

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SUCCESSFUL SELF-UNDERWRITTEN IPO?s

In order to do a Self-Underwritten initial public offering and be allowed to solicit investors, you must go public and file a registration statement with the SEC and follow other guidelines and procedures, which we assist you with. The president of our affiliate US. based law firm company is an experienced securities attorney so we [...]

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Friday, January 27, 2012

Turning the Corner on the Big Roller Coaster Ride of BigLaw

Did You Experience Significant Losses with Morgan Keegan?

Morgan Keegan Fund Losses* Ticker Bond Fund 2007 2008 RMH RMK High Income Fund (-)58.0% (-)39.0% RHY RMK Multi-Sector High Income Fund (-)60.6% (-)44.5% RMA RMK Advantage Income Fund (-)56.9% (-)39.1% RSF RMK Strategic Income Fund (-)58.1% (-)42.0% RHICX RMK Select High Income-C (-)59.9% (-)45.9% MKHIX RMK Select High Income-A (-)59.7% (-)46.1% RHIIX RMK Select [...]

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Did You Experience Significant Losses with Morgan Keegan?

Morgan Keegan Fund Losses* Ticker Bond Fund 2007 2008 RMH RMK High Income Fund (-)58.0% (-)39.0% RHY RMK Multi-Sector High Income Fund (-)60.6% (-)44.5% RMA RMK Advantage Income Fund (-)56.9% (-)39.1% RSF RMK Strategic Income Fund (-)58.1% (-)42.0% RHICX RMK Select High Income-C (-)59.9% (-)45.9% MKHIX RMK Select High Income-A (-)59.7% (-)46.1% RHIIX RMK Select [...]

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California's New "Habit" of Pay-to-Play Regulation in the Public Employee Pension Fund Arena

By Stefan C. Passantino & Benjamin P. Keane


If it takes three times to make something a habit, it is safe to say that “pay-to-play” legislation in the State of California is getting to be a bit habitual.  For the third time in as many years, the California State Legislature has decided to ripple the “pay-to-play” regulatory waters by passing an “urgency” measure designed to clarify and modify the state’s existing restrictions on investment managers and investment placement agents who do business with California’s public employee pension funds, such as the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS).  The new piece of legislation, Senate Bill 398 (SB 398), was signed into law on October 9, 2011 by Governor Jerry Brown, and is designed to complement two other recently-passed bills regulating the activities of pension fund investment managers.

The first of those recently-passed bills was Assembly Bill 1584 (AB 1584), which was passed by the state legislature in 2009 as part of an effort to increase transparency in the management of public employee pension fund assets.  Specifically, AB 1584 required all California pension funds to adopt disclosure policies that would require the reporting of all campaign contributions and gifts made to pension fund board and staff members by “placement agents” and external investm ent managers.  Likewise, the bill mandated that all outside investment managers disclose information regarding the fees they pay to placement agents for the purpose of securing asset management business opportunities with state and local pension funds across California.  


 


The second of those complementary pieces of legislation was Assembly Bill 1743 (AB 1743), which was passed by the state legislature in 2010 as part of an effort to build on the transparency provisions of AB 1584 by explicitly restricting the ability of placement agents and external investment managers to engage in pay-to-play activities associated with California’s public employee pension funds.  As this blog highlighted at the time of the bill’s passage, AB 1743 placed a broad swath of placement agents, external investment managers, and external investment management firm staff under an obligation to register as lobbyists with the State of California.  In addition, AB 1743 banned these same individuals from making campaign contributions to the elected board members of California’s pension funds and prohibited them from setting up contingency fee arrangements to manage such pension fund assets.


 


While not as groundbreaking as either AB 1584 or AB1743, SB 398 does build upon each of those bills and make some noteworthy changes to California’s pay-to-play regulatory framework for pension fund placement agents and external investment managers.  Specifically, SB 398 modifies existing law in the following ways:


 


·                     The bill revises the definition of the terms “external manager”, “placement agent”, “investment fund”, and “investment vehicle” to clarify that almost all managers of securities and assets for California public employee pension funds, whether directly or through managed funds, are subject to the disclosure and lobbyist registration rules put in place by AB 1743 for external managers and placement agents.  Despite this fact, however, SB 398 does exempt investment management companies that are registered with the Secur ities and Exchange Commission (SEC) pursuant to the Investment Company Act of 1940 and that make public offerings of their securities from having to comply with the statutory disclosure and registration standards.


·                     The bill extends AB 1743’s “safe harbor” exemption from state-level lobbyist registration so that it also applies to local-level lobbyist registration requirements.  Under AB 1743’s safe harbor provision, investment managers of public pension funds need not pursue state-level lobbying registration if they meet three separate requirements: (1) they are registered with the SEC as investment advisers or broker-dealers; (2) they obtain their pension fund business through competitive bidding processes; and (3) they agree to be subject to the Cal ifornia fiduciary standard imposed on public employee pension fund trustees.  In turn, SB 398 extends a similar exemption to investment managers who would otherwise be required to register as local-level lobbyists on account of their management of local public employee pension fund assets.


Since SB 398 was passed by the state legislature and signed by the governor as an “urgency” measure, it is now the active law of the land in California.  It remains to be seen, however, what sort of impact it will actually have on the ethics of public pension fund asset management.  While its changes will certainly have some effect on investment managers and placement agents doing business with public employee pension funds in California, it will certainly not be as significant an effect as either AB 1584 or AB 1783.  After all, individuals working in the pension fund investment management business have to be slowly getting used to California’s growing pay-to-play regulation habit.


In light of this fact, perhaps the most interesting thing to watch in the wake of SB 398’s passage just might be the reaction of California localities to the extension of AB 1743’s safe-harbor exemption.  How will localities with a history of tackling pay-to-play issues (like Los Angeles) react to the state’s intrusion into municipal issues such as the regulation of local public employee pension fund management?  We shall see if any drama ensues in the Golden State… Stay tuned…

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