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Municipal securities board releases rules for bond dealers (Municipal Securities Rulemaking Board)

The Municipal Securities Rulemaking Board (MSRB) last week released the details of its proposed new rules to prohibit municipal bond dealers from making political contributions, directly or indirectly, to local and state officials for the purpose of obtaining a city or town's bond business and to require municipal securities dealers to disclose all direct and indirect contributions to elected and non-elected local officials.

The MSRB issued the proposed rules as Congress and the Securities and Exchange Commission (SEC) have begun to investigate "the present scheme of federal regulations in light of the current scandals involving alleged illegal payoffs, influence peddling, conflicts of interest, and questionable sales practices."

Rep. John Dingell (D-Mich.), chairman of the House Energy and Commerce Committee, and Rep. Ed Markey (D-Mass.), chairman of the subcommittee on Telecommunications and Finance, have scheduled a first hearing on the tax-exempt municipal market this week, including raising the question of amending current federal law in order to permit direct federal regulation of how cities and municipal officials issue tax-exempt municipal bonds.

Under the proposed MSRB rule, bond firms and dealers would carry the burden of proving to regulators that any political contributions made to any local official or city were not made with the intention of getting, retaining, or "otherwise influencing" a city's decision to select or award municipal bond business to the firm or dealer. In effect, a firm would be required to demonstrate that it made a contribution without any intent to win or keep business from a city or town.

The proposed rule includes a second part requiring municipal bond dealers to disclose, for a four-year period, all political contributions made, directly or indirectly, to officials of cities with whom they have done business.

The rule applies to dealers acting as negotiated underwriters, dealers acting as financial advisors and consultants, placement agents, and renegotiated marketing agents.

The prohibition of contributions is intended to apply to any contribution to a city or city official to:

* retain current business;

* obtain future business;

* anticipate some form of future business;

* gain political clout or favoritism;

* create a quid pro quo financial arrangement in order to secure current or future business; or

* gain consideration for the award of current or future business, even if it does not materialize.

The definition of affected contributorship includes any: gift;

* subscription;

* loan, advance, or deposit of money; or

* anything of value made for the purpose of influencing the outcome of any candidacy, nomination, election or appointment of any person for state or local office.

To avoid attempts to circumvent the rules, the MSRB would bar dealers from using "conduits," such as clerical personnel, family members, attorneys, or others in order to make an otherwise barred contribution.

Dingell will begin the Congressional oversight process this week by asking whether the MSRB proposed rules are adequate or whether his committee should consider legislation proposed by House Banking Committee Chairman Henry Gonzales (D-Tex.) to repeal the so-called "Tower Amendment" and impose direct federal regulation on cities and municipal officials.
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Author:Shafroth, Frank
Publication:Nation's Cities Weekly
Date:Sep 6, 1993
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