Cowen & Co., a New York State regional bond firm, has asked the MSRB if a public finance executive at the fran broke campaign contribution restrictions when he allowed his name to appear on fund-raising material for a state comptroller candidate.
A high-ranking Cowen executive, speaking on a not-for-attribution basis, said the firm notified the Municipal Securities Rulemaking Board that investment banker Roy McDonald placed his name on a fund-raising request for state comptroller candidate, Herbert London.
McDonald is a vice president in Cowen's Albany, N.Y., office, and supervisor of Wilton, a town in upstate New York. The company executive described McDonald as a prominent member of the state's Republican Party. London is running for comptroller on the Republican and Conservative party lines.
McDonald did not return telephone calls, but the Cowen executive said McDonald's actions may violate the rules that bar municipal executives from soliciting contributions for politicians who select bond underwriters.
"We have formally asked the MSRB if this is a violation," the executive said. "If it is, we have asked them for their interpretation, and to give us guidance."
The Aug. 15 fund-raiser was held at the McGregor Links Country Club in upstate New York. McDonald was listed on an invitation letter as a co-chairman of the event.
Following inquiries from The Bond Buyer about McDonald's actions, Cowen began an internal examination of the matter. The examination confirmed that McDonald allowed his name to be placed on the event's fund-raising request, an invitation soliciting $100 contributions for London's campaign, the Cowen executive said.
In addition, the invitation requested that contributors return their checks to McDonald at the McGregor Links County Club, where he is a member.
The Cowen executive said McDonald did not directly solicit contributions for the London campaign by calling potential contributors, and that McDonald was unaware that the invitation would request that contributors mail their checks to him.
Cowen's review also found that McDonald did not exceed new federal limits on campaign contributions. To date, McDonald has made a $100 contribution to London, the executive said.
Christopher Taylor, the rule-making board's executive director, would not comment on the specifics of the Cowen matter. Taylor said, however, that municipal executives are barred from soliciting contributions, and that placing a name on fund-raising material may qualify as a solicitation.
"Sometimes you have no control and your name is placed on a list," Taylor said. "But holding a fund-raiser for an issuer with whom you're seeking to engage business is clearly not allowed."
The campaign contribution restrictions, found in the MSRB's rule G-37, aim at removing politics from the awarding of municipal bond business.
The rule is essentially a ban on doing municipal bond business, not a ban on making campaign contributions. For example, in areas where an executive is registered to vote, the ban prevents municipal executives from underwriting bonds for a period of two years if the executive made a contribution of greater than $250 to a municipal issuer, such as a mayor, governor, or comptroller.
The ban also kicks in if an executive makes a contribution of any amount to issuers outside places where the executive is registered to vote.
Additionally, the rule bars municipal executives from soliciting contributions from issuers they are doing municipal business with, or with whom they will seek future business relationships. All sections cover officeholders as well as candidates, who if elected would select firms to underwrite negotiated bond deals.
For improper solicitations, firms can receive anything from a letter of reprimand to a fine. The National Association of Securities Dealers, which enforces G-37, can also remove the executive from the municipal finance business, Taylor said.
Cowen executives, for their part, said McDonald did not think his actions would cause trouble. They also said that McDonald did not inform the firm that he would play any role in the event.
"This was an accident," the Cowen executive said. "He didn't know it would pose a problem, and the firm did not authorize his involvement."
In fact, Michael Dennis, who owns the country club, said he and John Nolan, chairman of the Saratoga County Republican Committee, made all the solicitations, which generated about $9,000 for the London campaign.
"If anybody ought to get credit for this event, it is me and John Nolan," Dennis said in a telephone interview. "I asked [McDonald] if it would be okay to use his name. He didn't have anything to do with" the fund-raiser.
Dennis also said he decided, without McDonald's consent, that the contributors' checks should go to McDonald at the country club because the club is located in Wilton, where McDonald is supervisor.
Still, Cowen's actions demonstrate the heightened sensitivity toward the new campaign contribution rules, which went into effect in April. The restrictions followed widespread reports of municipal executives using campaign contributions as a way to buy public finance business from state and local officials who select bond underwriting teams.
Recently, the London campaign, in targeting municipal finance executives for a Sept. 20 fund-raising dinner, specifically requested that muni executives not exceed the MSRB's limit in their contributions.
The letter, signed by Herbert London, said that new laws "limit your contribution to $250," but that the campaign has "arranged special seating for all municipal bond dealers."
"It is critical that I receive the maximum contribution you can give to my campaign," the letter said. "Your generous donation of $250, the maximum amount allowed by law for individuals involved in municipal bonds, will help me buy the valuable media time -- and assist me in getting my message of fiscal responsibility out to the public."
And in August, The Bond Buyer reported that the campaign of London's opponent, Comptroller H. Carl McCall, was thinking about returning a contribution from a municipal finance executive who made a $250 contribution at a fund-raiser held by his wife. The fund-raiser produced $20,000 for the McCall campaign.
The executive, Dall W. Forsythe, who had served as budget director for Gov. Mario M. Cuomo, made the contribution when he was a municipal bond consultant at Lehman Brothers. The contribution occurred only days before Forsythe became a full-time employee with Lehman in its public finance department.
In a recent telephone interview, Skip Roberts, McCall's campaign manager, said he decided not to return Forsythe's money following an examination of the matter. The contribution was "done in good faith and it was legal," Roberts said.
At the time, however, Forsythe failed to disclose his consulting relationship with Lehman to the McCall campaign, Roberts said. According to the October 1993 voluntary ban on contributions, which Lehman took pan in, firms using consultants must disclose these relationships.