CHICAGO -- Several securities firms made campaign contributions to Gov. Jim Edgar of Illinois just weeks before the Municipal Securities Rulemaking Board's ban on contributions took effect in April.
The firms included Merrill Lynch & Co., which gave $3,000 to Edgar on March 1. Merrill Lynch was one of the original Wall Street securities firms that adopted a voluntary ban on campaign contributions last October.
An examination of Edgar's campaign contributions report for the period beginning Jan. 1 and ending June 30 showed that Merrill Lynch, four other securities firms, and one public finance executive gave a total of $13,150.
Political action committees of two corporations that have securities firm subsidiaries gave another $13,450 to Edgar's campaign, the records show. One of these, First Chicago Corporation State PAC, made its nearly $11,000 of contributions after the MSRB's Rule G-37 took effect on April 25. The rule bars municipal dealers from doing business with an issuer for two years after giving the issuer a campaign contribution.
The firms characterized the contributions made to Edgar, a Republican running for re-election in November, as allowable prior commitments or as having been made by entities not in the municipal bond business.
Almost all of the firms were included in state-related bond issues so far in 1994, according to Securities Data Co.
The MSRB had warned firms against making contributions to beat the rule's effective date. In the summer of 1993, MSRB officials said the MSRB could use the board's existing "fair practice rule" to go after firms that gave money to get bond business.
In a telephone interview earlier this month, Christopher Taylor, the MSRB's executive director, reiterated that warning, adding that regulatory authorities are beginning "examinations in this area."
Carrie Dwyer, senior counselor to the chairman of the Securities and Exchange Commission, said that while the SEC could not comment specifically on the Illinois contributions, "the policy of companies paying to play is an outrageous practice, and we will do everything in our power to eliminate that from the marketplace."
James Montana, Edgar's chief legal counsel, said that to his knowledge the campaign contributions were made "perfectly legitimately in terms of their timing." He added that if they weren't, "we would certainly look into that."
A spokesman for Merrill Lynch said the firm had a prior commitment to donate $3,000 to Edgar's campaign. The spokesman said the commitment was made in the summer of 1993 before the Oct. 18 effective date for the voluntary ban.
While the firm produced a copy of a Nov. 11 letter it sent to the Edgar campaign that said the contribution was enclosed, it was not, according to the spokesman. He said that while the check was dated Oct. 20, it was not delivered to the campaign until late February.
A source familiar with the situation said the delay was caused by the firm's desire to hand-deliver the check and relay a message that no further campaign contributions would be made by the firm. The Nov. 11 letter states that "any future political contributions by Merrill Lynch or its employees will be made only in compliance" with the voluntary ban and any additional "implementing policies and procedures" adopted by the firm.
Merrill Lynch's spokesman said that honoring prior commitments was allowable under the voluntary ban.
"We feel it is important that people understand that at Merrill Lynch our word is our bond and we made a commitment to the campaign and followed through on it," he said.
Regulators were concerned by revelations earlier this year that, weeks after the voluntary ban took effect, two Wall Street firms subscribing to the ban still contributed thousands of dollars to candidates in Ohio and Alabama in late 1993. The firms said they were honoring prior commitments, but regulators say that, if so, they should have acted earlier.
Documents explaining the voluntary ban state that "few such commitments" were expected to be remaining after Oct. 18. The documents also warned that "firms should review prior commitments with an awareness that honoring commitments may create a perception that the initiative is not being honored."
Merrill Lynch's spokesman said the $3,000 contribution to Edgar was not done for bond business, but simply to continue the firm's "traditional program to back candidates that are supportive of the business community."
Merrill Lynch, which also gave a total of $13,000 to the Edgar campaign in 1993, was a co-manager on two Illinois Housing Development Authority transactions totaling about $134 million this year.
The firm was selected as one of several "first-tier" Co.-managers by the authority last October. The authority selected the firms to work on deals in 1994 and 1995 after sending out a request for proposals.
Peter Dwars, the authority's director at that time, said that the list of selected firms was shown to James Montana, who is not only Edgar's chief legal counsel but also the administration pointman for selection of underwriters, and that campaign contributions were not reviewed.
According to Securities Data Co., Merrill Lynch was also a Co.-manager for $275 million of bonds sold by the Regional Transportation Authority in May. David Thompson, an authority spokesman, said the chairman of the authority, whom Edgar appointed last November, chooses rums for bOnd deals. He said that "as a courtesy" the chairman makes the offices of the governor and of the mayor of Chicago aware of underwriting teams for bOnd deals.
Two minority-owned firms that contributed to Edgar's campaign earlier this year were included in a nearly $200 million Metropolitan Pier and Exposition Authority bond deal in May.
Miami-based Guzman & Co. contributed $2,500 on Feb. 17, while Eric L. Small, president of SBK-Brooks Investment Corp. in Cleveland, gave $1,500 on Feb. 11.
Leo Guzman, president of his namesake firm, said the firm's contribution was "perfectly appropriate and legal" and was made because Edgar "was doing a good job in Illinois." He said there was no connection between the donation and being picked for the deal.
Small said his contribution was a previous commitment made in the summer of 1993. He said it was not made to get into the deal and that it was the only outstanding commitment he had to make a contribution.
Earlier this year, officials of the Metropolitan Pier Authority said they would be using essentially the same underwriting team for the deal as they did for an $868 million bond issue in 1992. However, the board added some minority- and woman-owned firms to the new deal, including Guzman and SBK-Brooks. The authority's board is made up of members chosen by the mayor of Chicago and the governor of Illinois.
James Bolin, chairman of the authority's finance committee and a governor's appointee to the board, said that he was not aware of the contributions made by the two firms and that, to his knowledge, no one from Edgar's office tried to influence the selection process.
Chicago-based William Blair & Co. and Gardner, Rich & Co., a Chicago-based minority firm, also contributed to the campaign earlier this year. Both firms participated in the authority's 1992 and 1994 bond deals. Gardner Rich was also a co-manager in the Regional Transportation Authority's May issues. Blair contributed $1,500 on March 30 and Gardner Rich gave $5,000 on March 1.
James Mckinley, a partner at Blair, said the donation was made to fulfill a previous commitment to the so-called 6overnor's Club. The firm held off on honoring the commitment until the MSRB and legal counsel indicated that it was "totally legal and sanctioned," he said.
Chris Gardner, the head of his namesake firm, said the firm was supporting Edgar with any contribution it made.
PACs run by First Chicago Corp. and Kemper Corp. also gave to Edgar. Kemper's PAC gave $2,500 on March 29, while the First Chicago Corporation State PAC gave a total of $10,950 between April 28 and May 23. According to Securities Data, subsidiaries of the two corporations involved in investment banking were in the two Metropolitan Pier deals, as well as other state agency deals in 1994. Kemper Securities Inc. signed onto the voluntary ban last October, while First Chicago Capital Markets adopted the ban in January.
Taylor at the MSRB said contributions made by a PAC not controlled by a dealer are allowable "provided they are not used as a way to circumvent" Rule G-37.
Kemper's contribution marked a change from last year's contribution to the Edgar campaign. In 1993, campaign reports show that $3,000 was given by Kemper Securities to Edgar. Under Rule G-37, such contributions are now prohibited.
Janice Kalmar, a Kemper Corp. spokeswoman, said this year's contribution made by the corporation's PAC was its first to Edgar since the committee was formed in 1992. She said the PAC was formed after Kemper Corp. split from Kemper National Insurance Co., which had been operating a PAC for both entities.
"It absolutely has nothing to do with the fact Kemper Securities Inc. is no longer making campaign contributions." Kalmar said.
In fact, a spokesman for Kemper National Insurance said the original political action committee, called the Kemper Campaign Fund, made contributions to Edgar in 1982. 1986, and 1990.
Kalmar said the corporation's PAC made its 1994 contribution because of Edgar's "pro-business" stance and not out of any desire to win business for Kemper's securities unit.
First Chicago officials also said that the PAC made its contributions independently of the municipal bond business.
Susan K. Gordy, a consultant to Firs! Chicago, said that contributions were made strictly for the bank operations of the corporation and that the process of determining contributions does not include First Chicago Capital Markets employees.
Los Angeles-based Houlihan Lokey Howard & Zukin contributed $1,000 to the campaign on April 1. James D. Golden, the firm's managing director of public finance, said the donation was requested by the firm's Chicago office, which is not involved in public finance activities.
A check of campaign contributions made to Dawn Clark Netsch, Edgar's Democratic challenger for governor in the November election, showed no contributions from firms or individuals in the municipal bond business during the Jan. 1 to June 30 reporting period. Netsch, who is Illinois comptroller, had a fund-raiser on June 16 co-sponsored by the Democratic National Committee. Several law firms that are involved in bond counsel work bought tickets to the event, which featured an appearance by President Clinton.