WASHINGTON -- Bond underwriters have hired a battery of top securities lawyers to help them respond to the Securities and Exchange Commission's inquiries about their political contributions to issuers, Washington sources said on Friday.
The list of lawyers includes former SEC enforcement chief Gary Lynch, the sources said.
Attorneys from 18 law firms met with the SEC recently to present their clients' concerns about answering a four-page letter the SEC sent June 4 to about 70 bond firms nationwide, the sources said.
The lawyers' input has produced results, as the SEC agreed recently to revise its 13-question letter, following complaints that the questions would require a mammoth amount of hours to answer and, in some cases, sound incriminating.
"It's a hotbed of situations," one industry source said, about firms' efforts to respond to the letter. A copy of the revised letter, which was mailed late last week, was not available on Friday.
Sources said that Lynch, who is known for his tough prosecution of insider traders Ivan Boesky and Michael Milken during his late 1980s rein as the SEC's top enforcement cop, is acting as "spokesman" for the group of lawyers corresponding with the SEC.
A partner with Davis Polk & Wardwell in Washington, D.C., Lynch said he had no comment when contacted by The Bond Buyer.
But sources say the firm is representing at least two major Wall Street firms in the political contributions investigation. According to The Directory of Washington Lobbyists, Lawyers & Interest Groups, one of the the firm's general clients is Morgan Stanley & Co.
Other prominent law firms rumored as representing clients in the political contributions matter are Sullivan & Cromwell and Cravath, Swaine & Moore, both based in New York City. The SEC's letter to the 70 underwriters, signed by assistant director for enforcement Julie Lutz, asks firms to detail contributions to the municipal officials whose bonds they underwrite.
The letter asks about contributions or "anything of value" over 100 that were made since January 1991 by the firm, its political action committee, or its individual employees to candidates for public office or incumbents in public office or other positions in which the firm acted as co-lead or lead underwriter.
The letter is viewed as a minefield by firms troubled by a number of questions contained in the letter. For example, one question asks firms to describe "the relevant securities offering" connected with each contribution described.
Another question asks firms to disclose all payments of money or valuables for the purpose "of influencing" an issuer's decision to select the firm as a lead underwriter or financial adviser for any municipal securities offering.
One source knowledgeable about the lawyers' meeting with the SEC said, "The [idea] was to meet with the SEC to point out that it would take forever to respond [to the questionnaire] and to see if it could be narrowed.
"There are a number of firms that received this letter," the source said. "Their counsel sat down and talked about their [clients'] common problems in responding to some of the questions because of the breadth and amount of work [and] privacy concerns. They decided that a subgroup of lawyers would meet with the SEC. Most people want to be cooperative."
Ed Zuckerman, publisher of The Political Finance & Lobby Reporter, said, "If the information is successfully collected, it will provide the SEC with a comprehensive view of a major industry's entire political spending program.
"While most of the contributions and gifts are subject to public disclosure under a patchwork of state and federal election laws, it will be the first time that an entire industry's contributions at all levels of government -- federal, state, and local -- are assembled together in a single location."
Firms' reactions to the SEC's letter varied last week.
One official said it "took us all but a half day" to respond. "I've been in public finance for 20 years, and I've only had two contributions since 1990," he said.
But a number of firms are deeply troubled.
"It's intimidating," said one angry general counsel, who asked not to be identified. "It's one thing for the SEC's market regulation division to send out a questionnaire. It's another thing to get a letter from the enforcement division of the SEC, which has the ability to come after you.
"This is a terrible burden," he continued. "We don't keep track in any way, shape, or form of who gives what to whom. We've had to ask [employees]. We should have thrown it in the wastebasket.
"I'm not going to do anything until I get a new and improved letter. The SEC said there clearly is no obligation to answer the letter," he said, referring to the fact that responses are voluntary.
The SEC is expected to give firms until November to answer the revised letter, although sources said last week that the agency still hopes to get answers to three general questions about firm procedures by today, which is the original due date for answers.
Hannah Burns, managing director for corporate communications at Bear, Stearns & Co., said the firm does have an internal procedure for reporting political contributions, but "would prefer not to divulge it. "
Similarly, a spokesman for Merrill Lynch & Co. said, "We comply with all state and federal laws governing campaign contributions. We have internal systems to monitor corporate and individual contributions to insure they are in compliance with these regulations."