NAPA, Calif. -- Bond dealers should impose a moratorium on political contributions and politicians should stop soliciting them from underwriters until federal guidelines are established, the head of a municipal investment banking firm said last week.

"On the issue of political contributions for underwriters, I think we're basically out of that game," said Calvin Grigsby, president and chief executive officer of Grigsby Brandford & Co. in San Franciso.

"All issuers should stop sending solicitations to us," Grigsby said. "The issuers and underwriters are going to have to work together."

Grigsby, a member of the board of directors of the Public Securities Association, made his comments last week at the close of a public finance conference sponsored by his firm in Napa, Calif.

He spoke in response to recommendations of guidelines on political contributions recently released by the Securities and Exchange Commission, the Municipal Securities Rulemaking Board, and the National Association of Securities Dealers. The recommendations were sent to Congress earlier this month.

The three reports came after two congressmen sent letters to regulators in May asking for a review of the laws and regulations governing the issuance and sale of municipal bonds.

The requests came from Rep. John Dingell, D-Mich., chairman of the House Energy and Commerce Committee, and Rep. Edward Markey, D-Mass., chairman of the panel's subcommittee on telecommunications and finance.

On Aug. 30, the MSRB proposed a rule requiring that municipal dealers be barred from making political contributions to issuers for the purpose of obtaining or retaining municipal securities business. Other contributions made by dealers would have to be disclosed to the MSRB, which would release the information through its Municipal Securities Information Library. Dealers also would be required to establish in-house procedures to ensure that prohibited contributions are not made.

Meanwhile, the PSA has called for comprehensive disclosure of political contributions.

The inquiries into the appropriateness of political contributions come in the wake of federal investigations into potential kickbacks in New Jersey underwritings. Questions of propriety also surround the campaign finance practices of New York City Comptroller Elizabeth Holtzman, and the undisclosed fee agreements between municipal underwriters and financial advisers in both Massachusetts and Lousiana

Under the currently proposed MSRB guidelines, municipal dealers will bear the burden of proving that any campaign contributions were not made with the intent of obtaining underwriting business. Underwriters also must show that contributions did not directly result in public finance work, Grigsby said.

While penalties are not clear, if any new guidelines are enforced under the MSRB's fair practice rules, underwriters run the risk of losing their license, Grigsby said.

"No firm can afford a proceeding where they can lose their license," Grigsby said. To avoid this, the self-imposed moratorium should remain in effect "until we know what the standards are going to be," he said.

The MSRB's far practice rules were enacted in part to prevent fraudulent practices and prohibit municipal brokers and dealers from engaging in any deceptive or unfair practices.

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