PHILADELPHIA -- To his friends, Mark Schwartz is a Wall Street whistle-blower who was punished for questioning his firm's political practices.
Arbitrators from the National Association of Securities Dealers have taken a different view. In May, they unanimously rejected his claim that Prudential Securities fired him in 1989 because he complained that investment bankers were threatened if they did not make campaign contributions needed to win bond business.
Mr. Schwartz has not backed away from his charge that the firm threatened the bonuses or jobs of public finance bankers who did not set aside a percentage of their incomes for political donations.
"I stand by my account of the events which transpired," he said in a written statement in May. Mr. Schwartz, now a senior vice president at A. Webster Dougherty & Co. in Philadelphia, declined to be interviewed for this article.
The firm has strongly denied the allegations, which current and former Prudential officials in interviews have both rebutted and supported. "That's an open-and-shut case now," said Gerald P. McBride, executive vice president and manager of the tax-exempt division. "I have no comment."
But a review of nearly 2,000 pages of closed-door sworn testimony, internal company records, and interviews with current and former bankers at Prudential provide a rare inside view of how one Wall Street firm tried to use politics to build its negotiated underwriting business.
Even though the firm's market share surged in 1989, critics say Prudential won little long-term benefit from the growth strategy. Indeed, many describe Prudential as a minor player when it came to using political connections and contributions to win bond contracts.
What emerges is a sketch of a firm that not only targeted elected officials with campaign contributions, but engaged in industry-wide practices such as using politically connected insiders to generate business.
In one case, former officials say, the bond firm made three $50,000 monthly payments to a former Texas governor and his associates, but came away with little for its efforts.
In another example, testimony shows that after being approached by the campaign of Mayor Richard Daley, Prudential raised $10,000 from its investment bankers for contributions in an attempt to win new business. But in the end, other brokerages provided more campaign funding.
"We had an objective to do business in Chicago," said John C. Glidden Jr., former head of public finance at Prudential until resigning earlier this year and joining E.A. Moos & Co. in Summit, N.J. "It was all perfectly legal," he said.
But asked if the company gained much new business because of the political fund-raising, he paused and answered, "On balance, not really."
Some bankers who were with Prudential in early 1989, during the push to raise funds for the Daley campaign, agree with the firm that it only suggested levels for voluntary contributions.
"Everyone knew we needed to make political contributions and everyone knew our bonuses at the end of the year depended on how well we did," said William Hill, a former managing director at Prudential, adding that there was no retribution for not making contributions.
"There were some people who blew it off entirely... they could not just come and take your money," he said.
But others say executives used heavy-handed tactics that included threatening the bonuses of those who did not contribute.
"Not making political contributions at Prudential was akin to [not] paying your federal income taxes," Harriet Stanley, one of five former bankers at Prudential whose testimony supported Mr. Schwartz's allegations before the NASD, said in an interview. "They are both entirely voluntary, but there were penalties for not doing so."
A push for market share, a pinch for contributions
It was January 1989 and a new era was beginning at Prudential Securities, or so executives hoped.
Mr. Glidden had just been promoted to head public finance with the mission of expanding the firm's share of the more lucrative negotiated underwriting market. The firm, with the nation's fourth-largest retail sales force, has long been one of the top 10 players in the competitive market, but the company wanted more.
An internal study had concluded that while Prudential could not expect to compete with negotiated market leaders like Goldman, Sachs & Co. or First Boston Corp. without a substantial increase in personnel, the firm could move into the bottom half of the top 10 firms by refocusing its efforts.
But Mr. Glidden believed that building market share required a more aggressive strategy, which included firing several Prudential bankers around the country who he felt were not producing results.
The firm did see a surge in its market share in 1989, posting its best performance since Prudential Insurance Co. bought the brokerage in 1981. However, the firm's rankings returned to historical levels in subsequent years, according to Securities Data Co.
In 1989, the firm was senior manager on $5.66 billion of issues that represented 4.6% of the total market. While Prudential handled volume of $5.82 billion in 1991, its market share had returned to 3.4% - about where the firm has been in most years.
"At that time, we were very optimistic about the future. It was something we wanted to be part of," said a banker who has since left the firm. "We knew that John had the ambition to make it work."
But as many would later recall, they did not yet know that the new business plan would call on them to contribute so much of the money needed to develop political relationships.
If they were uncertain, they began to understand in late February when Mr. Glidden handed out bonus checks for 1988.
In Chicago, Frank Paul, then acting manager of the regional office, learned about the new strategy on Feb. 27, 1989. Mr. Glidden telephoned to discuss bonuses and a new three-tier system the firm would use to determine how much bankers should set aside for political contributions in the coming year.
He was told that bankers earning up to $100,000 should reserve 1.5% of their gross compensation for political contributions; those earning between $100,000 and $175,000 should earmark 2%; and those earning above $175,000 a year should hold back 2.5%, according to testimony and a Feb. 28, 1989, internal memo prepared by Mr. Paul.
Under the plan, the money could be donated to the company-controlled Prudential-Bache Municipal Political Action Committee or directly to candidates. However, Mr. Glidden said that in the future he would decide whom to contribute to and would track the participation of individual bankers, the memo says.
Soon after, Mr. Glidden and others in New York began working to raise as much as $10,000 for the Daley campaign. Prudential executives drafted a list of public finance bankers with suggested contributions and began contacting them.
The plan to raise separate contributions and then bundle them together for the Daley campaign troubled Mr. Paul for several reasons, according to his testimony.
First, he was a Republican party official in suburban Evanston Township and feared that contributing to a Democrat could result in publicity that could embarrass him and the firm.
In a March 7, 1989, memorandum, he also argued that he was already doing his share, saying that in the previous year he had spent over $10,000 on political contributions and expenses.
Mr. Glidden relented, apparently making Mr. Paul the only Prudential banker solicited who did not contribute to the Daley campaign. Still concerned, Mr. Paul said he then discussed the matter with Mr. McBride, the head of the department.
After a breakfast meeting at the Vista Hotel in lower Manhattan on the eve of Easter weekend in 1989, he expressed concern that the firm's political activities in Chicago might have been illegal, testified Mr. Paul, now senior vice president and manager at Rodman & Renshaw in Chicago.
"I told him I was very concerned about what was going on, I didn't want to go to jail," he continued in his testimony. "And [Mr. McBride] assured me, don't worry, he would not let that happen to me."
Mr. McBride later testified that he did not recall the meeting.
Others testified that they too were concerned by the new system, largely because they felt they already contributed substantial sums and wanted to continue to decide which candidates would receive their donations.
Ms. Stanley, now president of the Hadley Group, a Boston financial adviser, said that during a meeting with Mr. Glidden in late February 1989 to discuss her bonus, she was surprised when he recommended she set aside about 1.5%, or $2,000, from her bonus.
"I said, ~Oh? John, I make fairly heavy political contributions,'" she testified in April on the last day of the NASD hearings. Later she characterized his suggestion as having "crossed the line," but she said she did not report her concerns to executives.
"No I did not," Ms. Stanley said. "And if one reported every time in public finance that someone approached or crossed the line, that's all you'd spend your time doing."
Others saw the pressure for political contributions, later characterized by former bankers as coercion, as reason to go to Mr. McBride, the top executive in the tax-exempt division.
Former senior banker Gerard J. Keegan testified that he too was told to set aside a percentage of his income as he met with Mr. Glidden to discuss his annual bonus. During the conversation, Mr. Glidden is quoted in Mr. Keegan's testimony as saying, "I expect these checks to be made, because if we don't have these checks, then we won't have to worry about a bonus next year."
Mr. Keegan, now a senior vice president at A. Webster Dougherty & Co. with his friend Mr. Schwartz, said he protested the request and then reported it to Mr. McBride, who then investigated the complaint.
"I said, ~John, if in fact you did do that, that's not the way we're supposed to handle ourselves and I don't believe that what you were doing was done with the wrong intention,'" Mr. McBride testified. "I just think that if you did do that, it was the wrong timing. Do not do that with anyone else."
Contribution discussions ~taboo,' Mr. Glidden says
In recent interviews, Mr. Glidden said he did not discuss political contributions and bonuses, which can account for a majority of a banker's annual income, at the same time. He described that as "taboo."
He said that those who supported allegations that Prudential forced its bankers to make political contributions were disgruntled former employees, some of whom hoped to seek their own arbitration awards if Mr. Schwartz was successful.
"It is a clear pattern that they hoped Schwartz would get something so they could chase ambulances too," Mr. Glidden said in a telephone interview.
Clearly, though, Mr. Schwartz contended in his case and his testimony that he was wrongfully discharged in retaliation for questioning Mr. Glidden's plans to raise money in Chicago, saying that the fund-raising was contrary to the firm's established policies and might violate some laws.
Mr. Schwartz, who joined Prudential in 1986 in Philadelphia after working as a lawyer-consultant to the firm, was treasurer of the brokerage's municipal political action committee until shortly before he was discharged.
However, a lawyer for Prudential argued before the three-member arbitration panel that the firm's political conduct was irrelevent because Mr. Schwartz had not been fired. Instead, they said that his three-year contract with guaranteed salary and bonus of $600,000 had expired and the firm simply chose not to extend it.
In a unanimous May 11 decision, the NASD panel rejected every claim raised by Mr. Schwartz. However, their reason is not clear since arbitrators do not have to explain their decisions and the NASD does not discuss its cases.
Still, the Schwartz case is unusual because it cast a light on practices widely used in the bond industry but seldom discussed. In fact, the Prudential case only draws attention to the practice many simply refer to as buying business.
Beyond raising money in the Chicago mayor's race, former bankers say the firm has tried to win political favor elsewhere.
For instance, in St. Louis, Prudential contributed $20,000 to the campaign of Comptroller Virvus Jones, the city's chief financial officer. They were matched by Merrill Lynch, and both firms have played key roles in recent city underwritings.
Previously, Mr. Jones has denied any connection between contributors and city bond business. Mr. Glidden agreed, "I don't think he's going to make a decision based on who made a contribution."
Prudential is one of several firms to confirm that they have turned over records subpoenaed by the U.S. attorney's office in St. Louis, which is investigating the political and financial relationships between bond firms and their Missouri clients. That investigation is continuing.
In two separate interviews, Mr. Glidden explained the role of political contributions in the public finance business.
"In the course of establishing relationships, if we believe that it is in the best interest of the firm to raise money, we will do so," he said. Later, he added that making contributions "was a result of new business. It was not a conscious effort to go out and throw around money."
In another instance, Prudential apparently failed to follow up on a commitment to raise $10,000 for the campaign of Los Angeles City Councilman Zev Yaroslavsky in the mid-1980s, when he was considering a run for the mayor's office.
William Straw, a former senior banker in the firm's Los Angeles office who now owns his own investment banking firm, testified that Mr. McBride had promised the funds during a meeting to discuss possible roles for Prudential in city bond deals. A spokesman said the councilman, who chairs the city's finance committee, did not recall ever meeting with Prudential.
However, Mr. Straw said he was embarassed later when the pledge was not kept.
"It was interesting because subsequently, they didn't give any money," he testified last fall. "Gerry couldn't remember that conversation, couldn't remember promising him anything... I asked him to send the $10,000 because it was a very embarrassing situation to me that the head of the department had told him he would do it and then wasn't."
Like others on Wall Street, the firm sometimes employed politically connected people who it believed could help bring in new bond business and profits. But the decision to hire such "bounty hunters," as one banker called them, was often made in New York with no consultation with regional Prudential bankers.
One such case was in Texas. Five sources, including three claiming direct knowledge, said that by early 1989 Prudential had hired former Texas Gov. Mark White and at least two associates in an effort to generate business leads. They say the group was paid a $50,000-a-month retainer for at least three months before the firm ended the relationship after little new business was realized.
Mr. Glidden disagreed. While he could not confirm the amount paid the former governor and others, he said the relationship helped build business that the Dallas office was not generating.
"I think that the firm probably got its money's worth," he said in an interview. "I know the firm didn't lose money on it."
But a former executive who claims first-hand knowledge has a different opinion on the benefits of the arrangement. "To my knowledge, not a nickel's worth of business was gained by that," he said. "New York got conned."