WASHINGTON - The Securities and Exchange Commission has cut back on some of the information requested and added other information it wants from underwriters about political contributions they have made to issuers.
The changes were outlined in a letter obtained by The Bond Buyer that the SEC sent on July 11 to lawyers representing 70 underwriting firms whose political contributions activities are being studied by the SEC.
The letter was issued after lawyers for the firms met with SEC enforcement officials on June 25 and complained about the volume of information the agency asked for in the letter it sent June 4. That letter launched the agency's inquiry and sent tremors through the underwriting community.
Responses to the latest letter were due yesterday, although the SEC said it would consider requests for extensions on a case-by-case basis. The responses are voluntary.
Most of the eight changes made by the SEC fine-tune questions in the original June 4 letter rather than make sweeping changes in the information requested. In some cases, however, the agency asked for new information.
For instance, the SEC staff made clear in the latest letter that it does not want information about political contributions made by a firm's clerical staff. It only wants information about contributions made by firms' political action committees and staff members who for the most part "identify, solicit, or obtain" municipal securities business.
The new letter also asks firms to supply a roster of all non-clerical employees in municipal underwriting employees and PAC members, regardless of whether they have made any contributions since January 1990. The agency wants their names, titles, and the dates they held those positions.
The SEC staff also said in its revised letter that it wants information about employees' contributions to all candidates for public office, not just those that won their races.
And it asked firms for the first time to describe the "internal controls" they have in place to help them comply with Municipal Securities Rulemaking Board Rule G-20, which bars broker-dealers from giving money or valuables over $100 a year to issuers whose bonds they underwrite.
The revised SEC letter says the agency does not want reports about "occasional gifts" such as meals and tickets to sporting events, which are exempt from the MSRB rule.
But it also asks firms to state whether and how occasional gifts "are allocated," and what records the firm keeps about such expenses. The agency also wants to know whether such expenses are allocated to particular issuers.
The revised letter also clarifies a question in the June letter that asked underwriters to disclose all investments they made in ventures where a political candidate "possessed or received a direct or indirect interest."
"This item does not require production of information regarding investments [underwriters made] in public compantes," the SEC's letter said in a reference to companies that are registered with the SEC under the Securities Exchange Act of 1934.
The original letter asked firms to identify all inquiries they have conducted since Jan. 1, 1990, into the political contribution activities of any employee, including any possible violation of bribery laws.
But the revised letter says "the response to this request need not include day-to-day monitoring and routine inquiries."
"However, responses should include a description of policies, procedures, and records maintained in this area" since Jan. 1, the letter says.
William McLucas, SEC enforcement chief, and Julie Lutz, SEC assistant director for enforcement, had no comment when asked about the June 4 and July 8 letters.
The agency made clear in its original letter that its request for information should not be construed as an "adverse reflection" on anyone or an indication by the SEC that any legal violation has occurred.
"The staff is requesting your voluntary cooperation, in part, because the information which you provide will assist in assessing the extent to which political contributions may affect the offer, sale, and underwriting of municipal securities," the original letter says.
John Racine is Dallas Bureau Chief for American Banker
SEC Letter Clarifying Request for Information
The following is a reprint of most of the letter sent July 8 by SEC enforcement officials to attorneys representing many of the 70 firms whose political contribution practices are being studied by the agency.
This letter is in response to certain issues raised at our meeting on June 25, 1993, and will serve to clarify certain matters pertaining to the Division's letters to your clients regarding the above-referenced informal inquiry.
We have considered your views and believe that the most appropriate way to meet concerns over the volume of information requested and the time that it may take to produce it is to limit initially the group of affiliated persons as defined in footnote 1 of the letter. Footnote 1 defines "affiliated persons" as:
political action committees organized by persons who, during the relevant time period, were executive officers, directors, or partners of [your clients], and persons employed by [your clients] during the relevant time period in identifying, soliciting or obtaining municipal securities underwriting business or who otherwise were involved in [your clients]'s municipal securities underwriting business.
For purposes of initial responses, the term "affiliated person" may be limited to 1) political action committees and 2) persons identifying, soliciting or obtaining municipal securities underwrittng business or who are otherwise involved in the municipal underwriting business in a non-clerical capacity. Also, with respect to the latter, we request that your clients provide the staff with a list identifying all persons who fall within this definition for the referenced time frame, their positions with your clients and the dates they held such positions.
Second, request number 1 seeks the identification of "all municipal securities offerings for which your clients acted as the lead or the co-lead underwriter. The reference to "lead or co-lead underwriter" is intended to include "senior or co-senior manager" or similar designations.
Third, as discussed at our June 25 meeting, request number 3, asks for the identification of:
all political or campaign contributions in the amount of $100 or greater made by or at the direction of [your clients] or any of its affiliated persons, directly or indirectly, to any incumbent of, or candidate for, any public office or position in any ... Municipal Entity where [your clients] acted as lead or co-lead underwriter or financial adviser for a securities offering by such Municipal Entity.
The response to this request should include information concerning contributions made at the direction of your clients or otherwise. Also, the response should identify contributions made to both successful and unsuccessful candidates.
Fourth, request number 5 seeks information concerning:
all payments of money or anything of value in the amount of $100 or greater ... made by or at the direction of [your clients] or any of its affiliated persons, directly or indirectly, to any incumbent of, or candidate for, any public office or position, whether elected or appointed, in any Municipal Entity.
This request does not require production of information relating to the type of "occasional" gifts described in Municipal Securities Rulemaking Board Rule G-20(b). However, in view of this modification, we request that your clients provide a description of its policies, internal controls and recordkeeping practices relating to its compliance with Rule G-20(a) and (b). and state whether and how expenses which are deemed to fall within G-20(b) are allocated and what records relating to such expenses are kept within the firm, including whether such expenses are allocated to particular issuers or underwritings.
Fifth, request number 7 seeks the identification of:
all investments made, directly or indirectly, by or at the direction of [your clients] or any of its affiliated persons in any enterprise, entity or venture, in which any incumbent of, or candidate for, any public office or positions, whether elected or appointed, in any Municipal Entity, possessed or received a direct or indirect interest, or in which such incumbent or candidate, or his agents or affiliates, directed such investment to be made.
This item does not require production of information regarding investments made in public companies (i.e., those which have securities registered pursuant to Sections 12 of the Securities Exchange Act of 1934, or are required to file reports pursuant to Section 15(d) of the Exchange Act).
Sixth, as indicated at the June 25 meeting, the time frame covered by request number 11 is January 1, 1990 to the present.
Seventh, request number 12 asks for the identification of:
any persons disciplined or terminated by [your clients] for conduct relating to contributions or payments, as defined above, and/or the solicitation of the underwriting business for any municipal securities offerings and the reasons that they were terminated.
The term "disciplined" should be given its ordinary meaning in determining the response to this item.
Eighth, request number 13 seeks identification of:
all inquiries, reviews or investigations conducted by [your clients] or on its behalf involving any conduct pertaining to (a) the solicitation of the underwriting of municipal securities: (b) the violation of any federal, state or local law pertaining to bribery and/or contributions; and (c) the violation of [your clients]'s controls and procedures referenced in request number 11.
The response to this request need not include day-to-day monitoring and routine inquiries. However, responses should include a description of policies, procedures and records maintained in this area. The time frame covered by this request is the period from January 1, 91990 to the present.
In regard to the concern expressed at the meeting that July 12 is not sufficient time within which to comply with the request, the staff is willing at this time to extend the date for production to August 2, 1993, although from our meeting we understand that production of certain items (e.g. 1, 2 and 11) can be made by July 12 or shortly thereafter. The staff will consider any requests for additional extensions of time on a case by case basis ...