Securities and Exchange Commission Chairman Arthur Levitt Jr. yesterday blasted a municipal issuer group that recently asked its members not to hire bond underwriters that support a ban on political contributions.
The chairman's remarks, made in a telephone interview with The Bond Buyer, came as executives representing 19 of the municipal market's largest players met at SEC offices in New York City to finalize an accord banning campaign contributions to state and local officials that choose bond underwriters.
In recent days, at least 23 more firms have agreed to join the accord, announced on Oct. 18 at SEC headquarters in Washington, D.C. The industry-wide effort came as municipal officials faced unprecedented scrutiny from federal, state, and local law-enforcement officials for alleged bond scandals. The voluntary accord will begin on Jan. 1.
Levitt praised the agreement as "the best the business community has to offer in terms of self-discipline." At the same time, he lashed out at a proposal distributed by members of the Florida Association of Counties that on Monday called for its members not to hire as underwriters the large securities firms that initially proposed the contribution ban.
Carol Roberts, the association's third vice president, has also said the group will oppose a plan by the Municipal Securities Rulemaking Board, which severely restricts campaign contributions by municipal executives to state and local officials.
As far as Levitt is concerned, the group's efforts are misguided. "I think it is outrageous," Levitt said about the Florida group's proposals. "They really have violated the public trust they were elected to fulfill. The fact that they would take a public stance of this kind is outrageous, un-thinkable, and reprehensible."
Levitt said he is considering whether the group's stance warrants further review by the SEC, and if the Florida group's proposal for a boycott is anti-competitive. "That is a topic I am quite interested [in]. Let me put it this way, if they proceed further it will be a topic that I take under consideration," Levitt said.
Roberts yesterday said she stood by the resolution adopted by the counties association last week and a letter urging counties not to employ the 17 securities firms.
"I repeat that the MSRB - and those that stand behind the MSRB - have no right to tell our counties how to run our business," she said.
"Local elected officials have the right to pick qualified underwriting firms of their own choosing, and the firms chosen need not include the group of 17," Roberts said. "If the SEC or anybody else wants to see the letter as advocating a boycott, so be it."
In addition, Roberts said the 17 firms are behind the MSRB's concurrent efforts to restrict contributions, which she also opposes.
"Where does the MSRB get much of its money from but these large firms?" she asked. "Do they think that we are all too dumb to see the connection?"
In addition to the Florida group, The Bond Buyer on Tuesday reported that a group of securities professionals formed an organization designed to block proposed regulations that would ban campaign contributions.
The group, known as the Coalition to Enact Fair Municipal Securities Practices, is headed by Raymond J. McC]endon, vice chairman and chief operating officer of Pryor, McClendon, Counts & Co., a minority-owned firm, and Carolie R. Smith, president of Smith Mitchell Investment Group, a woman-owned firm.
Both McClendon and Smith say the contribution ban violates their First Amendment rights.
In response to the group's charges, Levitt said, "I think the thoughtful firms, once they begin to think about what is happening, what the MSRB is doing, will participate. They will have to."
The voluntary contribution ban, spearheaded by Frank Zarb, vice president and chief executive officer of Primerica Corp., the holding company for Smith Barney Shearson, has gained momentum in recent weeks. Additional firms, including a host of regional outfits that were at first critical of the ban, have joined the 17 large bond houses that initially supported the proposal.
On Tuesday night, Heather Ruth, president of the Public Securities Association, provided the SEC with the names of 23 firms that have agreed to join the group. All told, about 42 firms will have agreed either in writing or verbally to take part in the accord.
According to a 10-page document describing the effort, the ban covers municipal securities dealers as well as their employees in their municipal finance and bond departments.
Also covered under the proposal are "senior executives of a municipal securities dealer and its [related] affiliates, senior executives of direct or indirect parents of the municipal securities dealer who are also employees of the municipal securities dealer and any political action committee associated with the firm [and] any other person or entity who would be making or soliciting a political contribution" to influence business.
The agreement prohibits municipal bond consultants from making contributions in order to influence bond underwriting decisions. Municipal executives are prohibited from making charitable contributions to organizations in which a state or local official is employed.
The rules, however, do not prohibit the use of political consultants by municipal firms to win business. Many market participants criticized the accord because they say the use of political consultants to win business is as disturbing as making political contributions.
Levitt, who in recent weeks has initiated reviews of firms' use of consultants, said the SEC will also begin examining "how the problem of inappropriate political contributions create conflicts of interest for other market participants, such as investment advisers" and financial advisers.
"That's something we're just embarking upon," he said. "It's something we have to look into."