We’ve reached our final installment on our series on gift-giving.  This post will cover gift-giving to federal officials and employees. Read more »

We are continuing our series on giving gifts to public officials.

As a general rule of thumb, a New Jersey public official and/or employee may not accept any gift, which is intended to influence the performance of his or her official duties.  Exceptions may exist if you are a relative or close personal friend of an elected official, and depending on the branch or level of government served by the potential recipient.

Executive Branch officials and employees are governed by the Uniform Ethics Code, which prohibits Executive Branch officials or employees from accepting any gift, favor, service or other thing of value related in any way to their public duties.  The New Jersey Department of Treasury recently issued guidance to state vendors, which asks all vendors to “refrain from sending any gifts or inviting state employees to any functions.”

Legislative Branch officials and employees are governed by the Legislative Code of Ethics, which prohibits a member of the New Jersey Legislature from receiving any gift or other thing of value from any source other than the State of New Jersey in relation to the member’s official duties.  If you are a governmental affairs agent, you may not give a member of the Legislature gifts totaling more than $250 in the aggregate during a calendar year or any gift of lesser value intended to influence a legislator’s official duties.  Not sure whether you are up to speed on the Legislative Code of Ethics?  You can take the New Jersey Legislature’s Ethics Tutorial here.

Local government officials and employees are governed by the Local Government Ethics Law, which requires a local government official to annually disclose each source of gifts, reimbursements or prepaid expenses having an aggregate value exceeding $400 in a calendar year.  Although local government officials may accept gifts under certain circumstances, no local government official may accept any gift given or offered for the purpose of influencing him/her, directly or indirectly, in the discharge of his/her official duties.

The Uniform Ethics Code, the Legislative Code of Ethics and the Local Government Ethics Law provide general guidance on gift-giving to Executive, Legislative and local government officials and employees.  State agencies and localities may additionally have their own Codes of Ethics in effect.

The holidays are upon us and so are the various gifts that companies send out annually during this time.   Whether it’s a small calendar or an expensive bottle of wine, it is important to be aware of the various gift restrictions that apply when the gifts are made to public officials.  The restrictions change depending on the jurisdiction, who is giving the gift and the recipient of the gift.

This article is the first in a series that will examine gift laws under New York, New Jersey and Federal law.   First up: New York. Read more »

We have previously discussed public pension fund reform laws and regulations in place in New Jersey (SIC Rules), New York (Attorney General Andrew Cuomo’s Pension Fund Code of Conduct and Comptroller Thomas DiNapoli’s Executive Order) as well as a proposed SEC rule.  The wave of reform now reaches California.

On October 11, 2009, Governor Schwarzenegger signed into law Assembly Bill 1584 (“AB 1584”), which became effective immediately.  AB 1584 requires that the boards of all public employees’ pension or retirement systems in California implement a disclosure policy detailing payments made to placement agents in connection with system investments in or through asset management firms. Additionally, the required disclosure policy must include a five year solicitation ban on external asset managers and placement agents who violate the disclosure policy.  The required disclosure policy must be adopted by June 30, 2010.

AB 1584 also:

• Requires that intermediaries disclose all campaign contributions made to any member of the board as well as all gifts given to any board member in the preceding twenty-four months before acting as a placement agent in connection with a potential system investment;

• Requires that intermediaries disclose any contributions or gifts made after becoming placement agents; and

• Prohibits any board member or board employee from directly or indirectly selling or providing any investment product that would be considered an asset of the fund to any public retirement system.

Now that the 2009 gubernatorial election is over, companies that do business with the State of New Jersey and/or wish to remain eligible for contracts with the State need to take inventory of contributions that covered persons and/or entities made during the 2009 gubernatorial election cycle.

New Jersey statewide pay-to-play restrictions cover contributions greater than $300 by certain persons and entities associated with a business entity.  Under Executive Order 117, contributions by officers, shareholders, partners and their spouses, resident children and civil union partners may affect a company’s eligibility for a contract with the State for a period ranging from 18 months up to 5 ½ years from the date on which a covered contribution was made.

The applicable period of ineligibility is calculated by looking at the candidate or committee to which a contribution greater than $300 was made.  As the New Jersey Department of Treasury explains in response to Question No. 118 on its website, a contribution to the successful candidate (or party committee supporting that candidate) will have a longer term impact on a business entity’s eligibility for a state government contract than a contribution to an unsuccessful candidate (or party committee supporting that candidate).

After every citywide election, the New York City Campaign Finance Board is required by law to evaluate the success of the Campaign Finance Program.  The CFB has traditionally held a series of public hearings to comply with this mandate.  For the 2009 elections, the CFB is holding hearings today and tomorrow at its offices.  Please see here for testimony submitted by Laurence Laufer.

Looking forward to the 2013 election cycle, Genova, Burns & Vernoia has submitted a request for an advisory opinion setting ground rules for 2013.

Governor-Elect Chris Christie takes office on January 19, 2010.  During the campaign Mr. Christie promised widespread ethics reform to “ensure that we restore honesty, transparency and ethical behavior to this state.”

Among the proposals he has suggested are an expansion of New Jersey’s already extensive pay-to-play laws, which may include:

• covering labor unions as “business entities” subject to statewide pay-to-play restrictions.  For example, number 27 in the list of  “88 Ways that Chris Christie Will Fix New Jersey” includes a promise to “strengthen our weak ‘pay to play’ laws by eliminating special interest labor union loopholes to ensure labor unions are treated just like any other entities that have contracts with government.”

• A stricter statewide pay-to-play ban, which will include counties and municipalities.

• Extending current statewide pay-to-play restrictions “to all groups at all levels of government.”

• Stronger anti-circumvention provisions.

• A ban on wheeling.

Mr. Christie has also suggested more detailed financial disclosure forms for of state officials.  For example, he suggested that elected officials might be required to disclose the receipt of political contributions in advance of voting on certain land transactions involving developers.

Law Clerk Bonnie Fire contributed to this post.

Pay-to-play reforms take many different forms. For example, in New Jersey, the current restrictions are embodied in state statutes, gubernatorial executive orders, municipal ordinances, and State Investment Council regulations. Now, almost five years to the day after the first gubernatorial executive order limiting political contributions in relation to New Jersey State contracting opportunities, New York State Comptroller Thomas J. DiNapoli has issued an executive order to prohibit the New York State Common Retirement Fund from doing business with investment advisers who make, solicit or coordinate political contributions to the State Comptroller or a candidate for State Comptroller. The DiNapoli executive order is modeled on recent SEC proposals.

The 2004 New Jersey gubernatorial executive order spurred state legislation and a proliferation of local regulations. Will the DiNapoli order similarly give rise to additional reforms in New York?

Last week, we submitted a complaint on behalf of our client, New Yorkers for Bill Thompson, the authorized committee of mayoral candidate, Bill Thompson. The complaint alleges that Mr. Thompson’s opponent, incumbent Mayor Michael Bloomberg, violated the New York City Campaign Finance Act by failing to disclose over $3.35 million in political contributions he made during the 2009 election cycle. Here is some background on the legal issues involved.

New York City law requires “every expenditure made by the candidate and [his or her] committee” to be reported to the City’s Campaign Finance Board (CFB). This disclosure requirement was extended to candidates not participating in the NYC matching funds program by a 2004 law adopted over Mayor Bloomberg’s veto. (Mr. Bloomberg has self-financed all his political campaigns and has not participated in the matching funds program.) That 2004 law was intended to ensure that all City campaigns make comprehensive and comparable public disclosure, which would then be reviewed for completeness and accuracy by CFB auditors.

Many campaigns make contributions to political parties and other candidates, since these can help build support for their election efforts. According to the CFB, the making of a political contribution is reportable as a campaign expenditure, which is also subject to expenditure limitations if made by a participating candidate.

What is distinctive about Mayor Bloomberg’s 2009 re-election campaign is that it has reported making no political contributions. (To date, the Bloomberg campaign has reported over $36 million in campaign expenditures.) Instead, Mr. Bloomberg has separately spent another $3.35 million from his own funds, mostly as contributions to Republican and Independence party committees – political parties which have nominated him for re-election. Thus, Mr. Bloomberg is self-financing both his political contributions and his campaign committee, but only acknowledging the latter as an aid in his re-election effort.

The fact that Mr. Bloomberg’s political contributions are reported to Boards of Elections by the recipients will not likely win him credit at the CFB. Similarly, the fact that the CFB has not questioned some other candidates about occasional small political contributions from personal funds does not likely stem from an unusual unwritten exemption, but is more likely reflective of a wise tolerance for de minimis transactions that do not undermine campaign finance law fundamentals. This is especially true for candidates whose campaign committees reported making political contributions during the same time period.

Indeed, the CFB will likely be concerned not to set a precedent that opens large loopholes. For example, one option the law allows for self-financed candidates is “limited participation.” (Mr. Bloomberg declined to exercise this option.) Limited participation permits a self-financed candidate to agree to abide by the same spending limits that apply to his or her participating opponents without accepting any private contributions or public funds for the campaign. The CFB will not likely countenance a result that permits future limited participants to “abide” by spending limits, while simultaneously using personal funds to make millions in political contributions that aid their election efforts “off the books.”

Perhaps the most significant issue in the Bloomberg case is not the large sum of political contributions, but rather the contrast between the zero reported by the campaign committee and that $3.35 million. The reporting of zero in political contributions appears to be apiece with his campaign’s favored narrative of a mayor standing above partisan politics and influence peddling. Shielding his political contributions from public disclosure is thus a statement that those contributions play no part in his re-election effort.

At its heart, however, “pay-to-play” is a transaction between a buyer and seller. The mayor has touted his credentials in curbing this phenomenon by signing a 2007 law that limited and brought greater public scrutiny to political contributions from those deemed to be “doing business” with the City. In the mayor’s race, these limits are set as low as $400 per contributor. Given his stated concern that others may be seeking to exercise undue influence with political contributions of as low as $400, isn’t it fair to question what the mayor thinks he is buying with $3.35 million in political contributions and why he represents that it has no relationship to his re-election effort?

The Securities and Exchange Commission (”SEC“) plans to reconsider a rule it last considered in 1999 to curb political contributions by investment advisers seeking to manage the investment of state pension funds. The new proposal comes in the wake of continuing investigations by New York Attorney General Andrew Cuomo (“NYAG”) concerning investments by New York’s largest pension fund under former State Comptroller Alan Hevesi. These investigations have resulted in a “Public Pension Fund Reform Code of Conduct,” issued by the NYAG, which restricts campaign contributions by investment firms and related parties as a condition of maintaining eligibility to accept, manage or retain investments from or to provide investment management services to public pension funds. The Cuomo Code is national in scope; it is not limited to government pension funds in New York. The NYAG has made firm acceptance of this Code of Conduct a condition for resolving allegations.

As in its 1999 proposal, the SEC may again look to Municipal Securities Rulemaking Board (“MSRB”) Rule G-37 as a model. In brief, G-37 bans broker-dealers and municipal finance professionals from engaging in the municipal securities business for two years after soliciting or making a contribution to an official of a governmental issuer. G-37 is distinctive as the product of a self-regulatory organization and not merely an imposition by an agency of government.

In 1999, the SEC proposed but ultimately failed to adopt a similar rule to ban investment advisory firms from providing paid advisory services to a government entity for two years after the firm (or its partners, executive officers, or political action committee) made or solicited a contribution to an official of that government entity directly or indirectly responsible for the use of an investment adviser (including candidates for such office). As in G-37, contributions up to $250 per election made to officials for whom the contributor was entitled to vote would not trigger the ban. Since the 1999 SEC proposal, some states, notably New Jersey and Connecticut, have stepped into the breach by implementing pay to play restrictions on investment managers.

The New Jersey rules, also modeled after G-37, are similar to the 1999 SEC proposal. Both (i) impose a two year ban on the award of business following a covered contribution; (ii) reach the making and solicitation of contributions, as well as “indirect” violations; and (iii) include a de minimis exception for certain contributions of $250 or less. The New Jersey rules have a broader reach. For example, the New Jersey ban extends beyond partners, executives, solicitors, and PACs to also cover contributions made or solicited by the investment management firm’s parent company, controlling persons or entities, various employees defined as “investment management professionals”, and third party solicitors. The New Jersey ban also covers a broader range of contribution recipients, including candidates for state and local office, and political parties, regardless whether the recipient has a role in choosing investment advisers for the state. New Jersey also requires extensive periodic reporting, a feature absent from the 1999 SEC proposal.

Connecticut’s statute reaches an even broader group of contributors. These individuals, defined as principals of an investment services firm, include directors, individuals with an ownership interest, senior executives, employees with managerial or discretionary responsibilities with respect to investment services, and their spouses and dependent children. Investment services are broadly defined as investment legal, banking or advisory services, underwriting services, financial advisory services and brokerage firm services. Likewise following the G-37 structure, the Connecticut State Treasurer is barred from issuing any contract to any firm which provides investment services if a principal of that firm has made or solicited a contribution to a candidate for State Treasurer. The ban covers the full term of office as State Treasurer following the contribution and also the remainder of the prior term in the case of an incumbent Treasurer seeking reelection. There is no exception for small contributions.

Will the SEC draw on these models or opt for a new approach? Regardless of how strict it may be, will the new pay-to-play restrictions bring about national uniformity or stimulate further local innovation? A new proposal is expected soon.  And here it is.

Maria Bernido assisted in the preparation of this post.