MSRB Warns vs. G-37 Violations As Presidential Race Heats Up

WASHINGTON - The Municipal Securities Rulemaking Board issued a reminder to broker-dealers yesterday about the application of its Rule G-37 on political contributions to the federal election campaigns of issuer officials, two weeks after presidential hopeful Arizona Sen. John McCain tapped Alaska Gov. Sarah Palin as his vice presidential running mate.

The rule bars a broker-dealer from engaging in negotiated municipal securities business with an issuer for two years if it or any of its muni securities professionals make large contributions to issuer officials who can influence the award of bond business. Municipal finance professionals can contribute up to $250 per election to any issuer official for whom they can vote without triggering the ban, which also restricts indirect contributions to non-dealer political action committees and payments to political parties.

"As election fundraising campaigns head into their final weeks, the MSRB wanted to remind dealers about the application of Rule G-37 to issuer officials running for federal office - an area of the rule which can be overlooked," said MSRB chairman Frank Chin, who is also managing director and manager of public finance at Citi. "Our notice to dealers reviews prior guidance in this area and also cautions dealers to consider prior MSRB guidance on indirect rule violations."

MSRB spokeswoman Jennifer Galloway said yesterday the board does not opine on who is an issuer official and that while governors generally are considered "issuer officials" for the purposes of the rule, one would have to look at specific Alaska statutes and review Palin's duties to determine her status.

The reminder stressed that the G-37 ban applies to an issuer official who campaigns for any federal office, not just for president and vice president. "For example, any municipal finance professional residing in a state in which an issuer official is campaigning for a state-wide federal office may contribute the de minimis amount to the official's campaign without causing a ban on municipal securities business with that issuer."

Though the reminder notice does not cite McCain or Palin by name, it clearly references their campaign's acceptance of $84 million of public funding by noting that presidential candidates who accept public funding for the general election are prohibited under federal law from accepting any contributions to further his or her general election campaign, the MSRB said.

Federal law allows individuals to contribute to a candidate's compliance fund, which uses the contributions solely for legal and accounting services to ensure compliance with federal law and not for campaign activities. However, municipal finance professionals can only contribute the $250 de minimis amount to an issuer official's compliance fund without causing a ban of municipal securities business with that issuer, the notice said.

Presidential candidate Barack Obama has declined to accept public funds.

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