WASHINGTON -
The case comes as CIBC, a New York City-based broker-dealer subsidiary of the Toronto-based Canadian Imperial Bank of Commerce, exited the municipal securities business in October, according to officials there.
The case involved a scheme under which one of CIBC's non-municipal securities professionals made the $10,000 contribution to Davis, knowing that he would be reimbursed by CIBC, which was effectively barred from making such a contribution under G-37.
Under G-37, broker-dealers are barred from engaging in any negotiated municipal securities business with a muni issuer for two years if they or their muni financial professionals make significant political contributions to officials of that issuer who can influence the award of underwriting business.
By reimbursing one of its executives for the contribution to Davis, CIBC was deemed to have made the contribution to Davis.
"This shows that we take very seriously abuses of the pay-to-play rules in the municipal industry," David Rosenfeld, an associate director in the SEC's regional office in New York City, said yesterday. "We will actively go after firms and individuals that violate the municipal securities rules."
According to the SEC, one of CIBC's investment banking clients solicited Peter J. Crowley, 46, managing director and head of CIBC's healthcare investment banking group, for a $10,000 contribution to Davis in connection with an event the client was hosting.
On Feb. 12, 2002, Crowley sent an e-mail to Robert J. Dentice, 39, who was business manager for CIBC's investment banking division at the time, alerting him of the request for the contribution and asking, "where do I get the money?" Crowley noted that CIBC had received a lot of money from the client and hoped to do more business with him in the future.
Dentice forwarded Crowley's e-mail to a lawyer in CIBC's legal department that same day, asking whether CIBC had "a policy on political donations." The lawyer responded that CIBC was prohibited from making the contribution according to firm policy and "as a regulatory matter," but that Crowley could lawfully make the contribution in his "personal capacity."
Crowley wrote the check two days later, on Feb. 14, 2002, to the Governor Gray Davis Committee "with the understanding and expectation that he would be reimbursed by CIBC," the SEC said in enforcement documents.
Crowley, Dentice, and Paul D. Rogers, 47, who was business manager for CIBC's investment banking division at the time, discussed how to handle the reimbursement, the SEC said. Crowley suggested characterizing the contribution as a "marketing expense."
Rogers approved the reimbursement, knowing that CIBC's policy prohibited it from making the contribution, the commission said.
After the contribution was made and the reimbursement occurred, CIBC engaged in 10 negotiated underwritings, totaling $26.6 billion, for California and its agencies over a two-year period, generating $379,852 in fees for the firm. These underwritings violated the two-year ban that was triggered by the contribution to Davis under G-37.
The SEC also found that CIBC, which was required to disclose in quarterly forms submitted to the MSRB, contributions made to issuer officials by it, its municipal finance professionals and
its non-MFP executives, never reported the $10,000 contribution to Davis. Further, the firm failed to report four other contributions totaling $1,750 that Crowley made to an issuer official, as well as a $500 contribution that another non-MFP executive made to an issuer official.
CIBC did not even make or keep an accurate list of its MFPs and non-MFP executive officers, the SEC said.
The SEC ordered CIBC to disgorge the $379,852 it received in underwriting fees from California during the two years, as well as $42,106 in prejudgment interest. The firm also was ordered to pay another $75,000 in civil penalties. The amount of disgorgement is the largest ever ordered to be paid in such a case. But the civil penalties are not. In 2002, the SEC ordered Cincinnati-based Fifth Third Securities Inc. to pay $1 million for G-37 violations.
In the current case, the SEC also ordered Crowley and Rogers to pay $25,000 each in civil penalties and ordered the two as well as CIBC and Dentice to cease and desist from violating the MSRB rules and the securities laws in the future.
Rob McCloud, director of communications for the Canadian Imperial Bank of Commerce yesterday, said, "CIBC is pleased to have resolved this matter with the SEC. CIBC cooperated closely with the SEC during its investigation. The SEC noted that remedial actions have been undertaken. The corporate reimbursement was made in violation of CIBC's internal policies. The incident occurred more than three years ago and predates the implementation of major governance, legal, and reputational risk programs throughout the bank. Appropriate disciplinary action has been taken against all of the individuals involved in this matter."
Paul Fishman, a lawyer at Friedman Kaplan Seiler & Adelman LLP who represents Crowley, said, "There's no allegation that Peter engaged in any intentional wrongdoing. He's very grateful for the bank's continued support." Crowley is the only one of the three individuals sanctioned that remains at CIBC.
Lawyers representing Rogers and Dentice could not be reached for comment.
