WASHINGTON - The National Association of Securities Dealers yesterday charged SisungSecurities Corp. and its owner, Lawrence J. Sisung Jr., with violating Rule G-37 andother MSRB rules by making almost $17,000 in political contributions to Louisiana StateBond Commission members and then underwriting more than 21 state bond issues forearnings of almost $2.2 million.
The NASD, which enforces G-37 and other Municipal Securities Rulemaking Board rules,also charged the New Orleans-based broker-dealer with failing to report more than$44,000 in contributions - including the $17,000 - on its quarterly G-37 forms and withfailing to keep required records of these donations.
The case appears to be the largest involving G-37 ever brought by the NASD, in terms ofnumber of bond issues. The NASD alleged that the firm and Sisung violated the followingMSRB rules - G-37 on political contributions, G-17 on fair dealing, and G-8 and G-9 onbooks and records.
Although the NASD case must be heard by a three-person panel and any decision can beappealed to the association's National Adjudicatory Council, the Securities and ExchangeCommission, and the courts, possible sanctions against the firm and Sisung, Jr., if theyare found guilty, would include fines, orders to pay restitution, censures, andsuspensions or permanent bars from the securities industry.
However, Thomas K. Potter 3d, a lawyer with Jones, Walker, Waechter, Poitevent, Carrere& Denegre in New Orleans, which is representing the firm and its owner, denied thecharges and vowed to fight the NASD.
"We certainly are going to request a hearing and take it to the mat, because we thinkthe charges are unwarranted," Potter said. "We think the NASD is trying to apply thisrule well beyond its text," he said, referring to G-37.
Rule G-37 is designed to prevent dealers from engaging in pay-to-play practices bymaking political contributions to issuer officials in return for obtaining municipalsecurities business. Under the rule, a municipal securities dealer is prohibited fromengaging in negotiated municipal securities business for two years if it or itsmunicipal financial professionals make significant political contributions to issuerofficials who can influence the award of bond business. The rule allows municipalfinance professionals to contribute up to $250 to anyone for whom they can vote,including issuer officials.
But Potter argued G-37 should not apply in this case. "For starters, the contributionswere not made to an issuer or to elected officials of an issuer. The bond commission isnot an issuer," he said. "We have not been able to locate any prior instance where aregulatory oversight body was treated as an issuer."
Potter also said the bond commission does not influence the selection of underwritersbut just checks to ensure that the offerings meet all applicable state laws. "Theunderwriter is selected and hired and the deal is put together well before it goes tothe commission," he said.
NASD officials would not comment. But the association's complaint said the LouisianaState Bond Commission must approve all bond issues sold by the state, its agencies, andits political subdivisions, suggesting this meets the rule's definition of issuer.
According to the NASD, from July 27, 1998, to Sept. 17, 2001, Sisung or his companiesfunneled a total of $16,900 in campaign contributions to elected officials serving onthe commission, including $5,500 to John Kennedy, Louisiana's treasurer and chairman ofthe bond commission.
The commission's members also include the governor, the lieutenant governor, thepresident of the state Senate, the speakers of the state House of Representatives, thesecretary of state, the attorney general, the commissioner of administration, thechairman of several key committees of the state Legislature and two other members of theLegislature appointed by the leaders of each house.
The NASD listed 14 political contributions made by Sisung, a municipal financeprofessional, or by firms Sisung controlled, to members of the commission. Sisung servedas a senior manager on two deals through June 30 totaling $65.6 million. The firm servedas co-manager on three deals totaling $75.6 million in the same period, according toThomson Financial.
Many of the contributions were made by United Properties Corp. and United ProfessionalsCo.. Sisung was the sole shareholder and president of United Properties from Dec. 29,1989, through March 31, 2000, at which time it merged with United Professionals, theNASD said. He was also sole owner and manager of United Professionals from March 21,2000, to April 1, 2000, after which he owned a 52% interest in the company.
Two of the contributions to commission members were made by SIMS Corp., an investmentadviser registered with the SEC. Sisung was sole shareholder and president of SIMS fromFeb, 27, 1998, through March 21, 2000, the NASD said. After that SIMS Corp. merged withSisung Investment Management Services LLC to become SIMS LLC. Sisung was and still issole owner and manager of that company, the association said.
