August 29, 1989

 

FACTS:


Until recently, you served as a member of a committee
(Committee), which is generally responsible for the supervision of
investments for certain state agencies.

You are currently a Vice President at a firm XYZ and you held
this position while you served on the Committee. XYZ provides
investment management services to institutional investors. One of
the services offered by XYZ is an annuity contract. The state
agencies are considering hiring XYZ as a money manager for such an
annuity contract. The annuity contract assets would be held in an
investment account which is managed by XYZ. XYZ would manage the
investment account with the goal of providing a return at a higher
yield than the bond market index. The funds for this annuity
contract will be derived from cash reserves which are currently
uninvested state agency funds. You state that you did not
participate in or approve any decision made by other state
officials to invest these funds into any annuity contract for which
XYZ may be considered.

The evaluation of applicants to manage the state agency funds
is conducted by state officials. Submissions of prospectus are
evaluated by the officials year round. If a proposal meets certain
criteria, the company is invited to interview with the officials.
Each member rates the company's interview and a file is maintained
for each interviewee. As the need arises, the officials will select
a company. All potential companies selected to manage state agency
funds are referred to an independent company for its evaluation and
opinion of the proposed investment product. If a positive report
is received, a contract is issued to the company.

Advisors from XYZ were interviewed by these state officials as
a potential money manager for the state agencies. The state
agencies were considering whether to invest funds into the XYZ
product prior to your resignation from the Committee.
 


QUESTION:


If XYZ is selected to be money managers for the state agencies'
annuity contract, may you participate in the management of the
agencies' funds?
 


ANSWER:


Yes, subject to the restrictions of s.5(b).
 


DISCUSSION:


As a former member of the Committee, you are considered a former
state employee for the purposes of G.L. c. 268A. Accordingly, the
provisions of s.s.5 and 23(c) presently apply to you.


Section 5


Section 5(a) prohibits a former state employee from knowingly
acting as an agent or attorney for, or receiving compensation
directly or indirectly from anyone other than the commonwealth or
a state agency,[1] in connection with any particular matter[2] in
which the commonwealth or a state agency is a party or has a direct
and substantial interest and in which he participated while he was
a state employee. If you approved an investment decision made by
other state officials, you "participated" in that decision for the
purposes of s.5. More than one person may participate in a
particular matter. See, EC-COI-86-23. Furthermore, as a Committee
member, your active oversight of and tacit approval of any of the
state officials' actions regarding the state agency's funds may be
considered personal and substantial participation in those matters.
See, EC-COI-89-7. On the other hand, mere authorization given by
the Committee to answer a letter may not constitute personal and
substantial participation. Id. Additionally, the prohibitions of
s.5 extend only for the duration of the particular matter in which
you participated. See, EC-COI-81-114; 88-14. For example, if, as
a Committee member, you approved or recommended that a certain
amount of uninvested state agency funds be invested into an annuity
contract, that approval or recommendation would be considered a
particular matter. Under s.5(a), as a former state employee you
could not then be paid by or act as a representative of XYZ in
connection with that recommendation. See, EC-COI-88-14.

Under s.5(a), we conclude that you would not be precluded from
acting as a money manager for XYZ on a potential annuity contract
for the state agencies. We base this conclusion on your
representations that you did not participate in any Committee
approval or determination in connection with the state officials'
decision to invest those cash reserves.

Section 5(b), on the other hand, pertains to

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particular matters which were the subject of your official
responsibility as a Committee member. Section 5(b) prohibits you
as a former state employee, for one year after leaving state
service, from personally appearing on behalf of someone other than
the commonwealth before any court or state agency in connection
with any particular matter in which the state is a party or has a
direct and substantial interest where the particular matter was
under your official responsibility[4] within the two years preceding
your termination from state service. Your official responsibility
as a Committee member would include particular matters which the
Committee delegated to others to perform. See, EC-COI-85-50; 89-
7
. The Commission has previously stated that the "keynote of
official responsibility is the 'potentiality' of directing
agency action and not the actual exercise of power." See, EC-COI-87-17
(discussing the application of official responsibility under s.4).
Thus, matters under your official responsibility would include
particular matters which the Committee has delegated others to
perform. See, EC-COI-85-50; In the Matter of Donald Zerendow, 1988
SEC 352 (disposition agreement under s.5(b)). For the purposes of
this section, a personal appearance would include any telephone
calls or correspondence made by you on behalf of to any state
agency in connection with the investments which were pending under
your official responsibility during the last two years of your
Committee position. See, EC-COI-87-27; 89-7.

The decision as to whether the state agencies should invest in
XYZ's annuity contract was under consideration while you were a
Committee member. Even though you did not participate in the
process leading to this decision, by statute you nonetheless had
official responsibility for that particular matter. See, s.23(d).
Since this matter was pending under your official responsibility,
you are barred under s.5(b) from appearing, for one year, before
any state agency in connection with the XYZ annuity contract.
While s.5(b) would not preclude you from working for XYZ on in-
house matters on the annuity, you may not make personal phone calls
or write letters concerning that investment. See, EC-COI-88-17;
85-21. If the restrictions placed on you by s.5(b) cannot be
implemented practically, then you may not act as the money manager
for the state agencies funds.

In addition, the provisions of s.23(c) apply to you as a former
state employee. That section prohibits you from disclosing or
using confidential information which you learned in your Committee
position to further your personal interests. For the purposes of
this section, confidential information is that which is exempted
from the definition of a public record under G.L. c. 4, s.7.

While under these facts you are not prohibited under s.5 from
contacting your former state agency on other matters, you should
be aware of the fact that your former Committee colleagues and
individuals who remain state employees are prohibited under s.23
from granting you any preferred or favored treatment in their
dealings with XYZ.

In addition, the members of the state agencies are subject to
the provisions of s.23(b).[5] Therefore, if the state officials
make a determination to invest in this product they should comply
with the s.23(b)(3) requirements by filing a public disclosure. By
doing so, they would remove any inference of undue favoritism or
improper influence affecting their decision.

---------------

[1] "State agency," any department of a state government including
the executive, legislative or judicial, and all councils thereof
and thereunder, and any division, board, bureau, commission,
institution, tribunal or other instrumentality within such
departments and any independent state authority, district,
commission, instrumentality or agency, but not an agency of a
county, city or town.

[2] "Particular matter," any judicial or other proceeding,
application, submission, request for a ruling or other
determination, contract, claim, controversy, charge, accusation,
arrest, decision, determination, finding, but excluding enactment
of general legislation by the general court and petitions of
cities, towns, counties and districts for special laws related to
their governmental organizations, powers, duties, finances and
property.

[3] "Participate," participate in agency action or in a particular
matter personally and substantially as a state, county or municipal
employee, through approval, disapproval, decision, recommendation,
the rendering of advice, investigation or otherwise.

[4] "Official responsibility," the direct administrative or
operating authority, whether intermediate or final, and either
exercisable alone or with others, and whether personal or through
subordinates, to approve, disapprove or otherwise direct agency
action.

[5] Section 23(b)(3) states: "No current officer or employee of a
state, county or municipal agency shall knowingly, or with reason
to know: (3) act in a

Page 270

manner which would cause a reasonable person, having knowledge of
the relevant circumstances, to conclude that any person can
improperly influence or unduly enjoy his favor in the performance
of his official duties, or that he is likely to act or fail to act
as a result of kinship, rank, position or undue influence of any
party or person. It shall be unreasonable to so conclude if such
officer or employee has disclosed in writing to his appointing
authority or, if no appointing authority exists, disclose in a
manner which is public in nature, the facts which would otherwise
lead to such a conclusion.

 

End Of Decision