Public Enforcement Letter 89-2


Andrew Collas
Town of Plymouth Treasurer
c/o George M. Matthews, Esq.
Kopelman & Paige, P. C.
77 Franklin Street, Suite 1000
Boston,MA 02110

Theodore L. Scafidi
City of Newton Treasurer
c/o Donald L. Conn,Jr., Esq.
Conn, Austin, Conn & Senior
USTC Building
331 Montvale Avenue, Suite 601
Woburn, MA 01801

Albert R. Brunelli
Town of Franklin Treasurer
c/o Paul A. Cataldo, Esq.
Bachner, Roche & Cataldo
55 West Central Street
Franklin, MA 02038

Frank E. Lewis
City of Everett Treasurer
c/o Richard J. O'Neil, Esq.
433 Broadway
Everett, MA 02149

Donald Croatti
Town of Framingham Treasurer
c/o Michael S. Gardener, Esq.
Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P. C.
One Financial Center
Boston, MA 02111


Date: August 15, 1988

Dear Sirs:

As you know, the State Ethics Commission has conducted a
preliminary inquiry into allegations that United States Trust
Company (USTC) entertained the five of you as municipal treasurers
in the hope of obtaining or maintaining banking business, such
entertainment involving paying expenses related to Florida golf
trips, instate golf excursions and numerous dinners, lunches and
beverages.

The results of our investigation, discussed below, indicate that
from 1983 through 1985 you appear to have violated the conflict of
interest law in this case. Nevertheless, in view of certain
substantial mitigating factors, also discussed below, the
Commission has determined that

Page 361

adjudicatory proceedings are not warranted. Rather, the Commission
has concluded that the public interest would be better served by
disclosing the facts revealed by our investigation and explaining
the applicable provisions of law, trusting that this advice will
ensure both your understanding of and compliance with the conflict
law. By agreeing to this public letter as a final resolution of
this matter, you do not necessarily admit to the facts and law as
discussed herein. The Commission and each of you are agreeing that
there will be no formal action against you and you have chosen not
to exercise your rights to a hearing before the Commission.

I. Facts

1. On November 23,1985, the Office of the Inspector General, in
a document entitled "Report on Municipal Banking Relations" (IG
Report), disclosed its findings regarding a number of issues
involving the manner in which municipal treasurers did business
with banks. Included in the IG Report was the following:


The records revealed that banks' municipal calling
officers entertain public officials and their guests in a
varariety of ways, including meals, drinks, theatre
performances, sporting events, and golf. Seven Boston-based
banks -Bank of Boston, Bank of New England, Boston Safe
Deposit & Trust, Patriot Bank, Shawmut Bank, State Street
Bank, and U. S. Trust Company- gave to municipal treasurers
and other public officials during the period August 1,1982
through 1984 hundreds of gratuities worth in total
approximately $138,000. Of this amount, the banks spent over
$85,500 on gratuities given to identified municipal treasurers
and other public officials, and an additional $52,500 on
gratuities given to municipal treasurers and other public
officials not identified in banks' entertainment records.


(IG Report, at xi.)[1] The IG Report also found that of the seven
banks identified, USTC, based on the records it had submitted,
provided more gratuities to certain public officials than any other
bank (a little over $40,000 for the period August, 1982 through
December, 1984) (IG Report, at xi, chart). (The Commission's
investigation, however, found that USTC maintained more complete
records than did some other banks; as the IG Report stated, the
incomplete and in some instances illegible records maintained by
some other banks could "grossly understate the scope and value of
banks' gratuities." (IG Report, at 70))


The IG Report also noted:


During 1984 alone, 104 municipal treasurers, almost on-third
of all treasurers, apparently accepted gratuities of
substantial value from the seven reporting banks... 24
municipal treasurers each were given gratuities totaling over
$1,000. Half were given gratuities exceeding $2,000, seven
were given gratuities exceeding $3,000, and one was given
gratuities exceeding $7,000.
(IG Report, at xii).

2. As you know, on June 8,1987, the Commission began a formal
inquiry into allegations that each of you had violated the conflict
of interest law in your dealings with USTC.

3. In addition to reviewing the IG Report (along with
substantial supporting documentation), we conducted an independent
examination of USTC's records, and certain municipal records, and
conducted numerous interviews under oath. Our investigation
determined the following:

a. As indicated in the chart appearing immediately below, from
1983 through 1985 USTC paid expenses of one or more of the five of
you on 316 occasions involving a total amount of $11,267. These
expenses included lunches, dinners, greens fees, and theatre
tickets. The figures in the chart are minimums because, when one
of you disputed a USTC record showing an expense payment, we
generally gave you the benefit of the doubt and deleted that item.

CHART

Total Total# Fla. Trips Total $ Value
$ Grat.'s 83/84/85 Fla. Trip Exp.

Collas $4,253 138 83,84,85 $1,107
Scafidi $2,599 78 83,84,85 $1,107
Brunelli $1,772 37 83,84,85 $1,107
Lewis $1,534 41 83 & 84 $ 743
Croatti $1,109 32 84 $ 375
------ ---
$11,267 316

b. Regarding the Florida trips, USTC paid for golf greens and
carts fees, balls, in-state trsportation, meals and liquor. The
five of you paid for your own transportation to and from Florida
and for your hotel rooms. Meals expenses involved the payment of
groceries, inasmuch as food was cooked by you in your hotel rooms.

c. For three of you, USTC paid for expenses in connection with
Massachusetts golf excursions where those expenses (greens and cart
fees, and food and beverage expenses) exceeded $100 for a given
event.[3]

d. USTC paid the foregoing through expense accounts provided to
its employees in its Municipal Services Department. Most of those
expenses were authorized and paid through Richard Brown, Sr., a
former vice


Page 362

president in charge of the department. All of these expenses were
duly noted on monthly expense account reports submitted by Brown
and each of his staff members, and reviewed by officials at the
bank.

e. When asked why the bank provided these gratuities to
municipal treasurers, Brown stated it was because all the banks
were selling basically the same services and that each of his
competitors was engaged in the same practice. It was USTC's goal
to develop a personal rapport with the municipal treasurers to
ensure obtaining and retaining their business. According to Brown,
USTC was willing to spend a substantial amount a year having him
out on the road developing these personal relationships in order
to bring municipal money into the bank. Brown stated it was USTC's
view that a municipal treasurer did not identify with a bank as
much as it identified with the person representing a bank. Brown's
way of handling this was to get to know the treasurers personally
by taking them out for meals or golf or some other type of
entertainment, according to Brown. Brown also noted that those
municipal treasurers on whom he spent expense account money at
dinners, golf, plays, and other entertainment more often than not
did more business with USTC than treasurers who were not receiving
such gratuities.

Brown stated that it was he who suggested the initial golf trip
to Florida. He stated that the understanding he had with the
treasurers was that USTC would pay for the golf and accompanying
fees and the cost of dinner each night. He stated that USTC also
covered the ground transportation costs in Florida. He admitted
that the trips were strictly social, but asserted that there was
no quid Pro quo involved in the sense of any understanding that the
treasurers would give any preferential treatment to USTC in
exchange for the entertainment they received.

f. Each of you acknowledged that you were aware that the purpose
of USTC paying for certain golf or meals expenses was that the bank
was trying to obtain more of the town's or city's business. At the
same time, each of you insisted that you always made your banking
decisions on objective grounds and were not in fact influenced by
your expenses being paid by USTC.

g. The amount of business that each of you could and did give
to USTC was substantial. For example, one of you estimated that you
deal with receipts of approximately $100 million dollars a year,
all of which have to be deposited in banks at your discretion,
subject to fiduciary guidelines. From June, 1983 through January,
1987, your city purchased 54 certificates of deposit from USTC
ranging in duration from 14 days to 205 days, with total average
balances at USTC of approximately $2,000,000. In addition, the city
(like other municipalities dealing with other banks) maintained a
non-interest bearing account with USTC during that time period
which had an average monthly balance of approximately $225,000.00
before December, 1985 (prior to the IG's Report) and approximately
a $20,000.00 monthly balance from December, 1985 through June,
1987.

h. Prior to 1984 USTC had confirmed with its outside public
accounting firm that the expenditures for entertainment by its
Municipal Services Department were consistent with the
entertainment expenses of other banks in this field. In 1984, after
becoming aware of the ongoing Inspector General investigation,
senior officials at USTC discussed the issue of the foregoing
expense accounts. The bank reached no decision to change its course
of conduct at that time. According to USTC officials, in the spring
of 1985 USTC began to formulate a written Code of Conduct regarding
the entertainment of public officials. After the IG Report was made
public on November 23,1985, the new Code of Conduct was reviewed
for consistency with the recommendations in the Report. On December
5,1985 the Code of Conduct was adopted by USTC and distributed to
its employees. The USTC Code of Conduct directs its employees to
be sensitive to conflict of interest concerns, and to keep their
expenses in dealing with municipal officials to below $50 on any
given occasion. It also states that such expenses should not be
repetitive.

i. Based on the evidence the Commission has reviewed, it appears
that USTC employees have complied with the December 5,1985 Code of
Conduct.

j. The Commission is not aware of any evidence indicating any
of you have accepted any entertainment of substantial value from
USTC after the IG Report was issued on November 23,1985.

k. Brown stated that one or more of you raised the issue of
whether it was legal for USTC to pay for a portion of your expenses
on the Florida trips. Brown stated that in 1985 he consulted with
USTC officials, and then informed one or more of you that in USTC's
view it was legal for USTC to pay these expenses.

II. Discussion

As municipal treasurers each of you is a municipal employee
subject to the conflict of interest law, G.L c. 268A Section 3(b)
of G.L c. 268A, in relevant part, prohibits a municipal employee,
otherwise than as provided by law for the proper discharge of
official duties, from soliciting or accepting an item of
substantial value from anyone for or because of any official act
performed or to be performed by such employee.[4]

As the Commission stated In the Matter of George Michael, 1981
SEC 59,68:


A public employee may not be impelled to wrongdoing as a
result of receiving a gift or gratuity of substantial value
in order for a violation of s.3 to occur. Rather, the gift may
simply be a token of gratitude for a well done job or an
attempt to foster goodwill. All that is required to bring s.3
into play is a nexus between the motivation for

Page 363

the gift and the employee's public duties. If this connection
exists, the gift is prohibited. To allow otherwise would
subject public employees to a host of temptations which would
undermine the impartial performance of their duties, and
permit multiple remuneration for doing what employees are
already obliged to do a good job.

For s.3 purposes, it is unnecessary to prove that the gratuities
given were generated by some specific identifiable act performed
or to be performed. It is sufficient that the gratuities are given
to the official "in the course of his everyday duties for or
because of official acts performed or to be performed by him and
where he was in a position to use his authority in a manner which
could affect the gift giver." United States v. Standefer, 452 F.
Supp. 1178, 1183 (W.D. Pa. 1978) (aff'd on other grounds, 447 U.S:
10(1980)), citing United States v. Niederberger, 580 F.2d 63 (3rd
Cir. 1978). See also United States v. Evans, 572 F. 2d 455(5th Cir.
1978). As the Commission explained in Advisory No. 8:[5]


In fact, even in the absence of any specifically identifiable
matter that was, is or soon will be pending before the
official, s.3 may apply. Thus, where there is no prior social
or business relationship between the giver and the recipient,
and the recipient is a public official who could affect the
giver, an inference can be drawn that the giver was seeking
the goodwill of the official because of a perception by the
giver that that public official's influence could benefit the
giver. In such a case, the gratuity is given for as yet
unidentified "acts to be performed."

In {Commission Advisory No. 8} the Commission declared that
gratuities to public officials such as tickets to theatre or
sporting events which exceed $50 would be considered "substantial
value." The Commission further stated that a gift of several
tickets, each valued at less than $50, is a gratuity of substantial
value if the total value of the tickets exceeds $50. Finally, the
Commission noted,

A s.3 issue may arise if there is a standing offer to be
accepted at any time for tickets. It is likely that any such
offer would be deemed to involve substantial value. Similarly,
if there is a matter of periodically giving a public official
tickets, the course of conduct will be evaluated as to its
value. This would be the case, for example, if someone gave
a public official a ticket to an entertainment event each and
every weekend.

The facts set forth in this letter, if proven, would appear to
establish a violation of s.3(b) by each of you. Thus, as no one
disputes, USTC on numerous occasions paid for golfing expenses in
Florida and Massachusetts for each of you where those expenses
substantially exceeded $50. Indeed, for three of you those expenses
exceeded $1,000. Consequently, USTC did provide you with items of
substantial value.

In addition, the evidence would indicate that at least as to
Treasurers Collas and Scafidi, USTC paid for your expenses on a
sufficient number of instances within a short time period that even
though each payment was less than $50 in value, the payments should
be aggregated. Therefore, USTC gave these two treasurers items of
substantial value in this respect as well. Thus, the Commission
views USTC's having provided two treasurers with 138 and 78
gratuities in a two-year period as indicating either that those
treasurers had a standing offer to have USTC pay for their
expenses, or, alternatively, that the pattern of payments was such
that it should be considered as a course of conduct within the
meaning of Advisory No. 8.

That there was a standing offer is supported by Brown's
statement that whenever he saw a treasurer, it was his standard
procedure to invite the treasurer for lunch or dinner. One of you
stated that you knew that you could have a lunch or dinner whenever
bank officials visited you. It is also reasonably clear from the
evidence that each of you knew that you could have Brown pay for
a round of golf at USTC's expense at any time, including food and
beverages afterwards.

The numbers are also probative. For example, 138 gratuities over
a two-year period indicate that USTC was paying Treasurer Collas's
expenses more than once a week. In addition, the total value of
those 138 occasions was $4,253, a total which is again suggestive
of a standing offer.

Alternatively, in light of the frequencies of the expense
payments for these two treasurers, the Commission would conclude
that USTC was involved in a course of conduct with each treasurer
which involved substantial value. Therefore, whether considered a
standing offer or a course of conduct, USTC was giving these two
treasurers items of substantial value by virtue of the numerous
occasions on which it paid for their entertainment expenses, even
where those individual occasions did not exceed $50.[6]

The facts would also indicate that there was a clear connection
between USTC paying for these expenses and USTC's objective that
these municipal treasurers would either continue or expand their
town's or city's business with USTC. Thus, former vice president
Brown stated that by entertaining these treasurers, he could
establish personal relations with each of you, which in turn would
likely result in your doing more business with USTC. In other
words, USTC's motive in expending these monies was to foster
goodwill. That is precisely the motive or intent which lies at the
heart of a s.3 violation. Thus, the prohibited connection or nexus
between these entertainment expenditures and your duties would be
established by these facts.[7]

On the other hand, the Commission has not found any evidence
that any of you provided USTC with prefer-

Page 364

ential treatment as a result of these expenditures. In addition,
there is no evidence that any of you obtained personal loans from
USTC. Nor is there any evidence that any of you entered into any
kind of corrupt agreement by which USTC would provide payments in
exchange for specific official acts to be taken by one of you. Had
the Commission found substantial evidence of preferential treatment
or of a corrupt agreement, this matter would not have been resolved
with a public enforcement letter.[8]

It could be argued that to the extent these expenses were
necessary and appropriate to legitimate business transactions, such
as a business lunch to discuss a banking proposal, then the
expenditures should not be considered unlawful gratuities. There
is some support for this view. See, e.g., State v. Prybil, 211,
N.W. 2d 308 (Iowa 1973). The Commission, however, has taken the
position that a public employee cannot accept private reimbursement
for his business expenses. See, e.g., EC-COI-88-5.[9]

The Commission precedents, such as EC-COI-88-5, deal with
vendors paying for business trip expenses, including
transportation, lodging, meals and so forth. The Commission has
not, however, addressed the specific issue of a meal per se, and,
more specifically, the so-called "business lunch." For purposes of
s.3, there is no logical distinction between transportation and
lodgings on the one hand and meals and beverages on the other, so
long as "substantial value" is involved. Therefore, the Commission
takes the position that vendors should not directly pay for of the
expenses of public officials whether or connection with conducting
official business, if those payments involve substantial value. The
potential for abuse is too great in those situations. Instead,
either the public agency in question should pay for the official's
expenses, or consideration should be given to whether the statutes
and ordinances which apply allow for the vendor to pay for the
public official's expenses by making a payment to the public
treasury specifically earmarked for those expenses. In turn the
public official can have his expenses paid for in the ordinary way.
(See, e.g., G.L. c. 41, s.53A)

In any event, there are several important mitigating factors
which point to a public enforcement letter, rather than some more
serious sanction, as being the proper resolution of this matter.
One, prior to the IG Report, the practice of banks paying for
public officials' entertainment expenses, including meals,
beverages, sporting events, theatre tickets, and golf, was clearly
a widespread practice, and one which remains acceptable in the
private sector. That the practice was widespread is well-
illustrated by the IG Report noting that 104 treasurers received
such gratuities, and all seven banks which were contacted appear
to have been involved in the practice.[10] Two, you assert, and the
Commission has no evidence to the contrary, that you did not
intentionally violate the law. Further, the evidence indicates that
at some point you made an effort to determine whether these
payments were legal, and you were told they were.[11] Three, until
today, the Commission has not had the occasion to articulate a
position regarding private parties paying for meals and beverages
incidental to the transaction of business, nor had the Commission,
prior to its May, 1985 Advisory No. 8, indicated it would aggregate
items of value to meet the substantial value threshold.

The Commission's decision to allow you to resolve this matter
with a public enforcement letter should not be construed as
indicating it does not consider the issues raised by your conduct
to be serious. But for the mitigating factors just described, the
Commission would have pursued this matter through adjudicatory
proceedings. It is of crircal importance that the public have
complete confidence that municipal treasurers make investment
decisions, often involving millions of dollars of public funds, in
a manner which best serves the public interest. The public has a
right not only to insist on actual impartiality and objectivity in
the performance of such fiduciary duties, but also the right to
expect that municipal treasurers will avoid even the appearance of
impropriety in dealing with banking institutions.[12] When a bank
pays for any of the personal expenses of a municipal treasurer, but
particularly when those expenses climb into the thousands of
dollars and involve payments occurring as frequently as once a
week, then there is at least the appearance of impropriety, and
enormous potential for real abuse. Based on the evidence, it
appears that you and USTC have stopped this practice. The
Commission trusts that all other treasurers and banks have done so
as well.[13]

III. Disposition

Based on its review of this matter, the Commission has
determined that the sending of this letter should be sufficient to
ensure your understanding of and compliance with the conflict law.
This matter is now closed.

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

[1] The "gratuities", referred to in the IG Report are for the most
Part entertainment expenses.

[2] The Commission's investigation of this matter was delayed while
the Department of the Attorney General reviewed the issues raised
by the IG Report. It was subsequently agreed that the matter should
be resolved by the Commission. After careful consideration the
Commission chose to focus its inquiry on those treasurers who
allegedly received each of the following. (1) out of state golf
expenses; (2) in-state expenses greater than $100; and (3) expenses
paid on 50 or more instances occurring from 1983 through 1984.
Application of these criteria resulted in the Commission
investigating five municipal treasurers (Plymouth Treasurer Andrew
Collas, Newton Treasurer Theodore L. Scafidi, Franklin Treasurer
Albert R Brunelli, Everett Treasurer Frank E. Lewis, and Framingham
Treasurer Donald Croatti). Finnaly, the Commission chose to focus
on the relationship between those five treasurers and USTC because
(a) most of the exspense payments involving those five treasurers
were attributable to USTC, and (b) according to the IG report, as
discused above, USTC by far paid more expenses for municipal
treasurers than any other bank (Again, as stated above, apparently
not all of the banks submitted adequate records.).

[3] Treasurer Collas had such expenses paid by USTC on two
occasions involving a total payment of $217 by USTC. Treasurers
Scafidi and Brunelli each attended one Massachusetts golfing event
where their expenses paid for by USTC exceeded $100 ($108 each).

[4] Conversly, G.L.c. 268A, 3(a), in relevent part, prohibits
anyone, otherwise than as provided by law for the proper discharge
of official duties, from offering or giving an item of substantial
value to a municipal employee for or because of any act performed
or to be performed by such employee.

[5] Issued May 14,1985.

[6] Some treasurers have raised an issue as to whether the expenses
of a treasurer's guest should properly be attributed to the
treasurer for purposes of determining whether he received
substantial value. Section 3 does require that the item of
substantial value be for the municipal official as opposed to
someone else. Compare 2 (bribes) which is not so limited. in the
Commission's view, however, where presumably the treasurer would
have had to pay for his guest's expenses if USTC did not pay for
them, the value of USTC paying for the treasurer's guest can be
attributed to the treasurer.

Certain treasurers have also an issue as to the unfairness of
dividing a total meal cost by the number of people present to
determine the value the treasurer received. Treasurers have stated
that on some occasions they may not have eaten as much as the
others present, or they may not have eaten anything but only had
a drink, or where there was a large liquor bill, they may have had
only had soft drinks. In the Commission's view, it is appropriate
to infer that when a group participates in a entertainment event,
whether it be golf, a meal, or drinks, the expenses are generally
shared equally. That inference, of course, could be overcome by the
testimony of those present.

[7] These facts would also raise issues under G.L.c..268A, 23(the
so-called "code of conduct" section). Section 23, in relevant part,
prohibits a state employee from using or attempting to use his
position to secure an unwarranted privilege of substantial value
and/or from acting in a 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. By accepting expense
payments from a bank with which his city or town has an official
business relationship, a municipal treasurer's conduct would run
afoul of these s.23 concerns.

[8] The Commission can impose a fine of up to a $2,000 fine for
each violation of G.L c.268A. The Commission can also bring an
action in Superior Court under G.L c.268A, s.21(b) to seek to
obtain up to three times the amount of any unjust enrichment
derived by any party from having violated the conflict of interest
law.

[9] See also the Office of Governmental Ethics Memorandum dated
October 23,1987, stating in part, "In general, an Executive branch
employee's acceptance of 'one-on-one', meals from someone who hosts
that individual because of his or her government position is
prohibited, regardless of the cost of the meal.

[10] In singling out the five of you and USTC for public scrutiny,
we are mindful that many others appear to have violated the
gratuities section of the conflict law, and thus fairness
considerations should play a role in the disposition of this
matter.

[11] While these are mitigating factors, they are not defenses to
the violation itself. Thus, the Commission has consistently made
it clear that ignorance of the law is not a defense to a violation
of G.L c. 268A In the Matter of C. Joseph Doyle. 1980 SEC 11,13 See
also Scola, 318 Mass 1,7 (1945).

In addition, the only advice on which a municipal employee may rely
as a defense to a G.L c. 268A violation is advice obtained from the
Commission, or from town counsel where town counsel's opinion has
been reviewed by the Commission pursuant to 930 CMR 1.03(3) See,
e.g., In the Matter of Ernest Laflamme, 1987 SEC 329.

[12] As the Supreme Judicial Court said in Board of Selectmen of
Avon v. Linden, 352 Mass. 581,583(1967): "The legislature found it
advisable to enact a conflict of interest law. This was as much to
prevent giving the appearence of conflict as to suppress all
tendency to wrongdoing. [T]he legislature did not see fit to
rely upon the restraints of decency, propriety and fair play, upon the
law of libel, or upon the power of the electorate to eliminate
unworthy office holders."

[13] The Commission does not mean to imply that it would not
investigate and take sterner action against anyone who was found
to violate s.3 in the respects outlined above after the IG Report
was issued but before the date of this letter.