| Date: | 01/30/1984 |
|---|---|
| Organization: | State Ethics Commission |
The Commissioner of a state agency may also serve on the board of directors of a bank and hold a controlling interest in the bank’s shares without violating the conflict of interest law, subject to the restrictions in §§ 4, 6, 7 and 23(c).
You are the Commissioner of the state Department of Commerce and Development (DCD), appointed by the governor pursuant to G.L. c. 23A, § 1. In this position, you are the executive and administrative head of DCD and are required to devote full-time during normal working hours to the duties of your office.
You are also a member ex office of the Massachusetts Industrial Financial Agency (MIFA) board of directors (MIFA Board), created by G.L. c. 23A, § 31. That statute states that the provisions of G.L. c. 268A apply to members of the MIFA Board, except that MIFA may purchase from, sell to, borrow from, loan to, contract with or otherwise deal with any individual, firm, association, partnership, trust, corporation and other legal entities in which any MIFA Board member is in any way interested or involved. Id. at § 31(d). The interest or involvement must be disclosed in advance to the other MIFA Board members, recorded in the minutes, and the MIFA Board member may not participate in any decision of the MIFA Board relating to the person or entity with which he or she is interested or involved.
The MIFA board must issue a favorable recommendation as a prerequisite to the issuance of bonds by an industrial development finance authority under G.L. c. 40D. Once such a favorable recommendation is made, you, as Commissioner of DCD, must promptly issue a certificate of convenience and necessity allowing the issuance of the bonds. G.L. c. 40D, § 12.
You are also chairman of a bank's (Bank) board of directors (Bank Board) and own or have voting control over a majority of the outstanding shares of the Bank. The Bank currently has four noninterest bearing accounts maintained by the Leominster District Court. The Court pays the Bank a service charge of approximately $800 per year.
The Bank also has within its investment portfolio approximately $1.3 million worth of bonds issued by MIFA and the Massachusetts Health and Educational Facilities Authority (HEFA). These bonds are approximately 4.72 percent of the Bank's investment portfolio. Although the Bank currently does not hold any other bonds or instruments of indebtedness of the Commonwealth, it may desire to purchase some in the future.
HEFA issues bonds through three procedures. The first two involve a public offering by HEFA to the institutional investment market. Groups of investment banking firms submit bids for the opportunity to purchase the bonds from HEFA which those firms then resell to the investment community. The third process is used for smaller bond issues. In this method, the ultimate recipient of the bond funds attempts to locate banks or other fund sources to purchase the HEFA bonds. These bonds ordinarily are not resold by the original purchaser but can be. HEFA publicizes the availability of this "private placement" bond program among those eligible to pursue bond funds through HEFA. The Bank has approximately $100,000 worth of HEFA bonds placed through this private placement process.
The Bank and a wholly-owned subsidiary of the Bank applied for and received preliminary approval from MIFA for the issuance of a bond to finance certain facilities. You also are involved privately with the sale of your interest in property wherein, the purchaser has applied to MIFA for financing. Approval of either or both of these projects by the MIFA Board will require your issuance of a certificate of convenience and necessary, as discussed above. Finally, the Bank has customers whose various private dealings with the Commonwealth may indirectly benefit the Bank as a lender to or depositary of those customers.
In light of the facts detailed above, may you serve as Commissioner of DCD while chairman of the Bank Board and while owning or controlling a majority of the outstanding shares of the Bank?
Yes, provided you comply with the guidelines described below.
As Commissioner of the DCD, you are a state employee as defined in the conflict of interest law, G.L. c. 268A, § 1 et seq., and, as a result, are subject to the provisions of that law.
Section 4(c) of G. L. c. 268A prohibits you from acting as agent or attorney for anyone other than the state in connection with any "particular matter"[1] in which the state is a party or has a direct and substantial interest. You are generally prohibited by § 4 from acting as an agent of the Bank in its dealings with the state. Acting as an agent has been interpreted by the Commission to include not only personal appearances before state agencies, but also signing any contracts or correspondence on behalf of a private party in matters involving the state. See EC-COI-82-69.
Section 6 of the conflict of interest law prohibits you from participating[2] as a state employee in any particular matter in which, in relevant part, you or a business organization in which you are an officer or director has a financial interest. That section provides further that when your duties would otherwise require you to participate in such a matter, you must file with your appointing official and the Commission a written disclosure of the nature and circumstances of the particular matter and the financial interest therein. Your appointing official may then either assign the matter to another employee, assume responsibility for the matter himself, or make a written determination that the financial interest involved is not so substantial as to affect the integrity of your services.
The MIFA Board's review of the application for bond financing related to the Bank's facilities and the sale of your interest in property are particular matters covered by § 6. The Bank is a business organization of which you are a director, and it has a financial interest in the MIFA Board's action. You have a direct personal financial interest in the MIFA Board's approval of the financing of the private sale.
The statutory provision in G.L. c. 29A, § 31(d) as applicable to MIFA Board members is similar to § 6 in requiring disclosure to the MIFA Board and prohibiting participation when certain interests are involved. Unlike § 6, the provision does not allow for exemption from its non-participation clause. The Commission has held previously that the provisions of § 6 applicable to all state employees do not affect any supplementary restrictions imposed by the legislature on persons holding certain positions in state government. See EC-COI-81-75. Therefore, as MIFA Board member, you must comply with the provisions of G.L. c. 268A, § 6 and G.L. c. 28A, § 31. The issuance of a certificate of convenience and necessity in connection with these bond financing determinations would also be a particular matter in which you and/or the Bank have a financial interest. Therefore, § 6 applies and you will have to comply with its terms.
Section 7 of G.L. c. 268A prohibits a state employee from having a financial interest in a contract made by a state agency. The relationship between the Bank and the Leominster District Court resulting from the Court accounts is considered a contract for purposes of § 7. EC-COI-81-87. The Court is a state agency. As a shareholder in the Bank, you have a financial interest in the contracts between the Bank and the Court. Although an exemption to § 7 states that the section shall not apply if the financial interest at issue consists of ownership of less than one percent (1%) of the stock of the corporation, your ownership interest in the Bank exceeds this 1% ceiling. Therefore, the Bank must divest itself of these accounts within thirty (30) days of your receipt of this opinion or you will be in violation of § 7.
The Commission has held that bonds issued by state agencies are contracts, see EC-COI-83-87, and your shareholder interest in the Bank gives you a financial interest in the MlFA and HEFA bonds which it holds. The MIFA board statutory provision cited above permitting MIFA to "contract with or otherwise deal with" any firm, trust, corporation or other legal entity in which a MIFA Board member is "in any way interested or involved" appears to exempt your financial interest in the MIFA bonds held by the Bank from the application of § 7. This provision does not apply, however, to the Bank's HEFA bonds.
An exemption to § 7 provides that the section shall not apply to a state employee other than a member of the general court who is not employed by the contracting agency or an agency which regulates the activities of the contracting agency and who does not participate in or have official responsibility for any of the activities of the contracting agency, if the contract is made after public notice or where applicable, through competitive bidding, and if the state employee files with the Commission a statement making full disclosure of his interest and the interests of his immediate family in the contract.
You are not employed by HEFA. You are not employed by an agency which regulates the activities of HEFA, nor do you participate in or have official responsibility for any activities of HEFA.
Any HEFA bonds held by the Bank which were issued through that agency's competitive bid process qualify for this exemption. On the other hand, the bonds issued through the private placement procedure are not competitively bid. However, the Commission has interpreted the term "public notice" to include the solicitation of terms from various firms able to perform services under a particular contract (EC-COI-83-56) and the advertisement of a position requiring a particular professional in trade journals concerned with profession involved. These methods have been held to satisfy the requirement of openness sought to be achieved by the "public notice" requirement (EC-COI-83-97). The HEFA private placement process sufficiently satisfies that requirement. Therefore, even those HEFA bonds held by the Bank which are not competitively bid qualify for this exemption to the application of § 7. You must also comply with the disclosure provisions in order to satisfy all of the requirements of the exemption. Bonds issued by other state agencies which the Bank may wish to purchase must also be examined on an individual basis in light of the provisions of § 7.
Regarding the dealings of private customers of the Bank with the state which may benefit the Bank and, therefore, you as a shareholder in the Bank, those dealings are not affected by the fact that the Bank does business with these people and any benefit the Bank receives is merely coincidental. Therefore, § 7 does not apply to these situations, even where contracts between Bank customers and state agencies are involved.
Section 23 of the conflict law contains certain standards of conduct applicable to all state employees. This section prohibits a state employee from accepting employment or engaging in any business or professional activity which will require him to disclose confidential information which he has gained by reason of his official position or authority and from, in fact, improperly disclosing such materials[3] or using such information to further his personal interests. You must not exploit your access to MIFA information and officials to benefit your private dealings or the Bank's.
End of Decision
