Advisory Opinion No. 95-41

Re: Robert S. Donohue, Jr.

A. QUESTION PRESENTED

Whether Robert S. Donohue, Chairman of the Board of Public Safety for Warwick, may submit bids, in his private capacity as a registered securities broker for Janney Montgomery Scott, to Phoenix Investment Management, Inc. (Phoenix), a Professional Fixed Income Money Manager retained by the City of Warwick to manage the Municipal Retirement Fund.

B. SUMMARY

The Rhode Island Code of Ethics does not prohibit Mr. Donohue, the Chairman of the Board of Public Safety for the City of Warwick, from submitting bids to Phoenix as part of his private-professional employment as a registered securities broker. In rendering this advisory opinion, the Commission has relied on the petitioner's representations that, in his capacity as Chairman of the Board of Public Safety, he neither exercises control over Phoenix nor has access to any confidential information which could affect his bid proposal.

C. DISCUSSION

1. Facts

In early 1994, the Finance Director and City Treasurer of Warwick, at the request of the Warwick Municipal Retirement Board, hired Wyatt & Assoc. (Wyatt) to conduct a search for a new Fixed Income Money Manager to manage the $22 million dollar Municipal Retirement Fund. After screening nearly forty firms, Wyatt narrowed the field to five firms. Officials from the City then interviewed the top three firms, two Boston firms and one Providence firm (Phoenix). Since the retirement funds for the Police and Fire Departments are included in the Municipal Retirement Fund, Vice Chairperson of the Board of Public Safety, Diana Pearson, participated in the interview process. At the conclusion of the interviews, the Municipal Retirement Board retained the two Boston firms and divided the overall fund between them.

In April of 1995, however, the Retirement Board terminated relationships with one of the managers for an unspecified reason. The Retirement Board then transferred the management of that half of the Fund to Phoenix, the local manager who had been one of Wyatt's original selection from the forty applicants.

According to the petitioner, to manage this Fund and other accounts, Phoenix adheres to certain guidelines of the Securities Exchange Commission and obtains three bids or offerings from different investment firms, such as Janney Montgomery Scott, in order to obtain the best rate for investment. To accomplish this "auction process," a sales associate from Phoenix contacts brokers and, usually without revealing the source of the fund, requests a bid for the treasury notes and bonds at issue.(1)

Mr. Donohue, a registered securities broker, is on Phoenix's approved list of brokers and has submitted bids at Phoenix's request. When requesting bids, since the representative from Phoenix ordinarily will not reveal the source of the funds, the petitioner does not know whether the bid concerns Warwick's Fund. Mr. Donohue claims that, in his capacity as Chairman of the Board of Public Safety, he neither exercises control over Phoenix nor has access to confidential information which could improve his chances of obtaining the highest bid. Mr. Donohue also has indicated that he is not a member of the Municipal Retirement Fund and will not receive benefits from this Fund.

2. Analysis

At issue in this advisory request is whether Mr. Donohue, the Chairman of the Board of Public Safety who simultaneously works in the private sector as a registered securities broker, may continue to submit bids to a firm hired to manage a portion of the City's Municipal Retirement Fund. Various provisions of the Code of Ethics prohibits a public official subject to the code from accepting employment or engaging in any business which is in conflict with his official duties. See R.I. Gen. Laws §§ 36-14-5(a) and 36-14-7. Additionally, under § 36-14-5(b), a public official may not accept other employment which would impair his independence of judgment as to his official duties or require him to disclose confidential information. The Code also prohibits a public official's use of his office or confidential information obtained by holding such office in order to obtain financial gain. See R.I. Gen. Laws § 36-14-5(d).

After considering Mr. Donohue's public and private sector responsibilities, we conclude that no inherent conflict exists by virtue of the fact that he simultaneously serves as Chairman of the Board of Public Safety and acts as a private broker who does business with a firm hired by the City to manage the City's Retirement Fund. This conclusion is based on Mr. Donohue's representations that, as Chairman of the Board of Public Safety, he neither exercises control over Phoenix, a fixed income money manager nor has access to confidential information which could in anyway assist him in preparing his bid. Also relevant to this advisory is the fact that when submitting bids Phoenix does not inform him whether his proposal concerns Warwick's account.

In reaching our conclusion in this advisory, we were guided by our advisory opinion issued to the Vice Chairman of the City of Providence's Employees' Retirement Board, who simultaneously had served as a Senior Resident Officer and Associate Director of Tucker, Anthony & R.L. Day Inc. (an investment firm). See A.O. 85-100. In that opinion, we opined that the requesting party would not violate the Conflict of Interest Law (now the Code of Ethics) by virtue of that fact that he simultaneously served on the Board and worked for a brokerage firm that was one of the twelve firms which received the Board's investment business from the Board's management advisors. Id. In so concluding, we relied on the requesting party's representations that the Retirement Board did not decide which brokerage firm would be used and was not informed when a specific brokerage firm had been chosen. Id.

In sum, based on Mr. Donohue's representations and our past advisory opinion, we advise Mr. Donohue that the Rhode Island Code of Ethics does not prohibit him from continuing to submit bids to Phoenix. However, the petitioner is cautioned and advised that, in the event that the City of Warwick plans to hire a new firm to manage any portion of the retirement funds, to avoid an appearance of impropriety, he should (1) notify the City Council of his interest or business relationships with any management firm under consideration; and (2) refrain from representing the interests of the Board of Public Safety in the interview/hiring process. Any recusal notices should also be filed with this Commission in accordance with R.I. Gen. Laws § 36-14-6.

Footnotes

(1) According to the petitioner, on certain occasions, Phoenix must disclose the name of the account. He claims, however, that such instances are not relevant to this advisory request.

Keywords

Private Employment

Contracts