Advisory Opinion No. 2011-21 Advisory Opinion No. 2011-21 Re: The Honorable Gina M. Raimondo QUESTION PRESENTED The Petitioner, the General Treasurer of the State of Rhode Island, a state elected position, requests an advisory opinion concerning whether she has taken sufficient steps to avoid conflicts of interest under the Code of Ethics relative to her ties to a venture capital fund in which the State has made an investment. RESPONSE It is the opinion of the Rhode Island Ethics Commission that the Petitioner, the General Treasurer of the State of Rhode Island, a state elected position, has taken appropriate and sufficient steps to avoid conflicts of interest under the Code of Ethics relative to her ties to a venture capital fund in which the State has made an investment, provided that she recuses from any matters that come before the Office of the General Treasurer and the State Investment Commission that pertain to the investment or that involve her business associates. The Petitioner was elected as the General Treasurer of Rhode Island in November 2010. The duties and powers of the General Treasurer are described in the Rhode Island Constitution as those that "are now established, or as from time to time may be prescribed by law." R.I. Const. art. IX, sec. 12. Consistent with this provision, the General Assembly has statutorily assigned various specific powers and duties to the General Treasurer. Most relevant to the instant request is the statutory establishment of a State Investment Commission within the Office of the General Treasurer, with discretion to invest the money of the state that is not immediately required for expenditure. R.I. Gen. Laws §§ 35-10-1, 2 and 6. The General Treasurer is designated, ex officio, as the Chairperson of the State Investment Commission.[1] Section 35-10-1. The Petitioner has represented the following facts: From 2001 until her election in 2010, the Petitioner was a partner in a Providence-based venture capital firm known as Point Judith Capital ("Point Judith"). Point Judith manages approximately 100 million dollars of investments in two venture capital funds known as Point Judith Capital Administrators I ("PJCA I") and Point Judith Capital Administrators II ("PJCA II"). As a partner in Point Judith, the Petitioner helped to manage and became personally invested in both funds. In 2007, some three years prior to the Petitioner's election to office, the State Investment Commission, chaired by the prior General Treasurer, entered into a ten-year contract with Point Judith, in which the State agreed to invest five million dollars in PJCA II over a period of time. The Petitioner notes that the State's investment in PJCA II is passive, meaning that after signing the contract with Point Judith and making its investment commitment, the State Investment Commission has no say in the fund's ongoing management or investment decisions. For that reason, the Petitioner notes that it is highly unlikely that any matters pertaining PJCA II or Point Judith will come before the State Investment Commission for any type of decision-making. Nevertheless, recognizing a potential conflict between her role as Chairperson of the State Investment Commission and her association and investments with Point Judith, the Petitioner states that following her election she resigned from Point Judith and from all management positions associated with PJCA I and PJCA II. She retains, however, an illiquid ownership interest in both funds in the form of vested shares that she received in return for work she previously performed at Point Judith. In order to create further separation from her investment in PJCA I and PJCA II, prior to assuming office the Petitioner placed all her right, title and interest in both funds into a blind trust designated as the Raimondo Blind Trust ("Blind Trust"). The purpose of the Blind Trust, as set forth in the Blind Trust Agreement provided to the Ethics Commission, "is to entrust to the Trustee decisions as to when and to what extent the original assets of the Trust are to be sold or disposed of and in what investments the proceeds of sale are to be reinvested, without any participation in, or knowledge of, such decisions by any interested party [including the Petitioner and her spouse]." Blind Trust, p. 1. Pursuant to its express terms, the Blind Trust shall continue to run as long as the Petitioner serves as General Treasurer. The Petitioner represents that the Trustee neither has nor will have any personal interest in Point Judith. Furthermore, the Trustee has authority and discretion to invest, manage and control the assets of the Blind Trust and he is prohibited from consulting with or notifying the Petitioner concerning his management decisions. The only permitted communications between the Petitioner and the Trustee regarding the Blind Trust are those involving either a request for a cash distribution or to discuss the general financial interests and needs of the Petitioner. In an effort to further avoid any possible conflict of interest, the Petitioner states that she will recuse from any matters coming before the Office of the Treasurer and the State Investment Commission that involve or impact Point Judith, PJCA I or PJCA II, including discussions concerning the State's investment in PJCA II. Upon recusal, any matters that she would have handled as Chairperson will instead be addressed by the Director of the Department of Administration, who is the ex officio Secretary of the State Investment Commission. Given all of the above facts and representations, the Petitioner asks if she has taken all necessary and sufficient steps to avoid conflicts of interest under the Code of Ethics. Pursuant to the Code of Ethics, a public official may not participate in any matter in which she has an interest, financial or otherwise, that is in substantial conflict with the proper discharge of her duties or employment in the public interest. R.I. Gen. Laws § 36-14-5(a). An official will have an interest in substantial conflict with her official duties if it is reasonably foreseeable that a "direct monetary gain" or a "direct monetary loss" will accrue, by reason of her official activity, to the official, a family member, a business associate, an employer or any business which the public official represents. Section 36-14-7(a); Regulation 36-14-6001. Furthermore, a public official may not use her public office or confidential information received through her office to obtain financial gain, other than that provided by law, for herself, her family members, her employer or any business associate. Section 36-14-5(d). Finally, a public official must recuse from participating in her agency's consideration of a matter in which her business associate represents itself. Section 36-14-5(f). A business associate is defined as an individual or business entity that is joined together with another individual or business entity to achieve a common financial objective. Sections 36-14-2(3), (7). The above provisions of the Code of Ethics require the Petitioner to recuse from participating in any matters before the Office of the Treasurer or the State Investment Commission that are likely to financially impact herself or her business associate, as well as from matters in which her business associate represents itself. Given that Point Judith continues to hold and manage the Petitioner's investments in PJCA I and PJCA II, she and Point Judith continue to be business associates. For this reason, the Petitioner must recuse if representatives from Point Judith appear before the State Investment Commission, and from matters that are likely to financially impact herself, Point Judith, PJCA I or PJCA II. A.O. 96-58 (member of State Investment Commission must recuse from matters involving Fleet Investment Advisors, Inc., given that the petitioner is also a trustee of an investment company utilizing Fleet as its investment advisor). See also A.O. 2007-20 (member of the City of Newport Trust and Investment Commission is required to recuse from matters involving the City’s use of products or services of her employer, A.G. Edwards & Sons); A.O. 2002-25 (Chairman of the West Warwick Pension Board, who had recently accepted private employment with UBS Paine Webber, could continue sitting on the Board but would be required to recuse from any Pension Board discussion involving the Town’s use of products or services of his employer). The Petitioner informs that she intends to recuse in the manner set forth above. She has also taken appropriate measures to distance herself from Point Judith and her investments in its funds, through her resignation from the firm and by the creation of the Blind Trust to manage her investments. It is the opinion of the Ethics Commission that these actions, and her recusal going forward, are appropriate and sufficient steps to address the stated potential conflicts of interest and to avoid violating the Code of Ethics. Notice of recusal must be filed with the Ethics Commission pursuant to the provisions of section 36-14-6. Code Citations: 36-14-2(3) 36-14-2(7) 36-14-5(a) 36-14-5(d) 36-14-5(f) 36-14-6 36-14-7(a) Regulation 36-14-6001 Related Advisory Opinions: 2007-20 2002-25 96-58 Keywords: business associate Issued March 8, 2011 [1] There are nine (9) voting members, and one (1) non-voting member of the State Investment Commission. They are: The General Treasurer, who acts as Chairperson; the Director of Administration, who acts as Secretary; the Director of the Higher Education Assistance Authority; an active employee/member of the Retirement System appointed by the General Treasurer; two (2) members of the general public appointed by the General Treasurer; three (3) members of the general public appointed by the Governor; and as a non-voting member, the Executive Director of the State Retirement Board. R.I. Gen. Laws § 35-10-1.