Advisory Opinion No. 98-149 Re: James M. Hagerty A. QUESTION PRESENTED The petitioner, the Chairperson of the Rhode Island Clean Water Finance Agency ("the Agency"), a state appointed position, through counsel requests an advisory opinion as to whether he may vote to appoint Fleet Securities, Merill Lynch or Salomon Smith Barney as senior manager or co-manager of the Agency’s tax-exempt revenue bonds given that he owns shares of Fleet Financial Group and has accounts with Salomon Smith Barney and Merill Lynch. B. SUMMARY It is the opinion of the Rhode Island Ethics Commission that the petitioner, the Chairperson of the Rhode Island Clean Water Finance Agency ("the Agency"), a state appointed position, may not participate in the consideration and vote to appoint Fleet Securities or Salomon Smith Barney as senior manager or co-manager of the Agency’s tax-exempt revenue bonds. Due to the petitioner’s ongoing business association with Salomon Smith Barney as his brokerage firm, he should recuse himself from participation and/or vote in the Agency’s consideration of matters involving Salomon Smith Barney. See R.I. Gen. Laws §§ 36-14-5(a),(d),(f) and 7(a). Additionally, the Commission concludes that a business association exists between the petitioner and Fleet based upon his ownership/financial interest as a stockholder of that entitySee R.I. Gen. Laws §§ 36-14-5(a),(d),(f) and 7(a). Notice of recusal should be filed with both the Rhode Island Clean Water Finance Agency and the Ethics Commission pursuant to R.I. Gen. Laws § 36-14-6. As to Merill Lynch, the Commission concludes that the petitioner may participate and/or vote to appoint that firm as a manager of the Agency’s bonds given that his employer, and not the petitioner himself, is a business associate of that firm. C. DISCUSSION 1. Facts The petitioner advises that the Rhode Island Clean Water Finance Agency ("the Agency") will be considering proposals from investment banking firms to provide underwriting services for the issuance of tax-exempt revenue bonds. He represents that he and his spouse jointly own 100 shares of Fleet Financial Group ("Fleet") in an account with Salomon Smith Barney. He also owns 250 Fleet shares in an individual account with that firm. The combined present value of said shares is approximately more than $5,000. A specific Salomon Smith Barney broker has handled the petitioner’s investment portfolio for several years. The petitioner further indicates that he participates in an employee stock purchase plan through a Merill Lynch brokerage account. The account is maintained by his employer and can only be used to buy, hold and sell shares of BankBoston common stock. The petitioner seeks guidance from the Commission as to whether he may participate in the Agency’s consideration and vote on the appointment of Fleet, Merill Lynch or Salomon Smith Barney as senior manager or co-manager of the Agency’s tax-exempt revenue bonds. 1. Analysis Under the Code of Ethics, a public official may not participate in any matter in which he has an interest, financial or otherwise, in substantial conflict with the proper discharge of his duties in the public interest. See R.I. Gen. Laws §§ 36-14-5(a), 36-14-7(a). An official has an interest in substantial conflict with his official duties if it is likely that a "direct monetary gain" or a "direct monetary loss" will accrue, by virtue of the public official’s activity, to the official, a family member, or his business associate. See R.I. Gen. Laws § 36-14-7(a). A public official may not use his public office or confidential information received through his office to obtain financial gain, other than that provided by law, for himself, a family member, or a business associate. See R.I. Gen. Laws § 36-14-5(d). Also, Section 5(f) of the Code requires an official to recuse himself from voting or otherwise participating in the consideration and/or disposition of a matter involving a business associate. See R.I. Gen. Laws § 36-14-5(f). Under R.I. Gen. Laws § 36-14-2(3), a "business associate" is defined as any individual or entity joined with a public official "to achieve a common financial objective." The Commission has consistently concluded that public officials may not participate in matters affecting persons or entities with which they have business associations, including clients. See A.O. 91-50 (concluding that a member of the Cumberland Town Council would violate the Code of Ethics if she participated or voted in any matter presented by her attorney while she simultaneously engaged the attorney to represent her in an unrelated legal matter in the Superior Court); A.O. 95-49 (concluding that the relationship between an individual and an accountant who performs services for that individual constitutes a business association under the Code of Ethics). Additionally, although not always referring to them as business associates, the Commission has required insurance agents, real estate agents, surveyors and public relations & advertising professionals to recuse on matters concerning a client. See A.O. 83-16, A.O. 85-98, A.O. 86-43, A.O. 86-46, A.O. 90-25, A.O. 93-61. Here, the petitioner has been a client of Salomon Smith Barney, an investment advisor, for several years. The same analysis finding that attorneys, accountants, and others are business associates of their clients similarly applies to investment advisors. They are business associates since they are joined together to achieve a common financial objective. See R.I. Gen. Laws § 36-14-2(3). Based upon the petitioner’s representations as to the amount of Fleet shares owned by him and his spouse, as well as its estimated value of more than $5,000, the Commission concludes that he and Fleet also are business associates. The amount of his financial/ownership interest in Fleet clearly amounts to more than a de minimus interest in that entity. With such an ownership interest, the petitioner does have a common financial objective with Fleet. See A.O. 89-37 (concluding that Cranston City Council member could not participate in a zoning matter given his business associate relationship with an objector -- the Councilor was a vice president of a lending institution and the objector was a major stockholder of his employer). Pursuant to Sections 5(a) and (d) of the Code, the petitioner may not take any official action which could financially impact a business associate. As a business associate of both Salomon Smith Barney and Fleet, the petitioner should recuse himself from the Agency’s consideration of those firms as a potential manager of its bonds. Further, Section 5(f) of the Code requires the petitioner to recuse himself from voting or otherwise participating in the consideration and/or disposition of any matter involving Salomon Smith Barney or Fleet that comes before him in his official capacity. Notice of recusal should be filed with both the Rhode Island Clean Water Finance Agency and the Ethics Commission pursuant to R.I. Gen. Laws § 36-14-6. However, the petitioner may participate and/or vote to appoint Merill Lynch as a manager of the Agency’s bonds based upon the Commission’s finding that they are not business associates under the Code. See R.I. Gen. Laws § 36-14-2(3). Here, his Merill Lynch account was established and is maintained by his employer, BankBoston, as part of an employee stock purchase plan. Although BankBoston and Merill Lynch are joined together to achieve a common financial objective, no such business association exists between the petitioner and the firm by virtue of his participation in this employee plan. See A.O. 98-17. Any relationship the petitioner has with Merill Lynch is too remote to implicate the prohibitions set forth in the Code. Code Citations: 36-14-2(3) 36-14-5(a) 36-14-5(d) 36-14-5(f) 36-14-6 36-14-7(a) Related Advisory Opinions: 98-142 98-71 98-54 98-45 98-44 98-25 98-17 97-151 97-62 97-54 96-100 96-85 96-61 96-58 95-81 95-49 93-61 91-50 90-25 86-46 86-43 85-98 83-16 Keywords: Business associate Financial interest