CEO 80-89 -- December 4, 1980

CONFLICT OF INTEREST

MEMBER OF COUNTY HOUSING FINANCE AUTHORITY SERVING AS OFFICER OF BANK DOING BUSINESS WITH AUTHORITY

To: (Name withheld at the person's request.)

Prepared by: Phil Claypool

SUMMARY:

Reference is made to CEO 80-79, in which the commission advised that a vice president of a lending institution may serve on a county housing finance authority but that it would be in violation of s. 112.313(3) and (7), F. S., were the lending institution to do business with the authority, unless one of the exemptions in s. 112.313(12) were to apply. Under this rationale, a conflict of interest would be created were a member of a county housing finance authority to serve as mortgage loan officer and vice president of a bank which has entered into a mortgage loan purchase agreement with the authority under which mortgage loans are originated by the bank and sold to the authority. There would be no conflict of interest, however, were the authority member's bank to be a subsidiary of a second bank which also owns a third bank that has entered into a trust indenture with the authority. Each corporation doing business in this state constitutes a separate "business entity" for purposes of the Code of Ethics, and the authority member therefore would not be an officer or employee of the bank which is doing business with the authority.

QUESTIONS:

1. Does a prohibited conflict of interest exist when a member of a county housing finance authority serves as mortgage loan officer and vice president of a bank which has entered into a mortgage loan purchase agreement with the authority under which mortgage loans are originated by the bank and sold to the authority?

2. Does a prohibited conflict of interest exist when a member of a county housing finance authority serves as loan officer and vice president of a bank that is a subsidiary of a second bank which also owns a third bank that has entered into a trust indenture with the authority?

Question 1 is answered in the affirmative.

In a previous advisory opinion, CEO 80-79, we advised that a vice president of a lending institution may serve on a county housing finance authority, but that he would be in violation of s. 112.313(3) and (7), F. S., were the lending institution to do business with the authority, unless one of the exemptions in s. 112.313(12) were to apply. Our advice is the same in the present situation.

In your letter of inquiry you have asked us to consider the public policy expressed by the Legislature in ch. 80-161, Laws of Florida, which creates the Florida Housing Finance Authority. In particular, that act provides that the state authority is to include one citizen actively engaged in the savings and loan industry and one citizen actively engaged in the banking or mortgage banking industry. Section 420.511(1), F. S. The act also expressly permits a state authority member to have an interest in a banking institution doing business with the authority. Section 420.543(2), F. S.

Whatever the relationship these statutory provisions may have to the Code of Ethics for Public Officers and Employees, it does not appear that the legislative intent pertaining to the state authority is indicative of the legislative intent regarding county housing finance authorities. This is especially true when the statutes pertaining to the county authorities require only that a member be "knowledgeable" in the field of finance. Those statutes further contain a conflict of interest provision which does not reference authority members who have interests in banks doing business with an authority. Sections 159.605(1) and 159.606, F. S.

You have not provided any indication that an exemption in s. 112.313(12), F. S., may apply. Accordingly, we find that a prohibited conflict of interest exists when the subject member of a county housing finance authority serves as mortgage loan officer and vice president of a bank which has entered into an agreement with the authority under which mortgage loans are originated by the bank and sold to the authority.

Question 2 is answered in the negative.

In your letter of inquiry you advise that, under the trust indenture between the authority and the third bank referenced in this question, the bank purchases mortgage loans from various lending institutions with proceeds from bonds issued by the authority and that the bank collects the mortgage loans and disburses the proceeds to bondholders and others. You also advise that the subject authority member is a very minor stockholder in the second, or parent, bank.

Section 112.313(3), F. S., prohibits a public officer from serving as an officer of a "business entity" which is selling goods or services to the public officer's agency. Section 112.313(7) also uses the term "business entity" in prohibiting a public officer from being employed by a business entity which is doing business with his agency. The term "business entity" is defined in s. 112.312(3), F. S., to mean

. . . any corporation, partnership, limited partnership, proprietorship, firm, enterprise, franchise, association, self-employed individual, or trust, whether fictitiously named or not, doing business in this state.

It is apparent that each corporation doing business in this state constitutes a "business entity"; since the statutory definition does not refer to parent corporations as being identical to their subsidiary corporations, we have treated parents and subsidiaries as separate business entities in applying s. 112.313(3) and (7). See, for example, CEO's 78-20 and 79-55.

Since the subject authority member is neither employed by nor an officer of the bank which has entered into the trust indenture with the authority, we find that no prohibited conflict of interest exists under the circumstances presented by this question.