CEO 81-69 -- October 29, 1981

CONFLICT OF INTEREST; VOTING CONFLICT OF INTEREST

CITY RETIREMENT BOARD MEMBER ALSO STOCKBROKER RECEIVING COMMISSIONS FROM TRANSACTIONS INVOLVING ASSETS OF THE BOARD

To: Mr. Harry Wilson, City Commissioner, City of Coral Gables

SUMMARY:

Where the brokerage firm of a city retirement board of trustees member has handled stock transactions for the board's investment advisor, Section 112.313(3), Florida Statutes, would not be violated. That provision prohibits a public officer from selling services to his own agency, but here those services were provided directly to the investment advisor company rather than to the board. Section 112.313(7), Florida Statutes, which prohibits the board member from having any employment or contractual relationship with a business entity doing business with the board, also would not be violated, as the board member's employment or contractual relationship is with the brokerage firm rather than with the company which serves as investment advisor to the board. Nor would a continuing or frequently recurring conflict of interest under Section 112.313(7) exist by virtue of the board member's employment with the brokerage firm.

Whether a voting conflict of interest under Section 112.3143, Florida Statutes would be created where the board member votes upon an issue involving the purchase of securities or upon decisions to invest in securities would depend on whether the measure being considered would directly or indirectly benefit the brokerage firm employing the board member. CEO 81-62 and CEO 81-52 are referenced in this regard.

QUESTION 1:

Does a prohibited conflict of interest exist where a member of a City Retirement Board of Trustees is employed by a brokerage firm which has received commissions from handling stock transactions for the investment advisor company which has been selected by the Board?

Your question is answered in the negative.

In your letter of inquiry you advise that Mr. Peter Bermont serves as a member of the Coral Gables Retirement Board of Trustees, which oversees the City employees' pension fund. You also advise that the subject Board member is the Senior Vice President of a brokerage firm. This firm, you advise, has received brokerage commissions from stock transactions involving the assets of the Board as handled by the company which was selected by the Board to serve as its investment advisor. Of the commissions paid to the brokerage firm, the subject Board member has received a percentage. Apparently there are at least three other brokerage firms in the area, in competition with the subject Board member's brokerage firm, which also have provided other services, such as research, to the investment advisor.

The Code of Ethics for Public Officers and Employees provides:

DOING BUSINESS WITH ONE'S AGENCY. -- No employee of an agency acting in his official capacity as a purchasing agent, or public officer acting in his official capacity, shall either directly or indirectly purchase, rent, or lease any realty, goods, or services for his own agency from any business entity of which he or his spouse or child is an officer, partner, director, or proprietor or in which such officer or employee or his spouse or child, or any combination of them, has a material interest. Nor shall a public officer or employee, acting in a private capacity, rent, lease, or sell any realty, goods, or services to his own agency, if he is a state officer or employee, or to any political subdivision or any agency thereof, if he is serving as an officer or employee of that political subdivision. The foregoing shall not apply to district offices maintained by legislators when such offices are located in the legislator's place of business. This subsection shall not affect or be construed to prohibit contracts entered into prior to:

(a) October 1, 1975.

(b) Qualification for elective office.

(d) Beginning public employment.

[Section 112.313(3), Florida Statutes (1979).]

Under the circumstances you have presented, it does not appear that the subject Board member has acted in his official capacity to purchase the services of the brokerage firm which he serves as Senior Vice-President. Nor does it appear that the subject Board member has acted in a private capacity to sell any services to his agency (the Retirement Board) since the sales made and services provided by the brokerage firm have been made directly to the investment advisor company rather than to the Board.

The Code of Ethics also provides:

CONFLICTING EMPLOYMENT OR CONTRACTUAL RELATIONSHIP. -- No public officer or employee of an agency shall have or hold any employment or contractual relationship with any business entity or any agency which is subject to the regulation of, or is doing business with, an agency of which he is an officer or employee . . . ; nor shall an officer or employee of an agency have or hold any employment or contractual relationship that will create a continuing or frequently recurring conflict between his private interests and the performance of his public duties or that would impede the full and faithful discharge of his public duties. [Section 112.313(7)(a), Florida Statutes (1979).]

This provision prohibits the subject Board member from having any employment or contractual relationship with a business entity which is doing business with his agency, the Retirement Board. As you have described the situation, it is the company which serves as investment advisor to the Board which is doing business with the Board. The Board member's brokerage firm is one of at least four firms which may assist or may have assisted the investment advisor in making stock transactions. Since the Board member is Senior Vice-President of the brokerage firm, his employment or contractual relationship is with that firm, rather than with the company which serves as investment advisor. Therefore, the subject Board member does not have any employment or contractual relationship with a business entity which is doing business with the Board.

Similarly, in CEO 79-1, a copy of which is enclosed, we advised that Section 112.313(7)(a), Florida Statutes, would not prohibit a county commissioner from being a principal in a corporation which sold tires to businesses granted a franchise by the county commission. As in CEO 79-1, we feel obligated to point out that Section 112.313(7)(a) would prohibit the subject Board member from personally contracting with the investment advisor to sell stock or provide other services, so long as the investment advisor was doing business with the Board. Since the services provided by the brokerage firm have been made by the firm as a corporation, no prohibited conflict of interest has been created, although the situation has resulted in the appearance of such a conflict of interest.

Section 112.313(7)(a) also prohibits a public officer from having any employment or contractual relationship that will create a continuing or frequently recurring conflict between his private interests and the performance of his public duties or that would impede the full and faithful discharge of his public duties. We are of the opinion that the subject Board member's employment with the brokerage firm does not create such a prohibited conflict of interest. Instead, it appears that his employment with the brokerage firm provides him with the expertise which would seem to be desirable in a member of a retirement board. It is the firm's relationship with the investment advisor which gives rise to the appearance of a conflict of interest in this situation. However, that relationship is not an employment or contractual relationship of the subject Board member, personally, and therefore does not result in a conflict of interest prohibited by the language used in Section 112.313(7)(a).

Accordingly, we find that no prohibited conflict of interest exists where the subject Retirement Board member also is an officer in a brokerage firm which has received commissions from services provided to the company retained by the Board as its investment advisor.

QUESTION 2:

Is a voting conflict of interest created if a member of a City Retirement Board of Trustees votes upon any issues involving the purchase of securities or any decisions to invest in securities, where the Board member's brokerage firm has handled stock transactions for the Board's investment advisor?

The Code of Ethics provides in relevant part:

Voting conflicts. -- No public officer shall be prohibited from voting in his official capacity on any matter. However, any public officer voting in his official capacity upon any measure in which he has a personal, private, or professional interest and which inures to his special private gain or the special gain of any principal by whom he is retained shall, within 15 days after the vote occurs, disclose the nature of his interest as a public record in a memorandum filed with the person responsible for recording the minutes of the meeting, who shall incorporate the memorandum in the minutes. [Section 112.3143, Florida Statutes, (1979).]

Under this provision, a public officer is not prohibited from voting on a matter in which he may have a conflict of interest, but in certain instances the officer may be required to file a disclosure of that conflict. As your question does not specifically address any particular measure which has come before the Retirement Board and does not indicate whether any particular measure might directly or indirectly benefit the brokerage firm which employs the subject Board member, we are unable to give specific advice as to whether Section 112.3143 would require disclosure to be made following any particular vote of the subject Board member.

Generally, however, if a particular matter before the Board would inure to the special gain of the brokerage firm which employs the subject Board member, disclosure should be made on CE Form 4, Memorandum of Voting Conflict. For example, see CEO 81-62, a copy of which is enclosed. If a matter before the Board were more general in nature and would not result in special gain to the brokerage firm, then no Memorandum of Voting Conflict would be required to be filed. See 81-52, a copy of which is enclosed. Your question is answered accordingly.