CEO 88-80 -- December 1, 1988

CONFLICT OF INTEREST

COUNTY COMMISSIONER EMPLOYED BY BROKERAGE FIRM

DOING BUSINESS WITH COUNTY

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

SUMMARY:

A prohibited conflict of interest would be created were a county commissioner to be employed as a financial consultant with a national brokerage firm selected by the county as an underwriter for a county bond issue. The commissioner would be employed by a business entity doing business with his agency, in violation of Section 112.313(7), Florida Statutes. CEO 85-29 is referenced.

QUESTION:

Would a prohibited conflict of interest be created were a county to contract with a national brokerage firm for underwriting services for a proposed bond issue while a member of the county commission is employed as a financial consultant with the firm?

Your question is answered in the affirmative.

In your letter of inquiry you advise that recently .... was elected as a member of the Broward County Board of County Commissioners. He is employed by a national brokerage firm as a financial consultant (stockbroker) for which he is compensated by a salary and the equivalent of commissions from the sale of securities on a retail basis.

You advise that the brokerage firm is one of the largest brokers and dealers of securities in the country, employing 2,560 persons in 57 offices in this state alone. The corporate structure of the firm consists of two separate business units. The first unit is involved in retail sales of securities and limits its business to sales and purchases of securities on a noninstitutional basis to individual customers. It is this unit with which the Commissioner is affiliated. The second unit engages in investment banking activities and related institutional services, including serving as underwriter for various corporate and governmental clients. Separate corporate officers serve as presidents of each of these units.

You advise that the County in the past has contracted with the investment banking unit as underwriter for various County tax exempt bond issues. In selecting underwriters, the County sends letters requesting proposals to the financial community and to those underwriters who have placed their names on a list of interested underwriters. The County Commission has delegated a portion of the selection process to a selection and negotiation committee composed of a number of upper-level management personnel and one or more County Commissioners. The committee is responsible for evaluating all proposals, ranking them in order of preference, and making a recommendation for selection to the County Commission, which makes the final selection.

You advise that prior to the Commissioner's taking office, the County issued a request for proposals seeking underwriters to assist with the issuance of tax exempt bonds for the financing of an expansion of the County-owned airport. Shortly after he took office, the selection and negotiation committee recommended that several firms be selected as comanaging underwriters, including the investment banking unit of the firm which employs the Commissioner. You advise that the Commissioner did not participate in any manner on behalf of his employer with regard to its proposal for the airport financing. Further, he is not entitled to and will not receive any compensation from the transaction and will not participate in or receive any compensation from any transaction between the firm and the County. Although the Commissioner as a financial consultant may be eligible to receive compensation for introducing representatives of the investment banking unit to a governmental entity, the Commissioner will not perform such a function in regard to any County financing.

The Code of Ethics for Public Officers and Employees provides in relevant part:

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 (1987).]

In a previous opinion, CEO 85-29, question 2, we found that this provision of the Code of Ethics would be violated were a different national brokerage firm which employed a city commissioner to be selected by the city as underwriter for one or more city bond issues. Similarly, here, if the firm employing the subject Commissioner contracts with the County to serve as underwriter, the Commissioner would be employed with a business entity doing business with his agency in violation of Section 112.313(7)(a).

The term "business entity" is defined in Section 112.312(3), Florida Statutes, as follows:

'Business entity' means 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.

In previous opinions we have treated corporate subsidiaries as separate business entities in applying the Code of Ethics, given this definition of the term "business entity." For example, in CEO 79-55 we advised that an employee of a trust company which was a wholly- owned subsidiary of a banking corporation was employed with the trust company rather than with its parent corporation. Conversely, in CEO 86-38 we were unable to make this distinction because the trust company was not a separate corporation. This appears to have been the case regardless of the size of the corporation involved. See CEO 84-84, regarding an employee of the IBM Corporation. Given the definition of "business entity" provided by the Legislature and given our past precedent, we do not find that each functional unit of the national brokerage firm here constitutes a separate "business entity" for purposes of Section 112.313(7)(a), Florida Statutes.

Because the County did not enter into a contract with the firm prior to the Commissioner's taking office, we find no basis to "grandfather-in" this situation. See CEO 86-38 and CEO 85-40.

We have reviewed the exemptions to Section 112.313(7) which have been created in Section 112.313(12), Florida Statutes, and conclude that none of these exemptions would apply in the present circumstances. As was the case in CEO 85-29, the selection process for underwriters here does not comply with the requirements of the competitive bidding procedure provided in Section 112.313(12)(b), Florida Statutes.

We note that Chapter 88-408, Laws of Florida, creates a new exemption to Section 112.313(7) for elected public officers employed by tax-exempt organizations contracting with the officers' agencies. This exemption is conditioned upon the officer not being directly or indirectly compensated as a result of the contract and on the officer not participating in the contracting process. The exemption is restricted to employment with tax-exempt organizations and would not be applicable here. Were we to conclude that the Commissioner's employment with the brokerage firm is not prohibited by Section 112.313(7), we in effect would be creating a new exemption for employees of taxable entities and would be extending the exemption of Chapter 88-408 beyond the limits clearly intended by the Legislature.

Accordingly, we find that a prohibited conflict of interest would be created were the subject County Commissioner to be employed by a national brokerage firm if that firm contracts with the County to serve as underwriter for a bond issue.