CEO 91-24 -- April 19, 1991

CONFLICT OF INTEREST

STATE COMPTROLLER OWNING STOCKS IN COMPANIES

WHOSE SUBSIDIARIES ARE SUBJECT TO REGULATION BY THE DEPARTMENT

OF BANKING AND FINANCE; CREATION OF "BLIND TRUST"

To: Mark Herron, Attorney (Tallahasssee)

SUMMARY:

The State Comptroller's inheritance of stocks in companies which, through subsidiary corporations, are engaged in operations in the State regulated by the Department of Banking and Finance, constitutes a conflicting contractual relationship pursuant to Section 112.313(7)(a), Florida Statutes. CEO 79-16 and CEO 80-25 are referenced. Notwithstanding the holding in CEO 85-41, the fact that the Comptroller's ownership interest is small compared to the amount of outstanding stock does not excuse the existence of a conflicting contractual relationship. Nor may the Comptroller hold the stocks in a "blind trust" similar to the provision for "qualified blind trusts" allowed under federal ethics laws, as no such provision exists under the Code of Ethics for Public Officers and Employees which would exempt an apparent violation of Section 112.313(7)(a), Florida Statutes.

QUESTION 1:

Does the ownership of stock by the State Comptroller in companies described herein constitute a conflicting contractual relationship as proscribed by Section 112.313(7)(a), Florida Statutes?

Your question is answered in the affirmative.

In your letter of inquiry, you advise that you seek this opinion on behalf of Gerald Lewis, Comptroller of the State of Florida and head of the Department of Banking and Finance. You advise that the Comptroller recently has been informed that he has inherited stock in several companies which, through subsidiary corporations, conduct operations that are subject to regulation by the Department of Banking and Finance. The inheritance results from provisions of a will probated in 1962 when the Comptroller's grandfather died. The terms of that will left the bulk of the estate to the Comptroller's mother. She had a life estate in the assets of the estate. In addition, she possessed the right to consume the assets in whole or in part, with the consent of the Comptroller's brother. During her lifetime, she never sought to consume any of the assets. The Comptroller's mother died in 1990 and, consistent with the terms of the will, the assets passed to the beneficiaries established in the will, the Comptroller and his brother, in equal shares.

You further advise that in probating the estate, it was discovered that the assets were composed in part of stocks in bank holding companies which, through subsidiary corporations, conduct business operations in the State of Florida. The activities of these subsidiary corporations are subject to the regulation of the Department of Banking and Finance. The Comptroller does not own any stock in any of the subsidiary corporations. You advise that each of these stock holdings was purchased by the Comptroller's grandfather prior to 1962, although there has been growth in the holdings since that time as a result of dividend reinvestment.

Details regarding specific stocks are as follows:

1. The Comptroller has inherited 5,443 shares of common stock in Company A, which is a bank holding company, the stock of which is traded on the New York Stock Exchange. Company A has 69,582,485 shares of common stock outstanding; the Comptroller's interest therefore is 0.000078237 percent. Company A does not own any banks or other financial institutions operating in the State of Florida subject to regulation by the Department of Banking and Finance. However, Company A, through a subsidiary corporation, engages in "the business of making consumer finance loans" within the State of Florida subject to regulation by the Department of Banking and Finance pursuant to Chapter 516, Florida Statutes. The Comptroller owns no stock in this subsidiary corporation.

2. The Comptroller has inherited 4,266 shares of common stock in Company B, a bank holding company the stock of which is traded on the New York Stock Exchange. Company B has 23,413,000 shares of common stock outstanding, the Comptroller's interest being 0.00017474296 percent. Company B owns two state banking corporations operating in the State of Florida which are subject to the regulation of the Department of Banking and Finance. The Comptroller does not own any stock in either of these two state banking corporations.

3. The Comptroller has inherited 2,383 shares of common stock in Company C, another bank holding company the stock of which is traded on the New York Stock Exchange. Company C has 332,351,000 shares of common stock outstanding, and the Comptroller's interest accordingly is 0.0000017013 percent. Company C does not own any banks operating in the State of Florida subject to the regulation of the Department of Banking and Finance. In addition, Company C, through a subsidiary corporation, engages in "the business of making consumer finance loans" within the State of Florida subject to regulation by the Department of Banking and Finance pursuant to Chapter 516, Florida Statutes. The Comptroller owns no stock in any of the state savings associations or the subsidiary corporations making consumer finance loans. Finally, you advise that bank holding companies are not regulated by the Comptroller or the Department of Banking and Finance. Bank holding companies are regulated by the Federal Reserve System pursuant to 12 U.S.C. 221, et seq.

The applicable provision of the Code of Ethics for Public Officers and Employees is Section 112.313(7)(a), Florida Statutes, which 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.

This provision would prohibit the Comptroller from having a contractual relationship with a business entity which is subject to the regulation of his agency, the Department of Banking and Finance.

In previous opinions rendered by this Commission, we have opined that stock ownership constitutes a contractual relationship for purposes of Section 112.313(7)(a), Florida Statutes. In CEO 79-16, we determined that ownership of shares of stock in a business constituted a contractual relationship with that business, and that a city police officer who owned stock in a pawn shop which was subject to the regulation of the police department had a conflicting contractual relationship prohibited by Section 112.313(7)(a), Florida Statutes.

In CEO 80-25, we further examined the relationship between a corporation which owned the stock of a subsidiary corporation. There, a county commissioner and an assistant county attorney owned stock in the parent corporation, whose wholly owned subsidiary acted as a promoter to book shows into an arena owned and operated by the county. In determining that they had a prohibited contractual relationship under Section 112.313(7)(a), Florida Statutes, the Commission noted:

[In] the context of conflict of interest laws, we also observe that it would appear to be no less of a conflict of interest for a public officer or employee to own an interest in and be an officer of a parent, holding company than for him to own and be an officer of a wholly owned subsidiary.

Based on the foregoing precedents, we find that the Comptroller has a contractual relationship with the companies in which he owns shares of stock, as well as a contractual relationship with the subsidiaries of each company. Further, because those subsidiary companies are engaged in operations within the State of Florida which are subject to regulation by the department which the Comptroller heads, we believe that his contractual relationship with those subsidiaries is proscribed by Section 112.313(7)(a), Florida Statutes.

Although in CEO 85-41, we determined that the percentage of stock ownership was a factor to consider in determining whether a voting conflict of interest existed under Section 112.3143, Florida Statutes, we do not view that issue as relevant here where we are being asked to determine not whether a measure has inured to the Comptroller's special private gain, but whether he has a contractual relationship as a stockholder with corporations and their subsidiaries. Notwithstanding the fact that the Comptroller's percentage of stock ownership is small when compared to the amount of outstanding stock, we are nonetheless of the view that the Comptroller has a contractual relationship not only with the companies in which he owns stock, but with their subsidiaries as well.

We recognize that this is a harsh result, particularly where, as here, the Comptroller received the stocks which create the conflicting contractual relationship as a beneficiary to his mother's estate. However, Section 112.313(12), Florida Statutes, contains no exemption for "insignificant" or "unintentional" conflicting contractual relationships, and we are reluctant to construe one.

Accordingly, we find that a prohibited conflict of interest would be created were the Comptroller to be a stockholder in Companies A, B, and C, when subsidiaries of those companies conduct operations within the State of Florida subject to regulation by the Department of Banking and Finance.

QUESTION 2:

May the Comptroller hold the inherited stocks in a "blind trust" established in accordance with the terms and provisions described herein?

This question is answered in the negative.

You advise in your letter of inquiry that if Question 1 is answered in the affirmative, the Comptroller seeks to ascertain whether he can avoid the proscriptions contained in Section 112.313(7)(a), Florida Statutes, by placing the inherited stocks in a "blind trust." You define the term "blind trust" to mean a trust in which the Comptroller has a beneficial interest in the principal or income, and which meets the following requirements:

1.(a) The trustee of the trust and any other entity designated in the trust instrument to perform fiduciary duties is a financial institution, an attorney, a certified public accountant, a broker, or an investment advisor who:

(1) Is independent of and not associated with the Comptroller so that the trustee or other person cannot be controlled or influenced by the Comptroller; and

(2) Is not and has not been an employee of or affiliated with the Comptroller and is not a partner of, or involved in, any joint venture or other investment with, the Comptroller; and

(3) Is not a relative of the Comptroller.

(b) The requirements outlined above would also be applicable to any officer or employee of a trustee or other entity involved in the management or control of the trust.

2. Any asset transferred to the trust by the Comptroller is free of any restriction with respect to its transfer or sale.

3. The trust instrument which establishes the trust expressly provides that:

(a) The trustee in the exercise of his authority and discretion to manage and control the assets or the trust shall not consult or notify the Comptroller; and

(b) The trust tax return shall be prepared by the trustee or his designee, and such return and any other information relating thereto (other than the trust income summarized in appropriate categories necessary to complete the Comptroller's tax return) shall not be disclosed to the Comptroller; and

(c) The Comptroller shall not receive any report on the holdings and sources of income of the trust, except that a report at the end of each calendar quarter with respect to the total cost value of the interest of the Comptroller in the trust or the net income or loss of the trust or any reports necessary to enable the Comptroller to complete an individual tax return required by law or financial disclosure required by law, but such report shall not identify any asset or holding; and

(d) Except for communications which solely consist of requests for distributions of cash or other unspecified assets of the trust, there shall be no direct or indirect communication between the trustee and the Comptroller with respect to the trust unless such communication is in writing and unless it relates only to the general financial interest and needs of the Comptroller (including, but not limited to, an interest in maximizing income or long-term capital-gain); and

(e) The Comptroller shall make no effort to obtain information with respect to the holdings of the trust, including obtaining any trust tax return filed or any information relating thereto except as provided herein.

4. The proposed trust instrument and the proposed trustee is reviewed and approved by the Commission for compliance with the requirements set forth herein.

Initially, we note that the terms and conditions for the "blind trust" proposed by the Comptroller closely parallel the requirements for "qualified blind trusts" established pursuant to Section 202(f)(3) of the Ethics in Government Act of 1978 (Pub. L. 95-251, as amended). Unlike the federal law, however, Florida's Code of Ethics for Public Officers and Employees contains no provision for the creation of blind trusts. While we believe that the policy considerations underlying the creation of blind trusts are laudable, we do not believe that we have the necessary authority to, in effect, legislate an entirely new concept into the ethics laws of this state.

Moreover, there are a number of exemptions in Section 112.313(12), Florida Statutes, which have the effect of absolving the existence of a conflict of interest under Sections 112.313(3) or 112.313(7), Florida Statutes. However, there is no provision which would absolve a conflict where the public officer or employee had created a blind trust to administer his assets while he served in a public capacity. We believe the legal maxim that the express mention of one thing is the exclusion of another (expressio unius est exclusio alterius) is applicable to this issue. Orr v. Trask, 464 So.2d 131, 135 (Fla. 1985), citing Dobbs v. Sea Isle Hotel, 56 So.2d 341 (Fla. 1952). This well-established principal of statutory construction prevents us from interpreting the Code of Ethics for Public Officers and Employees to create an exemption in Section 112.313(12), Florida Statutes, involving the establishment of blind trusts.

Accordingly, without express authority from the Legislature to do otherwise, we find that the Comptroller may not avoid a prohibited conflict of interest under Section 112.313(7)(a), Florida Statutes, by establishing a "blind trust" to hold shares of stocks in companies, the subsidiaries of which are engaged in operations in the State of Florida which are subject to regulation by the Department of Banking and Finance.