making local government more ethical
An excellent editorial yesterday by Dan Barton, editor of the Kingston (NY) Times, raises a few important issues relating to local government ethics proceedings.

According to Barton, Kingston's new ethics board dismissed a complaint from a city alderman that the mayor had violated the ethics code by hiring as an attorney for the city's local development corporation a lawyer with whom the mayor practiced as "of counsel."

According to an article last week in the Washington Post, the Fairfax County (VA) Attorney fired one of his office's assistant attorneys because she was elected to the council of a city within the county, even though he and his deputy who deals with personnel matters had given her permission to run for office. In a letter sent after the election, the county attorney explained the apparent contradiction as follows:
“I apologize if you were misled by the apparent ambiguity. I have never disputed that [Virginia law] bars localities from prohibiting its employees from participating in political activities…There is no right, however, under the First Amendment or otherwise that guarantees that an attorney can hold public office.”
In other words, you can run for office, but you can't win. However, it's not a First Amendment issue, it's a statutory issue. Section 15.2-1512.2 of the Code of Virginia expressly allows local government employees to participate in “political activities” as long as they are out of uniform, on their own time, and are not trying to use their position to solicit donations or support. Included in the definition of “political activities” is “becoming a political candidate.” Any reasonable interpretation of this would include winning an election. The only question is whether the office won may be within the county, at least with respect to an assistant county attorney.

A recent action by the Securities and Exchange Commission (SEC) against the city of Harvey, IL, a poor city of 30,000 just south of Chicago, deals with a different sort of fiduciary duty than the usual government ethics case. In a complaint dated June 24, 2014 (attached; see below), the SEC alleges that the city's comptroller acted as financial adviser in three bond issues for a hotel development, diverted some of the funds to himself, and also diverted funds to the city's general fund. The comptroller is acting as financial adviser for a 2014 bond offering, which the SEC is trying to prevent through a court restraining order.

The action is based on the city's fiduciary duty to disclose to investors how bond proceeds will be used, as well as the risks associated with investing in the city's bonds (but the term "fiduciary duty" is not actually used in the complaint). This is part of the SEC's promised crackdown on disclosure failures related to municipal bonds. Alternatively, the complaint alleges fraud and the making of false and misleading statements.

Many people believe that conflicts of interest are limited to situations where money is involved. When these people write ethics laws, as they often do, the law effectively says that where money isn't involved, any conduct is acceptable.

It's been six years since I last wrote about how asset forfeiture is a serious temptation to engage in ethical misconduct. I was planning to write about it again in light of a recent U.S. Supreme Court decision on the subject, Kaley v. United States, when I read that, according to an article in today's New York Daily News, a former Brooklyn district attorney was found by NYC's Department of Investigation to have improperly used money seized from drug dealers and other criminal defendants (that is, by asset forfeiture) to pay a consultant hundreds of thousands of dollars for work on his re-election campaign last year.

Should any official, especially an elected official with pressures to spend as much money as possible for re-election, have access to this kind of money? It is arguable that assets seized by the criminal justice system should be used for the criminal justice system, as has been allowed since the 1984 passage of the Comprehensive Drug Abuse and Prevention Act. It only seems fair. But that is only from the agency's point of view.

One of the great things about discussions of the conflicts of interest of people in the securities world is that "fiduciary duty" is considered the basis for the rules that govern their relationship with government officials and others. In discussions of the conflicts of interest of those whom they deal with in municipal governments and those who provide other sorts of advice or products to municipal governments, "fiduciary duty" often goes unmentioned.

I say this as an introduction to a discussion of the Municipal Securities Rulemaking Board's (MSRB) draft Rule G-42, entitled "Duties of Non-Solicitor Municipal Advisors" (the MSRB's text webinar on the draft rule is attached; see below). "Municipal advisors" are the people who advise municipalities with respect to their issuance of bonds and related transactions (the definition is complex and outside the bounds of this post).

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