An Excellent Description of an Unethical Environment, and a Proposed Pay-to-Play Rule That Is Relevant Locally

One of the best descriptions of an unethical environment in a government agency can be found in the two-page statement that followed the guilty plea of David Loglisci, the former chief investment officer for the New York state pension fund.

At the center of the unethical environment was a man with what Loglisci refers to as three conflicting roles:  Hank Morris "was the paid outside political consultant to the sole trustee [the elected state comptroller]; he had a financial interest in multiple proposed alternative investments; and he had authority over investment decisions, including with respect to deals in which he had a financial interest." He also had a fourth role, as the comptroller's campaign manager.

The statement is summed up in the following two sentences:

Investment decisions were made in part according to political benefit for the comptroller, rather than exclusively in the best interests of the people. The political motivations for investment selection were chronic and institutionalized throughout the office, creating a culture of corruption at the highest levels.

This not uncommon setup of ceding control to an outside adviser not covered by ethics laws is often ignored in discussions of government ethics, which focus too much on government officials (I discussed this problem in an earlier blog post).

An S.E.C. Pay-to-Play Rule
An interesting and valuable offshoot of this scandal is a proposed S.E.C. rule that would prohibit investment advisers, such as Morris, from providing advisory services to a government entity for compensation for two years after the adviser or certain of its associates make a contribution to a government official who can influence the entity's selection of investment advisers. (For a summary of the rule, click here).

Pay-to-play rules tied to campaign contributions are an effective, although hardly foolproof way to deal with one aspect of the problem New York state's pension fund had. Any elected official who can influence the selection of investment advisers is in the position to make them pay for it, through the teeth, since there is so much money involved.

Such rules are equally effective with respect to contractors and developers at the local level, but they are far too rare. The hope is that an S.E.C. rule will become a best practice employed with respect to state and local pension funds, and then applied to the areas of procurement and land use.

Robert Wechsler
Director of Research-Retired, City Ethics

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