Alan S. Plofsky, Executive
Director and General Counsel for the State Ethics Commission, has asked the
Commission to issue an advisory opinion determining whether George M. Reider, Jr., State Insurance Commissioner, has a conflict
of interest, real or apparent, in participating in a public hearing concerning
the acquisition of The Aetna Casualty and Surety Company and the Standard Fire
Insurance Company (Aetna) by The Travelers Insurance Group, Inc. (Travelers).
The Commission’s Counsel has asked that the State Ethics Commission, through its
Opinion, address various issues which had been raised by a prior declaratory
ruling request (now withdrawn) from Attorneys Steven H. Meyer and Richard A. Bieder.
Specifically, that request stated, on information and belief, that Mr. Reider was, for many years, employed by Aetna;
and, as a result, may be entitled to certain benefits from the Company, such as
a pension and health care. It was
further claimed that Mr. Reider owned stock in Aetna;
and that it was also probable that shares in the company were held by one or
more of the following: his spouse,
dependent children, children, spouses of children,
parents, brothers or sisters. Finally,
the request asked that the Commission determine whether these claims were, in
fact, true; and, if so, whether Commissioner Reider
had either a real, potential, or the appearance of, a
conflict of interest in participating in the aforementioned hearing.
By way of background, the Commission notes the following:
On April 7, 1995,
Mary Ann Hanley, Legal Counsel for the Governor, wrote to Alan Plofsky, General Counsel for the State Ethics Commission,
regarding Mr. Reider’s proposed appointment as
Insurance Commissioner. In her
memorandum, Attorney Hanley stated that, upon confirmation, Mr. Reider would accept a lump sum payment from the Aetna
and officially retire; and would also place his Aetna
stock in a blind trust.
On April 11, 1995,
the Commission’s Counsel responded that, as had been previously discussed, the
above described steps would fully address any potential for a conflict of
interests under the Code of Ethics.
Next, on February
23, 1996, Commissioner Reider wrote to
the Commission’s Counsel seeking a specific review of whether the Commissioner
serving as hearing officer and rendering a decision regarding the proposed
acquisition of Aetna by Travelers would constitute a
conflict of interests under the Code of Ethics.
By letter of February
28, 1996, the Commission’s Counsel reiterated his prior
position. Specifically, he stated that
Commissioner Reider’s creation of a blind trust for
his Aetna interests (i.e., stock options)
was a legally authorized device for the avoidance of a conflict of interests
which would permit him to act on the Travelers application.
The State Ethics Commission now formally endorses the prior
informal advice of its Counsel, with one significant amendment necessitated by
the receipt of additional information.
Conn. Gen. Stat. §§1-85 and 1-86 define and proscribe
substantial and potential conflicts of interests for purposes of the Code of
Ethics. Under §1-85 (substantial
conflict) one must have “…reason to believe or expect that he, his spouse, a
dependent child, or a business with which he is associated will derive a direct
monetary gain or suffer a direct monetary loss, as the case may be, by reason
of his official activity.” Under §1-86 (potential
conflict) the applicable standard is that the individual’s actions “…would
affect a financial interest of himself, his spouse, parent, brother, sister,
child or the spouse of a child or a business with which he is associated, other
than an interest of a de minimis nature…”
By establishing a blind trust for his (and his wife’s) Aetna
stock options Commissioner Reider has taken all
necessary and proper steps, under the Code of Ethics for Public Officials, in
an attempt to avoid any substantial or potential conflict of interests. Such blind trusts are widely recognized as an
appropriate device for avoidance of conflicts, and are specifically referenced
in the Code as a legally sanctioned method for “…divestiture of all control and
knowledge of assets.” Conn. Gen. Stat.
§1-79(a). The State Ethics Commission has now
been informed, however, that despite Commissioner Reider’s
good faith efforts the blind trust is not absolute. Specifically, certain 1994 Aetna
stock options will not vest until March
25, 1996 (1200 shares) and March
25, 1997 (1200 shares); and, therefore, it is impossible for the
Commissioner to divest himself of knowledge of these assets.
With regard to the 1994 options vesting in 1997, any
possible effect that the Commissioner’s decision on the proposed acquisition
might have on the price of Aetna stock would, given the
myriad forces at work in the financial markets, be obviously attenuated by the
time the options in question could be exercised. Therefore, the objective standards of §§1-85
and 1-86 i.e., “…reason to believe or expect…a direct monetary
gain” and “would affect a financial interest…” are clearly not present in this
case. (In contrast, see, e.g.
State Ethics Commission Docket No. 89-2 (August
8, 1989). Legislator guilty
of a conflict of interests when he took official action on legislation
authorizing a bank merger; and, under the merger agreement, the legislator’s
bank stock would be purchased for 250% of book value.)
With regard to the options which vest in less than two
weeks, however, the potential for a foreseeable financial effect resulting from
the Commissioner’s decision on the proposed acquisition is far greater. Unlike State Ethics Commission Docket No. 89-2,
supra,
the acquisition under review is an asset purchase and does not establish a
stock buyout price. Nonetheless, it is
reasonable to assume that a decision by the Insurance Commissioner to reject
the acquisition would have a near term negative impact on the value of both Aetna
and Travelers stock. Given the fact that
Commissioner Reider’s trustee will acquire the right
to purchase a not insubstantial amount (1200 shares) of Aetna
stock at the very time the Commissioner is being called upon to render a
decision on Travelers’ proposed acquisition of Aetna, a
conflict of interests exists under the provisions of the Code of Ethics for
Public Officials. When advised of this
conclusion, Commissioner Reider immediately agreed to
legally postpone his vesting rights in the options at issue until March, 1997;
thereby eliminating the conflict.
Finally, with regard to the remaining assets in the trust,
given Commissioner Reider’s lack of knowledge as to
his holdings, the statutory standards of §§1-85 and 1-86 cannot possibly obtain
in this instance. Consequently, no
impermissible conflict now exists, under the Code of Ethics for Public
Officials, by virtue of the stock options Commissioner Reider
received as an Aetna employee.
Turning to the issue of Commissioner Reider’s
Aetna benefits, he has, by letter of March 8, 1996, disclosed the
following: a 100% joint annuity payable
on a monthly basis during his lifetime and/or his wife’s; an Incentive Savings
Plan, which is a 401K retirement plan.
(All contributions by Mr. Reider and the
company ceased at the time of his retirement.
Stock equivalent units in the Plan were converted to an interest bearing
account at the time the blind trust was established); medical and dental
benefits, the costs of which are paid by a standard company contribution and an
additional amount paid by Mr. Reider; and group term
life insurance.
Simply stated, neither the enumerated retirement benefits
nor the interest bearing account will be affected, in any foreseeable fashion,
by the Commissioner’s decision on the proposed Travelers acquisition of Aetna. As a consequence, there is no conflict, substantial
or potential, under the Code of Ethics for Public Officials.
With regard to the possible stock holdings of the relatives
listed in the prior request for a declaratory ruling, Commissioner Reider’s March eighth letter discloses that the only individual
with any Aetna stock is one of his sons. Specifically, this son, through a 401K plan,
owns the equivalent of 48 shares of stock valued at $3,751 as of March 8, 1996. The Commissioner further discloses that his
son was hired as an Aetna employee in November, 1991 and
holds the position of Planning Consultant with Aetna Health Plans.
Again assuming, for purposes of this Ruling, that
Commissioner Reider’s decision on the proposed
acquisition would have a foreseeable effect, at least in the near term, on the
price of Aetna’s stock; any resultant effect on his
son’s 48 share interest would be clearly de minimis. (See
Declaratory Ruling 89-G (September 11,
1989). Spouse of Chairperson
of the Connecticut Hazardous Waste Management Service held 373 shares of
Northeast Utility stock. This asset was
found to be de minimis when viewed in
the context of a one million dollar assessment against the Company’s 109
million outstanding shares.) Therefore,
no conflict of interests exists under the applicable provisions of the Code of
Ethics for Public Officials.
Finally, the State Ethics Commission declines to respond to the
request for a determination of whether there exists, in this instance, any
appearance of a conflict of interests.
As the Commission has often stated, “The Code of Ethics for Public
Officials does not speak of appearances of conflict, only actualities.”
Advisory Opinion No. 90-6, 51 Conn.
L.J. No. 35, p. 3D (2/27/90).
By order of the Commission,
David T. Nassef
Chairperson
