Advisory Opinion No. 2011-2

July 21, 2011

Question Presented:      May the Department of Banking accept a cash contribution from an outside source that would be deposited into a Department account and used to pay for expenses associated with its annual Securities Forum, including paying for Department employees to travel to and attend the state event.

Brief Answer:        Yes.  Because the cash contribution will be used to support a state event that facilitates state action, it constitutes a valid “gift to the state” under General Statutes § 1-79 (e) (5).

At its July 2011 regular meeting, the Citizen’s Ethics Advisory Board (“Board”) granted the petition for an advisory opinion submitted by Eric J. Wilder (“Petitioner”), assistant director of the state Department of Banking’s Securities and Business Investments Division.  The Board issues this advisory opinion on the date shown below in accordance with General Statutes § 1-81 (a) (3).  The opinion interprets only the Code of Ethics for Public Officials (“Ethics Code”) and its regulations, is binding on the Board concerning the person who requested it and who acted in good-faith reliance thereon, and is based solely on the facts provided by the Petitioner.    

Facts

           

            The facts provided by the Petitioner are set forth (in relevant part) below and are considered part of this ruling:

The Connecticut Department of Banking (“Department”) is seeking an advisory opinion from the . . . Board . . . regarding whether the Department may accept a cash contribution from outside donors that would be deposited into an agency account and used to pay for expenses associated with the Department’s annual Securities Forum.  These donors generally would be attorneys that represent clients before the Department and serve on the Banking Commissioner’s Securities Advisory Council.  The cash would supplement attendee registration fees in covering event cost. 

By way of background . . . the Banking Commissioner has appointed a Securities Advisory Council (“Advisory Council”) with members drawn from the securities bar and private sector.  The purpose of the Advisory Council is to provide non-binding advice, recommendations and technical assistance to the Department on matters affecting the administration of Connecticut’s securities laws, the promulgation of related agency regulations and policies.  The Department in conjunction with the Advisory Council puts on an annual Securities Forum.  Advisory Council members receive no compensation from serving on the Council or from participating (e.g., as panelists) in the Securities Forum.

The purpose of the Securities Forum is to keep broker-dealers, investment advisers, financial planners, securities attorneys, bankers, insurance agents, accountants and other financial professionals up-to-date on regulatory developments.  The program includes panel presentations on state and federal regulatory issues affecting the securities industry.  A luncheon with a keynote speaker is also part of the Securities Forum.  The Securities Forum is a means for the Department to communicate with the securities industry and facilitates the Department’s ability to convey important legislative, policy and enforcement information to the industry.  By keeping financial services industry professionals apprised of regulatory developments, the Department encourages better regulatory compliance.

The Department and the Advisory Council have sponsored twenty two annual Securities Forums, which have hundreds of attendees every year.  The Department, with the Assistance of the Advisory Council, is exploring the feasibility of holding a Securities Forum this year.  To cover a portion of the cost for the Securities Forum, the Department charges a program fee which includes course materials as well as a luncheon.  Department staff that attend the Securities Forum make presentations; assist in running the program; or receive training.  Historically, the Department has provided registration fee waivers to fellow state and federal regulators, Department staff that attend the program and speakers and panelists.  The annual Securities Forum has never generated a profit.  Indeed, the expenses of the Securities Forum have never been fully covered by the registration fees.  Rather, the Department has used funds from an investor education fund funded by Department imposed fines, to cover any costs of the Securities Forum that were not covered by registration fees.  Given the current economic environment, Department subsidization of the Securities Forum is highly doubtful.

The question that arises is whether the Department may accept a cash contribution from a donor (e.g., one or more Advisory Council members) that would be deposited into a Department account and used to pay for Securities Forum expenses that are not covered by registration fees, including, among other things, paying for Department employees to travel to an attend the Securities Forum. . . .[1] 

Analysis

Under the Ethics Code, a state employee or public official is prohibited from knowingly accepting any “gift” from a restricted donor, namely, a lobbyist registrant (i.e., a person required to register as a lobbyist under General Statutes § 1-94), and a person the public official or state employee knows or has reason to know is (1) doing business with or seeking to do business with his or her department or agency, (2) engaged in activities directly regulated by such department or agency, or (3) prequalified under General Statutes § 4a-100 (i.e., prequalified building contractors).[2]

The term “gift” is statutorily defined to include “anything of value, which is directly and personally received, unless consideration of equal or greater value is given in return.”[3] From that broad definition, eighteen exceptions have been carved out, including one for so-called “gifts to the state.”[4]  Under this gift exception’s current iteration, the term “gift” does not attach to

1.      goods or services which are provided to a state agency or quasi-public agency,

2.      for use on state or quasi-public agency property, or

3.      that support an event, and

4.      which facilitate state or quasi-public agency action or functions.[5]

In this case, the first and fourth parts—both of which are mandatory (see italicized “and”)—are satisfied.  As for the first, because the attorneys would be providing money “to a state agency” (i.e., the Department), the only question is whether money translates to “goods or services.”  Clearly not “services,” money must, in order to satisfy the first part, fall under “goods,” and both this Board and the former State Ethics Commission determined that it does.[6]  By way of analysis, looking to the dictionary definition of “goods”—as we must, given its lack of definition in the Ethics Code[7]—Black’s Law Dictionary states: “Goods.  A term of variable content and meaning.  It may include every species of personal property [e.g., money[8]] or it may be given a very restricted meaning.”[9]  In Patton v. Brady, the U.S. Supreme Court opted for the term’s broader sense, stating:

The term ‘goods’ is broad enough to include money, and as used in this statute must be held to be so inclusive, for it would be strange that a cause of action for taking and carrying away a thousand pieces of silver, should survive the death of the defendant, while a like action for taking and carrying away a thousand dollars in money should not.[10]

Would it not likewise be strange that a restricted donor could, for example, give a fax machine to a state agency, but not money to purchase one?  Or a computer to a state university, but not money to fund student scholarships?  We think so, and find support in § 1-79 (e) (5)’s recent legislative history, wherein the General Assembly made clear that money “that supplies scholarships for students in need” is a valid “gift to the state.”[11]  We therefore reaffirm that the term “goods” is inclusive of money, meaning that, in this case, the first of § 1-79 (e) (5)’s four parts is satisfied.

            Turning to its fourth part, the money in question must “facilitate state or quasi-public agency action or functions.”[12]  Returning to the legislative history of § 1-79 (e) (5), the following colloquy took place at the provision’s inception:

“SENATOR UPSON: And lastly for the . . . legislative intent.  I guess I understand what goods and services which are provided to the State.  How do they facilitate state action?

“SENATOR HERBST:  I guess I will go back to the use of the fax machine, if in some way makes it easier for an agency to operate, I think would facilitate the action.”[13]

So the question here is, will the money make it easier for the Department to operate?  As noted the Petitioner, the money will be used to finance the Securities Forum, which will enable the Department to “convey important legislative, policy and enforcement information to the [securities] industry,” which will encourage “better regulatory compliance,” which will, in our view, make it easier for the Department to operate, meaning: § 1-79 (e) (5)’s fourth part is satisfied.

That leaves § 1-79 (e) (5)’s second and third parts, and the statute requires one or the other, either that the money be “for use on state . . . property” or that it “support an event.”  Although not for use on state property, as the Securities Forum will be held at a non-state location, the money certainly supports an “event,” another statutorily undefined term whose dictionary definition is this: “[s]omething that takes place; an occurrence,” or “[a] significant occurrence or happening.”[14]  Regardless of whether we adopt the term’s broader sense (i.e., something that occurs) or its more circumscribed sense (i.e., something significant that occurs), the annual Securities Forum, going on its twenty-third year and serving hundreds of attendees in each one, fits the bill.  

            Having determined that the money in question is a “good” that will be provided “to a state agency” in order “to support an event” that will “facilitate state . . . action,” we conclude not only that its donation to the Department is a valid “gift to the state” under § 1-79 (e) (5), but also that there is nothing that would prohibit the Department from deciding to use some of it to pay for its employees to travel to and attend this state event.  Indeed, many times did the former State Ethics Commission determine, by way of informal staff letter, that funds donated by a restricted entity to support a state event may be used by a state agency to facilitate its employees’ attendance.[15]  In one of those letters, addressing a nearly identical scenario, it was determined that the Insurance Department could accept money from restricted donors to support its educational seminar on insurance fraud—and could use those funds “to completely offset the . . . cost of state employees to attend the event . . . .”[16]

By order of the Board,

Dated   July 21, 2011                                 Thomas H Dooley  

Chairperson