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 <a href="http://graphics8.nytimes.com/packages/pdf/opinion/LOGLISCI_FINAL.pdf&qu…; target="”_blank”">the
two-page statement that followed the guilty plea of David Loglisci</a>,
the former chief investment officer for the New York state pension fund.<br>
<br>
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.<br>
<br>
The statement is summed up in the following two sentences:<br>
<ul>
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.<br>
</ul>
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 <a href="http://www.cityethics.org/node/678" target="”_blank”">an
earlier blog post</a>).<br>
<br>
<b>An S.E.C. Pay-to-Play Rule</b><br>
An interesting and valuable offshoot of this scandal is <a href="http://www.sec.gov/rules/proposed/2009/ia-2910.pdf" target="”_blank”">a proposed S.E.C.
rule</a> 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 <a href="http://www.thefreelibrary.com/Proposed+SEC+Rule+Would+Curtail+Use+Of+Pl…; target="”_blank”">here</a>).<br>
<br>
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.<br>
<br>
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.<br>
<br>
Robert Wechsler<br>
Director of Research-Retired, City Ethics<br>
<br>
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