A failure to abide by state pay-to-play legislation has led to SEC enforcement under the Exchange Act. The SEC has settled the matter brought against a former bank senior vice president and head of public funds, who was alleged to have entered into an agreement with a deputy treasurer of the State of Ohio and a purported lobbyist. As part of this agreement, fees were allegedly paid by the bank to the lobbyist, and actually operated as kickbacks to the deputy treasurer and campaign contributions his treasurer’s campaign. This arrangement was purportedly an inducement to the award of international sub-custodial business awarded by the state to the bank. It is alleged that the lobbyist was not actually a lobbyist, and had no prior experience, and that the bank’s payments to the lobbyist were intended by the bank’s senior vice president to be payments to the state treasurer.
In addition, the senior vice president arranged for political contributions to the campaign of the same official through a second lobbyist. The actions of the bank senior vice president violated the bank’s Standard of Conduct, and the use of the second lobbyist to funnel contributions to the state official’s campaign circumvented direct instructions of the bank’s compliance department.
Once the bank won the international sub-custody business, the senior vice president signed an agreement making representations of compliance with state pay-to-play laws — representations he knew to be false. The SEC charged the senior vice president with violation of Rule 10b-5 under the Securities Exchange Act. The SEC brought related charges against the bank, which demonstrated cooperation with the SEC by conducting an internal investigation, and appointing an independent law firm to conduct an investigation and share its findings with the staff of the Commission’s Division of Enforcement. The bank’s employees cooperated fully. In the matter of Vincent J. DeBaggis,; in re State Street Bank and Trust Company.