CHICAGO — Minneapolis-based Piper Jaffray & Co. is banned from doing negotiated underwriting business and financial advisory work with its home state of Minnesota and its agencies until the spring of 2007 as a result of improper contributions made by a municipal finance professional to Gov. Tim Pawlenty.
Piper confirmed it had triggered the ban by running afoul of the Municipal Securities Rulemaking Board’s Rule G-37, but refused to release information regarding its timing and that the contributions were made to Pawlenty. After inquiries about the ban, the firm said in a statement that the political contributions totaled $700, an amount that exceeds the $250 limit municipal finance professionals are allowed to contribute to a candidate or incumbent for whom they can vote for if the candidate is seeking or holds an office with influence over the awarding of bond business.
Rule G-37 bans a municipal dealer from doing negotiated business with an issuer for two years if the firm or one of its municipal finance professionals makes a significant contribution to an official of that issuer.
“While the donations were well within legal guidelines, the total exceeds the limit allowed by an MSRB rule for companies that participate in public financing,” a statement provided by firm spokeswoman Susan Beatty read. “Exceeding the limit was entirely unintentional.”
“The outcome is that Piper Jaffray is restricted from participating in select types of bond issues with the state of Minnesota for a limited period of time. Piper Jaffray has tightened its procedures relating to the MSRB requirement,” the statement read further.
Beatty declined to comment on the potential impact the ban could have on the firm’s revenues, citing regulatory rules regarding the disclosure of financial projections for publicly traded companies, but a source at the company described the loss as “not being material.” The officials said no layoffs would result and that the firm continues to look for opportunities to grow its municipal business.
While the state sells the vast majority of its debt competitively, the firm does have long-standing relationships with other state-related issuers as a negotiated underwriter and has private higher education and health care clients that use state conduit agencies all of which now fall under the ban. Private clients could still use Piper but they would have to use a non-state agency or local municipality to issue their debt.
Local market sources agreed that given the firm’s ability to still bid competitively on state-related debt and to underwrite municipal and school district bonds, the revenue hit might not be as damaging as it could have been in some other states, but said it was significant nevertheless. “Given their relationship with the state housing agency, this is a big loss,” said one source.
Another local source suggested the ban had another cost attached. “From a revenue standpoint it may not be too big a blow, but from an image standpoint, it’s a big blow,” the source said.
The firm refused to provide additional information regarding the contribution, including the name or position of the individual who made it and whether the individual faces any disciplinary action, the timing of the payment or payments or the appeal status with the National Association of Securities Dealers.
Public finance sources said the contributions were made in three separate checks and that the ban was in place until April, 2007, suggesting that the contribution that exceeded the limit was made this past April. The source said the contribution was made by a senior official at the firm who did not work in the fixed-income department and that it the firm reported the error to regulators.
A review of the firm’s quarterly G-37 filings this year revealed two occasions on which $250 contributions had been made to Pawlenty and were returned. In the third quarter filing, the firm reported a $250 contribution made by an “Executive Officer MFP (municipal finance professional)” that had been returned. In an amendment dated Oct. 26 to the firm’s second quarter filing, the firm reported a $250 payment by an “Executive Officer MFP” that had also been returned. The original second quarter filing did not note any contributions.
Pawlenty’s campaign manager said he could not immediately name the individual who sought the return of contributions and that the list would not be made public until Jan. 31 — the next filing deadline under state campaign disclosure rules.
The MSRB board’s rule on campaign contributions governs contributions made by “municipal finance professionals,” but the definition of such an official is broad and includes certain firm executives and members of management with some supervisory role over the municipal department.
Piper has long ranked as one of top underwriters of statewide debt, often capturing the number one position ahead of other firms based in Minnesota including RBC Dain Rauscher, Wells Fargo Bank and Northland Securities, according to Thomson Financial.
Last year, Piper ranked second behind Lehman Brothers with $533 million of bonds managed in 64 issues. Its financial advisory business is far less substantial, with the firm working on just one deal for $11 million last year.
So far this year, the firm has worked as senior manager on $101 million of debt directly related to state issuers in four transactions compared to $165 million in six transactions last year. As a co-manager the firm is credited with $161 million in nine transactions compared to $213 million in eight transactions last year, according to Thomson Financial.
Those figures represent a piece of Piper’s overall $4.8 billion of bonds senior managed last year in 359 issues. The firm ranked 13th nationally among senior managers.
The firm over the last two years has worked on numerous negotiated deals for colleges through the Minnesota Educational Facilities Authority, hospital transactions through the Minnesota Agriculture and Economic Development Board and with the Minnesota Housing Finance Authority as a negotiated underwriter.
The firm has a 30-year relationship with the housing agency. “They’ve obviously done a good job for us as they’ve been repeatedly renewed as one of our underwriters,” said authority official Patricia Hippe, who declined to comment further because the agency is in the midst of a request for proposals process. The agency’s board is expected to decide on underwriters for a new four-year term at a meeting Dec. 15. Piper, RBC and UBS Financial Services Inc. are the three underwriters currently under contract as underwriters.
Piper has 12 public finance offices primarily located in the Midwest and Western regions of the country. Overall, it operates in 104 offices in 23 states and in London. Piper, formerly known as U.S. Bancorp Piper Jaffray, spun off from U.S. Bancorp in January 2004. The bank had acquired Piper in 1998. The company operates through two primary revenue generating business lines, capital markets and private client services.
Other Minnesota agencies include the Public Facilities Authority, the Office of Higher Education that issues students bonds, the University of Minnesota and the state colleges and university board.
Lynn Hume contributed to this story.
