Advisory Opinion No. 2003-1

Mr. Marc Reich, President of Ironwood Capital Ltd. (Ironwood) has asked the State Ethics Commission whether the prohibition contained in Conn. Gen. Stat. §1-84(n) applies to his firm based on the following facts.

Ironwood is an investment banking firm engaged in the practice of providing capital raising and advisory services to a wide range of organizations. Mr. Reich is one of two shareholders in the firm and holds a majority interest.

Ironwood has been retained to provide advice and capital raising services in the formation of Ironwood Capital SBIC Fund LP, a fund of funds (FOF). On November 22, 2002, Ironwood submitted an offering memorandum to the State Treasurer describing the FOF and seeking further discussion that could lead to an investment of state funds in the FOF.

In October 2002, Roger Roche, Jr., an employee and part owner of Ironwood Capital Advisors LLC (Advisors) made a political contribution of $1,000 to the campaign of Mr. Ross Garber, then a candidate for the Office of State Treasurer. Advisors is related to Ironwood by the fact that Ironwood’s owners also hold an ownership interest in Advisors. Mr. Roche, however, has no ownership interest in and is not an employee of Ironwood.

Conn. Gen. Stat. §1-84(n) reads as follows:

(1) As used in this subsection, (A) "investment services" means investment legal services, investment banking services, investment advisory services, underwriting services, financial advisory services or brokerage firm services, and (B) "principal of an investment services firm" means (i) an individual who is a director of or has an ownership interest in an investment services firm, except for an individual who owns less than five per cent of the shares of an investment services firm which is a publicly traded corporation, (ii) an individual who is employed by an investment services firm as president, treasurer, or executive or senior vice president, (iii) an employee of such an investment services firm who has managerial or discretionary responsibilities with respect to any investment services, (iv) the spouse or dependent child of an individual described in this subparagraph, or (v) a political committee established by or on behalf of an individual described in this subparagraph.

(2) The State Treasurer shall not pay any compensation, expenses or fees or issue any contract to any firm which provides investment services when (A) a political committee, as defined in section 9-333a, established by such firm, or (B) a principal of the investment services firm has made a contribution, as defined in section 9-333b, to, or solicited contributions on behalf of, any exploratory committee or candidate committee, as defined in section 9-333a, established by the State Treasurer as a candidate for nomination or election to the office of State Treasurer. The State Treasurer shall not pay any compensation, expenses or fees or issue any contract to such firms or principals during the term of office as State Treasurer, including, for an incumbent State Treasurer seeking reelection, any remainder of the current term of office.

Mr. Reich has postulated two reasons why §1-84(n) should not be read to prohibit Ironwood from continuing to seek investment from the State Treasurer:

1. Mr. Roche is not a principal of Ironwood or the FOF; and
2. Mr. Roche did not make a contribution to a committee "established by the State Treasurer as a candidate for nomination or election to the office of State Treasurer.", since Mr. Garber’s candidacy was unsuccessful.

The answer to point no. 1 depends on an analysis of whether a contribution from a principal of a related investment entity which includes both owners of the investment services firm at issue should be attributed to that firm for the purposes of §1-84(n). In this instance, however, the Commission does not need to undertake such an analysis, because the response to point no. 2. is dispositive of Mr. Reich’s request for advice.

Pursuant to P.A. No. 02-130, Sec. 13 (effective May 10, 2002) §1-84(n) was amended. As part of this amendment, the words "the State Treasurer as" were added to the subsection as follows: "…established by the State Treasurer as a candidate for nomination or election to the office of State Treasurer." Prior to this amendment, the §1-84(n) prohibition applied regardless of whether a contribution was made to a successful or unsuccessful candidate for the office of the State Treasurer. Subsequent to this amendment, the unambiguous language of the statute clearly applies only to contributions to the incumbent or victorious candidate for the office. As a consequence, Mr. Reich’s firm is not prohibited by §1-84(n) from seeking or receiving compensation from the State Treasurer incident to the firm’s provision of investment services.

By order of the Commission,

Rosemary Giuliano
Chairperson