An official (the Official) in the Investments Division of the State Retirement Systems (SRS) has requested our advice concerning the propriety of his spouse pursuing a career as a retail stockbroker, while he continues in his official capacity. The request involves the application of §§3-101(a), 3-103(a), 3-104 and 3-107 of the Maryland Public Ethics Law. (Md. Code Ann., Art. 40A, the "Law.")
The Official is involved in the institutional sale and purchase of stock on behalf of the SRS. His duties are generally those of a portfolio analyst. The Official is vested with considerable discretion concerning decisions to purchase or sell SRS stock, and is involved in the decision-making process through which determinations are made about the percentage of business the SRS will do with the various brokerage firms. Employees under his general supervision negotiate commission rates with brokerage firms for each order placed with the firm, though he indicates that the supervision of these employees in this particular matter tends to be assumed by his superior. The Official's spouse has not previously held a stock sales license; she seeks to establish a new profession in re-entering the job market after an extended interruption of employment status.
The Official indicates that the SRS places stock purchase and other orders through the institutional branches of various brokerage firms. According to the Official, his spouse expects to be employed in the retail branch of a brokerage firm for which she would work. The Official indicates that the institutional and retail branches of such brokerage firm are generally unrelated. Further, his spouse expects to be compensated solely by the commissions she would earn by conducting retail stock transactions.
The first provision of concern here is the strict prohibition in §3-103(a) of the Law, which prohibits an official from being employed by or having an interest in an entity which is under his or his agency's authority or which is negotiating or has entered a contract with his agency. The Official here would plainly not be employed by his spouse's brokerage firm, nor would such a firm appear to be under the authority of the SRS. However, the circumstances under which the SRS places stock transaction business with a brokerage firm would result in a contractual relationship between the firm and the SRS as is contemplated in §3-103(a). Thus, if the Official's spouse is employed by a firm that deals with the SRS in such transactions, then the provisions of §3-103(a) would be violated, if the Official is viewed as having an interest in the firm.
Section 1-201(m) of the Law defines the term "interest" as "any legal or equitable economic interest. ..which was owned or held, in whole or in part, jointly or severally, directly or indirectly...." This request does not present a situation where there is a clear, direct and easily negotiable interest, such as stock ownership, partnership or direct employment interest, in an official who is the subject to the Law. Rather, the issue is whether the Official, solely by virtue of his spouse's employment relationship, has an indirect legal or equitable economic interest in an employing brokerage firm.
Under Maryland law, a husband is viewed as having a right to support from his wife. Md. Code Ann., Art. 27, §88. We recognize also that where both spouses work, their earnings often form a common fund for family support. Moreover, we recognize that some transactions involving spouses, which appear to create separate interests, merely represent devices used for tax or other purposes and do not reflect a real separation of interest between the two spouses. The Ethics Law in several places addresses conflicts that would result from spousal holdings,1 and provides in some of the financial disclosure provisions of Title 4 for disclosure of spousal holdings. This reflects a recognition in the Law of the fact that sometimes a potential for a conflict of interest exists by virtue of some interest or employment of the spouse of an official or employee.
However, we do not believe that the Law was intended to reach every interest or employment of an employee's spouse. Section 4-102 of the Law provides that certain interests of a spouse should be attributed to an employee (and therefore reported on the financial disclosure statement) where the employee has "direct or indirect control" over the interest. In dealing specifically with spousal interests in some sections, the Law thus appears to recognize that not all such interests need be automatically viewed as those of an official or employee. We believe this is consistent with a realistic view that the marital relationship in our modern society does not necessarily result in an identity of interests between the parties either generally or before the law.
We thus do not believe that the mere fact that the Official's spouse works for a brokerage firm which negotiates and enters contracts with the SRS without any control or other evidence of an interest in the employee, in itself gives rise to even an indirect legal or equitable interest of the Official in the spouse's employer. This is particularly so in this situation where the Official has indicated that his spouse will be compensated solely by retail stock commissions, not derived from the brokerage firm. Any interest in the Official would be in his spouse's efforts, not in the brokerage firm itself. However, we wish to make clear that this view is based on our understanding of the particular facts before us. In circumstances where the facts of a situation indicate that an interest held solely by a spouse is nonetheless controlled or substantially impacted by a State employee or official, the interest would be viewed as an interest of the employee or official as contemplated in §1-201(m). (See, for example, Board of Ethics Opinion No. 81, Title 19 COMAR.)
We note that the Official has not provided us with the full description of the relationship between his spouse and the firm, as she has not yet accepted or firmly negotiated employment with a particular firm. We cannot speculate as to particular aspects of the spouse's employment which could result in a more substantial relationship between her and the firm that could be viewed as vesting the Official with a legal or equitable interest. Suffice to say here that the mere employment on a commission basis as presented here, does not, in itself, result in an interest in the Official that would be prohibited under §3-103(a) of the Law.
The second Ethics Law provision of concern in this request is §3-101(a), which is a non-participation provision limiting the ability of employees to participate on behalf of the State in matters in which they have interest or in which certain business entities with which they are connected are involved as a party. Section 3-101(a)(2), in particular, prohibits officials and employees from participating "in any matter, except in the exercise of an administrative or ministerial duty which does not affect the disposition or decision with respect to that matter, if a business entity of which his spouse is an employee is a party to the matter".
The Public Ethics Law does not define several of the key terms that are of importance in §3-101, specifically, the terms "matter," "participate" and "party." However, the Executive Order which pre-existed the Maryland Public Ethics Law, in defining the phrase "transaction involving the State" identified a transaction as "any proceeding, application, submission, request for ruling, or other determination, contract, claim, case or other such particular matter...." (Title 19 COMAR, Code of Ethics, Art. II, §9.) The Executive Order further defined the term "participate" as participating "as a State officer or employee in any proceeding, decision, determination, finding, ruling, order, grant, payment, award, license, contract, transaction, sanction or approval, or the denial thereof, or failure to act with respect thereto, personally and substantially through approval, disapproval, decision, recommendation, the rendering of advice, investigation or otherwise." (Code of Ethics, Art. II, §8.)
Many of the substantive provisions of the Law represent reworkings of the provisions in the Code of Ethics. However, there is nothing in the Law to indicate an intention to reject the application of these definitions or that use of the term "matter" rather than "transaction" in the disqualification provisions of §3-101 was intended to substantially change the substantive effect of the Law's disqualification provisions. We believe that the use of the term "matter" in §3-101 was intended to connote the same notion as the Code that officials and employees limit their participation in governmental actions that are sufficiently defined and particularized to be identified in connection with a particular action or step which the official would be prohibited from taking, as is set forth in the definitions of the term "participate" and "transaction." In applying these principles the Official would be prohibited from participating through advice, recommendation, supervision, evaluation, review or in any other way in any decision or determination relating, for example, to the placing of a stock order where his wife's firm is involved as a party.
Applying the definitions of "matter" and "participate" as discussed above would also require disqualification by the Official from participation in any such matter where his wife's firm is involved as a party. The concept of involvement as a party is not defined or otherwise specifically addressed in the Law. However, we believe that the application of this term must be viewed within the context of the entire Law. Where the statute is concerned with potential conflicts arising from specific situations relating directly to officials or family members, the prohibitions relate to actual legal or equitable interests of the individuals themselves. With regard to disqualifications required as a result of the activities of other entities with which an official or employee may be connected, subsections 3-101(a)(1) through (6), however, specifically apply only with regard to matters in which the entity is "involved as a party."
If the intent has been to prohibit actions with regard to matters in which such entities were generally concerned, the statute could have said that. We believe that the effect of the use of the different approach with regard to activities of the other entities is to narrow the application of §3-101(a)(2). Disqualification would not be required as to all matters with which such entities are generally interested, but those matters in which they have some specified and clearly defined role; the entities would have to be identified as parties to a transaction and likely to be impacted by the transaction in the usual legal sense of that term.
We therefore conclude that, as applied to the situation presented by the Official, §3-101(a)(2) would require his disqualification from participation in matters where his wife's employer is involved as a party to a brokerage contract, or negotiations therefor, or is identified and actively considered as one of several specific potential firms in the context of a particular SRS decision. We do not believe that the mere existence of such a firm in a relatively large universe of firms that could conceivably be given SRS business raises the firm to the status of a party to each and every investment decision. The Official has indicated that sales and commission decisions as to particular firms are generally made by his supervisor. He should take great care, however, recognizing the mandate in §1-102 of the Law to avoid even the appearance of conflict of interest, to avoid being involved in any situation which could be viewed as involving his decision-making in a matter in which his wife's firm would be involved.
Also in this connection, the Official should keep in mind the other provisions of the Law which could be viewed as impacting on his official activities should his wife become employed by a firm that contracts with the SRS. Section 3-104 of the Law, for example, prohibits a public official from the intentional use of the prestige of his office for the benefit of either himself, his spouse, or his spouse's firm as a result of his position as a manager of a substantial State investment office. Further, §3-107 prohibits a public official from using for his own benefit or that of another "confidential information which he has acquired by reason of his public position and which is not available to the public." Thus, the Official, in order to maintain the appearance of propriety, should take steps to avoid any situation where it would appear that any confidential information concerning SRS buying and selling decisions could be released which would benefit the spouse or her employer.
Mr. Calvert was a member of the Commission when this case was considered and decided, but resigned prior to the issuance of the formal opinion.
Herbert J. Belgrad, Chairman
William B. Calvert
Jervis S. Finney
Reverend John Wesley Holland
Barbara M. Steckel
Date: August 7, 1980
1For example, §3-101, see discussion below.