Commentary: Before You Reform Wall Street, Reform Yourselves

By Christopher Palmeri

Besides trailblazing New York State Attorney General Eliot Spitzer, few local officials have been as vocal about the need for Wall Street reform as the three musketeers of state finance: New York State Comptroller H.Carl McCall, California Treasurer Philip Angelides, and North Carolina Treasurer Richard Moore. They've issued press releases, rallied colleagues in other states, and vowed to use the clout that comes from overseeing over $200 billion in state funds to clean up the financial-services industry. Among other moves, they won't deal with brokerage firms that don't clearly separate investment-banking and research departments.

While wiping out conflicts of interest on Wall Street is certainly an admirable cause, there is one reform that McCall, Angelides, and Moore have yet to fully embrace--prohibiting state finance officials from accepting campaign money from individuals and firms with whom they do business. In fact, all three continue to receive significant funding from state contractors.

"I find it kind of surprising in the age of Enron and WorldCom that some issues have managed to slip under the radar screen," says Mercer Bullard, a University of Mississippi law professor and crusader for campaign reform. "The irony is pretty blatant."

Prohibiting such contributions is hardly a new idea. Outraged by so-called "pay-to-play" scandals in the early 1990s, the Municipal Securities Rulemaking Board, a quasi-governmental regulatory body, put severe limits on the ability of bond brokers to contribute to political campaigns in 1994. The Securities & Exchange Commission proposed a similar ban on contributions from money managers five years later, but after industry objections and legal challenges, the idea went nowhere. The SEC says it has had other priorities.

Reform advocates suggest that the restrictions on bond brokers may have had the unintended effect of pushing pols to look elsewhere for contributions. Case in point: North Carolina Treasurer Moore. In early 2001, he changed his office's long-standing policy of using just one law firm for state work. He has also encouraged out-of-state contractors doing business with North Carolina to use local law firms. A spokesperson says Moore's decisions to give business to more than one firm and promote the use of local firms are unrelated to campaign contributions. Still, lawyers are among his top contributors.

Angelides, who is on the 13-member board of the California Public Employees' Retirement System, has advocated investing more state pension money in venture capital, real estate, and private equity funds in California. The money managers who run such funds are among his top givers. Last November, for instance, CalPERS committed $150 million to three groups managing affordable-housing investments. In the months immediately before and after that commitment, principals at those firms sent a total of $75,000 to Angelides' campaign. A spokesperson says Angelides "casts his votes in the best interests of taxpayers and pensioners."

Comptroller McCall, the Democratic candidate for governor of New York, has received nearly $800,000 over the past three years from firms that do business with his office. McCall has denied that the money influences his investment decisions as sole trustee of the $112 billion New York State Common Retirement Fund.

Indeed, in a 1999 report calling for wide-ranging campaign-finance reforms, McCall endorsed a ban on contributions from anyone who does business with the office a candidate is seeking. But Steven Greenberg, McCall's communications director, says that since such a reform was never enacted, McCall "is not going to unilaterally disarm."

Few would argue with the efforts of the crusading trio to help clean up the Street. But it's hard to take them seriously when they at least appear to have conflicts of interest of their own. People in glass houses just don't make great reformers.

Correspondent Palmeri is based in Los Angeles.

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