NYSE Fundraisers Draw Scrutiny
Grasso Drove Increased Pace of Events for Politicians
washingtonpost.com
By Kathleen Day and Ben White
Washington Post Staff Writers
Friday, September 26, 2003; Page A01
As a political fundraising event, it wasn't a bonanza. About 50 people gathered in the afternoon of July 21 for a light buffet and wrote checks for Sen. Christopher J. Dodd (D-Conn.).
What made the event noteworthy was its location: the members' club on the seventh floor of the New York Stock Exchange. The Dodd fundraiser was one of dozens that have been held at the exchange in the past few years, many of them facilitated by Dick Grasso, then the NYSE chairman, or the exchange's Washington lobbyists.
Many companies and organizations host campaign events, but the Big Board is in a unique position as a political fundraiser. It has a vigorous agenda in Washington, including preserving its dual role as the operator of a business for its member trading firms and being their frontline regulator on behalf of the Securities and Exchange Commission. The exchange's officials have routinely participated in helping raise donations from the very floor brokers, specialists and clerks over whom they hold federally sanctioned regulatory authority.
"They say, 'We need X number of dollars for Congressman Joe Smith, so you write a check to Joe Smith. I don't know who these guys are most of the time,' " said a stock trader who works on the exchange floor and attended the Dodd event.
The pilgrimage of members of Congress, governors and mayors to Wall Street to raise money is not new; the NYSE has hosted fundraisers for years. But the tempo of the events stepped up markedly during Grasso's eight years as head of the Big Board, sources said. After Grasso's resignation over the controversy surrounding his $187.5 million pay package, regulators are scrutinizing the conflicts inherent in the dual roles played by the exchange.
"You can't serve two masters and be faithful to both," said Peter J. Wallison, a Reagan administration official and financial market expert at the American Enterprise Institute, a conservative think tank. "There's something wrong with using government-sanctioned power to facilitate fundraising for members of Congress or other elected officials. . . . How would we feel if the SEC invited in a group of investment bankers and created a situation where members of Congress could solicit them for funds?"
The increased frequency of NYSE club fundraisers -- about one a month, sources said -- reflected both the growing demand for campaign money and the importance Grasso placed on being politically well connected to promote the exchange's interests in Washington.
NYSE officials declined this week to disclose the names of members of Congress and the dates they had fundraisers at the club. The Specialist Association, the group that represents many of the NYSE's traders and whose members are listed as the hosts of the fundraisers, also would not provide details.
Sources familiar with the practice said House Financial Services Committee Chairman Michael G. Oxley (R-Ohio), former Senate Banking Committee chairman Phil Gramm (R-Tex.), Sen. Charles E. Schumer (D-N.Y.), New York Gov. George E. Pataki (R) and former New York City mayor Rudolph W. Giuliani (R) were among dozens of politicians who had fundraisers thrown for them by NYSE traders in recent years. Most of them were scheduled at the suggestion of Grasso's office or the NYSE's lobbying office in Washington, the sources say.
Dick L. Ribbentrop, a former aide to Gramm who heads the NYSE's Washington office, said in an interview that because the events take place at the club, or, less frequently, at a member firm's offices, the exchange is not officially hosting the event and therefore not responsible for releasing the information.
Sources familiar with the practice said floor traders occasionally suggested a fundraiser on their own, then coordinated it with the NYSE's Washington office. But more often, sources said, members of Congress or New York state and city officials called the Washington office or Grasso's office directly.
If the politician was deemed important to the exchange -- if he or she was chairman of or on a committee with jurisdiction over an issue dear to the exchange -- or if Grasso had personally "told someone 'yes,' " the NYSE lobbyists referred the politician to David E. Humphreville, executive director of the NYSE's Specialist Association, sources said. Humphreville, who would not comment for this article, was the "go-to guy" for fundraisers for visiting members of Congress, said a source who has helped arrange visits.
The association represents firms whose 480 "specialists" conduct trading on the NYSE floor. Ribbentrop said he "sometimes" passes along information about a request for a fundraiser during daily discussions with Humphreville on a variety of exchange-related topics.
If Humphreville thinks the fundraiser is a good idea, he then asks a Republican or Democratic specialist on the exchange floor -- depending on the party affiliation of the elected official -- to host it, the sources said. The trader or group of traders then throws a breakfast or post-closing-bell reception in a room at the stock exchange luncheon club, a private club of NYSE members that has existed for more than 100 years. It is owned by NYSE members and pays rent to the exchange for its space in the building.
Ribbentrop said there is no "formal checklist" for handling a request for donations but that it would not be unusual for him and Humphreville to discuss them.
"There are a lot of requests for political contributions," Ribbentrop said. "I talk to Humphreville often about a number of issues. I might mention to him about a request from a member of Congress who supports our policies because he would be interested."
Ribbentrop said he does not know what percentage of the fundraisers are initiated by traders or through his office.
The Dodd fundraiser in July was hosted by trader Al Smith IV, a Connecticut resident and longtime friend of the senator, a Dodd spokeswoman said. She did not know if Smith, Dodd or someone else initiated the event.
NYSE officials said that under Grasso they lobbied against splitting the exchange's operation as both a member-owned business and a regulator, but that could change. Ribbentrop noted that a special board committee reviewing how the exchange operates has said "everything's on the table" for review.
"I'll be waiting for my guidance from the special committee and head of the exchange," he said.
The NYSE has its own political action committee, though its donations have fallen off in recent years, from a high of $238,000 to federal candidates in 1997-98, to $179,000 in 1999-00, to $125,500 in the last election cycle. Grasso, who could not be reached for comment, gave about $23,000 to candidates from 2000 to this year.
Federal Election Commission records also show that executives of the trading firms, and the firms themselves, have given hundreds of thousands of dollars to candidates in both parties in the past several years. For example, Robert B. Fagenson, an exchange director who is also vice president at specialist firm Van der Moolen, has given $61,000 in the past four years. Fagenson did not return calls for comment on his contributions.
Laura Cox, spokesman for Securities and Exchange Commission Chairman William H. Donaldson, said Donaldson recalls fundraisers for elected officials, including members of Congress, when he was chairman of the NYSE from 1990 to 1995. She said he recalls little beyond that they were infrequent and held in the exchange's luncheon club.
Cox said he was and is aware of the conflict of interest that would exist if a NYSE chairman were to promise a politician a fundraiser by traders the chairman also regulates.
"Clearly this is something that warrants review. There's a heightened sensitivity that exists now in order to restore integrity to the New York Stock Exchange," she said.
A spokeswoman for Oxley, Peggy Peterson, said the NYSE events never influenced the congressman. She said Oxley and the exchange have been on opposite sides of several issues. For example, she said, Oxley opposed a return to pricing stocks in 5-cent increments, rather than pennies, an idea floated by Grasso before he resigned. Current and former exchange officials confirmed that, noting that one reason fundraisers for Oxley are deemed important is to try to make him more open to the NYSE's point of view.
A spokeswoman for Giuliani said she could not quickly determine whether the former mayor had attended a fundraiser on his behalf at the exchange. A spokesman for Pataki confirmed he had attended at least one in the past two years. Schumer's office did not return repeated telephone calls.
The NYSE's role as a regulator goes back to the creation of the SEC by Congress in 1934 to police securities markets. It gave the agency the authority to delegate frontline regulation to the industry itself. And it designated the NYSE as a self-regulatory organization whose oversight of the industry would be monitored by the SEC.
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