Several of the minority-owned broker-dealers the Treasury Department has touted as part of a program to sell the government's shares of Citigroup are led by major donors to President Obama's political campaigns and to Democrats in Congress, a review of Federal Election Commission records by FutureOfCapitalism.com has found.
A Treasury press release described Loop Capital Markets as "an African American-owned full service investment bank and brokerage firm headquartered in Chicago, IL." Records show the firm's employees donated $45,550 to Barack Obama's federal political campaigns and $3,000 to Senator Kerry's campaigns. The firm's CEO, James Reynolds Jr., gave $10,000 to the Democratic National Committee, $15,000 to the Democratic Congressional Campaign Committee, $10,100 to the congressional campaigns of Jesse Jackson Jr., $3,000 to the congressional campaigns of Rahm Emanuel, and $2,300 each to the campaigns of Senators Durbin and Clinton.
The same Treasury release described Cabrera Capital Markets, LLC as "a Hispanic-owned full-service broker-dealer headquartered in Chicago, IL." The firm's president, Martin Cabrera, gave $30,400 to the Democratic Senatorial Campaign Committee on October 31, 2009 and $2,000 to Senator Kerry's campaign in 2004.
The Treasury press release describes The Williams Capital Group, L.P. as "an African American-owned full service broker-dealer based in New York, NY." Its CEO, Christopher Williams, has given $16,000 to the Democratic Congressional Campaign Committee and $6,300 toward the Obama campaign.
Treasury describes M.R. Beal & Company as "an African American-owned full service broker-dealer headquartered in New York, NY." Its CEO, Bernard Beal, gave $2,300 to the Obama campaign and $1,000 to the campaign of Rep. Charles Rangel.
No one is alleging that the firms got the business in exchange for the campaign contributions, which in some cases were made well before the government took its position in Citigroup.
Rule G-37 of the Municipal Securities Rulemaking Board restricts so-called "pay to play" campaign contributions at the state and local level by municipal bond underwriters. No such rule applies to broker-dealers seeking federal business, and any attempt to impose such a rule might run afoul of the First Amendment, which protects the rights of Americans to engage in political speech through campaign contributions.
I suppose on some level it's progress if employees and owners of minority-owned broker-dealers are now spending money on politicians as if they were white male defense contractors or drug company lobbyists. But on another level, it's discouraging. It promotes the image of the government as a kind of vending machine, in which interest groups insert cash in the form of campaign contributions and get back money in the form of government contracts, the profits from which they recycle again into campaign contributions.
If the federal government didn't own Citigroup shares in the first place, it wouldn't have these kinds of prizes to dispense.
It'll be interesting to see whether the eventual General Motors initial public offering has similar Treasury-mandated provisions to reward minority-, woman-, and veteran-owned financial firms, and, if so, whether the campaign contributors again will get a piece of the action.
The justifications for such set-aside programs were discussed in an earlier post here. Treasury has not said how much the firms stand to gain in fees from the transaction.