Five Wall Street investment banks may or may not have learned a lesson Thursday that dues paid to a California financial industry lobbying organization aren’t the kind of costs you can write off as underwriting expenses.   

Although Citibank, Merrill Lynch, Goldman Sachs, JPMorgan Chase & Co. and Morgan Stanley agreed to pay a cumulative $3.35 million in fines levied by the Financial Industry Regulatory Authority (FIRA), they did not admit or deny any wrong doing. They also agreed to pay $1.13 million in restitution.

The five firms, in effect, billed municipal and state bond taxpayers between 2006 and 2010 for reimbursement payments they made to the California Public Securities Association, a group that lobbies the California state government. The lobbying dues were unrelated to the bond deals.

Back in February 2011, California State Treasurer Bill Lockyer said the practice was “improper, it will stop now, it will not happen again, and we will get our money back.” That was when Citigroup and 16 other underwriters reimbursed California $2.3 million after an investigation found they used taxpayer funds to pay fees to their lobbyists.

Lockyer spokesman Bill Ainsworth said of the new FINRA action, “It sends a message that it is wrong for underwriters to charge taxpayers for lobbying and political activities.”    

But Marilyn Cohen, founder of Envision Capital Management Inc. in Los Angeles, was a tad more skeptical. “The script remains the same. I’m not surprised―my surprise is they found it. That’s just the cost of doing business. It’s all pay-to-play.”

–Ken Broder

To Learn More:

Five Wall Street Investment Banks Fined for Using Bond Sale Proceeds to Pay California Lobbyist (by Dale Kasler, Sacramento Bee)

Citigroup Among 5 Banks Fined Over Muni-Bond Lobbying Costs (by Brian Chappatta, Bloomberg)

FINRA Sanctions Five Firms $4.4 Million for Using Municipal and State Bond Funds to Pay Lobbyists (Financial Industry Regulatory Authority)