CHICAGO—The Nasdaq stock market's foundation made more than $250,000 in donations last year to non-profit groups affiliated with Nasdaq directors, a practice that has come under increasing scrutiny because of conflict-of-interest concerns.
In September, federal regulators demanded information about similar donations by the New York Stock Exchange and its foundation to organizations affiliated with former exchange board members who awarded the massive pay package that led to the resignation of former Chairman Richard Grasso.
A Chicago Tribune examination of the Nasdaq Stock Market Educational Foundation's tax filings and affiliations of the stock market's directors, meanwhile, found $257,000 in similar payments last year.
And the total reached at least $457,000, or 12 percent of the foundation's giving last year, taking into account donations to groups connected with governors of the National Association of Securities Dealers, plus directors' alma maters. The NASD controls Nasdaq through its majority ownership in the exchange.
The Nasdaq donations are dwarfed by the size of the NYSE donations, where contributions to groups associated with compensation committee members alone totaled $1.3 million last year. And Nasdaq chief executives have been paid much less than what Grasso received in recent years.
Still, critics say such donations can be problematic, and some foundations prohibit them entirely.
Addressing these types of donations generally, Pablo Eisenberg, a philanthropy expert and senior fellow at Georgetown University's Public Policy Institute, said they at least raise questions.
"I think it's a serious conflict of interest," he said. "In some way, it does smack of self-dealing."
Hardwick Simmons, who was chairman of both the Nasdaq stock market and its educational foundation in 2002, said Nasdaq directors may have recommended that groups with which they're affiliated seek donations from the foundation, which finances financial-markets education initiatives.
But he said that directors' positions do not influence the awarding of grants.
"These things make no difference whatsoever," he said.
Stock market officials said foundation board members recuse themselves from grant-award decisions if any conflicts of interest are identified.
"The Nasdaq's Educational Foundation board carefully screens each grant request ... and has adopted a conflicts of interest policy to help ensure that grants are objectively considered," Nasdaq said in a written statement.
Some policies are stricter
Some foundations, however, go a step further, adopting policies to ban donations to groups affiliated with the parent companies' directors.
Indeed, last month, the NASD launched its own Investor Education Foundation with such a prohibition on donations to groups affiliated with NASD governors.
"I think the reason for that is to avoid any potential conflicts of interest or to avoid any appearances as well," said John Gannon, NASD associate vice president for investor education.
"I think as a securities regulator, we have a strong interest in ensuring there's no conflict of interest," he said. "That's why we felt strongly about putting in that prohibition."
Some corporate foundations have gone a similar route, including the EDS Foundation.