News About Fine Putting Simon on the Defensive

Republican gubernatorial nominee Bill Simon Jr. was thrown on the defensive Friday over a $10,000 fine assessed against his family’s municipal bond firm as part of a New Jersey pay-to-play scandal.

The fine, levied by the National Assn. of Securities Dealers, grew out of the Simon firm’s 1991 dealings with Armacon Securities Inc., a company at the center of the kickback scam.

Responding to questions about the fine, the candidate said he was part owner of the family’s bond firm but played no role in its management.

The disclosure of the NASD action came on the same day that Simon unveiled a package of ethics proposals to clean up state government by strengthening laws against conflicts of interest and other abuses by public officials and businesses seeking government work.

The proposals were part of Simon’s effort to capitalize on a rash of new disclosures about the aggressive fund-raising practices of Gov. Gray Davis. Simon accused the Democratic incumbent of fostering a “pay-to-play governing culture.”

“The example that Gov. Davis has set has made it clear to me that secrecy in government has got to stop,” Simon told a convention of newspaper editors in Anaheim. “Let the sunshine of truth pierce the dark clouds of corruption, conflict and denial.”

But in a speech to the same crowd a few hours later, the governor raised new questions about Simon’s ethics, saying William E. Simon & Sons Municipal Securities Inc. had been fined and censured for breaking securities rules. The now-defunct firm, named after the candidate’s father, was owned by the Simon family.

“It’s like the kettle calling the pot black, criticizing my activities,” Davis said.

Simon and his aides sought to minimize the significance of the fines, saying they involved only “paperwork” violations.

But disclosure of the Simon firm’s troubles with securities regulators still threatened to undermine the Republican candidate’s recent onslaught of attacks on the governor’s integrity.

For Simon, the main issue is the $10,000 fine, disclosed Friday by the San Francisco Chronicle.

The violations occurred in 1991. At the time, the Simon firm was new to the fiercely competitive municipal bond business and was wooing elected officials in New Jersey for the opportunity to sell public debt.

The Wall Street giants and smaller local brokers already on the scene had long been major campaign donors to many of the officials, including then-Gov. Jim Florio.

The central figure in the pay-to-play bond scandal--which led to sharp restrictions on campaign donations by bond brokers--was Florio’s chief of staff, Joseph Salema. He pleaded guilty to securities fraud in 1995 for concealing bond kickbacks that were unrelated to the Simon firm.

NASD records show that the Simon firm in 1991 paid a $10,000 fee to Armacon Securities, a company partly owned by Salema. The Simon firm paid the fee “in the hope of developing a business relationship with Armacon,” the records say.

But the Simon firm inaccurately recorded the payment as a “management fee” for Armacon’s work on an Old Bridge Township bond issue. In fact, Armacon “did not provide management services or other services in connection with the Old Bridge transaction,” according to a settlement statement approved by the NASD and the Simon firm.

The NASD found that the Simon firm had violated the U.S. Securities Exchange Act by “inaccurately” reporting the nature of its payment to Armacon. The firm agreed to be censured and pay the $10,000 fine, but would neither admit nor deny the alleged violations.

Jon Schotz, head of Santa Monica investment bank Saybrook Capital, said there remain unanswered questions about the transaction.

“You don’t write a check to a company like Armacon for $10,000 and not have the expectation of something coming back,” said Schotz, who has experience in the municipal bond field.

Simon and his campaign aides struggled to explain the matter Friday.

After his speech to the newspaper editors at a Disneyland hotel, Simon walked briskly past television and newspaper reporters posing questions about it.

“I was not involved with that,” he said as he ducked into the back seat of a black sport utility vehicle with tinted windows.

Simon referred questions to an aide, Jeff Flint.

“Jeff will give you all the facts, “ Simon told reporters before Flint slammed the car door. “See you later.”

Flint, though, could not explain why the Simon firm paid $10,000 to a company owned by a top aide to New Jersey’s governor.

“I don’t understand the municipal bond business, so I can’t tell you exactly,” he said.

At a campaign stop a few hours later in Lakeview Terrace, Simon was confronted with more questions about the Armacon payment after touring the Phoenix Academy with U.S. drug czar John Walters.

Simon declined to explain why his family’s firm had paid Armacon. He said that misreporting the payment was simply a technical error and that he was not responsible. He added that he never met Salema, and that the NASD never questioned him during its investigation of the payment to Armacon.

“That instance was merely a books and records violation,” Simon said. “I was not part of the firm. I was a shareholder in the firm.

“They took a look at it, and there was no conclusion it was pay to play,” he said. “We’ll see if they conclude the same thing of Gray Davis.”

For his part, Davis also questioned donations by Simon and executives of his firm to Democrats in a position to steer public business to them. Simon is a conservative Republican, Davis said, but gave money to California state Treasurer Phil Angelides, former Treasurer Kathleen Brown and New York state Comptroller Carl McCall--all Democrats.

“One thing I learned a long time ago: Don’t criticize someone else for something that you may be doing yourself,” Davis said.

Simon later responded that he made the contributions at friends’ requests. He said his $250 contribution to Gray Davis’ reelection campaign came under similar circumstances.

Although Simon spent much of his day on the defensive over the fine, Davis too continued struggling with the controversy over his fund-raising. He acknowledged that he has canceled fund-raisers over the last week to avoid the appearance of wrongdoing. He declined to provide details.

“Out of the excess of caution, we decided to cancel a couple of events, only because of a perception problem, not because there was any impropriety involved,” he said.