Chicago Mayor Rahm Emanuel built his political career raising money for Democratic candidates, with connections to Wall Street that helped finance his own election victories and drew an unwanted moniker: “Mayor 1%.”
Three months before the former investment banker and one-time chief of staff to President Barack Obama asks Chicago voters for a second four-year term, more than $600,000 in contributions from financial firms that deal with city pension plans are drawing fresh scrutiny.
Executives at Madison Dearborn Partners LLC contributed $194,900 to Emanuel’s campaign from October 2010 to June 2013, with individual donations ranging from $1,000 to $50,000, according to data from the Illinois State Board of Elections. The Chicago-based private-equity investment firm was among the donors highlighted in a Nov. 13 article in the International Business Times that questioned whether such donations violate the spirit and possibly the letter of the U.S. Securities and Exchange Commission’s so-called pay-to-play restrictions.
“All you’re doing is reinforcing the cynicism that says there are a different set of rules for people that are connected and wealthy and have clout,” said Kent Redfield, a political science professor at University of Illinois Springfield and a former consultant to the Illinois Campaign for Political Reform.
Pay-to-play questions for state and local governments nationwide turn on whether and how political donors should handle pension money or serve as underwriters on bond transactions.
‘FULL COMPLIANCE’
Madison Dearborn, with $18.3 billion in assets, says it’s free of any conflict of interest because city pensions don’t directly invest in any of its funds. Chicago allocates some of its pension cash to Adams Street Partners, a private equity manager, which in turn invests in a range of funds including those of Madison Dearborn through its fund of funds.
“Madison Dearborn Partners is in full compliance with all SEC rules and legislation, including the SEC’s explicit guidance dated July 1, 2010, regarding fund-of-fund investors,” the company said in an e-mailed statement.
The SEC rules state that underlying fund managers like Madison Dearborn aren’t responsible for knowing that some government money is invested with the fund of funds manager, in this case Adams Street.
Steve Mayberry, a spokesman for Emanuel’s re-election campaign, also said the contributions are legal and that they comply with an order the mayor issued shortly after taking office in May 2011. The executive order bans campaign contributions to the mayor or his campaign committee from city lobbyists or contractors.
ETHICS ORDER
“The donations are fully compliant with the law and the higher standards the mayor voluntarily imposes on himself per his executive order,” Mayberry said in an e-mailed statement.
Emanuel entered his re-election campaign facing the prospect of a challenge from his political nemesis, Karen Lewis, the president of the Chicago Teachers Union who had criticized the mayor for his ties to the financial community. She withdrew before announcing, citing health reasons.
The 54-year-old Democrat’s links to Wall Street were also the subject of journalist Kari Lydersen’s 2013 book, “Mayor 1%: Rahm Emanuel and the Rise of Chicago’s 99%.”
Emanuel has collected $9.45 million for his campaign, according to an Oct. 16 story in the Chicago Tribune, and has $8.7 million on hand.
‘LOOKS AWFUL’
The perception of Wall Street money going to state and city officials potentially undermines the faith of citizens and investors, Arthur Levitt, who was chairman of the SEC from 1993 to 2001, said in a telephone interview.
“Political contributions by any entities that do business with pension funds tends to destroy the confidence that is so fundamental to these markets,” said Levitt, a board member of Bloomberg LP, the parent of Bloomberg News.
Contributions from firms to chief executives of states and cities “violates the spirit of the law and it just looks awful,” he said. “Maybe that’s how business is done in the municipal world, but it certainly smells.”
The Municipal Securities Rulemaking Board, which creates regulations for market participants, has rules that cover donations by municipal-debt professionals, though not pension investors, according to Jennifer Galloway, a spokeswoman. The Alexandria, Virginia-based board said this month that it will ask the SEC to approve curbs on political giving by firms that help officials arrange bond sales.
The SEC in 2010 established a rule that prevents an investment adviser from getting paid by a government for two years after the company or its executives contribute to an elected official or candidate.
“Ultimately, these violations of trust can harm the millions of retirees that rely on the plan or the taxpayers of the state and municipal governments that must honor those obligations,” the SEC said in its report.
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To contact the reporters on this story: Tim Jones in Chicago at tjones58@bloomberg.net; Brian Chappatta in New York at bchappatta1@bloomberg.net
To contact the editors responsible for this story: Stephen Merelman at smerelman@bloomberg.net Alan Goldstein, Flynn McRoberts