By Jon RappoportJune 16, 2018 10:18:38GM Financial and GM’s financial leasing team got into hot water last week when they allegedly broke a federal rule requiring financial advisers to disclose a conflict of interest when they are advising the automaker on its finances.GM’s financial advisers are required to disclose any potential conflicts when they advise on GM’s finances.
The conflict is a legal requirement because financial advisers often advise companies on how to navigate the bankruptcy process and how to prepare for a bankruptcy.
GM, however, refused to disclose the conflict.
In an email sent to clients this week, GM Financial said the financial advisor’s disclosure of conflicts would be considered a violation of federal law.
“The disclosure of the conflicts and the potential impact of the disclosures would violate the conflict of interests requirement because they are not disclosed,” the email read.
However, the ethics department, the Office of Government Ethics, said GM and GM Financial’s ethics officer would investigate the issue.
They are also considering a legal challenge to the disclosure.
On Tuesday, the Ethics and Public Policy Center filed a complaint with the Department of Justice, seeking an investigation into the ethics of GM’s disclosure obligations, specifically its conflict of Interest Disclosure Policy and GM Securities Investor Disclosure Policy.
“GM Financial is an important part of the company and we want to make sure it’s transparent, and the ethics office should look into the situation,” said Jessica Rosenworcel, the director of the center’s public interest and consumer watchdog group.
Rosenworchel said the conflict disclosures violate the federal conflict of rules because the advisers are legally required to provide the disclosure, even if the conflict is not disclosed in writing.
A GM spokesman said the company is “aware of the matter” and has a policy that requires financial advisers not to disclose conflicts.
While the financial advisers say they are acting within their professional responsibilities, Rosenwarcel said the disclosure is “not legally binding,” because the ethics officer will review the issue and the matter will be reviewed by the ethics team.
Under federal law, the conflict-of-interest disclosures are mandatory.
GMD’s financial advisor, Dan Haney, said the rules don’t apply to him because he is not a financial adviser.
According to the letter sent to the Office for Civil Rights by the OGE, GM Securities and Financial said that the disclosure was required under the conflict rule because it was “necessary to enable a financial advisor to understand and assess the implications of the conflict.”
“The conflict of ethics does not apply to financial advisers who are solely acting within the scope of their professional obligations,” the letter said.
When asked about the issue, a GM spokesman emailed to say, “This is an ongoing internal matter and we have no comment beyond what is set forth in our disclosure statement.”
The ethics office has already said that GM Securities has “a policy that prohibits conflicts of interest in its financial adviser advisory role,” and the financial adviser has since acknowledged that the rules are not applicable to him.
If the ethics investigation is not resolved, the OPE asked the ethics advisor to consider whether GM Securities should take further action to review the disclosure of his conflict of-interest.
This is a developing story.
More to come.