A Daily News analysis shows that Commerce Bank and its officers have poured more than $680,000 into the campaign coffers of Pennsylvania pols at the same time its government bank deposits and bond business were taking off here.
Last night, a major new twist emerged when state Treasurer Barbara Hafer's office revealed that the U.S. Securities and Exchange Commission is investigating bond work by the Commerce subsidiary, Commerce Capital Markets. Hafer would not comment on the probe, but sources close to the treasurer said she has been interviewed by SEC agents seeking information about Commerce and "debtissuance" in Pennsylvania.
SEC officials had said earlier that they could not confirm any investigation, and no further details could be learned.
Commerce has been particularly active in Philadelphia. No candidate has raised more money from them than Mayor Street, whose campaign took in $123,500 - mainly from a political-action committee run by Commerce Bancorp.
Street in turn has been good to Commerce. Since he became mayor in 2000, Commerce Capital Markets had made more than $1.7 million in fees as a manager of Philadelphia bond deals.
A former official in the city Law Department who worked on city bond deals and who asked not to be identified said Commerce Capital Markets kept getting bond business even as he and co-workers questioned the firm's frequent work.
"It was like, 'Who are these new kids on the block?' We wanted to rotate the work among the different firms," he said. "But the mayor's office would tell us who we were going to use, and we didn't have any choice."
Records show that since January 2000, Commerce Capital Markets has been named manager or co-manager to more municipal-bond deals in Philadelphia than any other company except UBS Paine Webber. City officials say the key decisions on who gets the lucrative work - which is not put out for bid - are made in the mayor's office.
"There is no bid process," said the former official. "The order comes right out of the mayor's office."
Both privately and occasionally in public, some government officials have charged that Commerce plays the political game of "pay-to-play" rougher and more aggressively than other firms with which they deal.
"I've been in government a long time, and I've never seen anybody like them," Hafer told Bloomberg News Service in a little-noticed interview back in July. Hafer even did the politically unthinkable in 2000, returning a $25,000 campaign check to the Commerce PAC. She said she won't meet with the bank's lobbyists.
"There are no subtleties with Commerce," Hafer said last summer. "They want to know how many checks you're going to have them write, how much in deposits you're going to give them."
Aides to Hafer said she won't comment now because of the SEC investigation. Other municipal-finance experts were quick to recognize the inside game at work.
"You've identified a key component of pay-to-play," Robert B. Lamb, professor at New York University's Stern School of Business, said in an interview. "If you participate in helping the elected official get campaign money, then you can be part of the party; you get in on the deals."
Efforts to reach top Commerce officials yesterday were funneled to one company spokesman, David Flaherty, who was reported to be out of his office and unavailable.
In April, Commerce Bancorp's chief executive officer, Vernon Hill II, told the Associated Press that the company considers political giving part of being a good citizen. "We feel it's our responsibility to participate in the political process in all our markets," he said.
Earlier this month, federal investigators served Commerce Bank in Philadelphia with a subpoena seeking what officials there described as "various customer records." Sources have said the records included personal bank statements for Street; his wife, Naomi; his son, Sharif; and lawyer and Street confidant Ronald A. White. It's not known if Commerce's underwriting deals are part of the FBI probe, although the FBI has seized numerous bond records from the city.
No one has accused Commerce Bancorp or its officials of violating any laws. But the speedy ascent of Commerce and its bond-writing unit in Pennsylvania offers a striking glimpse into the gray area where massive political donations and government decisions overlap.
That issue has become a major point of contention in the showdown between Street and GOP challenger Sam Katz six days from now.
Commerce's arrival on the Philadelphia political scene has been every bit as brash as the bank's founder and CEO, the 58-year-old Hill, whose novel ideas about consumer banking have helped him build a personal fortune of more than $200 million.
He upset neighbors in Moorestown, N.J., with the construction of a 46,000-square-foot mansion that he called "Villa Collina" - Italian for "Hill House." The home is larger than Bill Gates' estate and is believed to be one of the biggest in the country.
Defying conventional wisdom by pushing retail, small-customer banking when it was out of fashion, Hill has made Commerce Bancorp the highest-flying bank stock - on an earnings-per-share basis - on Wall Street. Analysts say that winning government business - both bond deals and deposits - has been an integral part of Commerce's rapid growth.
Earlier this year, company officials said that government funds comprised more than 20 percent of Commerce's deposits - compared to an industrywide average of just 3 percent.
City Treasurer Corey Kemp confirmed that Cherry Hill-based Commerce is one of six commercial banks that the city uses to write checks, handle deposits and other routine banking services. He said he was not permitted, without approval from the mayor's press office, to disclose how much city money is deposited with Commerce.
Efforts by the Daily News yesterday to gain that approval were not successful.
The Daily News investigation found several cases in which Commerce aggressively curried favor with influential local politicians or their pals here in Pennsylvania:
_ The bank forged a close relationship with White, the Center City attorney who is a close friend of Street's, a major political fund-raiser and now a key figure in the federal probe.
Commerce Bank last year named White to the board of directors of its Pennsylvania subsidiary, a post that White quit last week after the FBI raided his office.
The bond subsidiary, Commerce Capital Markets, is closely linked to a charity founded by White and his family, the Youth Leadership Foundation. The Commerce unit is a sponsor of the YLF and the recipient of an award at its banquet earlier this month. Commerce's current and former public-finance chiefs are on the charity's board. Commerce Capital Markets and the YLF even worked together to establish a youth internship in public finance.
* Commerce hired the brother of state Auditor General Robert Casey - failed U.S. House candidate Patrick Casey - as a lobbyist as it doled out more than $70,000 to finance Robert Casey's unsuccessful 2002 Democratic bid for governor.
Auditor General Casey selected Commerce as Pennsylvania's loan and transfer agent - the bank that makes interest payments to bond-holders - for two state bond issues during the past three years.
His spokeswoman Karen Walsh said yesterday that there was "absolutely not" a connection between the contributions and the auditor general's actions. She said that Commerce was one of only three banks eligible for that work, that Commerce was selected by Casey only two out of five possible times and that the fees were minimal.
* Three times, Commerce's New Jersey-based political-action committee known as COMPAC NJ made substantial donations to officials in places where Commerce Capital Markets did business after getting a large loan from its federal PAC, which received donations from municipal-finance professionals.
The complicated transactions, first reported in the Bond Buyer earlier this year, raised eyebrows because of a 1994 federal rule that bars bond underwriters from making more than token political donations in cities or states where they do business.
Shortly after the Bond Buyer report, Commerce officials announced they were halting contributions in its home state of New Jersey, where the political committee has been even more generous.
The announcement made no mention of Pennsylvania, although the Daily News did not find donations here by the company in 2003.
Officials with the two groups that regulate political activity by underwriters - the SEC and the industry's National Association of Securities Dealers - refused to say whether those Commerce donations were under investigation.
In August, the federal agency that drafted the politics ban - the Municipal Securities Rulemaking Board - issued a statement saying it was concerned with "increasing signs" that individuals and firms may be "seeking ways around" the rule.
One apparent beneficiary of these complex dealings between the two Commerce committees was the Street campaign, which received $10,000 from COMPAC NJ on April 13, 1999 - the day it received a loan from the federal PAC. That donation came at roughly the same time that Commerce Capital Markets was making a splash in Philadelphia. Although Commerce Bank has been around since 1973, its Commerce Capital Markets unit did not exist before April 1998, when Commerce absorbed a small Philadelphia firm, A.H. Williams.
That year, the Commerce PAC started making donations in Philadelphia, to Street, to Gov. Rendell, who was still mayor at the time, to the Democratic City Committee and to state Sen. Vince Fumo. The Commerce committee later gave $37,500 to a PAC linked to two key city insiders, Rendell confidant David L. Cohen and Street ally Leonard Klehr.
Kemp, the city treasurer, said that the city bond deals in which Commerce was involved were relatively simple ones but that he was not in a position to say whether that fact was related to the firm's relative lack of experience compared to other investment houses.
He also confirmed that final approval for underwriters must come from Street's office, with input from top aide George Burrell.
Said Kemp: "Those decisions on who gets on which deals are finalized across the street, so I can't tell you why."
Street spokeswoman Barbara Grant said she could not comment because of the federal probe. *