Standards of Conduct

Legal Opinion: GMP-0046

Index: 6.600, 6.630, 6.660

Subject: Standards of Conduct

FOIA Exemption 6: Names Withheld

January 24, 1992

MEMORANDUM FOR: Peter M. Campanella, Regional Counsel, 3G

FROM: Carole W. Wilson, Associate General Counsel for Equal

Opportunity and Administrative Law, GM

SUBJECT: Standards of Conduct

This is in response to your October 17, 1991, request for an

opinion. You state in your request that Mr. ,

Chief, Office, disclosed an

interest in the Company, Incorporated, in his August 30,

1991, Confidential Statement of Employment and Financial

Interests (HUD-844). Specifically, Mr. noted that, in

addition to holding an equity interest in the company, he also

serves as an officer and director of the company. The

Company is an entity engaged in real estate development,

construction and real estate sales. You ask whether Mr.

\'s service as an officer and director of the Company

may be characterized as \"active participation in, or conduct of

business dealing with, or related to, real estate\" subject to 24

C.F.R. 0.735-203(b)(4), or whether his interest should more

appropriately be considered a financial interest under 24 C.F.R.

0.735-204. After examining this issue, I have concluded that

Section 0.735-203(b)(4) applies to service as an officer or

director of an entity engaged in real estate related activities.

Consequently, I concur with your opinion that Mr. \'s

service as an officer and director of the Company is

subject to Section 0.735-203(b)(4).

Hornbook law provides that a corporation may only act

through its officers and agents. In general, officers and

directors are granted broad authority to manage the affairs of

the corporation. Most states explicitly grant officers and

directors the authority to purchase, sell, convey, mortgage or

otherwise transfer assets. It follows that officers and directors

may also, on behalf of the corporation, enter into contracts,

advertise or otherwise solicit business, manage an office, and

hire staff. These are the types of activities that Section

0.735.203(b)(4) was intended to regulate. See, Office of General

Counsel memorandum dated December 28, 1988, entitled \"Outside

Employment in Fields Related to Real Estate.\"

We have reviewed our files and found three cases wherein the

Department has relied upon Section 0.735-203(b)(4) to require an

employee to resign positions as officers or directors of

2

corporations. The Department twice relied upon Section

0.735.203(b)(4) to prohibit employees from serving as directors

of not-for-profit corporations engaged in the rehabilitation of

low-income housing. See, Office of General Counsel memorandum

dated June 26, 1991, entitled \"Neighborhood Housing Services\";

see also, Office of General Counsel memorandum dated February 27,

1991, entitled \"Yachad: Request for Advisory Opinion.\" Regional

Counsel has also used Section 0.735.203(b)(4) to prohibit an

employee from holding a partnership interest in a real estate

partnership that developed properties for resale. See, Regional

Counsel, Region VII, memorandum dated February 1, 1989, entitled

\"FA&R Investments.\" Copies of these memoranda have been attached

for your convenience.

In conclusion I would caution, that service as a director or

officer, may not in and of itself, establish an action based on

Section 0.735-203(b)(4). Rather, you may want to consider

several additional factors prior to bringing an action. Relevant

factors include the amount of time spent on corporate business

and whether it was spent on a regular or sporadic basis, the

receipt and extent of compensation for services, the nature and

extent of solicitation of clients or business, the hiring of

staff, the number of transactions involved, and the need for and

use of real estate or other special licenses.

I trust that this responds to your inquiry. Please contact

Aaron Santa Anna, Senior Ethics Counsel at (202) 708-2205 or FTS

458-2205 should you have further questions.

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