SEC to Vote On Whether to Ban Pay-to-Play Contributions by Investment Advisers to Elected Officials

June 29, 2010

On June 30, 2010, the Commissioners of the Securities and Exchange Commission (“SEC”) will vote on whether to restrict investment advisers from participating in “pay to play” transactions with public officials.  The purpose of the proposed rule is to eliminate potential corruption from the process of awarding management contracts for public retirement funds.  If approved, the rule would prohibit investment advisers from making or soliciting political contributions to or for officials who are in a position to award the management of pension funds. 

Last July, in an effort to limit pension fund corruption, the SEC considered a rule that would have banned the use of “placement agents,” individuals or firms hired by investment advisers to influence politicians who are responsible with awarding pension management contract.  However, the SEC has backed away from this position and is seeking to restrict investment advisers from participating in “pay to play” practices, which according to the SEC undermines the fairness of the government’s selection process of investment advisers.

Currently, the SEC does not prohibit investment advisers from making political contributions to government entities or officials.  A contribution is defined as “any gift, subscription, loan, advance, deposit of money, or anything of value made for the purpose of influencing an election for a federal, state or local office, including any payments for debts incurred in such an election.  It would also include transition or inaugural expenses incurred by a successful candidate for state or local office.”  “Government entities” include “all state and local governments, their agencies and instrumentalities, and all public pension plans and other collective government funds.”  “Government officials” includes “an incumbent, candidate or successful candidate for elective office of a government entity if the office is directly or indirectly responsible for, or can influence the outcome of, the selection of an investment adviser or has authority to appoint any person who is directly or indirectly responsible for or an influence the outcome of the selection of an investment adviser.”

Posted by Bryan Hill
Labels: Political Contributions, SEC