SEC Settles Enforcement Proceedings Against Adviser Regarding Alleged “Pay-to-Play” Political Contribution
On August 19, 2024, the SEC announced the settlement of administrative proceedings brought against a registered investment adviser for alleged violations of Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-5 thereunder, known as the “pay-to-play” rule, concerning a political campaign contribution. The pay-to-play rule prohibits registered investment advisers from providing investment advisory services for compensation to a government entity within two years after the adviser or its covered associate makes a contribution to an official of the government entity, including a candidate for office.
According to the order, an individual made a campaign contribution in 2019 to an incumbent candidate for elected office, which office had influence over selecting investment advisers for a state public pension fund. Over six months after the contribution, in 2020, the individual was hired by the adviser and became a covered associate of the adviser. The state public pension plan had previously invested in a private fund advised by the adviser in 2017 and within two years after the contribution and after the individual became a covered associate, the adviser continued to provide advisory services for compensation to this private fund, in which the state public pension fund was invested. The pay-to-play rule provides an exception for certain returned contributions and, in this case, after being hired by the adviser, the individual sought and obtained the return of the campaign contribution. However, the SEC determined that the circumstances of this returned contribution did not meet the requirements of the exception.
The SEC found that the adviser willfully violated the Advisers Act "pay-to-play" rule. Without admitting or denying the allegations, the adviser agreed to cease and desist from future violations, to be censured and to pay a civil monetary penalty of $95,000. This settlement is in line with a similar order issued by the SEC in April 2024, also involving an alleged violation of the pay-to-play rule.
The SEC’s order is available here.
Vedder Thinking | Articles SEC Settles Enforcement Proceedings Against Adviser Regarding Alleged “Pay-to-Play” Political Contribution
Newsletter/Bulletin
October 10, 2024
On August 19, 2024, the SEC announced the settlement of administrative proceedings brought against a registered investment adviser for alleged violations of Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-5 thereunder, known as the “pay-to-play” rule, concerning a political campaign contribution. The pay-to-play rule prohibits registered investment advisers from providing investment advisory services for compensation to a government entity within two years after the adviser or its covered associate makes a contribution to an official of the government entity, including a candidate for office.
According to the order, an individual made a campaign contribution in 2019 to an incumbent candidate for elected office, which office had influence over selecting investment advisers for a state public pension fund. Over six months after the contribution, in 2020, the individual was hired by the adviser and became a covered associate of the adviser. The state public pension plan had previously invested in a private fund advised by the adviser in 2017 and within two years after the contribution and after the individual became a covered associate, the adviser continued to provide advisory services for compensation to this private fund, in which the state public pension fund was invested. The pay-to-play rule provides an exception for certain returned contributions and, in this case, after being hired by the adviser, the individual sought and obtained the return of the campaign contribution. However, the SEC determined that the circumstances of this returned contribution did not meet the requirements of the exception.
The SEC found that the adviser willfully violated the Advisers Act "pay-to-play" rule. Without admitting or denying the allegations, the adviser agreed to cease and desist from future violations, to be censured and to pay a civil monetary penalty of $95,000. This settlement is in line with a similar order issued by the SEC in April 2024, also involving an alleged violation of the pay-to-play rule.
The SEC’s order is available here.
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