WASHINGTON – The United States Securities and Exchange Commission has announced nine settled enforcement actions involving private equity, venture capital and hedge fund sponsors accused of violating the pay-to-play rule - one of which donated to two Pennsylvania officials.
The penalized firms agreed to pay $35,000 to $75,000 in penalties. In compliance
with the settlement, the firms involved do not have to admit or deny the
allegations or any wrongdoing.
In proceedings specific to the violation of the pay-to-play
rule for investment advisors Adams Capital, a covered associate of
the firm made two $500 campaign contributions to two elected officials in
Pennsylvania in January 2014 and August 2014, according to court documents.
Both officials had influence over selecting investment advisors for a public
pension fund in the state. Within two years of the contributions, Adams Capital provided monetary advisory services to the public pension fund, which is in violation
of the pay-to-play rule.
“The United States Securities and Exchange Commission
adopted the pay-to-play rule to combat perceived fraud where people would make political
contributions in an attempt to obtain investment advisory work,” Stephen
Quinlivan, attorney at Stinson Leonard Street, told the Pennsylvania Record.
“Investment advisors are
prohibited from accepting compensation for advisory work.”
The pay-to-play rule
prohibits investment advisors from providing advisory services to government
entity clients for compensation for two years after the said advisor has
contributed to an elected official or candidate.
The law was created to prevent
conflicts of interest that wouldn’t be beneficial to the general public.
Government officials are in a position of power and influence, which can easily
influence the selection of investment advisors to government positions.
“People make contributions, and contributions disqualify you
from receiving compensation,” says Quinlivan.
The rule only permits contributions
of up to $350, per election to an elected official or candidate for whom the
covered associate is entitled to vote, and up to $150, per election, to an elected
official or candidates for whom the covered associate is not entitled to vote, according
The small campaign contributions and subsequent
violations created a situation that probably wasn’t intentional, but Quinlivan warns
firms need to pay more attention.
“I don’t remember any allegations that people
purposely violated the law,” said Quinlivan. “People just don’t realize how proscriptive
the rule is. If somebody asks you for a campaign contribution — a friend or whomever — it seems like the right thing to do. They just didn’t have the controls in
place to stop their employees from doing this sort of thing.”