SEC’s Final Rule on Pay to Play Restrictions

The Securities and Exchange Commission has issued final rules on pay-to-play practices by investment advisors. TheSEC Seal SEC’s commissioners voted unanimously to curtail such actions. SEC Chair Mary Schapiro, in a statement before the Commission, called the practice of pay-to-play actions “corrupt and corrupting.”

Essentially, public pension plan advisors are prohibited from steering campaign funds   in a way that would affect municipal plans.

The decision is in three main parts, according to a press release from the SEC:

  • It prohibits an investment adviser from providing advisory services for compensation — either directly or through a pooled investment vehicle — for two years, if the adviser or certain of its executives or employees make a political contribution to an elected official who is in a position to influence the selection of the adviser.
  • It prohibits an advisory firm and certain executives and employees from soliciting or coordinating campaign contributions from others — a practice referred to as “bundling” — for an elected official who is in a position to influence the selection of the adviser. It also prohibits solicitation and coordination of payments to political parties in the state or locality where the adviser is seeking business.
  • It prohibits an adviser from paying a third party, such as a solicitor or placement agent, to solicit a government client on behalf of the investment adviser, unless that third party is an SEC-registered investment adviser or broker-dealer subject to similar pay to play restrictions.

The SEC first proposed the rule last year; it is the first federal-level pay to play law in the nation. The rule come into effect 60 days after their publication in the Federal Register. State and locality pay-to-play laws are common.

Read the rule here at the SEC; watch Schapiro’s statement to the commission here.

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