On July 10th, 2018, the Securities and Exchange Commission (SEC) released its charges against three separate investment advisers in violation of the “pay-to-play” rule.
Rule 206(4)-5 of the Advisers Act is designed to address “pay-to-play abuses involving campaign contributions made by certain investment advisers (or their covered associates) to government officials who are in a position to influence the selection of investment advisers to manage government client assets.” The Rule specifically prohibits investment advisers from providing advisory services for compensation to a government entity (including government investment vehicles) for two years after the adviser (or associate) makes a campaign contribution.
All three firms, allegedly, contributed thousands of dollars to campaigns and candidates in offices with influence over public entities. The contributions started the two-year “time-out” period defined by the rule; however, in the two years following the contributions, the firms were allegedly providing advisory services for compensation, violating the “pay-to-play” rule.
The advisers were ordered to cease-and-desist, will be censured going forward and, without denying or admitting to the SEC’s findings, have agreed to participate in monetary settlements totaling $720,000.
WHAT DOES THIS MEAN FOR ME?
Although an extreme example, all three cases serve as an excellent reminder of the “pay-to-play” rule requirements. For more information, the SEC released responses to a set of questions regarding the rule. Review your Code of Ethics or policies and procedures to ensure you (or your firm) addresses the “pay-to-play” rule.
If you have any questions or concerns about how these cases relate to you, please reach out to Fairview® directly. Fairview® is committed to ensuring its clients are compliant with current SEC rules and regulations.