SEC Charges Private Equity Firm with Pay-to-Play Violations Involving Political Campaign Contributions

The SEC charged a private equity firm with violating "pay-to-play" rules by continuing to receive advisory fees from the city and state pension funds following campaign contributions made by an associate to gubernatorial and mayoral campaigns. This is the first time the SEC has charged a private equity firm with violating pay-to-play rules.

The pay-to-play rules prohibit investment advisers from providing compensatory advisory services for two years following a campaign contribution by the firm or certain associates to political candidates or officials in positions to influence the selection or retention of advisers to manage government client assets. According to the SEC's investigation, the adviser violated pay-to-play rules by receiving compensation from two public pension funds within two years after an associate made a campaign contribution to a mayoral candidate and candidate for governor.

According to the press release, the Philadelphia mayoral position appoints three of the nine members of the Philadelphia Board of Pensions and Retirement, therefore a mayor can influence the hiring of investment advisers for the public pension fund. Additionally, the 11-member board of Pennsylvania's state retirement system includes six gubernatorial appointees, allowing a governor to influence the hiring of investment advisers for the public pension fund. After the contributions, the adviser improperly continued to receive compensation from the pension funds for those advisory services.

See: Order Against TL Ventures; SEC Press Release.See generally: Guide to Hedge Fund Regulation, Broker-Dealer and Other Sales Issues, Part III, Sales to Governments.