UPDATE 2-Private equity firm settles U.S. SEC 'pay to play' charges

Fri Jun 20, 2014 4:57pm EDT

(Adds comments from attorney for TL Ventures)

By Sarah N. Lynch

WASHINGTON, June 20 (Reuters) - U.S. securities regulators extracted a settlement from a private equity firm on Friday, marking the first time they have filed charges over violations of "pay to play" rules designed to prevent financial advisers from making campaign contributions to win pension business.

The Securities and Exchange Commission said that Philadelphia-based TL Ventures Inc will pay about $300,000 to settle the case without admitting or denying allegations that it continued receiving advisory fees from state and city pension funds, even after one of its associates had donated to local political candidates.

Catherine Botticelli, an attorney with Dechert LLP who represents TL Ventures, said her client is "pleased to have this matter behind it" and that it will continue to focus on serving investors.

She added that the pay-to-play measure at issue "does not require a showing of intent" to violate the rule.

The SEC first adopted new "pay to play" rules for asset managers in 2010, amid concerns that investment advisers were able to use campaign contributions to steer state and local pension business their way.

The rule imposes a two-year moratorium on providing advisory services to a government client or a pooled investment such as a pension after a donation is made to any candidates or other officials who are able to influence the hiring process for pension money managers.

According to the SEC, TL Ventures continued offering advisory services for a fee from both Pennsylvania's state retirement system and Philadelphia's pension plan, after one of its associates in 2011 donated $2,500 to a Philadelphia mayoral candidate and $2,000 to the governor.

Both candidates were in a position to steer business to the adviser because the mayor appoints three of the nine members of the Philadelphia Board of Pensions and Retirement, and the board that oversees the state's retirement system is comprised of gubernatorial nominees.

"Public pension funds are increasingly investing in alternative investment vehicles such as hedge funds and private equity funds," said LeeAnn Ghazil Gaunt, the head of the SEC Enforcement Division's Municipal Securities and Public Pensions Unit.

"When dealing with public pension fund clients, advisers to those kinds of investment vehicles should be mindful of the restrictions that can arise from political contributions."

In addition to charging TL Ventures, the SEC on Friday also charged an affiliate, Penn Mezzanine Partners Management L.P., with improperly acting as an unregistered adviser.

That firm also settled the case with the SEC. An attorney for Penn Mezzanine could not be immediately reached for comment. (Reporting by Sarah N. Lynch; Editing by Eric Beech and Dan Grebler)