| July 10
July 10 The U.S. election season is under way,
which means opportunities are mounting for public retirement
plan advisers to do the wrong thing.
Investment advisers and certain employees who donate to many
types of political campaigns are not allowed to advise state and
local governments for two years, according to a 2010 U.S.
Securities and Exchange Commission rule. Advisers who stray over
that line can face tough consequences.
The SEC's "pay-to-play" rule is in place to prevent advisers
from using campaign contributions to persuade state and local
governments to hire them. States, municipalities and government
agencies typically have their own versions.
Advisory firms that fail to follow those rules can face
In the SEC's first such enforcement case against an
investment adviser, TL Ventures Inc agreed on June 20 to pay
nearly $300,000 to end charges that it received advisory fees
from state and city pension funds after one of its associates
had donated to a Philadelphia mayoral candidate and the
Pennsylvania governor in 2011.
The Wayne, Pennsylvania, private equity firm neither
admitted nor denied the SEC's allegations.
The case is rattling advisers, said New York lawyer Jisha
Dymond, who counsels companies and candidates about political
Advisers must also slog through other versions of
pay-to-play rules from individual states and municipalities,
Among the concerns: conflicts between the rules. In New
Jersey, for example, advisers to public pensions cannot
contribute to state political party committees. But the SEC does
not impose that restriction, Dymond said. Advisers can, however,
get in trouble with the SEC for pushing others to contribute to
"In an election year, there's so many different ways to hit
a trip wire in terms of compliance," Dymond said.
In the coming months, gubernatorial elections will be held
in 36 states and U.S. three territories, according to the
National Governors Association. That is in addition to state and
municipal elections slated for November.
The SEC rule applies mainly to advisory firm executives and
employees responsible for snagging business from state and local
It typically does not involve federal elections, such as
U.S. Senate campaigns for November midterm elections. But it
could kick in when a state governor runs for a federal office.
That is because he or she can still influence the selection of
state financial advisers, said Ronald Jacobs, a Washington
lawyer who specializes in political law.
Now is an ideal time for firms that advise pensions to
review their campaign donation procedures and the various rules,
Remind employees who fall under the rule that the firm's
compliance staff must approve their contributions in advance,
Some advisers simply ban contributions. "It's easier than
trying to figure out nuances," said Stefan Passantino, a
Washington lawyer who advises companies and candidates on
But that might be overkill, Jacobs said. Many advisory firms
limit their business to a specific state or municipality, or
their employees live in a certain area. That makes it easy to
decide which rules apply.
(Editing by Linda Stern and Lisa Von Ahn)