SEC Adds Investment Firm Who Paid Solicitation Fees to List of Defendants in Pay-to-Play Case
The SEC has added an investment management firm and its principal to the defendants charged with securities fraud in connection with the New York Retirement Fund pay-to-play scandal. The SEC has charged the investment manager for paying solicitation fees which were really kickbacks to political consultants charged with recommending investment managers to the Retirement Fund. The SEC argues in its complaint that the firm knew that the solicitors did not perform any legitimate service.
OUR TAKE: Rule 206(4)-3 only requires disclosure of solicitation payments, not an assessment of whether the solicitor performs “legitimate” services. Nevertheless, investment firms should assess whether solicitors do more than merely grant access to a potential client, especially if that client is a public plan.