Firm Seeking Relief from Pay-to-Play Rule
The sponsor of a private fund holding assets of three state pension plans is seeking exemptive relief from the pay-to-play rule because one of its executives made a disqualifying contribution. According to the exemptive application, a senior investment professional and his wife contributed $5000 to the senate campaign of the state treasurer, who appointed one of the trustees that made investment decisions for the pension plans. The contributions violated the firm’s policies and procedures and the pay-to-play rule (206(4)-5) and would require the applicant to disgorge fees for two years from the date of contribution. The applicant seeks relief by arguing that the relationship with the pension plans predated the contribution, the contributor had little involvement with the client relationship, nobody at the fund sponsor knew about the contribution, and the state official returned the contribution.
OUR TAKE: This is the first case that we’ve seen where a registered investment adviser has sought relief from the pay-to-play rule. We don’t know if this applicant will get its relief, but it highlights that an adviser can go this route where a past contribution puts a significant client relationship in jeopardy.