SEC Fines 10 Firms for Violating Anti-Pay-to-Play Rule

The SEC fined 10 advisory firms over $650,000, ranging from $30,000 to $100,000, for accepting compensation to manage city or state pension funds within 2 years of a disqualifying campaign contribution.  The SEC alleges that the firms violated the anti-pay-to-play rule (206(4)-5) by failing to observe the 2-year timeout after a designated covered associate makes a campaign contribution to a candidate who could influence manager selection.  An SEC official explained, “The two-year timeout is intended to discourage pay-to-play practices in the investment of public money, including public pension funds.”

OUR TAKE: The anti-pay-to-play rule is strict liability i.e. the SEC does not need to show that the campaign contribution actually resulted or contributed to the decision to grant the mandate.