On January 17, 2017, the Securities and Exchange Commission (“SEC”) issued ten Orders Instituting Administrative and Cease-and-Desist Proceedings (“Orders”) against ten investment advisory firms. In each of its Orders, the SEC alleges that each investment advisory firm gave money to campaigns for politicians who, if elected, would have the power to determine the choice of investment advisers to oversee government assets, and subsequently gave investment advisory services to public pension funds. According to the SEC, these actions constituted violations of the Investment Advisers Act of 1940 (“Advisers Act”).
Rule 206(4)-5(a)(1), commonly known as the Pay-to-Play Rule, provides that investment advisers who are registered with the SEC, foreign private advisers, and exempt reporting advisers are not permitted to provide “investment advisory services for compensation to a government entity within two years after a contribution to an official of a government entity made by the investment adviser or any covered associate of the investment adviser.” This rule applies regardless of whether the investment adviser or covered person intended to sway the official. According to the SEC’s Orders, five of the investment advisory firms were SEC-registered investment advisers, while the remaining five were exempt reporting advisers. Thus, all ten of the investment advisory firms were subject to the provisions of Rule 206(4)-5(a)(1). Continue reading ›