SEC Adopts New Rules Limiting Political Contributions by Investment Advisors

Citing pay-to-play problems in the management of public funds by investment advisors, on June 30 the Securities and Exchange Commission passed new rules that prohibit pay-to-play practices. The SEC first considered these rules, modeled after the MSRB G-37 and G-38 rules, in 1999. While the rules generally go into effect 60 days after publication in the Federal Register, the effective dates for some of the rules are extended to provide time for compliance.

The new rules prohibit investment advisers from receiving compensation for advisory services to a government client for two years if they or “covered associates” make political contributions to covered officials or candidates. Covered officials include an incumbent, candidate or successful candidate for elective office of a government entity if the office is directly or indirectly responsible for, or can influence the outcome of, the selection of an investment adviser or has authority to appoint any person who is directly or indirectly responsible for or can influence the outcome of the selection of an investment adviser. “Covered Associates” include the adviser’s general partners, managing members, executive officers, and other individuals with a similar status or function. Employees of the adviser who solicit government entity clients for the investment adviser and the supervisors of any such employees are also covered associates. Additionally, any political action committee controlled by the investment adviser or any of the adviser’s covered associates is included in the definition of covered associates.

This prohibition will first be triggered by contributions made six months after the effective date; thus, contributions prior to the November 2010 elections are not covered by the new rules. Investment advisors should, of course use this six-month transition period to identify their covered associates and to modify their compliance programs and corporate political activity policies to enable full compliance with the new requirements before they take affect.

The new rules also:

  • Prohibit an adviser from providing payment to any third party for a solicitation of advisory business from any government entity on behalf of such adviser unless the third-party is registered with the SEC or FINRA. This prohibition goes into effect one year after the effective date.
  • Prohibit an adviser from soliciting or coordinating contributions (i.e. bundling) to officials or candidates or payments to political parties where the adviser is providing or seeking government business. This prohibition will first be triggered by contributions made six months after the effective date.
  • Require a registered adviser to maintain records of the political contributions made by the adviser or covered executives and employees. The record retention rule goes into effect six months after the effective date.

The new rules contain a de minimis exception that would permit each covered associate who is an individual to make aggregate contributions of $350 or less, per election, to an elected official or candidate if the person making the contribution is entitled to vote for the official or candidate. The de minimis exception is $150 for contributors not entitled to vote for the official or candidate.

The SEC may exempt advisers from the rule’s two-year ban where the adviser discovers contributions that trigger the ban only after they have been made or when imposition of the prohibitions is unnecessary to achieve the rule’s intended purpose. In determining whether to grant an exemption from the two-year compensation ban, the SEC must consider, inter alia, whether the exemption is necessary or appropriate in the public interest and consistent with the protection of investors and whether the investment adviser had no actual knowledge of the contribution prior to it being made and taken all steps to obtain a refund. Importantly, the SEC must also consider whether, before the contribution was made, the adviser adopted and implemented policies and procedures reasonably designed to prevent violations.

In adopting these rules the SEC noted that several local jurisdictions have adopted their own regulations. For example, New York State Comptroller DiNapoli issued an Executive Order last year imposing similar restrictions. The DiNapoli order provides that its restrictions will remain in effect until the SEC adopts these final rules. On the other hand, New Jersey State Investment Council’s restrictions on political contributions have been in effect for more than five years and do not express an intent to sunset. The SEC has not indicated that its rules supersede existing or future local restrictions. Accordingly, in some jurisdictions, the SEC rules will co-exist with local restrictions, and compliance policies and practices will need to be devised to meet those multiple obligations.

If you would like more information on this topic, please contact Laurence D. Laufer.

SEC Adopts New Rules Limiting Political Contributions by Investment Advisors

Author: Jisha V. Dymond

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Citing pay-to-play problems in the management of public funds by investment advisors, on June 30 the Securities and Exchange Commission passed new rules that prohibit pay-to-play practices.  The SEC first considered these rules, modeled after the MSRB G-37 and G-38 rules, in 1999. While the rules generally go into effect 60 days after publication in the Federal Register, the effective dates for some of the rules are extended to provide time for compliance.

Non-Residential Development COAH Fee Exemption Expires

This article is to advise developers of non-residential projects that the 2.5% affordable housing fee (“2.5% fee”) is back in effect. Developers that received preliminary or final site plan approval prior to July 1, 2010 are exempt from that fee. To date, the legislature has failed to enact legislation that would exempt non-residential projects that receive site plan approval for the first time on or after July 1, 2010 from paying the fee.

The Statewide Non-Residential Development Fee Act which took effect on July 17, 2008, imposed a 2.5% affordable housing fee on non-residential development, with limited exceptions. The New Jersey Economic Stimulus Act (“the Stimulus Act”), signed into law July 28, 2009, exempted non-residential developments projects that received preliminary or final site plan approval prior to July 1, 2010 from paying the 2.5% fee. The Stimulus Act requires that the developer obtain a construction permit prior to January 1, 2013 in order to maintain that fee exemption.

Legislative efforts to eliminate the fee or to extend the deadline by which site plan approval must be obtained have been unsuccessful to date. Senate Bill S-1, which proposes major revisions to the existing affordable housing legislation including elimination of the Council on Affordable Housing, passed the State Senate. Among the proposed changes is the elimination of the 2.5 % fee for non-residential developments. However, the Assembly, wanting more time to examine the proposed changes in S-1, passed Assembly Bill A-3055 instead. A-3055 would extend the time by which site plan approval must be obtained in order to be exempt from the fee until October 30, 2010. On June 28, 2010, a spokesman for Governor Christie said the Governor would veto A-3055 if it was approved by the Senate. Both the Governor and the Senate leadership want the Assembly to adopt comprehensive affordable housing legislation comparable to S-1.

Until new affordable housing legislation is approved by both houses of the legislature and signed into law by Governor Christie, any non-residential development that didn’t obtain site plan approval by July 1, 2010 will have to pay the 2.5% fee. It is likely that any legislation that is passed will negate any fees imposed on or after July 1, 2010. However, this result cannot be guaranteed. Developers whose non-residential development projects did not receive preliminary or final site plan approval prior to July 1, 2010 are advised to monitor the status of affordable housing legislation in determining when to submit site applications.

For additional information, please contact William F. Harrison.

Non-Residential Development COAH Fee Exemption Expires

Author: William F. Harrison

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This article is to advise developers of non-residential projects that the 2.5% affordable housing fee (“2.5% fee”) is back in effect.  Developers that received preliminary or final site plan approval prior to July 1, 2010 are exempt from that fee.  To date, the legislature has failed to enact legislation that would exempt non-residential projects that receive site plan approval for the first time on or after July 1, 2010 from paying the fee.

Unpaid Internships: Are They Legal?

The economy is still sluggish. And as we move into the summer months, there is always an influx of cheap (and sometimes free) labor coming out of colleges, universities and trade schools. These “interns” use the summer to work for a company, making connections and learning a business where they believe they can get a job once they graduate. In turn, businesses pay nearly nothing to the interns, thinking instead that it is pay enough to instill in these individuals the opportunity to learn the industry and meet people along the way. While this may be true, the federal Department of Labor (“DOL”) recently issued a fact sheet providing information to help businesses determine whether interns are truly gaining an education and are appropriately unpaid, or whether they are “employees” and thus must be paid minimum wage and overtime under the Fair Labor Standards Act (“FLSA”) for the services they provide.

The FLSA defines the term “employ” broadly to include any individuals who are required to suffer, or permitted to, work. With such a broad definition of employment, internships in the “for-profit” sector are generally considered employment under the FLSA. As a result, interns typically must be paid at least the minimum wage and overtime compensation for hours worked over forty in a week.

However, businesses that structure their internship programs like educational training programs, rather than employment, may do so without paying minimum wage and overtime to the interns. The DOL has developed six criteria that must be applied when making the determination of whether this educational exemption applies:

  1. The internship is similar to training which would be given in an educational environment, even though it includes actual operation of the facilities of the employer;
  2. The internship experience benefits the intern;
  3. The intern does not displace regular employees, but works under close supervision of existing staff;
  4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
  5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
  6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

So long as all of the above factors are met, no employment situation is created under the FLSA, and the intern is exempt from the minimum wage and overtime requirements.

Most often, businesses with internship programs are violating the FLSA without even realizing that their practices run afoul of the law. For example, if an intern is engaged in the operations of the employer or is performing productive work that results in the employer benefiting from the intern’s work, then the intern is really an employee. Other factors that make your intern an employee are:

  • Using interns as substitutes for regular employees or augmenting a workforce during specific time periods;
  • Using interns to perform work that would otherwise have been done by regular employees working extra hours or would have required the hiring of additional employees;
  • Supervising interns in the same manner and level as, and with the same personnel as, the employer’s regular workforce;
  • Using the intern for a “trial period” with the expectation that he or she will be hired on a permanent basis.

There are, however, methods to minimize the risk, and make your company’s unpaid internship structure more defensible, if challenged. The business should structure the internship

so that it resembles and revolves around an academic experience. The intern should not be taking job opportunities away from current or potential employees. If the internship provides the

individual with skills that can be applied to multiple jobs, the more likely it is to be viewed as training rather than employment. The employer should provide job shadowing opportunities that allow the intern to learn certain functions under the close and constant supervision of regular employees, but require the intern to perform minimal actual work. The internship also should be set for a fixed period determined prior to the outset of the internship rather than a “trial period” for individuals beginning employment.

Clearly, education is the key. Under the above guidelines, “for-profit” sector employers who wish to offer unpaid internships must be sure that their interns are being educated, and that the business is not gaining a benefit from free, productive intern-generated work.

If you require more information please contact Dena B. Calo.

THIS CLIENT ADVISORY IS FOR INFORMATIONAL PURPOSES ONLY, AND SHALL NOT BE CONSIDERED AS LEGAL ADVICE.

Unpaid Internships: Are They Legal?

Author: Dena B. Calo

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The economy is still sluggish.  And as we move into the summer months, there is always an influx of cheap (and sometimes free) labor coming out of colleges, universities and trade schools.  These “interns” use the summer to work for a company, making connections and learning a business where they believe they can get a job once they graduate.  In turn, businesses pay nearly nothing to the interns, thinking instead that it is pay enough to instill in these individuals the opportunity to learn the industry and meet people along the way.