SEC Passes Long-Awaited Rules on Investment Advisers and Political Contributions
June 30, 2010
Citing to increasingly significant pay-to-play problems in the management of public funds by investment advisors, the Securities and Exchange Commission passed new rules today that prohibit pay-to-play practices. As we previously reported here, the SEC first considered these rules, modeled after MSRB G-37 and G-38 rules, in 1999. The rules passed today:
- Prohibit investment advisers from receiving compensation for advisory services to a government client for two years if they make a political contribution to certain elected officials or candidates.
- 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.
- 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.
- Require a registered adviser to maintain records of the political contributions made by the adviser or covered executives and employees.
- The prohibition on providing advisory services for compensation within two years of a contribution and the prohibition on soliciting or coordinating contributions will first be triggered by contributions made six months after the effective date. Notably, this means that contributions given for the November 2010 elections are not covered.
- The prohibition on making payments to third parties goes into effect one year after the effective date.
- The record retention rule goes into effect six months after the effective date