SEC Releases Staff Responses on Pay-To-Play Rule

03.24.2011

On Tuesday the Securities and Exchange Commission issued staff responses to questions about Rule 206(4)-5, the pay-to-play rule which went into effect on March 14, 2011 as we described here and here. There are several notable responses that provide additional guidance on the rule.  For example, in response to a question regarding contributions made by an adviser or a covered associate to a trade association PAC, which then makes a contribution to a candidate, the staff states that:

The PAC is a covered associate only if the adviser or any of its covered associates has the ability to direct or cause the direction of the governance or the operations of that PAC (see section II.B.2(a)(4) of the Adopting Release).  However, a chain of contributions through PACs made for the purpose of avoiding the pay to play rule, would violate the rule’s, and section 208(d) of the Advisers Act’s, general prohibitions against doing anything indirectly which would be prohibited if done directly (see rule 206(4)-5(d)).

Additionally,  the response to question V. I states that the SEC rule does not preempt state and local pay-to-play rules. While the staff responses are not official regulations of the SEC, they nevertheless provide useful guidance.

Tag: Federal