SEC Adopts "Pay to Play" Anti-Fraud Rule


Advisers

The SEC recently adopted an anti-fraud rule aimed at curbing the "pay to play" practices of advisers that provide services to government entities.

The rule contains three primary provisions, and applies to elected officials as well as those seeking election, both incumbents and candidates, to the office that can influence the adviser selection.

2-Year "Time Out"
The SEC prohibits an adviser from receiving compensation for advisory services for two years, where the adviser, or certain executives or employees, contributed to an elected official who is in a position to approve advisory contracts or influence the selection of an adviser.

The rule does contain a provision allowing an executive or employee to make de minimis donations of up to (a) $350 if the contributor is entitled to vote for the candidate, and (b) $150 if the contributor is not entitled to vote for the candidate.

Ban on “Bundling”
The rule prohibits an adviser, or certain executives or employees, from asking another person or political action committed to either (a) make a contribution to an elected official (or candidate for office) who can influence the selection of an adviser, or (b) make a payment to a political party of the state or locality where an adviser is seeking to provide advisory services to the government.

Ban on Third Party Solicitors
The rule prohibits the use of third parties to solicit a government client on behalf of the investment adviser, unless the third party is an SEC-registered investment adviser or broker dealer. Third parties may include placement agents and solicitors.

Restricting Indirect Contributions
In order to prevent an adviser from circumventing the rule by directing contributions through third parties, an adviser can also violate the rule through indirect contributions, including contributions made by the adviser’s spouse, lawyer or other affiliated company.

Key Compliance Dates
The effective date of the rule is September 13, 2010. General compliance with the rule will be required by March 14, 2011. Compliance with the third-party ban will be required by September 13, 2011. Please call Vista360 with any questions.

 

 

 

 

 

 

 

   
 
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