July 1, 2010 | Chase Davis
The Securities and Exchange Commission yesterday voted to restrict campaign contributions from money managers seeking business from public pension funds and restrict the hiring of middlemen to solicit pension business, following several episodes of apparent corruption in California and elsewhere.
Under the new rules, which were approved unanimously, investment managers would be prohibited from working with a public pension fund for two years if they make a campaign contribution to an official with influence over the fund.
Fund managers and their employees are also prohibited from routing contributions to officials through friends, family or so-called placement agents, who often serve as middlemen between investment firms and pension funds.
In a speech during the hearing, SEC Chairwoman Mary Schapiro described the rule like this:
* First, it would prohibit an adviser from providing advisory services for compensation – either directly or through a pooled investment vehicle – for two years, if the adviser or certain of its executives or employees make a political contribution to an elected official who is in a position to influence the selection of the adviser.
* Second, the rule would prohibit an adviser and certain of its executives and employees from soliciting or coordinating campaign contributions from others – a practice referred to as “bundling” – for an elected official who is in a position to influence the selection of the adviser. It also would prohibit solicitation and coordination of payments to political parties, when the adviser is pursuing business from public entities.
* Finally, and very importantly, the rule would prohibit an adviser from paying third-party solicitors who are not “regulated persons” subject to prohibitions against making contributions. Such “regulated persons” would be limited to registered investment advisers and to broker-dealers subject to pay to play restrictions.
Pay-to-play in public pension systems has been a hot topic this year in California and elsewhere.