Ten IA Firms Pay $660K to Settle SEC Pay-to-Play Charges Over Pensions

gaunt-leann-357c.jpg

WASHINGTON – Ten investment advisory firms have agreed to pay penalties totaling $660,456 to settle Securities and Exchange Commission charges that they violated the SEC's investment advisor pay-to-play rule.

Under the IA rule, investment advisors cannot provide compensatory advisory services either directly to a government client or through a pooled investment vehicle for two years if political contributions were made to a candidate who could either influence the advisor selection process for a public pension fund or appoint someone with similar influence.

The SEC found that the ten firms accepted fees from city or state pension funds after their covered associates made campaign contributions to individuals with such influence over the pension funds.

A covered associate can be any high-ranking individuals in a firm as well as any employee who solicits a government entity for the IA and anyone who supervises such an employee. Additionally, it could include a political action committee controlled by the IA or by one of its covered associates.

"The two-year timeout is intended to discourage pay-to-play practices in the investment of public money, including public pension funds," said LeeAnn Gaunt, chief of the SEC enforcement division's public finance abuse unit. "Advisory firms must be mindful of the restrictions that can arise from campaign contributions made by their associates.

New York City-based NGN Capital paid the highest penalty of the ten firms, at $100,000. The firm advised a fund in which four New York public pension plans invested in 2008. The funds included the: Teachers Retirement System of the City of New York; New York City Police Pension Fund, New York City Fire Pension Fund, and the New York City Employees' Retirement System.

Between July 2013 and September 2013, a covered associate of the firm made three campaign contributions totaling $1,425 to a New York City mayoral candidate. The same associate also made a $500 campaign contribution to another mayoral candidate in April 2013. The mayor appoints at least one member of the boards of the public pension plans.

The firm triggered the pay-to-play rule because the associate continued working with the fund for compensation within two years of the contributions.

Five of the ten firms cited agreed to fines of $75,000 because their covered associates made contributions to public officials with influence and then continued to provide IA services for compensation within two years.

Woburn, Mass.-based Commonwealth Venture Management Corp. is to pay $75,000 after the SEC found that two covered associates made contributions to a gubernatorial candidate in Massachusetts. Among other things, the governor is on the board of the Massachusetts Pension Reserves Investment Management Board (PRIM), which had invested in a fund Commonwealth advised.

Similarly, New York-based Pershing Square Capital Management will pay $75,000 because of a covered associate's contribution to a gubernatorial candidate in Massachusetts and because PRIM had investments in one of the funds the firm advised.

The other three IA firms that agreed to $75,000 fines include: San Francisco-based FFL Partners; Westport, Conn.-based Lime Rock Management; and Chicago-based The Banc Funds Company. The firms' violations related to Wisconsin's Core Retirement Investment Trust, the State Teachers' Retirement System of Ohio, and the Illinois Teachers' Retirement System, respectively. The donations that triggered the charges were made to a gubernatorial candidate in Illinois in 2013, a candidate for governor of Wisconsin in 2012, and the governor of Ohio in 2015.

New York-based Aisling Capital agreed to a fine of $70,456 over a covered associate's December 2011 campaign contribution to the Manhattan borough president and an April 2012 contribution to a candidate for the same position. The president has influence over the selection of IAs for the New York City Employees' Retirement System, which was invested in a fund the firm advised.

Adams Capital Management, based in Sewickley, Pa., will pay $45,000 over an associate's 2014 contributions to candidates' campaigns for Pennsylvania treasurer and governor. Both the treasurer and governor had influence over the Pennsylvania State Employees' Retirement System that was invested in a fund Adams advised.

Waltham, Mass.-based Alta Communications and New York-based Cypress Advisors both are to pay $35,000 fines. The charges against Alta involved a February 2014 campaign contribution to the treasurer of Massachusetts. The treasurer sits on the board of PRIM, which had invested with an Alta-advised fund. The Cypress charges related to a covered associate's contribution to a New York City mayoral candidate while four New York City pension funds were invested in a fund that Cypress advised.

For reprint and licensing requests for this article, click here.
Enforcement
MORE FROM BOND BUYER