Chicago Aldermen Want SEC Probe of Mayor's Campaign Contributions

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Rahm Emanuel, mayor of Chicago, listens during an interview inside the Bloomberg Link during day two of the Democratic National Convention (DNC) in Charlotte, North Carolina, U.S., on Wednesday, Sept. 5, 2012. Democratic officials have moved President Barack Obama's nomination acceptance speech tomorrow night to the Time Warner Cable Arena from the larger, outdoor Bank of America Stadium because of the possibility of severe weather. Photographer: David Paul Morris/Bloomberg *** Local Caption *** Rahm Emanuel

CHICAGO -Several Chicago City Council members are asking the Securities and Exchange Commission and city inspector general to investigate whether campaign contributions to Mayor Rahm Emanuel from executives at firms with city pension business violate local ethics or federal pay-to-play rules.

The three council members sent letters dated Tuesday to Andrew Ceresney, director of the SEC's Division of Enforcement, asking the agency to examine whether campaign contributions that were the subject of a Nov. 13 article in the International Business Times violate federal regulations.

Based on details in the article involving contributions from executives with pension fund business, the council members believe the contributions could run afoul of SEC rules aimed at curtailing pay-to-play by investment advisors.

The letter cites concern that the contributions could violate SEC rules that prohibit investment advisors from receiving compensation for advisory services for two years following a campaign contribution the firm or certain associates make to political candidates or officials in a position to influence the selection or retention of advisors to manage public pension funds or other governmental assets.

Emanuel does not sit on the pension boards, but members of his cabinet do.

"The taxpayers of Chicago and members of the MEABF [municipal employees fund] of the city of Chicago are the clients of these municipal advisors," read the letter sent by council members Bob Fioretti, John Arena, and Scott Waguespack.

Fioretti is challenging Emanuel in the 2015 mayoral election.

"We believe that the pay to play actions have violated the public trust and are a breach of the fiduciary duty. Chicago has a deep history of pay to play. Our goal is to end these tactics," the letter said.

Emanuel's campaign dismissed any questions over the legality or impropriety of the contributions.

"The donations are fully compliant with the law and the higher standards the Mayor voluntarily imposes? on himself per his executive order," said campaign spokesman Steve Mayberry. "In fact, since taking office Mayor Emanuel has strengthened city ethics and campaign finance rules, including mandating unprecedented restrictions? on mayoral fundraising."

The three also sent a letter to city inspector general Joe Ferguson and Board of Ethics director Steven Berlin asking them to examine whether any city ethics rules were violated. Early in his tenure, Emanuel signed an executive order prohibiting campaign contributions from firms with city contracts.

The three also asked city comptroller Dan Widawsky to provide them with the names of managers and firms with pension fund business including those involved in pooled investments.

The three aldermen said their concerns stem from campaign contributions reported on in the article "Chicago Mayor Rahm Emanuel Accepted Campaign Contributions From Financial Firms Managing City Pension Money."

The report cited more than $600,000 in contributions in recent years to Emanuel's campaign and political action committees from executives at firm with ties to the city's pension fund system.

The article cited contributions directly to Emanuel's campaign and to a political action committee from John Buck Co., which is listed as a real estate investment manager for two city pension funds.

It also cited contributions from Madison Dearborn Partners, a private equity firm that manages Chicago pension money as one of a group of managers in a set of pooled investments. The firm has countered that it does not directly manage city pension money, making it exempt from the rules, according to a firm statement in the article.

The SEC in June charged a Philadelphia-area private equity firm with violating pay-to-play rules by receiving advisory fees from the city and state pension funds following campaign contributions an associate made to state and local officials. It was the first case brought by the SEC under its pay-to-play rules for investment advisors. The firm settled the charges with the SEC while neither admitting nor denying the commission's findings.

"We will use all available enforcement tools to ensure that public pension funds are protected from any potential corrupting influences," Ceresney said at the time. "As we have done with broker-dealers, we will hold investment advisers strictly liable for pay-to-play violations."

Pay-to-play rules are designed to prevent firms from generating business by influencing public officials with financial gifts.

The Investment Advisers Act of 1940 does not require that a firm intend to influence the politician to award them business in order for a violation to have occurred. It also does not require any evidence that the contribution led the official who received it to help award business to the firm.

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