SEC tackles Pay-to-Play rule breakers


REVISED Pay-to-Play rules ensure the SEC wins every time traders make financial contributions to candidates elected to public office who gain influence over government assets or pension fund investment decisions etc.

The SEC slapped a whopping $294,894 and a cease-and-desist order against TL Ventures during Administrative proceedings on 20 June 2014 on foot of two small campaign contributions totaling $4,500. The firm maintained a business relationship in violation of Rule 206 which requires a two year quarantine window period after a campaign contribution is made.

TL Ventures Inc. fell foul of Rule 206 when a 'covered associate' at Penn Mezzanine - an employee of a related business enterprise who was not directly employed by the parent firm - engaged in pay-to-play activity which created a suspicion of influence when the supported candidate secured public office.

The 'covered associate' contributed just $2,500 to a Mayoral of Philadelphia election candidate in 2012 and previously, contributed a paltry $2,000 to a candidate running for Governor of Pennsylvania in 2011.

Philly's Mayor has influence over the appointment of three individuals to the City of Philadelphia Board of Pensions and Retirement. The board decides how it will invest the city's money in order to fund retired City employee pensions.

The Governor of Pennsylvania has control over the appointment of six individuals out of eleven appointed to its Pennsylvania State Employees’ Retirement System (SERS).

THE updated Rule 206(4)-5, of the Investment Advisers Act of 1940, address pay-to-play abuses involving campaign contributions made by advisers or their covered associates to government officials who are in a position to influence the selection of advisers to manage government client assets, including public pension assets.

Both TL Ventures and Penn Mezzanine had assumed they were exempt from SEC registration. The SEC ruled the two firms did not constitute separate legal personalities because the 'covered associate' had direct access to the parent company's email system and also because specific executives had controlling interests in both firms,

Source: SEC Newsroom