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June 24, 2014 at 06:00 AM
In its first case against an advisor for pay-to-play violations, the Securities and Exchange Commission on Friday charged a Philadelphia-area private equity firm with violating the agency’s rules for advisors. The SEC said the firm continued to receive advisory fees from the city and state pension funds following campaign contributions made by an associate in 2011 to the governor of Pennsylvania and a candidate for mayor of Philadelphia.
The firm, TL Ventures Inc., agreed to settle the charges by paying nearly $300,000.
Pay-to-play rules adopted in 2010 prohibit investment advisors from providing compensatory advisory services — either directly to a government client or through a pooled investment vehicle — for two years after making a campaign contribuion to politicians or officials who could potentially influence the selection of advisors to manage government client assets, including pensions.
An SEC spokesman told ThinkAdvisor that while there have been “other pay-to-play cases,” this is the first one brought under the rule for advisors, which went into effect in 2011.
An SEC investigation found that TL Ventures violated those rules by continuing to receive compensation from two public pension funds — Pennsylvania’s state retirement system and Philadelphia’s pension plan — within two years after an associate made a $2,500 campaign contribution to a Philadelphia mayoral candidate and a $2,000 campaign contribution to the governor of Pennsylvania.
The mayoral position appoints three of the nine members of the Philadelphia Board of Pensions and Retirement. Therefore, the SEC says that a mayor can influence the hiring of investment advisors for the public pension fund.
The 11-member board of Pennsylvania’s state retirement system includes six gubernatorial appointees. “Therefore, a governor can influence the hiring of investment advisors for the public pension fund,” the agency states.
