NY Comptroller DiNapoli Announces New Pay-to-Play Rule

New York State Comptroller Thomas DiNapoli today signed an executive order banning the $116.5 billion NY Common Retirement Fund from doing business with anyone who has made contributions to the state comptroller within the past two years. It also would affect firms making contributions to candidates for state comptroller.

The executive order is effective in 45 days from today. It also is prospective rather than retrospective, which basically means that past contributions and/or investment decisions will not be affected. Disclosure of contributions would be required to be made by the firms themselves, rather than via a search of campaign finance records.

DiNapoli says the rule mirrors proposed regulations by the SEC, which also would ban the use of placement agents. The Comptroller already banned placement agent usage by NYCRF earlier this year.

The rule does not apply to law firms or other retained service providers to investment firms. It also does not address the issue of contributions from family members of investment professionals (a provision also missing from the SEC proposal, but which has been cited as essential in several comment letters).

A Bloomberg reporter asked if DiNapoli believes campaign contributions affected his predecessor’s investment decisions. He didn’t directly answer, although said most of the current pay-to-play scandal did not relate to campaign contributions. Former comptroller Alan Hevesi has not been implicated in the alleged wrongdoing of his chief investment officer (David Logisci, currently under indictment).

I asked DiNapoli about why NYCRF still maintains a single-fiduciary structure, when virtually all other state systems use some sort of multi-person board. He said that his office has put in various new controls over the past few months, but that such a fundamental change would be above his pay grade. He also used the example of Illinois, saying that a board structure does not preclude corruption.

Here is a copy of the executive order:
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