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SEC levies fines against 10 firms for pay-to-play violations

  • 10 firms fined between $35,000 and $100,000
  • Firms accepted fees for advisory services after associates made political contributions
  • Includes contributions in Ohio, Illinois, New York

The SEC censured and fined 10 firms for violating federal pay-to-play rules, the regulator said Tuesday.

The cases, which were not connected, involve contributions to public officials in Massachusetts, New York, Wisconsin and Illinois, according to the SEC’s findings.

Contributions include donations to state and local political campaigns made between 2011 and 2015. The firms will pay between $35,000 and $100,000 in penalties.

None of the firms admitted or or denied wrongdoing in their settlements.

SEC rules prohibit investment advisers and their employees from contributing more than $350 to any candidate whose office could influence the selection of an investment manager.

That could include mayors and governors who select public-pension trustees or treasurers who holds seats on a state or local retirement board. If a private equity firm or an executive does make a contribution, their firm is barred from providing advisory services for compensation for two years.

“The two-year timeout is intended to discourage pay-to-play practices in the investment of public money, including public pension funds,” said LeeAnn Ghazil Gaunt, chief of the SEC Enforcement Division’s Public Finance Abuse Unit, in a statement. “Advisory firms must be mindful of the restrictions that can arise from campaign contributions made by their associates.”

The SEC found that these 10 firms violated that two-year time-out when they accepted fees after their associates contributed to elected officials or political candidates deemed to have influence over state and local pension funds. (See chart.)

Firm Amount of Contribution Office They Contributed to Was the contribution returned? Size of Penalty
Adams Capital Management $500 Treasurer of Pennsylvania Yes $45,000
Aisling Capital $1,500 Manhattan Borough President N/A $70,456
Alta Communications $500 Treasurer of Massachusetts Yes $35,000
Banc Funds Company $1,000 Governor of Illinois Yes $75,000
Commonwealth Venture Management Corporation $1,500 Governor of Massachusetts Yes $75,000
Cypress Advisors $400 Mayor of New York City N/A $35,000
FFL Partners $10,000 Governor of Wisconsin N/A $75,000
Lime Rock Management $1,000 Governor of Ohio Yes $75,000
NGN Capital $1,925 Mayor of New York City N/A $100,000
Pershing Square Capital Management $500 Governor of Massachusetts Yes $75,000

Lime Rock and Commonwealth Venture Management declined to comment. The remaining firms did not respond to requests for comment.In the case of Pershing Square, the SEC’s findings involved a contribution made by a former employee of the hedge fund. In a statement, the firm said: “Pershing Square was unaware of the contribution at the time it was made. Upon learning of the contribution, Pershing Square filed an exemption application with the Commission’s Division of Investment Management stating that it should not bear any liability for its former employee’s error.”

In its 2017 priorities list, the SEC’s Office of Compliance Inspections and Examinations indicated its intention to focus on conflicts of interest arising at public-pension advisers. In December, the SEC announced fraud charges against New York State Common Retirement Fund fixed-income director Navnoor Kang after it found he’d directed investments in exchange for gifts, vacations, cocaine and prostitutes.

“Our sense is that where public officials are engaging in public corruption in other contexts — say, in hiring practices or awarding construction contracts — we may also find there is corruption in the awarding of underwriting business or investment advisory contracts for public pension funds,” SEC Director Andrew Ceresney said in a speech last year. “I can’t say today what those efforts will yield, but we are doing all we can to shine light in this opaque area.”

Paul Centopani contributed to this report.

Action Item: To read more about each case, visit the SEC’s website at www.sec.gov

The Securities and Exchange Commission logo adorns an office door at headquarters in Washington on June 24, 2011. Photo courtesy Reuters/Jonathan Ernst