According to the SEC’s orders, investment advisers are subject to a two-year timeout from
providing compensatory advisory services either directly to a government
client or through a pooled investment vehicle after political contributions were made to a candidate who
could influence the investment adviser selection process for a public pension fund
or appoint someone with such influence. “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. “Advisory firms
must be mindful of the restrictions that can arise from campaign contributions
made by their associates."
Since 1994, the Municipal Securities Rulemaking Board (“MSRB”) has sought to eliminate
pay-to-play practices in the municipal securities market through its Rule G-37, on political contributions
and prohibitions on municipal securities business. Under the rule, certain contributions to elected
officials of municipal securities issuers made by brokers, dealers and municipal securities dealers
(“dealers”), municipal finance professionals (“MFPs”) associated with dealers, and political action
committees (“PACs”) controlled by dealers and their MFPs (“dealer-controlled PACs”) may result in
on dealers from engaging in municipal securities business with such issuers for a period of two years from
the date of any triggering contributions.
Rule G-37 requires dealers to record and disclose certain contributions to issuer officials, state or local political parties, and bond ballot campaigns, as well as other information, on Form G-37 to allow public scrutiny of such contributions and the municipal securities business of a dealer. In addition, dealers and MFPs generally are prohibited from soliciting others (including affiliates of the dealer or any PACs) to make contributions to officials of issuers with which the dealer is engaging or seeking to engage in municipal securities business, or to political parties of a state or locality where the dealer is engaging or seeking to engage in municipal securities business. Dealers and MFPs also are prohibited from circumventing Rule G-37 by direct or indirect actions through any other persons or means.
Federal law prohibits campaign contributions to political candidates and parties from
individual contractors as well as business entities. While the Federal
Election Commission maintains a comprehensive federal database of gifts and contributions as well as
lobbying activities, monitoring this can be time consuming. We can help you
monitor your employees daily so you will know you are in compliance.
Contributions made from the treasuries of corporations, labor organizations and national banks are prohibited. Additionally, national banks and federally chartered corporations may not make contributions in connection with any election, including state and local elections. Contributions may, however, be made from separate segregated funds (also called political action committees or PACs) established by corporations, labor organizations, national banks, and incorporated membership organizations.