SEC Moves To Bar ‘Pay-To-Play’ At Public Pensions

Jul 1 2010 | 11:14am ET

In the wake of a New York corruption scandal that ensnared several high-profile alternative investment funds, the Securities and Exchange Commission has moved to stamp out “pay-to-play” practices at public pension funds.

The commissioners unanimously voted to approve new rules that strictly limit political contributions from investment advisors to politicians in a position to influence manager selection at public pension funds and 529 college savings plans. The rule strictly limits the amount an investment adviser can donate to political campaigns, and bars advisers from paying placement agents and other third parties from making the contributions on their behalf. Advisers are also forbidden from bundling their contributions, or coordinating contributions with others.

Advisers found to have violated the new rules, which limit executives and employees of investment advisors to giving just $350 per election cycle to candidates they are entitled to vote for, and just $150 per cycle to candidates they cannot vote for, are subject to a two-year ban.

Non-investment advisers can give up to $2,000 to each candidate per election cycle.

“The selection of investment advisers to manage public plans should be based on the best interests of the plans and their beneficiaries, not kickbacks and favors,” SEC Chairman Mary Schapiro.

Kickbacks and favors are exactly what several high-level political operatives in the New York Comptroller’s office are alleged to have traded in. The former chief investment officer of the New York State Common Retirement Fund, David Loglisci, pleaded guilty in May to directing the pension to invest $150 million in a Carlyle Group and Riverstone Holdings fund in exchange for a $100,000 investment in a movie produced by Loglisci’s brother.

Loglisci said Henry Morris, a top political adviser to former Comptroller Alan Hevesi, controlled which alternative investment firms would receive allocations, and which would not. Morris has pleaded not guilty in the case.

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