SEC Moves To End ‘Pay-To-Play’ At Pensions

Jul 27 2009 | 9:59am ET

In the wake of the pay-to-play scandal in New York, the Securities and Exchange Commission moved to change the way hedge funds, private equity firms and other investment companies drum up business from pension funds and other public investment vehicles.

The agency last week unanimously approved a rule barring investment firms whose executives donate to the campaigns of elected officials involved in awarding mandates from managing those mandates. Last week’s vote opens a 60-day comment period.

“Pay-to-play practices can result in public plans and their beneficiaries receiving sub-par advisory services at an inflated price,” Mary Schapiro, the regulator’s chairman, said. “There should be no place for such practices in an investment-advisory industry comprised of fiduciaries that are subject to high standards of ethical conduct.”

The donation ban would cover firms and some of their “executives and employees.”

An investigation by New York Attorney General Andrew Cuomo has revealed that some placement agents paid kickbacks to a pair of aides to the state’s former comptroller in exchange for getting business for their clients from the $122 billion New York State Common Retirement Fund. Two men have already pleaded guilty to charges stemming from the probe, including an employee of hedge fund HFV Asset Management. The Carlyle Group, Pequot Capital Management and Quadrangle Group have all been caught up in the scandal.

Cuomo has reached deals with several firms involved in the scandal, including Carlyle, with each agreeing to stop using placement agents.

In Depth

Financial Industry Blockchain Consortium R3 To Open-Source Platform Code

Oct 20 2016 | 9:03pm ET

Bitcoin's blockchain technology has spawned a flurry of activity among fintech startups...


U.S. Trust's Beard: The Rapid Growth of the Art Lending Industry

Oct 7 2016 | 10:55pm ET

Alternative investment managers have emerged as some of the most significant art...

Guest Contributor

Hedge Fund Marketing – Tips for Your Initial Sales Meeting

Sep 29 2016 | 5:46pm ET

There are two main goals a hedge fund should have for an initial in-person sales...