With the recent Iowa Straw Poll, the presidential
campaign season is getting into full gear. That also means that campaign fundraising
is in full gear. I thought it would be useful to apply the SEC's
new Pay-to-play for Investment Advisors to the crop of presidential contenders.
Rule 206(4)-5, investment advisors are limited in their ability to give
campaign contributions to political candidates who can directly or indirectly
influence the hiring of an investment advisor by a government-sponsored
investment entity. A campaign contribution in violation of the rule means the
investment advisor can not collect fees from the applicable
government-sponsored investor for two years. The rule applies to registered
investment advisors and fund managers that had been exempt under the
now-repealed, private fund manager exemption.
The president of the United States is not an office that
can directly or indirectly influence the hiring of an investment advisor, so
that position is not one that is limited by the SEC Rule. However, you also
need to look at the candidate's current office to see if that position is one
that is limited.
That means campaign contributions to the incumbent
president, Barack Obama, are not limited by the rule. Some of his
potential competitors are limited.
Registered Investment Advisors, private fund managers
getting ready to register with Securities and Exchange Commission, and their
employees need to be very cautious about making contributions to Governor Perry
if they have a Texas state sponsored fund as a client or investor, or hope to
have one as a client or investor in the next two years.
The rule also applies to placement agents. They must
either be a registered investment advisor subject to SEC
Rule 206(4)-5 or a municipal adviser subject to MSRB
It is very obvious that SEC Rule 206(4)-5 can cause significant
distortions in the political campaign.
additional commentary on developments in compliance and ethics, visit Compliance Building,
a blog hosted by Doug Cornelius.
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