The Security and Exchange Commission (SEC) settled charges with a Pennsylvania private equity firm for violating “pay-to-play” rules that prohibits investment advisors from giving campaign contributions within two years of doing business with city and state pension funds. The move by the SEC comes on the heels of a new study being released that concludes political connections and campaign contributions influence SEC enforcement actions.
SEC announce settlement with TL Ventures
The SEC today announced that Philadelphia-area investment advisor TL Ventures agreed to settle the charges by paying $300,000. An associate of the firm made a $2,500 campaign contribution to a Philadelphia mayoral candidate and a $2,000 campaign contribution to the governor of Pennsylvania. Each of these political positions has appointment power over the Philadelphia Board of Pensions and Retirement and can therefore influence the hiring of investment advisers for the public pension fund and the Pennsylvania’s state retirement system respectively. TL had been receiving advisory compensation from the pension funds and after the contributions, TL Ventures improperly continued to receive compensation from the pension funds for those advisory services, a statement on the settlement said.
“We will use all available enforcement tools to ensure that public pension funds are protected from any potential corrupting influences,” said Andrew Ceresney, director of the SEC Enforcement Division. “As we have done with broker-dealers, we will hold investment advisers strictly liable for pay-to-play violations.”
LeeAnn Ghazil on decrying the political contributions
LeeAnn Ghazil Gaunt, chief of the SEC Enforcement Division’s Municipal Securities and Public Pensions Unit, was also steadfast in decrying the political contributions. “Public pension funds are increasingly investing in alternative investment vehicles such as hedge funds and private equity funds,” she said in a statement. “When dealing with public pension fund clients, advisers to those kinds of investment vehicles should be mindful of the restrictions that can arise from political contributions.”
The SEC’s tough talk on political campaign contributions comes as a recent study from the London Business School says that concludes: “Contributions to politicians in a strong position to put pressure on the SEC are more effective than others at reducing the probability of enforcement and penalties imposed by an enforcement action. Moreover, the amounts paid to lobbyists with prior employment links to the SEC, and the amounts spent on lobbying the SEC directly, are more effective than other lobbying expenditures at reducing enforcement costs faced by firms.”