SEC Adopts “Pay-to-Play” Rule for Investment Advisers

July 16, 2010
The SEC recently voted to adopt a rule under the Investment Advisers Act of 1940 addressing so-called “pay-to-play” practices. Rule 206(4)-5 is designed to prevent political contributions to elected officials by advisers and their employees for the purpose of improperly influencing decisions of public pension funds and other government entities. The Rule narrowly limits political contributions by both advisers and their employees who may provide services to public funds. Failure to comply with the Rule will result in harsh penalties, including the loss of advisory fees or foreclosed business opportunities. This update provides a summary of the Rule.