In 2011, so-called "pay-to-play" prohibitions under
the Investment Advisers Act Rule 206(4)-5 (the Rule) went into
effect. A recent U.S. Securities and Exchange Commission (SEC)
exemptive order application addresses one instance in which an
investment adviser found itself in violation of the Rule and
applied for a curative ruling.1 First, a little
background.
Pay-to-play is the practice of making campaign contributions and
related payments to elected officials in order to influence the
awarding of contracts for the management of public pension plan
assets and other government investment accounts. The rules adopted
by the SEC address – and ban – not only direct
political contributions by investment advisers, but also other
indirect payment mechanisms that some advisers have used or could
use for similar purposes. The Rule mandated strict prohibitions,
with certain very limited exceptions, on contributions and
activities with regard to municipal and state pension plans
