Pay to play violations: an SEC focus

Abstract

Purpose

To explain and analyze the SEC’s January 17, 2017 announcement of settlements with ten investment advisory firms related to charges that those firms violated Rule 206(4)-5, known as the “Pay-to-Play Rule,” of the Investment Advisers Act of 1940.

Design/methodology/approach

Explains the Pay-to-Play Rule, its applicability to investment advisers, the de minimis and returned contribution exceptions, and the Rule violations cited by the SEC, and draws conclusions for the benefit of registered investment advisers and exempt reporting advisers.

Findings

The settlement included censures, civil money penalties, and recovery of compensation earned for firms’ failure to abide by the Rule, most often involving relatively small contributions by single covered individuals.

Practical implications

In light of these settlements, registered investment advisers and exempt reporting advisers may wish to review the adequacy of their policies and procedures with respect to the Pay-to-Play Rule and the effectiveness of their implementation.

Originality/value

Practical analysis and guidance from an experienced lawyer with a specialty in investment management.

Citation

Van Grover, R. (2017), "Pay to play violations: an SEC focus", Journal of Investment Compliance, Vol. 18 No. 2, pp. 13-15. https://doi.org/10.1108/JOIC-04-2017-0026