Pay to play: recent SEC actions highlight importance of compliance controls

Edward Pittman (Attorney, Brenden Carroll is Associate at Dechert LLP, Washington, District of Columbia, USA)
Brenden Carroll (Associate at Dechert LLP, Washington, District of Columbia, USA)
Sean Murphy (Associate at Dechert LLP, Washington, District of Columbia, USA)

Journal of Investment Compliance

ISSN: 1528-5812

Publication date: 28 June 2013

Abstract

Purpose

The purpose of this paper is to explain two recent actions by the US Securities and Exchange Commission (SEC), a “Settlement Order” and a National Examination Risk Alert, that highlight the importance of compliance controls with respect to political contributions and other political activities.

Design/methodology/approach

The paper explains Municipal Securities Rulemaking Board Rule G‐37, one of the earliest pay‐to‐play rules; the Settlement Order and how it addresses in‐kind campaign contributions, solicitation activities, and a municipal dealer's compliance failures; and the Risk Alert, including SEC staff observations and concerns based on examinations of the compliance programs of brokers and dealers engaged in the municipal securities business, practices the SEC staff has found problematic and in violation of Municipal Securities Rulemaking Board Rule G‐37, and certain practices firms have incorporated into their pay‐to‐play compliance programs.

Findings

The Settlement Order and Risk Alert provide an important reminder for investment advisers and municipal underwriters that are subject to pay‐to‐play restrictions, particularly highlighting issues relating to “in‐kind” contributions and solicitation activities, but also, beyond the municipal financing arena, may be of interest to investment advisers who have less guidance from the SEC on the application of Advisers Act Rule 206(4)‐5.

Practical implications

Because of the harsh consequences for not complying with the law, firms and their employees should be keenly aware of political activity that may cause violations of applicable pay‐to‐play restrictions.

Originality/value

The paper provides practical guidance from experienced financial services lawyers.

Keywords

Citation

Pittman, E., Carroll, B. and Murphy, S. (2013), "Pay to play: recent SEC actions highlight importance of compliance controls", Journal of Investment Compliance, Vol. 14 No. 2, pp. 21-27. https://doi.org/10.1108/JOIC-05-2013-0015

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Publisher

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Emerald Group Publishing Limited

Copyright © 2013, Company

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