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Article
Publication date: 3 July 2017

Robert Van Grover

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

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.

Details

Journal of Investment Compliance, vol. 18 no. 2
Type: Research Article
ISSN: 1528-5812

Keywords

Article
Publication date: 29 November 2011

Edward L. Pittman, Christopher P. Harvey, Michael L. Sherman and Brenden P. Carroll

The purpose of this paper is to explain the SEC staff's web site responses to a series of frequently asked questions concerning SEC Advisers Act Rule 206(4)‐5.

Abstract

Purpose

The purpose of this paper is to explain the SEC staff's web site responses to a series of frequently asked questions concerning SEC Advisers Act Rule 206(4)‐5.

Design/methodology/approach

The paper explains the SEC staff responses to FAQs on the ability to rely on prior Municipal Securities Rulemaking Board interpretations regarding MSRB Rules G‐37 and G‐38, determining who is an “official of a government entity,” determining who is a “covered associate,” payments of commissions or other compensation to brokers or others, the Rules' application to political action committees (PACs), and “effective dates” and “compliance dates” under the related recordkeeping rule.

Findings

Pay‐to‐play is the practice of making campaign contributions and related payments to elected officials in order to influence the awarding of lucrative contracts for the management of public pension plan assets and similar government investment accounts. The staff's answers to the FAQs announce cautious positions, do not address some of the more difficult issues advisers may face on a day‐to‐day basis, and are subject to change.

Originality/value

The paper provides practical guidance from experienced financial services lawyers.

Details

Journal of Investment Compliance, vol. 12 no. 4
Type: Research Article
ISSN: 1528-5812

Keywords

Article
Publication date: 14 June 2011

Thomas M. Schiera

The aim of this paper is to provide hedge fund and other private fund managers with a brief recap of regulatory changes in 2010 and a reminder of certain “best practices”…

Abstract

Purpose

The aim of this paper is to provide hedge fund and other private fund managers with a brief recap of regulatory changes in 2010 and a reminder of certain “best practices” they should consider as they prepare for 2011.

Design/methodology/approach

The paper provides 2010 regulatory highlights, including relevant provisions of the Dodd‐Frank Wall Street Reform and Consumer Protection Act, the Pay‐to‐Play Rule, and amendments to Form ADV. It outlines issues for consideration in 2011, including preparation for SEC registration (if applicable), review of compliance policies and procedures, updating Form ADV, Form D and Blue Sky Filings, “custody rule” (Rule 206(4)‐2 under the Advisers Act) compliance, other regulatory filings that may be required (including Form 13F, Schedule 13D/13G, and Forms 3, 4, and 5), CFTC regulatory requirements for investment managers who trade or advise others on trading commodity futures contracts, certain tax considerations (including foreign bank, brokerage and other financial account (FBAR) reporting requirements), the Foreign Tax Compliance Act of 2009 (FACTA)), ERISA and Department of Labor considerations, fee deferral arrangements, and offering document updates.

Findings

This summary is not intended to provide a complete list of an investment manager's obligations relating to its compliance with applicable rules and regulations or to serve as legal advice. It does not address any non‐US or state law requirements and has not been tailored to the specific needs of a particular investment manager's business.

Originality/value

This paper provides useful summary practical guidance from experienced financial institutions lawyers.

Details

Journal of Investment Compliance, vol. 12 no. 2
Type: Research Article
ISSN: 1528-5812

Keywords

Article
Publication date: 28 June 2013

Edward Pittman, Brenden Carroll and Sean Murphy

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…

129

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.

Article
Publication date: 26 August 2014

M. Norman Goldberger, John C. Grugan, Christine O’Neil and Tesia N. Stanley

To explain the first enforcement action the USA Securities and Exchange Commission (SEC) has brought under “pay to playrules for investment advisers since those rules

Abstract

Purpose

To explain the first enforcement action the USA Securities and Exchange Commission (SEC) has brought under “pay to playrules for investment advisers since those rules were adopted nearly four years ago.

Design/methodology/approach

First, the article provides a summary of the SEC enforcement action against TL Ventures Inc., a Philadelphia-area private equity firm. Next, the article provides a historical context and some key provisions of the rules. Finally, the article provides political contribution policy and procedure recommendations.

Findings

Political corruption in the municipal market has been a focus of the SEC for several years and is likely to continue to be a top priority. Investment advisers should ensure they have sufficient policies and procedures in place to avoid a two-year ban on business with a state or local government as the result of a political contribution.

Originality/value

The article provides the facts underlying the SEC’s enforcement action, the historical context of municipal market pay-to-play rules, a summary of the pay-to-play prohibitions, and recommendations for avoiding rule violations. The article would be of interest to investment advisers, public pension plans, municipal securities underwriters, brokers, and dealers as well as state and local governments.

Details

Journal of Investment Compliance, vol. 15 no. 3
Type: Research Article
ISSN: 1528-5812

Keywords

Article
Publication date: 20 November 2009

Steven W. Rabitz and Marissa J. Holob

The purpose of this paper is to explain the SEC's proposed new rules under the Advisers Act that would prohibit making or receiving various types of payments and political…

110

Abstract

Purpose

The purpose of this paper is to explain the SEC's proposed new rules under the Advisers Act that would prohibit making or receiving various types of payments and political contributions that could be construed as direct or indirect efforts to win investment advisory business from government entities.

Design/methodology/approach

The paper outlines the proposed rules, provides interpretive comments, and explains the background and motivation for the rules.

Findings

The proposed rules are aimed at over $2.2 trillion of assets in public pension plans. The SEC's action comes after a number of widely publicized pay‐to‐play scandals. However, some state systems have affirmatively decided not to ban placement agents, one of them affirming that placement agents can provide a useful service.

Originality/value

The paper provides practical interpretation and guidance from experienced employee benefits and executive compensation practice lawyers.

Details

Journal of Investment Compliance, vol. 10 no. 4
Type: Research Article
ISSN: 1528-5812

Keywords

Article
Publication date: 29 November 2011

Marybeth Sorady, Daren Domina, Wendy Cohen, Fred Santo, Henry Bregstein, Meryl Wiener, Marilyn Okoshi and Jack P. Governale

This paper aims to explain the rules recently adopted by the Securities and Exchange Commission under the provisions of the Dodd‐Frank Wall Street Reform and Consumer…

1156

Abstract

Purpose

This paper aims to explain the rules recently adopted by the Securities and Exchange Commission under the provisions of the Dodd‐Frank Wall Street Reform and Consumer Protection Act relating to the increased asset threshold for federal registration as an investment adviser, the new exemptions from investment adviser registration (including the exclusion of “family offices” from the definition of an investment adviser), the enhanced reporting obligations imposed on registered and certain exempt advisers, and the definition of a “qualified client” for purposes of applying the performance fee rule under the Investment Advisers Act.

Design/methodology/approach

This paper summarizes the principal content of the Rules and explains their application to investment advisers, focusing in particular on analyzing the impact of the Rules on US and non‐US advisers to private funds.

Findings

The Rules clarify important aspects of the Dodd‐Frank amendments to the Investment Advisers Act and expand the scope of certain registration exemptions as they relate to foreign advisers. The Rules also expand significantly the family office exclusion from investment adviser status.

Originality/value

The paper provides expert guidance from experienced financial services lawyers.

Article
Publication date: 14 June 2011

Edward L. Pittman, Cheryl A. Krause, Thomas C. Bogle and Justin C. Danilewitz

The aim of this paper is to explain the provisions of the US Foreign Corrupt Practices Act that may be applicable to investment advisers seeking investments from foreign…

146

Abstract

Purpose

The aim of this paper is to explain the provisions of the US Foreign Corrupt Practices Act that may be applicable to investment advisers seeking investments from foreign governments.

Design/methodology/approach

The paper explains the background of the FCPA and its applicability to investment advisers, recommends policies and procedures for advisers to employ to reduce the risk of FCPA actions, recommends due diligence practices for third‐party relationships, and reminds advisers seeking business opportunities outside the USA of the importance of compliance with foreign anti‐bribery laws.

Findings

The FCPA applies to investment advisers whenever they seek a benefit, directly or indirectly, from a foreign official, as in the course of seeking investments in a sovereign wealth fund.

Practical implications

Given the SEC's increased interest in pay‐to‐play activities, investment advisers who are seeking investments outside the USA should carefully review their existing FCPA policies, or develop new policies if they have not done so already.

Originality/value

The paper provides practical guidance from experienced financial services lawyers.

Details

Journal of Investment Compliance, vol. 12 no. 2
Type: Research Article
ISSN: 1528-5812

Keywords

Article
Publication date: 2 May 2017

Ernesto Lanza

To describe the status of municipal advisor rulemaking by the US Securities and Exchange Commission (SEC) and Municipal Securities Rulemaking Board (MSRB), and regulatory…

Abstract

Purpose

To describe the status of municipal advisor rulemaking by the US Securities and Exchange Commission (SEC) and Municipal Securities Rulemaking Board (MSRB), and regulatory compliance approaches, under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).

Design/methodology/approach

Examines the posture of the SEC, MSRB and Financial Industry Regulatory Authority (FINRA) upon completion of the MSRB’s core regulatory framework for municipal advisors. Explores threshold issues in determining municipal advisor status, approaches for preparing for and responding to initial regulatory compliance examinations by the SEC and FINRA, and key considerations in reviewing municipal advisor policies, procedures and business practices in light of the evolving regulatory and marketplace landscape.

Findings

SEC and FINRA compliance examiner feedback points to the expectation that municipal advisor policies, procedures, processes and records must be fully consistent with the firm’s business activities and must address each material aspect of all applicable MSRB and SEC rules, as well as the fiduciary duty of municipal advisors to their municipal entity clients under the Securities Exchange Act of 1934.

Originality/value

Practical guidance from experienced securities and public finance attorney that provides a consolidated outline of key municipal advisor regulatory compliance obligations under the Dodd-Frank Act.

Content available
Article
Publication date: 28 June 2013

Henry A. Davis

58

Abstract

Details

Journal of Investment Compliance, vol. 14 no. 2
Type: Research Article
ISSN: 1528-5812

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