Pay to play (PricewaterhouseCoopers)

September 2010

KEYWORDS: Investment Advisers Act of 1940, SEC, Securities and Exchange Commission, Rule 206(4)-5, pay-to-play, CalPERS, New York State Common Retirement Fund, political contributions, Dodd-Frank Act, government entities, investment adviser, recordkeeping requirements


Tom Biolsi, Robert Nisi, Scott Pomfret

  • PricewaterhouseCoopers


The Securities and Exchange Commission (“SEC”) voted to adopt a new rule under the Investment Advisers Act of 1940 (“Advisers Act”) on June 30, 2010. Rule 206(4)-5 (the “Rule”) was adopted to address the “pay-to-play” issues relating to relationships between investment advisory firms and political officials who have control over, or the ability to appoint someone to control, the investment decision-making for public pension plans. The Rule limits the political contributions (federal, state, and local) that investment advisers and certain current and prospective employees can make. At a minimum, compliance with the Rule will require investment advisers who do business with public pension plans to closely document and monitor all political contributions.

“Pay-to-play” is the practice of making campaign contributions and related payments to elected officials in an attempt to influence the awarding of lucrative contracts for the management of public pension plan assets and similar government investment accounts. The issue is not new: The SEC first considered pay to play in 1999. The Rule’s reemergence was triggered by recent cases such as the civil action involving kickbacks paid in connection with investments by the New York State Common Retirement Fund and the California Public Employees’ Retirement System.

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