SEC Considers Exemptions for Pay-to-Play Rule

The US regulator's decision depends on whether the Financial Industry Regulatory Authority (FINRA) implements strict pay-to-play rules prohibiting activities by registered broker-dealers acting as placement agents.

(February 17, 2010) – The Securities and Exchange Commission (SEC) could relax its proposal to prevent money managers from helping investment funds win business with government pension funds, Reuters reported.


The regulatory agency has proposed banning “pay to play,” or the practice of exchanging political contributions to pension fund officials for profitable investment contracts.


Following an investigation of the $110 billion New York State Common Retirement Fund (CRF) last year that revealed the role of middlemen, the SEC proposed banning investment managers from paying placement agents to solicit government pension funds.


Now, the SEC said it may consider heightened regulation of pay-to-play activities as opposed to an outright ban.


“What is needed is not a ban, but a level playing field, where all investment sales activity to public pension funds is regulated, along with the introduction of disclosure requirements relating to any compensation received,” said Donald Steinbrugge, founding partner of placement agent Agecroft Partners, to Global Pensions. “In addition, there should be a prohibition on campaign contributions and limitations on travel and entertainment expenses to reduce any political influence in the selection process.”


The California Public Employees’ Retirement System (CalPERS) has been in the public eye over its communication with placement agents. After documents showed that middlemen reportedly earned $125 million in fees for helping funds get business with the CalPERS, the largest US pension fund claimed it would step up transparency.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href=''></a>; 646-308-2742