• SEC Adopts Rules Targeting "Pay to Play" Practices by Investment Advisers
  • July 29, 2010
  • Law Firm: Shearman Sterling LLP - New York Office
  • The U.S. Securities and Exchange Commission has unanimously adopted rules under the U.S. Investment Advisers Act of 1940 (“Advisers Act”) targeted at “pay to play” practices among investment advisers that manage or seek to manage assets for state and local government bodies (such as public pension plans and, of significance to mutual funds, state college savings plans or state and local employee savings plans).1 Pay to play practices, as described by the SEC, generally involve advisers making or arranging, or being solicited to make, political contributions while at the same time the adviser is seeking investment advisory business from a government body; often, the contributions are made not with the expectation of actually swaying the selection process one way or another, but simply with the understanding that only contributors will be seriously considered for the business (hence, “pay to play”). According to the SEC, these practices both violate the fiduciary duties of investment advisers and distort the adviser selection process by steering business to advisers that are not necessarily the most qualified or reasonably priced.