SEC Proposes Rule Banning Investment Advisers from Engaging in Pay-to-Play Practices

By: Terrance J. O’Malley, Jessica Forbes, Shanna M. Cohn

On Wednesday, July 22, 2009, the SEC voted unanimously to propose a rule that would prohibit investment advisers from making political contributions or other payments to attempt to influence their selection by government officials to manage government investment accounts.  The use of political contributions or payments to gain favor with government officials is commonly known as “pay to play.”  In her remarks regarding the proposal, SEC Chairman Mary L. Schapiro stated, “In the end, the selection of investment advisers to manage public plans should be based on merit and the best interests of the plans and their beneficiaries, not the payment of kickbacks or political favors.”  This client alert examines the measures expected to be addressed in the forthcoming proposed rule.

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