SEC Issues New Alert on Political Contributions

Political contributions continue to be a primary source of concern for regulators like the SEC and the Municipal Securities Rulemaking Board…….

The SEC has recently issued another Risk Alert concerning Municipal Securities Rulemaking Board’s Rule G-37,  a rule that limits political contributions by municipal securities professionals to campaigns of public officials of issuers whom they do or seek to do business.  Typically, the illegal practice, known as “pay-to-play, involves public officials granting public contracts to their campaign contributors, or contractors, by attempting to influence the award of a contract, making contributions to an official who can influence the contracting process.

In issuing the alert, the SEC’s Office of Compliance Inspections and Examination noted the Commission’s concern with certain practices its examiners in the field have observed that may crossed the line violating the rule.   These so-called “pay to play”practices include:

  • firms that may have engaged in municipal securities business with issuers within two years of  making contributions (other than  de minimis contributions) to officials of the issuer.
  • firms that may not have maintained accurate and complete lists of their municipal financial professionals (MFPs) and non-MFP professional executive officers as required by MSRB Rule G-8.

  • firms that may have failed to file accurate and complete Form G-37s, by  identifiying on the form all municipal securities business that a firm has  engaged or all political contributions made to issuer officials by MFP and non-MFP executive officers.

  • firms that may have failed to create or implement supervisory procedures adequate enough to comply with Rules G-37 and G-38.

In addition to addressing the above issues, for some investment advisers this will mean taking steps to review political contribution reports related to any government client, reviewing any pattern of contributions by certain employee or group of employees, and other relevant factors.  In addition,  any review should  include any known external information, such as public contribution reports required by the MSRB, state and local law in relevant jurisdictions.

Author: Dexter Johnson

The author is a an attorney who for the past 14 years has concentrated his practice in representing, successfully, investment advisers, broker-dealers, corporations and individuals who are subject to SEC, FINRA, State or other regulations and who may be the subject of regulatory examination, review or investigation. He formerly worked at the SEC. His regulatory and litigation experience has encompassed virtually every type of securities issue in the industry. He has also negotiated favorable outcomes in many of these matters for his clients.