November 03, 2020

New Report Highlights Potential 2021 Pay-to-Play Enforcement Risks

Last month, Compliance Week highlighted some of the compliance considerations for investment advisors (and other regulated firms) around the 2020 elections in a piece headlined “SEC ‘pay-to-play’ enforcement surge projected in 2021”. The article notes that tomorrow’s elections have spurred a massive wave of contributions - and are likely to also trigger a new wave of SEC enforcement.

The article highlights the steep penalties under Rule 206(4)-5 of the Investment Advisers Act of 1940, specifically pointing to penalties incurred in 2018 by EnCap Investments ($500,000), Sofinnova Ventures ($120,000), Ancora Advisors ($100,000), and Oaktree Capital Management ($100,000). On top of the fines, the hardest hitting aspect of pay-to-play enforcement is the two-year time out where firms must stop accepting management fees for their public investment funds for two years, and return any funds previously collected.

The article highlights three approaches investment firms can utilize:

“One, firms can prohibit all political donations by the firm and any covered employees.

Two, firms can require all political donations made by the firm or covered employees be approved by someone in management. (…) If the firm allows employees to make political contributions, compliance departments should fully understand the risks being incurred.

Three, some firms take a “trust but verify” approach by allowing the firm and its covered employees to make political donations, require those donations be disclosed, but also monitor their covered employees’ political contributions and hoist the red flag when necessary.”

At illumis, we provide the leading monitoring solution to help reduce risk and increase transparency around pay-to-play rules. Our platform continues to set the standard, with cutting-edge technology to help ensure comprehensive coverage.

Interested in a demo of the illumis Compliance platform? Click here or email [email protected]


compliance updates
David Lombardy recently launched his own regulatory and compliance consulting firm, Pillar Compliance Group, to assist investment managers with the development, implementation, and ongoing monitoring of their compliance programs. In reviewing the regulatory environment around pay-to-play compliance, he saw the value in using illumis’ political contribution monitoring platform to provide the best risk coverage available for his clients.
compliance updates
For the last few months, Blucora – a FinTech company providing software solutions for wealth management and tax preparation – has waged a war against Ancora, an Ohio-based investment advisor who had acquired a minority stake in the company and sought to reconstitute Blucora’s board.
news
We are excited to announce that illumis has been named “Best RegTech Startup” in the 2021 FinTech Breakthrough Awards! The award recognizes our creativity in mitigating operational risk related to political contributions and pay-to-play risk.