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September 30, 2021

SEC Investigates Links Between Money Managers and Major Pension Fund

A new Bloomberg report alleges the SEC is investigating the relationships between the $66 billion Pennsylvania state pension fund and major investment managers. The SEC issued a subpoena this month to gather details on gifts exchanged between major firms such as Blackstone, The Carlyle Group, Morgan Stanley, Apollo Global, and Hamilton Lane, and executive members of the state pension fund.

The Pennsylvania fund was already under scrutiny by the FBI for how it reported its 2020 financial returns which led to six of 15 board members calling for the removal of its Executive Director and Chief Investment Officer. Now, the SEC has joined the FBI in investigating the fund in light of these new discoveries.

The SEC is likely looking for evidence that the fund violated Pennsylvania Executive Order 2015-01, which states that:

“the government demands that significant contact between Commonwealth Executive Employees and special interests, lobbyists and those who employ lobbyists seeking to influence the decisions and administrative actions of such employees, be regulated and publicly disclosed”

And

“No employee, appointee or official in the Executive Branch of the Commonwealth may solicit or accept for the personal use of the employee or another, a gift, gratuity, favor, entertainment, hospitality, loan or any other thing of monetary value, including in-kind gifts,from a person who:(1) Is seeking to obtain business from or has financial relations with the Commonwealth.”

In addition to the broader federal laws, such as the Investment Advisers Act of 1940 and Rule 206(4)-5, these state-by-state regulations will be increasingly scrutinized and burdensome for investment advisors and public pension funds to manage.

As more and more entrants vie for institutional capital (particularly in the way of venture funds who are returning unprecedented gains), it is more important than ever for compliance teams to ensure their relationship with public funds is beyond reproach.

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 solutions@illumis.com.
Why real-time data is essential to helping your investment firm avoid violating pay-to-play regulations, SEC rule 206(4)-5

Political contributions made by firm employees pose a significant threat to investment advisory firms. And even firms with the best compliance teams can be at risk of violating pay-to-play regulations, like the Securities and Exchange Commission’s (SEC) rule 206(4)-5, given the complexity of the rules and the myriad of regulations to which firms must comply.

Because of this, investment firms must arm themselves with the access to and support of real-time data, which can help identify potential violations and anomalies in the political donation process.

By leveraging real-time data, investment firms can quickly detect suspicious or unauthorized activities and take prompt action to prevent pay-to-play violations.

Beyond SEC Rule 206(4)-5: A look at state and local political contributions compliance regulations

SEC Rule 206(4)-5 is arguably the most well known regulation regarding political contributions compliance or pay-to-play compliance. However, it certainly isn’t the only regulation to which firms must comply.

In fact, beyond federal regulations, firms which take part in government contracted work must contend with numerous and varied state and local regulations as well. Such regulations present unique challenges because of the various requirements within each, which should they be neglected, can cause significant financial and reputational damage.

Aligning pay-to-play rule 206(4)-5 compliance practices with your investment firm’s regulatory compliance program

While it would be almost too easy to treat the Securities and Exchange Commissions’ (SEC) pay-to-play rule 206(4)-5 as a special requirement implemented only during election years, that mistake can cause serious, firm-wide damages. In fact, for investment firms, establishing a compliance program which actively and regularly incorporates compliance with the SEC pay-to-play rule is essential to avoiding fines, sanctions, lockout periods, loss of revenue and a damaged reputation.