In Proposed Amendments to Pay-to-Play Rules, the New Jersey State Investment Council Explains Indirect Violations

Comments are due today on proposed amendments to the New Jersey State Investment Council (“SIC”) Pay-to-Play Rules.   One of the proposed changes addresses “indirect violations” of the rules.

Currently, the rules prohibit covered investment management firms, investment management professionals and third party solicitors from “directly or indirectly, through or by any other person or any means whatsoever, do[ing] any act” which would constitute a violation of the contribution restrictions set forth in the SIC rules.

The current rules do not define “indirect” violation.  The proposed amendments include a non-exclusive list of indirect violation examples:

  • Having a family member or other person make a political contribution to a covered recipient;
  • Making a contribution to a federal party committee or other political committee or organization “for the purpose of influencing State or local elections” governed by the SIC rules; and
  • A third party solicitor making political contributions in order to encourage the engagement of an investment management firm for which the lobbyist is not directly soliciting business from the Division of Investment.

Although the SIC has already addressed contributions by family members in a clarification statement, the coverage of contributions to federal committees as indirect violations appears to depart from prior SIC policy.

Perhaps the proposal is intended to cover federal contributions only when the intent to circumvent the SIC restriction is unambiguous.  In addition to potentially complex evidentiary issues, a government regulation of political activity that turns on an assessment of corporate intent poses a thorny set of constitutional issues.