Pay-to-Play: Recent SEC Actions Highlight Importance of Compliance Controls

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I. Overview - Two recent actions by the U.S. Securities and Exchange Commission (“SEC”) and its staff highlight the importance of compliance controls with respect to political contributions and other political activities. In a settled enforcement action, the SEC alleged that a prominent municipal securities dealer (“Municipal Dealer”) violated the Municipal Securities Rulemaking Board’s (“MSRB”) Rule G-37 (“Rule G-37” or “Rule”) after an employee made certain, undisclosed, “in-kind” campaign contributions (“Settlement Order”).

The “contributions” included using the firm’s resources during work hours to engage in campaign activity in breach of the firm’s policies. According to the SEC, the enforcement action is the first for pay-to-play violations involving “in-kind” campaign contributions. The Settlement Order also announces a heightened compliance obligation applicable to employees known to have been politically active.

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