Questions & Answers on State and Local Variations on SEC Pay-to-Play Rule

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Many states and municipalities have adopted laws and regulations that affect how investment managers may solicit investment advisory business, including investment in sponsored public and private funds, from the state agencies and municipalities that administer employee benefit plans and other state investment vehicles. This Q&A seeks to highlight some of the issues relating to soliciting business from or doing business with these instrumentalities, and also seeks to explain some of the important differences between state and local laws and the SEC’s pay-to-play rule under the Investment Advisers Act of 1940.[1]

Q1: We are an SEC-registered investment adviser and comply with SEC pay-to-play rule, Rule 206(4)-5. If we comply with the SEC rule, must we also comply with state and municipal laws relating to pay-to-play?

A1: Yes, the SEC pay-to-play rule does not preempt federal, state and local pay-to-play, lobbying and related requirements, and there are significant restrictions imposed by the federal government, states, municipalities, governmental pension plans and other authorities that often exceed SEC requirements.

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Published In: Administrative Agency Updates, Business Organization Updates, Finance & Banking Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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