SEC Approves Pay-to-Play Restrictions (Rule 206(4)-5)


On Wednesday June 30, 2010, members of the Securities and Exchange Commission voted unanimously to approve new Rule 206(4)-5 (the “Rule”) adopted under the Investment Advisers Act of 1940 (the “Advisers Act”). The Rule is aimed at curbing so-called pay-to-play abuses resulting from investment advisors making political contributions in order to influence persons involved in the selection of investment advisors to manage public pension fund assets. The Rule, the final text of which has not yet been published, will prohibit investment advisors from providing advisory services for compensation, either directly or indirectly through a pooled investment vehicle, to any governmental entity (which includes federal, state or local government, administrative agencies, public pension plans and collective government funds) within two years of the investment advisor or its executives and/or certain other employees (“covered associates”) making a contribution (subject to certain de minimus exceptions, generally limited to contributions of $350 or less for elections that the contributor is entitled to vote in and $150 or less for elections in which the contributor has no right to vote) to an official of such governmental entity.

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