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The Securities and Exchange Commission has fined 10 investment firms for violating pay-to-play rules.
Bill Ackman’s Pershing Square Capital Management is among them and has agreed to pay $75,000 over a $500 political donation, the SEC said on Tuesday.
Here’s what happened, according to the SEC: In 2013, an employee at Pershing Square made a $500 campaign contribution to a candidate for governor of Massachusetts. Such a donation was not allowed because that candidate, if elected, had the ability to influence the selection of investment funds for the state’s pension plan, PRIM.
Pension plans often invest in hedge funds and other investment funds, and PRIM had been an investor in Pershing Square at the time.
After the employee made the donation, the person asked to get the money back and did, according to the SEC. The donation was $350 in excess of the limit, Pershing Square noted in a statement.
“Pershing Square has determined that agreeing to this settlement is in the best interest of the firm,” the company said, adding that it was unaware of the contribution at the time it was made.
After learning of the $500 donation, Pershing Square filed an exemption application with the SEC last year, the firm said.
The employee in question is Paul Hilal, who was an analyst at the time, according to a Reuters report from last year about the exemption application. Hilal left Pershing Square earlier last year to start his own hedge fund. He declined to comment for this article.
At the time, Pershing Square called the donation “an unintended violation,” Reuters reported.
The other nine firms that the SEC fined include Adams Capital Management, Aisling Capital, and FFL Partners, and they are paying $35,000 to $100,000 each, the SEC said. None of them, including Pershing Square, have admitted or denied liability.
Here’s the full SEC statement:
Washington D.C., Jan. 17, 2017 –
The Securities and Exchange Commission today announced that 10 investment advisory firms have agreed to pay penalties ranging from $35,000 to $100,000 to settle charges that they violated the SEC’s investment adviser pay-to-play rule by receiving compensation from public pension funds within two years after campaign contributions made by the firms’ associates.
According to the SEC’s orders, investment advisers are subject to a two-year timeout from providing compensatory advisory services either directly to a government client or through a pooled investment vehicle after political contributions were made to a candidate who could influence the investment adviser selection process for a public pension fund or appoint someone with such influence. The SEC’s orders find that these 10 firms violated the two-year timeout by accepting fees from city or state pension funds after their associates made campaign contributions to elected officials or political candidates with the potential to wield influence over those pension funds.
“The two-year timeout is intended to discourage pay-to-play practices in the investment of public money, including public pension funds,” said LeeAnn Ghazil Gaunt, Chief of the SEC Enforcement Division’s Public Finance Abuse Unit. “Advisory firms must be mindful of the restrictions that can arise from campaign contributions made by their associates.”
Without admitting or denying the findings, the 10 firms consented to the SEC’s orders finding they violated Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-5. The firms are censured and must pay the following monetary penalties:
Adams Capital Management – $45,000 Aisling Capital – $70,456 Alta Communications – $35,000 Commonwealth Venture Management Corporation – $75,000 Cypress Advisors – $35,000 FFL Partners – $75,000 Lime Rock Management – $75,000 NGN Capital – $100,000 Pershing Square Capital Management – $75,000 The Banc Funds Company – $75,000
The SEC’s investigations were coordinated by Louis A. Randazzo, who conducted them along with Kevin B. Currid, Brian Fagel, Natalie G. Garner, William T. Salzmann, and Monique Winkler of the Public Finance Abuse Unit and Kelly Gibson and Benjamin D. Schireson of the Philadelphia Regional Office.