The New York City Law Department issued an opinion to the New York City Clerk in 2010 that clarifies the application of the New York City Lobbying Law (Lobbying Law)1 to placement agents and other persons who attempt to influence decisions made by the New York City Comptroller, Comptroller’s staff, boards of trustees of the City’s pension funds and retirement systems or members of their staff, about the investment of pension funds. Effective in 2011, placement agents and other persons conducting such activity and who have (or reasonably expect to have) more than $2,000 in annual compensation and expenses for lobbying must register and report as lobbyists. According to a December 2010 notice by the Office of the New York City Clerk, the first possible set of lobbying registration filings by those persons determined to be Lobbyists are due on February 15, 2011.2
The following provides further background on the possible implication of this new interpretation on investment managers as either Lobbyists, Clients, or both.
I. The New York City Lobbying Law and Related Restrictions
A. The Lobbying Law Generally
The Lobbying Bureau of the City Clerk administers and enforces the Lobbying Law. Generally, the Lobbying Law imposes certain obligations on Lobbyists and their Clients,3 particularly with respect to registration, reporting and record-keeping requirements as discussed below, and certain restrictions, including those regarding contingent retainers, gifts to public servants and campaign contributions, also discussed below.
The term “Lobbyist” includes every person or organization retained, employed, or designated by a Client to engage in lobbying. The term “Lobbying” includes any attempt to influence certain activities in New York City, including, but not limited to: (i) a determination made by an elected City official or an officer or employee of the City concerning (a) the procurement of goods, services or construction, including the preparation of contract specifications, (b) the solicitation, award or administration of a contract, or (c) the solicitation, award or administration of a grant, loan, or agreement involving the disbursement of public monies; and (ii) any determination of a City board or commission.
B. The Lobbying Law as Applied to Investment Managers
Under the City of New York Law Department’s March 31, 2010 opinion, parties who seek to influence the investment decisions made by the New York City Comptroller, Comptroller’s staff, boards of trustees of the City’s five pension systems (Pension Systems), or members of their staff, about the investment of pension funds, and who have (or reasonably expect to have) more than $2,000 in annual compensation and expenses for lobbying are deemed Lobbyists.4
If an entity qualifies as a Lobbyist and/or a Client, it will be subject to certain filing requirements under the Lobbying Law, as discussed in Section I.C. In certain situations, an investment manager will be considered a Client, such as when it retains a Placement Agent or other third party to lobby the Pension Systems on its behalf. The investment manager would be considered a Lobbyist in cases in which it uses its own employees to conduct Lobbying activities with respect to the Pension Systems, or on behalf of another party. If an investment manager lobbies Pension Systems on its own behalf, it would be considered both a Lobbyist and a Client.
C. Filing Requirements for Lobbyists and Clients
- Registration Requirements. A Statement of Registration must be filed by a Lobbyist each calendar year for each Client on the City’s e-Lobbyist website, with the caveat that no such filing is required for any year in which the Lobbyist does not incur, receive or expend more than $2,000 in total compensation and expenses for Lobbying with respect to all of its Clients. In the Statement of Registration, the Lobbyist must include certain information about itself, its Lobbying activities and its employees who engage in Lobbying activities. Along with this filing, the Lobbyist must mail to the City Clerk, or upload via the City Clerk’s e-Lobbyist website, the written retainer agreement between the Lobbyist and Client. If there is no such written agreement, a written statement summarizing the terms of the oral agreement between the Lobbyist and Client may be submitted. However, no such agreement need be provided when the Lobbyist and Client are the same party (e.g., when an investment manager lobbies the Pension Systems solely through its internal staff). (Please see below regarding restrictions on contingency retainers/fees.)
- Timing of Registration: The Statement of Registration must be filed by January 1 each year by Lobbyists that reasonably expect to exceed the $2,000 threshold for such year, and who were retained as Lobbyists by December 15 of the prior year. (Again, this date is extended this year until February 15.) In all other cases, a Lobbyist must file a Statement of Registration within 15 days of being retained, but no later than 10 days from actually incurring or receiving reportable compensation and expenses of more than $2,000. A prompt amendment must be filed with the City Clerk within 10 days if any change in information contained in a Statement of Registration occurs. A Statement of Registration must be accompanied by filing fees of $150 for the first Client and $50 for each additional Client registered by a Lobbyist.
- Reporting Requirements. Six bi-monthly periodic reports must be filed each calendar year by a Lobbyist who is required to file a Statement of Registration. The initial Periodic Report must be filed by the 15th day following the end of the bi-monthly reporting period in which the Lobbyist filed the Statement of Registration. 5 Following that, subsequent Periodic Reports must be filed by the 15th day following the end of each bi-monthly reporting period. The sixth Periodic Report, known as the Lobbyist Annual Report, for a calendar year must be filed by January 15 of the following year. Any Lobbyist who engages in fundraising or political consulting activities in any calendar year in which the Lobbyist is registered, or in the six months preceding any such calendar year, must file fundraising and political consulting reports with the City Clerk, on forms prescribed by the City Clerk, on the same filing schedule as the bi-monthly reports. (See below for more information regarding political giving restrictions.)
- Reporting Requirements. A Client who incurs, receives or expends more than $2,000 in total compensation and expenses for Lobbying in a calendar year must file a Client Annual Report by January 15 of the following year, unless the Client lobbies on its own behalf, expends more than $2,000 annually in reportable compensation and expenses for Lobbying, and files the applicable Lobbyist reports. Thus, if an investment manager is only a Client, its first reporting obligation under this new interpretation will be January 2012.
- Lobbyist-Client Filing Requirements. A Lobbyist-Client is a party that lobbies on its own behalf and expends more than $2,000 annually in reportable compensation and expenses for such Lobbying. A Lobbyist-Client must comply with the Lobbyist filing requirements described above. In its Statement of Registration and other required filings, the Lobbyist-Client would include itself as both the Lobbyist and the Client. The Lobbyist-Client would not be required to file a Client Annual Report with respect to its Lobbying activities; however, it would be required to file such a report concerning Lobbying activities conducted on its behalf by a third-party Lobbyist.
Notice of Termination of Lobbyist.
A Client and its Lobbyist must submit written notice of termination within 30 days after a Lobbying agreement is terminated. The Lobbyist must still submit a Periodic Report for the period(s) in which Lobbying occurred prior to termination, and both Lobbyist and Client must file a Lobbyist Annual Report and Client Annual Report, respectively, for the calendar year in which the termination took place.
Additional Considerations. The reports referenced above must be filed electronically on the City Clerk’s e-Lobbyist website, where they are available for inspection by the public. A Lobbyist or Client who needs an extension of a filing deadline must request an extension in writing to the City Clerk’s office no later than two business days before the deadline. Extensions are a courtesy and will be granted only for good cause and at the discretion of the City Clerk. The City Clerk conducts random audits of the reports and Statements of Registration filed by Lobbyists and Clients. The City Clerk may require the production of witnesses and records relevant to the preparation of such reports.
D. Additional Requirements and Restrictions Imposed by the Lobbying Law
Recordkeeping Requirements. Lobbying records must be kept for five years by Lobbyists and Clients, including the following items:
- Compensation of any kind or amount with respect to Lobbying activities;
- Names and addresses of every person paying or promising to pay compensation of $50 or more and the date of that promise;
- Names and addresses of every person to whom any item of expenditure of more than $50 is made and a receipted bill for each expenditure; and
- All expenditures made by or on behalf of the Client.
Prohibition on Contingent Retainers. Clients are prohibited from retaining or employing a Lobbyist if the amount of compensation owed is partly or wholly related to the results that the Lobbyist obtains in influencing any City legislative, executive or administrative action (including any action related to the Pension Systems). Likewise, Lobbyists may not accept any such contingent retainer, employment or designation. The City Clerk has indicated that it may issue an advisory opinion elucidating whether a bonus payment to a Lobbyist employee who engages in Lobbyist activities as part of his employment would be considered a form of prohibited contingent compensation under the Lobbying Law.
Campaign Contribution Limits. Under the City’s pay-to-play ordinance, entities and persons who are considered to have business dealings with the City are subject to campaign contribution limits that are lower than limits for entities and persons that do not have such business dealings. Under the ordinance, Lobbyists are considered to have business dealings with the City during all periods covered by their Statements of Registration.6 Therefore, during such time, Lobbyists may not make campaign contributions exceeding the following limits per calendar year: Mayor/Public Advocate/ Comptroller7: $400; Borough President: $320; and City Council: $250. Please also see Section II for further implications of campaign contributions from investment managers.
Prohibition on Gifts to Public Servants. The following persons may not offer or give a gift to any public servant: Lobbyists; spouses or domestic partners of Lobbyists; the unemancipated children of Lobbyists; if the Lobbyist is an organization, the officers or employees of such Lobbyist who engage in any lobbying, or who are employed in such Lobbyist’s division that engages in lobbying activities; and the spouse or domestic partner and unemancipated children of such officers or employees. The term “gift” means any gift which has any value whatsoever, whether in the form of money, services, loan, travel, entertainment, hospitality, thing or promise, or in any other form. However, there are certain exceptions to this term.
Contributions Not Matchable. Contributions from Lobbyists or any others persons included on Lobbyist Statements of Registration to candidates who participate in the City’s optional public financing process are not matchable by the City.
Additional Ethics Requirements. No Lobbyist may:
- Do any act, with the express purpose and intent of placing any City officer or employee charged by law with making a decision on a matter pending or proposed, under personal obligation to him or her or to his or her employer.
- Knowingly deceive or attempt to deceive any City officer or employee charged by law with making a decision on a local law, resolution or matter pending or proposed, as to any material fact pertinent to any pending or proposed local law, resolution or matter.
- Cause or influence the introduction of any local law or resolution at the city council for the purpose of thereafter being employed to secure its granting, denial, confirmation, rejection, passage or defeat.
- Attempt to create a fictitious appearance of public favor or disfavor of any proposed local law or resolution before the city council or to cause any communication to be sent to any City officer or employee charged by law with making a decision on a matter pending or proposed, in the name of any fictitious person or in the name of any real person, except with the consent of such real person.
- Represent that he or she can control or obtain the vote or action of any employee or officer of the city charged by law with making a decision on a matter pending or proposed, or the approval or disapproval of an local law or resolution by the mayor of New York City.
- Represent or solicit representation of an interest adverse to their employer or represent employers whose interests are known to the Lobbyist to be adverse.
E. Penalties for Violating the Lobbying Law
The penalties for violating the Lobbying Law are summarized as follows:
- Any person or organization who knowingly and willfully violates any provision of the Lobbying Law shall be:
- Guilty of a Class A misdemeanor, and shall be subject to a civil penalty of up to $30,000 to be assessed by the City Clerk; or
- Subject to an order to cease all Lobbying activities for up to 60 days as determined by the City Clerk; or
- Subject to both a civil penalty and an order to cease Lobbying activity.
- Any person or organization who violates a cease and desist order issued by the City Clerk or who enters into a contingency agreement or accepts or pays contingency fees shall be:
- Guilty of a Class A misdemeanor; and
- Subject to a civil penalty of up to $30,000 to be assessed by the City Clerk.
- Any person or organization who fails to file a Statement of Registration or any report required by the Lobbying Law will be notified by the City Clerk of such failure by certified mail, return receipt requested. The delinquent filing must be made within 14 business days of the mailing of such notice. Any person or organization who fails to file any Statement of Registration or filing within the 14-business-day period shall be:
- Guilty of a Class A misdemeanor; and
- Subject to a civil penalty of up to $20,000 to be assessed by the City Clerk.
- In addition to the above penalties, any person or organization who fails to file in a timely manner a Statement of Registration or any report required by the Lobbying Law shall be subject to late penalties as follows:
- Any person or organization that has never previously filed a Statement of Registration or any other filing, and is filing for the first time, will be charged a late filing penalty of $10 per day, per filing, for each day the filing is overdue; and
- Any person or organization that has previously filed with the City Clerk will be charged a late filing penalty of $25 per day, per filing, for each day the filing is overdue.
II. SEC’s Pay-to-Play Restrictions on Investment Managers
In addition to the implications of New York City’s lobbying and political giving restrictions, investment managers should be aware of the restrictions that may be applicable to them pursuant to the Securities and Exchange Commission’s recently published pay-to-play rules.8 These rules may preempt New York City laws relating to political giving for some investment managers. Generally, the rules are aimed at curtailing political contributions by certain investment managers to government officials and candidates who could make decisions related to the selection of investment managers for a government entity. The rule applies to investment managers that are registered under the Investment Advisers Act and certain investment managers that are not registered due to an exemption — namely, those investment managers exempt from registration under section 203(b)(3) of the Investment Advisers Act.