In what appears to be a case of first impression, the SEC recently granted exemptive relief from the “time-out” provision of the pay-to-play rule, which prohibits a registered investment adviser from providing investment advisory services for compensation to a government entity within two years after an adviser or any of its covered associates contributes money to an official of the government entity.
A registered investment adviser that manages a private fund requested the exemptive relief. Three of the investors in the fund are Ohio pension plans. The plans’ board of trustees oversees investment decisions and the Treasurer of the State of Ohio appointed one of the trustees.
In the spring of 2011, a managing member and senior investment professional of the investment adviser contributed to the federal senate campaign of the incumbent Ohio State Treasurer, mistakenly believing that any contribution to a federal campaign was excluded from the adviser’s pay-to-play policy. The offending contribution was discovered in the course of routine compliance testing by the investment adviser’s compliance team, and the adviser took swift and deliberate actions to rectify the problem.
The relief was largely predicated on specific and prompt efforts made by the investment adviser to correct the error and to prevent opportunities for similar errors in the future. It demonstrates the value of a strong compliance culture at an advisory firm.