On July 22, 2009, the SEC proposed a new rule intended to restrict “pay to play” practices by investment advisers seeking to manage money for state and local government public programs. The proposed rule is designed to prevent investment advisers from using direct political contributions and other pay to play arrangements to attempt to influence their selection by government officials.

Specifically, the proposed rule would:

  • Subject to a de minimis provision for executives and employees of the adviser, bar an adviser who makes a political contribution to an elected official in a position to influence the selection of the adviser for two years from providing advisory services for compensation, either directly or through a fund;
  • Prohibit an adviser from soliciting others to make contributions to an elected official or candidate who can influence the selection of the adviser or to a political party where the adviser is seeking to provide advisory services to the government;
  • Prohibit an adviser from paying third party solicitors to solicit government clients on behalf of the adviser; and
  • Prohibit an adviser from engaging in pay to play practices indirectly, for example, through affiliated companies, lawyers or spouses, if the conduct would violate the rule if the adviser did it directly.

Comments on the proposed rule are due by October 6, 2009.