Pay-to-Play Proposal Draws Responses –

WASHINGTON, D.C. – The Securities & Exchange Commission has received some 40 to 50 letters commenting on its proposed policy to eliminate pay-to-play at public pensions, and in mid-November replies were still arriving, said Robert Plaze, associate director in the SEC’s division of investment management.

The SEC released the proposal in August (VCJ, September 1999, page 5) after months of considering how to curtail suspect practices that could unduly influence public pensions investment decisions.

As proposed, the measure would forbid a financial adviser – including private equity fund managers – to donate money to the political campaign of a public pension’s board member if the financial adviser had or was seeking business from the pension. State treasurers and/or controllers, for example, hold pension board seats in some states. The rule covers boards overseeing investments of other pools of public money, such as state university endowments, in addition to public pensions.

Advisers who made donations would be out of the running to manage pension money for two years from the time a donation was made. Advisers who made contributions while handling pension money would have to either manage the money free of charge or give the money back – but only once the pension could find a suitable replacement adviser.

There is an exception: a financial adviser or fund manager would be allowed to donate up to $250 per election to a candidate for whom the adviser or fund manager was eligible to vote.

Although the deadline to proffer comments on the proposal was Nov. 1, the SEC did not reject tardy submissions.

Agency staff will review the letters and send a recommendation sometime in 2000 regarding what to do with the proposed rule, Plaze said, declining to be more specific about a timeline.

He did not take a count of how many letters favored the rule and how many opposed it, but Plaze noted it would be safe to say the proposed regulation is controversial. He added, however, that G-37, a similar measure affecting bond dealers that went into effect in 1994, also had been controversial. That regulation was imposed by a quasi-regulatory industry group, the Municipal Securities Rulemaking Board.