SEC delays pay-to-play provision

The Securities and Exchange Commission (SEC) has delayed the “solicitor restriction” aspect of its pay-to-play rules until at least April 2013. 

The pay-to-play rules aims to prevent GPs or affiliates from influencing government officials through political contributions by prohibiting them from advising government clients for two years after any contribution.   

The “solicitor restriction” provision of these rules stops GPs from using third parties, such as placement agents, to solicit investment from government entities unless the third party is also registered with the SEC and is subject to its own pay-to-play restrictions.

The “solicitor restriction” provision was delayed from its 13 June 2012 implementation date to allow the Financial Industry Regulatory Authority – the placement agent regulator – and the Municipal Securities Rulemaking Board (MSRB) more time to adopt their own pay-to-play rules. 

The registration requirement for municipal advisors was created by Dodd-Frank and the SEC has not yet adopted final rules for this provision and the MSRB has said that it won’t adopt its own pay-to-play rules until the SEC issues its final municipal adviser registration rule.

The SEC have also made a technical change to the definition of the term“covered associate” within the rule. 

“Covered associates” can be general partners, managing members, employees and their supervisors who solicit government entities for the adviser or political committees controlled by the investment adviser or other “covered associates”.

In the June 2011 adopting release the SEC specified that the proposed definition of a “covered associate” as a “person” rather than an “individual” was to be ignored. This would mean that legal entities – so organisations or companies- and not just individual people could be considered “covered associates”.

However in the final text of the rule an error occurred causing the word “person” to replace “individual”. The SEC is therefore making this technical amendment to correct the mistake.