SEC files first-ever pay-to-play charges

The Securities and Exchange Commission (SEC) reached a settlement with Philadelphia-based venture firm TL Ventures for violating “pay-to-play” rules on Friday.

In the SEC’s first case under pay-to-play rules for investment advisors, TL Ventures, agreed to settle the charges by paying nearly $300,000 without admitting nor denying the SEC allegations.

TL Ventures was unable to return a request for comment by press time.

The Commission claims TL Ventures received compensation from two public pension funds – Pennsylvania’s state retirement system and Philadelphia’s pension plan – within two years after an associate made a $2,500 campaign contribution to a Philadelphia mayoral candidate and a $2,000 campaign contribution to the governor of Pennsylvania in 2011.

These contributions are only regarded as pay-to-play if the political candidates or officials are in a position to influence the selection or retention of advisors. In this instance the mayoral position appoints three of the nine members of the Philadelphia Board of Pensions and Retirement. Therefore, a mayor can influence the hiring of investment advisors for the public pension fund.

Similarly, the 11-member board of Pennsylvania’s state retirement system includes six gubernatorial appointees, so a governor can influence the hiring of investment advisors for the state public pension fund.

But, the Pennsylvania State Employees’ Retirement System and the City of Philadelphia Board of Pensions and Retirement made their commitments in 1999 and 2000 – more than 10 years after the investment decision was made.

Pay-to-play rules, adopted by the SEC in 2010, prohibit investment advisors from providing compensatory advisory services for two years following a campaign contribution by the firm or associates, And the rules do not require a showing of quid pro quo or actual intent to influence an elected official or candidate.

“The amounts are relatively small. The firm was not currently soliciting the government pension funds for business. There is no finding of malice or egregious behavior. Good luck going to sleep tonight,” said Doug Cornelius, chief compliance officer for real estate firm Beacon Capital Partners, in a blog post.

In addition to charging TL Ventures, the SEC also charged an affiliate, Penn Mezzanine Partners Management LP, with improperly acting as an unregistered advisor.