The SEC Bans “Pay to Play” Abuses Associated with the Management of Public Pension Funds


Are crooks managing your pension? The Securities and Exchange Commission has unanimously passed a new rule banning so-called “pay to play” in the $2.6 trillion business of managing public pension funds. See “S.E.C. Tightens Rules on Public Pension Funds” by Edward Wyatt (New York Times) and “SEC Bans ‘Pay to Play’ for Advisers” by Fawn Johnson (Wall Street Journal).

Back in April, a money manager called Quadrangle paid a $12 million fine to settle charges that it got appointed to manage $100 million for the New York State Common Retirement Fund by bribing corrupt public officials.

Mary Shapiro, Chairman of the Securities and Exchange Commission, called the Quadrangle case “the tip of the iceberg.”

SEC Commissioner Luis A. Aguilar was quoted as saying that the SEC’s failure to act sooner had “resulted in real harm that had real costs.” He added: “These schemes harmed investors by making their retirement assets the spoils in these quid pro quo arrangements. Many people focus on the costs of regulation, but they do not consider the costs of a failure to take regulatory action.”

The SEC rule prohibits money managers from offering services to pension plans for two years after any contribution to an elected official or a candidate who could hire that money manager. The SEC hopes to prevent money managers from making an end run around the new rule by using an agent to solicit the business, by requiring that the agent must be registered with the SEC and subject to the same two-year ban. The SEC rule would also prevent money managers from getting around the rule by making contributions through a spouse or an affiliated company.

The same problem existed in the 1990s in the municipal bond market. Crooks were bribing public officials to gain underwriting business, similar to the way Wall Street bribed dot.coms with false “buy” ratings to get their underwriting business during that time period. The SEC adopted a similar rule and the activity migrated over to pension plans that were not subjected to such a rule at the time.

Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 35 occasions, and have aided clients who have been the victims of financial adviser abuse and scams. Page Perry’s attorneys are actively involved in counseling investors regarding pension plan abuses. For further information, please contact us.