This hot money will haunt Wall Street.
Hundreds of millions of dollars in political contributions by the securities industry to the 2016 presidential election cycle could soon run afoul of the law — tripping up financiers who are among the biggest campaign contributors in America, according to legal experts.
And the Street may have had this coming. When the Securities and Exchange Commission announced last year plans to unleash “all available enforcement tools” to protect public pension funds from “corrupting influences,” it was a shot across the bow of the fund industry.
“There’s an urgency now about it by virtue of the timing of the 2016 presidential elections,” Ron Geffner, president of the Hedge Fund Association, told The Post. “We are seeing the government cracking down on the asset management space more and more.”
The SEC calls this the “pay-to-play” rule, which it adopted in 2010 and that effectively bans political donations — with the exception of some small sums — by certain executives and staff at investment advisers to officials at state public pension funds and other governmental entities. Donations to curry favor on state contracts are a no-no.
Last year, the SEC charged Philadelphia-area private-equity firm TL Ventures with a violation of this rule. That’s because it continued to pick up advisory fees from the city and state pension funds following campaign contributions by an associate to the Pennsylvania governor and a candidate for Philadelphia mayor.
TL Ventures agreed to settle the charges, paying nearly $300,000.
Regulators are cracking down as more of the $3 trillion public pension system comes into the hands of Wall Street.
The 2012 version of the pay-to-play rule gives “stronger teeth” to earlier regulation on pay to play, creating a new layer of oversight, paperwork and procedures for the industry, according to Gary Swiman, head of compliance and regulatory services for accountancy EisnerAmper in New York. “Now you can violate the rule even if you did not know about it,” he added.
Some investment adviser staffers who innocently make an online donation to a candidate, for example, could potentially trigger suspicion. “If they are donating, they should check with their compliance departments,” said Geffner, a former SEC attorney. “They can screw up the business of that institution by virtue of their own personal position.”
Despite the crackdown, political donations in the private-equity industry have soared from $10 million in 2006 to $49 million in 2014, according to the Federal Election Commission. Political donations from the hedge-fund industry jumped from $6 million to $50 million during that same time.
The SEC declined comment.
