Philadelphia-based private equity firm fined for Pay-to-Play

The Securities and Exchange Commission(“SEC”) has brought its first case against a private equity firm for pay-to-play violationsinvolving political campaign contributions to the governor of Pennsylvania and the candidate for Mayor of Philadelphia. The SEC also found that the firm, TL Ventures Inc. (“TL Ventures”) and an affiliated advisor, Penn Mezzanine Partners Management, LP, acted improperly as unregistered investment advisers.  TL Ventures neither admitted nor denied the charges but has agreed to pay almost $300,000to settle the charges.

According to the SEC, TL Ventures offered advisory services to the Pennsylvania state retirement system and Philadelphia’s pension plan despite Rule 206(4)-5 (the “Rule”) imposing a “ two-year moratorium on providing advisory services to a government client or a pooled investment, such as a pension, after a donation is made to any candidates or other officials who are able to influence the hiring process for pension money managers.” The contributions proved to be problematic because both candidates that received campaign funds had the ability to appoint board member positions to each of the pensions. 

Andrew Ceresney, director of the SEC’s Division of Enforcement, said “[the] SEC will use all available enforcement tools to ensure that public pension funds are protected from any potential corrupting influences. As we have done with broker-dealers, we will hold investment advisers strictly liable for pay-to-play violations.”

There are several practical tips and considerations covered in the Jacko Law Group, PC’s March 2014, Legal Tip Important Reminders about Pay-to-Play.  Among them, investment firms should review policies and procedures manuals and code of ethics to ensure they remain compliant with federal and state requirements for pay-to-play. Consider utilizing political contribution questionnaires for covered associates and educate employees about the Rule. For further information on this and other related subjects, please contact us or call us at (619) 298-2880.

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