The Securities & Exchange Commission hit a Philadelphia-area private equity firm today with a major penalty, in the SEC’s first case involving alleged violations of its 2010 “pay-to-play” rules.  More enforcement actions may be coming.

The SEC pay-to-play rules were adopted to prevent, among other things, executives of investment firms from making political contributions in an attempt to secure investments from state and local pension funds.  In this case, the facts alleged by the SEC suggest a quintessential pay-to-play violation.  According to the SEC’s order, in 2011, an unnamed “covered associate” of a private equity firm called TL Ventures made a $2,500 contribution to a Philadelphia mayoral candidate and a $2,000 contribution to the Governor of Pennsylvania.  Because the Philadelphia mayor and the Governor of Pennsylvania could appoint some members of public retirement boards that had invested public pension funds with TL Ventures, the SEC asserted that the firm had violated pay-to-play rules.

According to the SEC’s order, TL Ventures agreed to settle the pay-to-play charges (and a charge that it failed to register as an investment adviser) by disgorging its $256,697 in profits, plus interest, and paying a $35,000 penalty.  In large part, these significant fines stemmed from the simple fact that a single employee made political contributions totaling less than $5,000.

In its press release, the director of the SEC’s Enforcement Division signaled that this case may not be the last: “We will use all available enforcement tools to ensure that public pension funds are protected from any potential corrupting influences,” he said.  Pay-to-play enforcement cases like this one may be an easy way for the SEC to pick-off low hanging fruit and increase its enforcement figures.  Unlike other areas of securities law, almost all of the elements of a pay-to-play violation are already public record.  By matching up public campaign finance reports with public lists of state contractors, the SEC can easily identify potential violations.  This, of course, further underscores the need for hedge funds, private equity funds, and other investment advisers to ensure they have adopted, and follow, pay-to-play compliance policies.

Photo of Zachary G. Parks Zachary G. Parks

Zachary Parks advises corporations, trade associations, campaigns, and high-net worth individuals on their most important and challenging political law problems.

Chambers USA describes Zachary as “highly regarded by his clients in the political law arena,” noting that clients praised him as their “go-to outside…

Zachary Parks advises corporations, trade associations, campaigns, and high-net worth individuals on their most important and challenging political law problems.

Chambers USA describes Zachary as “highly regarded by his clients in the political law arena,” noting that clients praised him as their “go-to outside attorney for election law, campaign finance, pay-to-play and PAC issues.” Zachary is also a leading lawyer in the emerging corporate political disclosure field, regularly advising corporations on these issues.

Zachary’s expertise includes the Federal Election Campaign Act, the Lobbying Disclosure Act, the Ethics in Government Act, the Foreign Agents Registration Act, and the Securities and Exchange Commission’s pay-to-play rules. He has also helped clients comply with the election and political laws of all 50 states. Zachary also frequently leads political law due diligence for investment firms and corporations during mergers and acquisitions.

He routinely advises corporations and corporate executives on instituting political law compliance programs and conducts compliance training for senior corporate executives and lobbyists. He also has extensive experience conducting corporate internal investigations concerning campaign finance and lobbying law compliance and has defended his political law clients in investigations by the Federal Election Commission, the U.S. Department of Justice, Congressional committees, and in litigation.

Zachary is also the founder and chair of the J. Reuben Clark Law Society’s Political and Election Law Section.

Zachary also has extensive complex litigation experience, having litigated major environmental claims, class actions, and multi-district proceedings for financial institutions, corporations, and public entities.

From 2005 to 2006, Zachary was a law clerk for Judge Thomas B. Griffith on the United States Court of Appeals for the District of Columbia.

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