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In a pay-to-play enforcement sweep, the SEC imposes four penalties

The Securities and Exchange Commission (SEC) penalized four investment advisors between $45,000 and $95,000 for breaking the agency's pay-to-play regulation.

The SEC announced Thursday in an administrative proceeding that Canaan Management of Connecticut and Highland Capital Partners of Massachusetts had each been fined $95,000 for continuing to receive advisory fees from governmental bodies after associates made campaign contributions to elected officials or candidates for elected office.


For identical infractions, Bank of Hawaii's Asset Management Group was fined $45,000 and New York's StarVest Management was fined $70,000.


The four companies independently consented to cease-and-desist orders and censures without disputing or accepting the SEC's conclusions.


According to the SEC's ruling, a covered associate at Canaan Management contributed $1,000 to the campaign of a California governor candidate in August 2018.

A covered associate is defined as "any general partner, managing member, executive officer, or other individual with a similar status or function; any employee who solicits a government entity for the investment adviser and any person who supervises, directly or indirectly, such employee; or any political action committee controlled by the investment adviser or by any of its covered associates."


Canaan Management provided the University of California Regents with advice at the time on investment funds totaling around $90 million. The SEC ruled that the contribution did not qualify for an exemption even though the covered associate tried to get a refund of it since it was above $350 and was not returned within 60 days of the business becoming aware of it.


The payment was supposed to start a two-year "time out," during which the business was not supposed to offer advice to the University of California, in accordance with Advisers Act Rule 206(4)-5. However, the company kept on offering consultancy services.


Despite the fact that Highland Capital Partners advised the Massachusetts Pension Reserves Investment Management Board on around $80 million in investment funds, a covered associate of the business donated $1,000 to a failed Massachusetts gubernatorial candidate in May 2021, according to the SEC's ruling. Once more, the covered associate tried to get a refund of the donation but was denied since it was above $350 and was not given back within 60 days of the company learning about it.


In a statement of disagreement, SEC Commissioner Hester Peirce stated that the four enforcement proceedings show the agency's regulation to be "poorly conceived means to pursue laudable ends."


"Nowhere do the commission’s orders find that any of the investment advisers solicited new or additional business from any governments at the time of or after the contributions," she claimed. "In sum, the conduct at issue in these cases is far afield from the conduct that gave rise to the rule."


Peirce noted that the Bank of Hawaii's Asset Management Group paid the lowest penalties of the four in the case of a noncovered associate bank officer who gave $1,000 to the governor of Hawaii in July 2018. That person changed from being a noncovered associate to a covered associate in September 2018 when he or she was named head of the company's asset management division.


She pointed out that one of the two alleged pay-to-play infractions by StarVest Management involved a $400 payment, which is just $50 over than the excluded amount.


Peirce advised the SEC to "exercise prudence in its enforcement efforts." The four planned activities for Thursday "do more harm than good," she claimed.

By fLEXI tEAM

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