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Test of the Proposed Text of SEC Release Proposing Rule § 275.206(4)-5 Political contributions by certain investment advisers. (a) Prohibitions. As a means reasonably designed to prevent fraudulent, deceptive or manipulative acts, practices, or courses of business within the meaning of section 206(4) of the Act (15 U.S.C. 80b-6(4)), it shall be unlawful: (1) For any investment adviser not prohibited from registering with the Commission under section 203A(a) of the Act (15 U.S.C. 80b-3a(a)) to provide investment advisory services for compensation to a government entity within two years after a contribution to an official of the government entity is made by: (i) The investment adviser; (ii) Any partner, executive officer or solicitor of the investment adviser (including a person who becomes a partner, executive officer or solicitor within two-years after the contribution is made); or (iii) Any political action committee controlled by the investment adviser or by any partner, executive officer or solicitor of the investment adviser; and (2) For any investment adviser not prohibited from registering with the Commission under section 203A(a) of the Act (15 U.S.C. 80b-3a(a)), or any of its partners, executive officers or solicitors: (i) To solicit any person or political action committee to make, or coordinate, any contribution to an official of a government entity to which the investment adviser is providing or seeking to provide investment advisory services; or (ii) To do anything indirectly which, if done directly, would result in a violation of this section. (b) Exception. Paragraph (a)(1) of this section does not apply to contributions made by a partner, executive officer or solicitor to officials for whom the partner, executive officer or solicitor was entitled to vote at the time of the contributions and which in the aggregate do not exceed $250 to any one official, per election. (c) Special Rule for Private Investment Companies. For purposes of this section, an investment adviser to a private investment company in which a government entity invests provides investment advisory services to the government entity. (d) Exemptions. The Commission, upon application, may conditionally or unconditionally exempt an investment adviser from the prohibition under paragraph (a)(1) of this section. In determining whether to grant an exemption, the Commission will consider, among other factors, whether: (1) The exemption is consistent with the purposes of this section; (2) The investment adviser, before the contribution(s) resulting in the prohibition was made: (i) Developed and instituted procedures reasonably designed to ensure compliance with this section; (ii) Had no actual knowledge of the contribution(s); and (3) The investment adviser: (i) Has taken all available steps to obtain a return of the contribution(s); and (ii) Has taken other remedial or preventive measures as may be appropriate under the circumstances. (e) Definitions. For purposes of this section: (1) "Contribution" means any gift, subscription, loan, advance, or deposit of money or anything of value made for: (i) The purpose of influencing any election for federal, state or local office; (ii) Payment of debt incurred in connection with any such election; or (iii) Transition or inaugural expenses of the successful candidate for State or local office. (2) "Executive officer" means the president, any vice president in charge of a principal business unit, division or function (such as sales, administration or finance), any other officer who performs a policy-making function, or any other person who performs similar policy-making functions, for the investment adviser. (3) "Government entity" means any State or political subdivision of a State, including (i) Any agency, authority, or instrumentality of the State or political subdivision; (ii) Plan or pools of assets controlled by the State or political subdivision or any agency, authority or instrumentality thereof; and (iii) Officers, agents, or employees of the State or political subdivision or any agency, authority or instrumentality thereof, acting in their official capacity. (4) "Official" means any person (including any election committee for the person) who was, at the time of the contribution, an incumbent, candidate or successful candidate: (i) For an elective office of a government entity, if the office is directly or indirectly responsible for, or can influence the outcome of, the use of an investment adviser by a government entity; or (ii) For any elective office of a government entity, if the office has authority to appoint any person who is directly or indirectly responsible for, or can influence the outcome of, the use of an investment adviser. (5) A "Private investment company" is a company that would be an investment company under section 3(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-3(a)) but for the exceptions to that definition in sections 3(c)(1) and 3(c)(7) of the Investment Company Act (15 U.S.C. 80a-3(c)(1)). (6) A "Solicitor" is any person who, directly or indirectly, solicits any client for, or refers any client to, an investment adviser. (f) Effective Date. The prohibition on providing investment advisory services as described in this section arises only from contributions made on or after (the effective date of this section). |