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SEC Charges Private Equity Firm With Pay-to-Play Violations Involving Political Campaign Contributions in Pennsylvania

First Case Under Pay-to-Play Rules for Investment Advisers


Washington D.C., June 20, 2014 —

The Securities and Exchange Commission today charged a Philadelphia-area private equity firm with violating “pay-to-play” rules by continuing to receive advisory fees from the city and state pension funds following campaign contributions made by an associate in 2011 to the governor of Pennsylvania and a candidate for mayor of Philadelphia.

In the SEC’s first case under pay-to-play rules for investment advisers, TL Ventures Inc. agreed to settle the charges by paying nearly $300,000.

Pay-to-play rules adopted in 2010 prohibit investment advisers from providing compensatory advisory services – either directly to a government client or through a pooled investment vehicle – for two years following a campaign contribution by the firm or certain associates to political candidates or officials in a position to influence the selection or retention of advisers to manage public pension funds or other government client assets.

An SEC investigation found that TL Ventures violated pay-to-play rules by continuing to receive compensation from two public pension funds – Pennsylvania’s state retirement system and Philadelphia’s pension plan – within two years after an associate made a $2,500 campaign contribution to a Philadelphia mayoral candidate and a $2,000 campaign contribution to the governor of Pennsylvania.  The mayoral position appoints three of the nine members of the Philadelphia Board of Pensions and Retirement.  Therefore, a mayor can influence the hiring of investment advisers for the public pension fund.  The 11-member board of Pennsylvania’s state retirement system includes six gubernatorial appointees.  Therefore, a governor can influence the hiring of investment advisers for the public pension fund.  After the contributions, TL Ventures improperly continued to receive compensation from the pension funds for those advisory services.

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

LeeAnn Ghazil Gaunt, chief of the SEC Enforcement Division’s Municipal Securities and Public Pensions Unit, added, “Public pension funds are increasingly investing in alternative investment vehicles such as hedge funds and private equity funds.  When dealing with public pension fund clients, advisers to those kinds of investment vehicles should be mindful of the restrictions that can arise from political contributions.” 

The SEC’s orders instituting settled administrative proceedings also charged TL Ventures and an affiliated adviser Penn Mezzanine Partners Management L.P. with improperly acting as unregistered investment advisers.  According to the orders, TL Ventures and Penn Mezzanine separately claimed to be exempt from SEC registration in March 2012, however their operations were closely integrated and significantly overlapped.  Because they were not operationally independent of each other, TL Ventures and Penn Mezzanine should have been integrated as a single investment adviser for purposes of registration requirements or determining the applicability of any exemption.

The SEC’s order finds that TL Ventures violated Sections 203(a), 206(4) and 208(d) of the Investment Advisers Act of 1940 as well as Rule 206(4)-5.  TL Ventures is ordered to pay disgorgement of $256,697, prejudgment interest of $3,197 and penalty of $35,000.  TL Ventures agreed to be censured and to cease and desist from committing or causing any violations and any future violations of the provisions referenced in the order.  TL Ventures neither admitted nor denied the findings in consenting to the SEC’s order.

The SEC’s investigation was conducted by Louis A. Randazzo and Martin F. Healey in the Boston Regional Office with assistance from Christopher McHugh of the Division of Investment Management.  Mr. Randazzo is a member of the Municipal Securities and Public Pensions Unit.


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