New federal regulations will restrict campaign contributions from employees of investment management companies and prohibit advisory firms and some executives and employees from coordinating campaign contributions by others.
The rules by the Securities and Exchange Commission are designed to curtail pension fund officials from giving business to investment firms when their employees or political action committees have donated to the officials’ campaigns. Former state Treasurer Richard Moore had been criticized for soliciting these donations, and current state Treasurer Janet Cowell received more than $211,000 in campaign contributions in 2008 and 2009 from people and PACs connected to funds the state invests in.
“The selection of investment advisers to manage public plans should be based on the best interests of the plans and their beneficiaries, not kickbacks and favors,” said SEC Chairman Mary Schapiro. “These new rules will help level the playing field, allowing advisers of all sizes to compete for government contracts based on investment skill and quality of service.”
The new rules limit campaign contributions to elected officials who have influence over the hiring of investment managers. Investment firms will be prohibited from receiving pay for advising pension funds for two years if any manager, executive, or employee of the firm had donated to the officials’ campaigns.
Executives and employees of investment firms who are eligible to vote for a candidate will be able to contribute up to $350 per election per candidate; if the contributor is not eligible to vote for the candiate, contributions will be limted to $150.
The new rules becomes effective 60 days after they have been published in the Federal Register, and compliance with the provisions generally will be required within six months of the date that the rule is effective.
“We are currently reviewing the new SEC rule, but expect that the rule will have a significant impact on the management of public pension plans across the country,” said Heather Franco, a spokeswoman for Cowell.
Franco said Cowell doesn’t intend to return any contributions she’s already received from investment managers. Moore did not respond to a phone call and an e-mail from Carolina Journal.
Ardis Watkins, the legislative affairs director for the State Employees Association of North Carolina, says investment managers shouldn’t be contributing to campaigns at all.
“We have to get the campaign money out of this equation,” Watkins said. “We will never get a system that the people deserve when investment managers contribute to the campaign of the treasurer selecting them to handle our retirees’ money.”
North Carolina’s treasurer is the sole fiduciary for its pension fund, meaning the treasurer makes the final decisions on its investments. Many states use investment boards instead.
“It’s a huge step forward,” government watchdog Joe Sinsheimer said about the new rules. “It’s a situation that’s ripe for abuse.”
The new rules do not affect law firms that make contributions to officials at state pension funds.
Cowell has received more than $123,000 since 2007 in campaign contributions from employees and other people connected to the law firms that are trying to get the state’s business.
North Carolina is in the process of selecting a pool of law firms that it could turn to for lawsuits about securities. Forty-five firms have expressed interest in doing this work for the state.
Sarah Okeson is a contributor to Carolina Journal.