SEC Moves to Nix Rule on Investment Adviser, Political Donations

(Bloomberg) -- Investment advisers would no longer be prohibited from offering services to public pension funds if they made recent political donations to state and local elected officials, under a proposal released Thursday from the Securities and Exchange Commission.

The plan — if finalized — would eliminate a 2010 rule enacted after scandals involving fund managers making political campaign contributions to win pension management contracts.

Firms are currently prohibited from offering investment services to state and local funds for two years if certain employees give between $150 to $350 to public officials, per election. The rule doesn't apply to federal elections.

Implementation of the rule has been challenging, SEC Chairman Paul Atkins said in a statement Thursday, and often imposes serious penalties for small donations.

"Advisers' implementation of the rule has effectively resulted in the suppression of political speech," Atkins said. "Ultimately, matters involving political contributions are more properly governed by local ordinances, state laws, and federal election regulations — not by the SEC."

The agency said other requirements, including prohibitions on fraud and fiduciary duty requirements, would continue to apply.

Atkins has previously criticized the rule as punishing advisers who are unaware they are violating it. SEC Commissioner Hester Peirce in 2022 called the rule "an exceedingly blunt instrument."

The agency will take public feedback on the proposal and incorporate that input into a final rule, which will have to be voted on before it can take effect. The process typically takes between 18 to 24 months.