Under the SEC Pay-to-Play Rule, an investment adviser is prohibited from receiving compensation for managing a government entity's investments for two years after it, a covered employee, or a PAC they control makes a political contribution to certain state or local candidates or officials. In particular, contributions to candidates who are running for, or occupy, a state or local office that can influence the selection of an adviser or appoint a person to such office trigger a ban-even if the state or local official is running for federal office. Pay-to-play rules restrict companies from doing business with state and local governments when they or certain of their employees make contributions to officials holding or running for office in those jurisdictions. There are numerous state and local pay-to-play rules under which companies doing all manner of government business may find themselves automatically banned from government contracts for a period of years following a contribution there are several federal rules specific to different types of financial services business. MaAs we approach, on March 14, its 12-year anniversary, now is as good a time as any to reflect on Securities and Exchange Commission ("SEC") Rule 206(4)-5 (the "Pay-to-Play Rule"), the impact it has had on the financial services industry and political campaigns, and its future.
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