by Benjamin Neaderland, Joseph M. Toner, and Thomas K. Bredar

From left to right: Benjamin Neaderland, Joseph M. Toner, and Thomas K. Bredar. (Photos courtesy of Wilmer Cutler Pickering Hale & Dorr LLP)

Recently, the Securities and Exchange Commission (SEC) has demonstrated its willingness to largely forgo the strict consequences of Investment Advisers Act Rule 206(4)-5 (the “Pay-to-Play Rule”) in circumstances where investment advisers can demonstrate that they have effective compliance policies and took action when confronted with a potential violation. These recent exemptive orders are the first such orders since 2020.

The Pay-to-Play Rule is intended to deter investment advisers, and their covered associates, from using campaign contributions to exert improper influence over existing or prospective investments by public sector clients. Violations of the Pay-to-Play Rule can lead to fines and prohibitions on investment advisers receiving any compensation from a government entity for two years following the date of the violative contribution.[1]
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