FINAL "PAY TO PLAY" RETIREMENT FUND DEFENDANT CHARGED BY SEC

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
Final Defendant Settles SEC Fraud Charges in "Pay to Play" Case Involving New York State Common Retirement Fund

On May 22, 2014, the Honorable Katherine Polk Failla, United States District Judge for the Southern District of New York, entered a final judgment against defendant Saul Meyer in the enforcement action arising from the "pay-to-play" scheme involving the New York State's Common Retirement Fund ("Common Fund"). Starting on March 19, 2009, the Commission filed securities fraud and related charges against several participants in the scheme, including Henry Morris ("Morris"), the top political advisor to former New York State Comptroller Alan Hevesi, and David Loglisci ("Loglisci"), formerly the Deputy Comptroller and the Common Fund's Chief Investment Officer. Morris and Loglisci orchestrated a scheme to extract sham finder fees and other payments and benefits from investment management firms seeking to do business with the Common Fund. In all, the Commission charged seventeen defendants, including various nominee entities through which payments were funneled and certain of the investment management firms and their principals. Meyer was the principal of an investment management firm and is alleged to have made unlawful payments to Morris in connection with one of the transactions at issue. The civil action had been stayed until the outcome of the New York Attorney General's Office's parallel criminal action against some of the defendants charged by the Commission, including Meyer.

Meyer previously pled guilty to the parallel criminal charges and was sentenced to a term of conditional discharge due to his cooperation with law enforcement authorities and ordered to forfeit $1 million. In the SEC's federal court action, Meyers consented to entry of a judgment that permanently enjoins him from violating Section 17(a) of the Securities Act of 1933, Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. In addition to the judgment entered in the federal court action, the Commission issued an administrative order on June 10, 2014 imposing remedial sanctions against Meyer. The Commission's administrative order bars Meyer from associating with any broker, dealer, investment adviser, municipal securities dealer, or transfer agent, subject to a right to reapply after seven years.

The Commission's claims in this action are now fully resolved. The Commission acknowledges the assistance and cooperation of the New York Attorney General's Office in this matter.

NEW YORK STATE COMMON RETIREMENT FUND "PAY TO PLAY" DEFENDANTS SETTLE FRAUD CHARGES

FROM:  SECURITIES AND EXCHANGE COMMISSION 
Seven Defendants Settle SEC Fraud Charges in "Pay to Play" Case Involving New York State Common Retirement Fund

On March 3, 2014, the Honorable Katherine Polk Failla, United States District Judge for the Southern District of New York, entered final judgments against seven defendants in the pending enforcement action arising from the "pay-to-play" scheme involving the New York State's Common Retirement Fund ("Common Fund"). Starting on March 19, 2009, the Commission filed securities fraud and related charges against several participants in the scheme, including Henry Morris ("Morris"), the top political advisor to former New York State Comptroller Alan Hevesi, and David Loglisci ("Loglisci"), formerly the Deputy Comptroller and the Common Fund's Chief Investment Officer. Morris and Loglisci orchestrated a scheme to extract sham finder fees and other payments and benefits from investment management firms seeking to do business with the Common Fund. In all, the Commission charged seventeen defendants, including various nominee entities through which payments were funneled and certain of the investment management firms and their principals. The civil action had been stayed pending the outcome of the New York Attorney General's Office's parallel criminal action against some of the defendants charged by the Commission.

In addition to the judgments entered in the federal court action, administrative orders were issued by the Commission on March 10, 2014 imposing remedial sanctions against Morris, Loglisici and Julio Ramirez ("Ramirez"), a former broker who facilitated certain of the payments made to Morris. The judgments and administrative orders imposed the following relief, to which the defendants consented:

Morris, who previously pled guilty to parallel criminal charges and was sentenced to a multi-year prison term and ordered to forfeit $19 million in fees, consented to entry of a judgment in the federal court action that permanently enjoins him from violating Section 17(a) of the Securities Act of 1933 ("Securities Act"), Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 ("Advisers Act"). The Commission's administrative order also bars Morris from (i) associating with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization; (ii) participating in any offering of a penny stock; and (iii) appearing or practicing before the Commission as an attorney.

Loglisci, who also pled guilty to parallel criminal charges and was sentenced to a term of conditional discharge due to his cooperation with law enforcement authorities, consented to entry of a judgment in the federal court action that permanently enjoins him from violating Section 10(b) of the Exchange Act and Rule 10b-5, and Sections 206(1) and 206(2) of the Advisers Act. The Commission's administrative order also bars Loglisci from appearing or practicing before the Commission as an attorney.

Ramirez, who also pled guilty to parallel criminal charges and was sentenced to a term of conditional discharge due to his cooperation with law enforcement authorities and ordered to forfeit $289,875 in fees, consented to entry of a judgment in the federal court action that permanently enjoins him from violating Section 10(b) of the Exchange Act and Rule 10b-5, and Sections 206(1) and 206(2) of the Advisers Act. In addition, the Commission's administrative order bars Ramirez from (i) associating with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization; and (ii) participating in any offering of a penny stock, subject to a right to reapply after three years.

Nosemote LLC and Pantigo Emerging LLC, two shell companies through which payments to Morris were funneled, consented to entry of a judgment in the federal court action that, like Morris, permanently enjoins them from violating Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5, and Sections 206(1) and 206(2) of the Advisers Act.

Tuscany Enterprises LLC and W Investment Strategies LLC, two entities previously associated with defendant Barrett Wissman, against whom a consent judgment was previously entered imposing permanent injunctive relief, consented to entry of a judgment that ordered them to disgorge $3,083,500 in ill-gotten gains and pay $321,272 in prejudgment interest. The judgment also permanently enjoins them from violating Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5, and Sections 206(1) and 206(2) of the Advisers Act.

The Commission's claims against defendant Saul Meyer remain pending. The Commission acknowledges the assistance and cooperation of the New York Attorney General's Office in this matter.

MUNICIPAL SECURITIES PROFESSIONALS AND CAMPAIGN CONTRIBUTIONS

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., Aug. 31, 2012 – The Securities and Exchange Commission today issued an alert to strengthen compliance with a Municipal Securities Rulemaking Board rule that limits political contributions by municipal securities professionals to campaigns of public officials of issuers with whom they are doing or seek to do business.

The Risk Alert issued by the agency’s Office of Compliance Inspections and Examinations notes that SEC examiners have observed practices that raise concerns about firms’ compliance with their obligations under MSRB Rule G-37, which clamped down on so-called "pay to play" practices. These concerns include:
Compliance with the rule’s ban on doing business with a municipal issuer within two years of a political contribution to officials of the issuer by any of the firm’s municipal finance professionals
Possible recordkeeping violations
Failure to file accurate and complete required forms with regulators regarding political contributions
Inadequate supervision
The Risk Alert identifies practices that examiners have seen some firms use to comply with applicable federal, state, and local rules on contributions. These include training programs for municipal finance professionals, self-certification of compliance with restrictions on political contributions, surveillance for unreported political contributions, and preclearance or restrictions on political contributions when permitted by state or local law. The Risk Alert stresses that the practices are described only to inform firms about approaches being used to strengthen compliance efforts; these practices may not be applicable to a particular firm, and other practices may be appropriate to consider instead.

"This Risk Alert is intended to help firms to strengthen their compliance and risk management efforts with regard to political contributions," said OCIE Director Carlo di Florio. "We hope that by describing practices that our examiners have observed, we will promote compliance by helping firms to consider how each of them can most effectively meet their obligations under MSRB rules."

The alert is the fourth this year and the sixth in a continuing series of Risk Alerts that the SEC’s examination staff began issuing in 2011. It is intended to assist senior management, risk management, and legal and compliance staff as they review compliance with Rule G-37 by brokers, dealers, and municipal securities dealers.

The following staff contributed substantially to preparing this Risk Alert: Robert Miller, Suzanne McGovern, Julius Leiman-Carbia, and George Kramer.

NEW SEC RULES TARGET POLITICAL PAYOFFS

Mary Shapirro and the SEC has made perhaps the boldest move yet in trying to impliment reforms to get some of the corruption out of our government. The following is an excerpt from the SEC meeting held on June 30, 2010:

Good Morning. This is an open meeting of the U.S. Securities and Exchange Commission on June 30, 2010.

Today we consider adopting rules that would significantly curtail the corrupting influence of "pay to play." Pay to play is the practice of making campaign contributions and related payments to elected officials in order to influence the awarding of lucrative contracts for the management of public pension plan assets and similar government investment accounts.

Pay to play distorts municipal investment priorities as well as the process by which investment managers are selected. It can mean that public plans and their beneficiaries receive sub-par advisory performance at a premium price.

The cost of this practice is borne by retired teachers, firefighters and other government employees relying on expected pension benefits, or by parents and students counting on a state-sponsored college savings account. And, ultimately, this cost can be borne by taxpayers, who may have to make up shortfalls when vested obligations cannot be met.

An unspoken, but entrenched and well-understood practice, pay to play can also favor large advisers over smaller competitors, reward political connections rather than management skill, and — as a number of recent enforcement cases have shown — pave the way to outright fraud and corruption.

There should be no place for such practices in an investment advisory industry subject to high fiduciary standards. 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.

The rules we consider today will help level the playing field, allowing advisers of all sizes to compete for government contracts based on investment skill and quality of service.

Background
When the Commission first considered a proposal to curb adviser pay to play practices in 1999, it was, in part, motivated by widespread media accounts of dubious arrangements between fund managers and municipal officials.

In the years since, the amount of money at stake — and the incentive for inappropriate conduct — has ballooned. Public pension plans now represent one-third of all U.S. pension assets, with more than $2.6 trillion in assets under management.

Additionally, state-sponsored higher education savings plans — commonly known as "529s" — now hold approximately $100 billion in assets. These plans were in their infancy when the Commission first took up this issue in 1999.

The SEC has brought a series of enforcement actions charging investment advisers with participating in pay to play schemes. Most recently, we brought a civil action involving allegations of unlawful kickbacks paid in connection with investments by the New York State Common Retirement Fund.

In recent years, civil and criminal authorities also have brought cases in California, New York, New Mexico, Illinois, Ohio, Connecticut, and Florida, charging the same or similar conduct.

Our recent cases may represent just the tip of the iceberg. I fear that many other efforts to influence the selection of advisers to manage government plans pass unnoticed or — though highly suspect — cannot be proven to have crossed the line into actionable behavior.

Not surprisingly, parties to these suspect transactions take care to blur their motives, to hide their actions and to conceal their connections, making it difficult to prove a direct quid-pro-quo or an intent to curry favor in a specific case. The prophylactic rules we consider today are designed to eliminate this legal and ethical gray area.

Elements of the Rule
The rule we consider today has three key elements:

First, it would prohibit an adviser from providing advisory services for compensation — either directly or through a pooled investment vehicle — for two years, if the adviser or certain of its executives or employees make a political contribution to an elected official who is in a position to influence the selection of the adviser.
Second, the rule would prohibit an adviser and certain of its executives and employees from soliciting or coordinating campaign contributions from others — a practice referred to as "bundling" — for an elected official who is in a position to influence the selection of the adviser. It also would prohibit solicitation and coordination of payments to political parties, when the adviser is pursuing business from public entities.
Finally, and very importantly, the rule would prohibit an adviser from paying third-party solicitors who are not "regulated persons" subject to prohibitions against making contributions. Such "regulated persons" would be limited to registered investment advisers and to broker-dealers subject to pay to play restrictions.
Third party placement agents have been involved in some of the most egregious pay to play activities in recent years, and their activities should not continue unabated. The approach we are taking is a strong step toward eliminating the corruptive influence that can result from the use of third party placement agents.

It will greatly improve the status quo by banning payments to third parties who solicit government clients, unless they are "regulated persons" subject to pay to play restrictions comparable to the rule we are considering for adoption today.

This approach provides far greater protection of public pension plans and their beneficiaries than is currently the case, as third party placement agents come under the regulatory umbrella and, for the first time, become subject to meaningful federal pay to play restrictions.

This approach should effectively eliminate the opportunity for abuse that currently exists from third party placement agents. However, if the Commission determines that third party placement agents continue to inappropriately influence the selection of investment advisers for government clients — even under our enhanced rules — I expect that we would consider the imposition of a full ban on the use of these third parties.

Let me end by underscoring once again why we are here today. Pay to play practices are corrupt and corrupting. They run counter to the fiduciary principles by which funds held in trust should be managed. They harm beneficiaries, municipalities and honest advisers. And they breed criminal behavior. I hope my colleagues will join me today in striking a blow against a practice that has no legitimate place in our markets.

Before we hear more details about the rules we are considering for adoption, let me first offer my thanks to the individuals — representing a cross-section of four divisions and numerous offices — for their help in bringing to the table today a truly thoughtful, impressive and potent example of rulewriting."









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