The SEC describes pay to play as "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. "

Yesterday, 30 June, the SEC adopted a rule that "includes prohibitions intended to capture not only direct political contributions by investment advisers, but also other ways that advisers may engage in pay to play arrangements."

It is astonishing that a specific rule is necessary and that the SEC feels that it does not have sufficient powers under its existing rules relating to unprofessional conduct and related areas.

Indeed, for many it will come as astounding that such corrupt practices are not widely prosecuted.

The Rule raises some interesting questions: corrupt payments are illegal. If the SEC finds illegal practices, it is supposed to report them for prosecution. If there is money laundering, it is supposed to report that to FinCEN.

Is it doing so, or has the SEC so far turned a blind-eye to the practice?

The following is extracted from the SEC's statement:

The new SEC rule has three key elements:

* It prohibits an investment 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.

* It prohibits an advisory firm and certain 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 prohibits solicitation and coordination of payments to political parties in the state or locality where the adviser is seeking business.

* It prohibits an adviser from paying a third party, such as a solicitor or placement agent, to solicit a government client on behalf of the investment adviser, unless that third party is an SEC-registered investment adviser or broker-dealer subject to similar pay to play restrictions.

The new rule becomes effective 60 days after its publication in the Federal Register. Compliance with the rule's provisions generally will be required within six months of the effective date. Compliance with the third-party ban and those provisions applicable to advisers to registered investment companies subject to the rule will be required one year after the effective date.