Pay to Play

Pay to PlayNew York State Common Retirement Fund Fraud

Pay to Play• SEC Proposed Rule IA-2910• http://www.sec.gov/rules/prop

osed/2009/ia-2910.pdf• Comment Period ended Oct. 6

Pay to Play• Restricts Political

Contributions• Bans Third Party Solicitors

Who is covered:Any investment adviser registered (or required to be registered) with the Commission, or unregistered in reliance on the exemption available under section 203(b)(3) of the Advisers Act (15 U.S.C. 80b-3(b)(3))

Covered PoliticiansIncumbent or candidate for elective office who: (i) Is directly or indirectly responsible for, or can influence the outcome of, the hiring; or (ii) Has authority to appoint any person who is directly or indirectly responsible for, or can influence the outcome of, the hiring, of an investment adviser for government funds

Safe Harbor• Contributions of no more than

$250 in the aggregate• Entitled to vote for the official

Record Keeping• Keep a record of all political

contributions• Five year tail

Placement Agents• SEC alleges that third-party

solicitors have played a central role in each of the enforcement actions involving pay to play schemes.

Placement Agents

Placement Agents“Eliminating placement agents as a group because there were a few bad actors who have tarnished the industry is analogous to eliminating Major League Baseball because several of its players behaved illegally.”

- Steven Schwarzman The Blackstone Group

Penalty:Two Year Prohibition on Compensation

Say on Pay

Say on PayCorporate and Financial Institution Compensation Fairness Act of 2009 (H. R. 3269)

Say on PayRequires that any proxy for an annual shareholders meeting provide for a separate shareholder vote to approve executive compensation

Say on Pay - Section 4New federal regulations requiring each covered financial institution to disclose incentive-based compensation arrangements to determine whether the compensation:

1. is aligned with sound risk management; 2. is structured to account for the time horizon of

risks; and 3. meets other criteria appropriate to reduce

unreasonable incentives offered by such institutions for employees to take undue risks.

Say on Pay - Section 4covered financial institution means:

(D) an investment advisor, as such term is defined in section 202(a)(11) of the Investment Advisers Act of 1940 (15 U.S.C. 80b-2(a)(11))

With assets of more than $1 billion

Say on Pay - DisclosureDisclose incentive-based compensation to determine whether the compensation:

1. is aligned with sound risk management; 2. is structured to account for the time

horizon of risks; and 3. meets other criteria appropriate to

reduce unreasonable incentives offered by such institutions for employees to take undue risks.

Say on Pay - ProhibitionsProhibition on incentive-based compensation

that--

1. could threaten the safety and soundness of covered financial institutions; or

2. could have serious adverse effects on economic conditions or financial stability.

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