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Dentons & McKenna Long to Merge, Giving Clients a Competitive Edge

Dentons & McKenna partners approve merger. Learn more about how clients inside the US will gain unrivaled access to markets around the world and international clients will enjoy increased strength and reach across the US.

Learn more at http://www.dentons-mckenna-combination.com/

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Dentons & McKenna Long to Merge, Giving Clients a Competitive Edge

SEC Starts Hitting the Private Sector Hard for Pay-to-Play Violations

Stay AlertFor the first time ever, the SEC has brought a pay-to-play case against an investment advisor for making political contributions. Previously, and with the requisite lack of subtlety and fanfare you have come to expect from this blog, we highlighted the SEC’s massive consent judgment against Goldman Sachs over a series of “in kind” contributions by one of its bankers. What makes this case equally noteworthy in the wake of the Goldman precedent is not only the fact that the SEC is signaling that its enforcement efforts will not be tempered either by a lack of intent to influence and investment decisions, but that such efforts will also not be deterred even by a lack of opportunity to influence those decisions.

The investment community needs to take note and heed these warnings immediately. TL Ventures gives us all 285,000 reasons to do so.

As spelled out in greater detail in a recent, articulate, insightful, and well-crafted law firm client alert, in April 2011, a “covered associate” of TL Ventures made contributions to the campaign of a candidate for Mayor of Philadelphia and the Governor of Pennsylvania. The Mayor of Philadelphia appoints three of the nine members of the Philadelphia Retirement Board and the Governor of Pennsylvania appoints six of the eleven members of the board of the Pennsylvania SERS. The SEC charged TL Ventures with pay-to-play violations under Rule 206(4)-5 of the Advisers Act because the contributions triggered the two-year “time out” from receiving advisory fees from the Philadelphia Retirement Board and SERS. As was the case with Goldman, TL Ventures agreed to settle the matter without admitting or denying the allegations, disgorging its fees of over $250,000, and paying a penalty of $35,000.

For the uninitiated, Rule 206(4)-5 generally prohibits investment advisors from providing advisory services for compensation to a government entity for two years after the adviser or certain of its executives or employees make political contributions above specified thresholds to an elected official or candidate for political office if the office is “directly or indirectly responsible for, or can influence that government entity’s selection of the adviser.”

It is a significant question whether the facts alleged in this matter represent the type of case that was envisioned when the pay-to-play rules were adopted, and whether this is the type of case that combats what the SEC described as a significant problem of influence in the management of public funds. Absent from the SEC’s allegations was any assertion that TL Ventures or the covered associate at issue attempted to influence an investment decision of either the Philadelphia Board or SERS. Indeed, the SEC went out of its way in its consent order to declare that “Rule 206(4)-5 does not require a showing of quid pro quo or actual intent to influence an elected official or candidate.”

Of particular relevance here, TL Ventures did not appear even to have an opportunity to influence an investment decision. The SEC alleged that both SERS and the Philadelphia Board were investors in the funds prior to the political contribution and that the funds were in wind down mode, and that both SERS and the Philadelphia Board were already committed to TL Venture funds until the funds officially wound down. Additionally, there was no allegation that TL Ventures marketed any additional funds for investments during the two-year period after the covered associate at issue made the prohibited political contributions. Thus, the political donations in question could not have had any effect on any investment decision because there was simply no investment decision to be made.

In addition to being a bit scary and a large neon flashing compliance alert for the regulated community, one has to wonder whether the SEC’s enforcement action against TL Ventures and its pay-to-play rules are constitutional under the Supreme Court’s recent decision in McCutcheon v. Federal Election Commission, 572 U.S.__(2013).  Readers of this blog will recall that in McCutcheon, the Supreme Court found that aggregate political contribution limits violated the First Amendment because the  regulation of political speech must be limited to targeting instances of “quid pro quo” corruption or its appearance. No such concern was found by the Court in the aggregate campaign contribution limit context. Coincidentally, the existence or appearance of quid pro quo corruption is precisely the standard the SEC has gone out of its way to assert is NOT required to allege a Rule 206(4)-5 violation. In turn, one has to wonder how the Roberts Court would view the SEC’s attempted application of a strict liability standard for Rule 206(4)-5 violations that involve absolutely no opportunity to influence an actual investment decision.

SEC Starts Hitting the Private Sector Hard for Pay-to-Play Violations

The Potential Consequences of Paying to Play: Birdsall Services Group

New Jersey engineering firm Birdsall Services Group realized the full consequences of violating state pay-to-play laws on August 30th after a state court judge ordered that the contractor pay $1M in criminal penalties, the maximum allowable by law.

Under the state’s pay-to-play law, which many agree requires an overhaul, business entities are prohibited from making reportable contributions (in excess of $300) to elected officials prior to the award of certain government contracts and during their pendency. See N.J.S.A. 19:44A-20.3 through 20.25. In a scheme designed to work around these restrictions, Birdsall bundled several non-reportable $300 contributions written by individual employees, sent them to elected officials as one contribution, and reimbursed the employees with bonuses. The scheme stretched over six years, during which Birdsall contributed over $1M to various campaigns and netted millions of dollars in revenue on public contracts subject to the restrictions – contracts for which Birdsall was technically ineligible under state law.

The recent $1M penalty ordered by the state court was only the most recent in a series of consequences faced by the company and its executives. Indicted on charges of money laundering and the making of false representations for government contracts in March of 2013, Birdsall declared bankruptcy just three days after the state moved to seize company assets, and the company pleaded guilty to such charges in June. Money laundering, conspiracy, and a laundry list of similar criminal charges against seven employees – including the firm’s largest shareholder and former CEO – are pending, and two marketing employees have already pleaded guilty to participating in the scheme. Potential penalties for these individuals include fines of up to $1M and 20 years in state prison. Birdsall has already paid the state $2.6M to settle a civil forfeiture action relating to the case and has agreed to be debarred from federal contracting for 10 years. News outlets have also obtained and published lists of the contribution recipients.

Birdsall’s case demonstrates the severe consequences of a contractor’s attempts to work around pay-to-play rules, even those with seeming loopholes or unclear restrictions. There is little doubt that the highly publicized scandal will spark election law reform in New Jersey and perhaps other states as they work to broaden their state-level “False Claims Acts” and similar restrictions on state contractors. (We also continue to await the Wagner case as it heads to oral argument before the en banc D.C. Circuit, which will decide the issue of whether the Federal Election Campaign Act’s more general ban on political contributions by federal government contractors is unconstitutional.)

Birdsall’s experience demonstrates the importance of reviewing business development practices and establishing internal controls that track compliance with state and local ethics rules, in addition to federal restrictions. Instituting such controls and consulting experts capable of advising on such state laws not only helps to ensure compliance, but also shows an intent to fully comply with relevant restrictions in the event an investigation arises.

The Potential Consequences of Paying to Play: Birdsall Services Group

Additional Settlements in New York Pension Fund Investigation

New York State Attorney General and Governor-Elect Andrew Cuomo has announced additional settlements in his investigation of “pay-to-play” practices and conflicts of interest at public pension funds. Veteran Albany lobbyist Patricia Lynch Associates, Inc. will pay a $500,000 fine and be banned for a period of five years from appearing before the State Comptroller’s Office. The State Comptroller is the sole trustee of New York State’s approximately $133 billion Common Retirement Fund (CRF).

Cuomo’s investigation showed that Lynch, a former top aide of Assembly Speaker Sheldon Silver, arranged contributions to former Comptroller Alan Hevesi’s campaign. She also assisted in securing a consulting contract for the daughter of the Comptroller’s Chief of Staff and provided thousands of dollars in gifts to the daughter. Lynch met with the Comptroller and with senior staff in his office to discuss proposed investments by her lobbying clients. She and a partner, L.W. Strategies, also received fees from a client for lobbying the New York City Police and Fire pension fund.

Cuomo also announced a settlement with fund advisor Aldus Equity, a Dallas-based private equity firm, which includes a $1 million restitution payment. The agreement concerns the firm’s responsibility for securities fraud engaged in by former Aldus principal Saul Meyer, who pleaded guilty in October 2009 to a Martin Act securities fraud felony charge for his conduct.

At the time of Meyer’s conduct, Aldus was a leading outside advisor to several public pension funds including the state and NYC funds. Meyer is scheduled to be sentenced in the criminal case later this month.

Brief Summary of NY Rules / Reforms:

– The NYS Common Retirement Fund (“CRF”) has banned placement agents, meaning paid intermediaries and registered lobbyists, regarding investments with the Fund. The ban includes entities compensated on a flat fee, contingent fee or any other basis (contingent lobbying fees are never permitted in New York).

The NYS Comptroller has issued an executive order that prohibits the CRF from hiring, investing with or committing to any Investment Adviser after a contribution has been made by the Investment Adviser or any Covered Associate of an Investment Adviser (i.e. general partner, managing member, executive officer) who has made a political contribution to the State Comptroller or a candidate for State Comptroller. There is a limited exception that allows individuals to contribute no more than $250 to their own representatives. The prohibition applies to contributions made within the past two years. The definition of “Investment Adviser” includes investment advisers registered with the SEC and those investment advisers exempt from registration with the SEC.

– The NYS Comptroller has created a pension fund task force and a special commission, co-chaired by Mayor Koch and Frank Zarb, to review operations of the State Comptroller. They have also hired special ethics counsel and created an Inspector General position. Legislation has been introduced to codify some of the reforms that were promulgated by Executive Order.

– In New York City, there is a ban on placement agents for private equity. In June of 2010, Comptroller Liu announced a series of new disclosure requirements for those who do business with the City pension system, including both the Teachers Retirement System and the New York City Employees Retirement System (“NYCERS”). For example, investment managers must disclose all contacts with the City Comptroller’s Office; must certify that no placement agent was used in connection with securing private equity; and must disclose all fees.

– Placement agents and other third parties who are engaged in the business of effecting securities transactions are required to be licensed and affiliated with broker-dealers that are regulated by an entity now know as the Financial Industry Regulatory Authority (“FINRA”). See, Attorney General’s Assurance of Discontinuance In the Matter of Patricia Lynch Associates, Inc., p. 4, citing sections 3(a)(4) and 15(b) of the Securities Exchange Act of 1934. To obtain such licenses, agents are required to pass the “Series 7” or equivalent examination administered by FINRA. Id. In addition, the Martin Act (NY General Business Law Article 23-A) requires that all dealers, brokers, or salesmen (e.g., placement agents) who sell or purchase securities within or from New York State must file broker-dealer registration statements with the Attorney General. Id., citing New York General Business Law section 359-e(3).

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Additional Settlements in New York Pension Fund Investigation

“Pay-to-Play” Restrictions Debated in Newark: Unfair Advantage for Popular Mayor?

Critics of “pay-to-play” restrictions have long come from throughout the political spectrum, raising concerns ranging from free speech to ballot access. But the recent “pay-to-play” proposals in Newark, NJ have been criticized by some public officials for a rather novel reason: they can’t pick up the phone and call Oprah for a contribution like their popular Mayor, Corey Booker, can.

While the proposed legislation in Newark is in its infancy and is likely to change, it appears to be aimed at limiting contributions from local redevelopment companies. Specifically, the Star Ledger reports that the legislation’s current language, “would bar contributions to city candidates from redevelopers, their subcontractors and their consultants starting the moment there is interest in an area for redevelopment.”

This concept is not a novel one, particularly in New Jersey, which has arguably the toughest “pay-to-play” laws in the country. In fact, numerous localities in New Jersey have similar laws on the books. And as we detailed previously, Governor Chris Christie has proposed a wave of robust reforms that would further regulate the political law environment in the Garden State.

What is unique here, however, are claims such as the ones contained in the Star Ledger article:

As “pay-to-play” legislation limiting campaign donations from local redevelopers wends its way through City Hall, some city leaders are saying the proposed fundraising restrictions would create an unfair playing field for candidates who don’t have Oprah Winfrey on speed dial.

“I am not a rock star councilwoman,” said at large council member Mildred Crump this week. “We have a rock star mayor.”

Indeed, candidates without nationwide networks would be more directly impacted by the current Newark “pay-to-play” proposals than a national figure like Mayor Booker. Yet another reason for some to dislike this sort of piecemeal “pay-to-play” regulation. Nonetheless, reports on the ground indicate that passage of some form of this legislation is likely.

In any case, New Jersey continues to be a focal point for developments in the “pay-to-play” arena. We will monitor such developments closely as the end of 2010 nears.


“Pay-to-Play” Restrictions Debated in Newark: Unfair Advantage for Popular Mayor?

NJ Governor Christie Proposes Sweeping Ethics Reform Package; Robust New “Pay-to-Play” Provisions On the Horizon

New Jersey Governor Chris Christie recently announced an ambitious proposal to overhaul New Jersey’s ethics regulations which takes aim at perceived campaign finance loopholes and conflicts of interest, while also significantly increasing disclosure requirements for legislators. Importantly, the proposals by Christie, who campaigned vigorously on ethics reform, also contain several new “pay-to-play” regulations.

Specifically, an announcement from the Governor’s office announced three proposals which would directly address New Jersey’s current “pay-to-play” regime.

First, Christie has stated that he will “impose a uniform set of contract award standards on all levels of government and all branches of state government” by ending the “fair and open contract” exception for businesses that make reportable campaign contributions at the legislative, county and municipal levels, but are currently still able to receive contract awards valued greater than $17,500 with local governments. As Christie correctly notes, this practice is not currently permitted at the state/gubernatorial level.

Christie also aims to restrict what is commonly known as “wheeling” by “imposing contribution limitations on county and municipal committees for committee-to-committee contributions and committee contributions to out-of-county or out-of municipality candidates.” If enacted, this proposal would have a significant impact primarily at the local level, where contributions are routinely “wheeled” between committees, making the original source of campaign contributions unclear.

Finally, and most controversially, Christie proposes to limit political contributions from labor unions which have contracts with the state. As you will recall, Christie previously signed an executive order setting forth such regulations, only to have the Executive Order overturned by a state appeals court, which stated that legislation was necessary in order to enact such restrictions. Given that Christie is a Republican taking aim at perhaps the largest source of campaign contributions to Democrats, it is certain that this proposal will be met with significant opposition in the Democratic controlled legislature.

While the specifics of the proposals are sure to change in substance throughout the legislative process, it appears as if at least some new “pay-to-play” provisions are on the horizon in the garden state. As we have indicated previously here with respect to pay-to-play regulation, structure and statewide uniformity are sorely needed within the Garden State. We will continue to monitor what is sure to be a dynamic situation in New Jersey.

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NJ Governor Christie Proposes Sweeping Ethics Reform Package; Robust New “Pay-to-Play” Provisions On the Horizon

When it comes to politics, connections count at McKenna Long & Aldridge

August 15, 2010 – Jim Torpy, of the Atlanta Journal-Constitution, profiled the McKenna Long & Aldridge law firm, including a picture of some of its leaders, Stefan Passantino, Eric Tanenblatt and Keith Mason, and discusses how the firm’s political connections, which have been developed over years of experience, help MLA assist its clients in all types of issues they may have in dealing with government.

The article focuess on such current isues as toughened ethics laws, increased scrutiny of politicians and ever-changing lobbying laws and regulations.

Mr. Passantino is noted as one of the firm’s lawyers who is making his name fighting ethics complaints against politicians. He said the bipartisan nature of the firm “gives clients comfort that they are not getting advice filtered by any political ideology. Once they get past the initial shock of the lions and lambs together here, they realize there’s a benefit.”


When it comes to politics, connections count at McKenna Long & Aldridge

On The Rise: Amol S. Naik

August 16, 2010 – Pay-to-play blogger Amol Naik is profiled by the Daily Report in its “On The Rise” feature of rising stars. Amol’s career has included:

  • Working as an intern reporter for the Washington bureau of Toronto’s The Globe and Mail;
  • Serving as General Counsel to mayoral candidate Kasim reed and leading the recount efforts in the mayoral race between Reed and Atlanta City Councilwoman Mary Norwood;
  • Involvement with political campaigns including state Sen. Jason Carter, Fulton County Commission Chairman John Eaves; and state Rep. Rashad Taylor;
  • Political action committee formation and legislative consulting work;
  • Recognition as a Marshall Fellow through the German Marshall Fund of the United States, a group that promotes cooperation on global issues between North America and Europe; and
  • Pro bono work for immigrants.

Please click here to read the article in its entirety.

On The Rise: Amol S. Naik

Stefan Passantino Interviewed on Fox News

July 27, 2010 – Stefan Passantino is interviewed on Fox News discussing ethics violation accusations against Congressman Charlie Rangel. Mr. Passantino discusses the potential fallout of the charges against Congressman Rangel.



Stefan Passantino Interviewed on Fox News

Law firms see payoff in blogs

June 22, 2010 – Stefan Passantino and his team’s pay-to-play blog is featured in an Atlanta Journal-Constitution article about the growing popularity and newfound benefits of law firms entering the blogosphere.

Mr. Passantino said he started the blog last fall because he found it fun. “It allows me to track the interesting parts of the law but not really having to get into the nuts and bolts of a compliance program. I use it as a credential so that people know that I know this area of the law.”

The article notes that of the top 200 U.S. law firms, 96 now publish blogs, according to LexBlog Inc.

The overall strategy for law firm bloggers is to fine a niche in the legal field and a team that enjoys writing about it. However, showing the effectiveness of the blog can be difficult in certain environments, as the results are not as measurable as tracking the standard billable hour.

To read Péralte C. Paul’s full article on law firm blogs please click here.

Law firms see payoff in blogs