Menu
Governor Inslee's Presidential Campaign Triggers New Risks for Investment Advisers
Caplin & Drysdale

Governor Inslee's Presidential Campaign Triggers New Risks for Investment Advisers

Date: 3/6/2019

Washington Governor Jay Inslee announced late last week that he is running for President, making him the first sitting governor in the 2020 presidential field. Inslee’s entrance into the presidential race while simultaneously holding his gubernatorial office represents a new risk for investment advisers subject to the Securities & Exchange Commission’s “Pay-to-Play” Rule.

The SEC’s “Pay-to-Play” Rule prohibits an investment adviser from earning compensation from a government entity (e.g., a public pension fund) for two years after the adviser or one of its “covered associates” makes a contribution to a state- or local-level “official” of that government entity. Because Governor Inslee has the power to appoint a number of investment board members, he is an “official” of nearly every public pension fund in Washington State. This means that, under the SEC Rule, if a “covered” employee of an investment adviser makes a political contribution to Inslee, the investment adviser will be walled-off from receiving any compensation from Washington State pension funds for two years thereafter, which could ultimately be a substantial sum.

Why does Inslee’s entrance into the presidential race create a new risk for investment advisers? Because most federal-level candidates fall outside the scope of the Rule—sitting U.S. Senators, incumbent U.S. Representatives, and other federal candidates who do not hold any other public office are not “officials” for SEC “pay-to-play” purposes. As a result, many who work for investment advisers are accustomed to giving contributions to federal-level candidates. And they may mistakenly believe they are able to give to Inslee as they would another presidential candidate. The potential problem for investment advisers here is that Inslee is both a federal candidate and a sitting governor, which means he is still an “official” under the Rule and a contribution to his presidential campaign will trigger a two-year compensation ban from Washington State pensions just as much as a contribution to his gubernatorial candidacy would.

This same scenario—a sitting governor running for president—has previously resulted in several large settlements with the SEC for investment advisers whose employees gave contributions to the 2016 presidential campaign of then-Ohio Governor John Kasich without realizing that such contributions would trigger a compensation ban under the SEC Rule.

All investment advisers who provide services (or would like to provide services) to Washington State pension funds would do well to remind all “covered associates” that contributions to Governor Inslee’s presidential campaign will trigger negative business consequences under the SEC Rule. Please contact a member of Caplin & Drysdale's Political Law Group if you have questions concerning this alert or for more information.

Matthew T. Sanderson
msanderson@capdale.com 
202.862.5046

Trevor Potter
tpotter@capdale.com 
202.862.5092

Bryson B. Morgan
bmorgan@capdale.com 
202.862.7836

Olivia N. Marshall
omarshall@capdale.com
202.862.5076

________________________________________________

About Caplin & Drysdale
Having celebrated our 50th Anniversary in 2014, Caplin & Drysdale continues to be a leading provider of legal services to corporations, individuals, and nonprofits throughout the United States and around the world. We are also privileged to serve as legal advisors to accounting firms, financial institutions, law firms, and other professional services organizations.

The firm's reputation over the years has earned us the trust and respect of clients, industry peers, and government agencies. Moreover, clients rely on our broad knowledge of the law and our keen insights into their business concerns and personal interests. Our lawyers' strong tactical and problem-solving skills -- combined with substantial experience handling a variety of complex, high stakes, matters in a boutique environment -- make us one the nation's most distinctive law firms.

With offices in New York City and Washington, D.C., Caplin & Drysdale's core practice areas include:
For more information, please visit us at www.caplindrysdale.com.
Washington, DC Office:
One Thomas Circle NW
Suite 1100
Washington, DC 20005
202.862.5000
New York, NY Office:
600 Lexington Avenue
21st Floor
New York, NY 10022
212.379.6000

___________________________

Disclaimer
This communication does not provide legal advice, nor does it create an attorney-client relationship with you or any other reader. If you require legal guidance in any specific situation, you should engage a qualified lawyer for that purpose. Prior results do not guarantee a similar outcome.

Attorney Advertising
It is possible that under the laws, rules, or regulations of certain jurisdictions, this may be construed as an advertisement or solicitation.
© 2019 Caplin & Drysdale, Chartered
All Rights Reserved.

Related Professionals

Related Practices

View our non-mobile site Menu