Election 2016: Wall Street’s Political Contributions Risk Running Afoul Of Federal Laws

June 11 2015 | Owen Davis – International Business Times

Election 2016: Wall Street’s Political Contributions Risk Running Afoul Of Federal Laws

Every campaign season, hedge funds and private equity firms spend vast sums to influence political contests. If 2016 keeps pace with previous electoral cycles, the two finance sectors will pump more than $200 million into state and federal elections.

“We’re going to see a huge influx of Wall Street money into the elections this time around,” says Craig Holman, who follows election law for the advocacy group Public Citizen.

But legal experts are warning that if this trend continues, these political heavyweights could be rushing headlong into federal violations, as regulators ramp up enforcement of pay-to-play laws meant to prevent conflicts of interest between government offices and investment advisers.

“It’s certainly going to blindside some companies,” says Michael Minces, a founding partner at Blue River Partners, which counsels financial firms. “Most guys that run hedge funds and private equity firms have been used to openly giving.”

At the same time that the 2010 Dodd-Frank Act compelled investment advisers — including most hedge funds and private equity firms — to register with the Securities and Exchange Commission, these firms came under stricter scrutiny around political giving to state and local candidates.

The law’s pay-to-play statute bars financiers from doing business with politicians whose campaign coffers they’ve filled — for two years after any donation.

That means governors, mayors, state treasurers, etc., may all become off-limits for hedge funds and private equity firms accustomed to profligate political spending. Most state pensions, for instance, maintain contracts with dozens, if not hundreds, of investment advisers. That relationship would preclude political giving to officials with any connection to public retirement funds.

Though the rule was finalized in 2011, Minces says this year will be the first that many investment advisers will have to comply. Beyond the fines that come with running afoul of the law, companies could stand to lose lucrative contracts.

“If you violate that rule, it can lock you out of state pension money,” Minces says. That would mean losing out on the hundreds of billions of dollars in retirement fund investments.