Pay to play

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SEC litigation of "pay-to-play"

This action involves a fraudulent scheme to extract kickbacks from investment management firms seeking to manage investment assets held by the New York State Common Retirement Fund ("Retirement Fund") in trust for New York state employees, retirees and other beneficiaries. Morris, Loglisci, Wissman and Harding initiated, directed, implemented and/or benefited from the scheme. During the relevant period, Loglisci served as the State of New York's Deputy Comptroller and Chief Investment Officer ("CIO"), and Morris was the top political advisor and chieffundraiser for Alan Hevesi, who was the State ofNew York's Comptroller from January 2003 through December 2006. Wissman was a hedge fund manager during the relevant period and is a longtime family friend of Loglisci, while Harding is the former leader of the New York State Liberal Party and a longtime political associate of Morris. As described below, the Defendants' scheme corrupted the integrity of the Retirement Fund's investment processes and resulted in Retirement Fund assets being invested with the purpose of enriching the Defendants.

Special interests seeks dilution of proposed rules

"A wide range of financial interests is pressing federal regulators to limit a proposed curb on “pay to play” practices in state and local investments.

The Securities and Exchange Commission (SEC) proposed the new policy following allegations that political operatives and elected officials received kickbacks for help in winning business from New York’s pension fund.

The policy is designed to restrict investment advisers from making political contributions to influence government officials over how business is awarded. State and local governments often hire private advisers to help manage large pensions and other funds.

The SEC’s proposal would bar investment advisers for two years from providing paid services to state and local authorities if they contribute $250 or more to an elected official overseeing the business. The proposal would also ban advisers from asking a third party, such as a placement agent or finder, to help win business from the government.

The new rule has drawn more than 200 comments from state and local authorities, Washington-based trade associations and prominent investors. New York City Mayor Michael Bloomberg and other state officials voiced strong support for the policy."

Choi et al. on Pay to Play in Securities Class Actions

  • Source: The Price of Pay to Play in Securities Class Actions by Stephen J. Choi, New York University - School of Law; Drew T. Johnson-Skinner, New York University School of Law; and Adam C. Pritchard, University of Michigan Law School (Securities Law Prof Blog)

The paper was recently posted on SSRN.

Here is the abstract:

This paper studies the effect of campaign contributions to lead plaintiffs — “pay to play’’ — on the level of attorneys’ fees in securities class actions. We find that state pension funds generally pay lower attorneys’ fees when they serve as lead plaintiffs in securities class actions than do individual investors serving in that capacity. This differential disappears, however, when we control for campaign contributions made to officials with influence over state pension funds. Thus, pay to play appears to increase agency costs borne by shareholders in securities class actions

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