Placement Agents Fight Bans


Placement agent bans were put in place at the New York State Common Retirement Fund and the New Mexico State Investment Council because of the pay-to-play scandals at those pension funds. Now the SEC has proposed a ban on using placement agents when seeking capital investments from public pension funds.

A coalition of placement agents is urging the SEC to pull the plug on its proposed rule, convinced it could put some of them out of business. Placement agents are accusing the Securities and Exchange Commission of regulatory overkill, saying the proposal would indiscriminately hammer both good and bad firms.

The coalition is offering an alternative proposal:

Placement agents would be barred from making political contributions to anyone in the decision-making chain of command for public pension fund investments. The placement agent would disclose its fee arrangement with the fund’s general partner to any potential limited investment partners. Placement agents must be registered with the SEC or the Financial Industry Regulatory Authority.

There are also a few comments already submitted on the SEC’s Proposed Rule for Political Contributions by Certain Investment Advisers.  Ted Carroll’s comment is short and straight to the point:

“Please stop all this nonsense. Placement agents provide a valuable service to small and midsized investment firms and 99.99% are honest diligent people. Its offensive to see the many large political donors involved in the recent pay to play schemes get to pay fines and adopt hollow policies to avoid real prosecution. Catch and punish the guilty, leave the innocent alone.”

The comment from Claude R. Parenteau points out that the actions that precipitated the SEC proposal were already illegal activities under current regulations.

The comments also point out that the restriction could disadvantage smaller investment advisers who use placement agents to outsource marketing and sales because they can’t afford the overhead of having their own full-time marketing and sales staff.