Friday, September 30, 2011

SEC Staff Gives Assurances to Advisers Keeping Alternate Records under Pay to Play Advisers Act Recordkeeping Rule

The staff of the Division of Investment Management has given no-action assurances under the government plan recordkeeping rule, adopted in conjunction with the pay to play rule, to investment advisers to Covered Investment Pools who keep an alternative set of records that is in some ways a broader set of records than required by the government plan recordkeeping rule, and in other ways a more narrow set of records than those required under the rule. For purposes of the letter, the term “Covered Investment Pool” means any investment company registered under the Investment Company Act that is an investment option of a plan or program of a government entity. Investment Company Institute, Sept 12, 2011.

Specifically, a letter from the Investment Company Institute states that an investment adviser seeking to rely on this relief will make and keep a list or other record that includes each government entity that invests in a Covered Investment Pool, where the account of such government entity can reasonably be identified as being held in the name of or for the benefit of the government entity on the records of the Covered Investment Pool or its transfer agent; Each government entity, the account of which was identified as that of a government entity at or around the time of the initial investment to the adviser or one of its client servicing employees, regulated persons or covered associates; Each government entity that sponsors or establishes a 529 Plan and has selected a specific Covered Investment Pool as an option to be offered by such 529 Plan; and Each government entity that has been solicited to invest in a Covered Investment Pool either by a covered associate or regulated person of the adviser; or by an intermediary or affiliate of the Covered Investment Pool if a covered associate, regulated person, or client servicing employee of the adviser participated in or was involved in such solicitation, regardless of whether such government entity invested in the Covered Investment Pool.

The letter asserts that by maintaining these records, including a list of those government entities to which an adviser markets (whether successfully or not), the adviser’s records will likely capture most of the larger government entities and most other government entities whose investments are likely to create an incentive for the adviser to engage in pay to play conduct. The letter further asserts that maintenance of such a list, in conjunction with compliance with the other requirements of Advisers Act Rule 204-2(a)(18) and Rule 206(4)-5, will allow the Commission to achieve the purposes of the pay to play regime under the Act.

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