A T. Rowe Price vice president made a $250 contribution to the campaign of Scott Walker for governor of Wisconsin in a recall election. That small donation could have cost T. Rowe Price $6.1 million in fees. The SEC’s Rule 206(4)-5 once again shows it scary side to advisers. Fortunately, the Securities and Exchange Commission granted some relief.
T. Rowe Price Associates, Inc. and T. Rowe Price International Ltd, affiliated SEC registered advisers, have over $60 billion in assets under management. Amidst that, T. Rowe Price manages some money for the Wisconsin state public pension plan.
Governor Walker appoint some of the members to the board of trustees. That makes the Wisconsin Governor an “Official” under Rule 206(4)-5.
Unfortunately, the vice president failed to pre-clear the February 2012 contribution with his compliance group and sent in the donation. He does not live in Wisconsin and is not entitled to vote for that Official’s office. So his donation is limited to $150 under Rule 206(4)-5.
T. Rowe Price discovered the errant contribution in March 2014 while developing a testing program that includes searches of public websites for contributions made by employees.
The SEC ruling is a good result for the firm, but shows how out of proportion the SEC rule is for potential harm.
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This same issue has been the bane of municipal finance professionals for a number of years. Under MSRB Rule G-37, a municipal finance professional can contribute up to $250 to a candidate that the professional is entitled to vote for. Should he make a contribution similar to the one in the T Rowe Price case, the firm would be prohibited from doing municipal finance work in that state or agency for up to two (2) years.
Now imagine if you were the compliance officer at a firm and you had to monitor this activity. That is why this regulation of pay to play for something so small is unrealistic. A $250 contribution is peanuts compared to the amounts that are coming in now. Its time to get with the times, regulators!!