BLOG STARTUPS, VENTURE AND THE TECH BUSINESS
July 13 2010
by John Backus
The SEC prohibits VCs from giving to Political Candidates!?!
Do a few bad apples spoil the entire bushel?
There have been a few well-publicized investigations and prosecutions of illegal bribes and kickbacks between money managers and state and local pension funds. New York Common Retirement Fund is the poster child here. Bribery is illegal, and those who participate in it should spend time with Bernie Madoff in jail. Lots of time.
But now the SEC has decided that all money managers – VCs, PE, Hedge Funds, Mutual Funds – anyone who might someday manage Quasi-Government money (whether a State pension fund, a City Pension Fund, a Teachers pension Fund, a local firefighters fund) are not to be trusted. The SEC has basically imposed a blanket restriction on any money manager (they call us “advisers”) restricting all of us, and everyone in our firms, from contributing money to State and Local politicians.
Just listen to SEC Chairman and Obama appointee Mary Shapiro explain this in her own words:
Oh, and our spouses are covered as well by the SEC rule. They also can’t contribute to elected officials because they are deemed to think through the brains of their money manager spouse, and not independently.
Why? Because in the tortured logic of the SEC, if I give $1,000 to my candidate for Governor, then I have “bought” the Governor if he wins. The Governor gets to appoint people to the Boards of investment authorities, like the State Pension Systems. The Governor can then tell his or her appointee, “Hey, this guy gave me $1,000. I want you to put $50M in to his investment fund.” And the appointee will comply.
The National Venture Capital Association weighs in here:
I am at a point in my life where a lot of my friends and former business associates are running for public office. Mark Warner. Mitt Romney. Meg Whitman. Bob McDonnell. Chris Romer. Democrats and Republicans. But according to the SEC I can’t write any of them a check – that is if I ever want to talk to UVA (Virginia), Mass PRIM (Massachusetts), CALPERS (California), CO-PERA (Colorado). Because if I do write them a check (and if they win) and if subsequently any state or local agency over which they might have indirect control via an appointment decides to invest with us, then, according to the SEC, they invested in us SOLELY because of my political contribution. And the remedy is for our firm to shut its doors for two years.
Is the SEC Serious? I think so. Read their press release:
The hypothesis that this regulation is based upon is that corruption abounds between money managers, elected officials, and their appointees. Wow. That is a pretty damning hypothesis. Last I looked, bribery and kickbacks were illegal. I think they still are. If there are bad apples in the bushel, lets send them off to rot in jail. But lets not punish all of the good apples in the process!
