George Bernard Shaw remarked that every profession is a conspiracy against the laity. On Wednesday the SEC acted to curb "pay-to-play" conspiracies of investment advisers and politicians against public pension plan participants. In a typical adviser-politician conspiracy, often involving intermediaries, an adviser benefits through increased "assets under management" and resulting fees. A politician receives the adviser's contributions - the mother's milk of politics. And pensioners bear both costs.
Per SEC Chair Shapiro, "[p]ay to play distorts ... the process by which investment managers are selected. It can mean that public plans and their beneficiaries receive sub-par advisory performance at a premium price." [Emphasis added.]
"The cost of this practice is borne by retired teachers, firefighters and other government employees relying on expected pension benefits ... . And, ultimately, this cost can be borne by taxpayers, who may have to make up shortfalls when vested obligations cannot be met."
Ms. Shapiro stated that pay-to-play is unspoken, entrenched, and well-understood. Noting recent SEC enforcement actions involving pay-to-play, she continued: "[o]ur recent cases may represent just the tip of the iceberg."