Key Takeaways
- • The SEC has proposed rescinding the "pay-to-play" rule, which bars asset managers from providing services to government clients, including state and local public pensions, for two years after certain political contributions, according to Americans for Financial Reform.
- • The rule was finalized in 2010 after 2009 scandals involving Apollo and Carlyle, including a CalPERS case in which Apollo secured roughly $3 billion in pension investments after payments of more than $40 million to a former board member.
- • AFR argues the SEC's remaining enforcement tools are insufficient, citing a drop in public finance enforcement cases from 97 in 2016 to seven in 2025 (through end-September) and enforcement case declines of over 20 percent in fiscal 2025.
- • AFR contends the rescission would most affect private equity, venture capital, and hedge funds, which some alternative regulations do not cover, and that the proposal was advanced by a commission with only two members from the same party.
Summary
Americans for Financial Reform (AFR) is opposing a proposal by the Securities and Exchange Commission to eliminate the pay-to-play rule, which prohibits asset managers from providing services to government clients, including state and local public pensions, for two years after making political contributions to certain elected officials or candidates. AFR, in a commentary by Natalia Renta, Associate Director for Corporate Governance & Power, says rescinding the rule would remove a key safeguard against private equity, venture capital, and hedge funds gaining lucrative public pension contracts through improper payments.
AFR cites the historical rationale for the rule. The SEC finalized it in 2010 following high-profile scandals. In 2009, CalPERS, the largest US public pension, found that a former board member had helped Apollo secure approximately $3 billion in investments after accepting more than $40 million in payments from the firm, and that the board member had given the CalPERS CEO gifts worth at least $250,000. AFR notes these investments were among the pension's worst performers, down 50 to 60 percent that year. Separately, Carlyle agreed to pay $20 million in a settlement after paying more than $13 million to a New York State Comptroller staffer to secure about $730 million in investments from state pensions.
AFR argues the SEC's case for rescission, that other laws are sufficient, is unpersuasive. It says eight of the nine enforcement citations the SEC references involved a single former state treasurer, and the other involved another state's pension system, both involving parallel criminal prosecutions. AFR also highlights a decline in SEC capacity: Division of Enforcement cases fell over 20 percent and staff fell 18 percent in fiscal 2025, and the Division of Examination lost 14 percent of its staff under the second Trump administration. AFR adds that some regulations the SEC cites do not apply to private market firms.
AFR further disputes the SEC's First Amendment rationale, pointing to a 2019 court decision upholding a broker-dealer rule modeled on the pay-to-play rule and noting the SEC addressed free speech concerns when adopting the rule. AFR also criticizes the SEC for not meaningfully considering modifications, and it notes the commission has only two members from the same party, against a bipartisan five-member design. The publisher's context describes the proposal as quietly published and as part of a broader Trump administration effort to rescind rules affecting private equity access to pension funds.
AFR cites the historical rationale for the rule. The SEC finalized it in 2010 following high-profile scandals. In 2009, CalPERS, the largest US public pension, found that a former board member had helped Apollo secure approximately $3 billion in investments after accepting more than $40 million in payments from the firm, and that the board member had given the CalPERS CEO gifts worth at least $250,000. AFR notes these investments were among the pension's worst performers, down 50 to 60 percent that year. Separately, Carlyle agreed to pay $20 million in a settlement after paying more than $13 million to a New York State Comptroller staffer to secure about $730 million in investments from state pensions.
AFR argues the SEC's case for rescission, that other laws are sufficient, is unpersuasive. It says eight of the nine enforcement citations the SEC references involved a single former state treasurer, and the other involved another state's pension system, both involving parallel criminal prosecutions. AFR also highlights a decline in SEC capacity: Division of Enforcement cases fell over 20 percent and staff fell 18 percent in fiscal 2025, and the Division of Examination lost 14 percent of its staff under the second Trump administration. AFR adds that some regulations the SEC cites do not apply to private market firms.
AFR further disputes the SEC's First Amendment rationale, pointing to a 2019 court decision upholding a broker-dealer rule modeled on the pay-to-play rule and noting the SEC addressed free speech concerns when adopting the rule. AFR also criticizes the SEC for not meaningfully considering modifications, and it notes the commission has only two members from the same party, against a bipartisan five-member design. The publisher's context describes the proposal as quietly published and as part of a broader Trump administration effort to rescind rules affecting private equity access to pension funds.
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