By Natalia Renta, Associate Director for Corporate Governance & Power
The SEC is proposing to get rid of the “pay-to-play” rule, which prohibits asset managers from providing services to a government client (including state and local public pensions) for two years after making a political contribution to certain elected officials or candidates. If successful, the SEC would eliminate an important safeguard against private equity, venture capital, and hedge funds bribing their way into lucrative contracts and exposing pension plans — and the workers and retirees who depend on them for their retirement security — to harm.
The SEC finalized the pay-to-play rule in 2010, following high-profile scandals. In just 2009, there were major incidents involving two of the largest and most influential private equity firms: Apollo and Carlyle. CalPERS, the largest public pension in the country, discovered that one of its former board members helped Apollo secure approximately $3 billion in investments to its funds after accepting more than $40 million in payments from the firm. The board member gave the CalPERS CEO gifts worth at least $250,000. This was not a victimless crime: these investments were amongst the pension fund’s worst performing, down between 50 and 60 percent that year. Around the same time, Carlyle agreed to pay $20 million in a settlement because it had paid more than $13 million to a New York State Comptroller staffer to secure approximately $730 million in investments from the state’s pensions.
The rule has been a powerful prophylactic against pay-to-play schemes since it went into effect. While pay-to-play practices have not completely disappeared since the SEC finalized the political contribution rule, the price tag associated with anything that could come close — no business from the relevant government client for two years — serves as a powerful disincentive, making pensions less likely to fall victim to pay-to-play practices in the first place.
While the SEC tries to argue that other existing laws are sufficient to curb pay-to-play practices, that is clearly not the case. The SEC points to cases that it brought before the rule was in effect, but eight out of the nine citations it gives involved a single former state treasurer, while the other involved another state’s pension system. Both were egregious cases that involved parallel criminal prosecutions and caused great harm to pensions. This is hardly evidence that the SEC’s tools outside the rule it is proposing rescinding will be sufficient to prevent pay-to-play schemes in the future.
Additionally, the proposed rescission comes at a time when the SEC’s capacity to robustly enforce laws is under strain. The SEC’s Division of Enforcement cases fell over 20 percent and its staff fell 18 percent in fiscal year 2025. Specifically, there has been a steep decline in SEC enforcement cases related to public finance abuses in the past decade: from 97 in 2016 to seven in 2025 (as of the end of September). The SEC’s Division of Examination has also lost 14 percent of its staff under the second Trump administration. Unfortunately, those harmed by pay-to-play schemes cannot fill in the SEC’s enforcement void due to limitations on the types of claims private parties can bring against asset managers, as well as the type of redress they can get on their own. Critically, some of the regulations the SEC points to in an attempt to justify the rescission are not applicable to private equity firms or other private market actors — the types of firms that were behind the scandals that triggered the pay-to-play rule in the first place.
While the SEC goes into painstaking detail about the costs and benefits of getting rid of the rule for asset managers, it barely acknowledges the increased risks and harms to pensions that could result. It also overblows First Amendment concerns about the rule supposedly curtailing asset managers’ freedom of speech — a claim taken up by the Wall Street Journal Editorial Board in an astonishing opinion piece entitled “Stop muzzling Jamie Dimon.” Firstly, the SEC already addressed free speech concerns when it promulgated the rule. Secondly, the SEC mischaracterizes legal developments since then, ignoring the fact that a court upheld a rule modeled after the pay-to-play rule that applies to broker-dealers in 2019. Also, the SEC did not meaningfully discuss the possibility of making changes to the rule to address concerns; it simply decided to propose getting rid of the rule altogether, regardless of the consequences to the millions of workers, retirees, and their families who depend on public pensions.
Lastly, the SEC is proposing to take this drastic action at a time when there are only two commissioners from the same party, when it is supposed to be a bipartisan commission of five. The SEC should abandon its plan to get rid of an important rule that curtails corporate profiteering.