In re THE BANC FUNDS COMPANY
The Banc Funds Company, L.L.C. violated the SEC’s pay-to-play rule by continuing to provide compensated advisory services to private equity funds invested in by the Illinois Teachers’ Retirement System within two years after a covered associate made a $1,000 campaign contribution to a candidate for Illinois Governor, who appoints TRS board members, resulting in a cease-and-desist order, censure, and $75,000 civil penalty.
The SEC found that The Banc Funds Company, L.L.C., a registered investment adviser with $1.78 billion in assets under management, violated Rule 206(4)-5 of the Investment Advisers Act by providing compensated advisory services to private equity funds in which the Illinois Teachers’ Retirement System (TRS) was invested, within two years of a $1,000 campaign contribution made by a covered associate to a candidate for Illinois Governor. The Governor’s office has authority to appoint six members of the TRS board, which influences the selection of investment advisers, triggering the rule’s two-year prohibition regardless of intent or quid pro quo. The Banc Funds consented to a cease-and-desist order, censure, and a $75,000 civil penalty without admitting or denying the findings, except as to jurisdiction.
The Securities and Exchange Commission (SEC) instituted administrative and cease-and-desist proceedings against The Banc Funds Company, L.L.C., a Chicago-based registered investment adviser with $1.78 billion in regulatory assets under management, for violating Rule 206(4)-5 of the Investment Advisers Act of 1940. The violation occurred after a covered associate of The Banc Funds made a $1,000 campaign contribution on October 29, 2013, to a candidate for Governor of Illinois—a position with authority to appoint six members of the Illinois Teachers’ Retirement System (TRS) board, which oversees investment selections for the public pension fund. Despite this contribution, The Banc Funds continued to provide compensated advisory services to private equity funds (Banc Fund VI and VII) in which TRS remained invested, in direct contravention of the rule’s two-year prohibition. The SEC emphasized that the rule is prophylactic and applies regardless of intent, quid pro quo, or whether the contribution was later returned. The Banc Funds consented to the SEC’s order without admitting or denying the findings, except as to jurisdiction, and agreed to a cease-and-desist order, formal censure, and a $75,000 civil penalty. The penalty was structured to be non-offsettable in related investor lawsuits, reinforcing the SEC’s intent to deter pay-to-play abuses. The case underscores the SEC’s strict enforcement of campaign finance restrictions tied to government investment decisions.
Extracted insights
- company The Banc Funds Company, L.L.C. ×2
- company covered associate of the banc funds company, l.l.c.
- company public pension fund
- agency Securities and Exchange Commission
- company The Banc Funds
- agency the securities and exchange commission
- The Securities and Exchange Commission deems appropriate public administrative and cease-and-desist proceedings be instituted
- The Banc Funds Company, L.L.C. submitted Offer of Settlement
- The Securities and Exchange Commission determined to accept Offer of Settlement
- Covered associate of The Banc Funds Company, L.L.C. made campaign contribution to candidate for Governor of Illinois
- The Banc Funds Company, L.L.C. provided advisory services for compensation public pension fund
--- page 1 --- mission (“Commission”) (“Act”) (“Respondent”) (“ “ or of Settlement (the “Offer”) which the Commission has determined to accept. Sole findings herein, except as to the Commission’s jurisdiction over Desist Order (“Order”), as set forth below. --- page 2 --- on’s “pay play” rule for Illinois Teachers’ Retirement System (“ ”) fund advised by Respondent (the “Funds”). During all relevant times, TRS remained invested in --- page 3 --- of Respondent (the “Covered Associate”) A “covered investment pool” is defined as (i) (“Investment Company Act”) --- page 4 --- year “time out” The Banc Funds’ A willful violation of the securities laws means merely “that the person charged with the duty knows what he is doing.” 174 F.2d 969, 977 (D.C. Cir. 1949)). There is no requirement that the actor “also be aware that he is violating one of the Rules or Acts.” --- page 5 --- Respondent may pay by certified check, bank cashier’s check, or United award of compensatory damages by the amount of any part of Respondent’s payment of a civil y Offset, notify the Commission’ --- page 6 --- ” “
--- page 1 --- mission (“Commission”) (“Act”) (“Respondent”) (“ “ or of Settlement (the “Offer”) which the Commission has determined to accept. Sole findings herein, except as to the Commission’s jurisdiction over Desist Order (“Order”), as set forth below. --- page 2 --- on’s “pay play” rule for Illinois Teachers’ Retirement System (“ ”) fund advised by Respondent (the “Funds”). During all relevant times, TRS remained invested in --- page 3 --- of Respondent (the “Covered Associate”) A “covered investment pool” is defined as (i) (“Investment Company Act”) --- page 4 --- year “time out” The Banc Funds’ A willful violation of the securities laws means merely “that the person charged with the duty knows what he is doing.” 174 F.2d 969, 977 (D.C. Cir. 1949)). There is no requirement that the actor “also be aware that he is violating one of the Rules or Acts.” --- page 5 --- Respondent may pay by certified check, bank cashier’s check, or United award of compensatory damages by the amount of any part of Respondent’s payment of a civil y Offset, notify the Commission’ --- page 6 --- ” “