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Friday, September 16, 2022
SEC Fines Bank of Hawaii in ‘Pay to Play’ Scheme
By Andrew Walden @ 11:10 PM :: 1584 Views :: Ethics, Higher Education

by Andrew Walden

A Bank of Hawaii officer oversaw major UH investment management contracts after dropping a $1000 contribution into Governor David Ige’s 2018 reelection campaign.  This is normal in Hawaii but is illegal under federal law.  The SEC is fining BoH $45,000 for the violation.   

The following is from an SEC Administrative proceeding dated September 15, 2022:

The Securities and Exchange Commission deems it appropriate and in the public interest that public administrative and cease-and-desist proceedings be, and hereby are, instituted pursuant to Sections 203(e) and 203(k) of the Investment Advisers Act of 1940 against Asset Management Group of Bank of Hawaii….

On the basis of this Order and Respondent’s Offer, the Commission finds1 that:

1. These proceedings involve violations of the Commission’s “pay-to-play” rule for investment advisers by Respondent Asset Management Group, an investment adviser. Rule 206(4)-5, promulgated under Section 206(4) of the Advisers Act, is a prophylactic rule designed to address pay-to-play abuses involving campaign contributions made by certain investment advisers or their covered associates to government officials who are in a position to influence the selection of investment advisers to manage government client assets, including the assets of public pension funds and other public entities. Among other things, Rule 206(4)-5 prohibits certain investment advisers from providing investment advisory services for compensation to a government client for two years after the adviser or certain of its executives or employees (known as covered associates) makes a campaign contribution to certain elected officials or candidates who can influence the selection of certain investment advisers.

2. In July 2018, an officer of the Bank of Hawaii made a campaign contribution to an incumbent for elected office in Hawaii, which office had influence over selecting investment advisers for a state university in Hawaii. Within three months of that contribution, the officer became an indirect supervisor of Respondent’s solicitors of investment advisory services and, accordingly, became a covered associate of Respondent. Within two years after this contribution, Respondent provided advisory services for compensation to the state university. By providing these advisory services for compensation within two years after the contribution, Respondent violated Section 206(4) of the Advisers Act and Rule 206(4)-5 thereunder….

5. Since 2007, Asset Management Group has provided investment advisory services to various investment accounts maintained by the University of Hawaii. The University of Hawaii is governed by the Regents of the University of Hawaii (“Regents”).

6. On July 26, 2018, an officer of the Bank of Hawaii made a $1,000 campaign contribution to the Governor of Hawaii.  Between September 2018 and October 2019, this officer was the head of the Bank of Hawaii’s consumer banking segment, which oversaw Asset Management Group. As the head of this segment, this officer indirectly supervised Asset Management Group’s solicitors of investment advisory services. Therefore, this officer was a covered associate of Asset Management Group between September 2018 and October 2019, when this officer supervised employees who solicited advisory business for Asset Management Group. The officer’s contribution triggered the “look back” provision of the Rule. Specifically, under Rule 206(4)-5(b)(2), contributions made six months (or two years if the covered associate solicited advisory business) before a person becomes a covered associate are covered by Rule 206(4)-5.

7. The office of Governor of Hawaii had the ability to influence the selection of investment advisers for the University of Hawaii. Specifically, the Governor of Hawaii appoints all 11 members of the Regent’s board, which has influence over selecting investment advisers for the University of Hawaii.

8. During the 21 months after the officer became a covered associate, Respondent continued to provide investment advisory services for compensation to the University of Hawaii. Asset Management Group was prohibited from receiving advisory fees from the Regents for 21 months after the officer became a covered associate in September 2018.

9. Advisers Act Rule 206(4)-5(a)(1) prohibits any investment adviser registered with the Commission, investment adviser required to be registered with the Commission, foreign private adviser, or exempt reporting adviser from providing investment advisory services for compensation to a government entity within two years after a contribution to an official of a government entity made by the investment adviser or any covered associate of the investment adviser. Advisers Act Rule 206(4)-5 does not require a showing of quid pro quo or actual intent to influence an elected official or candidate….

Respondent Asset Management Group shall, within 10 days of the entry of this Order, pay a civil money penalty in the amount of $45,000 to the Securities and Exchange Commission….

read … CEASE AND-DESIST ORDER 

Link: ASSET MANAGEMENT GROUP OF BANK OF HAWAII

CW: SEC fines four in pay-to-play enforcement sweep

L360: SEC Fines 4 Firms Over Alleged Pay-To-Play Violations

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