On April 15, 2024, the SEC agreed to settle charges against Wayzata Investment Partners (“WIP”), a Minnesota-based private equity firm specializing in special situations, for violations of the Advisers Act Rule 206(4)-5 (the “Pay-to-Play” rule) beginning in 2022. WIP agreed to a $60,000 fine and to cease and desist from committing or causing violation of Rule 206(4)-5.
Key Takeaway
The timing does not seem coincidental. It’s a Presidential election year when more people become more politically active, both nationally and locally. It is not always clear what state and local government officials are responsible for investment activity. Therefore, it is important to remind covered associates under the rule of the firm’s requirements under the Pay-to-Play rule to avoid future consequences.
Summary
The facts, as set forth by the SEC, are pretty straightforward. WIP is a registered investment adviser to two separate closed-end funds, Wayzata Opportunity Fund II, L.P. and Wayzata Opportunity Fund III, L.P. (the “Funds”). The Funds qualified as “covered investment pools,” as defined in Rule 206(4)-5. Between 2007 and 2013, the Minnesota State Board of Investments committed to invest approximately $300 million in the Funds.
On April 4, 2022, a covered associate of WIP made a $4,000 campaign contribution to a government official in Minnesota. The office of the government official had influence over investments by the Minnesota State Board of Investments and the selection of investment advisers and pooled investment vehicles. WIP received compensation for the advisory services rendered to the Funds in the form of advisory fees and carried interest in the two years following the covered associate’s contribution.
Violations
As a result of the above, the SEC charged WIP with violation of Section 206(4) Advisers Act and Rule 206(4)-5 which makes it unlawful for an adviser to provide advisory services for compensation to a government entity within two years after a contribution to an official of the government entity is made by the investment adviser or any covered associate of the adviser.
How Trillium Can HelpTraining, Testing and Surveillance
A key component of Trillium’s ongoing compliance support is reviewing your firm’s practices in key risk areas against policies and procedures. Every client receives annual compliance training tailored to key areas of the firm’s compliance program and Code of Ethics with a special focus on current and upcoming areas of risk.