The SEC has fined four investment advisors about $300,000 for allegedly being paid investment advisory fees from government entities after making campaign donations to elected officials.

The penalties are part of settlements with the four firms over charges that they "willfully" violated the agency's pay-to-play rules, which prohibit investment advisers from providing compensatory advisory services for two years following a campaign contribution to any official who would be in a position to influence the selection of the firm by a government entity.

The SEC separately charged the Asset Management Group of Bank of Hawaii, Canaan Management LLC, Highland Capital Partners LLC and StarVest Management Inc. for making, or allowing associates to make, prohibited contributions of $350 or more.

All of the firm settled the charges without admitting or denying the SEC's findings and agreed to a cease-and-desist order, a censure and to pay civil money penalties as follows: Asset Management Group of Bank of Hawaii, $45,000; Canaan Management LLC, $95,000; Highland Capital Partners LLC, $95,000; and StarVest Management Inc., $70,000.

"The four investment advisers violated the pay-to-play rule by continuing to receive compensation from government entities within two years after campaign contributions to elected officials or candidates for elected office who had influence over the selection of investment advisers for advisory services for government entities (or who could appoint someone who had such influence)," the SEC said in a press release.

Pay-to-play practices could, for example, “lead a political official to choose an investment adviser with higher fees or inferior investment performance because the adviser contributed funds to the official's election campaign,” the agency said when it issued the rule in 2010.

Commissioner Hester M. Peirce, the lone dissenting vote on the matter, however, said in a statement following the approval of the settlements, that while protecting pension funds is a laudable goal, the rule “is poorly conceived.”

The four enforcement actions “all involve one-time, small-dollar contributions by one or two people, and all the investment advisers had established advisory relationships with the relevant government entities before the contributions occurred,” Peirce said.

Three of the four actions involve closed-end funds investments where “investors were generally prohibited from withdrawing their money for the life of the Funds,” she said.

In the Asset Management Group of the Bank of Hawaii’s case, the associate was not covered by the rule at the time she made the contribution, Peirce noted. But because the rule has a look-back provision, it makes a contribution unlawful if a donor changes job within two years.

“Nowhere do the commission’s orders find that any of the investment advisers solicited new or additional business from any governments at the time of or after the contributions. In sum, the conduct at issue in these cases is far afield from the conduct that gave rise to the rule,” she said.

Peirce called the rule “an exceedingly blunt instrument. It does not require any evidence of an actual quid pro quo, or even evidence that the adviser was seeking a quid pro quo. The commission and the public now have a dozen years of experience with the rule, and it is past time to consider how it might be improved,” she said.