New Reporting Rules & Restrictions For Interactions with CalPERS and CalSTRS
"Placement Agents" to be Regulated as "Lobbyists" in California
As you may know, beginning January 1, 2011, "placement agents" doing business in California - i.e., individuals who are paid to sell investments or investment services to CalPERS, CalSTRS, or local retirement systems - will be subject to the same public reporting requirements and strict restrictions as state "lobbyists." The California Fair Political Practices Commission ("FPPC"), the agency in charge of interpreting and enforcing the state's lobbying laws, just published a "Fact Sheet" about these new rules for placement agents. Though this FPPC Fact Sheet does not answer questions about how the square peg of investment firms interacting with CalPERS and CalSTRS fits into the round hole of the state's lobbying laws, it does confirm that placement agents - whether they work for an outside consulting firm or in-house at an investment firm - must register before they have any contacts with CalPERS or CalSTRS in 2011. I.e., investment firms doing or seeking to do business with CalPERS and CalSTRS must figure out how to comply with these new rules immediately.
We had hoped that the FPPC would offer some guidance about several outstanding questions. For example, how can investment firm employees determine whether they come within the exception for employees who spend 30 percent or more of their time "managing firm securities or other assets" (as opposed to marketing the firm's products to retirement systems)? Without guidance on this and other questions, investment firms and their counsel will have to make sense of the new law on their own, and will have to figure out whether any of their employees or outside placement agents have registration duties.
Specifically, starting next week, both the individuals who interact with CalPERS and CalSTRS about investment opportunities and their firms will have to register before having any contacts with representatives of these retirement systems, and will thereafter have to file quarterly reports detailing their compensation and lobbying activities. (The first quarterly report will not be due until May 2, 2011.) In addition, under the new law, placement agents will essentially be banned from giving "gifts" to state officials, and their ability to make political contributions will be severely curtailed. Perhaps more importantly, the new law makes it illegal to pay placement agents on a contingency basis; i.e., they can no longer receive commissions when a retirement system invests in one of their firm's funds.
Firms working with local retirement systems in Los Angeles, San Francisco, San Diego, and certain other local jurisdictions in California may also have new reporting requirements and may also face new legal restrictions, pursuant to the new state law. Several cities and counties in California have their own unique lobbying laws; although these local laws may not require placement agents to register before they contact the local retirement system (as the new law requires vis-a-vis CalPERS and CalSTRS), firms need to analyze these local laws as soon as possible in order to make certain that they do not miss a registration deadline or run afoul of a new restriction on their activities.
THIS ALERT IS INTENDED FOR GENERAL INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL ADVICE.