BlackRock Inc. faces a ban on collecting about $37 million in fees from Ohio public-sector clients after discovering that one of its top executives ran afoul of pay-to-play rules during last year's presidential campaign.
Mark Wiedman, the head of BlackRock's iShares unit, donated $2,700 to John Kasich in January 2016 during a fundraiser for the Ohio governor's campaign to become the Republican presidential nominee, according to a regulatory filing.
Wiedman inadvertently triggered anti-corruption measures that the U.S. Securities and Exchange Commission adopted in 2010 after scandals involving money manager contributions to state officials, the firm said. The pay-to-play rules affected the 2016 presidential campaign because five sitting governors participated, including Mike Pence of Indiana, Donald Trump's running mate in the general election.
"That affected the ability of financial institutions to make contributions to Trump," said Brett Kappel, a partner who specializes in political law in the Washington office of Akerman LLP. "Most financial institutions have adopted a very sweeping policy against making contributions to candidates that might conceivably run afoul of pay-to-play rules."
In addition to Pence joining forces with Trump, four state governors sought the Republican presidential nomination during the primaries: Kasich, Scott Walker of Wisconsin, Chris Christie of New Jersey and Bobby Jindal of Louisiana.
Two Years
The rules cover money managers that provide investment advisory services to state or local government entities, such as a hedge fund that gets an investment from a public pension plan. If the firm or certain executives make a political contribution to an official associated with that entity, then the money manager can't accept compensation from the client, including management fees, for two years from the date of the donation.
The SEC permits firms to seek a waiver from the two-year ban if they can show they had the necessary compliance program in place when the violation occurred and that any donation was inadvertent and not part of an effort to win business from a state or local government entity. New York-based BlackRock filed such a request in May, according to a copy of the document available on the SEC website.
Absent an exemption, BlackRock will incur a "financial loss" of about $37 million from serving without compensation for two years, according to the document. That may includes fees charged on BlackRock mutual funds that are offered to Ohio public workers through self-directed pension plans.
