Watchdog Asks SEC to Investigate State Financial Officers Foundation for Possible Illegal Pay-to-Play Activities
FOR IMMEDIATE RELEASE: August 30, 2024
Contact: Michael Clauw, mclauw@campaignforaccountability.org, 202.780.5750
WASHINGTON, D.C. – This week, Campaign for Accountability (CfA), a non-profit watchdog group, asked Securities and Exchange Commission (SEC) Chairman Gary Gensler to investigate whether donations to the State Financial Officers Foundation (SFOF) have violated the agency’s pay-to-play prohibition on political contributions by certain investment advisers.
SFOF, a nonprofit organization whose leadership team is composed entirely of Republican state financial officials, is dedicated, in part, “to pushing back against radical ESG”—a set of investment principles that weigh a company’s societal and environmental impact. SFOF financial officers—empowered with the decision to invest in or withhold public dollars from financial institutions—appear to have given special treatment to companies that have donated to SFOF. Beginning in 2017, South Carolina Treasurer and SFOF member Curtis Loftis began divesting state portfolios from BlackRock because of, he said, its “increasing focus on promoting progressive Environmental, Social and Governance (ESG) factors as part of its investment strategies.” He moved the state’s funds to Federated Hermes which, like BlackRock, offers and touts its ESG funds. A notable difference: unlike BlackRock, Federated was a top donor to SFOF.
SEC regulations on political contributions prohibit registered investment advisors from providing or agreeing to provide, directly or indirectly, payment to any person to solicit a government entity for investment advisory services. It is also unlawful to do anything “indirectly which, if done directly,” would violate the political contribution rule.
SFOF’s relationship with investment advisory group Public Trust Advisors (PTA) also raises questions. PTA, one of SFOF’s top sponsors, does significant business with states that have officers involved with SFOF. Notably, following SFOF’s anti-ESG push, Texas banned ESG supportive businesses from doing business with the state as of September 1, 2021. PTA reaped the benefit, with its Texas Cooperative Limited Assets Securities Systems Trust reporting the addition of 80 new participants in 2023.
A report by the Texas Association of Business, which counts ExxonMobil, Chevron, and Conoco Phillips among its members, found that Texas’s anti-ESG laws cost the state about $669 million in lost economic activity during fiscal year 2022-2023, along with $181 million in decreased annual earnings, 3,034 fewer full-time jobs, and more than $37 million in tax revenues.
CfA Executive Director Michelle Kuppersmith said, “Pay-to-play rules ensure that public money managers make choices in the best interest of their constituents, often state employee pension funds—not their political benefactors. If the SEC finds that SFOF and its donors are running afoul of political contribution rules, it shouldn’t hesitate to impose all appropriate penalties.”
Campaign for Accountability is a nonpartisan, nonprofit watchdog organization that uses research, litigation, and aggressive communications to expose misconduct and malfeasance in public life and hold those who act at the expense of the public good accountable for their actions.