Major state contractor fined $500K for violating SEC rules


A key state contractor has been fined $500,000 by the Securities and Exchange Commission for alleged political contributions to candidates in the governor and attorney generals’ races in 2013 and 2014.

Employees of Houston-based EnCap violated rules that govern donations from financial firms to candidates who, if elected, would play a role in their selection to invest public money.

According to a cease-and-desist order from the SEC, the contributions include $25,000 to a gubernatorial candidate in September 2013 and a total of $60,000 to an attorney general candidate. The offending contributions were made between September 2013 and May 2014, according to the SEC.

EnCap was also named for violating rules in Indiana and Wisconsin.

The size of the contributions triggered a two year “time-out” for work after making the donation. The SEC said EnCap continued to service the accounts and receive advisor fees.

The order does not name which candidates received the money. A September 6, 2013 contribution to Gov. Greg Abbott for $25,000 came from David Miller, CEO of EnCap. Abbott’s opponent, Wendy Davis, shows no EnCap contributions from that period. It was not immediately clear if it was Ken Paxton, one of his opponents, or a combination, who received the other $60,000 in campaign contributions, according to The Texas Monitor’s review of campaign finance records.

The SEC order contends that several state retirement systems, including the University of Texas, the Teachers Retirement System, and the Texas County and District Retirement System, collectively invested $2.27 billion in funds advised by EnCap.

“EnCap is pleased to have reached resolution with the U.S. Securities and Exchange Commission, which puts their inquiry into certain personal campaign contributions behind us,” the company said in a statement.  “This resolution will in no way impact our funds, investments or Limited Partners…”

EnCap spokeswoman Julie Oakes declined to answer questions.

The attorney general and the governor have the power to appoint board members to the agencies who are in charge of hiring investment advisors. Those advisors, in turn, engage with private equity firms such as EnCap.

The connection between the state’s power structure and EnCap goes back to Gov. Rick Perry’s administration, although the firm has steered clear of breaching federal rules until now.

Miller in 2010 gave $25,000 to Perry, and EnCap founder Gary Petersen gave Perry $605,000 between 2003 and 2010, first reported by Mother Jones in 2011.

The SEC passed a new rule in 2010, clamping down on what it called “pay to play” in the relationships between public officials and investment professionals.

SEC Chairman Mary Schapiro said then that “the selection of investment advisers to manage public plans should be based on the best interests of the plans and their beneficiaries, not kickbacks and favors.”

She added that “pay to play can also favor large advisers over smaller competitors, reward political connections rather than management skill, and — as a number of recent enforcement cases have shown — pave the way to outright fraud and corruption.”

“This is unfortunately real common,” said Chris Tobe, a former Kentucky Retirement Systems trustee and author of the book Public Pensions, Secret Investments. “Most of these donations, though, are underground because of Citizens United. This is the tip of the iceberg.”

He said the detection of the contributions was probably “something they accidentally let into the light.”

Gov. Abbott’s office did not respond to an email seeking comment.

The SEC pay-to-play investigation in Texas was part of a sweep of political contributions in six states including California, Rhode Island and Illinois. Private equity firm Oaktree Capital Management was fined $100,000 for similar violations.

Steve Miller can be reached at [email protected].



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