SEC fines Sofinnova Ventures for pay-to-play violations

  • Why is this important: SEC is enforcing pay-to-play regulations
  • TRS Illinois committed to 2 Sofinnova funds
  • Sofinnova associate made campaign contribution to Rauner

The SEC ordered Sofinnova Ventures to pay a $120,000 penalty for violating pay-to-play laws, which prohibit investment advisers from providing paid services to government entities within two years of making contributions to elected officials or candidates who can influence the selection of investment advisers.

Sofinnova offered a settlement, which the SEC accepted, the order says. The venture firm did not admit or deny wrongdoing. It didn’t immediately return a call for comment.

Teachers’ Retirement System of the State of Illinois committed $40 million to Sofinnova Ventures Partners VIII in 2011 and $50 million to Sofinnova Ventures Partners IX in 2014, according to the SEC’s order.

In April 2014, a covered associate of Sofinnova made a $2,500 campaign contribution to then-gubernatorial candidate Bruce Rauner in Illinois.

Covered associates can include general partners or their equivalent; an employee who solicits a government entity for the investment adviser; or any political action committee controlled by the investment adviser, the complaint says.

Some time after the contribution was made, the covered associate sought and obtained the return of the contribution.

The SEC order does not name the candidate but notes that the official was inaugurated as governor in January 2015. It also does not name the covered associate who made the contribution.

Sofinnova Ventures, founded in 1974 and investing in biopharma companies, has about $1.7 billion under management the website says.

The firm has offices in Menlo Park and La Jolla, California, and is led by James Healy, Mike Powell and Anand Mehra.

The retirement system’s fund totaled $49.2 billion as of June 30, 2017, its most recent fiscal year report available shows. Private equity accounted for $6.4 billion, or 13.2 percent, of the total.

Under the Investment Advisers Act of 1940, the $2,500 contribution triggered a two-year “time  out” for Sofinnova to provide advisory services to TRS. But for eight months following the contribution, the venture firm continued to provide those services to the funds and received compensation, according to the order.

The governor of Illinois appoints six members of the board of the retirement system, which in turn has influence over the system’s investments and advisers, according to the order.

The law does not require proof of quid pro quo or actual intent to influence an elected official or candidate.

Action Item: Read the complaint at