- EnCap to pay $500k civil penalty
- Contributions directed to officials who could influence investment decisions
- Firm did not admit or deny wrongdoing
EnCap Investments instituted a policy banning all political contributions by its employees going forward, according to a person with knowledge of the firm.
The ban comes as EnCap this month settled SEC charges that it violated federal pay-to-play rules. Such rules prohibit investment advisers from providing paid services to government entities within two years of contributing to elected officials or candidates who can influence the selection of investment advisers.
EnCap did not admit or deny wrongdoing. The SEC censured EnCap and ordered the firm to pay a $500,000 civil penalty. Buyouts previously wrote about EnCap’s potential SEC settlement.
“EnCap is pleased to have reached resolution with the SEC, which puts their inquiry into certain personal campaign contributions behind us,” EnCap said in a statement.
“Over 30 years, EnCap has been committed to upholding the highest standards of conduct in our dealings with all of our partners. This core tenet remains intact.
“This resolution will in no way impact our funds, investments or limited partners and we look forward to continuing our focus on being the leading provider of venture capital to independent oil and gas companies and generating attractive returns for our investors.”
According to the SEC order, in 2012 and 2013, an employee or employees with EnCap contributed to a candidate for the governor of Texas, a candidate for Texas attorney general, the state treasurer of Indiana and the governor of Wisconsin, the SEC said.
Between 2004 and 2015, Teacher Retirement System of Texas, Texas Tech University System, University of Texas System, Texas County and District Retirement System, University of Houston System and Texas School Land Board committed a total of $2.27 billion across various EnCap funds.
Between 2011 and 2015, State of Wisconsin Investment Board committed $212.5 million across six EnCap funds, and between May 2009 and April 2015, Indiana Public Retirement System committed $363 million across 12 EnCap funds, SEC said.
The issues arose from the influence each of the political roles has in potentially influencing investment decisions, SEC explained.
The Texas governor appoints or nominates at least one member of the boards of each Texas system, subject to Texas senate approval. The Texas attorney general nominates one member of the Texas School Land Board.
The Indiana treasurer serves as a member of the Indiana PRS, while the governor of Wisconsin can appoint several members of the board of trustees of SWIB.
SEC also recently charged Sofinnova Ventures with violating pay-to-play rules.
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 “timeout” 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.
Kaitlyn Landgraf Bartley contributed to this article.
Action Item: Read the complaint at https://bit.ly/2Nfs8fI