BlackRock 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.
Mr. Wiedman inadvertently triggered anti-corruption measures that the 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. "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 Mr. Pence joining forces with Mr. Trump, four state governors sought the Republican presidential nomination during the primaries: Mr. Kasich, Scott Walker of Wisconsin, Chris Christie of New Jersey and Bobby Jindal of Louisiana.
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. 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.
"The contribution in question was made solely in support of Mr. Kasich's presidential campaign and for no other purpose," Tara McDonnell, a BlackRock spokeswoman, said in a statement Monday. "Through BlackRock's robust policies and procedures, we discovered the contribution in question, and both BlackRock and Mr. Wiedman worked together to promptly address the error, including obtaining a refund of the $2,700 contribution."
Mr. Wiedman made the personal donation on Jan. 15, 2016, while attending a luncheon fundraiser for Mr. Kasich at the invitation of a business acquaintance who was also an independent director of a BlackRock fund, according to BlackRock's application. Mr. Wiedman had never met Mr. Kasich prior to the lunch, the firm said, adding that the iShares executive has never solicited government entities for investment advisory business covered by the rule.
Mr. Wiedman is subject to the rule because he's a member of BlackRock's global executive committee, according to the firm's request for an exemption. A call to Mr. Wiedman's office was referred to BlackRock's media relations staff. He didn't report the donation under the company's compliance program because he wasn't aware that the contribution was subject to the restrictions, according to the filing.
Many people don't realize that the rule extends to state and local officials who run for federal office, including the U.S. presidency, as well as those who campaign for elections within their state, said Samuel Brown, a senior counsel at Allen & Overy who focuses on political law.