The Securities and Exchange Commission on Wednesday proposed a rule to prohibit "pay-to-play" practices among investment advisers to public pension funds.

The proposal, intended to curb the use of political campaign contributions to win pension fund management business, would apply to thousands of investment advisers with more than $25 million of assets under management, as well as hedge funds, venture capital funds, and other private investment companies.

The SEC will consider final adoption of the proposal after a 75-day public comment period. It would be an anti-fraud rule under the Investment Advisers Act.

The SEC's proposal is "part of the commission's ongoing efforts to rid the market of pay-to-play," said Robert E. Plaze, an associate director with the SEC's division of investment management, in a conference call with reporters.

Mr. Plaze said that the SEC, which has been looking into the area for roughly two years, has found abuses in at least 17 states. The SEC decided to address the issue through rulemaking last fall, he said.

Several large banks are active in managing public pension fund assets. Though banks are not required to register as investment advisers, some have chosen to register for competitive reasons. That "creates the possibility of an uneven playing field," because banks that do not register are not regulated by the SEC, said John M. Baker, a lawyer who represents investment advisers.

Mr. Baker, a partner in the Washington office of Stradley Ronon Stevens & Young, added that he would not be surprised to see the rule "cut back" because it attempts to regulate hedge funds in the same way that investment advisers are regulated, even though hedge funds are now subject only to anti-fraud provisions.

The SEC's proposal prohibits a registered investment adviser or any of its partners, executive officers, or those who solicit business for the firm from receiving compensation for managing public funds for two years after contributing to the campaigns of state and local officials or candidates "who are able to influence the selection of the adviser."

The rule would also prohibit contributions made by the adviser indirectly, such as through other employees, consultants, control persons, or family members.

The proposed rule is similar to one approved in 1994 that prohibits municipal bond dealers and brokers from such practices.

But unlike Rule G-37, the SEC would not impose a flat ban on investment advisers doing business with a government client. Instead, it would give investment advisers time to hand over their duties to another firm, Mr. Plaze said.

The SEC's proposal would also require registered advisers with government clients to keep records of their political contributions, though it would not impose a reporting requirement.

Contributions of $250 or less per election would be exempt. The SEC would also exempt advisers from the two-year waiting period, on a case-by- base basis, "if the exemption is consistent with the rule's purposes."

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