WASHINGTON -- The Securities and Exchange Commission voted unanimously yesterday to repropose pay-to-play restrictions on investment advisers for states and localities.

The proposal, which will be subject to a 60-day public comment period upon publication in the Federal Register, is revised from a plan the SEC floated in August 1999 under former chairman Arthur Levitt, who made municipal market reforms a priority during his years at the commission. The 1999 changes were proposed but never finalized, partly in response to Congressional opposition to them.

But SEC commissioners said yesterday that pay-to-play restrictions for investment advisers are needed now more than ever. The current proposal comes amid several ongoing investigations into such practices, including in New York, where Attorney General Andrew Cuomo and the SEC are investigating a massive pay-to-play scheme involving that state's largest pension fund and the actions of certain private equity firms involved in fundraising. The investigations there have led to enforcement actions against individuals and firms and spread to other states.

"In the 10 years since [the SEC first proposed this rule], we have seen a number of criminal and regulatory actions that suggest the need to act to finally address these practices," said SEC chairman Mary Schapiro. "In the end, the selection of investment advisers to manage public plans should be based on merit and the best interests of the plans and their beneficiaries, not the payment of kickbacks or political favors."

Under the proposal, investment advisers in the $2.3 trillion industry would be prohibited from providing advisory services for compensation to a government for two years after the adviser or any of its partners or executive officers made a contribution to certain elected officials or candidates who can influence the hiring of advisers to manage public funds.

The funds are invested in a variety of programs, including public pension plans that pay retirement benefits to government employees, retirement plans in which teachers and other government employees can invest, and plans that allow families to invest money for college, known as 529 saving plans, the SEC said.

The rule would apply to contributions made to political incumbents as well as candidates for a position that can influence the selection of an adviser. The restrictions would also apply to state or local officials seeking federal office, who could still influence the award of business in their state or locality.

However, an executive or employee of the adviser could make contributions of up to $250 per election per candidate if the contributor is able to vote for the candidate.

The proposal is modeled on the Municipal Securities Rulemaking Board's Rule G-37, which bans dealers from engaging in negotiated municipal securities business with an issuer for two years if it or its municipal finance professionals, or MFPs, make significant political contributions to issuer officials who influence the awarding of bond business. MFPs, however, can contribute up to $250 to any issuer official for whom they can vote.

The SEC's contribution limits would apply to firms required to register with the commission under the Investment Advisers Act of 1940 as well as to some advisers exempted from the act that have fewer than 15 clients and typically advise hedge funds.

As with G-37, the proposed SEC rule would prohibit an adviser from circumventing the restrictions by directing or funding contributions through third parties.

The SEC updated the proposal from the 1999 plan to reflect the MSRB's 2005 overhaul of its Rule G-38, which completely bans the use of outside consultants to obtain muni business. Similarly, the SEC proposal would prohibit an adviser, its executives and key employees from paying a third party, such as a finder or placement agent, to solicit a government client on behalf of the investment adviser.

Generally speaking, advisers directly regulated by the SEC under the act must have assets under management of more than $30 million. Firms managing $25 million or less in assets are regulated by the states, while firms with between $25 million and $30 million of assets can elect either state or SEC oversight.

Speaking to reporters after yesterday's meeting, SEC staff said that they are aware of loopholes in G-37, among them the reported practice of making charitable contributions in lieu of political ones. They said that they would seek comment on such practices.