Pershing Square Capital Management, the hedge fund firm run by billionaire William Ackman, wants to be exempted from possibly having to return millions of dollars in fees after a former employee donated $500 to a family friend’s political campaign.

In an application made public on Tuesday, Pershing Square detailed the 2013 contribution by a former analyst and asked the U.S. Securities Exchange Commission (SEC) not to force it to return fees it earned from managing money for the Massachusetts state pension fund, should it be determined that the fund violated campaign finance rules.

The matter represents another possible problem for one of the world’s most closely watched hedge funds, at a time when it is suffering double-digit losses for the second straight year and investors may be looking for reasons to exit.

At issue is a contribution Paul Hilal made when he was a Pershing Square analyst to the campaign of Juliette Kayyem, a Harvard lecturer and security expert, who was trying to mount a run for governor in Massachusetts. Hilal was asked by Kayyem’s sister to contribute $500. That is in excess of the $150 people are allowed to give to candidates they cannot vote for. Hilal declined to comment.

Kayyem did not gain enough votes to make it onto the ballot in 2014. The state’s governor is able to appoint members of the state pension fund’s board who could vote on which firms should manage the fund’s money.

 

Regulators have recently paid more attention to deals that investment firms have made with pension funds in order to try and steer business their way.

Pershing Square sent its application to the SEC in September, months after the regulator in May asked for information about campaign donations. It is unclear precisely how much in fees is at stake, but based on how much the New York-based firm manages for the state, it could be in the millions. If the firm were forced to pay back any fees, they would go to the SEC, not the pension fund.

“Causing (Pershing Square Capital Management) to forfeit compensation for the two-year period subsequent to the contribution could result in a financial loss that is thousands of times the amount of the contribution,” the firm wrote to the SEC in asking for the exemption.

In a statement on Tuesday, Pershing Square called the improper donation “an unintended violation,” and said it takes compliance very seriously.

The SEC declined to comment.

“A former employee made a $500 campaign contribution to his friend’s sister’s unsuccessful primary campaign in an unintended violation of our compliance policies,” Pershing said in its statement. “The donation was $350 in excess of the allowable contribution. The donation has since been returned.”

The firm said that it does not appear that Hilal ever communicated with the state pension fund or its representatives. It also wrote that the former analyst was not a “‘covered associate’ within the meaning of the Rule, as his activities did not rise to the level of soliciting investments.” The fund also said he never met or spoke with the potential candidate.

The firm is now prohibiting all donations to local and state races and requiring employees to certify contributions four times a year instead of once a year.

Pershing Square is one of 28 hedge funds that manage money for Massachusetts’ $63.2 billion state pension fund and started investing on the state’s behalf in 2011.

Neither the fund nor the state would say exactly how much Pershing Square invests for Massachusetts, having been approved for an initial investment of $25 million five years ago.

Hedge funds typically charge their clients a 2% management fee and then take 20% of the profits they earn for the client. While Pershing Square’s flagship fund is nursing a 12% loss this year, it remains one of the industry’s most profitable hedge funds, having scored a 37% gain in 2014.