Republicans Petition SEC to End Pay-to-Play Rule

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By Rob Tricchinelli

Jan. 7 — Thwarted in their legal challenge, the Republican parties from Tennessee and New York State are instead petitioning the Securities and Exchange Commission to repeal its pay-to-play rule.

The rule is “unconstitutional and unlawful” because it “limits the ability of investment advisers to make otherwise lawful political contributions,” the petition for rulemaking said.

The groups had challenged the rule in federal court, but the suit was tossed by the U.S. Court of Appeals for the District of Columbia Circuit in August because the groups waited too long to file (165 SLD, 8/26/15). Under federal statute, the challenge had to be brought within 60 days of the rule's adoption, but the New York Republican State Committee and Tennessee Republican Party waited roughly four years.

“We believe this petition is the next logical step to take on the matter,” Brent Leatherwood, executive director of the Tennessee Republican Party, told Bloomberg BNA Dec. 7. “The SEC's rule has long prohibited a particular set of Americans from fully exercising their rights. That's wrong.”


The rule prevents an investment adviser from managing state assets for two years if the firm, or certain executives, donate campaign money to state officials who make decisions regarding what companies are used to invest state money.

The rule also prohibits advisers from bundling money from other donors to give to those state officials. It was adopted in July 2010 (125 SLD, 7/1/10).

In their challenge, the Republicans argued that the SEC couldn't regulate political contributions because Congress has exclusive authority to do so. They also claimed the agency violated its statutory authority and that the rule ran afoul of the First Amendment.

Their Dec. 4 petition to the SEC raises similar issues.

“Citizens should be able to fully participate in the 2016 campaign free from a haphazard government mandate,” Leatherwood told Bloomberg BNA.

The SEC declined to comment on the petition. The Financial Industry Regulatory Authority proposed a similar rule in December for member firms, and the Municipal Securities Rulemaking Board has proposed rule changes for municipal advisers (248 SLD, 12/29/15)

‘Thinly Veiled.'

“The GOP's relentless efforts to overturn ‘pay-to-play' protections are nothing more than a thinly veiled effort to help their candidates raise Wall Street money,” Letitia James, the public advocate for the City of New York, told Bloomberg BNA Dec. 7 through a spokeswoman.

“The Republicans' efforts jeopardize the integrity of our public pension system. Instead of playing politics with people's pensions, we should be strengthening campaign finance reform,” James said. The public advocate's office had filed a friend-of-the-court brief asking the court to uphold the SEC rule as part of the Republicans' legal challenge.

The New York and Tennessee Republicans are represented by Bancroft PLLC in Washington and Holtzman Vogel Josefiak Torchinsky PLLC in Warrenton, Va.

To contact the reporter on this story: Rob Tricchinelli in Washington at

To contact the editor responsible for this story: Phyllis Diamond at

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