SEC, Republicans to Debate Muni Market Pay-to-Play Rule

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By Antoinette Gartrell

The SEC is about to face off against Tennessee and Georgia state Republicans in a lawsuit over the constitutionality of a rule restricting political payments by municipal advisors ( Georgia Republican Party v. SEC, 6th Cir., No. 16-03732, 5/4/17 ; Tennessee Republican Party v. SEC, 6th Cir., No. 16-03360, 5/4/17 ).

The rule, intended to safeguard the municipal securities markets against pay-to-play practices when state and local governments hire outside financial professionals, violates the First Amendment, the Republican parties claimed. The U.S. Court of Appeals for the Sixth Circuit will hear oral argument in the case May 4.

The outcome of the suit could affect a broader swath of the SEC-regulated community—broker-dealers and investment advisers are subject to similar pay-to-play restrictions.

“We are looking forward to explaining our position to the court, and looking forward to the decision,” Jason Torchinsky of Holtzman Vogel Josefiak Torchinsky PLLC, Warrenton, Va., who represents the state Republicans, told Bloomberg BNA May 2 in an email conversation. The Securities and Exchange Commission declined to comment.

Under the rule, municipal advisors are barred for two years from doing business with government entities if they made contributions to officials of those entities who can influence the award of business.

Constitutional Controversy

According to the Republicans, the rule forces municipal advisors to choose between their First Amendment right to support candidates and their provision of advisory and dealer services.

The Republicans also argued that Congress didn’t grant the SEC and the MSRB power to set the restrictions and that the regulators didn’t show they had a legally sufficient interest in restricting political contributions.

“The court has several ways to find for us,” Torchinsky said.

The Republicans are represented by Jason Torchinsky of Holtzman Vogel Josefiak Torchinsky PLLC, Warrenton, Va. and H. Christopher Bartolomucci and Edmund LaCour, Jr. of Kirkland & Ellis LLP, Washington.

To contact the reporter on this story: Antoinette Gartrell in Washington at

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

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