SEC Topples GOP Suit Over Pay-to-Play Rule

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By Antoinette Gartrell

A trio of Republican parties and committees can’t challenge the constitutionality of the Municipal Securities Rulemaking Board’s amendments to its rule restricting political contributions by municipal advisors, a federal appeals court said July 13 ( Tenn. Republican Party v. SEC , 2017 BL 241515, 6th Cir., No. 16-3360/3372, 7/13/17 ).

The GOP groups don’t have standing to bring their claims that the rule--approved by the Securities and Exchange Commission--violates the First Amendment, the U.S. Court of Appeals for the Sixth Circuit said in dismissing the complaints. Declining to reach the merits of the case, Judge Karen Nelson Moore said the Republicans didn’t show they were injured by the rule.

The rule is intended to safeguard the municipal securities markets against pay-to-play practices when state and local governments hire outside financial professionals. However, 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 disappointed that the court declined to address the merits of these unconditional burdens regulatory agencies are imposing on First Amendment Rights,” counsel for the GOP parties, Jason Torchinsky of Holtzman Vogel Josefiak Torchinsky PLLC, Washington, told Bloomberg BNA. “We are evaluating our options to move this forward,” he said.

The SEC declined to comment.

MSRB Rule G-37

Under amended MSRB Rule G-37, effective Aug. 17, municipal advisors can’t do municipal advisory business with government entities for two years after making contributions to officials of those entities who can influence the award of business.

The Republicans contended that the rule forces municipal advisors to choose between their First Amendment right to support candidates and their desire to provide advisory and dealer services. They also argued that Congress didn’t give the SEC or MSRB the power to set the restrictions and that the rule doesn’t meet the U.S. Supreme Court’s “quid pro quo” corruption standard.

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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