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From Securities Regulation Daily, August 25, 2015

Challenge to SEC’s pay-to-play rule properly dismissed, review petition time-barred

By Amy Leisinger, J.D.

A D.C. Circuit panel has affirmed a district court’s decision to dismiss a challenge to the SEC’s “pay-to-play” political contribution rule and dismissed a direct petition for review as time-barred. According to the panel, courts of appeals have exclusive jurisdiction to hear challenges to rules adopted under the Investment Advisers Act, and the district court properly dismissed the suit for lack of subject-matter jurisdiction. Further, the court stated, a challenge to a rule must be brought within 60 days of promulgation, and, as the law governing where and when to file a request for pre-enforcement review was clear, the petition for review must be dismissed (New York Republican State Committee v. SEC, August 25, 2015, Pillard, C.).

Background. In 2010, the Commission promulgated the political contribution rule to limit investment advisers’ campaign contributions to certain government officials. Specifically, the rule limits the ability of advisers and certain of their officers and employees to make financial contributions that are otherwise permitted under federal law to candidates for political office if those advisers may, within the following two years, compete for business from a state agency over which the candidate may hold influence.

In 2014, Republican organizations from New York and Tennessee filed a complaint in the District of Columbia district court alleging that the SEC promulgated the rule in excess of its statutory authority, arbitrarily and capriciously, and in violation of the First Amendment. According to the complaint, the rule also conflicts with Congress’ express directive that federal campaign finance be exclusively governed through the Federal Election Campaign Act by the Federal Election Commission. As such, the plaintiffs asked the court to declare that the SEC’s conduct in adopting the rule was unlawful and to enjoin enforcement of the rule.

The district court dismissed the suit for lack of subject-matter jurisdiction, finding that, under Advisers Act Section 213, judicial review of the challenged rule lies exclusively in the Court of Appeals. The plaintiffs appealed the decision and filed a parallel petition for direct review by the D.C. Circuit.

Dismissal affirmed. The panel noted that Section 213 provides that persons aggrieved by an SEC order may obtain a review of the order exclusively in an appropriate court of appeals within 60 days. While the provision does not expressly address review of SEC rules, the court continued, binding precedent in the D.C. Circuit indicates that the term “order” in the statute encompasses an SEC rule. The district court was correct in rejecting plaintiffs’ contention that the review provision applies only to Commission orders, as “[f]or nearly four decades, it has been blackletter administrative law that, absent countervailing indicia of congressional intent, statutory provisions for direct review of orders encompass challenges to rules,” the court stated. According to the panel, the plaintiffs’ claim of filing under the Administrative Procedure Act and its longer state of limitations for agency reviews was also without merit, given that Section 213’s review provision covers the action.

Review petition denied. In their petition for direct review, the plaintiffs contended that the 60-day deadline in Section 213 should not apply because the law governing where and when to file was unclear. The plaintiffs filed their petition for review four years after the rule went into effect, the court stated, and they do not provide a valid reason to excuse the late filing. Circuit precedent provides precise instructions about the process: “[i]f any doubt as to the proper forum exists, careful counsel should file suit in both the court of appeals and the district court or . . . bring suit only in the court of appeals,” the court explained. Rejecting the plaintiffs’ fairness contentions and arguments that the constitutionality of the 60-day deadline is doubtful enough to demand an exception, the panel concluded that the petition for review was time-barred.

The case is No. 14-1194.

Attorneys: H. Christopher Bartolomucci (Bancroft PLLC) and Jason Brett Torchinsky (HoltzmanVogelJosefiak PLLC) for New York Republican State Committee and Tennessee Republican Party. Jeffrey Alan Berger for the SEC.

Companies: New York Republican State Committee; Tennessee Republican Party

MainStory: TopStory InvestmentAdvisers DistrictofColumbiaNews

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