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From Securities Regulation Daily, July 13, 2017

State GOP groups lack standing to challenge MSRB pay-to-play rule

By Amanda Maine, J.D.

A panel of the Sixth Circuit Court of Appeals rejected a challenge to the Municipal Securities Rulemaking Board’s rule that limits the campaign activities of persons who advise city and state governments on issuing municipal securities for lack of standing. The Tennessee, Georgia, and New York Republican parties were unable to establish that the rule caused an injury in fact. The court also explained that the parties conflated the provisions of the Board’s longstanding pay-to-play rule and the amendments to the rule implemented as part of the Dodd-Frank Act (Tennessee Republican Party v. SEC, July 13, 2017, Moore, K.).

Rule G-37. MSRB Rule G-37 was drafted by the Board and approved by the SEC in 1994. The rule generally prohibits brokers, dealers, municipal securities dealers, and municipal finance professionals (MFPs) from engaging in municipal securities business with an issuer within two years after a political contribution to an official of that municipal securities issuer, as well as prohibiting the solicitation of other persons for contributions for payments. MFPs are allowed to contribute up to $250 per election.

The Dodd-Frank Act expanded the MSRB’s regulatory authority beyond brokers and dealers to those acting in advisory functions, including municipal advisors and municipal advisory third-party solicitors. The amended Rule G-37, which was approved by the SEC in February 2016, also kept the $250 contribution limit for MFPs, as well as adding the category of municipal advisor professionals (MAPs) to those who may contribute up to $250 per election.

GOP challenge. The Tennessee Republican Party, the Georgia Republican Party, and the New York Republican State Committee filed petitions for review of the amended pay-to-play rule, claiming that it limits the ability of municipal securities dealers and advisors to make political contributions.

Lack of standing. The panel found that there was no reason to address the substantive claims of the petitioners due to their lack of standing to challenge the MSRB’s rule. The panel observed that the petitioners had identified one person—an associate of a registered investment adviser—who they said would be affected by the rule because, as stated in his affidavit, he would contribute more than $250 to a covered official in a future election. However, the panel noted that it was unclear if the associate would have been constrained by the original rule, or the rule as amended in 2016, and pointed out that the petitioners did not challenge Rule G-37 as a whole. It was therefore unclear from the associate’s affidavit if he was injured by the 2016 amendments, the panel concluded.

This conflation of the original and amended rule also doomed the petitioners’ standing arguments in both individual and organizational capacities. Affidavits submitted to the court from the parties’ executive directors only demonstrate ambiguity as to whether the rule harms the political parties because brokers and dealers are not contributing and soliciting, or whether it harms the parties because municipal advisors and MAPs are not contributing or soliciting.

The petitioners likewise were unable to establish organizational standing, which requires making specific allegations that at least one identified member of the organization had suffered or would suffer harm. The Georgia Republican Party failed to identify any of its party members affected by the 2016 amendments, the panel noted. The arguments of the Tennessee and New York Republican parties regarding organizational standing also suffered from the conflation of the original and amended rule, according to the panel. The petitioners needed to show that the 2016 amendments in particular hindered its candidates, which they failed to do, and therefore could not establish standing on behalf of their members.

Accordingly, the panel denied the petitions for review for lack of jurisdiction, and denied as moot the SEC’s motion to dismiss and the MSRB’s motion to intervene.

The case is Nos. 16-3360/16-3732.

Attorneys: H. Christopher Bartolomucci (Kirkland & Ellis LLP) for Tennessee Republican Party, Georgia Republican Party and New York Republican State Committee. Jeffrey Alan Berger for the SEC.

Companies: Tennessee Republican Party; Georgia Republican Party; New York Republican State Committee

MainStory: TopStory DoddFrankAct InvestmentAdvisers MunicipalSecuritiesNews KentuckyNews MichiganNews OhioNews TennesseeNews

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