Lawyers cry foul over remarks by SEC's Lorne about pay to play.

WASHINGTON -- Several bond lawyers are angry and offended that the Securities and Exchange Commission's top lawyer attacked them in a recent speech in which he charged the lawyers had done little to curb pay-to-play practices in the municipal market.

"I found the speech to be offensive," Fredric Weber, a lawyer with Fulbright & Jaworski in Houston, said last week.

"In the area of the county in which I practice there does not appear to be any lawyers engaged in the sorts of pay-to-play abuses that he described," Weber said. "I thought that he unjustifiably sullied the reputations of a number of bond lawyers and the legal profession generally."

Simon M. Lorne, the SEC's chief counsel, had said in a speech before an American Bar Association group 10 days ago that he found it "shocking" that bond lawyers refused to go along with a voluntary ban on political contributions after municipal broker-dealers adopted such a ban months ago.

Lorne charged that the lawyers are in a "state of denial" because they approved a policy statement on political contributions that said allegations of pay-to-play practices are unsubstantiated and, if proven, should be dealt with through general campaign finance reform.

The policy statement, which the National Association of Bond Lawyers board approved last February, called for bond law firms to disclose their political contributions. But thus far only one firm, and none of the firms of board members, has adopted the statement.

Bond lawyers had mixed reactions to Lorne's speech, but many of them said they were angry and offended by. the charges.

Several lawyers pointed out that the NABL policy statement says that bond lawyers should not make any political contributions for the purpose of obtaining or retaining bond business.

Weber said that while he agrees that the perception that lawyers are buying business is bad for the legal profession, "I think that perception is being created by unsupported allegations by regulators rather than by descriptions of actual practice."

"One way to stop those perceptions is for [Lorne] to stop making speeches," he said.

Weber also said "there is something wrong about a federal agency jawboning lawyers not to exercise their First Amendment rights."

"I don't think anybody likes to be insulted," said Neil Arkuss, a lawyer with Palmer & Dodge in Boston and a former NABL president. "I don't think it's fair and representative of all of the long and hard work that we've done" on this issue, he said.

"It's unfair," agreed a lawyer in New York City who did not want to be identified. "You've got to distinguish between pay-to-play and political contributions. I think most bond lawyers are in favor of eliminating pay-to-play if you can define what that is and come up with rules that eliminate that.

"The thing that is troublesome, and this is the problem with the Blount case, is how do you do that without allowing people to make political contributions to people that they truly believe are public-spirited and deserving of support," the lawyer said.

The lawyer was referring to a pending case in the U.S. Court of Appeals for the District of Columbia, Blount v. SEC, in which Alabama bond dealer William Blount is challenging the constitutionality of a Municipal Securities Rulemaking Board rule that generally prohibits municipal bond dealers who make contributions to issuer clients from doing business with them for two years afterward. The court is expected to hear oral arguments in that case on Dec. 9.

The MSRB rule was adopted after roughly 60 municipal bond dealers agreed to voluntarily ban political contributions to state and local officials.

Gerald LaPorte, a lawyer with Patton, Boggs & Blow in Washington, said Lorne "made some legitimate points. But I think it's a much more complicated problem than was reflected in the speech."

Giving political contributions, LaPorte said, "goes across practice lines and strikes at the heart of a lot of traditions in the legal profession.

"There are many lawyers who have been actively involved in the political process for many years.

They really see this as a curtailment of their First Amendment rights," he said. "And I don't think that they perceive political contributions to be bribes in any way."

Another bond lawyer who also asked not to be identified said that he was "disappointed" by the speech.

"What's sad about it is that the SEC has not followed its own prescription: investigating, deliberating, and addressing potential problems" in this area, the lawyer said.

The lawyer said he does not understand all of the cries to curb political contributions, given that "there's no investigative findings, no hearings, no nothing" that has shown any wrongdoing or evidence of pay-to-play practices.

The lawyer castigated Lorne for advising an investment banker years ago to make a political contribution in what appeared to be a pay-to-play situation.

Lorne had told the ABA group that an investment banker had come to him years ago and asked how to respond to a state political figure that had demanded a five-figure contribution, warning the investment banking firm could be excluded from all state financial activities if the contribution was not made.

Lorne had said he was shocked at the situation but could not find anything illegal with making such a contribution. He said he reluctantly told the investment banker he should probably write the check.

The lawyer said, however, that while the contribution was not illegal, it may have been unethical.

"I don't think any lawyer should counsel a client to engage in a potentially unethical act," he said.

The lawyer also said that Lorne seemed "typically insensitive" in his remarks about minority firms.

Lorne had said that he understood minority firms might want to support minority candidates, but that such firms' "concerns are misplaced when they suggest that [they] need to be able to pay in order to play."

"The whole notion of pay-to-play is a code word for a phenomenon that I'm not certain amounts to paying for playing," the lawyer said. "It may be a code word that is more related to traditional firms losing business to nontraditional or emerging firms. It's a handy little reference that has come to symbolize something that nobody has proven exists."

Andrew Kintzinger, NABL's president, said that Lorne's speech was "helpful" in the sense that it focuses attention on an issue that needs continued attention.

"To the extent that he's saying all market participants keep a focus on this area, that's helpful," said Kintzinger, a lawyer with Briggs and Morgan in Minneapolis.

Meanwhile, several of the lawyers sought to explain why bond lawyers oppose a voluntary ban on political contributions even though many investment banking firms have adopted such a ban and supported the MSRB rule aimed at banning pay-to-play practices.

"I think the investment bankers were willing to do this because it was getting very, very expensive for them," said the lawyer from New York City. "I don't think bond lawyers ever gave in anywhere near the amounts that investment bankers did."

Weber said that lawyers, unlike investment bankers, are much more involved with the development of a wide range of laws.

"Lawyers, as a profession, help make law and influence law," he said. "And the people who make law, establish law, and enforce law are basically the people who control the entities that issue municipal bonds."

"It's important for a practice like ours to have access to, and credibility with, the governor or the major or key counsel persons or legislators in order to effectively represent our corporate clients on zoning, licensing and franchising, procurement -- a whole range of issues," Weber said.

"So if you take away from lawyers whose firms have public finance businesses the ability to have access and credibility with the lawmakers and the law enforcers, then you've really handcuffed their ability to compete with law firms that don't have public finance practices," he said.

"In the case of investment bankers," Weber said, "They don't have a lot of business reasons, as opposed to personal First Amendment reasons, to be contributing to governmental entities or governmental officials other than reasons related to their public finance practice, at least, not to the same extent as lawyers" who often represent corporate clients.

Several lawyers said they oppose the NABL policy statement's call for law firms with municipal bond law practices to disclose political contributions.

That information is already available from political candidates, the lawyers said. In addition, they said, the lawyers in a bond law firm often make personal decisions about the political candidates they want to support and would not want their contributions to be lumped in with the firm's contributions in a disclosure document.

A number of lawyers worried that if their firm disclosed contributions, it would become an easy target for competitors who do not have to make such disclosures or for investigative reporters who may not make the effort to research other firms' practices.

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