ATLANTA - In a surprise move, lawyers for Alabama bond dealer William B. Blount asked a federal appeals court in Washington Friday to suspend key parts of the MSRB's "pay to play" rule.
Blount's lawyers, Williams & Connolly, asked the Securities and Exchange Commission last week to voluntarily suspend the provisions of the Municipal Securities Rulemaking Board's Rule G-37 that prevents firms from doing business with an issuer for two years after making political contributions to its officials.
Blount wants the agency to hold off on implementing the provisions until the U.S. Court of Appeals for the District of Columbia rules on the constitutionality of G-37.
But Blount's aggressive attorneys opted not to wait for the SEC to act and went directly Friday to the appeals court, where they asked the court for an emergency temporary stay of the rule that went into effect last Monday.
Eric Summergrad, principal assistant general counsel for the SEC, said Friday, "I'm not sure when the commission will be deciding whether to grant the stay. It's under consideration."
Meanwhile, Christopher Taylor, executive director of the MSRB, told regional dealers who met in Atlanta Friday that even if the appeals court temporarily blocks the rule, they still must keep records of their contributions and report them to the MSRB.
"Blount is only asking [the court] for a stay of three provisions of the rule," Taylor told compliance officers of securities firms who were attending a Public Securities Association regional compliance seminar.
One is the "basic ban on business," Taylor said, referring to the rule's centerpiece provision that bars dealers from doing business with a jurisdiction within two years after the firm, its political action committee, or its municipal professionals contribute to an official of the state or local government.
The others are provisions barring dealers from soliciting contributions on behalf of a state or local government official and from making contributions indirectly through a spouse, co-worker, or other person.
Blount is not asking the SEC to suspend the provisions that require firms to keep records of political contributions by municipal dealers and to report information quarterly to the MSRB, Taylor said.
"So I would urge you, please, look at the rule," Taylor said. "Under any circumstances, you are going to be filing reports to us. And the first reports are due by the end of July."
Taylor said that the board just filed a set of procedures with the SEC that dealers are to follow for filing reports. They will appear in early June in MSRB Reports, the board's quarterly notice to dealers, he said.
He added that the board will meet with larger dealers soon to see if firms can collect contributions information electronically. "I am not one for having lots of pieces of paper passed around. If we can keep records in some sort of electronic fashion, I certainly would like to," he said.
Taylor urged compliance officers to stay on top of the news on the political contributions issue.
"Please watch the newspapers. Keep track of what is happening with regard to the lawsuits and everything else. The rule's in effect today. It has not been stayed by the commission or by the courts.
"You could have a situation that next week a stay is granted by someone. And then the stay is a temporary stay and it is lifted. So you are going to have to keep track of what's covered, when it's covered, when it's not covered, because all of you will have to be in compliance," he said.
"G-37 is the most controversial, emotional rule that the MSRB has ever put out," said John P. Adams Jr., who co-chaired a Public Securities Association task force that developed procedures for regional firms to follow in implementing the new rule.
"G-37 is simple in spirit, but very complex in its implementation," he told compliance officers, whom he described as being in a "unique mine-field" with the new rule Adams, who appeared on a panel Thursday on G-37, is senior vice president of Trust Company Bank in Atlanta.
"The guidelines are a blueprint," said Paul A. Lieberman, senior vice president and associate general counsel at Tucker Anthony Inc., who drafted much of the task force's guidelines. "You can treat it like a Chinese menu. Figure out what you want to take and what you don't."
But Lieberman said it is critically important for compliance officers to sell the new rules to top firm officials. "If the tone is not set from above ... if you are having a training seminar and executives are sitting there snickering, you've got a problem," he said.
"You are the bearers of the bad news. If there are spears to be caught they will be in your chest. You will become the fall guy for a lot of debating, screaming, hysteric temper tantrums. But it's your job to protect the firm and officers in it. Get the facts, ask hard questions," he said.
John D. Cummins, a partner with Squire, Sanders & Dempsey, said that Blount's case is "really without precedent" because no federal securities regulator has attempted anything as broad as G-37. As a result, it is difficult to predict "how the courts will decide," he said.
Cummins did predict, however, that the SEC will not halt implementation of the rule in response to Blount's request the enforcement of the rule be blocked.
