WASHINGTON - Lawyers for Alabama bond dealer William B. Blount filed a double-edged challenge Tuesday to the Municipal Securities Rulemaking Board's new political contributions rule.

In one move, attorneys with Williams & Connolly, the high-profile Washington law firm hired by Blount last week, asked the federal appeals court here to rule whether the MSRB's rule, which went into effect on Monday, violates the Constitution.

In a corresponding move, Blount's lawyers also asked the Securities and Exchange Commission in a 29-page memorandum to suspend Rule G-37 until the appeals court has reviewed the rule.

The two moves are preliminary steps in what is expected to develop into a full-scale legal challenge to the board's Rule G-37, which was approved by the SEC on April 6 and is designed to eliminate "pay-to-play" political contributions by municipal dealers to state and local officials. If the SEC refuses to withdraw the rule, as expected, then Blount's lawyers will ask the appeals court directly for a "stay," the attorneys said.

Blount originally filed his case, Blount v. SEC, in the U.S. Court for the Middle District of Alabama on March 23. But he subsequently asked that the court bump the case up to the U.S. Court of Appeals for the District of Columbia to cut legal costs and to address jurisdictional questions raised by the SEC. U.S. Judge Harold Albritton granted the motion nearly two weeks ago.

Rule G-37 bars a municipal bond dealer from doing business with a jurisdiction within two years after the firm, its political action committee, or its municipal professionals contribute directly or indirectly to an office of the state or local government. It also bars dealers from soliciting or bundling contributions.

Yesterday's moves are the first formal actions taken in the case by Williams & Connolly. Blount, who heads Blount, Parrish & Roton Inc. in Montgomery and who is chairman of the Alabama Democratic Party, is also represented by the Birmingham, Ala., law firm of Leitman, Siegal, Payne & Campbell.

Rule G-37 "presents serious legal questions" and will cause Blount to "suffer undeniable irreparable harm," his lawyers said in the hard-hitting memorandum requesting the suspension of the rule.

"For the first time in our nation's history, as far as we know, the federal government will have forced individuals who are not federal employees to sit through an election with limitations on what they may say to voters and potential contributors," the memorandum says.

"They may urge their fellow citizens to vote for a candidate, but, according to the commission, they may not speak in the context of any fund-raising activity without suffering a potentially severe penalty," it says.

"This ban goes far beyond anything imposed by federal election laws or regulations. [It] is such an extreme restriction of free speech that even the body that imposed it must recognize the chance that it will be invalidated," the memo says.

The MSRB's restrictions "weigh especially heavily" on Blount in his capacity as chairman of the Alabama Democratic Party, the lawyers said.

"l, as Chairman of the Alabama Democratic Party, am active in fund-raising efforts year round," Blount said in a seven-page declaration attached to the memorandum. "For example, every year, the Alabama Democratic Party hosts the ~Jefferson/Jackson Dinner,' an annual fund raising event for the ... party held in the summer or early fall.

"The cost is $1,000 per table, and I actively solicit people to attend. Throughout the year, I also actively solicit people to join ALABAMANS, a group of contributors of $1,000 per year, by mail, phone, and personally. I am constantly encouraging people to join ALABAMANS by contributing $1,000 and calling members reminding them that their yearly contributions are due. If rule G-37 is not stayed, I will, as a practical matter, be precluded from performing my role," he said.

Blount said that he will be forced to cancel 20 speaking engagements between now and June 8, the date of the primary election. "These speaking engagements include civil clubs, rallies, high school assemblies, and debates on public television."

Blount said Rule G-37 also may curtail the political activities of his wife. "My wife will not contribute to Alabama Solutions, [which] donates money to women candidates such as Mary Zoghby, candidate for the state legislature in Mobile, Ala.

"If Ms. Zoghby is elected, she may be appointed to an authority which issues municipal securities and, at that point, because of the broad reach of Rule G-37, I may be precluded from doing business with that authority if my wife contributed to Alabama Solutions", he said.

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