WASHINGTON -- The SEC refused yesterday to suspend key parts of the the Municipal Securities Rulemaking Board's "pay to play" political contributions rule and urged a federal appeals court to take the same action.
The Securities and Exchange Commission announced the actions in a 20-page memorandum and 15-page order filed with the U.S. Court of Appeals for the District of Columbia. The filings came in response to an emergency request filed by Alabama bond dealer William B. Blount on Friday that asked the appeals panel to suspend three provisions of the MSRB's Rule g-37, which took effect April 25.
Blount, who contends that Rule G-37 violates his First Amendment rights, asked the appeals panel to delay implementing the parts of the rule until it rules on the regulation's constitutionality. Blount is scheduled to respond to the SEC's motion Friday.
Eric Summergrad, principal assistant general counsel for the SEC, said in a telephone interview that the appeals panel could rule on Blount's request for an "emergency temporary stay" of the rule before this weekend.
Rule G-37, which took effect April 25, bars municipal dealers from doing business with state and local governments for two years if the dealer, its political action committee, or its bond professionals contribute to an officeholder who can influence the awarding of bond business.
The SEC said the appeals panel should not suspend Rule G-37 because investors and the public interest would be harmed by "pernicious" pay-to-play practices in the municipal market. "[Also], even though Blount may have to give up a significant amount of fund-raising activity or bond business, that does not impose any more than a marginal restraint on his First Amendment activities," Summergrad said, in summarizing the SEC's arguments.
Based on other Supreme Court rulings, giving a contribution is only a marginal form of First Amendment expression, Summergrad said.
Blount, who is chairman of the Alabama Democratic Party, is charging that Rule G-37 will cause him to "suffer undeniable irreparable harm" and goes far beyond anything imposed by federal election laws or regulation.
He is asking the court for an emergency "stay" of three key provisions of the rule, including the centerpiece ban on business. The other provisions bar 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.
The lawsuit does not ask the SEC to suspend provisions of Rule G-37 that require firms to keep records of political contributions by municipal dealers and to report information quarterly to the MSRB.
MSRB executive director Christopher Taylor urged compliance officers of broker-dealers who were meeting in Atlanta Friday to stay on top of the news on the unfolding lawsuit and to study the rule.
"I would urge you, please, look at the rule," Taylor said in a breakfast address. "Under any circumstances, you are going to be filing reports to us. And the first reports are due by the end of July.
"Please watch the newspapers," Taylor added. "The rule's in effect today. It has not been stayed by the SEC or 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 are you 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."