The recent Supreme Court decision makes pay-to-play regulations unconstitutional — or at least, that's the take of one securities attorney. Others don't see it that way.
The recent Supreme Court decision in the Citizens United case makes pay-to-play regulations unconstitutional. Or at least, that's the opinion of securities attorney Hardy Callcott, a partner at Bingham McCutchen LLP and former general counsel at Charles Schwab & Co. Inc.
The court's ruling Jan. 21 in Citizens United v. Federal Elections Commission gave corporations the OK to make unrestricted independent political expenditures. Mr. Callcott said the decision raises questions about the legality of Municipal Securities Rulemaking Board Rule G-37, which limits political contributions by municipal bond underwriters to individuals who can award bond business.
A similar rule proposed last fall by the SEC that would regulate contributions by investment advisers would also be unconstitutional, Mr. Callcott said. If the SEC “blindly copies G-37 [with its adviser pay-to-play rule], they're going to create some problems for themselves,” Mr. Callcott said.
But other observers disagree.
"Citizens United didn't address direct corporate contributions" to political candidates, said Jeff Patch, a spokesman for the Center for Competitive Politics, a watchdog group that is critical of campaign-financing limits.
“We don't think the Supreme Court case creates any issues” for G-37, said Ernesto Lanza, the general counsel at the MSRB.
Not only did the court not address direct contributions, it “also showed great pains to show [contribution] limits that were permissible, versus limits with independent expenditures,” Mr. Lanza said.
“The courts have generally found that pay-to-play legislation has withstood constitutional scrutiny,” Mr. Patch said.
In 1995, Rule G-37 was upheld by the U.S. Court of Appeals for the District of Columbia Circuit in the case Blount v. SEC.
The plaintiff, Alabama bond dealer William Blount, had challenged the then-controversial MSRB rule on constitutional grounds.
Not only did Mr. Blount lose his challenge, he also turned out to be a poor poster child for those in the industry who opposed pay-to-play regulations.
In 2008, the U.S. attorney for the Northern District of Alabama filed criminal charges against Mr. Blount and two other individuals in a pay-to-play case involving Jefferson County, Ala., sewer bonds.
Mr. Blount pleaded guilty last summer to one count each of conspiracy and bribery. He is due to be sentenced tomorrow.
