Republicans challenge ‘pay-to-play’ rules

A coalition of state Republicans launched a lawsuit against SEC restrictions on political contributions.

GPs registered with the US Securities and Exchange Commission (SEC) should be free to make federal political donations as part of their first amendment rights, according to a lawsuit filed last week by Republican committees from New York and Tennessee against the Commission.

The SEC’s “Political Contribution Rule” prevents advisers and their key personnel from backing a political candidate that could in some way influence the hiring of an investment adviser or backing one of its funds.

The lawsuit argues the SEC lacks the statutory authority to regulate campaign contributions, noting that the Federal Election Commission has jurisdiction over federal campaign contributions, nor do political donations necessarily violate securities laws, which the SEC does have jurisdiction on.

The plaintiffs also argue the rule violates first amendment rights, which some commentators say could give the lawsuit a fighting chance in court. Recent Supreme Court rulings have made clear that campaign contributions constitute free speech, either for individuals or corporations.

Already the SEC’s pay-to-play rules have come under question when the commission reached a $300,000 settlement with TL Ventures in connection to donations made by one of its associates to Pennsylvania politicians in June. Critics of the settlement pointed out that the donations were relatively small and made years before the adviser could potentially solicit business from Pennsylvania state pension funds.