Pay to Play Law Blog : Pay to Play Lawyer & Attorney : Bribery, Campaign Contributions

In a much anticipated opinion (attached), the United States Court of Appeals for the Second Circuit has upheld significant portions of Connecticut’s pay-to-play law. Interestingly, while the Court upheld the state’s very strict prohibition against contractors from contributing to the campaigns of state candidates, it invalidated a similar provision as applied to state lobbyists. The opinion also rejected a provision of the law which prohibited contractors and lobbyists from soliciting campaign contributions from others.

The ruling is quite significant when one considers the breadth of the existing Connecticut law as compared with pay-to-play restrictions in other states. Like many states, lobbyists, state contractors and prospective state contractors are prohibited from making contributions to certain state candidates, candidate-affiliated political action committees and party committees. What makes the law noteworthy, and a special little compliance nightmare for those seeking to adhere to it, is that the solicitation restrictions apply not just to principals of state contractors, but also to their families.

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Reacting to investigations that have followed the administration of former Governor Mike Easley, the North Carolina legislature recently passed a sweeping package of ethics reform. The text of the bill, which was passed in the waning hours of the General Assembly, can be found here.

Specifically, the new legislation strengthens fines for illegal campaign contributions, which were reportedly not uncommon in the Tarheel state due to weak penalties.  Additionally, the legislation subjects board and commission members, as well as state employees, to more robust disclosure requirements. As is typical in the area of ethics reform, all areas have been subjects of contention in recent North Carolina ethics investigations.

Notably, the legislation did not include "pay to play" provisions, which were advocated for by some in North Carolina. Rather, the legislation establishes a commission to study whether pay-to-play legislation is needed in North Carolina, as well as the scope of any such provisions.

Given the political climate in North Carolina at this juncture, and the likelihood that investigations will continue in the ethics realm, it is likely that the North Carolina legislature will readdress the issue in 2011. Of course, we at the pay-to-play law blog will continue to monitor the developments on the ground in Raleigh.

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Several efforts are underway at the state and local levels to re-examine New Jersey’s stringent pay-to-play laws. This is probably a good development. Without question, New Jersey’s pay-to-play laws, put into effect in 2006, are considered by most in the regulated community to be among the most intrusive and confusing in the country. That is not a good combination for those doing business in the state or the lawyers seeking to advise them. Fortunately, it appears that the New Jersey Election Law Enforcement Commission (ELEC) agrees with that assessment and has announced its intention to support revisions to the law.

In its July newsletter, ELEC’s Commission Chair Jerry Fitzgerald English announced ELEC’s plans “to prioritize proposals for legislative reforms that are designed to improve the regulation of campaign financing, lobbying, and pay-to-play.” While recognizing that legal challenges pending nationally will have an influence on New Jersey’s actions, ELEC proposes significant changes to the State’s pay-to-play law.

ELEC’s first proposal, which almost makes too much sense to originate from government, is to revise the state’s pay-to-play laws to ensure that a single law applies at both the State and municipal level. Currently, local municipalities are free to pass a quilt-like patchwork of ordinances; all most none of which bear any relationship to the others. As ELEC points out, in addition to state law, over 50 local ordinances and executive orders also control local contracting and contribution rules. Such a regulatory scheme not only makes compliance exceedingly difficult for major vendors, but fosters costly and discouraging legal challenges with the passage of each new ordinance (this reaction to the Borough of Dumont’s new pay-to-play ordinance being only the most recent example).

Of the various changes proposed, probably the most significant is ELEC’s proposal is to remove the authority of county and municipal governments to circumvent state procurement laws by publicly advertising bids (referred to as the State’s “Fair and Open” provision). These changes, in addition to the ubiquitous calls for increased “transparency” through lower filing thresholds combined with a sensible call for increased contribution limits to provide defense against inevitable First Amendment challenge, appear to indicate that New Jersey is on the road toward common sense reforms.

Consider this blog among those supporting ELEC’s proposals.

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On Wednesday, June 29, the Securities and Exchange Commission unanimously approved the final text of a new rule under the Investment Advisers Act of 1940 directed at preventing pay to play practices by investment advisers. In response to 250 comment letters, with divergent views on the issue, the Commission revised certain provisions of the rule it proposed last year but largely kept intact its initial proposal of regulations designed to ensure that investment advisors are prohibited from using campaign contributions to steer municipal investment business. Oddly enough, the Commission received no comment letters from the class of plan beneficiaries that it sought to protect with the proposed rule, although two public interest groups strongly supported the proposed revisions.

The new rule has three key elements:

1) It prohibits investment advisors from providing advisory services for compensation—either directly or through a pooled investment vehicle—for two years, if the advisor or certain of its executives or employees have made a political contribution to an elected official in a position to influence the selection of the advisor;

2) It prohibits advisory firms and certain executives and employees from soliciting or coordinating campaign contributions from others (a practice referred to as “bundling”) for any elected official in a position to influence the selection of the adviser. It also prohibits solicitation and coordination of payments to political parties in the state or locality where the adviser is seeking business; and

3) It prohibits investment advisors from paying third parties, such as placement agents, from soliciting a government client on behalf of the investment adviser, unless that third party is an SEC-registered investment advisor or broker/dealer subject to similar pay to play restrictions.

Finally, the rule contains a catch-all, “don’t let the lawyers find a loophole” provision, which prohibits acts done indirectly, which if done directly, would result in a violation of the rule (such as old favorites like funneling contributions through an investment adviser’s attorneys, spouses or affiliated companies).

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