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

Since 1994, the Municipal Securities Rulemaking Board (“MSRB”) has sought to eliminate pay-to-play practices in the trillion dollar municipal securities market. As a result, the muni market has adopted and refined some of the toughest rules on political contributions. The rules promulgated by the MSRB have become a model for regulation of pay-to-play, as was shown with the SEC’s reliance on the MSRB rules in connection withits pay to play rule.

The MSRB continues to strengthen its influence over the activities of municipal bond brokers and dealers. Yesterday, the MSRB filed a proposed rule change with the SEC consisting of interpretive guidance in connection with Rule G-37 and the use of political action committees (“PACs”). The MSRB said it is reviewing the pay-to-play rules because recent consolidation in the financial industry has placed bond dealers under the control of banks, bank holding companies and other companies that have PACs.

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On Tuesday, Alaska voters will take to the polls to consider a ballot initiative designed to deter the appearance of corruption by prohibiting the holders of public works construction projects from making contributions to state candidates. The initiative, to promulgate the “Alaska Anti-Corruption Act”, further seeks to ensure public funds are not used to finance campaign advocacy and has already been identified (correctly, if my humble legal opinion has any relevance) by the Alaska Attorney General as being of dubious constitutionality.

With respect to pay-to-play issues, Alaska voters will be asked to approve legislation that bans political contributions by government contractors and members of their “immediate families” for the duration of their contracts and for two years thereafter. The proposed penalties for violation of this law would be both criminal in nature and contractual debarment of the contractor. For those of you who would like to try your hand at law enforcement, take heart: the proposed legislation authorizes initiation of an action for enforcement of a violation in Alaska Superior Court by “any entity or group, or any member of the public”. The nice thing is, if you wrongly commence an action against that crotchety old lady up the street who never waves when you drive by for violating the Alaska Anti-Corruption Act, the proposed law thoughtfully provides that “[a]ny person, government, group or entity that initiates an action pursuant to the subsection shall be immune from any claim or legal action for doing so”.

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As if keeping up with Federal and State rules and regulations wasn't challenging enough for corporations and others seeking to do business on a national platform, there has recently been an uptick in the implementation and enforcement of ethics and "pay-to-play" regulations at the municipal and county level.

The latest such local jurisdiction to implement its own ethics legislation is Broward County, Florida. As the Sun-Sentinel reports, a new Ethics Code will go into effect this Friday. What makes the situation in Broward County unique is that after the County Commission unanimously approved a relatively tough new ethics policy, legislation was passed the same day which will likely put the reforms before the voters via a referendum in November. If passed, the referendum will significantly alter the implementation of what will be the law on Friday.

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In a continued effort to thwart pay-to-play practices and increase transparency of corporate involvement in the political process, the House Financial Services Committee approved the Shareholder Protection Act of 2010, H.R. 4790 by a vote of 35-28 this past Monday. The bill would require annual shareholder authorization before a public company could make certain political expenditures. A corporation would need to include in its bylaws a requirement for majority shareholder approval on political expenditures in excess of $50,000 or any expenditure that would make the total amount spent by the corporation more than $50,000. In addition, the bill would require issuers to include in annual shareholder reports a summary of all political spending that exceed $10,000, and would also would direct the Securities and Exchange Commission to issue rules requiring corporations to disclose any materials for political activities created with or purchased using company funds. Under the bill, officers and directors who authorize political expenditures without shareholder approval could be found liable for breach of fiduciary duty.

The bill was introduced by Rep. Michael Capuano (D., Mass.) who said: “If you buy into a corporation, you should have a right to say what is done with your money.” Three Democrats (Donnelly, IN; Childers, MS; and Minnick, ID) joined the Republicans in unsuccessfully voting against the bill. The committee vote occurred just days after the Senate rejected a narrower measure that would require corporations and unions to reveal the funding sources for political ads, the “DISCLOSE Act.” Both bills were aimed at mitigating the landmark Supreme Court case Citizens United vs. the Federal Election Commission, which lifted restrictions on independent expenditures by corporations. Capuano said his bill passes on to shareholders the new rights given corporations under the Supreme Court’s ruling.

A vote by the full House could not take place until September and there has been speculation that the debate could provide fodder for election-oriented talking points on free speech and corporate interests ahead of November’s mid-term elections.

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