1. Skip to navigation
  2. Skip to content
  3. Skip to sidebar

Big Bond Firms Test the MSRB’s Compliance Line

Readers of this blog know that MSRB Rule G-37 regulates the political contribution activities of banks and other entities which initiate the principal sales of municipal bonds. Specifically, Rule G-37 provides that any broker, dealer or municipal securities dealer which makes a contribution to those who oversee the issuance of such bonds is subject to a two-year “Time Out” for bad behavior.

around-circumventThis prohibition extends beyond the activities of individual brokers and dealers. Rule G-37 specifically provides that its prohibition applies equally to “any political action committee (PAC) controlled by the broker, dealer or municipal securities dealer or by any municipal finance professional”. For further clarity regarding its intentions, the Rule mandates against circumvention of these restrictions via the wily ways of Legal Loophole Exploiters:

(d) Circumvention of Rule. No broker, dealer or municipal securities dealer or any municipal finance professional shall, directly or indirectly, through or by any other person or means, do any act which would result in a violation of sections (b) or (c) of this rule.

To demonstrate its seriousness about this prohibition, the Municipal Securities Rulemaking Board has decreed that the proper punishment for violation of its rule is that “no broker, dealer or municipal securities dealer shall engage in municipal securities business with an issuer within two years after any contribution to an official of such issuer”.

You’re still with me, right? Seems pretty clear: “Securities dealers should not use political action committees or other vehicles to circumvent the prohibition against campaign contributions to municipal bond issuers.” Some of us have been warning our friends for years that the MSRB views PAC activities as an improper vehicle to circumvent G-37. Others, it might appear, see this as a line ripe for testing.

Last week, David Sirota and Matthew Cunningham-Cook of the International Business Times (two of the best reporters in the business when it comes to ferreting out potential links between contributions to those in power and official action) broke a story detailing contributions to New York Governor Andrew Cuomo by three PACs associated with NY bond issuers. Political Action Committees associated with these banks, it would appear, contributed more than $131,000 to the Governor prior to being selected by his administration to manage state bond work. The banks do not dispute the contributions by their PACs but rather challenge the premise that these PACs represent contributions by the individual bond dealers or a PAC that they control:

“Citi has two separate PACs, a state and a federal,” said Citigroup spokeswoman Molly Meiners. “To the extent anyone on our Muni team donates money, they are required to give to our Federal PAC only, which has never given to Cuomo.”

Ultimately, the determination surrounding this situation will be factual in nature and this blog is never one to cast the first stone when it comes to the challenges of applying well-intentioned regulation in the real world. As we warned back in 2010, however, this factual inquiry is informed by specific guidance issued by the MSRB in August of that year, which clearly establishes that this is not an area where winks and nods will be tolerated:

Indirect Contributions Through Bank PACs or Other Affiliated PACs

As noted above, if an affiliated PAC is determined not to be a dealer-controlled PAC, a dealer must still consider whether payments made by the dealer or its MFPs to such affiliated PAC could be viewed as an indirect contribution that would become subject to Rule G-37 pursuant to section (d) thereof. The MSRB has provided extensive guidance on such indirect contributions, noting in 1996 that, depending on the facts and circumstances, contributions to a non-dealer associated PAC that is soliciting funds for the purpose of supporting a limited number of issuer officials might result in the same prohibition on municipal securities business as would contributions made directly to the issuer official. The MSRB also noted that dealers should make inquiries of a non-dealer associated PAC that is soliciting contributions in order to ensure that contributions to such a PAC would not be treated as an indirect contribution.

The MSRB also has previously provided guidance in 2005 with regard to supervisory procedures that dealers should have in place in connection with payments to a non-dealer associated PAC or a political party to avoid indirect rule violations of Rule G-37(d). In such guidance, the MSRB stated that, in order to ensure compliance with Rule G-27(c) as it relates to payments to political parties or PACs and Rule G-37(d), each dealer must adopt, maintain and enforce written supervisory procedures reasonably designed to ensure that neither the dealer nor its MFPs are using payments to political parties or non-dealer controlled PACs to contribute indirectly to an official of an issuer. Among other things, dealers might seek to establish procedures requiring that, prior to the making of any contribution to a PAC, the dealer undertake certain due diligence inquiries regarding the intended use of such contributions, the motive for making the contribution and whether the contribution was solicited. Further, in order to ensure compliance with Rule G-37(d), dealers could consider establishing certain information barriers between any affiliated PACs and the dealer and its MFPs. Dealers that have established such information barriers should review their adequacy to ensure that the affiliated entities’ contributions, payments or PAC disbursement decisions are neither influenced by the dealer or its MFPs, nor communicated to the dealers and the MFPs.

Big Bond Firms Test the MSRB’s Compliance Line

Did the US Supreme Court’s ruling in McCutcheon v. FEC Put the Constitutionality of Some Pay-to-Play Laws in Doubt?

McCutcheon

Much has already been written about the impact of the US Supreme Court’s ruling in McCutcheon v. FEC this week; some of it actually accurate. On its face, the ruling in that case has to do with aggregate contribution limits and has nothing to do with state pay-to-play laws. (If you want to read one of the fifty law firm client alerts that breathlessly delved into the nuances of the case on the very day the opinion issued, why not read ours? It’s a good one.). The reasoning employed by the Supreme Court in reaching the holding it did in McCutcheon, however, would appear to threaten the constitutional foundation upon which many state pay-to-play laws are based.

In McCutcheon, the US Supreme Court weighed whether federal laws prohibiting individuals from giving contributions in excess of aggregate limits over a two-year period ($123,200 of which no more than $48,600 could go to candidates and no more than $74,600 could go to PACs and parties) could withstand constitutional analysis. (We should all have such problems). In ruling as it did, the Court made clear that First Amendment freedoms of speech will invalidate virtually any effort to restrict political spending other than direct contribution limits which are designed to prevent direct quid pro quo corruption (fancy legal language for “bribes”). If the law can’t be shown to be narrowly drawn solely to prevent corruption, First Amendment freedoms of speech will trump even laudable goals such as circumvention or public distaste for a system whereby wealthy insiders enjoy undue influence. This is why the Court did not strike down (this time) contribution limits, but did find that limits on contributions to an unlimited number of candidates are unconstitutional.

This leads us to an analysis of the potential impact the Court’s ruling might have on the myriad of state and federal pay-to-play laws on the books. As we have pointed out since our inaugural blog post, pay-to-play laws are not designed to prohibit pure corruption; state bribery laws are already on the books for that purpose. Rather, pay-to-play laws typically ban all (otherwise legal) contractor contributions to procurement officials expressly because proving direct quid pro quo corruption (bribery) is so difficult. Statistically, legislators, regulators, and the public can see a correlation between vendor political contributions and success in winning contracts but can’t prove corruption (unless they are fortunate to live in Chicago where politicians are willing to be audio taped doing such things). Because such a correlation is unseemly, but direct corruption difficult to prove, pay-to-play laws are born whereby actual corruption need not be proven but its appearance generally is prevented through a blanket restriction on contributions (speech?) imposed upon an entire suspect class.

Framed that way, there are a number of pay-to-play laws, including those put forth by the Securities and Exchange Commission, which might not sleep quite as soundly after McCutcheon. Colorado’s pay to play provisions have already experienced the consequences to straying too far in restricting contractor contribution activity. Others might follow closely behind.

Did the US Supreme Court’s ruling in McCutcheon v. FEC Put the Constitutionality of Some Pay-to-Play Laws in Doubt?

When it comes to politics, connections count at McKenna Long & Aldridge

August 15, 2010 – Jim Torpy, of the Atlanta Journal-Constitution, profiled the McKenna Long & Aldridge law firm, including a picture of some of its leaders, Stefan Passantino, Eric Tanenblatt and Keith Mason, and discusses how the firm’s political connections, which have been developed over years of experience, help MLA assist its clients in all types of issues they may have in dealing with government.

The article focuess on such current isues as toughened ethics laws, increased scrutiny of politicians and ever-changing lobbying laws and regulations.

Mr. Passantino is noted as one of the firm’s lawyers who is making his name fighting ethics complaints against politicians. He said the bipartisan nature of the firm “gives clients comfort that they are not getting advice filtered by any political ideology. Once they get past the initial shock of the lions and lambs together here, they realize there’s a benefit.”

http://www.ajc.com/business/when-it-comes-to-592015.html

When it comes to politics, connections count at McKenna Long & Aldridge

On The Rise: Amol S. Naik

August 16, 2010 – Pay-to-play blogger Amol Naik is profiled by the Daily Report in its “On The Rise” feature of rising stars. Amol’s career has included:

  • Working as an intern reporter for the Washington bureau of Toronto’s The Globe and Mail;
  • Serving as General Counsel to mayoral candidate Kasim reed and leading the recount efforts in the mayoral race between Reed and Atlanta City Councilwoman Mary Norwood;
  • Involvement with political campaigns including state Sen. Jason Carter, Fulton County Commission Chairman John Eaves; and state Rep. Rashad Taylor;
  • Political action committee formation and legislative consulting work;
  • Recognition as a Marshall Fellow through the German Marshall Fund of the United States, a group that promotes cooperation on global issues between North America and Europe; and
  • Pro bono work for immigrants.

Please click here to read the article in its entirety.

On The Rise: Amol S. Naik

Stefan Passantino Interviewed on Fox News

July 27, 2010 – Stefan Passantino is interviewed on Fox News discussing ethics violation accusations against Congressman Charlie Rangel. Mr. Passantino discusses the potential fallout of the charges against Congressman Rangel.

 

 

Stefan Passantino Interviewed on Fox News

Law firms see payoff in blogs

June 22, 2010 – Stefan Passantino and his team’s pay-to-play blog is featured in an Atlanta Journal-Constitution article about the growing popularity and newfound benefits of law firms entering the blogosphere.

Mr. Passantino said he started the blog last fall because he found it fun. “It allows me to track the interesting parts of the law but not really having to get into the nuts and bolts of a compliance program. I use it as a credential so that people know that I know this area of the law.”

The article notes that of the top 200 U.S. law firms, 96 now publish blogs, according to LexBlog Inc.

The overall strategy for law firm bloggers is to fine a niche in the legal field and a team that enjoys writing about it. However, showing the effectiveness of the blog can be difficult in certain environments, as the results are not as measurable as tracking the standard billable hour.

To read Péralte C. Paul’s full article on law firm blogs please click here.

Law firms see payoff in blogs

Black Caucus defends Rep. Watt amid House ethics controversy

June 16, 2010 – Stefan Passantino is quoted in The Hill discussing the fallout often caused by investigations conducted by the Office of Congressional Ethics (OCE). OCE’s current policies are similar to the criminal justice system, in that prosecutors and judges are required to keep their silence, but defendants and witnesses cannot be stopped from discussing the case with the media.

Mr. Passantino said that OCE “can’t protect members from outside people talking amongst themselves and to the press any more than the Justice Department can. The only thing that OCE can do to minimize the damage that can be done is to be more careful in the manner that they are seeking the information before they cast such a wide net all across town.”

From his experience representing clients on ethics issues, Passantino said it’s the policy of the Justice Department and the Senate and House ethics committees to request that outside groups, witnesses and members keep the investigation confidential. But other ethics experts disputed that assertion. Including a request to keep matters private could open a legal minefield and the leave the OCE vulnerable to charges of infringing on the rights to counsel and free speech.

To read the full article please click here.

Black Caucus defends Rep. Watt amid House ethics controversy

Political ads are a tough sell for image-conscious corporations

June 1, 2010 – Stefan Passantino is quoted in a Washington Post article discussing the impact of the Citizens United decision on corporations. He said that corporate executives “recognize they have this newfound freedom. They want to exercise it, but not in a way that will antagonize members of Congress or customers or employees.”

He says that, instead, these firms are considering giving advertising money to coalitions and conservative political groups “that are going to fight their battles for them and not come back to them.”

“They’ve seen the regulation on their horizon — and how it can really affect their bottom line,” he said. “But if corporations are forced to put their corporate logo on it, most won’t do it.”

Please click here to read the article in its entirety.

Political ads are a tough sell for image-conscious corporations

Hear No Lobbyists, See No Lobbyists

November 30, 2009, Stefan Passantino, Head of the Political Law practice at McKenna Long & Aldridge LLP and expert panelist for the National Journal: Under the Influence Blog.

Stefan Passantino contributes a blog entry concerning the White House’s new restrictions of lobbyists serving on government advisory boards. He argues that it is the responsibility of lawmakers, as the country’s legislative decision-makers, to make an informed decision based on information from all sides.

He says, “There is no doubt that most lobbyists are highly skilled, knowledgeable, and effective communicators of their clients’ interests. Those are not reasons for any government to impose artificial restrictions on the ability of lobbyists to communicate with government. These are reasons for government to ensure that it is being thoughtful before acting. It is the job of government, not the private sector, and certainly not lobbyists, to assimilate all of the available information and data surrounding a particular issue before adopting the policy position or regulation best suited for the governed.”

He suggests that “rather than seek to impose some internal controls on the mechanisms of government decision-making to ensure that government ultimately adopts positions best suited to the governed, this administration has elected to impose impediments to its own access to information from a single class of individuals skilled at providing that information. That might make for good politics on the campaign trail, but it makes for lousy public policy.”

To read the entire entry please click here.

Hear No Lobbyists, See No Lobbyists

GOP ‘legal defense’ plan raises disclosure issue

November 27, 2009, John O’Connor, The State

Stefan Passantino is quoted discussing the increase of legal defense funds at the state level, rather than just at the federal level. This concerns some, as the public is unaware of who is donating money to these funds or how much, since there is currently no contribution limit. There is debate about the ethics of this type of fund, however, candidates’ parties will often pick up the bill for things like unfounded accusations.

"Both sides of the aisle were using the ethics process as a weapon with some effectiveness," Passantino said. "That is a trend that has become exponentially more prevalent."

To read the full article click here.

,

GOP ‘legal defense’ plan raises disclosure issue