Christopher Bartolomucci, the lead lawyer for the Republican groups, will have an opportunity to present his case to a three-judge panel on May 4.

WASHINGTON – Lawyers for three Republican groups will argue before a federal appeals court on May 4 that the court should vacate the Securities and Exchange Commission's approval of Municipal Securities Rulemaking Board rule changes that they say restrict the political contributions of municipal advisors.

The oral arguments are scheduled to be held before a panel of three judges of the Sixth Circuit Court of Appeals in Cincinnati, Ohio. The Republican groups' lawyers will have 15 minutes to present their case and the SEC and MSRB are scheduled to have 15 minutes of allotted time to share to counter the groups' claims. Attorneys for each of the parties involved in the case have filed court documents acknowledging the timing of the argument.

The Tennessee Republican Party, Georgia Republican Party, and New York Republican State Committee sued the SEC and MSRB last April, alleging the MSRB's revised MSRB Rule G-37 on political contributions, which extended its scope to include municipal advisors, unconstitutionally forces municipal advisor and dealer employees to choose between doing their jobs and exercising their right to support political candidates. The revised rule, which is designed to curb pay-to-play practices in the market, took effect on Aug. 17.

Under the changes to Rule G-37, municipal advisors, similarly to dealers, are barred from engaging in municipal advisory business with an issuer for two years if the firm, one of its professionals, or a political action committee controlled by either the firm or an associated professional, makes significant contributions to an issuer official who can influence the award of muni advisory business.

The revised rule contains a de minimis provision like the original rule. It would allow a municipal advisor professional, as well as a municipal finance professional, to give a contribution of up to $250 per election to any candidate for whom he or she can vote without triggering the two-year ban. The Republican groups' lawyers, led by Christopher Bartolomucci, a partner with Kirkland & Ellis here, said in court filings that the process of getting the rule changes approved showed that the MSRB and SEC wrongly believe "the SEC may supplant Congress' [contribution] limits with a broad, prophylactic rule of its own in an effort to deter so-called 'pay-to-play' activities in the provision of advisory services for public assets."

He added that such a belief is "flatly foreclosed by federal campaign finance law, the statute under which the SEC purports to be acting, the Administrative Procedures Act, and ultimately the First Amendment."

The three groups have also argued that the SEC was legally required by appropriation act provisions for fiscal 2016 to reject the changes. The 2016 appropriations act prohibited the SEC from using funds to "finalize, issue, or implement any rule, regulation, or order regarding the disclosure of political contributions."

The SEC countered those claims by arguing that they followed the appropriations language and did not act on the proposed rule. Under the Dodd-Frank Act, if the commission does not take action on an MSRB rule within 45 days of its being published, the rule is considered approved. The SEC's inaction regarding G-37 ultimately led to the rule's approval.

The Republican groups contend the commission's inaction is still a violation of the rule because the SEC effectively did finalize the rule.

The parties are also battling over whether the course of events that led to the rule's approval constitutes a "final order" as defined by the Securities Exchange Act of 1934 or an "agency action" as defined in the Administrative Procedure Act. The SEC is arguing that its inaction fails to meet either definition, while the three groups disagree, saying the SEC essentially approved the rule changes "by order."

Several groups have weighed in on the case, including the Financial Services Institute, which agrees with the Republican groups that the rule has curtailed constitutional rights, and the Campaign Legal Center, which sides with the SEC in contending the revised rule is legal and is needed to address the potential for corruption in the municipal market.

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