WASHINGTON — The Supreme Court’s ruling allowing corporations to use their own funds for ads to support or oppose candidates does not appear to have implications for the Municipal Securities Rulemaking Board’s Rule G-37, which restricts municipal dealers’ political contributions to issuer officials, lawyers said.
Leslie Norwood, associate vice president and general counsel of the Securities Industry and Financial Markets Association, agreed, noting that G-37 started as a voluntary initiative by dealers and passed constitutional muster in a previous court case. “We don’t believe this would change the rules for municipal dealers,” she said.
Lynnette Hotchkiss, the MSRB’s executive director, said the board will closely evaluate the high court ruling to determine whether it has any implications for G-37.
Rule G-37, which took effect in April 1994 and survived a two-year constitutional challenge from a bond dealer, bars a dealer from engaging in negotiated muni securities business with an issuer for two years if it or any of its municipal finance professionals make significant political contributions to an issuer official who can influence the award of bond business.
Under a de minimis provision of the rule, however, a municipal finance professional can contribute up to $250 to any issuer official for whom he or she can vote.
The rule was designed to prevent broker-dealers from engaging in pay-to-play practices and obtaining muni advisory or underwriting business by contributing to state and local officials’ election campaigns.
But Alabama bond dealer William Blount challenged the rule soon after it took affect, claiming it violated dealers’ First Amendment rights to free speech. Blount, with Blount Parrish & Co. in Montgomery, lost the case in April 1996 when the Supreme Court refused to consider and let stand a federal appeals court ruling decision that G-37 was “narrowly tailored” to further the congressionally mandated goals of the Securities and Exchange Commission and MSRB to prevent dealers from either engaging in unfair corrupt practices or undermining “just and equitable principles of trade.”
Since then, however, some market participants have continued to complain G-37 raises constitutional concerns.
In Citizens United, the high court overturned bans against corporations and labor unions spending their own money on political ads that support or oppose a federal candidate, within 30 days of a primary election.
The case stems from a January 2008 documentary by a nonprofit corporation called Citizens United that criticized Hillary Clinton, who was campaigning to become the Democratic presidential nominee.
Citizens United wanted to make it available on video-on-demand within 30 days of the primary election but feared it would violate federal restrictions on corporate-funded independent expenditures and asked a federal court for injunctive relief against the Federal Election Commission. The court denied the injunction, and the nonprofit sued the FEC.
The majority opinion written by Justice Anthony Kennedy and issued yesterday concluded that applying the ban to corporate campaign advertising would have the effect of “chilling political speech, speech that is central to the First Amendment’s meaning and purpose.” However, the high court did not rule on political contributions.
