MSRB Proposal Extends Rule G-37 “Pay-to-Play” Prohibitions to Municipal Advisors


In its August 18 Regulatory Notice No. 2014-15, the Municipal Securities Rulemaking Board (“MSRB”) proposed amendments to Rule G-37 that would extend the long-standing “pay-to-play” prohibition’s reach to newly-registered municipal advisors.  The Notice is here. Rule G-37 prohibits municipal securities dealers and their municipal-finance-professionals from making political contributions to elected officials of issuers who are in a position to influence the selection of underwriters.  The new proposal would extend the Rule to impose similar prohibitions on contributions by municipal advisors to those municipal-entity officials in positions able to influence the hiring of municipal advisors.  The Comment period runs through October 1.

The MSRB’s proposal arrives even as the NY and TN Republican Parties filed suit to challenge a similar SEC rule prohibiting pay-to-play contributions by registered investment advisors, New York State Republican Committee v. SEC, No. 14-cv-1345 (USDC, D.D.C., filed August 7, 2014).  The SEC implemented Rule 206(4)-5 under the Investment Advisers Act of 1940 in 2011 to curb pay-to-play practices among registered investment advisers.  The suit argues that more recent Supreme Court decisions on proposed regulation of campaign finance (McCutcheon and Citizens United) compel overturning the decisions from this same court that upheld the original pay-to-play regulation (MSRB Rule G-37) almost a decade ago, Blount v. SEC, 61 F. 3d 938 (D.C. Cir. 1995), cert. denied, 517 U.S. 1119 (1996).

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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