Petition for Writ of Certiorari — New York Republican State Committee, Petitioner v. Securities and Exchange Commission

Supreme Court briefSep 16, 2019

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No. 19-___

IN THE

Supreme Court of the United States

————

NEW YORK REPUBLICAN STATE COMMITTEE,

Petitioner,

SECURITIES AND EXCHANGE COMMISSION,

Respondent.

————

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the District of Columbia Circuit

————

PETITION FOR A WRIT OF CERTIORARI

————

JASON TORCHINSKY

Counsel of Record

SHAWN SHEEHY

CHRIS WINKELMAN

JONATHAN LIENHARD

DENNIS W. POLIO

HOLTZMAN VOGEL JOSEFIAK

TORCHINSKY PLLC

45 North Hill Drive, Suite 100

Warrenton, VA 20186

(540) 341-8808

jtorchinsky@hvjt.law

Counsel for Petitioner

September 16, 2019

WILSON-EPES PRINTING CO., INC. – (202) 789-0096 – WASHINGTON, D. C. 20002

QUESTIONS PRESENTED

On August 25, 2016, the United States Securities

and Exchange Commission (hereinafter “Respondent”

or “Commission” or “SEC”) approved Rule 2030,

reproduced here as Appendix H (also, the “Rule”). Rule

2030 regulates the political contributions of those

members of the Financial Industry Regulatory

Authority (“FINRA”) who act as “placement agents.”

Rule 2030 prohibits a placement agent from accepting

compensation for soliciting government business from

certain candidates and elected officials within two

years of having contributed to such an official’s

electoral campaign or to the transition or inaugural

expenses of a successful candidate. Rule 2030’s prohibitions raise the following constitutional and

Administrative Procedure Act questions:

1. Whether Rule 2030 violates the First Amendment by (a) imposing different contribution limits on

candidates running for the same office, and/or (b)

restricting otherwise lawful political activity despite

the SEC’s failure to identify one instance where a

lawful political contribution alone led to quid pro quo

corruption.

2. Whether the SEC has the authority to impose

restrictions by regulation on the First Amendment

rights of placement agents to make or solicit federal

political contributions that are otherwise lawful under

the Federal Election Campaign Act.

3. Whether Rule 2030 is arbitrary and capricious

because it restricts otherwise lawful political activity

despite the SEC’s failure to identify one instance

where a lawful political contribution alone led to

fraudulent or manipulative practices.

(i)

PARTIES TO THE PROCEEDING

Petitioner New York Republican State Committee

(“NYGOP” or the “Petitioner”) is the state party

organization of the Republican Party for the State of

New York. It is composed of members from within the

State of New York, many of whom are precluded from

providing it with financial support due to the Rule. It

also represents individuals who are, have been, or are

considering running for elected office and who are

harmed by Rule 2030 because it subjects them to

different political contribution limits than those

imposed on other candidates. Petitioner has its

headquarters at 315 State Street, Albany, NY 12210.

Petitioner was also a petitioner before the United

States Court of Appeals for the D.C. Circuit (the “D.C.

Circuit”).

Respondent, the United States Securities and

Exchange Commission (hereinafter “Respondent” or

“Commission” or “SEC”) is a federal agency created

pursuant to the Securities Exchange Act of 1934, 15

U.S.C §§ 78a, 78d. Respondent’s headquarters are

located at 100 F Street, N.E., Washington, D.C. 20549.

Respondent was the respondent before for the D.C.

Circuit.

The Financial Industry Regulatory Authority, Inc.

(“FINRA”) was also a respondent in the D.C. Circuit,

but FINRA was dismissed from the case by order of

that Court on June 12, 2018.

iii

CORPORATE DISCLOSURE

Pursuant to Rule 26.1 of Federal Rules of Appellate

Procedure, no parent corporation or any publicly held

corporation owns more than 10 percent of the

Petitioner’s ownership interests.

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED ...............................

PARTIES TO THE PROCEEDINGS ..................

CORPORATE DISCLOSURE .............................

iii

TABLE OF AUTHORITIES ................................

viii

INTRODUCTION ................................................

OPINIONS BELOW ............................................

JURISDICTION ..................................................

STANDARD OF REVIEW...................................

CONSTITUTIONAL AND REGULATORY

PROVISIONS INVOLVED ..............................

STATEMENT OF THE CASE ............................

A. Statutory and Regulatory Background ....

B. The SEC’s Political Contributions Rules .

C. Procedural History....................................

REASONS FOR GRANTING THE PETITION..

I. PETITIONER HAS STANDING TO

MAINTAIN THIS APPEAL......................

A. Petitioner Has Direct Standing ..........

B. Petitioner Has Associational Standing

On Behalf Of Its Candidates ...............

C. Petitioner Has Associational Standing

On Behalf Of Its Contributors ............

(v)

TABLE OF CONTENTS—Continued

Page

II. THE D.C. CIRCUIT’S DECISION

PRESENT ISSUES OF NATIONAL

IMPORTANCE THAT SHOULD BE

RESOLVED BY THIS COURT ................

A. The Rule Violates The First Amendment To The U.S. Constitution ...........

1. This Court Has Never Permitted A

Campaign Finance Regime That

Imposes Different Contribution

Limits On Candidates Campaigning For The Same Office ................

2. The D.C. Circuit’s Opinion Contradicts This Court’s Precedent In

McCutcheon ....................................

B. Congress Did Not Vest The SEC With

The Authority To Regulate Federal

Contribution Limits.............................

C. The Rule Is Arbitrary and Capricious

CONCLUSION ....................................................

APPENDIX

APPENDIX A: JUDGMENT, Court of Appeals

for the District of Columbia Circuit (June 18,

2019) ...............................................................

APPENDIX B: MANDATE, Court of Appeals

for the District of Columbia Circuit (August

13, 2019) .........................................................

vii

TABLE OF CONTENTS—Continued

Page

APPENDIX C: OPINION, Court of Appeals

for the District of Columbia Circuit (June 18,

2019) ...............................................................

APPENDIX D: SEC Notice of Filing a

Proposed Rule Change to Adopt FINRA Rule

2030 and FINRA Rule 4580 to Establish

“Pay-To- Play” and Related Rules, Exchange

Act Release No. 34-76767, 80 Fed. Reg.

81650 (December 30, 2015) ............................

33a

APPENDIX E: SEC Order Instituting Proceedings to Determine Whether to Approve

or Disapprove Proposed Rule Change to

Adopt FINRA Rule 2030 and FINRA Rule

4580 to Establish “Pay-To-Play” and Related

Rules (March 29, 2016) ..................................

98a

APPENDIX F: SEC Final Order Approving

a Proposed Rule Change to Adopt FINRA

Rule 2030 and FINRA Rule 4580 to

Establish “Pay-To- Play” and Related Rules,

81 Fed. Reg. 60,051 (Aug. 31, 2016) .............. 138a

APPENDIX G: AFFIDAVIT OF EDWARD

COX, Court of Appeals for the District of

Columbia Circuit (July 25, 2018) .................. 225a

AFFIDAVIT OF FRANCIS J. CALCOGNO

(July 25, 2018) ............................................ 234a

APPENDIX H: FINRA RULE 2030 (No

Date) ............................................................... 237a

viii

TABLE OF AUTHORITIES

CASES

Page(s)

Blount v. SEC,

61 F.3d 938 (D.C. Cir. 1995) ..................... 13, 24

Buckley v. Valeo,

424 U.S. 1 (1976) ................................. 18, 21, 27

Citizens United v. FEC,

558 U.S. 310 (2010) ................................... 4, 22

Davis v. FEC,

554 U.S. 724 (2008) ............................. 18, 19, 20

Fiero v. FINRA,

660 F.3d 569 (2d Cir. 2011) ......................

Friends of the Earth, Inc. v. Laidlaw

Envtl. Servs. (TOC), Inc.,

528 U.S. 167 (2000) ...................................

Galliano v. U.S. Postal Serv.,

836 F.2d 1362 (D.C. Cir. 1988) ............. 3, 30, 31

Ga. Republican Party v. SEC,

888 F.3d 1198 (11th Cir. 2018) .................

L.A. v. Taxpayers for Vincent,

466 U.S. 789 (1984) ...................................

Lavin v. Husted,

689 F.3d 543 (6th Cir. 2012) .....................

McConnell v. FEC,

540 U.S. 93 (2003) ..................................... 22, 32

McCutcheon v. FEC,

134 S. Ct. 1434 (2014) ..............................passim

New York Republican State Comm. v. SEC,

927 F.3d 499 (D.C. Cir. 2019) ..................passim

TABLE OF AUTHORITIES—Continued

Page(s)

Nixon v. Shrink Mo. Gov’t PAC,

528 U.S. 377 (2000) ...................................

Ognibene v. Parkes,

671 F.3d 174 (2d Cir. 2011) ......................

PETA v. USDA,

797 F.3d 1087 (D.C. Cir. 2015) .................

Ragsdale v. Wolverine World Wide, Inc.,

535 U.S. 81 (2002) .....................................

Randall v. Sorrell,

548 U.S. 230 (2006) ....................... 22, 24, 27, 30

Riddle v. Hickenlooper,

742 F.3d 922 (10th Cir. 2014) ...................

Shays v. FEC,

414 F.3d 76 (D.C. Cir. 2005) .....................

Taxation with Representation of

Wash. v. Regan,

676 F.2d 715 (D.C. Cir. 1982) ...................

Tex. Democratic Party v. Benkiser,

459 F.3d 582 (5th Cir. 2006) .....................

United States v. Playboy Entm't Grp.,

529 U.S. 803 (2000) ...................................

United States v. Quinones,

313 F.3d 49 (2d Cir. 2002) ........................

Wagner v. FEC,

793 F.3d 1 (D.C. Cir. 2015) .......................

Weissman v. Nat’l Ass’n of Sec. Dealers, Inc.,

500 F.3d 1293 (11th Cir. 2007) .................

TABLE OF AUTHORITIES—Continued

CONSTITUTION

Page(s)

U.S. Const. amend. I ...................................passim

Colo. Const. Art. XXVIII, § 3(1)(b) ...............

STATUTES

5 U.S.C. §706(2)(A)-(C) .................................

15 U.S.C. §78o-3(b) .......................................

15 U.S.C. §78o-3(b)(6)..................................passim

15 U.S.C. §78o-3(k)(2)(C) .............................

15 U.S.C. §78s(b)(1) ......................................

15 U.S.C. §78s(b)(2)(C) ............................... 1, 6, 29

15 U.S.C. §78ff(a) .........................................

18 U.S.C. §201 ..............................................

18 U.S.C. §201(b) ..........................................

18 U.S.C. § 608(b) (1975)..............................

26 U.S.C. § 6096 ...........................................

28 U.S.C. § 1254 ...........................................

47 U.S.C. § 315(b) .........................................

52 U.S.C. §30104 ..........................................

52 U.S.C. §30105 ..........................................

52 U.S.C. §30106(b)(1).................................. 3, 30

52 U.S.C. §30109 ..........................................

52 U.S.C. §30116 ..........................................

52 U.S.C. §30116(a) ...................................... 4, 28

52 U.S.C. §30116(a)(1)(A).............................

TABLE OF AUTHORITIES—Continued

Page(s)

52 U.S.C. §30116(c) .................................. 4, 11, 28

52 U.S.C. §30118 .......................................... 4, 28

52 U.S.C. §30119 ...................................... 4, 28, 30

52 U.S.C. §30119(a) ......................................

52 U.S.C. §30119(b) ......................................

52 U.S.C. §30121 .......................................... 4, 28

52 U.S.C. §30121(a)(1)..................................

52 U.S.C. §30122 ..........................................

52 U.S.C. §30125(b)(1)..................................

52 U.S.C. §30125(b)(2)(B)(ii) ........................

52 U.S.C. §30125(e)(1)-(2) ............................

N.Y. Penal Law § 200.04 (McKinney 2016) ..

ADMINISTRATIVE RULES AND

REGULATORY MATERIALS

17 C.F.R. §275.206(4)-5(a)(1) .......................

17 C.F.R. §275.206(4)-5(a)(2) .......................

17 C.F.R. §275.206(4)-5(a)(2)(i)(A) ...............

17 C.F.R. §275.206(4)-5(b)(1) .......................

17 C.F.R. §275.206(4)-5(f)(6) ........................

17 C.F.R. §275.206(4)-5(f)(9) ........................

FINRA, Regulatory Notice 14-50 (November

2014), http://bit.ly/2kI4f1M ......................

xii

TABLE OF AUTHORITIES—Continued

Page(s)

Political Contributions by Certain Investment

Advisers, 75 Fed. Reg. 41,018 (July 14,

2010) ..........................................................

7, 8

Price Index Adjustments for Contribution

and Expenditure Limitations and Lobbyist Bundling Disclosure Threshold, 80

Fed. Reg. 5750 (Feb. 3, 2015) ...................

Price Index Adjustments for Contribution

and Expenditure Limitations and Lobbyist Bund-ling Disclosure Threshold, 84

Fed. Reg. 2504 (Feb. 7, 2019) ...................

SEC Final Order Approving a Proposed

Rule Change to Adopt FINRA Rule 2030

and FINRA Rule 4580 to Establish “PayTo- Play” and Related Rules, 81 Fed. Reg.

60,051 (Aug. 31, 2016) .............................passim

Rule 2030 .................................................passim

Rule 2030(a) .............................................. 9, 25

Rule 2030(b) ..............................................

Rule 2030(b)(1) ..........................................

Rule 2030(b)(2) .......................................... 10, 14

Rule 2030(c)(1) ..........................................

Rule 2030(g)(1)(C) .....................................

Rule 2030(g)(2) ..........................................

Rule 2030(g)(2)(D) .....................................

Rule 2030(g)(4) ..........................................

xiii

TABLE OF AUTHORITIES—Continued

Page(s)

Rule 2030(g)(8) ..........................................

Rule 4580 ..................................................

SEC Notice of Filing a Proposed Rule

Change to Adopt FINRA Rule 2030 and

FINRA Rule 4580 to Establish “Pay-ToPlay” and Related Rules, Exchange Act

Release No. 34-76767, 80 Fed. Reg. 81650

(December 30, 2015) ............................ 2, 7-8, 31

OTHER AUTHORITIES

Comment of Allen Dickerson, Center for

Competitive Politics, SR-FINRA-2015056, (Jan. 20, 2016) ................................... 11, 12

Comment of H. Christopher Bartolomucci,

Bancroft PLLC, on behalf of the New

York Republican State Committee and

the Tennessee Republican Party (Jan. 20,

2016) ..........................................................

Comment of Molly M. Diggins, Monument

Group Inc. (Dec. 15, 2014) ........................

Peter Overby, How Picking Mike Pence As

VP Might Cost The Trump Campaign

Donations, NPR (July 16, 2016), http://

n.pr/29Q9ACf ............................................

INTRODUCTION

“There is no right more basic in our democracy

than the right to participate in electing our political

leaders.” McCutcheon v. FEC, 134 S. Ct. 1434, 1440-41

(2014) (plurality op.). Thus, Congress has always

reserved for itself the constitutionally sensitive task of

regulating contributions to candidates for federal

office and has never sought to limit contributions for

state or local officials. This is fitting, for any restriction

on the people’s right to influence who will govern

them should come from the representatives closest

and most responsive to the people, not from unelected

bureaucrats.

Nevertheless, the SEC contends that its grant of

authority to combat fraudulent practices and protect

investors under the Exchange Act, allows it to promulgate campaign finance rules by regulation for

thousands of people. Specifically, Rule 2030 prohibits

regulated placement agents from contributing more

than a de minimis amount to certain elected officials

and prohibits those agents from asking others to make

contributions. While FINRA has authority to propose,

and the SEC authority to approve, rules “to prevent

fraudulent and manipulative acts and practices,” to

promote “a free and open market,” and to protect

participants in that market, 15 U.S.C. §78o-3(b)(6),

that general authority does not allow FINRA or the

SEC to stifle protected First Amendment activity.

Rather, Congress expressly forbids FINRA from trying

“to regulate by virtue of any authority conferred by

this chapter matters not related to the purposes of this

chapter,” id., and requires the SEC to disapprove any

such proposed rule as inconsistent with the requirements of the Exchange Act, 15 U.S.C. §78s(b)(2)(C).

Thus, while the SEC’s end may be laudable, its chosen

means exceed its statutory boundaries and are

unconstitutional.

Rule 2030 exceeds the SEC’s authority for three

principle reasons. First, neither the text nor structure

of the Exchange Act suggests that Congress granted

the SEC the power to regulate lawful political speech.

Second, Congress has consistently reserved for itself,

or left for state legislatures, the constitutionally

sensitive task of setting limits on campaign contributions, never delegating that authority to the FEC,

much less the SEC. Had Congress intended to provide

such authority to an agency, it would have spoken

clearly. Third, the Exchange Act’s proviso commands

the SEC to stay in its lane—without regulating

matters unrelated to securities transactions. The

Court thus should reject the SEC’s position that the

Exchange Act’s generic grant of authority to combat

fraud is also a license to restrict fundamental First

Amendment rights.

There are no factual disputes in this case. Even

the concurring opinion below agreed with the facts,

arriving only at a different conclusion. New York

Republican State Comm. (“NYRSC”) v. SEC, 927 F.3d

499, 512 (D.C. Cir. 2019) (Sentelle, J., concurring). As

a result, this case is an ideal vehicle for this Court to

address key First Amendment and regulatory legal

questions presented.

OPINIONS BELOW

Petitioners challenged the SEC’s Final Order

Approving a Proposed Rule Change to Adopt FINRA

Rule 2030 and FINRA Rule 4580 to Establish “Pay-ToPlay” and Related Rules, 81 Fed. Reg. 60,051 (Aug. 31,

2016); App. 138a-224a, in the United States Court of

Appeals for the D.C. Circuit.

The opinion of the D.C. Circuit is reported at 927

F.3d 499 (D.C. Cir. June 18, 2019).

JURISDICTION

This Court has jurisdiction to review the D.C.

Circuit’s opinion and order under 28 U.S.C. §1254.

STANDARD OF REVIEW

Rule 2030’s Political Contribution Prohibition must

be set aside if it violates the Constitution, exceeds

the agency’s statutory authority, or is “arbitrary,

capricious, an abuse of discretion, or otherwise not in

accordance with law.” 5 U.S.C. §706(2)(A)-(C).

Further, questions pertaining to constitutionality

are reviewed de novo. See United States v. Quinones,

313 F.3d 49, 60 (2d Cir. 2002).

CONSTITUTIONAL AND REGULATORY

PROVISIONS INVOLVED

Appended are the relevant portions of Rule 2030.

The First Amendment to the United States Constitution is incorporated by reference throughout the

petition.

STATEMENT OF THE CASE

A. Statutory and Regulatory Background

Federal campaign finance regulation has long been

the exclusive province of Congress and the FEC—the

agency that Congress has given sole jurisdiction to

“administer, seek to obtain compliance with, and

formulate policy with respect to,” federal campaign

finance laws. 52 U.S.C. §30106(b)(1); see also Galliano

v. U.S. Postal Serv., 836 F.2d 1362, 1368 (D.C. Cir.

1988) (Ginsburg, J.). This Court has described the

comprehensive nature of this regulatory scheme:

Campaign finance regulations now impose

unique and complex rules on 71 distinct

entities. These entities are subject to separate

rules for 33 different types of political speech.

The FEC has adopted 568 pages of regulations, 1,278 pages of explanations and

justifications for those regulations, and 1,771

advisory opinions since 1975.

Citizens United v. FEC, 558 U.S. 310, 334 (2010)

(citations omitted).

Although Congress has left many aspects of campaign finance regulation to the discretion of the FEC,

setting limits for contributions to federal candidates

and to the federal accounts of political party committees is a power that Congress has consistently reserved for itself. Since Congress first enacted FECA in

1971, through its extensive revisions in the Bipartisan

Campaign Reform Act of 2002 (“BCRA”), contribution

limits have been set by statute, not regulation. See 52

U.S.C. §30116(a). Likewise, Congress has reserved for

itself the decision whether, when, and how those statutorily prescribed limits may be altered. Id. §30116(c).

When Congress has seen fit to make exceptions to the

standard limits, or enact a federal law impacting state

and local political contributions, it has done so itself.

See, e.g., id. §§30118, 30119, 30121. Congress has

crafted one such exception for federal government

contractors, who may not make political contributions

to federal candidates, political parties, or political

action committees while they are in the process of

negotiating or performing a federal contract. Id.

§30119. Congress likewise has prohibited foreign

nationals from making contributions or expenditures

to influence federal, state, or local elections. Id.

§30121. But Congress has never enacted a comparable

restriction for finance professionals who provide their

services to public pension funds or other governmental

clients. Instead, these individuals remain subject to

the standard statutory contribution limit, which currently is fixed at $2,700 per candidate per election.

See Price Index Adjustments for Contribution and

Expenditure Limitations and Lobbyist Bundling Disclosure Threshold, 80 Fed. Reg. 5750, 5751 (Feb. 3,

2015). For elections at the state and local level,

campaign contribution limits and other restrictions

on participation in the political process have been

determined by state and local governments.

To transact securities business with the public, all

securities firms must be registered with FINRA. See

Fiero v. FINRA, 660 F.3d 569, 576 (2d Cir. 2011).

FINRA helps “conduct the day-to-day regulation and

administration of the United States’ stock markets,

under the close supervision of the [SEC].” Weissman v.

Nat’l Ass’n of Sec. Dealers, Inc., 500 F.3d 1293, 1296

(11th Cir. 2007) (en banc). FINRA thus “perform[s] a

variety of vital governmental functions” including

“statutorily delegated adjudicatory, regulatory, and

prosecutorial functions.” Id.

Congress has granted FINRA the authority to propose rules to the SEC regarding the regulation of the

securities industry. See generally 15 U.S.C. §78o-3(b).

FINRA’s rules must be “designed to prevent fraudulent and manipulative acts and practices, to promote

just and equitable principles of trade,” to “perfect the

mechanism of a free and open market and a national

market system, and, in general, to protect investors

and the public interest.” §78o-3(b)(6). FINRA’s power,

however, is expressly cabined by the Exchange Act,

which provides that FINRA’s rules must not be

designed “to regulate by virtue of any authority con-

ferred by this chapter matters not related to the

purposes of this chapter or the administration of the

association.” Id.

FINRA’s proposed rules cannot “take effect unless

approved by the Commission.” 15 U.S.C. §78s(b)(1).

The SEC must disapprove any proposed rule that

is not “consistent with the requirements of” the

Exchange Act. §78s(b)(2)(C). Once a rule has been

approved by the SEC, it becomes binding law.

B. The SEC’s Political Contribution Rules

Rule 2030 relates to and was preceded by the SEC’s

own political contribution rule, which has limited the

rights of investment advisers to engage in certain

First Amendment conduct since 2010. Rule 2030 is

triggered when an investment adviser or any of its

“covered associates” makes a political contribution

to an “official of a government entity,” 17 C.F.R.

§275.206(4)-5(a)(2), which includes any state or local

government official or candidate running for that

elective office:

if the office: (i) [i]s directly or indirectly

responsible for, or can influence the outcome

of, the hiring of an investment adviser by

a government entity; or (ii) [h]as authority

to appoint any person who is directly or

indirectly responsible for, or can influence the

outcome of, the hiring of an investment

adviser by a government entity . . .

§275.206(4)-5(f)(6). When the SEC Rule is triggered,

an investment adviser is barred for two years from

receiving compensation for advisory services provided

to the government entity whose public official received

the political contribution. §275.206(4)-5(a)(1). There

are only limited exceptions to the Rule’s two-year ban,

including what the Commission characterizes as a “de

minimis exception” under which an individual may

contribute:

to officials for whom the covered associate

was entitled to vote at the time of the contributions and which in the aggregate do not

exceed $350 to any one official, per election,

or to officials for whom the covered associate

was not entitled to vote at the time of the

contributions and which in the aggregate do

not exceed $150 to any one official, per

election.

§275.206(4)-5(b)(1).

The SEC Rule also prohibits any investment adviser

covered under the rule from paying any person to

solicit a government entity for investment advisory

services on behalf of the investment adviser unless

that person is a “regulated person,” as defined under

the SEC Rule. A broker-dealer registered with FINRA

qualifies as a “regulated person” only if FINRA imposes on its members restrictions on their political

contributions and solicitation of contributions that the

Commission finds are at least as stringent as the Rule.

§§275.206(4)-5(a)(2)(i)(A), (f)(9). Recognizing the vital

role placement agents play in connecting local governments with suitable investment options, the SEC

repeatedly delayed the enforcement of this aspect of

the Investment Adviser Rule until Rule 2030 was

finally in place. See Political Contributions by Certain

Investment Advisers, 75 Fed. Reg. 41,018, 41,042

(July 14, 2010).

On December 24, 2015, FINRA submitted its proposed Rules 2030 and 4580, which comprise the Rule,

to the SEC for approval. See 80 Fed. Reg. 81,650, App.

33a-34a. Rule 2030 is modeled on the SEC Political

Contribution Rule and “impose[s] substantially equivalent restrictions on member firms engaging in

distribution or solicitation activities [as] those the

SEC Pay-to-Play Rule imposes on investment advisers.” App. 36a. Rule 2030 targets those member firms

that “engage in distribution or solicitation activities

with government entities on behalf of investment

advisers.” App. 37a. FINRA stated that the SEC had

found that solicitors—who act as agents of the investment advisers to locate investment advisory clients—

and placement agents—agents who find investors—

were often used as intermediaries to influence the

award of investment adviser contracts. App. 38a

(citing 75 Fed. Reg. at 41,037). FINRA thus asserted

that Rule 2030 is intended to permit member firms to

act as placement agents while also deterring pay-toplay practices. Id.

Rule 2030 covers all FINRA members except those

members whose activities would cause the member to

qualify as a municipal adviser under the Exchange

Act. See Rule 2030(g)(4). Rule 2030’s prohibitions

also apply to “covered associates,” which includes any

person of a covered member who supervises, directly

or indirectly, the distribution or solicitation activities

of a government entity; any person of a covered

member who engages in solicitation or distribution

activity with a government entity; any general partner, managing member, or executive officer of a

covered member, or other similar person; and, finally,

any political action committee that is controlled by a

covered member or associate. See Rule 2030(g)(2).

Rule 2030 prohibits contributions to any person

who, when the contribution was made, was an incumbent or candidate for a public office that is directly or

indirectly responsible for, or can influence, a state

or local government decisions to hire investment

advisers. See Rule 2030(g)(8). Rule 2030 extends to

any office that can appoint a person who is directly or

indirectly responsible for, or can influence, the hiring

of an investment adviser. Id. Rule 2030 also covers

contributions to any such person’s election committee.

Id. The prohibition also covers any contributions that

are made for inaugural committee expenses for a

successful candidate for state or local office. See Rule

2030(g)(1)(C); App. 45a-46a.

Rule 2030 imposes a two-year ban on covered members from engaging in solicitation or distribution

activities, for compensation, on behalf of investment

advisers who are providing or seeking to provide

investment advisory services to a government entity

when the covered member or one of its covered

associates makes a political contribution to an official

of the government entity. This includes any person

who at the time a contribution is made is not a covered

associate, but who becomes a covered associate within

two years of making the contribution. See Rule 2030(a);

App. 109a. Thus, Rule 2030 discourages political activity not only by FINRA members who are currently

covered associates, but also any individuals who

anticipate that they may seek to engage in such work

within the next two years.

In addition to the two-year compensation ban tied

to contributions to candidates, covered members and

their covered associates are flatly prohibited from

soliciting or coordinating with any person or political

action committee to make any contribution to an

official of a government entity where the member is

already engaged or is seeking to engage in distribution

or solicitation of securities on behalf of an investment

adviser. See Rule 2030(b)(1).

Covered members and their associates are also prohibited from soliciting or coordinating with any person

or political action committee to make any payments to

a state or local political party committee in a state

where the covered member is engaged or is seeking to

engage in the distribution or solicitation activities on

behalf of an investment adviser. See Rule 2030(b)(2).

According to FINRA’s transmittal to the SEC, this

provision is violated only if the contribution to the

political party or political action committee was in fact

earmarked for an official. See App. 52a. But the Rule

itself does not contain such a limiting principle.

Further, FINRA’s explanation is contrary to the language of the Rule. The Rule first prohibits covered

associates from coordinating or soliciting any person

or PAC from making contributions to an official. Rule

2030(b)(1). But Rule 2030’s prohibition on funding

political party committees is broader because it prohibits the solicitation or coordination of payments to

political party committees. Rule 2030(b)(2). As FINRA

explains, a “payment” is broader than a contribution

because a payment “does not include limitations on the

purposes for which such money is given (e.g., it does

not have to be made for the purpose of influencing an

election).” App. 51a, n.41 (emphasis added). Thus, a

payment to a political party committee that is not

earmarked to a specific official, or even for a specific

election, could result in severe penalties for the donor

and his employer.

Moreover, contributing to or soliciting for candidates and parties extends beyond merely writing a

check or asking someone else to do the same. As

FINRA explains, even placing a covered member’s or

associate’s name on fundraising literature is now

illegal. App. 50a, n.40. Nor can a covered member or

associate sponsor a conference where an official is a

guest speaker if the event involves fundraising for the

official. Id. Thus, merely associating with a group that

supports a covered official can run afoul of federal law.

Even inadvertent violations of these prohibitions

may lead to disgorgement of fees and a temporary or

even lifetime ban from the securities industry. See

App. 190a; 15 U.S.C. §78o-3(k)(2)(C). And those who

willfully transgress Rule 2030 can face fines of up to

$5,000,000 and a prison term of up to 20 years.

§78ff(a).

There are narrow exceptions to Rule 2030’s two-year

ban. A covered associate who is a natural person can

make contributions of no more than $350 per election

to government officials for whom the associate is

entitled to vote, and no more than $150 per election to

other government officials. See Rule 2030(c)(1). Unlike

the contribution limits set by Congress and limits set

by many states, the SEC’s contribution limits are not

indexed to inflation. See 52 U.S.C. §30116(c).

C. Procedural History

In November 2014, FINRA requested comments on

the Rule as proposed. See FINRA Reg. Notice 14-50.1

One commenter argued that FINRA failed to justify

its contribution limits as a statutory or First Amendment matter, SR-FINRA-2015-056, Comment of Allen

Dickerson, Center for Competitive Politics (Jan. 20,

2016), and that Rule 2030 violated the First Amend-

FINRA, Regulatory Notice 14-50 (November 2014), http://

bit.ly/2kI4f1M.

ment by banning the solicitation or coordination of

contributions to political parties. Id.

After FINRA submitted its Rule to the SEC, state

Political Parties, including Petitioner, submitted a

comment to the SEC regarding Rule 2030. They

argued first that the Rule is ultra vires because Congress did not empower FINRA to regulate federal

elections through political contribution limits. Comment of H. Christopher Bartolomucci, Bancroft PLLC,

on behalf of the New York Republican State Committee and the Tennessee Republican Party (Jan. 20,

2016). Second, the Parties contended that Rule 2030

violates the First Amendment by forcing member

firms and their covered associates to choose between

their First Amendment rights to support candidates

and “continuing to work with investment advisers who

are seeking work from public pensions.” Id. Finally,

the Parties noted that Rule 2030 establishes a campaign finance regime where covered officials running

for a non-covered office will face lower contributions

limits than their non-covered opponents. Id.

The Commission approved Rule 2030 on August 25,

2016. The Commission stated that Rule 2030 would

discourage member firms and covered associates “from

engaging in quid pro quo corruption that may create

market distortions—when, for example, an investment adviser is chosen on the basis of a placement

agent’s political contributions rather than the adviser’s merit.” App. 192a.

Petitioner timely filed their petition in the U.S.

Court of Appeals for the Eleventh Circuit on October

20, 2016. On April 26, 2018, the Eleventh Circuit held

that the Georgia Republican Party lacked standing to

challenge the SEC Order. See Ga. Republican Party v.

SEC, 888 F.3d 1198 (11th Cir. 2018). The Eleventh

Circuit further held that it was not the proper venue

to consider the challenges raised by the New York

Republican State Committee or the Tennessee Republican Party. The court transferred those Petitioners’

case to the D.C. Circuit.

Petitioner New York State Republican Committee

petitioned the D.C. Circuit for review of the SEC’s

order approving Rule 2030, on the grounds that:

(1) the SEC did not have authority to enact the Rule;

(2) the order adopting the Rule is arbitrary and

capricious because there was insufficient evidence it

was needed; and (3) the Rule violates the First

Amendment to the Constitution of the United States.

NYRSC, 927 F.3d 499. The SEC challenged Petitioner’s standing to bring the case and defended Rule

2030 against Petitioner’s arguments. Id. at 504. The

D.C. Circuit held that Petitioner had standing but

denied its petition on the merits. Specifically, the D.C.

Circuit held that the SEC acted within its authority in

adopting Rule 2030; adopting Rule 2030 was not

arbitrary and capricious because the SEC had sufficient evidence it was needed; and Rule 2030 does not

violate the First Amendment in view of Blount v. SEC,

61 F.3d 938 (D.C. Cir. 1995). NYRSC, 927 F.3d at 512.

Senior Circuit Judge Sentelle dissented, opining that

he would have dismissed the petition for lack of

standing. Id. at 512-14.

REASONS FOR GRANTING THE PETITION

I. PETITIONER HAS STANDING TO MAINTAIN THIS APPEAL

To establish standing, a party must demonstrate

that: “(1) it has suffered an ‘injury in fact’ that is

(a) concrete and particularized and (b) actual or

imminent, not conjectural or hypothetical; (2) the

injury is fairly traceable to the challenged action of the

defendant; and (3) it is likely, as opposed to merely

speculative, that the injury will be redressed by a

favorable decision.” Friends of the Earth, Inc. v.

Laidlaw Envtl. Servs. (TOC), Inc., 528 U.S. 167, 18081 (2000). To establish associational standing, an association must demonstrate that “its members would

otherwise have standing to sue in their own right, the

interests at stake are germane to the organization’s

purpose, and neither the claim asserted nor the relief

requested requires the participation of individual

members in the lawsuit.” Id. at 181. Petitioners readily satisfy these requirements, both on their own and

in their capacity as representatives of their members

and supporters.

A. Petitioner Has Direct Standing

Rule 2030 injures the Petitioners directly by preventing them from receiving contributions thereby

harming their associational rights and economic

interests. Specifically, Rule 2030 makes it unlawful for

covered associates to coordinate with or to solicit any

person or committee to make any payment to a political party, like Petitioners, of a state or locality where

the covered member is “engaging in, or seeking to

engage in, distribution or solicitation activities on

behalf of an investment adviser.” Rule 2030(b)(2).

These prohibitions cause Petitioners precisely the

kinds of associational and economic injuries that

courts repeatedly have held sufficient to give organizations standing in their own right. See, e.g., Taxation

with Representation of Wash. v. Regan, 676 F.2d 715,

722-23 (D.C. Cir. 1982), rev’d on other grounds, 461

U.S. 540, 723 (1983) (it was “clearly evident that [the

nonprofit organization] will be harmed if its contributors cease giving it money.”).

Moreover, expenditures of scarce time and financial

resources to inform candidates about the ramifications

of Rule 2030 go beyond those Petitioner would normally expend to educate its members about campaign

finance and political speech restrictions. App. 231a.

By forcing Petitioner to divert these scarce resources,

Rule 2030 has inhibited Petitioner’s ability to pursue

its day-to-day mission of promoting its candidates and

their messages. App. 231a-232a. Petitioner’s injuries

would be redressed if the Court vacates Rule 2030 and

lifts its restrictions on supporters of political parties.

Thus, “[b]ecause [NYGOP] has expended resources to

counter these injuries, it has established Article III

organizational standing.” PETA v. USDA, 797 F.3d

1087, 1095 (D.C. Cir. 2015).

B. Petitioner Has Associational Standing

On Behalf Of Its Candidates

Petitioner also has associational standing on behalf

of its candidates. See Tex. Democratic Party v.

Benkiser, 459 F.3d 582, 587 (5th Cir. 2006) (holding

that political party had “associational standing on

behalf of its candidate”). Numerous NYGOP candidates running for election have been harmed by

having to run in competitive environments in which

the delicate competitive balance has been tipped by

Rule 2030. App. 232a-233a. These candidates face

obstacles related to raising campaign funds and

recruiting supporters to solicit contributions on their

behalf. One covered associate would have contributed

more than $350 to several NYGOP candidates

including Molinaro if not for Rule 2030’s restrictions.

Comment of Molly M. Diggins, Monument Group Inc.

(Dec. 15, 2014).

Rule 2030 places a covered official at a particular

disadvantage against an incumbent member of Congress. FINRA-regulated placement agents can give at

most $350 to the covered official’s campaign but can

contribute up to $2700 to his competitor. App. 230a.

That is why the courts have made clear that “because

[campaign finance] regulations shape the environment in which Plaintiffs must operate as officeholders

and candidates,” candidates have standing to “bring

suit challenging those rules.” Shays v. FEC, 414 F.3d

76, 82 (D.C. Cir. 2005) (quotation omitted).

C. Petitioner Has Associational Standing

On Behalf Of Its Contributors

Finally, Petitioner has standing to challenge Rule

2030 on behalf of its members, supporters, and donors

whose First Amendment rights are inhibited by Rule

2030. Francis Calcagno is a supporter of the NYGOP

and is just one of thousands of people to whom Rule

2030 applies. App. 235a-236a. He has contributed to

NYGOP candidates in the past, and if Rule 2030 were

not in effect, he would contribute more than the $350

limit to NYGOP candidates in this election cycle. Id.

Calcagno would also ask his friends, family, and other

contacts to contribute to the NYGOP and its candidates but for the fact that Rule 2030 prohibits that

conduct. Id. Thus, Calcagno has adequately supported

an injury that Rule 2030 has imposed on both him and

the NYGOP. Nothing more is required for standing.

L.A. v. Taxpayers for Vincent, 466 U.S. 789, 803 (1984)

(“[A]ppellees certainly have standing to challenge the

application of the ordinance to their own expressive

activities.”).

II. THE D.C. CIRCUIT’S DECISION PRESENT

ISSUES OF NATIONAL IMPORTANCE

THAT SHOULD BE RESOLVED BY THIS

COURT

A. The Rule Violates The First Amendment To The U.S. Constitution

Unchanged, the D.C. Circuit’s decision allows any

federal agency with a mandate to fight corruption

in its regulatory area to impose contribution limits

on candidates for both federal and state office by

regulation. This is more of an intrusion into State

affairs than Congress itself took, prohibiting states

only from allowing foreign contributions. 52 U.S.C.

§30121(a)(1). In fact, states have enacted a kaleidoscope of contribution limits, with some states imposing

no contribution limits and therefore permitting unlimited contributions to state candidates (e.g. Virginia), to

some states imposing low contribution limits to state

candidates (e.g. Colorado, Colo. Const. Art. XXVIII,

§3(1)(b) (limiting individuals to $200 to state legislative candidates), and some localities impose bans on

government contractors from making contributions

to candidates for local office. (e.g. New York City,

Ognibene v. Parkes, 671 F.3d 174, 178 (2d Cir. 2011)).

It is one thing for Congress to preempt a state legislature’s authority to enact contribution limits governing

state elections through legislation related to foreign

relations. It is a completely different matter for a federal agency to preempt a state legislature’s decision

governing contribution limits in a state election by

regulation.

Compounding this problem is that the D.C. Circuit’s

decision also interferes with Congress’s considered

statutory campaign finance regime. In enacting the

federal contribution limits, Congress was already infringing the First Amendment rights of individuals.

Buckley v. Valeo, 424 U.S. 1, 23 (1976). The D.C.

Circuit’s decision now permits regulatory agencies to

further infringe—in an unequal manner—the First

Amendment rights of those contributors over whom

the regulatory body oversees. As has already occurred,

App. 230a, permitting regulatory agencies to impose

their own contribution limits on individuals whom

they regulate inexorably leads to different contribution limits for different candidates campaigning for

the same office. This Court has never permitted this

result. Davis v. FEC, 554 U.S. 724, 738 (2008); See also

Riddle v. Hickenlooper, 742 F.3d 922, 931 (10th Cir.

2014) (Gorsuch, J., concurring). Congress already infringed the constitutional rights of contributors when

it enacted FECA. Now the SEC and FINRA want to

infringe the constitutional rights of contributors and

candidates within their regulated community in an

unequal manner through administrative regulations

that directly override a statutory limit. This is not

permissible under the Constitution. This Court should

grant certiorari and reverse.

1. This Court Has Never Permitted A

Campaign Finance Regime That Imposes Different Contribution Limits

On Candidates Campaigning For

The Same Office

The Supreme Court has “never upheld the

constitutionality of a law that imposes different

contribution limits for candidates who are competing

against each other.” Davis, 554 U.S. at 738. Nor has it

upheld a law that prevents certain candidates running

for one office from receiving contributions from certain

individuals. Yet that is precisely what the Rule does,

as it prevents placement agents from making $2,800

contributions to candidates like the NYGOP’s James

O’Donnell (who is a covered official who campaigned

for Congress in 2018), but not from making the same

contribution to his incumbent opponent. App. 230a.

That the Rule imposes different contribution limits

on candidates competing for the same office is a

problem. In the 2016 presidential campaign, a similar

contribution rule imposed by the MSRB and the SEC

tilted the playing field against the Republican ticket,

as many municipal securities dealers could contribute

up to $2,800 to Clinton-Kaine, but far less to TrumpPence because of Pence’s service as Indiana’s governor.2 If this Court does not intervene, Rule 2030 will

impose the same unconstitutional handicap on candidates in 2020. See App. 232a-233a.

The D.C. Circuit casts Davis as standing for the

proposition that the asymmetrical contribution limits

regime that Congress imposed was unconstitutional

because the government attempted to justify the limits

as “level[ing] electoral opportunities for candidates of

different personal wealth.” App. at 26a. NYRSC, 927

F.3d at 511. But this Court has recognized only one

legitimate interest in limiting campaign contributions:

preventing corruption or the appearance thereof.

Davis, 554 U.S. at 741.

Peter Overby, How Picking Mike Pence As VP Might Cost

The Trump Campaign Donations, NPR (July 16, 2016), http://

n.pr/29Q9ACf.

The D.C. Circuit’s premise, therefore, leads to a conclusion that this Court prohibits. That court concluded

that the Rule’s imposing different contribution limits

upon candidates competing for the same office was a

“feature” not a “flaw.” NYRSC, 927 F.3d at 512. This

is because FINRA and the SEC had adduced evidence

that office holders with the ability to award contracts

are more susceptible to corruption and the appearance

of corruption. Id. Accordingly, the D.C. Circuit concluded that a lower contribution limit and ban on

soliciting contributions for political parties are justified when enacted by a regulatory agency.

This conclusion is contrary to this Court’s categorical statement and holding: “We have never upheld

the constitutionality of a law that imposes different

contribution limits for candidates who are competing

against each other….” Davis, 554 U.S. at 738.

This Court rejected BCRA’s asymmetrical campaign

finance regime because allowing it would constitute

“the unprecedented step of imposing different contribution and coordinated party expenditure limits on

candidates vying for the same seat [which is] is

antithetical to the First Amendment.” Id. at 743-44

(emphasis added). The SEC’s contribution limits enacted by regulation do exactly this and worse. Like the

BCRA’s Millionaire’s Amendment, the SEC’s contribution limits impose different contribution limits on

candidates campaigning for the same federal office.

But unlike the BCRA’s Millionaire’s Amendment, the

SEC’s contribution limits impose different contribution limits on candidates campaigning for the same

federal, state, and local office. Left undisturbed, the

Decision will permit this practice to continue in all

elections nationwide.

2. The D.C. Circuit’s Opinion Contradicts This Court’s Precedent In

McCutcheon

Congress has already significantly curtailed the

constitutional right to support federal candidates

through campaign contributions by limiting such contributions to $2,800 per candidate per election and

states have done the same for their own races.

Buckley, 424 U.S. at 23; 52 U.S.C. §30116(a)(1)(A);

Price Index Adjustments for Contribution and Expenditure Limitations and Lobbyist Bundling Disclosure Threshold, 84 Fed. Reg. 2504, 2506 (Feb. 7, 2019).

If FINRA and the SEC want to impose even more

stringent restrictions on the First Amendment rights

of covered members and covered associates by regulation, then they must prove that those restrictions are

authorized by law, and necessary to further a sufficiently important interest, and that they do so in a

sufficiently tailored manner. FINRA and the SEC do

not and cannot satisfy this standard.

At the outset, there can be no serious dispute that

the Rule severely burdens First Amendment rights. It

forces placement agents to choose between exercising

their constitutional right to support candidates through

political contributions and continuing to work as

placement agents. Under the Rule, the only way for a

placement agent to do the latter is to forgo the former.

FINRA itself characterizes its exception to this rule

as “de minimis”—and with good reason, as it allows

only covered associates—and not covered members—

to contribute only $350 per election to candidates for

whom they are entitled to vote, and only $150 per

election to any other candidate. 81 Fed. Reg. at 60,055,

App. 10a. Those limits are “substantially lower than

… limits [that courts] have previously upheld,” and

are lower even than limits that courts have struck

down. Randall v. Sorrell, 548 U.S. 230, 253 (2006)

(plurality op.). FINRA and the SEC therefore bear an

exceedingly high burden in establishing the constitutionality of the Rule. Cf. McConnell v. FEC, 540

U.S. 93, 141 n.43 (2003) (“the associational burdens

imposed by a particular piece of campaign-finance

regulation may at times be so severe as to warrant

strict scrutiny”).

As this Court recently reiterated, there is “only

one legitimate governmental interest for restricting

campaign finances: preventing corruption or the

appearance of corruption.” McCutcheon, 572 U.S. at

206-07. Further, there is only one type of corruption

that campaign finance restrictions may target: quid

pro quo corruption. Id. at 191. “Spending large sums

of money in connection with elections, but not in

connection with an effort to control the exercise of an

officeholder’s official duties, does not give rise to such

quid pro quo corruption.” Id. at 206-07. “Nor does the

possibility that an individual who spends large sums

may garner ‘influence over or access to’ elected officials

or political parties.” Id. at 208 (quoting Citizens

United, 558 U.S. at 359). In short, “[i]ngratiation

and access … are not corruption,” and thus are not

things that campaign finance restrictions may target.

Citizens United, 558 U.S. at 360.

While Rule 2030 does not target the spending of

“large sums of money” it does target fully disclosed

federal political contributions of $2,800 or less and

similar amounts at the state and local levels. Even

setting aside that massive problem, this Court has

never recognized “promot[ing] just and equitable

principles of trade,” “perfect[ing] the mechanism of a

free and open market,” or “protect[ing] investors and

the public interest,” 81 Fed. Reg. at 60,057, 60,063,

App. 167a, as reasons for restricting the right to make

political contributions.

The SEC, therefore, attempts to squeeze the Rule

into the Supreme Court’s case law by portraying it as

an effort to combat quid pro quo contributions to

officials by covered members and their associates

when those same members and associates act as

placement agents for investment advisers seeking to

obtain business from the very government entities to

which the covered members and associates contributed. See 81 Fed. Reg. at 60,065, App. 191a. Such

argument is doomed by its sheer implausibility where

disclosed contributions within the limits established

by FECA and state laws are concerned. The SEC does

not demonstrate instances in which a covered associate has made a fully disclosed federal campaign contribution of $2,800 or comparable state contribution

“in connection with an effort to control the exercise of

an officeholder’s official duties.” McCutcheon, 572 U.S.

at 206-07. Instead, the SEC attempts to justify the

Rule through the kind of “mere conjecture” that courts

“have never accepted . . . as adequate to carry a First

Amendment burden,” Nixon v. Shrink Mo. Gov’t PAC,

528 U.S. 377, 392 (2000), asserting that “the proposed

rule change advances this government interest by

seeking to halt an existing pay-to-play problem, even

though, in terms of a record, ‘no smoking gun is

needed.’” 81 Fed. Reg. at 60,057, App. 167a (emphasis

added). But such “speculation … cannot justify …

substantial intrusion on First Amendment rights.”

McCutcheon, 572 U.S. at 218.

The SEC, therefore, acknowledges that the Rule is a

broad prophylactic measure deterring constitutionally

protected conduct when the government has no legiti-

mate interest in doing so. See 81 Fed. Reg. at 60,057,

App. 167a-168a (recognizing the “prophylactic” purpose of the Rule).

Congress has already enacted a broad prophylactic

restriction on campaign contributions, limiting them

to $2,800 per federal candidate per election, and

states have enacted analogous legislation modeled on

FECA. FECA’s contribution limit “remain[s] the primary means of regulating campaign contributions.”

McCutcheon, 572 U.S. at 209. If FINRA or the SEC

want to subject covered associates to more stringent

restrictions “layered on top” of that statutory limit, id.

at 221, they must provide evidence that the existing

limit is insufficient to address quid pro quo corruption,

or its appearance, when it comes to placement agents.

FINRA and the SEC have, however, failed to offer “any

special justification that might warrant a contribution

limit so low or so restrictive as to bring about the

serious associational and expressive problems” that

the Rule creates. Randall, 548 U.S. at 261.

The D.C. Circuit asserts that it satisfied McCutcheon

when it reviewed the MSRB’s political contribution

rule in Blount v. SEC, 61 F.3d 938. There, the D.C.

Circuit applied strict scrutiny and upheld the MSRB’s

political contribution rule. Id. at 944-47. According to

the court below, that satisfies McCutcheon.

McCutcheon requires more, and Petitioner urged

more. What the D.C. Circuit needed to review was

whether FINRA’s additional prophylactic contribution

limit—in addition to the federal contribution limit—

was authorized by law and justified to prevent corruption or the appearance thereof. McCutcheon, 572 U.S.

at 206, 221. This requires that the SEC demonstrate

that Congress’s base limits on candidates for federal

office—$2,800 per election—are insufficient at pre-

venting corruption, or its appearance, from covered

associates to covered officials. McCutcheon, 572 U.S.

at 210, 221 (stating that when the government

restricts speech it is the government’s burden to

justify its actions and that when the government

places restrictions in addition to the base contribution

limits, the additional restriction must be justified).3 To

be clear, Petitioner does not deny the existence of

pay-to-play schemes. Instead, the SEC’s evidence is

insufficient because it does not address the precise

question here: why the SEC needs an additional

campaign finance limit—$350/$150 de minimis contribution limit—on top of Congress’s $2,800 per election

as the base limit. See McCutcheon, 572 U.S. at 216-18

(ruling that the aggregate contribution limit was

unconstitutional because the stated need for them

involved scenarios that were either already illegal

under current law or “divorced from reality”). The SEC

does not adduce any evidence that Congress’s prophylactic ban on disclosed contributions above $2,800 per

election was ineffective.

The McCutcheon Court struck down aggregate contribution limits because there were no “real-world

examples of circumvention of the base limits,” and

An analogy to Wagner and the federal contractor ban is

unpersuasive. The federal contractor ban does not impact candidates differently, it only prohibits certain individuals from

contributing to any and all candidates for federal office. 52 U.S.C.

§30119(a). Second, federal contractors can establish separate

segregated funds. Compare id. §30119(b) (allowing contributions

from the separate segregated fund of a federal contractor) with

FINRA Rule 2030(a)-(b) and (g)(2)(D) (prohibiting covered members and associates, including PACs controlled by covered members and associates from contributing to covered officials). Third,

the federal contractor ban is supported by a century of evidence.

Wagner v. FEC, 793 F.3d 1, 10-14 (D.C. Cir. 2015) (en banc).

“speculation” about circumvention of the base limits

alone could not “justify the substantial intrusion on

First Amendment rights at issue in th[e] case.” 572

U.S. at 217-18; see also Lavin v. Husted, 689 F.3d 543

(6th Cir. 2012) (declaring unconstitutional an Ohio

statute prohibiting candidates for Ohio Attorney General or county prosecutor from accepting campaign

contributions from Medicaid providers because there

was no evidence of corruption by state or county

prosecutors). Because the SEC likewise fails to provide

evidence that placement agents have been corrupting

candidates with legal, fully disclosed campaign contributions, FINRA’s Rule fails because it does not identify a problem requiring the Rule, nor does the SEC

demonstrate that its means ameliorate it.4

Additionally, the SEC also must adduce evidence

that FINRA’s Political Contribution Rule is closely

drawn. McCutcheon, 572 U.S. at 210, 221. A regulation

is closely drawn if it does not unnecessarily abridge

First Amendment rights. Id. at 199. If a plausible less

restrictive alternative is presented, it is the SEC’s

burden to prove that the alternative will be ineffective.

United States v. Playboy Entm't Grp., 529 U.S. 803,

816 (2000); see also McCutcheon, 572 U.S. at 220-21

(holding that more closely drawn alternatives existed

to achieve anti-circumvention interests than the

The SEC hypothesized before the D.C. Circuit that if 100

“covered associates” contribute $2,700, “the member firm may

still be credited with a $270,000 contribution.” (Opp.n Br. at 43).

But if the covered associates conspired to contribute $270,000 to

get the corporation credit to obtain a contract award, this might

violate the prohibition on contributions in the name of another,

52 U.S.C. §30122, and potentially constitute bribery. 18 U.S.C.

§201(b). Furthermore, absent evidence of this actually happening, it also seems divorced from reality and this Court should not

credit it. McCutcheon, 572 U.S. at 216.

“indiscriminate” ban of all contributions to candidates

above an annual aggregate limit). There is no evidence

in the record demonstrating how FINRA arrived at

the $350 contribution limit for covered associates to

contribute to covered officials for whom the associate

can vote, and $150 contribution limit for covered

associates to contribute to other officials. By contrast,

Congress, through ample evidence, arrived at the

$1,000 per election contribution limit as the tipping

point between the lawful exercise of First Amendment

rights and large campaign contributions that are

corrupting. See Buckley, 424 U.S. at 26-28. Congress

had ample evidence that the problem of corruption is

in large campaign contributions. Id. at 28. The SEC

does not adduce evidence that $351 from a covered

associate to a covered official is a large campaign

contribution. That the SEC does not adduce this

evidence is unsurprising given that “the legislature is

better equipped to make such empirical judgments, as

legislators have ‘particular expertise’ in matters

related to the costs and nature of running for office.”

Randall, 548 U.S. at 248.

B. Congress Did Not Vest The SEC With

The Authority To Regulate Federal

Contribution Limits

This Court can declare the Rule unlawful because it

is ultra vires and avoid the constitutional issue. If the

Court leaves the Decision unaltered, then any federal

government agency can impose contribution limits on

those persons within its regulated community.

Congress has reserved the role for enacting contribution limits and prohibitions for itself, fixing by

statute all limits on campaign contributions. This was

so back when Congress first enacted FECA, and it

remains so today, after Congress extensively revised

FECA through BCRA. Compare 18 U.S.C. §608(b)

(1975), with 52 U.S.C. §30116(a). Although Congress

has given the FEC broad and exclusive jurisdiction to

enforce the statutorily prescribed contribution limits,

see id. §30109, Congress has not granted the FEC

discretion to increase or decrease those limits on its

own initiative. Instead, that, too, is a judgment that

Congress itself has made, dictating by statute the

precise circumstances and way its contribution limits

may be adjusted. See id. §30116(c)). Congress also has

reserved for itself the power to establish exceptions to

its statutorily fixed limits. For instance, Congress has

prohibited national banks, corporations, labor organizations, and their officers or directors from making

any contributions in connection with elections for

federal offices. Id. §30118. Congress also has prohibited foreign nationals from making any contributions

in connection with any election. Id. 52 U.S.C. §30121.

And Congress has imposed restrictions on the circumstances under which people who contract their services to the government may make contributions,

prohibiting them from doing so while they are negotiating or performing under a government contract. Id.

§30119. Congress has not imposed any comparable

restriction on investment advisers who are providing

or seeking to provide their services to public pension

funds. And, in each of these instances, Congress

applied its restrictions to all candidates for federal

office and not one set of rules for incumbents and

another for challengers.

In the rare instance when Congress wants agencies

other than the FEC to participate in the enforcement

or administration of campaign finance laws, it says

so directly. See, e.g., 47 U.S.C. §315(b) (delegating to

Federal Communications Commission authority to

enforce proper sponsorship identification in political

advertising); 26 U.S.C. §6096 (delegating authority to

Internal Revenue Service to administer “check off

program” that funds Presidential Election Campaign

Fund).

FINRA’s Political Contribution Rule vastly exceeds

FINRA’s authority to propose and the SEC’s authority

to approve rules that “prevent fraudulent and

manipulative acts and practices,” “promote just and

equitable principles of trade,” “perfect the mechanism

of a free and open market and a national market

system,” or “protect investors and the public interest.”

Id. Rather, Congress expressly forbids FINRA

“to regulate by virtue of any authority conferred

by this chapter matters not related to the purposes of

this chapter . . . ,” id., and requires the SEC to

disapprove any such proposed rule as inconsistent

with the requirements of the Exchange Act, 15 U.S.C.

§78s(b)(2)(C). Campaign finance is not a matter

related to the purposes of the Exchange Act; it is

outside both the SEC’s expertise and its statutory

authority. The Commission thus lacks the power to

impose broad prophylactic prohibitions on conduct so

far outside its statutory mandate—particularly when

that conduct is protected by the Constitution and

limited beyond what Congress authorized in FECA.

Not a single line of the Exchange Act mentions the

regulation of campaign finance because Congress

never delegated to any agency the sensitive undertaking of determining the point at which campaign

contributions pose a risk of corruption or the appearance thereof. Congress consistently has reserved this

role for itself. It makes sense Congress that would

reserve these judgments for itself rather than delegate

them to executive agencies, “as legislators have

‘particular expertise’ in matters related to the costs

and nature of running for office.” Randall, 548 U.S. at

248.

Moreover, Congress has never imposed contribution

limits on state and local races, which would raise

serious federalism concerns. Rather, Congress has

been careful not to override state limits on contributions and expenditures that are devoted solely to state

and local races. Thus, while BCRA limits the amount

of money a state or local party can spend on federal

election activity, see, e.g., 52 U.S.C. §30125(b)(1),

Congress elucidated that these restrictions do not

apply to expenditures related “solely to a clearly

identified candidate for State or local office.” 52 U.S.C.

§30125(b)(2)(B)(ii). Likewise, while federal officeholders are subject to certain BCRA restrictions related to

their ability to solicit funds for other elections, this

restriction does not apply if the federal officeholder is

fundraising for his own race for state or local office. 52

U.S.C. §30125(e)(1)-(2).

All of that would make the Rule difficult enough to

defend had it been promulgated by the FEC. After all,

Congress may have granted the FEC “exclusive[]”

“responsibility for the civil enforcement of matters

specifically covered by” FECA and BCRA, Galliano,

836 F.2d at 1368; see 52 U.S.C. §30106(b)(1), but

Congress has not granted the FEC discretion to displace Congressional judgment on the appropriate

limits of political contributions with the agency’s own

judgment. Yet that is what the SEC and FINRA do in

Rule 2030: By forcing placement agents to choose

between providing their services or making political

contributions at the amounts permitted by FECA, the

rule has the same practical effect as the restriction

that Congress chose to impose only on government

contractors. See 52 U.S.C. §30119.

That Rule 2030 has been promulgated by the SEC

and FINRA makes this an even easier case, as

Congress has not granted the SEC or FINRA any

authority to regulate federal campaign contributions

or other campaign finance-related activities. Instead,

FINRA claimed this power under its general grant of

authority to propose rules “designed to prevent fraudulent and manipulative acts and practices, to promote

just and equitable principles of trade, and, in general,

to protect investors and the public interest.” 80 Fed.

Reg. 81,650, 81,656 (Dec. 30, 2015), App. 192a (citing

15 U.S.C. §78o-3(b)(6)); 81 Fed. Reg. at 60,058.

Giving this provision an expansive view, the SEC

agreed with FINRA’s finding that the proposed rule

change is consistent with the Exchange Act. 81 Fed.

Reg. at 60,062-63, App. 138a-244a. This boundless

view of SEC authority would strain credulity even

without the constitutional sensitivities or Congress’

“comprehensive” and “first-amendment-sensitive” contribution limits regime. Galliano, 836 F.2d at 1368,

1370.

Any attempt to fit the regulation of political contributions and solicitation in under the SEC’s authority

to “protect[s] investors and the public interest,” 15

U.S.C. §78o-3(b)(6), stretches the statutory language

beyond its breaking point. The authority to target

“fraudulent and manipulative acts and practices” does

not give these financial regulatory agencies the authority to set contribution limits on political races or

prohibit other political activity. Id.

If a statutory grant of authority like the statutes at

issue here, which are for enacting regulations to

“perfect the mechanism of a free and open market” or

“to protect investors and the public interest,” 15 U.S.C.

§78o-3(b)(6), are read to include the power of imposing

campaign contribution limits for all federal, state, and

local elections, then any federal agency can do the

same within its regulatory ambit. While the Exchange

Act gives the SEC the authority to regulate how

placement agents do their job and to punish them for

actual fraud or bribery, the Act does not grant the SEC

the authority to regulate their lawful political speech.

Those matters are left to state and federal legislators,

the experts at “weigh[ing] competing constitutional

interests” inherent in any decision related to how

we participate in electing our political leaders.

McConnell, 540 U.S. at 137. To return the SEC and

FINRA to their proper sphere, this Court should

therefore grant certiorari.

C. The Rule Is Arbitrary and Capricious

Finally, even assuming that authority to regulate

“fraudulent and manipulative practices” includes

authority to create new campaign finance regimes,

FINRA and the SEC have failed to justify this new

prophylactic ban on otherwise lawful speech. At the

outset, it is important to recognize that the Rule’s

application to candidates for federal office targets only

those instances in which covered associates make fully

disclosed federal political contributions in amounts

less than $2,800 to federal candidates or make fully

disclosed donations to political party committees federal accounts. Everything else already is prohibited

directly by the campaign finance statutes and is therefore squarely within the enforcement jurisdiction of

the FEC and the Department of Justice. See 52 U.S.C.

§§30116, 30104, 30105. Moreover, similar contribution

and disclosure requirements are imposed by states

under state law, and “pay-to-play” conduct is already

prohibited by both state and federal law, see, e.g., 18

U.S.C. §201 (prohibiting payment of bribes to federal

officials); N.Y. Penal Law §200.04 (McKinney 2016)

(prohibiting bribes to state officials). Thus, Rule 2030

is necessarily premised on the notion that making

fully disclosed contributions within state and federal

limits is likely to result in some sort of “fraudulent and

manipulative” act or will otherwise harm markets or

the “public interest.” 15 U.S.C. §78o-3(b)(6).

Yet, neither the SEC nor FINRA can identify with

any specificity what “fraud” might result from the

modest, publicly- disclosed contributions the Rule

precludes. And FINRA offers only speculation that the

Rule will cause more qualified advisers to offer their

services, 81 Fed. Reg. at 60,063, 60,065 App. 121a,

122a, 135a, 167a, 169a, 192a, 199a, 203a, and provide

government entities better advice, id. This fails

scrutiny. Ragsdale v. Wolverine World Wide, Inc., 535

U.S. 81, 93 (2002) (“When the generalizations fail to

hold in the run of cases,” however, “the justification for

the categorical rule disappears.”

In short, the Rule is unauthorized, unjustified, and

massively overbroad in a way that raises grave First

Amendment concerns. Because FINRA and the SEC

exceeded their statutory authority and acted arbitrarily and capriciously in promulgating it, the Rule

cannot be sustained. This Court should grant certiorari and reverse.

CONCLUSION

For the forgoing reasons, petitioners respectfully

request that the Court grant this petition.

Respectfully submitted,

JASON TORCHINSKY

Counsel of Record

SHAWN SHEEHY

CHRIS WINKELMAN

JONATHAN LIENHARD

DENNIS W. POLIO

HOLTZMAN VOGEL JOSEFIAK

TORCHINSKY PLLC

45 North Hill Drive, Suite 100

Warrenton, VA 20186

(540) 341-8808

jtorchinsky@hvjt.law

Counsel for Petitioner

September 16, 2019

APPENDIX

APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

[Filed: June 18, 2019]

————

No. 18-1111

————

NEW YORK REPUBLICAN STATE COMMITTEE AND

TENNESSEE REPUBLICAN PARTY,

Petitioners,

SECURITIES AND EXCHANGE COMMISSION,

Respondent.

————

On Petition for Review of a Final Order

of the Securities & Exchange Commission

————

September Term, 2018

————

Before: PILLARD, Circuit Judge, and GINSBURG and

SENTELLE, Senior Circuit Judges

————

JUDGMENT

This cause came on to be heard on the petition for

review of an order of the Securities & Exchange

Commission and was argued by counsel. On consideration thereof, it is

ORDERED and ADJUDGED that the petition for

review is denied, in accordance with the opinion of the

court filed herein this date.

Per Curiam

FOR THE COURT:

Mark J. Langer, Clerk

BY: /s/

Ken Meadows

Deputy Clerk

Date: June 18, 2019

Opinion for the court filed by Senior Circuit Judge

Ginsburg.

Dissenting opinion filed by Senior Circuit Judge

Sentelle.

APPENDIX B

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

[Filed: August 13, 2019]

————

No. 18-1111

SEC-34-78683

————

NEW YORK REPUBLICAN STATE COMMITTEE AND

TENNESSEE REPUBLICAN PARTY,

Petitioners,

SECURITIES AND EXCHANGE COMMISSION,

Respondent.

————

September Term, 2018

————

MANDATE

In accordance with the judgment of June 18, 2019,

and pursuant to Federal Rule of Appellate Procedure

41, this constitutes the formal mandate of this court.

FOR THE COURT:

Mark J. Langer, Clerk

BY: /s/

Ken R. Meadows

Deputy Clerk

APPENDIX C

UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

————

No. 18-1111

————

NEW YORK REPUBLICAN STATE COMMITTEE AND

TENNESSEE REPUBLICAN PARTY,

Petitioners,

SECURITIES AND EXCHANGE COMMISSION,

————

Respondent.

Argued November 15, 2018

Decided June 18, 2019

————

On Petition for Review of a Final Order

of the Securities & Exchange Commission

————

Edmund G. LaCour Jr. argued the cause for petitioners. With him on the briefs were H. Christopher

Bartolomucci and Jason B. Torchinsky.

Jeffrey A. Berger, Senior Litigation Counsel, Securities and Exchange Commission, argued the cause for

respondent. With him on the brief was Michael A.

Conley, Solicitor.

Carter G. Phillips, Joseph Guerra, Tobias S. LossEaton, and Michael L. Post were on the brief for

amicus curiae Municipal Securities Rulemaking

Board in support of respondent.

Before: PILLARD, Circuit Judge, and GINSBURG and

SENTELLE, Senior Circuit Judges.

Opinion for the Court filed by Senior Circuit Judge

GINSBURG.

Dissenting opinion filed by Senior Circuit Judge

SENTELLE.

GINSBURG, Senior Circuit Judge: In 2016 the Securities and Exchange Commission adopted Rule 2030,

which regulates the political contributions of those

members of the Financial Industry Regulatory Authority

(FINRA), a self-regulatory association of broker-dealers,

who act as “placement agents” – i.e., individuals and

firms that investment advisers hire to help them secure

contracts advising a government entity. The Rule

prohibits a placement agent from accepting compensation for soliciting government business from certain

candidates and elected officials within two years of

having contributed to such an official’s electoral campaign or to the transition or inaugural expenses of a

successful candidate. The New York Republican State

Committee (NYGOP) and the Tennessee Republican

Party petition for review of the SEC’s order approving

Rule 2030, on the grounds that: (1) the SEC did not

have authority to enact the Rule; (2) the order adopting the Rule is arbitrary and capricious because there

was insufficient evidence it was needed; and (3) the

Rule violates the First Amendment to the Constitution

of the United States. The SEC challenges the petitioners’ standing to bring the case and defends the Rule

against these arguments.

We hold the NYGOP has standing and deny its

petition on the merits. The SEC acted within its

authority in adopting Rule 2030; doing so was not

arbitrary and capricious because the SEC had suffi-

cient evidence it was needed; and the Rule does not

violate the First Amendment in view of our holding in

Blount v. SEC, 61 F.3d 938 (1995), in which we upheld

a functionally identical rule against the same challenge.

I. Background

The SEC adopted the challenged rule in response to

longstanding concerns about so-called “pay-to-play”

activity in the public pension market. We therefore

begin by laying out what prompted the SEC’s decision

to regulate the contributions of placement agents to

candidates and incumbents for elected office.

A. Pay-to-Play and Public Funds

In many instances, local and state government

officials responsible for holding and managing public

funds, such as pension funds and tuition plans, are

also responsible for choosing investment advisers to

manage plan assets. Political Contributions by Certain

Investment Advisers, Investment Advisers Act Release

No. IA–3043, 75 Fed. Reg. 41018, 41019/1 (July 14,

2010).1 By 2010 an increasing number of enforcement

actions had revealed that some of these elected officials

chose investment advisers based upon whether the

would-be adviser had given them money or donated to

their campaign. 75 Fed. Reg. at 41019/3-20/3; id. at

41039 n.290. For example, the SEC brought cases against

the former Treasurer of the State of Connecticut and

other defendants, alleging the Treasurer had allocated

pension fund investments to fund managers in exchange

for political contributions and other payments made

Henceforth, for the sake of simplicity, we follow the lead of

the SEC in using the term “public pension plan” to refer to any

investment program “sponsored or established” by a government

entity, “regardless of whether they are retirement funds.” 75 Fed.

Reg. 41018 n.3.

through the Treasurer’s “friends and political associates.” Id. at 41020/1.

Concerned that these practices distort the market

for investment advisory services, the SEC adopted a

rule in 2010 regulating the political contributions of

firms and individuals registered under the Investment

Advisers Act of 1940, which prohibits any adviser from

engaging “in any act, practice, or course of business

which is fraudulent, deceptive, or manipulative.” 15

U.S.C. § 80b-6(4); see 17 C.F.R. § 275.206(4)-5. This

“Advisers Act rule” makes it unlawful for an investment adviser to provide services “for compensation

to a government entity within two years after a

contribution to an official of the government entity is

made by the investment adviser or any covered associate of the investment adviser.” 17 C.F.R. § 275.206(4)5(a)(1). The rule was “modeled on” Rule G-37 of the

Municipal Securities Rulemaking Board (MSRB), 75

Fed. Reg. at 41020/3, which the SEC had approved in

1994 and which imposes a similar two-year “time-out”

upon a dealer in the municipal securities market

who has donated to a covered official. Self-Regulatory

Organization - Municipal Securities Rulemaking Board,

Exchange Act Release No. 34-33868, 59 Fed. Reg.

17621, 17622/3-25/3 (Apr. 13, 1994). The SEC modeled

its rule upon MSRB Rule G-37 in part because we had

upheld that rule against a first amendment challenge

in Blount, and in part because the SEC believes G-37

was successful in “significantly curb[ing] pay to play

practices in the municipal securities market.” 75 Fed.

Reg. at 41020/3, 41023/3; see also Order Approving a

Proposed Rule Change To Adopt FINRA Rule 2030

and FINRA Rule 4580 To Establish “Pay-To-Play” and

Related Rules, Exchange Act Release No. 34 78683, 81

Fed. Reg. 60051, 60065/1 (Aug. 31, 2016).

The SEC understood the Advisers Act rule would

not address all instances of pay-to-play corruption. In

particular, it was aware of several cases in which an

investment adviser did not contribute directly to a

candidate or incumbent but instead acted through a

placement agent. See 75 Fed. Reg. at 41037/3-38/1;

Notice of Filing of a Proposed Rule Change To Adopt

FINRA Rule 2030 and FINRA Rule 4580 To Establish

“Pay-to-Play” and Related Rules, Exchange Act Release

No. 34-76767, 80 Fed. Reg. 81650, 81651/1 (Dec. 30,

2015). For example, a placement agent who funneled

contributions to the New York State Comptroller secured

contracts for its client to advise $250 million worth of

pension fund investments. 81 Fed. Reg. at 60065/3; 75

Fed. Reg. at 41019/3-20/3. The SEC was therefore

“concerned that a rule that failed to address the use of

[placement agents] would be ineffective were advisers

simply to begin using . . . placement agents” to get

government clients. 75 Fed. Reg. at 41037/3.

Instead of barring investment advisers from hiring

placement agents, however, the SEC allowed an adviser

to retain a placement agent who is a member of the

FINRA, 17 C.F.R. § 275.206(4)-5(a)(2)(i)(A); 15 U.S.C.

§ 78c(a)(26), if the FINRA would impose restrictions

upon its members that were “substantially equivalent

[to] or more stringent” than the SEC’s parallel rule for

investment advisers. 17 C.F.R. § 275.206(4)-5(f)(9)(ii);

see Ga. Republican Party v. SEC, 888 F.3d 1198, 1200

(11th Cir. 2018); 81 Fed. Reg. at 60063/3 (noting the

FINRA had agreed to “prepare rules for [the SEC’s]

consideration that would prohibit its [placement agent]

members” from engaging in pay-to-play activity).

B. FINRA Rule 2030

In 2015 the FINRA proposed Rule 2030, which is

modeled after the Advisers Act rule and MSRB Rule

G-37. 81 Fed. Reg. at 60053/1, 60057/2. Rule 2030(a),

subject to some exceptions, prohibits a FINRA member

from

Engag[ing] in distribution or solicitation activities for compensation with a government

entity on behalf of an investment adviser that

provides or is seeking to provide investment

advisory services to such government entity

within two years after a contribution to an

official of the government entity is made by

the covered member or a covered associate.

In other words, if a placement agent makes a contribution to a government official who can influence a

government entity’s choice of an investment adviser,

see Rule 2030(g)(8) (defining “official”), then the placement agent must wait two years before he or his firm

can accept payment for soliciting that government

entity on behalf of a client. The “two-year time-out” is

intended to serve as a “cooling-off period during which

the effects of a political contribution on the selection

process can be expected to dissipate.” 81 Fed. Reg. at

60053/1.

Rule 2030(b) prevents circumvention of this primary

prohibition by forbidding a covered member or a

“covered associate” of a member from “solicit[ing] or

coordinat[ing] any person or political action committee” to make any contributions to a covered official. See

also Rule 2030(g)(2) (defining “covered associate”). The

covered member or associate is also forbidden from

“soliciting or coordinating any person or political

action committee to make any payment to a political

party of a state or locality of a government entity with

which the covered member is engaging in, or seeking

to engage in, distribution or solicitation activities

on behalf of an investment adviser.” Rule 2030(b)(2)

10a

(cleaned up). Put another way, a placement agent may

not solicit contributions for a political party and later

be paid to serve as a placement agent for the state or

locality of that party.

Rule 2030(c)(1) sets forth an exception to the Rule

for de minimis contributions, allowing an associate of

a FINRA member firm to contribute up to $350 to a

candidate or incumbent if he or she is eligible to vote

for that person; otherwise the limit is $150.

When the SEC approved FINRA Rule 2030 in 2016,

the NYGOP, along with the Tennessee and Georgia

Republican Parties, filed a joint petition in the

Eleventh Circuit for review of the SEC order. 81 Fed.

Reg. at 60051; Ga. Republican Party, 888 F.3d at 1201.

The Eleventh Circuit held the Georgia party did not

have standing to challenge the order and transferred

the case to this court based upon the applicable venue

statute. Id. at 1205 (citing 15 U.S.C. § 78y(a)(1)).

II. Analysis

A. Standing

In order to bring their challenge, the petitioners

must establish they have satisfied the “constitutional

minimum” for standing to sue, which requires that (1)

they have suffered an injury-in-fact, (2) caused by the

challenged conduct; and (3) a favorable decision is

likely to redress that injury. Lujan v. Defs. of Wildlife,

504 U.S. 555, 560-61 (1992). If any one of the petitioners has standing to raise a claim, then this court has

jurisdiction over that claim without regard to whether

any other petitioner also has standing. Carpenters

Indus. Council v. Zinke, 854 F.3d 1, 9 (D.C. Cir. 2017).

Although we are typically skeptical about a petitioner’s standing where, as here, neither petitioner is

11a

regulated by the challenged rule, Lujan, 504 U.S. at

561-62, we hold the NYGOP has met its burden by

advancing “specific facts” to support its claim to have

suffered an injury-in-fact. Id. at 561; Sierra Club v.

EPA, 292 F.3d 895, 899 (D.C. Cir. 2002). The NYGOP

has submitted the affidavit of Francis Calcagno, a

placement agent covered by Rule 2030, stating that “if

Rule 2030 were no longer in effect,” then he “would

solicit contributions for the NYGOP from [his] friends,

family, and other contacts.” Add. to Pet’rs’ Br. 18-19.

An organization is obviously “harmed if its contributors cease giving it money.” Taxation with Representation

of Wash. v. Regan, 676 F.2d 715, 723 (D.C. Cir. 1982)

(holding a nonprofit has standing to bring a first

amendment challenge against restrictions denying tax

deductions to its contributors), rev’d on other grounds,

461 U.S. 540 (1983). Hence, we hold the NYGOP’s

reduced ability to raise funds due to Rule 2030 constitutes a concrete and particularized injury for purposes

of Article III standing.

The SEC claims Taxation is inapplicable because

the tax statute challenged in that case affected the

entire donor base of a nonprofit organization, whereas

the NYGOP has not shown placement agents affected

by Rule 2030 constitute more than a minority of its

potential contributors. As the petitioners point out,

however, this argument addresses only the degree of

their injury. As we have long held, even a slight injury

is sufficient to confer standing; the size of the harm

therefore poses no jurisdictional barrier to the NYGOP’s

claim. See Tax Analysts & Advocates v. Blumenthal,

566 F.2d 130, 138 (D.C. Cir. 1977).

The SEC next invokes Clapper v. Amnesty International USA, 568 U.S. 398 (2013), to argue the

petitioners’ risk of harm is too speculative because it

12a

relies upon the decisions of third parties not before

us. In Clapper, the Supreme Court held that certain

attorneys and organizations did not have standing

to challenge a provision of the Foreign Intelligence

Surveillance Act of 1978 because they failed to show

their claimed injury – namely, that their communications with overseas clients and contacts would be

intercepted by the Government – was “certainly impending.” Id. at 410-14. As the Supreme Court later clarified,

however, a plaintiff is not limited to establishing

injury-in-fact by showing that a harm is “certainly

impending”; it may instead show a “substantial risk”

that the anticipated harm will occur. See Susan B.

Anthony List v. Driehaus, 573 U.S. 149, 158 (2014). We

have, therefore, determined that “the proper way to

analyze an increased-risk-of-harm claim is to consider

the ultimate alleged harm . . . as the concrete and

particularized injury and then to determine whether

the increased risk of such harm makes injury to an

individual citizen sufficiently ‘imminent’ for standing

purposes.” Attias v. Carefirst, Inc., 865 F.3d 620, 627

(D.C. Cir. 2017).

We have already determined that the NYGOP’s

reduced ability to raise funds is a concrete and particularized harm to the organization. The question

now is whether the NYGOP has shown it faces a

“substantial risk” of this harm materializing.

We hold the NYGOP has met its burden. To be sure,

Calcagno has not shown with literal certainty that his

contacts would have donated to the NYGOP upon his

request. But Clapper does not require certainty; instead,

it understandably holds a plaintiff’s risk of harm

cannot be based upon a “highly attenuated chain of

possibilities.” 568 U.S. at 410. Unlike in Clapper, where

the chain comprised several links, “requir[ing] the

13a

assumption that independent decisionmakers” – the

Attorney General, the Director of National Intelligence,

and judges of the Foreign Intelligence Surveillance

Court – “would exercise their discretion in a specific

way,” Attias, 865 F.3d at 626, here the plaintiff’s standing requires only the single inference that at least one

of Calcagno’s family, friends, or contacts would have

donated a few dollars to the NYGOP had Calcagno

asked him or her to do so. In our view, that inference

is eminently reasonable – indeed, irresistible; the

increased risk of at least some harm as a result of the

SEC’s decision to adopt Rule 2030 is therefore

substantial and not speculative. Cf. id. at 628-29

(contrasting the substantial risk of identity theft posed

by a data hack with the “long sequence of uncertain

contingencies” in Clapper). We do not believe that a

practical application of Article III requires more than

the affidavit before us.

In short, we hold the NYGOP has Article III

standing to pursue this case. The NYGOP’s reduced

ability to raise funds due to Rule 2030 constitutes a

non-speculative injury-in-fact, which would be redressed

were we to grant its petition.

B. Authority of the SEC

We turn now to the petitioners’ challenge to Rule

2030 as an ultra vires regulation of campaign finance.

Pursuant to Section 15A of the Securities Exchange

Act of 1934, the SEC “shall approve” a rule proposed

by the FINRA – the only registered national securities

association, see Self-Regulatory Organization Rulemaking, SEC. EXCH. COMM’N (Mar. 5, 2019), https://

www.sec.gov/rules/sro.shtml – if it is “consistent with

the requirements of [the Act].” 15 U.S.C. § 78s(b)(2)(C)(i).

Section 15A also authorizes the FINRA to make rules to

“prevent fraudulent and manipulative” practices, “to

14a

promote just and equitable principles of trade,” and to

“remove impediments to and perfect the mechanism of

a free and open market and a national market system,

and, in general, to protect investors and the public

interest.” 15 U.S.C. § 78o-3(b)(6); see also 81 Fed. Reg.

at 60062/3-63/1.

The SEC says Rule 2030 comes within this authority

because pay-to-play transforms the process by which

government officials select investment advisers into

one in which political contributions, rather than the

competence and cost of investment advisers, drive the

award of contracts. See 81 Fed. Reg. at 60063/1-65/3.

As a result, public pension funds are more likely to be

managed by less qualified investment advisers and to

pay higher fees, to the detriment both of the funds’

beneficiaries and of taxpayers. Id. at 60065/2; 75 Fed.

Reg. at 41022/2-3. Indeed, pay-to-play presents a

familiar agency problem in which the agent, who selects

advisers for the fund, has an interest that diverges

from that of his principals – the beneficiaries. This is

not a self-correcting problem: Investment advisers and

placement agents who decline to pay are put at a competitive disadvantage. See Blount, 61 F.3d at 945-46.

We agree with the SEC’s view of its authority. As we

said in Blount, 61 F.3d at 945, regulating pay-to-play

practices in the municipal bond market is within the

authority of the SEC to reduce distortion in financial

markets:

“Pay to play” practices raise artificial barriers

to competition for those firms that either

cannot afford or decide not to make political

contributions. Moreover, if “pay to play” is

the determining factor in the selection of an

underwriting syndicate, an official may not

necessarily hire the most qualified under-

15a

writer for the issue . . . . “Pay to play” practices

undermine [just and equitable] principles [of

trade] since underwriters working on a

particular issuance may be assigned similar

roles, and take on equivalent risks, but be

given different allocations of bonds to sell –

resulting in differing profits – based on their

political contributions or contacts.

Id. This reasoning, of course, is not limited to the

market for municipal securities at issue in Blount; it

applies with equal force to the pension funds at risk of

corruption in this case. See 81 Fed. Reg. at 60063/2-3

(“[P]ublic pension plans are particularly vulnerable to

pay-to-play practices”).

The petitioners first complain this view of the SEC’s

authority is too expansive. In support, they cite

California Independent System Operator Corp. v.

FERC, 372 F.3d 395 (2004) (CAISO), in which we held

the Federal Energy Regulatory Commission (FERC)

exceeded its statutory authority when it ordered a

state-created utility corporation to adopt a method for

selecting members of its board, in derogation of the

method prescribed by a state statute. The FERC

claimed it was acting pursuant to its authority to

regulate a “practice” affecting a rate collected by a

public utility, id. at 399, but after analyzing the

meaning of that word in the Federal Power Act, id. at

398-401, we concluded the “breathtaking scope” of the

FERC’s interpretation was unreasonable. Id. at 401.

The petitioners here do not explain how CAISO

bears upon the present case. To be sure, both cases

involve a federal agency accused of acting outside the

bounds of its authority, but there the similarity ends.

The reasoning in CAISO is addressed to the specific

provisions of the Federal Power Act, and the petition-

16a

ers do not explain how it might in any meaningful way

affect our analysis of the Exchange Act. Nor do the

petitioners marshal any evidence to draw into question our observation in Blount that there is a “selfevident” connection “between eliminating pay-to-play

practices and the Commission’s [twin] goals of ‘perfecting the mechanism of a free and open market’ and

promoting ‘just and equitable principles of trade.’” 61

F.3d at 945.

The petitioners argue in the alternative that the

Congress surely “could not have intended to delegate

a decision of such . . . significance to an agency.” Pet’rs’

Reply Br. 14 (quoting FDA v. Brown & Williamson

Tobacco Corp., 529 U.S. 120, 160 (2000)). Rather, the

argument goes, the Congress has reserved to itself the

authority to determine when a political contribution

poses a risk of corruption, because it has chosen to set

limits directly through the Federal Election Campaign

Act of 1971 (FECA). As evidence that the Congress

intends to dictate when limits may be adjusted or

imposed, the petitioners cite a provision of the FECA

that specifies contribution limits shall increase based

upon changes in the price index, 52 U.S.C. § 30116(c),

as well as FECA provisions that bar contributions

from certain groups, such as national banks and foreign

nationals, §§ 30118, 30121, but not from placement

agents.

Because none of these provisions bears upon the

SEC’s authority to uproot pay-to-play corruption in

financial markets, we take the petitioners’ argument

to be that provisions of the later-enacted FECA work

an implied repeal – a term the petitioners understandably reject – of the SEC’s pre-existing authority

to regulate pay-to-play activity under Section 15A of

the Exchange Act.

17a

As the SEC points out, however, the Supreme Court

has instructed that when “statutes are capable of

coexistence, it is the duty of the courts, absent a clearly

expressed congressional intention to the contrary, to

regard each as effective.” J.E.M. Ag Supply, Inc. v.

Pioneer Hi-Bred Int’l, Inc., 534 U.S. 124, 143-44 (2001);

see also Radzanower v. Touche Ross & Co., 426 U.S.

148, 154 (1976) (describing “two well-settled categories of repeals by implication: (1) where provisions in

the two acts are in irreconcilable conflict . . . ; and

(2) if the later act covers the whole subject of the

earlier one . . . . But, in either case, the intention of the

legislature to repeal must be clear and manifest”)

(cleaned up). We do not take this duty lightly. See FTC

v. Ken Roberts Co., 276 F.3d 583, 593 (D.C. Cir. 2001)

(“Because we live in an age of overlapping and concurring regulatory jurisdiction, a court must proceed with

the utmost caution before concluding that one agency

may not regulate merely because another may”) (internal

quotation omitted). In our view, that the Congress has

increased the contribution limits to keep pace with

inflation and that it has prohibited certain groups

from making contributions is not evidence of a “clear

congressional intention” to preclude the SEC from

limiting campaign contributions that distort financial

markets.

Finally, the petitioners make a related but distinct

claim, based upon Galliano v. U.S. Postal Service, 836

F.2d 1362 (D.C. Cir. 1988), that the “first-amendmentsensitive” provisions of the FECA limiting individual

contributions “displace” any authority the Exchange

Act may have conferred upon the SEC to set further

restrictions. Pet’rs’ Br. 33-34 (citing Galliano, 836 F.2d

at 1370). In Galliano, we held the United States Postal

Service could not enforce its statutory authority to

prevent “false representations” in the mail by impos-

18a

ing certain disclosure requirements for political mail

on top of those specifically required by the detailed

disclosure provisions of the FECA, which reflect a

delicate “balance of interests . . . deliberately struck by

Congress” in light of the first amendment considerations involved in regulating campaign finance. 836

F.2d at 1370. Similarly, as the SEC emphasizes, we

were concerned that the procedures used by the Postal

Service to adjudicate whether a defendant had made a

“false representation” through the mail would have

bypassed the “precisely drawn” dispute resolution

process prescribed by the FECA. Id. at 1371.

At the outset, we note that in Galliano, which was

decided prior to Blount, we were at pains to analyze

the authority of the Postal Service in a manner that

“reduce[d] constitutional doubt,” id. at 1369, with respect

to two questions: (1) whether the Postal Service’s effort

to “regulate solicitations for political contributions”

was consistent with the First Amendment and (2) “if

so, then as a matter of first amendment due process,

[whether] such solicitations may be regulated without

a prior judicial determination of the existence vel non

of first amendment protections.” Id. at 1370 n.7

(cleaned up); see also Ken Roberts Co., 276 F.3d at 593

(describing Galliano as “relying on the First Amendment and the canon of constitutional doubt in holding

that the [FECA] partially preempted the postal

fraud prescriptions”). Although the First Amendment

is surely implicated in the present case as well, Blount,

as described below, has since clarified that the SEC’s

pay-to-play rules are not constitutionally infirm under

the law of this Circuit. Moreover, our concern in

Galliano with “first amendment due process” is simply

not relevant here. Whereas we were concerned in

Galliano about whether there would be sufficient

judicial review of the Postal Service’s case-by-case

19a

determinations of what is a misrepresentation and

what is protected speech, id. at 1369, 1370 n.7, here

we review only a facial challenge to whether the bright

line of Rule 2030 violates the First Amendment. We

are not therefore compelled by Galliano to resolve the

allegedly overlapping authority of the SEC and the

FEC by holding only one of them may regulate in a

way that touches upon political contributions.

Galliano might nevertheless have given the petitioners some traction had the Supreme Court not later

decided POM Wonderful LLC v. Coca-Cola Co., 573

U.S. 102 (2014), which supersedes some of this court’s

reasoning in Galliano. (Indeed, it is unclear to what

extent Galliano has survived that decision.) The Court

in POM held that labeling regulations implementing

the Food, Drug, and Cosmetic Act (FDCA) do not

preclude a business from bringing a claim against a

competitor for unfair competition arising from false

or misleading advertising in violation of the Lanham

Act. As the SEC rightly claims, the reasoning in

POM weighs heavily in its favor. The Court began its

analysis with the text of the two statutes, noting

neither contains an express limitation on Lanham Act

claims, which is “of special significance because the

Lanham Act and the FDCA have coexisted” for 70

years. Id. at 113. Similarly, neither of the relevant

statutes in this case contains a provision limiting the

reach of the other, and the first pay-to-play rule

adopted by the SEC (MSRB Rule G37) has coexisted

with the FECA for 25 years. Furthermore, in determining that the Congress did not “intend the FDCA

to preclude Lanham Act suits,” id. at 121, the Court

reasoned that the two statutes “complement each other

in major respects . . . . Although both statutes touch on

food and beverage labeling, the Lanham Act protects

commercial interests against unfair competition, while

20a

the FDCA” and hence, we might add, the labeling

regulation implementing it, “protects public health

and safety.” Id. at 115. Similarly, the FECA and the

Exchange Act, as instantiated by the SEC’s pay-toplay rules, can peacefully coexist: Although both regimes

touch upon political contributions, the FECA is meant

to protect elections from the perceived untoward effects

of over-limit campaign contributions by whomever

made, whilst the Exchange Act, as implemented by

Rule 2030, is meant to protect the financial markets

from the perceived untoward effects of over-limit

contributions made by placement agents. See Blount,

61 F.3d at 944 (“[I]n Buckley and Austin the legislature was interested in clean elections, whereas here

the SEC is interested in clean bond markets”).

In so holding, we reject the petitioners’ argument

that the FECA is incompatible with the Exchange Act

because the general $2,700 contribution limit set by

the FECA serves as a “safe haven.” Pet’rs’ Reply Br.

18; see Galliano, 836 F.2d at 1370. This argument is

not tenable after POM: The Court there considered

and rejected a similar contention, reasoning that the

implementing regulations of the FDCA should not be

viewed as a “ceiling on the regulation of food and

beverage labeling” because the “Congress intended

the Lanham Act and the FDCA to complement each

other.” Id. at 119. Just as the Court observed in

POM that “[i]t is unlikely that Congress intended the

FDCA’s protection of health and safety to result in less

policing of misleading food and beverage labels than in

competitive markets for other products,” id. at 116, so

too we think it unlikely the Congress intended the

FECA’s protection of the electoral process to result in

less policing of corruption and inefficiency in the

financial markets.

21a

We are similarly unpersuaded by the petitioners’

argument that the FECA leaves no room for the SEC

to impose its own restrictions simply because the

FECA is more detailed. As the Court said in POM, the

“greater specificity [of one law] would matter only if

[the two laws] cannot be implemented in full at the

same time.” 573 U.S. at 118. Because, as shown above,

the Exchange Act and the FECA can both be fully

implemented without conflict, it matters not that the

FECA is more detailed.

Finally, the petitioners’ assertions to the contrary

notwithstanding, the “exclusive jurisdiction” of the

FEC to enforce the FECA, see 52 U.S.C. § 30106(b)(1),

is no bar to our conclusion that the SEC may enforce

the Exchange Act to reduce distortion in financial

markets. Rule 2030 does not purport to give the SEC

the ability to enforce provisions of the FECA. Cf. POM,

573 U.S. at 116-17 (explaining that although the FDA

has exclusive authority to enforce the FDCA, “POM

seeks to enforce the Lanham Act, not the FDCA or its

regulations”).

C. Arbitrary and Capricious

In their next line of attack, the petitioners claim the

order adopting Rule 2030 is arbitrary and capricious,

in violation of the Administrative Procedure Act, 5

U.S.C. § 706(2)(A), because the SEC has not shown the

Rule targets corruption beyond that already prevented

by federal and state laws against bribery or by the

FECA.

We do not believe the federal and state laws prohibiting bribery are adequate to address pay-to-play

activity, as the petitioners suggest. Laws against

bribery “deal with only the most blatant and specific

attempts of those with money to influence governmen-

22a

tal action,” Wagner v. FEC, 793 F.3d 1, 15 (D.C. Cir.

2015) (quoting Buckley v. Valeo, 424 U.S. 1, 27-28

(1976)); “corruption and its appearance are no doubt

more widespread in the contracting process than our

criminal dockets reflect.” Id.; see also id. at 25.

Nor is the FECA a solution to the problem: The SEC

adopted Rule 2030 precisely because it was aware of

several instances in which a placement agent’s contribution to a government official – lawful under the

FECA – influenced that official’s decision to award an

advisory services contract. See 75 Fed. Reg. 41019/220/3, 41037/3. In adopting the Rule, the agency explained

that placement agents played a “central role” in several

pay-to-play scandals involving FECA-compliant contributions to officials in New York, Connecticut, and

California. 81 Fed. Reg. at 60065/3; see also 75 Fed.

Reg. 41019/2-20/2; id. at 41019/3 n.17; id. at 41039/3

n.290.

The petitioners minimize the significance of this

evidence, arguing the SEC’s examples do not show

that “most, many, or even more than a few publicly

disclosed $2,700 federal contributions or similar contributions made to state and local officials by placement

agents will involve the kind of quid pro quo arrangement” the Rule aims to prevent. Pet’rs’ Br. 44. That is

true, but it would make no sense to require the SEC to

show that quid pro quo arrangements are, as the

petitioners put it, “rampant,” id.: A contribution is

corrupting even if it cannot be traced to the subsequent award of a contract for advisory services because

in this market “a contribution brings the donor merely

a chance to be seriously considered, not the assurance

of a contract.” Blount, 61 F.3d at 945. (Indeed, it could

hardly be otherwise whenever a candidate or incumbent receives several contributions from as many

23a

would-be advisers.) Not surprisingly, in Blount the

record contained “no evidence of specific instances of

quid pro quos,” yet we rejected the same argument in

the form that the harms being targeted by MSRB Rule

G-37 were “merely conjectural.” 61 F.3d at 944. As we

explained then in analyzing whether MSRB Rule G-37

violated the First Amendment, the contributions at

issue “self-evidently create[d] a conflict of interest”

and, although actual corruption is difficult to detect,

the “risk of corruption is obvious and substantial.” Id.

at 944-45. Accordingly, “no smoking gun is needed

where . . . the conflict of interest is apparent, the

likelihood of stealth great, and the legislative purpose

prophylactic.” Id. at 945; see also Buckley, 424 U.S. at

29-30 (rejecting a challenge to the contribution limit in

the FECA that “most large contributors do not seek

improper influence,” because it is too “difficult to

isolate suspect contributions”).

D. The First Amendment

We turn, finally, to the petitioners’ contention that

Rule 2030 violates the First Amendment. As a threshold matter, however, we must determine the standard

to which the Rule should be held. The petitioners, of

course, urge us to subject Rule 2030 to strict scrutiny

on the ground that we are reviewing an action by

the SEC as opposed to the Congress, which they say

alone has the “expertise” to weigh the first amendment

considerations involved. Pet’rs’ Br 52. This novel theory

runs up against our precedent holding the “closely

drawn” standard, which is “a lesser but still rigorous

standard of review” prescribed by the Supreme Court,

“remains the appropriate one for review of a ban on

campaign contributions,” Wagner v. FEC, 793 F.3d at

5-6 (citing several Supreme Court cases, the most

recent of which is McCutcheon v. FEC, 572 U.S. 185,

24a

197 (2014) (plurality opinion)). We therefore ask

whether Rule 2030 is closely drawn to serve a “sufficiently important” governmental interest. Id. at 7-8.

As the SEC points out, we answered this question

when we upheld MSRB Rule G-37 against the first

amendment challenge in Blount. Because MSRB Rule

G-37 is identical in every constitutionally relevant

way to FINRA Rule 2030, Blount compels our holding

for the SEC in this indistinguishable case. Then, as

now, the Supreme Court has said that “preventing

corruption or the appearance of corruption are the only

legitimate and compelling government interests thus

far identified for restricting campaign finances,’” FEC

v. Nat’l Conservative Political Action Comm., 470 U.S.

480, 496-97 (1985)); Blount, 61 F.3d at 944; see also

Wagner v. FEC, 793 F.3d at 8, 22 (restrictions on the

first amendment right to make political contributions

may be particularly necessary in the “contracting

context,” which “greatly sharpens the risk of corruption and its appearance” because “there is a very

specific quo for which the contribution may serve as

the quid: the grant or retention of the contract”). We

determined MSRB Rule G-37 survives even strict

scrutiny because the rule restricts only a “narrow

range of . . . activities for a relatively short period of

time.” Blount, 61 F.3d at 947-48; see also Wagner v.

FEC, 793 F.3d at 26 (“The availability of other avenues

of political communication can thus be relevant,

although it is of course not dispositive”). Rule 2030

contains identical safeguards and therefore survives

our review today; its restrictions are closely drawn to

further a compelling governmental interest, as can be

seen in the specific instances of quid pro quo conduct

identified by the SEC. See Part II.C above; 81 Fed.

Reg. at 60066/1-2.

25a

Rather than attempt to twist the logic of Blount in

their favor, the petitioners advance two reasons for

thinking our precedent is no longer good law. First,

they invoke the plurality opinion in McCutcheon for

the proposition that “Blount relied heavily on several

strands of reasoning that the Supreme Court has since

rejected.” Pet’rs’ Br. 50. Under the petitioners’ blinkered reading of that opinion, the present case runs

afoul of the Court’s admonition that a “‘prophylaxisupon-prophylaxis approach’ requires that we be particularly diligent in scrutinizing the law’s fit.” 572 U.S.

at 221.

McCutcheon, of course, involved an aggregate limit

on political contributions that was “layered on top [of

the base limits prescribed by the FECA], ostensibly to

prevent circumvention of the base limits.” Id. But the

holding of McCutcheon is not that a belt and braces

approach is necessarily unconstitutional, but that the

court must be “particularly diligent in scrutinizing the

law’s fit” with the governmental interest it is supposed

to serve. Id. And so we did in Blount by applying strict

scrutiny, a standard even more exacting than the

“closely drawn” standard we apply now, to evaluate

the first amendment claim against MSRB G-37. 61

F.3d at 943-48.

Second, the petitioners would have us distinguish

Blount because this court was not there asked to

consider the “disparate impact that a restriction like

Rule 2030 will have on candidates running for the

same seat” where one candidate is a covered official

and the incumbent (or another candidate) is not. Pet’rs’

Br. 52. In support of their claim that this disparity

necessarily makes the Rule unconstitutional, the petitioners quote dicta from two cases but disregard their

reasoning: Davis v. FEC, 554 U.S. 724, 738 (2008), and

26a

Riddle v. Hickenlooper, 742 F.3d 922, 929 (10th Cir.

2014).

The operative question in both cases was not simply

whether the challenged rule had a disparate effect, but

whether the difference was “justified by the primary

governmental interest proffered in its defense.” Davis,

554 U.S. at 738 (cleaned up); see Riddle, 742 F.3d at

928. In Davis, the Supreme Court held the Millionaire’s Amendment to the Bipartisan Campaign Reform

Act, which raised the contribution limit for a candidate

if a rival candidate expended more than a certain

amount of personal funds, could not withstand first

amendment scrutiny. 554 U.S. at 740-41. Although the

Court noted it has “never upheld the constitutionality

of a law that imposes different contribution limits for

candidates who are competing against each other,” id.

at 738, the Court invalidated the law not because of

the disparate effect upon the candidates, as the petitioners suggest, but because the Government’s interest

in “level[ing] electoral opportunities for candidates of

different personal wealth” is not a “legitimate government objective,” id. at 741:

Because § 319(a) imposes a substantial burden

on the exercise of the First Amendment right

to use personal funds for campaign speech,

that provision cannot stand unless it is justified by a compelling state interest. No such

justification is present here.

Id. at 740 (internal quotation omitted). In contrast,

the Court has repeatedly – and, indeed, in the same

case – recognized that the prevention of “corruption

and the appearance of corruption” can justify an abridgment of first amendment rights as long as the limits

are “closely drawn” to serve that important interest.

See id. at 737; McCutcheon, 572 U.S. at 191-92; FEC

27a

v. Nat’l Conservative Political Action Comm., 470 U.S.

at 496-97.

Riddle, in which the Tenth Circuit invalidated a

Colorado statute as a violation of the Equal Protection

Clause of the Fourteenth Amendment to the Constitution of the United States, 742 F.3d at 930, is likewise

no help to the petitioners. The state law at issue set a

lower limit on contributions to write-in candidates

($200) than to major-party candidates ($400). Id. at

924, 926. The court determined those limits were “illconceived” to advance the State’s claimed interest in

preventing corruption or its appearance: “The statutory classification might advance the State’s asserted

interest if write-ins, unaffiliated candidates, or minorparty nominees were more corruptible (or appeared

more corruptible) than their Republican or Democratic

opponents. But the Defendants have never made such

a suggestion.” Id. at 928. In stark contrast, the SEC,

in keeping with our observation in Wagner v. FEC, 793

F.3d at 22-23, persuasively counters that an elected

official who can influence the award of contracts is

indeed more susceptible to corruption than an opponent who cannot exert the same influence. Accordingly,

we agree with the SEC that any disparate effect from

Rule 2030 is a feature, not a flaw, of the narrow

tailoring of the Rule; hence the Rule is indeed closely

drawn to fit the important governmental interest

behind it.

III. Conclusion

For the reasons set out in Part II above, we hold the

NGYOP has standing to sue. On the merits, we

conclude the SEC (1) had the authority to adopt Rule

2030, (2) has justified doing so based upon both specific instances of quid pro quo corruption and upon the

inherent tendency toward an appearance of corruption

28a

arising from the targeted contributions of placement

agents; and (3) has shown the Rule does not violate the

First Amendment because it was closely drawn to

advance a sufficiently important governmental interest.

For those reasons the petition for review is

Denied.

29a

SENTELLE, Senior Circuit Judge, dissenting: I do

not join my colleagues in the judgment denying this

petition, not because I would grant the petition, but

because I would dispense with it by dismissal for want

of jurisdiction. As the Supreme Court reminds us, in

order to bring an action in federal court a petitioner

carries the burden of establishing that it has standing

to bring the action. See, e.g., Susan B. Anthony List

v. Driehaus, 573 U.S. 149, 158 (2014). To establish

standing, the petitioners would have to show (1) that

they have suffered an injury-in-fact; (2) that injury

was caused by the challenged conduct of the defendant

or respondent; and (3) that a favorable decision in the

litigation would likely provide redress for the injury.

Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61

(1992). Petitioners have failed to meet the first and

most basic step of this three-part constitutional minimum, as well as the second. First, they have established no injury-in-fact.

The majority opinion sets forth the facts underlying

this litigation. I have no quarrel with their understanding of the facts, but reach a different legal

conclusion based on the facts before the court. I therefore will make reference to the facts only as necessary

to support my legal reasoning. As the majority acknowledges, neither petitioner’s conduct is regulated by the

respondent’s action, Rule 2030, and therefore they do

not claim the near-automatic standing of a regulated

entity. Petitioners assert instead that NYGOP has

established standing on the theory that an organization is “harmed if its contributors cease giving it

money.” See Taxation with Representation of Washington

v. Regan, 676 F.2d 715, 723 (D.C. Cir. 1982), rev’d on

other grounds, 461 U.S. 540 (1983). While this may be

a valid theory, it simply does not apply to this case.

Neither of petitioners has shown that any contributor

30a

has stopped contributing because of the action of the

Securities and Exchange Commission.

For a harm to meet the standard for the first

requirement of standing, it must be an actual or at

least “certainly impending” injury. Clapper v. Amnesty

Int’l USA, 568 U.S. 398, 401 (2013). The Supreme

Court has, as the majority notes, given a slightly

relaxed construction to the effect of the “certainly

impending” standard by recognizing that a petitioner

may cross the bar of the first standing requirement by

establishing a “substantial risk” that the anticipated

harm will occur. See Susan B. Anthony, 573 U.S. at

158. Nonetheless, the very language of the Supreme

Court in Susan B. Anthony establishes that for the

risk of an anticipated harm to substitute for actual

injury at the first step of the standing analysis, that

risk must not only exist but be substantial. Petitioners

have not carried the burden of establishing a substantial risk.

In an attempt to meet its weighty burden, NYGOP

has submitted the affidavit of Francis Calcagno, a

placement agent covered by Rule 2030. Calcagno

cannot attest to any injury-in-fact that has occurred to

the petitioners, but only swears that if it were not for

the SEC’s rule he would solicit contributions for the

NYGOP from his friends, family, and other contacts.

As the majority recognizes, he cannot attest with

certainty that any of his contacts would contribute to

petitioners in the absence of the rule.

Petitioners argue that the affidavit brings them

within the precedent of Taxation with Representation.

However, that case only held that standing is established for an organization “if its contributors cease

giving it money.” Calcagno’s affidavit establishes no

such facts. At most, it establishes that he believes that

31a

if it were not for the rule he would speak to unnamed

contacts, friends, and relatives on behalf of the petitioners, and that some of those unnamed contacts,

friends, or relatives could contribute. This is not the

establishment of a substantial risk. This is at most

speculation.

Many cases hold that speculation is not the same

as establishing injury-in-fact for purposes of standing.

“Although imminence is concededly a somewhat elastic

concept, it cannot be stretched beyond its purpose,

which is to ensure that the alleged injury is not too

speculative for Article III purposes—that the injury is

certainly impending.” Clapper, 568 U.S. at 409 (citing

Lujan, 504 U.S. at 565 n.2). Thus, we have repeatedly

reiterated that “threatened injury must be certainly

impending to constitute injury in fact, and [] allegations of possible future injury are not sufficient.” Id. at

398 (internal quotations omitted).

Petitioners’ argument for standing does not survive

examination as required by Clapper. Their “theory of

future injury is too speculative to satisfy the wellestablished requirement that threatened injury must

be ‘certainly impending.’” Id. at 401 (quoting Whitmore

v. Arkansas, 495 U.S. 149, 158 (1990)).

Even if the majority is correct in its holding that this

is a sufficient showing of injury, petitioners’ claims

founder on the second step of the standing analysis.

That is, even if petitioners have established that they

suffer injury-in-fact, they have not established that

the injury-in-fact is caused by the act of respondent.

Both this court and the Supreme Court have held that

when the establishment of injury depends on the

volitional act of a third party, the claimant has not

established standing as against the respondent.

32a

Again, I would follow the teachings of the Supreme

Court. In Clapper the Court stated, “[w]e decline to

abandon our usual reluctance to endorse standing

theories that rest on speculation about the decisions of

independent actors.” 568 U.S. at 414.

To summarize, as the Supreme Court did in Clapper,

petitioners “bear the burden of pleading and proving

concrete facts showing that the defendant’s actual action

has caused the substantial risk of harm. Plaintiffs cannot rely on speculation about ‘the unfettered choices

made by independent actors not before the court.’” Id.

at 414 n.5 (quoting Lujan, 504 U.S. at 562).

Therefore, rather than deny the petition, I would

dismiss it for want of jurisdiction.

33a

APPENDIX D

SECURITIES AND EXCHANGE COMMISSION

Federal Register/Vol. 80, No. 250/

Wednesday, December 30, 2015/Notices

[Release No. 34–76767;

File No. SR–FINRA–2015–056]

Self-Regulatory Organizations; Financial

Industry Regulatory Authority, Inc.;

Notice of Filing of a Proposed Rule Change

To Adopt FINRA Rule 2030 and

FINRA Rule 4580 To Establish

“Pay-To-Play” and Related Rules

December 24, 2015

Pursuant to Section 19(b)(1) of the Securities

Exchange Act of 1934 (“Act,” “Exchange Act” or

“SEA”)1 and Rule 19b–4 thereunder,2 notice is hereby

given that on December 16, 2015, Financial Industry

Regulatory Authority, Inc. filed with the Securities

and Exchange Commission (“SEC” or “Commission”)

the proposed rule change as described in Items I, II,

and III below, which Items have been substantially

prepared by FINRA. The Commission is publishing

this notice to solicit comments on the proposed rule

change from interested persons.

I. Self-Regulatory Organization’s Statement of

the Terms of Substance of the Proposed Rule

Change

FINRA is proposing to adopt FINRA Rules 2030

(Engaging in Distribution and Solicitation Activities

15 U.S.C. 78s(b)(1).

17 CFR 240.19b–4.

34a

with Government Entities)3 and 4580 (Books and

Records Requirements for Government Distribution

and Solicitation Activities) to establish “pay-to-play”4

and related rules that would regulate the activities of

member firms that engage in distribution or solicitation activities for compensation with government

entities on behalf of investment advisers.

The text of the proposed rule change is available on

FINRA’s Web site at http://www.finra.org, at the

principal office of FINRA and at the Commission’s

Public Reference Room.

II. Self-Regulatory Organization’s Statement of

the Purpose of, and Statutory Basis for, the

Proposed Rule Change

In its filing with the Commission, FINRA included

statements concerning the purpose of and basis for the

proposed rule change and discussed any comments it

received on the proposed rule change. The text of these

statements may be examined at the places specified

in Item IV below. FINRA has prepared summaries,

set forth in sections A, B, and C below, of the most

significant aspects of such statements.

FINRA published the proposed rule change as FINRA Rule

2390 in Regulatory Notice 14–50 (Nov. 2014) (“Regulatory Notice

14–50”). FINRA has determined that the proposed rule change is

more appropriately categorized under the FINRA Rule 2000

Series relating to “Duties and Conflicts.”

“Pay-to-play” practices typically involve a person making

cash or in-kind political contributions (or soliciting or coordinating others to make such contributions) to help finance the election

campaigns of state or local officials or bond ballot initiatives as a

quid pro quo for the receipt of government contracts.

35a

A. Self-Regulatory Organization’s Statement of

the Purpose of, and Statutory Basis for, the

Proposed Rule Change

1. Purpose

Background & Discussion

In July 2010, the SEC adopted Rule 206(4)–5 under

the Investment Advisers Act of 1940 (“Advisers Act”)

addressing pay-to-play practices by investment advisers

(the “SEC Pay-to-Play Rule”).5

The SEC Pay-to-Play Rule prohibits an investment

adviser from providing advisory services for compensation to a government entity for two years after the

adviser or its covered associates make a contribution

to an official of the government entity, unless an exception or exemption applies. In addition, it prohibits an

investment adviser from soliciting from others, or

coordinating, contributions to government entity officials

or payments to political parties where the adviser is

providing or seeking to provide investment advisory

services to a government entity.

The SEC Pay-to-Play Rule also prohibits an investment adviser and its covered associates from providing

or agreeing to provide, directly or indirectly, payment

to any person to solicit a government entity for investment advisory services on behalf of the investment

See Advisers Act Release No. 3043 (July 1, 2010), 75 FR 41018

(July 14, 2010) (Political Contributions by Certain Investment

Advisers) (“SEC Pay-to-Play Rule Adopting Release”). See also

Advisers Act Release No. 3221 (June 22, 2011), 76 FR 42950 (July

19, 2011) (Rules Implementing Amendments to the Investment

Advisers Act of 1940); Advisers Act Release No. 3418 (June 8,

2012), 77 FR 35263 (June 13, 2012) (Political Contributions by

Certain Investment Advisers; Ban on Third Party Solicitation;

Extension of Compliance Date).

36a

adviser unless the person is a “regulated person.” A

“regulated person” includes a member firm, provided

that: (a) FINRA rules prohibit member firms from engaging in distribution or solicitation activities if political

contributions have been made; and (b) the SEC finds,

by order, that such rules impose substantially equivalent or more stringent restrictions on member firms

than the SEC Pay-to-Play Rule imposes on investment

advisers and that such rules are consistent with the

objectives of the SEC Pay-to-Play Rule.6 The SEC

stated that this SEC ban on third-party solicitations

would be effective nine months after the compliance

date of a final rule adopted by the SEC by which

municipal advisors must register under the Exchange

Act.7 The SEC adopted such a final rule on September

20, 2013, with a compliance date of July 1, 2014.8

See SEC Pay-to-Play Rule 206(4)–5(f)(9). A “regulated person”

also includes SEC registered investment advisers and SECregistered municipal advisors, subject to specified conditions.

See Advisers Act Release No. 3418 (June 8, 2012), 77 FR

35263 (June 13, 2012).

See Exchange Act Release No. 70462 (Sept. 20, 2013), 78 FR

67468 (Nov. 12, 2013) (Registration of Municipal Advisors). On

June 25, 2015, the SEC issued notice of the compliance date for

its third party solicitation ban as July 31, 2015. See Advisers Act

Release No. 4129 (June 25, 2015), 80 FR 37538 (July 1, 2015). In

addition, staff of the Division of Investment Management added

Question I.4 to its Staff Responses to Questions About the Pay to

Play Rule stating, among other things, that until the later of (i)

the effective date of a FINRA pay-to-play rule or (ii) the effective

date of an MSRB pay-to-play rule, the Division of Investment

Management would not recommend enforcement action to the

Commission against an investment adviser or its covered associates under SEC Pay-to-Play Rule 206(4)–5(a)(2)(i) for the payment

to any person to solicit a government entity for investment

advisory services. See https://www.sec.gov/divisions/investme

nt/pay-to-play-faq.htm. See also infra Effective Date, for a more

37a

Based on this regulatory framework, FINRA is

proposing a pay-to-play rule, Rule 2030, modeled on

the SEC Pay-to-Play Rule that would impose substantially equivalent restrictions on member firms engaging

in distribution or solicitation activities to those the

SEC Pay-to-Play Rule imposes on investment advisers.

FINRA is also proposing rules that would impose recordkeeping requirements on member firms in connection

with political contributions.9

The proposed rules would establish a comprehensive

regime to regulate the activities of member firms that

engage in distribution or solicitation activities with

government entities on behalf of investment advisers.

FINRA believes that establishing requirements for

member firms that are modeled on the SEC’s Pay-toPlay-Rule is a more effective regulatory response to

the concerns the SEC identified in the SEC Pay-toPlay Rule Adopting Release regarding third-party

solicitations than an outright ban on such activity.

For example, in the SEC Pay-to-Play Rule Adopting

Release, the SEC stated that solicitors 10 or “placement

agents”11 have played a central role in actions that it

detailed discussion regarding the effective date of FINRA Rules

2030 and 4580.

In connection with the adoption of the SEC Pay-to-Play Rule,

the Commission also adopted recordkeeping requirements related

to political contributions by investment advisers and their covered

associates. See Advisers Act Rule 204–2(a)(18) and (h)(1).

“Solicitors” typically locate investment advisory clients on

behalf of an investment adviser. See Advisers Act Release No.

2910 (Aug. 3, 2009), 74 FR 39840, 39853 n.137 (Aug. 7, 2009)

(Political Contributions by Certain Investment Advisers).

“Placement agents” typically specialize in finding investors

(often institutional investors or high net worth investors) that are

38a

and other authorities have brought involving pay-toplay schemes.12 The SEC noted that in several instances,

advisers allegedly made significant payments to placement agents and other intermediaries to influence the

award of advisory contracts.13 The SEC also acknowledged the difficulties that advisers face in monitoring

or controlling the activities of their third-party solicitors.14 Accordingly, the proposed rules are intended to

enable member firms to continue to engage in distribution and solicitation activities with government entities

on behalf of investment advisers while at the same

time deterring member firms from engaging in pay-toplay practices.15

willing and able to invest in a private offering of securities on

behalf of the issuer of such privately offered securities. See id.

See SEC Pay-to-Play Rule Adopting Release, 75 FR 41018,

41037 (discussing the reasons for proposing a ban on using third

parties to solicit government business).

See id.

In response to a request from SEC staff, FINRA previously

indicated its intent to prepare rules for consideration by the SEC

that would prohibit its member firms from soliciting advisory

business from a government entity on behalf of an adviser unless

the member firms comply with requirements prohibiting pay-toplay practices. See Letter from Andrew J. Donohue, Director,

Division of Investment Management, SEC, to Richard G. Ketchum,

Chairman & CEO, FINRA (Dec. 18, 2009), available at http://

www.sec.gov/comments/s7-18-09/s71809-252.pdf

(requesting

whether FINRA would consider adopting a rule preventing payto-play activities by registered broker-dealers acting as legitimate placement agents on behalf of investment advisers).

See also Letter from Richard G. Ketchum, Chairman & CEO,

FINRA, to Andrew J. Donohue, Director, Division of Investment

Management, SEC (Mar. 15, 2010), available at http://www.sec.

gov/comments/s7-18-09/s71809-260.pdf (stating “[w]e believe

that a regulatory scheme targeting improper pay to play practices

39a

FINRA sought comment on the proposed rule change

in Regulatory Notice 14–50.16 As discussed further in

Item II.C below, commenters were generally supportive of the proposed rule change, but also expressed

some concerns. In considering the comments, FINRA

has engaged in discussions with SEC staff. In addition,

as discussed in Item II.B below, FINRA has engaged

in an analysis of the potential economic impacts of the

proposed rule change. As a result, FINRA has revised

the proposed rule change as published in Regulatory

Notice 14–50. In particular, as discussed in more detail

in Item II.C, FINRA has determined not to propose a

disclosure requirement for government distribution

and solicitation activities at this time. In addition,

FINRA has determined not to propose a disgorgement

requirement as part of the pay-to-play rule. FINRA

believes that these revisions will more closely align

FINRA’s proposed pay-to-play rule with the SEC Payto-Play Rule and help reduce cost and compliance

burden concerns raised by commenters.

The proposed rule change, as revised in response to

comments on Regulatory Notice 14–50, is set forth in

further detail below.

Proposed Pay-to-Play Rule

A. Two-Year Time Outcourt of appeals

Proposed Rule 2030(a) would prohibit a covered

member from engaging in distribution17 or solicitaby broker-dealers acting on behalf of investment advisers is . . . a

viable solution to a ban on certain private placement agents

serving a legitimate function”).

See supra note 3.

As discussed in Item II.C below, FINRA is not eliminating

the term “distribution” from the proposed rule as suggested by

some commenters. Thus, subject to the limitations discussed in

40a

tion activities for compensation with a government

entity on behalf of an investment adviser that provides

or is seeking to provide investment advisory services

to such government entity within two years after a

contribution to an official of the government entity is

made by the covered member or a covered associate

(including a person who becomes a covered associate

within two years after the contribution is made). As

discussed in more detail below, the terms and scope of

this prohibition are modeled on the SEC Pay-to-Play

Rule.19

Item II.C, the proposed rule would apply to covered members

engaging in distribution (as well as solicitation) activities with

government entities. Specifically, the proposed rule would apply

to distribution activities involving unregistered pooled investment vehicles such as hedge funds, private equity funds, venture

capital funds, and collective investment trusts, and registered

pooled investment vehicles such as mutual funds, but only if

those registered pools are an investment option of a participantdirected plan or program of a government entity.

Consistent with the SEC Pay-to-Play Rule, proposed Rule

2030(g)(11) defines the term “solicit” to mean: “(A) With respect

to investment advisory services, to communicate, directly or

indirectly, for the purpose of obtaining or retaining a client for, or

referring a client to, an investment adviser; and (B) With respect

to a contribution or payment, to communicate, directly or indirectly, for the purpose of obtaining or arranging a contribution or

payment.” The determination of whether a particular communication would be a solicitation would depend on the facts and

circumstances relating to such communication. As a general proposition, any communication made under circumstances reasonably

calculated to obtain or retain an advisory client would be considered a solicitation unless the circumstances otherwise indicate

that the communication does not have the purpose of obtaining

or retaining an advisory client. See also infra note 40.

See SEC Pay-to-Play Rule 206(4)–5(a)(1).

41a

The proposed rule would not ban or limit the amount

of political contributions a covered member or its

covered associates could make. Instead, it would impose

a two-year time out on engaging in distribution or

solicitation activities for compensation with a government entity on behalf of an investment adviser after

the covered member or its covered associates make a

contribution to an official of the government entity.

Consistent with the two-year time out in the SEC Payto-Play Rule, the two-year time out in the proposed

rule is intended to discourage covered members from

participating in pay-to-play practices by requiring a

cooling-off period during which the effects of a political

contribution on the selection process can be expected

to dissipate.

1. Covered Members

Proposed Rule 2030(g)(4) defines a “covered member”

to mean “any member except when that member is

engaging in activities that would cause the member to

be a municipal advisor as defined in Exchange Act

Section 15B(e)(4), SEA Rule 15Ba1–1(d)(1) through (4)

and other rules and regulations thereunder.” As noted

above, the SEC Pay-to-Play Rule includes within its

definition of “regulated person” SEC-registered municipal advisors, subject to specified conditions.20 Specifically,

the SEC Pay-to-Play Rule prohibits an investment

adviser from providing or agreeing to provide, directly

or indirectly, payment to an SEC-registered municipal

advisor unless the municipal advisor is subject to a

Municipal Securities Rulemaking Board (“MSRB”)

pay-to-play rule.21

See supra note 6.

See SEC Pay-to-Play Rule 206(4)–5(a)(2)(i)(A) and 206(4)–

5(f)(9).

42a

A member firm that solicits a government entity

for investment advisory services on behalf of an

unaffiliated investment adviser may be required to

result of such activity.22 Under such circumstances,

MSRB rules applicable to municipal advisors, including any pay-to-play rule adopted by the MSRB, would

apply to the member firm.23 On the other hand, if the

member firm solicits a government entity on behalf of

an affiliated investment adviser, such activity would

not cause the firm to be a municipal advisor. Under

such circumstances, the member firm would be a

See Exchange Act Section 15B(e)(9) and Rule 15Ba1–1(n)

thereunder (defining “solicitation of a municipal entity or obligated person” to mean “a direct or indirect communication with a

municipal entity or obligated person made by a person, for direct

or indirect compensation, on behalf of a broker, dealer, municipal

securities dealer, municipal advisor, or investment adviser . . .

that does not control, is not controlled by, or is not under common

control with the person undertaking such solicitation for the

purpose of obtaining or retaining an engagement by a municipal

entity or obligated person of a broker, dealer, municipal securities

dealer, or municipal advisor for or in connection with municipal

financial products, the issuance of municipal securities, or of an

investment adviser to provide investment advisory services to or

on behalf of a municipal entity.”)

On August 18, 2014, the MSRB issued a Regulatory Notice

requesting comment on draft amendments to MSRB Rule G–37,

on political contributions made by brokers, dealers and municipal

securities dealers and prohibitions on municipal securities business, to extend the rule to cover municipal advisors. See MSRB

Regulatory Notice 2014–15 (Aug. 2014). MSRB Rule G–37 was

approved by the Commission in 1994 and, since that time, has

prohibited brokers, dealers and municipal securities dealers

engaging in municipal securities business from participating in

pay-to-play practices. See Exchange Act Release No. 33868 (Apr.

7, 1994), 59 FR 17621 (Apr. 13, 1994) (Order Approving File No.

SR–MSRB–94–2).

43a

“covered member” subject to the requirements of

proposed Rule 2030.24

2. Investment Advisers

The proposed rule would apply to covered members

acting on behalf of any investment adviser registered

(or required to be registered) with the SEC, or unregistered in reliance on the exemption available under

Section 203(b)(3) of the Advisers Act for foreign private advisers, or that is an exempt reporting adviser

under Advisers Act Rule 204–4(a).25 Thus, it would not

apply to member firms acting on behalf of advisers

that are registered with state securities authorities

instead of the SEC, or advisers that are unregistered

in reliance on exemptions other than Section 203(b)(3)

of the Advisers Act. The proposed rule’s definition of

“investment adviser” is consistent with the definition

of “investment adviser” in the SEC Pay-to-Play Rule.26

3. Official of a Government Entity

An official of a government entity would include

an incumbent, candidate or successful candidate for

FINRA notes that a person that is registered under the

Exchange Act as a broker-dealer and municipal advisor, and

under the Advisers Act as an investment adviser could potentially be a “regulated person” for purposes of the SEC Pay-to-Play

Rule. Such a regulated person would be subject to the rules that

apply to the services the regulated person is performing. See also

supra note 23 (noting that brokers, dealers and municipal securities dealers engaging in municipal securities business are subject

to MSRB Rule G–37).

See proposed Rule 2030(g)(7).

See SEC Pay-to-Play Rule 206(4)–5(a)(1). FINRA notes that,

consistent with the SEC Pay-to-Play Rule, the proposed rule

would not apply to state-registered investment advisers as few of

these smaller firms manage public pension plans or other similar

funds. See also infra note 98 and accompanying text.

44a

elective office of a government entity if the office is

directly or indirectly responsible for, or can influence

the outcome of, the hiring of an investment adviser or

has authority to appoint any person who is directly or

indirectly responsible for, or can influence the outcome

of, the hiring of an investment adviser.27 Government

entities would include all state and local governments,

their agencies and instrumentalities, and all public

pension plans and other collective government funds,

including participant-directed plans such as 403(b),28

457,29 and 529 plans.30

Consistent with the SEC Pay-to-Play Rule, proposed Rule

2030(g)(8) defines an “official” to mean “any person (including any

election committee for the person) who was, at the time of the

contribution, an incumbent, candidate or successful candidate for

elective office of a government entity, if the office: (A) Is directly

or indirectly responsible for, or can influence the outcome of,

the hiring of an investment adviser by a government entity; or

(B) Has authority to appoint any person who is directly or

indirectly responsible for, or can influence the outcome of, the

hiring of an investment adviser by a government entity.”

A 403(b) plan is a tax-deferred employee benefit retirement

plan established under Section 403(b) of the Internal Revenue

Code of 1986 (26 U.S.C. 403(b)).

A 457 plan is a tax-deferred employee benefit retirement

plan established under Section 457 of the Internal Revenue Code

of 1986 (26 U.S.C. 457).

A 529 plan is a “qualified tuition plan” established under

Section 529 of the Internal Revenue Code of 1986 (26 U.S.C. 529).

Consistent with the SEC Pay-to-Play Rule, proposed Rule 2030(g)(6)

defines a “government entity” to mean “any state or political

subdivision of a state, including: (A) Any agency, authority or

instrumentality of the state or political subdivision; (B) A pool of

assets sponsored or established by the state or political subdivision or any agency, authority or instrumentality thereof, including

but not limited to a “defined benefit plan” as defined in Section

414(j) of the Internal Revenue Code, or a state general fund;

45a

Thus, the two-year time out would be triggered by

contributions, not only to elected officials who have

legal authority to hire the adviser, but also to elected

officials (such as persons with appointment authority)

who can influence the hiring of the adviser. As noted

in the SEC Pay-to-Play Rule Adopting Release, a person appointed by an elected official is likely to be

subject to that official’s influences and recommendations. It is the scope of authority of the particular office

of an official, not the influence actually exercised by

the individual that would determine whether the

individual has influence over the awarding of an

investment advisory contract under the definition.31

4. Contributions

The proposed rule’s time out provisions would be

triggered by contributions made by a covered member

or any of its covered associates. A contribution would

include a gift, subscription, loan, advance, deposit of

money, or anything of value made for the purpose of

influencing the election for a federal, state or local

office, including any payments for debts incurred in

such an election. It would also include transition or

inaugural expenses incurred by a successful candidate

for state or local office.32

agents or employees of the state or political subdivision or any

agency, authority or instrumentality thereof, acting in their official

capacity.”

See SEC Pay-to-Play Rule Adopting Release, 75 FR 41018,

41029 (discussing the terms “official” and “government entity”).

Consistent with the SEC Pay-to-Play Rule, proposed Rule

2030(g)(1) defines a “contribution” to mean “any gift, subscription, loan, advance, or deposit of money or anything of value made

for: (A) The purpose of influencing any election for federal, state

or local office; (B) Payment of debt incurred in connection with

46a

Consistent with the SEC Pay-to-Play Rule, FINRA

would not consider a donation of time by an individual

to be a contribution, provided the covered member has

not solicited the individual’s efforts and the covered

member’s resources, such as office space and telephones, are not used.33 Similarly, FINRA would not

consider a charitable donation made by a covered member to an organization that qualifies for an exemption

from federal taxation under the Internal Revenue

Code,34 or its equivalent in a foreign jurisdiction, at the

request of an official of a government entity to be a

contribution for purposes of the proposed rule.35

5. Covered Associates

As stated in the SEC Pay-to-Play Rule Adopting

Release, contributions made to influence the selection

process are typically made not by the firm itself, but

any such election; or (C) Transition or inaugural expenses of the

successful candidate for state or local office.”

See SEC Pay-to-Play Rule Adopting Release, 75 FR 41018,

41030. The SEC also noted that a covered associate’s donation of

his or her time generally would not be viewed as a contribution if

such volunteering were to occur during non-work hours, if the

covered associate were using vacation time, or if the adviser is

not otherwise paying the employee’s salary (e.g., an unpaid leave

of absence). See SEC Pay-to-Play Rule Adopting Release, 75 FR

41018, 41030 n.157. FINRA would take a similar position in

interpreting the proposed rule.

Section 501(c)(3) of the Internal Revenue Code (26 U.S.C.

501(c)(3)) contains a list of charitable organizations that are

exempt from Federal income tax.

See SEC Pay-to-Play Rule Adopting Release, 75 FR 41018,

41030 (discussing the scope of the term “contribution” under the

SEC Pay-to-Play Rule). Note, however, proposed Rule 2030(e)

providing that it shall be a violation of Rule 2030 for any covered

member or any of its covered associates to do anything indirectly

that, if done directly, would result in a violation of the rule.

47a

by officers and employees of the firm who have a direct

economic stake in the business relationship with the

government client.36 Accordingly, consistent with the

SEC Pay-to-Play Rule, under the proposed rule, contributions by each of these persons, which the proposed

rule describes as “covered associates,” would trigger

the two-year time out.37

Contributions by an executive officer of a covered

member would trigger the two-year time out. As discussed in Item II.C below, commenters requested that

FINRA define the term “executive officer” for purposes

of the proposed pay-to-play rule. Accordingly, consistent with the SEC Pay-to-Play Rule, proposed Rule

2030(g)(5) defines an “executive officer of a covered

member” to mean: “(A) The president; (B) Any vice

president in charge of a principal business unit,

division or function (such as sales, administration or

finance); (C) Any other officer of the covered member

who performs a policy-making function; or (D) Any

other person who performs similar policy-making

functions for the covered member.” Whether a person

is an executive officer would depend on his or her

function or activities and not his or her title. For

See SEC Pay-to-Play Rule Adopting Release, 75 FR 41018,

41031.

Consistent with the SEC Pay-to-Play Rule, proposed Rule

2030(g)(2) defines a “covered associate” to mean: “(A) Any general

partner, managing member or executive officer of a covered member, or other individual with a similar status or function; (B) Any

associated person of a covered member who engages in distribution or solicitation activities with a government entity for such

covered member; (C) Any associated person of a covered member

who supervises, directly or indirectly, the government entity

distribution or solicitation activities of a person in subparagraph

(B) above; and (D) Any political action committee controlled by a

covered member or a covered associate.”

48a

example, an officer who is a chief executive of a

covered member but whose title does not include

“president” would nonetheless be an executive officer

for purposes of the proposed rule.

In addition, a covered associate would include a

political action committee, or PAC, controlled by the

covered member or any of its covered associates as a

PAC is often used to make political contributions.38

Under the proposed rule, FINRA would consider a

covered member or its covered associates to have

“control” over a PAC if the covered member or covered

associate has the ability to direct or cause the direction

of governance or operations of the PAC.

6. “Look Back”

Consistent with the SEC Pay-to-Play Rule, the

proposed rule would attribute to a covered member

contributions made by a person within two years (or,

in some cases, six months) of becoming a covered

associate. This “look back” would apply to any person

who becomes a covered associate, including a current

employee who has been transferred or promoted to a

position covered by the proposed rule. A person would

become a “covered associate” for purposes of the proposed rule’s “look back” provision at the time he or she

is hired or promoted to a position that meets the

definition of a “covered associate.”

Thus, when an employee becomes a covered associate, the covered member must “look back” in time to

that employee’s contributions to determine whether

the time out applies to the covered member. If, for

example, the contributions were made more than two

years (or, pursuant to the exception described below

See id.

49a

for new covered associates, six months) prior to the

employee becoming a covered associate, the time out

has run. If the contribution was made less than two

years (or six months, as applicable) from the time the

person becomes a covered associate, the proposed rule

would prohibit the covered member that hires or promotes the contributing covered associate from receiving

compensation for engaging in distribution or solicitation activities on behalf of an investment adviser from

the hiring or promotion date until the two-year period

has run.

In no case would the prohibition imposed be longer

than two years from the date the covered associate

made the contribution. Thus, if, for example, the

covered associate becomes employed (and engages in

solicitation activities) one year and six months after

the contribution was made, the covered member would

be subject to the proposed rule’s prohibition for the

remaining six months of the two-year period. This

“look back” provision, which is consistent with the

SEC Pay-to-Play Rule, is designed to prevent covered

members from circumventing the rule by influencing

the selection process by hiring persons who have made

political contributions.39

Similarly, consistent with the SEC Pay-to-Play Rule, to

prevent covered members from channeling contributions through

departing employees, covered members must “look forward” with

respect to covered associates who cease to qualify as covered

associates or leave the firm. The covered associate’s employer at

the time of the contribution would be subject to the proposed

rule’s prohibition for the entire two-year period, regardless of

whether the covered associate remains a covered associate or

remains employed by the covered member. Thus, dismissing a

covered associate would not relieve the covered member from the

two-year time out. See SEC Pay-to-Play Rule Adopting Release,

75 FR 41018, 41033 (discussing the “look back” in that rule).

50a

B. Prohibition on Soliciting and Coordinating

Contributions

Proposed Rule 2030(b) would prohibit a covered member or covered associate from coordinating or soliciting40

any person or PAC to make any: (1) Contribution to an

official of a government entity in respect of which the

covered member is engaging in, or seeking to engage in,

distribution or solicitation activities on behalf of an

Proposed Rule 2030(g)(11)(B) defines the term “solicit” with

respect to a contribution or payment as “to communicate, directly

or indirectly, for the purpose of obtaining or arranging a contribution or payment.” This provision is consistent with a similar

provision in the SEC Pay-to-Play Rule. See SEC Pay-to-Play Rule

206(4)–5(f)(10)(ii). Consistent with the SEC Pay-to-Play Rule,

whether a particular activity involves a solicitation or coordination of a contribution or payment for purposes of the proposed

rule would depend on the facts and circumstances. A covered

member that consents to the use of its name on fundraising

literature for a candidate would be soliciting contributions for

that candidate. Similarly, a covered member that sponsors a

meeting or conference which features a government official as an

attendee or guest speaker and which involves fundraising for the

government official would be soliciting contributions for that

government official. Expenses incurred by the covered member

for hosting the event would be a contribution by the covered

member, thereby triggering the two-year ban on the covered

member receiving compensation for engaging in distribution or

solicitation activities with the government entity over which that

official has influence. Such expenses may include, but are not

limited to, the cost of the facility, the cost of refreshments, any

expenses paid for administrative staff, and the payment or reimbursement of any of the government official’s expenses for the

event. The de minimis exception under proposed Rule 2030(c)(1)

would not be available with respect to these expenses because

they would have been incurred by the firm, not by a natural

person. See also SEC Pay-to-Play Rule Adopting Release, 75

FR 41018, 41043 n.328, 329 (discussing the term “solicit” with

respect to a contribution or payment).

51a

investment adviser; or (2) payment41 to a political

party of a state or locality of a government entity with

which the covered member is engaging in, or seeking

to engage in, distribution or solicitation activities on

behalf of an investment adviser. This provision is

modeled on a similar provision in the SEC Pay-to-Play

Rule 42 and is intended to prevent covered members or

covered associates from circumventing the proposed

rule’s prohibition on direct contributions to certain

elected officials such as by “bundling” a large number

of small employee contributions to influence an election, or making contributions (or payments) indirectly

through a state or local political party.43

In addition, as discussed in Item II.C below, in

response to a request for clarification from a commenter regarding the application of this provision of

the proposed rule, FINRA notes that, consistent with

Consistent with the SEC Pay-to-Play Rule, proposed Rule

2030(g)(9) defines the term “payment” to mean “any gift, subscription, loan, advance or deposit of money or anything of value.”

This definition is similar to the definition of “contribution,” but is

broader, in the sense that it does not include limitations on the

purposes for which such money is given (e.g., it does not have to

be made for the purpose of influencing an election). Consistent

with the SEC Pay-to-Play Rule FINRA is including the broader

term “payments,” as opposed to “contributions,” to deter a covered

member from circumventing the proposed rule’s prohibitions by

coordinating indirect contributions to government officials by

making payments to political parties. See SEC Pay-to-Play Rule

Adopting Release, 75 FR 41018, 41043 n.331 and accompanying

text (discussing a similar approach with respect to restrictions on

soliciting and coordinating contributions and payments).

See SEC Pay-to-Play Rule 206(4)–5(a)(2).

See SEC Pay-to-Play Rule Adopting Release, 75 FR 41018,

41043 (discussing restrictions on soliciting and coordinating

contributions and payments).

52a

guidance provided by the SEC in connection with SEC

Pay-to-Play Rule 206(4)–5(a)(2), a direct contribution

to a political party by a covered member or its covered

associates would not violate the proposed rule unless

the contribution was a means for the covered member

to do indirectly what the rule would prohibit if done

directly (for example, if the contribution was earmarked

or known to be provided for the benefit of a particular

government official).

C. Direct or Indirect Contributions or Solicitations

Proposed Rule 2030(e) further provides that it shall

be a violation of Rule 2030 for any covered member or

any of its covered associates to do anything indirectly

that, if done directly, would result in a violation of the

rule. This provision is consistent with a similar provision in the SEC Pay-to-Play Rule44 and would prevent

a covered member or its covered associates from funneling payments through third parties, including, for

example, consultants, attorneys, family members, friends

or companies affiliated with the covered member as a

means to circumvent the proposed rule.45 In addition,

as discussed in Item II.C below, in response to a

request for clarification from a commenter regarding

See SEC Pay-to-Play Rule 206(4)–5(d).

See SEC Pay-to-Play Rule Adopting Release, 75 FR 41018,

41044 (discussing direct and indirect contributions or solicitations). This provision would also cover, for example, situations in

which contributions by a covered member are made, directed or

funded through a third party with an expectation that, as a result

of the contributions, another contribution is likely to be made by

a third party to “an official of the government entity,” for the

benefit of the covered member. Contributions made through

gatekeepers thus would be considered to be made “indirectly” for

purposes of the rule.

53a

the application of this provision of the proposed rule,

FINRA notes that, consistent with guidance provided

by the SEC in connection with SEC Pay-to-Play Rule

206(4)–5(d), proposed Rule 2030(e) would require a

showing of intent to circumvent the rule in order for

such persons to trigger the two-year time out.

D. Covered Investment Pools

Proposed Rule 2030(d)(1) provides that a covered

member that engages in distribution or solicitation

activities with a government entity on behalf of a covered investment pool46 in which a government entity

invests or is solicited to invest shall be treated as

though the covered member was engaging in or seeking to engage in distribution or solicitation activities

with the government entity on behalf of the investment adviser to the covered investment pool directly.47

Consistent with the SEC Pay-to-Play Rule, proposed Rule

2030(g)(3) defines a “covered investment pool” to mean: “(A) Any

investment company registered under the Investment Company

Act that

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