Republicans, hoping to tap into more Wall Street cash, are targeting a Securities and Exchange Commission rule limiting financiers' contributions to state officials and governors seeking federal office.
The SEC's restrictions have kept Wall Street cash away from governors seeking the presidency and state officials running for Congress, reports Politico
Opponents are pointing to a Supreme Court decision in April in the case of McCutcheon v. the Federal Election Commission, which stopped overall limits on individual campaign contributions.
The McCutcheon ruling
was cheered by Republicans and opposed by liberals, after the court ruled individuals could donate to unlimited numbers of candidates for federal office and political action committees as well as to political parties.
After the McCutcheon ruling, donations of up to $10,000 can be given to state parties, alleviating their competition for dollars against PACs and candidates. Republicans fighting to eliminate the SEC rule say a new ruling could also bring more money to state political parties.
State Republican committees from New York and Tennessee have sued in the District Court for the District of Columbia to invalidate the SEC rule, arguing the agency can't regulate federal campaign contributions. Further, they claim the restrictions violate free speech rights.
The SEC has asked the court to dismiss the case. A preliminary hearing is scheduled to be held on Sept. 12, and attorney Jason Torchinsky, one of the Republican committees' attorneys, said that if need be, the case would be pushed to the Supreme Court.
The SEC's contribution rule was approved unanimously in 2010, and says investment advisers can't work for a state or local government for a period of two years after contributing to a government official's campaign. It came in response to a 2009 "pay-to-play" scandal, prosecuted by Andrew Cuomo, who was then New York's attorney general, and involved the role of private-equity funds with the state pension fund.
"As a precautionary measure, many private equity firms have implemented a blanket prohibition on all political contributions by firm employees," Scott Gluck, a lawyer with Venable LLP, told Politico. "The rule has had a significant chilling effect on political involvement by fund managers."
The rule also limits how much investment advisers can give to third parties such as a state political committee.
But Joseph Birkenstock, formerly the chief counsel for the Democratic National Committee claims that there never has been a strong connection between contributions to a state party committee and kickbacks to financial firms, making it difficult for the SEC to defend its rule.
"The party piece was a very minor part of the rule where you don't really see abuses of raising money in the state," said Birkenstock. "The SEC is not going to have facts to point to in proposing for relief."
If the SEC rule is overturned, Republicans governors like Chris Christie and Rick Perry of Texas could benefit. Pension systems in both of their states contract with Wall Street's money managers for advice and have invested large sums in alternative investments, according to the attorneys in the case.
Republicans are seeking only relief for state officials running for federal office, not for people seeking state or local office, so the SEC rule would stay in effect for those candidates.
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