CINCINNATI, Ohio (CN) — Multiple state Republican parties do not have standing to challenge the Securities and Exchange Commission’s revised rules on campaign contributions made by municipal security advisers and dealers, according to the Sixth Circuit Court of Appeals.
The Tennessee Republican Party, the Georgia Republican Party and the New York Republican State Committee challenged the legality of amendments to rules proposed by the Municipal Securities Rulemaking Board, or MSRB, related to campaign contributions. The SEC approved the rules in 2016.
The amendments limit the campaign activities of people who advise city and state governments on issuing municipal securities, which is a bond issued by a non-federal government or governmental unit to finance local improvements.
Municipal advisers provide advice regarding the structure, timing and terms of municipal financial products or the issuance of municipal securities.
The advisers also solicit business from municipal entities, which can be registered as both dealers and municipal advisers, or dealer-municipal advisers. The Sixth Circuit ruling defines dealers as people who buy and sell securities for their “own account[s] through a broker or otherwise.”
Writing for a three-judge panel, U.S. Circuit Judge Karen Nelson Moore notes in Thursday’s opinion that the MSRB originally drafted the rules regulating pay-to-play practices in the municipal securities market because it was concerned that brokers and dealers were engaging in ethically questionable practices to secure underwriting contracts.
One of the main regulations prior to the 2016 amendments was Rule G-37, which involves political contributions.
The rule prohibited brokers, dealers and municipal securities dealers from “engag[ing] in municipal securities business with an issuer within two years after any contribution to an official of such issuer made by…the broker, dealer or municipal securities dealer;…any municipal finance professional associated with such broker, dealer or municipal securities dealer; or…any political action committee controlled by the broker, dealer or municipal securities dealer or by any municipal finance professional,” according to the ruling.
Further, Rule G-37 prohibited the solicitation of other persons for contributions and payments. It also imposed disclosure requirements for brokers, dealers and municipal securities dealers.
One exception is that a municipal finance professional can contribute up to $250 per election to an official of an issuer for whom they were entitled to vote without triggering the two-year ban on municipal securities business.
With the 2016 amendments, the terms of Rule G-37 remained basically unchanged except that it widened the scope of the rule to apply to municipal advisers and municipal adviser third-party solicitors in addition to brokers, dealers and municipal securities dealers. The prohibitions on solicitation for contributions and disclosure requirements are also virtually the same as the pre-amendment versions.
After the 2016 amendments were passed, the Tennessee Republican Party filed a petition for review in the Sixth Circuit in April 2016. The next day, the Georgia Republican Party and the New York Republican State Committee filed a nearly identical petition in the Eleventh Circuit. The cases were consolidated in July of that year.
The three executive directors for the state Republican parties each filed affidavits in support of the petition against the MSRB’s political contribution rule, which they claimed harms their parties.
The executive directors did not identify who in particular was affected by the 2016 amendments, but they did identify individuals who were generally affected by the political contribution rule, the opinion says.
The panel considered whether the state Republican parties have standing to challenge the 2016 amendments, and ultimately found they failed to show injury.
“We are thus left with a record that does not identify a single individual whom the 2016 amendments have prevented from donating to petitioners or contributing to the petitioners’ candidates. Without any further basis upon which we could assume that such an individual exists, we decline to hold that petitioners’ injuries are self-evident,” Moore wrote.
The ruling goes on to analyze whether the Republican parties have shown injury in the context of fundraising – that is, would they be able to marshal their forces more effectively if they won the lawsuit? It notes that the parties are challenging the 2016 amendments, not the original rules. “Therefore, a showing that the original rules diminish petitioners’ ability to ‘marshal [their] forces more effectively’ is insufficient to establish standing; petitioners must show that the 2016 amendments diminish this ability,” the panel states.
The three affidavits from the executive directors fail to show injury-in-fact because each one “conflates the original rules with the 2016 amendments” and does not show that the amendments diminish the ability to marshal their forces, according to the ruling.
The panel also considered whether the challengers have organizational standing for the injury of their members. To establish such standing, the Republican parties must establish that at least one identified member had suffered or would suffer harm, but the panel found that the parties also failed this test.
The Georgia Republican Party does not identify any members who are affected by the amendments. The Tennessee Republican Party executive director identified one person, but his conflation of the 2016 amendments and Rule G-37 fails to show injury. The affidavit of the New York Republican State Committee identifies three Republican candidates who claim to be “hindered by the MSRB’s political contribution rule,” but it does not show that the 2016 amendments in particular have hindered these candidates, according to the panel.
“Because petitioners’ injuries are not self-evident and because petitioners have failed to put forth evidence that supports the alleged injury in fact, we hold that petitioners lack standing. Therefore, we deny the petitions for review of the final rule for lack of jurisdiction,” the opinion concludes.