Firms skirting ‘pay-to-play’ prohibitions, advocates say

The proliferation of super-PACs is allowing firms in the financial sector to sidestep rules meant to keep state and local contracts from being bought by campaign contributions, according to groups raising fresh concerns about the regulations.

The Security and Exchange Commission’s (SEC) existing “pay-to-play” restrictions prohibit bar financial securities brokers and advisors from contributing to certain elected officials. 

The idea is to keep firms from using campaign cash to curry favor with regulators responsible for doling out lucrative contacts to manage state pension funds and local municipal bonds.

But campaign finance reform advocates say companies have found a way around the rules by pouring their money into super-PACs, for which there are no such restrictions on supporting state or local officials — and no contribution limits.

The topic, raised in recent days via an investigation by The Wall Street Journal, is heating up, as state politicians, like GOP Govs. Chris Christie, of New Jersey, and Rick Perry, of Texas appear to be angling toward runs for the presidency in 2016.

“They are going to set up their own super-PACs that are going to solely support their presidential candidacy,” said Craig Holman, government affairs lobbyist for Public Citizen. “And they will become recipients of Wall Street money that’s otherwise forbidden under the SEC’s pay-to-play rule.”

Though prohibited from donating directly to a political campaign, super-PACs can make expenditures that support a single candidate via TV campaign advertisements, send out mailers or conduct polls.

Campaign finance reformers say there’s no way to ensure that super-PACs follow rules prohibiting them from coordinating with candidates, whose own political action committees are subject to more stringent restrictions.

“We’ve had super-PACs run by a politician’s relatives, close friends and former employees,” said Meredith McGehee, policy director for The Campaign Legal Center.

“When you have that situation you are in this Alice in Wonderland world where there is a pretense of independence and no actuality.”

The SEC declined to comment on whether the agency plans to revisit the regulations.

While PACs that coordinate with candidates are covered by the regulations now, the Supreme Court has ruled that super-PACs are independent by definition and therefore excluded from the rule.

The ruling has allowed for the emergence of a crop of new super-Pacs, many created to benefit a single candidate.

In 2012, for instance, a pro-Perry super PAC — Americans for Rick Perry — spent $202,865 on independent expenditures and electioneering communications, according to the Center for Responsive Politics.

Some groups argue such independent spending is guaranteed by the freedom of speech, upon which any new SEC regulations on independent expenditures might trample.

“The first amendment isn’t a loophole it’s a right,” said David Keating, president of the Center for Competitive Politics

“It’s not surprising that people, who may have worked with someone before and think they are great, might want to start a super PAC to support that particular candidate … and yes relatives do sometimes support sons, daughters, fathers and sisters.”

But campaign finance reform advocates note that the rules that bar financial services firms from donating to state officials overseeing contracting decisions don’t apply to super-PACs.

Some say they should be broadened.

“The pay to play regulations make a lot of sense as a safeguard against corruption and improper conflicts of interest,” Adam Smith, a spokesman for Every Voice said in a statement. “With so many changes in campaign finance law in the past few years, it would make sense for the SEC to look into whether it needs to update these rules.”

Though the regulations bar a super-PAC from coordinating with a candidate, Kenneth Gross, a partner with the law firm Skadden, Arps, Slate, Meagher & Flom LLP & Affiliates, said the Federal Election Commission has not said definitively what constitutes coordination.

“There are rules but the devil is in the application of those rules and there is a lack of clarity there,” he said. “The SEC is going to have to look at these situations on a case by case basis.”

The SEC, like all other federal agencies, put forth a regulatory agenda at the end of November, but pay-to-play rules for super-PACs were not part of the agency’s plans for 2015. 

The agency abandoned a separate campaign finance proposal on its regulatory agenda last year, opting not to pursue a rule forcing publicly traded corporations to disclose their political spending to stockholders.

That proposal, dropped in the face of fierce criticism from business groups and congressional Republicans, remains a top priority for advocacy groups.

“Political spending can be risky and embroil a company in hot bottom topics and endanger the bottom line,” said Lisa Gilbert, director of Congress Watch at Public Citizen and a member of the Corporate Reform Coalition.

The group also believes the SEC needs stricter pay-to-play rules to make sure there are no conflicts of interest between business and government.

Others disagree.

Keating, of the Center for Competitive Politics, said it is a dangerous concept when people say the government should be in charge of who can say what when. 

He said Congress could pass legislation to reward and protect whistleblowers, if it wants to protect against corruption. But new restrictions on independent spending would be misplaced, he said.

“It’s difficult to bribe a politician without someone knowing it,” he said, “so there’s a better way of addressing the problem than running around saying no one can give anything to any candidate or say anything about any candidate.”

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