Security - Check Permissions

MFDF - Mutual Fund Directors Forum - DC Court of Appeals Rejects Pay-to-Play Challenge

Member Login

Request an account

Sample Banner 1

DC Court of Appeals Rejects Pay-to-Play Challenge

The DC Court of Appeals rejected a challenge by the New York Republican State Committee and the Tennessee Republican Party to the “pay to play” rule. The rule was adopted in 2010 and prevents investment advisors from providing advisory services to a state or local government for two years after the adviser or certain of its employees contribute to the campaign of certain covered government officials. The plaintiffs filed the suit in August last year after the SEC brought its first action under the rule in June. The suit challenged the law on First Amendment grounds, and contended that the SEC exceeded its authority by implementing the rule because federal campaign finance is the exclusive purview of the Federal Election Commission.

Rather than ruling on the merits of the claim, the court instead held that actions challenging the issuance of rules under the Investment Advisers Act of 1940 must be brought within 60 days of their promulgation, and not the six year deadline under the Administrative Procedure Act as the plaintiffs contended. The court further ruled that, because the claim was one under the Investment Advisers Act, the plaintiffs should have directly filed in the appellate court, and not the district court as they did. The court did leave an avenue open for the plaintiff’s substantive claims, suggesting that the plaintiffs could  file a petition regarding the First Amendment claim with the Commission under the Administrative Procedure Act and subsequently appeal any denial to the DC Court of Appeals.

John Baker provides an overview of the case at his Fundlaw newsgroup here