FINRA Proposes to Make Newly Effective Pay-to-Play Rules Cover Capital Acquisition Brokers

George Ticoras, Esq.
Research Associate                   

On August 20, new pay-to-play rules for the Financial Industry Regulatory Authority (FINRA) became effective and additional FINRA pay-to-play rules were proposed.

FINRA Rule 2030 restricts contributions made to an official of a government entity being provided investment advisory services or being engaged to provide investment advisory services by certain parties. The rule applies to broker-dealers, placement agents, and covered associates acting on behalf of certain regulated investment advisors or soliciting a government entity to invest in certain pooled investment vehicles. If a contribution is made violating the rule, distribution or solicitation activities are prohibited for two years after the date of the contribution. The restrictions also prohibit soliciting a political action committee to make contributions or doing anything indirectly that, if done directly, would result in a violation of the rules.

The restrictions do not apply to contributions made by a covered associate that is a natural person 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. A covered associate may make contributions 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. Additional exceptions to the restrictions apply for certain newly covered associates or when contributions are returned under specified conditions in the rule.

Also effective is FINRA Rule 4580, which mandates certain record-keeping requirements concerning related contributions.

FINRA filed a proposed rule change with the Securities and Exchange Commission (SEC) to expand FINRA rules 2030 and 4580 to cover capital acquisition brokers (CAB). A firm meeting the statutory definition of a CAB and electing to be governed by the FINRA rule set would be subject to the new FINRA pay-to-play rules effective August 20. If approved, the effective date will be no later than 30 days after FINRA’s announcement of SEC approval.

[The details for this article have been updated on our website in the Federal Pay-to-play section of the Procurement Lobbying Compliance Laws.]

Summary of Changes UPDATE
Note Recent Changes to Compliance Regulations 

Michael Beckett, Esq., Research Manager

CALIFORNIA: Gov. Jerry Brown signed Assembly Bill 187 and Assembly Bill 551, amending both lobbying and campaign finance laws. Assembly Bill 187 requires a committee to file a report within 10 business days of making a contribution or independent expenditure aggregating $5,000 or more to support or oppose the qualification of a single local initiative or referendum ballot measure. Assembly Bill 551 extends revolving door restrictions to independent contractors of a local government agency or a public agency who are appearing or communicating on behalf of that agency. Both bills are effective January 1, 2018.

CALIFORNIA: The Fair Political Practices Commission (FPPC) voted to reverse a long-standing rule that limited how much money politicians and their committees can give to a candidate-controlled recall committee. The vote reversed a 2002 FPPC opinion that limited politician contributions to candidate-controlled recall committees to $4,400. The rule change now allows politicians to give unlimited amounts of money to help fight the recall of Democratic state Sen. Josh Newman. Chair Jodi Remke was the only dissenting commissioner in the 3-1 final vote. 

FEDERAL: The head of the Office of Government Ethics (OGE) has indicated anonymous contributions to legal defense funds of federal employees are prohibited. OGE Acting Director David Apol stated the policy has not changed, even though the note on a guidance document was changed earlier this year. In 1993, the OGE issued an opinion letter holding a fund established for the benefit of a government employee to pay the employee’s legal expenses, while administered by a person having no connection with the employee's official duties, could accept anonymous contributions. The OGE guidance letter is not legally binding. A one-sentence note was added to the top of the document in May signaling the OGE’s long standing internal practice had diverged from the formal guidance. Subsequently, the document's note was changed to read, “NOTE: THE PRIMARY FINDING ABOUT THE LIMITED APPLICABILITY OF 18 U.S.C. §209 TO PAYMENTS MADE FOR AN EMPLOYEE’S LEGAL EXPENSES HAS NOT CHANGED. HOWEVER, BECAUSE EACH ANALYSIS IS VERY FACT-SPECIFIC, AGENCY ETHICS OFFICIALS SHOULD CONSULT WITH THEIR OGE DESK OFFICER BEFORE ADVISING EMPLOYEES ON THIS TOPIC.” Critics of the change in May argued the note opened the door to lobbyists and other prohibited sources funding legal defenses for employees currently working in the White House.

NEW MEXICO: On September 8, Secretary of State Maggie Toulouse Oliver adopted campaign finance rules after three months of public hearings and reviews. Oliver introduced the rules to clarify New Mexico’s Campaign Reporting Act (CRA) and bring the CRA into constitutional compliance. Under the new rules, independent expenditure groups will be required to disclose their significant donors if they expend on any single political advertisement more than $2,500 for a statewide race or more than $1,000 on any non-statewide race. The rules will be effective October 10.

NEW YORK: The New York Joint Commission on Public Ethics (JCOPE) issued a call to concerned individuals for comments regarding the Notice of Proposed Rulemakings for Comprehensive Lobbying regulations and Source of Funding Disclosure Regulations. The comprehensive regulations expand the definition of lobbying to include indirect lobbying, such as setting up a meeting between a legislator and a lobbyist. According to JCOPE, the purpose of the proposed regulations is to fully incorporate existing guidelines and decades of advisory opinions. The hearing will be held on Monday, October 30, in Hearing Room A of the Legislative Office Building. All public comments must be submitted by 5 p.m. on October 6 to Carol Quinn, deputy director of lobbying disclosure, at carol.quinn@jcope.ny.gov.

Legislation We Are Tracking

At any given time, more than 1,000 legislative bills, which can affect how you do business as a government affairs professional, are being discussed in federal, state, and local jurisdictions. These bills are summarized in State and Federal Communications' online Compliance Laws for Government Relations Professionals. They can be found on a jurisdiction's home page.

Summaries of major bills are also included in the monthly Summary of Changes email update sent to all clients. The chart below shows the number of bills we are tracking in regard to lobbying laws, political contributions, and procurement lobbying.

Jurisdiction Added to our Website

The number of municipalities and regional governments our research associates track continues to grow. We now cover almost 300 municipalities and local governments. This is part of a continuous effort to better serve the needs of our clients.

This month's new jurisdiction is:

ASK THE EXPERTS

State and Federal Communications’ Experts Answer Your Questions

Here is your chance to “Ask the Experts” at State and Federal Communications, Inc. Send your questions to experts@stateandfed.com. (Of course, we have always been available to answer questions from clients that are specific to your needs, and we encourage you to continue to call or email us with questions about your particular company or organization. As always, we will confidentially and directly provide answers or information you need.) Our replies are not legal advice, just our analysis of laws, rules, and regulations.

State and Federal Communications, Inc. Scrapbook

There was a lot to see and hear at this year's PAC State and Local Government Relations Conference.
Thanks for a great conference.

Thank you Judith Zimomra for this beautiful piece for my office. Jennifer Hoerig Cline of Blessed are the Peacemakers stopped by this afternoon. I wasn't prepared to put it up immediately but it will be prominently displayed.

 

Plan to say hello at future events where State and Federal Communications, Inc.
will be attending and/or speaking regarding compliance issues.