The views expressed are the author’s own and not necessarily those of the Brennan Center for Justice.
The Trump campaign has struggled with one of the most plain vanilla, campaign 101, Federal Election Commission (FEC) rules: not soliciting foreigners for campaign funds. If choosing a relatively mainstream running mate in Mike Pence was supposed to bring in more campaign funds, then the strategy may have backfired. By adding a governor to the ticket, Trump has just triggered some Securities and Exchange Commission (SEC) stringent anti-pay-to-play rules. The regulations are designed to prevent investment advisers from using large campaign donations to win lucrative business handling government finances.
Two anti-pay-to-play rules now apply to the Trump/Pence ticket: one applies to municipal bonds and the other applies to public pension funds. Because Mike Pence is the sitting Governor of Indiana, any businessperson that is doing business with Indiana by either underwriting the state’s bonds or investing its pension funds is captured by these rules and can only give de minimis amounts to the Trump/Pence presidential campaign. If a businessperson ignores these rules and gives more than the low limit, they can be barred from doing business with the state for up to two years. This could put a serious crimp in any plans by Trump/Pence to go barnstorming on Wall Street for contributions.
Trump could have consulted Rick Perry who was the only candidate hit by these rules in 2012. As the sitting governor of Texas, Perry learned that while other candidates could raise big checks from investment firms, these donors could not give big checks to him without jeopardizing business with the Texas government. Ultimately, the choice is the donor’s. Give small, and not make much difference to the campaign, or give big, and lose the chance to win business. Four years ago, donors largely chose doing business with Texas over donating to Perry for President. And if Hillary Clinton decides to pick a sitting governor as her running mate, these rules will apply to her campaign too.
The SEC adopted these regulations to prevent corruption in the municipal bond and public pension fund markets. And it’s easy to understand why. A Wall Street hedge fund manager might think, “I want to curry favor with Pence so that I get more lucrative deals with the State of Indiana now or in the future. I’ll make big donations to the Trump/Pence campaign.”
As future retirees and current taxpayers, average citizens don’t want bond deals or public pension fund investments run by the most generous political donor. The real risk is that the high political spender will also overcharge the state for its financial services. Instead, from the citizen’s point of view, these deals should be done by the entity that will charge the state the least to bring their bonds to market or the best return on the state’s pension portfolio.
But wait, are these SEC rules even constitutional? In a word: yes. The municipal bond rule was upheld by the D.C. Circuit more than 20 years ago in a case called Blount. The public pension fund rule was also challenged but that effort failed because the lawyers filed it in the wrong court.
As I wrote both in my book, Corporate Citizen?, and in this law review article, the SEC rules are strict and some of the most effective means for battling pay to play. The SEC rules are followed because the agency is the gatekeeper for the U.S. financial markets. This effectiveness is one reason why so many people (over 1.2 million) have looked to the SEC to end dark money from publicly traded companies through Petition File No. 4–637. But the SEC has not acted to end dark money and so there has been in excess of $600 million in dark money in federal elections since Citizens United.
So what’s stopping the SEC from taking steps to reveal dark money? Congress, for one, is raising obstacles. Before it went on summer vacation, the House passed a bill prohibiting the SEC from working on a dark money rule. I wonder why? Could it be they are fond of dark money over at the Capitol? For now, the chances of the SEC tackling the dark money problem soon looks bleak.
But in the meantime, the SEC still has its anti-pay-to-play rules which at least helps curb the most rank quid pro quos from swamping the presidential campaign. In an increasingly deregulated campaign finance environment, these rules deserve praise.