SEC headquarters in Washington. Credit: Diego M. Radzinschi

The D.C. Circuit has upheld an anti-”pay-to-play” rule that bars brokers from soliciting government contracts for two years after making campaign donations to public officials.

The U.S. Court of Appeals for the District of Columbia Circuit said Tuesday that the U.S. Securities and Exchange Commission had acted within its authority in crafting the 2016 rule, which imposed a “two-year time-out” on members of the Financial Industry Regulation Authority who donate to a political campaign.

The ruling rejected a challenge by state Republican Party organizations in New York and Tennessee, who had claimed Rule 2030 was “arbitrary and capricious” and had hurt their ability to raise funds.

U.S. Circuit Judge Cornelia Pillard, writing on behalf of a three-judge panel, said the SEC had provided sufficient evidence that the law was needed to combat corruption, following specific instances of quid-pro-quo arrangements between elected officials and donors who had been awarded contracts to advise public pension funds.

Reviewing the case under the “closely drawn” test, Pillard found that the rule impacted only a narrow range of First Amendment activities and justified the government's stated purpose.

“We agree with the SEC that any disparate effect from Rule 2030 is a feature, not a flaw, of the narrow tailoring of the Rule; hence the Rule is indeed closely drawn to fit the important governmental interest behind it,” Pillard wrote for the majority.

A spokesman for the SEC declined to comment on Tuesday afternoon.

Rule 2030 specifically targets so-called placement agents, individuals and firms that investment advisers hire to help them secure contracts advising a government entities, such as pension fund and tuition plans.

While it wasn't regulated by the SEC rule, the New York Republican State Committee claimed in court papers that it now faced a tougher time in soliciting donations. Though the group lacked specific evidence to support its claim, Pillard said the petitioners did submit a sworn statement by Francis Calcagna, a placement agent who said he would solicit contributions for the state GOP from his “friends, family, and other contacts” if the law weren't still in effect.

Pillard and Senior U.S. Circuit Judge Douglas Ginsburg ruled that the state Republicans had standing to bring their claims, but denied the petition on its merits.

The ruling, however, came over the objection of U.S. Circuit Judge David Sentelle, who said that he would not have granted standing in the first place. In a four-page dissent, Sentelle said neither the New York nor Tennessee Republicans had shown that any contributor had stopped donating to campaigns because of the rule, making any injury too speculative to warrant standing.

“Both this court and the Supreme Court have held that when the establishment of injury depends on the volitional act of a third party, the claimant has not established standing as against the respondent,” Sentelle said.

An attorney for the petitioners said Tuesday that counsel was “currently reviewing the opinion, consulting with our client, and assessing our options for additional review.”

The petitioners were represented by Christopher Bartolomucci of Kirkland & Ellis and Jason B. Torchinsky of Holtzman Vogel Josefiak Torchinsky.

The SEC was represented by senior litigation counsel Jeffrey A. Berger and Michael A. Conley, a solicitor with the agency.

The case was captioned New York Republican State Committee v. SEC.