[00:00:03] Speaker 01:
Case number 18-1111, New York Republican State Committee and out petitioners versus the Securities and Exchange Commission.

[00:00:12] Speaker 01:
Mr. LaCour Jr.

[00:00:13] Speaker 01:
for the petitioners, Mr. Berger for the respondent.

[00:00:17] Speaker 05:
Morning, Mr. LaCour.

[00:00:19] Speaker 01:
Morning, Your Honor.

[00:00:24] Speaker 02:
There is no right more basic in our democracy than the right to participate in electing our political leaders.

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Thus, Congress has always reserved for itself the First Amendment-sensitive task of regulating contributions to candidates for federal office, and has never set those limits for state and local officials.

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This is fitting for any restrictions on the people's right to influence who will govern them

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should come from those officials closest and most responsive to the people, not from unelected bureaucrats with no mandate to advance free speech and no expertise in campaign finance.

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Now, before delving further into the merits, I'd like to say a word of outstanding.

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The very purpose of this rule is to restrict the right of thousands of financial professionals from contributing to political candidates.

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But none of them are here.

[00:01:14] Speaker 02:
Your Honor, we do have an affidavit from Francis Calcogno.

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He is one of those people who has been restricted.

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Sir, he is not a party to the case, but he has to.

[00:01:22] Speaker 04:
How can he give you standing?

[00:01:24] Speaker 04:
Your Honor, because he should.

[00:01:25] Speaker 04:
At this moment, you're supposed to come at a stand.

[00:01:28] Speaker 04:
Yes, Your Honor.

[00:01:28] Speaker 04:
You're going to have to look to your group for standing.

[00:01:31] Speaker 02:
Yes, Your Honor, we do have to look to the political parties or to their candidates to see if they have been sufficiently harmed.

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In this instance, there is no doubt that harm has befallen our candidates and the party itself because of this rule.

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And that is because, again, as the rule was designed to do, it has silenced the speech of supporters of the party and therefore has deprived our candidates of political contributions that Mr. Kalkagna would have made otherwise.

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and of fundraising activities that he would have conducted on behalf of the party.

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This falls squarely into this court's precedent from taxation with representation where the court found that the mere prospect that the elimination of a tax deduction for contributors to the nonprofit would be sufficient to give that nonprofit standing because it would be less likely for their supporters to then give money to the nonprofit.

[00:02:23] Speaker 02:
Here, we're not even talking about likelihood.

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We have the actual harm.

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It has already befallen the party.

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when Mr. Calcogno refrained from giving to the New York GOP's candidate for governor, Marcus Molinaro.

[00:02:35] Speaker 02:
That is a textbook, pocketbook harm to the party and to its candidates, and that is more than enough to confer standing in this case.

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If the Court has no further questions about standing, I'd like to address the merits then.

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Turning first to the statutory argument, the SEC argues that the Exchange Act's general grant of authority to regulate manipulative practices and to promote a free market allows it to create campaign finance law for those participants in that market.

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But as this Court held when construing the Federal Power Act's similarly broad and generic grant of authority to FERC,

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There is not an infinitude of acceptable definitions for such a generic grant of authority.

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Thus, even when an agency's ends may be permissible, the court must scrutinize whether Congress has decided to grant the authority or grant that particular tool to the agency to carry out its ends.

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And here there is no reason to think that the SEC gave

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the SEC has been given the authority to regulate political speech.

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That's because such regulations always involve weighing two important interests, the need to combat corruption and the need to respect First Amendment rights.

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As the Supreme Court has repeatedly advised, legislatures are the experts when it comes to striking this delicate balance between those two interests.

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The SEC may be the experts in free markets or in corruption in the markets, but they have no similar expertise when it comes to that other equally or even more important interest.

[00:04:13] Speaker 05:
So your argument would also invalidate the Investment Advisors Act rule of 2010 and the MSRB rule G37?

[00:04:24] Speaker 02:
Your Honor, we do think that the logic of our argument would apply to those two rules as well.

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I'd also like to point out those are the only two other instances that we are aware of where an agency has deemed it fit for them to regulate campaign finance, which I think is a knock against the SEC's statutory arguments here.

[00:04:46] Speaker 03:
In the, I guess it's called Blount case, Blount case.

[00:04:52] Speaker 03:
Yes, Your Honor.

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In addressing the First Amendment argument, not the authority argument, the court seemed to say things that are equally applicable to the authority question here with respect to the authorization that the SEC has in regard to protecting markets from corruption and manipulation.

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Right?

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Your Honor, I think it's important to

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recognize the distinction between whether the SEC is furthering its permissible ends and the means that it's using to do so.

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So when you look at a case like FDA v. Brown and Williamson, there's no question that the FDA was promoting public health

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when it regulated tobacco products and nicotine.

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But Congress said that this is such a large and this is such an important question of political and economic significance that we simply don't think Congress handed that over to the FDA to regulate back in 1938 when it passed the FDCA.

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And we think that that reasoning applies a fortiori here where we have a question, not only political and economic significance, but constitutional significance as well.

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And so when you look at blunt, I mean, wouldn't that all have been true in the blunt case as well?

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It would have been, Your Honor, but the statutory argument was not presented there.

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Correct.

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And what the Court said that might bear on the statutory argument was that, quote, the link between eliminating pay-to-play practices and the Commission's goals of, quote, perfecting the mechanism of a free and open market, close quote, and promoting, quote, trust and equitable principles of trade, so close quote, is self-evident.

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We don't dispute that.

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So you would have us say that yes, let's take the blunt case on its own.

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Apart from this, you would have us say yes, nothing implementing this statute violates the First Amendment because

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what the rules are doing is clearly authorized by the statute in the other case, and narrowly tailored so as not to infringe the First Amendment, but are nonetheless not authorized here, indeed are arbitrary and capricious here.

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It's a difficult cell.

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I mean, it requires us to basically disavow what we said in the block case, doesn't it?

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I don't think it does, Your Honor, because while there was a debate in blunt as to whether the MSRB in that instance had properly struck the balance between corruption and the First Amendment rights of members of the MSRB, there was no debate that very serious First Amendment interests were implicated by the rule, which I think implicated but not transgressed.

[00:08:02] Speaker 02:
That was the court's holding in the case, yes.

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But to employ the constitutional avoidance canon of construction, you don't have to actually find that there has been a constitutional violation in order to do so.

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And moreover, I didn't catch that.

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In order to avoid the constitutional issue, we would have to find the issue.

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No.

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When reading a statute,

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courts will employ a constitutional avoidance canon without actually, the whole point of constitutional avoidance is to avoid having to get to the constitutional issue.

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So I think constitutional avoidance could still apply here because there is no question.

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I think I'm following what you're saying just to be sure.

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You're saying that we should not get to the constitutional question.

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We should say that this is

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An invalid action on the statutory grounds?

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Yes, Your Honor.

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It wasn't self-evident to me why you would bring it to the Constitutional Court.

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Clearly, you're right on that.

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We would not reach the Constitutional issue if we don't have to, indeed, if we can avoid doing so.

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Correct.

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But I'm just saying we're dealing here with a statute.

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You're calling into question the Commission's authority to cover this field of activity under its statute.

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That's correct, to have this particular tool to advance those interests.

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But we've already said that there's a self-evident connection between pay to play and the authority given in the statute.

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You said it in a different context, in the First Amendment context, but how do we set that aside now or disregard it now?

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I think there is a similarly self-evident connection that the FDA could have pointed to in Brown and Williamson, that they were called upon to promote public health

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and clearly regulating cigarettes to keep them out of the hands of children was going to self-evidently promote that interest.

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But the problem was that Congress had never delegated that authority to the FDA in the first place.

[00:10:01] Speaker 05:
Well, there was something odd about delegating the authority to the FDA, which is about health protective products, and nobody has ever argued that tobacco is such.

[00:10:11] Speaker 05:
But in any event, back to this area, isn't it more

[00:10:16] Speaker 05:
telling of Congress's intent that Congress did revisit the question in view of the MSRB rule and actually expanded the MSRB's rulemaking authority in view of its existing action, including the pay-to-play rule, and viewed that as a baseline for rulemaking with respect to municipal advisors.

[00:10:39] Speaker 05:
And that's quoting from the Senate report.

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So if Congress thought, no, no, this is not a power that we expected the financial regulatory entities to be wielding,

[00:10:55] Speaker 05:
We would have expected at least some debate on that, no?

[00:10:58] Speaker 02:
Two responses, Your Honor.

[00:10:59] Speaker 02:
First, we have one snippet of legislative history that the SEC points to and that you just referred to that an act of Congress.

[00:11:08] Speaker 02:
And of course, Dodd-Frank did expand the MSRB's authority.

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But there's nothing sort of explicit in Dodd-Frank that suggested that the pay-to-play rules were going to go along with that.

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But moreover, I think this is the last instance where we would expect Congress to reach out and try to reel back in the SEC for the very reason that when this rule applies to any federal election, it's almost always going to have an incumbency-protecting effect, which is a very serious First Amendment problem as well, but I think it does bear at least some of the statutory question.

[00:11:42] Speaker 04:
You don't really think we can base the reasoning and opinion on that, do you?

[00:11:47] Speaker 04:
You don't have to base the opinion on that, Your Honor, but I think this Court and the Supreme Court have both cautioned against relying on congressional silence, particularly when you're dealing with a very...

[00:12:09] Speaker 04:
comes and broadens even in this instance in the face of a binding court decision.

[00:12:15] Speaker 04:
It's not simply the silence of a new statute.

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That is the momentum of Congress of reenacting the same or an even greater authority in agencies, knowing that the courts have held the authorities up.

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It's not the same either.

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There is a distinction there.

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I'm the first to say we should not put too much stuff into congressional history or congressional silence in the terms of congressional history.

[00:12:45] Speaker 04:
When the silence was talking about the change that Congress had to change things and didn't take, that's a bit different, isn't it?

[00:12:54] Speaker 02:
That would be a bit different, Your Honor.

[00:12:56] Speaker 02:
I mean, the other argument we have is why the Exchange Act could be different from that particular amendment to the MSRB's authority.

[00:13:04] Speaker 02:
There is this proviso in the Exchange Act that expressly tells FINRA not to regulate matters that are not related

[00:13:12] Speaker 02:
to the purposes of the act.

[00:13:14] Speaker 05:
And if you look at what FINRA does, they're essentially... But you've more or less conceded that this is related, and that's the argument that you make in analogizing this case to Brown and Williamson, that that's just not enough.

[00:13:26] Speaker 05:
And I thought that Judge Ginsburg's point about the reasoning in Blount also shows us that, yes, it's related to the objectives of the act.

[00:13:34] Speaker 05:
And your point is, well, that's not enough.

[00:13:36] Speaker 02:
Let's say the purposes of the Act and the matters of the Act could be two different things.

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I think matters would be more along the means that are used to pursue those purposes.

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So if they enacted something that had nothing whatsoever to do with clean markets, then yes, that would fail.

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You wouldn't even need the proviso to do any work in that instance.

[00:13:52] Speaker 02:
But if we're looking, if it does indeed limit the means that FINRA is able to deploy, let's look at what FINRA does.

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And FINRA is to broker dealers,

[00:14:01] Speaker 02:
what a state bar is to lawyers.

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So they deploy what's the equivalent of the bar exam and they have continuing education requirements and disclose this to your client and here's how you handle confidential information.

[00:14:15] Speaker 02:
They've never until a couple years ago claimed the ability to regulate the political speech.

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of their members.

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And that's because that is not a matter that is related to what FINRA does, what FINRA has done for 80 years when Congress first gave it this sort of authority back in 1938.

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So what we have is this long dormant power to regulate political speech that has suddenly sprung forth more recently.

[00:14:40] Speaker 02:
And in the interim, what we've seen is Congress acting multiple times in the campaign finance realm with very specific and very careful attention to First Amendment and corruption balancing.

[00:14:53] Speaker 05:
Let me just ask you back on the standing point that you introduced at the outset.

[00:15:00] Speaker 05:
It's curious that you don't have a member of the New York Republican Party with an affidavit

[00:15:08] Speaker 05:
And so could you just trace for us, I gather your strongest evidence is Cole Cano, and even though he's not a member of either of the plaintiff parties, he attests that he would have bundled in fundraising for the New York Republican Party, but that he's not able to do that given the rule, and therefore that that harms the party

[00:15:37] Speaker 05:
because presumably the argument is that his bundling would have reached donors in New York that would have, or donors loyal to the New York Republican Party that would have better supported him.

[00:15:50] Speaker 05:
Is that, am I getting the?

[00:15:52] Speaker 02:
Yes, Your Honor, he works in New York for Pickwick Partners.

[00:15:55] Speaker 02:
He lives, I guess, across the river in New Jersey.

[00:15:58] Speaker 02:
But I think his fundraising efforts, whether from his home in New Jersey or from his office in New York or from California or from wherever,

[00:16:05] Speaker 02:
would still be just as beneficial as that of a good native New Yorker.

[00:16:11] Speaker 02:
So I don't, while the fact that he is a member of the New Jersey party might make it more difficult for us to establish associational standing on his behalf, though I still think we do have good arguments that he could be considered a member.

[00:16:25] Speaker 04:
It still does raise an eyebrows to why you couldn't come up with somebody from New York.

[00:16:30] Speaker 04:
New York's got a lot of people in it.

[00:16:32] Speaker 02:
A lot of them work in the financial industry.

[00:16:34] Speaker 02:
None of them Republicans?

[00:16:38] Speaker 02:
No, there are many Republicans in New York, Your Honor.

[00:16:40] Speaker 02:
2.8 million voted for the New York or for the GOP's presidential candidate in 2016.

[00:16:46] Speaker 02:
And to your point as to why we don't have a dozen affidavits, why we only have one, it's understandable.

[00:16:55] Speaker 02:
We don't even have one.

[00:16:57] Speaker 02:
We don't even have one from anybody in New York.

[00:17:00] Speaker 02:
We have one from a donor.

[00:17:02] Speaker 02:
One, the person who has donated in the past would have donated in 2018, will donate in the future if this court sides with petitioners here.

[00:17:11] Speaker 02:
Moreover, as to why we don't have any New Yorkers who have submitted an affidavit.

[00:17:14] Speaker 04:
But that doesn't mean that he's a member of your association for social standing purposes.

[00:17:20] Speaker 04:
Sir?

[00:17:20] Speaker 04:
He's not a member of your association for social standing purposes.

[00:17:25] Speaker 02:
He's not a New Yorker citizen.

[00:17:27] Speaker 02:
I'm not certain that that would be the case.

[00:17:30] Speaker 02:
If he supports the party with his time and his money, I think he could be considered a member.

[00:17:34] Speaker 02:
I don't think he so attests.

[00:17:38] Speaker 02:
He does not, Your Honor.

[00:17:39] Speaker 02:
But ultimately, I do think that's irrelevant because of the fact that there are these pocketbook harms to the party and associational harms as well, because we can't associate with him, at least in this fundraising capacity, because of Rule 2030.

[00:17:54] Speaker 05:
You also argued, just to correct me if I'm wrong, or he attests in his declaration at paragraph eight, that if rule 2030 didn't apply to him and his employer, he would contribute more than $350 to several New York GOP candidates.

[00:18:09] Speaker 05:
Wouldn't that be because he's not eligible to vote for them?

[00:18:12] Speaker 05:
Wouldn't that be $150?

[00:18:16] Speaker 02:
He'd be willing to do both.

[00:18:17] Speaker 02:
I think $350 is above $150.

[00:18:20] Speaker 02:
So either way, the rule is constraining him.

[00:18:25] Speaker 05:
It's an odd way to put it if the relevant limitation to him is 150, right?

[00:18:28] Speaker 02:
It is, Your Honor.

[00:18:33] Speaker 05:
And he doesn't attest that he's ever done that soliciting of contributions from others for candidates in the past.

[00:18:40] Speaker 05:
He just says that he would do that.

[00:18:43] Speaker 02:
I believe that's correct, Your Honor.

[00:18:48] Speaker 02:
See, I've gone over my time.

[00:18:49] Speaker 02:
I'd like to reserve the remainder for rebuttal if I have any.

[00:18:52] Speaker 05:
We'll give you time for rebuttal.

[00:19:12] Speaker 00:
Good morning, and may it please the Court, Jeff Berger, for the Securities and Exchange Commission.

[00:19:17] Speaker 00:
Rule 2030 is a response to pay-to-play involving FINRA members who help investment advisors obtain contracts from state and local governments, namely pension funds, an unfair business practice that distorts markets and harms the beneficiaries of those pension funds.

[00:19:32] Speaker 00:
The Commission, as I will discuss, had authority to approve Rule 2030, which is constitutional under this Court's precedent,

[00:19:39] Speaker 00:
But it's our view that this court should not reach those issues because petitioners lack standing.

[00:19:44] Speaker 00:
And I think one way to frame the standing argument is to look at what came before in this case.

[00:19:48] Speaker 00:
The 11th Circuit dismissed one of the parties, which is no longer in this case, for lack of standing, and said that there was no reason not to submit the evidence that the court discussed in that case.

[00:19:59] Speaker 00:
So I think one way to look at this is to ask, what is different now than was different then when the 11th Circuit dismissed on standing?

[00:20:05] Speaker 00:
And I think what you have,

[00:20:06] Speaker 00:
is you have an expanded affidavit from a party official, but what it is lacking is the crux of the issue in standing here, which is that Rule 2030 regulates placement agents, regulates thinner members forms.

[00:20:19] Speaker 00:
It doesn't regulate political parties.

[00:20:22] Speaker 00:
There is no issue in terms of direct contributions to political parties from Rule 2030.

[00:20:30] Speaker 00:
Put another way,

[00:20:31] Speaker 00:
A member firm or one of its covered associates can contribute directly to a political party such as the New York GOP without the timeout interfering with that.

[00:20:40] Speaker 00:
There is no restriction in that.

[00:20:41] Speaker 00:
So the idea that they are receiving less money, the party is receiving less money because of Rule 2030 doesn't track what the rule actually does.

[00:20:49] Speaker 05:
Well, except that there's a cost for them if they want to act as a placement agent.

[00:20:56] Speaker 05:
within the next two years, that there's a deterrent on them.

[00:21:00] Speaker 00:
There's only a deterrent in terms of contributions to officials, not to the party.

[00:21:04] Speaker 00:
The rule specifically does not include... But bundling for the party?

[00:21:09] Speaker 00:
There is a bar on bundling, and I'd like to turn to that because I think what is missing in the affidavit is crucial evidence, which is one, what is the effect of bundling?

[00:21:18] Speaker 00:
How does that actually translate to actually lost dollars?

[00:21:22] Speaker 00:
And the reason why it's important goes to the tailoring of the rule.

[00:21:26] Speaker 00:
The bundling prohibition affects placement agents at the time they are, in essence, soliciting contracts on behalf of investment advisors.

[00:21:35] Speaker 00:
So it is a narrow window in which the bundling prohibition would take effect.

[00:21:41] Speaker 00:
So to the extent that there is harm from that, at the moment, based on the evidence that's been provided to this court in the affidavits, it's strictly conjectural or speculative.

[00:21:50] Speaker 00:
There's not even information in the affidavits about whether, in this election cycle, the party obtained less money than it has in previous election cycles as a result of the rule.

[00:22:00] Speaker 05:
Do we require that level of detail at the threshold in our standing analysis, however?

[00:22:05] Speaker 00:
It is a summary judgment standard, Your Honor.

[00:22:07] Speaker 00:
I mean, whether it requires that in this particular type of case, I don't know how many other cases there are exactly like this, but it does require a level of specificity sufficient to pass some judgment.

[00:22:18] Speaker 00:
In my view, the evidence being provided here

[00:22:21] Speaker 00:
is far too general and in large part that tracks the fact that there are no affidavits from actual injured members here.

[00:22:27] Speaker 04:
In a moment you will be relying on that Blount case on the marriage.

[00:22:32] Speaker 04:
I will.

[00:22:32] Speaker 04:
Does Blount not hurt you on standing?

[00:22:34] Speaker 04:
Is it not authority for propositions?

[00:22:38] Speaker 00:
No it doesn't.

[00:22:39] Speaker 00:
I'm sorry.

[00:22:40] Speaker 00:
Go ahead.

[00:22:41] Speaker 00:
It does not hurt us on standing in principle part because William Blount was the petitioner in that case.

[00:22:47] Speaker 00:
He was a regulated

[00:22:49] Speaker 00:
not an entity, but a regulated member.

[00:22:51] Speaker 00:
He was, in effect, a municipal securities dealer.

[00:22:55] Speaker 05:
So if- Is part of the reason why there are no New York placement agents as plaintiffs in this case, I'm just obviously just inferring, and you would be too.

[00:23:05] Speaker 05:
But if this rule were invalidated, rule 2030 were invalidated, then under the Advisors Act rule from 2010,

[00:23:17] Speaker 05:
placement agents would be forbidden unless they happen to be investment advisors.

[00:23:24] Speaker 05:
In other words, that rule, I thought, restricted the use of placement agents unless they were regulated equivalently or more stringently to the investment advisors in that

[00:23:37] Speaker 05:
But he wouldn't recover by that rule.

[00:23:39] Speaker 00:
Sure.

[00:23:39] Speaker 00:
And if I can answer your honest question by just moving slightly backwards in time, the Commission, when adopting the Advisors Act rule or when considering the Advisors Act rule back in 2009 and 2010, had initially proposed banning placement agents entirely so that it would basically eliminate an entire market.

[00:23:55] Speaker 00:
The commission heard back from placement agents, from advisors, even from state and local pension funds saying, please don't do this.

[00:24:02] Speaker 00:
Pension funds do serve a good, excuse me, placement agents do serve a good purpose.

[00:24:07] Speaker 00:
There have been some bad incidents that have tarnished it, but overall they serve a good in terms of markets and investors.

[00:24:15] Speaker 00:
So what then the commission decided was instead of barring placement agents, it would place them under

[00:24:19] Speaker 00:
the guise of pay to play rules that would be adopted by SROs like FINRA and the MSRB.

[00:24:25] Speaker 00:
The MSRB one, of course, already existed.

[00:24:27] Speaker 00:
So yes, it's a little bit odd.

[00:24:29] Speaker 00:
It's an odd feature of standing here, which is the political parties purporting to advocate on behalf of placement agents are advocating for

[00:24:36] Speaker 00:
the removal of a provision that would harm placement agents because they would not be able to, in effect, service placement agents for investment advisors to state and local government agencies.

[00:24:44] Speaker 05:
Unless they themselves were investment advisors.

[00:24:47] Speaker 00:
Unless they, and then, yes, compliant.

[00:24:49] Speaker 00:
Yes.

[00:24:50] Speaker 05:
Right.

[00:24:51] Speaker 05:
So it would actually put a certain subset of them out of business.

[00:24:57] Speaker 01:
Yes.

[00:24:57] Speaker 05:
But the party has a different interest because the party obviously benefits from pay to play.

[00:25:04] Speaker 05:
The more people have to ante up because they think,

[00:25:06] Speaker 05:
that's gonna be a qualification for them in getting business, yeah, it might harm the party.

[00:25:13] Speaker 05:
But why then isn't Colcagno the perfect affiant for the party here in the sense that, I mean, it stands to reason that individuals who are eager to do bundling would benefit

[00:25:31] Speaker 05:
the party and you're saying well we don't really know that it's conjectural.

[00:25:35] Speaker 05:
It seems pretty commonsensical that disabling people who are loyal to a party from bundling in its behalf

[00:25:44] Speaker 05:
would lower the contributions?

[00:25:46] Speaker 00:
If I can answer why Calcogna is not the perfect define here, and let's just start with the fact that he's not actually a member of the New York party, but let's assume for the moment he was a member of the New York party.

[00:25:55] Speaker 00:
There's two issues with his affidavit, and this completely goes to what the affidavit doesn't say.

[00:26:00] Speaker 00:
One is he talks about that he would bundle in the future, but he never attests that he actually has ever bundled in the past.

[00:26:07] Speaker 00:
So that's one.

[00:26:08] Speaker 00:
And then two, it relates to the link between, and this is the crux of the rule, the link between the government entity

[00:26:14] Speaker 00:
the official of that government entity and the member firm.

[00:26:17] Speaker 00:
And I view Calcogna's affidavit is very, and the Cox affidavit for that matter, is very, very carefully saying that Calcogna's firm has served as a placement agent.

[00:26:25] Speaker 00:
But he does not at any point say that it has served or will serve as a placement agent for New York.

[00:26:32] Speaker 00:
And that is crucial for this rule because the rule as a result of its tailoring requires a link between the government entity and the official.

[00:26:38] Speaker 00:
The only thing the rule is trying to stop in terms of pay to play are officials with contracting authority

[00:26:43] Speaker 00:
And New York, in particular, is a unique state in the following way.

[00:26:48] Speaker 00:
The New York State Pension Fund, which is enormous, I think almost $300 billion in assets, is controlled solely by the comptroller, which is an elected position.

[00:26:59] Speaker 00:
So a placement agent seeking to help an advisor gain a contract from the pension fund

[00:27:06] Speaker 00:
could give to the governor because the governor is not an official as to the pension fund, only the comptroller is.

[00:27:12] Speaker 00:
Now that's not to say the government could, excuse me, the governor could never be an official because New York State, exclusive of the pension fund, could hire placement agents, which on behalf of investment advisors, but we don't know if that actually happens.

[00:27:25] Speaker 00:
We don't know if Pickwick is involved in that because there's no evidence providing the affidavits to that effect.

[00:27:30] Speaker 00:
So to me this is not a case where standing

[00:27:33] Speaker 00:
is impossible to show.

[00:27:34] Speaker 00:
There are certainly those cases out there where it's just not the right type of plaintiff.

[00:27:38] Speaker 00:
This is an evidentiary failure.

[00:27:40] Speaker 00:
And it's an evidentiary failure that happened before the Sixth Circuit.

[00:27:43] Speaker 00:
It just recently happened before the Eleventh Circuit and has been repeated here.

[00:27:47] Speaker 05:
And one of the places that the party tries to

[00:27:53] Speaker 05:
close that gap, is by referring to specific support from Molinaro.

[00:27:57] Speaker 05:
But you're saying Molinaro is also not a covered official?

[00:28:01] Speaker 00:
What I'm saying is he may or may not be.

[00:28:03] Speaker 00:
It depends on whether, in terms of the specific contributor or member firm, whether that member firm is actually providing placement agent services to the government of New York, not the pension fund.

[00:28:15] Speaker 00:
So meaning the government has money from tax receipts from other things, and they may or may not hire investment advisors.

[00:28:21] Speaker 00:
And placement agents may or may not

[00:28:22] Speaker 00:
serve as a middleman to help investment advisors get those contracts.

[00:28:27] Speaker 00:
But I don't know, and this court doesn't know, whether Pickwick or Calcogno has any role in that.

[00:28:31] Speaker 00:
Because they haven't said so.

[00:28:32] Speaker 05:
Is that easy for people in the financial services industry to discover?

[00:28:35] Speaker 05:
If I'm someone in Calcogno's situation, I want to know who I can bundle for or fundraise for, how do I find out what the lines of responsibility are?

[00:28:50] Speaker 00:
With all respect to Mr. Calcogno,

[00:28:53] Speaker 00:
This about the Comptroller and about the New York Pension Fund, this is widely known within the financial industry.

[00:28:58] Speaker 05:
And you could find... The Pension Fund, but you also said you didn't know whether Molinaro is a covered official because that would depend on whether New York is employing the services of placement agents.

[00:29:07] Speaker 00:
Let me restate.

[00:29:08] Speaker 00:
What I'm saying is I don't know whether Molinaro is a covered official for purposes of a contribution from Pickwick because I don't know whether they have served as a placement agent for New York.

[00:29:16] Speaker 00:
Molinaro would be a covered official.

[00:29:18] Speaker 00:
writ large, but what I'm saying is the tailoring of the rule, the requiring of a mixing – or not a mixing, but a nexus between the person with contracting authority and the broker dealer who wants to engage in pay to play is the essence of the rule.

[00:29:32] Speaker 00:
It's a feature of the rule.

[00:29:32] Speaker 00:
It's not a bug.

[00:29:35] Speaker 00:
I would like to talk about the merits a little bit, but I don't want to cut off any standing questions, so if there's no more, if I could just move to the –

[00:29:43] Speaker 00:
Merits.

[00:29:45] Speaker 00:
First, I want to answer Judge Ginsburg's question, because I do think the logic, the rationale in blunt

[00:29:53] Speaker 00:
does bear on the authority question here, as well as, of course, the constitutionality question.

[00:29:59] Speaker 00:
And one reason is the statutory authority underlying Rule G37, which comes from Section 15B of the Exchange Act, is almost word-for-word the same as the statutory authority that's underlying the rule here in Section 15A, and that's the authority that controls rules that FINRA must have for broker-dealers.

[00:30:18] Speaker 00:
The language is very, very similar, so yes, I do think

[00:30:21] Speaker 00:
there's very much on the authority question, obviously the constitutionality question as well.

[00:30:26] Speaker 00:
And I do think it's important to talk about Brown and Williamson, because I think it provides actually a very nice contrast with what happened in this case.

[00:30:35] Speaker 00:
As I understand petitioner's argument, petitioner's argument is basically the commission has veered far outside of its lane.

[00:30:41] Speaker 00:
And my response to that is, well, the commission, in terms of starting with Rule Jury 37, has been in this lane for almost 25 years.

[00:30:49] Speaker 00:
And Congress has not acted to remove the commission from its lane, despite having multiple opportunities to do so in either the campaign finance laws or the securities laws.

[00:30:58] Speaker 00:
But it actually expanded the lane in Dodd-Frank when it not only gave the MSRB more authority over community advisors, but specifically pointed to pay-to-play laws.

[00:31:09] Speaker 00:
And I understand that this is in legislative history, and legislative history is not the text.

[00:31:14] Speaker 00:
I understand that.

[00:31:16] Speaker 00:
It is a factor to look at, and it is important to look at.

[00:31:20] Speaker 00:
And then we can contrast with Brown and Williamson, which does also look at sort of the history, the legislative history, not just text, but also what happened in the Supreme Court in that decision.

[00:31:30] Speaker 00:
It spends almost 15 pages talking about a 70-year history of Congress telling the FDA, you have no business

[00:31:38] Speaker 00:
dealing with tobacco.

[00:31:39] Speaker 00:
Now, it didn't have an express preclusion clause, but it talked about testimony, legislative reports, all these things where the FDA, Congress has basically told the FDA, this is not, you can't play in this sandbox.

[00:31:51] Speaker 00:
And the FDA is agreeing.

[00:31:53] Speaker 00:
They're saying we have no authority over tobacco.

[00:31:55] Speaker 00:
So the court's looking at that, and that is a complete contrast with what has happened here in terms of what the

[00:32:00] Speaker 05:
What about Galeano where we really emphasized how there's a very delicate balance under the Federal Election Campaign Act that, you know, it seems structurally somewhat at odds with that to say that the Commission can just come in sidewise and restrict more conduct than

[00:32:25] Speaker 05:
than the Federal Election Commission has done.

[00:32:27] Speaker 00:
Yeah, I mean, I think there's two aspects of Galeano to talk about.

[00:32:31] Speaker 00:
One is I do think Galeano is distinguishable and in part is distinguishable because the issue there was, in essence, dueling administrative litigation over a single solicitation, I think a mailer.

[00:32:43] Speaker 00:
And part of that had a lot to do with the fact that the FEC is given exclusive authority to regulate FECA, meaning the name requirements that were at issue in Galliano.

[00:32:51] Speaker 00:
But also there's a procedural component.

[00:32:53] Speaker 00:
The FEC has this very intricate conciliation process designed to sort of stop things before they become court cases.

[00:32:59] Speaker 00:
That's very different than the situation.

[00:33:00] Speaker 00:
The commission isn't seeking to hold anyone liable for a contribution that somehow exceeds FECA, nor does the rule somehow allow contributions of a FECA.

[00:33:09] Speaker 00:
One would only violate the rule by accepting compensation in the wake of a contribution.

[00:33:14] Speaker 00:
Now, that's not to say that somehow that doesn't mean the First Amendment or contributions aren't implicated.

[00:33:19] Speaker 00:
But what the commission is focused on is halting the pay to play, not the contribution.

[00:33:25] Speaker 00:
Firms always have a choice of what they can do.

[00:33:27] Speaker 00:
Now, for a firm that gets 100% of its revenue from placement agent services, it's not much of a choice.

[00:33:33] Speaker 00:
And then we can go back into the Egaliton on First Amendment analysis.

[00:33:37] Speaker 00:
But for a firm that doesn't actually do much in placement agents or maybe has some speculative hope years from now to become a placement agent, the choice becomes a little bit more reasonable and they may choose to make contributions.

[00:33:48] Speaker 00:
I do just think Galeano on the procedural element is a different case.

[00:33:52] Speaker 00:
I also think on the substantive matter it's a different case because

[00:33:55] Speaker 00:
What that was dealing with was, in essence, was avoiding a situation where the litigants, the wrong term, I guess either a PAC or a candidate, is forcing the position of having to comply with FEC requirements and then be all of a sudden in a position where, despite their compliance with the FEC's name requirements, that it's somehow also then violating a post-offraud, a more general post-offraud provision.

[00:34:22] Speaker 00:
I do also just two more things about, I'm sorry, I'm actually over my time.

[00:34:26] Speaker 00:
Can I finish the thought about Galeano?

[00:34:29] Speaker 00:
Just two other things about Galeano.

[00:34:30] Speaker 00:
I do think some of the reasoning in Galeano has to be contrasted with the reasoning in Palm, which is a more recent unanimous Supreme Court case.

[00:34:38] Speaker 00:
I do think those two cases have to be juxtaposed.

[00:34:43] Speaker 05:
In reconciled, okay.

[00:34:44] Speaker 00:
Was it?

[00:34:45] Speaker 05:
In reconciled, thank you.

[00:34:46] Speaker 00:
Yes, in reconciled.

[00:34:49] Speaker 05:
All right, we'll hear from.

[00:34:51] Speaker 05:
Thank you.

[00:34:56] Speaker 05:
Mr. Likert, have time remaining?

[00:34:59] Speaker 05:
We'll give you two minutes for butter.

[00:35:01] Speaker 02:
Thank you, Your Honor.

[00:35:03] Speaker 02:
I'd like to address just a couple of points that my friend from the other side had brought up.

[00:35:08] Speaker 02:
One important thing to recognize about the rule is the way the two-year timeout really has a pernicious, chilling effect on anyone who is even involved as a broker-dealer.

[00:35:18] Speaker 02:
They may not have a hot lead on getting business with a particular government at that moment, but if they want to keep their options open for that sort of work, they cannot make those sorts of contributions or they will be frozen out for two years.

[00:35:32] Speaker 02:
If you imagine a similar ban applying to a large law firm,

[00:35:35] Speaker 02:
that would freeze them out from government contracting work for two years, that not a single associate is going to be allowed to participate in the political process.

[00:35:42] Speaker 02:
And we have letters from the Financial Services Institute that are in the record at J-156 that say exactly that.

[00:35:48] Speaker 02:
There is no way for us to operate while allowing our employees to engage in the political process, because we don't know when these sorts of opportunities are going to arise.

[00:35:57] Speaker 02:
So I don't think that presents any standing problem for us whatsoever.

[00:36:00] Speaker 02:
And this is, again, how the rule was intended to work.

[00:36:02] Speaker 02:
It has had that effect.

[00:36:04] Speaker 02:
My friend from the other side also brought up a vagueness problem that it's not always clear which candidates are even going to be covered or not covered.

[00:36:15] Speaker 02:
There's no list that's published by the SEC or FINRA.

[00:36:17] Speaker 02:
There's relatively little guidance even.

[00:36:20] Speaker 02:
So again, it makes sense for these financial professionals to exercise great caution lest they get a knock on the door from the SEC one day and find that they have... You haven't made a vagueness argument as such, have you?

[00:36:34] Speaker 02:
Not like a straight first amendment vagueness argument, but I do think it bears on the standing question.

[00:36:42] Speaker 05:
In terms of tailoring, there is some leeway for errors to be excused on a limited basis if somebody does.

[00:36:52] Speaker 02:
If someone makes one contribution and then they find out, if one of your employees from the entire firm makes an impermissible contribution and they get it back within, I think, 60 or 90 days, then they are given sort of a pass at one time.

[00:37:08] Speaker 02:
But for large firms, I think you're maybe allowed two passes over the course of a year or two.

[00:37:14] Speaker 02:
And for small firms, only one.

[00:37:16] Speaker 02:
So the risks are still very high.

[00:37:20] Speaker 05:
You refer to associates, but in the rule, associates are actually quite limited.

[00:37:26] Speaker 05:
It's not associates in the law firm associate sense.

[00:37:28] Speaker 05:
It's general partners, managing members, or executive officers that are covered.

[00:37:33] Speaker 02:
And placement agents.

[00:37:34] Speaker 05:
And placement agents themselves.

[00:37:36] Speaker 02:
Yes.

[00:37:36] Speaker 05:
But not, you talked about it.

[00:37:37] Speaker 02:
It's not everyone at any given broker dealer necessarily.

[00:37:41] Speaker 02:
But it's still very important for the left hand.

[00:37:44] Speaker 02:
The left hand isn't always going to know what the right hand is doing.

[00:37:47] Speaker 02:
These employers tend to take a very conservative approach.

[00:37:52] Speaker 02:
Finally, I'd like to just touch on Galeano if I have just one moment.

[00:37:56] Speaker 02:
Like you said, there is a very fine balance at issue there.

[00:38:00] Speaker 02:
So at least as this rule applies in the federal context, I do not see how they can be reconciled.

[00:38:06] Speaker 02:
They do not complement each other unless you ignore the fact that campaign finance rules

[00:38:11] Speaker 02:
not only try to curb corruption, but also try to preserve a certain level of first amendment activity for citizens.

[00:38:18] Speaker 02:
And the SEC, again, all you have is a hammer, every problem looks like a nail, and when all you regulate is markets, all you're going to care about is corruption.

[00:38:26] Speaker 01:
Thank you, Mr. LeCron.

[00:38:36] Speaker 01:
Thank you so much.