The Securities and Exchange Commission has at last begun doing its core job of policing corruption in public markets, after years of standing down while Wall Street captured the agencies that were supposed to police it. Shame on Chairman Paul Atkins for proposing last week to rescind an Obama-era rule that was the only meaningful federal check on the financial industry’s purchase of state and local elections.
The SEC’s 2010 pay-for-play rule capped at $350 the political contributions finance-industry employees with influence over government investment-adviser hires can make to the state and local candidates who oversee them — a modest guardrail against the corrupting flow of finance money into the politicians who decide who manages public workers’ retirement savings. The barred include those who have the “authority to appoint any person who is directly or indirectly responsible for, or can influence the outcome of, the hiring of an investment adviser by a government entity” — exactly the people whose decisions public servants ought to make on the merits, not on the size of the check that just arrived.
This long-overdue limit covers candidates for governor, mayor, comptroller, and other offices that play any role in appointing members to boards of public pension funds — public servants whose decisions shape the retirement security of teachers, firefighters, and other workers.
The documented concern was, and remains, that financial firms will try to win that business by donating to the politicians who help oversee them — a corruption scheme that has cost public retirees enormously in fees and underperformance.
The Obama SEC rightly stated the rule would “ensure that adviser selection is based on merits, not on the amount of money given to a particular candidate.” That goal deserves defense — and it is exactly the principle Mr. Atkins is now gutting.
As Mr. Atkins announces, “ultimately, matters involving political contributions are more properly governed by local ordinances, state laws, and federal election regulations—not by the SEC” — a tidy way of saying Wall Street should be free to fund the politicians who award them contracts. The federal election regulations he invokes are a Swiss cheese of loopholes, state laws vary wildly, and the local ordinances are uneven or absent in most jurisdictions — which is precisely why the SEC had to act.
“The rule has effectively resulted in the suppression of political speech,” the Chairman concedes, since “many firms simply impose blanket prohibitions on employee political contributions rather than navigate the rule’s complexities.” Translation: Wall Street cannot be bothered to follow a rule designed to keep its executives from buying the officials who hand them public money.
“People should not have to choose between their political speech rights and a job in a particular industry,” the Chairman contends.
JP Morgan Chase CEO Jamie Dimon last year lambasted the rule for blocking his access to the politicians who decide who manages public money — a complaint that tells you exactly whose interests the rescission serves.
“I can’t speak up, and I can’t fight for what I believe,” he said. “Doesn’t that violate my First Amendment rights?” The CEO of JPMorgan Chase, complaining that contributing to a mayoral race was too cumbersome, is the clearest possible case for why the rule needed to exist in the first place.
Daniel Shuchman and Bradley Smith argued in those pages last year that the rule violates the First Amendment rights of Wall Street executives to spend their wealth shaping the officials who award them business — a First Amendment theory that elevates the speech rights of billionaire executives over the democratic rights of the public whose pensions are at stake.
Watchdogs warn that rescinding the rule will reopen the corruption pipeline. They are right.
The SEC’s existing authorities to police quid-pro-quo corruption have proven entirely insufficient against the soft corruption that pay-to-play actually is.
“Investment advisers are subject to the Investment Advisers Act antifraud requirements, fiduciary duty obligations, and rules requiring them to maintain compliance policies and procedures and codes of ethics,” Mr. Atkins notes — a list of tools designed to punish corruption after the fact, not to prevent the campaign contribution that bought the contract in the first place.
The Atkins agenda of removing the SEC from policing political corruption will instead free the agency to focus on its real mission of protecting Wall Street executives from being asked to compete honestly for public business.
