## Facts

- Regulators identified “pay-to-play” practices in municipal underwriting, including political contributions to state and local officials who could influence selection of underwriters.
- The Municipal Securities Rulemaking Board (MSRB) adopted Rule G-37 to deter corruption and the appearance of corruption in the municipal securities market; the SEC approved the rule under the Securities Exchange Act of 1934.
- Rule G-37 imposed a two-year prohibition on a dealer’s municipal securities business with a particular issuer after certain political contributions to an official of that issuer, with contributions by certain associated professionals and controlled PACs attributed to the dealer.
- The rule included a de minimis exception allowing up to $250 per official per election when the contributor is entitled to vote for the official.
- The rule separately barred dealers and municipal finance professionals from soliciting or coordinating contributions to officials of an issuer with whom the dealer is engaging or seeking to engage in municipal securities business.
- The rule also prohibited indirect actions designed to evade the contribution and solicitation restrictions.
- William B. Blount, a municipal securities dealer and political contributor, petitioned for review of the SEC’s approval, alleging First Amendment violations and unlawful agency action.

## Issues

1. Whether Rule G-37, by conditioning municipal securities business opportunities on the absence of certain political contributions and limiting solicitation/coordination of contributions, violates the First Amendment.
2. Whether the SEC’s approval of Rule G-37 exceeded its statutory authority or was arbitrary and capricious under administrative law review standards.

## Decision

- The court denied the petition for review and upheld Rule G-37 in full.
- The court treated the rule as regulation of business conduct in a government-related market with an incidental effect on contributions, rather than a direct prohibition on political speech.
- The court held that preventing corruption and the appearance of corruption in municipal underwriting is a sufficiently important governmental interest.
- Applying the contribution-regulation framework, the court concluded the rule was closely drawn to the governmental interest given its time limitation, issuer-specific focus, de minimis exception, and coverage designed to prevent circumvention.
- The court held the SEC acted within its Exchange Act authority to approve MSRB rules serving investor protection and the public interest and provided an adequate, reasoned basis for approval.

## Legal Principles

- Regulations addressing corruption and the appearance of corruption may permissibly burden contribution-related conduct if supported by a sufficiently important governmental interest and closely drawn to that interest.
- A rule that conditions participation in government-related securities business on the absence of specified contributions can be evaluated as economic/professional regulation with ancillary First Amendment effects, not necessarily as a direct ban on political expression.
- Structural limits that narrow a pay-to-play restriction—such as a finite cooling-off period, issuer-specific application, and a de minimis exception—support a finding that the restriction is closely drawn.
- The SEC may approve MSRB rules under the Securities Exchange Act when the rules are designed to protect investors and the public interest in the municipal securities market and the approval is not arbitrary or capricious.

## Conclusion

The D.C. Circuit upheld MSRB Rule G-37 against First Amendment and administrative-law challenges, ruling that the SEC lawfully approved a closely drawn anti-corruption measure that ties specified contribution and solicitation activity to time-limited, issuer-specific consequences in municipal securities business.


Blount v. SEC, 61 F.3d 938 (D.C. Cir. 1995)