No. 95-1063

In the Supreme Court of the United States

OCTOBER TERM, 1995

WILLIAM B. BLOUNT, PETITIONER

v.

SECURITIES AND EXCHANGE COMMISSION

ON PETITION FOR A WRIT OF CERTIORARI 
TO THE UNITED STATES COURT OF APPEALS 
FOR THE DISTRICT OF COLUMBIA CIRCUIT

BRIEF FOR THE 
SECURITIES AND EXCHANGE COMMISSION
IN OPPOSITION

RICHARD R. WALKER
General Counsel

PAUL GONSON
Solicitor

JACOB H. STILLMAN
Associate General Counsel

ERIC SUMMERGRAD
Principal Assistant General Counsel

MARK PENNINGTON
Senior Litigation Counsel
Securities and Exchange Commission
Washington, D.C. 20549

DREW S. DAYS, III
Solicitor General

Department of Justice
Washington, D.C. 20530
(202)514-2217

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QUESTIONS PRESENTED

1. Whether Municipal Securities Rulemaking
Board Rule G-37, which restricts the ability of muni-
cipal securities dealers to engage in certain types of
municipal securities business if they make campaign
contributions to (or solicit or coordinate contribu-
tions on behalf of) state and local officials who can
influence the award of that business, violates the
First Amendment rights of municipal securities deal-
ers.
 2. Whether the Rule's restrictions impermissible
intrude upon the power of the States to control their
own elections, in violation of the Tenth Amendment.

(I)

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TABLE OF CONTENTS     

Page

Opinions below  . . . .  1
Jurisdiction  . . . .  1
Statement  . . . .  2
Argument . . . .  11
Conclusion . . . . 21

TABLE OF AUTHORITIES

Cases:

Atascadero State Hospital v. Scanlon, 473 U.S.
234 (1985)  . . . . 20
Buckley v. Valeo, 424 U. S. 1 (1976) . . . . 12, 13, 14, 15, 17, 18
Carver v. Nixon, 72 F.3d 633(8th Cir. 1995), pet.
for cert. pending. No.95-1258 . . . . .  16
FEC v. Colorado Republican Campaign Comm., 59
F.3d 1015 (lOth Cir. 1995), cert. granted, 116 S. Ct.
689 (1996) . . . .  19
FEC v. National Conservative Political Action
Comm., 470 U.S. 480 (1985) . . . . 12
FEC v. National Right to Work Comm., 459 U.S.
197 (1982) . . . .  13, 15
Garcia v. San Antonio Metropolitan Transit
Authority, 469 U.S. 528 (1985) . . . . 11
Gregory v. Ashcroft, 501 U.S. 452 (1991) . . . . 19-20
New York v. United States, 505 U.S. 144 (1992) . . . . 11
Skinner v. Railway Labor Executives' Ass'n, 489
U.S. 602 (1989) . . . .  16
United States Civil Serv. Comm'n v. National Ass'n
of Letter Carriers, 413 U.S. 548 (1973) . . . . 13
United States v. Naftalin, 441 U.S. 768 (1979) . . . . 14

Constitution, statutes and regulations:

U.S. Const.:
Amend. I . . . .  2, 7, 12
Amend. X  . . . . 2, 8, 10, 11, 19, 20

(III)

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IV

Statutes and regulations-Continued:

Page

Age Discrimination in Employment Act of 1967,
29 U.S.C. 621-634 (1988 & Supp. V 19l93) . . . . 20
Securities Exchange Acot of 1934, 15 U.S.C. 78a et seq.:
3(a)(4), 15 U.S.C. 78c(a)(4). . . .4
3(a)(5), 15 U.S.C. 78c(a)(5) . . . .4
3(a)(29), 15 U.S.C. 78c(a)(29). . . .3
3(a)(30), 15 U.S.C. 78c(a)(30). . . .4
15(a)(1), 15 U.S.C. 78o(a)(1) . . . .3
15B(a), 15 U.S.C.78o-4(a) . . . .3
15B(b), 15 U.S.C. 78o-4b . . . .3
15B(b)(2), 15 U.S.C. 78o-4(b)(2) . . . .2
15B(b)(C), 15 U.S.C. 78o-4(b)(2)(C) . . . .3
15B(c)(1), 15 U.S.C. 78o-4(c)(1) . . . .3
19(b), 15 U. S. C. 78s(b) (1988 & Supp. V 1993) . . . .7, 11
27, 15 U.S.C. 78aa . . . .11
2 U.S.C. 431(17) . . . .18
2 U.S.C. 441c (a)(1) . . . .18
2 U.S.C. 441c(a)(2) . . . . 18
Ariz. Rev. Stat. Ann. (1995):
16-919 . . . . 18
16-921(B) . . . .18
Conn. Gen. Stat. Ann. 9-333o(a) (West 1995) . . . .18
1995 Ct. ALS 188  (to be Codified at Conn. Gen. Stat.
Ann.  1-84(n)) . . . . 18
N.D. Cent. Code (1991):
16.1-08-01(10) . . . .18
16.1-08-02(1) . . . .18
Pa. Stat. Ann. tit. 25 3253 (1994) . . . .18
S. D. Codified Laws Ann. 12-25-2 (1995) . . . .18
W.Va. Code:
3-8-8 (1994) . . . .18
3-8-12(d)(1995) . . . .18
3-8-12(h) (1995) . . . .18
Wis. Stat. Ann. (West 1986 & Supp. 1995):
11.29 . . . .18
11.38 . . . . 18
Wyo. Stat. 22-25-102 (1992) . . . .18

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V

Regulations-Continued:            

Page

11 C.F.R. l15.2 . . . . 18
Fla. Admin. Code Ann. r.:
91.16.004(e) . . . .18-19
19A.6.004 . . . . 18

Miscellaneous:

Morning Edition:SEC Halts Political Campaign
Funding from Wall Street (National Public
Radio Broadcast, June 1, 1994) . . . .  15
Securities Acts Amendments of 1975 Report of the
Committee on Banking, Housing, and Urban
Affairs, to Accompany S. .%9, S. Rep. No. 75, 94th 
Cong., 1st Sess. (1975)  . . . .  3

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In the Supreme Court of the United States

OCTOBER TERM, 1995

No. 95-1063

WILLIAM B. BLOUNT, PETITIONER

v.

SECURITIES AND EXCHANGE COMMISSION

ON PETITION FOR A WRIT OF CERTIORARI-
TO THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT

BRIEF FOR THE
SECURITIES AND EXCHANGE COMMISSION
IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. Al-
A27) is reported at 61 F.3d 938. The order of the
Securities and Exchange Commission approving Mu-
nicipal Securities Rulemaking Board Rule "G-37 (Pet.
App. B1-B60) is reported at 56 SEC Docket 1045. 

JURISDICTION

The judgment of the court of appeals was entered on
August 4, 1995, and a petition for rehearing was
denied on October 4, 1995 (Pet. App. Fl). The petition
for a writ of certiorari was filed on January 2, 1996.
The jurisdiction of this Court is invoked under 28
U.S.C. 1254(l).

(1)

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2

STATEMENT

Petitioner seeks review of the court of appeals'
judgment upholding the Securities and Exchange
Commission's decision approving Municipal Securi-
ties Rulemaking Board (MSRB) Rule G-37. The Rule
is aimed at ending the widespread practice colloqui-
ally known as "pay-to-play." That practice involves
securities dealers' making of campaign contributions
to officials of state and local issuers of municipal
securities in return for being considered for, or
awarded, municipal securities business. When pay-to-
play prevails, business is awarded on the basis of
political influence rather than merit, and the market
for municipal securities is distorted and corrupted.
Rule G-37 restricts the ability of dealers to do
business with issuers when the dealer or certain of
its employees have given contributions to, or solicited
or coordinated contributions for, issuer officials who
can influence the award of municipal securities
business. Petitioner contends that the Rule violates
his First Amendment rights, and impinges on state
authority over elections in violation of the Tenth
Amendment.
1. The Securities and Exchange Commission and
the MSRB, among others, regulate the market for
municipal securities. The MSRB is the self-regula-
tory organization established by Congress to propose
and adopt rules governing the operations of municipal
securities dealers. 15 U.S.C. 780-4(b)(2). Those rules
do not become effective unless approved by an order of
the Commission. The MSRB is specifically charged
with making rules to prevent fraudulent and manip-
ulative acts and practices, to help perfect the mecha-
nism of a free and open market, and to promote just

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and equitable principles of trade. 15 U.S.C. 780-
4(b)(2)(C). As the Commission observed, Congress
created the MSRB and gave it and the Commission
rulemaking authority in large measure because
Congress believed "that the lack of federal regulation
* * * represents a serious threat to the integrity of
the capital-raising system upon which local govern-
ments rely to finance their efforts." Pet. App. B28
n.53 (quoting Securities Acts Amendments of 1975:
Report of the Committee on Banking, Housing, and
Urban Affairs, to Accompany S. 249, S. Rep. No. 75,
94th Cong., 1st Sess. 38 (1975)). Dealers must be
registered with the Commission and must conduct.
their business in compliance with the rules of the
MSRB. See Securities Exchange Act of 1934,
15(a)(l), 15B(a), (b) and (c)(l); 15 U.S.C. 780(a)(l),
780-4(a), (b) and (c)(l).
Municipal securities are, generally speaking,
obligations of States and their political subdivi-
sions or instrumentalities. Securities Exchange Act
3(a)(29), 15 U.S.C. 78c(a)(29). There are approxi-
mately 1.3 million municipal securities issues out-:
standing, with a total value of more than $1.2 trillion;
in 1993 alone, there were 17,000 new issues, with a
face value of   $335 billion. Pet. App. B4-B5. Approxi-
mately 70'% of those securities are held by or on
behalf of members of the public, either individually or
through mutual or money market funds. Id. at B3.
Municipal securities are typically sold by the
issuer to dealers, who act as underwriters and expect
to resell the securities to the investing public at a
profit. See generally Pet. App. B5-B9.1 "Under-

___________________(footnotes)

1 Rule G-37 applies to broker[s]"  "dealer[s]" and "munici-
pal securities dealer[s]" as those terms are defined in Sections

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writers perform essential functions in offerings by
structuring the offering and preparing disclosure
documents that form the basis of marketing the
offering to the public." Id. at B28. Underwriters are
required to have a reasonable basis for recommending
securities and must review professionally the accu-
racy of statements made in offering documents. Id. at
B28 n.54.
Historically, most issuers selected dealers through
competitive bidding. In recent years, however, nego-
tiated underwritings, in which the dealer is selected
by the issuer without competitive bidding, have
become more common, and as of 1993 they comprised
80% of all underwritings. Pet. App. B5-B9. Nego-
tiated underwritings present a far greater oppor-
tunity than do competitive underwritings for con-
sideration of non-objective, non-merit based criteria,
and therefore "present greater risk of abuse in the
underwriter selection process." Id. at B8 (footnote
omitted). The most widespread potential for abuse is
presented by pay-to-play. Complaints about pay-to-
play have received considerable attention from
Congress, the Commission, the MSRB, the securities
industry, the media and the public, "reflecting con-
cerns regarding the integrity, fairness, and sound
operation of the municipal securities market." Id. at
B9-B12; see C.A. App. 1384-1483 (press reports re-
viewed by Commission).
2. The MSRB proposed Rule G-37 as a means" "of
eliminating pay-to-play, and the Commission gave the

___________________(footnotes)                                       

3(a)(4), (5), and (30) of the Securities Exchange Act of 1934, 15
U.S.C. 78c(a)(4), (5) and (30). References herein to "dealers"
or "underwriters" encompass brokers, dealers, and municipal
securities dealers.

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5

approval required by Section 19(b) of the Securities
Exchange Act, 15 U.S.C. 78s(b) (1988& Supp. V 1993),
for the Rule to become effective. Petitioner chal-
lenges sections (b) and (c) of the Rule, which are
designed to sever the link between the award of
municipal securities business and the making or so-
liciting of campaign contributions. Pet. App. A3-A4,
G3-G4.2
Section (b) imposes a limitation on the business
activities of dealers who make certain campaign con-
tributions. It provides, in part:

No broker, dealer or municipal securities dealer
shall engage in municipal securities business with
an issuer within two years after any contribution
to an official of such issuer * * *.

See Pet. App. G3-G4; C.A. App. 644650 (reprinting
Rule). Section (b) includes an exception, however,
allowing municipal finance professionals (i.e., certain
employees of municipal securities dealers) to contri-
bute not more than $250 per candidate, per election, to
candidates for whom they are entitled to vote.3

___________________(footnotes)

2 Section (a) of Rule G-37 states the Rule's purpose and
intent. Section (d) is a "loophole closer," providing that no
dealer or municipal finance professional shall, directly or
indirectly, through or by any other person or means, do any
act that would result in a violation of section (b) or (c) of the"
Rule. Sections (e) and (f) contain disclosure provisions. NO
sections other than (b) and (c) are at issue here. See Pet. i, 6
n.6. 

3 The exemption is limited to candidates for whom the pro-
fessional is entitled to vote because, "[although an individual
may have a legitimate interest in making contributions to
candidates for whom she is ineligible to vote, there is a greater
risk in such circumstances that the contribution is motivated by

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6

Section (g)(vii) defines "municipal securities busi-
ness" generally to exclude business done on a com-
petitive bid basis. C.A. App.648.   4
Section (c) provides that no dealer

shall solicit any person or political action com-
mittee to make any contribution, or shall coordi-
nate any contributions to an official of an issuer
with which the [dealer] is engaging or is seeking
to engage in municipal securities business.

Pet. App. G3-G4.
In approving Rule G-37, the Commission found that
the widespread existence of pay-to-play "substantially
underminers] the integrity of the municipal securi-
ties market." Pet. App. B3. Pay-to-play may result in
business being awarded to dealers "based on their
history of contributions or political contacts, rather
than their expertise or competence." Id. at B29. The
Commission concluded that pay-to-play interferes
with the mechanism of a free and open market because
it raises artificial barriers to competition for those
firms that either cannot afford or decide not to make
political contributions. Id. at B32. The practice is
contrary to just and equitable principles of trade
         
___________________(footnotes)

an improper attempt to influence municipal officials." Pet.
App. B53.
4 Section (b) treats contributions by municipal finance
professionals associated with a dealer, as well as contributions
by any political action committee that the dealer controls, as
equivalent to contributions by the dealer itself. Section (g)(vi)
defines an official of an issuer as anyone who, at the time of the
contribution, was an incumbent, candidate or successful candi-
date for either an elective office of the issuer that has authority
to hire or influence the hiring of dealers, or an elective office
with authority to appoint such an issuer official. C.A. App.
648.

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7

because dealers may receive different rewards for
doing the same work, based on whether they made
political contributions. Id. at B33.
The Commission also noted the risks -pay-to-play
imposes on investors, because an underwriter select-
ed on the basis of political contributions rather than
on merit alone may fail to carry out its obligations
fully to investigate and disclose the creditworthiness
of the issuer, either because political considerations
compromise the underwriter's ability to investigate
the issuer objectively, or because it is not competent.
Pet. App. B28-B30. And pay-to-play causes an appear- `-
ante of corruption: opportunities for political in-
fluence in underwriter selection create the appear-
ance of conflicts of interest between the under-
writer's obligations to its investor customers and its
allegiance to the issuer official who selected the
underwriter. Id. at B30-B31. The Commission con-
cluded that that perception undermines public con-
fidence in the integrity of the market.
3. a. Petitioner was until recently Chairman of
the Alabama Democratic Party, in which capacity he
raised and distributed campaign funds for state and
local officials; he was at the same time a municipal
securities dealer, in which capacity he approached
state and local officials in Alabama, seeking and
obtaining municipal securities business for his firm.
Pet. App. A4, D3-D4. On April 26, 1994, petitioner
sought judicial review, pursuant to 15 U.S.C. 78y
(1988 & Supp. v 1993), of the Commission's decision to
approve the Rule. Petitioner claimed that by forcing
him to choose between making (or soliciting) political
contributions and engaging in certain municipal
securities business, the Rule unconstitutionally im-
pairs his First Amendment rights. Petitioner also

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8

asserted that the Rule impermissible interferes with
the power of the States to control their own elections,
in violation of the Tenth Amendment.
b. The court of appeals unanimously rejected each
of petitioner's challenges and denied the petition.
Pet. App. A1-A27. The court denied rehearing, with
no judge requesting a vote on the suggestion of
rehearing en bane. Id. at F1-F2.
The court of appeals assumed without deciding that
strict constitutional scrutiny applies, and held that
Rule G-37 withstands such scrutiny because the Rule
is narrowly tailored to advance the compelling
governmental interest of protecting the integrity of
the municipal bond market. Pet. App. A13-A24. 5 The
court of appeals found compelling the interests in
"(l) protecting investors in municipal bonds from
fraud and (2) protecting underwriters of municipal
bonds from unfair, corrupt market practices," reason-
ing that the interest in "clean bond markets" is as
strong as the interest in "clean elections" that this
Court repeatedly has held to be compelling. Id. at A14
(citing cases). The court explained: "one of the pri-
mary reasons people object to bought elections is that
a bought politician tends to make distorted choices,
and the public's concern about a particular type of

___________________(footnotes)
            
5 The court observed that the Commission approved the
Rule solely for "the purpose of preventing corrupt bond
markets"-a purpose that "might logically be considered
unrelated to the suppression of speech" and thus warrant
intermediate rather than strict scrutiny. Pet. App. A12. But
the court of appeals concluded that, in the absence of definitive
guidance as to whether an anti-corruption goal is content-based,
the Rule should be analyzed under strict scrutiny. Id. at A8-
A13. In this brief, we shall proceed on that assumption,
without foreclosing the applicability of intermediate scrutiny.

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9

distorted choice (the choice of bond underwriter) does
not logically stand on a lower plane than its concern
about bought politicians generally." Ibid.
The court rejected petitioner's contention that
Rule G-37 does not serve the interests the Com-:
mission asserted. Pet. App. A15-A21. It concluded
that the need for Rule G-37 had been adequately
demonstrated: "[Ulnderwriters' campaign contribu-
tions self-evidently create a conflict of interest in
state and local officials who have power over
municipal securities contracts and a risk that they
will award the contracts on the basis of benefit to
their campaign chests rather than to the govern-
mental entity." Id. at A15. The court noted that
petitioner's own statements in a radio interview drew
a connection between campaign contributions and the
award of municipal bond business, id. at A15-A16, and
that the Commission had before it information on
"[specific abuses [that] have been alleged in several
state and local governments," id. at A16 (quoting
SEC Approval Order at 8-11 (Pet. App. B9-1312)).
The court further concluded that Rule G-37 advances
"the Commission's goals of `perfecting the mecha-
nism of a free and open market' and promoting `just
and equitable principles of trade'" by eliminating ar-
tificial barriers to competition and assuring an. equit-
able allocation of underwriting assignments.  Pet.       
App. A17-A18.  6        

___________________(footnotes)

6 Although the court understood that Rule G-37 serves the
Commission's interest in protecting the municipal securities
market from corruption, it did not believe that the Rule
similarly serves the Commission's interest in protecting"
investors. In the court's view, dealers' existing interests in
avoiding fraud liability and safeguarding their own reputations
adequately protect the investing public, and "[n]either interest

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10

Finally, the court held that Rule G-37 is narrowly
tailored to further the interests it identified. Pet.
App. A21-A24. Rule G-37 is "closely drawn" to "con-
strain] relations only between the two potential
parties to a quid pro quo," and, "[e]ven then, the rule
restricts a narrow range of their activities for a
relatively short period of time." Id. at A22-A23. The
court noted that the Rule applies only to negotiated
and not to competitively bid underwriting business.
Id. at A22 n.5. Section (b) bars a dealer from seeking
or doing business with an issuer only for two years
following its contribution to officials of that issuer,
and section (c) bars such activity only during the time
that the dealer is soliciting or coordinating con-
tributions for those officials. Rule G-37 also does not
restrict municipal finance professionals from "the
vast majority of political activities, including making
direct expenditures for the expression of their views,
giving speeches, soliciting votes, writing books, or
appearing at fundraising events." Id. at A23. The
court rejected petitioner's contention that less re-
strictive alternatives, such as exclusive reliance on
the Rule's unchallenged disclosure provisions, would
suffice, and concluded that "none of the alternatives
presented would be even almost equally effective." Id.
at A21-A22.
Petitioner's Tenth Amendment challenge was, in
the court of appeals' view, "meritless," because Rule
G-37 does not regulate States directly and does not
compel States to regulate private parties. Pet. App.

___________________(footnotes)

would be diminished merely by an underwriter's use of sleazy
means to secure the contract." Pet. App. A17. The court con-
cluded, however, that the interest in protecting the market
sufficed to support the Rule. Id. at A15-A21.

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A26 (citing New York v. United States, 505 U.S. 144
(1992)). Rather, it regulates "private persons in their
conduct of interstate trade in municipal securities."
Pet. App. A26. In these circumstances, the court con-
cluded, Rule G-37 "does not have anything re-
sembling the kind of preemptive effect on States'
ability to control their own election processes that
might be perceived as `destructive of state sover-
eignty.'" Ibid. (quoting Garcia v. San Antonio
Metropolitan Transit Authority, 469 U.S. 528, 554
(1985)).

ARGUMENT

Rule G-37 is a narrowly drawn provision aimed at
eradicating the well recognized corruption that pay-
to-play practices bring to the municipal securities
market.  The constraints the Rule places on the
expression-related activities of certain regulated
securities professionals are carefully limited, and are
justified by the compelling goals it serves. Rule G-37
restricts the activities of private individuals, not of
States, and thus does not implicate Tenth Amend-
ment concerns. The decision below upholding the
Rule is correct and neither raises important unre-
solved issues, nor conflicts with any decision of this
Court or any other court of appeals.  7
1. The centerpiece of petitioner's argument is that
Rule G-37 imposes unjustified restraints on munici-

___________________(footnotes)                                                           
                            
7 A constitutional challenge to a MSRB rule may be raised
not only, as here, on judicial review of the Commission's
decision to approve the rule, but also, where appropriate, in an
action to enforce the Rule. An appeal in such an action could
be heard by a court of appeals other than the Court of Appeals
for the District of Columbia Circuit. See 15 U.S.C. 78y (1988 &             
Supp. V 1993), 78aa.

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12

pal securities dealers' rights to express themselves
in the political arena. Pet. 10. The Rule's restric-
tions are, however, supported by this Court's
decisions regarding campaign contribution and solici-
tation, including Buckley v. Valeo, 424 U.S. 1 (1976),
which upheld against a First Amendment challenge
campaign contribution limits substantially broader
than those at issue here.
a. The Rule's modest restraints on expression and
association are, as the court of appeals correctly held,
justified by the compelling need to cleanse the
municipal securities market of political favoritism.
As the Commission and the court of appeals found, the
corruption arising from pay-to-play distorts the
municipal securities market because it results in
business being awarded based on political contribu-
tions rather than market forces driven by factors
such as cost and quality of dealers' service. By
effectively requiring political contributions from
dealers seeking to act as municipal securities under-
writers, and channeling business to large con-
tributors, pay-to-play interferes with the fairness of
the enormous and vitally important market for
municipal securities.
Preventing corruption and the appearance of
corruption have been repeatedly recognized as inter-
ests sufficiently compelling to justify appropriate
restrictions on First Amendment interests. See, e.g.,
FEC v. National Conservative Political Action
Comm., 470 U.S. 480, 496-497 (1985); Buckley, 424
U.S. at 25-27, 30. Contributions that are given to
secure a quid pro quo in terms of municipal securi-
ties business from current and potential office
holders undermine the integrity and competitive
character of the municipal securities market.

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13

Buckley's reasoning regarding campaign contri-
butions also applies to solicitation and coordination
activities. Section (c) is a prophylactic rule serving
the same purpose as section (b). Section (c) prohibits
dealers and municipal finance professionals from
soliciting or coordinating contributions to specified
officials of issuers with which the dealer is at that
time engaging, or seeking to engage, in municipal
securities business. The value of solicitation of con-
tributions to a candidate may often essentially equal
the value of direct contributions, because in both
instances the candidate receives funds that he or she
can directly control to advance the campaign. That
value is the source of the candidate influence that
solicitation purchases for the dealer, and solicitation
thus presents the same dangers as are caused by
political contributions. See FEC v. National Right to
Work Comm., 459 U.S. 197,207 (1982) (NRWC) ("sub-
stantial aggregations of wealth" through solicitation
"could be used to incur political debts from legislators
who are aided by the contributions"); United States
Civil Serv. Comm'n v. National Ass'n of Letter
Carriers, 413 U.S. 548, 556 (1973) (reaffirming
constitutionality, in the interests of government im-
partiality and its appearance, of provisions pre-
venting federal government employees from "actively
participating in fund-raising activities for a partisan
candidate or political party").
The appearance of corruption can be as harmful as
the reality of corruption caused by contributions or
solicitation. See Buckley,  424 U.S. at 27; NRWC, 459
U.S. at 210 (compelling interest in preventing appear-
ance of corruption of federal electoral process). Pub-
lic confidence in the municipal securities market is
essential to the ability of state and local govern-

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14

ments to raise capital in that market in order to carry
out their important public functions. Rule G-37 was
promulgated with respect to an industry where the
need for regulation in furtherance of the highest
ethical standards is well recognized. See, e.g., United
States v. Naftalin, 441 U.S. 768,774-776 (1979).8
Petitioner contends (Pet. 16-17) that the Com-
mission has not identified specific instances in which
campaign contributions were a quid pro quo for
consideration for or award of municipal securities
business. See Pet. App. A16, 139-B12. But as this
Court has recognized, "the scope of such pernicious
practices can never be reliably ascertained," Buckley,
424 U.S. at 27, and, moreover, preventing the appear-
ance as well as the reality of corruption is a com-
pelling interest, id. at 26-27, 30. The record before
the Commission established that there is virtually
unanimous consensus among professionals and others
knowledgeable in the municipal securities field that
pay-to-play is a widespread problem. See C.A. App.

___________________(footnotes)
      
8 The integrity of the municipal securities market is also a-
smatter of substantial and legitimate concern to investors. The
court of appeals quoted with approval the Commission's con-
clusion that, "if `pay to play' is the determining factor in the
selection of an underwriting syndicate, an official may not
necessarily hire the most qualified underwriter for the issue."
Pet. App. A17 (quoting id. at B32). When market forces are
thus distorted, investor confidence in the market is impaired.
Moreover, investors may suffer losses if underwriters who
obtain business based on politics rather than skill fail properly
to assess an offering's creditworthiness. The court of appeals
did not, however, rely on the risk of harm to investors as a
rationale supporting Rule G-37, see id. at A16-A17, and the
compelling interest in preventing corruption (and the appear-
ance of corruption) that distorts the market and prevents fair
competition suffices to support the Rule, id. at A17-A18.

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15

663-667, 1106-1103. As the court of appeals observed,
petitioner himself acknowledged in a radio interview
that giving or raising funds "does assure you at least
you can get access to someone's office," that "most
likely [state and local officials] are gonna call
somebody who has been a political contributor," and
that, other things being equal, officials will give
business to their "friends" who have contributed.
Pet. App. A15 (citing Morning Edition: SEC Halts
Political Campaign Funding from Wall Street
(National Public Radio broadcast, June 1, 1994)). The
court correctly concluded that "no smoking gun is
needed where, as here, the conflict of interest is
apparent, the likelihood of stealth great, and the
legislative purpose prophylactic." Pet. App. A16
(citing NRWC, 459 U.S. at 210).
b. Rule G-37 is narrowly tailored, placing only a
modest burden on expressive conduct in order to
serve the compelling interest in avoiding corruption.
Rule G-37's burdens are significantly lighter than
those imposed by the campaign contribution ceiling
upheld in Buckley v. Valeo, supra. Like the contri-
bution limit sustained in Buckley, section (b) of Rule
G-37 "entails only a marginal restriction upon the
contributor's ability to engage in free communi-
cation." Buckley, 424 U.S. at 20-21; see also Pet. App.
A7. A campaign contribution limit is generally a
minimal and indirect restraint on communication, and
does not infringe the contributors' freedom to discuss
candidates and issues. 424 U.S. at 21. The statutory
provision at issue in Buckley placed a limit applicable
across-the-board to contributions by any individual in
any federal election. Rule G-37, by contrast, applies
only to dealers and associated municipal finance
professionals, and only to contributions to officials of

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16

issuers with which the dealers engage in municipal
securities business, in order to address in a focused
manner the risk of corruption arising from their
special business relationship to issuers.  As this
Court has repeatedly acknowledged, those who choose
to participate in a closely regulated industry have
more reason than do members of the general public to
expect some impacts upon their rights and privileges.
Cf. Skinner v. Railway Labor Executives' Ass`n, 489
U.S. 602,627 (1989).9
The narrow manner in which both section (b) and
section (c) are drawn leaves most political expression
and association unaffected, The Rule applies only to
limit dealers' contributions to and solicitation or
coordination of contributions for officials of issuers
with which they do (or seek to do) business; the
dealers remain free to contribute money to or solicit
contributions for any other campaign. It also permits
a dealer to contribute money to and solicit for the
campaigns of officials of issuers with which the dealer
does business, provided that the business is granted
based on competitive bids rather than through nego-
tiated arrangements.  Furthermore, municipal fi-
nance professionals may contribute up to $250 per
candidate, per election, to any official for whom they
are eligible to vote, even if the dealer with whom they
are associated engages in municipal securities busi-
ness with the issuer that employs that official. And
the Rule is temporally limited: under section (b),
      
__________________(footnotes)

9 Rule G-37's narrow focus on municipal securities dealers
and the risks created by their business relationships with
issuers distinguishes this case from Carver v, Nixon, 72 F.3d
633 (8th Cir. 1995), pet. for cert. pending, No. 95-1258 (filed
Feb. 7, 1996), which struck down Missouri's across-the-board
campaign contribution limits.

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17

dealers may at any time choose to contribute to the
campaigns of officials of an issuer, and although they
then must refrain from doing municipal securities
business with that issuer for two years, they may
resume such business thereafter; under section. (c),
dealers may solicit and coordinate fundraising for an
issuer official at any time during which the dealer is
not doing business with, or seeking business from,
the issuer.
Rule G-37 does not restrict dealers from continuing
to express their support for a candidate in ways other
than by contribution or solicitation, such as through
one-on-one discussions, speeches, leaflets, letters, or
written or broadcast editorializing. Dealers thus re-
main free in virtually every way to urge others to
support a candidate-and to spend or solicit money for
such efforts-as long as they do not contribute to the
candidate, or ask for or coordinate contributions for
the candidate.10
In that regard, a crucial limitation on Rule G-37 is
that it leaves covered persons free to make unlimited
independent expenditures in favor of candidates with
whom they do (or may seek to do) business-i.e.,
expenditures made without consultation or coordina-

___________________(footnotes)                                         
                                           
10 petitioner complains (Pet. 10) that Rule G-37 prevents
him from saying that a "candidate `needs your financial
support.' " But such a statement, like a contribution, is only an
indirect expression of support for the candidate. See BuckLey,
424 U.S. at 21. The Rule leaves dealers and  municipal finance
professionals free to express their support directly and to
encourage others to support any candidate; they are free to
say, for example, "I support candidate X, and you should, too."
They are restricted only from asking for and coordinating
financial contributions to the candidate. See Pet. App. A23-
A24, C7-C8, D12-D13.

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18

tion by a candidate or the candidate's campaign
organization.  Pet. App. B39; cf. 2 U.S.C. 431[17).
Covered persons may also solicit contributions
toward their own independent expenditures.  The
Court in Buckley viewed independent expenditures as
implicating substantially greater expressive inter-
ests than contributions (and held that the independent
expenditure limit before it in that case was unjusti-
fied in view of such expenditures' "diminished po-
tential for abuse"). 424 U.S. at 47.
The type of restraint Rule G-37 imposes is not
novel. Restraints on political contributions and on
solicitation of contributions are imposed on corpora-
tions and government contractors under both federal
and state law; federal law, for example, bans contribu-
tions by government contractors, and prohibits any
solicitation from government contractors.11 Thus,
 
___________________(footnotes)

11 Federal law prohibits federal campaign contributions by
federal contractors, and prohibits all persons from soliciting for
federal campaigns from federal contractors.  See 2 U.S.C.
441c(a)(l) and (2); 11 C.F.R. 115.2. Several States prohibit cor-
porations or members of regulated industries from making
campaign contributions in and/or soliciting for state elections.
See, e.g., Ariz. Rev. Stat. Ann. 16-919, 16-921(B) (1995);
Corm. Gen. Stat. Ann.  9-333o(a) (West 1995); N.D. Cent. Code
16.1-08-02(1), 16.1-08-01(10) (1991); Pa. Stat. Ann. tit. 25
3253 (1994); S.D. Codified Laws Ann. $12-25-2 0995); W. Va.
Code 33-8-8 (1994); see also W. Va. Code  3-8-12(d) and (h)
(1995); Wis. Stat. Ann. 11.29, 11.38 (West 1986 & Supp. 1995);
Wyo. Stat. 522-25-102 (1992); see also 1995 Ct. ALS l88 (to be
codified at Conn. Gen. Stat. Ann. 1-84(n)) (prohibiting State
from purchasing investment services from firms that have
made contributions to or solicited contributions on behalf of
candidates for state treasurer); Fla. Admin. Code Ann. r.
19A-6.004 (prohibiting award of municipal securities business to
firms that make political contributions to the Governor or to
cabinet members); Fla. Admin. Code Ann. r. 91-16.004(e) (pro-

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19

both federal and state laws embody the judgment that
making contributions to government officials from
whom one seeks business presents a serious ethical
conflict. 12
2. Petitioner also contends (Pet. 18-20) that Rule
G-37 violates the Tenth Amendment, because, in his
view, it regulates core sovereign activities of the
States without an "unmistakably clear" congres-
sional statement of intent to do so. Petitioner ac-
knowledges that Congress has the authority to
regulate the conduct at issue here, but challenges
Rule G-37 on the ground that it was promulgated by
the Commission.
The court of appeals correctly rejected petitioner's
Tenth Amendment claim, however, recognizing that
Rule G-37 simply does not affect "states' ability to
control their own election processes." Pet. App. A26.
No clear congressional statement is required here,
because Rule G-37 regulates private conduct, not
state activities. The court in `Gregory v. Ashcroft,

___________________(footnotes)      

hibiting investment firms and law firms and their officers,
directors, and employees that make contributions to or engage
in fundraising for state-level candidates from competing for
business from the Florida Housing Finance Agency),

12 There is no reason for the Court to hold this case pending
the disposition of FEC v. Colorado Republican Campaign
Comm., 59 F.3d 1015 (lOth Cir. 1995), cert. granted, 116 S. Ct.
689 (1996) (No. 95-489), which involves limits on coordinated
expenditures by political parties for public advertising in con-
nection with federal election campaigns, not limits on indi-
vidual municipal securities dealers' contributions to and solici-
tation for campaigns of state and local officials of issuers of
municipal securities with whom they do business. Resolution of
the issues presented in Colorado Republican Campaign Comm.
is unlikely to have any bearing on the questions presented in
this case.

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20

501 U.S. 452 (1991), held that the Age Discrimination
in Employment Act of 1967 (ADEA), 29 U.S.C. 621-634
(1988 & Supp. V 1993), could not, in the absence of
"unmistakably clear" language in the Act, be applied
to Missouri's mandatory-retirement rule for state
judges, 501 U.S. at 460 (quoting Atascadero State
Hospital v. Scanlon, 473 U.S. 234, 243 (1985)). The
ADEA's text did not make clear whether it applied to
state judges, and the Court thus held it inapplicable
because to do otherwise would trench on States'
authority "to determine the qualifications of their
most important government officials." 501 U.S. at
463. Rule G-37, by contrast, does not affect the
States' ability to select their officials; rather, it
regulates the activities of municipal securities deal-
ers engaged in interstate commerce. There is no
suggestion in the record that Rule G37 would impair
election financing or any other aspect of state or local
elections.l3 The Rule's potential indirect impact on
the funding stream from municipal securities dealers
to state candidates for offices responsible for issuing
municipal securities is, in any event, insufficient to
bring the rule within the ambit of the Tenth Amend-
ment.14
         
___________________(footnotes)          

13 There was scant objection before the Commission-and
there was none in the court below-from States or localities
regarding the Rule's effect on federal-state relations.  Some
commentators suggested to the Commission that federal regula-
tion was unnecessary or inappropriate because the pay-to-play
problem should be handled at the state or local level, but none
suggested that the Tenth Amendment prohibited the MSRB or
the Commission from adopting rules on this subject. See C.A.
App. 1110 n.16 (citing comments on federalism concerns).
14 Petitioner's contention (Pet. 19-20) that the Commission's
approval of this Rule was a "reversal of course" from the Com-

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21

CONCLUSION 

The petition for a writ of certiorari should be
denied.
Respectfully submitted.

DREW S. DAYS, III
Solicitor General

RICHARD H. WALKER
General Counsel

PAUL GONSON
solicitor

JACOB H. STILLMAN
Associate General Counsel

ERIC SUMMERGRAD
Principal Assistant General Counsel

MARK PENNINGTON
Senior Litigation Counsel
Securities and Exchange Commission

MARCH 1996

___________________(footnotes)                                                    
                                                .                          
mission Chairman's testimony before Congress is incorrect.
The Chairman made clear in his testimony that the MSRB's
August 1993 draft Rule, which would have prohibited con-
tributions for the purpose of obtaining business, was an
approach that "represents a solid step in the right direction."
C.A. App. 182. The Commission's order is fully consistent with
the Chairman's representations to Congress.

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