The SEC and Dark Political Money


In August 2011, 10 law professors petitioned the Securities and Exchange Commission (SEC) to require publicly traded companies to disclose their political spending.  This is not a new issue.  Back in 1999, a Harvard Law Review article urged the SEC to require new disclosures by publicly traded companies including reports on corporate political expenditures.  But the urgency for a new rule stepped up considerably after the landmark court rulings Citizens United and SpeechNow in 2010.  Citizens United allowed corporations to spend an unlimited amount on political ads.  SpeechNow allowed corporations to spend through super PACs.  Now corporations can spend freely to influence elections, but there is no single place where they have to report that spending to their investors.

More than 600,000 members of the public, including institutional investors, members of Congress, state elected officials, academics and laypersons have filed public comments urging the SEC to act.  One of the criticisms leveled at this rulemaking effort is that the SEC is not the proper agency to address the issue of money in politics.  In a newly released report from the Corporate Reform Coalition, entitled, The SEC and Dark Political Money: An Historical Argument for Requiring Disclosure, I detail how the SEC already regulates various aspects of money in politics.

First, the SEC regulates foreign campaign contributions that fall under its jurisdiction under the Foreign Corrupt Practice Act (FCPA).  The FCPA is one of the legacies of the Watergate scandal, which revealed that hundreds of corporations had spent millions of dollars on politics here and abroad to get and maintain business.

Second, in response to a spate of pay-to-play scandals in the municipal bond market in the early 1990s, then-SEC Chair Arthur Levitt encouraged the Municipal Securities Rulemaking Board to adopt a rule banning companies that do business underwriting bonds for municipalities from donating to the politicians that award the contracts – an obvious conflict of interest.  The SEC continues to exercise jurisdiction in this market over pay to play pursuant to MSRB Rule G-37, among other rules.

Third, in response to a spate of pay-to-play scandals among public pension funds and their investment advisers, then-SEC Chair Mary Schapiro led the Commission to promulgate Rule 206(4)-5, which bans certain quid pro quos in the public pension fund market.

This historical perspective, illustrated in the timeline below, demonstrates that the SEC is not new to regulating in this space.  The SEC has been using its authority to protect the public interest for decades.  A new disclosure rule would fit into the SEC’s traditional role of providing investors with transparency so that they can compare investments apples-to-apples.  The potential disclosure rule also fits the Commission’s mission of protecting the capital markets from manipulation and corruption.

I will be speaking at greater length about The SEC and Dark Political Money at the National Press Club Tuesday along with other campaign finance reform experts.

*Ciara Torres-Spelliscy is an assistant professor of law at Stetson University College of Law, where she teaches courses in election law and corporate governance. She is the author of “Safeguarding Markets from Pernicious Pay to Play: A Model Explaining Why the SEC Regulates Money in Politics.