Thursday, March 18, 2010

SEC Warns Firms on Municipal Pay-to-Play Rules

The Securities and Exchange Commission issued a
report warning firms that municipal securities rules prohibiting pay-to-play apply to affiliated financial professionals, not just a firm's employees. The pay-to-play rule, MSRB Rule G-37, generally prohibits firms from underwriting municipal bonds for an issuer for two years after a municipal finance professional involved with that firm makes a campaign contribution to an elected official of that municipality.

In the report, the SEC stated that executives who supervise the activities of brokers, dealers or municipal securities dealers are not exempt from the MSRB's pay-to-play rule just because they may be outside the firm's corporate governance structure. As such, they may be deemed an MFP if they were not part of a broker-dealer, but oversee the broker-dealer from the vantage of the holding company.

“Firms and associated persons must adhere strictly to municipal securities pay-to-play rules,” said Robert Khuzami, director of the SEC’s Division of Enforcement. “Firms cannot rely solely upon titles or organizational charts in determining whether a person is subject to those rules,” he added.


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