Securities Litigation

This week FINRA proposed for SEC adoption a "pay-to-play" rule for broker-dealers engaged in distribution or solicitation activities with government entities. The Proposed Rule is modeled after investment-adviser pay-to-play Rule 206(4)-5 under the '40 Act, adopted by the SEC in 2010. Proposed FINRA Rule 2030(a) would prohibit a covered member from engaging in distribution or solicitation activities for compensation with a government entity on behalf of an investment adviser that provides or is seeking to provide investment advisory services to such government entity within two years after a contribution to an official of the government entity is made by the covered member or a covered associate (including a person who becomes a covered associate within two years after the contribution is made). FINRA initially proposed the Rule in November 2014. See Reg. Notice 14-50. The proposal sent to the SEC makes some changes, including dropping earlier disgorgement and disclosure requirements. New Rule 2030 will complete the pay-to-play suite of rules, together with the MSRB's proposal extending its long-standing pay-to-play Rule G-37 to municipal advisors. That proposal also is pending before the SEC. I discussed it here. The Rule filing, SR-FINRA-2015-056 (Dec. 16, 2015), is here. Thomas K. Potter, III (tpotter@burr.com) is a partner in the Securities Litigation Practice Group at Burr & Forman, LLP. Tom is licensed in Tennessee, Texas and Louisiana. He has over 29 years' experience representing financial institutions in litigation, regulatory and compliance matters. See attorney profile. © 2015 by Thomas K. Potter, III (all rights reserved).