Securities Litigation

The District of Columbia Circuit Court of Appeals Tuesday rejected a challenge to the SEC's investment-adviser pay-to-play rule, holding that two state Republican Party organizations filed it almost four years too late. A lower court previously dismissed the case because the statute requires such challenges to go directly to the Court of Appeals. But the lower court also criticized prior appellate rulings on the subject, arguing they were unclear. We covered that ruling here. But the Court of Appeals would have none of it, saying its 40-year-old precedent was clear and had become "hornbook law" that direct appellate review of "orders" includes "rules." Investment Co. Inst. v. Board of Gov. of the Fed. Reserve System, 551 F. 2d 1270 (D.C. Cir. 1977). Notwithstanding evidence of Congressional intent to depart from ICI in some more recent amendments to the Securities Acts, see American Petroleum Institute v. SEC, 714 F. 3d 1329 (D.C. Cir. 2013), those provisions simply weren't present in the Adviser's Act. Courts of appeals have exclusive jurisdiction to hear Advisers-Act rule challenges, which must be filed within 60 days after promulgation of the rule in question. Petitioners filed this action four years after the 2010 adoption of the Rule, so judicial challenge was dismissed as time-barred. The challenged Adviser's Act pay-to-play rule imposes a two-year "time out," banning business with government clients whose elected officials received campaign contributions (together with a disclosure regime). See 17 C.F.R. § 275.206(4)-5. The decision is New York Republican State Committee v. SEC, No. 14-1194 (D.C. Cir. Aug. 25, 2015). 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).