A “covered associate” is:
• any general partner, managing member or executive officer, or other person with a similar status of function;
•  any employee who solicits a government Special Entity for the SD and any person who supervises, directly or indirectly, such employee; and
• any political action committee controlled by the SD or any person described in (a) and (b) above. 

Several exceptions exist to the prohibition including:
• a de minimus exception of contributions of $350 or less per election by a covered associate to an official the covered associate was entitled to vote for at the time of the contribution;
• a de minimus exception for contributions of $150 or less per election by a covered associate to an official the covered associate was not entitled to vote for at the time of the contribution.

In 2011 the Securities and Exchange Commission adopted its own pay-to-play restrictions in the form of Rule 206(4)-5 under the Investment Advisers Act of 1940 as we described here.  The CFTC’s pay-to-play rule is very similar to the SEC rule, which in turn drew significantly from MSRB G-37. While the wave of pay-to-play restrictions applicable to the financial services industry continues, one thing is for sure, they are consistent.

When: Today, Monday December 5, 2011; 6-9PM
Where: NY County Lawyers’ Association (14 Vesey Street, NY, NY)

Faculty:

• Rebecca Gordon, Partner, Perkins Coie
• Laurence Laufer, Partner, Genova, Burns & Giantomasi
• Lee Michel, Director, Barclays Capital

To register click here.

For example, in March 2011 the SEC agreed with a Home Depot shareholder that Home Depot must include on its proxy ballot a proposal recommending that the Home Depot Board disclose its policies on political contributions and give shareholders an advisory vote on those policies.

In August 2011 a group called the Committee on Disclosure of Corporate Political Spending, which is comprised of ten corporate and securities law professors, submitted a rulemaking petition to the SEC urging the SEC to develop rules to require public companies to disclose to shareholders the use of corporate resources for political activities.

And this month, the California State Teachers’ Retirement System (“CalSTRS”) passed amendments to its shareholder voting guidelines stating that if CalSTRS concludes that a company in which it holds an interest lacks sufficient policies on the disclosure of political activity, it is likely to vote with proponent shareholders to establish such policies. The amendments also call for corporate boards to exercise oversight over political contributions through the adoption of written policies and procedures.

The Supreme Court’s decision in Citizens United v. FEC opened the doors to freedom for companies to participate in the political process, but today we realize that freedom may come with a price: transparency.  Transparency, or at least disclosure of political contributions in the context of independent expenditures, was upheld by the Court in Citizens United.  The reality is that due to increased shareholder interest, many public companies have voluntarily adopted policies requiring disclosure of corporate political spending.   Voluntary disclosure also means increased shareholder (and public) scrutiny, and the savviest of companies will carefully weigh the choice.

Although the economy and pay-to-play restrictions may be partially to blame, ELEC has indicated that “the recent growth of independent non-profit political groups organized under IRS rules” may be one of the factors leading to this decline.  Prior to yesterday’s election, these groups – commonly referred to as Super PACs or Independent Expenditure Only PACs – were required to report their independent spending in excess of $1,200 to ELEC on pre-election and 48-hour notice reports. 

In the wake of Citizens United v. FEC, will the level of independent spending in New Jersey foreshadow the level of independent spending in the 2012 federal election cycle or in the 2013 New York City elections where new independent expenditure reporting requirements will likely be in effect?

Democracy 21 and the Campaign Legal Center have filed a petition with the IRS challenging IRS regulations that define whether an organization that conducts campaign activity is entitled to obtain or maintain tax-exempt status.

Currently, to be tax-exempt as a social welfare organization under Internal Revenue Code Section 501(c)(4), an organization must not engage in political activity as its “primary” purpose.  The IRS has not defined “primary” for purposes of determining whether a 501(c)(4) is engaging in a permissible level of political activity.  Rather, under the current “facts and circumstances” analysis, a 501(c)(4) organization generally seeks to demonstrate that less than 50 percent of its expenditures are political in nature. Such efforts have apparently led to some non-political spending sprees where an organization may potentially be able to devote 49 percent of its time to political activity while still maintaining its 501(c)(4) status as a social welfare organization.

The petition proposes a “bright-line” test to limit political spending to no more than 5 to 10 percent of total activity as a condition for maintaining tax exempt status.  Clearly, such a standard would take a big bite out of a 501(c)(4) organization’s potential political bark.  Given the recent fracas occasioned by IRS steps toward gift tax enforcement, it does not appear likely that the IRS will be moving quickly to change the status quo.

The Private Letter Ruling was based on the facts presented to the IRS and does not give hospitals and/or other 501(c)(3) organizations permission to engage in political activity and/or to directly establish a PAC.  Rather, as is common practice in the not-for-profit world (and as previously discuss here), the IRS Ruling advises that an exempt hospital may establish a 501(c)(4) social welfare organization, which may in turn establish a PAC.  The IRS Ruling also gives the PAC the ability to use a payroll deduction system for collecting contributions from hospital employees.

Perhaps what is most significant about the IRS Ruling is that hospitals may now look to form 501(c)(4) organizations to carry out their social welfare and lobbying agendas rather than relying upon the hospital itself to carry out that message.

More to follow.   In the meantime, see our previous post here for some background.

Now comes word (via the Election Law Blog) that the Judge has issued an order asking the parties to submit briefs on whether the Court should reconsider its ruling in light of FEC v. Beaumont.  The order also cites to Agostini v. Felton, 521 U.S. 203 (1997) which held that “if a precedent of [the Supreme Court] has direct application in a case, yet appears to rest on reasons rejected in some other line of decisions, the Court of Appeals should follow the case which directly controls, leaving to this Court the prerogative of overruling its own decisions.”

Stay tuned.