Safeguarding Markets from Pernicious Pay to Play: A Model Explaining Why the SEC Regulates Money in Politics

53 Pages Posted: 3 Dec 2012 Last revised: 19 Jul 2014

Date Written: January 20, 2013


At first blush, the SEC’s regulation of money in politics may seem to fall outside of its jurisdiction, but this is a mistake. This view ignores three previous times when the SEC stepped in to curb pay to play: (1) in the municipal bond market in 1994; (2) in the public pension fund market in 2010; and (3) in investigating questionable payments post-Watergate from 1974 to 1977. The result of the first two interventions led to new Commission rules and the third intervention resulted in the Foreign Corrupt Practices Act (a federal statute).

When these three previous SEC interventions into the role of money in politics are examined, a principled model emerges for when the Commission’s regulatory intervention is appropriate. The principled model, hereinafter known as the “Money in Politics Model,” has the following characteristics: there must be (1) a potential for market inefficiencies; (2) a problem that is not likely self-correct through normal market forces; (3) a lack of transparency; (4) a material amount of aggregated money at stake; and (5) a high probability for corruption of the government.

The Money in Politics Model’s characteristics were present in the all three past SEC interventions. As will be explained in more detail below, in the municipal bond market and public pension funds, there was an endemic problem of pay to play between state elected officials and businesses eager to contract with them for lucrative fees. The post-Watergate investigation revealed even more profound problem of secret corporate funds used for political contributions domestically and bribes of foreign officials abroad.

So does the post-Citizens United world of corporate political spending rise to the same level as these three previous examples? Does post-Citizens United political spending fit the SEC’s Money in Politics Model and merit the SEC’s intervention? This article will argue that the Model fits and the SEC should act.

The SEC is not new to the inherent conflicts of interest between business and government, especially when elected officials have the ability to make private contractors in the financial services industry rich through commissions and fees. The risk of corruption is intrinsic in such a situation. Here corruption is best captured by the definition as “the misuse of public…office for direct or indirect personal gain.” What is new as of January 2010, thanks to Citizens United, is the potential for every publicly traded company to try to influence the government not just through traditional lobbying, but also through campaign expenditures. This new problem merits a new SEC intervention to reveal the campaign activities of public companies.

Keywords: pay to play, corruption, SEC, Levitt, Watergate, Sporkin, campaign finance, Blount, municipal bonds, public pension, slush fund, bribe, disclosure, transparency, Citizens United, Super PAC, Rule G-37, Rule 206(4)-5, corporate political activity, expenditures, Buckley, SpeechNow

JEL Classification: G30, G38, G39

Suggested Citation

Torres-Spelliscy, Ciara, Safeguarding Markets from Pernicious Pay to Play: A Model Explaining Why the SEC Regulates Money in Politics (January 20, 2013). Connecticut Public Interest Law Journal, Vol. 12, No. 2, 2013, Stetson University College of Law Research Paper No. 2013-02, Available at SSRN: or

Ciara Torres-Spelliscy (Contact Author)

Stetson University College of Law ( email )

1401 61st Street South
Gulfport, FL 33707
United States

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