The SEC and Dark Political Money: An Historical Argument for Requiring Disclosure

43 Pages Posted: 22 Jun 2013 Last revised: 21 Nov 2013

Date Written: June 18, 2013


In traveling across the country to talk about the impact of the Supreme Court’s 2010 decision in Citizens United, I frequently encounter resistance from audiences when I suggest that the Securities and Exchange Commission (“SEC” or the “Commission”) has a vital role to play in providing greater clarity about corporate money in the American political process. One version of this objection is: “you’re asking the wrong thing of the wrong agency.” This paper is meant to provide a fulsome explanation about why the SEC should continue its leadership in fighting pay-to-play corruption by requiring transparency of corporate political spending across the board.

Some may think regulating money in politics is outside the SEC’s wheelhouse. But this is a mistaken view. Contrary to common misconceptions, securities regulators had to grapple with the problem of corporate money in politics four decades before Citizens United. In actuality, the SEC has been sitting at the nexus of campaign finance law and corporate securities law since the mid-1970s. In addressing this issue, I first explore the investigations conducted by the SEC of public companies following the Watergate scandal, which revealed that corporate treasury funds had been given to President Richard Nixon’s 1972 reelection campaign. The SEC found that the money that went to Nixon’s campaign was just the tip of the iceberg. The SEC discovered that hundreds of American companies had made political payments to both political parties in American elections as well as significant payments to politicians abroad, much of these political payments were made secretly in ways that hid them from investors. Following this discovery, the SEC was instrumental in pushing Congress to pass the Foreign Corrupt Practices Act to require more corporate transparency as well as to outlaw bribery of foreign officials by US businesses.

The next major intervention of the SEC into the regulation of money in politics came in the 1990s when SEC Chair Arthur Levitt made fighting pay to play in the municipal bond market a top priority for the Commission. The SEC found that contracts to underwrite municipal bonds were often being awarded to those investment companies that had given sizable campaign contributions to state and local elected officials. Many investment companies, it appeared, were “paying to play” in the profitable municipal bonds market – essentially, rigging the awarding of government contracts. To stop this practice, the SEC through the Municipal Securities Rulemaking Board (MSRB) promulgated Rule G-37 to clamp down on pay-to-play corruption. Finally in 2010, after a string of further embarrassments in the public pension fund market sent numerous elected officials to jail for kickback schemes, the SEC acted again to curb pay to play in this market as well. This time the SEC promulgated Rule 206(4)-5, which restricts the amount of campaign money investment advisers can give to public officials in charge of investments for public pensions.

This piece argues that just as the SEC acted in these three previous cases to prevent corruption in the capital markets whether the source was foreign or domestic, federal state or local, the Commission likewise has a duty to step up to the plate to provide sensible new rules for corporate political spending again post-Citizens United. Citizens United is the Supreme Court case from 2010 which allow corporations to spend an unlimited amount of money in state and federal American elections. Already, millions of dollars that can be traced from publicly traded companies has been spent in the 2010 and 2012 federal and state elections. Unfortunately, there are hundreds of millions of dollars being spent in the federal election alone that cannot be traced. Investors and voters are left in the dark about how much of this money is from public companies.

This new era of corporate political spending raises a similar problem of transparency for investors as the previous three cases and threatens the integrity of our capital markets. This is why the SEC should act on Petition No. 4-637 to establish clarity of how much money is being spent by public companies for exactly which political causes, candidates and parties.

Keywords: SEC, corporate governance, pay to play, bribe, FCPA, MSRB, transparency, disclosure, campaign finance, money in politics, Citizens United, Watergate, corruption, public choice, municipal bonds, public pension funds, securities law, SEC petition, CPA

Suggested Citation

Torres-Spelliscy, Ciara, The SEC and Dark Political Money: An Historical Argument for Requiring Disclosure (June 18, 2013). Stetson University College of Law Research Paper No. 2013-16, 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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