How The SEC Is Violating My Wife’s First Amendment Rights

Over the past 24 months, a deplorable activity in the money management business came to light.  It got the name “pay to play” but was just another form of bribery.  The common description of pay to play is “the practice of making campaign contributions and related payments to elected officials in order to influence the awarding of lucrative contracts for the management of public pension plan assets and similar government investment accounts.”  Yup – sounds like bribery to me.

However, for some reason, the definition of this expanded to include any campaign contributions to any state or local officials, regardless of the size.  So, if I contribute $1,000 to the campaign of the Colorado state treasurer, I violate this SEC rule and become someone who is “paying to play.” Now, as someone who gets multiple calls and emails most days to contribute to campaigns as an election approaches, I can assure you that it has never occurred to me to support the campaign for a state treasurer. However, I do know that a candidate for state treasurer has called me asking for campaign contributions. And I’ve politely declined.

After studying the implications of this ruling, I’ve decided it prohibits me and my spouse (Amy) from making any campaign contributions to state or local races anywhere in the country.  The NVCA has also studied the new SEC rule and has come to the same conclusion:

“This ruling is consistent with guidance the NVCA has been providing members.  It is now even more important to have a firm-wide policy against political contributions to these officials / candidates. This restriction does NOT include political contributions to candidates running for federal office (U.S. House of Representatives, U.S. Senate, U.S. President) nor does it include contributions to the NVCA PAC, which only gives to federal candidates.”

We’ve instituted this rule at Foundry Group, although it’s upsetting and offensive to me because I think it fundamentally violates my First Amendment rights. To err on the side of caution, we’ve determined that spouses cannot make state or local political contributions either.  This infuriates Amy, as it should.

It’s even more upsetting when you consider that there is no cap on political contributions that corporations can make.  The Supreme Court ruled on this in January stating that the government has no business regulating political speech.  So, on one hand we have corporations who can give any amount to any candidate running for office while on the other hand my wife can’t contribute $1,000 to someone running for governor of Colorado.

Now, don’t misunderstand me – I think pay to play is grotesque.  And Amy and I are huge advocates of campaign finance reform.  However, the core problem of pay to play is bribery, not the active support of state and local candidates for office by individual citizens.  They are totally different things and should be able to be easily and cleanly differentiated, without the government regulating my political speech.

  • There are plenty of easy ways to get money into non-federal-level politicians hands indirectly. You might have to give your money to a PAC or similarly structured organization, but you can still ensure it finds its way to who/where you want.

    Lots of executives do this, so I'm confident you're aware of these legal, albeit circuitous, methods.

    • I am not a fan of any of these methods. I'm a big believer in the need for campaign finance reform. The more circuitous the methods, the more I dislike them.

  • DaveJ

    On the bright side, this makes it easier to turn down the more insistent fundraisers.

    • While that was my first (and somewhat sarcastic) reaction to this, Amy appropriately pointed out to me that I was being incredibly passive aggressive. I relished in this for 24 hours and then got real about the situation.

  • Lindel

    Funny how an SEC ruling would tilt in favor of Federal government and big corporations. At every turn.

    • Amy and I just had an interesting discussion about states right vs. federal rights at lunch. This is yet another example of the federal government trampling on states rights without really thinking it through. Or maybe they did.

  • You said it. Right to contribute = First Amendment rights.

    I'll leave the hairsplitting to you when campaign finance reform comes up.

    I love that venture capitalists think like Republicans on the issues that affect them (e.g. carried interest), then turn around and vote Democrat.

    • That's because Republicans when running for office, talk a good libertarian game, but in power they actually vote like the electorate believes Democrats would vote (that is voting in favor of much government intrusion in people's lives). While Democrats vote more like one would expect Republicans to vote. Both sides aren't close to being ideologically consistent. I think that is one reason Ron Paul got so much traction with otherwise socially liberal voters.

      Aside from your snide remark, I don't get your post. For individual contributions, I don't think it is controversial to Democrats or Republicans that contributions=free speech. Where it becomes controversial is whether corporations should have all the rights of natural people, like free speech.

      This is one of the reasons the disconnect between Amy and Brad not being able to contribute, while a corporation can contribute an unlimited amount, is so egregious and offensive.

      • Umm… the title of this post is about a violation of First Amendment rights. It's a pretty black and white way to frame a pretty complex issue. Then Brad goes on to say that he's in favor of campaign finance reform – without explaining what elements of CFR he is in favor of. He admits that pay to play is bad, but eventually comes back with "Hey! The things the government is doing affect ME and that's not cool."

        So I found the post to be a silly entrance into a subject that the author hadn't really thought about, along with an over-reacting post title, and a thesis that pretty much boils down to "ME, ME, ME"

        I like this blog, but the comments do not have to be 100% cheerleading. It's supposed to be a discussion. So sorry if I call it when I see BS.

        • I agree that Brad could have thought about the topic more, and offered some solutions, rather than just complaints. I'm not shy about calling bluffs, nor do I fault you for expecting a more comprehensive treatment of the topic. But I think it is fair to say their First Amendment rights have been violated by a poorly thought out law.

        • I think the title is exactly correct on what happened here. It's pretty undeniable that the SEC is violating Amy's first amendment rights.

          I agree that I'm completely vague about what elements of Campaign Finance Reform that I'm supportive of. And – in terms of making a tight argument against this issue, that sentence probably doesn't add anything, but at the same time I don't think it subtracts anything.

          But to say this boils down to ME, ME, ME is absurd. Amy and I can no longer give any money to any state or local candidates for any reason because of this new SEC rule as long as I continue to be a venture capitalist. If you study the problem of pay to play, you'll see that it's not directly related to any individual's personal state or local political contributions. Rather, it's a relatively clear issue of bribery. So, the SEC has instituted a ruling that violates Amy's first amendment rights in an effort to solve a problem unrelated to the thing they are now preventing.

          The government does many more things to “me” that I disagree with and just live with. And many of them of them are much greater violations of my value system and interest, but they aren't a violation of my first amendment rights (or my wife's). So – I live with plenty of things the government does that I don't like but I'm not comfortable at all when they start violating my first amendment rights.

    • Um – I don't think all VCs vote for democrats.

  • But, on the other hand… where have campaign contributions led us to date? Look at the Government and politicians we have right now, for example. The Congress, Supreme Court, and President – as an example to think about.

  • In many ways campaign finance reform approaches health care reform, immigration reform, Wall Street reform, and Middle East peace in terms of how complex an issue it is.

  • nice info, thank you 🙂

  • Johno413

    Imagine, a perhaps well intentioned government unable to hit the bullseye, but instead only able to hit an edge of the target. Up, down, left, right, legislation and regulation always misses the mark to some people, and in extremes to most people. Who is really surprised?

    Regarding corporate donations, the logic is mostly sound. Corporations are simply a collection of people. What benefits a corporation does in fact benefit a large number of people which includes employees, investors, etc. Some may suffer as a result too. Who thinks government could or should eliminate what has naturally occurred throughout recorded history? And as a collection of people it only makes sense they have rights enumerated for any one individual. However, the current legislation perhaps doesn't even hit the edge of the target, depending on your outlook. It will be interesting to see what amendments and new legislation comes about. But don't be a sucker, any new legislation will still favor some over others. It's called politics.

    In the end I'm not a pessimist or a fatalist. Corporations ultimately can influence legislation to a degree, but they cannot influence who gets elected to any degree as potently as the voting public. Of course, the voting public has to be both engaged in political results and skeptical of any promotion or campaign effort they see, especially with corporate money behind it. And the more transparency that is required the more precise the public can be. The opinions on the extreme – to disallow corporate donations altogether or to allow all contributions without enough disclosure – are simply partisan efforts and not really "looking out for the common man".

    • "And as a collection of people it only makes sense they have rights enumerated for any one individual. "

      This is a hotly debatable claim. It is a historic accident by laziness, that in the US that corporations have the rights of the individual. The Supreme Court precedent that set this, the assumption is made in the headnotes of the case written by the court reporter, and not found anywhere in the actual court record or Justice's statements.

      "Corporations ultimately can influence legislation to a degree, but they cannot influence who gets elected to any degree as potently as the voting public. "

      While in an ideal world this would be true, in our less pretty reality, it is absolutely false. Corporations, through media spending, can influence a majority of the electorate (who is unfortunately pretty unsavvy) very easily. They can also buy access to elected leaders, and through the perceived importance of the business leader's station, can unduly influence those elected officials, much more than an individual voter, or all but the largest of voting blocks can (like AARP).

      • Johno413

        I would disagree with your notion, I assume, that corporations have a greater power proportional to their greater media spending. Most media expense by a huge margin ties to political parties and their affiliated organizations (501C et al). These represent a large collective of individual and corporation donations. One corporation, BP for a hypothetical, could not sway an election overtly. There may be very rare exceptions, especially with high net worth individuals who find many complex paths for their money to travel for single point influence. George Soros comes to mind if one is to believe what right leaning pundits claim about his influence. The fact that he contributes large amounts through almost uncountable numbers of organizations appears to be fact, however.

        Funny you should bring up AARP as I view it to be an example validating the decision. It's political lobbying benefits its profits directly and its membership slightly less directly. In other words, it's actions are nearly equally targeted towards the survival of the corporation (AARP) as a BP's might be. With AARP, however, a distinction can be made because it is a membership organization claiming to represent its people. Yet, in the end, it is clearly not some democratic organization acting exclusively as the voice of its members. At best it indirectly represents its membership, and not always through direct vote, so to speak. From a political perspective the only difference is that the membership has a higher expectation that the AARP will in fact be politically active. But the political actions and their results are still quite similar to a large for profit industrial corporation. And the irony is, that if regulations and laws preventing, say again, BP from having as much engagement in political discourse applied equally to AARP it would hugely impact its reason for being.

        The test must always be who benefits and who is harmed in the eyes of the law. That may be an unending debate, but for now the Courts rule that corporate political activity is viable. I suppose if someone could legally and successfully argue the harm you presume, the decision might be changed.

        In my part of the country I meet more people who make their own decisions regardless of media and advertisements than those who you might label as not savvy. That's not to say they are entirely sound in their reasoning always, as politics is much more about emotion than logic for many. For example, a union member I know is almost guaranteed to vote for the candidate that is most sympathetic to the agenda that would benefit his status. Likewise, another person I know who is religiously devout and opinionated about abortion is almost guaranteed to vote in support of that principle. Neither would be swayed much by opposition attack ads regardless of the source of the funds. And both would be likely to vote against a candidate they previously supported if they felt they were let down.

        So, I simply don't buy the idea that the majority of people are not savvy and easily influenced by political campaigning sponsored primarily by corporations. Nor is it plain that elections results are profoundly swayed by such corporations. Politics are complex and imperfect without a doubt. But I think people are more in tune with things that matter to them than you give them credit. And, if an elected official they supported happens to step on their toes for the benefit of a corporation (because, yes, lobbying is a major enterprise in modern politics), they have outlets such as town hall meetings and writing to the officials during the official's term. Too, they have the option to vote. If some "bum" stays in office despite a voter's efforts, to me it simply reflects a circumstance where that official didn't step on too many toes> The voter, unfortunately, was in a minority (of those who acted by voting). And for at least the past century, the "art" of being a politician is knowing how to strike the balance that saves your hide.

        I agree with the current mantra that more transparency is key. Everyone should be able to determine who is being lobbied by whom, from whom even relatively small campaign contributions originate, etc. The dilemma is that those who stand to benefit to a degree from less transparency are the ones we have to press to demand it.

  • This is a real touchy issue and I think the best thing you can do is cover your own tail and stay within the guide lines. I agree that you should be able to contribute whomever you choose but if the new SEC rules are already in place their is not much that can be done.

  • steve

    It's easy. Don't accept money to manage from any organization run by a politician that you helped support. Its a big country – there are many sources of capital. If free speech in supporting a candidate is important to you – by all means do it. Just don't manage their money. It seems there is an "entitlement" to be eligible for every possible business opportunity – i think the idea of a simple restriction would have a nice effect of limiting the size of organizations….

    And yes – it make it difficult for employees of Raytheon to support federal candidates. But they have a choice whether to work for Raytheon. Difficult for employees of state government to support specific candidates – yes – but that is probably a good thing as it keeps the election more honest. Difficult for a car dealership to support their local candidate if they want the town to buy vehicles from them – yes. It would have the net effect of taking a significant amount of money OUT of politics and that would be a good thing. Make representatives listen to their constituents versus just spend their time with those that pay them the most.

  • In many ways campaign finance reform approaches health care reform, immigration reform, Wall Street reform, and Middle East peace in terms of how complex an issue it is.

  • If the SEC changed their rules and your wife was allowed to contribute to any candidate without risk if being suspected of pay for play, but then that candidate that she supports went to Congress and was successful in passing CFR, would the people who are affected by the CFR (that your wife supported by exercising her 1st Amendment rights) be right to say that their 1st Amendment rights are being violated?

    Surely there would be people who would be restricted by the legislation that you support, who would be just as unhappy as you are, and who would feel that their 1st amendment rights are being violated.

    CFR is in its essence a restriction on speech that only varies in degree from the restriction that you are complaining about.

    You seem to have no regard for the people who would be restricted by the legislation that you support, and yet you don't want to be restricted from supporting candidates who could then go on to restrict someone else's rights.

    So if I hear someone complaining about something that affects them, and then I hear them say that they support something that would affect others in exactly the same way, I throw it in the "Me, Me, Me" pile.

    The only response to the point I make above would be to say "well, I don't support that kind of campaign finance reform, not the kind that would restrict anybody's 1st amendment rights". And yet that response would be more of "Me, Me, Me" with a slight hint of paternalism. To you, your judgment and your speech on these issues is important. The judgment of others (including currently the SEC, and potentially in the future the people whose speech you would propose to restrict) is not so important.

    • Also, a totally acceptable title for this post would have been "How the SEC is F-ing With Me and Why They Totally Turned Me Around on Campaign Finance Reform"

      Or maybe "I'm Going to Grin and Bear It While the SEC Screws With Me Because I Know They Are Well Meaning and I Support Reform of Financing of Elections"

    • Well – I read this twice and simply don't understand your argument. I just don't see the linkage you are making.

      • OK. I think I understand now why there is a little bit of a disconnect. You really don't see campaign finance reform as the regulation (and therefore limitation) of speech.

        What I'm saying is that I don't see how you can view the SEC's restrictions that affect your wife as being different than campaign finance restrictions on speech. Both limit amounts that can be expended in support of a candidate or position.

        But this really is not my fight and if I can't give exposition to my argument in the words I have already written, it's unlikely I'll accomplish it with more.

        You have an otherwise very good blog, though I get mildly annoyed when I see people who support left of center candidates become libertarians (your railing against SEC campaign finance rules) and free marketers (your support of Tom Friedmans's proposal to subject startups to 1% capital gains) on issues that affect their own interests.

  • jasonstoddard

    Caveat: I asked Brad to reopen
    commenting on this thread because there is a much larger issue at play that is
    pervasive to the entire commercial, economic, and political apparatus. It is also important to note that traditionally, in the context of our
    constitutional republic, economic liberty never kowtows to social liberty, ergo without ownership, then, one technically has no rights. That
    said, now-a-days, one doesn’t technically own anything. If
    you read between the lines (and granted, the lines are deep) you might ask
    yourself what’s it all for.

    The division is not right vs. left, if
    it ever was. The divisions follow:

    Culture of Dependence vs. the Culture
    of Independence

    Federalism vs. Localism

    Debt vs. Value

    Statism vs. Agorism

    Institutional Corporatism vs.
    Individual Entrepreneurialism

    context: 15 years ago I was a paid intern/legislative aide for Congressman Paul
    in Washington DC. I was 20 years old. Dr. Paul found me when he picked up a
    university newspaper and read my letters to the editor. He also tuned in to my
    pirate radio station. Love him or hate him, Dr. Paul is/was an anomaly on the
    Hill. As such, being invited to work with him and foster his constitutional
    hermeneutic as a young person interposes a unique perspective. Seminal
    even. While I did not accept the mantle, I have worked at the grassroots
    level and “run traffic” for Dr. Paul, including polling, fundraising,
    forums, etc. Much has changed over the last 15 years. Keep in mind that
    while Dr. Paul has always received more individual campaign contributions than
    any other public representative; he has never been popular amongst the
    institutional Beltway crowd. You’ll rarely if ever see a donation from a political party (corporation) to Ron Paul or his Campaign for Liberty. This is noteworthy because if you’re working on behalf of an organization like this, you learns the rules very quickly knowing full-well that opposition is gunning (and everyone is opposed) and all it takes is one misstep to be penalized because any misstep will
    certainly be enforced.

    In Texas, there are thousands of laws
    and statutes regulating the operation, ownership and underwriting of motor
    vehicle (read: commercial vehicle, not private vessel). In fact, there are so
    many laws governing the operation of a car one is absolutely certain to break a
    law every time one drives or even sits in a car. Law enforcement rarely if
    ever has trouble establishing probable cause.

    Laws regulating and governing campaign
    finance are equally prolific. The most notorious is McCain-Feingold. (If your
    lucky enough to get the right FEC representative on the telephone to answer
    questions, she will tell you that every federal, state, and municipal campaign
    since McCain-Feingold’s passage has broken at least two of the law’s
    provisions.) The FEC rarely if ever has a problem establishing standing. In the
    case of the SEC ”pay for play,” public record demonstrates that the regulation
    was a collective lobbying effort of Big Banking and both the DNC and RNC. More
    than two years later, the latent consequences (which usually elucidate the
    original, albeit obfuscated, intent and teeth of the regulation) are apparent:
    Substantial concentration of donor dollars in the DNC and RNC (which were both
    on the brink of bankruptcy 5 years ago); top-down, vertically-aligned
    management of political organization and resource allocation as a result; a
    dramatic reduction in direct donations to local and state political candidates;
    decreased “citizen” participation in local and state political races; and, not
    surprisingly, increased federal appropriations (mostly via TARP) to
    multi-national corporations.

    No doubt, you remember the fallout in
    the social media/advertising circles: On October 5, 2009, The FTC passed the
    “new” Endorsement and Testimonial Guidelines. One of the guidelines
    requires disclosures written in-line social media updates when endorsing a
    client’s product or service. The only exempt entities are institutions and
    associations. This significantly inhibits market disruption in the advertising
    and marketing space, by design.

    The FDA. The ATF. The FBI. The CDC.
    Etc. Ad Nauseum. Queue data aggregation across the net on any of these agencies
    and you’ll quickly understand their purpose: Protecting unnatural monopolies
    and in some cases, protecting informal “pay for plays” with histories dating
    back decades.

    A striking feature of all the alphabet
    agencies (in this case the SEC, the FEC, and the FTC): All of them are
    enforcement organizations and none of them are beholden to follow due process
    when enforcing laws and statues. They can freeze banks accounts, enjoin
    take-downs, seize assets, and punitively prohibit the accused’s pursuits and
    property without the accused ever having a day in court. Given that most laws
    and statutes governing a specific category of commercial exchange are so
    prolific and entangling, standing and cause is never an issue… all the alleged
    need do is “sit in or drive a car” and they’ve broken a law. (Sidebar: If you
    follow the careers of the people working on behalf of these agencies, you’ll
    observe that many invariably go on to work for the large institutions and
    organizations their enforcement and purviews indirectly protected, never mind
    the complete and total conflict of interest. If this is not pay to play,
    frankly, I do not know what is. But’s never prosecuted. It’s not even
    investigated.) This is just the way things are.

    And this is just the tip of the iceberg.

    The only recourse is to willfully
    challenge a law or statute by breaking it, only for enforcement to apprehend
    and prosecute. Of course, jury nullification is forlorn to the nave and juries
    are not instructed to evaluate the rightness or wrongness of a law; juries are only
    instructed to evaluate if the accused has broken the law in question. Any one
    choosing this path better have deep pockets in order to promote their cause
    (through a series of appeals) to a jurisdiction empowered to adjudicate over
    constitutional questions, and even then the possibility of winning an appeal is
    small. The racket that has been created overtime is so large, the web of
    entangling alliances so immense, the underwritten capital so broad and deep, it
    is more likely that one will be bitten by a shark while simultaneously be
    struck by a bolt of lightning and an asteroid than win a case of this nature.

    To marketwise’s point, I agree in
    spirit, though I disagree in style (asshole!): For years I was completely vexed as to how or why any VC, private
    equity partner, angel or entrepreneur could support democrats or republicans,
    but especially the former. I really believed that anyone called to entrepreneurship must understand that entrepreneurship is the antithesis of government. But now I understand it all to well: Active support
    is an active defense against prosecution. Business as usual; pay for play.