11.23.2010The Securities and Exchange Commission recently approved interpretative guidance issued by the Municipal Securities Rulemaking Board (MSRB) that relates to the treatment of PACs affiliated with brokers and dealers under MSRB Rule G-37. The Interpretation sets out factors that may result in an affiliated PAC being treated as a dealer-controlled PAC and therefore subject to the pay-to-play ban under MSRB Rule G-37. Such criteria include situations where municipal finance professionals (MFPs) are involved in the creation of the PAC, as well as its management, funding or control. The Interpretation also discusses how Rule G-37’s ban on indirect contributions extends to dealer-affiliated PACs. The Interpretation points to guidance previously issued by the MSRB with regard to supervisory procedures that dealers should have in place to avoid indirect rule violations, including procedures for due diligence inquiries regarding the intended use of contributions to dealer-affiliated PACs, the motive for making the contribution and whether the contribution was solicited. The Interpretation also recommends establishing information barriers between any affiliated PACs and the dealer and its MFPs. The Interpretation becomes effective on December 12, 2010.