Last week, the Rick Perry campaign announced with great fanfare that the Texas governor had raised $17 million for his presidential campaign in the July-September quarter. That’s more than any other GOP hopeful, and since Perry was a recent entrant to the presidential race, he raised that sum in just 49 days.

But here’s why Perry’s fundraising achievement is really impressive: In March, the SEC enacted “pay-to-play” rule 206(4)-5. The regulation prohibits investment advisers who contribute more than $350 to state or local officials who can influence their state’s investment decisions from receiving payment from that state government for two years.

According to the Los Angeles Times, in 2008 securities firms alone gave Republican presidential candidates $20 million. Thanks to the new rule, that fundraising reservoir may remain largely untapped by the Perry campaign, for fear that donating to the Texas governor would prevent financial professionals from doing business with the second-largest state in the country.

Perry’s campaign admits this has made fundraising more difficult. “As the only sitting governor in the race for the White House, Perry is much more negatively impacted by the SEC rules than anyone else in the race,” says campaign communications director Ray Sullivan. “It has and will continue to hamper our efforts to raise money, especially from the financial sector. It has made things quite challenging in New York, for example.”

And while this new ruling primarily affects Perry at the presidential level, it could have far-reaching consequences going forward, since it applies to every state office holder seeking federal office from here on out.

The new SEC regulation comes on top of an existing Municipal Securities Rulemaking Board (MSRB) regulation of the financial service industry​—​known as rule G-37​—​that restricts campaign donations to state office holders by those dealing in municipal bonds. (The MSRB is subject to SEC oversight.)

“Its genesis goes back to 1994 when the SEC began to regulate political contributions made to officials of issuers, who are basically mayors and governors and others who appoint people who select those who write or underwrite municipal bonds,” says Kenneth A. Gross, an expert on campaign law compliance at the law firm Skadden, Arps, Slate, Meagher & Flom. “There were many scandals in the late ’80s, early ’90s involving Orange County and other places where big firms on Wall Street were getting underwriting business because they made contributions to the right people in the right amounts.”

Like the association of scandal with municipal bonds, a regulatory crackdown on the cozy relationships between state politicians and investment advisers is not without precedent. In 2010, the Quadrangle Group agreed to pay $12 million to the state of New York after it emerged that Quadrangle cofounder Steve Rattner had paid significant sums to an adviser of New York State comptroller Alan Hevesi. Quadrangle subsequently received a $150 million investment from the state’s pension fund. (Rattner went on to serve in the Obama administration as the White House’s “car czar,” helping broker bailouts for U.S. auto companies.)

According to Gross, former SEC chairman Arthur Levitt had proposed extending pay-to-play rules to cover investment advisers back in 1999, but the regulations weren’t pursued by Bush administration SEC appointees. The idea was revived by the Obama administration after the Quadrangle arrangement drew public scrutiny to the ties between state officials and investment advisers.

Nobody really disputes that the new SEC pay-to-play rules have the potential to clean up the political process. The perceived problem, however, is that the new rule makes it unduly difficult for state officeholders to raise money to challenge federal incumbents.

Between those dealing in municipal bonds and the hedge funds, private equity firms and other financial institutions restricted by the new SEC regulations​—​the gatekeepers of nearly $5 trillion of America’s wealth​—​are now severely restricted from donating to the campaigns of state officeholders.

The fact that these regulations apply to some presidential candidates and not to others is not lost on the Perry campaign. “It does seem curious and unbalanced to heavily regulate and undermine the ability of state officials to legally raise funds and leave federal officials comparatively exempt from those regulations,” says Sullivan.

In the era of Dodd-Frank legislation, Congress and the White House have taken a great interest in banking regulations, and they have been lobbied heavily in response. It’s hard to argue that cracking down on financial industry donors to state officeholders is warranted but that Congress shouldn’t be subject to similar regulations.

And as it happens, Dodd-Frank is yet another example of federal regulations restricting fundraising for state officeholders. “Dodd-Frank has two new pay-to-play laws that will be on the books and in effect before this election is over having to do with municipal advisers, including banks, and perhaps accounting firms and engineering firms,” says Gross. “So we’re going to have four federal pay-to-play laws that largely regulate nothing but state and local officials.”

There are currently no pay-to-play rules that apply to federal incumbents, despite any number of scandals similar to those used to justify the regulation of state officials. For instance, Rep. Barney Frank, the Massachusetts Democrat of the eponymous banking legislation, was involved in a romantic relationship with a Fannie Mae executive while the government-sponsored mortgage backer was making lavish political donations and successfully lobbying Frank’s congressional banking committee to loosen mortgage standards.

This double standard is highlighted by the Perry campaign. “Congress does have a habit of exempting themselves and treating federal elected officials better than state and local officials. It is ironic that much of the financial crisis, to the extent that government was involved, they were federal agencies, federal bureaucrats, and federal officials that set the ground rules,” says Sullivan.

The SEC has a wide amount of discretion in how they enforce these campaign donation regulations. With both the MSRB’s G-37 rule and the SEC’s 206(4)-5 rule, direct and indirect contributions to officials are restricted. And what exactly constitutes an “indirect contribution” to a political campaign isn’t strictly defined.

“There are certain things we can definitely say are indirect contributions that are problematic. For example, having your spouse write the check because you can’t. Or having your neighbor write the check and reimbursing them,” says Melissa L. Laurenza, an election law attorney at Akin, Gump, Hauer and Feld. But beyond that, “the MSRB said they specifically weren’t going to give any more guidance because they wanted the ability to review things on a case by case basis, and the SEC basically says the same thing in their rulemaking.”

Which raises the $64,000, or in this case the $350 question: How will the SEC rule on contributions to super PACs? Contributions to super PACs are currently considered independent expenditures by the FEC and could be a way to circumvent the new SEC restrictions. “The Securities and Exchange Commission, which has much broader rules and unfair dealing rules and much more discretion in interpreting these constitutional issues that the Federal Election Commission gets all spun up about, may well determine that’s problematic,” says Gross.

Gross wonders if the SEC’s determinations on super PACs will come down to how the individual PACs are operated​—​who set them up, who operates them, who does the soliciting. But that could require the SEC to make unprecedented political investigations and judgments.

If the SEC starts making decisions that are seen as becoming a determinative factor in who wins elections, the agency runs the risk of a political backlash. An SEC investigation might also carry the whiff of scandal, particularly when they’re enforcing regulations that don’t apply to the opposing candidates.

Many would like to see the SEC’s rules clarified, especially with regard to super PACs. “That’s probably one area that causes some discomfort​—​if I give to a [hypothetical super PAC called] Citizens for Perry, am I going to trigger a ban on doing business in Texas?” wonders Laurenza.

Whether these regulations are necessary for clean elections or simply amount to an incumbent-protection racket remains to be seen. The regulations appear to provide the financial services industry an incentive to concentrate their lobbying efforts at the federal level.

No one is certain how major campaign donors will respond to the new regulatory reality. Gross sent a memo to Skadden’s influential clientele saying that “covered firms, employees and their PACs should avoid making contributions to Governor Perry’s presidential campaign. .  .  . Moreover, they should avoid soliciting or coordinating contributions on his behalf, such as serving on his finance committee.”

Laurenza has more heartening news for the Perry campaign. “I’ve heard some people say that they feel so strongly they’ve just decided they’re not going to do business in Texas. They say, ‘For the next two years, Texas is off the table and we’re going to go like gangbusters for Perry,’ ” she says. “For some people it’s a big problem, and for others they just say, ‘To heck with it.’ ”

The Perry campaign is no doubt hoping a lot more donors simply decide to say the heck with it. You could say they’re banking on it.

Mark Hemingway is online editor of The Weekly Standard.

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