Republican politicians sued the U.S. Securities and Exchange Commission, seeking to throw out a rule that limits political donations by investment advisers.
The Republican state committees from New York and Tennessee said the federal securities regulator had flouted due procedure when adopting its Political Contribution Rule, which they said also violated the constitutional right to freedom of speech.
"The (rule) directly harms Plaintiffs, as potential donors have informed each Plaintiff that they will not make political contributions because of the SEC's rule," said the complaint before a federal court in the District of Columbia, which was filed late on Thursday.
The SEC in 2010 approved the rule, which prohibits investment advisers from making campaign contributions in the hope of being awarded lucrative contracts to manage public pension funds, a practice known as "pay to play".
The SEC declined to comment on the lawsuit.
The watchdog in June charged a private equity firm, TL Ventures Inc, in an administrative proceeding when an associate made political contributions to Pennsylvania's governor and Philadelphia's mayor while it was working for the city and state pension fund, the complaint said.
The plaintiffs want the court to decide that the rule violates the law and to stop the SEC from enforcing the rule with respect to federal campaign contributions.
They say the SEC violated the Administrative Procedures Act, a law that lobby groups have often used successfully to strike down rules issued by agencies such as the SEC and the Commodity Futures Trading Commission, the swaps regulator.
The act requires regulators to follow specific procedures, such as conducting cost-benefit analyses, when drafting rules.
The two committees also mentioned the 2010 case of Citizens United versus the Federal Election Commission, in which the Supreme Court limited the scope for government to impose restrictions on political spending by companies.
— By Reuters