By Sarah N. Lynch and Jonathan Stempel
(Reuters) - A federal judge in Washington late on Tuesday dismissed a challenge by two state Republican parties of a U.S. Securities and Exchange Commission rule that imposes restrictions on asset managers who donate to political campaigns, handing the regulator a victory.
U.S. District Judge Beryl Howell said the court lacked jurisdiction to review the New York and Tennessee Republican parties' challenge to the SEC's "pay-to-play" rule, and that only the U.S. appeals court had authority to hear the case.
An attorney for the two political parties, Jason Torchinsky, said: "The decision is long, and just came out. We are reviewing the decision and will be discussing the next steps with our clients."
An SEC spokesman declined to comment.
The SEC's pay-to-play rule was adopted in 2010, and intends to prevent a quid pro quo between elected officials and investment advisers who are seeking to win business to manage public assets, such as pension plans. It prohibits advisers from receiving compensation for asset management services for two years after making a campaign contribution to public officials or candidates in a position to award contracts.
The plaintiffs claimed the rule violated free speech rights, and they had sought a preliminary injunction just months before the upcoming 2014 midterm elections when Republicans are hoping to regain control of the Democratically-controlled U.S. Senate.
Campaign contributions from the asset management sector have traditionally been an important source of funds for political parties.
In a 21-page ruling, Howell said she found that the plaintiffs "have failed to meet their burden in establishing subject matter jurisdiction because this court is not the proper forum for their challenge."
Her ruling aligns with one of several arguments the SEC made in a court hearing earlier this month. The SEC argued that only an appeals court could hear the complaint.
If the Republican parties decide to re-file the complaint with the appeals court, it remains to be seen whether the court will agree to rule on the merits. That is because the SEC has also argued that the Republicans missed a crucial 60-day deadline to challenge the rule after it was adopted in 2010.
Howell's ruling was foreshadowed during oral arguments in September, in which she openly questioned whether the court had authority to rule in the case and whether the Republican parties had legal standing to bring the suit.
Because she determined the case cannot be reviewed in a lower district court, Howell did not reach any conclusions on whether the parties have standing to challenge the rule.
(Reporting by Jonathan Stempel in New York and Sarah N. Lynch in Washington; Editing by Lisa Shumaker and Cynthia Osterman)