Vice President Kamala Harris’ selection of Minnesota Gov. Tim Walz as her running mate could boost the Democratic ticket’s Midwest appeal but it might slow donations from Wall Street.

Financial advisers who contribute to the Harris-Walz campaign could risk violating securities laws that limit the amount they can give to a candidate for office who has influence over state or local investment funds.

As governor, Walz chairs Minnesota’s State Board of Investment, which monitors and evaluates state investment programs. Among its duties is selecting financial firms and consultants to advise state funds.

Under a Securities and Exchange Commission rule enacted in 2010 known as “pay-to-play,” advisory firms are prohibited for two years from working with public funds, such as pensions or university endowments, if their advisers, certain covered employees or their PACs make contributions larger than $350 to someone on the ballot who exerts some control over those funds.

In addition, a financial-firm employee could trigger the rule by soliciting money on behalf of a campaign by hosting a fundraiser.

The SEC rule is designed to prevent financial advisers from currying favor through campaign donations with public officials who can hire them.

The Municipal Securities Rulemaking Board, the Commodity Futures Trading Commission and the Financial Industry Regulatory Authority Inc. enforce similar rules for financial professionals they oversee.

The regulations usually come into play in gubernatorial, mayoral, city or county council campaigns or when incumbents from those levels of government seek federal offices. With Walz running for vice president, an investment company risks being shut out of bidding on Minnesota investment business for two years.

Financial firms are alerting employees about the contribution restrictions, said Ki Hong, a partner at Skadden Arps Slate Meagher & Flom.

“Most do not want to trigger this prospective two-year ban,” Hong said. “You don’t want to forego possible business down the road.”

The SEC rule affects investment advisers registered with the agency. Large financial firms often have affiliated registered investment adviser businesses, which would put them under the SEC regulation.

“It could make a significant impact” on Harris-Walz fundraising, Hong said. “We’re talking a lot of Wall Street.”

This is the second time in eight years the financial sector has had to think twice about donations to presidential campaigns. It was faced with the same situation when Donald Trump chose Indiana Gov. Mike Pence as his running mate in 2016, said Robert Johnston Jr., a partner at Lowenstein Sandler.

“I remember a number of people being surprised that Trump picked Pence to be his VP…because pay-to-play issues would hinder the Trump campaign’s ability to raise Wall Street money directly,” Johnston wrote in an email. “Trump won the 2016 election nonetheless.”

There are ways around the two-year ban for politically motivated financial professionals.

They could have donated to Vice President Harris prior to Harris’ vice-presidential choice when they noticed VP buzz surrounding two sitting governors — Walz and Pennsylvania Gov. Josh Shapiro.

If they want to donate now, they can seek an exemption from the rule from the SEC, which the agency rarely has granted.

Alternatively, they can decide that doing business in Minnesota for the next two years isn’t a priority and contribute.

Or they help fund PACs that aren’t tied to Harris-Walz.

“The SEC pay-to-play rule will limit the ability of covered associates to give large donations directly to the Harris-Walz campaign,” Johnston said. “It remains to be seen whether substantial donations from Wall Street will be instead routed to Super PACs that will make independent expenditures in furtherance of the Democratic ticket.”

The key thing for financial firms is to know whether their employees are participating financially in elections, said Sander Ressler, managing director at Essential Edge Compliance Outsourcing Services.

“I would instruct my associated persons to contact the compliance department, if they’re going to make a contribution to any legitimate candidate running for president,” Ressler said. “I would over-disclose rather than not disclose.”

The SEC imposed a $60,000 fine in April on a registered investment advisory firm, Wayzata Investment Partners, for a contribution one of its employees made in April 2022 to a candidate for office in Minnesota who sat on the state’s investment board.

The firm had previously advised the board. It was penalized because it continued to work with the board within two years of the donation. The firm did not admit nor deny the SEC’s findings.

SEC Commissioner Hester Peirce voted against the penalty. “This case is yet another illustration of the overbreadth of the pay-to-play rule and another reminder of the way the rule hampers legitimate political participation,” she said in her dissent.