Washington (CNN)The 2016 money race is well underway, but one group of presidential hopefuls is at a distinct disadvantage as they try to lure donors: Sitting governors.
2016ers could face a bumpy road to Wall Street cash
These state executives -- including Chris Christie of New Jersey, Mike Pence of Indiana, Scott Walker of Wisconsin, Bobby Jindal of Louisiana and John Kasich of Ohio -- are grappling with an arcane rule that is intended to combat pay-to-play corruption, but could have broader implications.
The rule -- approved in 2010 by the Securities and Exchange Commission -- bans financial firms that do business with state and local governments from receiving state contracts for two years if employees donate more than a few hundred dollars to governors and other public officials.
The measure could create two tiers of potential presidential candidates: Those who aren't current governors, such as Jeb Bush and Sens. Marco Rubio and Ted Cruz, won't have to worry about the regulation, while it could be a major issue for those running from the governors mansion.
Big money is at stake. Wall Street poured nearly $80 million into the 2012 race -- some of which could be off limits for governors vying for the White House now.
"It's a significant amount of money that could potentially be out of reach for these 2016 candidates that are governors simply because of this SEC rule," said David Mitrani, an attorney and campaign finance law expert. "It's absolutely not a level playing field."
There are also big consequences for financial companies themselves. The rule imposes a significant fine and a two-year "timeout period" on companies that are found to be in violation. In many cases, these contracts can be worth millions of dollars over time and serve as the lifeblood for smaller Wall Street firms.
"It's a very, very, very scary rule," said Joe Birkenstock, a political law attorney who has written extensively about the pay-to-play rule.
The restrictions are on the radar of governors, who must carefully plan their fundraising strategy with the rule in mind.
"If we decide to become a candidate, we'll do what we need to do to follow the laws and raise whatever resources we can to get the message out," Jindal told CNN. "Obviously you do need resources to get your message out. I don't think the candidate who raises the most amount of money will necessarily be the candidate who wins."
The rules could have especially significant implications for Christie, the New Jersey governor. Given his proximity to New York, he has relied heavily on the financial sector for support. Advisers close to Christie told CNN he is well aware of the rules and works within them.
"People who are supportive of Gov. Christie have just learned to live with it," said Bill Palatucci, a close adviser to both of Christie's campaigns for governor who now provides guidance to Leadership Matters For America. "That's just a fact of life and he's done pretty well despite the fact that it's there."
(Palatucci spoke to CNN before the PAC was formed.)
The Federal Election Commission is responsible for regulating the flow of money in politics, but campaign finance activists are increasingly looking to the SEC as another way to curtail political spending. Advocates have praised the SEC's pay-to-play rule for policing corruption, and have called on the agency to go further by mandating that corporations disclose all political giving publicly to their investors.
"The pay to play regulations are a useful safeguard against corruption and improper conflicts of interest," Adam Smith, a spokesman for the advocacy group Every Voice, said in a statement. "With so many changes in campaign finance law in the past few years, it would make sense for the SEC to look into whether it needs to update these rules."
Unlike FEC regulations, however, the responsibility to follow the SEC rule rests with the donors, not the campaigns, forcing each company to police their own employees to avoid being penalized.
While the rule seems simple enough, there are big compliance questions, especially when considering the many new fundraising vessels that can now support politicians.
In the wake of federal and Supreme Court cases -- most notably 2010's Citizens United decision that allowed unlimited corporate and union spending on campaign speech -- today's White House hopefuls enjoy a variety of novel fundraising options that extend beyond their own official campaigns.
Instead of being limited to giving directly to the candidates, donors can aid their chosen contenders indirectly through a patchwork of networks, including political action committees, "527" organizations, nonprofit advocacy groups and super-PACs that have the freedom to spend unlimited amounts of money to influence elections.
In the 2012 elections, super-PACs spent more than $600 million on political action, according to campaign finance records. The groups are legally barred from coordinating directly with campaigns, but they are often led by former advisers of the candidates they promote and undoubtedly provide support for their campaigns.
Because of the sheer number of sitting governors who may run for president in the next election cycle, super-PACs could play an even more outsized role in 2016 than 2012 by serving as a convenient way for Wall Street donors to support candidates they otherwise are not allowed to because of the SEC rule.
"It could strengthen the hands of the outside groups if this becomes a viable vehicle for Wall Street to participate in the elections," said Ken Gross, a former associate general counsel at the Federal Election Commission who advises campaigns on campaign finance law.
Some potential 2016 contenders are already working with organizations that can raise funds before their official campaigns begin.
Christie is the "honorary chairman" of "Leadership Matters for America," a political action committee that is "not authorized by any candidate or candidate's committee." Last year, a PAC affiliated with Jindal called "Stand up to Washington" was launched to help support congressional candidates alongside a Jindal-backed nonprofit called "America Next." Walker in January announced the formation of a group, "Our American Revival," that can promote issues and raise unlimited funds.
Should they decide to formally launch presidential bids, groups like these -- as well as unaffiliated super-PACs -- will no doubt be part of their arsenal. It's possible these groups can act as a workaround to the rule, though that's uncertain and potentially risky.
The SEC hasn't offered much clarity.
"A contribution to a political party, PAC or other committee or organization would not trigger a two-year time out," reads an SEC explainer published online in 2012, "unless it is a means to do indirectly what the rule prohibits if done directly (for example, the contribution is earmarked or known to be provided for the benefit of a particular political official)."
An SEC spokesperson declined to comment on whether donating groups tied to a governor would count as a violation.
The question, then, is whether a donation to one of these groups amounts to a contribution toward the sitting governor's electoral efforts in the eyes of the SEC. For many institutions that invest a massive financial stake in their state contracts, the consequences of violating the rule is not worth the risk of finding out after the fact.
Given the murkiness of the rule's enforcement, some firms are cautious.
The Blackstone Group, a private equity firm that helps manage the New Jersey state pension fund, has a blanket prohibition against donating to state politicians there.
"We require that all contributions be cleared and prohibit any to PACs that fund, are controlled by, or primarily benefit state and local candidates or office holders," Blackstone spokeswoman Christine Anderson told CNN.
Mitrani, the attorney and campaign finance expert, said such restraint is wise.
"A lot of companies live and breathe based on these government management services. There's so much money involved," he said. "The consequence of losing this business for even a three-figure contribution is not worth the risk for a lot of companies."