For those unfamiliar with this situation, here’s a quick backgrounder: In April 2011, Baker joined Cambridge, Mass.-based venture capital firm General Catalyst as an “executive-in-residence” (XIR). One month later, he made a $10,000 donation to The New Jersey Republican State Committee, apparently in reciprocal gratitude for help that New Jersey Gov. Chris Christie gave Baker during a failed 2010 gubernatorial run. Four months later, General Catalyst began soliciting capital for a new fund from New Jersey’s state pension system. The pension’s investment staff recommended a $20 million commitment that December, with General Catalyst ultimately agreeing to accept $15 million (the fund was oversubscribed, so not all investors could get their desired allocations).

And then nobody paid any attention until late last week, when Pando published a piece suggesting that the aforementioned timeline violated both state and federal “pay-to-play” rules. Baker’s campaign and General Catalyst both have defended their actions as perfectly legal, largely arguing that “executives-in-residence” like Baker are not subject to pay-to-play restrictions because Baker was not an actual General Catalyst employee, let alone someone with decision-making power.

There is a lot to unpack here:

Did Charlie Baker or General Catalyst violate SEC “pay-to-play” rules?

No, even though his likely Democratic challenger has asked the Commission to launch an investigation. The key question here is if Baker was a so-called “covered associate,” which for a venture capital firm would basically be anyone who votes on investments, or any employee directly involved in fundraising. Baker was neither. General Catalyst does refer to each of its XIR’s as “partners,” but that is a term of art distinct from the “general partners” who actually decide which investments the firm will, and won’t, make.

Did General Catalyst violate New Jersey “pay-to-play” rules?

I believe there is a strong case that it did. New Jersey has much stricter rules than does the SEC, and covered persons include anyone “associated with an investment management firm who is primarily engaged in the provision of investment management services.” Among the definitions of such services is “the provision of financial advisory or consultant services.”

During yesterday’s interview, I asked Baker what his role was at General Catalyst. He said: “As an XIR we have two roles. One is to work with the firm to seek out and find interesting companies although, in the end, the decisions aren’t made by us. The other role is to help and work with certain companies in which the firm does invest as a domain expert.”

To me, that sounds as if he was providing consultant services (i.e., what is explicitly prohibited by New Jersey law). Which is exactly what I told Baker, who quickly replied: “No,” but then proceeded to basically say the exact same thing again.

He tells me that he was briefed on firm policies upon joining, but that he “can’t remember” if political donations were among the topics of discussion.

What’s important to understand here, however, is that the violation of New Jersey’s “pay-to-play” rules is on General Catalyst, not on Charlie Baker. It was the firm that was required to provide a list of all covered persons in its application for investment — and whether or not they made any applicable donations — and apparently neglected to include Baker. I say “apparently” because my request for that particular document remains in open records limbo, although both General Catalyst and the New Jersey Treasury say publicly that he was not included.

It also is worth noting that New Jersey Investment Council staff does not actually run listed names through the state’s database of political contributions. Moreover, it does not check alternate sources — such as firm websites — to see if the firm may have inappropriately excluded certain individuals.

A source familiar with the situation blames a lack of resources, particularly when it comes to larger investment managers. “Certain firms have thousands of employees,” the source said. “And staff doesn’t have any special access to the database. They’d have to enter in each name one-by-one, and there just aren’t the resources to do that. That’s why the regulations put the onus on the firms to disclose, and place penalties on the firms if they fail to do so… In some cases a firm would find an undisclosed donation after the commitment was made, at which point the person had to get his donation back within 90 days so that the contract wasn’t voided. But, even then, it was the firm finding the donation, not investment staff.”

Did Charlie Baker violate New Jersey “pay-to-play” rules?

Where this could fall a  bit on Baker is if he was indeed an employee of General Catalyst (and thus part of the offending firm). It is not at all unusual for an XIR-type position to be unsalaried, particularly if the individual is independently wealthy, which basically is what Baker and General Catalyst say is the case here. Baker adds that he was not paid a stipend or other cash compensation by the two General Catalyst portfolio companies on whose boards he sat. Instead, he received equity via a limited liability company set up for that purpose.

Again, I tend to believe that Baker was not a legal employee of General Catalyst (in part due to a conversation with an unaffiliated person with deep knowledge of these agreements). But, to prove it, I asked Baker’s campaign and General Catalyst on Monday to provide a copy of his contract. The campaign didn’t directly respond, but General Catalyst declined – referring to the contract as “confidential” and “trade secret” (note: Venture capital firms tend to believe absolutely everything they do is “trade secret” even when it’s industry standard).

I asked Baker directly if he would call on General Catalyst to allow reporters to see the contract, and he said he would not. “I have not asked them to do so and I’m not planing to,” he said. “It’s a competitive matter.”

This is an instance of Baker the businessman getting in the way of Baker the politician. Given that General Catalyst already refused to release the contract, all Baker had to do was play coy and publicly ask them to reverse course (knowing full well it wouldn’t happen). The headline would have been: “Baker says he has nothing to hide, requests document disclosure.” But instead he remained stubbornly loyal to his former colleagues, and in the process looks like he’s trying to hide something.

What happens now?

If New Jersey determines that General Catalyst did indeed violate state pay-to-play rules, it has the option to void its $15 million commitment and insist that the entire principal be repaid. But such a move may not be financially prudent, given that the fund has several companies that already have raised substantial “up-rounds” (i.e., new funding at a higher valuation), including Circle Financial, Oscar Insurance, Snapchat and Warby Parker. So a more likely option would be that New Jersey try selling the position on the so-called secondary market, where there are plenty of investors who would be willing to pay a premium to the $15 million (although General Catalyst would have to permit the transfer).

From my understanding, a secondary sale is exactly what certain investment staffers would like to see happen. They feel burned by General Catalyst, and a lack of resources that put them in position to rely on General Catalyst in the first place. They’d just as soon be rid of the PR headache, although there’s no word on if such a process is underway.

What’s interesting, of course, is that cutting bait with General Catalyst is just what Charlie Baker also should be doing. It was General Catalyst that was most responsible for knowing the New Jersey pay-to-play rules. It was General Catalyst that was responsible for asking Baker if he had made a donation. It was General Catalyst that submitted the incomplete information to New Jersey. It was General Catalyst that, in its own words, made the decisions.

But instead Baker is acting out of a misguided sense of loyalty to those who cower behind the guise of “trade secret.” In the end, he’s only hurting himself. General Catalyst will be just fine.

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