Scam PACs and COVID-19: Defending against allegations and prosecutions (Part 4)

June 12, 2020

Hands Raised-Greyscale

By Andrea L. Moseley
The time to raise our hands and cast a vote in the general election is just a few short months away.  I am watching eagerly to see how DoJ proceeds with campaign election crime investigations and prosecutions arising from this election cycle.  I have been writing a series of blogs devoted to analyzing the defense and prosecution of so-called “Scam” PACs.  I am focused on this topic now because we are in a presidential election year and DoJ has announced its intensifying interest in prosecuting political action committees it deems fraudulent.

I clearly understate matters when I say this election year has proven to be one of the most unique times in our political culture, at least in my lifetime.  The pandemic, protests and presidential politics are anything but drab.  From the perspective of a white-collar criminal defense attorney, I have been analyzing daily stories about voter identification laws, gerrymandering and suspiciously long lines to cast a vote for some, notably minority districts, in Georgia this week.  I wonder how U.S. citizens will maintain faith in the electoral system in the face of voter suppression issues coupled with foreign interference in our elections.  Just today, Twitter removed a vast network of accounts that it says were linked to the Chinese government and pushed deceptive, anti-democratic narratives favorable to the country’s communist rulers.

While the activities of true Scam PACs might also stoke voter doubt in the integrity of the electoral system, I have expressed some concerns about overreaching by DoJ in prosecutions of political action committees.  In my last blog, I emphasized how one of the most difficult things to do as a white-collar criminal defense attorney is defend a client against allegations in an area of the law that is vague. This is especially true when the prosecution of certain types of crime have little history or precedent.  The federal prosecution of Scam PACs is a relatively new trend.  In Part 3, I shared details about four of the first successful prosecutions and sentencings of individuals accused of running Scam PACs.  Using these four cases as background, I will share why I have come away with concerns about overreaching.

In discussing Scam PACs, I divided these types of “scams” into two categories. First, Scam PACs that raise funds with the promise to support candidates or a particular cause, but instead do not spend any money to support candidates or causes and/or use lying as a mechanism to get you to part with your money (“category one”). This type of  Scam PAC is easy to spot because it is just a typical theft by false pretenses.

I am focused on whether DoJ is in the process of expanding into prosecuting Scam PACs in the second category given its stated desire to prosecute more Scam PACs. This second Scam PAC category is more controversial because it involves situations where the PAC is in fact raising money for a candidate or a political party but spends little to no money on the cause. In my prior blogs, I labeled this second type of Scam PAC “Proportionality Fraud” (category two).

The cases I analyzed are detailed here.  The big take away from these prosecutions is that the facts of each of these cases included admissions to making direct misrepresentations to donors somewhere along the fundraising pathway.  These are not the type of DoJ prosecutions that peak my apprehensions.

If these cases actually prosecuted by DoJ fall into category one, then what is the concern?

Recall that Mr. Tierney, according to the original complaint, received donations in excess of $23 million dollars between 2014 and 2017. Of the $23 million that was raised from his nine PACs, $109,000 went to political candidates and $3 million went to Mr. Tierney.  That amount of donation is nominal compared to the amount that was raised.  If we stop the facts here, Mr. Tierney’s case fits into the debatable second category of Scam PACs. Many would be alarmed to see that such a small amount of money was given to a candidate out of $23 million dollars. The proportion would clearly be shocking to some people but is it criminal? I think the answer is: it depends on the eye of the beholder (the agents and the prosecutor) but it is not clearly prohibited by any federal law.

I am concerned that with DoJ’s intensifying interest in sending a message to all PACs, it will expand prosecution into the second category based on its open and frequent contempt for the proportionality of donations vs. overhead expenditures in certain PACs. However, Mr. Tierney’s conduct was not a category two case and was more like a classic fraud. DoJ indicated that he concealed his identity and used fictitious names to solicit funds from donors. According to DoJ, Mr. Tierney claimed that donations would go to autism awareness, pro-life causes and law-enforcement appreciation and that absolutely none of the money went toward those causes. Reportedly, he also used shell bank accounts to move money and came out of the whole endeavor with a net-worth of $8.5 million dollars. With the added facts, Mr. Tierney’s case is a Scam PAC fraud type one and not the subject of my apprehension.

So, what is your apprehension?

Right.  Getting there.  Remember, Harold Taub?  He was sentenced to 36 months in prison. According to DoJ, Mr. Taub raised more than $1.6 million dollars through his PACs. He was reported to have used $1 million of those funds personally. He allegedly pretended to be a former ambassador and used a high-level military officer’s name to assist in his coaxing of potential donors after being directly told not to do so.  Like Mr. Tierney, his case appears to fall into Scam PAC category one because there were direct misrepresentations.

Also, Mr. Prall and Mr. Rogers were alleged to have made direct misrepresentations to donors.  The DoJ alleged that Mr. Prall did not intend to, and did not, use the contributions for these purposes and instead transferred much of the money to himself through sham LLC accounts. According to his plea, he admitted that of the $548,428 in contributions, he transferred $205,496 to himself through sham LLCs that he created for the purpose of moving the money, while contributing less than $5,100 to political causes.

Likewise, according to DoJ, Mr. Rogers represented that donations to the PAC would be spent on assistance and support for military veterans and never did so. The government said he never intended to spend, and never actually spent, any of the money raised by his PACs on get-out-the-vote efforts or lawyers to protect the integrity of the 2013 Virginia and Attorney General elections, or on assistance and support for military veterans. Instead, they alleged that he spent nearly all of the money raised from donors to benefit himself, his associates, and his PACs, including by pouring the majority of donor money into the solicitation of more donations.  All of this is category one material.

My concern is the amount of emphasis in every one of these cases on how much each defendant personally made or spent on the overhead of the PACs themselves vs. how much went directly to a candidate or to the political cause.  My experience in defending these cases is that there is much ado made about the proportion of self-dealing vs. donating.  But the actual crime is the misrepresentation.  The focus should be on the level and volume of misrepresentations used to raise money.

The statement of facts, the publicity, the language of the pleas in the above case studies seem to focus much more on the proportionality of expenditures/self-dealing and not on what really makes these PACs “scams.” They are “scams” not because the PACs made a lot of money and gave too little to the cause, they are only scams if they used misrepresentations to get the money in the first place and/or gave zero money to the cause.  The line between these two things should not be blurred.

My overarching point is demonstrated in a quote from one Special Agent familiar with Mr. Prall’s case. The language the Special Agent used to describe the harm caused by Mr. Prall focused entirely on Mr. Prall’s “misappropriating donations” “for his own personal use,” and not on the evils of direct misrepresentations to donors in order to get them to part with their money.  There is no doubt that the public (and a potential juror) cares about how much donated money actually goes to the causes vs. in the pockets of the charity or the political action committee.  That is why there are websites, like Charity Navigator, that inform the public how much charities donate to the cause in proportion to overhead.  This does not make it a crime until Congress says so.

In each of the cases cited above, and in Part 3 of my series, there is repeated reference to how much money went to a cause vs. how much each defendant spent on himself or on investing in the PAC.  In my experience defending these cases, the small donation vs. funds raised is the primary theme.  It’s a good headline for the press, but this message misses the point about what actually makes these cases criminal.  Congress has not chosen to make clear regulations about self-dealing and spending based on get out the vote efforts, mass mailings, etc. despite the pleas from the FEC to address this gap in legislation.  Therefore, in my view prosecutions of category two so-called “Scam” PACs in this area are premature.



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