CREW: DOJ: Amicus Brief In Support of Sen. John Edward's Motion to Dismiss Indictment: 9/21/2011 - Exhibits to Amicus Brief (ECF)

8/4/2019 CREW: DOJ: Amicus Brief In Support of Sen. John Edward's Motion to Dismiss Indictment: 9/21/2011 - Exhibits to A

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Case 1:11-cr-00161-UA Document 51-2 Filed 09/21/11 Pa e 1 of 49

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FEDERAL ElECTION COMMISSIONWASHINGTON, D.C. 2o-1b)

MEMORANDUMTO:

FROM:DATE:

The CommissionersStaff DirectorDeputy Staff DirectorGeneral CounselOffice of the Commission S e c r e t a , ~ April 17, 2002

SUBJECT: Statement Of Reasons fo r MUR 5141

Attached is a copy of the Statement Of Reasons fo r MUR 5141signed by Chairman David M. Mason, Vice Chairman Karl J.Sandstrom, Commissioner Danny L. McDonald, Commissioner Bradley A.Smith, Commissioner Scott E. Thomas, and Commissioner Darryl R.Wold.

This was received In the Commission Secretary's Office onTuesday. Aprli16, 2002 at 4:11 p.m.

cc: Vincent J. Convery, Jr . .OGC Docket (5)Information DivisionPress OfficePublic Disclosure

.Attachment


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FEDERAL ELECTION COMMISSIONWASHINGTON, D.C. 20463

BEFORE THE FEDERAL ELECTION COMMISSIONIn the Matter ofThe Honorable James P. Moran, Jr . )Moran for Congress and H. Robert Morrison, as treasurer )Terry L. Lierman ) MUR5141Sebering-Piougb Corporation )Sebering-Piougb Corporation Better Government Fund and )E. Kevin Moore, as treasurer )

STATEMENT OF REASONSBackground

This matter was generated by a complaint filed on November 8, 2000 by Ke!Uleth Boehm,Chairman of the National Legal and Policy Center, alleging that on June 25, 1999, Terry Liermanmade an excessive contribution to Moran for Congress in the form of a $25,000 loan, which thecommittee allegedly failed to report. On July 17, 2001, the Commission rejected the Office of-the General Counsel's recommendation that this matter be dismissed simply because of its lowersignificance relative to other pending matters. Instead, by a vote of 6-0, the Commissiondetermined to find no reason to believe that the Honorable James P. Moran, Jr., Moran forCongress and H. Robert Morrison, as treasurer (the "Committee"}, Terry L. Lierman, ScheringPlough Corporation, and the Schering-Plough Corporation Better Government Fund and E.Kevin Moore, as treasurer, violated any provision of the Federal Election Campaign Act of 1971,as amended ("the Act"), in this matter, and closed the file with respect to all respondents. ThisStatement ofReasons explains the basis for the Commission's determination.'

Standard for Summary DismissalAny person who believes a violation of the Act has occurred may file a complaint withthe Commission. 2 U.S.C. 437g(a)(1). The Act anticipates that the Commission may.. - ~ .

1This Statement docs not address allegatioas raised by the complainant to the extent that they raise issues that areoutside of the Conunission'sjurisdiction such as House ethics or financial disclosure matters. See 2 U.S.C. 437c(b); 437g(a)(l). Furthermore, is there were no indications that Mr. Uerman was reimbursed by his employeror its PAC, Scbering-Plough Corporation and Schering-Plough Corporation Better Government Fund and E. KevinMoore, u treasurer, need not have been named as respondenl5. 2 U.S.C. 437g(a)( I) (providing for notification ofcomplaints to any person alleged to have committed a violation of he Act or of Chapter 95 or Chapter 96 of Tide 26of be United States Code) .


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MUR5141Statement ofReasonsPage 2

summarily dismiss a complaint. /d. The Commission has the power to investigate allegedviolations of the Act only where there is reason to believe that a violation has been, or is about tobe, committed. 2 U.S.C. 437g(a)(2). This Commission finding requires an affirmative vote offour of its members and is proper only if a complaint sets forth sufficient specific facts, which, ifproven true, would constitute a violation of the Act. See II C.F R. 111.4(d){3) (complaintshould recite "facts which describe a violation of a statute or regulation over which theCommission has jurisdiction'') . A complainant's unwarranted legal conclusions from assertedfacts, will not be accepted as true. See Commissioners Wold, McDonald, Mason; Sandstrom,Thomas Statement ofReasons in MUR 4869 {American Postal Workers Union), Unless basedon a complainant's personal knowledge, a source of information reasonably giving rise to a beliefin the truth of the allegations must be identified. See 11 C.F.R. 111.4(d)(2); General Counsel'sReport dated April!!, 2000 at 17 in MUR 4545 (Clinton/Gore '96 Primary Committee/Amtrak),Commissioners Thomas, Elliott, Potter, McDonald, Aikens, and McGarry Statement ofReasonsdated Oct. 7, 1993 inMUR 3534 (Bibleway Church of Atlas Road).

Complaint and ResponsesThe complainant in this matter alleges that in June 1999 Terry Lierman made a "large,

unsecured personal loan" to Rep. James Moran, then a candidate for the U.S. House ofRepresentatives. The complainant further alleges the loan constituted an excessive contributionto Rep. Moran's campaign under the Act. The complainant reasons that Rep. Moran was acandidate at the time of the loan and candidates are prohibited from taking personal loans inexcess of the Act's limitations on contributions because such loans are treated as contributionsunder the Act The complainant also alleges that the Committee should have reported the receiptof this loan to the Commission.

The responses received by the Commission confirm the complainant 's assertion that"none of the essential facts supporting this complaint are in dispute," but take issue with the legalconclusions drawn by the complainant. As to the factual background regarding the transaction,the responses explain that Terry Lierman has known Rep. Moran for over twenty-five years. InMarch 1999, Rep. "Moran filed his S t a t e m ~ n t of Candidacy as an incumbent for the U.S. Housefor Virginia's Eighth Congressional District. On or about June 25, 1999, Mr. Lierman provided acheck to Rep. Moran as a loan to help pay legal expenses. The check immediately was endorsedas payable to the order ofRep. Moran's counsel as payment for legal services in a domestic relations matter. The loan was apparently the subject of a promissorY note carrying an 8% annualinterest rate and an option for a loan of-additional funds on the same terms. According to newsreports, in November 2000 the balance of the loan was repaid plus 12.8% interest.2

Terry Lierman's response to the complaint argues that the loan was not a contributionunder the Act, citing section 431(8)(A)(i)'s definition of"contribution." This definition provides'Moran's Loan Yields Filing, Richmond Times Dispatch, Nov. 2, 2000 at B4.


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MUR5141Statement ofReasonsPage3

that a contribution includes loans "made for the purpose of influencing an election." Mr.Liemian s response asserts that this loan was made for no such purpose, as evidenced by the factthat upon receipt, the check for the loan was endorsed to Rep. Moran's divorce counsel's lawfirm as payment for legal services, the loan was made well before the election, the campaign wasnot in need of funds, and the campaign was not funded by the candidate 's personal funds. In addition, citing II C.F.R. 113.1(g)(6), the response argues that payment by a third party for thepersonal expenses of a candidate is not a contribution to that candidate if the payment wouldhave been made irrespective of the candidacy. The response asserts that the loan was madeirrespective of Rep. Moran's candidacy and there was no evidence cited by the complainant thatthe loan was used to benefit the campaign. Because there was no connection between the loanand the campaign, the response concludes that there was no violation of the Act or Commissionregulations.

AnalysisThe Act and Commission regulations contain certain provisions specifying howcandidates and their authorized committees should treat loans received in connection with thecampaign. Section 432(e)(2) provides that

[a]ny candidate .. . who receives a contribution, or any loan for use inconnection with the campaign of such candidate for election, or makes adisbursement in connection with such campaign, shall be considered, forthe purposes of this Act, as having received the contribution or loan, or ashaving made the disbursement, as the case may be, as an agent of theauthorized committee or committees of such candidate.

See also 11 C.F.R. 101.2 and 102.7(d). The Conunission's threshold determination undersection 432(e)(2), then, is whether this loan was for use in connection with the campaign. TheCommission finds that it was not.The facts establish that although this loan was made directly to a candidate, it was notmade for use in connection with the candidate's campaign and is therefore not a contributionunder the Act. The basis for this determination is the context of the transaction's surroundingfactual circwnstances. Not only does the complainant fail to allege any facts that the loan wasfor use in connection with th.e campaign,3 but also the source of the personal loan, the candidate'sfriend for more than 25 years, asserts. that it was made for no sucb.P.WPQ!l, Additionally, theevidence before the Commission demonstrates that the loan was made well before the next

3 The complainant cites a newspaper article quoting Rep. Moran's response wheri ~ u e s t i o n e d by a reporter abouthow the loan came about Jo Beclu::r, Moran Got Loan from Drvg Lobbyist, Wash. Post, Oct. 31,2000 at AI("Moran aaid be couldn't recall i fbe bad 'directly called Terry. It may have been through . . . my campaignmanager."' ). This involvement of a campaign st aff member in this manner would not transform the candidate'spersonal activity into campaign activity.


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MURS141Statement of ReasonsPage4

election, the instrument was endorsed upon receipt directly to a law firm representing thecandidate in a personal matter, the Committee received no candidate funds in the 2000 electioncycle, and by any standards the Committee was well-funded at all times before and after thetransaction at issue. Thus, this loan was not made for use in connection with Rep. Moran'scampaign, and therefore was not in violation of the Act.

This determination is consistent with prior Commission treatment of third party paymentsfor a candidate's personal expenses. See Advisory Opinions 1982-64; 1978-40; 1976-70;Response to Advisory Opinion Request 1976-84. The Commission has considered severalfactors in supporting its conclusions when addressing the status of hird party payments: whetherreceipt of funds for living expenses would free-up other funds of the candidate for campaignpurposes; whether the candidate would have more time to spend on the campaign instead ofpursuing his or her usual employment, and whether the funds would not have been donated butfor the candidacy. There was no indication here that the loan freed-up other funds for campaignpurposes. As noted above, the Committee did not receive candidate funds in the 2000 electioncycle. In addition, the loan had no bearing on the time the candidate had available to campaignand the analysis of whether the loan would have been made but for the candidacy parallels thebasis for the determinat ion above that the loan was not for use in connection with the campaign.

Further, although Section 113.!(g)(6) of the Commission's regulations treats some thirdparty payments as contributions, it provides that payments made irrespective of he candidacy arenot to be so treated. The responses and information publicly available to the Commissionestablish that Mr. Lierman would have made this loan irrespective of Rep. Moran's candidacy.

It follows that because the loan was not made for use in connection with Rep. Moran'scampaign, the Committee had no reporting obligation under the Act with respect to this loan.While the Act requires that a candidate's authorized committee report loans governed by section432(e)(2), 2 U.S.C. 434(b)(2) and (3)(E), these reporting requirements are triggered by acandidate acting as an agent of his authorized committee and receiving a loan for use inconnection with his campaign. Because the Commission above concludes that this was not aloan for use in connection with the campaign, the reporting obligations under sections 434(b)(2)and (3)(E) do not apply and there is no reason to believe the Committee violated these sections ofthe law with respect to the loan.

4 The complainant cites Advisory Opinion 1978-40 for the proposition that the Commission treats all loans toc a n ~ d a t e s to cover personal expenses during a campaign as contributions under the Act, but this is too broad areading. In that advisory opinion and in others holding that third party payments for a candidate's personal livingexpenses were contributions, see Advisory Opinions 1982-64, 1976-70 and the Conunission's Response to AdvisoryOpinion Request 1976-84, the loans or payments were either prompted by the candidacy or benefitted the candidacy.


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MtJR5141Statement ofReasonsPage 5

ConclusionUnder the Act, Terry Lierman's $25,000 loan to Rep. Jim Moran does not constitute acontribution and the Committee therefore had no reporting obligation under the relevant sections

of he Act or Commission regulations. Thus, the Commission voted to find no reason to believethat the Honorable James P. Moran, Jr., Moran for Congress and H. Robert Monison, astreasurer, Terry L. Lierman, Schering-Piough Corporation, and the Schering-Piough CorporationBetter Government Fund and E. Kevin Moore, as treasurer, violated any provision of the Act inthis matter, and closed the file as it pertains to all respondents.

March 11, 2002

9 - J 1 1 4 ~ David M. MasonChairman

/". ' 0I - i l (\) JG o . ~ ; ~ , . ' Ianny LcDonaldCommissionerScott E. ThomasCommissioner

-'Kart J)?'andstromVice Chairman

A--S;? ; '-Bradley A. Smi t hCommissioner

Commissioner


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EXHIBITB


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FEDERAL ELECTION COMMISSIONWashington, DC 20463

CERTIFIED MAILRETURN RECEIPT REQUESTEDADVISORY OPINION 1982-64Ronald R. HeinRon Hein for Congress Committee6031 SW 24th TerraceTopeka, Kansas 66614Dear Mr. Hein:

February I0, 1983

This responds to your letter dated November 28, 1982, 1 requesting an advisory opinion foryourself and for your principal campaign committee, Ron Hein for Congress (the "Committee"),regarding application of the Federal Election Campaign Act of 1971, as amended (the "Act"), tothe solicitation of funds to repay outstanding loans used for living expenses during yourcampaign and used for consolidation of pre-campaign personal debt.Your request sets forth the following facts:You participated as a candidate in the 1978 Republican congressional primary election held onAugust I, 1978. You lost that election. In order to pay for your living expenses during theprimary campaign period, and to consolidate pre-existing personal debts, you obtained in March1978 a $4,607 bank loan secured by your own assets and later by a second mortgage on yourhouse. In May 1978, during your campaign, you obtained a $9,607 loan which incorporated theMarch loan. Between May and November !978 the loan was increased to $13,220. Presently theoutstanding loan principal is $15,000. You state that all of your payments on the loan have beenfor interest, and none have been applied to principal. Most of the increases in the amount of theloan after November 1978 (from $13,220 to $15,000) have been to cover accrued interest thatyou were unable to pay.The proceeds of this loan, you state, were used for your living expenses during the campaignexcept for an unspecified portion of the initial loan ($4,607) that was to consolidate personaldebts incurred before your campaign began. You explain that the loan was treated by you and the1 Your signed letter requesting an advisory opinion was received at the Commission onDecember 22, 1982.


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Committee as personal funds in that the loan proceeds were never commingled between yourpersonal account and the accounts of the Committee, and you intended to repay the loan withpersonal funds. Finally, you note that your only personal contributions to the Committee were$25 in cash and in kind contributions of office equipment.You now propose to accept donations from family or friends for the purpose of liquidating theloan. You ask specifically whether you need to report the loan proceeds or any expendituresmade therefrom. Assuming the debt may be treated as personal, you also ask whethercontributions to retire it may be solicited from family or friends.

Your questions raise the following two issues:I) Would the limits and prohibitions of the Act apply to funds that you or theCommittee solicit and receive to repay a bank loan that was used for your personalliving expenses during your 1978 campaign for Federal office?2) To what extent, if at all, would previous reports filed by the Committee have to beamended?

The Commission concludes that to the extent the outstanding loan balance ($15,000) representsdebt incurred with respect to your candidate status, and unpaid interest on such debt, it may beassigned to the Committee. It may then be retired with contributions that are solicited, received,and reported in accordance with the limits, prohibitions, and disclosure requirements of the Actand Commission regulations. The outstanding loan balance as assigned should be disclosed onthe next report required to be filed by the Committee. The name of the bank from which youobtained the loan should be listed along with other specified information concerning thetransaction(s). II CFR 104.3(a)(4)(iv), 104.3(d).The foregoing conclusion with respect to application of the Act's limits and prohibitions is basedupon the Commission's determination that your current proposal to raise funds from others toretire the loan effects a change in the nature of the loan from "personal funds" to campaignfunds2 If you were to pursue your original plan to repay the loan with "personal funds," then thefact that you obtained the loan to defray personal expenses during your campaign would not haveany consequences under the Act. Commission regulations provide that living expenses paid by acandidate from "personal funds" are not expenditures for purposes of the Act. II CFR!00.8(b)(22), ~ I I CFR 100.7(b)(8). With respect to those funds which a candidate receives inconnection with candidacy, and during the course of the campaign, the term "personal funds" islimited to salary and other earned income from bona fide employment, investment income,certain trust income and, of particular relevance here, "gifts of a personal nature which had beencustomarily received prior to candidacy .. ". II CFR IIO.IO(b)(2). You have not presented anyfacts that would establish a basis for concluding that the donations you now wish to solicit from

'That portion of the $15,000 loan balance (including interest thereon) that represents yourconsolidation in March 1978 of personal debts (not related to your candidacy) need not beassigned to the Committee and may retain its character as personal funds not subject to the Act.


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family and friends would be gifts of a personal nature customarily received before candidacy, orthat they would otherwise be "personal funds" under the cited regulations.There are additional reasons why the Commission is unable to agree with your contention thatthe funds you propose to solicit at this time should be treated as personal funds. In severalprevious opinions the Commission has considered whether funds donated or paid to a candidateduring a campaign that are designated specifically for the candidate's personal (and family)living expenses would be subject to the limits and prohibitions of the Act and Commissionregulations. The Commission concluded that such funds would be so limited. Advisory Opinions1978-40, 1976-70, and the Commission's response to Advisory Opinion Request 1976-84, copiesenclosed. In these opinions the Commission articulated several factors in support of itsconclusion that the funds were contributions under the Act: receipt of funds for living expenseswould free-up other funds of the candidate for campaign purposes, the candidate would havemore time to spend on the campaign instead of pursuing his or her usual employment, and thefunds would not have been donated but for the candidacy. Two of those factors appear to havebeen present in your case at the time you obtained the loan. You left your employment to havemore time to campaign and you obtained the Joan(s) because of your campaign activity. Yourusual compensation was substantially reduced when you left your Jaw firm to devote more timeto your campaign; hence you took the Joan to make up for that lost income.The fact that you obtained a loan to defray living expenses during your campaign, rather thangifts, as was the situation in the opinions cited above, is immaterial. It is also immaterial that youpropose to solicit funds to repay the Joan long after the conclusion of your 1978 campaign. Fundsraised to retire a campaign related debt resulting from a bank loan are just as much contributionsas are funds raised to pay campaign expenses during the course of the campaign. 3 In addition,contributions designated to retire debts from past elections are subject to the applicable limitsfrom that election. 11 CFR 110.1 (g).With respect to the question of whether previous reports filed by the Committee requireamendments in view of the Committee's assumption of the outstanding Joan obligation, theCommission concludes that amendments are only required to the extent that contributions toretire this debt may have been received during a past reporting period. For example, if suchcontributions were received in the first six months of 1982, the mid year report due on July 31,1982, would have to be amended to reflect those contributions, as well as the inclusion of theoutstanding loan in question.The Committee's assumption of the outstanding loan does not involve retroactively changing themanner in which a previous transaction of a political committee was reported. Nor does it giveyou status as a creditor of the Committee. In addition, the loan assumption would occur while theCommittee has continuing reporting obligations with respect to the 1978 primary election, ratherthan after the termination of the 1978 campaign committee. These facts distinguish this opinion

' In this connection the Commission has repeatedly held that the Act permits campaigncontributions to be spent for the living expenses of a candidate during the course of a campaign.See Advisory Opinion 1980-49 and opinions cited therein.


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from the situation presented in Advisory Opinion 1977-58. Also, see Advisory Opinion 1977-43and compare Advisory Opinion 1979-5, copies enclosed.Accordingly, given your statement that your original intent was to repay the subject loan withyour personal funds and that only recently have you decided to solicit funds from others, theCommission concludes that the assignment of the loan to the Committee would not involve animpermissible retroactive change in the characterization of a campaign related financialtransaction. However, as discussed above, the assignment of this loan results in the creation of anew Committee obligation that must be reported and liquidated in accordance with the Act andCommission regulations.This response constitutes an advisory opinion concerning application of the Act, or regulationsprescribed by the Commission, to the specific transaction or activity set forth by your request.See 2 U.S. C. 437f.

Sincerely yours,(signed)Danny L. McDonaldChairman for the Federal Election Commission

Enclosures (AOs 1980-49, 1979-5, 1978-40, 1977-43, Re: AOR 1976-84 and 1976-70)


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AO 1978-40Mr. Thomas E. Jagger, TreasurerRay Kogovsek for Congress127 First National Bank BuildingPueblo, Colorado 81003Dear Mr. Jagger:

September I, 1978

This responds to your letter of June 21, 1978, requesting an advisory opinion concerningapplication of the Federal Election Campaign Act of 1971, as amended ("the Act") andapplicable regulations regarding loans received by a candidate for personal and family livingexpenses during the period when he was evaluating his candidacy.Your letter states that on June I, 1977, Ray Kogovsek's position as a paralegal wasabolished and that he needed funds for his personal and family living expenses while evaluatinghis candidacy. During the month of June 1977, before his decision to seek nomination or electionto the United States House of Representatives, Mr. Kogovsek borrowed a total of$3,900 fromten individuals. A note was executed for each loan. The proceeds were placed in a separatechecking account. All withdrawals from the account were made for personal and family living

expenses. Mr. Kogovsek announced his candidacy and filed FEC Form 2, statement ofcandidacy, after he borrowed the money.Specifically, you ask if these loans are contributions under the Act. If so, you ask howthe loans and expenditures from the loan proceeds for personal living expenses are to bereported, and by whom? Finally you ask what "procedures" and "specific forms" the candidatemust file to be in compliance with the Act.The Commission concludes that these loans are contributions for purposes of the Act.Therefore the loans must be disclosed in reports filed by the Ray Kogovsek For CongressCommittee, and the amount contributed (loaned) by any individual with respect to any electionmust not exceed $1,000. 1 2 U.S.C. 434(b), 44la(a)(l).Candidate status may arise before candidacy is publicly declared or before an FEC Form2 is filed. 2 U.S.C. 431 (b) defines "candidate", in part, as an individual who seeks nomination for

1 A loan from an individual is a contribution as long as it is outstanding and unpaid by the candidate or committee towhom the loan was made. 11 CFR 100.4(a)(l)(i). As it is repaid, the individual lender is no longer charged with acontribution for limit purposes under 2 U.S.C. 44la .


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election, or election, to Federal office . . . and . . . an individual shall be deemed to seeknomination for election, or election, if he has-

(I ) taken the action necessary under the law of a State to qualify himself fornomination for election, or election to Federal office; or(2) received contributions or made expenditures .. with a view of bringing abouthis nomination for election, or election to such office.A "contribution" is defined in part, as a "gift, subscription, loan, advance, or deposit ofmoney or anything of value made for the purpose of influencing the nomination, for election, or

election, of any person to Federal office." 2 U.S.C. 431(e)(l). A limited exception to thatdefinition is recognized in Commission regulation !00.4(b)(l) where it is stated that the termcontribution does not include payments made for the purpose of determining whether anindividual should become a candidate, if the individual does not otherwise become a candidate.If, however, the individual subsequently becomes a candidate, the payments are contributionsand must be reported with the first appropriate report filed regardless of the date the paymentswere made. II CFR 100.7(b)(2) is a similar exception for expenditures.

In this instance you state that, during June 1977, Mr. Kogovsek was evaluating hiscandidacy. Reports filed by the Ray Kogovsek for Congress Committee, show contributionsreceived in Apri11977 and both contributions and expenditures in June 1977. Although thesemay have been payments made for the purpose of determining whether he should become acandidate; the fact that he did become a candidate has the effect of making these paymentscontributions and expenditures for purposes of the Act as of the date the transactions occurred.

As already stated, a contribution in defined, in part, as a "gift . . . loan . . . or anything ofvalue made for the purpose of influencing the nomination, for election, or election, of any personto Federal office." The Commission has previously held that funds provided to a candidate to beused solely for personal living expenses and subsistence of the candidate and his family arecontributions for purposes of the Act if the funds are not "personal funds" under Commissionregulations, II 0.1 O(b) 2

This section states that, except for Presidential candidates receiving public financing,candidates may make unlimited expenditures from personal funds. The following definition isgiven:

(b) for purposes of this section, "personal funds" means-(I ) Any assets to which at the time he or she became a candidate the

candidate had legal and rightful title, or with respect to which the candidate hadthe right of beneficial enjoyment under applicable State law, and which thecandidate had legal right of access to or control over, including funds fromimmediate family members; and2 See the Commission's response to Advisory Opinion Request 1 9 7 6 ~ 8 4 and Advisory Opinion 1976-70, copiesenclosed.


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(2) Salary and other earned income from bona fide employment; dividendsand proceeds from the sale of the candidate's stocks or other investments;bequests to the candidate; income from trusts established before candidacy;income from trusts established by bequest after candidacy of which the candidateis the beneficiary; gifts of a personal nature which had been customarily receivedprior to candidacy; proceeds from lotteries and similar legal games of chance.The thrust of II 0.10 is that a candidate is expending campaign contributions rather thanpersonal funds, unless the funds involved are assets to which he or she had legal and rightful titleor the right of beneficial enjoyment at the time he or she became a candidate, or unless the fundswere personal assets under 110.1 O(b)(2). The same rationale would apply to the proceeds ofloans received by a candidate, although used only for personal living expenses, since using thistest those loans are not personal funds, but are contributions under the Act. Accordingly, theloans must be reported giving the information specified in 2 U.S.C. 434(b)(5). See alsoI 04.2(b)(5) of Commission regulations and supplemental reporting instructions for loans tocandidates (copy enclosed).Since the $3,900 in loans constitute contributions rather than personal funds, theexpenditures for personal living expenses from the $3,900 must be reported in accord with 2U.S.C. 434(b)(9) and 104.2 of the Commission regulations. 3 Mr. Kogovsek may be identified asthe person to whom the expenditure was made and the purpose of the expenditure may bedescribed as personal and family living expenses during a stated time period. 104.2(b )(9).Your final question concerns the procedures to be followed to comply with the Act inconnection with the described loans. Since the loans fall within I 00.4(b)(1) of the regulations,which requires that contributions be reported with the first report filed by the candidate orprincipal campaign committee, the committee should file an amendment to its first report withinthe next 15 days listing both the loans, and payments made from the loan proceeds, in themanner discussed above.This response constitutes an advisory opinion concerning the application of a general rule

of law stated in the Act, or prescribed as a Commission regulation, to the specific factualsituation set forth in your request. See 2 U.S.C. 437f.

Enclosures

Sincerely yours,(signed)Joan D. AikensChairman for theFederal Election Commission

3 As contributions, the loan proceeds constitute campaign funds not personal funds. Therefore, the reportingexemption in 100.7(b)(10) of Commission regulations for payments of routine living expenses from " n o n ~ c a m p a i g n funds" would not apply in the circumstances you have presented.


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AO 1976-70Jan Baran, EsquireLegal CounselNational RepublicanCongressional Committee512 House Office Building AnnexWashington, D.C. 20515Dear Mr. Baran:

September 2, 1976

This responds to your recent letter of August 6, 1976, requesting an advisoryopinion on two questions involving the permissibility of corporate compensation to anemployee/candidate.

First, you ask whether a professional corporation may lawfully continue toprovide its employee with personal benefits such as insurance if the individual is acandidate under 2 U.S.C. 431 and on leave from the firm.

Secondly, you ask whether the corporation may pay its employee/candidate asalary in the form of a paid leave of absence provided that such payments are used by theemployee for purely personal expenses and to financially support himself and his family.Since both these questions deal with the situation of a corporation givingsomething of value to a candidate, the applicable provisions of law are 2 U.S.C. 431,441b. Under the law, a corporation is prohibited from making a contribution to a

candidate. A "contribution" means generally a "gift . . . advance . . . or anything of valuemade for the purpose of influencing" the nomination or election of any person to Federaloffice. 1 2 U.S.C. SS 431 (d). Moreover, contribution also includes "any direct or indirectpayment, distribution . . . [or] advance . . . of money . . . to any candidate . . . inconnection with . . . "and election to Federal office. See 2 U.S.C. 441 b(b)(2).

The purpose of influencing, or the "connection" with, an election is apparentwhere, as in this case, the payments in the form of a paid leave of absence begin after theperson has been a candidate and after he has been without a salary, except for some parttime work. As your request states, the corporation in question "has no policy with respectto paid leaves of absence" and now wishes to start with respect to this candidate. Itappears that the payor proposes to grant a paid leave of absence so the candidate may1 Compare 2 U.S.C. 431 (e)(4) which deals with the payment of compensation by one person for personalservices of another that are rendered to a Federal candidate and characterizes such payments ascontributions. This situation, although analogous, is different since the firm has a prior association with thecandidate not to some third person who would campaign for the candidate.


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AO 1976-70Page 2have more time to campaign. Furthermore, the effect of receiving compensation from thefirm will likely be that other funds of the candidate become available for campaignpurposes.

If the candidate were receiving compensation in the form of earned or accruedleave, the Commission would not regard that as a contribution since, by analogy, nocompensation is considered paid to an employee "where the time . . . is bona fide,although compensable, vacation time or other earned leave time." See I 00.4(a)(5)(iii)of the proposed regulations.

The Commission is of the opinion that in this case, the proposed paid leave ofabsence is a contribution and thus prohibited since it is from a corporation. See 2 U.S.C.441 b. As for the other incidental benefits such as life and hospitalization insurance,absent a bona fide policy for employees on leave without pay, the Commission is of theopinion that the amount of the premiums paid for the insurance after the employeebecomes a candidate and after he terminates his services for the corporation, will beconsidered a contribution. Compare 114.12(c) of the proposed regulations.

This response constitutes an advisory opinion concerning the application of ageneral rule of law stated in the Act to the specific factual situation set forth in yourrequest. 2 U.S.C. 437f.

Enclosures

Sincerely yours,

(signed)Vernon W. ThomsonChairman for theFederal Election Commission


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Re: AOR I 976-84Mr. William E. Schluter205 South Main StreetPennington, New Jersey 08534Dear Mr. Schluter:

October 4, 1976

This letter is in response to yours of September 8 and September I0, 1976, inwhich you request an advisory opinion concerning payments by a family member for aFederal candidate's living expenses. Specifically, you ask whether as a Federal candidateyou may receive funds for "subsistence" from family members to the extent that yourown income has been reduced because of time spent campaigning. You further inquirewhether such payments, if allowable, must be fully disclosed in your candidate reports.The Commission concludes that such subsistence payments would constitute a"contribution" for purposes of the Federal Election Campaign Act of 1971, as amended("the Act"). Therefore, the payments would be disclosed in your reports and the amountcontributed by any individual with respect to any election must not exceed $1,000.

2 U.S.C. 434b, 44 Ia(a)(l}.'A "contribution" is defined, in part, as a "gift, subscription, loan, advance, ordeposit of money or anything of value made for the purpose of influencing thenomination. for election. or election. of any person to Federal office." [Emphasis added.]2 U.S.C. 43l(e)(l). The Commission believes that such a purpose would be evident inthe situation you describe. The family member's subsistence payments would beprompted by your candidacy. The direct result of such payments would be that you coulddevote more time to work for your election. Furthermore, the receipt of the funds mightallow you to use more of your personal assets for campaign expenditures. See

' Under the Commission's proposed regulation, I 0 1.3, a candidate may be relieved ofthe duty to file personal reports of receipts and expenditures related to the campaign if heor she agrees to certain conditions and if the principal campaign committee includes allitems on its reports and does so in a timely fashion. See the Commission's response toAOR 1976-76, copy enclosed.


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AO 1976-84Page 2AO 1976-70, a copy of which is enclosed. Therefore, even if the funds from the familymember would be used solely for routine Jiving expenses, the inescapable conclusion isthat the subsistence payments would be made for the purpose of influencing your electionto Federal office within the meaning of the Act.

As you point out, the Commission's proposed regulations provide that an"expenditure" under the Act does not include "[a]ny payments by the candidate from noncampaign funds for routine living expenses of the candidate which would have beenincurred without candidacy, including food and residence." I 00. 7(b)(J 0). However,this regulation does not address the question of the source of the noncampaignfunds. Perhaps a more relevant section of the proposed regulations is II 0.1 0. Thissection states that, except for Presidential candidates receiving public financing,candidates may make unlimited expenditures from personal funds. The followingdefinition is given:

(b) For purposes of this section, "personal funds" means--(I ) Any assets to which atthe time he or she became acandidate the candidate had legal and rightful title, or with respect

to which the candidate had the right of beneficial enjoyment, underapplicable State Jaw, and which the candidate had legal right ofaccess to or control over, including funds from immediate familymembers; and

(2) Salary and other earned income from bona fideemployment; dividends and proceeds from the sale of thecandidate's stocks or other investments; bequests to the candidate;income from trusts established before candidacy; income from trustsestablished by bequest after candidacy of which the candidate is thebeneficiary; gifts of a personal nature which had been customarilyreceived prior to candidacy; proceeds from lotteries and similar legalgames of chance. [Emphasis added.]

The clear import of II 0. I 0 is that a candidate may not make unrestrictedexpenditures (which, of course, would not include payments for routine living expenses)from gifts other than those customarily received prior to his candidacy. Even though thepayments you propose would be used only for living expenses, the rationale of II 0.10would apply. There would be no basis for allowing a candidate to receive unlimiteddonations, specifically prompted by this candidacy, to pay for his living expenses whenthe candidate would be precluded from using the same donated funds for his campaignexpenses.

This response relates to your opinion request but may be regarded asinformational only and not as an advisory opinion since it is based in part on proposedregulations of the Commission which must be submitted to Congress. The proposed


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AO 1976-84Page 3regulations mentioned above were submitted to Congress on August 3, 1976. They maybe prescribed in final form by the Commission only if not disapproved either by theHouse or the Senate within 30 legislative days from the date received by them. 2 U.S.C.438(c).

Enclosures

Sincerely yours,

(signed)Vernon W. ThomsonChairman for theFederal Election Commission


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EXHIBIT C


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Tax Report: Tax Lessons From- WSJ.com http: online.wsj.com/article/SB I 000 1424052702304 7935045764320

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Dow Jones Repnnts This copy is for your per.;onal, noncommerclal usa only To. o;der presentation-ready oop1eS for distribution to your c o ~ e a g u e s , clients orcustomers. use the Order Repnnts tool altha bottom of any ar11cle or 111$ol www djrapnnts comSee a sample repnnl in PDF format Order a repnnt ot th1s an,cte now

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TAX REPORT JULY 9, 2011Surprising Tax Lessons From John Edwards'sIndictmentBy lAURA SAUNDERS

Could two obscure taxes paid by a wealthy heiress save a fo rmer politician from prison? Quite possibly, say taxand election-law experts. The curious tale offers a lesson for ordinary taxpayers as well.In June, former senator and presidential candidate John Edwards was indicted by a North Carolina grand juryon charges of violating campaign-finance laws. The six-count indictment involves more than $925,000 in secretpayments allegedly made by two donors to conceal his mistress, Rielle Hunter, during his 2007-08 presidentialcampaign.Mr. Edwards pleaded not guilty. Mr. Edwards's attorne y and a Department of Justice spokesman say they aren'tpermitted to comment on the case. An attorney for Ms. Hunter declined to comment.

US Marshals Service/Associated PressA mug shot of former Sen. Joh n Edwards taken June15.

Although the indictment doesn't name the donors, it says"Person C" gave about $725,000 and "Person D" gave morethan $200,000 to hide the pregnant Ms. Hunter. Lawyersinvolved in the case identify Person D as Mr. Edwards'scampaign-finance chairman, Fred Baron, and Person Ca sRachel "Bunny" Mellon. Mr. Baron died in 2008. Ms. Mellon,100 years old, is the daughter of a founder of Warner-Lambertpharmaceuticals, as well as the widow of philanthropist PaulMellon.Through he r lawyer, Alexander Forger of Milbank, Tweed,Hadley & McCloy, Ms. Mellon declined comment . Mr. Forgersaid in an interview that Ms. Mellon intended her contributionto be a personal gift, not a campaign donation: "She intended it

for his personal use and had no understanding of where the money would go."The indictment could support this claim. It quotes Ms. Mellon saying in 2007 that she was "furious that thepress attacked Sen. Edwards on the price of a haircut.""From now on," she added, "all haircuts, etc., that are necessary to the campaign-please send the bills to me ...I t is a way to help our friend without government restrictions."This is where taxes come in. Mr. Forger says Ms. Mellon paid both gift and generation-skipping taxes on theamounts she gave Mr. Edwards-underscoring that they were personal gifts and not campaign contributions. In

9\320\1 3:22P


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Tax Report: Tax Lessons From- WSJ.com http: on line. ws .com/artie le/SB I 000 1424052702304 7935 045 764 320

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1932, Congress imposed taxes on gifts to prevent end runs around the estate tax, and later it added thegeneration-skipping tax to forestall end runs in the form of bequests to much-younger heirs. Ms. Mellon'salleged gifts to Mr. Edwards triggered generation-skipping tax because he was more than 37112 years youngerthan she.Mr. Forger didn't say how much Ms. Mellon paid in taxes on the gifts. The rate for gift and generation-skippingtaxes at the time was 45%-and you must pay a separate gift tax on generation-skipping tax. Thus, the effectivetax rate on such gifts can be greater than 100%.Attorney Howard Zaritsky of Rapidan, Va., estimates the heiress paid $799,000 in tax to make he r $725,000gift. "It's pretty clear the tax exceeded the gift," he says.I f Ms. Mellon paid the gift taxes, does that mean the donations weren't campaign contributions, and Mr.Edwards didn't violate campaign-finance laws'? The law is cloudy, and the case is unprecedented. But as writtenthe law takes seriously the "specific intent" of donors, says election-law expert Richard Pildes of New YorkUniversity.Thus Mrs. Mellon's gift tax could help Mr. Edwards's case. On a blog, Mr. Pildes said: "The money spent herewas almost certainly not a 'contribution' within the meaning of the election laws" for a criminal case.Whatever the outcome, Mr. Zaritsky sees a lesson for ordinary folks: Keep good records."Most people never think about the gift and generation-skipping taxes, bu t in this case, scrupulous attention tothe law could make a big difference," says Paul Caron of the University of Cincinnati Law School.According to the indictment, the gifts to Mr. Edwards from Person C-Ms. Mellon-took a roundabout route totheir goal. It says she made he r checks payable to a friend, who forwarded the money to Person A-a campaignemployee-whose 'Wife endorsed the checks in he r own maiden name. The indictment says some of the checkscontained misleading notations such as "chairs," or "antique Charleston table," or ''book case." The reason forthis chain of untruths wasn't to deceive the government, according to Mr. Forger, bu t rather Mr. Edwards's wife.All seems to have been kept strictly in order with taxes, however. The tax payments could be useful to Ms.Mellon should the Internal Revenue Service or prosecutors inquire further. She hasn't been accused ofwrongdoing thus far. "She or he r advisers kept in mind an important principle," Mr. Zaritsky says. "It's one thingto mislead ordinary people, bu t never lie to the government."Write to Laura Saunders at [email protected]

Copyright 2011 Dow Jones & Company, Inc All Rights ReservedThis copy is for your personal, non-commercial use only Distribution and use of this material are governed by our Subscnber Agreement and by

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EXHIBITD


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CERTIFIED MAILRETURN RECEIPT REQUESTEDADVISORY OPINION 2000-08Philip D. HarveyDKT International1120 19'" Street, N.W.Washington, DC 20036Dear Mr. Harvey:

June 14, 2000

This refers to your letters dated March 31, 2000 (received at the Commission onApril 25) and February 18, requesting advice on the application of the Federal ElectionCampaign Act of 1971, as amended ("the Act"), and Commission regulations to yourproposal to make monetary gifts to one or more candidates.FACTS

You state that you are interested in making a gift to an individual who is also acandidate for Federal office. This individual is neither a personal friend nor a relative,and you have never before given this individual a gift. You assert that, under the taxcode, you may make a non-taxable gift of $10,000 to anyone. You further state that yourpurpose for making the gift is your desire, as a citizen of the United States, to show yourgratitude that the individual, to whom you would like to make a personal gift, is seekingFederal office, and is willing to engage in a difficult and time-consuming campaign. Yauexplain that you do not always agree with this Federal candidate's positions, and do notwish to directly support his campaign. You further assert that you will not make the giftto influence a Federal election.' Instead, you wish to make the gift "to express my deepappreciation to this individual for foregoing opportunities in the private sector in order toserve his country."1 It also appears that your proposed gift would not be received or deposited or reported by the candidate'scampaign committee.


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AO 2000-08Page 2

You state you are willing to put such restrictions on the gift as may be necessaryto preclude the donee from using any of the proceeds to defray campaign expenses. Youalso state your intention that the gift be used solely for the candidate's personal expenses.You explain that you would be willing to make the gift anonymously, so as to precludeeven the appearance that you are trying to curry favor with a candidate for Federal office.You further indicate that you have made contact with two candidates for Federal officewho would be willing to accept your anonymous gifts, not to be used for campaignpurposes, if the Commission advises you "that the gifts will not violate the campaignfinance laws." You also state that the candidates contacted are not now officials oremployees of either State or Federal government.

You ask whether your proposed gifts would be subject to the political contributionlimits found in the Act and Commission regulations.ACT AND COMMISSION REGULATIONS

The Act and Commission regulations define the tern1 "contribution" to include agift or "deposit of money" by any person for the purpose of influencing any election forFederal office. 2 U.S.C. 431(8)(A)(i), 11 CFR !00.7(a)(l). No person shall makecontributions to any candidate and that candidate's authorized committees with respect toany election for Federal office which, in the aggregate, exceed $1,000. 2 U.S.C.441a(a)(l)(A), 11 CFR \IO.l(b).With limited exceptions, candidates for Federal office may make unlimitedcampaign expenditures from personal funds. II CFR IIO.IO(a) 2 For purposes of section110.10, the definition of "personal funds" includes salary and other earned income frombona fide employment; dividends and proceeds from the sale of the candidate's stocks or

other investments; bequests to the candidate; income from trusts established beforecandidacy; income from trusts established by bequest after candidacy of which thecandidate is the beneficiary; gifts of a personal nature which had been customarilyreceived prior to candidacy; proceeds from lotteries and similar legal games of chance.II CFR IIO.IO(b)(2).

The Act and Commission regulations also prohibit the conversion of campaignfunds to any personal use. 2 U.S.C. 439a, II CFR 113.2(d). Notwithstanding that theuse of funds for a particular expense would be a personal use, payment of that expense byany person other than the candidate or the campaign committee shall be a contribution tothe candidate, unless the payment would have been made irrespective of the candidacy.11 CFR 113.1 (g)(6). Examples of payments considered to be irrespective of thecandidacy include, but are not limited to, situations where:

2 Presidential candidates who accept Federal funds for their general election campaigns or their primarycampaigns are limited in the amount of personal funds they may use for campaign expenditures. 26 U.S.C.9004(d) and 9035(a); II CFR 9003.2(c) and 9035.2.


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AO 2000-0BPage 3

(i) The payment is a donation to a legal expense trust fund established inaccordance with the rules of the United States Senate or the United States House ofRepresentatives;

(ii) The payment is made from funds that are the candidate's personal funds asdefined in II CFR 110.1O(b), including an account jointly held by the candidate and amember of the candidate's family;

(iii) Payments for that expense were made by the person making the paymentbefore the candidate became a candidate.APPLICATION TO PROPOSAL

The Commission notes your statement that you do not intend that your "gift" to aFederal candidate would influence a Federal election. However, while you assert that youare not making the gift to support the candidacy of the recipient, you concede that itwould be donated in recognition and support of that person's desire to run for office.Your statement makes clear that the proposed gift would not be made but for therecipient's status as a Federal candidate; it is, therefore, linked to the Federal election.Accordingly, this gift would be considered a contribution under the Act and Commissionregulations.

From the perspective of the recipient candidate, this gift would be treated as acontribution even with the conditions you offer: a gift given anonymously and with thecondition that the funds be only used for "personal expenses."' As the cited Commissionregulations provide, campaign funds cannot be converted to personal use. II CPR113.2(d). Under 11 CFR 113.l(g)(6), payment by a third person of a candidate's personalexpenses during the campaign would be considered a contribution by the third person(you, in this case) to that candidate, unless the payment would be made irrespective of thecandidacy.' Again, your gift is tied to the individual's decision to seek Federal office.Your motivation for making the gift, to reward the candidate for his decision to run,would not come within any of the examples described at II CFR 113.1 (g)(6) whichallows some (non-contribution) payments to a Federal candidate. 5 In particular, thesegifts could not be viewed as constituting personal funds of a candidate under 11 CPRl!O.lO(b), since they would not be "gifts of a personal nature which had been

3 For the reasons discussed elsewhere in this opinion, your willingness to make an anonymous gift makesno difference on the question of whether it would be made for the purpose of influencing a Federal electionor would instead represent only an augmentation of the candidate's personal funds.4 Even prior to the current regulations at II CFR 113.1 (g), the Commission had consistently viewed gifts orloans made to a candidate to pay his personal expenses, where such funds were given because the candidatewas running for office, as contributions to his campaign. See Advisory Opinions 1982-64 and 1978.40, andthe Commission's response to Advisory Opinion Request 1976-84.' For a recent application of II CFR 113.1 (g)(6), see Advisory Opinion 2000-0 I. In that opinion, theCommission concluded that a law firm's payment of half salary to an attorney employed with the firm whowas a Federal candidate, where the attorney was not performing work for the firm, would be a contributionto the candidate's campaign.


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AD 2000-08Page 4customarily received prior to candidacy." 11 CFR l10.10(b)(2); compare AdvisoryOpinion 1988-07 [candidate allowed to accept $20,000 personal gift from parents whohad made similar annual gifts to him in three year period before his candidacy].

Therefore, since these proposed gifts would be considered campaign contributionsunder the Act and Commission regulations, the contribution limits would apply to them.2 U.S.C. 44la(a)(1 )(A), II CFR 110.1(b). As an individual, you are not permitted tomake contributions to a Federal candidate, including the candidate's authorized politicalcommittees, with respect to any election for Federal office which, in the aggregate,exceed $1,000 per election. ld.'

This response constitutes an advisory opinion concerning the application of theAct, or regulations prescribed by the Commission, to the specific transaction or activityset forth in your request. See 2 U.S.C. 437f.

Sincerely,(signed)Darryl R. WoldChairman

Enclosures (AOs 2000-01, 1988-07, 1982-64, 1978-40, andRe: AOR 1976-84)

6 The Commission notes that, as an individual, you are not pennitted to make total contributions to Federalcandidates and political committees "aggregating more than $25,000 in any calendar year." 2 U.S.C.44ln(a)(3) and II CFR 110.5.


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EXHIBITE


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Pre-MUR 395 (College Republican National Committee)Statement of Reasons of

Chairman David M. Mason, Commissioner Darryl R. Wold,and Commissioner Bradley A. Smith

Normally we would not consider it necessary to write a statement explaining ourdecision to approve the recommendation of the Office of General Counsel, routinelyclosing a case pursuant to the Commission's Enforcement Priority System ("EPS").However, in light of Commissioner Thomas's Statement of Reasons of November 9 inthis matter, we believe it is worthwhile to put forth for the public record our reasons forapproving the General Counsel's recommendation in our own words, rather than throughthe filter of Commissioner Thomas. Further, we note that this matter arose as an agencyreferral rather than through an outside complaint, so that the designated respondent,College Republican National Committee ("CRNC"), has had no chance to respond to thealleged violations, and but for Commissioner Thomas's statement, there would be nopublic release of this matter.1 Thus, left unanswered we believe that CommissionerThomas's Statement of Reasons, with its strong language s u g ~ e s t i n g that CRNC hasviolated the law, needlessly and unfairly impugns the CRNC.

In his aforementioned Statement of Reasons, Commissioner Thomas first explainswhy he believes that this case should have been left on the Commission docket despitehaving grown "stale" under the Enforcement Priority System. He explains his belief thatthere is a "strong likelihood that the major purpose of the College Republican NationalCommittee is campaign activity," and suggests that despite the staleness problem thiscase should be exempted from the EPS because the group has a sizeable budget andbecause a similar complaint against the group (MUR 3826) was also dismissed as staleunder the EPS in 1996. He does not suggest that the case be activated, but merely that itbe allowed to languish on the docket so that it might later be activated, "should resources

1 See 2 U.S.C. 437g(a)(l2); II C.F.R. II 1.9, II 1.20-2 I.2 For example, Commissioner Thomas writes at different points: "the materials provided [in the referral} ...demonstrate the strong likelihood that the major purpose of the group is campaign activity;" "[a) largegroup that is avoiding disclosure of hundreds of thousands of dollars .. . " "a large, well-connected groupthat should be reporting declines to do so .. . ;" "where a case presents a fairly significant apparent violationin this case the failure to disclose hundreds of thousands of dollars spent on hard-edged partisancommunications;" and "Commissioners should be looking for opportunities to enforce the law where itmatters most." Statement of Reasons, Commissioner Scott E. Thomas, Pre-MUR 395, p. I, 3, 5, 6(hereinafter "Thomas SOR").


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permit,"3 though there is no indication that the Office ofGeneral Counsel expects that tohappen.

The purpose of the Enforcement Priority System is to focus the Commission'sresources on those cases that are most important to effectively carrying out our duties.As noted by Commissioner Thomas,4 the system involves rating each case on a pointsystem. Most cases dismissed under the EPS without investigation are dismissed becausethey are deemed "low priority," so that pursuing them would not be an effective use ofresources. However, a small number of cases which do not fall in the "low priority"category are nonetheless dismissed as "stale," meaning that Commission resources havenot permitted the case to be activated after a number ofmonths.5 The presumptionsbehind dismissing cases for staleness include that citizens ought not have the threat of aninvestigation hanging over them for a lengthy time if it is unlikely that the investigationwill actually take place, and that the Commission should focus resources on importantcases of more recent vintage, with fresher evidence and more importance to current 6campa1gns.

Pre-MUR 395 came to the Commission not through any complaint by the public,but as a referral by the Pennsylvania Bureau ofCharitable Organizations, which wasinvestigating whether the CRNC had properly registered to solicit contributions inPennsylvania pursuant to that Commonwealth's laws on solicitation.7 The referral wasreceived at the FEC on June 19, 2000, by which time it appears that all of the activity thatserved as the basis for the referral was already more than two years old. 8 In fact, by thetime the Commission prepared to drop this case as "stale," all of the activity referenced inthe referral appears to have been at least three years and seven months old, and some of itas much as four years old. Since there was no evidence that the Office of GeneralCounsel anticipated that it could activate the case in the ncar future (nor didCommissioner Thomas ask it to), it is very doubtful that the case could have beenactivated until all of the underlying behavior was at least four years old, and much of iteven older. Given the five year statute of limitations, the statutory requirement that a3 /d. at 1-2.'!d. at 2, fn. 3.5 There were five such cases in fiscal year 200 I.6 We note that Commissioner Thomas does not have ageneric objection to dismissing cases as "stale,"though he has sought to have specific cases held or activated beyond the stale dismissal date, see MURs4491; 4519; 4563.7 It appears that the Commonwealth was upset that the CRNC had not responded to its requests forinformation. See Letter from Lisa Sandoe, Special Investigator, Commonwealth of Pennsylvania to LoisLerner, Associate General Counsel for Enforcement, June 5, 2000 (explaining that the Commonwealth hadreceived no response from the CRNC, and so checked to see if the organization was registered with theFEC; and finding it was not, referring the matter to the Office of General Counsel.) From the materialssubmitted by the Commonwealth, this referral appears to have been made more than two years after the lastletter from the Commonwealth to the CRNC.8 The CRNC material attached to the referral, which serves as the basis for the referral, is undated.However, most or all of it presumably took place before February 13, 1998 when the Commonwealth'sBureau of Charitable Organizations first wrote to the CRNC. (Letter from Karl Emerson to AdamBrohimer dated Feb. 13, 1998, attached to referral). The referral itself states that the CRNC had solicited aPennsylvania resident '1during the period November 1997 through March 1998." Letter fi'om Lisa San doeto Lois Lerner, June 5, 2000. Much of the material refers to current events of January and February, 1998.

2


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respondent be given at least 15 days to respond to any "probable cause" brief by theGeneral Counsel, 2 U.S.C. 437g(a)(3), and the statutory requirement that the Commissionengage in conciliation efforts for at least thirty days prior to filing an enforcement action,2 U.S.C. 437g(a)(4), any investigation would have had to be conducted in a hasty andless than thorough fashion in order to beat the statute of limitations. Even assuming thata full and thorough investigation would support a finding that the Act had been violated,it is doubtful that such a thorough investigation could be completed in time remaining. Inshort, because of the lengthy time between the activity underlying the referral and thedate of the referral itself, this case is unusually "stale," even by EPS standards.

This is important because Commissioner Thomas ridicules us for not supportinghis motion because, to use his caricature of our position, "this might prove to be adifficult case to resolve." Noting that "any case of significance might be difficult toresolve," he argues that "the Commission should never simply 'cave' ...."9 ButCommissioner Thomas does not dispute that the nature of the allegations in this PreMUR would require a substantial investigation to resolve. In a recent law review article,Commissioner Thomas himself discussed the difficulties of completing FECinvestigations within short time frames: "a fairly routine matter can easily take one yearif the matter proceeds to probable cause .. . [o]f course, if a matter is factually complexand requires an extensive investigation, the resolution of cases can take much longer ....A factually complex case with extensive discovery and investigation may take three orfour years." 1For these very reasons, we believe that a case which would indisputablyrequire extensive investigation, and where some of the activity is already four or moreyears old and all or almost all of it would be at least that old before there would be anychance of the case being activated for investigation, is a particularly poor case towithdraw from the EPS system for dismissing stale cases.

Tied to the complexity of the case is that the legal theory on which it appears theCommission would have to rely has already been rejected by the U.S. District Court forthe District of Columbia in FEC v. GOPAC, 917 F. Supp. 851 (D.D.C. 1996). Again,Commissioner Thomas does not reject our suggestion that GOPAC is an applicableprecedent, and that it suggests a lower than usual likelihood that the Commission couldwin this case in court. Rather, he simply dismisses the Court's decision in GOPAC as~ ~ g o o f y , n 11misguided, 11 and "nonsensical." 11

We do not share Commissioner Thomas's view ofGOPAC. CommissionerThomas argues that GOPAC, the defendant in that case, should have been considered apolitical committee subject to regulation by the Commission because it's "major purpose"was "campaign activity." 12 The idea that a group can be considered a political committee9 Thomas SOR, p. 2-3.10 Scott E. Thomas & Jeffrey H. Bowman, Obstacles to E;ffective Enforcement of he Federal ElectionCampaign Act, 52 Admin. L. Rev. 575,589 (2000).11 Thomas SOR at 3. We cannot help but note that in another recent MUR Commissioner Thomas urged usto defer to non-binding decisions of Article III courts even when the decisions at issue were reversed byhigher courts, albeit on other grounds. See MUR 4994, Statement of Reasons of Commissioner Scott E.Thomas, at 9."Id.

3


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solely because its major purpose is campaign activity has no basis in law. The Actdefines a "political committee," in pertinent part, as "any committee .. . which receivescontributions aggregating in excess of$ I 000 during a calendar year or which makesexpenditures aggregating in excess of$1000 during a calendar year .. . " Thus, majorpurpose alone, however defined, is not enough to subject a group to the Act. The groupmust also take in contributions or make expenditures in excess of$ I 000. The Act definesboth "expenditure" and "contribution" in terms of activity made "for the purpose ofinfluencing any election for Federal office," 2 U.S.C. 431(8}(A) and (9)(A). In Buckley v.Valeo, 424 U.S. I ,79 ( 1976), the Supreme Court made clear that the phrase "for thepurpose of influencing any election for Federal office" suffers from constitutionalvagueness problems, and that therefore the definition of "political committee" must belimited only to committees that are "under the control of a candidate or the major purposeof which is the nomination or election of a candidate." Id. A candidate, under the Act, isan "individual who seeks .. . Federal office," 2 U.S.C. 431 (2), not any candidate for anyoffice whatsoever. Applying Buckley, the GOPAC Court found that for the years inquestion the FEC had failed to prove that GOPAC had made any expenditures to supportor oppose the nomination or election of a candidate for federal office. GO PAC had madesubstantial expenditures for state and local Republican candidates, in the hope that doingso would eventually help the Republican Party take control of the U.S. House ofRepresentatives, but the Court noted that these were nonetheless expenditures for stateand local candidates, not for federal candidates. 917 F. Supp at 861-62, 864-67. We donot see much that is "nonsensical" or "goofy" here, nor do we see how GOPAC fails tofollow "the approach used by the Supreme Court," as our colleague puts it. 13

Part of Commissioner Thomas's difficulty may be that he seems to assume,without saying so, that the CRNC's generic support for candidates of a particular partyconstitutes "express advocacy" of the election of specific federal candidates, andtherefore meets the $1000 expenditure requirement. 14 This position, however, wasspecifically rejected in GO PAC, 917 F. Supp. at 866-67, and we think GOPAC is correctin holding that general expressions of support for candidates of a party do not, absentdirect contributions to federal candidates or the presence of "express advocacy" thatwould qualify the communication as an "independent expenditure" as defined in 2 U.S.C.431 (I 7}, qualify as "expenditures" under the Act. 15 The types of activities that we arebeing asked to investigate in this MUR seem to be similar to the types of activities inwhich GO PAC engaged. Certainly on the face of the complaint there is no sign that13 See Thomas SOR at 3." !d. at 1-2, 3-415 Thus Commissioner Thomas is clearly wrong in suggesting that under GOPAC, "none of the national orstate political parties would have to register and report with the Federal Election Commission." /d. at 3. Theholding in GOPAC was based on the fact that "GOPAC did not make any direct contribution to anyparticular federal candidate." 917 F. Supp. at 858. The national and state committees with which we arefamiliar would not be in this position. What the Court specifically rejected is the argument thatCommissioner Thomas seems to make here, that "an organization need not support the 'nomination orelection of a candidate,' but only need engage in 'partisan politics' or 'electoral activity,"' to be subject to theAct. 917 F. Supp. at 859. The Court noted that such terms as "'partisan electoral politics' and'electioneering' raise virtually the same vagueness concerns as the language 'influencing any election forFederal office,' the raw application of which the Buckley Court detennined would impermissibly impingeon First Amendment values." !d. at 861.


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CRNC made expenditures that would qualify it as a "committee" required to report underthe Act. Thus, on the basis of the facts and apparent legal theories of this referral, it doesnot appear that there is reason to believe that the Act had been violated in any case. 16We recognize that we are not bound in all future cases by the decision of a singledistrict court. However, even if we shared Commissioner Thomas's view that GO PACincorrectly interpreted Buckley, we would not be inclined to ignore it in carrying out ourduties. We cannot expect the courts to give proper deference to our interpretations of theAct, as part of a co-equal branch of government, if we cavalierly dismiss judicial

decisions with which we disagree as "goofY." Moreover, we cannot help but note that theGOPAC Court is apparently not the only "goofY" court out there. In addition to GO PAC,since Commissioner Thomas took his seat on the FEC the Commission has lost severalother cases when it has tried to stretch the definition of express advocacy." We believethat a minimum of proper respect for the judicial branch requires that we at least takeeven non-binding court opinions seriously and consider them in our own interpretationsof the law.

Nor, as a practical matter, could we possibly subscribe to Commissioner Thomas'sapparent view that in deciding whether or not to devote resources to a case, we shouldsimply ignore the probability of success on the merits, as reflected by the results in prior,similar cases. Dismissing a case as "goofy" or "nonsensical" does not make the precedentgo away. Concern for the viability of our legal theory in the courts should be especiallyimportant where we would be launching an investigation of a case outside of the normalguidelines of the Enforcement Priority System, 18 and on a timetable that would make a16 lt appears that this case could only succeed if the Commission were willing to launch a legal challenge tothe limits on the definition of"political committee" laid down by the Supreme Court in Buckley andfollowed in GOPAC. We are not interested in challenging the Supreme Court's t w e n t y ~ five year oldBuckley decision on this issue. The point has already been once reaffirmed by the Supreme Court in FECv. Massachusetts Citizens for Life, 479 U.S. 238 (1986), and in light of our experience on this Commissionand elsewhere, we believe Buckley was correct on this point. We also note that the Supreme Court hastwice in the last two years rejected opportunities to revisit other portions of Buckley's core holdings. SeeFEC v. Colorado Republican Federal Campaign Committee, 533 U.S. 432 (200t); Nixon v. ShrinkA4issouri Government PAC, 528 U.S. 377 (2000). Alternatively, we could hope that an investigation, iflaunched, would yield evidence which is not in the referral in support of legal theories which do not appearin the referral, i.e. that CRNC directly supported for candidates for federal office. But we do not believethat it is proper for this Agency to go forward based on facts and legal theories in referrals or complaintswhich do not state violations of the Act, even if taken as true. For more on this point, see Statement ofReasons of Commissioner Darryl R. Wold in MUR 4994, New York Senate 2000 et al."See Virginia Society for Human Life, Inc. v. FEC, 263 F.3d 379 (4'h Cir. 2001); FEC v. Christian ActionNetwork, I 10 F.3d 1049 (4'h Cir. 1997); FEC v. Maine Right to Life Committee, 98 F.3d I (I " Cir. 1996),cerl. denied 522 U.S. 8 I 0 ( 1997); Faucher v. FEC, 928 F.2d 468 (I " Cir.), cerl. denied 502 U.S. 820(1991); FEC v. Freedom's Heritage Forum, No. 3:98CV-549-S (W.D. Ky. Sept. 29, 1999); Right to Life ofDuchess County, Inc. v. FEC, 6 F.Supp. 2d (S.D.N.Y. 1998); FEC v. Survival Education Fund, 1994 U.S.Dist. Lex is 210 (S.D.N.Y. Jan. 12, 1994), ajJ'd in parr and rev'd in parr on orher grounds, 65 F.3d 285 (2dCir. 1995); FEC v. Colorado Republican Federal Campaign Committee, 839 F.Supp. 1448 (D. Colo. 1993),rev 'don orher grounds 59 F.3d I 015 (I O'h Cir. 1995) and vacared on other grounds, 518 U.S. 604 (1996);FEC v. National Organization for Women, 713 F. Supp. 428 (D.D.C. 1989).18 We recognize that Commissioner Thomas's motion would merely have left the case on the docket for thetime being, without yet opening an investigation. Presumably, however, the only reason to leave it on thedocket would be in the hope of eventually opening an investigation.

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thorough, effective investigation prior to bringing suit exceedingly difficult. We note thatCommissioner Thomas also uses his Statement of Reasons in this case to argue that theCommission needs more resources from Congress. 19 Perhaps. But we are unpersuadedthat the resources we have are well spent pursuing cases under legal theories that runcontrary to precedent and which cannot be investigated and evaluated properly due tostatute of limitations constraints. See 28 U.S.C. 2462.

Commissioner Thomas also misunderstands our objection to using a longdismissed complaint against the CRNC, MUR 3826, closed as stale over five years ago,as a basis for proceeding on this matter. MUR 3826 does nothing to change the stalenature of the evidence and events in this case, nor does it change the GO PAC precedent20This case is not like other MURs Commissioner Thomas mentions, wherein theCommission has looked at evidence from other investigations.21 In those MURs, theother investigations pertained to the same activity under investigation by the FEC, not toactivity many years gone by and not the subject of the matter at hand. All of the eventsmentioned in this referral took place after MUR 3826 was closed.

Commissioner Thomas similarly fails to differentiate between cases when hechides us for deferring to the recommendation of the General Counsel in this case while"vot[ing] against the General Counsel's recommendations regarding seven of the twelvematters on the November 6 agenda," all of which pertained to case closing under theEPS22 Those other cases all involved matters in which a violation, or lack thereof, wasplain from the face of the complaint, so that the Commission could make substantivedeterminations without the need for an investigation using up Commission resources. Ineach case, the Commission rejected the General Counsel's recommendation to close thecase solely on grounds that it was "low priority" under the EPS, in order to make asubstantive determination on the merits and close the file. Thus the cases were handledsubstantively without opening an investigation and draining the General Counsel'sresources. In each of the seven cases, Commissioner Thomas joined a unanimousCommission vote.23 Commissioner Thomas argues that the standard used to pull thosecases out ofEPS was "subject only to a standard similar to mine." 24 But there is a verysubstantial difference, which Commissioner Thomas does not even note, let alone dispute- each of those cases could be, and was, disposed of within minutes and without

19 Thomas SOR at 4, n. 12.GOPACwas decided after MUR 3826 was dismissed.

21 Thomas SOR at 4, n. 9.22 !d. at 4, and n. 10. He actually refers to just one (unnamed) Commissioner, presumably CommissionerSmith, given that Commissioners Wold and Mason voted against the General Counsel's recommendation ineight of the twelve matters.23 Commissioner Thomas also complains that the Commission has held one case open involving a foreignnational, although the violations are over five years old. !d. at 5, n. 14. In that case the respondent has fledthe country to avoid prosecution. Because the Commission believes that the statute of limitations does notrun when the respondent purposely flees the country to avoid prosecution, and because the facts havelargely been investigated already in connection with other respondents, the Commission has voted to holdthe matter open."ld. at 5, n.\5.

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investigation, whereas this case, were it activated, would require a substantial. . . dmvest1gat10n an resources.Ultimately, even if we were not of the belief that the referral in this matter did not

include either facts or legal theories which, if true, would indicate a violation of the Act,or that the probability of success were so low, we simply would not agree withCommissioner Thomas that this is a case warranting "different treatment" than thatprovided for by the EPS.26 It is clear that Commissioner Thomas considers this anextremely important case. He argues that we should ignore the EPS in such a casebecause, "not a lot of subjective thought goes into OGC's EPS case closingcalculations." 27 We believe that this is as it should be. However, the process is nottotally rote. Under the System, this case scored just one point above the cut-off used todismiss cases as low priority. lt did so because in at least one important category, OGCscored the maximum possible points, even though the system's scoring guide states that"[one-half the maximum] are generally assessed here." In another category, OGCawarded added points for criteria that did not appear and could not be determined fromthe face of the referral. This was apparently done by considering the earlier closed MUR3826 when scoring this referral. In short, this case stayed on the docket as long as it did,and was eligible for activation in the normal course of business at all, only because inscoring the case OGC did account for the old MUR, as Commissioner Thomas wanted,and also rated the case more highly than usual on other criteria as well. Even so, the casereceived the lowest score possible to avoid automatic dismissal as a low priority case.

The final portion of Commissioner Thomas's Statement of Reasons is devoted toexplaining that his desire to keep this case open is not motivated by partisanconsiderations, accusing others of partisanship, and citing to a number of votes that hehas made in the past as evidence of his own lack ofpartisanship28 We takeCommissioner Thomas at his word and note that whatever his motivations, they wouldnot alter our votes in this matter.

When we consider that this case would have to be based on a legal theory thatruns counter to the law as correctly stated in GOPAC; is low rated under the EPS; isextremely dated and difficult to investigate within the statute of limitations; wouldrequire the commitment of substantial resources; and appears to have a low probability ofsuccess in court even if pursued on the legal theories advanced by CommissionerThomas, and with which we disagree; we consider it particularly ill-suited to bewithdrawn from normal treatment pursuant to the EPS, and believe the dismissal for

25 In light of our above discussion ofGOPAC and the referral in this matter, another alternative might havebeen to move to dismiss this case with a finding of "No RTB" because the referral fails to put forward factsor legal theories that would indicate a violation ofthe Act. We believe, however, that such a motion wouldnot have been successful at garnering the four votes needed to pass. If true that the Commission could notmuster four votes for a finding of either "No RTB" or "RTB," that is further reason to let this case simplybe closed on the staleness grounds recommended by the General Counsel, following the EPS.26 /d. at 5.27 /d. at 5, n. 13." !d. a! 5-6.

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staleness, as called for by the EPS and recommended by the General Counsel, wasappropriate.

Davi

CREW: DOJ: Amicus Brief In Support of Sen. John Edward's Motion to Dismiss Indictment: 9/21/2011 - Exhibits to Amicus Brief (ECF)

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