Federal Lawsuit Filed Against FEC Seeks to Shed Light on Karl Rove’s “Dark Money” Donors

After a recent three-to-three decision by a partisan-deadlocked Federal Elections Commission (FEC), Karl Rove may have thought he was off the hook for federal campaign finance violations by his Crossroads GPS organization. Two non-profit, good government groups, however, feel differently. Last Friday, they filed a federal lawsuit [PDF] against the FEC in hopes of forcing the agency to reverse its ruling, revisit the complaint against his group’s 2010 electioneering, and to enforce federal campaign finance rules as specified by law.

Late last Friday, Attorneys from the non-partisan Campaign Legal Center and the Public Citizen Litigation Group filed a civil complaint against the FEC in U.S. District Court in Washington D.C.

The suit seeks to reverse what the plaintiffs describe as an “arbitrary” and “capricious” decision by the three Republican FEC Commissioners, in contradiction of the advice of their own staff attorneys, to dismiss the administrative complaint the groups had filed against Rove’s organization. That administrative complaint charged that Rove’s group violated federal campaign finance law during the 2010 election cycle.

The votes by the three Republican FEC Commissioners effectively quashed any further official investigation into the allegations that Rove’s group violated the Federal Election Campaign Act of 1971 (FECA) when it spent the majority of its money during the 2010 election cycle on electioneering, but failed to register as a “political committee” with the FEC, as required by law. Their decision to shut down the investigation came after what the FEC’s own staff attorneys found to be a likely violation of the federal campaign finance law.

By dismissing the administrative complaint and shutting the door on the investigation, the Republican FEC Commissioners not only allowed Rove to keep, as a secret, the identity of donors of tens of millions of dollars used to support Republican Congressional campaigns in 2010, but effectively offered Rove carte blanche to conceal donor identities with respect to monies spent in subsequent elections, such as the 2012 election cycle in which Crossroads GPS “spent at least $71 million on federal campaign activity,” according to the newly filed federal complaint.

The plaintiffs charge that the FEC’s deadlock was the result of “an impermissible interpretation of FECA,” and the agency’s own published guidelines due to an “abuse of discretion” by the Republican commissioners in a manner that was “otherwise contrary to law”…

Shell Game

While the suit was filed last week, the intention to file was first announced by Craig Holman, the Government Affairs Lobbyist for Public Citizen’s Congress Watch, during an interview last month with Brad Friedman on the KPFK/Pacifica Radio BradCast.

As Holman, one of four plaintiffs in the case, explained at the time, the number of deadlocked 3-3 votes at the FEC has increased “nine-fold” since 2008, effectively preventing enforcement of federal campaign finance laws over the past five years.

In this instance, the three Republican FEC Commissioners, as alleged in the complaint, ignored detailed evidence against Crossroads GPS, as well as legal definitions provided by both statute and FEC rules. Their votes not to pursue any further action were also in direct contradiction with the recommendations of the FEC’s own Office of General Counsel (OGC).

During his BradCast appearance, Holman had asserted that the three Republican FEC Commissioners “rigged the math” in a desperate and convoluted effort to justify their determination that there was “no reason to believe” that Crossroads GPS —- one of the nation’s largest sources of “dark money” contributions in federal elections —- is a “political committee” with the obligation to register as such with the FEC. Instead, Rove’s group declares itself to be a non-profit 501(c)(4) organization which, according to laws governing the IRS, is reserved for organizations “exclusively” engaged in the promotion of “social welfare”, rather than electioneering.

Rove’s 501(c)(4) designation allows him to conceal the identity of Crossroads GPS donors. By contrast, an FEC registered “political committee” is required to reveal the identities of its donors.

Both the allegations in the federal complaint, as well as the express findings of a Nov. 21, 2012 Report issued by the FEC’s Office of General Counsel, suggest that Crossroads GPS is a “political committee” hiding behind a self-erected, tax-exempt, non-profit 501(c)(4) façade. (To date, the IRS does not appear to have granted Crossroads GPS’s application for approval as a 501(c)(4) organization.)

Crossroads GPS was created in June of 2010 by Republican strategists Karl Rove and Ed Gillespie. It was a spin-off organization of “American Crossroads, a Section 527 political organization and FEC-registered independent expenditure-only political committee (a.k.a. ‘super PAC’),” according to the federal complaint.

The two organizations, as described in the OGC’s Report, “operate from the same address and share at least four corporate officers.” While the groups admit to raising funds jointly, both the legal complaint and the OGC Report assert that a prime reason for creating the spin-off group was because, as acknowledged by Steven Law, the president of both organizations, “anonymity for donors to the 501(c)(4) was a valuable fund raising tool.”

In other words, the identity of donors who gave to American Crossroads would, legally, need to be disclosed. But donors to Crossroads GPS, under the scheme that Rove and Gillespie devised, would be able to remain anonymous.

As noted in the federal complaint, Ken Vogel at Politico reported on Crossroads GPS, just after its 2010 formation: “A new political operation conceived by Republican operatives Karl Rove and Ed Gillespie formed a spinoff group last month that —- thanks in part to its ability to promise donors anonymity —- has brought in more money in its first month than the parent organization [American Crossroads] has raised since it started in March.”

Vogel went on to report that “a veteran GOP operative familiar with the group’s fundraising activities said the spin-off was formed largely because donors were reluctant to see their names publicly associated with giving to a 527 group [American Crossroads].”

The trick worked. After formation of Crossroads GPS in the summer of 2010, the money came pouring in —- tens of millions of it —- just in time to be used for that year’s elections and, according to both the federal complaint and the FEC’s own attorneys, to be used directly for electioneering activity in support of electing Republicans to Congress. That 2010 election would eventually bring with it a Republican House majority and the freshman class of so-called ‘Tea Party’ Congress members.

As cited in the federal complaint, Rove himself appeared on Fox “News” before the election to call for donors who could legally give no more money to official Republican campaign committees, to give it to his groups instead.

“What we’ve essentially said is, if you’ve maxed out to the Senatorial Committee, the Congressional Committee or the RNC and would like to do more, under the Citizens United decisions, you can give money to the American Crossroads 527 or Crossroads GPS,” Rove explained at the time.

Donors answered the call, and sought out the anonymity offered by Rove’s “social welfare” organization.

“On October 5, 2010,” the complaint notes by way of just one example, “Crossroads GPS and American Crossroads announced a $4.2 million ad buy, targeting eight hotly contested Senate races. Seventy-five percent of the ad buy was paid for with funds from undisclosed donors.”

The complaint describes how the OGC “found that [Crossroads GPS] had spent at least $20.8 million on federal campaign activity…between June and December 2010 —- more than half of the $39.1 million Crossroads GPS reported to the IRS that it spent in 2010.”

The expenditure of “approximately 53 percent of…Crossroads GPS’s spending in 2010,” in and of itself, was “sufficient to establish that its major purpose in 2010 was the nomination or election of federal candidates,” according to the OGC, which urged further investigation by the Commission to determine the full scope of the group’s 2010 campaign spending.

For their part, the three Democratic FEC Commissioners issued a Jan. 10, 2014 “Statement of Reasons” [PDF], detailing their justification for voting to follow OGC’s recommendations to authorize further investigation of what they saw as “a clear-cut case” with respect to Crossroads GPS’s “vast” political expenditures.

However, since it takes four votes to move forward with an FEC investigation, the three Republican FEC Commissioners were able to bring the investigation of Rove’s Crossroads GPS to a grinding halt. Their decision to dismiss the administrative complaint prevented the agency from enforcing federal “disclosure requirements”, which the federal complaint describes as “essential to the health of our democracy.”

Rove’s Math

So how’d they get away with it?

As detailed in the federal complaint, both the FECA law and U.S. Supreme Court decisions have established a two-pronged test for determining whether a “committee, club, association or other group of persons” is to be defined as a “political committee.” The first part of the test, which is not in dispute as applicable to Crossroads GPS, is whether contributions received or expended exceeded $1,000 “during a calendar year”.

The second prong of the test, as established by the Supreme Court in Buckley v. Valeo (1976), is that the term “political committee” must be limited only to “organizations that are under the control of or the major purpose of which is the nomination or election of a candidate.” [Emphasis added.] The “major purpose” test was established by the Court in order to shield groups from the effects of the FECA statute if they are simply “engaged purely in issue discussion”.

As lead plaintiff Public Citizen explained in its Jan. 31 press release in support of their lawsuit:

In 2007, the FEC published a detailed policy laying out how the agency will determine an organization’s major purpose. The policy provides that the FEC will consider public and non-public statements by the organization and the proportion of spending on “federal election activity,” which includes spending on express advocacy (messages calling for a vote for or against a candidate) as well as electioneering communications and other materials that discuss the merits of a candidate immediately before an election.

The FEC attorneys agreed that the amount of spending by Crossroads GPS on campaigns in 2010 should have required the group to register as a “political committee” with the Commission. Their report found that “Crossroads GPS’s proportion of spending related to federal campaign activity is alone sufficient to establish that its major purpose in 2010 was the nomination or election of federal candidates.”

The GOP Commissioners, however, with the help of Rove himself, ignored those recommendations and invented a new way to decide how the “major purpose” of Crossroads GPS would be established.

As Holman explained during his BradCast interview, the three Republican FEC Commissioners —- as seen in their own Jan 8, 2014 “Statement of Reasons” [PDF]for voting against any further action in the matter —- simply replaced the statutory definitions of law, as well as the FEC’s own long-standing rules, in order to “rig the math”.

First, as Holman observed, “they counted for electioneering activity only express advocacy ads…in which the ad said ‘vote for’, or ‘against’, or ‘elect’. They did not count…advertisements in which the ad doesn’t actually say ‘vote for’, but it casts the candidate almost always in a very negative light right near the election, which is clearly designed to influence how one votes.” In other words, the Republican FEC Commissioners insisted that a barrage of deceptive, negative attack ads directed against political candidates immediately prior to an election should not be counted as electioneering activity.

Second, instead of examining expenditures during the “calendar year” of the 2010 election, as mandated by the FECA statute itself, the Republican Commissioners permitted Rove and Crossroads GPS to designate their own self-determined fiscalyear as the period during which the group’s “major purpose” should be determined.

“Instead of actually calculating the expenditures by Crossroads GPS during the election cycle” itself, according to Holman, “Karl Rove decided he wants to pick as his fiscal year June 1, 2010 through May 31, 2011. That means that a little bit of the election cycle is in there, but mostly it’s after the election when Crossroads GPS is doing more issue advocacy, rather than electioneering.”

With Rove’s new math, the “approximately 53 percent” of total expenditures Crossroads GPS spent on elections in 2010 (and even that number was a low-ball estimate by the FEC’s legal counsel), became watered down to a minority of its total expenditures, once the non-election year of 2011 was factored in to account for the Republicans’ preferred “fiscal year” basis of spending.

‘Arbitrary, Capricious, an Abuse of Discretion, Otherwise Contrary to Law’

“The Commission has unfortunately failed to adhere to its own policy on political committee status or to recent judicial decisions finding that policy to be valid and constitutional,” the Democratic FEC Commissioners complained in their Statement of Reasons after the original administrative complaint was dismissed, courtesy of the 3-3 deadlocked vote.

In so doing, the federal complaint charges, the FEC dismissal “rest[s] on manifest errors of law” and has denied the plaintiffs’ ability to do their own jobs.

Two of the plaintiffs in the case are the non-partisan, non-profit group, Public Citizen and its Legislative Representative, Holman. The complaint alleges: “One of Public Citizens’ primary missions is…to combat corruption in the political system through election reform.” Its members include voters who “reside in states and electoral districts where Crossroads GPS has engaged in spending to affect federal elections.” The concealment of donor identity impairs those members’ “informed exercise of the vote.”

The other two plaintiffs are ProtectOurElections.org (POE) and its attorney Kevin Zeese, Esq. POE “is a national collaboration of grassroots organizations that work together to provide oversight of elections and to advocate for campaign finance reforms,” according to the complaint, which alleges that both POE and Zeese “rely on political committees public disclosure reports to evaluate the influence of money in politics.”

[Full disclosure of our own: POE is an off-shoot campaign of VelvetRevolution.us, a non-profit good government organization co-founded by The BRAD BLOG. We were not, however, involved with either the initial 2010 administrative complaint filed with the FEC against Rove’s group, or the lawsuit filed last week in federal district court.]

Both Holman and Zeese, as registered voters, seek redress from the impairment of their right to an “informed exercise of the vote.”

In response to a query from The BRAD BLOG, attorney Paul S. Ryan, Senior Counsel at The Campaign Legal Center stated that the plaintiffs are relying upon “informational standing” as established in the 1996 en banc decision by the full D.C. Circuit Court of Appeal in Akins v. Federal Election Commission.

In that case, the court analogized a voter’s right to campaign donor information to that of a party entering a contract. “If a party is denied information that will help it in making a transaction —- and a vote can be thought of as a kind of transaction —- that party is obviously injured in fact,” according to the Akins court.

The case also established that, before seeking relief with the court, an individual must first file a complaint with the FEC. “Only parties aggrieved by the dismissal of a complaint are entitled to challenge in court the Commission’s refusal to enforce.” Here, that occurred.

The complaint also cites Orloski v. Federal Election Commission (1986), which establishes the right to challenge an FEC decision to dismiss a complaint that is based upon “an impermissible interpretation of the law.” Here, the plaintiffs argue, that happened as well.

They seek relief from the court as follows…

If the case is successful, the FEC will be forced to reopen the investigation into campaign finance violations by Rove’s “social welfare” organization. If that happens, Rove and his massive “dark money” scheme, as well as others like it which have sprung up in its wide, dark shadow, may be in danger of finally being forced into the light of day.

As Public Citizen’s President Robert Weissman noted in the groups official announcement of the suit last week, “If Crossroads GPS gets away with this, it will be an open invitation to every corporation and wealthy individual who wants to propel specific candidates into office. The voices of all those voters who don’t have millions of dollars to spend on elections will not be heard.”