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ha_kelly22875.JPGChris Kelly violated state election law in donating nearly $10 million to his campaign for attorney general, according to a complaint filed this week with the state's political watchdog agency.

Opponent Kamala Harris claims Kelly violated campaign contribution limits and disclosure laws by selling private stock and then donating some or all of the proceeds to his race.

"Kelly's blatant disregard for the state's campaign finance and ethics laws is an affront to the public's trust in the electoral system and is shocking behavior from an individual seeking to become California's top law enforcement official," the complaint said.

Robin Swanson, Kelly's spokeswoman, characterized the complaint as a "remarkably lame" attempt by Harris, San Francisco district attorney, to divert attention from a scandal in which hundreds of criminal convictions may be at risk from her office's failure to inform defense attorneys of past misconduct by peace officers used as witnesses.

"It's clearly Kamala Harris trying to point the finger somewhere else and distract people from the real issues," Swanson said.

Roman Porter, executive director of the Fair Political Practices Commission, confirmed that his agency has received the complaint against Kelly but declined to comment on specifics.

The complaint targets Kelly's sale of private stock in Facebook, for which he worked for five years, to generate money for his largely self-funded campaign for attorney general.

Kelly obtained a loan from FBI Investments to exercise his stock options in Facebook, a private company. He then sold shares to the lender, repaid the loan and used some of the proceeds for his campaign, said Swanson, who declined to comment on how much was raised by the sale.

Kelly, in a financial disclosure statement, listed a loan obtained from FBI Investments, a Delaware-based private equity firm. He was not required to specify the dollar amount received, only the broad range of "Over $100,000."

Swanson characterized the transaction as the routine sale of personal property: Kelly disposed of stock that belonged to him by selling it at market value to a firm that commonly makes such investments.

"Anybody can do that and sell their own private stock," Swanson said. "Everything is on the up and up."

Harris' complaint disagrees.

Kelly was legally bound to treat the loan as a political contribution, subject to the state's $6,500 limit, because it was obtained for a political purpose from a private equity firm, not a commercial lending institution, the complaint alleges.

Kelly also violated state election law by not disclosing publicly who bought his Facebook stock after he used the loan to exercise options in acquiring it, the complaint claims.

"By failing to disclose who gave him millions of dollars, Kelly has deprived the public of information regarding the individuals and entities which may affect his decision-making should he be elected," the complaint says.

Voters also need such information to properly evaluate whether the sale was a "sweetheart deal" to boost Kelly's AG campaign, Harris contends.

Kelly, interviewed late Tuesday, confirmed his spokeswoman's account of the chain of events, claimed he had abided by applicable campaign disclosure laws, and characterized the complaint by Harris as a publicity stunt.

FBI Investments has conducted similar transactions with "a number of Facebook executives in full accordance with securities laws in the state and in the country," Kelly said.

"I think it's crystal clear to voters that I'm investing heavily in my own campaign based on the sale of stock that I earned in private business," he said. "California has been very good to me financially, and I'm reinvesting some of what California has helped me achieve in helping to change the future of the state."

Bob Stern, a co-author of the state's Political Reform Act, said that facts surrounding the stock sale will dictate whether the loan to Kelly must be treated as a campaign contribution and additional disclosure required.

"The question is, did the person who bought it from him pay fair market value and was there any discussion that he was purchasing it for the reason of financing the campaign?" Stern said. "It's going to be a real factual question."

Bob Zangrillo, a general partner of FBI Investments, said there was no discussion of politics or campaign funding in connection with the Kelly transaction. Of his firm's $150 million in Facebook equity, the Kelly transaction was less than 10 percent, Zangrillo said.

The FPPC legally has 14 days to decide whether to launch a formal investigation into Harris' complaint.

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