Politics & Government

California FPPC issues record fine for failure to disclose source of mystery money

Political groups with ties to the conservative Koch brothers acknowledged Thursday they gave about $15 million to block a tax increase and weaken union influence in California last year without properly reporting the source of the money.

In a settlement with the state Fair Political Practices Commission, the groups agreed to pay a $1 million fine, the largest the agency has ever levied for a campaign violation.

The Arizona-based groups, the Center to Protect Patient Rights and Americans for Responsible Leadership, are part of a network of nonprofits operated by billionaire businessmen Charles and David Koch, agency officials said. The brothers have used their groups, which aren’t required to reveal the names of donors, to fund a variety of pro-business and anti-union efforts.

The settlement didn’t require release of the original individual donors to the effort. But a sloppily redacted document released by the FPPC shows that all but six of 132 contributions came from California donors.

The commission also sent letters to two committees demanding they pay the state general fund the improperly reported $15 million they received.

The Arizona groups jumped into California politics for the first time last year to support Proposition 32 – intended to curb the ability of labor unions to raise political cash – and oppose Proposition 30, a tax increase pushed by Democratic Gov. Jerry Brown.

A Koch representative issued a statement denying that the brothers played a role in the California election.

“We had no involvement whatsoever, financial or otherwise, neither directly nor indirectly, on anything to do with Prop 30 or Prop 32,” said an emailed statement from Rob Tappan, who represents the Koch brothers, their foundations and the Koch Industries companies. “In addition, we did not give directly or indirectly to any nonprofit group in support or defeat of these ballot initiatives.”

Representatives for the two Arizona groups said they simply made a reporting mistake.

“It was a good-faith error,” said Barrett Marson of Americans for Responsible Leadership. “There was no intent to skirt or deceive California officials.”

The lawyer representing the Center to Protect Patient Rights said his client got confused by California’s campaign finance laws because they create a “very complicated environment with many, many regulations.”

“This was the first contribution they had ever made in the state of California,” Malcolm Segal said. “They believed they were in compliance.”

Americans for Responsible Leadership gave $11 million to the combined effort just weeks before last November’s election, in the heat of California’s initiative wars. But it didn’t reveal that its money came from the Center to Protect Patient Rights until the FPPC brought the group to court. Americans for Responsible Leadership was a largely unknown group when the contribution came in, while the Center to Protect Patient Rights is more widely associated with the Kochs.

“Secrecy and money don’t mix well in a democracy,” Brown said in a statement. The Democratic governor said the case also shed more light on loopholes that allow some donors with political agendas to conceal their identity.

When donors give directly to a political campaign, their identities become public in campaign finance reports. When donors give to a nonprofit, however, the law does not require their identities be disclosed. Campaigns are allowed to use their money to expressly ask for votes, while the nonprofits are supposed to confine themselves to a broader discussion of issues.

“This is a nationwide issue. These groups exploit loopholes in the law to undermine the clear purpose of the law – to give essential information to the public,” Ann Ravel, the outgoing chair of the FPPC, said at a news conference announcing the settlement. “It’s important for people to know about campaigns, and who is financing them, in advance of elections so they can make thoughtful decisions when they vote.”

Ravel is scheduled to be sworn in Friday as a member of the Federal Elections Commission, which regulates campaign laws at the national level. She said she hopes the Legislature will reconsider a package of bills it rejected this year that would have required more disclosure in similar situations.

The partially redacted list the FPPC provided Thursday shows scores of donors from California.

The donor list includes more than $9 million from people with an address on Maritime Plaza in San Francisco, where the management company of the Fisher family, which owns Gap Inc., has its office. The first names listed match those of the family members. Notably, Gap Inc. also employed Brown’s wife, Anne Gust Brown, from 1991 until she left as chief administrative officer in 2005.

Another $500,000 came from a man named Eli, his last name redacted, whose address is listed as being on the 12th floor of a building on Wilshire Boulevard in Los Angeles. Developer Eli Broad’s foundation is in an office on the 12th floor at 10090 Wilshire.

Foundations run by Broad and the Fisher family have poured millions into efforts to reduce the influence of teachers unions in public education.

The list also shows contributions totaling $400,000 from the California American Council of Engineering Companies, a trade group that has been in conflict with Caltrans engineers. One name that was not redacted was that of Ventura County businessman Gene Haas, who gave $800,000. Haas, who owns Haas Automation in Oxnard, served 16 months in a halfway house in 2008 and 2009 after pleading to conspiracy to commit tax evasion.

Neither he, the Fishers or Broad returned calls seeking comment.

Another $2 million appeared to come from financial services titan Charles Schwab. A San Francisco post office box that is listed as Schwab’s mailing address on several government fillings appears on a list with a donor named Charles who gave $2 million to the effort on Oct. 12, 2012.

Just a day earlier, someone whose name was redacted in an email released by the FPPC sent an email to Charles Koch asking him to give money to oppose Proposition 32.

“I have committed an additional $2 million today, making my total commitment of $7 million,” the sender of the email says. “It would be great if you could support the final effort with several million.”

Evidence the FPPC collected shows that the Koch approach of using nonprofit groups to fund issue campaigns was appealing to California donors who wanted to support Proposition 32 and oppose Proposition 30 without disclosure. Ravel said almost $29 million “was given by donors who chose not to stand up for their political views but instead wanted to influence elections but hide from public view.”

Tony Russo, who was working as a fundraiser for a conservative group called Americans for Job Security, told investigators he began talking about anti-tax efforts in October 2011 with Sean Noble of the Center to Protect Patient Rights.

Russo said he had talked to donors who “liked the Koch model ... the way they have a network of (nonprofit committees) do issue advocacy,” according to a transcript of his interview with the FPPC.

The following year, in the midst of the initiative campaigns, lawyers advised him that millions they had raised could not be spent in California because it was too close to the election and could be seen as seeking to directly influence the vote.

Russo said he needed a place to put the money, and thought the Koch network might be able to help. He called Noble.

“I said, ‘Sean, you know, I have a big hiccup in California. We have money raised ... but I don’t think we can spend it in California. ... Can we support some of your national efforts and, in turn, do you have groups that can help us in California?’ That was pretty much as simple as it was,” according to the transcript.

Ravel said Russo then sent the money “to the Koch network with no strings attached, hoping that because that network has tentacles all over the country, some of the money eventually would find its way back to California campaigns, where the money was originally intended to go.”

Russo told investigators he first asked Noble to spend $4 million on the California initiative effort, then later asked for $11 million more as Election Day approached.

“I think I texted him and asked him if he could get us $11 million for California,” he said. He said he assumed the money wouldn't come from the patient-rights group because that was the committee he had sent his own money to, and he had told Noble it couldn’t be spent in California.

The FPPC on Thursday directed the recipient of that money, the California-based Small Business Action Committee headed by Joel Fox, to turn that money over to the state. It instructed a committee called the California Future Fund to pay the state $4.08 million.

“It’s required under state law,” said Gary Winuk, the FPPC’s chief of enforcement. “Just receiving a contribution where the true source is not disclosed means you have to give it up.”

Actually getting the money, however, will likely be a challenge.

The California Future Fund has closed its fundraising committee. The attorney for the Small Business Action Committee said his group is not required to pay the money, arguing that the California laws governing such payments apply to political candidates – not ballot measures.

Furthermore, attorney Steve Churchwell said, his client was not found guilty of any violations and doesn’t have $11 million anyway.

“Not one dime of this money is sitting in a bank account,” Churchwell said. “It all was spent on Props. 30 and 32.”