105th Congress
; 2nd Session
Senate Report 105-167 Part 5
105 S. Rpt. 167; Prt. 5
INVESTIGATION OF ILLEGAL OR IMPROPER ACTIVITIES IN CONNECTION WITH 1996
FEDEELECTION CAMPAIGNS
DATE: Ordered to be printed March 10,
1998
SPONSOR: Mr. Thompson submitted the
following report
COMMITTEE: from the Committee on
Governmental Affairs
TEXT:
PREFACE
PART 2 INDEPENDENT GROUPS Chapter 12: Triad
Triad Management, Inc., is a for-profit corporation owned by Republican
fundraiser Carolyn Malenick. Malenick incorporated Triad in the spring of 1996
but appears to have operated the business as an unincorporated entity since at
least early 1995. Triad holds itself out as a consulting business that provides
advice to conservative donors about how to maximize their political
contributions. Triad oversaw advertising in 26 campaigns for the House of
Representatives and three Senate races. Triad's spending may have affected the
outcome of some elections. Because Triad is an unusual corporation directly
involved in federal campaigns, the Committee investigated its work. Despite the
refusal by Triad and its lawyers to comply fully with the Committee's subpoenas
for both documents and testimony, the Minority developed substantial evidence of
wrongdoing by Triad.
Based on the evidence before the Committee, we make the following findings with
respect to Triad and the two non-profit organizations that it established:
FINDINGS
(1) The evidence before the Committee suggests that Triad exists for the sole
purpose of influencing federal elections. Triad is not a political consulting
business: it issues no invoices, charges no fees, and makes no profit. It is a
corporate shell funded by a few wealthy conservative Republican activists.
(2) Triad used a variety of improper and possibly illegal tactics to help
Republican candidates win election in 1996 including the following: (A) Triad
provided free services to Republican campaigns in possible violation of the
federal prohibition against direct corporate contributions to candidates. These
services included raising funds for candidates, providing consulting advice on
fundraising and political strategy, and providing staff to assist candidates,
(B) The evidence before the Committee suggests that Triad was involved in a
scheme to direct funds from supporters who could not legally give more money
directly to candidates, through political action committees (''PACs''), and back
to candidates. Triad obtained from Republican candidates names of supporters who
had already made the maximum permissible contributions and solicited those
supporters for contributions to a network of conservative PACs. In many
instances, the PACs then made contributions to the same candidates. (C) Triad
operated two non-profit organizations--Citizens for Reform and Citizens for the
Republic Education Fund--as allegedly nonpartisan social welfare organizations
under 501(c)(4) of the tax code and used these organizations to broadcast over
$3 million in televised ads on behalf of Republican candidates in 29 House and
Senate races. Using these organizations as the named sponsors of the ads
provided the appearance of nonpartisan sponsorship of what was in fact a
partisan effort conducted by Triad. Neither organization has a staff or an
office, and both are controlled by Triad. Over half of the advertising campaign
was paid for and controlled by the Economic Education Trust, an organization
which appears to be financed by a small number of conservative Republicans.
INTRODUCTION
Triad Management, Inc. (''Triad'') is a corporation which appears to exist
primarily to make contributions to conservative Republican candidates in an
attempt to help them win election to Congress. Triad claims to be a legitimate
business, but this is mainly so that it can evade the disclosure and
contribution limits of the campaign finance laws. Triad also created and ran two
other shell companies--Citizens for Reform and Citizens for the Republic
Education Fund (''Citizens for the Republic'')--for the sole purpose of
funneling millions of dollars into political advertising. Even more troubling is
that Triad's nonprofits were, in turn, largely funded by money from two trusts:
the Personal Trust and the Economic Education Trust. The Minority believes that
these two trusts were controlled by a very small number of wealthy individuals
who sought to keep their identity unknown. The facts suggest that these
individuals spent millions of dollars to affect over two dozen federal elections
despite operating completely outside of federal election laws.
In the 1996 elections, Triad operated in 26 campaigns for the House of
Representatives and three Senate races. Triad's spending alone appears to have
changed the outcome of some of those elections. In Kansas, where Triad was
particularly active, it may have changed the results in four of six federal
races, including a Senate race where the Republican candidate received
significant support from Triad.
Most disturbing, Triad is poised to become a model for future elections. A
fundamental premise of the 1976 campaign law is that voters are entitled to know
who is funding candidates' campaigns. As the Supreme Court noted in upholding
that law: ''[D]isclosure requirements deter actual corruption and avoid the
appearance of corruption by exposing large contributors to the light of
publicity. This exposure may discourage those who would use money for improper
purposes.'' (note - 1) The ability of wealthy contributors to finance
million-dollar advertising blitzes without disclosing their identity to voters
fundamentally undermines the spirit and letter of current campaign finance laws.
Footnotes appear at end of chapter 12.
BACKGROUND
Carolyn Malenick, the sole owner of Triad, is a graduate of Jerry Falwell's
Liberty University, and press reports have indicated that she has remained
personally close to Falwell and his family. 2 Malenick appears to have spent her
entire professional career in conservative Republican politics, primarily in the
fundraising arena. Malenick initially worked for the ''conservative direct mail
king'' Richard Viguerie. 3 Subsequently, she raised funds for Oliver North's
Freedom Alliance, a nonprofit organization founded by North in the wake of the
Iran-Contra scandal that has been criticized for raising millions of dollars in
undisclosed funding for North's political activities. (note - 4) Malenick went
on to raise funds for North's losing 1994 bid for U.S. Senate. 5 Malenick is
also a member of the Council for National Policy, an organization of
ultra-conservative political activists who work to further their agenda within
the Republican Party. (note - 6)
According to Malenick's public statements, she personally conceived the idea for
Triad and started the business from her home, most likely in 1995. 7 The stated
purpose of Triad is to provide advice to maximize the effectiveness of
contributions from conservatives. 8 In 1996, Malenick incorporated Triad and
established an office on Capitol Hill. (note - 9Triad is ostensibly a political
consulting firm that simply works for contributors rather than candidates.
Purportedly, Triad generates income from yearly subscription fees for a fax
service, percentage fees for contributions made at Triad's advice, and
management fees for overseeing the two nonprofits it created, Citizens for
Reform and Citizens for the Republic. 10 Triad then employs consultants to
determine which candidates have the best chance of winning and are thus
deserving of financial support from Triad's clients. (note - 11)
THE COMMITTEE'S INVESTIGATION OF TRIAD
On April 9, 1997, the Committee initiated its investigation of Triad and its
linked entities, Citizens for Reform and Citizens for the Republic, by issuing
subpoenas requiring production of documents to the Committee. Virtually no
substantive documents were produced for three months, until July. Further,
documents which would ordinarily be retained in the course of business,
including scripts and invoices for advertising by one of the nonprofit shells,
were not produced and appear not to exist. A February 22, 1997, memo from
Malenick to her employees refers to the completion of the ''cleaning'' of
computer hard drives. (note - 12The memo is dated less than two weeks prior to
publication of a Washington Post article on the subject of Triad and the shell
companies. 13
After delays in document production and protracted refusals to consent to
voluntary interviews or depositions, on July 11, Chairman Thompson signed
deposition subpoenas for 11 individuals associated with Triad. 14 On September
8, after only two-and-a-half depositions of people with knowledge of the events
under investigation had been completed, the Committee received a letter from
Triad's counsel. 15 He wrote: ''[f]rom press accounts, our clients have been
substantially more cooperative that other organizations. Accordingly, we will
not permit additional depositions . . .'' 16 Not only was the assertion of
cooperation dubious at best, but counsel set forth no valid basis for Triad's
obstruction. In a traditional litigation setting, such a refusal to appear and
answer pursuant to subpoena would likely result in a finding of contempt and
sanctions against these individuals. (note - 17)
At the time Triad employees and consultants defied the personal subpoenas issued
by the Committee, ten individuals--including all senior-level
decision-makers--were under personal subpoenas to appear and answer questions.
Also refusing to appear for deposition was Triad attorney Mark Braden. Braden is
a former general counsel to the Republican National Committee who advised Triad
throughout the period in which it carried out many of its apparently illegal
activities. Although three individuals subsequently appeared for deposition,
none answered any substantive questions. Carolyn Malenick herself, for example,
eventually appeared for deposition and then refused to answer any substantive
questions posed by Committee staff. 18 Prior to the blanket refusal to appear,
the Committee had already established that Triad had made significant corporate
contributions to Republican candidates; found evidence of illegal earmarking of
political action committee contributions; found evidence that Triad coordinated
its advertising campaign with Republican candidates; and found evidence that the
nonprofit shells had no independent existence apart from Triad.
Malenick and her backers and associates joined officials from the RNC and other
pro-Republican groups as the only individuals to blatantly defy deposition
subpoenas issued by the Committee. No individuals associated with Democratic
entities who received personal subpoenas to appear before this Committee and
answer questions either refused entirely to appear, or issued a blanket refusal
to answer. 19 Yet, no order was ever issued to enforce the subpoenas or to hold
Triad, its employees, officers, and directors in contempt of the Senate.
Not only were the Committee's subpoenas not enforced, the Majority reneged on
its commitment to allow three days of hearing time on the subject of abuses by
Republican organizations, including Triad, despite overwhelming evidence that
these groups had engaged in improper, and likely illegal, conduct. Further, in
possibly the most telling failure of this investigation, no subpoena was issued
for records of the Economic Education Trust, a secret entity that provided over
half of the funding for Triad's advertising campaign. As a result, the identity
of the figures behind the Economic Education Trust and the amount of money they
spent funding secret advertising campaigns through groups like Triad in the 1996
election remains unconfirmed.
Two Republican members of the Senate had links to Triad. One Senator received
the benefit of more Triad advertising dollars than any other candidate in 1996.
He also had several meetings with Malenick and Triad staff, and his campaign was
involved in receipt of PAC contributions involving Triad. Another Senator
appeared in a Triad marketing video that was intended to help Triad raise funds
for federal candidates. The video was filmed in his Senate office, possibly
violating prohibitions on the use of Senate offices for fundraising and
commercial purposes. In late 1997, a spokesman for that Senator said the video
was a mistake. (note - 20
Despite the obstruction by Triad and its lawyers, and despite the lack of
enforcement by the Committee, the Minority developed substantial evidence of
wrongdoing by Triad and its nonprofit shell organizations. The evidence shows
that Triad carried out an audacious plan to pour millions of dollars in
contributions into Republican campaigns nationwide without disclosing the amount
or source of those contributions.
THE POLITICAL OPERATION OF TRIAD MANAGEMENT Triad is not a business
The Committee's investigation has shown that Triad is not a business in the
conventional sense, because it charges no fees and generates no profit. Triad
did not produce a single client bill or invoice to the Committee, nor were any
marketing materials produced which mentioned fees or discussed a fee structure.
21 Neither the bookkeeper nor the finance director of Triad could tell the
Committee how Triad billed its clients. While Triad finance director Meredith
O'Rourke recalled seeing a sheet of paper with a fee structure on it, she could
not recall if fees were paid on a monthly, weekly, or yearly basis. 22 She could
not explain how fees were calculated and could only say that clients were paying
for ''advice'' but could not recall the ''specifics'' of it. (note - 23) Triad
bookkeeper Anna Evans, when asked about the fee structure, said she could not
state how clients were billed or on what basis. Asked about whether clients were
billed for travel by Triad staff, she responded, ''I'm not involved in
agreements that are reached between Carolyn and the clients.'' (note - 24)
In telephone interviews, a number of people who confirmed that they contributed
to PACs at the advice of Triad made no mention of paying fees. 25 At least one
individual, Floyd Coates, stated that he did not pay Triad for the contribution
advice he received. 26 Another person who made contributions at Triad's advice
stated he had learned of Triad from his friend Robert Cone and that he regarded
Malenick as the organization's executive secretary. (note - 27) Robert Cone's
financial support of triad
The evidence shows that at least through the second half of 1995, and into 1996,
Triad was largely a vehicle for a single conservative activist, Robert Cone.
According to Triad bookkeeper Evans, money was given to Triad from a single
principal donor ''so it could proceed with its work.'' 28 Bank records show that
between June 1995 and January 1996, Triad received a total of $196,000 in
deposits. 29 Of this total, Cone provided $175,000, or 89 percent of Triad's
funding. 30 Through the end of 1995, Cone's payments were made in increments of
approximately $25,000 per month. 31 During this period, Triad received only
$1,376 from sources other than Cone or fellow conservative Lorena Jaeb. (note -
32) Between January and September 1996, Triad received a total of $1 (note - 1)
million. Of this amount, at least $150,000 was received from Robert Cone, while
$900,000 was received from unknown sources in wire transfers of $50,000 or more.
Only $17,000 is known to have come from non-Cone sources. 33 The total amounts
received by Triad from Cone may be even larger. Asked to estimate the cumulative
amounts received from its principal donor, Triad bookkeeper Evans estimated that
Triad had received between $600,000 and $700,000 from this source, while one of
the two nonprofits received $900,000, and the other received between $400,000
and $500,000. (note - 34)
Cone, a businessman based in Elverson, Pennsylvania, is a well known social
conservative who backs anti-abortion causes. 35 However, it was not until the
last few years that he began devoting large sums of money to political causes.
Cone, who together with his brother, Edward, formerly owned Graco Children's
Products, initially made political contributions to a number of candidates who
supported tort reform shortly after Graco was sued in a series of product
liability cases. (note - 36)In 1996, Cone created a state-level political action
committee in Pennsylvania, which has come under media scrutiny because he is the
committee's only contributor. 37 It was reported as early as October 1996 that
Cone along with Malenick visited staff in a Republican Senator's office to
promote Triad. 38 Cone also appears in Triad's marketing video and attended a
presentation of the results of a national poll commissioned by Triad he
attended. (note - 39)
While Triad holds itself out as a for-profit consulting business, the evidence
before the Committee indicates that it charges no fees and is primarily funded
by Cone. As discussed below, Triad's business activities were confined to
activities designed to affect the outcome of federal elections. 40 In effect,
Cone used Triad as a vehicle to provide in-kind contributions to Republican
candidates nationwide, contributions that in many instances he would have been
prohibited from making himself, as he had already reached his personal annual
contribution limit with contributions to PACs and to individual candidates.
(note - 41) Because Triad's sole purpose is to influence the election of
conservative Republican candidates, legally it should publicly disclose its
activity to the Federal Election Commission, like any other political party or
political action committee that exists to influence federal elections. (note -
42) Corporate contributions by Triad
As a corporation, Triad is prohibited from making contributions to the campaigns
of political candidates. 43 When providing services to campaigns, corporations
such as Triad are required to charge commercially reasonable rates. Any failure
to charge such market rates can result in the services being deemed illegal
''in-kind'' corporate campaign contributions. 44 Triad, generously funded by
Cone and others, apparently never charged fees. Instead, Triad provided
political consulting services to numerous Republican campaigns free of charge.
Triad raised funds for candidates from PACs and from individuals and advised
candidates on fundraising and on matters of political strategy, often sending
consultants to meet with candidates and observe the campaign structure. These
free services would appear to constitute illegal corporate contributions from
Triad to the campaigns.
While Triad publicly claimed to act as a consultant only to contributors, its
activities were, in fact, more broadly based. From Triad's offices, Malenick
provided advice to candidates on subjects as varied as raising funds from PACs,
to where to live if elected. 45 Triad finance director Meredith O'Rourke, who
was based in Triad's Washington office throughout 1996 and shared an office with
Malenick, testified that Malenick spoke to dozens of Republican candidates in
1996 and that she herself frequently spoke to candidates about fundraising,
polling, and how their campaigns were going in general. 46 Robert Riley, Jr.,
son of a successful candidate for the House of Representatives in 1996, told a
Committee investigator that he was initially put in touch with Malenick as a
person who could secure financial support from PACs for his father. 47
Representative John Thune of South Dakota, when asked about Malenick's receipt
of a check from his campaign committee, explained that he had traveled to
Washington, and Malenick had spent a couple of days showing him around and
introducing him to people. (note - 48)
Triad also made in-kind contributions to candidates in the form of advice from
experienced political consultant Carlos Rodriguez. Prior to becoming a
consultant for Triad, Rodriguez was known primarily for his work on behalf of
California Republicans. In one incident, while he was working for Republican
State Assembly candidate Curt Pringle, he was reportedly responsible for posting
uniformed guards outside Orange County, California, polling places to discourage
Latino voters. (note - 49) Through November 1996, Rodriguez traveled the country
assessing the chances of various conservative Republican candidates and offering
advice to candidates and campaigns along the way. Paid $20,000 a month by Triad,
Rodriguez wrote reports of his visits to at least 53 congressional districts and
campaigns. 50 At the same time, Rodriguez advised the campaigns on issues from
the hiring of particular consultants, to the utility of phone banks, to the
effectiveness of advertising, and how to develop fundraising plans. 51 The
assessments performed by Rodriguez also document the high level of personal
contact between candidates and Triad. Many reports indicate a personal meeting
with the candidate, or, at a minimum, a meeting with senior campaign staff. Many
reports were also executed just prior to the final decision-making period on
advertising buys in September and early October. In addition to these visits,
according to Triad's attorneys, Triad may have actually funded visits to as many
as 250 Republican campaigns during 1996. 52 Thus, there is no doubt that
candidates were aware of Triad's activities, and in most cases at least appear
to have welcomed the activity.
The ostensible purpose of the Triad campaign site visits was for Triad to assess
each candidate's viability and thus determine if the campaign was deserving of
Triad-generated financial support. Triad also used the site visits as occasions
to give strategic advice on such issues as selection of vendors, and
advisability of polling, mailings, and phone banks.
For example, Rodriguez strongly encouraged the campaign of Jay Mathis, a House
candidate in Texas, to engage a phone bank operation. (note - 53Another site
visit report by Rodriguez described the particulars of his campaign-consulting
activities: ''I gave them a plan to work out with regards to fundraising,
establishing specific goals and programs to meet those objectives.'' 54 In the
case of Christian Leinbach, a House candidate from a Pennsylvania district near
Robert Cone, Rodriguez wrote: ''I have suggested to Christian Leinbach specific
steps that need to be taken regarding his fundraising. I have asked the campaign
chairman to inform me if Christian Leinbach does what he has been told he needs
to do.'' (note - 55)
In other instances, Rodriguez advised campaigns to hire vendors with whom Triad,
or at least Rodriguez, already had relationships. For example, in the report on
Jim Ryun, a House candidate in Kansas, Rodriguez wrote that the bad points about
the campaign included the lack of a campaign structure. He noted that he had
recommended Chris Wilson of Fabrizio & McLaughlin as ''they are already
doing Snowbarger next door and Todd Tiahrt's reelect and as such have a good
knowledge of the state.'' 56 Fabrizio and McLaughlin also worked directly for
Triad in 1996 and had previously worked with Rodriguez on the 1994 campaign of
Indiana Representative David McIntosh. 57 Wilson was also Rodriguez's choice for
Steve Stockman's House campaign in Texas: ''Should [the existing pollster] not
be ready to go into the field, I have suggested in very strong terms to Steve
Stockman that he consider replacing [him] with Chris Wilson from Fabrizio
McLaughlin who has intimate knowledge of Texas and Stockman's own district.'' 58
For House candidate Mark Sharpe of Florida, Rodriguez recommended his own former
partner David Gilliard as a paid consultant: ''In addition I recommended . . .
that Gilliard do their advocacy direct mail to add punch to their campaign.''
(note - 59)
Triad also provided staff to assist directly at least one candidate in raising
funds. O'Rourke testified that on two occasions she went to the National
Republican Congressional Committee to assist a member of the House of
Representatives who was a candidate for the Senate in ''dialing for dollars.''
60 Although Triad counsel Mark Braden has publicly insisted that O'Rourke was
not acting as an employee of Triad when she assisted that candidate, 61 O'Rourke
(with Braden present) testified that Malenick arranged her initial meeting with
that candidate: Q: The first time you met with [the Senate candidate] was at the
NRCC and I think you said Carolyn [Malenick] had set it up, is that correct? A:
Correct. (note - 62)
In addition to providing advice and fundraising assistance to candidates, Triad
worked to raise funds for individual candidates. (note - 63) One common means
that Triad used to solicit contributions was a sophisticated system of fax
messaging that could simultaneously send information to many persons. The faxes,
written by Malenick, were sent to conservative Republicans and contained general
information on a number of campaigns. Triad also used its fax system to urge
support or defeat for particular candidates. For example, a November 15 fax
discussing run-off elections exhorts: ''Stockman needs our help and we must
answer the call.'' 64 A July 18 fax, sent just before the Kansas primary,
claims: ''The election of Brownback will send shock waves through the Republican
national convention! Sheila Frahm must be defeated.'' 65 By expressly advocating
the election and defeat of candidates, these faxes by Triad appear to be illegal
corporate contributions to the campaigns. 66 While no witness could tell the
Committee how many people received the faxes, one fax alert notes that ''over
160 businessmen and women have been added to the Fax Alert in the last 18
months.'' 67 In one fax sent shortly before the November 5 election, entitled
''TOP TIER RACES IN NEED OF CASH $$,'' Triad solicited contributions for 26
candidates. 68 Of the 26 candidates, 19 also benefitted from advertising, mail,
or telephone attacks on their opponents from Triad's affiliated organizations,
Citizens for Reform or Citizens for the Republic. Essentially, Triad acted as a
volunteer fundraising consultant for Republican campaigns, illegally
facilitating contributions to the candidates. (note - 69)
These services--the solicitation of contributions, visits to and assessment of
campaigns, general advice, introductions to PAC funding sources, and express
advocacy on behalf of specific candidates--summarize the day-to-day activities
of Triad up to September 1996. While these activities do not significantly
differ from the day-to-day business of other political consultants, Triad's
activities are fundamentally problematic because Triad was not paid by the
candidates but was largely financed by a single individual. Triad's activities,
therefore, appear to have constituted illegal corporate contributions from Triad
to the candidates it assisted. Triad and political action committees
Triad also worked to generate contributions to conservative political action
committees. Moreover, PACs for which Triad solicited contributions frequently
gave to candidates who had received contributions from the same PAC
contributors. If these contributions were merely coincidental, no violation of
federal law occurred. However, if either the contributor or Triad suggested or
implied to anyone at the PAC that contributions should be made to a particular
candidate, and the contributor had also made the maximum contribution to the
candidate, the contribution is considered illegally ''earmarked.'' (note - 70)
The pattern of candidate contributions made by PACs receiving Triad-solicited
contributions suggests that earmarking did occur. An examination of the public
records of approximately ten conservative political action committees shows that
on a number of occasions multiple PACs received checks from the same individual
within a matter of days. All of the PACs receiving the contributions then made
contributions to one candidate within days of one another. In most cases the
individual contributor had already made the maximum permissible contribution (''maxed-out'')
to the candidate benefitting from the PAC contribution.
One example of this pattern is the contribution of Robert Riley, Jr., an Alabama
lawyer and the son of congressional candidate Robert Riley. Between May 9 and
May 23, 1996, Riley, Jr. made four contributions to PACs, which appear on an
internal Triad PAC list. 71 Between May 23 and May 29, the same four PACs made
contributions to the Riley campaign, two of the PACs within 48 hours of
reporting receipt of the Riley contribution. 72 On June 4, Riley, Sr. won the
Republican primary. On November 14, the newly elected Representative Riley was
quoted in a Triad fax stating, ''Triad came to our aid in crucial times when we
were desperately in need of funds.'' (note - 73)
Another series of contributions was made by John and Ruth Stauffer. Between July
5 and July 29, the Stauffers made contributions to seven PACs. Between July 12
and July 29, all seven PACs contributed to the Senatorial campaign of the
Stauffer's son-in-law. At least one of the checks delivered stated, ''c/o
Triad.'' 74 Shortly after winning the August 6 primary, the same candidate sent
Triad a personally signed thank-you note which read, ''I cannot even begin to
thank Triad enough for its help in my Senate primary campaign.'' (note - 75)
In her deposition, O'Rourke confirmed that Triad was in regular contact with
individuals who worked for the PACs receiving the Riley and Stauffer
contributions. O'Rourke testified that either she or Malenick was in contact
with people at the Faith Family and Freedom PAC, the Conservative Victory
Committee, the Eagle Forum, the Conservative Campaign Fund, Citizens United, the
Republican National Coalition for Life, the Madison Project, and the
Sacramento-based Citizens Allied for Free Enterprise and Americans for Free
Enterprise. (note - 76)
Malenick had long-term relationships with many of the people in charge of making
the PACs' contributions. Peter Flaherty, who is responsible for making
contributions for the Conservative Campaign Fund, testified that he had known
Malenick for a number of years. 77 The relationship with Flaherty is
particularly important as he not only oversees the Conservative Campaign Fund,
which made a number of questionable contributions, but also acts as spokesperson
for one of the nonprofit organizations created by Triad, Citizens for Reform. 78
David Gilliard, the contact for Citizens Allied for Free Enterprise, is also a
director of the second Triad shell, Citizens for the Republic. 79 In addition,
Gilliard produced mailings for Citizens for Reform and is the former business
partner of Carlos Rodriguez. 80 Rodriguez himself worked for the 1994 election
campaign of Representative David McIntosh, who is associated with the Faith,
Family and Freedom PAC. 81 All of the PACs identified above as well as
additional political action committees implicated in patterns of suspicious
contributions appear on an internal Triad list along with names and telephone
numbers of contacts at each organization. (note - 82)
The Committee found evidence that Triad was involved in each step of the
contribution process, from the time a PAC contribution was solicited from a
contributor to the time the PAC contributed to a candidate. Robert Riley, Jr.
told a Committee investigator that he made his contributions on the advice of
Malenick and that Malenick had held the checks for a period of time before they
were cashed by the PACs. (note - 83) Riley also told the agent that when the
campaign received the contributions from the PACs, the checks were received not
from the PACs themselves, but from Triad. 84 O'Rourke confirmed that, on
occasion, she personally delivered checks to PACs; that she always called a PAC
to let it know that a Triad-solicited check would be arriving; and that as a
general matter people at the PACs knew when checks they received were the result
of Triad involvement. (note - 85)
Documents produced to the Committee, along with the testimony of O'Rourke, also
established that Triad had a regular pattern of soliciting Republican candidates
for names of their supporters who had already contributed the maximum amounts to
their campaigns permitted by law, so that the supporters could be solicited by
Triad for PAC contributions. O'Rourke confirmed that, on multiple occasions, she
solicited names from Republican candidates and campaign staff of supporters who
might be good ''potential Triad clients.'' 86 Candidates who provided names of
such potential contributors included the Senate candidate who received
contributions from the Stauffers, Representative Riley, and Representative
Gutknecht. 87 Carlos Rodriguez's reports also reflect this pattern. In the
campaign report of Texas House candidate Pete Sessions, Rodriguez states: ''[b]oth
Sessions and [the campaign manager] clearly understood the Triad concept and
will have a list of their maxed out donors for our inspection as soon as there
is a call from Washington.'' 88 In another Texas campaign report, Rodriguez
notes, ''Ed Merritt has a number of maxed out donors who might want to be
introduced to Triad. Towards that end, I have recommended over the telephone to
Meredith O'Rourke that we check their receptance.'' (note - 89)
Triad's pattern of soliciting candidates for the names of maxed-out contributors
was so well-established that Triad used standard ''phrases'' approved by
counsel. A June 13, 1996, memo from O'Rourke to Triad counsel Mark Braden
queries, ''Is this phrase okay for candidates to use to refer potential clients
to Triad? 'There is a business in Washington--whose clients are donors to
conservative causes and campaigns. Call them.''' 90 Handwriting in the top
corner of the memo indicates that on June 13 ''Braden OK'd quotes.'' 91 Reports
of visits to the campaigns by Rodriguez also routinely note that O'Rourke should
get in touch with the campaign staffer in charge of fundraising after his visit.
For example, in the report on the Rick Hill campaign for the House in Montana,
Rodriguez notes, ''I have advised Betty Hill (the wife of the candidate and an
accomplished campaigner herself) that she should be receiving a call from
Meredith [O'Rourke] in the days to come to discuss possible Triad clients [who]
might be able to help.'' (note - 92)
The public disclosure records of the PACs that appear on Triad's internal list
also indicate that Triad's network of contributors had relationships with one
another and with Malenick through membership in the Council for National Policy.
For example, the public records for a Sacramento-based PAC, Citizens Allied for
Free Enterprise, which is administered by David Gilliard, show a number of
contributions by Council for National Policy Members. 93 The PAC, established in
November 1995, received a total of 21 contributions. Nine contributors were
members of Robert Cone's family, while four additional contributors were, like
Cone and Malenick, members of the Council for National Policy. (note - 94)
Besides the Riley and Stauffer incidents, other contribution records reveal a
pattern whereby contributions found their way from supporters of particular
candidates through PACs associated with Triad to the candidates the contributors
supported. The records show: Steve Stockman received three $5,000 contributions
from PACs on Triad's internal list. All three PACs received $5,000 contributions
from Richard Eckburg. Eckburg also made a $1,000 contribution to Stockman. (note
- 95Foster Freiss of Wyoming made a $4,000 contribution to Peter Flaherty's
Conservative Campaign Fund on November 1, 1996. On the same day, the
Conservative Campaign Fund made a $4,000 contribution to Ray Clatworthy, a
Senate candidate in Delaware. The Conservative Campaign Fund made no other
contributions in the amount of $4,000. Freiss also contributed directly to
Clatworthy. On October 31, Freiss made a $25,000 contribution to Citizens for
Reform, for which Flaherty was spokesman. Citizens for Reform spent $18,000 on
advertising for Clatworthy. (note - 96) Peter Cloeren of Orange, Texas, made a
contribution to Texas House candidate Brian Babin in September 1996. On October
14, Cloeren made a $5,000 contribution to Citizens United. On the same day,
Citizens United made a $5,000 contribution to Babin. On October 1, Cloeren made
a $20,000 contribution to Triad-affiliated Citizens for Reform. Citizens for
Reform spent an unknown amount on television commercials attacking Babin
opponent Jim Turner. (note - 97) Lorena Jaeb of Florida contributed $20,000 to
Triad in 1995. On April 22, 1996, she made a contribution of $2,500 to Citizens
United. On April 28, Citizens United made a $2,500 contribution to
Representative J.C. Watts of Oklahoma. Jaeb also made a $1,000 contribution to
the Watts campaign. Representative Watts was quoted in a Triad fax stating, ''My
thanks to TRIAD's clients who had the backbone to answer the call--putting their
money where their mouths were. . .'' (note - 98)
Meredith O'Rourke and Peter Flaherty, the only individuals with knowledge who
answered any substantive questions in deposition, refused to answer questions on
the subject of specific PAC contributions. Asked about the Riley contributions,
O'Rourke responded, ''I don't think I want to answer that question.'' Triad
counsel Mark Braden then added, ''No, we're not going to answer any questions in
regards to Bob Riley, Jr.'' 99 Asked whether any ''clients'' of Triad made
contributions to Riley's PAC, the Conservative Campaign Fund, Flaherty
responded, ''It's none of your business.'' 100 While a spokesperson for another
candidate has insisted that O'Rourke obtained names from that candidate's public
FEC reports, O'Rourke testified that she received the names directly from a
campaign staff member. 101 Asked about the Stauffers, O'Rourke confirmed that
she knew them, but when asked if she had gotten their names from a specific
Senate candidate, she was instructed by her attorney, Mark Braden, not to
answer. 102 Among the questions that Malenick refused to answer was, ''Did Triad
ever make suggestions to any political action committee relating to the
candidates that the committee intended to contribute to?'' (note - 103)
Triad has tried to make the case publicly that these situations are simply
coincidences that occur in any campaign where a candidate receives funds from
individuals and PACs with similar ideology. However, the Committee is aware of
no other situation where an entity acted as an intermediary, soliciting
candidates for potential contributors, and directing the flow of the
contributions from contributors to multiple PACs on the one hand, while being
involved in the subsequent distribution of the PAC funds on the other. It
strains credulity that Malenick repeatedly accomplished each of these steps
without ever implying to the candidate, the contributor, or the PAC
representative that a particular candidate might be a good selection for a
particular PAC contribution. While, according to Robert Riley, Jr., Malenick
told him she could not guarantee that his father would benefit from his PAC
contributions, evidence gathered by the Committee strongly suggests that
Malenick made implied representations that particular contributions should go to
particular candidates, thus illegally earmarking contributions for particular
candidates. (note - 104)
THE ADVERTISING CAMPAIGN
The primary means by which Triad assisted in the election of conservative
candidates was by overseeing millions of dollars' worth of advertising placed by
two nonprofit organizations, Citizens for Reform and Citizens for the Republic.
The advertising funded through these groups cost between $3 and $4 million and
aired in 26 House and three Senate races. 105 The sole purpose of the
advertising was to influence voters in favor of conservative Republican
candidates in those races. Creation of Citizens for Reform and Citizens for the
Republic
Like other organizations that aired advertising in the 1996 campaign, Triad took
advantage of a series of court cases decided as recently as 1996. The cases hold
that if a political advertisement or other communication (such as a mailing or
telephone call) is paid for by an individual or corporation that is not a
candidate or a political party, and the advertisement does not use words that
expressly advocate the election or defeat of a candidate (such as ''vote for,''
''elect,'' or ''defeat''), then the advertiser is exempt from the
campaign-finance laws. 106 The ad may be paid for with corporate or union funds,
and neither the source of the funds nor the cost of the advertisement need be
publicly disclosed. However, if groups preparing such advertising campaigns
consult with or collude with candidates or campaigns, then the cost of the
advertisements will be viewed as a contribution from the organization to the
campaign. (note - 107)
In the 1996 election cycle, the use of ''issue advocacy'' advertising exploded,
and many groups began airing advertisements that were unmistakably political
advertising clearly favoring one candidate over another and intending to
influence the views of potential voters. (note - 108) The majority of groups
that aired such advertisements, produced mailings, and made telephone calls in
1996 were well-established membership organizations committed to particular
issues. Such groups included the AFL-CIO, the U.S. Chamber of Commerce, the
Christian Coalition, and the Sierra Club.
In contrast to these groups, Triad conceived of the idea, apparently in early
1996, of creating two nonprofit corporations--Citizens for Reform and Citizens
for the Republic--solely for the purpose of airing advertisements without
disclosing their sources of funding. The two groups were incorporated on May 5
and June 20, 1996, respectively, within weeks of Triad itself. 109 In
post-election marketing material, Citizens for the Republic boasted that it had
''no endowed chairs, no fellowship programs, no committees and no departments.''
110 In fact, neither Citizens for Reform nor Citizens for the Republic had
committees, programs, or chairs. They had no chairs of any sort, nor desks,
offices, staff, or even telephones. Instead, Citizens for Reform and Citizens
for the Republic each consists of a set of articles of incorporation, a post
office box, and a bank account. Neither organization has ever engaged in any
service or activity other than paying for the production and airing of political
advertising. They are justifiably characterized as shell companies created as
mechanisms for funding million-dollar political advertising campaigns and to
create of a patina of credibility for the advertisements.
In 1996, both Citizens for Reform and Citizens for the Republic claimed to be
tax-exempt ''social welfare organizations'' pursuant to section 501(c)(4) of the
U.S. tax code, with a public purpose: respectively, to ''develop greater
participation on a non-partisan basis, in the debate on the size, scope, growth
and responsibility of government'' and to focus on ''public policy issues
concerning the American worker.'' Despite holding themselves out as social
welfare organizations throughout the election, and despite the fact that
Citizens for the Republic obtained IRS approval, both organizations apparently
now have conceded that they do not fit the requirements of section 501(c)(4)
status but are instead political organizations governed by section 527, the same
IRS section that applies to the Democratic National Committee and the Republican
National Committee. (note - 111While a 501(c)(4) organization may lobby and may
even engage in campaign activities, such activities may not be the primary
activity of the organization. Yet, campaign activity was not just the primary
but the exclusive activity of both Citizens for Reform and Citizens for the
Republic. While counsel Mark Braden claimed that the change of tax status was
''just a question of what forms you file,'' in fact Citizens for Reform and
Citizens for the Republic have conceded that they exist to influence the outcome
of elections, coming perilously close to an admission that they are subject to
the disclosure requirements and contribution limits of the campaign-finance
laws. (note - 112)
Carolyn Malenick has insisted that Citizens for Reform and Citizens for the
Republic are independent organizations that Triad simply ''manages.'' In fact,
the organizations were created at Malenick's instigation and have always
essentially been run by Triad. In his deposition, Citizens for Reform director
Peter Flaherty was able to recall that he discussed the creation of a nonprofit
organization with Malenick between one and ten times prior to incorporating
Citizens for Reform, but he insisted he could not recall any single discussion
or the specifics of any discussion. 113 Triad's role in the creation of Citizens
for the Republic is even more clear, in that it was incorporated by Triad's law
firm, and Rodriguez, Malenick, and O'Rourke were all appointed as either
officers or directors of the organization. 114
Triad was also responsible for all financial arrangements of both organizations
from their creation. In July 1996, Citizens for the Republic paid for a series
of ''test advertisements'' in a variety of congressional districts. All funding
for this campaign originated with Triad, which simply made transfers into
Citizens for the Republic's bank account. 115 In fact, while Flaherty insisted
under oath that he signed all checks for Citizens for Reform, bank records show
that financial transactions for both Citizens for Reform and Citizens for the
Republic consisted only of wire transfers that were handled exclusively by Triad
bookkeeper Anna Evans. (note - 116)
On September 27, 1996, six weeks prior to the election, Malenick on behalf of
Triad entered into a formal consulting agreement with both Citizens for Reform
and Citizens for the Republic. The consulting agreements granted to Triad carte
blanche authority to act on behalf of both organizations. The agreements gave
all authority for decision-making and hiring of consultants to Triad--destroying
any semblance of separation between Triad and the two other organizations. The
consulting agreements read in part:
TRIAD will be free to decide the means by which it will provide the Services. To
the extent that TRIAD requires assistance in providing the Services, it shall be
responsible for hiring the necessary individuals or firms. All work done by
TRIAD and its agents servants and employees and all employment and other
contracts made by TRIAD in the performance of this agreement shall be as
principal and not as agent of [either organization].'' (note - 117) Prior to
execution of its agreement, Citizens for Reform did not even have a bank
account. Yet, between the time an account was opened on October 11 and the
November 5 election, Citizens for Reform received 12 deposits totaling $1.79
million. 118 Of these funds, $1.69 million was spent by November 7. 119 Between
October 1 and November 15, Citizens for the Republic received eight deposits
totaling $1.84 million while spending $1.68 million. 120 Funds were also freely
transferred between accounts held by Citizens for Reform, Citizens for the
Republic, and Triad. 121 In December 1996, Citizens for Reform received $127 in
deposits and spent only $17. 122
While Citizens for Reform and Citizens for the Republic each had a spokesperson,
neither person appears to have played a substantive role in the advertising
campaign. Lyn Nofziger, spokesperson and director of Citizens for the Republic,
refused to answer questions at his deposition but has stated publicly that ''Malenick
handled most of the work.'' (note - 123)This statement is certainly supported by
the documents produced to the Committee, since Nofziger's name appears on only
official documents bearing his signature, talking points for a single meeting,
and his letter of resignation dated April 3, 1997, one week prior to the
issuance of subpoenas by this Committee. 124 Peter Flaherty confirmed that,
despite his title as director, he viewed Malenick as the person in charge of
fundraising, retaining vendors, and deciding on the content and placement of
advertising for Citizens for Reform. (note - 125)
The fact that the Citizens for Reform and Citizens for the Republic advertising
was financed by so few deposits so close to the election suggests that a handful
of wealthy contributors were financing the huge political advertising campaign.
The creation of the companies allowed these contributors to contribute enormous
sums of money without public disclosure. Contributors were also free to use
corporate funds, which they could not otherwise legally contribute to
candidates. Besides protection from disclosure, the Triad companies also offered
contributors another huge advantage: control of the substance, timing, and
location of advertising. Triad essentially allowed contributors to launder funds
through these entities for their own political purposes. Improper coordination
of Triad's advertising with political candidates
Citizens for Reform and Citizens for the Republic spent a combined total of
between $3 million and $4 million on advertising in 29 races. 126 The total
amount remains unknown, because the documents produced to the Committee contain
inexplicable gaps. It appears that Citizens for Reform and Citizens for the
Republic spent money for television, radio, mail, and telephone calls in three
Senate and 26 House races. The Senate races were in Kansas, Arkansas, and
Delaware, while House races included four in Texas, three in Kansas, three in
California, two each in Pennsylvania and Oklahoma, and one each in Minnesota,
Hawaii, Montana, South Dakota, Washington, Oregon, Ohio, Illinois, Tennessee,
Arkansas, New York, and North Carolina. Of the 29 Republican candidates who
benefitted from advertising ''managed'' by Triad, 22 are known to have received
campaign visits from Carlos Rodriguez, while at least three others spoke
personally to Malenick. (note - 127)
Like other groups running so-called issue advertisements in the 1996 campaign,
Triad carefully avoided the words ''vote for,'' ''support,'' or ''defeat,'' in
the advertisements it funded, but otherwise attacked the positions, ideology,
and, frequently, the character of candidates. The advertising created by Triad
focused on no single set of issues. It more closely resembled negative attack
advertising aired by an opposing candidate. The candidates benefitting from the
advertising were the same candidates for whom Triad had solicited contributions
and advised on campaign and fundraising strategy.
When a candidate and an organization exchange information, and the organization
subsequently spends funds to encourage voters to support the candidate, it
raises questions about whether the expenditures were undertaken in coordination
with the candidate, thereby making the advertising expenditures a disguised
contribution to the campaign. One court has said that organizations may legally
have contact with candidates, but noted that the level of contact and
coordination was important and that the ''government has an interest in
unearthing disguised contributions,'' and ''the FEC is free to investigate any
instance in which it thinks the inquiry (between representatives of a
corporation and a campaign) has become collaboration.'' 128 The Committee's
investigation of Triad has shown that representatives of Triad and its shell
corporations had contact with the campaigns that went far beyond the making of
inquiries, and that Triad and campaign representatives collaborated on plans,
strategies, and the needs of the campaigns. Both the content of the advertising
and the determination of where to air advertising was clearly influenced by
Rodriguez's conversations with the candidates and the campaigns.
For example, Rodriguez visited the campaign of Rick Hill, a Republican running
against Democrat Bill Yellowtail for Montana's at-large seat in the House of
Representatives. In a report dated September 24, 1996, Rodriguez wrote that the
number-one item the Hill campaign needs is a ''3rd party to 'expose'
Yellowtail.'' 129 Rodriguez also noted that three ''key issues--anti
Yellowtail'' are ''wife beating,'' ''robbery of camera store in college,'' and
Yellowtail's record as a ''deadbeat dad.'' (note - 130)
On October 22, Citizens for Reform commenced a $109,500 television advertising
campaign attacking Yellowtail. 131 The television advertisement exactly followed
the issues laid out in Rodriguez's report, with the announcer intoning: Who is
Bill Yellowtail? He preaches family values but took a swing at his wife. And
Yellowtail's response? He only slapped her. But ''her nose was not broken.'' He
talks law and order . . . but is himself a convicted felon. And though he talks
about protecting children, Yellowtail failed to make his own child support
payments--then voted against child support enforcement. Call Bill Yellowtail.
Tell him to support family values. (note - 132) Although polling in September
showed Yellowtail ahead by three points, on November 5, Rick Hill won by a
margin of 52 to 43. 133
In other cases Rodriguez made no secret of the fact that he was using
information gained in the audits to determine where Triad would run advertising
and what it would say. On September 25, after visiting the South Dakota campaign
of Republican House candidate John Thune, Rodriguez wrote, ''This campaign is
well on its way to winning. If there is anything we can do to help it would
probably be in the area of 501(c)(4) education with regards to the liberal
tendencies of his opponent.'' 134 The report also noted Democrat Steve Weiland's
''union ties'' as a key issue in the race. 135 Citizens for Reform subsequently
spent $21,000 on television advertisements focusing on Weiland's support for
organized labor. (note - 136)
On September 3, Rodriguez noted in a report on the Texas campaign of Steve
Stockman: ''. . . we ought to place Steve Stockman among the top ten races for
TRIAD to watch. We should also give some very serious thought to the possibility
of engaging in an educational effort to bring into focus what Steve Stockman has
done for the district and to expose some of the shortcomings that his Democratic
opponent brings to this campaign.'' 137 In the two weeks before the election,
both Citizens for Reform and Citizens for the Republic aired advertisements
totaling $142,000 attacking Stockman opponent Nick Lampson. 138 One
advertisement stated: Can we trust Nick Lampson? As Jefferson County tax
assessor, Lampson was criticized as inefficient and disorganized by the county
auditor. . . . And the Houston Chronicle reported that Lampson was accused of
Medicare fraud by a home health care worker from his family business. Call and
tell Nick Lampson to support ethics in government. (note - 139)
Other excerpts from Rodriguez's reports demonstrate how Triad's extreme
conservatism led it to spend money to target even moderate Republicans. For
example, Sue Wittig, who ran against Representative Maurice Hinchey in New York
state during the Republican primary, benefitted from $111,000 in television and
radio advertising placed by Triad through Citizens for Reform. 140 On September
29 Rodriguez wrote: During the entire primary season, we have encountered
Republican women who represented the more moderate to liberal philosophy in the
Republican party. We have been successful, in most cases, in defeating those
Republican women. Here is an opportunity for TRIAD clients to play a leading
role in helping elect a conservative woman to show that conservative women have
a better chance of winning than liberal women. (note - 141) In a two-week
period, Triad spent $111,000 for Wittig--not much less than the $141,000 the
Wittig campaign itself spent in the same period. 142
These advertisements were the functional equivalent of campaign ads. The ads
were run in specific districts. Faxes sent by Triad indicate that the timing of
the ads was carefully planned for when advertising was likely to have its
greatest impact on voters. 143 The advertisements seldom if ever dealt with
''issues'' but were instead attacks motivated by partisan intent. Asked about
the ads run by Citizens for Reform attacking Democratic candidate Yellowtail,
Peter Flaherty of Citizens for Reform reportedly stated: ''If more wife beaters
are out there as public figures, we are going to expose them, and they better
watch out.'' 144 Asked whether his group would attack any Republican wife
beaters who might turn up, Flaherty said ''Its not up to us to do the job of
people who have a liberal ideology.'' 145 Even Lyn Nofziger, spokesperson for
Citizens for the Republic, has said that it is ''outrageous'' that groups like
this can ''go and run political ads and call them educational.'' (note - 146)
Given the level of coordination with the campaigns and the content of the ads,
Triad's advertising expenditures constituted disguised contributions to the
candidates. Triad collaborated with campaigns to determine what issues and
strategies would most benefit the candidates. Because Rodriguez was among those
refusing to answer questions at his deposition, the Committee was not able to
expand on the documentary evidence concerning the extent to which the
advertising campaign was discussed with the campaigns and candidates. While
campaigns may not have been familiar with the names Citizens for Reform and
Citizens for the Republic when the Triad-managed advertising appeared in their
districts, it seems highly unlikely that neither candidates nor campaigns ever
anticipated or discussed potential advertising campaigns in the course of
consultations with Rodriguez. No comparison between Triad and the AFL-CIO
Malenick has repeatedly asserted that Triad--through Citizens for Reform and
Citizens for the Republic--was simply trying to respond to the issue advertising
effort launched by the AFL CIO in March 1995. However, the advertising aired by
Triad rarely mentioned labor as an issue. Further, the majority of races where
Triad aired advertising were not in districts where the AFL CIO was active. In
fact, of 26 House races in which Triad advertised, only ten were targets of the
AFL CIO. Triad also spent over $800,000 on advertising in three Senate races
even though the AFL CIO was not active in any Senate race. Of the six House
races where Triad spent over $100,000 on advertising, the AFL CIO was active in
only one district. The evidence suggests that two criteria that appear to have
determined where Triad ran advertising were whether a conservative Republican
candidate was running in the district and whether one of Triad's contributors
wanted advertising aired in that particular district.
Additionally, while Triad ran a covert advertising campaign through unknown
groups funded by secret contributors, the AFL CIO campaign was publicly
announced in 1995 along with the 25 freshman House races the AFL CIO intended to
target. Unlike Triad, the AFL CIO is a bona-fide membership organization whose
member unions are backed by millions of American workers, most of whom support
the labor federation's public policy positions. Hence, advertising paid for by
unions is an open and legal attempt to promote the interests and views of union
members. In contrast, Triad received funds from people who went to extraordinary
lengths to conceal their identity and purpose from voters. Financing the
advertising campaign
When the Minority began the Committee's investigation into Triad Management, it
already suspected that Robert Cone was a major source of Triad financing. Press
reports had linked him to Malenick and had noted Cone's increased financial
involvement with political organizations. (note - 147As the Committee's
investigation progressed, it became increasingly clear that whoever was funding
Triad and the shell companies was also playing a role in determining the content
and the location of advertising prepared by Triad. The investigation clearly
showed that Triad and both Citizens for Reform and Citizens for the Republic
were largely financed by a single backer, and that neither Citizens for the
Republic nor Citizens for Reform had done anything other than create and air
advertising with direction from that backer.
As the Minority became more convinced that understanding the role of Triad's
backers was essential to the investigation, resistance from several quarters to
the investigation began to build. Nevertheless, in August, the members of the
Committee agreed that an in camera review of the funding sources of Triad was
warranted. 148 On August 20, the Committee also issued a bank subpoena requiring
production of financial records of Triad, Citizens for Reform and Citizens for
the Republic. The subpoena permitted the attorneys for the parties only to
redact certain depositor information from the records produced to the Committee.
(note - 149) Informed of the decision to perform an in camera review of Triad's
records, and the issuance of the bank subpoena, on September 8 attorneys for
Triad notified the Committee that they would not submit to an in camera review
and would not produce subpoenaed witnesses for depositions. (note - 150)
On August 21, attorneys for Triad were notified of the bank subpoena, provided a
copy of the subpoena, and informed that records needed to be produced to the
Committee within two weeks. 151 The Committee subpoena stated that the bank
holding the records ''shall permit'' representatives of the organizations to
make redactions, and that representatives of the organization ''may'' remove
certain information from the records. (note - 152)
In early September, records including account statements and expenditure records
were produced to the Committee by the bank. The bank records for Triad, Citizens
for Reform, and Citizens for the Republic showed that: Citizens for the Republic
was entirely financed by Triad from its creation through September 1996;
Citizens for Reform had no bank account until less than one month prior to the
1996 election; both nonprofit organizations received fewer than a dozen deposits
of large amounts of money; between $1 million and $2 million dollars passed
through the accounts of both Citizens for Reform and Citizens for the Republic
in the weeks around the 1996 election, while the accounts were virtually
inactive in other months; and money was freely transferred among the three
entities.
However, in its September production, the bank did not provide the account
deposit records for any of the organizations under subpoena. On September 30,
six weeks after the bank subpoena was served, Minority Chief Counsel sent an
inquiry to the bank holding Triad's records, noting that these records had not
been produced and requesting production. The letter specifically noted that the
subpoena required that attorneys for the account holders be offered the
opportunity to redact information. Two weeks later, the Committee received from
the bank unredacted account deposit records identifying contributors to Triad,
Citizens for Reform and Citizens for the Republic. 153 The records had been sent
without redactions, presumably because the bank had determined that it had
provided Triad's attorneys with sufficient opportunities to redact the records
during the eight weeks between service of the subpoena and production. 154 At
the same time, attorneys for Coalition for Our Children's Future, who had been
similarly notified of issuance of an identical subpoena for the bank records of
their client, produced records which redacted the identity of depositors to the
account as permitted by the subpoena.
It is unclear why Triad's attorneys failed to exercise their option to redact
their client's records, leading to the production of records identifying
contributors. The circumstances of the production and the history of Triad's
non-cooperation with the Committee support the inference that Triad's counsel
declined to take steps to redact the subpoenaed bank records based on the
incorrect assumption that the bank would not produce the unredacted records.
Seen in this light, the failure of Triad's counsel to redact the records was
consistent with a general course of conduct in seeking to obstruct the
Committee's investigation of Triad's activities. When Triad attorney Mark Braden
learned that the bank had produced the records without redactions, he demanded
the immediate return of the records. Braden offered no explanation of why he did
not exercise his option to redact the documents. He not only failed to redact
the documents by the September 2 deadline, but also failed to redact them at any
point in the six weeks prior to the October 16 production by the bank. The
Minority retained its copy of the documents because, as Senator Glenn has
explained, the records are relevant to the investigation and were properly
received pursuant to a valid Committee subpoena. (note - 155) The trusts behind
Triad
When the Committee received the unredacted documents identifying contributors to
Triad and the shell companies, it became clear why Triad and its attorneys had
been so anxious to prevent the records from coming to light. The documents
contain further proof that Triad was used as a tool to evade the contribution
limits and disclosure provisions of the campaign finance laws. Most notably, the
bank records revealed that yet another layer of dummy organizations existed
behind Triad. Two secret trusts together contributed $2.34 million to Citizens
for Reform and Citizens for the Republic, over 83 percent of the total money
received by the organizations. The trusts appear to have given the funds with
the specific intent that the trusts' existence never come to light. In fact,
Triad's attorneys have publicly confirmed that Triad entered into written
agreements to keep the identity of funding sources secret. (note - 156)
The first trust, identified in bank records only as ''Personal Trust,''
contributed $600,000 to Citizens for Reform and Citizens for the Republic from
an account at CoreStates Bank in Philadelphia. (note - 157) Based on the
testimony of Triad bookkeeper Evans that Triad's backer provided hundreds of
thousands of dollars to the two nonprofits, the Minority believes that the
Personal Trust is, in all probability, controlled by Robert Cone. The trust's
account is at the same bank where Robert Cone's brother Edward, who also
contributed $300,000 to Citizens for the Republic and $100,000 to Citizens for
Reform, has a personal account, and the wire transfers from the Personal Trust
to Citizens for Reform and Citizens for the Republic began at the same time that
Robert Cone stopped making contributions to Triad from his personal account. The
only public statement Robert Cone has ever made on the subject of Triad is,
''I'm not confirming or denying anything at the moment.'' (note - 158)Economic
Education Trust
Still unresolved by the Committee is the identity of the backer or backers of
the Economic Education Trust. This Trust provided $1 (note - 79) million to the
Triad nonprofits in October 1996. Evidence suggests that these funds were given
to Triad's two nonprofits with the contingency that the trust's own consultant
oversee the advertising campaign, including selection of where ads would air.
Even without the benefit of a subpoena for the financial records of the Economic
Education Trust, circumstantial evidence developed by the Minority suggests that
the trust was financed in whole or in part by Charles and David Koch of Wichita,
Kansas. The Koch brothers control Koch Industries, an oil company with revenues
of about $30 billion per year. It is believed to be the second-largest
privately-held company in the United States. The Committee's evidence of the
Koch brothers' involvement includes: Many of the candidates who benefitted from
attack ads run by Triad also received campaign contributions from Charles Koch,
David Koch, and/or their company's political action committee. (note - 159) The
Koch brothers have a history of channeling money through nonprofit organizations
in order to advance their political interests, including think tanks and
term-limits groups. 160 In 1996, a term-limits group with possible Koch funding
ran attack ads under the guise of ''issue advocacy'' (See Chapter 15). Some of
the candidates attacked by the term-limits group were also targeted by Triad.
(note - 161) A disproportionate amount of the money spent on the attack ads by
Triad and by a second group, Coalition for Our Children's Future, benefitted
candidates in states where Koch Industries does significant business, most
notably Kansas, where the company is headquartered; Minnesota, where Koch
Industries owns a major oil refinery; and Arkansas, Louisiana, and Oklahoma,
where Koch Industries has refineries and pipelines. (note - 162) Koch Industries
gave at least $2,000 directly to Triad in October 1996. (note - 163)
Koch Industries has refused to say whether it funded the Triad-controlled
tax-exempts or any other organizations that ran attack ads in 1996. A September
30, 1997, letter to Koch Industries Chairman Charles Koch from the Committee's
Minority Chief Counsel, produced no response. 164 Questions from journalists
have been met with ''no comment.'' After the Minority learned of the existence
of the Economic Education Trust, Senator Glenn, the ranking Minority member,
asked Chairman Thompson to issue a subpoena to the Riggs National Bank of
Washington, D.C., where the Trust maintained the account from which money was
wired to the Triad organizations. On November 24, Senator Glenn renewed his
request for issuance of the subpoena. No subpoena was issued.
Whoever is behind the trust played an active role in the crafting of the Triad
advertising campaign, as well as advertising aired through other organizations.
Evidence strongly suggests that the trust was also the ''secret contributor''
that required a confidentiality agreement from Coalition for Our Children's
Future, a nonprofit group that also ran ads attacking Democrats (see Chapter
13).
The trust appears to have hired its own vendors to handle its advertising
campaigns. Documents produced by Triad show that Triad's eight most
heavily-funded races were handled by a New York-based consultant named Dick
Dresner, of the political consulting firm Dresner Wickers & Associates. The
amount contributed to the Triad groups by the Economic Education Trust roughly
corresponds to the amount spent on the production and airing of the eight
projects overseen by Dresner. (note - 165) Documents produced to the Committee
indicate that Dresner was not retained by Triad, but by a major contributor who
controlled the Dresner portion of the advertising. The evidence includes: An
October 22 memorandum from Malenick to Dresner stating, ''the market buys that
are being handled by Dresner Wickers & Associates were pre-determined before
TRIAD was contracted to oversee the projects end.'' (note - 166) An October 24
memorandum from Triad administrator Kathleen McCann to Peter Flaherty noting
that ''based on a client's request, additional vendors have been used to run ads
through Citizens for Reform in . . . [the 1st, 2nd, and 3rd districts of Kansas
and Montana at large];'' (note - 16An October 28 memorandum from Triad
bookkeeper Anna Evans to Dick Dresner's assistant Joanne Banks noting, ''After
my conversation with you this morning, I spoke with [redacted] . He has
requested that to get the media time bought, to separate the media time amounts
from production and retainer and other costs. Carolyn and Mr. Braden have agreed
to this;'' (note - 168) A January 21 memorandum from Evans to Banks stating,
''Has Mr. Dresner never informed you of his agreement of a 12% and not 15%
commission that he made directly with Triad's client, who preferred using DW&A
as a vendor. Let me assure you that this arrangement of vendor selection was an
exception, and plans do not call for a repeat;'' 169 and A February 7 memorandum
from Evans to Banks stating, ''The commission taken based on these affidavits is
at 15% instead of the originally agreed 12%. The agreement was requested by CFTR
and agreed upon by DW&A through an intermediary.'' (note - 170)
Dresner, Malenick, and Braden all either refused to appear for deposition or to
answer questions. The Committee's understanding of the arrangements is,
therefore, less than complete. However, Dresner also played a role in
advertising prepared for Coalition for Our Children's Future (''CCF''). On
September 18, 1997, the Committee deposed Denis Calabrese, a political
consultant who oversaw the CCF ad campaign. Calabrese testified that in
mid-1996, he was retained by an individual he refused to name, who was a
representative for an organization he refused to name, for the purpose of
overseeing an issue advertising campaign consisting of political advertisements.
171 Calabrese testified that as part of his duties he hired a number of other
political consultants to act as vendors including Dresner, and Dresner's Triad
subcontractors James Farwell and Steve Sandler. 172 He testified that he
initially met Dresner at a meeting with the anonymous donor representative and
that he attended meetings with a variety of organizations, including CCF and
Triad, in order to determine if they were ''appropriate vehicles'' for the issue
ad campaign. 173 He also testified he oversaw a second ad campaign for the
anonymous donor through another organization which was not Triad. (note - 174)
Although he failed to appear for a sworn deposition, in a January 1998
roundtable discussion, Dick Dresner admitted that he helped to coordinate a
number of issue advertising campaigns in the 1996 election cycle. Dresner said
that ''many of the people he worked with were most concerned with remaining
anonymous, while still having a major impact on federal elections.'' 175 Dresner
confirmed that ''his wealthy clients set up a series of foundations, trusts and
other ''shells'' to pump money into subterranean issue-ad campaigns. 'They use
three or four or five or six different ways so they aren't discovered.''' 176 He
went on to note that ''his clients seemed to have success with that tactic, and
most have remained anonymous even now: 'Even if their names came up once or
twice, the extent of their activities is underestimated.''' (note - 177)
Other evidence besides the involvement of the same consultants suggests that the
donor behind the Economic Education Trust whose identity has been concealed from
the Committee funded not only the Triad advertising campaign but also the CCF
advertising campaign. In addition: Both Triad and CCF representatives confirmed
that both organizations executed written confidentiality agreements with a
secret contributor. 178 An unnamed former employee of CCF stated in a news
article that the entity that funded the CCF advertising campaign was a trust.
(note - 179) The funds for the CCF ad campaign were wired from an account at
Riggs Bank in Washington, D.C., the same bank where the Economic Education Trust
has an account. (note - 180) Barry Bennett, executive director of CCF stated
that the confidentiality agreement was drafted by former RNC General Counsel
Benjamin Ginsberg. Ginsberg was also consulted on the substance of CCF
advertising, and represents both Dick Dresner and James Farwell, both of whom
failed to appear for deposition on any of the numerous dates offered to them.
(note - 181) Triad's impact on the 1996 elections
While it is impossible to know the full extent of the Economic Education Trust's
advertising campaign absent a full investigation, the election results in Kansas
(the home state of the Koch brothers) suggest that Dresner was correct in noting
that his clients had been successful in their attempts to covertly influence the
outcome of particular federal races. Triad advertising aired in four of six
federal races in Kansas. Two were for open House seats, the third was held by a
vulnerable freshman Republican, and the fourth was an open Senate seat in which
a bitter and disruptive Republican primary battle had been waged.
Using television advertising, mailings, telephone calls, and radio ads all
prepared under the supervision of Dick Dresner, Triad spent over $1 million on
the four races: $420,000 in television advertising in the Senate race between
Republican Representative Sam Brownback and Democrat Jill Docking; $287,000 on
television and radio advertising and phone calls in the race between Republican
Vince Snowbarger and Democrat Judy Hancock; $131,000 on phones, mail, and
television advertising benefitting freshman Republican Representative Todd
Tiahrt in his campaign against Randy Rathbun; and $133,000 on television, radio,
phones, and mail in the race between Republican Jim Ryun and Democrat John
Freidan. 182 Triad's two-week spending spree on behalf of the Republican Senate
candidate totaled almost a quarter of the amount the candidate spent on his own
campaign throughout 1996. 183 Triad's two weeks of spending on behalf of Vince
Snowbarger totaled over half of what he himself spent in 1996. 184 Republican
candidates were victorious in all four races. Representative Tiahrt was
re-elected by a margin of less than two percentage points. Vince Snowbarger and
Jim Ryun were elected by margins of less than five points. (note - 185)
Advertising by other Triad contributors
Although the multimillion-dollar advertising campaigns appear to have been
funded largely by Cone and the Koch families, the Committee also found evidence
that smaller contributors made contributions with the intent of financing
advertising campaigns that targeted specific candidates. For example, California
agribusinessman Dan Gerawan contributed $50,000 to Citizens for Reform. In the
primary, Gerawan had funded a publicly disclosed advertising campaign attacking
one of the candidates in the 20th Congressional District in California for
supporting the Legal Services Corporation, a government-funded agency that
provides legal services to the indigent. In the general election, Citizens for
Reform aired an advertisement attacking Representative Calvin Dooley's views on
the Legal Services Corporation. 186 After the election, Gerawan admitted he paid
for the ads. 187 Although the Minority requested a subpoena for Gerawan's
deposition, no subpoena was ever issued.
The Committee also found evidence suggesting a direct link between a
Triad-sponsored advertising campaign and eight checks totaling $11,500 received
by Citizens for Reform on a single day in October 1996. The checks, among the
lowest contributions received by either nonprofit, all came from people or
businesses based in the 6th District of Pennsylvania, where Republican Christian
Leinbach was challenging Representative Tim Holden. 188 Seven of the eight
families who contributed to Triad had already made the maximum permissible
contribution to Leinbach's campaign. 189 On September 11, Carlos Rodriguez had
written a report of the Leinbach campaign complaining: ''the problems with the
campaign became obvious once I visited the campaign headquarters. Leinbach has
been unwilling to make the fund raising calls necessary. . . . We should wait
for marked improvements on the part of the candidate and the consultant before
providing them with any financial assistance.'' 190 Yet less than a month later,
Citizens for Reform funded a $17,000 radio campaign against Leinbach's opponent.
191 Presumably, the funds received from Leinbach's supporters were used to pay
for advertising in a campaign to which Triad consultants were unwilling to
devote existing resources. Conclusion
In the end, Triad succeeded in pouring millions of dollars into televised
advertisements designed to attack particular candidates in hotly-contested
races, while concealing the identities of the individuals and companies that
provided the monies. Triad's secrecy about its sources of funding, which is one
of the principal benefits it offers its contributors, was accomplished through
several means, including its disingenuous incorporation as a for-profit business
and the establishment of sham nonprofit corporations. This secretiveness
undermines our system of campaign-finance laws. If, as the Minority strongly
believes, Triad violated campaign-finance laws, it has done so with impunity.
If, as Triad contends, its activities fell within the limits of the law, then
the disclosure requirements of the campaign-finance laws have proven to be so
easily circumvented by individuals with wealth that they are essentially
meaningless. Triad is important not just for the ways it bent or broke existing
laws, but for the pattern it has established for future groups, which will take
comfort in Triad's successful defiance of this Committee.
FOOTNOTES (1( Buckley v. Valeo, 426 U.S. 1, 9 (1976). (2( Roll Call, 12/4/97.
(3( Roll Call, 12/4/97: Austin-American Statesman, 8/16/95. (4( Roll Call,
12/4/97: U.S. News and World Report, 6/6/94. (5( Roll Call, 12/4/97. (6(See
Council for National Policy Unofficial Information Page, http://apocalypse.
berkshire.net/ ifas/cnp/index/html. (7( Roll Call, 12/4/97. (8( National
Journal, 9/28/96. (9(Triad records of incorporation TR1 1 5: Anna Evans
deposition, 8/19/97, p. 20. (10( The Hill, 10/8/97. (11( Roll Call, 12/4/97.
(12(Memorandum from Carolyn Malenick to Triad employees, 2/22/97, TR 20 5. (13(
Washington Post, 3/9/97. (14(Committee subpoenas 247 257 for: Cleta Mitchell,
Lyn Nofziger, Carlos Rodriguez, David Gilliard, Padraic Buckley, Kenneth Boehm,
Peter Flaherty, Meredith O'Rourke, Carolyn Malenick, Mark Braden, Anna Evans.
See also subpoena number 346 for Kathleen McCann, 375 for Richard Dresner, and
377 for James Farwell. (15(Letter from Richard Hauser to Majority Chief Counsel
and Minority Chief Counsel, 9/8/97. Those deposed at that point were Peter
Flaherty and Anna Evans. The deposition of Meredith O'Rourke had been adjourned
but not completed. Two other directors of Citizens for Reform, Kenneth Boehm and
Padraic Buckley, had also been deposed to establish they had almost no role in
the organization. (16(Letter from Richard Hauser to Committee staff, 9/8/97.
(17(See 18 U.S.C. sections 1503, 1505. (18(Carolyn Malenick deposition, 9/16/97.
(19(Three subpoenas for deposition for individuals involved in the AFL CIO
advertising campaign were issued in September but never taken. Contrary to
public statements, these individuals only refused to appear on the date
contained in the subpoena because they were given short notice and had
conflicts. The Majority staff never contacted these individuals to reschedule
deposition dates. See Committee subpoenas 399 401; letter to Committee staff
from counsel for the AFL CIO, 9/22/97. Another individual affiliated with the
AFL CIO did appear pursuant to a deposition subpoena. Deposition of Geoffrey
Garin, 9/5/97. See Chapter 39 of this Minority Report. (20( Associated Press,
11/4/97. (21(The only invoices produced were for ''fees'' Triad charged the
shell companies, Citizens for Reform and Citizens for the Republic.
TR 8 26, CR 13 1956. (22(Meredith O'Rourke deposition, 9/3/97, pp. 30 33.
(23(Meredith O'Rourke deposition, 9/3/97, pp. 30 33. (24(Anna Evans deposition,
8/19/97, pp. 45 46. (25(Staff interviews with PAC contributors, 5/97. (26(Staff
interviews with PAC contributors, 5/97. (27(Staff interviews with PAC
contributors, 5/97. (28(Anna Evans deposition, 8/19/97, p. 175. (29(Bank
statements of Crestar account of Triad Management, 5/31/95 1/31/96. (30(Deposit
records of Crestar bank account of Triad Management. (31(Deposit records of
Crestar bank account of Triad Management. (32(See financial records of Crestar
account of Triad Management. (33(See financial records of Crestar accounts of
Triad Management and Triad Management, Inc. (34(Anna Evans deposition, 8/19/97,
p. 177. (35( Morning Call, 10/3/93. (36( Boston Globe, 8/23/96. (37( Morning
Call, 10/3/93. (38( National Journal, 9/28/96. (39(James McLaughlin deposition,
9/17/97, p. 16. (40(See 2 U.S.C. sections 433 and 434. (41(See 2 U.S.C. section
441 (a)(3); see also FEC public disclosure records for federal contributions of
Robert Cone. Contribution records are available at www.tray.com.
(42(See 2 U.S.C. sections 433 and 434. (43(2 U.S.C. section 441b. (44(11 C.F.R.
section 116.1 (a)(c). (45(Meredith O'Rourke deposition, 9/3/97, p. 53: staff
interview with Robert Riley, Jr., 9/16/97; Rapid City Journal, 9/20/97.
(46(Meredith O'Rourke deposition, 9/3/97, pp. 46, 50. (47(Staff interview with
Robert Riley, Jr., 9/16/97. (48(Rapid City Journal, 9/20/97. (49( Los Angeles
Times, 11/12/97. (50(Triad invoices, TR 8 35; TR 8 112 114. (51(See Rodriguez
reports identified in footnotes 52-58, infra. (52( Minneapolis Star Tribune,
10/29/97. (53(Report of Jay Mathis campaign, TR 15 1170 1172. (54(Report of
Vince Snowbarger campaign, TR 15 1206 1207. (55(Report of Christian Leinbach
campaign, TR 15 1163 1166. (56(Report of Jim Ryun campaign, TR 15 1197 1199.
(57(James McLaughlin deposition, 9/17/97, pp. 13 14. (58(Report of Steve
Stockman campaign, TR 15 1210 1212. (59(Report of Mark Sharpe campaign, TR 15
1186 1188. (60(Meredith O'Rourke deposition, 9/3/97, p. 95. (61(''My
understanding of what happened is Meredith [O'Rourke] asked Carolyn [Malenick]
whether she could go over and help [the Senate candidate] dial for dollars.''
Washington Post, 12/12/97; ''O'Rourke was simply doing a favor for Brownback,
not on Triad's time.'' Kansas City Star, 12/5/97. (62(Meredith O'Rourke,
deposition, 9/3/97, pp. 94 95. (63(Triad solicitation TR 10 146 147: Rapid City
Journal, 9/20/97. (64(Triad 10 0079 10 0081. (65('''96 Primary Alert'' Triad Fax
Alert 7/18/97, TR 10 218. (66( Massachusetts Citizens for Life v. FEC, 479 U.S.
(note - 238) (1986), Faucher v. FEC, 928 F. 2d 468 (1st Cir. 1991), Maine Right
to Life v. FEC, 98 F. 3d 1 (1st Cir. 1997), 11 C.F.R. section 114.4. (67(Triad
''fax alert,'' 10/10/96, TR 10 160 161. (68(Triad fax solicitation, TR 10 146
147. (69(Federal election law severely limits the volunteer activities that
corporations may engage in, and limits the group of people that corporations may
solicit for contributions to political campaigns to a restricted class of
officers and executive employees. In a corporation like Triad the restricted
class Triad could properly solicit would consist only of Carolyn Malenick
herself. See 11 C.F.R. section 114.2(f); 114.1(e)(2). (70(2 U.S.C. section
441a(a)(8): 11 C.F.R. section 110.6. (71(Triad internal PAC list, TR 15 105
1052. (72(FEC public disclosure reports of: Robert Riley, Jr., Conservative
Campaign Fund, Americans For Free Enterprise, Citizens Allied for Free
Enterprise, and Faith, Family, and Freedom. See also Wall Street Journal,
4/10/97. (73(Triad ''fax alert,'' 11/14/96, TR 10 83. (74( Kansas City Star,
5/2/97: FEC Public Disclosure records of John and Ruth Stauffer. (75(Handwritten
note to Triad, TR 15 678. (76(Meredith O'Rourke deposition, 9/9/97, pp. 60 77.
(77(Peter Flaherty deposition, 8/22/97, p. 13. (78(Peter Flaherty deposition,
8/22/97, pp. 11, 15. (79(Citizens for the Republic Education Fund Unanimous
Consent in Lieu of Meeting, CREF 1 4 8. (80(Triad invoices from Gilliard and
Associates, CREF 13 1934. (81(James McLaughlin deposition, 9/17/97, p. 13:
records of incorporation for Huckaby, Rodriguez, Gilliard, Inc. (82(Triad
internal PAC list, TR 15 1050 1052. (83(Staff interview with Robert Riley, Jr.,
9/16/97. (84(Staff interview with Robert Riley, Jr., 9/16/97. (85(Meredith
O'Rourke deposition, 9/9/97, pp. 66, 72. (86(Meredith O'Rourke deposition,
9/9/97, pp. 51, 53, 90. (87( Minneapolis Star Tribune, 10/29/97. (88(Report of
Pete Sessions campaign, TR 15 1176. (89(Report of Ed Merritt campaign, TR 15
1183 1185. (90(Memo from Meredith O'Rourke to Mark Braden, 6/13/96, TR 15 1054.
(91(Memo from Meredith O'Rourke to Mark Braden, 6/13/96, TR 15 1054. (92(Report
of Rick Hill campaign, TR 15 1143 1145. (93(In addition to acting as
administrator of the PAC and director of Citizens for the Republic, Gilliard was
also a paid consultant of California candidate Linda Wilde. Wilde benefitted
from $100,000 in mailings and $25,000 in phone calls against Representative
George Brown funded by Citizens for Reform, over half the amount Wilde spent on
her own campaign throughout 1996. Wilde also received $6,000 of $21,000 raised
by Citizens Allied for Free Enterprise (''CAFE''). No other candidate received
more than $1,000. See FEC disclosure reports of
CAFE. In addition to working directly for Wilde, the PAC and Citizens for the
Republic, Gilliard was also a paid vendor of Citizens for the Republic, and
produced at least $75,000 worth of mailings in Representative Randy Tate's
Washington district. (94(Disclosure reports for Citizens Allied for Free
Enterprise; see also http://apocalypse.
berkshire.net/ ifas/cnp/index.html. (95(FEC public disclosure records of Richard
Eckburg, available at www.tray.com.
(96(FEC disclosure records of Foster Freiss and the Conservative Campaign Fund
available at www.tray.com:
deposit records of Citizens for Reform. (97(FEC disclosure records of Peter
Cloeren available at www.tray.com;
bank deposit records of Citizens for Reform. (98(FEC disclosure records of
Lorena Jaeb and Citizens United available at www.tray.com.
(99(Meredith O'Rourke deposition, 9/3/97, p. 102. (100(Peter Flaherty
deposition, 8/22/97, p. 13. (101( Kansas City Star, 5/5/97: Meredith O'Rourke
deposition, 9/3/97, pp. 91 92. (102(Meredith O'Rourke deposition, 9/3/97, pp. 99
100. (103(Carolyn Malenick deposition, 9/16/97, p. 20. (104(A disclaimer such as
that contained in letters from Triad to the PACs does not negate fact.
Massachusetts Citizens for Life, 479 U.S. 238, 249 (1986). (105(Committee list
of races where Citizens for Reform and Citizens for the Republic were active and
the amounts spent. (106( Faucher v. FEC, 928 F. 2d 468 (1st Cir. 1991); 743 F.
Supp 64 (1990); FEC v. Christian Action Network, 92 F.3d 1178 (4th Cir. 1996),
894 F. Supp 946 (S.D.Va. 1995); Maine Right to Life v. FEC, 98 F.3d 1 (1st Cir.
1997). (107( Clifton v. FEC, 114 F.3d 1309 (1st Cir. 1997); see also Chapter 20:
Legal Analysis and Overview. (108(Annenberg Public Policy Center, ''Issue
Advocacy Advertising During the 1996 Campaign: A Catalog,'' Report Series No.
16, 9/16/97, p. 7. (109(Certificate of Incorporation for Citizens for the
Republic, CREF 1 32: Articles of Incorporation for Citizens for Reform,
CR 1 61 64. (110(Citizens for the Republic marketing brochure, CREF 1 100.
(111(Citizens for Reform stated in its application for (c)(4) status that it had
not spent and did not plan to ''spend any money attempting to influence'' an
election. IRS Form 1024, item 15, 6/7/96. This may be a false statement in
violation of 26 U.S.C. 7206. (112( Roll Call , 10/20/97. (113(Peter Flaherty
deposition, 8/22/97, pp. 19 21. (114(Incorporation documents of Citizens for the
Republic, CREF 1 13 14, 33 35. (115(The Citizens for the Republic bank account
received $302,548 in deposits in July and spent $273,114. All the deposits into
the account were made by transfer from Triad's account at the same bank. See
bank records of Crestar accounts held by Citizens for the Republic and Triad
Management, Inc. (116(For example, Evans would generate an invoice for
''management fees due to Triad from either Citizens for Reform or Citizens for
the Republic.'' The invoices (the only ones Triad ever seems to have issued) are
printed on Triad letterhead, are addressed to the respective groups in care of
Triad, then seek payment made to Triad--all at the same address. To actually pay
Triad's bill, Evans would simply make a bank transfer from one account to
another. Invoices from Triad to Citizens for Reform and Citizens for the
Republic, TR 8 26, TR 8 22. (117(Consulting agreements between Triad and
Citizens for Reform and Citizens for the Republic, CREF 1 94 95; CR 1 38 39.
(118(October and November 1996 bank statements of Citizens for Reform.
(119(October and November 1996 bank statements of Citizens for Reform.
(120(October and November 1996 bank statements of Crestar bank accounts of
Citizens for the Republic. (121(See note 113 infra; see also bank statements of
Citizens for Reform and Citizens for the Republic for October and November 1996.
(122(December 1996 bank statement of Crestar Bank accounts of Citizens for the
Republic. (123( Los Angeles Times, 5/5/97. (124(Documents bearing signature of
Lyn Nofziger, CREF 1 56, 66, 94 95. (125(Peter Flaherty deposition, 8/22/97, pp.
54, 62, 70, 83. (126(Committee list of races where Triad was active.
(127(Meredith O'Rourke deposition, 9/3/97, pp. 46, 87; See Appendix C for
reports of Rodriguez visits. (128( Clifton v. FEC, 114 F.3d at 1309, 1316 19
(1st Cir. 1997). (129(Report of Rick Hill campaign, TR 15 1143 1145. (130(Report
of Rick Hill campaign, TR 15 1143 1145. (131(Invoice for Yellowtail advertising,
CR 13 1179. (132(Script of Yellowtail advertisement, CR 13 0713. (133(
Congressional Quarterly 1996 Election Results: report of Rick Hill campaign, TR
15 1143 1145. (134(Report of John Thune campaign, TR 15 1141 1142. (135(Report
of John Thune campaign, TR 15 1141 1142. (136(Invoice showing funds spent for
Thune by Citizens for the Republic, CREF 13 0512. (137(Report of Steve Stockman
campaign, TR 15 1210 1212. (138(Invoices showing funds spent by Citizens for
Reform and Citizens for the Republic, CREF 13 512, CR 13 1272. (139(Videotape
advertisement produced by Citizens for the Republic. (140(Invoice showing funds
spent for Wittig race, CR 13 12792. (141(Report of Sue Wittig campaign, TR 15
1136 1139. (142(FEC disclosure reports of Friends of Sue Wittig. (143(Triad fax
alert ''The Time for Battle Is Now,'' 9/27/97, TR 10 191. (144( Los Angeles
Times, 5/5/97. (145( Los Angeles Times, 5/5/97. (146(Annenberg Public Policy
Center, ''Issue Advocacy Advertising During the 1996 Campaign: A Catalog,''
Report Series No. 16, 9/16/97, p. 5. (147( National Journal, 9/28/96; Boston
Globe, 8/23/96. (148(Letter of 8/27/97 from Majority and Minority Chief Counsels
to Triad Counsel Richard Hauser. (149(Subpoena of 8/21/97 to Crestar Bank.
(150(Letter from Richard to Hauser to Alna Baron and Michael Madigan, 9/8/97.
(151(Letter of 8/22/97 from Minority Staff Counsel to Mark Braden. (152(Subpoena
of 8/21/97 to Crestar Bank. (153(Staff also followed up with the bank holding
the Triad records leaving two voice mail messages seeking to determine when
records would be produced. At the same time, the bank holding records of
Coalition for Our Children's Future, which had received an identical subpoena
for records that had not yet been produced, was contacted for the same purpose.
Letter from Minority Chief Counsel to Crestar General Counsel John Clark,
10/30/97. (154(Committee staff reviewed such records when they were received.
Documents revealed the existence of a second account held by Triad which was
clearly covered in the subpoena. Records for this account were also requested
and were forwarded without redactions. (155(Letter of 11/24/97 from Senator
Glenn to Senator Thompson. (156( New York Times, 10/24/97. (157(Wire transfer
receipts of Crestar Bank accounts of Citizens for Reform and Citizens for the
Republic. (158( Associated Press, 10/29/97. (159(FEC public disclosure records
for Charles Koch, David Koch and Koch Industries PAC. (160( National Journal
5/16/97: Lewis Charles and the Center for Public Integrity, The Buying of the
President. New York: Avon Books, 1996, p. 127. (161( Roll Call 1/26/98. (162(
Wichita Business Journal 10/24/97: Minneapolis Star Tribune, 10/29/97.
(163(Deposit records of Crestar account of Triad Management, Inc., 10/29/96.
(164(9/30/97 Letter from Minority Chief Counsel to Charles Koch. (165(The eight
races were: Brownback v. Docking (Kansas Senate); Hutchinson v. Bryant (Arkansas
Senate); Hill v. Yellowtail (Montana House); three Kansas House races:
Snowbarger v. Hancock; Tiahrt v. Rathbun; and Ryun v. Freidan; Brown v. Wilde
(California House); and Coburn v. Johnson (Oklahoma House). Invoices for Dresner
Wickers & Assoc., CR 13 1751, 1755, 1759, 1179, 1017; CREF 13 0009, 0150.
(166(10/22/96 Memo from Malenick to Dresner, CR 13 1748 49. (167(Memo from Triad
staff to Peter Flaherty 10/24/96, CR 13 1659. (168(Memo from Triad bookkeeper
Anna Evans to Dresner Wickers staff Joanne Banks, 10/28/96, CR 13 1780.
(169(Memo from Evans to Banks, 1/21/97, CR 13 1819. (170(Memo from Evans to
Banks, 2/7/97, CREF 13 0308. (171(Denis Calabrese deposition, 9/18/97, pp. 10
12. (172(Denis Calabrese deposition, 9/18/97, pp. 41 44. (173(Denis Calabrese
deposition, 9/18/97, pp. 44, 18 19, 35 37, 11. (174(Denis Calabrese deposition,
9/18/97, pp. 18 19. (175( Roll Call, 2/2/98. (176( Roll Call, 2/2/98. (177( Roll
Call, 2/2/98. (178( New York Times, 10/24/97: Minneapolis Star Tribune,
10/29/97. (179( Minneapolis Star Tribune, 10/29/97. (180(Wire transfer records
for deposits received by Coalition for Our Children's Future, Citizens for
Reform, and Citizens for the Republic. (181( Minneapolis Star Tribune, 10/29/97:
Letter to Benjamin Ginsberg 11/5/97. (182(Invoices from Dresner Wickers to
Triad, CREF 13 9, 150; CR 13 1017, 1735. (183(FEC disclosure report of Sam
Brownback for U.S. Senate. Senator Brownback's 1996 spending totaled $2.2.
million. (184(FEC disclosure report for Snowbarger for Congress. Snowbarger's
spending totaled $443,000. (185( Congressional Quarterly, 1996 Election Results,
11/9/96 pp. 3250 57. (186( Cox News Service, 7/11/97. (187( Cox News Service,
7/11/97. (188(Deposit records of Crestar account of Citizens for Reform.
(189(FEC public disclosure reports for Robert Harris, Gaspari, Gensemer,
Duquette, Weaber, Doblin, available at www.tray.com.
(190(Campaign Report of Christian Leinbach, TR15 1163 1166. (191(Committee list
of races where Triad was active.
PART 2 INDEPENDENT GROUPS Chapter 13: Coalition for Our Children's Future
Coalition for Our Children's Future (''CCF'') is a nonprofit, tax-exempt
organization under section 501(c)(4) of the tax code, created in mid-1995.
Between its 1995 creation and the November 1996 election, CCF spent over $5
million dollars on advertising in targeted Congressional districts.
Based on the evidence before the Committee, we make the following findings with
regard to CCF:
FINDINGS
(1) Haley Barbour and others associated with the RNC created Coalition for Our
Children's Future (''CCF''), as a purportedly nonpartisan, tax-exempt social
welfare organization under 501(c)(4) of the tax code and used CCF to carry out
issue advocacy campaigns on behalf of Republican candidates and against
Democratic candidates in 1995 and the first part of 1996.
(2) The evidence before the Committee suggests that several Republican
candidates solicited contributions for CCF from their own supporters and
coordinated with CCF to secure issue ads that they believed would help their
candidacy.
(3) The evidence before the Committee suggests that in October 1996, CCF funded
televised ads attacking Democratic candidates with money donated by a
contributor who obtained a confidentiality agreement and oversaw development of
the ads. Based on the evidence before the Committee, it is likely that this
contributor was the Economic Education Trust, the same entity that funded and
perhaps controlled the development and placement of ads through two tax-exempt
organizations operated by Triad.
BACKGROUND
Coalition for Our Children's Future is a nonprofit organization pursuant to
section 501(c)(4) of the Internal Revenue Code. As a 501(c)(4) organization, CCF
may engage in lobbying and other direct political activities so long as direct
political activity is not the organization's primary activity. In fact, CCF,
which was incorporated in June 1995, was conceived and operated as a political
organization. Essentially, in 1995 and early 1996, CCF operated as a shadow
campaign for the Republican National Committee (''RNC''), airing advertising in
support of the Republican Balanced Budget and Medicare legislation at the same
time the Democratic National Committee (''DNC'') was airing advertising on the
same subjects. The idea for CCF appears to have been conceived within the RNC,
and people who either worked for, or with, the RNC controlled decision-making by
CCF throughout 1995 and 1996. In the one-year period between September 1995 and
October 1996, CCF spent over $5 million on advertising. (note - 1) CCF has never
engaged in any activity other than the creation and airing of advertising. CCF
has no grassroots support but exists largely as a project of Republican
fundraising consultants Odell Roper & Simms. Footnotes appear at end of
chapter 13.
In 1995 alone, CCF spent $3.18 million on advertisements supporting the
Republican positions on the Balanced Budget Amendment and Medicare. 2 Even after
the demise of the Republican Balanced Budget legislation prior to the government
shut-down in 1995, CCF continued to air advertising in key congressional races.
In several instances, advertising appears to have been aired at the request of
particular members of Congress or their staff, and paid for with funds raised by
those members.
In mid-1996, representatives of CCF were approached by a ''secret'' contributor
who required that CCF execute a confidentiality agreement before making a
contribution. CCF witnesses testified that the purpose of the contribution was
to fund an advertising campaign in the weeks before the 1996 election. CCF
witnesses uniformly refused to disclose the identity of this secret contributor,
or even the amount of the contribution, although they were appearing before the
Committee pursuant to subpoena. Despite repeated Minority requests, the
Committee never issued an order compelling witnesses to reveal this information.
RNC TIES TO CCF
Documents produced to the Committee and the testimony of various witnesses
indicate that Haley Barbour, then-chairman of the RNC, together with his close
aide Donald Fierce, who held the title director of strategic planning, were
instrumental in the creation of Coalition for Our Children's Future. The purpose
of CCF was to raise funds from corporate interests to fund a media campaign in
support of Republican legislation on the balanced budget and Medicare reform. 3
Barbour had publicly insisted that he would not commit RNC funds to advertising
in support of the legislation, preferring to conserve the party's resources for
the 1996 election. 4 Instead, the RNC simply created CCF to pay for an
advertising campaign with undisclosed corporate funds. This allowed the RNC to
respond to Democratic advertising while conserving hard money and permitting
business interests, including tobacco companies, to fund the advertising free
from public scrutiny.
A memo produced to the Committee by the RNC, and written by RNC staffer Barry
Bennett, makes clear the RNC's involvement in creating CCF and other similar
groups. 5 The undated memo states: We have three options on placing a USA Today
ad. First the Coalition for Our Children's Future can place the ad. The
resources and legal structure are in place. The name sounds a little goofy. The
existence of such a structure does give us limited protection from a press
attack. Second, we can formalize the Committee to Save Medicare. It will take a
few days lead time to file the corporate paperwork. If the Seniors Coalition
joins the board this entity will have appropriate cover. (note - 6) Bennett
subsequently left the RNC to become CCF's executive director and oversee the CCF
advertising campaign. Besides Bennett, the RNC also turned to other consultants
and to staff to get CCF up and running. Documents produced to the Committee
reflect that the RNC also hired its own fundraising firm, then known as Odell
Roper & Simms (''ORS''), to oversee the creation of and fundraising for CCF.
The RNC produced an unsigned copy of a contract dated May 1, 1995 from Robert
Odell to Haley Barbour. 7 The cover memo, directed to Barbour, states: ''per our
conversation Saturday,'' ''Re: Agreement for Coalition for America's Future,''
which Odell conceded was the same organization that became Coalition for Our
Children's Future. 8 ORS, known primarily for direct mail fundraising, also
worked directly for the RNC and the Dole presidential campaign, and Odell also
personally handled fundraising for the RNC's annual ''Republican Gala''
fundraiser. 9
Barry Bennett testified that he was working for Chuck Greener in the RNC's
communications office when he was approached by the RNC's Donald Fierce about
working for CCF. 10 Two of the individuals who ultimately acted as directors of
the organization, Gary Andres and Dirk Van Dongen, also testified that Fierce
had asked them to join the board. 11 The third director, Deborah Steelman, was
asked by Barbour to join the Board. 12 Van Dongen also testified that it was his
general understanding that the RNC was overseeing the creation of CCF. 13 The
media vendor retained by CCF was Greg Stevens & Co., which, like ORS, also
worked directly for the RNC. 14 Thus, the RNC turned to its own fundraising and
media consultants, and a member of its own staff to run CCF, and to individuals
personally chosen by high-ranking RNC officials to sit on the board of CCF.
Asked about the May 1, 1995 contract produced by the RNC, Odell testified that,
while he had no reason to believe that such conversations did not occur, he was
unable to recall ever seeing the document, did not recall having the
conversation referenced in the cover memo with Barbour, and did not recall any
discussions of entering into a contract with the RNC for CCF. 15 Odell did
concede that throughout the spring of 1995 he was in regular contact with
officials at the RNC, including Barbour, Fierce, and Greener, as often as two or
three times a day. 16 Sarah Fehrer, Odell's assistant who was responsible for
the administrative start-up of CCF, testified that she received telephone calls
from Barbour and his assistant Kirk Blalock who were making ''general
inquiries'' about ''how things were going.'' 17 She testified that on at least
one occasion Barbour personally called her, ''not [about the] creation, just in
general once we got going with the project.'' 18 While Odell confirmed that a
contract for the provision of services from ORS to CCF probably existed, no
contract was produced to the Committee. (note - 19)
In late May 1995, a few weeks after the date of the contract sent from Odell to
Barbour, CCF was incorporated by attorneys for ORS. (note - 20) Documents
produced to the Committee indicate that CCF may have already had a name before
it was incorporated. A March 13, 1995 memo, produced by the RNC, is directed to
the ''Coalition to Save Our Children's Future Media and Message Working Group.''
The memo, written on Americans for Tax Reform letterhead, contains a series of
''messages'' built around the theme of ''preserving the American dream for our
children.'' 21 The RNC also produced a number of other documents reflecting an
active role in CCF. The documents include a memo dated May 23 to Barbour and
Odell from Barbour's former law partner, Ed Rogers, discussing a plan to contact
Republican Governors to host meetings for Barbour with potential CCF
contributors. 22 Odell testified he could not recall seeing this document,
although he is certain he did if it was directed to him. (note - 23) The memo,
which bears Barbour's handwritten ''Good'' across the top, also appears to have
been forwarded by Barbour to Fierce and Greener. Questions about these documents
were never posed to Barbour, Greener, or Fierce because, although the Minority
requested subpoenas for all three, no subpoenas were issued. (note - 24)
The RNC also produced two 1995 agendas for ''Coalition Meetings'' on July 17 and
19 of 1995 that clearly demonstrate RNC control and direction of CCF's creation.
25 The two agendas, one on ORS letterhead and the other on CCF letterhead,
include references to fundraising and organizational plans such as: A.
Structure:
1. Coalition Board
2. Coalition Advisory List
3. 501(c)(4) status B. Organization (Staff/RNC):
1. Roles/Authority/Responsibility
2. Schedule coordination. 26 The second agenda also contains a reference under
the heading ''Administration:'' ''approval of updated Coalition briefing
materials? Haley's approval.'' 27 The agendas also discuss fundraising plans for
CCF, including redirecting tobacco company contributions from Dole's Better
America Foundation to CCF, and calls by House Speaker Newt Gingrich to Merck
Pharmaceutical company. 28 Speaker Gingrich and Haley Barbour also attended
fundraising events for CCF in the summer of 1995. 29 Other documents produced by
the RNC include a fax from Sarah Fehrer to Greener about a June 2, 1995 meeting
with representatives of five tobacco companies, and fundraising material
provided by Odell to Philip Anschutz that was copied to Greener. (note - 30)
CCF's 1995 Advertising Campaign
After a very active fundraising campaign through the summer of 1995, CCF
commenced its advertising campaign. Between August and December 1995, CCF funded
four waves of advertising totaling at least $3 (note - 18) million. 31 The
advertisements aired during this period include a Medicare advertisement
featuring one Senator, a Balanced Budget ad featuring a second Senator, an
advertisement entitled ''Meet Priscilla,'' which focused on the federal debt and
the need for a balanced budget for the future, and a fourth advertisement urging
support for the Republican Medicare plan. (note - 32)
Consistent with the plan outlined in Bennett's earlier memo referencing the
creation of a second group, the Save Medicare Project, under the auspices of the
Seniors Coalition, Bennett testified that both the Medicare ad featuring the
Senator and the second Medicare ad were paid for by Coalition for Our Children's
Future but aired with a disclaimer that they were paid for by ''the Seniors
Coalition: Save Medicare Project.'' 33 Bennett testified that he worked with
staff at Greg Stevens & Co, (''Stevens & Co.''). to create the
advertisements, and that CCF paid for the media time rather than contributing
the money directly to the Seniors Coalition in order to maintain control over
the advertising. 34 Bennett also testified that it was Greg Stevens's idea to
have a seniors group air the Medicare advertising. (note - 35)
Most decision-making with regard to advertising appears to have been handled by
Stevens & Co. According to Bennett, Stevens & Co. staff was responsible
for recruiting both Senators to appear in the CCF advertisements, and Stevens,
together with Barry Bennett, made the decisions regarding where advertising
would air. 36 Bennett also testified that together with Stevens & Co. he
prepared another advertisement that he could recall only as ''screaming granny''
which aired in the spring of 1996. 37 This advertisement appears to have been
financed by two wire transfers from CCF to the Seniors Coalition totaling
$140,000. 38 A memo produced by a Stevens & Co. employee contains a list of
media markets where CCF's 1995 advertising aired. The memo shows that ads were
targeted to air in particular congressional districts, many of which were the
districts of vulnerable Republican freshman. (note - 39)
Essentially, at least at its creation, CCF was largely a front for the RNC's
advertising in support of the balanced budget and Medicare package. Gary Andres,
who served as president and a director of CCF, testified that the RNC's Donald
Fierce told him the initial purpose of CCF was to run advertisements in support
of the Republican Balanced Budget plan. 40 The purpose of creating an entity
like CCF is three-fold. First, paying for advertising through a nonprofit
organization permits the conservation of the party's hard dollars. Had
advertising created by CCF been aired by the RNC itself, in 1995 it would have
had to have been paid for with a combination of hard and soft dollars. 41 DNC
advertising aired during this period on these same subjects was funded partially
with hard money. Running the advertising through a nonprofit front also allows
the party to offer contributors freedom from public disclosure while still
earning the contributors goodwill with members of Congress and party officials.
And finally, running advertising through an apparently autonomous organization
also lends more credibility to the message. As RNC Coalition Director Curt
Anderson explained in the Coalition Building Manual used by the RNC in the 1996
election cycle, ''Always remember, ' What we say about ourselves is suspect, but
what others say about us is credible. ''' (note - 42)
CCF and its Exempt Organization Status
In September 1995, four months after it was incorporated, Coalition for Our
Children's Future applied for tax-exempt status, claiming to be a social welfare
organization pursuant to section 501(c)(4) of the tax code. 43 While a 501(c)(4)
organization is permitted to lobby, the primary purpose of the organization must
be to promote social welfare rather than directly or indirectly participate in
political campaigns. 44 Despite this limitation on political activity, as a
result of carefully crafted application papers and follow-up responses to the
Internal Revenue Service (''IRS''), on July 30, 1996 CCF was approved by the IRS
as a 501 (c)(4) organization. The approval of CCF for this status points to
inherent problems in the application process for section 501(c)(4) status, and
shows how organizations may easily disguise their true nature from the IRS. CCF
concealed information about its ties to political candidates, parties and
consultants and concealed the partisan nature of its advertising from the IRS.
In the September 1995 application, CCF stated that its purpose was to produce
non-partisan educational material about budget deficits and Medicare reform. It
listed the only employee of the corporation as Executive Director Barry Bennett
and placed a great deal of emphasis on the appoint of directors Gary Andres,
Deborah Steelman and Dirk Van Donegan. No mention is made in the application of
the Odell fundraising firm even though CCF was essentially run out of ORS's
offices. According to the testimony of ORS employee Sarah Fehrer, in the first
half of 1995, she handled tasks including ordering stationary and a phone line
for CCF; that the CCF phone line rang at her desk; that she believed ORS also
rented a post office box for CCF; and that she retrieved mail for CCF. 45 Fehrer
also testified that ORS established a separate fundraising office for CCF in the
ORS building for a short period in 1995. 46 The application makes no mention of
the fact that Barbour and Speaker Gingrich were actively raising funds for CCF,
or that Senator Dole and Speaker Gingrich were honorary co-chairs of CCF. (note
- 47)
Barry Bennett testified that he worked for CCF only periodically when
advertising buys were being prepared. 48 When he was not working for CCF,
Bennett worked for Representative Frank Cremeans, an Ohio Republican. 49 Many
documents produced to the Committee bear the fax line of Congressman Cremeans's
office, and Fehrer testified that she contacted Bennett at that office when she
could not reach him at the CCF office he maintained. 50 Bennett also testified
that he first learned that he was the executive director of the organization
when he received his business cards and that he regarded Odell as having the
authority for all financial decisions pertaining to CCF. (note - 51)
The three CCF directors also testified that they played no role in the
organization. Steelman, Van Donegan, and Andres each testified that from the
time they signed paperwork becoming directors of the organization in July 1995
until the end of 1996, they did not recall attending a board meeting or a CCF
meeting of any sort, never saw proposed advertising for the organization, and
never spoke to representatives of CCF. 52 None of the three ever personally met
Barry Bennett until 1997, and none of the three was aware of ORS's role in
running CCF. 53 Andres, who was ostensibly the president as well as a director
of CCF, additionally testified that he thought that someone had just designated
him president, and that he never discussed becoming president with anyone. 54
When shown the Articles of Incorporation of CCF that provide taht ''the
President shall be the CEO of the Corporation and shall in general supervise and
conduct the daily affairs of the Corporation,'' Andres testified that he had
never seen the document before. 55 When asked what he understood his role in CCF
to be, he testified that the RNC's Donald Fierce ''never really went into that
in any detail . . . he just said there would be a board--and we didn't really
need to go into it.'' (note - 56)
In November 1995, CCF received a follow-up inquiry from the IRS seeking
additional information about current CCF advertising, about CCF's relationship
to its media consultants, and about its proposed ''programs.'' CCF responded on
December 19, 1995, stating that the only written agreements into which CCF had
entered were with its law firm, accounting firm, and auditors. Thus, CCF once
again failed to inform the IRS that it retained ORS, a political fundraising
firm also employed by the RNC and political campaigns, to administer and raise
funds for the organization, and that Robert Odell exercised decision-making
authority for the organization. While the follow-up response forwarded tapes of
additional CCF advertising, it did not include a memo dated one day earlier
outlining 48 media markets where advertising buys had been placed and which
coincided with politically vulnerable Republican districts. The response also
contained a biography of Barry Bennett which noted that prior to CCF he had
worked for Representative Cremeans. The biography omitted Bennett's brief tenure
at the RNC in 1995, and also failed to mention that in the three months between
the filing of the application and the response, Bennett had once again been
working for Representative Cremeans.
The ability of CCF to obtain section 501(c)(4) status despite the fact that it
was created by the RNC, run by political consultants, and existed to air
targeted political advertising at least partially in response to DNC
advertising, highlights the deficiencies of the section 501(c)(4) process. The
application process completely failed to discover that CCF was essentially a
name and a bank account through which corporate funds were sent for the purpose
of airing targeted political advertising. The organization has never had a staff
of its own, has no defining ideology, and is financed not by people who believe
in CCF's cause, but by large corporate contributors solicited by Republican
Party fundraisers or Republican Party leaders
In 1996, CCF also made contributions to other Republican groups, including a
$10,000 contribution to Americans for Tax Reform in August 1996, a $150,000
contribution to the National Right to Life Committee in October 1996, and the
$140,000 transferred to the Seniors Coalition. (note - 57)That CCF was able to
form and operate under the guise of a social welfare organization points to
fundamental flaws in the tax-exempt application process and the campaign-finance
laws that allow groups like CCF to evade public disclosure requirements by using
artfully worded political advertisements.
CCF 1996 ADVERTISING FOR REPUBLICAN CANDIDATES
In December 1995, CCF aired an advertisement that featured clips of President
Clinton talking about his plan to balance the budget. The advertisement ran:
Voice over: You've heard a lot of talk from Bill Clinton about balancing the
budget. CLINTON: ''I would present a five year plan to balance the budget . . .
we could do it in seven years . . . I think we can reach it in 9 years . . .
balance the budget in 10 years . . . I think we could reach it in 8 years . . .
so we're between 7 and 9 now. . . . 7, 9, 10, 8, 5'' Voice over: No more double
talk. Balance the budget. (note - 58)
Produced by Stevens & Co., the advertisement was almost identical to an
advertisement produced by Stevens & Co. and aired by the RNC. 59 A memo from
a Stevens staffer to Sarah Fehrer of the Odell fundraising firm specifically
notes: ''The spot which ran [last week] was an edited version of Clinton spot
the RNC ran last month which shows various clips of Clinton commenting on the
balanced budget. (10 years, 7 years, 9 years, etc . . .)'' 60 Hence, Stevens
& Co. produced two virtually identical advertisements aired almost back to
back by the RNC and CCF, at the same time that CCF was filing its response to
the IRS seeking status as a social welfare organization not primarily engaged in
political activity.
Documents suggest that in January 1996, CCF also aired the Clinton advertisement
in a few districts at the request of particular Republican candidates.
Apparently, from the time it began its advertising campaign,
CCF expected that Republican members of Congress would make such requests. In a
September 5, 1995 memo to Coalition Leaders, Barry Bennett stated: Our members
need to feel that someone is protecting them during this struggle. It is vitally
important that we go up soon after their return . . . . Undoubtedly many will
call in the coming week and ask for broadcast in their districts. Those that are
not covered might be motivated to make a few solicitations to raise the funds
for airing these spot in their districts. (note - 61)
No evidence indicates that members of Congress raised funds for the September
Medicare advertisements that were ultimately aired, although CCF did receive
$500,000 from the National Republican Congressional Committee on September 15.
62 In January 1996, however, evidence suggests that at least four members of
Congress or their staff actively worked to secure CCF advertising in their
districts.
Documents show that in late December 1995, Alex Ray of Chesapeake
Media--Representative Bill McCollum's media person 63--was working with CCF to
put together a $30,800 advertising buy in Representative McCollum's Orlando,
Florida district. 64 A December 27 memo from Ray to David Bennett, the ORS
staffer responsible for administering CCF, notes, ''I just hope Bill raises
another $280.'' 65 In another memo to Bennett two days later, Ray exclaims, ''I
think its over. Bill McCollum raised another $1,000 yesterday and the check is
in the mail to Doyle's [Congressman McCollum's administrative assistant 66] home
as is the $5,000. . . . This should cover the shortages the Coalition advanced
towards the buy.'' 67 In a third memo to David Bennett upon completion of the
buy, Ray noted, ''Every adult in central Florida should have seen your spot 3.5
times over the five day period.'' 68 Although Barry Bennett initially testified
that he had no knowledge of any member of Congress raising funds to air CCF
advertising in his or her district, when he was shown the memos, he admitted
that he had spoken to McCollum staffer Doyle because they ''wanted to either
donate or raise money I think, for--to run the ad, one of our ads in Orlando or
something like that.'' (note - 69)
Documents produced by CCF also indicate that Representative Jim Kolbe of Arizona
raised money for CCF to air ads in his district. A letter dated January 18,
1996, to Barry Bennett from Representative Kolbe's campaign manager Tori Hellon
states: I am sending $9,750 today so that you can begin the buys. Three of our
contributors are out of town and will return this weekend. I will send the
balance of $12,000 on Monday. I have not heard back on the availability of RNC
funds to be added to this money in order to increase our exposure. I hope you
were successful in your efforts to secure additional funding. (note - 70) A note
handwritten at the bottom adds: ''Please fax a copy of the buy immediately so
our contributors can know when the ads will run.'' 71 Invoices produced to the
Committee by CCF indicate that CCF made a $12,000 television buy in Tucson,
Arizona for January 25 to 31. 72 Asked about the letter, Bennett testified that
he recalled having a conversation with Kolbe's campaign manager ''about how to
go about raising money and what kind of money the coalition could take.'' He
testified that he did not recall ever seeing the letter from the campaign
manager. 73
CCF documents also indicate similar contacts with Representative Van Hilleary of
Tennessee. A printout of a January 12 telephone message for Barry Bennett from
Representative Hilleary reads, ''We really need the info on your bye [sic] in
Nashville for the ad. When and how much?'' (note - 7Documents indicate that CCF
funded a $20,000 television buy in Nashville between January 6 and 12, 1996. 75
Asked about the message, David Bennett, an ORS staffer, testified that he
retrieved it and immediately forwarded it to Barry Bennett. Barry Bennett
initially testified that he had never spoken to a Member of Congress on the
subject of CCF, but later recalled having spoken to Representative Hilleary. 76
Documents also reflect that Representative Joe Barton of Texas was soliciting
contributions for CCF in December and January 1996. At least one of the
contributors, to whom Barton sent a solicitation on CCF letterhead, Louis
Beecherl, contributed directly to Barton's campaign at about the same time he
received the solicitation. (note - 77)
By directing their personal supporters to contribute to CCF, these Republican
candidates appear to have been engaged in an attempt to circumvent contribution
limits to their own campaigns. Republican Party organizations also appear to
have been involved in this effort to run ads with the Republican message in
congressional districts during this period. On January 19, CCF received an
$85,000 contribution from the National Republican Senatorial Committee. 78 The
coordination of the fundraising and strategy for airing CCF advertisements
between the candidates, the Republican Party, and CCF appears to make the cost
of the advertising corporate contributions from CCF to these candidates.
Creation of a supposedly nonprofit organization in the anticipation that it will
be