Final Determination No. 2012-1 (October 18, 2012)

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IN THE MATTER OF

Michael Bloomberg and Bloomberg for Mayor 2009, Inc.

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INTRODUCTION

Pursuant to a complaint received on December 1, 2011 and its own prior inquiry into the matter, the New York City Campaign Finance Board (the “Board”) must consider whether the Michael R. Bloomberg (“Bloomberg”) 2009 mayoral campaign (the “Campaign”) committed a violation of the Campaign Finance Act¹ or Board Rules² by failing to disclose Bloomberg’s $1.2 million payments to the Independence Party of New York State (the “IP”) on October 30, 2009 and November 2, 2009 (the “IP payments”).

Disclosure of money raised and spent in City elections is central to the Board’s mandate. The record established during the 2011 criminal trial of John Haggerty, Jr. (“Haggerty”), a Campaign volunteer, makes clear that the Campaign moved deliberately to avoid pre-election public disclosure of the IP payments, in spite of the Board’s clear statement in CFB Final Board Determination No. 2009-1 (Oct. 21, 2009) (“FBD 2009-1”) that “political contributions made by Bloomberg with his personal funds to political committees . . . are presumptively campaign expenditures in furtherance of his campaign.”  FBD 2009-1, at 1, 8.

However, FBD 2009-1 also provides that the Board shall not find violations or assess penalties against candidates who fail to disclose personal contributions to political committees during the 2009 election cycle.  Accordingly, while the Campaign’s actions contravened the spirit of disclosure underlying the Act and Board Rules, the Board can find no violation.  With this determination, the Board concludes its investigation into the matter of the IP payments, and closes the aforementioned complaint.

FACTUAL BACKGROUND

Final Board Determination No. 2009-1
In FBD 2009-1, the Board dismissed a complaint filed by the 2009 William Thompson mayoral campaign on August 20, 2009 (the “Thompson Complaint”).  The Thompson Complaint alleged that the Campaign failed to report Bloomberg’s personal contributions to political committees that support candidates in New York City and throughout New York State.  Such personal contributions allegedly totaled $3.3 million over the course of the 2009 election cycle through August 2009. Thompson Compl. ¶ 10.  The Board held that because it had “never previously clarified to candidates that they must report to the Board political contributions made with personal funds,” the Campaign (as well as other 2009 campaigns) were not required “to report the political contributions at issue for the 2009 election cycle.”  FBD 2009-1, at 1.³  Rather, the Board announced, all campaigns must report such contributions beginning in 2010.  This disclosure requirement remains in effect – candidates must now report their personal political contributions on Schedule Y of required CFB disclosure statements.

When it promulgated FBD 2009-1 and set a January 2010 effective date for the enforcement of the clarified disclosure requirements, the Board sought to balance the value of full disclosure for the public against the burden of campaigns’ compliance obligations.4   With less than two weeks remaining before the election, the Board did not contemplate that its determination would deprive the public of significant disclosure.5  Notably, FBD 2009-1 did not modify the requirement that candidates report all campaign expenditures, see Admin. Code § 3-703(6)(a), and specifically noted that “[t]he Board has consistently considered [a candidate’s] political contributions to be campaign expenditures.”  FBD 2009-1, at 3.

FBD 2009-1 was issued October 21, 2009.  The IP payments were wired on October 30 and November 2, 2009.  The mayoral election was held on November 3, 2009, and Bloomberg was inaugurated on January 1, 2010.  On January 15, 2010, the IP payments were disclosed for the first and only time – not by the Campaign, but by the IP on its January 15, 2010 New York State Board of Elections (“SBOE”) biannual disclosure statement as contributions to its housekeeping committee account.  The IP also reported an expenditure of $750,000 to Special Election Operations, LLC (“SEO”) on December 11, 2009 with the explanation “consulting.”⁶

CFB Inquiry
On February 25, 2010, Board staff sent a letter to the Campaign regarding the activity reported by the IP on its January 2010 SBOE disclosure statement.  The letter called the Campaign’s attention to various news articles in which Bloomberg and high-level Campaign officials speaking on his behalf were quoted regarding how the payments were to be used.⁷  The letter noted:

[I]t appears that at least some portion of Mr. Bloomberg’s $1.2 million payment to the Independence Party constitutes unreported campaign expenditures. As you know, pursuant to the Act, Mr. Bloomberg is obligated to report to the CFB every expenditure made in furtherance of his campaign. The Act’s disclosure requirements apply to both participants and non-participants alike, and regardless of whether campaign expenditures were paid for with personal funds. Alternatively, if Mr. Bloomberg’s $1.2 million payment to the Independence Party was in fact a contribution, and not a campaign expenditure, then it appears that the Independence Party’s $750,000 payment to Special Election Operations LLC constitutes a non-independent expenditure on behalf of the Campaign. If so, the Campaign may have accepted, and failed to report, an over-the-limit in-kind contribution from the Independence Party.

The letter required the Campaign to address the issues identified above and a list of specific questions and documentation requests regarding the IP payments, the field and Election Day operations of the IP and SEO, and the activities of Haggerty vis-à-vis the Campaign, the IP, and SEO.  On March 16, 2010, the Campaign requested an extension to respond and noted the pendency of “the District Attorney’s resolution of issues involving John Haggerty and related matters.”  The extension was granted in deference to the impending criminal proceedings.

On February 25, 2010, Board staff also sent letters of inquiry to the IP and to Haggerty through his attorney.  Counsel for Haggerty and the IP requested additional time to respond on multiple occasions and have not responded to date. Nevertheless, the criminal proceedings against Haggerty brought to light voluminous evidence and testimony relevant to the Board’s inquiry.

The Haggerty Trial
 Haggerty was indicted on charges of first-degree grand larceny, second-degree money laundering, and first-degree falsification of business records in June 2010.  Press Release, N.Y. County District Attorney’s Office, District Attorney Vance Announces the Indictment of John F. Haggerty, Jr., and Special Elections Operations, LLC (June 13, 2010) (“Press Release”).  Haggerty was convicted on charges of second-degree grand larceny and second-degree money laundering.  People v. Haggerty, No. 2598/2010 (Sup. Ct. N.Y. County Oct. 21, 2011).  Bloomberg and senior Campaign officials testified at the trial.  Prosecutors alleged that “Haggerty falsely represented to Mayor Bloomberg’s agents and campaign workers that he would arrange for nearly $1.1 million to be spent on . . . ballot security.”  See Press Release, supra.  “In reality . . . neither Haggerty nor SEO made any expenditure in connection with ballot security and poll watching for Election Day 2009,” but rather, Haggerty “used approximately $600,000 of the stolen funds to purchase a home.”  Id.

Relevant to the Board’s consideration of this matter is the testimony of senior IP officials at the Haggerty trial.  IP officials maintained that the Bloomberg campaign could not have directed that the IP payments be deployed for the Campaign’s benefit because, as a matter of New York State election law, contributions to housekeeping accounts become wholly within the control of the receiving party.  Thomas Connolly, vice chairman of the IP, testified that “you cannot use [housekeeping contributions] for a specific candidate to run campaigns [, b]ut you can use housekeeping accounts, for example, to do advocacy for a public official.”  Haggerty Tr. 706:24-707:15.  He continued that housekeeping contributions are “by definition a donation and [ ] under control of the Party” because while candidates may “request” that their donations be “earmark[ed] in a special way,” “whether that request is honored or not [is] up to the party committee.”  See id. 709:13-25. “[B]ecause it is a donation,” Connolly continued, “we can do with it as we see fit.” Id.

Documentary evidence presented at trial also confirmed (1) the intricate involvement of senior Campaign officials in the negotiation, financing, and logistics of Haggerty’s ballot security operation; and (2) the Campaign’s cognizance of FBD 2009-1 during the preparation of the IP payments and its affirmative conclusion that they were not required to be reported to the CFB.⁸  The trial record further reflects that Haggerty, working as a volunteer for the Campaign and interacting with the highest levels of Campaign staff, was negotiating both sides of the arrangement for the IP payments.⁹   

Ballot security, also known as voter protection or election protection, means a coordinated effort to record and promptly report to Board of Elections officials technical and ballot access problems observed by trained attorneys and other volunteers at polling places on Election Day.  In the 2001 and 2005 mayoral elections, Bloomberg funded sophisticated ballot security operations.  See e.g., Haggerty Tr. 118:9-119:11; 256:22-257:3.  During the 2005 election, Bloomberg’s general election opponent “made accusations that ballot security conducted by the Republicans on Bloomberg’s behalf in ’01 was indeed voter suppression,” see id. 218:13-24; 1246:21-1247:1, and filed a complaint with the federal Department of Justice alleging “an organized effort of voter intimidation disguised as ‘poll watching.’”  See Tom Robbins, Roots of “Ballot Security:” Dead Voters, Party Fears and Shadowy Tactics, N.Y. Times (Oct. 4, 2011); Bill Egbert, Fury Over Alleged GOP Vote-Suppress Plan, N.Y. Daily News (Oct. 31, 2005).  On August 19, 2009, Kevin Sheekey tapped Haggerty to run Bloomberg’s ballot security operation for 2009, instructing Haggerty to “do it on the outside” this time.  See Haggerty Tr. 201:8-20; 1244:16-17. 

Communications between senior Campaign officials and Haggerty about the financing and logistics of Haggerty’s ballot security operation for the 2009 election spanned several months in summer and fall of 2009.  See e.g., Haggerty Tr. 56:10-11; 183:22-24; 353:23-364:7.  Sheekey and Bradley Tusk met with Haggerty to discuss the ballot security operation in mid-October.  See id. 242:11-243:5.  Sheekey and Tusk “generally approved” Haggerty’s proposed operation at that meeting, but asked Haggerty to provide a more detailed plan.  On October 27, 2009, Haggerty presented Sheekey and Patricia Harris with a more detailed budget and operational plan in response to the Campaign’s request.  Id. 102:16-103:18.¹⁰  The following day, Haggerty presented and discussed his budget and plan in a meeting with Bloomberg, Sheekey, Harris, Tusk, consultant Bill Knapp, and pollster Douglas Schoen.  Id. 121:6-122:11.  On October 30, Sheekey emailed Allison Jaffin to ask whether she and Fiona Reid had discussed finalizing the ballot security operation.  Jaffin and Reid invited Haggerty to meet with them later that day to discuss further refinements to his budget.  Id. 437:12-438:6.  Following their meeting, Haggerty promptly emailed additional plan and budget documents to Jaffin and Reid.  Id. 447:24-448:6.  Jaffin and Reid then privately discussed the operation and agreed “it looked good.”  Id. 451:5-11.

Reid subsequently contacted Campaign Treasurer Diane Rizzo to prepare the IP payments for wire transfer.  The following email exchange ensued:

F. Reid:  Sending you a heads-up about the payments that were going to be coming.
D. Rizzo: Personal payments? 
Reid:   Yes.
Rizzo:  So you’re saying MRB [Bloomberg] may make a donation to IP?
Reid:  Yes, like we do to Republican in 2005.
Rizzo: Are you asking B/C of the CFB?  I thought that was [effective] January plus, but I would have to check.
Reid:  I don't think it was ever put together that clearly before, not to me at least.
Rizzo:  Isn't this the two payments we researched for Bradley [Tusk] a month back?  Two by 400.  Maybe I'm getting the names of the projects wrong, but it was the Haggerty thing.
Reid:  Yes, no problem.¹¹

The Kann Complaint
On December 1, 2011, the CFB received the Kann Complaint, see supra n. 3, alleging violations of the Act by the Campaign in connection with the IP payments. The Kann Complaint alleges that the Campaign’s failure to report the IP payments to the Board violates three provisions of the Act.  Kann Compl. at 1 (citing Admin. Code § 3-703(6)(a) (requiring campaigns to report “every expenditure made by the candidate and [his or her] committee”); Admin. Code § 3-711(3) (providing civil penalties and criminal liability for material misrepresentation, falsifying and concealment of records, and intentional violations of the Act); and Admin. Code § 3-719(1)(c) (requiring non-participants to submit disclosure statements)). The Kann Complaint seeks as a remedy that the Board “reconsider” its “somewhat astonishing decision” in FBD 2009-1, to the extent that FBD 2009-1 “does not require Bloomberg or any other candidate to report the political contributions at issue for the 2009 election cycle.”  Kann Compl. at 2.  The Kann Complaint urges that that the IP payments be “considered independently of the contributions considered in FBD 2009-1” because Bloomberg should have understood that the IP payments were presumptive campaign expenditures, but instead engaged in a “back-channel method of funding the poll-watching operation” in order to “conceal[] campaign expenditures.”  Id.¹²

In accordance with Board Rule 7-01, Board staff sent the Kann Complaint to the Campaign “to provide an opportunity for the Campaign to respond to the allegations within 20 days,” noting that the Kann Complaint raised “issues that were previously raised by the Board” and that “the Campaign will be required to address these issues in its response to the upcoming draft audit report.”¹³

The Board received a response from the Campaign on January 20, 2012. The response asserted that the Board had already reviewed and dismissed the allegations in FBD 2009-1 and issued a decision requiring the reporting of candidates’ personal contributions starting January 12, 2010.  The response stated that the Kann Complaint did not provide a justification for the Board to revisit FBD 2009-1 and requested that the complaint be dismissed.

In its Draft Audit Report of March 29, 2012, Board staff outlined the history of its inquiry by referencing the unanswered February 25, 2010 letter and acknowledging receipt of the Campaign’s response to the Kann Complaint.  CFB staff emphasized that the Kann Complaint remained unresolved and instructed the Campaign as follows: “In light of sworn testimony by the Candidate and senior Campaign officials at the [Haggerty trial] regarding these two payments and the expectations of the Candidate and the Campaign regarding how these funds were to be used, explain why the Campaign did not report these payments on CFB disclosure statements.”

On May 1, 2012, the Campaign responded to the Draft Audit Report, largely restating the arguments it set forth in its January 20, 2012 response to the Kann Complaint.  The Campaign principally argued that according to FBD 2009-1, the Board “require[d] such contributions to be reported as expenditures by the campaign committees starting January 12, 2010.  As each of the [IP payments] were made prior to this date [on] October 30, 2009 and November 2, 2009, the Committee was not required to report the [IP payments] on its CFB disclosure statement.” The Campaign further noted that on the face of FBD 2009-1, “the Board decided that it would not examine the facts involving any of the candidates who made [personal] contributions before January 12, 2010.”  Finally, the Campaign argued that the IP payments are not Campaign expenditures or in-kind contributions to the Campaign because (1) they were made to IP housekeeping committee accounts “with the desire that the funds would contribute to general party support and poll watching operations . . . to benefit all candidates and the public at large;” (2) “the IP maintained complete discretion over the deployment” of the IP payments; and (3) the “bulk of the funds comprising the [IP payments] were misappropriated by Haggerty for his personal use” and therefore never actually redounded to the Campaign’s benefit. 

ANALYSIS

Disclosure of Contributions and Expenditures
The Act provides that each “candidate and his or her authorized committees shall report to the board every contribution, loan, guarantee, or other security for such loan received by the candidate and such committee . . . and every expenditure made by the candidate and such committee . . . .”  See Admin. Code §3-703(6)(a).  During the two weeks preceding an election, a campaign is required to report all contributions or loans accepted from a single source exceeding $1,000, and any expenditures that exceed $20,000, within 24 hours after they are accepted or made.  See Admin. Code §§ 3-703(1), (g), (6), (12); Board Rule 3-02(e).  Accordingly, but for FBD 2009-1, see infra, the Campaign’s failure to report the IP payments would constitute a violation of the Act and Board Rules. 

Throughout the Haggerty trial, in public statements, and in its correspondence with the Board, the Campaign has consistently maintained that FBD 2009-1 notwithstanding, the IP payments were not intended to secure any specific benefit for the Campaign.  Rather, the Campaign asserts, the Candidate’s payment of $1.1 million¹⁴ to fund a ballot security operation, albeit designed by the Campaign’s own volunteer in close consultation with its own senior staff, was merely intended to benefit (1) all seventeen IP candidates equally;¹⁵ and (2) the democratic process at large.¹⁶

The Campaign maintains that it was not interested in securing a benefit in exchange for Bloomberg’s $1.2 million contribution in the week before a close election, yet its senior officials requested additional details of Haggerty and directed him to produce multiple iterations of his proposal until it met their specifications for payment.  See Factual Background: The Haggerty Trial, supra.  The trial record further confirms that the Campaign, purportedly not seeking to benefit, dispatched senior staffers to discuss the financing and logistics of Haggerty’s ballot security operation over the course of several months, see e.g., Sheekey Test., Haggerty Tr. 183:22-24, and arranged for Haggerty to meet with the Candidate himself to discuss the ballot security operation only days before the election.  Haggerty Tr. 122:4-11.

This level of activity and involvement by Campaign staff begs the question whether the IP payments were really the type of contributions the Board intended to cover with FBD 2009-1.    Indeed, the record before the Board makes clear that the Campaign, with a stated intent to conceal the funding of its $1.1 million ballot security operation by “do[ing] it on the outside,” moved to deprive the New York City electorate of the benefits of disclosure. See Haggerty Tr. 201:8-20; 1244:16-17.

Nevertheless, pursuant to FBD 2009-1:

For the 2009 election cycle, candidates who have not reported political contributions of more than $99 made with personal funds to non-candidate political committees as campaign expenditures will not be found in violation of the New York City Campaign Finance Act and Board Rules, and such contributions will not be considered in the Board’s audit review of disclosure reports filed.

See FBD 2009-1, at 2 (emphasis added).  Rather, such contributions “must be reported in disclosure statements beginning January 12, 2010.”  See id., at 6.

The IP payments appear to fall within the broad parameters prescribed by FBD 2009-1.  See FBD 2009-1 (defining transactions covered by FBD 2009-1 as “political contributions made with personal funds;” “political contributions made by Bloomberg with his personal funds to political committees;” “political contributions of more than $99 made with personal funds in the 2009 election cycle to non-candidate political committees;” “political contributions from [a candidate’s] personal account rather than the candidate’s committee account;” candidate contributions to “entities such as political party committees (including housekeeping accounts of these committees), PACs, and political clubs.”).  Thus, by operation of FBD 2009-1 and in spite of the purposes underlying it, the Board concludes that the Campaign was not required to report the Candidate’s personal political contributions made between October 21, 2009 (the date of FBD 2009-1) and January 11, 2010 (the effective date of FBD 2009-1).  Accordingly, while the Complaint raises serious public policy considerations, see infra, it does not allege a violation of law upon which the Board may grant relief.

Coordination in Alleged Independent Expenditures
The Complaint does not explicitly raise the issue of whether the Campaign coordinated in alleged independent expenditures in violation of the Act and Board Rules.  See Admin. Code § 3-702(8); Board Rule 1-08(f); Board Advisory Op. No. 2009-7 (Aug. 6, 2009).  Under a coordination theory, the payments from the IP to SEO for ballot security operations arguably were required to be reported by the Campaign under the Act as in-kind contributions from the IP because, inter alia, senior Campaign officials were involved in planning for the services to be provided, and Haggerty was a common vendor of the Campaign and the IP.¹⁷  See e.g., Sheekey Test., Haggerty Tr. 183:22-24.  These factors plainly suggest coordination between the IP and the Campaign.

However, the record before the Board lacks evidence that there were any actual expenditures made to benefit the Campaign.  The Board is thus precluded from finding the Campaign in violation for coordination in alleged independent expenditures for two critical reasons: (1) there were no expenditures, because Haggerty absconded with the bulk of the IP payments before their benefit could redound to anyone; and (2) the planned expenditures would not have been considered to be made for the benefit of the Campaign, because as a matter of state election law, funds transferred to a party housekeeping account cannot be used to benefit a specific candidate.¹⁸  The sworn trial testimony of senior IP and Campaign officials served to reinforce this conclusion.

Housekeeping
The Act empowers the Board to diminish the role and influence of private money in New York City elections, to increase the information available to the public about elections and candidates’ campaign finances, and to reduce the potential for actual or perceived corruption.  See generally N.Y. City Charter Ch. 46.  Entrusted with and guided by these mandates, the Board is troubled by Bloomberg’s apparent freedom under New York State Election Law to make and conceal such payments in the first place.

The Board has long decried the outsize influence of unlimited housekeeping contributions in New York elections.¹⁹  Political parties in New York State may form “housekeeping” committees and set up dedicated accounts for such committees.  Housekeeping committees are the vehicle for “reporting ‘Housekeeping Receipts and Expenditures’ made and received pursuant to NYS Election Law Section 14-124(3) . . . [and] carry[ing] on ordinary activities that are not for the express purpose of promoting the candidacy of specific candidates.”²⁰  “There are no limits on contributions to a Party [ ] for Housekeeping expenses.”²¹

When stripped of legal artifice, housekeeping arrangements are, at best, hostile to the principles of fair play and transparency which form the building blocks of New York City’s campaign finance regime and provide the reason for this Board’s existence.  At worst, housekeeping committees may provide legal cover for corruption or engender the appearance of corruption.  Although housekeeping committees may not promote a specific candidate, they may transfer funds to a second political organization for that organization to promote a candidate, or even for the second organization to contribute funds to an individual campaign outright.  Corporations, which are banned from contributing to New York City campaigns and limited to contributions of $5,000 in state elections, may make unlimited housekeeping committee donations.  Bond underwriters, lobbyists, and others who are banned or severely limited in their ability to contribute to candidates directly, may make unlimited party housekeeping contributions.  By their very nature, housekeeping accounts provide a vehicle for huge amounts of unregulated money in New York City elections.

New York’s housekeeping construct also threatens the spirit of disclosure that animates the Board’s work.  Because they are not, as a matter of law, permitted to support or oppose specific candidates, housekeeping committees are exempt from filing disclosure reports timed to elections, and need only file periodic reports twice per year.  See N.Y. State Bd. of Elections, “Campaign Finance Handbook 2012,” at 17-19.²²  In the matter before the Board, it was not until the IP disclosed the payments on January 15, 2010, some ten weeks after polls had closed, that voters were finally afforded a complete financial picture of the 2009 mayoral election.  The CFB was established precisely to close this type of information gap and ensure the transparency of City elections.  The Board once again calls upon the New York State legislature to close New York’s housekeeping loopholes.

CONCLUSION

This determination hereby concludes the Board’s investigation into this matter and closes the Kann Complaint.

NEW YORK CITY
CAMPAIGN FINANCE BOARD