FEDERAL ELECTION COMMISSION 

WASHINGTON, D.C. 20463 

May 14/ 2012 

MEMORANDUM 

TO: 

FROM: 

Patricia Carmona 

Cfaief Compliance Officer 

Tom Hintermister 

Assistant Staff Director 

Audit Division 

Cfaristopfaer Hugfaey X ) 

Deputy Genera] Counsel / 

Lawrence L. Calvert, Jr. 

Associate General Couni 

General Law and Advi 

Lorenzo Holloway 

Assistant General Counsel 

Public Finance and Audit Advice 

Margaret J. Forman -4-

Attomey 

Allison T. Steinle 

Attomey 

SUBJECT: Draft Final Audit Report on Rigfatmarcfa.com PAC, Inc. (LRA 842) 

I. INTRODUCTION 

Tfae Office of General Counsel ("OGC") faas reviewed tfae proposed Draft Final Audit 

Report ("DFAR") on Rigfatmarcfa.com PAC, Inc. ("Rigifatmarcfa"), as well as tiie responses to tiie 

Interim Audit Report ("lAR") submitted by Rightmarcfa and Political Call Center, LLC. We 

generally concur witfa tfae Audit Division's findings in tfae DFAR. In tfais memorandum, 

faowever, we specifically address tfae extension of credit by a commercial vendor discussed in 

Finding 2, and tfae failure to file notices and properly disclose independent expenditures 
! Memorandum to Patricia Cannona 

i Rightmarch.com PAC, Inc. (LRA 842) 

I Legal Comments on Proposed Draft Final Audit Report 

I Page 2 of 13 

I 

discussed in Finding 3. If you faave any questions, please contact Margaret J. Forman, tfae 

attorney assigned (o this audit. 

i 

II. BACKGROUND 

On February 3, 2011, Rightmarcfa requested, and tfae Commission granted, a Request for 

Early Review of Legal Questions by tfae Commission, pursuant to tfae Policy Statement 

Establisfaing a Pilot Program for Requesting Consideration of Legal Questions by tfae 

Commission, 75 Fed. Reg. 42,088 (July 20,2010).' On February 16, 2011, Rigifatmarcfa 

submitted a supplemental Request for Consideration of Legal Questions by tfae Commission 

("Rigfatmarcfa Suppl. Req."). We submitted a memorandum to tfae Commission, dated March 14, 

2011, in response to this request, wfaicfa provided legal analysis of two issues: (1) wfaetfaer tfae 

"ever-changing weekly contingency fees" invoiced by Rightmarch's vendor. Political 

Advertising, resulted in in-kind contributions and were required to be reported as debts; and (2) 

wfaetfaer fimdraising commumcations were independent expenditures. In our analysis of tfae first 

issue, we concluded tfaat tfae fees may faave resulted in in-kind contributions, and were reportable 

debts. We also stated, faowever, tfaat we needed additional information from Rigfatmarcfa to assist 

tfae Commission in resolving tfais issue. Our analysis of tfae second issue concluded tfaat tfae 

fimdraising communications constituted express advocacy pursuant to 11 C.F.R. § 100.22(a) and 

were, tfaerefore, independent expenditures. Tfae Commission, after considering tfae legal 

questions, was unable to reacfa an agreement and issue a response. Pursuant to Commission 

direction, Rigfatmarcfa received a copy of our memorandum in response to tfaeir request. 

Altfaougfa our memorandum stated that we need additional information from Rightmarcfa to assist 

tfae Commission in resolving these issues, Rigfatmarcfa submitted no additional information in 

response to tfae memorandum. Accordingly, tfae Audit Division proceeded by including tfaese 

issues as findings in tfae LAR, wfaicfa was approved by tfae Commission on October 25,2011. See 

Policy Statement Regarding a Program for Requesting Consideration of Legal Questions by tfae 

Commission, 76 Fed. Reg. 45,798,45,799 (Aug. 1,2011). Rigifatmarcfa and PoHtical Call Center, 

LLC botfa submitted responses to tfae LAR. 

III. ANALYSIS 

A. Extension of Credit by a Commercial Vendor (Finding 2) 

1. Introduction 

; Rigfatmarcfa, a non-connected poUtical committee, entered into a five year fimdraising 

telemarketing contract witfa PoHtical Advertising, a division of Political Call Center LLC, on 

I August 20,2007. Submission of Political Call Center, LLC in Response to the Interim Audit 

Report Conceming Rightmarcfa.com PAC, Inc. at Ex. C (Dec. 12, 2011) ("Political Call Center's 

' The pilot program was in place during the period in v4iich Rightmarch requested consideration of legal 

questions by the Commission. The Commission subsequently replaced this Pilot Program with a Policy Statement 

Regarding a Program for Requesting Consideration of Legal Questions by the Commission, 76 Fed. Reg. 45,798-99 

(Aug. 1,2011). 
Memorandum to Patricia Cannona 

Rightmarch.com PAC, Inc. (LRA 842) 

Legal Comments on Proposed Draft Final Audit Report 

Page 3 of 13 

Resp."). Pursuant to tfae terms of tfae contract. Political Advertising cfaarges Rightmarcfa a "fiat 

contingency fee" of $2.50 per completed call, plus actual costs of associated activity such as 

sending a response card or accessing a call list. Id. at Ex. C ^ 5.2. However, depending on 

developments over tfae course of tfae contract, Rigfatmarcfa may never be liable for tfais "fiat 

contingency fee." 

Under tfae contract, Rigifatmarcfa is guaranteed a minimum of five percent of tfae gross 

proceeds of tfae fimdraising activity. Id. at Ex. C \ 6.2. Moreover, Rigifatmarcfa is only obligated 

to pay tfae "fiat contingency fee" to tfae extent tfaat Political Advertising receives fimds in 

response to its fimdraising efforts. Id. at Ex. C \ 5.3-.4. If Political Advertising's fundraising 

efforts are not sufficient to cover a particular week's fees and expenses, Rigfatmarcfa still receives 

five percent of tfae gross fundraising proceeds, and tfae remaining proceeds go towards paying off 

tfae total amount of outstanding fees and expenses witfaout requiring Rigifatmarcfa to pay tfae 

remaining balance from its own fiinds. Id. 

Pursuant to tfae terms of tfae contract. Political Advertising provides Rigfatmarcfa witfa a 

weekly "Statement of Contingency Fees (INVOICE)" sfaowing tfae fees and expenses and "flat 

contingency fees" for its services tfaat week, and tfae accumulated net balance of fees and 

expenses and "fiat contingency fees" not covered by tfae proceeds of tfae fimdraising project to 

date. Id. at Ex. C T| 5.2. However, Rigfatmarcfa can never be liable for any of tfae "fiat 

contingency fees" unless it terminates tfae contract prior to its 2012 expiration date, in wfaicfa case 

it becomes immediately liable for tfae fiill amount of fees and expenses accumulated to date. Id. 

at Ex. C \ 7.4. Tfae contract itself refers to tfais arrangement as a "No Risk Guarantee." Id. at Ex. 

C115. 

Tfae LAR included a finding tfaat, as a result of tfais contract, Rigfatmarcfa faad an 

outstanding debt to PoHtical Advertising in tfae amount of $1,524,657.35 at tfae conclusion of tfae 

audit period. Rigifatmarcfa reported only a small portion of tfais amount as outstanding debt for 

tfais period.^ Tfae lAR also included a finding tfaat tfais arrangement may faave resulted in in-kind 

contributions to Rigfatmarcfa from Political Advertising. 

In response to tfae lAR, Rigfatmarcfa argues tfaat tfae Audit Division faas misunderstood tfae 

terms of tfae contract and tfae weekly statements provided to Rigfatmarcfa by Political Advertising. 

Rigifatmarcfa argues tfaat Political Advertising never extended any credit to Rigfatmarcfa, and tfaat 

tfae weekly statements were prepared by a tfaird-party escrow company using a standard format 

designed for real estate transactions, whicfa caused the statements to include a "Principal 

Balance" even tfaougfa tfais amount reflected tfae '^maximum possible amount tfaat [Political 

Advertising] could faave received from Rigfatmarcfa if tfae fundraising program faad exceeded 

expectations." Submission ofRigfatmarcfa.com PAC, Inc. in Response to tfae Interim Audit 

Report on Rigifatmarcfa.com PAC, hic. at 3-4 (Dec. 13,2011) ("Rigfatmarcfa's Resp."). 

^ The Audit Division does not know why Rightmarch elected to report only a small portion of the 

outstanding fees and expenses. Rightmarch stopped reporting any of this amount as debt in 2009. Rightmarch 

reported the fimdraising proceeds as contribution receipts and the amount of proceeds that Political Advertising 

applied to its outstanding fees and expense as expenditures to third-party vendors. 
Memorandum to Patricia Carmona 

Rightmarch.com PAC, Inc. (LRA 842) 

Legal Conunents on Proposed Draft Final Audit Report 

Page 4 of 13 

Rigfatmarcfa contends tfaat tfae weekly statements were not "invoices" because tfaey "did not 

represent a debt tfaat was due and owing" and tfaat Political Advertising was paid in-fiiU and ontime eacfa week in accordance witfa tfae contract. Id. at 4. 

In a separate response to tfae lAR, Political Call Center faas provided an affidavit from its 

president attesting tfaat Political Advertising offered its telemarketing fundraising services to 

Rigfatmarcfa on tfae same general terms tfaat were offered to Political Advertising's otfaer political 

and non-political clients, and tfaat no special discoimts or financial incentives were offered to 

Rigfatmarcfa tfaat were not offered to otfaer clients. Political Call Center's Resp. at Ex. B. In 

addition. Political Call Center faas provided 32 telemarketing contracts from otfaer fundraising 

vendors witfa political and non-political clients tfaat it claims establisfa tfaat tfae contract 

conformed witfa "tfae usual and normal practice in Political Advertising's industry." Id. at 11, 

Exs. D-FF. Political Call Center argues tiiat tfae $2.50 "fiat contingency fee" was, in fact, a 

"contingency fee cap" or "fee cap provision" tfaat represented the maximum amount Rightmarcfa 

could be charged for fundraising services, and tfae weekly statements did not represent a debt tfaat 

was due and owing. Id. at 3. Political Call Center also states tfaat it made a profit on tfae 

contract, and tfaat tfae contract was entered into in tfae ordinary course of business and did not 

result in an in-kind contribution. Id. at 6. Political Call Center notes tfaat the contract includes a 

"lock-box" provision tiiat requires a third-party escrow company to receive and disburse all the 

fimdraising proceeds; allows Political Advertising to retain intellectual property rigfats to tfae 

materials tfaat were developed, including mailing lists tfaat it estimates to faave a fair-market value 

of at least $31,595; permits Political Advertising to make test-calls before moving forward witfa a 

full-scale fimdraising program and monitor tfae telemarketing program's success in real-time; and 

requires Rigfatmarcfa to pay tfae costs of tfae paper, envelopes, and "otfaer materials tfaat were used 

in connection witfa Political Advertising's fimdraising program" regardless of wfaetfaer tfae 

program generates any revenues. Id. at 12-16. 

2. Contributions, Extensions of Credit, and ''No Risk" Contracts 

Tfae Act defines a contribution as "any gift, subscription, loan, advance, or deposit of 

money or anytfaing of value made by any person for tfae purpose of infiuencing any election for 

Federal office." 2 U.S.C. § 431(8)(A)(i). Under tfae Commission's regulations, tfae term 

"anytfaing of value" includes all in-kind contributions, and unless specifically exempted, tfae 

provision of goods and services for no cfaarge or at a cfaarge tfaat is less tfaan tfae usual and normal 

cfaarge. 11 C.F.R. § 100.52(d)(1). 

An extension of credit to a political committee by a commercial vendor is a contribution 

unless tfae credit is extended in tfae ordinary course of business and on the same terms as 

extensions of credit to non-political debtors of similar risk and for an obligation of similar size. 

11 C.F.R. §§ 100.55,116.3(b). An extension of credit occurs when tfaere is an agreement 

between a creditor and a political committee tfaat fiill payment is not due until after tfae creditor 

provides goods or services to tfae political committee. 11 C.F.R. § 116.1(e)(1). In determining 

wfaetfaer an extension of credit was in tfae ordinary course of business, tfae Commission considers 

wfaetfaer tfae vendor followed establisfaed procedures and past practices, wfaetfaer tfae vendor 

received prompt payment in full for previous extensions of credit, and wfaetfaer tfae extension of 
Memorandum to Patricia Cannona 

I Rjghtmarch.com PAC, Inc. (LRA 842) 

I Legal Comments on Proposed Draft Final Audit Report 

j Page 5 of 13 

credit conformed to tfae usual and normal practice in tfae industry. 11 C.F.R. § 116.3(c). If a 

vendor extends credit and fails to make a commercially reasonable attempt to obtain repayment, 

a contribution will result. 11 C.F.R. §§ 100.55,116.4(b)(2). 

Wfaen addressing fundraising programs tfaat compensate vendors using fundraising 

proceeds, tfae Commission faas expressed concem tfaat ^'regardless of tfae degree of success of tfae 

effort to raise fimds, tfae committee would retain contribution proceeds wfaile giving up littie, or 

tfae committee would assume littie to no risk witfa tfae vendor bearing all, or nearly all, tfae risk." 

Advisory Opinion 1991-18 (New York State Democratic Committee). "No-risk" or "limited 

risk" contracts similar to tfae one at issue faere may result in in-kind contributions fix>m vendors in 

two ways. First, tfaey may result in a vendor rendering services for tfae committee for essentially 

no cfaarge, or for wfaat at tfae end of a series of transactions will wind up being less tfaan tfae usual 

and customary cfaarge. See 11 C.F.R. § 100.52(d)(1). Second, because tiiese arrangements 

almost by definition involve tfae provision of services by tfae vendor before payment is received, 

tfaey involve extensions of credit, and must meet all of tiie requirements set fortfa in tfae 

regulations for extensions of credit not to be contributions. See 11 C.F.R. §§ 100.55,116.3-.4. 

Tfae Commission faas consistently applied its regulations to determine wfaetfaer sucfa 

arrangements resulted in in-kind contributions. See. e.g.. MUR 5635 (Conservative Leadersfaip 

PAC) (adcfa-essing a "no risk" fimdraising contract wfaere tfae committee was not responsible for 

tfae costs of fimdraising in excess of tfae money raised); Advisory Opinion 1991-18 (adchessing a 

"limited risk" fimdraising contract wfaere tfae committee's fiill payment of tfae vendor's 

commissions was tied to tfae prospect tfaat tfae fundraising would pay for itself over several 

years); Advisory Opinion 1979-36 (Committee for Fauntroy) (addressing a "limited risk" 

fimdraising contract wfaere tfae committee was only required to pay tfaree-fourtfas of tfae total 

amount of contributions received irrespective of tfae actual amount of fees and expenses).^ In 

doing so, tfae Commission faas required committees to faave safeguards in place to ensure tfaat 

committees in fact pay for tfae costs of tfae fimdraising programs. See MUR 5635; Advisory 

Opinion 1991-18; Advisory Opinion 1979-36. Specifically, tfae Commission faas focused on 

wfaetfaer a committee would receive anytfaing of value witfaout timely and proper compensation 

first being paid to tfae fimdraising firm and any tfaird-party vendors. See MUR 5635; Advisory 

Opinion 1991-18; Advisory Opinion 1979-36. Safeguards proposed by tfae Commission faave 

included requiring advance deposits by a committee to reimburse vendors for potential sfaortfalls, 

limiting tfae term of tfae contract, or allowing vendors to terminate tfae contract early and demand 

fiill payment as a result of poor fundraising performance. See MUR 5635; Advisory Opinion 

1991-18; Advisory Opinion 1979-36. 

^ The Commission also has addressed contracts and dealings in contexts other than fimdraising in which 

conmiittees assumed no risk or limited risk See, e.g.. MURs 5069 and 5132 (Comite Acevedo Vila Comisionado 

2000) (determining that no contribution resulted when a Puerto Rico advertising agency bought television time on 

behalf of a candidate without first receiving payment based on evidence of conmion industry practice in Puerto 

Rico); MUR 4742 (Juan Vargas for Congress) (finding a reportable extension of credit, but no contribution, 

resulting from a "deferred compensation" contract with a candidate's general consultant where the consultant's 

retainer was only to be paid if the vendor and the committee agreed diat the committee could afford to pay it without 

harm to campaign's viability). 
Memorandum to Patricia Cannona 

Rightmarch.com PAC, Inc. (LRA 842) 

Legal Comments on Proposed Draft Final Audit Report 

Page 6 of 13 

For example, in MUR 5635, tfae committee entered into a "no risk" contract witfa a 

fundraising firm. Tfae arrangement provided tfaat tfae committee would be responsible for tfae 

costs of fimcfaaising only up to tfae amount of funds raised. Tfae fimdraising program was not 

sufficient to cover tfae vendors' expenses, and tfae fundraising firm made several disbursements 

to tfae conimittee before tfae vendors' expenses were fuUy paid. Accordingly, tfae Coinmission 

concluded tfaat tfais airangement resulted in contributions from tfae fundraismg firm because tfae 

arrangement was not in tfae ordinary course of business given tfae size of tfae disbursements and 

sfaort-term nature of tfae program, and even if it was, tfae fimdraising firm faad forgiven tiie debt, 

resulting in a contribution under 11 C.F.R. § 100.55(d)(1). See General Counsel's Report #2, 

MUR 5635, at 5-6. 

Likewise, in Advisory Opinion 1991-18, tfae committee proposed entering into a 

"Prospecting Program" wfaere tfae costs of fimdraising would be paid out of fundraising proceeds 

and the committee would be responsible for the costs of fimdraising only up to tfae amount of 

fiinds raised. Moreover, under the first year of the program, tfae vendor would provide tfae 

committee witfa net revenues even wfaen tfae vendor faad not yet been fiilly paid for an earlier 

round of solicitations. Because of tfae "infaerentiy speculative" nature of tfae prospecting effort, 

including tfae likelifaood tfaat tfae vendor would not receive tfae full contract price for more tfaan 

one year, tfae Commission determined tfaat it could not approve tfae program "in tfae absence of a 

record by [tfae vendor] or similar companies of tfae implementation of a program of similar 

structure and size in the ordinary course of business." Altematively, the Commission suggested 

safeguards that would prevent the program from resulting in in-kind contributions, including 

using short, defined periods of time in wfaicfa tfae committee and tfae vendor would settle 

accounts. 

3. Analysis: Political Advertising Extended Credit in Ordinary Course of 

Business 

Tfae DFAR concludes tfaat Political Advertising faas demonstrated tfaat it extended credit 

in tfae ordinary course of business and tfaus did not make an in-kind contribution to Rigfatmarcfa. 

Tfae DFAR also concludes tfaat outstanding fees and expenses and "flat contingency fees" listed 

on tfae weekly statements are debts subject to tfae reporting requirement of 11 C.F.R. § 104.11. 

We agree for tfae reasons discussed below. 

Here, similar to tfae fundraising programs in MUR 5635 and Advisory Opinion 1991-18, 

tfae contract specifies tfaat Rigfatmarcfa can never be liable for any of the "fiat contingency fees" 

unless it terminates the contract prior to its 2012 expiration date. Indeed, tfae contract itself refers 

to tfais provision as a "No Risk Guarantee." Political Call Center's Resp. at Ex. C ^ 5. And 

similar to tfae programs in MUR 5635 and Advisory Opinion 1991-18, tfae contract provides tfaat 

Rigfatmarcfa receives five percent of tfae gross fimdraising profits regardless of wfaetiier Political 

Advertising is paid in fiill fbr its services. Tfaus, tfae arrangement faere is similar to tfae "no risk" 

contracts tfaat the Commission found resulted in in-kind contributions in MUR 5635 and 

Advisory Opinion 1991-18. 
I 

I Memorandum to Patricia Cannona 

Rightmarch.com PAC, Inc. (LRA 842) 

Legal Comments on Proposed Draft Final Audit Report 

Page 7 of 13 

A significant difference in this case, faowever, is tfaat Rigfatmarcfa and Political 

Advertising faave provided tfae "record by [tfae vendor] or similar companies of tfae 

implementation of a program of similar structure and size in tfae ordinary course of business" tfaat 

was missing in Advisory Opinion 1991-18. As noted above. Political Call Center faas provided 

an affidavit from its president attesting tfaat Political Advertising offered its telemarketing 

fimdraising services to Rigfatmarcfa on tfae same general terms tfaat were offered to Political 

Advertising's otfaer political and non-political clients, and tfaat no special discounts or financial 

incentives were offered to Rigfatmarcfa tfaat were not offered to otfaer clients. See Political Call 

Center's Resp. at Ex. B ^ 3-5. Political Call Center also faas provided 32 telemarketing 

contracts from otfaer fimdraising vendors witfa political and non-politic:al clients tfaat include 

similar "no risk" fimdraising agreements. Id. at 11, Exs. D-FF. 

Moreover, based on Political Call Center's submission, it appears tfaat several otfaer 

clients were offered a percentage of tfae gross fundraising profits. Political Call Center asserts 

tfaat tfais provision is required by certain states wfaen dealing witfa non-profit organizations, but it 

cites no state laws to tfais effect.^ See Political Call Center's Resp. at Ex. B ^ 3-4. Tfae 

important point, faowever, is tfaat Political Call Center faas provided documentation indicating 

tfaat tfae provision of a percentage of gross fimdraising profits to non-profit clients is not unusual 

in tfae telemarketing fundraising industry. Id. at 11, Exs. D-FF. 

Tfae contract also appears to faave contained two important safeguards identified in tfae 

Commission's previous matters: Political Advertising was permitted to make test calls before 

moving forward witfa a fiiU-scale fimchaising program, and faad tfae ability to terminate tfae 

arrangement in tfae event of early poor performance. It also was permitted to slow tfae rate of 

fimdraising or make otfaer adjustments to ensure tfae program's profitability based on its 

monitoring of tfae program's performance. PoHtical Call Center's Resp. at 14-15,18, Ex. B ^ 6, 

Ex. C ^ 5.5, 7.2. Implementation of an initial test period was one of tfae safeguards tfaat led tfae 

Commission to approve tfae arrangement in Advisory Opinion 1979-36, and was suggested in 

Advisory Opinions 1995-34,1991-18, and 1990-14. 

We believe tfaere remains a question, faowever, as to wfaetfaer Rigfatmarcfa faas, in fact, 

borne a sufficient amount of tfae cost or risk of tfae program to avoid receiving an in-kind 

contribution. "Witfa respect to tfae payment or non-payment of an extension of credit, tfae 

Commission faas made plain tfaat in political committee fimdraising, *none of tiie costs of tfae 

program [may] be left unpaid by tfae Committee.'" General Counsel's Report #2, MUR 5635, at 

8 (quoting Advisory Opinion 1990-14). As Political Call Center's submission points out, the 

* It appears that most states only require professional solicitation contracts to state the fundraiser's 

compensation or the gross percentage that the organization will receive and do not specify a minimum amount. See. 

e.g., Ariz. Code § 44-6554(E) (requiring a professional solicitation contract with charitable organizations to clearly 

state the compensation of the contracted fundraiser); Ind. Code § 23-7-8-2(d) (requiring professional solicitation 

contracts with charitable organizations to specify the percentage of gross revenue that the organization will receive 

or the terms on which a detennination can be made about the gross revenue from the solicitation campaigh that the 

organization will receive, expressed as a fixed percentage of the gross revenue or a reasonable estimate of the 

percentage of the gross revenue). 
i 

! 

! Memorandum to Patricia Carmona 

I Rightmarch.com PAC, Inc. (LRA 842) 

j Legal Comments on Proposed Draft Final Audit Rqport 

I Page 8 of 13 

I contract requires Rightmarcfa to pay tfae costs of tfae paper, envelopes, and "otfaer materials tfaat 

were used in connection witfa Political Advertising's fimdraising program" regardless of wfaetfaer 

tfae program generates any revenues. Political Call Center's Resp. at 5, Ex. C. ^ 5.2-.3. But tfais 

does not appear to include otfaer overfaead costs, sucfa as labor, tfaat Political Advertising 

presumably would pay from tfae $2.50 "fiat contingency fee." And wfaile tfae contract permits 

Political Advertising to retain tfae mailing lists generated as tfae result of tfae program. Political 

Call Center's response estimates tfae fair-market value of tfae list to be $31,595. Id. at 14, Ex. B 

% 10. Tfais amount is considerably less tfaan tfae $ 1,524,657.35 in fees and expenses and "fiat 

contingency fees" listed on tfae weekly statements at tfae end of tfae audit period. 

Nevertfaeless, Political Call Center claims tfaat tfae program resulted in $ 1,650,429 in total 

revenue and $57,073 in casfa profit for Political Advertising between August 20,2007 and 

December 31, 2010.^ Political Call Center's Resp. at Ex. B ^ 8. Assuming tfais is true, tiie 

existence of profit indicates tfaat costs of tfae program were ultimately paid by its revenues. 

Accordingly, we concur witfa tfae Audit Division's finding tfaat Political Advertising faas 

demonstrated tfaat it extended credit in tfae ordinary course of business and tfaus did not make an 

in-kind contribution to Rigfatmarcfa. 

4. Analysis: Rightmarch Was Required to Report Debt 

Altfaougfa Political Advertising faas demonstrated tfaat tfae contract did not result in in-kind 

contributions to Rigfatmarcfa, $ 1,524,657.35 in fees and expenses and "fiat contingency fees" 

remained outstanding at tfae end of the audit period. Tfaerefore, witfa respect to tfae debt reporting 

question, we maintain tiiat all $1,524,657.35 in fees and expenses and "flat contingency fees" 

listed on the weekly statements are debts subject to tfae reporting requirements of 11 C.F.R. 

§ 104.11. As discussed above, in analyzing wfaetfaer tfaese types of arrangements result in in-kind 

contributions, tfae Cominission faas consistentiy treated tfaem as extensions of credit by vendors. 

See MURs 5069 and 5132 (Comite Acevedo Vila Comisionado 2000) (finding a reportable 

extension of credit, but no contribution, resulting from a "deferred compensation" contract witfa a 

candidate's general consultant wfaere tfae consultant's retainer was only to be paid if tfae vendor 

and tfae committee agreed tfaat tfae committee could afford to pay it witfaout faarm to campaign's 

viabiHty); see also MUR 5635; MUR 4742 (Juan Vargas for Congress); Advisory Opinion 1991-

18; Advisory Opinion 1979-36 (Ck)mmittee for Fauntroy). Commission regulations treat 

extensions of credit as a type of debt. See 11 C.F.R. §§ 100.52,100.55,116.3; Advisory Opinion 

1991 -18 (concluding tfaat extensions of credit made by a vendor would result in debt). Political 

committees are required to continuously report all debts and obligations until tfaey are 

extinguisfaed. 11 C.F.R. § 104.11 (a). Commission regulations do not base tfae reporting of debts 

^ Political Call Center relies on the formula articulated in MUR 5682 (Bachmann for Congress) to estimate 

the commercial value of the 35,089 donor names, 37,845 unflilfiUed pledge names, and 243,025 survey responder 

names that it claims have been generated by the program to date. It has not, however, provided any documentation 

to verify this claim. 

' It is unclear whether this number reflects net or gross profit. 
Memorandum to Patricia Cannona 

Rightmarch.com PAC, Inc. (LRA 842) 

Legal Comments on Proposed Draft Final Audit Report 

Page 9 of 13 

and obligations on tfae amount tfaat a committee will ultimately pay to a creditor, but ratfaer on tfae 

approximate amount or value of tfae debt at tfae time tfae report is filed. See 11 C.F.R. 

§ 104.11(b) (requiring committees to estimate tfae amount of a debt or obligation wfaere tfae exact 

amount is unknown and report tfaat figure); 11 C.F.R. § 116.10 (requiring committees to report 

debt even if it is disputed); 11 C.F.R. § 116.10(a) (permitting committees to note in tfaeir reports 

tfaat tfae disclosure of debt does not constitute an acbnission of liability or a waiver of any claims 

tfae committee may faave against tfae creditor); see also Advisory Opinion 1999-38 (Calvert for 

Congress) (noting tfaat a committee was correct in reporting disputed debts even wfaere tfae 

vendors no longer existed or were legally barred fh>m collecting tfaat debt). 

B. Failure to File Notices and Properly Disclose Independent Expenditures 

(Finding 3) 

Our Marcfa 14,2011 memorandum analyzed tfae recommended finding on tfae failure to 

file notices and tfae proper disclosure of independent expenditures. We analyze tfae independent 

expenditures again below. Additionally, we concur witii tfae Audit staffs finding in tfae 

Proposed Report, but adch-ess Rigifatmarcfa's response to tfae LAR. 

1. Fundraising Communications as Independent Expenditures 

In its Request for Early Review of Legal C^estions by tfae Commission, Rigfatmarcfa 

asked wfaetfaer tfae expenses for fimdraising solicitations must also be reported as independent 

expenditures. We concluded tfaat, to tfae extent tfaese solicitations expressly advocated tfae 

election or defeat of a clearly identified candidate, tfaey must be reported as independent 

expenditures. See 2 U.S.C. § 434(b)(4)(H)(iii); 11 C.F.R. § 104.4(a). We fiirtfaer concluded ttiat 

appropriate 24/48-faour notices must be disclosed as required. See 2 U.S.C. § 434(g); 

11 C.F.R. §§ 104.4(b)(2), 104.4(c). 

Rigfatmarcfa submitted to tfae Audit Division four scripts tfaat were developed for use by 

Political Advertising in telemarketing pfaone calls.^ After an introduction, screening questions 

ask wfaetfaer tfae listener considers illegal immigration a serious problem. Rigfatmarcfa Suppl. 

Req. at Ex. C-F. Calls to tfaose wfao did not were terminated. Tfaose wfao did faeard additional 

content. In one of tfae scripts, tfae additional content contains no language advocating tfae 

election or defeat of any candidate; it is tfaerefore not reportable as an independent expenditure. 

Id. at Ex. F. Three of the four scripts contain language advocating tfae defeat of Hillary Clinton, 

Barack Obama, or botfa Hillary Clinton and Barack Obama. Id. at Ex. C-E. Specifically, tfae 

otfaer scripts state 'Ve're working to defeat politicians like [Barack Obama/Hillaiy 

7 

Rightmarch provided the scripts and the contract to the Audit Division early in the audit process; 

however, citations to the contract will be to the materials submitted by Political Call Center in its response to the 

lAR, consistent with other citations in this memorandum. 

The contract between Political Advertising and Rightmarch specifies that "[a]ll written materials, including 

scripts, fiilfillment packages, emails and websites shall either be created by the CLIENT [Rightmarch], or be subject 

to the CLIENT'S [Rightmarch's] final approval." Political Call Center's Resp. at Ex. C. ^ 4.1. 
Memorandum to Patricia Carmona 

Rightman:h.com PAC, Inc. (LRA 842) 

Legal Comments on Proposed Draft Final Audit Report 

Page 10 of 13 

Clinton/Barack Obama and Hillary Clinton], wfao support AMNESTY for illegal aliens!" as well 

as "and please tell your friends to OPPOSE [Barack Obama/Hillary Clinton/Barack Obama and 

Hillary Clinton]."/rf. 

Tfae communications in tfae tfaree scripts at issue faere are required to be reported as 

independent expenditures because tfaey expressly advocate tiie election or defeat of a clearly 

identified candidate pursuant to section 100.22(a). An independent expenditure is a noncoordinated expenditure for a communication tfaat expressly advocates tfae election or defeat of a 

clearly identified candidate.* 2 U.S.C. § 431(17); 11 C.F.R. § 100.16(a). A communication tiiat 

"expressly advocates" includes language sucfa as *Vote for tfae President," "re-elect your 

Congressman," "defeat," or otfaer words, wfaicfa in context, can faave no otfaer reasonable 

meaning tfaan to urge tfae election or defeat of one or more clearly identified candidates. 

11 CF.R § m.22(A); see Buckley V. Valeo, 424 U.S. 1,44 n.52 (1976). Rigfatmarcfa's 

communications in tfae tfaree scripts at issue are required to be reported as independent 

expenditures because tfaey include tfae word "defeat" followed by tfae name of tfae clearly 

identified candidate: Hillary Clinton, Barack Obama, or botfa.' Rigfatmarcfa Suppl. Req. at Ex. 

C-E. 

Rigfatmarcfa argues tfaat no matter tfaeir text, tfae scripts do not contain express 

advocacy—and tfaus cannot be independent expenditures—because tfaey are part of a fimdraising 

effort. Rigifatmarcfa contends tfaat, in context, any communication wfaose principal message can 

be distilled to a request for fimds "may be reasonably interpreted as sometfaing otfaer tfaan an 

unmistakable, unambiguous exfaortation to vote for or against a candidate at an election." See 

Rigfatmarcfa Suppl. Req. at 8. Altfaougfa Rigfatmarcfa does not include a citation, tfais sentence 

applies tfae standard of 11 CF.R. § 100.22(b). 

Tfae scripts tell listeners tfaat "we are working to defeat politicians like Barack Obama" 

and tiiat tiiey sfaould "tell tiieir fiiends to OPPOSE Hillary Clinton," and tiie use of tiie words 

"defeat" and "oppose," in reference to a clearly identified candidate, tums tfae message of tfae 

calls into simple express advocacy under 11 C.F.R. § 100.22(a). See id. at Ex. C-E. Tfae 

Commission has found that fimdraising solicitations containing express advocacy sfaould be 

reported as independent expenditures. In MUR 5809, the Cfaristian Voter Project ("CVP") failed 

to file independent expenditure notices for tfae costs of fimdraising letters tfaat expressly 

advocated tfae election/defeat of candidates. Tfae Commission foimd reason to believe tfaat 

CVP's failure to file independent expenditure notices violated tfae Act, and accepted a 

conciliation agreement witfa tfae coinmittee based on tfaat violation. In MUR 5518 (Hawaii 

Democratic Party), a party communication contained at least three messages: an invitation to 

precinct meetings, express advocacy of the defeat of a clearly identified Federal candidate, and a 

fundraising appeal. Tfae Office of General Counsel concluded tfae communication sfaould faave 

' We have no infonnation that the communications were coordinated with any candidate. 

The contract between Political Advertising and Rightmarch identifies one ofthe purposes ofthe 

agreement is to "advocate issues and/or the election and defeat of candidates for federal office." Political Call 

Center's Resp. at Ex. C ^ 1.1. 
Memorandum to Patricia Cannona 

Rightmarch.com PAC, Inc. (LRA 842) 

Legal Comments on Proposed Draft Final Audit Report 

Page 11 of 13 

been reported eitfaer as an independent expenditure or as federal election activity, and 

recommended reason to believe findings. The Commission rejected our recommendation, not on 

tfae grounds tfaat solicitations could not be independent expenditures but on the grounds tfaat 

invitations to precinct meetings permitted treatment as a federal/non-federal allocated 

administrative expense imder tfae exception to tfae definition of federal election activity for costs 

of local political conventions, 2 U.S.C. § 431(20)(B)(iii)). In particular. Commissioners von 

Spakovsky and Weintraub stated in tfaeir Statement of Reasons tfaat "faad tfais invitation been 

mailed more broadly tfaan it was, and in sufficient numbers to raise questions about wfaetfaer it 

was a bona fide invitation, or if it was really just a fimdraising or advocacy piece masquerading 

as an invitation, tfais would be a different case." MUR 5518 (Hawaii Democratic Party), 

Statement of Reasons of Commissioners Hans A. von Spakovsky and Ellen L. Weintraub, at 3 

(Feb. 23, 2007); cf. MURs 5511 and 5525 (Swift Boat Veterans for Trutfa) (fimdraising 

solicitations containing express advocacy were expenditures tfaat counted towards organization's 

tfaresfaold for political committee status). 

Additionally, Rigfatmarcfa asserts tfaat tfaese communications do not contain express 

advocacy under any meaning of section 100.22 because tfaey do not "[m]ention any candidacy, 

party affiliation, public office, voting or any election;/[r]efer to anyone's cfaaracter or fitness to 

faold office;/[r]un in close proximity to any election or targeted to any particular state;/[m]ake 

any comparison between candidates; or/[r]epeat any candidates' slogans or messages." 

Rigfatmarcfa Suppl. Req. at 8. However, the ttiree communications at issue here fall squarely 

witfain the meaning of express advocacy pursuant to section 100.22(a). Tfae tfaree 

communications specifically state tfaat Rigfatmarcfa is "working to defeat politicians like Hillary 

Clinton," "working to defeat politicians like Barack Obama," and "working to defeat politicians 

like Hillary CHnton and Barack Obama." Id. at Ex. C-E. Again, faowever, wfaatever may be tfae 

utility of the presence or absence of these facts in analyzing tiie communication under section 

100.22(b), no such analysis is necessary faere because the scripts contain express advocacy as 

defined in section 100.22(a). 

Rigfatmarcfa also asserts tfaat 93 percent of tfaese commimications occurred in 2007, tfae 

year before tiie 2008 election. Id at 4, 8 n.5. Notiiing in section 100.22(a) states tiiat tiie 

communication must occur in tfae same year as tfae election. A communication ttiat expressly 

advocates tfae election or defeat of a clearly identified cancHdate can be made in a year otfaer tfaan 

an election year. In fact, botfa Hillary Clinton and Barack Obama were cancHdates during tiie 

time tfaat Rigfatmarcfa's ttiree scripts at issue faere were used. Hillary Clinton filed faer statement 

of candidacy seeking tfae office of President on January 22,2007.'° Barack Obama filed fais 

statement of candidacy seeking tfae office of President on February 12, 2007. According to 

information provided to tfae Audit Division by Rigfatmarcfa, tfae script tfaat states tfaat Rigfatmarcfa 

is "working to defeat politicians like Hillary Clinton" was used by tfae vendor fix>m August 16, 

2007 tfarougfa February 15,2008." Tfae script ttiat states tfaat Ri^tmarcfa is "working to defeat 

Hillary Clinton's campaign states that she ceased being a presidential candidate on June 29,2008, though 

she was still a candidate for reelection to the U.S. Senate for 2012. 

" The vendor invoiced Rightmarch $2,109,465 for calls during this period. 
Memorandum to Patricia Cannona 

Rightmarch.com PAC, Inc. (LRA 842) 

Legal Comments on Proposed Draft Final Audit Repon 

Page 12 of 13 

politicians like Hillary Clinton and Barack Obama" was used from February 16,2008 tfarougfa 

May 31,2008.'^ Tfae script tfaat states tfaat Rigfatmarcfa is *Vorking to defeat politicians Hke 

Barack Obama" was used from June 1,2008 tfarougifa November 3, 2008.'^ Election Day was 

November 4,2008. 

Simply put, Rigifatmarcfa's arguments about express advocacy advance one proposition: 

tfaat communications by a political committee ttiat explicitiy exfaort tfae listener to tell tfaeir 

friends to oppose named candidates for President nevertfaeless are not express advocacy if tfaeir 

principal purpose is to raise money. We are aware of no autfaority for tfais proposition. 

We tfaerefore conclude tfaat tfae solicitations made in connection witfa two of tfaese tfaree 

scripts expressly advocate tfae defeat of a clearly identified candidate. 11 C.F.R. § 100.22(a). 

We furtfaer conclude ttiat tfae solicitations made in connection witfa tfae tfaird script expressly 

advocate tfae defeat of two clearly identified candiciates (Hillary Clinton and Barack Obama). 

Costs associated witfa tfaese solicitations must be reported as independent expenditures.'^ 

2 U.S.C. § 434(b)(4)(H)(iu); 11 C.F.R. § 104.4(a). Additionally, appropriate 24/48-faour notices 

must be disclosed as required. 2 U.S.C. § 434(g); 11 C.F.R. §§ 104.4(b)(2) and 104.4(c). 

2. Placement of Independent Expenditures Finding in the lAR 

In tfae lAR, tfae Audit staff recommended tfaat Rigfatmarcfa provide evidence to support 

tfae conclusion tfaat tfae expenditures did not require reporting as independent expenditures or 

24/48-faour notices, or amend tfae reports to disclose tfae independent expenditures correctiy. 

Additionally, tfae Audit staff recommended tfaat Rigifatmarcfa submit and implement revised 

procedures for reporting independent expenditures. 

In Rightmarcfa's response to tfae lAR, counsel for Rigifatmarcfa requested tfaat tfae lAR be 

revised to delete tiiis finding. Rigfatmarcfa's Resp. at 4-5. Counsel for Rigfatmarcfa asserts tfaat 

Commission Directive 70 requires tfae finding to be moved to tfae "Additional Issues" section of 

tfae lAR because tfae Commission "deadlocked" wfaen it considered its legal question submitted 

pursuant to tfae Commission's Policy Statement EstabHsfaing a Pilot Program for Requesting 

Consideration of Legal Questions by ttie Commission, 75 Fed. Reg. 42,088-89 (July 20,2010). 

Id. 

Commission Directive 70 does not require, or even autfaorize, tfae recommended finding 

at tfae lAR stage to be moved to tfae "Additional Issues" section of tfae lAR. Ratfaer, (Commission 

The vendor invoiced Rightmarch $49,497.50 for calls during this period. 

The vendor invoiced Rightmarch $57,410 for calls during this period. 

In fact, Rightmarch reponed approximately $563,000 in fundraising solicitations as independent 

expenditures during the 2007-2008 election cycle. We understand, however, that there may be factual and practical 

issues in determining the costs associated with the solicitations that constitute independent expenditures, due in pan 

to the state of Rightmarch's records. 
Memorandum to Patricia Carmona 

Rightmarch.com PAC, Inc. (LRA 842) 

Legal Comments on Proposed Draft Final Audit Report 

Page 13 of 13 

Directive 70 requires tfaat after tfae Commission faas voted on tfae Draft Final Audit Report, "[f|or 

any recommended finding tfaat does not receive four or more votes eitfaer approving or rejecting 

tfae recommendations, tfae Audit Division will move tfae discussion [in tfae Proposed Final Audit 

Report] to an 'Additional Issues' section."'^ Fuitfaeimore, tfae Commission's procedures 

enabling persons and entities to Request Consideration of Legal Questions by tfae Commission 

specifically provides tfaat "if witfain 60 business days of tfae fifing of a request for consideration, 

tfae Commission faas not resolved tfae issue or provided guidance on faow to proceed witfa tfae 

matter by tfae affirmative vote of four or more Commissioners, tfae ["Office of Compliance," 

wfaicfa includes tfae Audit Division] may proceed witfa tfae matter." 75 Fed. Reg. at 42,089.'^ 

After tfae Coinmission was unable to resolve tfae issue or provide guidance pursuant to its 

Policy, tfae Audit Division proceeded. Id. Tfae Audit Division drafted an LAR tfaat included tfae 

recommended finding pertaining to tfae independent expenditures, and consistent witfa our 

memorandum to tfae Commission, dated Marcfa 14,2011. Tfae Commission approved tfae lAR, 

including tfais recommended finding. Tfais finding is included again in tfae DFAR, pursuant to 

tfae procedures in Coinmission Directive 70. Tfae Commission will faave tfae opportunity to vote 

on tfais recommended finding again wfaen tfae Audit Division submits tfae ADRM to tfae 

Commission. Commission Directive 70. 

Audit Reports are drafted at different stages and in chronological order as the Interim Audit Report, the 

Draft Final Audit Report, the Proposed Final Audit Report, and the Final Audit Report. Commission Directive 70. 

Additionally, a person or entity may seek Commission consideration of a legal question earlier in the audit process 

under the Commission's Program for Requesting Consideration of Legal Questions. Policy Statement Regarding a 

Program for Requesting Consideration of Legal Questions by the Commission. 76 Fed. Reg. 45,798-99 (Aug. 1, 

2011). 

The new program is identical on this point, allowing the Office of Compliance to proceed when the 

Commission has not, within 60 business days, resolved or provided guidance by four or more affirmative votes of 

Commissioners. Policy Statement Regarding a Program for Requesting Consideration of Legal (^estions by the 

Commission, 76 Fed. Reg. 45,798,45,799 (Aug. 1,2011).