TABLE OF CONTENTS

THE TSONGAS COMMITTEE, INC.

page

Executive summary

Final Audit Report

Background

Findings

Legal Analysis

Transmittal to Committee

Transmittal to Candidate

Chronology

1

5

7

34

89

111

-

113

115
REPORT OF THE AUDIT DIVISIO~

0;-';

The Tsongas Committee, Inc.

ApprO\'ed December 16, 1994

FEDERAL ELECTIO,", CO\1MISSIO!';

999 E STREET, ~.w.

WASHINGTO~,D.C.
r-EDER'\L ELECTIO;-..; CO'1,\\ISSIO"

...

REPORT OF THE AUDIT DIVISION

ON

THE TSONGAS COMMITTEE, INC.

EXECUTIVE SUMMARY

The Tsongas Committee, Inc. {"the Committee"} registered

with the Federal Election Commission on March 18, 1991. The

Committee was the principal campaign committee of Senator Paul

Tsongas, a candidate for the 1992 Democratic presidential

nomination.

The audit was conducted pursuant to 26 U.S.C. S9038(a},

which requires the Commission to audit committees that receive

matching funds. The Committee received $3,003,981 in matching

funds.

Audltfindings were presented to the Committee at an exit

conference held at the conclusion of audit fieldwork (August~­

1992) and in an interim audit report (approved May, 1993).1/ The

Committee's responses have been included in this report. -

In the final audit report, the Commission made an initial

determination that the Committee pay the U.S. Treasury $10,567,

the amount of federal matching funds used to pay non-qualified

campaign expenses. The Commission also determined that the

Committee was required to pay the U.S. Treasury $64,163 in

connection with the receipt of excessive contributions from

individuals.

Several of the findings in the audit report related to the

activities of the Committee's principal fundraiser, Nicholas

Rizzo, who was convicted of embezzling thousands of dollars in

funds contributed or loaned to benefit the Tsongas Presidential

effort.~/ Most of the funds were deposited into an account

Following the decision by the D.C. Court of Appeals, in

FEC v. NRA Political Victory Fund, et al., (No. 91-5360,

slip op. at 2), that the composition of the Federal

Election Commission violated the Constitution's

separation of powers, the Commission reconstituted

itself on October 26, 1993, and ratified its earlier

approval of the Interim Report on November 9, 1993.

Mr. Rizzo is currently serving a 52-month sentence in a

federal penitentiary.

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opened by Mr. Rizzo in the Committee's name with a bank in

Andover, Massachusetts. Net deposits to the Andover Account

totaled about $720,000. While most of the money was diverted to

Mr. Rizzo's personal use, some Committee expenses were paid from

the account. The account activity was never disclosed in

Committee reports.

The audit report found that Mr. Rizzo, who had authority to

arrange fundraisers and collect money on the Committee's behalf,

was an agent of the Committee. The funds he collected

constituted contributions to the Committee, subject to the

limits and disclosure requirements of the Federal Election

Campaign Act. The report also concluded that the Andover

Account was a Committee account rather than a personal account

of Mr. Rizzo.

The Committee disagreed with these findings, contending

that Mr. Rizzo was not acting as a Committee agent when he

collected the funds, that the funds collected were not

contributions, and that the Andover Account was not a Committee

account. Based on these arguments, the Committee objected to

the Commission's recommendation that the Committee refund the

excessive amounts (see below). The Commission was not persuaded

by the arguments.

Excessive Loans from Individuals - 2- U.S.C. SH1,f(aT;---1-1--

CFR S110.1(b)(6), and 11 CFR SlOO.7(a)(1)(iii). Loans from

individuals, like other forms of contributions, are subject to a

$1,000 per candidate, per election limit. The audit report

found that Mr. Rizzo, acting as an agent of the Committee

received a total of $790,750 in excessive loans from eight

individuals. (The funds were deposited in the Andover Account

or in Mr. Rizzo's personal or business accounts.) He refunded

$65,000 on the loans. The interim audit report recommended that

the Committee refund the remaining $725,750 in excessive amounts

to the donors. For the reasons given above, the Committee

objecte~ this recommendation. The Committee also disputed

the report's conclusion that the loans had to be disclosed in

the Committee'S reports but the Commission did not find the

arguments persuasive.

Excessive Contributions from Individuals and Partnership -

2 U.S.C. S44la(a) and 11 CFR SllO.l(e). The Commission .

determined that the Committee was required to make a $64,163

payment to the u.s. Treasury, the amount of excessive

contributions the Committee received. Of that amount, $29,314

had been collected by Mr. Rizzo and deposited in the Andover

Account. The Committee disputed that portion of the payment,

contending that those funds were not contributions. The

Committee also objected to another portion of the payment --

$21,500 in excessive contributions made by a partnership. (A

partnership, like an individual, has a $1,000 contribution

limit.) The contributions were made by checks drawn on the

partnership'S account. The Committee argued that the

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contributions actually represented donations from the

individuals partners rather than from the partnership, but the

Commission did not find the argument persuasive.

Excessive Contributions Resulting from Staff Advances and

State Offices - 2 U.S.C. 5441a(a), 11 crR S116.3, and 11 CFR

S116.5. A payment by an individual from his or her personal

funds for campaign-related costs is a contribution subject to

the $1,000 limitation unless exempted from the definition of a

contribution at 11 CFR 100.7(b)(8) or reimbursed within specific

time frames. The interim audit report questioned whether funds

advanced by four individuals resulted in contributions that

exceeded limits by $60,844. The report also questioned whether

the Committee had accepted excessive contributions totaling

$13,591 in the form of credit extended outside the normal course

of business by a law partnership that ran the Committee's New

York State office. The Committee, however, provided no

documentation to refute the excessive nature of these advances

and extensions of credit.

Misstatement of Financial Activity - 2 U.S.C. S434(b). On

disclosure reports, the Committee misstated its financial

activity. The Committee's filed amended disclosure reports that

. materially corrected the misstatement for calendar year 1992.

- -The---remainin-gmisstatement-for calendar year 1991 was due to the

failure to report activity from the disputed bank accountopeneaby Mr. Rizzo.

Apparent Excessive Press and u.s. Secret Service

Reimbursements - 11 CFR S9034.6(a), 11 CFR S9034.6(b), and 11

CFR S9034.6(d). A committee that provides travel-related

services to the Press and U.S. Secret Service may charge for the

services and accept the resulting reimbursements. The

Commission determined that the committee had overcharged the

Press $15,162 for travel-related services and consequently had

to make refunds to the travelers who had overpaid. The

Commission also determined that the Committee had overcharged

the Secret Service $4,471 for travel and had to refund this

amount.

Apparent Non-Qualified Campaign Expenses - 26 u.s.e.

S9032(9), 11 CFR S9038.2(b)(2), 11 eFR S9038.2(b)(3), and 11 eFR

S9033.11(a),(b), and (c). The audit report identified $693,212

paid from the Andover Account for expenses that were not related

to the campaign or that lacked required documentation. The

report also found that the Committee spent $74,531 in payments

related to attendance at the Democratic National Convention

(also considered non-qualified campaign expenses). The

Commission made an initial determination that the Committee

repay $10,567 to the U.S. Treasury. The amount represented the

amount of federal matching funds used to pay the non-qualified

expenses. However, the Commission declined to seek repayment

for the payments from the Andover Account.

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FEDERAL ELECTION COMMISSION

REPORT OF THE AUDIT DIVISION

ON

THE TSONGAS COMMITTEE, INC.

AK005658

I. Background

A. Audit Authority

This report is based on an audit of The Tsongas

Committee, Inc. (the Committee). The audit is mandated by Section

9038(a) of Title 26 of the Unitei States Code. That section

states that "after each matching payment period, the Commission

shall conduct a thorough examination and audit of the qualified

campaign expenses of every candidate and his authorized committees

who received payments under section 9037." Also Section 9039(b)

__ oL_tl1e United States Code and Section 9038.1(a)(2) of the

Commi-g s {on's-Regul a-t i ons--sta te-that--the_Commis_;;i orl __milY conduc t

other examinations and audits from time to time as it deems

necessary.

In addition to examining the receipt and use of Federal

funds, the audit seeks to determine if the campaign has materially

complied with the limitations, prohibitions and disclosure

requirements of the Federal Election Campaign Act of 1971, as

amended.

B. Audit Coverage

The audit covered the period from the Committee's

inception, March 7, 1991, through July 31, 1992. During this

period, the Committee's disclosure reports reflect an opening cash

balance of $-0-, total receipts of $9,534,576, total disbursements

of $9,069,137, and a closing cash balance of $197,122.1/ In

addition, a limited review of the Committee's transactIons and

disclosure reports filed through June 30, 199~, was conducted for

purposes of determining the Committee's remaining matching fund

entitlement based on its financial position.

Does not foot due to Committee math errors and the filing

of a 1991 comprehensive amendment which did not carry

forward to the 1992 reports. The amendment was filed to

conform with results of the audit (see Finding III.B.).

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C. Campaign Organization

The Committee registered with the Federal Election

Commission on March 18, 1991. The Treasurer of the Committee

during the period covered by the audit was S. George Kokinos who

is also the current Treasurer. The Committee's offices are in

Boston, Massachusetts.

To manage its financial activity, the campaign

maintained five bank accounts at various times. In addition, the

Committee advised the Audit staff of two previously undisclosed

bank accounts (see Section II.). From the seven accounts, the

Committee issued approximately 3,300 checks in payment for goods

and services. Also, the Committee received approximately 46,000

contributions from roughly 33,000 individuals totaling $5,090,777.

The Committee did not accept contributions from political

committees. However, a small amount from other political

organizations were accepted.

In addition, the campaign received $3,003,981 in

matching funds from the United States Treasury. This amount

represents 21.75% of the $13,810,000 maximum entitlement that any

candidate could receive. The candidate was determined eligible to

___ re_c~~,,_e_..matching funds on November 20, 1991. The campaign made a

total of -15 -niatcnihg--funds-requests totaling $3,114,391.__ rhe

Commission certified 96.46% of the requested amount. For matching

fund purposes, the Commission determined that Senator Tsongas'

candidacy ended March 19, 1992. This determination was based on a

public statement by the Candidate.

Attachment 1 to this report is a copy of the

Commission's most recent Report on Financial Activity for this

campaign. The amounts are as reported to the Commission by the

Committee.

D. Audit Scope and procedures

In addition to a review of the Committee's expenditures

to determine the qualified and non-qualified campaign expenses

incurred by the campaign, the audit covered the following general

categories:

1. The campaign's compliance with statutory limitations

with respect to the receipt of contributions or loans

(see Finding III .A. );

2. the campaign's compliance with the statutory

requirements regarding the receipt of contributions

from prohibited sources, such as those from

corporations or labor organizations;

3. proper disclosure of contributions from individuals,

political committees and other entities, to include

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the itemization of contributions when required, as

well as, the completeness and accuracy of the

information disclosed;

4. proper disclosure of disbursements including the

itemization of disbursements when required, as well

as, the completeness and accuracy of the information

disclosed;

5. proper disclosure of campaign debts and obligations;

6. the accuracy of total reported receipts, disbursements

and cash balances as compared to campaign bank records

(see Finding III.B.);

7. adequate recordkeeping for campaign transactions (see

Findings III.A. and IV.C.);

8 . accuracy of the Statement of Net Outstanding Campaign

Obligations filed by the campaign to disclose its

financial condition and establish continuing matching

fund entitlement (see Finding IV.D.);

9. the campaign's compliance with spending limitations;

and

10.

- - -

other audit procedures that were deemed necessaryfri

the situation including an extensive investigation of

the activities of the Committee's principal fundraiser

(see Section II.).

Unless specifically discussed below, no material

non-compliance with Statutory and Regulatory requirements was

detected.

As part of the Commission's standard audit process, an

inventory of the Committee's records was conducted prior to the

beginning of fieldwork to determine if the records were

materially complete and in an auditable state. The inventory

indicated that some records were not complete and the Committee

was provided 30 days to obtain the necessary materials. At the

end of the 30 days, the records were judged sufficiently

complete.

An extensive review was conducted relative to a bank

account maintained in Andover, Massachusetts (see Section II.).

This report is based on the information received and reviewed

by the Audit staff.

II. Background - Undisclosed Bank Accounts and Related Matters

On June 17, and July 10, 1992, Counsel for the Tsongas

Committee met with staff members from the Commission to discuss

two previously undisclosed bank accounts that the Committee had

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discovered. The first was located in Andover, Massachusetts and

the second was located in New Braunfels, Texas. With respect to

the Andover Account, an extensive investigation has been

conducted by the Commission. The information presented below is

a summary of that investigation.

A. Andover Savings Bank

The account at the Andover Savings Bank ("Andover

Account")2/ was maintained by Nicholas Rizzo, the Committee's

principal-fundraiser and national finance committee chairman.

Mr. Rizzo had been involved in Senator Tsongas' political career

since 1974 and had also worked in a fundraising capacity for the

presidential campaigns of President Carter and Walter Mondale.

In addition, he has worked for the Democratic National Committee

and has raised funds for other political candidates. Mr. Rizzo

was considered to be one of the top three campaign officials

along with the Candidate and Dennis Ranin, the campaign manager.

In addition, it appears that no one was responsible for

supervising Mr. Rizzo. Mr. Rizzo was paid a monthly consulting

fee either directly or through a consulting firm of which he was

president, Benco Consulting and Marketing Co. Inc. ("Benco").

The Committee stated that there was no written agreement between

the Committee and Mr. Rizzo for his consulting services.

- --As-discussed below, Mr. Rizzo opened a bank account in

the Committee's name, deposited contributions Tncluding-largeloans from individuals, and made some campaign expenses. In

addition, Mr. Rizzo solicited loans from individuals which were

deposited into his personal or business accounts. The Audit

staff believes that Mr. Rizzo conducted all of this activity as

an agent of the Committee. Thus, the Committee is deemed liable

for the activity and the Andover Account is considered an

account of the Committee. The basis for these determinations is

contained in the facts and conclusion contained below.

Although the Committee's main office in Boston was

responsible for the daily running of the campaign, in the early

parts of the campaign, up until about year end 1991, many

aspects of the Committee'S financial activity were handled out

of Mr. Rizzo's office in Andover. Mr. Rizzo was authorized to

incur, approve for payment, and pay Committee expenses. His

daughter, who worked in Mr. Rizzo's Andover office, was a

signatory on the Committee's accounts maintained at Bay Bank.3/

Committee personnel in Boston became concerned with the lack of

.Y

.Y

The Committee'S other accounts, with the exception of

the Texas Account were maintalned at Bay Bank. Early in

the campaign, Mr. Rizzo also had control of the Bay Bank

operating account.

Other signatories include the Committee's Treasurer,

Campaign Manager, and Business Manager.

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control and coordination between the two offices and after

several attempts to remedy the situation, the Boston office was

able to gain control of the Committee's finances in early 1992.

Mr. Rizzo had authority to solicit, receive and

process contributions. Early in the campaign, the Committee's

contributions were received at a post office box in Andover and

Mr. Rizzo processed the contribution checks. Later, moneys

received in Andover were brought to the Boston office for

processing. Eventually, the Committee opened a post office box

in Boston and stopped using the box in Andover and gained

complete control over contributions received through the mail.

However, Mr. Rizzo still handled certain Committee

contributions.

In early March, 1991, Mr. Rizzo opened an account with

his social security number at the Andover Savings Bank in the

name of The Tsongas Committee. This account was not disclosed

on the Committee's statement of organ:zation and the receipts

and disbursements from the account ~e:e not reported (see

Finding III.B.). According to Mr. Rizzo, this account was

opened subsequent to a series of meetings held to discuss the

possibility of Senator Tsongas running for President. Mr. Rizzo

apparently suggested creating an exploratory account which could

~~_~sed in part to pay for printing of the candidate's position

pape-r,"A -Call to Economic--Arms." Mr-. Kanin believes that__tl1e_

Committee may have decided not to open an exploratory account.

Mr. Rizzo states that he used his social security number because

the Committee had not yet applied for a taxpayer identification

number but also noted that he used the legal address of the

Committee. He further stated that he intended the Andover

Account to be an exploratory account and that he never intended

the account to be a personal account.

However, the Andover Account was opened simultaneously

with the Committee's authorized account at Bay Bank and only

days before the Committee filed its Statement of organization

with the Commission. Thus, it was not possible for the campaign

to engage in "testing the waters" or exploratory activities.

As discussed below, Mr. Rizzo deposited contributions

and loans frem individuals into the Andover Account. These

contributions and loans were intended and purported to be for

the benefit of the Committee. Mr. Rizzo used these moneys to

make payments to himself or payments for personal expenses as

well as a small number of campaign-related disbursements. This

activity continued from March, 1991, until January, 1992.

1. Receipts

Net deposits into the Andover Account through

April 20, 1992, total $719,309. The source of all but $15,572

has been identified. The copies of checks that were available

and which were legible, indicated that the checks were deposited

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into the Andover Account and made payable to the Committee or

the Candidate. Committee Counsel stated that, in some cases,

the contributions appeared to be from known Committee

fundraising efforts but were deposited into the Andover Account

by Mr. Rizzo rather than being forwarded to the Committee's

treasurer. Utilizing the records provided by the Committee and

other records obtained via subpoena, the Audit staff created a

computer file containing contributions totaling $189,737. Of

this amount, at least a portion of a name could be associated

with $178,561.

In addition to the loans discussed below, 42

contributors were identified who had, either within the Andover

Account or when their contributions in the Andover Account were

combined with contributions deposited in the Committee's other

accounts, made excessive contributions (see Finding III.A. J.

The excessive amount totals $29,314 which is approximately 16%

of the known contributions from individuals deposited in the

Andover Account.

Included among contributions deposited in the

Andover Account were over 100 money orders, most of which were

in sequential order. According to Mr. Rizzo, Mr. Ranin called

him at one point about receipts from a Greek American

fundraising event in New York. Mr. Rizzo stated that Mr. Ranin

iriformea-hTm that there were a large -number of cashier's checIu;

made out to the Committee that could not be deposited into the

Committee's main operating account. Mr. Rizzo further stated

that he suggested that Mr. Ranin send him the money and he would

take care of it. Mr. Rizzo said that he received checks

totaling between $25,000 and $30,000 and he deposited them in

the Andover Account. Mr. Rizzo is the only person to give

testimony concerning this matter. The Audit staff did note that

on June 22, 1991, 136 money orders, most of which were in

sequential order, totaling $4,700 were deposited into the

Andover Account. Most of the names appear to be of Greek origin

and the addresses on the money orders are in the New York area.

There is no further information available pertaining to this

subject.

Also, loans were negotiated from eight

individuals. The loans total $794,000, of which $514,000 was

deposited into the Andover Account. (See Finding III.A.) The

remainder was deposited into either personal or business

accounts of Mr. Rizzo. The lenders, dates, and amounts are

shown on Attachment II. Only one of the loans, 520,000 from

Michael Spinelli, has been repaid. A portion of two other

loans, $15,000 to Roger Trudeau and $30,000 to Wililam Berg,

have also been repaid. The unpaid balance is $729,000. Each

individual and information about their loans will be discussed

in detail below.

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a. Larry Ansin4/

The first loan solicited by Mr. Rizzo was a

$100,000 check received from Mr. Ansin in March 1991 and

deposited into the Andover Account on March 11, 1991. In early

March, 1991, a meeting was held at Senator Tsongas' home which

included Senator Tsongas, Mr. Rizzo, Mr. Kanin, and Mr. Ansin.

According to Mr. Rizzo, Mr. Ansin approached him while in the

kitchen and said that he would like to help the campaign. Mr.

Rizzo told him that the Committee could use a loan to help get

the campaign started. Mr. Rizzo further states that he went and

got Senator Tsongas and Mr. Kanin~/ and brought them into the

kitchen to thank Mr. Ansin. Mr. Kanin apparently asked if the

loan could be used to print "A Call to Economic Arms, " and Mr.

Rizzo responded that it could. Mr. Rizzo states that Senator

Tsongas and Mr. Kanin were aware of the amount of the loan.

Mr. Kanin also recalls a discussion of a

loan from Mr. Ansin at the same meeting. He testified that Mr.

Rizzo told Senator Tsongas and himself ~hat he had arranged to

receive a loan from Mr. Ansin for the books. Mr. Kanin states

that he asked Mr. Rizzo if this could be done and Mr. Rizzo

responded yes and that he had talked to someone at the FEC. He

further states that Mr. Rizzo said that he had procured a loan

from Mr. Ansin and that Mr. Ansin was coming over to attend the ·tiu:~e-t1ng. --Mi:. Ri-zzo further stated that Mr . Ansinwas .

embarrassed that he couldn't do more and asked Senator Tsongas

and Mr. Kanin to just say thanks. Mr. Kanin said that he

considered Mr. Rizzo the expert on the FEC and that they never

had any more discussion on the propriety of the loan. Mr. Kanin

testified that there had been a discussion of opening an

exploratory account at some point but he thought a decision was

made not to have one. He says that it was his understanding

that Mr. Ansin was to make a loan to pay for books as an

exploratory expense. Mr. Kanin stated that he never knew that a

check had been written to the campaign and he assumed that the

check would be made payable to the printer. Finally, he stated

that he doesn't remember knowing the amount of the loan but he

did know that it would exceed $1,000.

Further, Mr. Kanin wrote a recollection of

events surrounding the March, 1991, Ansin loan in a memorandum

to file dated January 28, 1992, after discovery of the Andover

Account. It states, in part, that "Nick reminded me that he had

deposited a large loan from Larry Ansin in this account -- which

was used to print 'A Call to Economic Arms.'· In addition, the

Mr. Ansin was a friend and business associate of Senator

Tsongas. Mr. Ansin is now deceased.

~/ Mr. Kanin was a long time associate of Senator Tsongas,

had managed his campaigns since 1974, and is a law

partner of Senator Tsongas.

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memorandum states that Mr. Kanin relayed his knowledge of the

situation to an attorney hired to investigate the matter. In

the memorandum Mr. Kanin writes, "I told him that in March when

Nick arranged the Ansin loan, he had told me that the campaign

was permitted to set up what he then called a 'soft money'

account, that it could accept loans from an individual in excess

of $1,000 for certain prescribed purposes (and that the printing

of Paul's book qualified) and that he had called and gotten

confirmation of all this from the staff at the FEC. He also had

asked me not to publicize Larry's loan because Larry wanted to

protect his privacy to the extent permitted by law. Nick said

he had been involved in similar transactions in other

presidential campaigns, that no one understood the FEe rules as

well as he did and that, again, he had checked this arrangement

out with the staff and obtained their approval. At the time, I

did not give it a second thought because everything Nick said

about his knowledge of the FEe rules and his frequent

communications with the FEC staff and commissioners fit with

what I had seen Nick do in the past."~1

Finally, Senator Tsongas was asked about his

knowledge of the loan from Mr. Ansin. He said he remembers a

discussion of having an exploratory committee during a meeting

at his house. He stated that a discussion of Mr. Ansin paying

for_th~_b09k may have happened in the discussion of the

exploratory commiYt-ee but he does not -recall.

Mr. Rizzo went to Mr. Ansin's office within

a few days and picked up a $100,000 check dated March 10, 1991.

The check was made payable to the Tsongas Committee and was

deposited into the Andover Account. According to Mr. Rizzo, Mr.

Ansin did not request a promissory note but expected to be

repaid by the end of June or July, 1991. Mr. Rizzo states that

he told Mr. Ansin in June, 1991, that the money could not be

repaid at that time and was told not to worry about it. Mr.

Ansin was never repaid. It is possible that part of this money

was used to print "A Call to Economic Arms." Mr. Rizzo did pay

a printing company from the Andover Account on a check dated

August 19, 1991, from his personal account on a check dated

August 1, 1991, and from his Benco, Inc. account on a check

dated August 9, 1991.

The Committee has not provided a specific

response to its knowledge concerning the loan from Mr. Ansin.

It is apparent that Mr. Kanin and Mr. Tsongas knew that Mr.

Ansin was making a loan in excess of $1,000. Although it seems

~I Mr. Rizzo and others stated that Mr. Rizzo had talked to

individuals at the FEC and gained approval for his

actions. It is noted that Commission documents

concerning contacts with Mr. Rizzo do not make any

reference to his receiving any information related to

receiving loans from individuals.

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-,~.~

,""" t.
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that they relied upon Mr. Rizzo concerning the propriety of the

transaction, this does not preclude the Committee from having

liability for this loan.

b. Roger Trudeau

The next loan solicited by Mr. Rizzo was

received from Roger Trudeau. Mr. Trudeau was an ardent

supporter of Senator Tsongas who worked as a volunteer for the

Committee and organized a few fundraisers on behalf of the

Committee. Mr. Trudeau also organized a draft committee after

Senator Tsongas suspended his campaign.

In early August, 1991, Mr. Rizzo apparently

told Mr. Kanin that the Committee could accept loans exceeding

$1,000 for 'soft money· expenses such as polling or research or

related activities and asked if he knew anyone who could make

such a contribution. Mr. Ranin did not but another Committee

employee suggested that Mr. Trudeau might be able to provide

funds without the employee knowing the reason for the inquiry.

It appears that Mr. Rizzo then arranged a

meeting with Mr. Trudeau for August 7, 1991 at the Meridien

Hotel in Boston. Mr. Ranin also agreed to attend the meeting.

~<::_<::_Clrdil"lg to Mr. Rizzo, someone else arranged the meeting and

when he arriv-edMi . Trudeau -infonn~d him that-hewas--ready to--

make the loan. However, other accounts concerning the meeting

seem to contradict Mr. Rizzo'S recollection.

According to Mr. Trudeau, he arrived first

at the meeting followed by Mr. Rizzo. He said that Mr. Kanin

arrived later but was present for most of the substantive

conversation concerning the loan. Mr. Rizzo apparently told Mr.

Trudeau that a big bill for back taxes had come from the IRS?/

and that the Committee also had a payroll coming due. He was

further told that the Committee only had the money to pay one or

the other and if either did not get paid the newspapers would

find out and it would hurt Senator Tsongas' credibility. Mr.

Trudeau was informed that the Committee needed $60,000. At some

point, Mr. Trudeau asked how such a loan would be handled by the

FEC and Mr. Rizzo instructed Mr. Trudeau that the loan should be

made out to Benco and then Mr. Rizzo could reimburse the

Committee for payments made to Benco and show this as a refund

of moneys paid to Benco. Mr. Trudeau stated that Mr. Kanin did

not do much talking but was very much a part of the meeting.

Mr. Trudeau said that he mentioned that he lacked money for the

loan but knew of other individuals who might be able to help.

The Audit staff does not know if the Committee received

a big bill from the IRS. It is noted that the Committee

used an accounting firm at the beginning of the campaign

but Mr. Kanin had them relieved of duties after they had

fallen behind on paying the Committee's payroll taxes.

Page 13

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Mr. Trudeau said that Mr. Ranin spoke up and said no, it should

be kept quiet because the Committee could not risk word getting

out that the Committee was in financial trouble. Finally, Mr.

Trudeau stated that if Mr. Ranin had not been involved in the

meeting, he would have never made the loan.

Mr. Ranin stated that Mr. Rizzo asked him to

make an appearance at the lunch. He said that he was a little

late and after he arrived it seemed that the substance of the

discussion was over. He said that at one point Mr. Trudeau

asked if the loan was okay and he told him that if Mr. Rizzo

checked it out and said that it was okay, then it was okay. Mr.

Ranin further stated that the money was to go for polling and

research and that the loan was to be for more than $1,000.

Mr. Ranin stated that he went back to the

office after lunch and asked one of the staff members if a soft

money account was legitimate and was informed by her that such

an account was contrary to the regulations. Two Committee

employees also recall this conversatic~. Mr. Ranin further

stated that he called Mr. Rizzo that afternoon to tell him what

he found out and Mr. Rizzo responded that campaigns used to be

able to do that. Mr. Ranin said that Mr. Rizzo said that he

would talk to Mr. Trudeau and take care of it and from that time

on Mr. Ranin assumed that there was no loan. He said that he

h1id--aiiumoe f -cffsubsequent conversations with Mr. Trudeau and

that Mr. Trudeau never mentioned the loan to him.

Mr. Rizzo procured two loan checks both

dated August 7, 1991, totaling $60,000, from Mr. Trudeau. These

checks were made payable to Benco although Mr. Trudeau

understood that the Committee would benefit from the money and

insure that he was repaid. On September 10, 1991, Mr. Rizzo

visited Mr. Trudeau's office to pick up proceeds from a

fundraiser which Mr. Trudeau had organized. Mr. Rizzo received

two more loan checks totaling $20,000 which were once again made

out to Benco but intended to benefit the Committee. In January,

1992, Mr. Trudeau began calling Mr. Rizzo seeking repayment.

Mr. Trudeau stated that Mr. Rizzo always had a story why

repayment had not been made and assured him that his loans were

part of the Committee's debt. On February 13, 1992, Mr. Trudeau

did receive a check from Mr. Rizzo in the amount of $15,000

which left an unpaid balance of $65,000.

c. Elkin McCallum

The next lender approached by Mr. Rizzo was

Mr. Elkin McCallum. Mr. McCallum had business contacts in North

Carolina and had helped the Committee qualify for matching funds

by raising money in North Carolina. In addition, Mr. McCallum

planned a fundraiser to be held in North Carolina in November,

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1991. On August 12, 1991, Mr. Steven Joncas~/ arranged a meeting

between Mr. McCallum and Mr. Rizzo to introduce them and to

thank Mr. McCallum for his help in North Carolina. Before

leaving, Mr. Rizzo asked Mr. McCallum if he could return in the

afternoon for a private discussion.

When Mr. Rizzo returned that afternoon, he

told Mr. McCallum that the campaign was having trouble raisinq

money and that it needed a short term loan until it qualifiedfor matching funds. Mr. McCallum agreed to make the loan. Mr.

McCallum stated that he was aware that the contribution

limitation was Sl,OOO and asked if the loan was legal. Mr.

Rizzo apparently informed him that Larry Ansin2/ had made a loan

and that the loan would be deposited into an exploratory fund

which was separate from the regular campaign accounts and would

make the loan legal. Mr. McCallum wrote a check payable to the

Committee for S100,000 the following day.

Mr. Rizzo again visited Mr. McCallum's

office on Oct~2er 21, 1991 to discuss the f~ndraising event in

North Carolina. They then went to Mr. McCallum's residence.

Mr. McCallum stated that while they were at his home Mr. Rizzo

told him that the campaign was still short of funds and asked if

he would loan an additional $50,000 in exploratory funds. Mr.

Rizzo stated that Mr. McCallum informed him that he was not

going to be -acle- tejhold the fundraiser and asked howmuch_~oney__

the campaign had intended to raise. Mr. Rizzo testified that he .

told Mr. McCallum that they had expected about $50,000 and that

Mr. McCallum said that he would write a check for $50,000 which

Mr. Rizzo could take as a loan for the Committee. In any case,

Mr. McCallum wrote a $50,000 check made payable to the Committee

and gave it to Mr. Rizzo.

In February, 1992, after the Committee had

begun investigating the Andover Account, Mr. Rizzo telephoned

Mr. McCallum and requested an additional loan for $100,000. Mr .

Rizzo explained that the Committee needed the money to pay for

advertising for the upcoming New Hampshire primary. Mr. Rizzo

further stated that Mr. McCallum had reached his limit on loans

to an exploratory account but that Mr. Rizzo had not and Mr.

McCallum should therefore make the check out to him and he would

forward it to the Committee. Mr. McCallum wrote a $100,000

check dated February 10, 1992, and made payable to Mr. Rizzo.

Mr. McCallum has not received repayment for any of the loans

which he made.

~/ Mr. Joncas was a friend of Mr. Rizzo and a volunteer who

sometimes traveled with him. He also was a friend and

former business partner of Senator Tsongas who had

worked on his U.S. Senate staff. Mr. Joncas reported to

Mr. Rizzo and worked out of the Andover office.

~/ Mr. Ansin and Mr. McCallum were former business partners.

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According to Mr. McCallum, Mr. Rizzo

approached him after the New Hampshire primary and asked for a

personal loan in the amount of $250,000. Mr. Rizzo told Mr.

McCallum that the IRS was going to conduct an audit of his

profit sharing plan but that he had borrowed money from the plan

to make a loan to the Committee and now he needed to replace the

money prior to the audit. Mr. McCallum said that he refused to

make this loan because he didn't want to become involved in Mr.

Rizzo'S business dealings.

Mr. Rizzo has stated that no one else on the

Committee knew of his soliciting these loans from Mr. McCallum.

Mr. McCallum stated that Mr. Rizzo told him that the only three

people from the Committee who were aware cf the loans were

Senator Tsongas, Mr. Kanin, and himself. He further stated that

he never talked to anyone from the Committee other than Mr.

Rizzo about his loans until after information about Mr. Rizzo'S

activities started to become known.

-~ ~."~~

d. Anastasios Kalogianis

The fourth lender approached by Mr. Rizzo

was Anastasios Kalogianis. Mr. Kalogianis was a long-time

_frieIlQ_-En<i supporter of Senator Tsongas. On September 8, 1991,

Mr. Kalogianis ,--Mr .-Riizo,and -Senator Tscn13as a~ten~d-apicnic

at St. Constantine's Greek Orthodox Church. According to Mr.

Kalogianis, while at the picnic, Mr. Rizzo and senator Tsongas

expressed a need for money and he agreed to loan the Committee

$50,000. He said that his intention was to donate $1,000 and to

loan the additional $49,000 to the Committee in the course of a

year. Mr. Kalogianis further stated that Mr. Rizzo told him

that since it was a loan, the rules and regulations did not

apply. Mr. Rizzo told him that the money was needed for

advertising.

Senator Tsongas remembers attending the

picnic but does not recall speaking with Mr. Kalogianis. He

said that he definitely did not discuss a $49,000 loan from Mr.

Kalogianis. Senator Tsongas testified that this picnic occurred

at a time when he was in the process of making two loans to the

Committee and would certainly rememher a discussion about a loan

since it had been hard for him to make a decision to loan the

campaign money from a sale of stock set aside for his daughter's

college education. In addition, Senator Tsongas was at the

picnic approximately thirty minutes. While there he made a

speech and was approached by numerous supporters which would

have made it difficult to have a substantive discussion with

anyone.10/ Mr. Rizzo recalls speaking with Mr. Kalogianis at the

picnic and stated that Mr. Kalogianis expressed a desire to help

10/ This is corroborated by the Treasurer of the Committee who

was a volunteer cook at the picnic.

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the campaign but does not recall a discussion of a loan or large

contribution to the Committee.

In any case, Mr. Rizzo visited Mr.

Kalogianis's office the next day and arranged to receive the

loan from Mr. Kalogianis. At this meeting, Mr. Rizzo received a

$1,000 contribution and a $10,000 loan check. Over the next few

weeks, Mr. Rizzo visited Mr. Kalogianis on several occasions and

received the balance of the $49,000. Mr. Kaloqianis wrote a

$15,000 check on September 25, 1991, and an additional $24,000

check on October 3, 1991. .".11 three checks were made payable to

the Committee.

In early December, 1991, Me. Rizzo visited

Mr. Kalogianis to procure an additional $100,000 in loans. Mr.

Rizzo stated that he didn't remember much discussion about this

loan but may have informed Mr. Kalogianis that the money was

needed for advertising. According to Mr. Kalogianis. Mr. Rizzo

told him that the Committee had written checks for television

but did not have enough money to cover the c~~:ks and that it

would be an embarrassment to the Committee. Mr. Kaloqianis

wrote a $35,000 check dated December 4, 1991, and a 565,000

check dated December 6, 1991. Both checks were made payable to

the Committee.

In the latter part of JanuClry, 1992, Mr.

Rizzo approached Mr. Kalogianis to obtain an additional loan of

$100,000. Mr. Kalogianis stated that Mr. Rizzo told him that he

had written personal checks for advertising to stay on the air

in New Hampshire. Mr. Rizzo further told Mr. Kalogianis that he

would receive a personal loan in two days to cover the checks

but they were going to bounce before he received the loan. He

asked Mr. Kalogianis to make the check out to him personally

because he did not have time to go to the Boston office and get

a check made out to him to cover the checks he had written. It

also appears that Mr. Rizzo may have told Mr. Kalogianis that he

could not make any more loans to the Committee because he had

already reached his limit. However, it is clear that Mr.

Kalogianis intended that the money would benefit the Committee.

Mr. Kalogianis wrote a check to Mr. Rizzo for $100,000 on

January 27, 1992, which is the same date that Mr. Rizzo wrote a

$42,000 check to the Committee and met with the lawyer from

Washington D.C. aftec discovery by the Committee of the Andover

Account. Mr. Kalogianis has not received any repaynent relative

to the $249,000 in loans.

Mr. Kalogianls believes that Senater Tsongas

knew about all his loans because Senator Tsongas would tell him

thank you when they would meet at campaign events. ~r.

Kalogianis did state that he met and talked to the candidate on

four occasions during the campaign but that they were never able

to have a private talk because there were always a lot of people

around. In addition, it appears that Mr. Rizzo sent a letter to

Mr. Kalogianis which was signed with Senator Tsongas' name. Mr.

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Kalogianis further stated that the only loan which he discussed

with Senator Tsongas was the one discussed at the picnic.

However, as stated above, it is doubtful that a loan was

discussed at that time.

It is the Audit staff's opinion that Senator

Tsongas was not aware of the loans from Mr. Kalogianis. Mr.

Kalogianis's account of the discussion at the picnic is

contradicted by others who attended the picnic. In addition,

Mr. Rizzo stated that he did not think Senator Tsongas was aware

of any of Mr. Kalogia~is's loans.

e. Peter Caloyeras

The next lender solicited by Mr. Rizzo was

Peter Caloyeras, a California businessman and long-time friend

of Mr. Rizzo and supporter 0: Senator Tsongas. The loan was

requested in September, 1991, while Mr. Rizzo and others from

the Committee were in Los Angeles. Mr. Rizzo met Mr. Caloyeras

at the Biltmore Hotel on September 21, 1991.

According to Mr. Ca10yeras, Mr. Rizzo

solicited a $10,000 loan that would be repaid when the Committee

received matching funds. Mr. Caloyeras agreed to make the loan

and stated that he mailed Mr. Rizzo a check dated September 23, - -rg-91.TlfiS-check--was made- payable to the Committee and was

deposited into the Andover Account on September 27, 19-91-:--

Mr. Rizzo stated that he solicited the loan

over the phone and that Mr. Caloyeras drove over to the hotel

and handed him an envelope with a check in it. Mr. Rizzo

further stated that Mr. Kanin knew that he was going to receive

money from Mr. Caloyeras. Mr. Rizzo said that the question had

arisen about how the bill was going to be paid at the Biltmore

and that he told Mr. Kanin that he expected to get money from

Mr. Caloyeras which would cover the bill. Mr. Kanin stated that

Mr. Rizzo told him that money was coming in from Mr. Caloyeras

but never knew that it was to be in the form of a loan. He

further stated that he assumed that the money never arrived.

Mr. Rizzo did state that he had no reason to believe that anyone

associated with the campaign besides himself was aware of the

loan from Mr. Caloyeras. Mr. Caloyeras has not received any

repayments for his loan.

f. Michael Spinelli

Mr. Rizzo also approached Michael Spinelli

who has known Senator Tsongas for more than 30 years. Mr.

Spinelli and Mr. Rizzo first met in June, 1991, when Mr. Rizzo

asked Mr. Spinelli to write to friends outside of Massachusetts

and ask them to contribute 1n order for Senator Tsongas to

qualify for matching funds. The next time the two met was

october 10, 1991, at a fundraiser hosted by Mr. Trudeau. Mr.

Rizzo stated that Mr. Spinelli told him that if there was

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anything he could do he would be willing. Mr. Rizzo met with

Mr. Spinelli the next day and solicited a loan.

Mr. Spinelli stated that he was told by Mr.

Rizzo that the Co~~ittee needed $100,000 for a television buy

but thus far had only raised $68,000. Mr. Spinelli said that he

told Mr. Rizzo that he would have to thinK about it and over the

next few days Mr. Rizzo called him on several occasions. Mr.

Spinelli agreed to meet again with Mr. Rizzo on October 15, 1991

at which time he told him that he might be able to come up with

$20,000. He further stated that Mr. Rizzo told him that it was

absolutely legal. Mr. Rizzo also told Mr. Srinelli that the

Committee was the debtor but that he would personally guarantee

the loan with a promissory note and that he would be repaid

after receipt of matching funds. Mr. Rizzo returned to Mr.

Spinelli's office on October 16, 1991, and picked up a check for

$20,000 made payable to the Committee and deposited into the

Andover Account. Mr. Spinelli stated that he kept "bugging" Mr.

Rizzo about receiving a note for the loan. He further said that

he never received the note but was repaid by Mr. Rizzo on

December 6, 1991, which is the date Mr. Rizzo deposited a loan

check from Anastasios Kalogianis. Finally, Mr. Spinelli said

that no one else from the Committee ever discussed the loan with

him and Mr. Rizzo also stated that he did not believe anyone

else from the Committee was aware of Mr. Spinelli's loan.

g. Thomas Kelley

The seventh lender solicited by Mr. Rizzo

was Thomas Kelley who lived in Portsmouth, New Hampshire. Mr.

Rizzo stated that he met on October 22, 1991 with Steven

Griswold who was Mr. Kelley's superior at work. According to

Mr. Rizzo, he asked Mr. Griswold to loan the Committee $25,000

and Mr. Griswold made a telephone call. A few minutes later,

Mr. Kelley entered the room and was introduced to Mr. Rizzo.

Mr. Rizzo further stated that Mr. Kelley asked who to make the

check payable to and wrote a check on his personal checking

account. The check was for $25,000 made payable to the

Committee and was deposited by Mr. Rizzo in the Andover Account.

In Mr. Kelley's testimony, he states that he

was introduced to Mr. Rizzo by Steven Griswold in October, 1991.

He further stated that Mr. Rizzo said that he would personally

guarantee that the Committee would repay him by the end of

January, 1992, upon the receipt of matching funds. Mr. Kelley

was never repaid for his loan. Further, it does not appear that

anyone else on the Committee was aware of Mr. Kelley's loan.

h. William Berg

The final lender solicited by Mr. Rizzo was

william Berg who was a business associate of Mr. Rizzo. Mr.

Berg stated that in December, 1991, Mr. Rizzo told him that the

Committee needed a $60,000 loan for a media buy. He further

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testified that he asked Mr. Rizzo if the loan was legitimate and

was told that Mr. Rizzo would never do anything that was not

legal and that could hurt the campaign. Mr. Berg wrote a

$60,000 check made payable to the Committee which was deposited

on December 4, 1991, in the Andover Account. Mr. Berg also

insisted on a note from the Committee which was provided by Mr.

Rizzo. In the early part of 1992, Mr. Berg told Mr. Rizzo that

he needed to be repaid for the loan. Mr. Rizzo told him that he

could get half at that time and repaid $30,000 of the loan. The

remainder has not been repaid. Finally, Mr. Rizzo stated that

no one else associated with the Committee knew of the loan from

Mr. Berg.

2. Disbursements

Checks written from the Andover Account through

January 27, 1992, total $718,259. After that date the only

known disbursements are the charges for copies of statements,

research, and service charges. Attachment III shows the

disposition of the funds in the a~count. Briefly, $483,600 was

paid by Mr. Rizzo to himself and another $137,615 to Benco, Mr.

Rizzo's consulting firm. Records obtained consist only of

canceled checks, bank statements, and Committee worksheets. In

addition, $50,004 was paid to banks. Committee Counsel states

that it is his understanding that these payments represent Mr .

.. -RTzzo"s-personal-debts. The Commission hasr.ece.iv~9. rg§p-()r1.s~_s

to subpoenas from the banks. Information obtained indicates

that these payments were related to debts in the name of Mr.

Rizzo or Benco.

Of the $47,040 that remains, $19,663 was paid to

Sullivan Brothers, a printer utilized by the Committee.

According to an account reconciliation provided by the

Committee, and confirmed in response to a subpoena issued to the

vendor, this amount was applied to the Committee's account. An

additional $3,243 was paid to travel agencies for apparent

campaign travel, $1,472 to a hotel for apparent campaign

expenses, and $668 to a campaign employee. Two payments

totaling $10,000 were paid to an individual who, in response to

a Commission subpoena, states that the checks were repayments of

loans made to Mr. Rizzo and his wife personally. The remaining

$11,994 do not appear to be campaign related and include

payments to Mr. Rizzo's attorney and for gambling debts.

3. Investigation of the Andover Account

On January 25, 1992, three Committee employees,

including Mr. Kanin, had a discussion about known contributors

who did not appear in the Committee's database. At that time,

one of the individuals pointed out a contributor which she knew

had been solicited again after making a contribution. The

Committee had a copy of that check and upon examination, the

Committee realized the check had been deposited in an account at

Andover Bank. Mr. Kanin called Mr. Rizzo to ask about the

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account and was apparently told that it was the location of the

campaign's exploratory account and that some checks had been put

into the account but that the account had been closed out. At

that time, the Committee did not consider the problem difficult

to resolve if Mr. Rizzo sent documentation for the account and

FEC disclosure reports were amended. The next day, it was

decided to get someone from outside the campaign to look at the

situation and investigate the matter fully.

The Committee contacted an attorney from

Washington D.C. and had him come to Boston on January 27, 1992,

to investigate the matter. After meeting with the attorney, Mr.

Rizzo indicated that he would gather the records relative to

this account and prOVide them to the Co~~ittee. At that time,

Committee officials did not realize the magnitude of activity.

This was during the primary season and Committee officials did

not take much action concerning the account. They apparently

thought that the attorney was gathering the information. After

Senator Tsongas suspended his campaign, the Committee realized

that the records had not been provided and wanted the

information before commencement of the FEC audit. Initially,

Mr. Rizzo had informed the Committee that no records of the

receipts or disbursements were available for the account. The

Committee stated that according to Mr. Rizzo, his accountant had

discarded all records of the account near year end 1991.

According to the Committee Treasurer, Mr. Rizzo

provided photocopies of a group of checks in April, 1992,

totaling about $20,000 which was purported to represent the

contributions deposited in the account. Mr. Kokinos was not

satisfied with these copies and proceeded to contact Andover

Savings Bank and as Committee Treasurer was able to obtain

copies of the bank statements at which time the Committee

realized the volume of activity. After a June, 1992 meeting

with Committee officials, Mr. Rizzo met the Committee Treasurer

in Andover and handed him a box of records. The Committee

obtained microfiche copies of the bank statements, canceled

checks, and most deposits for the account. These records were

not complete but did establish the majority of the receipts and

disbursements. Copies of the records received were provided to

the Audit staff. Further, as part of the audit and ongoing

investigation of the Committee, the Commission issued subpoenas

to and conducted depositions of a number of individuals and

other entities known or believed to have information concerning

Mr. Rizzo'S activities. Included among the material subpoenaed

directly from the bank was all available records for the Andover

Account. Finally, in late 1992, the U.S. Attorney's office in

Boston initiated an investigation in WhlCh the Commission

cooperated. As a result of that investlgation, on October 13,

1993, Mr. Rizzo pled guilty to :6 counts of criminal activity

and was sentenced to 52 months in federal prison for his

activities.

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4. Committee Payments to Benco, Nicholas Rizzo,

and Steve Joncas

The Committee and the Audit staff also reviewed

payments that were made by the Committee to either Benco or Mr.

Rizzo. Attachments IV and V are schedules of those payments.

Of the $189,743 paid to Benco and Mr. Rizzo, $42,000 has been

recovered and $35,118 is considered a receivable from Mr. Rizzo.

The $42,000 was paid to Mr. Rizzo on January 2, 1992, on a check

signed by his daughter, and was documented only by a check

request form that had been approved by Mr. Rizzo. When the

Committee learned that the check had been written, they informed

Rizzo that they needed the money back immediately because checks

had been written which might have bounced. After numerous

telephone calls requesting documentation for the disbursement,

Mr. Rizzo refunded the amount by checK drawn on Mr. Rizzo's

account dated January 27, 1992, the date Mr. Rizzo received a

loan from Mr. Kalogianis. The other amount ($35,118) is

cetailed on Attachment VI. It :esults from a review of Mr.

Rizzo's file and the identification of amounts that the

Committee paid more than once and some amounts that do not

appear to be campaign related expenses.

A portion of the amount that was paid more than

once was submitt~d on expense vouchers that were in the name of

Me Steve Joncas. During part of the campaign, Me Jo-nc-as

worked on some fundraising efforts with Mr. Rizzo. The

Committee issued 12 checks to Mr. Joncas totaling $15,849. Only

three were actually received by Mr. Joncas. The others were

cashed by Mr. Rizzo. According to Mr. Joncas, he was aware of

only the first three. A review of the documentation shows that

many of the expenses appear to be Mr. Rizzo's legitimate

campaign expenses. Vouchers were filled out in the name of Mr.

Joncas and his name signed to them. Committee checks were then

issued to Mr. Joncas, but endorsed and cashed by Mr. Rizzo. As

noted on Attachment VI, some of the expenses were either

duplicates of those paid to Mr. Rizzo at other times or were

personal expenses of Mr. Rizzo. Expenses that were duplicated

on the Joncas vouchers or were unexplained are included in the

$35,118 duplicate and non-campaign related figure shown above.

The Committee could offer no explanation as to why anyone would

seek reimbursement of legitimate campaign expenses in this

fashion.

According to Mr. Rizzo, the Committee did not

want to issue reimbursement and advance checks to him after the

discovery of the Andover Account. Mr. R:zZQ further stated that

since Mr. Joncas would be traveling with him, he suggested

having the checks made payable to Mr. Joncas but that he would

control the funds. Mr. Rizzo stated that it was the Committee's

idea to do things this way and that Mr. Joncas knew from the

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outset he would be doing this. However, testimony by Mr. Joncas

and a Committee official seem to contradict Mr. Rizzo's

testimony.

The duplicate and non campaign related payments

discussed above are considered non-qualified campaign expenses

(see Finding IV.C.).

5. Outstanding Expense Voucher

In the spring of 1992, Mr. Rizzo submitted a

request for reimbursement that totals $82,634. The expenses

were incurred between May of 1991 and February of 1992. The

documentation for these expenses include copies of canceled

checks drawn on an account held in Mr. Rizzo's name. A review

of the request shows a total of $21,333 that are duplicates of

previous requests or were paid from the Andover Account.

Included in the remaining amount are two checks made payable to

Sullivan Brothers totaling $31,754. The account reconciliation

for the vendor shows these payments credited to the Committee's

account. The remaining items range from payments to

individuals, caterers, and hotels. with the exception of $8,379

paid to three individuals, the Committee believes that the

non-duplicative expenses are legitimate campaign expenses. When

the value of these legitimate campaign expenses are set off

--against-the duplicate payments noted above, a net amount is an

account payable to Mr. Rizzo.

However, the Committee considers the amount

payable an offset to amounts owed by Mr. Rizzo for contributions

deposited into the Andover Account and misappropriated by Mr.

Rizzo.

6. Treatment of the Andover Account

At the exit conference, the Audit staff informed

the Committee that we would recommend that the Andover Account

be considered a Committee account. This recommendation was

based on the fact that the Committee's name appeared on the

account, that Mr. Rizzo's position with the campaign was

principal fundraiser, that some Committee expenses were paid

from the account, that most deposits to the account were checks

made payable to the Committee, and that during most of the

period that the account was active Mr. Rizzo had control of some

or all the Committee's other accounts_

In response to the exit conference, the Committee

submitted the following written explanation:

"It is the position of the Tsongas Committee

that the account opened in its name at the Andover

Bank and the activity in that account were

unauthorized. Although the Committee does not

contest that Nick Rizzo was its agent for purposes

page 23

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of fundraising, Mr. Rizzo's activities in opening a

bank account, diverting contributions to that

account, making campaign and personal expenditures

from that account, and obtaining loans from

supporters clearly exceeded the scope of any agency

conferred upon him.

"As support for this position, the Committee

would show:

(1) The Committee treasurer, s. George

Kokinos, and other Committee employees had no

knowledge of the existence of the account or its

activity until after all activity had transpired.

(2) Although the account was opened in the

Committee's name, it was opened with a taxpayer

identification number believed to be that of Mr.

Rizzo. The use of the COmmittee na~e was not

intended to facilitate the transaction of Committee

business, but as the means to divert funds that

could come to Mr. Rizzo bearing the Committee's

name.

(3) During the same time that Mr. Rizzo made

deposits to the Andover account, he forwarded other

coilt-rTbuticms -to-the-tJ:'e~surer, asr_equire_cL1::lY_ law,

negating any possible misunderstanding about how----

funds were to be handled.

(4) No legitimate interest of the Committee

was served by maintenance of the Andover account.

In addition to exposing the Committee to

substantial liabilities, the use of this account

deprived the Committee of substantial amounts of

matching funds during critical periods of the

campaign. In addition, the unreported and

unrecorded contributions risked antagonizing a

large number of supporters whose donations went

unacknowledged. The Audit Staff's contribution

analysis demonstrates that the amount of excessive

contributions 'facilitated' by the Andover account

was relatively small.

(S) The vast majority of the funds deposited

into the Andover account were withdrawn and used

for non Committee business.

(~\ The Committee expects that Mr. Rizzo will

confirm to the Commiss:on that he commingled

personal and Committee deposits in the account and

that the 'loans' which comprised the bulk of the

account activity were intended to be his personal

obligations, and not Committee obligations.

Page 24

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(7) Upon hea~ing of the othe~wise cove~t

Andove~ account activity, the Committee p~ompt1y

~epo~ted its knowledge to the Commission and

~equested a full investigation, i~~espective of the

~esulting legal exposu~e to itself and its

p~incipal fund~aiser.

"As described in correspondence provided to

the Commission, the Committee has se~ved demand

lette~s on Mr. Rizzo ~equesting that he fo~ward all

contributions that he was obligated to forwa~d but

instead dive~ted to the Andover account. If funds

are ever received, the Committee intends to make

immediate disposition of the funds as required or

permitted by applicable law and to report their

sou~ce and disposition to the Commission.

"As p~eviously stated, all Committee personnel

and ~ecords can be made available to the Commission

to discuss any aspect of this matte~. The

Committee respectfully submits that, prior to the

completion of its investigation into the Andover

account, it is premature fo~ the Audit Staff to

assign responsibility for the account to the

Committee. The basis fo~ the Audit Staff's

--~onclu-sion --- the-account name, __ the agency

relationship, and the payee on the deposits is

equally consistent with a plan to divert Committee

funds as it is with Committee ~esponsibility."

In the interim audit report, it was concluded that the

Andover Account was an account of the Committee, the activity in

the account was required to be reported on disclosure reports and

the Committee was liable for the activity in the account.

In response to the interim audit report, the Committee

provided the following:

"The Audit staff continues to disregard the obvious

fact that the Andover account was an element in a

complex scheme to defraud and treats it as if it were

merely an overlooked branch of the Committee's operating

bank accounts. It is now beyond dispute that this was

not the case. In an elaborate criminal scheme, Mr.

Rizzo duped numerous campaign suppo~ters by telling them

that he was acting on behalf of the campaign or

appearing to do so, when in fact he was pursuing a

personal scheme to defraud them and the Committee. He

deposited intended campaign contributions and

fraudulently-obtained loans in this secret account

concealed from the Committee, withdrew virtually all of

the funds for his own use, and frustrated the efforts of

the Committee and federal enforcement agents to

investigate. This type of fraud was hardly invented by

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Mr. Rizzo ... and is not new to the FEC. What is new,

however, is the Audit staff's attribution of this

fraudulent activity to the Committee.

"Mr. Rizzo's guilty plea pertained to, among

others, five counts of mail fraud ... involving a scheme

'to obtain money and property from the Committee,

numerous individuals who attempted to make campaign

contributions to the Committee, and several individuals

who attempted to make substantial loans to the

Committee.' ... Under 'Means, Methods, and Objectives of

the Scheme' the indictment states that:

'It was part of the scheme that on March

8, 1991, defendant Rizzo, without the

knowledge or authorization of other

members of the Co~~ittee, opened a

checking account at the Andover Bank

(hereinafter 'the undisclosed Andover

Committee a~count') under the name, 'The

Tsongas Committee.' Defendant Rizzo

opened the account with his own social

security number rather than the employer

identification number of the Committee.

Thereafter, at all times material to this

---rndietment-, defendant Rizzo__ alone had__

signature authority on the account. On

March 11, 1991, the Committee opened a

checking account at Bay Bank Middlesex in

Andover, Massachusetts. Defendant Rizzo

did not have signature authority on this

account, which was the Committee'S regular

operating account during 1991 and 1992.'

"The indictment also noted that 'as part of his

effort to conceal his activity, defendant Rizzo failed

or caused others to fail to forward contributions•.• and

to properly account for contributions to the Committee.

Defendant Rizzo also commingled campaign and personal

funds and failed to properly deposit contributions. ' ...

"As detailed in the superseding indictment and in

the presentation of the Assistant United States Attorney

at the sentencing, the Andover account opened by Mr.

Rizzo in the name of the Committee was an

instrumentality devised by Mr. Rizzo to defraud

contributors to the Committee and the Committee itself.

With minor exception, the funds went to repay personal

loans and obligations of Mr. Rizzo, inclUding

substantial payments to bookies and casinos.

"Contrary to the established facts underlying Mr.

Rizzo's conviction -- admissions that he certainly did

not make lightly, the Audit Staff's position seems to be

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that the Andover account opened by Mr. Rizzo was not a

fraud or artifice, but rather a Committee account, that

all deposits into that account were contributions

received by the Committee, and that all expenditures

from that account were expenditures made by the

Committee. The Committee strenuously disagrees. As the

guilty plea and hearing transcript confirm, the

existence of the Andover account ~as not known to or

authorized by any Committee personnel ... Mr. Rizzo, and

not the Committee treasurer, had signatory authority.

Mr. Rizzo had full kno~ledge of the Committee's

authorized account, and there can be no doubt that Mr.

Rizzo was aware of the proper channels for the deposit

of contributions and making of expenditures. Indeed,

throughout the entire time that contributions were

diverted to the Andover account, other contributions

were forwarded properly to the treasurer by Mr. Rizzo."

The Committee further states that the "Andover account is not

an account of the Committee" for the following reasons:

"It is undeniable that the account bore the

Committee's name (although not its taxpayer

identification number) and that contributions and other

~~ecks payable to the Committee were deposited into the

account-.--These -facts,-howeve r, do not require_ a __

conclusion that the account was a Committee account.

Rather, as the indictment describes, the scheme by which

Mr. Rizzo sought to parlay his experience and position

as a fundraiser into a personal profiteering enterprise

required him to open an account in the Committee's name.

Such an artifice was the only way that contributions

intended to the Committee could be converted to his own

use. As the federal prosecutor correctly noted, 'in

addition to the size and the arena in which the fraud

occurred, the method which Mr. Rizzo used, aggravated a

little bit in a way that justifies 52 months, in the

sense that he was using the name of Mr. Tsongas. He was

using the name of the Committee.

"Indeed, the Audit staff itself admits elsewhere in

the Interim Audit Report that the Andover account was

not a Committee account. In commentary to the NOCO

statement, the Audit staff identifies as a receivable

from Mr. Rizzo an 'amount consisting of receipts into

the account which were never forwarded to the

Committee.' Thus, the Audit staff, at least in this

s~ction of the report; agrees ~ith the Committee's

analysis of what transpired.

"The Committee does not contend that FECA is

irrelevant to the Andover-account, or that no audit

findings relating to the account are proper. Rather,

the Committee's consistent position has been that Mr.

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Rizzo violated the FECA and regulations by failing to

forward contributions to the treasurer within ten days

of his receipt and by failing to provide the required

contributor identifying information. Accordingly, the

Committee sent Mr. Rizzo a letter on July 13, 1992,

demanding that he forward all such contributions to the

treasurer. As of the date of this response, no payment

has been made by Rizzo and the Committee considers the

amount due to be uncollectible.

"The Committee's approach to the Andover account --

demanding that the diverted contributions be forwarded

to the treasurer -- parallels the approach approved by

the Commission in MUR 1402. MUR 1402 concerned

strikingly simila= actions, although on a less grand

scale, by a fundraiser for then-Representative Jim

Wright. Like Mr. Rizzo, the Wright fundraiser came into

possession of various contribution checks from a post

office box as well as from a committee fundraising

event. Like Mr. Rizzo, without knowledge of the Wright

committee, she opened up a bank account in the Wright

committee's name, deposited the contribution checks, and

then withdrew the funds for her personal use. The

Wright committee, like the Tsongas Committee, sought

~~s~~~~tion. Unlike the Tsongas Committee, the Wright

commi ttee---forTunate-ly received -payment_ from the

fundraising agent of an amount equivalent to the

diverted contributions. The Wright committee was

permitted to retain the repaid contributions and was

instructed by the Commission to attribute the

contributions to the original contributors.

"In KUR 1402, the Commission perceived the

violation to be a failure to forward contributions by

the committee agent. There is absolutely no suggestion

that the Commission deemed the errant bank account to be

a Wright committee account merely because it bore the

committee's name or because committee-intended

contributions were deposited into it. There was no

suggestion that the Wright committee was obligated to

amend its reports to reflect activity in the

unauthorized account.

"The Committee acknowledges that MUR 1402 did not

appear to involve the disbursement of any funds from the

unauthorized account for apparent campaign-related

purposes, while approximately three percent of the

disbursements from Mr. Rizzo's secret account apparently

were campaign-related. The Committee submits that this

distinction does not alter the proper analysis or the

characterization of the account. The relatively de

minimus amount of campaign disbursements does not--

undermine the conclusion that the overall purpose of the

account was not campaign-related, but rather to

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personally benefit Mr. Rizzo. As the Committee has

previously expressed, it recognizes that the payments by

Mr. Rizzo from funds other than those contained in the

Committee's accounts may constitute an impermissible

advance by Mr. Rizzo to the Committee. The Committee,

in its correspondence with Mr. Rizzo, has recognized

that it has an obligation to repay this amount to him.

"For these reasons, it is the Committee's position

that it never received the $29,314 in alleged excessive

contributions deposited into the Andover account. If

these contributions had beer. forwarded to the treasurer

in compliance with FECA, they would have been refunded

in a timely manner to the contributors.

"Accepting the Committee's position in this regard

does no harm to the Commission's historical and

prospective treatment of undisclosed depositories.

Where an undisclosed account is opened through ignorance

or oversight by persons associated with a campaign for

the purpose of conducting the campaign'S business, then

the Commission should require the committee in question

to adopt the account in its entirety, report its

activity to the Commission, and bear any penalties _____associated wi th untimely disclosure. The Texans for

Tsongas··acco-tint-was- just such- an account and the

Committee has treated it in that manner. There is no

policy reason, however, to require the same treatment of

an account opened not to further the business of a

campaign, but to defraud it. In that case, the proper

course is to require the committee to seek the return of

the diverted contributions and report the fraudulent

activity to enforcement officials. That is what the

Committee has done here."

7. Conclusion

a. Mr. Rizzo was a Committee Agent

Contrary to the Committee'S assertion, the evidence

revealed in this matter provides ample basis to hold the Committee

responsible for Mr. Rizzo's actions. While is is clear that Mr.

Rizzo embezzled funds, the evidence indicates that Mr. Rizzo was

one of the three most powerful people in the Committee with

virtually unbridled authority to solicit and process contributions

and make financial decisions. Mr. Rizzo also had the authority to

arrange fundraisers and collec~ money on the Committee's behalf.

The Committee exerted no control over Mr. Rizzo's actions, which

allowed him to victimize both the individual lenders and the

Committee. Moreover, Senator Tsongas and/or Mr. Kanin appear to

have had knowledge of or been involved in at least two of the loan

transactions although Mr. Rizzo certainly had no authority to

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convert such loans to personal use. Therefore the solicitation of

such loans does not appear to be outside the scope of Mr. Rizzo's

authorit.y.

Section 109.1(b)(S) of Title 11 of the Code of

Federal Regulations defines the term agent as any person who has

actual oral or written authority, either express or implied, to

make or to authorize the making of expenditures on behalf of a

candidate, or means any person who has been placed in a position

within the campaign organization where it would reasonably appear

t.hat in the ordinary course of campaign-related activit.ies he or

she may authorize expenditures.

Thus, an agent, for expenditure purposes, is an

individual who either has authority to make expenditures on behalf

of a campaign or occupies a position that parties would reasonably

believe to confer such authority. A committee is responsible for

its agent's actions even if the agent acts negligently, and

contrary to express instructions. In every case where a committee

violates the FECA, there ultimately is a committee official who

authorized, conducted or participated in the prohibited event.

The Commission's application of agency principles

is consistent with settled principles of agency law. The

Restat~me~t of Agencyl1/ defines an agent as one who exercises the

actual or a-ppaien-t- authority -of- apr-incipal. The Restat.ement

provides that a principal's responsibility for his ag-e-nt-'s-conduct

may derive either: (1) from an express or implied grant of

authority from the principal to the agent; or (2) from actions

taken by the principal that reasonably cause a third party to

believe that the principal has empowered the agent to act on his

behalf .

Where a principal grants an agent express or

implied authority, the principal generally is responsible for the

agent's acts within the scope of his authority. The conduct of an

agent is within the scope of his authority if: (a) it is of the

kind he is employed to perform; (b) it occurs substantially within

the authorized time and space limits; [and] (c) it is actuated, at

least in part, by a purpose to serve the master.

When an agent acts within the scope of his

authority, a principal cannot escape responsibility on the grounds

that he lacked knowledge of the agent's actions or t.hat the

11/ Black's Law Dictionary defines a Restatement as "A

series of volumes authored by the American Law Institute

that tell what the law in a general area is, how it is

changing, and what direction the authors (who are

leading legal scholars in each field covered) think the

change should take ... the various Restatements have been

a formidable force in shaping the disciplines of law

covered. "

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agent's actions were unauthorized, tortious, or even unlawful.

Even if an agent does not enjoy express or implied authority,

however, a principal may be liable for the actions of his agent on

the basis of apparent authority. An agent is imbued with apparent

authority where the principal has held the agent out as having

such authority or has permitted the agent to represent that he has

such authority, so that a reasonable person would believe the

agent to have such authority.

Apparent authority commonly exists when a principal

appoints an agent to a position with generally recognized duties

or responsibilities. A principal may be held liable based on

apparent authority although his agent's acts are unauthorized.

Similarly, a principal may be held liable for his agent's illegal

acts, such as fraud, when he places an employee in a position to

commit those acts. Unlike express or implied authority cases,

moreover, a principal is not relieved of liability simply because

an agent with apparent authority acts for his own benefit. Even

if the agent committed fraud, the principal is liable provided the

agent acted within his apparent authority.

The facts noted above demonstrate that Mr. Rizzo

was the Committee's agent with actual and apparent authority to

solicit and accept contributions, Qake expenditures, and conduct

diverse financial transaction for the Committee. He functioned as

- -the- Committee' s--pI:'in~ipalfundraisE!r, _had broad authori ty over

most aspects of the Committee's financial actTvity,--and--operated--

with a great deal of independence. Moreover, Mr. Rizzo occupied a

position, and had a history with the candidate, that would lead

third parties to believe that he had authority to solicit

contributions.

Contrary to the Committee's contentions, Rizzo's

solicitations of loans totaling $794,000 from eight individuals

were clearly within the scope of his authority as the Committee

fundraiser. Loans are contributions and Mr. Rizzo had broad

authority to solicit contributions. The Committee's contention

that Rizzo could not have authority to solicit these contributions

because they were excessive is without merit. Doubtless in most

cases where a campaign official accepts an excessive or prohibited

contribution, the official was not expressly authorized to do so.

Under the Committee's reasoning, no committee would ever be

responsible for any violations by its agents. Indeed, it is not

even clear whether Mr. Rizzo was not authorized to accept

excessive contributions. The evidence reveals that Mr. Kanin and

Senator Tsongas were involved with Mr. Rizzo in the solicitation

of certain excessive loans. The Committee cannot escape liability

for the conduct of its agent that was well with:n the scope of his

authority.

b. Andover Account Was a Committee Account

The Andover Account was established as a Committee

account although Senator Tsongas and Mr. Kanin do not appear to

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have had actual knowledge of the account. Mr. Rizzo stated that

it was true that Senator Tsongas and Mr. Ranin did not know that

an account existed at the Andover Bank but must have known that an

account had been opened. Ho~ever, he does state that they were

aware that he was spending money on behalf of the Committee which

he did not personally have and must have wondered where that money

came from. He further stated that "I certainly would not go out

and tell Paul Tsongas and Dennis Kanin about the [Ansin]

transaction if I wanted to keep it a secret. Why would I go out

and bring them in? It doesn't make sense." In addition, he

stated the following: "They were with oe when the ca~paign was

still in its formative stage, when Larry Ansin agreed to lend the

Committee, not lend Nick Rizzo, lend the Committee a hundred

thousand dollars. My question is -- you know, where did they

think that money was going? That Larry showed up with little

buckets of cash or something? That's ridiculous. He wrote a

check and he wrote it to the committee. Where did they think that

check went? They knew it didn't go into the main account."

The evidence supports the conclusior. that the

Andover Account was an account of the Committee. The Andover

Account was ooened in the name of the Committee, and for all

practical purposes, it functioned as a Committee account.

Contribution checks made payable to the Committee were deposited

_J_n_t:_~__t:!J._e Andover Account and legitimate Committee expenses were

paid from-thEi--AliaoVer-Account.Also i i t-appears that theCommittee intended to acknowledge the Andover Account and

considered it to be a Committee account until the Committee

received the complete account records.

It is reasonable to conclude that opening the

Andover Account was within the scope of Mr. Rizzo's authority as

an agent of the Committee. When Mr. Rizzo opened the Andover

Account, he had virtually unlimited authority over the Committee's

finances. He was involved in opening the Committee's operating

account at Bay Bank and controlled the checkbook for that account.

Since Mr. Rizzo exercised broad authority over virtually every

Committee financial transaction, including opening accounts, he

had authority to open the Andover Account on behalf of the

Committee.

With respect to MUR 1402, the Audit staff notes

that the Commission did not make a determination that this account

was not an account of the committee. In that case, the funds were

recovered and the Committee made whole. Although the Committee

states that there was no suggestion that the Wright committee was

obligated to amend its reports, it is noted that the Committee

stated in its notification to the Commission that "we believe a

proper resolution of this matter would be for the Committee to

accept the $9,000 restitution but report the contributions that

should have been deposited in the Committee account. The

Committee's reports will then balance and accurately reflect the

actual state of the Committee's finances [emphasis not in

original.]" The committee was then notified that "the Commission

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believes that, as you proposed, attribution of the subject funds

to the proper contributors is the appropriate course of action in

this matter." It does not appear that the individual in that case

had broad authority over the committee's financial transactions,

as Mr. Rizzo did. Given the Committee's contemporaneous knowledge

of some of the transactions that were processed through the

Andover Account, the involvement of public funds in this campaign,

and Mr. Rizzo's position in the campaign, this MUR is not

relevant. Further, the Commission did make a determination about

the account being a Wright committee account by endorsing that

comsittee's treatment of the account.

While the existence of the Andover Account may have

enabled Mr. Rizzo to embezzle Committee funds, the Audit staff

does not believe that the Andover Account was a mere

instrumentality of a criminal scheme. We cannot conclude that Mr.

Rizzo originally intended the Andover Account to be his secret

account. Mr. Rizzo contends that he opened the Andover Account as

a Committee exploratory account, not his own personal account.

The Committee contends that Mr. Rizzo intended the account to 2e a

oersonal account because the account was opened with his social

security number. Mr. Rizzo claims that he used the social

security number because the Committee had not yet received a

taxpayer identification number and that this was the only way he

_cQ\lld__ open the account. Mr. Rizzo used the legal address of the

COllUllittee--for-the-account,--and claims tha_t he made_ no attempt to

hide the account from the Committee. In addition, Me. Riziodiscussed the possibility of opening an exploratory account with

Mr. Kanin and Senator Tsongas in early March, 1991. There is no

doubt that Mr. Rizzo embezzled Committee funds from the Andover

Account, but Mr. Rizzo's misdeeds do not transform the character

of the Andover Account.

Mr. Kanin and Senator Tsongas claim to have relied

on Mr. Rizzo to determine what was legal in relation to campaign

finance law and the loans from Mr. Ansin and Mr. Trudeau. Mr.

Rizzo was placed in a position of trust and given almost unbridled

authority to conduct business for and on behalf of the Committee.

Mr. Kanin and Senator Tsongas appear to have known of the

transaction with Mr. Ansin; this would seem to provide Mr. Rizzo

the dominion to solicit loans on the Committee's behalf. Their

reliance on Mr. Rizzo, not a legal expert, does not shelter the

Committee from liability based on Mr. Rizzo'S activity.

B. Victoria Bank & Trust

In addition, the Committee informed the Audit staff of

an account opened in Texas by the chairman for Texans for Tsongas

("Texas Account"). During the period open, this account conducted

$12,057 in receipts activity and $11,980 in disbursement activity.

The Committee provided documentation to support all receipts and

disbursements. The Audit staff did not identify any prohibited

contributions and identified excessive contributions from two

individuals. The excessive portion of these contributions total

Page 33

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$1,100 (see Finding III.A.). Committee representatives have

amended the Statement of Organization to disclose this account.

The recommendations relating to the activity in these

accounts is discussed further in Findings III.A., III.B., IV.C.,

and IV.D. below.

III. Findings and Recommendations - Non Repayment Matters

A. Apparent Excessive Contributions

Section 441a(a) of Title 2 of the United States Code

states, in relevant part, that no person shall make contributions

to any candidate and his authorized political committees with

respect to any election for Federal Office which, in the

aggregate, exceed $1,000.

Section 441a(f) of Title 2 of the United States Code

states that no candidate or political committee shall knowingly

accept any contr:tution or make any expenditure in violation of

the provisions of this section. No officer or employee of a

political committee shall knowingly accept a contribution made for

the benefit or use of a candidate, or knowingly make any

expenditure on behalf of a candidate, in violation of any

limitation imposed on contributions and expenditures under this .section ..

Section llO.1(b)(6) of Title 11 of the Code of Federal

Regulations states, in part, that a contribution shall be

considered to be made when the contributor relinqUishes control

over the contribution. A contributor shall be considered to

relinquish control over the contribution when it is delivered by

the contributor to the candidate, to the political committee, or

to an agent of the political committee. A contribution that is

mailed to the candidate, or to the political committee, or to an

agent of the political committee, shall be considered to be made

on the date of the postmark.

Section 110.1(e) of Title 11 of the Code of Federal

Regulations states, in part, that a contribution by a partnership

should be attributed to the partnership and each partner, and that

a contribution by a partnership shall not exceed the limitations

on contribution in 11 CFR 110.l(b).

Section 100.7(a)(1)(iii) of Title 11 of the Code of

Federal Regulations states that the term 'contribution" includes a

gift, subscription, loan, advance. or deposit of money or anything

of value. The term "anything of value" includes all in-kind

contributions. unless specifically exempted under 11 CFR

S100.7(b), the provision of any goods or services without charge

or at a charge which is less than the usual and normal charge for

such goods or services is a contribution.

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Section l10.l(k) of Title 11 of the Code of Federal

Regulations states, in part, that any contribution made by more

than one person, except for contribution made by a partnership,

shall include the signature of each contributor on the cheCk,

money order, or other negotiable instrument or in a separate

writing. A contribution made by more than one person that does

not indicate the amount to be attributed to each contributor shall

be attributed equally to each contributor. If a contribution to a

candidate on its face or ~hen aggregated with other contributions

from the same contributer exceeds the limitations on

contributions, the treasurer may ask the contributor whether the

contribution was intended to be a joint contribution by more than

one person. A contribution shall be considered to be reattributed

to another contributor if the treasurer of the recipient political

committee asks the contributor whether the contribution is

intended to be a joint contribution by more than one person, and

informs the contributor tha~ he or she may request the return of

the excessive portion of the contribution if it is not intended to

be a joint contribution; and with:n sixty days from the date of

the treasurer's receipt of the contribution, the contributors

provide the treasurer with a written reattribution of the

contribution, which is signed by each contributor, and which

indicates the amount to be attributed to each contributor if equal

-attributionj.s_not intended.

Section l03.3(b)(3) of Title 11 of the Code of Federal

Regulations states, in part, that contributions which exceed the

contribution limitation may be deposited into a campaign

depository. If any such contribution is deposited, the treasurer

may request redesignation or reattribution of the contribution by

the contributor in accordance with 11 CFR §§llO.l(b) and llO.l(k),

as appropriate. If a redesignation or reattribution is not

obtained, the treasurer shall, within 60 days of the treasurer's

receipt of the contribution, refund the contribution to the

contributor.

Section 103.3(b)(4) of Title 11 of the Code of Federal

Regulations states, in part, that any contribution which appears

to be illegal and which is deposited into a campaign depository

shall not be used for any disbursements by the political committee

until the contribution has been determined to be legal. The

political committee must either establish a separate account in a

campaign depository for such contributions or maintain sufficient

funds to make all such refunds.

Sections llC.4(b)(l)(i\ and (2\ of Title 11 of the Code

of Federal Regulations state, in part, that no person shall make a

contribution in the name of another. Examples of contributions in

the name of another include glving money or anything of value, all

or part of which was provided to the contributor by another person

(the true contributor) without disclosing the source of money or

the thing of value to the recipient candidate or committee at the

time the contribution is made. Making a contribution of money or

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anything of value and attributing as the source of the money or

thing of value another person when in fact the contributor is the

source.

Section 432(c) of Title 2 of the United State Code,

states, in part, that the treasurer of a political committee shall

keep an account of all contributions received by or on behalf of

such political committee, the name and address of any person who

makes any contribution in excess of $50, together with the date

and amount of such contribution by any person; and the

identification of any person who makes a contribution or

contributions aggregating more than $200 during a calendar year,

together with the date and amount of any such contribution.

Section 104.l4(bl of Title 11 of the Code of Federal

Regulations states, in part, that each political committee

required to file any report under this subchapter shall maintain

records relevant to such reports, including bank records, with

respect to the matters required to be reported including vouchers,

worksheets, receipts, bills and accounts, which shall provide in

sufficient detail the necessary information from which the filed

reports may be verified, explained, clarified, and checked for

accuracy and completeness.

1. __ Loans From Individuals

As noted in Section II.l.a., loans from eight

individuals were negotiated by Mr. Rizzo. These individuals made

16 loans totaling $794,000 (see Attachment II). Four of the 16

loans, totaling $280,000, were deposited into accounts of Mr.

Rizzo and the remainder was deposited into the Andover Account.

As noted previously, only three of the loans have been completely

or partially repaid.

Furthermore, four of the eight individuals who made

loans to the Committee made additional $1,000 contributions to the

Committee. Another lender made contributions totaling $750.

Therefore, it appears that the Committee has received excessive

contributions from eight individuals totaling $790,750 ($794,000

in loans - $3,250 in available contribution limitations).

In the interim audit report, the Audit staff

recommended that the Committee provide information to show that

the aforementioned transactions did not constitute impermissible

excessive contributions totaling $790,750. Absent such showing,

it was recommended that the Committee repay these individuals

$725,750 ($790,750 - $65,000 previously repaid).

If funds were nct avallable to make such

repayments, it was recommended that the Committee disclose the

amounts as loans owed by the Committee on Schedule C-P.

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In response to the interim audit report, Counsel

for the Committee states that the loans solicited by Mr. Rizzo are

not Committee obligations for the following reasons:

"Regarding the sizable loans obtained by Mr.

Rizzo from various individuals, the superseding

indictment charged that 'defendant Rizzo

fraudulently obtained loans in the amount of

$794,000 which he falsely represented to the

individual lenders would be to the benefit of the

Committee.' Mr. Rizzo has consistently stated that

these loans were intended to be his individual and

personal obligations. (Rizzo states 'they were

loans that were made that I told each of the

individuals that I would be responsible for, and I

still feel I am responsible for, the repayment').

His attorney stated to the sentencing court that

Mr. Rizzo 'knew [the loans] could never be used for

the Tsongas campaign.' Apparently he also told the

Commission the same under oath. In imputing these

loans to the Tsongas Committee, the Audit staff

apparently has rejected these admissions without

explanation.

-~Mr ;-Rizzo-was-acti ng -beyond_the scc:>pe Q:f_~I1Y __

conceivable agency in soliciting such loans for the

Committee. Acts within the scope of an agent's

employment include only those 'acts done on behalf

of a corporation and directly related to the

performance of the type of duties the employee has

general authority to perform.' Mr. Rizzo had no

actual authority to solicit loans from contributors

in the name of the Tsongas Committee, nor could he

be held even to have apparent authority to do so,

since such solicitations are in direct violation of

federal election law. Moreover, the sentencing

transcript details the bizarre web of deception

employed by Mr. Rizzo in securing these loans. Mr.

Rizzo was engaged in activity planned by him for

his own benefit when he solicited the loans, both

the Committee and the lenders were victimized by

this activity, and he thus clearly was acting

outside the scope of his agency. ('The reasons he

wanted the money are also aggravating factors. He

basically chose to victimize Paul Tsongas' friends

so that he could pay his o~n friends at the bank').

"Because Mr. Rizzo was not acting within the

scope of his agency in soliciting the illegal

loans, the Committee never 'received' the proceeds

of the loans and, needless to say, never deposited

the loans into a Committee account. For this

reason, it is the Committee's position that it did

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not receive 'excessive contributions' in the· amount

of the loans. More significantly, and in full

accord with the Committee's position, the federal

court has ordered Mr. Rizzo to repay these loans to

the lenders, and not to the Committee. It is

inappropriate for the Audit staff to expect the

Committee to receive the loan proceeds from Mr.

Rizzo or to repay them to the lenders.

"Although the Committee strongly believes that

its position is correct with respect to all of the

loans, it even more emphatically takes issue with

the Audit staff's conclusion that checks made out

to Mr. Rizzo personally or to his business are

somehow contributions to the Committee. No

suggestion is made that these loans were somehow

in-kind contributions or payment of Committee

obligations to Mr. Rizzo. Nor is there any basis

to find a political contribution solely because of

the purported contributor's inte~t if the

contribution did not get delivered to a political

committee, to a committee's agent acting within the

scope of agency, or otherwise used by the recipient

for purpose regulated by FECA. By way of

il~ustratiofi, if a Tsongas supporter announced on a ---- ---s-treet-corner-thatoshe intended to c()fltribute $50

in cash to the candidate, and she then wa-smuggecr---

and her wallet stolen, she has not thereby made a

political contribution merely because her money was

taken in response to a stated desire to assist a

candidate."

The Audit staff does not find the Committee'S

arguments to be persuasive. As noted preViously at Section

II.A.7.a., Mr. Rizzo is considered an agent of the Committee.

Contrary to the Committee'S contentions, Mr. Rizzo's receipt of

the loan checks from the lenders constituted receipt by the

Committee because Mr. Rizzo was a Committee agent with authority

to accept contributions. It is immaterial that Mr. Rizzo

converted most of the contributions for his personal use. Rather

than interrupting the conveyance of the contributions to the

Committee, Mr. Rizzo embezzled the funds after he had accepted

them as an agent of the Committee.

In addition, it appears that Mr. Kanin and Senator

Tsongas were aware of at least one of the loans and Mr. Kanin

appears to have been involved in the sollciting of another loan.

This would indicate that Mr. Rizzo had been given the authority to

solicit loans on the Committee's behalf and was not outside the

scope of his agency. Although the Committee was not aware of all

the loans, solicitation of loans does appear to be in Mr. Rizzo's

dominion as an agent of the Committee. With respect to the loans

which were not made payable to the Committee, it appears that Mr.

Kanin was at least initially involved in the solicitation of one

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of the Trudeau loans and the evidence indicates that Mr. Rizzo

solicited all of these loans on behalf of the Committee even

though the money was not forwarded to the Committee's main

operating account.

Regardless of Mr. Rizzo's recent statements

concerning his perceived personal liability to repay the loans,

testimony from each of the lenders establishes that the clear

understanding when the loans were made was that the money was for

the benefit of the Committee. As noted above, Mr. Rizzo solicited

each loan ostensibly on behalf of the Committee, and the lenders

relied on his authority. It is unlikely that the lenders, many of

whom did not know Mr. Rizzo, would make personal loans to him of

such magnitude.

With respect to the loans not made payable to the

Committee, the clear intent was to loan the Committee funds by

routing it through another individual (Mr. Rizzo) in an apparent

attempt at circumventing contribution limitations as they were

explained by Mr. Rizzo. Also, the Com~ittee's analogy is not on

point. If the same individual had given the $50 to a well

recognized fundraising agent of the Committee, and that agent

misappropriated the funds, the contributor has made a

contribution, and the Committee through its agent received the

contribution in accordance with 11 CFR SllO.1(b)(6) even though

--th-e--funds-were--stolen pr iorto the COlllIni ttee having access to

them. -

Therefore it is concluded that the loans from the

eight individuals constitute excessive contributions to the

Committee, solicited by Committee agents and received on behalf of

the Committee by a Committee agent. Such loans are required to be

disclosed as (1) contributions on Schedule A-P, (2) debts owed on

Schedule C-P, and (3) when repaid, as loan repayments on Schedules

B-P and C-P.

2 • Excessive Contributions from Individuals

The Commission notified the Committee by letter

dated June 2, 1992, that a sampling technique would be used to

determine the amount of excessive contributions received by the

Committee. That letter states, in part, "Commission regulations

provide committees with 30 days in which to refund contributions

which appear to be prohibited, and 60 days in which to seek the

reattributions, redesignation or refund of excessive

contributions. 11 CFR 103.3(b)(1), (2), and (3). Contributions

resolved by committees outside these time periods will not be

considered mitigated violations. The Commission will no longer

recognize any untlmely refunds, redesignacions or reattributions

made more than 60 days following a candidate's date of

ineligibility or after the date of receipt of this letter,

whichever is later. After this deadline, the Commission will

request that all unresolved prohibited or excessive contributions

be paid to the United States Treasury."

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Our review of contributions from individuals

identified apparent unresolved excessive contributions totaling

$71,525. This amount was derived from a comprehensive review of

the two undisclosed bank accounts (see Section II.); an extensive

review of contribution checks from a partnership; comprehensive

reviews of selected coded transactions from the Committee's

receipts data base; and a sample review of the remaining

contributions from individuals. At or subsequent to the exit

conference, the Committee was provided with various schedules

detailing the apparent excessive contributions, as well as

relevant check copies from the sample review. The following is a

summary of this excessive amount.

Recap of Excessive Contributions

Type of Review

Texas Account

Andover Account.

______!'_~rtl1~~_~hi p Cont ri bu t i on

"Refund" Coded Contributions:

Not Refunded or Not

Cleared Through Bank

Untimely refunded contributions

Excessive Contributors on Data Base

Dollar Value Projection of errors

from the sample

Total amount of

excessive

contributions

$ 1,100

29,314

21,500

1,330

7,312

1,550

9,419

Total Amount of Unresolved Excessive Contributions

Payable to the United States Treasury

571. 525

In the interim audit report, the Audit staff

recommended that the Committee:

o provide evidence that the contributions in question are

not excessive;

o In regard to the two refunded checks written by the

Committee which had not cleared the bank, provide evidence of

these funds clearing the bank (i.e., copies of the front and back

of the negotiated refund checks);

o With respect to the contributions drawn on the

partnership account, provide evidence regarding the partnership's

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payment structure to show that the funds contributed were within

exclusive control of the individual partners;

o Absent any evidence that demonstrates that the above

mentioned contributions are not excessive, make a payment to the

United States Treasury in the amount of $71,525.

The discussion of each area of excessive

contributions and the Committee's response to the interim audit

report concerning each follows.

a. Comprehensive Reviews

i. Undisclosed Bank Accounts

As discussed above, two undisclosed bank

accounts were reviewed during the audit. Our review of the Texas

Account identified 2 excessive contributions totaling $1,100. The

review of the Andover Account identified ~2 contributors (in

addition to the lenders discussed above' ~ho exceeded the

contribution limitation. The excessive portions of these

contributions total $29,314. Therefore, the total amount of

apparent excessive contributions from the two undisclosed bank

accounts is $30,414 [$29,314 + $1,1001.

The _ComIl\ittee stated that it would

recognize the Texas Account and fflean a-mend-ed s-ta-t-emenE -of

organization. As discussed in Section II., the Committee disavows

the Andover Account. However, it has demanded that Mr. Rizzo

forward the amount of contributions from individuals. Therefore

it appears that the Committee had acknowledged these contributions

as Committee funds.

In response to the interim audit report,

Counsel for the Committee states that the Committee does not

contest the finding that $1,100 of excessive contributions were

made to the Committee's Texas Account. It is also noted that the

Committee has filed an amended Statement of Organization to

recognize the Texas Account.

With respect to the Andover Account,

Counsel for the Committee states in response to the interim audit

report that the Andover Account is not an account of the

Committee. The Committee does not contend that the Federal

Election Campaign Act ("FECA n ) is irrelevant to the Andover

Account. The Committee acknowledges that 2 U.S.C. §432(bl and 11

CFR 5102.8 were violated by Mr. Rizzo with respect to forwarding

contributions and contributor identifying information to the

treasurer within ten days of his receipt.

The Committee has sent a letter to Mr.

Rizzo demanding that he forward the amount of all contributions to

the treasurer. Counsel states that to date no payment has been

received and that the Committee considers the amount to be

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uncollectible. Counsel further states that it is the Committee's

position that it never received the $29,314 in alleged excessive

contributions deposited into the Andover Account and that if the

contributions had been forwarded to the treasurer in compliance

with FECA, they would have been refunded in a timely manner to the

contributors.

AS discussed previously, the Audit

staff's position is that the Andover Account is an account of the

Committee. However, that dispute aside, the contributions from

individuals deposited into the Andover Account were, for the most

part, permissible contributions received by the Committee's chief

fundraising agent. The fact that some of the funds were

misappropriated before the Committee could apply them to a

campaign purpose 10es not alter the fact that they were received

by the Committee through its authorized fundraising agent. It

also does not change the fact that a portion of the contributions

were in excess of contribution limitations. It is the Audit

staff's opinion that these moneys were received by the Committee

and result in the excessive contribut:Jns noted above. The fact

that the money was not forwarded to the Committee's main operating

account does not mean that the Committee did not receive these

excessive contributions.

ii. partnership Contribution

We reviewed contributions from a Boston--

law firm in which the candidate is a partner. Our review

identified 25 contributions totaling $22,500 made on partnership

checks, all drawn from the same account. Since partnership

contributions are limited to $1,000, an excessive contribution of

$21,500 results.

At the exit conference, the Committee

stated that they believed these contributions were made by

individuals. In support of this contention, the

Committee provided a letter from the executive director of the

firm stating, in part:

n ••• all checks drawn on accounts of [the

firm} as a political contribution to the

Tsongas Comm\ttee, Inc. were done so at the

direction of the individual partners of the

firm. These contributions are deducted from

the specific Partner's net income

distribution. "

The Committee also provided 23 additional

documentation letters from the individuals to support the

assertion that the contributions are drawn on the partnership

account but represent the contributor's personal funds. However,

the regulations state that a contribution by a partner on a

partnership check shall be attributed to the partnership and to

the partner. since all the contributions are drawn on partnership

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checKs from the same account, the contributions must be attributed

to the partnership, as well as each individual partner, which

results in an excessive contribution from the partnership.

In response to the interim audit report,

the Committee provided a letter from the Executive Director of the

law firm as clarification of the firm's payment structure. This

letter states, in part, that "all checks drawn ... as political

contributions to the Tsongas Committee, Inc. were done so at the

written direction of the individual partners of the firm who chose

to make contributions. These contributions were deducted from the

specific Partner's individual net income distribution.

"Throughout the fiscal year the law firm

distributes only e~ghty percent of the profits earned by the

equity partners. Twenty percent is held back and is distributed

at the end of the fiscal year. Accordingly, the law firm held

funds allocable to each equity partner from which specific

political contributions were made. One semi-retired Partner, who

was paid one hundred percent of his fixed compensation monthly,

contributed $500 which was deducted from a year end bonus."

Further, Committee Counsel states that

since the early days of the Commission, contributions from "nonrepayable drawing accounts" have been recognized as lawful

(nd1-,ii-duar-co-ntributions.-12/--The-Committee -thus conte_nd$ that the

contributions in questionwere not contributions "by a -- --

partnership."

The Notice referred to by the Committee

dealt with funds contributed from corporate non-reimbursable

drawing accounts. The Regulations make a distinction between

corporate and partnership contributions and the respective

treatment. In addition, the Committee response refers to written

direction by the individual partners. However, documentation to

support these written authorizations was not provided to support

this contention. Also, the response does not clarify whether the

partnership places any restrictions on partners' deductions from

the firm accounts or whether the net income distributions are ever

repayable to the partnership. Finally, there is no indication

given that the partners are able to draw against the 20% in

profits that are held back by the partnership prior to the end of

the year.

The Committee has not provided evidence

to demonstrate that the funds contributed were within the

exclusive control of the individual partners. Although the

contributions should be attributed to the individual partners, the

regulations call for the contributions to also be attributed to

The Committee refers to the Notice to All Candidates and

Committees (Aug. 28, 1978).

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the partnership which results in the excessive contribution noted

above.

iii. Selected Codes on the Committee's

Receipts Database

The Committee's receipts database

utilized a coding system with respect to contributions from

individuals. A "P" coded contribution indicated the contribution

was for the primary election. A "B" coded contribution indicated

an insufficient funds check was written by a contributor. An "R"

coded contribution was to indicate a refund was warranted.

However, as noted below, refunds were not made for all of the "R"

coded transactions.

A review was performed on the "R" coded

contributions. It was determined that the contributions were

coded "R" because they resulted in either excessive or prohibited

contributions. Our review was designed to determine if the

contribu:ion refunds were made and i: so, made timely. The review

identified 34 contributions totaling $8,642 which on their face or

in the aggregate exceeded the $1,000 contribution limitation.

Included among these 34 contributions are

--- -27_to_taling __ ~7,312 that the Committee refunded on June 17 and 18,

1992. None o{-the-se2Trefundswere-madetimely. As note~ j'l..!:>O.'le,

the Commission's letter dated June 2, 1992, stated, in part, "The---

Commission will no longer recognize any untimely refunds,

redesignations or reattributions made more than 60 days following

a candidate's date of ineligibility [May 18, 1992) or after the

date of receipt of this letter [June 8, 1992], whichever is

later."

After being informed of this matter, the

Committee provided the following response:

"The committee interpretation of untimely refunds

was the later of 60 days following a date of

candidate's ineligibility or 60 days after the

receipt of the letter. In this context the subject

refunds were timely. After review of the letter

with Mr. Swearingen, I understand our

interpretation was based on a misleading

explanation of the time limits in the June 2

letter. I feel and hope the committee will not be

found in violation of this regulation based on the

misinterpretation of this misleading letter,"

These contributions are included among

those requiring a payment to the U.S. Treasury,

The remaining 7 excessive contributions

coded "R" include 5 for which refund checks were not issued by the

Committee, and 2 where refund checks were issued but had not

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cleared the bank as of July 31, 1992. The excessive portions of

these contributions total $1,330.

In addition to the "R" codes, the Audit

staff identified 6 contributors on the receipts database which

exceeded the contribution limitation by $1,550. These contributors

were identified by totaling contributions for all individuals and

identifying those contributors whose contributions totaled more

than $1,000.

In response to the interim audit report,

counsel for the committee stated the Committee does not contest

the six excessive contributions which were identified from the

receipts data base. with respect to the seven excessive

contributions coded "R", the Committee provided a photocopy of a

canceled refund check of $50 which had been issued on June 17,

1992 but was not negotiated until after completion of fieldwork.

Counsel states that subject to modification for this item, the

Committee does not contest the remaining excessives coded "R" but

not refunded. Although the Audit staff agrees that the excessive

contribution has been refunded, it is noted that the refund check

was issued after the Committee's receipt of the letter from the

Commission dated June 2, 1992. Therefore, the amount of this

excessive contribution ($50) would still be payable to the u.s.

Treasury along with the 27 items totaling $7,312 which are

prevTousrynoted.

with respect to the excessive

contributions which were refunded by the Committee after receipt

of the June 2, 1992 letter, Counsel for the Committee in response

to the interim audit report stated that the Committee contested

these excessive contributions for three reasons. First, the

Committee claims that it was confused by the following wording in

the letter:

"The Commission will no longer recognize any

untimely refunds, redesignations or

reattributions made more than 60 days

following a candidate's date of ineligibility

or after the date of receipt of this letter,

whichever is later."

The Committee further states that it

reasonably interpreted this letter to mean that untimely refunds

would not be recognized more than 60 days following the later of

the date of ineligibility or the date of receipt of the letter

[August 5, 1992) and accordingly certain refunds were made on June

17 and 18. The Committee submits that given these unique

circumstances, these refunds should not be disregarded as the

Audit staff proposes.

Second, the Committee submits that it

should not be required to pay these amounts twice -- once to the

contributors and once again to the Treasury. The Committee

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."

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contends that, although the Commission may choose at its

discretion not to consider the refunds as a mitigating factor in

any ensuing enforcement proceeding, requiring a dollar-for-dollar

payment to the Treasury is purely punitive and inconsistent with

both the established enforcement process fer FECA violations and

the enumerated bases for a repayment finding.13/

Finally, the Comilli~tee submits that even

if the Commission possessed the statutory authority to perform an

"end-run around" the enforcement process a~d assess such a penalty

in the context of the audit process, it is inappropriate to invoke

such a new principle in an informal letter ~o a committee, rather

than through recognized rulemaking channels.

In the Audit staff's opinion, the

Committee's interpretation of the Commission's June 2, 1992,

letter does not comport with the pUblished regulations. The

Committee is arguing that a reasonable reading of the Commission's

letter would allow the Committee 60 days beyond the receipt of the

letter to timely refund contributi~ns which, according to the

plain language of the regulation, should have been refunded before

the letter was mailed. The Audit staff did not consider this a

reasonable reading of the Commission's letter.

With respect to the contention that they

- - -shcfuld- not-be requi-red-to pay theamoun ts . t",i c~, .the COlllllli t tee

chose to make the refunds after being notified by theCommlsslon

that such refunds would not be recognized. Thus, it was the

Committee's choice "to pay the amount twice."

The Committee also argues that it is

inappropriate to invoke a new principle in an informal letter to

the Committee rather than through rulemaking channels. Agencies

are required to comply with the Administrative Procedures Act's

notice and COllllllent provisions for "legislative rules" it issues.

However, an exemption from these requirements is created for

"interpretive rules, general statements of policy, or rules of

agency organization, procedure or practice. w An agency makes a

general policy statement if the announcement either acts

prospectively or leaves the agency and its decision-makers free to

exercise discretion. The 1992 letter to presidential committees

falls within the interpretive rule exemption. It does not

substantially alter the Committee's rights or interests. Rather,

it is interpreting a current regulation. Section 9038.1(a)(2) of

13/ The Committee incorrectly refers to t~e dlsgorgernent of

these funds to the U.S. Treasury as a "repayment" which

would be governed by 11 CFR §9038.2. Rather, the

payment to the Treasury is the only method of removing

the impermissible funds from the Committee's accounts,

once the regulatory time periods recognized by the

Commission have expired.

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Title 11 of the Code of Federal Regulations allows the'Commission

to conduct examinations and audits "as it deems necessary to carry

out the provisions of this subchapter."

The requirement that the Committee

disgorge unlawfully retained contributions to the Treasury is not

a new policy which significantly affects committees' rights or

interests. A policy statement does not "alter the rights or

interest of parties, although it may alter the manner in which

parties present themselves or their viewpoints to the agency."

American Hospital Ass'n, 834 '.2nd at 1047 (citing Batterton v.

Marshall, 648 F.2d 694, 707{D.C. Cir. 1980)). The committees'

rights and interests have not been affected here. Their duty with

respect to illegal contributions is to redesignate, reattribute or

refund these contributions within either 30 or 60 days, pursuant

to 11 CFR §103.3. Therefore, the Committee has a general duty to

relinquish unlawfully retained contributions. The 1992 letter

does not alter this duty; it only notifies committees that all

such untimely unresolved contributions must be paid to the United

States Treasury.

b. Sample Review

The contributions that were not included in

the comprehensive reviews discussed above were tested on a sample ·····--basis~ --The--sampleindicatesthat .1984%0£ the dollar value of

the contributions or $9,419 represent excessive contrlbutlons:

In response to the interim audit report,

Counsel for the Committee states that the Committee does not

contest the excessive amount determined from this review.

The Committee has not complied with the

recommendations contained in the interim audit report. As noted

previously in regard to the specific areas, the Audit staff

concluded that arguments submitted by the Committee were not

persuasive and therefore a $71,525 payment to the U.S. Treasury

was warranted.

Due to the Committee's apparent

misunderstanding of the Commission's June 2, 1992 letter and

relatively prompt action based on their interpretation of the

letter, the Commission determined on December 8, 1994, that a

payment to the U.S. Treasury for the 28 items totaling $7,362

which were refunded on June 17 and 18, 1992, was not required.

Therefore, $64,163 ($71,525 - $7,362) remains as the total

excessive contributions received by the Committee.

Recommendation %1

The Audit staff recommends that the Commission make a

determination that the Committee is required to make a payment in

the amount of $64,163 to the United States Treasury.

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3. Excessive Contributions Resulting

from Advances

During our review of the Committee's expense

reimbursements to campaign staff we noted expenses incurred on

behalf of the Committee in excess of the $1,000 contribution

limitation. The excessive portions of the contributions total

$76,435. In order to calculate the amount of a contribution

resulting from an advance made by an individual on behalf of the

committee, payments made by the Committee were applied against

those expenses aggregating in excess of Sl,OOO that had been

incurred the earliest. Where there was no amount remaining

payable, we considered the last payment to be the refund of the

direct contribution.

a. Staff Advances

Section 116.5(b) of Title 11 of the Code of

Federal Regulations states that the payment by an individual from

his or her personal funds, including a personal credit card, :or

the costs incurred in providing goods or services to, or obtaining

goods or services that are used by or on behalf of, a candidate or

a political committee is a contribution unless the payment is

exempted from the definition of contribution under 11 CFR

____ SlOO.7(b)(8). If the payment is not exempted under 11 CrR

-- srOO:1{ b) (8 h--it--shall- be consi,<:iE!re~_a contribution by the

individual unless the payment is for tneTndiVfdua-l'stransportation expenses incurred while traveling on behalf of a

candidate or political committee of a political party or for usual

and normal subsistence expenses incurred by an individual other

than a volunteer, while traveling on behalf of a candidate or

political committee of a political party; and the individual is

reimbursed within sixty days after the closing date of the billing

statement on which the charges first appear if the payment was

made using a personal credit card, or within thirty days after the

date on which the expenses were incurred if a personal credit card

was not used. For purposes of this section, the closing date

shall be the date indicated on the billing statement which serves

as the cutoff date for determining which charges are included on

that billing statement. In addition, "subsistence expenses"

include only expenses related to a particular individual traveling

on committee business, such as food or lodging.

with respect to advances made by Committee

staff, four individuals advanced funds on behalf of the Committee

(see Attachment VII) resulting in excessive contributions totaling

$60,844.14/ The expenses incurred were for travel and subsistence

and campaign related goods and services. The average number of

<, ' - . ".-,'>,!

';\

14/ This amount was adjusted for a $1,000 exemption under 11

CFR S100.7(b)(8) fer two of the individuals for which

the regulation was applicable.

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days outstanding before reimbursement ranged between 11 days and

236 days.

Included in the excessive amount noted above

is $32,658 charged on a campaign official's credit card in July,

1992, and reimbursed on July 27,1992. The expenses were related

to campaign staff's stay at the Sheraton Hotel/Towers during the

1992 Democratic Convention in New York (see Finding IV.C. l.

According to the Committee its travel agent,

American Express Travel Management Services, would have added a

10% commission to the cost of the lodging as a fee for its

services. In order to save the commission fee the Committee made

its arrangements through the DNC and charged the rooms using a

campaign official's credit card. The Committee stated that the

convention lodging also included the lodging of the campaign

official who made the advance, and that the Committee thought

since a credit card was used the reimbursement had to be made in

60 days. The Committee stated it made the reimbursement in a

timely manner 10 days after the charge was incurred.

An individual associated with the Texas

campaign advanced funds totaling $15,892, to open Tsongas for

president offices in Texas. The resultant excessive contribution

totals $14,892. We were unable to determine, based upon the

--documentat-ionavailable,_ the dat_es these expenses were incurred.

However, the Committee reimbursed these expe-nses in £1111-onFebruary 27, 1992.

The Committee had stated that it ~will adopt

the account out of which all expenditures were paid," apparently a

reference to the Texas account, and notes that no excessive

contribution exists. However, the expenses were not paid out of

the Texas account but were paid by and reimbursed prior to opening

the account discussed at Section II.

The Committee was made aware of this matter

during field work and at the exit conference. Schedules detailing

the individuals and amounts considered excessive contributions

were provided to the Committee.

The Committee responded that for the most part

the advances in question were not submitted for payment in a

timely manner, but once submitted were paid in a timely manner.

The Committee stated that its reimbursement policy provided that

no reimbursement would be made without complete and proper

documentation. In addition the Committee contends that in most

cases it was not aware of the advances made by these individuals

until the request for payment was made. The Committee submitted

schedules detailing what it felt were the excessive contributions.

Since the expenses in question were for either

travel and subsistence not reimbursed in 30 or 60 days as

appropriate or campaign related expenses and were in excess of the

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$1,000 contribution limitation the expenses constitute-excessive

contributions.

expenses,

With respect to the convention related

the Committee notes:

"The Goldman expenses represented, in part,

'usual and normal subsistence expenses incurred

by an individual, other than a volunteer, while

travelino on behalf of a candidate' See 11 CFR

116.5lbl(ll. The Audit staff apparently takes

the position that such expenses, to be exempt

from the contribution definition, must be the

expenses of the individual advancing the funds.

The Committee disagrees with this

interpretation. This phrase uses the phrase

'expenses incurred by an [emphasis in original]

individual.' A previous clause in the same

section refers to 'the individual's

transportation expe~ses.' This distinction in

phrasing indicates that different treatment was

intended for subsistence expenses. At a

minimum, this inconsistent phrasing creates an

ambiguity and provides a good-faith basis for

the Committee's position.

In any event, the proposed advance by -Mr.

Goldman was presented to and expressly approved

by members of the audit staff prior to the

payment in question. The Commission now may not

reverse its position to the Committee's

detriment. ..

The Audit staff believes the Regulations are

quite clear with respect to what is considered a contribution

under 11 CFR Sl16.5, which states if the payment is not exempted

under 11 CFR SlOO.7(b)(B), it shall be considered a contribution.

The exception is for travel and subsistence expenses incurred by

an individual for that individual's travel and subsistence. With

the exception of Mr. Goldman's lodging, which has not been

identified, the expenses are considered a contribution.

Although the Audit staff was aware that the

Committee was attending the convention, no "approval" of any

transactions the Committee was contemplating or in fact had made

ever occurred. The Audit staff did, however, inform the Committee

that any expenditures made in relation to the convention would be

considered non-qualified campaign expenses. Wlth respect to the

reimbursement, the Audit staff was unaware of the transactions

(payment by credit card and reimbursement of the expenses) until

after the fact.

In the interim audit report, the Audit staff

recommended that the Committee provide evidence to support that

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the staff advances noted above were not excessive contributions.

In response to the interim audit report, Counsel for the Committee

addressed each of the four individuals noted as having made

excessive contributions as a result of advances of funds.

For the first individual, the Committee

contends that the expenses were reimbursed promptly and well

within the Commission's time limit for the refund of all forms of

excessive contributions as set forward in 11 CFR SlD3.3. The

Committee submits that there is no justification for treating a

"contribution" resulting from an advance more strictly than other

forms of excessive contributions and denying a political committee

a reasonable opportunity to cure the potential violation by refund

or reimbursement.

For the second and third individuals, the

Committee responds that it reimbursed expenses submitted by these

individuals in an exceedingly prompt matter after being presented

with a properly documented request. The Committee contends that

the Audit staff disregarded the date that the reimbursement

request was submitted for reimbursement and has drawn the

conclusion of excessive contributions from the date on which,

unknown to the Committee, expenses appear to have been incurred.

The Committee further states that "in accordance with Committee

reimbursement procedures, no reimbursement was made until comolete

--and-proper--documentation of-expenses was provided." -

with respect to the fourth individual, the

Committee submitted an affidavit of the Business Manager which

states, in part, that he became aware that certain Tsongas

supporters in Texas had made advance payments for various

campaign-related expenditures. Although he had not authorized the

expenditures, he authorized reimbursement to be made promptly upon

learning of the advances and within ten days of receiving

notification of the expenditures. The Committee again states that

this reimbursement was within the time limits governing the refund

of excessive contributions as set forth at 11 CFR Sl03.3.

Finally, the Committee takes issue with the

Audit staff's view that "to avoid the receipt of an excessive

contribution, alleged expenses must be 'reimbursed' by a committee

in the absence of both knowledge of the expenses and sufficient

documentation from the alleged advancing party to substantiate the

amount and campaign nexus of the expenditures. In addition to

constituting frightfully unsound financial management practices,

such an approach is bound to run afoul of the Commission's

requirements for documentation of expenses as set forth at 11

C.F.R. S9033.1Ibl." The Committee further submits that it should

be given a reasonable opportunity to refund allegedly excessive

advances after being presented with appropriate documentation of

such expenditures.

The Committee has not complied with the

interim audit report recommendation. Arguments submitted

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questioning the Audit staff's treatment of advances made by

Committee staff are not persuasive. The Regulations provide

committees with a time frame for reimbursing advances made by

committee personnel for their travel and subsistence expenses.

These types of contributions are specifically addressed in the

Regulations as having their own set of time frames. Section 103.3

of Title 11 of the Code of Federal Regulations provides time

frames for committees to correspond with contributors and remedy

excessive contributions through redesignation or reattribution.

These remedies are not applicable for expenses regulated by 11

CFR §l16. 5.

Further, the Explanation and Justification for

11 CFR 5116.5,55 Fed. Reg. 26382 ( June 27,1989) states, in

part, that "an in-kind contribution will result if an individual

pays the transportation or subsistence expenses of others or pays

other types of campaign expenses, such as the costs of meeting

rooms or telephone services, regardless of how long reimbursement,

if any takes." Thus, the Regulations do not provide for an

individual to advance funds for any amount of time for ca~paign

expenses other than for personal travel and subsistence. The

Regulations require committees to form strong internal controls in

order to comply. Not allowing committee personnel to advance

funds for expenses other than travel and subsistence and requiring

proper documentation for travel and subsistence would not .. --constitute unsound -financial management. . By making. clear to__.....

Committee personnel that they can not incur expenses on behalf of

the campaign except for personal travel and subsistence, the

campaign would have even more careful control over its finances.

In the cases of an individual's personal travel and subsistence,

the Regulations provide a reasonable time period for the Committee

to receive proper documentation pursuant to 11 CFR 59033.11(b) and

to make reimbursement without a contribution occurring. In

addition, the Committee is not insulated from responsibility for

complying with 11 CFR 5116.5 simply because staff did not submit

vouchers timely. This is another case where strong internal

controls and policies should prevent this situation from

occurring.

b. Advances Made by state Offices

Section 1l6.3(a) of Title 11 of the Code of

Regulations states that a commercial vendor that is not a

corporation may extend credit to a candidate, a political

committee or another person on behalf of a candidate or political

committee. An extension of credit will not be considered a

contribution to the candidate or political committee provided that

the credit is extended in the ordlnary course of the commercial

vendor's business and the terms are substantially similar to

extensions of credit to nonpolitical debtors that are of similar

risk and size of obligation.

The Committee established an office in New

York to collect the required signatures for placement on the New

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York primary ballot. The New York office was administered by J.

Armenakis, and was housed in the basement of Mr. Armenakis' law

firm, Armenakis & Armenakis ("Armenakis"l. In addition to Mr.

Armenakis, two other paid Committee representatives worked on the

New York campaign; everyone else worked on a volunteer basis.

According to the Committee, it was recommended that the Committee

obtain 20,000 signatures; however, approximately 13,000 to 14,000

were collected which caused the Lenora B. Fu1ani for President

campaign to challenge the number of signatures in court.

A review of Committee records indicates that

the New York campaign was funded by Committee payments for

services rendered. The checks were made payable to either Mr.

Armenakis or the law firm. Based upon documentation available,

Armenakis incurred numerous expenses on behalf of the Committee

for goods and services. In total, Armenakis provided the

Committee with documentation to support expenses totaling $45,411.

Our review of the disbursement requests

submitted to the Commit~ee by Armenakis to support the expenses

incurred and the payments made by the Committee indicated that

Armenakis exceeded the $1,000 contribution limitation on different

occasions by amounts ranging from $2,980 to $22,611. The average

number of days outstanding range from 2 to 112.

ror -theseexpenses-i--the-Commi ttee--pa-id

Armenakis a total of $31,416, leaving an apparent balance of

$13,995 that remains unpaid and results in a $12,995 excessive

contribution. Included in the amount is $6,000 which Armenakis

notes in a memo to the Committee "N.Y. Telephone called today to

advise us that the latest bill (Jan. 25 - Feb. 24.) will be over

$6,000)." Armenakis has not submitted a phone bill to the

Committee for reimbursement.

with respect to the outstanding balance owed

to Armenakis the Committee contends that it has paid Armenakis in

full and that both parties agreed to the amount paid by the

Committee. The Committee stated that it had disqualified the

amount noted as payable since the expenses were not campaign

related or not sufficiently documented. With respect to the

$6,000 phone bill the Committee stated that Armenakis was

submitting for payment 9S% of the law firm's phone bill, and the

Committee refused to pay the law firm's phone bill.

With respect to the contributions arising from

advances made by Armenakis, the Committee stated that Armenakis

was not advanced money but was funded on a reimbursement basis.

The Committee stated that Armenakis kept asking for additional

funds but the Commi~tee refused to advance funds until adequate

documentation was provided to support that the expenses were

qualified campaign expenses.

In addition to the the petition drive,

Armenakis provided legal services in connection with the defense

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of the petition challenge. Armenakis billed the Committee $15,596

for the legal services plus travel expenses for the attorney who

appeared in court. According to a campaign official, Armenakis

also donated legal services in connection to the petition defense.

Given that the legal services provided are not FECA compliance

related services and therefore can not be donated, an apparent

contribution to the Committee in the amount of the normal charge

for such services occurred. However, no records were provided

that indicate the value of the donated services.

In regard to the $15,596 billed for legal

services, $596 still remains unpaid. The Committee maintains that

Armenakis was paid in full which results in a $596 in-kind

contribution from Armenakis. This in-kind contribution, when

added to the $13,995 outstanding balance noted above, results in a

total outstanding balance of $14,591 and a remaining excessive

contribution of $13,591.

Durins the period covered by this activity, it

appears that Armenakis was ~omprised of two partners, James and

Diana Armenakis.151 In accordance with 11 CFR S110.1(e), the

excessive contribution would also be an excessive contribution

from each partner. Neither of the partners made an individual

contribution to the Committee. Absent evidence to the contrary,

___i.LCiPp_e~_rs that each of the partners made an excessive in-kind

contributlon-of $6;295.50 {{ 1/2 x--$14-,591-outstanding balancel_-

$1,000 individual contribution limitationl.

In addition to the $6,000 telephone charge

mentioned above, the expenses which the Committee states comprise

the unpaid balance include charges for per diem, travel and food

for volunteers ($2,041), office expenses (copying, postage,

supplies, shipping)($2,046), catering ($800), payments, mostly to

one individual with no recorded purpose ($3,552) and miscellaneous

expenses ($150).

The Committee had no comment regarding this

matter at the exit conference. Subsequent to the exit conference,

the Committee provided the Audit staff an invoice from Armenakis

dated September 2, 1992 for "legal services, consulting and

campaign related activities as negotiated by David Goldman." The

accompanying correspondence states that the invoice "supersedes

all invoices previously sent." However, the original invoices

clearly establish that Armenakis incurred and paid expenses in

connection with its work on behalf of the campaign which remain

unpaid and which have not been the subject of a debt settlement

pursuant to 11 CFR 116.2. Therefore, the Committee has received

an apparent excessive contribution totallnq $13,591 from the

partnership and a $6,295.S0 excessive contribution from each

partner.

lSI The source of this information is the Martindale-Hubbell

Law Directory published in April, 1992.

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In the interim audit report the Audit staff

recommended that the Committee provide the following:

evidence supporting that the $14,591 noted above is not

payable to Armenakis, and $13,591 is not an excessive

contribution, or evidence that the Committee has paid

the amount due Armenakis (front and back of the canceled

check); and

evidence that the Committee did not receive a $6,295.50

excessive contribution from each partner of the law

fi rm; and

an explanation regarding any services volunteered by

Armenakis with respect to the legal defense of the

Lenora B. Fulani for President challenge and a billing

statement prepared by Armenakis detailing the services

provided and the cost of such services.

In response to the interim audit report,

counsel for the Committee states:

"It is the Committee's position -- and that of the

law firm -- that the law firm has been paid in

··---fulL-The_reim1:>~r!i~.!Uerlt__ request submi t ted by the

law firm contained chargesfor--expeoses that were

not discernibly campaign-related or did not

reflect a rational allocation of overhead items,

such as telephone charges, between the campaign

and the ongoing business of the law firm.1S/

[Footnote 1SJ - "As the Interim Report notes, the

expenses disallowed by the Committee included

approximately $3,500 of payments to an individual

with no recorded purpose. Interim Report Page 23.

"After being advised that the Committee considered

certain of the documentation unacceptable, the law

firm sent a revised invoice, dated September 2,

1992 reducing the amount sought for reimbursement.

The Audit staff apparently concludes that the

reduction in the amount sought represents a

subsidy to the Committee by the law firm. Rather,

the reduction was a recognition that the original

request was inappropriate. Commission regulations

recognize that a creditor and a political

committee are entitled to agree on a revaluation

of a disputed obligation without a political

contribution by the creditor resulting. See 11

C.F.R. Sl16.10. The Audit staff does not set

forth any justification for disregarding the

arms-length resolution of this disputed debt, nor

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identify any particular allegedly unreimbursed

expense that it considers to be campaign-related.

"The Committee is unaware of the basis of the

reference by the Audit staff to alleged legal

services volunteered by the New York law firm and,

thus, is unable to respond to this issue. The

Committee notes, however, that even if such

services were volunteered, Commission advisory

opinions provide substantial latitude for the

donation of legal services by law firm partners

without a contribution resulting. See Advisory

Opinion Nos. 1979-58, 1980-107. Although the

Committee did encourage the provision of volunteer

services, it did so with the expectation that any

volunteer attorneys would assist the campaign in a

manner consistent with their other professional

and employment obligations and in accordance with

the FECA and regulations."

The Committee has not complied with the

recommendation contained in the interim audit report. The

Committee's response does not contain adequate documentation and

explanations to demonstrate that an excessive contribution did not

occur. The Committee has not provide a persuasive argument that

---the--expenses-submittedwerenot_ c~]lIpaign rE!lated . Armenakis ran

the New 'fork campaign and naturally incurred expens-es- o-i1tne---

Committee's behalf. The Audit staff believes that the original

invoices submitted by the firm indicates that expenses were

incurred without receiving full reimbursement. It is further

noted that the invoice from Armenakis which supposedly supersedes

all other invoices is dated subsequent to the conclusion of audit

fieldwork during which the Committee was notified of this apparent

excessive contribution. The Committee stated that the original

documentation was insufficient and the payment was reduced

accordingly. However, the Committee did not address specifically

the $6,000 in telephone charges, the $2,041 in per diem, travel

and food for volunteers, the $2,046 in office expenses, the $800

for catering, the $3,552 with no recorded purpose, or the $150 in

miscellaneous charges which the Committee did not pay. No

information was prOVided to demonstrate that the items were not

expended on behalf of the Committee which results in an in-kind

contribution by the law firm.

The Audit staff regrets that Committee

representatives do not recall the conversation concerning the

apparent donation of legal services. The Advisory Opinions noted

by the Committee relate to law partners working for a campaign and

continuing to be paid by its firm. They do not address the

donation of legal services. The donation of legal services is

regulated by 11 CFR §lOO.7(b)(l4). As noted previously, the legal

services apparently provided by Armenakis would not be considered

exempt activity under that regulation.

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B. Misstatement of Financial Activity

section 434(b) of Title 2 of the United States Code

states, in relevant part, that each report shall disclose the

amount of cash on hand at the beginning of the reporting period

and the total amount of all receipts and disbursements received or

made during the reporting period and the calendar year.

The Audit staff's reconciliation of the committee bank

accounts to its disclosure reports filed from inception through

April 30, 1992, indicated a material misstatement of financial

activity in both 1991 and 1992. The differences are discussed

below.

1991

For 1991, reported receipts were understated by

$705,779; reported disbursements were understated by $860,917; and

reported ending cash was overstated by $155,138.

The misstatement of receipts occurred primarily as a

result of the Committee not reporting $710,662 in loans,

contributions from individuals and other receipts deposited into

the Andover Account (see Section II.); and a reconciling item

_t.Qt_~~i_ng $4,883.

The misstatement of disbursements was pd.mail1y-the---

result of unreported disbursements from the Andover Account of

$709,118; varied unreported disbursements from the operating,

payroll, and advertising accounts totaling $98,519; unreported

payroll for the 4th quarter totaling $55,779; disbursements

reported either incorrectly or not supported by check or other

debit advice totaling $2,302; and a reconciling item totaling

$197.

1992

Through April 30, 1992, reported receipts were

understated by $371,382; reported disbursements were understated

by $607,367; and reported ending cash on hand was overstated by

$391,123.

As discussed at Finding IV.B .• the Committee utilized

American Express Travel Management Services ("Amex"l as their

travel agent. Amex arranged chartered aircraft and ground

transportation for the Committee, and billed the Press and U.S.

Secret Service for their transportation and other costs associated

with their travel. The Committee was generally billed for the

cost of the trip plus 10% and any amounts received from the Press

and Secret Service as reimbursement were credited to the

Committee'S account. This procedure understated both the

Committee's receipts and disbursements by the amount recovered

from the Press and Secret Service. Also, the schedules A-P which

should have identified the Press organizations and Secret Service

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that were the source of the receipts and schedules B-P which

should have disclosed the payee of the disbursements were not

filed. As of April 30, 1992, the Press and Secret Service had

paid $306,75816/ to Amex for charter services which had been

credited to the Committee'S account.

The remaining misstatement of receipts occurred as a

result of not reporting a $42,000 return of funds from Mr. Rizzo

in January of 1992 (see Section II.); not reporting the deposits

of contributions into both the Andover Account ($8,647) and the

Texas account ($10,241); improperly reporting $4,300 in NSF

contributor checks; and the unreported receipt of contributions,

and refunds and rebates totaling $8,036.

The remaining misstatement of disbursements was

primarily the result of unreported disbursements from the

operating account totaling $103,912; unreported March

disbursements made from the advertising account totaling $405,728;

March payroll not reported totaling $32,177; other unreported

disbursements from the advertising and payroll accounts totaling

$24,001; service charges not reported totaling $7,969; incorrectly

reporting the amount of checks on the disclosure reports totaling

$283,869 (net), which includes a check for $30,005 being reported

as $300,005; unreported disbursements from the Andover Account

totalJ.1l9__$9,896; an unreported payment to Mr. Rizzo of $42,000;

unreported-dTsbu-r-sements-from the Texas account of $10,045; _

duplicate reporting of expenditures totaling $74,056; checks

written in 1991 and reported in 1992 totaling $75,748; April, 1992

checks totaling $54,273 and reported in May, 1992; addition errors

in the Committee's March 1992 disclosure report totaling $27,475;

unreported wire transfers of $57,761; the improper reporting of

checks that have been voided in the amount of $44,099; and a

reconciling item of $3,144.

The Committee was provided with schedules detailing the

misstatements during audit fieldwork, and again at the exit

conference. In response the Committee provided an amendment for

1991, which materially corrected the misstatement except for the

Andover Account and was received on September 14, 1992. The

Committee also provided an amendment for 1992 on January 21, 1993

which materially corrected the misstatement.17/

16/

17/

Amounts received from the Press and the Secret Service

between May 1, and July 2, 1992, total $129,967. As with the

earlier transactions the associated receipts and expenditures

were not reported by the Committee although the amounts

relating to the earlier period were included on amended

disclosure reports.

The Committee did not disclose the activity from the

Andover Account. However, the activity in the account

for 1992 was limited and the reports were materially

corrected without reporting the activity.

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In the interim audit report, the Audit staff recommended

that the Committee amend its 1991 reports to include the activity

from the Andover Account.

In response to the interim audit report, Counsel for the

Committee states:

"The Interim Report recommends that the Committee

amend its 1991 reports 'to include the activity

from the Andover Account.' The Audit staff's

recommendation is not specific as to the manner

in which the 'activity' is to be included. The

Committee is prepared to submit a comprehensive

amendment to its 1991, 1992. and 1993 reports to

reflect a receivable from Nicholas Rizzo in the

amount of the contribution checks (other than

loans) that he failed to forward to the

Treasurer. The amendment will contain as an

exhibit the list of contributors and amounts of

contributions so that there is full public

disclosure of the intended financial supporters

of the presidential candidacy of Paul Tsongas.

"The proposed amendment also will contain a - --ae-Sclriptive-footnotewiththe _followingtE!xt_: _

This figure represents amounts due to the

Committee from Nicholas A. Rizzo, former

fundraising consultant to the Committee.

This amount is calculated to include

contributions intended for the Committee

received by Mr. Rizzo during 1991 and 1992,

but not forwarded to the Committee as

required by applicable law. A schedule of

the contributions comprising this amount,

compiled by the Audit staff of the Federal

Election Commission, is attached as Exhibit

1 to this report. Mr. Rizzo has been

ordered to make restitution of these funds

to the Committee as part of a sentence

imposed by the United States District Court

for the District of Massachusetts.

This reporting treatment is fully consistent with the

disposition in U.S. v. Rizzo, in which Mr. Rizzo

admitted that he 'failed to forward or caused others

to fail to forward contributions ... and failed to

properly deposit contributions.'

"The amendment also would reflect an 'other

disbursement' denoting that the Rizzo receivable is

not collectible. This entry will carry the following

explanatory footnote:

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This figure represents amounts due to the

Committee from Nicholas A. Rizzo that the

Committee has concluded, in the exercise of

its considered judgment, are uncollectible.

Despite numerous requests and demands on

Mr. Rizzo since July of 1992, he has not

provided any payment or reasonable prospect

of full or partial payment. Information

received by the Committee, as well as

representations by Mr. Rizzo's counsel to

the federal court in u.s. v. Rizzo

indicates that Mr. Rizzo is without the

means to make this repayment.

"The amendment also will reflect a further account

payable to Nicholas A. Rizzo representing the excess of

campaign-related expenses either paid out of the

Andover account or paid by Mr. Rizzo in some other

manner over the amount of such expenses previously

reimbursed to Mr. Rizzo but subsequently determined to

be unreimbursable. This balance, based on the figures

contained in the Interim Audit Report, is $47,028.

"The Committee does not believe that the amendment

shoulaTist--the--' loans' -received- by Mr. Rizzo_

fraudulently obtained using the Committee's name. As

noted above, the federal court in u.s. v. Rizzo

directed that Kr. Rizzo repay these loans directly to

the lenders and not to the Committee.

"To the extent that the Audit staff recommends that the

Committee report the individual contributions to and

disbursements from the Andover account in a manner as

if they had been made to or from the Committee's

authorized account, the Committee disagrees with the

legal and factual predicate of that recommendation for

the reasons outlined above."

As noted previously, the Andover Account is considered

an account of the Committee and the transactions routed through

the account should be reported accordingly. Further, although the

individual contributions deposited into the Andover Account were

misappropriated by Mr. Rizzo, they were nonetheless received by

the Committee through its authorized fundraising agent. It is

also noted that the amended reports described in the Committee

response have not been filed.

IV. Findings and Recommendations - Repayment Issues

A. Calculation of Repayment Ratio

Section 9038(b)(2)(A) of Title 26 of the United States

Code states that if the Commission determines that any amount of

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any payment made to a candidate from the matching fund payment

account was used for any purpose other than to defray the

qualified campaign expenses with respect to which such payment was

made it shall notify such candidate of the amount so used, and the

candidate shall pay to the Secretary an amount equal to such

amount.

Section 903B.2(b)(2)(iii) of Title 11 of Code of Federal

Regulations states that the amount of any repayment sought under

this section shall bear the same ratio to the total amount

determined to have been used fer non-qualified campaign expenses

as the amount of matching funds certified to the candidate bears

to the total amount of deposits of contributions and matching

funds, as of the candidate's date of ineligibility.

Pursuant to 11 CFR S9033.5(a), the Commission determined

Senator Tsongas' date of ineligibility to be March 19, 1992.

The formula and the appropriate calculation with respect

to the Committee's receipt activity is as follows:

Total Matching Funds Certified Through

The Date of Ineligibility - March 19, 1992

Total Deposits Through The Date of Ineligibility

$745,741.78

$745,741.78 + $4,513,881.64 .141186 .

'F:

Thus, the repayment ratio for non-qualified campaign

expenses is 14.1786%.

In response to the interim audit report, Counsel for the

Committee states that "[t]he Committee agrees with the repayment

ratio as calculated. The Committee does emphasize, however, that

if the Audit staff persists in laboring under its erroneous

impression that the Andover account is a Committee account and

that expenditures from that account are subject to repayment under

26 U.S.C. S9038(b)(2)(A), then the deposits into the Andover

account must be added into the denominator of the repayment

formula, with the ratio reduced accordingly."

The Audit staff notes that the activity from the Andover

Account was included in the determination of the repayment ratio

contained in the interim audit report and above.

B. Press and U.S. Secret Service Billings

Sections 9034.6(a), (bl and (0) of Title 11 of the Code

of Federal Regulations state, in part, if an authorized committee

incurs expenditures for transportation, ground services and

facilities (including air travel, ground transportation, housing,

meals, telephone service, and typewriters) made available to media

personnel, Secret Service personnel or national security staff,

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such expenditures will be considered qualified campaign expenses.

If reimbursement for such expenditures is received by a committee,

the amount of such reimbursement for each media representative

shall not exceed the media representatives pro rata share of the

actual cost of the transportation and services made available. A

media representative's pro rata share shall be calculated by

dividing the total cost of the transportation and services by the

total number of individuals to whom such transportation and

services are made available. For purposes of this calculation,

the total number of individuals shall include committee staff,

media personnel, Secret Service personnel, national security staff

and any other individuals to whom such transportation and services

are made available. The total amount of reimbursements received

from a media representative under this section shall not exceed

the actual pro rata cost of the transportation and services made

available to that media representative by more than 10%.

The Committee may deduct from the amount of expenditures

subject to the overall expenditure limitation of 11 CFR 9035.l(a)

the amount of reimbursements received in payment for the actual

cost of transportation and services. This deduction shall not

exceed the amount the committee expended for the actual cost of

transportation and services provided. The committee may also

deduct from the overall expenditure limitation an additional

amount of reimbursements received equal to 3% of the actual cost

------of-transportation-and -services_pro\1idecl\.mCle_L_th~ssection as the

administrative cost to the committee of providing sue}'1 services--

and seeking reimbursement for them. If the committee has incurred

higher administrative costs in providing these services, the

committee must document the total cost incurred for such services

in order to deduct a higher amount of reimbursements received from

the overall limitation. Amounts reimbursed that exceed the amount

actually paid by the committee for transportation and services

provided under paragraph (a) of this section plus the amount of

administrative costs permitted by this section up to the maximum

amount that may be received under paragraph (b) shall be repaid to

the Treasury. Amounts paid by the committee for transportation,

services and administrative costs for which no reimbursement is

received will be considered qualified campaign expenses subject to

the overall expenditure limitation.

For purposes of this section, "administrative

costs" shall include all costs incurred by the committee for

making travel arrangements and for seeking reimbursements, whether

performed by committee staff or independent contractors.

1. Press Billings

The Committee utlllzed American Express Travel

Management Services ("Amex") as their travel agent. Amex

chartered six trips for the Committee which were made between

February 19, and March 18, 1992. In addition to arranging the

chartered aircraft, ground transportation, lodging and catering,

Amex provided the following: on plane personnel to track the

Page 62

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Press passengers, billed the media and Secret Service for their

travel, provided collection services, and applied the remittances

to the Committee's account.

Amex provided for our review flight manifests,

records of the air and ground costs, and in some instances

catering costs associated with each trip. To the total trip cost

Amex applied a 20% markup and divided this cost by the total

number of Committee, Press and Secret Service passengers. The

Amex personnel aboard the flight were not included in the

passenger count for purposes of the pro rata calculation. This

pro rata share was then billed to the Press passengers. Amex

billed the Press $402,850 for the six trips taken. As of July 2,

1992, $382,058 had been collected from the Press.18/

According to the Committee, half of the 20% markup

charged by Amex is part of the actual cost of the service and is

therefore billable to the Press and the Amex personnel should not

be included in the passenger count. The Committee provided the

following written explanation regarding the Amex billings:

"Services prOVided for by Amex as travel agent

should be considered a charge as is usual in

business practices. The Amex representative who

traveled on the plane was facilitating the use of . -the--plane formedia, ..US. Secr.etService..and for

committee passengers. The Amex representative's

role in the plane was to provide services and not

as a recipient of such. Amex is not in the

business of prOViding free services. If Amex

were to be asked to pay for a % of costs, it

would in effect be paying to provide free

services.

"Amex calculated a mark up of 10% for the media

passengers.

"For easy computation, Amex used a 20% figure in

its workpapers. This 20% [was] comprised of a

10% commission charged by Amex to all passengers

and a 10% mark up requested by the Committee

charged to media. By Committee's computation,

the traveling Press pro rata totals $384,073.33.

The Committee 10% mark up allowed a billable

l

18/ The amount which could be verified as of this date was

$382,058. The Committee's disclosure reports do not

disclose any subsequent receipts from the press. In the

Committee's response to the exit conference, they state

that they received $389,410. No documentation was

prOVided to support this number. Therefore, the Audit

staff has used $382,058 in performing its review and

calculations.

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amount of $422,481.14. A recovery rate of 103%

yields $395,592.52. Since only $389,410.30 has

been received from the Press, the Committee has

not yet reached the level where it is obliged to

pay the US Treasury."

The Committee also provided a letter from Amex

stating that "the traveler was charged the net cost, plus a 10%

commission, due to American Express, which is an industry

standard, and a 10% Administrative fee as you had requested us to

charge."

The Commission's regulations provide that only a

10% mark up on the actual cost of transportation and services may

be billed to the Press and that tte total number of passengers on

the plane must be used in determining the pro rata share per

passenger. The Audit staff prepared a revised Press billing by

Flight/Leg number for each trip. Our review indicated that the

pro rata cost of the Press for these flights totals $333,542.20.

The maximum amount billable to the Press (110% of cost) totals

$366,896.

Based on our review it appeared that, in most

cases, Arnex billed the Committee the amounts reflected on the

charter manifests for the trips plus 10%. The 10% markup is

-c-o-n-srdete-d--an -administrativefee -paid-by the -Commit tee. Also,- the_> _

pro rata cost of the Arnex personnel who traveled on the aircraft (

is considered an administrative cost to the Committee. As a

result the Committee incurred administrative costs in excess of

10% of actual costs and may collect up to the maximum billable

amount (110% of cost) without incurring any repayment obligation.

However, these administrative costs do not permit the Committee to

bill or receive more than 110% of actual cost.

As noted above, $382,058 has been reimbursed by

the Press; and based upon the total amount billed, $21,412

remained uncollected as of July 2, 1992. However, the amount

received as of July 2, 1992, represents $15,162 ($382,058 -

366,896) in excess of the maximum billable amount. This amount is

included on the Committee's Net Outstanding Campaign Obligations

as an accounts payable to the various Press organizations the

Committee over billed during the campaign.

2. U.S. Secret Service Billing

The Secret Service accompanied the Candidate on a

portion of trip five and on trip six. The total amount billed for

these trips was 549,129. of which the Secret Service reimbursed

$49,567. Based upon the billing statement provided by Amex it

appears that the Secret Service was billed the lesser of first

class air fare or pro rata cost as calculated by Amex (including a

10\ markup). In addition, no amount was billed for trip 6 leg 11 [

for which the flight manifest reflects 9 Secret Service

passengers.

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We prepared a schedule based upon actual

transportation cost for the flights on which the manifests reflect

Secret Service passengers including the flight not billed. We

calculated a billable amount of $45,096 for the lesser of first

class or pro rata cost. This amount is $4,471 ($49,567 - 45,096)

less than the amount received from the Secret Service by the

committee. This amount ($4,471) is shown on the Committee's

statement of Net Outstanding Campaign Obligations as payable to

the Secret Service.

At the exit conference the Committee stated the

Amex had reached an agreement with the Secret Service on the

amount to be billed for the Secret Service passengers.

In the interim audit report, the Audit staff

recommended that the Committee provide evidence that it did not

over bill the Press. Absent such evidence the Committee should

refund to the Press $15,162 and provide photocopies of the

negotiated refund checks (front and back); and provide

documentation to support the calculations of the amount paid to

each Press organization. In addition, any amounts received after

July 2, 1992, should also be refunded. With respect to the Secret

Service the Committee should provide evidence that the Secret

service was not over billed or refund $4,471 to the U.S. Secret

-----Service and- provide -documentation of su_ch refund.

In response to the interim audit report, Counsel

for the Committee states that the correspondence from the travel

agent confirms that its ten percent commission Mis an industry

standard" and is part and parcel of the cost to the Committee of

the travel arrangements in question. The Committee asserts that

it could not have received the services without paying that

commission. Further, the Committee states that the commission

does not defray the Committee's administrative costs and that by

preventing the Committee from charging an administrative fee, the

Audit staff fails to compensate the Committee for media

organizations that did not pay their full share. In addition, the

Committee quotes an article in Travel Weekly magazine which it say

supports the Committee's position that commissions are not an

administrative fee. With respect to the U.S. Secret Service

billings, the Committee states that it is their understanding that

the secret Service has agreed with the Committee's tra.el agent

that no further refund is due.

With respect to the article in Travel Weekly, it is

noted that the article describes one of the other Presidential

campaigns in which a travel agency was used. The author of the

article purports to explain federal law. However, even if

Commission policy was influenced by articles from magazines, the

quote used by the Committee does not apply to the above discussion

concerning commissions or administrative costs. In addition, two

distinctions can be drawn between this Committee and the one

described in the article. First, the committee described in the

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article paid the charters directly and the travel agent only

billed and collected from the press and Secret Service. Second,

the commissions paid to the travel agent were considered by the

committee as an administrative expense.

The Committee's argument that the commission paid

to the travel agent is part of actual cost is not persuasive.

That commission represents administrative costs incurred by the

Committee for the travel agent's efforts in arranging travel and

seeking and collecting reimbursements from the media and Secret

Service. As explained earlier, the Commission's regulations make

it clear that these administrative costs cannot be converted to

actual cost of the transportation provided simply by paying a

vendor to provide the service rather than the Committee performing

the work in house. In addition, the argument that this treatment

prevents the Committee from recovering costs for press

organizations that did not pay their full share is moot. The

administrative allowance and the lO% allowable mark up is not

intended to permit a committee to bill paying press for those who

do not pay. As noted above, the Committee received in excess of

the actual costs of the trips plus the 10% markup provided for in

the Regulations. Finally, the Committee has continually stated

that the Secret Service and Amex agreed on the amount billed to

the Secret Service. However, the information provided to the

Secret Service contained a 10% markup on the actual cost figures

--EfiI,-r-e-s-sed--as--pa rt--or- actual--cost. ---'I'h-e reisno indica tion.that._

based on actual cost figures, the Secret Service agrees with what

they have been billed.

Recommendation 12

The Audit staff recommends that the Committee be required to

refund the Press $15,162 and refund the Secret Service $4,471 and

prOVide photocopies of the negotiated refund checks (front and

back) .

-:;:s{~~ " ,~

C. Apparent Non-Qualified Campaign Expenses

Section 9032(9) of Title 26 of the United States Code

defines, in part, the term -qualified campaign expense- as a

purchase or payment incurred by a candidate or his authorized

committee made in connection with his campaign for nomination

which neither the incurrence of nor payment of which constitutes a

violation of any law of the United States or of the state in which

the expense is incurred or paid.

Section 9038.2(b)(2) of Title 11 of the Code of Federal

Regulations states, in relevant part, that the Commission may

determine that amounts of any payments made to a candidate from

the matching payment account were used for purposes other than to

defray qualified campaign expenses. The amount of any repayment

under this section shall bear the same ratio to the total amount

determined to have been used for non qualified campaign expenses

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as the amount of matching funds certified to the candidate bears

to total deposits, as of the candidates date of ineligibility.

1. Committee payments to Benco, Nicholas Rizzo

and Steve Joncas

As noted in Section II.A., we reviewed payments

made by the Committee to Benco, Nicholas Rizzo, and Steve Joncas.

Of the total amount paid, $35,118 was discovered to be for either

non campaign related expenses or qualified expenses which were

paid more than once. This amount represents non-qualified

campaign expenses. Attachment VI is a schedule detailing these

payments.

Additionally, Mr. Rizzo submitted an expense

voucher in the spring of 1992 which contains approximately $57,100

in qualified campaign expenses. The $35,118 noted above has been

offset against the $57,100 of qualified campaign expenses. As a

result, it is our opinion that the Committee has recovered the

non-qualified campaign expenses. Therefore, no repayment is

recommended.

2. Democratic Convention

From a review of selected disbursements, the Audit

-staff identified--34-payments- totaling $74,531, Which, based upon

documentation provided by the Committee, were for expenses

relating to the Candidate and Committee personnel's attendance at

the Democratic National Convention held in New York City. These

expenses were incurred after the date of ineligibility and

therefore are non-qualified campaign expenses.

At the exit conference, Committee representatives

were provided with a schedule detailing these items.

In the interim audit report, the Audit staff

recommended that the Committee submit documentation which

demonstrated that the expenses noted above are qualified campaign

expenses. Absent such a demonstration, the interim audit report

stated that the Audit staff would recommend that the Commission

make an initial determination that the Committee make a pro rata

repayment of $10,567 (74,531 x 14.1786%) to the u.s. Treasury

pursuant to 26 U.S.C. S9038(b)(2}.

In response to the interim audit report, Counsel

for the Committee states that "the Committee does not contest the

repayment required for disbursements relating to the Democratic

Convention. Although the Committee considers that valid arguments

exist that such disbursements are qualified campaign expenses, the

Committee recognizes that the Commission previously has rejected

these arguments in the context of other audits."

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Recommendation 13

The Audit staff recommends that the Commission make an

initial determination that the Committee is required to make a pro

rata repayment of $10,567 ($74,531 x 14.1786%) to the U.S.

Treasury pursuant to 26 U.S.C. S9038(b)(2).

3. Undocumented Expenditures

Section 9038.2(b)(31 of Title 11 of the Code of

Federal Regulations states the Commission may determine that

amount(s) spent by the candidate, the candidate's authorized

committee(s), or agents were not documented in accordance with 11

CFR 9033.11. The amount of any repayment sought under this

section shall be determined by using the formula set forth in 11

CFR 9038.2(b)(2)(iii).

Section 9033.11 (a), (b), and (c) of Title 11 of

the Code of Federal Regulations states, in part, that each

candidate shall have the burden of proving that disbursements made

by the candidate or his authorized committee(s) or persons

'. authorized to make expenditures on behalf of the candidate or

committee(s) are qualified campaign expenses. Documentation for

qualified campaign expenses shall include, for disbursements in

'. excesfif'6E$200,- a-receiptedbi-ll--frOlll'the-payee-tha t··states-thepurpose of the disbursement or, a canceled check negotiated by the

~. payee and a bill, invoice, voucher, or contemporaneous memorandum

from the candidate or committee that states the purpose of the

disbursement. Where the documents specified are not available, a

voucher or contemporaneous memorandum from the candidate or the

committee that states the purpose of the disbursement; or if

neither a receipted bill nor the supporting documentation is

available, a canceled check negotiated by the payee that states

the purpose of the disbursement. Where the supporting

documentation required is not available, the candidate or

.~ committee may present a canceled check and collateral evidence to

document the qualified campaign expense. Such collateral evidence

may include but is not limited to: Evidence demonstrating that

the expenditure is part of an identifiable program or project

which is otherwise sufficiently documented such as a disbursement

which is one of a number of documented disbursements relating to a

campaign mailing or to the operation of a campaign office;

evidence that the disbursement is covered by a pre-established

written campaign committee policy, such as a daily travel expense

policy. For disbursements of $200 or less a canceled check

negotiated by the payee that states the payee, date, amount and

purpose of the disbursement. All records shall be kept for a

period of three years pursuant to 11 CFR l02.9(c).

Section 102.9(c) of Title 11 of the Code of Federal

Regulations states, in part, the treasurer shall preserve all .

records and accounts required to be kept for three years after the f

report to which such records relate is filed.

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During the review of documentation from the

Committee's Andover Account (see Section II.), the Audit staff

identified 68 disbursements, totaling $693,212, which do not

appear to be campaign related and/or are not adequately

documented.

The undocumented disbursements appear to relate to

Mr. Rizzo. There were 40 disbursements totaling $621,215 made

payable to either Mr. Rizzo or Benco. There is no indication that

either he or Bence was owed this amount. Also, there were 15

payments, totaling $50,004, to various banks which Committee

believed to be payments on personal obligations of Mr. Rizzo.

Responses from subpoenas have been received from all of these

banks and indicate that Mr. Rizzo had obligations at some but not

all of these banks (see Section II.). Finally, there were 13

payments totaling $21,993 which do not appear to be campaign

related. If any of the funds are recovered from Mr. Rizzo or are

shown to be for qualified campaign expenses, the undocumented

amount will be reduced accordingly.

In the interim audit report, the Audit staff

recommended that the Committee submit documentation which

demonstrated that the expenses noted above were qualified campaign

expenses or that the amounts had been recovered from Mr. Rizzo. --Abs-ent-such-a-demons~rat-ion,--theinterim audit report stated _that

the Audit staff would recommend that the Commission make an

initial determination that the Committee make a pro rata repayment

of $98,288 (693,212 x 14.1786%) to the U.S. Treasury pursuant to

26 U.S.C. S9038(b)(2).

In response to the interim audit report, Counsel

for the Committee states that Wthe Committee does not contest that

$693,212 of disbursements from the Andover account would be

considered undocumented and/or non-qualified disbursements if made

from the Committee's account. The Department of Justice and

Internal Revenue Service apparently traced most of the

expenditures to banks, bookies and casinos, all lacking any nexus

to the campaign.

"The Committee does contest the Audit staff's

position that undocumented or non-qualified disbursements from the

Andover account may trigger a repayment obligation from the

Committee. The factual premise of the Committee's position is

simple. No one has contended that a nickel of federal matching

funds was deposited into the Andover account, nor was there any

transfer of funds from the Committee's matching fund accounts into

the Andover account.

"In Kennedy for President Committee v. Federal

Election Commission, the United States Court of Appeals squarely

rejected the Audit staff's position here. In Kennedy, the court

held that 26 U.S.C. S9038(b)(2) creates a repayment obligation

only if it is determined 'that matching fund payments were used

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for unqualified purposes, and expressly limits the repayment

obligation to 'such amount,' i.e., the amount of matching funds

'so used." The repayment required here is in no sense 'a

reasonable determination that the repayment sum represents the

matching funds used for unqualified purposes.' To the contrary,

requiring the Committee to 'repay' anything from the Andover

account is wholly arbitrary, punitive, and entirely without

statutory or regulatory foundation."

The Committee's response does not address the

fact that in Kennedy v. FEe, the Kennedy campaign proposed that

its repayment be calculated by "multiplying the total amount of

[non]qualified expenditures by the proportion of matching funds to

total campaign funds." In addition, the court maintained that the

FEC should not be bound by the Kennedy campaign'S proposed

repayment formula but should have discretion "in formulating a

proper method for calculating the amount of unqualified campaign

expenditures attributable to matching fund sources." Subsequent

to this case, the Commission revised the Regulations to address

this matter.

The Explanation and Justification for 11 CFR Part

9038 contained in the Federal Register, Vol. 50. No. 46 dated

Friday, March 8, 1985 states that "in accordance with the court's

order, the Commission has revised its regulations which currently

requYre-repayment of the tot;al-amountspent on non-qualiU~d_._

campaign expenses. The revised regulations implement a pro-rata

formula based on the proportion of federal funds to total funds

received by the candidate. The amount of any repayment sought

would then be a similar proportion of the total amount spent on

non-qualified campaign expenses ... The use of such formulas is

consistent with the court's opinion, which does not require a

mathematically precise determination of the amount of the Federal

funds spent improperly but only a reasonable determination of the

amount of Federal matching funds so used."

Thus, the qualified campaign expense test and

repayment is applied to all accounts of a Committee from beginning

to a point when no matching funds are left. This includes

accounts which may never contain matching funds or did not at the

time of the expenditure. All funds of a Committee, regardless of

where they are kept, are considered a mixed pool of private and

federal funds. Finally, the Andover Account is considered to be

an account of the Committee.

Recommendation #4

The Audit staff recommended that the Commission make an

initial determination that $98,288 ($693,212 x 14.1786%) was

repayable to the U.S. Treasury pursuant to 26 u.s.c. §9038(b)(2).

However, after considering the circumstances surrounding this

matter, on December 8, 1994, the Commission decided not to seek a I

repayment.

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D. Determination of Net outstanding Campaign Obligations

Section 9034.5(a) of Title 11 of the Code of Federal

Regulations requires that within 15 days after the candidate's

date of ineligibility, the candidate shall submit a statement of

net outstanding campaign obligations which contains, among other

items, the total of all outstanding obligations for qualified

campaign expenses and an estimate of necessary winding down costs.

Senator Tsongas' date of ineligibility was March 19,

1992. The Audit staff reviewed the Committee's financial activity

through August 31, 1992, analyzed winding down costs, and prepared

the Statement of Net Outstanding Campaign Obligations ("NOCO") as

of April 30, 1992. In addition, a limited review of Committee

transactions and disclosure reports filed through June 30, 1994,

was conducted for purposes of reviewing winding down costs and

determining the Committee's remaining matching fund entitlement.

The Committee disagreed with the NOCO contained in the

interim audit report for four reasons. Counsel for the Committee

states,

"First, the Committee disputes that the loans to Mr.

Rizzo generate either an account receivable or an

account payable.-.•the _Committee bel_ieyesthata

receivable from Mr. Rizzo is uncollectible ... the

Committee disputes the amount payable to the Treasury

for excessive contributions and the amount owed to the

press... Finally, in light of the extreme position

adopted by the Audit staff in the Interim Audit Report

and the Commission's determination in Advisory Opinion

No. 1993-15 that legal fees incurred by the Committee

in connection with the investigation and prosecution of

Mr. Rizzo are required to be paid with funds subject to

the Act, anticipated wind down legal fees have

increased substantially and, with that increase, a

corresponding increase in fundraising costs."

The Audit staff noted in the interim audit report that a

determination would be made concerning the collectibility of the

receivable from Mr. Rizzo. On October 13, 1993, Mr. Rizzo was

sentenced to 52 months in prison, an $825 special assessment, and

a restitution amount of $899,000. The court limited the

restitution order to five years and acknowledged that Mr. Rizzo

had limited funds with which to make the restitution. The court

stated, in part, "that restitution order will continue for a

period of five years from this day, and thereafter it will expire,

unless the government can show that you have some funds to pay.

Another reason I do that is because, I think, as Mr. McCann said,

five years from now, when you come out, if you are going to be

productive -- you will have every chance of being productive -- it

seems to me you will be punished sufficiently and that you ought

to have the opportunity to face life without that

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several-hundred-thousand-dollar debt hanging over your'head." The

Audit staff agrees that the account receivable from Mr. Rizzo

relative to the Andover Account appears to be uncollectible.

Accordingly, the Audit staff has recognized an allowance for the

uncollectible amount on the NOCO statement.

In addition, the estimated wind down amounts provided by

the Committee extend through June 30, 1996. The Audit staff used

the numbers provided by the Committee and did not attempt to

verify the reasonableness of the numbers. As can be seen on the

following NOCO statement, due in part to the uncollectibility of

the receivable from Mr. Rizzo, the Committee would have a deficit

and would not have received matching funds in excess of

entitlement even if no estimated wind down was included on the

NOCO. With respect to the Committee's other two objections, the

Audit staff does not agree as discussed in prior findings in this

report. The Committee's updated NOCO statement appears below:

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THE TSONGAS COMMITTEE, INC.

Audit Analysis of April 30, 1992 NOCO Statement

Assets

r, '

Cash

Accounts Receivable ~I

Capital Assets

Accounts Receivable from

Mr. Rizzo bl

Allowance for-Uncollectible

Amount from Mr. Rizzo

TOTAL ASSETS

Obligations

Bank Loan Payable

Loan Payable to Candidate

Accounts Payable for Qualified

Campaign Expenses al

Loans Payable to Individuals £1

Amounts Payable to U.S. Treasury ... ·for·-Exc~ssive- Contti-butions.

Amount OWed to the Press

Amount OWed to the Secret Service

$312,401

191,954

7,701

$909,263

(909,263)

-0-

$858,279

45,000

1,452,120

729,000

64,.163.

15,262

4,471

$ 512,056

Winding Down Costs (5/1/92-6/30/96)

Actual Wind down Expenses Paid ~/

(5/1/92-6/30/94)

Estimated Wind down Expenses

(7/1/94-6/30/96)

Rent $13,028

Telephones 1,988

Office Equipment 1,429

Computer Lease 2,057

Salaries 12,942

Legal Fees 157,135

Fundraising 48,569

Total Estimated Wind down

TOTAL OBLIGATIONS

NOCO (Deficit) I Surplus

Page 73

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659,732

237,148

$4,065,175

($3.553,119)
-70-

Footnotes to NOCO

This amount includes amounts reported on Committee

disclosure reports after audit fieldwork.

This amount consists of all loans from individuals plus all

receipts from individuals deposited into the Andover

Account less the principal amount of the loans repaid by

Mr. Rizzo personally and less campaign related expenses

which were paid from the Andover Account.

This amount excludes the $65,000 repaid from Mr. Rizzo's

personal account. It is recognized that at this time the

Committee does not have the funds available to make these

payments nor is it anticipated that funds will be available

in the foreseeable future.

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From May 1, 1992 until August 2, 1993 (the last date of

receipt of matching funds) the Committee received $398,838 in

private contributions and $1,910,592 in matching funds. Thus, the

Committee would have been entitled to an additional $1,243,745

($3,553,175 - $398,838 - $1,910,592) in matching funds.

V. Recap of Amounts Due to the U.S. Treasury

Shown below is a recap of amounts due the u.S. Treasury as

discussed in this report.

',~

Finding

III.A.2.

IV.C.2.

TOTAL

Topic

Apparent Excessive Contributions

Convention Related Expenses

Page 75

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Amount

$64,163

10,567

$74,730
/

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IAcllul'.d R....lpl.

(Tlvo~gh Seplember 30, 1094)

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£III Clinton

Tom Hllkln

Bob KI"..,

lyndon LaRouc:t11

PoulTaongl•

Doug WIlder

Tolal Democrall

RIOltJ!IClO'

Palr'ck Buchan.n

George BUlh

[)ovid Dukl'

Total Republican.

OttJor Pauy

$289,691 $331,831

$4,239,345 $5,116,336

$12,518,130 $24,983,688

$2,103,352 $3,060,200

$2,1011,284 $3,913,332

$500,434 $1,004,085

$3,039,388 $5,072,889

$289,028 $508,519

$25,225,650 $44,670,408

$4,999,983 $7,157,606

$10,656,513 $21,068,825

$0 $220,715

$15,858,496 $34,481,349

$0

I

i

$2,429

!

$415,510

i

$349,757

$0

$3,586

$750

i

$772,072

$24,750

i

$44,250

$0

$89,000

$500

$0

$0

$0

$0

$0

$0

$0

$500

$0

so

$0

so

$3,000

$0

$0

$0

$0

$0

$45,000

$0

$48,000

so'

so

SI,OOO

$1,000

$1,029

$0

$1

$0

($1,225)

$0

($9,575)

$0

(S9,7701

$0

$0

$0

$0

$3,001

$4,6~3

$30,124

$22,801

$5,931

$8,231

$0

$1,039

$18,220

S43,940

$222,417

$0

$268,357

$6011,652

$~,42O,314

$31,534,~12

$5,621,1~

$O,.use,019

$2,1110,130

$0,151,068

$199,334

$10,783,138

$12,228,481

$38,014,005

$211,015

$50,512,301

Md,. Uarrou·

lenora Fulanio

John Hlgelln

Total Other P.,tv

Gr.nd TOllt

Ptrot

$0 $502,110

$1,935,524 $2,201,490

$353,160 $583,800

$2,286,684 $3,329,060

$43,112,830 $92,405,814

$0 $3,905,594

$181 $116

'$0 $325

$449 SO

i

I

$630 S441

I

$841,102 S941

: $0 $55,544,735

$15,000

($1,256)

$0

$13,742

S62,742

$2,056,371

$0

$1,200

S5,630

$8,830

IS2,940\

$0

$0 $518,061

$0 $4,131,281

$5,318 $928,355

$5,318 $5,843,703

$341,893 $120,939,142

$5,807 $71,512,507

II

/i~lJ
( ;I ') '1 / l: I :) ."' r

I

/ \. -, ) Attacl1- .y I. 1

Page ;

) Adlullod Ollburlomlnll

(Through Sllptomoor 30, 19~)

Cpo'llinO Ex"",,,, Exo",~l bpendlhJ/.'

Expondl1u'" FUndroialng l.g.VAcco~nllno 01he' Adlu.'od TOIAl Subtle! to IA'M' Cuh ~OwIdBy

Mnu' on,.tI Min'" 0IIae1l Mlnu. 011.011 I)sbur,. DI.burilmontl limit CIlHond tht Catnpo/f'

Democrat.

l.rry "oran $800,111 SO $0 $95 $609,206 $616,223 $<17 $3,170

Jerry Btown $6,315,622 $2,278,1136 $311,7110 $108,584 $9,OU,1I34 se,6Il8.482 $135,482 SO

BIll Clinton $25,321,257 $5,524,000 $3,11611,675 $0 $34,634,1132 $24,528,607 $284,544 $20,932

Tom HOt1lIn $4,027,765 $1,144,008 $196,633 $35,316 $5,405,720 $3,142,973 $184,246 $143,389

IlolJ Korroy $5,181,458 $1,078,1178 $1711,011 .$23,404 $8,481,751 $8,050,461 $11,662 $0

Lyndon LllIoudlo $1,550,003 SO $13~,029 $290,604 $1,1174,426 51,520,6Il8 $215,155 $0 .....

IV '0

$10j ,375 "Ill Poul honllO' $8,808,157 $754,1178 SO 57,754,510 $7,001,588 $7,496 $164,472 ..... ..0

CJ\<D

" DouO WlIdIf $806,776 $8,586 . $30 $0 $813,383 $807,256 $786 $0

10 -l

-l i

T0111 Domoc'lli $50,621,0311 $10,785,466 $5,004,352 $458,003 $66,866,862 $50,356,178 $817,418 $331,963

B«tDl!t4can.

Patrick 8ud'Ianan $11,626,266 SO $0 SO $11,628,266 $11,628,272 $467,655 $0

0-1/1 \lu1Ih $27,4211,416 $5,528,322 ,4,1136,167 $73,400 $37,1167,307 $27,429,422 $8,405 $0

Dovld I>Jko $353,638 SO $0 $1,000 $354,638 $0 $0 $20,250

,

TOlal R.".,b1"""'. $311,811,524 $5,528,322 $4,1138,167 $74,400 $50,150,413 $39,257,6114 $404,060 $29,250

Qillor PIlI1Y

And,......rrO\,- $<115,576 $160,2111 $0 $0 $575,795 $0 SO SO

lMlO'1 Fulonl' $4,204,009 $0 $0 $3,235 $4,207,244 $4,207,526 $0 $0

John Hil/llin $700,534 $91,456 $52 $00,203 $882,337 $700,53-4 $0 $0

Totll OIho, Plrty $5,320,110 $251,677 $52 $93,526 $5,665,376 $<1,008,060 $0 $0 I

Gtlnd TotAl $95,552,862 $16,563,467 $9,9~2,571 $025,931 $122,684,851 $94,521,932 $1,311,478 $381,213

PerOl S8i1,152.998 $0 $0 $5,388 $69,156,388 SO $975,718 $1,938,407
THE TSONGAS COMMITTEE, INC.

Andover Account

Loans from Individuals

-;_.~ --~-~

::;-;

1'1"'004472

Attachment II

Page 1 of

Contributor Address

Date of

Deposit Amount Total

Larry Ansin* 61 POSSULE Road 03/11/91 $100,000 $100,000

Veston, ~.A 02193

Elkin McCallum* 34 Bridge Path 'Jay 08/13/91 100,000

Tynasboro, HA 01889 10/21/91 50,000

02110/92 100,000 250,000

Anastasios Kalogianis* c/o Olympic Construction 09110/91 10,000

40 Lovell St., Bldg. 2 09125/91 15,000

Salem, ,NH 03079 10/02191 24,000 .~

- - - --- -

.. '1.2/04191- ., '35;-000-

12106/91 65,000 :'~~ 01/27/92 100,000 249,000

Peter Caloyeras 4053 Redwood Avenue 09/27/91 10,000 10,000

Los Angeles, CA 90066

Michael Spinelli* 35 Montview Road 10/16/91 20,000 20,000

Chelmsford, HA 01824

.~

Thomas Kelley 250 Harket Street 10122191 25,000 25,000

PortslIOuth, NH 03B01

Roger Trudeau 255 N. Road, Unit 126 08/0B/91 60,000

Chelmsford, HA 01824 09110/91 20,000 80,000

Villiam Berg** 34 Brantwood Road 12104/91 60,000 60,000

Arlington, MA 02174

TOTAL BORROIlED $794,000

* Also contributed $1,000 to the Committee.

** Also contributed $750 to the Committee.

page 78

12/16/94
Allach.enl III

Page1 of

3

___ ~t_.IK.

--.-

a-lla, .... Vl.i91 to vn191 . ... DIU - ....IQM ..- IIJIU)

-

- froau.a&n9 ...

..-

),fll,/tl $15••.• Sl!>.OGD.•

.-x> .\IWH $l!>•••• $l!>.lIOll.ClO ....-- ..- $4•••• _ aotAI 11 $4.CIllO.• ....--7

-- VlI\IIl 51•••• \o2.9IlO .110

7

_"'''L J,fllIIft P.t!>1.'1 $l.t!>1.91

7

---- WI9l 51•••• ~.l,GOO

.00

..- $$•••• 55.0lIG.•

7

..-

$1••••_ .....1 $1._.00

7

..... $4•••00_ .....

1 $4._.00

- or ••E. $lIS.•

_ """" 11 51l!>.110 ....--7

•.- ~I $1.000.00 $1.0lIG.00 ""'-

- C7'I ....

tum ~I $~.'l!>.00 $~.6l!>.00 'U")I$4

....-- r- 0\ , .. -.- ~l 5U.OGD.00 _ .... II $1I.000.00

....-- Gl\D

~I 51._.00 $1._.00 0' .... ILIt.. _ 7 10, 1'.L. _ ~I $1f~.QD $1.!lOO.OO 7 P-M , .... tum vz.lI9l 5~.OGD.00 $$._.00 'UI')I$4

..-

vz.lI91 $10••.00 $10.000.00 ....-- ....-- -- ~I 51•••• $1.9tIl.• 7

..-

$10•••00 $10._.00

7

..... """'1 $$,••• $~._.oo ....-- -'. """'1 $I.rn.66 $1;111.66 httIo ....... _

--,

».•.• u;_.oo

7

..-

WI9I $8....00 sa. 100.00

I

..... 4IV'l $1••.110 $1._.00 ....-- ....-- •. -.- $1._.00 $1.000 .1JI i ....... l,IlMl $~.OlIO•• $~._.00

....

....---- JIIV- liIl\'t1 $1,_•• 51:._.00 _....... .-SI¥IW f,l'Wtl $•.00 $500.00

i,ll' 'IL au. ""'1191 $4._.00 $4.\00.00

I ....-- ....... $1._.00 $J.OOO.OO ,, ....-- '-- ~I 51O.1U.t6 HO.Jl6 ... ....-- '--"... tum 6/2...,1 $1.\00.00 $1.\00.00 llOt .... _ ., ..-

6t».m $lO._ 00 HO.OOO 00

..-

'lV191 $1./100.00 P.OOO 00 ......

---

( (,

II

..)f""t'"I "''''''c ',j ,~',I
•...

i

!

1:

.. I ::

".

f I

e

i~' ~b~~;~

§ §§ I Ifflli

8 88 8 888888

---- --- --- ~-!= -~­

Eil

is ::t il is .

c;

;;

J-- -- ---I

8 e

".

: 1: , "1::' ---l--- -~-x -~--

is siss --f-

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n

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-:

Page 80

12/16/94
Al I iH:I"aell I III

Palle } 01 I

_ -.".. "-al.... Ih<.

--..-

Qoodao t... ~I ... V71l9l

""'Jt- --

•• __ LVI1191

.. _ ~1

:I. __ 1loo.~1

:I.--~

'ft1Oa 1Ilol_ VZVJl

Y. -....&u v:q/9l

•• - V71/1l

. JU .

$n4.U

$41.»

$I......

$1••.• $6._.• _ .....1

..- IltND

- ........ ou.

I -...-

JU

~.-

......

.• IOV-- I 1

U:M.l1 1 I

~.» 1

~I.oao .• , I

~1.tIIO••

~.IlIIO.oe IOV-- -

-..J.t I $lUl.9.61 It $4&1._.• JU1.o.u.• $.)O.IM.1I ~Ill."'.&) ~·I._.U $118.9.61

I

Nntes;

111 Payee, Date and arrounls are from copies of canceled checks.

Illegible or missing infnnrk'lti.on is freln soreadsheet ~re!Jared by Tsongas cc:mni.ttee 'rl:easurer.

'2 No check available, payee information missing.

A1munt and date frem ccmnittee spreadsheet and bank stritanent.

According to the Depart:nlent of Justice, this paywent w"'s made to a bank for a personal debt of Mr. Rizzo 's.

1i3 Illegible on check and no [x'lyee listed on cr:nmittce snreadsheet.

#4 All annunts were tracc."'<1 tel bank statarcnts.

.'

...."" com

"-

Ql\O

Ol .... 1Il"-

P.N....

(, / (' i)
AltOOn03

ATTACHMENT IV

page 1 of 2

The Tsongas Committee

Benco Consulting and MarKeting Co .. Inc.

ChecK

Number

ChecK

Date

Check

Amount

Distribution

1538

1570

10/16/91 $

11/15/91 $

783.49

962.02

Telephone Charges

Telephone Charges

1585 11/21/91 $15,000.00 Unkno....n

03/14/92 $ 5,500.00

03/16/92 $ 1,008.84

03/17/92 $ 7,290.00

04/03/92 $ 3,665.00

1632

2009

2010

2399

2355

2465

2622

12/13/91 $

02/27/92 $

02/29/92$

651.53

924.10

764.40

Appears to be Services

Telephone Charges

Reimburse Rentex--Charges-- _

COlDJllittee Check

Telephone Charges

Consulting

Merchants Motors HOOksett

NH

2754

2844

04/13/92 $ 1,142.58

04/24/92 $ 7,550.00

Telephone Expense

Consulting April 92

04/05/91 $ 2,703.96

06/05/91 $ 5,000.00

3019

1013

1022

1128

1177

05/19/92 $

04/12/91 $

OS/21/91 $

713.57

391.53

724.54

Telephone Expen.es

Office/rundraising Expense

Office/General

Reimbursement Telephone

Servicea June 91

a.s. 025-24-4305

1258

1263

07/01/91 $15,000.00

07/03/91 $ 5,000.00

Page 82

12/16/94

Appeara t/b aerv/conault

per Data S••e

Appeara to be Servicea
ATTACH!'lENT IV

Page 2 of 2

The Tsongas Committee

Benco Consulting and Marketing Co., Inc.

Check Check Check Distribution

Number Date Amount

1303 07/12/91 S 703.22 Telephone Charges

1308 07/15/91 $ 105.91 Telephone Charges

1499 10/02/91 S 2,549.83 Telephone Charges " '

3041 OS/28/92 S 7,550.00 Consulting !'lay 92

-- Total_PaY1lteIl~_'- $93,234.52 $93,234.52

-, , Accounf.S

Payable $ 590.45 Telephone Bills !'lay

TOTAL S93.824.97 $23. 82 4,97

"

';

\

I

Page 83

12/16/94
I

I'"~

II:

A.K003304

ATTACIIHENT V

Page 1 o( 2

The Tsongas Co•• t tee, Inc.

Pay.ents to Nicholas A. Rizzo

I

Check Check. AIIount Distrlbullon Description

Nuaber Date i

TIf51---ovn7?jr-s"s;1j(')O:O<Y-- ····~-5·;()(xr.()(j·- ..·-e;;i-o-ns-u"Yl":-t.-n"'-t-'S""'e-rv"'rces jm1053

1054

1176

1300

1692

04/24/91 S 5,000.00 S 5,000.00

04/24/91 S 5,000.00 S 5,000.00

06/05/91 $ 1,422.67 S 540.00

S 162.35

S 60.32

S 360.00

S 300.00

07/08/91 S 5,000.00 S 5,000.00

12/31/91 $15,931.73 $ 115.00

S 359.00

S 223.74

S 392.70

S 2,029.50

S 400.50

S 387.50

$ 298.00

$ 1,020.50

S 924.00

:$ 1,385.00

$ 258.00

S 928.50

S 474.50

$ 378.00

S 431. 50

Consultant Serv Ices 4/91

Consultant Services 5/91 I

Cash transer Vestern Union

Coaputer Rental

Postage

Vateraark Cleveland

Sa..y's Restaurant Cleveland !

rrave1 Advance Expenses - CA Fundralser

i

FUlter..n Photography

I

Four Seasons Uotel - Austin ~.ex for Rentex - 80S ton

'Sutton Travel- Rizzo, Tsongas,

:Kan in - At lanta 9/91

!Sutton Travel - Thoaann, Los Angeles 9/91

'Sutton Travel - Rizzo, Los Angeles 9/91

Sutton T~avel - 8ourtrls, Los Angeles 8/91

Sutton Travel - Rizzo, Cataldo, CA 7/91

Sutton Travel - Rizzo, Joncas, Snyder

Cleveland

Sutton Travel - Rizzo, Snyder, Delroil 5/91

Sutton Travel - Upton, Atlanta

Sutton Travel - Rizzo, L.A.

Sutton Travel - Tho..nn, D.C. 6/91

Sullon Travel - Kraft, Denver/NH 7/91

Sutton Travel - Thoaann,

Louisvllle/Piol'tsburgh 7/91 , .

"'" "'" to '"

....... Ql\O

0' ....

ftl ....... IloM....

!

I' (, r / ' ( I,) , \ ! : (,!
r,',

I, ATIACHHENT V

Page 2 of 2

The Tsongas Committee, Inc.

Payments to Nicholas A. Rizzo

I

Check

Number

Check

Date

Amount Distribution

S 570.00

S 534.50

S 1,216.50

S 196.15

S 1,553.37

S 10.50

S 62.38

S 93.00

S 120.00

S 1,569.39

,

Description

I

I

Sutton Travel - Thollann, D.C. 6/91

'Su t ton Travel - Tsongas, I Louisv ille/Pi t tsburgh 7/91

,Su t ton Travel - Tsongas,

I L.A./San Francisco 7/91

The Carlton, D.C. Rizzo 12/15/91

Hiscellaneous Receipts

'Cash Register Tape

leash Register Tape

Postage Receipt

Receipt

1697

2781

01/02/92 $42,000.00 $42,000.00

04/15/92 $17,153.75 S 3,648.75

$13,505.00

Reimbursemnt Exp. Recovered from

Rizzol/

Colonial Print. Tsongas Brochures

Lafayette Hotel 4/11/91 Event

LI) ....

<Xl 0'1

"-

Q.I\D

tJl.-<

lO"- P.N

.-<

TOTAL 596.508.15 $96.508,15

1/ This payment was reimbursed by Rizzo tn January of 1992. There .was no

documentation associated with the payment when it was made. At the

time ot the payment, HI:. Rizzo was in Icontrol of the Committee accounts.

I (,

I

(; l) / ~; ()
The Tsongas Committee

Amounts Due From H. Rizzo

For Excess Expenses and Consult{ng Fees Paid

AK003261

Attachmen t VI

Page 1 of 2

Payee

N. Rizzo

N. Rizzo

Description

Travel Advance and Expenses Ca.

FIR Applied to 8/1/92 Unpaid

Voucher. $3,610.88

Reimbursement Lafayet te Hotel

FIR 4/21/91

I

Clleck Check

Date Number

07/08/91 1300

04115/92 2781

Check

Amount

$5,000.00

$17,153.73

Disputed

Amount

$1.389.12

$13,505.00

N. Rizzo

S. Joncas

Rentex [or Computer Rental

Also Paid directly to on

Rizzo's Amex account. Ck. No.

1253 6/28/91

Amount Pd. by Rizzo to Pixe

Town, Assumed Personal Also

Pd. Directly on Rizzo Amex

Account

06/05/91

03/26/92

04/01/92

1176

2505

2565

$1,422.67

$1,275.54

$1,503.33

$

$

$

162.35

479.25

479.25

\D ..,.

<Xl 0\

'..

OJ\D

0' ....

10'..

"'<'I ....

S. JoncaS Bill for "Special Lady"

Rizzo Personal Exp.

05/04/92 2894 $1,471.54 $ 250.49

Benco Extra Hontll's Consulting

feb. 92

03/17/92 2465 $7,290.00 S 5,000.00

American

Express

Gilt Fruit Ship. Hale Ind.

River Groves Personal

03/03/92 2106 $2,303.39 $ 8/.,90

N. Rizzo Request Amount in Excess

supporting documentation

12/31/91 1692 $15,931. 73 S 1,569.39

S. Joncas Hath Error on Expellse Voucller

3/20-24/92

03/26/92 2502 $ 1,275.54 $ 154.92

, I (, (j / C (:
~.:':'"

,;'

I,

For

The Tsongas Co..ittee

A80unts Due Pro. H. Rizzo

Excess Expenses and Consulting ,

Pees Paid

AK003261

II ttach.en t VI

r<lge Z of 2

Payee Description Check! Check Check. Disputed

Date, Nu.ber A80unt A.ount

,

S. Joncas Hath Error on Expense Voucher 05/04/92 2894 S 1,473.54 S 287.10

4/29-513/92

S. Joncas ~r. Airline Tick.. Upgrade on 05/04/92 2894 S 1,473.54 $ 100.00

3/20-24/92 &4/29-513/92

Vouchers

A8edcan Pay.ent on Rizzo Account also 05/04/92 2893 $ 357.00 $ 347.00 r- '<7

<Xl 0-.

Express included on 4/1-3/92 Voucher '-

under Joncas. St. Regis Hotel III \0

0> .....

462.00 , Delta Airlines $285.00 10'- ll.N..... S. Joncas Consultins Per Oata Base No 04/13/92 2561 $ 1,000.00 S 1,000.00

!>ocWlentation

S. Joncas Travel Advance Not Applied 04/08/92 2736 S 500.00 S 500.00

!

Sutton ~unts Included on Various Various Various S 9,809.00

Travel Vouchers and also Included

on Various Rizzo and Joncas

Vouchers or Paid fro. the

Andover Account TOTAL illLW,]]

! ~'iJ ) I c I '

, ) -' /
I

nIE l'S(N;AS a!HIrm:E, m::.

Schedule of Excessive IOOividuals

I

I

I110OO444O

Attaehnent VII

Page lof 1

Wividual

MooIlt of

Wividual

CootribJtim

Aggregate AlDt.

IX!posit fute lht:1nely per

of InIividual Reinblcseroont I futes

ContdbJtim Request EJqJmi;es Incurred

AmolI1t

in Elccess

of Umit

L8te

Ileinb.Jrsed

Balance

~in

Excess of L1Jn1 t

fuvid GoJdIBn* $1,00J.00 03/))/91 $ 3,849.96 04/16191-06/16/92

32,658.00 07/13192-07/17/92

I

,

D:!rnis Newan 125.00 OS/24/91 i\nJcmt Varies 05/03/91-01119/92

100.00 CkJ127/91 01119/92-02111192

02I11V92-02117/92

02I2dl92-04/01l92

04/oi/92-04/12I92

Amy PaV81

I

AIrouIlt Varies 05/01191-10/01191

10/oJ/91-12I01l91 ,

,

$ 3,849.98 06/lB/92

32,658.00 07127192

CO""

3,927.85 01119/92 3,677.85 coO'

10,076.98 02111192 7,876.23 ""-

m\O

9,360.01 02120/92 8,360.01 0'..-1

10""- 11,168.70 04/06/92 10,920.84 D.N

10,956.84 04/13/92 9,956.84 ..-I

04/22/92 8,992.38

04/22/92 7,977.':JJ

05/00/92 6,415.U

05/00/92 5,536.06

2,125.13 10/01191 1,073.06

10/07/91 601.34

1,992.60 01103192

Bob I<rueger*

I<.tueger Railroad

camdssioo

15,892.14 fute$ lhkoown

!

14,892.14 02127/92

c r~ J t.: :, ) /,

* These iOOividuals are not subject to $l,OOJ 1I1~ travel ~tioo. Hr. G>ldnan advance:I flI1ds for cellI/Jar

ellpeIlSeS ard Camdttee staff expenses to atteM DeIrocratic Calvent1oo. Hr. l<nJeger's expenses relate to an

office in Texas. His personal travel is not lnc1lxled. I

( , '
" :,"'l!1I

lfjau--,~c/V1 ad.~;

/C1"'3 //9"--/

FEDERAL ELECTION COMMISSION

October 31, 1994

MEMORANDUlt

",

TO:

THROUGH:

FROM:

Robert J. Costa

Assistant st

Audit Divis'

John C. surin

staff Di re' to

/'1..'><----

Lawrence M. Mlb;~ /

General coun~;l f/1II1M

Kim Bright-C~leman~l- --Associate-General--Counsel---

Kenneth E. K~llner~ Assistant General cd;uhsel

Delanie DeWitt Painter If),(Jf

Attorney tvfA::)

James portnoY21f~ Attorney

Jane Whang t"1.NJ

Attorney '1 ' -

\

SUBJECT: Final Audit Report on the Tsongas for President

Committee, Inc. (LRA I 424)

The Office of General Counsel has reviewed the proposed

Final Audit Report on the Tsongas for President Committee,

Inc. (Wthe Committee W) dated August 18, 1994. The following

memorandum contains our legal analysis of the findings and

recommendations in the proposed Final Audit Report.l/ In

1/ Parenthetical references are to the placement of findings in

the proposed report. Throughout our comments, wFECAw refers to

the rederal Election Campaign Act of 1971, as amended, 2 U.S.C.

55 431-455, and WMatching Payment ActW refers to the

presidential Primary Matching paym~nt Account Act, 26 U.S.C.

SS 9031-9041.

Page 89

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Memorandum to Robert J. Costa

Final Audit Report

Tsongas for President Committee, Inc.

(LRA I 424)

Page 2

addition, as you requested, this memorandum provides our

research and analysis on agency law. We concur with findings

in the proposed Final Audit Report which are not discussed

separately in the following memorandum.~/ If you have any

questions concerning our comments, please contact Delanie

DeWitt painter, the lead attorney assigned to this audit.

I. RIZZO AND THE ANDOVER ACCOUNT (II. A., III. A. and B.,

IV. A., C. and D.)

A. INTRODUCTION

Nicholas A. Rizzo, Jr., the Committee's chief

fundraiser, opened an account in the Committee's name at the

Andover Bank (the "Andover account"). Rizzo solicited

contributions to the Committee including large loans from

individuals, deposited the funds into the Andover account or

his own accounts, and embezzled most of the money. The

repercussions of these transactions appear throughout the

proposed Final Audit Report findings and initial repayment

determinations·1/

B. COMMITTEE RESPONSE

-The-Committee--asserts that Rizz.o 's actionsin__so_l_ici ting

illegal loans from individuals exceeded the scope of hIs

authority as a Committee agent. The Committee contends that

Rizzo had no actual authority to solicit loans in the name of

the Committee. The Committee further asserts that Rizzo

could not have had apparent authority to solicit the loans,

because such solicitations are in direct violation of federal

election law.

The Committee also argues that the loans procured by

Rizzo are his personal obligations, not the Committee's

responsibility. The Committee contends that it never

2/ The Commission's discussion of this document is not exempt

Irom disclosure under the Commission's Sunshine Regulations and

the document should be considered in open session. 11 C.F.R.

S 2.4. However, since many of the issues are related to an

ongoing enforcement matter, it will be necessary to redact

references to that matter from the record.

3/ The Commission is concomitantly pursuing this matter in

the enforcement context in MUR 3585. This Office summarized

the facts uncovered by our investigation of this matter in a

memorandum to the Audit Division dated July 20, 1994. We

incorporate that document by reference, and will not

delineate the complex facts of this case here. We have

discussed the facts of this case informally with the Audit

staff and have made minor suggestions which are not discussed

in this document.

Page 90

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to';

c>

(

\

Memorandum to Robert J. Costa

Final Audit Report

Tsongas for President Committee, Inc.

(LRA • 424)

Page 3

received the proceeds of the loans, because in the

Committee's view, Rizzo was not acting as the Committee's

agent when he procured the loans. In support of this

proposition, the Committee relies on Rizzo's plea bargain,

which included an order that he, rather than the Committee,

repay the lenders. While the Committee concedes that receipt

by an agent would normally constitute receipt by the

Committee, it argues that Rizzo's activities interrupted the

conveyance of the contributions from the lenders. Finally,

the Committee contends that the Andover account was not a

Committee account, but rather a secret account used by Rizzo

as part of a criminal scheme to defraud the lenders and the

Committee.

C. AGENCY LAW

The FECA and the Commission's regulations clearly

contemplate that an agent's authority can include the

solicitation and acceptance of contributions on a committee's

behalf. See 2 U.S.C. S 432(a); 11 C.F.R. 5S 102.8, 102.9

(referring to "an agent authorized by the treasurer to receive

contributions") and llO.l(b)(6) (a contribution is made when the

contributor delivers it to the candidate, committee "or to an

_agent of the political committee").i/ Indeed, for the purpose of

oetermin-ing-whether-an expenditure _is attribt!~a_~l,~_ to a

candidate's campaign, the regulations define the term-nagent"

as:

any person who has actual oral or written

authority, either express or implied, to make or to

authorize the making of expenditures on behalf of a

candidate, or •.• any person who has been placed

in a position within the campaign organization

where it would reasonably appear that in the

ordinary course of campaign-related activities he

or she may authorize expenditures.

11 C.F.R. S 109.1(b)(S). Thus, an agent, for expenditure

purposes, is an individual who either has authority to make

expenditures on behalf of a campaign or occupies a position that

third parties would reasonably believe to confer such authority.

4/ In addition, the regulations expressly contemplate that

agents will make expenditures on behalf of presidential

candidates. See 11 C.F.R. S 110.8Ig) (agent's expenditures

count against-p(esidential candidate's expenditure

limitation); Cf. 11 C.F.R. S 110.6Ib)(2) (contrasting

earmarked contributions made via conduits with contributions

made through individuals authorized to accept contributions

on behalf of a committee.)

Page 91

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Memorandum to Robert J. Costa

Final Audit Report

Tsongas for President Committee, Inc.

(LRA i 424)

page 4

Even a low level committee employee may be considered an

agent. See Advisory Opinion (nAO") 1992-29 (receipt of

contributIOns by clerical employee assigned to open envelopes

constitutes receipt by committee). Moreover, one need not be

employed by a committee to be the committee's agent. See AO

1989-21 (checks from customers to a vendor selling

committee-authorized campaign paraphernalia constitute

contributions received by the committee as of the date they are

received by the vendor); AO 1980-42 (ticket sale proceeds from

fundraising concert are considered contributions received by the

committee upon receipt by the concert promoter).

Moreover, a Committee is responsible for its agent's

actions even if the agent acts negligently or contrary to

express instructions. For example, in AO 1992-29, the

Commission instructed a committee to refund contribution checks

that an employee had left in a drawer until after the 10-day

deposit requirement expired. The employee acted without the

treasurer's knowledge and against express instructions issued to

Committee personnel. Nonetheless, since the employee was the

Committee's agent authorized to receive contributions, the

Committee was deemed to have received the checKs on the date the

employee received them. In addition, there is precedent in the

Title 26 context for holding a committee responsible for an

--agent's-actsttlat-violate- election law and eVen go against the

committee's best interests. See Final Audit Report on- wiirraceCampaign, Inc. (1976) approved August 13, 1979 (Commission based

part of the repayment in the Wallace audit on undocumented

expenditures of committee funds deposited by a staff person in

his personal checking account.) Indeed, in every case where a

committee has violated the FECA, there ultimately was a

committee official who authorized, conducted or participated in

the prohibited event.

The Commission's application of agency principles is

consistent with settled principles of agency law. The

Restatement of Agency defines an agent as one who exercises the

actual or apparent authority of a principal. Restatement

(Second) of Agency S 1. Thus, the Restatement provides that a

principal's responsibility for his agent's conduct may derive

either: (1) from an express or implied grant of authority from

the principal to the agent; or (2) from actions taken by the

principal that reasonably cause a third party to believe that

the principal has empowered the agent to act on his behalf. Id.

SS 26-27. Similarly, the Commission has defined an agent as one

who exercises actual authority, or who holds a position within a

campaign organization that reasonably appears to confer such

authority. 11 C.F.R. S 109.l(b)(5).

Where a principal grants an agent express or implied

authority, the principal generally is responsible for the

agent's acts within the scope of his authority. See Weeks v.

United States, 245 u.S. 618, 623 (1918). See also Rouse

Woodstock, Inc. v. Surety F2deral Sa,ings ~oan-Ass'n, 630 F.

page 92

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Memorandum to Robert J. Costa

Final Audit Report

Tsonqas for President Committee, Inc.

(LRA II 424)

Page 5

Supp 1004, 1010-11 (N.D. Ill. 1986) (principal who places agent

in position of authority normally must accept the consequences

when the agent abuses that authority). The conduct of an agent

is within the scope of his auth~rity if:

(a) it is of the kind he is employed to

perform; (b) it occurs substantially within

the authorized time and space limits; [and]

(c) it is actuated, at least in part, by a

purpose to serve the master.

Restatement (Second) of Agency S 228(1).

When an agent acts within the scope of his authority, a

principal cannot escape responsibility on the grounds that he

lacked knowledge of the agent's actions or that the agent's

actions were unauthorized, tortious, or even unlawful. 3 Am.

Jur. 2d Agency S 280 at 783. It is a "well-settled general

rule .•. that a principal is liable civilly for the tortious

acts of his agent which are done within the course and scope of

the agent's employment." Id. at 782; see also Stockwell v.

United States, 80 U.S. 531-,-534 (1871); veranda Beach Club Ltd.

Partnership v. Western Sur Co., 936 F.2d 1364, 1376 (1st Cir.

1991).5/ Indeed, "[aln act may be within the scope of

--emp-loyiiient-al-though_conscious1y _<: ri.!llina lor to r ti_ous . "

Restatement (Second) of Agency S 231; Local 1814, Int'l

Longshoremen's Ass'n v. NLRB, 735 F.2d 1384, 1395 (D.C. Cir.),

cert. denIed, 469 U.S. 1072 (1984); see also Hunt v.

weatherbee, 626 F. Supp. 1097, 1103 Mass. 1986).

Even if an agent does not enjoy express or implied

authority, however, a principal may be liable for the actions

of his agent on the basis of apparent authority. See E.A.

Prince & Son, Inc. v. Selective Ins. Co. of Southeast, 818 F.

Supp. 910, 914 (D.S.C. 1993) (refusing to dismiss "insured"

party's claim against insurance company where former agent

misappropriated premiums and, consequently, company never

received payment or issued policies). An agent is imbued with

apparent authority where the principal has held the agent out

as having such authority or has permitted the agent to

represent that he has such authority, so that a reasonable

person would believe the agent to have such authority. See

~, Metco products, Inc., Division of Case Mfg. Co. v. NLRB,

SSrF.2d 156, 159 (4th CiL 1989). --

Apparent authority commor.ly exists when a principal

appoints an agent to a position with generally recognized

duties or responsibilities. See Restatement (Second) of Agency

S 27 at 104 ("apparent authority can be created by appointing a

51 This rule is analogous to the concept of respondeat

superior, which holds an employer responsible for the tortious

acts of his employee. 3 Am. Jur. 2d Agency S 280 at 783.

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Memorandum to Robert J. Costa

Final Audit Report

Tsong3S for President Committee, Inc.

(LIlA 11 424)

Page 6

person to a position, such as that of manager or treasurer,

which carties with it generally recognized duties"). See also

Goldman v. First Nat'l Bank of Boston, 985 F.2d 1113, 1121-rISt

Cir. 1993) (citing Restatement (Second) of Agency S 27);

Property Advisory Group, Inc. v. Bevona, 718 F. Supp. 209, 211

(S.D.N.Y. 1989). A principal may be held liable based on

apparent authority although his agent's acts are unauthorized.

Richards v. General Motors Corp., 991 F.2d 1227, 1232 (6th Cir.

1993). Similarly, a principal may be held liable for his

agent's illegal acts, such as fraud, when he places an employee

in a position to commit those acts. First Amer. State Bank v.

continental Ins. Co., 897 F.2d 319 (8th Cir. 1990); Hester v.

New Amsterdam Casualty Co., 412 F.2d 505, 508 (4th Cir. 1969).

Unlike express or implied authority cases, moreover, a

principal is not relieved of liability simply because an agent

with apparent authority acts for his own benefit.6/ Even if the

agent committed fraud, the principal is liable provided the

agent acted within his apparent authority. Amer. Society of

Mechanical Engineers, Inc. v. Hydrolevel Corp. ("ASME"), 456

u.s. 556, 566, (1982). In fact, the United States Supreme

Court has observed that the federal courts routinely "have

imposed liability upon principals for the misdeeds of agents

acting with apparent authority." ASME, 456 U.S. at 568 (citing

-cans-involving--federal- tax liability, _common-law fraud J

securities fraud and bail bond fraud).

D. ANALYSIS

Our analysis of this case focuses on two intertwined

issues: whether the Committee should be held responsible for

Rizzo's actions and whether the Andover account was a Committee

account. We concur with the Audit Division that the answer to

both of these questions should be affirmative.

6/ Moreover, irrespective of an agent's actual or apparent

authority, a principal is liable "if he is negligent or

reckless ... in the supervision of [the agent's] activity."

Restatement (Second) of Agency S 213. See, ~.~., Int'l

Distributing Corp. v. District Telegraph Co., 569 F.2d 136,

139 (D.C. Cir. 1977) (security company can be held liable for

its employees' thefts from customers). See also Restatement

(Second) of Agency S 213 (master is liabre-for torts of

servants acting outside the scope of their employment if the

master was negligent or reckless; or where the servant

purported to act on the master's behalf and the third party (

relied upon the servant's apparent authority, the servant was (

aided in committing the tort by the existence of the agency \

relationship. )

Page 94

12/16/9<,
M~morandum to Robert J. Costa

Final Audit Report

Tsongas for President Committee, Inc.

(LRA • 424)

Page 7

1. Rizzo Coaaittee Agent

The record demonstrates that Rizzo was the Committee's

agent with actual and apparent authority to solicit and accept

contributions, make expenditures, and conduct diverse financial

transactions from the outset of the campaign until June, 1992.

Rizzo was one of the three most powerful people in the Tsongas

campaign. He functioned as the Committee's principal

fundraiser, had broad authority over most aspects of the

Committee's financial activity, and operated with a great deal

of independence. Moreover, Rizzo occupied a position and had a

history with the candidate that would lead third parties to

believe that he had authority to solicit contributions.

Contrary to the Committee's contentions, Rizzo's

solicitations of loans totaling $794,000 from eight individuals

were within the scope of his authority as the Committee

fundraiser. Loans are contributions, 2 U.S.C. S 431(8)(A)(il,

and Rizzo had broad authority to solicit contributions. The

Committee's contention that Rizzo could not have authority to

solicit these contributions because they were excessive is

without merit. Doubtless in most cases where a campaign

official accepts an excessive or prohibited contribution, the

official was not expressly authorized to do so. Under the

---- Committee!_s_r_easoning ,__a commit te_e would_ not be responsible for

any violations by its agents unless the actions weie- expre-s-sly-----

approved by the principal. The Committee cannot escape

liability for the conduct of its agent that was well within the

scope of his authority.

2. Andover Account Was a Committee Account

The evidence supports the conclusion that the Andover

account was a Committee account. The Andover account was

opened in the name of the Committee, and functioned as a

Committee account. Indeed, contribution checks made payable to

the Committee were deposited into the Andover account and

legitimate Committee expenses totaling $25,046 were paid from

the Andover account.

When Rizzo opened the Andover account in Merch, 1991, he

had virtually unlimited authority over the Committee's

finances. He was involved in opening the Committee's operating

account at Bay Bank and controlled the checkbook for that

account. Since Rizzo exercised broad auth~rity over virtually

every Committee financial transaction, including opening

accounts, he had authority to open the Andover account on

behalf of the Committee.

The Committee draws an analogy to MUR 1402, in which a

fundraiser failed to forward contributions to a committee,

but instead opened an account in the name of the committee in

Page 95

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Memorandum to Robert J. Costa

Final Audit Report

Tsong8s for President Committee, Inc.

(LRA • 424)

page 8

order to embezzle the contributions.71 We concur with the (--

Audit Division that MUR 1402, which did not involve a

publicly-financed presidential election campaign, is

distinguishable from this case. The individual in MUR 1402

did not have broad authority over the committee's financial

transactions, as Rizzo did. Moreover, she set up an account

in the committee'S name solely for the purpose of depositing

embezzled checks intended for the committee. Conversely, the

record does not indicate that Rizzo opened the Andover

account solely to facilitate his embezzlement of Committee

funds since some funds in the Andover account were used for

legitimate campaign expenditures.

While the existence of the Andover account may have

enabled Rizzo to embezzle Committee funds, the evidence

supports the conclusion that the Andover account was not a

mere instrumentality of a criminal scheme. Rizzo himself

contends that he opened the Andover account as a Committee

exploratory account, not as his own personal account. Rizzo

used the legal address of the Committee for the account, and

claims that he made no attempt to hide the account from the

Committee.8/ There is evidence to support Rizzo'S claim that

he did not-originally intend the Andover account to be his

secret account; for example, Rizzo discussed the possibility

- of-opening__an_exploratory Clcc:ount with _Kaninand Tsongas in

March, 1991. There is no doubt that Rizzo embeiiled ---

Committee funds from the Andover account, but Rizzo's

misdeeds do not transform the character of the Andover

account.

Therefore we concur with the Audit Division that the

Andover account should be considered a Committee account, and

transactions related to the Andover account should be

included in the audit findings and the repayment

determinations.

7/ The Commission did not address the issue of whether the

account was a committee account in that case because the

fundraiser paid an amount equivalent to the contributions to

the committee. The Commission permitted the committee to

retain the repaid contributions and instructed the committee

to attribute the contributions to the original contributors.

8/ It should be noted, however, that the Committee'S

address at this point was the post office box in Andover, and

that it is not clear that any Committee staff other than

Rizzo had access to the box. Rizzo claims that he used his

own social security number to open the account because the

Committee had not yet applied for a taxpayer identification

number.

page 96

12/16/94
Memorandum to Robert J. Costa

Final Audit Report

Tsongas for President Committee, Inc.

(LRA • 424)

Page 9

3. Excessive Contributions

.~

-.

Rizzo solicited a total of $794,000 in loans from eight

individuals to the Committee, including $280,000 made payable

to Rizzo himself or his company, Benco, Inc., but intended to

benefit the Committee, and $514,000 made payable to the

Committee and deposited into the Andover account. The loans

exceeded the eight individual's contribution limitations by

$790,750, of which $65,000 has been repaid. 2 U.S.C.

S 44la(a)(1)(A); 11 C.f.R. S 110.1(0)\1). The proposed Final

Audit Report concludes that the loans are excessive

contributions, the Committee should repay $729,000 to the

individual contributors, and the Committee must disclose the

loans and repayments on its disclosure reports.

We concur with the Audit Division that the loans were

excessive contributions. Rizzo, Kanin and Tsongas were the

three most important Committee officials, and each had

authority to solicit and accept contributions. All of the

lenders relied upon one or more of these individuals.

Rizzo'S solicitations of loans from the eight individuals

were clearly within the scope of his authority as the

Committee fundraiser .

. cThe-Commi ttee '·5 contention that the loans were· RizzO!.5..-

personal debts is not persuasive. Rizzo solicited each loan

ostensibly on behalf of the Committee, and the lenders relied

on his authority. See Restatement (Second) of Agency

5S 26-27; ASME, 456 U.S. at 566-568. Most of the loan checks

were made payable to the Committee. Two of the loans were

solicited with some participation by Kanin and Tsongas, who

would have no reason to be involved unless the transactions

were loans to the Committee.91 The lenders testified that

even the loans made payable to Rizzo himself or his

consulting company were intended as contributions to the

Committee, not personal loans to Rizzo.101 Many of the lenders

9/ Lawrence Ansin loaned $100,000 to the Committee

lol10wing a meeting at his home with Kanin, Rizzo, and

Tsongas. Kanin acknowledged that at the meeting Ansin was

asked to make a loan to the Committee of more than $1,000,

but he did not recall the exact amount involved. Although

Tsongas attended the meeting, he does not recall any details

of the solicitation of the loan f~om Ansin. Kanin was also

involved in the solicitation of a 560,000 loan from Roger

Trudeau, but subsequently discovered that the transaction was

impermissible and called Rizzo to cancel it.

10/ Rizzo explained to each lender that the money would

benefit the Committee although the checks were made payable

to him or his consulting company. Since Rizzo was paid as a

Committee consultant through his consulting company, the fact

that Trudeau made his loan ~hecks pa'lable to the company, at

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Memorandum to Robert J. Costa

Final Audit Report

Tsongas for President Committee, Inc.

(LRA • 424)

Page 10

did not know Rizzo and would not have made personal loans to

him of such magnitude. Moreover, the fact that Rizzo

personally guaranteed the 103ns does not alter the nature of

these contributions.

Contrary to the Committee's contentions, Rizzo's receipt

of the loan checks from the lenders constituted receipt by

the Committee because Rizzo was a Committee agent with

authority to accept contributions. See 11 C.F.R.

S5 102.8(a), 102.9, 110.1(b1(6); AO 1992-29. Rizzo deposited

the checks, along with other contributions to the Committee,

into an account in the Committee's name at the Andover Bank

and apparently used some of the funds for campaign expenses.

In addition, he used $25,046 of the funds for campaign

expenses. It is immaterial to our analysis of this issue

that Rizzo converted the lion's share of the contributions

for his own personal use. Rather than interrupting the

conveyance of the contributions to the Committee, Rizzo

embezzled the funds after he had accepted them as an agent of

the Committee.

In sum, the loans were excessive contributions to the

Committee, solicited by Committee agents and received on

behalf of the Committee by a Committee agent. 2 U.S.C.

S--441a{a){1)(-Aj-;llC.F.R.- SllO.l(b)(l). The question_of ..

how to treat these contributions is problematic. Generally,

disgorgement of such excessive contributions to the United

States Treasury would be appropriate. However, given the

unusual circumstances of this case, we do not recommend that

approach for equitable reasons. While the Committee did

receive the funds when Rizzo accepted the contributions from

the lenders, the Committee was deprived of the benefit of

those funds by Rizzo's illegal actions. Moreover, the

Committee made some, albeit largely unsuccessful, efforts to

investigate the Andover account and brought this matter to

the Commission's attention. We do not believe that it is

necessary for the Commission to require the Committee to

repay the lenders in this case. We acknowledge that the

loans should be included as payables on the Committee's NOCO

Statement; however, we recommend that the Audit staff include

language in a footnote clarifying that, in light of the

specific facts regarding this matter, the Commission is not

requiring that the Committee repay the lenders. It should be

noted that we are not addressing the issue of whether the

lenders can seek repayment of the loans from the Committee.

(Footnote 10 continued from previous page)

Rizzo's request, is consistent with Trade's stated intent to

give money to the Committee through Rizzo. These

contributions should be treated the same as the other loans,

as contributions to the Committee received by Rizzo.

page 98

12/16/94
Memorandum to Robert J. Costa

Final Audit Report

Tsongas for President Committee, Inc.

(LRA I 424)

Page 11

Finally, we concur that excessive contributions

deposited into the Andover account totaling $29,314 be

included in the total amount of excessive contributions

payable to the united States Treasury. Unlike the loans, we

believe that disgorgement of these contributions is the

appropriate solution. In addition, the amount involved is

close to the amount of legitimate campaign expenditures paid

from the Andover account ($25,046).

4. Misstatement of Financial Activity (III. B.)

The Committee misstated receipts, disbursements, and ending

cash in its 1991 and 1992 disclosure reports. These

misstatements were in large part caused by unreported

transactions related to the Andover account, the individual

loans, and other transactions by Rizzo. While the Committee has

amended its reports to correct some of the misstatements, the

Committee did not disclose any activity related to the Andover

account and other transactions by Rizzo.

The Interim Audit Report recommended that the Committee

file a comprehensive amendment including the Andover account

transactions. The Committee did not follow this recommendation.

Instead, the Committee proposed filing an amended report . --reflect-ingan-uncol-lectible receivable from.Rizzo_of. the

contribution checks (excluding the loans) that he "failed -to

forward,R with footnotes reflecting the Committee's contentions.

The Audit staff concludes that the proposed amendments, which

were never filed by the Committee, would not have been adequate

because the Committee did receive the contributions through

Rizzo, its fundraising agent.

We agree with the Audit Division'S analysis. As previously

discussed, the Committee received the contributions, including

the loans, when Rizzo, its agent, received them. Moreover, the

Andover account was a Committee account. Therefore, the

Committee's reports must reflect all of the transactions related

to the Andover account as well as all contributions received by

Rizzo.

S. Repayaent Issues - Non-qualified Campaign Expenses

( IV. C. 1. and 3.)

The proposed Final Audit Report includes several repayment

issues involving non-qualified campaign expenses. The first

issue involves non-qualified campaign expenses totaling $35,118

paid to Rizzo, Steven Joncas, a campaign volunteer who traveled

with Rizzo, and Benco, Inc. for expenses which were not

Page 99

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-~',.
"'<~="-~-'"~""'----"-,.,.,.-",---,~'": .... ' .~-' "';"."",,,,.,•.-.----

Memorandum to Robert J. Costa

Final Audit Report

Tsonq&s fcr President Committee;

(LRA I 424)

Page 12

Inc~

campaign-related or were paid more than once.!!/ The Audit staff

offset this amount against Rizzo's expense vouchers for

qualified campaign expenses totaling $57,100, and recommends no

repayment. We agree with the recommendation.

In addition, the proposed Final Audit Report includes an

initial determination that the Committee make a pro rata

repayment to the United States Treasury of $98,288 for

disbursements from the Andover account totaling $693,212 which

do not appear to be campaign related or are not adequately

documented. 26 U.S.C. § 9038(b)(2). These disbursements

primarily appear to be related to Rizzo's personal obligations.

While the Committee admits that the expenditures would properly

be considered non-qualified if they had been made from a

committee account, based on its contention that the Andover

account was not a Committee account, the Committee argues that

there is no repayment obligation.

This Office concurs with the proposed repayment, which is

consistent with the conclusion that the Andover account was a

Committee account. To obtain matching funds, the Committee

agreed to supply all of its receipt and disbursement records,

including bank records for all accounts. 11 C.F.R. § 9033.1.

Thus, any undocumented disbursements from the Andover account

---are-noO--qualiUtLd_j:~lI\l'_aJgnexpenses. See 11 C.F.R. § 9033.1l.

Indeed, the COllllllittee has -t:heburaen-of--proving-tnat-any- -

disbursements made by any person authorized to make expenditures

on behalf of the Committee, such as Rizzo, are qualified

campaign expenses. 11 C.F.R. §§ 9033.1 and 9033.11.

Moreover, we concur that non-qualified campaign expenses

related to the Andover account are subject to repayment. 2

U.S.C. S 9038(b)(2); 11 C.F.R. S 9038.2(b)(2). For purposes of

repayment, the Commission generally considers all funds of a

committee to be a mixed pool of private contributions and

federal matching funds. See 11 C.F.R. § 9038.3(c)(2); Kennedy

for President Committee v. FEC 734 F.2d 1558, 1559 (D.C: Cir.

1984); Rea an for President Committee v. FEC 734 F.2d 1569 (D.C.

Cir. 19 ). Even if an account never actually contains any

matching funds, the funds in the account are considered part of

the larger pool of all private and public funds in all of a

committee's accounts. Since the Andover account was a Committee

account, these transactions are subject to repayment.

Arguably, even if the funds were never deposited into a

Committee account, they should be considered part of the mixed

pool of Committee funds subject to repayreent because they were

11/ The Audit Division properly included the Andover account

activity in its determination of the repayment ratio for

non-qualified campaign expenses, which is 14.1786%. The

Committee does not contest an additional repayment of $10,567

based on disbursements relat~d to the Democ~atic Convention.

page 100

12/16/94
MeinoriHIi:iumto~ob-ertJ. Costa

Final Audit Report

Tsongas for President Committee, Inc.

(LRA I 424)

Page 13

contributions to the Committee accepted by a Committee agent.

During the 1988 election cycle, the Commission based several

repayments, in part, on in-kind contributions in the form of

testing the waters expenditures paid for by unaffiliated

committees. See Final Repayment Determination and Statement of

Reasons - Senator Robert Dole and the Dole for President

Committee, Inc. (approved February 6, 1992); Memorandum to

Robert J. Costa, Comments on Proposed Final Audit Report - Dole

for president, Inc., dated December 17, 1990. The Statement of

Reasons on the Dole campaign concluded that the in-kind

contributions "were expenditures equivalent to expenditures by

the Committee itself" and "should be considered commingled with

the Committee's expenditures and SUbject to repayment."

Statement of Reasons - Senator Robert Dole and the Dole for

P,esident Committee, Inc., Page 25. By analogy, the

contributions received by Rizzo as agent of the Committee should

be considered commingled with the Committee's other funds and,

thus, are subject to repayment.

The Commission has made repayment determinations for

non-qualified expenses even where a staff person uses funds

for other than the interests of a committee. See Final Audit

Report on Wallace Campaign, Inc. (1976), approved August 13,

1979. In the Wallace audit, a campaign staff person received

$36,900 from the Wallace committee, commingled the funds with

--funds in--his-·pe rsonal-check ing account,--and-providedno

documentation that his expenditure of the funds was for

qualified campaign expenses. The Commission based a repayment

determination on these undocumented non-qualified expenditures.

The Wallace audit is similar to the situation here because the

individual apparently used some of the funds for personal

expenses.

While there may be situations where a committee takes

sufficient precautions to prevent the theft or misuse of funds,

or where an action is 50 far outside the bounds of foreseeable

possibility that a committee should not be subject to a

repayment based on the loss of public funds, this is not such a

case. The evidence reveals a year long pattern of illegal

conduct by the Committee'S principal fundraiser and one of the

most powerful individuals in this publicly-financed presidential

campaign. The fact that such a high level official was able to

continue his illegal activities for such a long time raises the

question of whether the Committee exercised prudent financial

management of the campaign. During the campaign, the Committee

had reason to question Rizzo's actions. The Committee should

have been aware at some point, certainly by late January 1992,

that Rizzo had. at least, made significant compliance errors.

Nonetheless, Rizzo continued to work for the Committee until

June, 1992. The Committee also sent Rizzo on fundr3ising trips

with Joncas in the spring of 1992. It should be acknowledged

that certain Committee offiCials expressed concerns and tried to

take some steps after there were signs of potential problems

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·rfnal" Aucfit Report

Tsongas for President Committee, Inc.

(LRA I 424)

Page 14

involving Rizzo.12/ However, the Committee did not take

sufficient action-in time to prevent Rizzo's illegal activities,

and failed to adequately control its financial transactions to

prevent the misuse of public funds. Therefore, we concur with

the proposed repayment.

6. NOCO Statement (IV. D.)

The Andover account transactions are reflected in the

Committee's Statement of Net Outstanding Campaign Obligations

("NOCO statement") as Accounts Receivable and Loans Payable.

The Committee disputed the NOCO statement contained in the

Interim Audit Report. In support of its contention that the

Andover account was not an authorized Committee account, the

Committee notes a footnote to the NaCO statement in the Interim

Audit Report that identifies a receivable of "receipts into the

Account which were never forwarded to the Committee."

The NOCO statement in the proposed Final Audit Report has been

revised, resulting in a deficit of $3,561,910. We concur with

the substance of the Audit Division's revisions, but disagree

with the descriptions and footnotes describing several items.

Under assets, the NOCO Statement lists "Accounts Receivable

Relative to Andover Account." The footnote for this item states

that this amount "consists of receipts into the account which

were never forwarded to the Committee . "We note that the

·ComiRn::feelfpecTfically -('eferred ·to this-footnote i nits

response. This language should be revised as it is inconsistent

with our legal analysis of this matter as well as with the Audit

Division's position throughout the proposed Final Audit Report.

Since Rizzo acted as the Committee's agent when he received the

contributions, he did not fail to forward them to the Committee.

Rather, he converted Committee funds to his personal use.

Koreover, the amount includes funds that were not related to the

Andover account, such as loans to the Committee made payable to

Rizzo or his company and deposited into other accounts.

Therefore, we suggest that description of the item be revised to

"Amounts Receivable from Nicholas Rizzo," and that the footnote

be revised to state that this amount consists of Committee funds

that Rizzo converted to his personal use. Similarly, the

allowance for the uncollectible amount should be revised to

state that the uncollectible amount is due from Nicholas Rizzo.

We concur that the amount appears to be uncollectible.

12/ For example, Committee officials made numerous attempts

to gain control of the Committee's financial systems from

Rizzo, and were eventually successful. In addition,

Committee officials retained an attorney to look into the

matter of the Andover account, made futile attempts to obtain

the records of the Andover account from Rizzo, and eventually

informed the Commi~sion of the situation.

page 102

12/16/94

" ,-o~

~'.-'
.-..,

; i

Memorandum to Robert J. Costa

Final Audit Report

Tsongas for president Committee, tnc.

(LRA I 424)

Page 15

Finally, while we agree that the loans should be considered

Committee obligations, we disagree with the description of this

item as "Loans Payable Relative to Andover Account." Again,

some of the loans were not deposited into the Andover account.

Therefore, we suggest that the item be described as "Loans

payable to Individuals." In addition, as previously discussed,

we suggest that the Audit staff include a footnote clarifying

that the Commission is not requiring that the Committee repay

the lenders.

II. APPARENT EXCESSIVE CONTRIBUTIONS (III. A.)

A. PARTNERSHIP CONTRIBUTION (III. A. 2. a. ii.)

The Audit staff found that the Committee accepted 25

contributions totaling $22,500 made on partnership checks from a

law firm.13/ It appeared that an excessive contribution of

$21,500 resulted, pursuant to 11 C.F.R. S 110.1(e).14/ The

Interim Audit Report recommended that the Committee-Show that

the contributions were solely attributable to individual

partners by documentation that partners could withdraw funds

from the partnership account. The Committee's response to the

Interim Audit Report prOVided a letter from the law firm's

Executive Director. This letter states that "these

--contributions__,,,te_re deducted from each Partner's individual net

income distribution-,-"ancfthat thecontriout:i6hswerededucted

from the firm's profits which are typically held back until the

end of the fiscal year. The Committee analogized these

contributions to those from corporate "non-repayable draWing

accounts" which are permitted. See 11 C.F.R. S 102.6(c)(3).

The Comaittee, however, did not provide further documentation or

evidence to show that the partners were able to draw against the

firm's profits before the end of the fiscal year.

We concur with the proposed Audit Report's finding that the

Committee has failed to demonstrate that these contributions

should be attributed only to the individual partners. In 1987,

the Commission clarified that contributions made by partnership

check are attributable to both the partnership and designated

individual partners. See Explanation and Justification for 11

C.F.R. 5 110.1(e), 52 Fed. Reg. 764-765 (January 9, 1987). This

rule prevents persons in partnerships from contributing more

than other contributors not belonging to partnerships. Id., see

also AOs 1981-50, 1990-3, and 1992-17. In the past, the--- ---

commission has in limited situations allowed for contributions

by partnership checks to be attributed solely to the designated

13/ The candidate is a partner in this law firm.

14/ Because a partnership is defined to be a "person" under 2

~S.C. S 431(11), a partnership cannot contribute more than $1,000

to a federal candidate per election. 2 U.S.C. §S 431(11) and

441a.

Page 103

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Memorandum to Robert J. Costa

Final Audit Report

Tsongas for President Committee, Inc.

(LRA • 424)

page 16

individual partners. See MUR 1669 (Commission found no

excessive partnership contribution had resulted when

contributions designated by partners against their separate

partner accounts went to the firm's political action committee),

and AO 1982-63 (law firm's PAC allowed to withhold designated

amounts from partners' shares of firm profits). These cases

involved partnerships with "check-off systems," whereby the

partners could indicate their interest in contributing to a

committee, and the partnership would then draw the sums from

each individual's "separate partner accounts." Thus, contrary

to the case at hand, the money was segregated from the general

corporate funds. In the Committee's case, the account was not

segregated nor did it appear that the partners were able to draw

off that account until the end of the year.~/

The Committee's contention that the partnership

contributions are analogous to those drawn off a corporate

non-repayable drawing account is without merit.~/ A corporate

non-repayable drawing account is an account for corporate

~~mployees "established to permit personal draws against salary,

profits or commissions." See AO 1980-6, and Commission's Notice

-on Corporate Contributions [Transfer Binder] Federal Election

Campaign Financing Guide (CCH) , 9064 (Federal Election

:'CO_i55ion, Aug. 28, 1978). In the Committee's case, it appears ----_~th-at-the-law-firm's-prof-itswe re not distributedun.ti1_tb~__~-Ilg

'of the year and the partners were not able to make personal

~~raws against the account. Thus, the account from which the

partners made the contributions is actually more analogous to a

--repayable drawing account, in that the partners contributed

, money that was not yet in their possession. Therefore, the

;"·-contributions are properly attributed to both the partnership

and the individual partners. "

~-B. SELBCTED CODES AND SAMPLE REVIEW (III. A. 2. a. iii.)

--IOn June 2, 1992, the Commission notified committees by

letter that it would no longer recognize untimely refunds "made

2 more than 60 days following a candidate's date of ineligibility

or after the date of receipt of this letter, whichever is

later." The Committee received this letter on June 8, 1992,

which was later than the candidate's date of ineligibility (May

15/ rurther, the Commission decided these cases before 1987,

prior to its promulgation of 11 C.F.R. S l10.1(e).

16/ Although contributions made from a non repayable drawing

account are permissible personal contributions, contributions

made from corporate accounts which require employees to repay

whatever amounts they have withdrawn are considered corporate

contributions. See Notice on Corporate Contributions [Transfer

Binder] Federal Election Campaign Financing Guide (CCH) , 9064

(Federal Election Commission, Aug. 28, 1978) and 11 C.F.R.

S 1Q2.6(c)(3).

Page 104

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r

I
Memorandum to Robert J. Costa

Final Audit Report

Tsongas for President Committee,

(LU I 424)

Page 17

Inc.

\

18, 1992). The Commission also notified committees in its

letter that it would use sampling projections to calculate

impermissible contributions to the Committee, and that it would

request any untimely refunded contributions to be paid to the

United states Treasury ("Treasury").

As noted in the proposed Report, the Committee made refunds

of $7,312 in excessive contributions identified by the Audit

staff, but after the deadline set by the Commission's letter.17/

In addition, the Audit staff, uSlng a sample review, projecteathat there were $9,419 in excessive contributions. The proposed

Audit Report's findings do not differ from the findings in the

Interim Audit Report.

The Committee's response to the Interim Audit Report argues

two points with respect to the disgorgement recommendation: (1)

the refunded amount of $7,312 should not be disgorged to the

Treasury since the Commission's 1992 letter was unclear as to

the date when refunds were considered untimely; and (2) there

was inadequate rulemaking process for the Commission's stated

intention in its letter. The Committee did not challenge or

dispute the finding of $9,419 in excessive contributions

projected from sampling.

-Our-Office--oisagreeswiththe proposed Report's COJ1c:1.Jl!;tCl_n_

that the Committee should pay the Treasury the $7,312 it has

already refunded to contributors. As noted previously, the

Committee refunded the $7,312 to contributors only ten days

after it received notice from the Commission's letter that such

untimely refunds would no longer be acceptable. It appears that

the Committee did so in a good faith attempt to comply with the

Commission's notice, but that it misinterpreted the Commission's

letter. The Committee interprets the language to mean that the

Commission would allow for 60 days following the date of

ineligibility, or 60 days following the date of receipt of the

letter. While we believe that there is no ambiguity in the

Commission's letter notifying the Committee of the date on which

untimely refunds would no longer be recognized, we note that the

Committee made the refunds soon after it received the letter

with the misunderstanding that it could do so. We recommend

that in this instance the amount of $7,312 be eXCluded from the

amount must be paid to the Treasury.

The Committee also argues that there was inadequate

rulemaking process for the 1992 letter setting forth the

Commission's policy with respect to disgorgement of untimely

refunded contributions. We concur with the proposed Report's

view that the Commission's 1992 letter falls within the general

policy statement or interpretative rule exemption. The

Administrative Procedure Act ("APA") requires that an agency

17/ The Committee also has not r€funded $1,330 in excessive

contributions which the auditors identified.

Page 105

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Memorandum to Robert J. Costa

Final Audit Report

Tsongas for President Committee, Inc.

(LRA I 424)

Page 18

provide for a notice-and-comment period when promulgating new

ftlegislative rules." 5 U.S.C. § 553.18/ An exemption from such a

requirement is created for "interpretative rules, general

statements of policy, or rules of agency organization, procedure

or practice." 5 U.S.C. § 553(b)(3)(A).

Legislative rules are defined as those which have a

substantive impact on individuals' rights or interests.

Generally, courts look at whether the agency pronouncement

"substantially alter[s] the rights or interests of regulated

parties," and whether it acts prospectively. American Hospital

Ass'n v. Bowen, 834 F.2d 1037,1041 (D.C. Cir. 1987). In

contrast, an agency makes a general policy statement when its

announcement is prospective, or leaves the agency and

decision-makers free to exercise discretion. American Bus Ass'n

v. U.S. , 627 F.2d 525, 529 (D.C. Cit. 1980). The Commission's

stated intent to request disgorgement of a committee's

unlawfully retained contributions was prospective. Moreover,

the disgorgement policy does not impact the rights or interests

of parties, as committees are not permitted to retain

contributions beyond 30 or 60 days of receipt, pursuant to 11

C.F.R. S 103.3. Nothing in the Commission's letter alters the

requirements of section 103.3. Therefore, we concur with the

proposed Report's finding that the unlawful contributions

--{excludin(j-the$7,312 already refunded) must bepajd to the

Treasury.

C. STAFF ADVANCES (III. A. 3. a.)

The proposed Audit Report notes that four individuals

advanced funds on behalf of the Committee for travel expenses,

or campaign-related goods and services. The amount totaled to

$60,844.12 in excessive contributions, which were reimbursed

anywhere from 11 days to 236 days. One individual was campaign

business manager David Goldman, who charged $32,658 on his

credit card for hotel and campaign expenses of other staff

during the Democratic National Convention, and was reimbursed

approximately 10 or 11 days later. Another individual was the

Committee's state chairman for Texas, who apparently advanced

$15,892. The two other individuals apparently were untimely

reimbursed for their expenses.

We concur that the Committee received in-kind contributions

in the form of staff advances. The Committee argues that it

reimbursed Goldman in a timely manner, within 10 days after the

charge was incurred. However, the Committee misinterprets the

18/ A notice and comment period consists of 30 days notice (or

actual notice) in the Federal Reglster before the rule becomes

effective, and a period for interested parties to participate in

rulemaking "through submission of written data, views, or

arguments, with or without opportunity for oral presentation."

5 U.S.C. § 553(b) and (c).

page 106

12/16/94
\

Memorandum to Robert J. Costa

Final Audit Report

Tsong8s for President Committee, Inc.

(LRA I 424)

Page 19

regulations to allow payment of others' travel expenses by a

staff member.19/ The Committee contends that "the proposed

advance by GoIOman was presented to and expressly approved by

members of the audit staff prior to the payment in question."

However, the Commission's Explanation & Jus~ification for 11

C.r.R. § 116.5, clearly states that an in-kind contribution

results if "an individual pays the transportation, or

subsistence expenses of others . . . such as the costs of

meeting rooms or telephone services, regardless of how long

reimbursement, if any, takes." S5 Fed. Reg. 26382 (June 27,

1989).

The Committee further argues that there is no rationale for

treating in-kind contributions arising from staff advances

differently from those that are excessive contributions. The

Committee contends that once Goldman learned of the advances

being made by the Texas office, he made reimbursements promptly

and within 10 days of learning of the expenditures. The

Committee argues that these reimbursements would be timely,

according to 11 C.F.R. § 103.3. Staff advances, however, are

not similar to direct excessive or corporate contributions. In

the situation where direct excessive or corporate contributions

are received, a committee must deposit these funds into a

depository, and refund, redesignate, or reattribute within a

---certain-amount-of--time. See _11 ~.F.R.S l03.3(b). A committee

is not allowed to withdrawor use -this mone-y, and therefore,

derives no benefit from the illegal funds. To the contrary, a

committee obtains the immediate benefit of a staff advance.

Therefore, the Committee received $60,844.12 in excessive

contributions, in violation of 11 C.F.R. § 116.5.

D. ADVANCES BY LAW FIRM (III. A. 3. b.)

The proposed Final Audit Report finds that the Committee

owes $14,591 [$13,995 + $596J to the law firm of Armenakis &

Armenakis, for provision of goods and services related to the

Committee'S campaign. The Committee underpaid Armenakis &

Armenakis $13,995 for non-legal work.20/ The Committee also

underpaid $596 to the firm, for legal~efense of a petition

challenge by the Fulani campaign.~/ Thus, the proposed Final

19/ The Committee read section 116.5(b) to forbid payment of

other'S "transportation expenses," but not other types of

expenses.

20/ This payment was for services rendered to obtain 14,000

Signatures for the campaign.

21/ This amount was due for legal work concerning state laws,

and not FECA compliance. Therefore, the underpayment was an

in-kind contribution. See 11 C.F.R. S 100.7(b)(14}.

Page 107

12/16/94
Memorandum to Robert J. Costa

Final Audit Report

Tsongas for President Committee, Inc.

(LRA • 424)

Page 20

Audit Report concludes that there was an excessive in-kind

contribution resulting in the amount of $13,591.22/

In response to the Interim Audit Report, the Committee

argued that the law firm has been fully reimbursed, and that the

charges originally submitted to the Committee "were not

discernibly campaign-related." It submitted a new invoice,

dated September, 1992, by the Armenakis & Armenakis firm, which

reduced the original billed amounts, with accompanying

correspondence that noted all previous invoices were

"supersede(dJ" by this one. The Committee also noted that a

creditor and a political committee are entltled to settle a

disputed debt, pursuant to 11 C.r.R. S 116.10.

We concur with the Audit Division's findings and

recommendations on this issue. Section 116.10 does not absolve

committees of their obligations to pay the debts at issue. It

merely provides for a method of reporting such obligations. The

original invoices by the law firm indicated that Armenakis paid

for Committee expenses without full reimbursement. If a

political committee's debt is forgiven or settled for less than

the amount owed, a contribution results "unless such debt is

settled in accordance with the standards set forth at 11 C.r.R.

S 116.3 and 116.4." 11 C.r.R. S 100.7(b)(4). Section 116.4

---also-requit"e&that j.hE?_C:Q~e_rcialvendor treat the debt in a

commercially reasonable manner~Il\i-rsu-a-nt to llC.F.R;S 116.-7.

A Committee must submit debt settlements for the Commission's

review and acceptance, before the debt is considered to be

settled. See 11 C.r.R. S 116.7. The Committee and the law firm

have not complied with the debt settlement review procedures and

therefore, until they do so, the debt will be treated as an

in-kind contribution.

The Committee also argues in the alternative, that if these

legal services were considered to be volunteered, the services

and expenses would not amount to a contribution. In AOs 1979-58

and 1980-107, cited by the Committee, the Commission did permit

individual partners of a law firm to volunteer non-FECA

compliance services to a committee, but noted that if the

partners were compensated for their volunteer services by their

firm, an in-kind contribution would result. In the Committee's

case, the firm'S partners did not provide volunteer services,

and always intended to be reimbursed for their expenses and

services.~/ Therefore, the expenses for these goods and

22/ During the period of this activity, Armenakis & Armenakis

was a partnership, and advances ~~re made with partnership checks.

Thus, pursuant to Section ll0.l(e), the excessive contribution of

$14,591 would be attributed to the two partners in the amounts of

$6,295.50 each.

23/ The Committee also did not provide adequate documentation to

prove that the charges were not justified or campaign-related.

Page 108

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-.-

..

Memorandum to Robert J. Costa

Fi~al Audit Report

Tsongas for President Committee, Inc.

(LRA. I 424)

Page 21

services, if not fully reimbursed, are in-kind contributions

sUbject to the limitations of 2 U.S.C. § 441a(a).

Page 109

12/16/94
Page 110

12/16/94

,...-.
FEDERAL ELECTION COM,\,1ISSION AK005116

December 16, 1994

Mr. S. George Kokinos

The Tsongas Committee, Inc.

Sherman and Kokinos

220 Broadway, Suite 104

Lynnfield, MA 01940

Dear Mr. Kokinos:

Attached, please find the Final Audit Report on The Tsongas

Committee, Inc. The Commission approved this report on December

15, 1994. The Commission may pursue any of the matters

discussed in an enforcement action.

In accordance with 11 CFR S9038.2(c)(1) and (d)(l), the

-ColllJlflsslon-has made-an -init.ia-ldetermi-nation--thllt_the__Candidate_

is to repay to the Secretary of the Treasury $10,567 within 90

days after service of this report (Karch 21, 1995). Should the

Candidate dispute the Commission's determination that a

repayment is required, Commission regulations at 11 CFR

S9038.2(c)(2) provide the Candidate with an opportunity to

submit in writing, within 30 calendar days after service of the

Commission's notice (January 20, 1995), legal and factual

materials to demonstrate that no repayment, or a lesser

repayment, is required. Further, 11 crR S9038.2(c)(3) permits a

Candidate who has submitted written materials, to request an

opportunity to make an oral presentation in open session based

on the legal and factual materials submitted.

The Commission will consider any written legal and factual

materials submitted by the Candidate within the 30 day period in

making a final repayment determination. Such materi~ls may be

submitted by counsel if the Candidate so elects. If the

Candidate decides to file a response to the initial repayment

determination, please contact Kim L. Bright-Coleman of the

Office of General Counsel at (202) 219-3690 or toll free at

(BOO) 424-9530. If the Candidate does not dispute this initial

determination within the 30 day period prOVided, it will be

considered final.

In addition, the Commission determined that a payment to

the U.S. Treasury in the amount of $64,163 representing the

value of unresolved excessive contributions was required. The

Commission adopted this policy for the 1992 presidential cycle,

Page 111

12/16/94
Mr. S. George Kokinos

Page 2

and so informed The Tsongas Committee, Inc. by a letter dated

June 2, 1992.

The Commission approved Final Audit Report will be placed

on the public record on December 22, 1994. Should have any

questions regarding the public release of this report, please

contact Ron Harris of the Commissic~'s Press Office at (202)

219-4155.

Any questions you may have related to matters covered

during the audit or in the report should be directed to Joe

Swearingen or Joe Stoltz of the Audit Division at (202) 219-3720

or toll free at (800l 424-9530.

Director

Attachments:

Final Audit Report

Legal Analysis dated 10/31/94

page 112

12/16/94

I
FEDERAL ELECTIO:-.; CO,\,i,\1ISSION AR005776

(

t

December 16, 1994

The Honorable paul Tsongas

The Tsongas Committee, Inc.

c/o Foley Boag & Eliot

One Post Office Square

Boston, MA 02109

Dear Senator Tsongas:

Attached, please find the Final Audit Report on The Tsongaa

Committee, Inc. The Commission approved this report on December

15, 1994. The Commission may pursue any of the matters

discussed in an enforcement action.

In accordance with 11 erR 59038.2(c)(1) and (d)(l), the ----- -Couission-- ha s--made--an--i nit-ial- deteTmi-nation-that-the-candTdateis to repay to the Secretary of the Treasury $10,567 within 90

days after service of this report {March 21, 1995}. Should the

Candidate dispute the Commission's deteraination that a

repayment is required, Commission regulations at 11 crR

S9038.2(c)(2} provide the Candidate vith an opportunity to

submit in writing, within 30 calendar days after service of the

Commission's notice (January 20, 1995), legal and factual

aaterials to deaonstrate that no repayaent, or a lesser

repayment, is required. Further, 11 crR S9038.2(c}(3} permits a

Candidate who has subaitted written materials, to request an

opportunity to make an oral presentation in open session based

on the legal and factual materials submitted.

The Commission vill consider any written legal and factual

materials submitted by the Candidate within the 30 day period in

making a final repayment determination. Such materials may be

submitted by counsel if the Candidate so elects. If the

Candidate decides to file a response to the initial repayment

determination, please contact Kim L. Bright-Coleman of the

Office of General Counsel at (202) 219-3690 or toll fr~e at

(8001 424-9530. If the Candidate does not dispute this initial

determination within the 30 day period provided, it will be

considered final.

In addition, the Commission determined that a payment to

the U.S. Treasury in the amount of $64,163 representing the

value of unresolved excessive contributions was required. The

Commission adopted this policy for the 1992 presidential cycle,

page 113

12/16/94
The Honorable Paul Tsongas

Page 2

and so informed The Tsongas Committee, Inc. by a letter dated

June 2, 1992.

The Commission approved Final Audit Report will be placed

on the public record on December 22, 1994. Should have any

questions regarding the public release of this report, please

contact Ron Harris of the Commission's Press Office at (202)

219-4155.

Any questions you may have related to matters covered

during the audit or in the report should be directed to Joe

Swearingen or Joe Stoltz of the Audit Division at (202) 219-3720

or toll free at (BOO) 424-9530.

Sincerely,

~f1: Robert J. sta

Assistant Staff Director

Audit Division

Attachments:

Final Audit Report

Legal Analysis dated 10/31/94

Page 114

12/16/94
CHRONOLOGY

THE TSONGAS COMMITTEE, INC.

pre-audit Inventory Commenced

Audit Fieldwork

Interim Audit Report to

the Committee

Response Received to the

Interim Audit Report!/

Final Audit Report Approved

5/18/92

6/22/92-8/28/92

11/09/93

12/13/93

12/08/94

!/ Additional response time was granted after the revote

and reissuance of the Interim Audit Report following the

Courts decision in FEC v. NRA Political Victory Fund, et

a1., No. 91-5360, slip op. at 2 (D.C. Cir. Oct. 22,

1993).

Page 115

12/16/94
......... .. -

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ro',,,

FEDERAL ELECTIO:-" CO",,\,\JSSION JUI/ ZJ

r~~

~CEuitJ .

~'

June 23, 1995

MEMORANDUM

TO: THE COMMISSI

THROUGH: JOHN C. SURi

STAFF DIREC

FROM: ROBERT J. COST,

.?t..5SISTANT STAFF

AUDIT DIVIS ION.:

SUBJECT: REPAYMENT OF S~O,567 RECEIVED FROM THE TSONGAS

COMMITTEE

This informational memorandum is to advise you of a

______Sl0-.1.567 Repayment !eceived from the Tsongas Committee (the

Committee) .--The- repayment -sati.sfi~!5.ttJ.e Committee' s repayment

obligation as recommended in the final audit -report-and----·

represents a repayment for non-qualified convention related

expenses. Still outstanding is a payment recommended in the

final audit report relating to excessive contributions.

Attached is a copy of the check, the letter which accompanied

the payment, and the receipt showing delivery to the Department

of Treasury.

Should you have any questions regarding the payment please

contact Ray Lisi at 219-3720.

Attachments as stated

.;~.;Q:';\ •. -..' ~':' -11\.~(\Q:i\C)'."

:--'~ -',t .:,.:-:\ .... ~:-~- .....c .~~~ D,_O ... ,( :'FOiO;\.',E:
3675

OLDAKER, RYAN & LEONARD e~ 8 CONN='GTiCu~ ~V'E. N.W

SUITE :!t~ ~oo

'1,,:,su:"~G-O'.j ':: ~O:-€

-, '

;>- ~:': -:-:: .:

____-'0... - .:..'-"~'-' _19 G ::

10567.00

Ten ThoJlsand, Fiye Hundred and Sixty-Seven Dollars and no/cents------eOLL.AEl

w.~o.c.20006

FOR _..LT",sjj,QlJnJ.:g~a",s,- _

oaoc:,....
,.

OLDAKER, RYAN &. LEONA-RD

ATTORNEyS Ai l..AW

818 CONNECTICUT AVENUE. N.W: "'_.,

SUj"'£ '0:::

WASHINGTON. D.C. 20006

~.

'-

June 19. 1995

La\\len-:e ~L :\oble. Esq.

General Counsel

Federal Election Commission

999 E Street, N.W.

--""-~hington, DL 20463

Dear Mr. Noble:

Please find enclosed a check payable to the U.S. Treasury on behalf

of Senator Paul E. Tsongas and the Tsongas Committee, Inc. representing

the final repayment detennination in the amount of $10,567. On June 16,

1995, Senator Tsongas wired this amount to the law firm of Oldaker, Ryan

and Leonard for the purpose of making the repayment.

If you have any questions on this matter, please do not hesitate to

contact me.

Sincerely.

Lyn Utrecht
FE DER/\L ELECTION COM/\,ISSION

June 22, 1995

RECEIPT FROM THE

UNITED STATES DEPARTMENT OF 'I'REASURY

FOR A REPAYMENT OF

1992 PRESIDENTIAL PRIMARY MATCHING FUNDS

-'

Received on ~UNS 21, 1995, f=Cill the Federal ~lectio~ Co~mission

(by hand delivery), a check drawn on the Century National Bank

in the amount of $10,567. The check represents a repayment from

the Tsongas Committee for non-qualified convention related

expenses.

Pursuant to 26 U. S. C. §9038(d), the repayment should be

deposib~dTfitb-the-Matchin9--PaymenLAccount_. _

The Tsongas Committee

Amount of Payment: $10,567

Presented by: Received by:

Commission

"~~TER~I~" ",;, 1;:',-\, .l,,'~) T( ;•• \();:~:, \\

DEDiCATED TO ~UPI'C lH£ PL Bue l.... fO~·.·::