FEDERAL ELECTION COMMISSION 

WASHINGTON, D.C. 20463 April 25.2017 

MEMORANDUM 

To: 

Through: 

From: 

By: 

Subject: 

The Commission 

Alec Palmer 

Staff Director 

Patricia C. Orrock 

Chief Compliance Officer 

Thomas E. Hintermister 

Assistant Staff Director 

Audit Division 

Doug Kodish 

Audit Manager . . 

Rhonda S. Gillingwater 

Lead Auditor 

Audit Division Recommendation Memorandum on Ted Cruz for Senate 

(TCFS) (A 13-05) 

Pursuant to Commission Directive No. 70 (FEC Directive on Processing Audit Reports), 

the Audit staff presents its recommendation below and discusses the finding in the 

attached Draft Final Audit Report (DFAR). The Office of General Counsel has reviewed 

this memorandum and concurs with the recommendation. 

Finding 1. Reporting and Disclosure of Candidate Loans 

A. Reporting of Candidate Loans 

The Candidate made three loans totaling $1,030,000 to TCFS for the 2012 

primary election. TCFS has repaid the Candidate $485,000. However, TCFS 

continued to report the remaining outstanding balance of $545,000 as a loan 

payable to the Candidate, instead of converting this balance to a personal 

contribution from the Candidate. Subsequent to the exit conference, TCFS 

converted the loan to a personal contribution from the Candidate on its 2015 

April Quarterly report. 
In response to the Interim Audit Report, Counsel for TCFS provided no 

additional comments regarding this matter. TCFS declined to make any 

additional comments regarding this matter in its response to the DFAR. 

The Audit staff recommends that the Commission find that TCFS failed to 

timely report the conversion of Candidate loans totaling $545,000 as a 

contribution. 

B. Disclosure of Candidate Loans 

TCFS also failed to disclose that $1,064,000 of the $1,430,000 loaned by the 

Candidate to TCFS were borrowed funds from commercial lenders. 

Amended Schedules C and C-1 should have been filed which would have 

disclosed the corrected loan information, terms of the loans and other loan 

details. 

TCFS declined to make any additional comments regarding this matter in its 

response to the DFAR. 

The Audit staff recommends that the Commission find that TCFS failed to 

properly disclose that $1,064,000 of the Candidate loans originated from 

commercial lenders and failed to file the correct Schedules C and C-1. 

The Committee did not request an audit hearing. 

If this memorandum is approved, a Proposed Final Audit Report will be prepared within 

30 days of the Commission's vote. 

In case of an objection. Directive No. 70 states that the Audit Division Recommendation 

Memorandum will be placed on the next regularly scheduled open session agenda. 

Documents related to this audit report can be viewed in the Voting Ballot Matters folder.. 

Should you have any questions, please contact Rhonda Gillingwater or Doug Kodish at 

694-1200. 

Attachment; 

- Draft Final Audit Report of the Audit Division on Ted Cruz for Senate 

cc: Office of General Counsel 
Draft Final Audit Report of the 

Audit Division oh Ted Cruz for 

Senate 

(Jeinuaiy 18, 2011 - December 31, 2012) 

Why the Audit 

Was Done 

Federal law permits the 

Commission to conduct 

audits and field 

investigations of any 

political committee that is 

required to file reports 

under the Federal 

Election Campaign Act' 

(the Act). The 

Commission generally 

conducts such audits 

when a committee 

appears not to have met 

the threshold 

requirements for 

substantial compliance 

with the Act. Tlie audit 

determines whether the 

committee complied with 

the limitations, 

prohibitions and 

disclosure requirements 

of the Act. 

Future Action 

The Commission may 

initiate an enforcement 

action, at a later time, 

with respect to the matter 

discussed in this report. 

About the Committee (p. 2) 

Ted Cruz for Senate is the principal campaign committee for Ted 

Cruz, Republican candidate for the United States Senate from the 

state of Texas, and is headquartered in Austin, Texas. For mqre 

information, see the Campaign Organization Chart, p. 2. 

Financial Activity (p. 2) 

• Receipts 

o Contributions from IndividuaU 

o Contributions from Political 

Committees 

o Transfers frorii Other Authorized 

Committees • 

o Candidate Loans -

o Other Receipts 

Total Receipts 

• Disbursements 

p Operating Disbursements 

o Candidate Loan Repayments 

,o Contribution Refunds 

o Other Disbursements 

Total Disbursements 

$ 12,044,368 

1,407,608 

175,347 

1,430,000 

40,960 

S 15,098,283 

$ 13,814,542 

587,000 

192,327 

25,000 

S 14,618,869 

Finding and Recommendation (p. 3) 

• Reporting and Disclosure of Candidate Loans 

52U.S.C. §30111(b). 
Draft Final Audit Repart of tlie 

Audit Division on 

Ted Cruz for Sonate 

(January 18, 2011 - December 31, 2012) 
Table of Contents 

Page 

Part 1. Background 

Authority for Audit 1 

Scope of Audit 1 

Part 11. Overview of Campaign 

Campaign Organization 2 

Overview of Financial Activity 2 

Part III. Summary 

Finding and Recommendation ...;f 3 

Part IV. Finding and RecommendatiQi^M';:;:: 

Reporting and Disclosure of Candidate Loans 4 
Part 1 

Background 

Authority for Audit 

This report is based on an audit of Ted Cruz for Senate (TCFS), undertaken by the Audit 

Division of the Federal Election Commission (the Commission) in accordance with the 

Federal Election Campaign Act of 1971, as amended (the Act). The Audit Division 

conducted the audit pursuant to 52 U.S.C. §30111(b), which permits the Commission to 

conduct audits and field investigations of any political committee that is required to file a 

report under 52 U.S.C. §30104. Prior to conducting any audit under this subsection, the 

Commission must perform an internal review of reports filed by selected corhmittees to 

determine if the reports filed by a particular committee meet the threshold requirements 

for substantial compliance with the Act. 52 U.S.C. §30111(b). 

Scope of Audit 

Following Commission-approved procedures, the Audit staff evaluated various risk 

factors and as a result, this audit examined; 

1. the receipt of excessive contributions and loans; 

2. the receipt of contributions from prohibited sources; 

3. the disclosure of contributions received; 

4. the disclosure of individual contributors' occupation and name of employer; 

5. the consistency between reported figures and bank records; 

6. the completeness of records; and 

7. other committee operations necessaiy to the review. 
Part 11 

Overview of Campaign 

Campaign Organization 

Im|)ortnnt Dates 

« Date of Registration February 2, 2011 

• Audit Coveiafte January 18,.2011 -.December 31,2012 

Headquarters Austin, Texas 

Bank Information 

• Bank Depositories Three 

• Bank Accounts Seven Checking 

Treasurer 

Treasurer When Audit Was Conducted Bradley S. Knippa 

• Treasurer During Period Covered by Audit Bradley S. Knippa 

Management Information 

• Attended Commission Campaign .Finance 

Seminar 

Yes 

• Who Handled Accounting and 

Recordkeeping Tasks 

Paid Staff 

Overview of Financial Activity 

(Audited Amounts) 

Cash-on-hand (rOJflnuary 18,2011 $0 

Receipts 

o Contributions from Individuals 12,044.368 

o Contributions from Political Committees 1.407,608 . 

o Transfers from Other Authorized 1.75,347 

Committees 

o Candidate Loans 1.430,000 

o Other Receipts 40,960. 

Total Receipts S 15,098.283 

Disbursements 

o Operati ng Disbursements 13.814,542 . 

o Candidate Loan Repayments 587,000 

o Contribution Refunds 192,327 

o Other Disbursements 25,000 

Total Disbursements 14.618,869 

Cash-on-hand @ December 31,2012 S 479,414 
Part III 

Summary 

Finding and Recommendation 

Reporting and Disclosure of Candidate Loans 

During audit fieldwork, the Audit staff reviewed loans from the Candidate to TCFS for 

calendar years 2011 and 2012. The Candidate made five loans in the amount of 

$1,430,000 to TCFS. Two loans, totaling $400,000, were made to TCFS for the runoff 

election and were repaid in full prior to the start of the audit. The remaining three loans, 

totaling $1,030,000, were for the primary election; TCFS repaid theCjwdidate $485,000 

for these loans. However, the remaining outstanding balance of $545,000 was reported 

as a loan payable to the Candidate and was not converted to a personal candidate 

contribution, as required. Subsequent to the exit conference (in April 2015), TCFS 

converted the $545,000 to a personal candidate contribution. In response to the Interim 

Audit Report recommendation. Counsel for TCFS provided no additional comments 

regarding this matter. • 

After the Interim Audit Report, the Audit staff-was made aware-that TCFS failed to 

disclose that $ 1,064,000 of $ 1,430,000 in.Candidate loans .previously reported were from 

commercial lenders, and it did not file the required Schedules C-1. The loans originated 

from a Citibank revolving line of credit for $264,000., and from three Goldman Sachs 

margin loans totaling $800,000. The remainders of the loan amount come from the 

Candidate's personal funds, totaling $366,000. The Audit staff recommends TCFS 

amend the necessary reports to include CQrrecte.d Schedules C and the appropriate 

Schedules C^I to correctly disclose the source of funds loaned. (For more detail, see p. 4) 
Part IV 

Finding and Recommendation 

Finding 1. Reporting and Disclosure of Candidate Loans 

Summary 

During audit lieldwork, the Audit staff reviewed loans from the Candidate to TCFS for 

calendar years 2011 and 2012. The Candidate made five loans in the amount of 

S 1,430,000 to TCFS. Two loans, totaling $400,000, were made to.TCFS for the runoff 

election and were repaid in full prior to the start of the audit. The remaining three loans, 

totaling $1,030,000, were for the primary election; TCFS repaid the Candidate $485,000 

for these loans. However, the remaining outstanding balance of $545,000 was reported 

as a loan payable to the Candidate and was not converted to a personal candidaite 

contribution, as required. Subsequent to the exit conference (in April 2015), TCFS 

converted the $545,000 to a personal candidate contribution. In response to the Interim 

Audit Report recommendation, Counsel for TCF.S provided no additional comments 

regarding this matter. 

After the Interim Audit Report, the Audit staff was made aware that TCFS failed to 

disclose that $1,064,000 of $ 1,43O,OO0 in,Candidalfc loans previously reported were from 

commercial lenders, and it did not file the required Schedules C-1, The loans originated 

from a Citibank revolving line of credit for $264,000, and from three Goldman Sachs 

margin loans totaling $800,000. The remainders of the loan amount come from the 

Candidate's personal' fuhda, totaling $366,0Q0. The Audit staff recommends TCFS 

amend the necessary reports to include corrected Schedules C and the appropriate 

Schedules C-1 to correctly disclose, the source of funds loaned. 

Legal Standard 

A. Personal Funds. Personal funds of a candidate consist of assets, income, or jointly 

owned spousal-assets. Assets are amounts derived from any asset that, under applicable 

state law, at the time the individual became a candidate, the candidate had legal right of 

access to or control over, and with respect to which the candidate had legal and rightful 

title or an equitable interest. Personal funds may also be income received during the 

current election cycle of the candidate, including salary and other earned income from 

bona fide employment and income from stocks or investments, including interest, 

dividends or proceeds from the sale of such stocks or investments. 11 CFR § 100.33. 

B. Restriction on an Authorized Committee's Repayment of Personal Loans 

Exceeding $250,000 Made by the Candidate to the Authorized Committee. Personal 

loans mean a loan or loans, including advance, made by a candidate, using personal 

funds, as defined in 11 CFR §100.33, to his or her authorized committee where the 
proceeds of the loan were used in connection with the candidate's campaign for election. 

For personal loans that, in the aggregate, exceed $250,000 in connection with an election, 

the authorized committee may; 

• Repay the entire amount of the personal loans using contributions to the candidate 

or the candidate's authorized committee provided that those contributions were 

made on the day of election or before; 

• May repay up to $250,000 of the personal loans from contributions made to the 

candidate or the candidate's authorized committee after the date of the election; 

and 

• Must not repay, directly or indirectly, the aggregate amount of the personal loans 

that exceeds $250,000 from contributions to the candidate or the candidate's 

authorized committee if those contributions were made after the date of the 

election. 

If the aggi egatc outstanding balance of the personal loans exceeds $250,000 after the 

elections, the authorized political committees must comply with the following conditions: 

• If the authorized committee uses the amount of cash-on-hand as of the day after 

the election to repay all or pai1 of the personal loans, it must do so within 20 days 

of the election. 

• Within 20 days of the election date, the authorized committee must treat the 

portion of the aggregate outstanding balance of the personal loans that exceeds 

$250,000 minus the amount of cash-on-hand as of the day after the election used 

to repay the loan as a contribution by the candidate. 

• The candidate's principal campaign committee must report the transactions in 

paragraphs (c) (1) and (c) (2) of this section in the first report scheduled to be 

filed after the election pursuant to 11 CFR § 104.5(a) or (b). 

• This section applies separately to each election. 11 CFR §116.11 (a), (b), (c) and 

(d). • 

C. Candidate as an Agent. Any candidate who receives a contribution, obtains a loan 

or makes any disbursement, iri connection with his or her campaign shall be considered 

as having received such contribution, obtained such loan or made such disbursement as 

an agent of his or authorized committee(s). 11 CFR §101.2. 

D. Reporting Loans. All loans received by a committee must be itemized and 

continuously reported until repaid.. All repayments made on a loan must also be 

itemized. 11 CFR §104.3(a)(4)(iv) and (b)(4)(iii). 11 CFR §104.11. 

E. Schedule C. Both the original loan and payments to reduce principal must be 

reported each reporting period until the loan is repaid. The committee must report the 

following: 

o The source of the loan; and 

• The type of loan the candidate received (i.e. bank loan, brokerage account, credit 
• card, or home equity line of credit) either in the first box for endorsers and 

• guarantors with a notation for loan type or in the box for "Loan Source" after the 

candidate's name. 11 CFR § 104.3(d) and § 104.11. 

F. Schedule C-1. 

1. Loans to Candidates. When a candidate obtains a loan from an advance on the 

candidate's brokerage account, credit card, home equity line of credit or other 

line of credit for use in connection with the candidate's campaign, the candidate's 

principal campaign committee must disclose in the report, covering the period 

when the loan was obtained, the following information on Schedule C-1 or C-P-1: 

o The date, amount, and interest rate of the loan, advance, or line of credit; 

9 The name and address of the lending institution; and . 

• The type and value of collateral or other sources of repayment that secure the 

loan, advance, or line of credit, if any. 11 CFR § 104.3(d)(4). 

2. Loans to Committees. When a committee obtains a loan from a bank or other 

permissible lending institution it must also file Schedule C-1 with the first report 

due after a new loan or line of credit has been established. The committee must 

disclose the following information on Schedule C-1: 

o The date and amount of the loan; 

0 The interest rate and repayment schedule of tlie loan, or on each draw of line 

of credit; 

• The type and value of collateral or other sources of repayment that secure the 

loan or the'line of credit', and whether that security interest was perfected; and 

• An explanation of the basis upon which the loan was made, if not made on the 

basis of either collateral or oAer sourees.of repayment. 

3. Loan Agreement/Line of Credit- The committee must also attach a copy of the 

loan agreement. In the case of a committee that has obtained a line of credit, a 

hew Schedule C-1 must be filed with the next report whenever the committee 

draws on the line of credit. An authorized representative of the lending institution 

must sign the statement on Line 1. 11 CFR § 104.3(d)(1) and (3). 

Facts and Analysis 

A. Reporting of Candidate Loans 

1. Facts 

During audit fieldwork, the Audit staff reviewed five loans from the Candidate to TCFS 

totaling $ 1,430,000. Two of these loans totaling $400,000 were for the runoff election 

and were repaid to the Candidate before the audit commenced, leaving three loans to 

TCFS for the primary election totaling $1,030,000. The following chart outlines the 

amounts and dates of these primary election loans and the repayments that TCFS has 
made to the Candidate within 20 days of the primary election on May 29,2012: 

Date Amount Transaction Running Balance 

3/31/2012 $70,000 Primaiy l.x}an $70,000 

5/18/2012 $400,000 Primary Loan $470,000 

5/22/2012 $560,000 Primary Loan $1,030,000 

6/16/2012^ $( 235,000) Loan Repayment $795,000 

Repayment Limit 

Primary Loan Balance to Report as Candidate 

Contribution 

($250,000)^ 

$545,000 

As noted above, the balances of the Candidate's loans for the primeiry election totaled 

$795,000 on the twentieth day following the election. TCFS maytepay up to $250,000 

of the personal loans for the primary election from contributions Wiadeto the Candidate 

after the date of the election. Also, TCFS was required to tre^t as a contribution the 

amount of $545,000 ($795,000 - $250,000) which is equal to the outstanding balance of 

the Candidate primary loans less the repayment limit. TCFS was required to report the 

contribution of $545,000 on the first report scheduled to be filed after the election (2012 

July Quarterly). TCFS, however, continued to report the remaining balance as an 

outstanding primary loan from the Candidate on Schedule C (Loans) instead of 

converting the loan to a personal contribution from the Candidate oh Schedule A, Line 

11 (d) (Contributions from the Candidate). 

2. Interim Audit Report & Audit Division Recommendation 

The Audit staff discussed the loans with TCFS at the exit conference and subsequently 

provided a detailed schedule outlining amounts loaned to TCFS, its repayments to the 

Candidate, and the loan balance outstanding; Counsel commented that TCFS should be 

allowed to pay off the balance cf the loan and questioned the necessity of the loan 

conversion. However, in response to the exit conference, Counsel stated that TCFS 

reviewed the Audit staffs scheduleof loans, compared it to its accounting records, and 

concluded that the schedule of loans was correct. 

Counsel fuilher.stated that TCFS will report the loan balance of $545,000 as a contribution 

from the Candidate per 11 CFR §116.11 (c). Counsel also noted that the Candidate may 

wish to note on the report his belief that the statute establishing limits on the amount of 

personal debt that may be repaid to a candidate, is unconstitutional. 

Subsequent to the exit conference, TCFS disclosed the conversion of the loan to a 

contribution by the Candidate on Schedule A of its 2015 April Quarterly report. TCFS 

also informed the audit staff that it reserves the right to challenge the constitutionality of 

this provision of the law. Per 11 CFR §116.11 (c)(3), the Audit stalT considered the 

disclosure of the Candidate contribution to the 2012 primary election as untimely. 

^ Single payment made within the 20 day period after the primary eleetion. 

' In accordance with 11 CFR §116.11(b)(2), the Candidate was repaid a total of S2S0,000 for the primary 

election loans with contribution.s made to the TCFS after the May 29,2012 primary date. 
The Interim Audit Report recommended that TCFS provide any comments it deemed 

relevant with respect to this matter. 

3. Committee Response to Interim Audit Report (Report) 

In response to the Interim Audit Report recommendation, Counsel for TCFS provided no 

additional comments regarding this matter. In response to the initial Draft Final Audit 

Report, Counsel reiterated that it had no comments and stated that no hearing was being 

requested'*. 

B. Disclosure of Candidate Loans 

I. Facts 

During audit fieldwork, the disclosure of loans from thi 

based upon documentation available at that time, the 

basis to believe there was a material loan disclosure 

as personal, none were disclosed as commercial loans), 

issuance of the Interim Audit Report to TCFS, the Audii 

of the money loaned by the Candidate to TCFS came from b^i 

Specifically, of the $1,430,000 disclosed on TCFS^s.Schedule 

obtained from the commercial lenders. One of 

came from a Citibank revolving line of credi 

Sachs margin loans. Only $366,000 appears 

personal funds. Moreover, Schedules^@M s 

reviewed, and 

reasonable 

disclosed 

lie 

nost 

in the. 

disclosed the terms of the loans ai 

As the facts concerning the discl^ 

Miscellaneous Te 

information. revie 

requested T(^S file the ne 

amend« r reports to disclol 

recomh t TCFS correctl 

leawar 

was 

4,000 

e three Goldman 

e Candidate's 

'ed which would have 

loan del 

loans be own, TCFS filed a 

lisclosed some but not all of the required loan 

ling^^S^ifimission' s Reports Analysis Division 

"{chedu^^ and C-1.^ To date, TCFS has not 

e additional information. Accordingly, the Audit staff 

e the necessary information on Schedules C and C-1. 

* A Draft Final Audit Report was issued to TCFS in December 20 IS, prior to the Audit Staff being made 

aware of commercial loans to TCFS originated by the Candidate. 

^ These schedules are defined under the Legal Standards section of this report beginning on page 5.