Source: http://nyccfb.org/law/advisory-opinions/2012-1-matter-michael-bloomberg-and-bloomberg-mayor-2009-inc/
Timestamp: 2019-04-18 19:27:00+00:00

Document:
Disclosure of money raised and spent in City elections is central to the Board's mandate. The record established during the 2011 criminal trial of John Haggerty, Jr. ("Haggerty"), a Campaign volunteer, makes clear that the Campaign moved deliberately to avoid pre-election public disclosure of the IP payments, in spite of the Board's clear statement in CFB Final Board Determination No. 2009-1 (Oct. 21, 2009) ("FBD 2009-1") that "political contributions made by Bloomberg with his personal funds to political committees . . . are presumptively campaign expenditures in furtherance of his campaign." FBD 2009-1, at 1, 8.
However, FBD 2009-1 also provides that the Board shall not find violations or assess penalties against candidates who fail to disclose personal contributions to political committees during the 2009 election cycle. Accordingly, while the Campaign's actions contravened the spirit of disclosure underlying the Act and Board Rules, the Board can find no violation. With this determination, the Board concludes its investigation into the matter of the IP payments, and closes the aforementioned complaint.
In FBD 2009-1, the Board dismissed a complaint filed by the 2009 William Thompson mayoral campaign on August 20, 2009 (the "Thompson Complaint"). The Thompson Complaint alleged that the Campaign failed to report Bloomberg's personal contributions to political committees that support candidates in New York City and throughout New York State. Such personal contributions allegedly totaled $3.3 million over the course of the 2009 election cycle through August 2009. Thompson Compl. ¶ 10. The Board held that because it had "never previously clarified to candidates that they must report to the Board political contributions made with personal funds," the Campaign (as well as other 2009 campaigns) were not required "to report the political contributions at issue for the 2009 election cycle." FBD 2009-1, at 1.3 Rather, the Board announced, all campaigns must report such contributions beginning in 2010. This disclosure requirement remains in effect – candidates must now report their personal political contributions on Schedule Y of required CFB disclosure statements.
When it promulgated FBD 2009-1 and set a January 2010 effective date for the enforcement of the clarified disclosure requirements, the Board sought to balance the value of full disclosure for the public against the burden of campaigns' compliance obligations.4 With less than two weeks remaining before the election, the Board did not contemplate that its determination would deprive the public of significant disclosure.5 Notably, FBD 2009-1 did not modify the requirement that candidates report all campaign expenditures, see Admin. Code § 3-703(6)(a), and specifically noted that "[t]he Board has consistently considered [a candidate's] political contributions to be campaign expenditures." FBD 2009-1, at 3.
[I]t appears that at least some portion of Mr. Bloomberg's $1.2 million payment to the Independence Party constitutes unreported campaign expenditures. As you know, pursuant to the Act, Mr. Bloomberg is obligated to report to the CFB every expenditure made in furtherance of his campaign. The Act's disclosure requirements apply to both participants and non-participants alike, and regardless of whether campaign expenditures were paid for with personal funds. Alternatively, if Mr. Bloomberg's $1.2 million payment to the Independence Party was in fact a contribution, and not a campaign expenditure, then it appears that the Independence Party's $750,000 payment to Special Election Operations LLC constitutes a non-independent expenditure on behalf of the Campaign. If so, the Campaign may have accepted, and failed to report, an over-the-limit in-kind contribution from the Independence Party.
The letter required the Campaign to address the issues identified above and a list of specific questions and documentation requests regarding the IP payments, the field and Election Day operations of the IP and SEO, and the activities of Haggerty vis-à-vis the Campaign, the IP, and SEO. On March 16, 2010, the Campaign requested an extension to respond and noted the pendency of "the District Attorney's resolution of issues involving John Haggerty and related matters." The extension was granted in deference to the impending criminal proceedings.
On February 25, 2010, Board staff also sent letters of inquiry to the IP and to Haggerty through his attorney. Counsel for Haggerty and the IP requested additional time to respond on multiple occasions and have not responded to date. Nevertheless, the criminal proceedings against Haggerty brought to light voluminous evidence and testimony relevant to the Board's inquiry.
Haggerty was indicted on charges of first-degree grand larceny, second-degree money laundering, and first-degree falsification of business records in June 2010. Press Release, N.Y. County District Attorney's Office, District Attorney Vance Announces the Indictment of John F. Haggerty, Jr., and Special Elections Operations, LLC (June 13, 2010) ("Press Release"). Haggerty was convicted on charges of second-degree grand larceny and second-degree money laundering. People v. Haggerty, No. 2598/2010 (Sup. Ct. N.Y. County Oct. 21, 2011). Bloomberg and senior Campaign officials testified at the trial. Prosecutors alleged that "Haggerty falsely represented to Mayor Bloomberg's agents and campaign workers that he would arrange for nearly $1.1 million to be spent on . . . ballot security." See Press Release, supra. "In reality . . . neither Haggerty nor SEO made any expenditure in connection with ballot security and poll watching for Election Day 2009," but rather, Haggerty "used approximately $600,000 of the stolen funds to purchase a home." Id.
Relevant to the Board's consideration of this matter is the testimony of senior IP officials at the Haggerty trial. IP officials maintained that the Bloomberg campaign could not have directed that the IP payments be deployed for the Campaign's benefit because, as a matter of New York State election law, contributions to housekeeping accounts become wholly within the control of the receiving party. Thomas Connolly, vice chairman of the IP, testified that "you cannot use [housekeeping contributions] for a specific candidate to run campaigns [, b]ut you can use housekeeping accounts, for example, to do advocacy for a public official." Haggerty Tr. 706:24-707:15. He continued that housekeeping contributions are "by definition a donation and [ ] under control of the Party" because while candidates may "request" that their donations be "earmark[ed] in a special way," "whether that request is honored or not [is] up to the party committee." See id. 709:13-25. "[B]ecause it is a donation," Connolly continued, "we can do with it as we see fit." Id.
Ballot security, also known as voter protection or election protection, means a coordinated effort to record and promptly report to Board of Elections officials technical and ballot access problems observed by trained attorneys and other volunteers at polling places on Election Day. In the 2001 and 2005 mayoral elections, Bloomberg funded sophisticated ballot security operations. See e.g., Haggerty Tr. 118:9-119:11; 256:22-257:3. During the 2005 election, Bloomberg's general election opponent "made accusations that ballot security conducted by the Republicans on Bloomberg's behalf in '01 was indeed voter suppression," see id. 218:13-24; 1246:21-1247:1, and filed a complaint with the federal Department of Justice alleging "an organized effort of voter intimidation disguised as ‘poll watching.'" See Tom Robbins, Roots of "Ballot Security:" Dead Voters, Party Fears and Shadowy Tactics, N.Y. Times (Oct. 4, 2011); Bill Egbert, Fury Over Alleged GOP Vote-Suppress Plan, N.Y. Daily News (Oct. 31, 2005). On August 19, 2009, Kevin Sheekey tapped Haggerty to run Bloomberg's ballot security operation for 2009, instructing Haggerty to "do it on the outside" this time. See Haggerty Tr. 201:8-20; 1244:16-17.
Communications between senior Campaign officials and Haggerty about the financing and logistics of Haggerty's ballot security operation for the 2009 election spanned several months in summer and fall of 2009. See e.g., Haggerty Tr. 56:10-11; 183:22-24; 353:23-364:7. Sheekey and Bradley Tusk met with Haggerty to discuss the ballot security operation in mid-October. See id. 242:11-243:5. Sheekey and Tusk "generally approved" Haggerty's proposed operation at that meeting, but asked Haggerty to provide a more detailed plan. On October 27, 2009, Haggerty presented Sheekey and Patricia Harris with a more detailed budget and operational plan in response to the Campaign's request. Id. 102:16-103:18.10 The following day, Haggerty presented and discussed his budget and plan in a meeting with Bloomberg, Sheekey, Harris, Tusk, consultant Bill Knapp, and pollster Douglas Schoen. Id. 121:6-122:11. On October 30, Sheekey emailed Allison Jaffin to ask whether she and Fiona Reid had discussed finalizing the ballot security operation. Jaffin and Reid invited Haggerty to meet with them later that day to discuss further refinements to his budget. Id. 437:12-438:6. Following their meeting, Haggerty promptly emailed additional plan and budget documents to Jaffin and Reid. Id. 447:24-448:6. Jaffin and Reid then privately discussed the operation and agreed "it looked good." Id. 451:5-11.
F. Reid: Sending you a heads-up about the payments that were going to be coming.
Rizzo: So you're saying MRB [Bloomberg] may make a donation to IP?
Reid: Yes, like we do to Republican in 2005.
Rizzo: Are you asking B/C of the CFB? I thought that was [effective] January plus, but I would have to check.
Reid: I don't think it was ever put together that clearly before, not to me at least.
Rizzo: Isn't this the two payments we researched for Bradley [Tusk] a month back? Two by 400. Maybe I'm getting the names of the projects wrong, but it was the Haggerty thing.
The Board received a response from the Campaign on January 20, 2012. The response asserted that the Board had already reviewed and dismissed the allegations in FBD 2009-1 and issued a decision requiring the reporting of candidates' personal contributions starting January 12, 2010. The response stated that the Kann Complaint did not provide a justification for the Board to revisit FBD 2009-1 and requested that the complaint be dismissed.
In its Draft Audit Report of March 29, 2012, Board staff outlined the history of its inquiry by referencing the unanswered February 25, 2010 letter and acknowledging receipt of the Campaign's response to the Kann Complaint. CFB staff emphasized that the Kann Complaint remained unresolved and instructed the Campaign as follows: "In light of sworn testimony by the Candidate and senior Campaign officials at the [Haggerty trial] regarding these two payments and the expectations of the Candidate and the Campaign regarding how these funds were to be used, explain why the Campaign did not report these payments on CFB disclosure statements."
On May 1, 2012, the Campaign responded to the Draft Audit Report, largely restating the arguments it set forth in its January 20, 2012 response to the Kann Complaint. The Campaign principally argued that according to FBD 2009-1, the Board "require[d] such contributions to be reported as expenditures by the campaign committees starting January 12, 2010. As each of the [IP payments] were made prior to this date [on] October 30, 2009 and November 2, 2009, the Committee was not required to report the [IP payments] on its CFB disclosure statement." The Campaign further noted that on the face of FBD 2009-1, "the Board decided that it would not examine the facts involving any of the candidates who made [personal] contributions before January 12, 2010." Finally, the Campaign argued that the IP payments are not Campaign expenditures or in-kind contributions to the Campaign because (1) they were made to IP housekeeping committee accounts "with the desire that the funds would contribute to general party support and poll watching operations . . . to benefit all candidates and the public at large;" (2) "the IP maintained complete discretion over the deployment" of the IP payments; and (3) the "bulk of the funds comprising the [IP payments] were misappropriated by Haggerty for his personal use" and therefore never actually redounded to the Campaign's benefit.
The Act provides that each "candidate and his or her authorized committees shall report to the board every contribution, loan, guarantee, or other security for such loan received by the candidate and such committee . . . and every expenditure made by the candidate and such committee . . . ." See Admin. Code §3-703(6)(a). During the two weeks preceding an election, a campaign is required to report all contributions or loans accepted from a single source exceeding $1,000, and any expenditures that exceed $20,000, within 24 hours after they are accepted or made. See Admin. Code §§ 3-703(1), (g), (6), (12); Board Rule 3-02(e). Accordingly, but for FBD 2009-1, see infra, the Campaign's failure to report the IP payments would constitute a violation of the Act and Board Rules.
The Campaign maintains that it was not interested in securing a benefit in exchange for Bloomberg's $1.2 million contribution in the week before a close election, yet its senior officials requested additional details of Haggerty and directed him to produce multiple iterations of his proposal until it met their specifications for payment. See Factual Background: The Haggerty Trial, supra. The trial record further confirms that the Campaign, purportedly not seeking to benefit, dispatched senior staffers to discuss the financing and logistics of Haggerty's ballot security operation over the course of several months,see e.g., Sheekey Test., Haggerty Tr. 183:22-24, and arranged for Haggerty to meet with the Candidate himself to discuss the ballot security operation only days before the election. Haggerty Tr. 122:4-11.
This level of activity and involvement by Campaign staff begs the question whether the IP payments were really the type of contributions the Board intended to cover with FBD 2009-1. Indeed, the record before the Board makes clear that the Campaign, with a stated intent to conceal the funding of its $1.1 million ballot security operation by "do[ing] it on the outside," moved to deprive the New York City electorate of the benefits of disclosure. See Haggerty Tr. 201:8-20; 1244:16-17.
For the 2009 election cycle, candidates who have not reported political contributions of more than $99 made with personal funds to non-candidate political committees as campaign expenditures will not be found in violation of the New York City Campaign Finance Act and Board Rules, and such contributions will not be considered in the Board's audit review of disclosure reports filed.
See FBD 2009-1, at 2 (emphasis added). Rather, such contributions "must be reported in disclosure statements beginning January 12, 2010." See id., at 6.
The IP payments appear to fall within the broad parameters prescribed by FBD 2009-1. See FBD 2009-1 (defining transactions covered by FBD 2009-1 as "political contributions made with personal funds;" "political contributions made by Bloomberg with his personal funds to political committees;" "political contributions of more than $99 made with personal funds in the 2009 election cycle to non-candidate political committees;" "political contributions from [a candidate's] personal account rather than the candidate's committee account;" candidate contributions to "entities such as political party committees (including housekeeping accounts of these committees), PACs, and political clubs."). Thus, by operation of FBD 2009-1 and in spite of the purposes underlying it, the Board concludes that the Campaign was not required to report the Candidate's personal political contributions made between October 21, 2009 (the date of FBD 2009-1) and January 11, 2010 (the effective date of FBD 2009-1). Accordingly, while the Complaint raises serious public policy considerations, see infra, it does not allege a violation of law upon which the Board may grant relief.
The Complaint does not explicitly raise the issue of whether the Campaign coordinated in alleged independent expenditures in violation of the Act and Board Rules. See Admin. Code § 3-702(8); Board Rule 1-08(f); Board Advisory Op. No. 2009-7 (Aug. 6, 2009). Under a coordination theory, the payments from the IP to SEO for ballot security operations arguably were required to be reported by the Campaign under the Act as in-kind contributions from the IP because, inter alia, senior Campaign officials were involved in planning for the services to be provided, and Haggerty was a common vendor of the Campaign and the IP.17 See e.g., Sheekey Test., Haggerty Tr. 183:22-24. These factors plainly suggest coordination between the IP and the Campaign.
However, the record before the Board lacks evidence that there were any actual expenditures made to benefit the Campaign. The Board is thus precluded from finding the Campaign in violation for coordination in alleged independent expenditures for two critical reasons: (1) there were no expenditures, because Haggerty absconded with the bulk of the IP payments before their benefit could redound to anyone; and (2) the planned expenditures would not have been considered to be made for the benefit of the Campaign, because as a matter of state election law, funds transferred to a party housekeeping account cannot be used to benefit a specific candidate.18 The sworn trial testimony of senior IP and Campaign officials served to reinforce this conclusion.
The Act empowers the Board to diminish the role and influence of private money in New York City elections, to increase the information available to the public about elections and candidates' campaign finances, and to reduce the potential for actual or perceived corruption. See generally N.Y. City Charter Ch. 46. Entrusted with and guided by these mandates, the Board is troubled by Bloomberg's apparent freedom under New York State Election Law to make and conceal such payments in the first place.
When stripped of legal artifice, housekeeping arrangements are, at best, hostile to the principles of fair play and transparency which form the building blocks of New York City's campaign finance regime and provide the reason for this Board's existence. At worst, housekeeping committees may provide legal cover for corruption or engender the appearance of corruption. Although housekeeping committees may not promote a specific candidate, they may transfer funds to a second political organization for that organization to promote a candidate, or even for the second organization to contribute funds to an individual campaign outright. Corporations, which are banned from contributing to New York City campaigns and limited to contributions of $5,000 in state elections, may make unlimited housekeeping committee donations. Bond underwriters, lobbyists, and others who are banned or severely limited in their ability to contribute to candidates directly, may make unlimited party housekeeping contributions. By their very nature, housekeeping accounts provide a vehicle for huge amounts of unregulated money in New York City elections.
New York's housekeeping construct also threatens the spirit of disclosure that animates the Board's work. Because they are not, as a matter of law, permitted to support or oppose specific candidates, housekeeping committees are exempt from filing disclosure reports timed to elections, and need only file periodic reports twice per year. See N.Y. State Bd. of Elections, "Campaign Finance Handbook 2012," at 17-19.22 In the matter before the Board, it was not until the IP disclosed the payments on January 15, 2010, some ten weeks after polls had closed, that voters were finally afforded a complete financial picture of the 2009 mayoral election. The CFB was established precisely to close this type of information gap and ensure the transparency of City elections. The Board once again calls upon the New York State legislature to close New York's housekeeping loopholes.
This determination hereby concludes the Board's investigation into this matter and closes the Kann Complaint.
1 Administrative Code of the City of New York ("Admin. Code") §§ 3-701, et seq.
2 52 R.C.N.Y. §§ 1-01, et seq. ("Board Rules" or "Rules").
3While the Thompson Complaint alleged that Bloomberg derived general goodwill and the Republican Party ballot line in exchange for his political contributions, it did not allege that his Campaign received the benefit of any specific good or service. The December 1, 2011 complaint, see infra, distinguishes the IP payments from those reviewed in FBD 2009-1, on the basis that the IP payments were made to obtain goods and services that were directly beneficial to the Campaign. The December 1, 2011 complaint (the "Kann Complaint") urges that the IP payments be "considered independently of the contributions considered in FBD 2009-1" because unlike those contributions, the IP payments were a "back-channel method of funding the [Campaign's] poll-watching operation" in order to "conceal campaign expenditures." Kann Compl. at 2.
4The Board mitigated the loss of public disclosure by providing as an appendix to FBD 2009-1 a list of all personal political contributions that would have been reported to that point. See Appendix ("Candidates' Personal Political Contributions"), FBD 2009-1.
5 Candidates who participate in the Campaign Finance Program and receive public funds are prohibited from making political contributions after the election because post-election spending is severely restricted for participants. In 2009, 140 of the 180 candidates who spent more than $10,000 received public funds.
6 The CFB obtained the corporate records of SEO, an entity formed after the election by Haggerty.
7 On January 29, 2010, Howard Wolfson, a Campaign spokesperson, asserted that the IP payments were for "field and Election Day operations around the state – canvassing, turnout reports, machine checks." See Fredric U. Dicker and David Seifman, "Phantom" firm got $$ in re-elex, New York Post,Jan, 29, 2010. In subsequent press reports, the Candidate and senior Campaign officials clarified that the IP payments were for poll watching activities relating strictly to ballot security. See, e.g., David Seifman, Mike mystery money went to key elex aide, New York Post, Jan. 30, 2010. Kenneth Gross, Campaign counsel, testified during the Haggerty trial that the Campaign's initial public statements about the IP payments were made in reliance on false information conveyed to the campaign by Mr. Haggerty. See Trial Transcript 761:17-794:2, People v. Haggerty, No. 2589/10 (Sup. Ct. N.Y. County Oct. 11, 2011) ("Haggerty Tr."). The prosecution proffered contemporaneous email correspondence between Messrs. Gross and Haggerty that appears to support this contention. See id.
8 See e.g., Testimony of Kevin Sheekey ("Sheekey Test."), Haggerty Tr. 183:22-24, and Testimony of Diane Rizzo, Haggerty Tr. 561:8-567:25.
9 See Board Rule 1-08(f); see also Coordination in Alleged Independent Expenditures, infra.
10 In his October 27, 2009 email to Sheekey and Harris, Haggerty wrote: "Remember, it's a housekeeping contribution that will not be reported until January 15, 2010. Chairman McKay and Tom Connolly are aware and fully cooperative." Haggerty Tr. 107:7-8.
11 See Haggerty Tr. 561:8-563:23. On direct examination, Reid explained that this correspondence confirmed her understanding of FBD 2009-1 as meaning that if Bloomberg "makes political contributions to political parties, that does not have to be disclosed in the Campaign Finance Board disclosures." Id. 567:15-21.
12 Thus, the Kann Complaint appears to distinguish the IP payments from those reviewed in FBD 2009-1, on the basis that the IP payments were made to obtain a service directly beneficial to the Campaign. See also n. 3.
13 See CFB letter to Rizzo dated December 12, 2011.
14 The trial record established that $100,000 of the $1.2 million transferred was a contribution not associated with the ballot security operation.
15See Haggerty Tr. 331:13-20. On cross-examination, Bloomberg was unable to identify any other IP candidates by name. See Haggerty Tr. 403:21-24.
16 Haggerty Tr. 324:2-8. Regardless, the intent underlying a candidate's personal, political contributions is not dispositive under the Act, Rules, or precedents of the Board. Rather, by "long-standing practice" of the Board, such contributions are "presumed to be campaign-related . . . because of the difficulty of determining, after the fact, the intent behind a political contribution and in light of the subjectivity of such determinations." FBD 2009-1, at 4 (citing CFB Advisory Op. No. 1997-6 (June 24, 1997) ("it would be extremely difficult for a regulatory agency to gauge, after the fact, the significance or meaning that a political contribution holds for the contributor, recipient, and other interested parties.")).
17 The Act defines "independent" activity as that which a candidate or a candidate's committee "did not authorize, request, suggest, foster or cooperate in." Id.; see also Admin. Code § 3-702(8). If not independent, expenditures are in-kind contributions, which are considered both contributions and expenditures, subject to the contribution and expenditure limits. See Board Rule 1-08(f)(2), (3); see also Admin. Code §3-702(8) (providing that "independent" means "the candidate or his or her agents or political committees so authorized by such candidate did not authorize, request, suggest, foster or cooperate in any such activity."). "Factors for determining whether an expenditure is independent include, but are not limited to: (1) whether the person, political committee, or other entity making the expenditure is also an agent of a candidate; (2) whether the treasurer of, or other person authorized to accept receipts or make expenditures for, the person, political committee, or other entity making the expenditure is also an agent of a candidate; (3) whether a candidate has authorized, requested, suggested, fostered, or otherwise cooperated in any way in the formation or operation of the person, political committee, or other entity making the expenditure; (4) whether the person, political committee, or other entity making the expenditure has been established, financed, maintained, or controlled by any of the same persons, political committees, or other entities as those which have established, financed, maintained, or controlled a political committee authorized by the candidate; (5) whether the person, political committee, or other entity making the expenditure and the candidates have each retained, consulted, or otherwise been in communication with the same third party or parties, if the candidate knew or should have known that the candidate's communication or relationship to the third party or parties would inform or result in expenditures to benefit the candidate; and (6) whether the candidate, any agent of the candidate, or any political committee authorized by the candidate shares or rents space for a campaign-related purpose with or from the person, political committee, or other entity making the expenditure." See Board Rule 1-08(f)(1).
18 See N.Y. Election Law § 14-124(3) ("The contribution and receipt limits of this article shall not apply to monies received and expenditures made by a party committee or constituted committee to maintain a permanent headquarters and staff and carry on ordinary activities which are not for the express purpose of promoting the candidacy of specific candidates."). The Board generally does not make determinations of compliance with New York State Election Law.
19See N.Y. City Campaign Fin. Bd., "Party Favors: A Report by the New York City Campaign Finance Board," January 1995. See also N.Y. City Campaign Fin. Bd., "The Impact of High-Spending Non-Participants on the Campaign Finance Program," 2006.
20See SBOE Committee Guidance, available at www.elections.ny.gov/CFCommittees.html (citing N.Y. Election Law § 14-124(3)). See also Editorial,New York's "Housekeeping" Money, New York Times, Oct. 10, 2011 ("[T]he reporting requirements for such contributions are so vague that it is almost impossible for the voters to figure out how the money is actually being spent. That, of course, is what makes these accounts so wildly popular with both contributors and recipients.").
21See N.Y. Election Law § 14-124(3). A record of Bloomberg's contributions to party housekeeping accounts is available at http://goo.gl/qwjGO (N.Y. State Bd. of Elections, Campaign Financial Disclosure Database, Search By Contributor Name, Date, and Amount).
22 Several prominent election law practitioners have expressed the belief that "[i]n effect, Bloomberg was concealing his payments to Haggerty, because those housekeeping transactions did not become public until two months after the election. This was an obvious end-run around laws that are supposed to let voters know how politicians raise and spend their campaign cash." Bill Hammond, "John Haggerty Case Exposes Gaping Flaws in State Campaign Finance Law," New York Daily News (Oct. 25, 2011). See also Wayne Barrett, "Mike Bloomberg's $1.2 Million Indy Party Donation Gets Murkier and Murkier," Village Voice (Mar. 2, 2010) (collecting election law practitioner commentary). See also n. 10 (quoting testimony of Sheekey regarding disclosure of the IP payments).

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