Jun 22, 2004 -- Press Release: Campaign Finance Groups File New FEC Complaint Charging ACT Has Engaged in "Knowing and Willful" Violations of the Campaign Finance Laws
Groups Warn of "Outrageous" Effort at FEC to Backtrack on Recent FEC Advisory Opinion That Confirms Violations by ACT

Democracy 21, The Campaign Legal Center and the Center for Responsive Politics filed a new complaint today with the Federal Election Commission (FEC), alleging that America Come Together (ACT), a pro-Democratic 527 group, "has engaged, and is continuing to engage, in illegal activities," including "knowing and willful" violations of the campaign finance laws.

The new charges against ACT are separate and distinct from the allegations made in a complaint filed by the same groups against ACT and other 527 groups on January 15, 2004. The three campaign finance groups are also carefully monitoring the recently stepped up activities by pro-Republican 527 groups regarding the 2004 federal elections and are prepared to bring additional legal actions, if appropriate.

New Charges of Campaign Finance Violations

The new complaint charges ACT, a registered federal political committee, with illegally spending soft money on its efforts to defeat President George Bush. The violations of the Federal Election Campaign Act (FECA) include ACT's improper calculation of the FEC allocation rules to illegally spend more soft money on its voter mobilization activities than the rules allow, ACT's illegal use of soft money to pay for its direct mail fundraising communications that are required to be funded with hard money and ACT's improper solicitation of funds.

The "new and separate grounds" in the FEC complaint are "based on principles of law that the Commission specifically affirmed in Ad.Op. 2003-37 (Feb. 19, 2004)," which is an advisory opinion issued earlier this year to a pro-Republican 527 group, Americans for a Better Country (ABC). The legal rulings in the ABC advisory opinion affirm that ACT is illegally spending far more soft money than the federal campaign finance laws allow, according to the complaint.

ACT itself has recognized the applicability of the ABC advisory opinion to its own activities, according to the complaint. After filing its own request for an advisory opinion on January 13, 2004, while the ABC request was pending, ACT voluntarily withdrew the request on February 27, 2004, stating that it was doing so "in light of the Commission's issuance of Advisory Opinion 2003-37, which addresses principal issues raised in ACT's request."

"Under the Federal Election Campaign Act, as affirmed in the ABC advisory opinion, federal political committees like ACT must use federal funds, or hard money, to pay for direct mail communications that promote, support, attack or oppose federal candidates, regardless of whether they contain 'express advocacy,'" according to Democracy 21 President Fred Wertheimer. "Our complaint charges that ACT has been illegally funding its direct mail communications that attack and oppose Bush with 98 percent soft money and two percent hard money, instead of the 100 percent federal hard money they are required to use."

ACT has reported spending approximately $1.3 million on fundraising expenses from its inception through March 31, 2004, with the great bulk of these expenditures alleged to have been made on direct mail communications, according to the complaint.

As the complaint states, "In response to a question posed in the ABC advisory opinion request about how a political committee with a nonfederal account, such as ABC (or ACT) must fund a communication that promotes or attacks a Federal candidate, the Commission said such a communication "must be treated as an expenditure and paid for entirely from ABC's Federal account."

"Additionally, the fact that these direct mail communications are required to be paid for with hard money means that ACT has improperly applied the FEC allocation rules and has been illegally spending more soft money on its voter mobilization efforts to defeat President Bush than the law allows," according to Wertheimer.

According to the complaint, "ACT has reported using an allocation ratio of 98-2 under existing FEC regulations - thus funding its generic voter mobilization activities, administrative overhead and other allocable activities using 98 percent nonfederal funds and two percent federal funds. ACT, however, has illegally calculated this ratio by failing to properly treat as 'expenditures' the funds it has spent for direct mail solicitations attacking or opposing President Bush's reelection, contrary to [the law]. This failure has resulted in ACT spending more nonfederal funds than is permitted by law."

ACT has reported spending total soft money of some $9,996,000 and total hard money of some $211,000 from its inception through March 31, 2004, according to the complaint. Each of ACT's disbursements during this period has been improperly funded with 98 percent soft money and two percent hard money. The complaint calls on the FEC to review the expenditures that have been made by ACT after March 31, 2004, the most recent reporting period, to obtain information on additional violations that may have occurred.

The complaint alleges that "the 98-2 ratio that ACT has reported and is applying to its administrative costs and generic voter drive activities significantly overstates the amount of nonfederal funds and understates the amount of federal funds that ACT can legally spend for its generic voter drive activities, administrative costs and other allocable activities."

According to the complaint, ACT's allocation ratio must be "re-calculated, taking into account as 'expenditures' the funds that ACT has spent for its direct mail solicitations described above, and assigning those 'expenditures' to the 'numerator' of the allocation ratio... Each of the payments made by ACT pursuant to its erroneous and unlawful use of a 98-2 allocation ratio should be found to be a violation of the FECA."

Knowing and Willful Violations

According to the complaint, the violations of law engaged in by ACT after the FEC issued the ABC advisory on February 19, 2004 are "knowing and willful" violations, since the advisory opinion put ACT on notice it was spending soft money in violation of the FECA. Knowing and willful violations of the FECA are subject to higher penalties under the law.

According to the complaint, the legal principles set forth by the Commission in the ABC advisory opinion fully apply to ACT:

In Ad.Op. 2003-37, the Commission specifically noted that it was limiting its ruling to an entity, such as ABC, that is a political committee with a non-federal account. ACT, like ABC, describes itself as a political committee, with federal and nonfederal accounts. Because ACT is structured in a way that is materially indistinguishable from ABC, Ad.Op. 2003-37 is fully applicable and particularly relevant to ACT's similar activities, both prior to and following the issuance of Ad.Op. 2003-37.

"The structure and proposed activities of ABC are legally and materially indistinguishable from ACT's structure and activities, and the legal principles set forth in the ABC advisory opinion are directly applicable to ACT," said Lawrence Noble, former FEC general counsel and Executive Director of the Center for Responsive Politics.

"Outrageous" Effort at the FEC

The three campaign finance groups warned that an "outrageous effort" is now underway at the FEC to try to get the Commission to withdraw the very portion of its February 19, 2004 ABC advisory opinion that makes clear that ACT has been, and is, engaged in multiple violations of the campaign finance laws.

"The brazen effort being undertaken to get the FEC to withdraw key portions of the advisory opinion it issued just four months ago does not pass the smell test," according to Wertheimer. "The effort has all the makings of an attempt to rig the FEC after the fact. This is all the more evident when you take a look at the players involved in the effort."

On June 7, 2004, a petition to withdraw portions of the ABC advisory opinion affirming that ACT has been violating the campaign finance laws was submitted to the FEC by Emily's List. Ellen Malcolm, the president of Emily's list, is also the president of ACT.

The law firm representing Emily's List in its withdrawal petition effort is Perkins Coie. Bob Bauer, who heads the Perkins Coie political law group, serves an attorney for ACT. Judith Corley, a lawyer with the Perkins Coie political law group, submitted the original advisory opinion request from ACT on January 13, 2004, the February 27 letter from ACT withdrawing its advisory opinion request, and the June 7, 2004 letter from Emily's List requesting the withdrawal of key portions of the ABC advisory opinion.

The ABC advisory opinion issued by the FEC on February 19, 2004 was proposed by Ellen Weintraub, the FEC Vice Chair, who also provided the deciding fourth vote for its adoption. Weintraub previously was a lawyer with the Perkins Coie political law group.

Following the June 7, 2004 request from Emily's List to withdraw a key portion of the ABC advisory opinion, Vice Chair Weintraub started voicing second thoughts about the advisory opinion she had proposed.

According to the BNA Money and Politics Report (June 10, 2004), Weintraub "indicated that she was sympathetic to complaints that the FEC's action on the rulemaking has created uncertainty about what the rules are for nonparty groups" and "Weintraub said it was 'very troubling' that the FEC has received information in the rulemaking process that was not available during consideration of the ABC advisory opinion."

"It would be indefensible for the FEC to withdraw any portion of the ABC advisory opinion in the circumstances involved here," said Trevor Potter, a former Chairman of the FEC and currently the Chairman of the Campaign Legal Center. "I cannot imagine how Vice Chair Weintraub or the FEC could possibly justify or explain to the public reversing their views on this matter."

"There is no legitimate legal or factual basis for FEC Vice Chair Weintraub to reverse course on an FEC advisory opinion that was proposed by her and adopted by the FEC just four months ago," Wertheimer said. "Nothing that occurred during the rulemaking on 527 groups provides a justification for Weintraub or the FEC to abandon the portions of the ABC advisory opinion that, among other things, makes clear that ACT is violating the campaign finance laws.

ACT Has Been Using an Illegal Allocation for Its Voter Mobilization Expenditures and Making Illegal Soft Money Expenditures on Direct Mail Fundraising Communications

According to the complaint, the Commission in its February 19, 2004 advisory opinion ruled that when a political committee with a nonfederal account, such as ABC and ACT, make a disbursement for a public communication that promotes, supports, attacks or opposes a federal candidate, the disbursement is an "expenditure" relative to the named candidate, and must be paid for entirely with federal funds, whether or not the communication contains express advocacy.

In responding to ABC, according to the complaint, the FEC wrote in its opinion:

The communication you intend to produce would promote or support candidates for Federal office by proclaiming that those candidates have "led the fight in Congress for a stronger defense and stronger economy." ...[A] payment for a communication that promotes, supports, attacks or opposes a clearly identified Federal candidate is "for the purpose of influencing a Federal election" when made by a political committee and is therefore an "expenditure" within the meaning of 2 U.S.C. 431(9) that must be paid for entirely with Federal funds.

The complaint points out that "ACT has widely distributed mass mailing fundraising solicitations that 'oppose' and 'attack' President Bush by name, and are thus 'expenditures' to influence a federal election." The complaint notes that two similar versions of the solicitation, one sent in February, 2004 and one in June, 2004, were each mailed in an envelope that states on the outside:

17 States, 25,000 Organizers, 200,000 Volunteers, 10 Million Doors Knocked On...and a one-way ticket back to Crawford, Texas

According to the complaint, this is a clear reference to ACT's overriding purpose and goal of defeating President Bush.

The February 2004 direct mail fundraising communication is focused on the presidential election and attacks and opposes President Bush:

[I]f we can count on your personal support and active participation, 2004 will be a year of America Coming Together and George W. Bush going home...

In communities all across America, people are hurting because Bush's mindless devotion to tax cuts for the wealthy is making a shambles of our economy. Bush has turned record budget surpluses into record deficits in no time flat.

He has worked to undermine a woman's right to choose. His reckless disregard for the environment has eroded decades of progress. He's set timber companies loose on our national forests - and he's set John Ashcroft loose on our civil liberties.

But, wishing won't make Bush, Cheney, Ashcroft, DeLay and their extremist agenda go away. People-to-people organizing will - and organizing is what ACT is all about.

The June 2004 direct mail fundraising communication contains similar language attacking and opposing President Bush.

The Commission held in its February advisory opinion that, "any such expenditure by a federal political committee 'must be paid for entirely with federal funds,' Ad.Op. 2003-37 at 9, and cannot be allocated under section 106.6," according to the complaint.

According to its public disclosure reports, ACT has spent some $1.3 million on fundraising expenses from its inception thorough March 31, 2004, with 98 percent of these costs being paid for with soft money and only 2 percent with hard money. (This is based on compiling the reported disbursements by ACT of $500 or more, and includes approximately $707,000 reported spent since Ad.Op. 2003-37 was issued on February 19, 2004).

The complaint states:

Upon information and belief, most of the fundraising disbursements reported by ACT were made in connection with the fundraising solicitation mailings described above, and were paid for with soft money... [T]o the extent that the direct mail solicitations described above were funded with nonfederal funds, this spending has been in violation of the FECA and Commission rulings.

Further, in its February advisory opinion, the Commission reviewed the allocation rules which allow a non-connected committee, such as ACT, to allocate between its federal and nonfederal accounts payment for administrative expenses and "generic voter drives including voter identification, voter registration, and get-out-the-vote drives, or any other activities that urge the general public to register, vote or support candidates of a particular party or associated with a particular issue, without mentioning a specific candidate." 11 C.F.R. 106.6(b)(2).

In its 2003 year end and 2004 first quarter reports, ACT reported using a 98-2 allocation formula, paying 98 percent of the costs of its generic and administrative activities using funds from its nonfederal account, and 2 percent of the costs of its activities using funds from its federal account. This included total soft money spending of approximately $9,996,000 and total hard money spending of approximately $211,000 according to the complaint.

The Commission specifically discussed the application of the allocation methodology to public communications by political committees with nonfederal accounts, such as ACT. According to the complaint, the Commission said in the February advisory opinion:

For purposes of this ratio, the Federal expenditures shall include only amounts contributed to or otherwise spent on behalf of specific Federal candidates, including independent expenditures, and amounts spent on communications that promote, support, attack or oppose a clearly identified Federal candidate. Ad.Op. 2003-37 at 4 n.5 (emphasis added).

According to the complaint:

[S]ince the funds spent for the solicitations discussed above constitute "expenditures," the entire amount of that spending must be treated as federal "expenditures" for purposes of calculating ACT's allocation ratio under section 106.6(c) and must be assigned to the federal "numerator" in the calculation. In improperly funding its solicitations with nonfederal funds instead of federal funds, ACT has also failed to properly account for all "expenditures" in calculating its allocation ratio. The result is that ACT has failed to properly and lawfully comply with the FEC's allocation rules, and has been using more nonfederal funds and less federal funds to finance its activities than is legally permitted by the allocation rules.

ACT Has Been Improperly Soliciting Funds

The complaint alleges ACT has been improperly soliciting funds through direct mail solicitations that promote, support, attack or oppose a federal candidate.

According to the complaint, the ABC advisory opinion states that such a solicitation must "make clear" that ACT can "accept only contributions within the limitations and prohibitions of the Act or provide other information consistent with that." The ACT solicitations, however, do not "make clear" this restriction. For example, they do not state that all contributions received are subject to the prohibitions and limitations of the FECA. The complaint also states that the law, as confirmed by the ABC advisory opinion, requires that "all funds raised in response to the ACT solicitation are 'contributions' under the FECA, and are subject to the contribution limits, source prohibitions and reporting requirements of federal law."

According to the complaint, "to the extent that ACT received any nonfederal funds in response to the direct mail solicitations described above, such funds were illegal 'contributions' to ACT."

Click here to read the complaint