Scam PACs and COVID-19: Defending against allegations and prosecutions (Part 3)

fraud-investigation-detective-files-picture-id813680822

by Andrea Moseley

One of the most difficult things to do as a white-collar criminal defense attorney is defend a client against allegations in an area of the law that is vague. This is especially true when the prosecution of certain types of crime have little history or precedent. Since the federal prosecution of Scam PACs is a relatively new trend, I want to share with you what I have learned defending these cases. The big take away is that I have many apprehensions about how DoJ may expand the definition of Scam PACs. I explain this cautionary tale in more detail here and in the weeks to come. This week, I’m digging into some case studies and exploring the real-life facts and consequences of being prosecuted for campaign finance fraud. For more background, check out the first and second installments in this blog series. In this series, I focus on parallels and differences between issues surrounding political fraud and COVID-19 fundraising fraud. At the end of Part 2, I promised to take a closer look at what has happened in the real world of investigating and prosecuting campaign finance fraud, so here goes.

Wait, do you mean campaign finance crimes such as the ones Michael Cohen was prosecuted for?

Michael Cohen’s case dealt with a different type of campaign finance crime. The campaign finance crime offenses to which he pled guilty were willfully causing an unlawful corporate contribution to be made and making an excessive campaign contribution in violation of 52 U.S.C. §§ 30116(a)(1)(A), 30116(a)(7), 30118(a) & 30109(d)(1)(A). There are a wide variety of election crimes ranging from ballot box stuffing to paying hush money to a person to fend off negative campaign publicity. We are exploring a subset of “campaign finance” crimes involving Scam PACs. Before we get there, a quick review.

There are four types of election crimes:
• “Election” fraud
• “Patronage” crimes
• “Civil Rights” crimes
• “Campaign Finance” crimes

In discussing Scam PACs, I have divided these types of “scams” into two categories. First, Scam PACs that raise funds with the promise to support candidates or a particular cause, but instead do not spend any money to support candidates or causes and/or use lying as a mechanism to get you to part with your money. This form of a Scam PAC is easy to spot because it is just a typical theft by false pretenses.

I am focused on whether DoJ is in the process of expanding into prosecuting Scam PACs in the second category given its stated desire to prosecute more Scam PACs. This second Scam PAC category is more controversial because it involves situations where the PAC is in fact raising money for a candidate or a political party but spends little to no money on the cause. In my prior blogs, I labeled this second type of Scam PAC “Proportionality Fraud.”

This type of alleged fraud is particularly concerning because, in my experience, it is dangerously subjective. That is because there is no clear guidance to PACs on how much money it must spend on the cause versus overhead. This means my client might face a prosecution based on an “I know a fraud when I see it” conclusion by prosecutors. As a defense attorney, this is a murky place I never want to be when my client’s future and well-being is at stake.

How have Scam PAC investigations and prosecutions unfolded in the real world?
DoJ has publicized its intent to increase enforcement against Scam PACs. Indeed, there has been an uptick in prosecutions of individuals involving alleged Scam PACs over the last two years.

Case Studies:

In late 2018, a man from Arizona, William Tierney, became the first person successfully prosecuted for running a Scam PAC. After this highly-publicized, flagship prosecution, the U.S. Attorney for the Southern District of New York announced that “[t]his is the first-ever federal prosecution of fraudulent scam PACs, but it won’t be the last.”

Since then, there have been at least three more prosecutions and sentencings in federal courts involving Scam PACs. There are additional cases that factually touch upon Scam PACs but were resolved without charging a campaign election crime.

Ultimately, Mr. Tierney was sentenced to 24 months in prison. If you need the case cite, it is United States v. William Tierney, 18-cr-804-1 (S.D.N.Y.); see also, U.S. DoJ Press Release (March 15, 2019). Mr. Tierney pled guilty to conspiracy to commit an offense against the United States (regarding his Scam PACs), in violation of 18 U.S.C. § 371. According to the original complaint, he received donations in excess of $23 million dollars between 2014 and 2017. Of the $23 million that was raised from his nine PACs, $109,000 went to political candidates and $3 million went to Mr. Tierney.

Just a few months later, Harold Taub was sentenced to 36 months in prison. See United States v. Harold Taub, 19-cr-015 (D.R.I.); see also, U.S. DOJ Press Release (July 24, 2019). According to DoJ, Mr. Taub raised more than $1.6 million dollars through his PACs. He was reported to have used $1 million of those funds personally. The facts reflected that he transferred $715,000 into his personal checking and savings account. At one point, he reportedly withdrew $100,000 in cash from the bank. DoJ says he used credit cards to pay for $217,000 of personal expenses including strip club visits, cigars, clothes, airfare and escort services. He allegedly pretended to be a former ambassador and used a high-level military officer’s name to assist in his coaxing of potential donors after being directly told not to do so. Also, Mr. Taub apparently never registered his PACs with the FEC and he could therefore avoid all oversight into his political fundraising activities.

Last October, Kyle Prall was sentenced to 36 months in prison. See United States v. Kyle Prall, 19-cr-013 (W.D . Tex.); see also, U.S. DOJ Press Release (Oct. 29, 2019). According to admissions made in connection with his plea, in 2015 and 2016, Mr. Prall created several political committees—including Feel Bern, HC4President and Trump Victory—which he advertised online to solicit contributions purportedly in support of presidential candidates in the 2016 election.

Mr. Prall allegedly advertised that the contributions would be used to support the candidates by paying for transportation for voters to the polls; paying for training for volunteers to make phone calls and canvass neighborhoods to support the respective candidates; paying to help voters obtain appropriate identification documents; and making contributions directly to one of the candidates and to other organizations supporting his campaign. The DoJ alleged that Mr. Prall did not intend to, and did not, use the contributions for these purposes and instead transferred much of the money to himself through sham LLC accounts. According to his plea, he admitted that of the $548,428 in contributions, he transferred $205,496 to himself through sham LLCs that he created for the purpose of moving the money, while contributing less than $5,100 to political causes. The DoJ notes that Mr. Prall used the political committees’ debit cards to pay for his personal travel and entertainment expenses, such as travel to Jacksonville, Florida, and Belize; hotel stays in Miami Beach, Florida, and Austin, Texas; and to pay for food, Hookah, alcohol and bottle service, “club dances performed by entertainers,” room service, minibar charges, a deep-tissue massage, and a pet-cleaning fee.

An agent involved in Mr. Krall’s case said, “[m]aking donations to a political cause, campaign or candidate is an important expression of free speech and a right all Americans should enjoy,” “[b]y misappropriating the donations for his own personal use, the defendant not only violated the trust of his victims, he also deprived them of their fundamental right to free speech.”  This quote will later become a notable theme in my analysis.

Last and more recently, Kelly Rogers was sentenced to three years in prison in January 2020. See United States v. Kelly Rogers, 19-cr-270 (ED Va.); see also U.S. DoJ Press Release (January 17, 2020). According to DoJ, Rogers solicited contributions from the general public for his PACs based on direct misrepresentations. For example, Mr. Rogers was alleged to have stated that certain PAC money contributed by donors would be

. . . used to support the campaigns of a candidate for governor and a candidate for attorney general of Virginia through, among other things, get-out-the-vote efforts and the hiring of attorneys to ensure the integrity of the elections. In or around 2014, Rogers represented that donations to the PAC would be spent on assistance and support for military veterans. In truth and in fact, the defendant never intended to spend, and never actually spent, any of the money raised by Rogers’s PACs on get-out-the-vote efforts or lawyers to protect the integrity of the 2013 Virginia and Attorney General elections, or on assistance and support for military veterans. Instead, the defendant spent nearly all of the money raised from donors to benefit himself, his associates, and his PACs, including by pouring the majority of donor money into the solicitation of more donations.

With these four cases as my backdrop, I will continue my analysis and explanation of the concerns I have about the prosecution of category two “Scam” PACs in Part 4.  Until next time!

One comment

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s