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April 20, 2016

Newly Disclosed Internal Documents Reveal Group’s Lies to IRS, FEC

By Stuart McPhail

When the Commission on Hope, Growth, and Opportunity (“CHGO”) formed in March 2010, it told the IRS that it was a “public welfare” organization focused on advocating for “sustained and expanding economic growth” that would not “spend any money attempting to influence” any “election.”  When the FEC began looking into CHGO’s activities after the agency received complaints from Citizens for Responsibility and Ethics in Washington (“CREW”) and other groups about the ads CHGO ran in the 2010 election, CHGO’s counsel told the agency in June 2011 that the group was a “social welfare organization” that “conducts a public-outreach effort focused on macro-economic issues and functions as an economic ‘think tank.’”  It even sent the FEC a copy of a “macro-economic analysis” that CHGO purportedly funded as an example of its academic bona fides.

But, as revealed in internal documents recently made public by the FEC, CHGO told donors a very different story.  To those cutting checks to CHGO, the group’s purpose was to “win Senate seats.” 

An internal CHGO memorandum and PowerPoint presentation recently made public by FEC Commissioner Steven Walther reveals the brazenness of the dark money group’s lies to federal agencies, all in the name of keeping the names of big money donors secret.  Around the time the group was telling the IRS that it would not spend “any money attempting to influence” any “election,” the group circulated a memorandum outlining its goals, its targets, a preliminary launch timeline, and the money it would need for all of it.

memo 1

memo 2

Absent from the memo is any “think tank” discussion of economic policies or any other kind of issue.  Rather, CHGO’s stated “GOAL” is clear: “[t]o make an impact using express advocacy in targeted Senate races.”  “Express advocacy” is a term of art in the campaign-election law area.  It means an ad that expressly asks a voter to “vote for” or “help” a candidate; the type of ad everyone agrees has the sole purpose of influencing an election. 

The memorandum goes on to mention “potential targets,” listing races in twelve states, and describes a “launch timeline” including “Launch[ing] Initial Ad Flight” by early June, and “Launch[ing] Collateral Activities” later that month.”  Notably missing from the timeline were proposals for engaging in the academic research that CHGO told the FEC and the IRS was the group’s focus.  Rather, the group promised to “utilize all options available to it for direct, express advocacy under the recent SCOTUS decision,” Citizens United v. FEC, decided January of that year.  And it expected to need “a minimum of $5 - $10 million dollars for 4-6 races.” 

Released alongside the memorandum is a CHGO PowerPoint presentation, apparently intended for donors, flatly stating CHGO would “Support Pro-Growth, Free Enterprise Candidates in Targeted Senate Races.” 

slide 1

The PowerPoint hailed Citizens United with “Creat[ing] [an] Unprecedented Opportunity,” allowing “corporations, labor unions, and individuals to engage in direct, express advocacy for election or defeat of candidate(s).” 

slide 2

But the real benefit CHGO saw in Citizens United, and the reason the group was started, was to ensure “Direct Participation” in elections “With No Donor Disclosure.”  That’s what set CHGO apart from many other groups, including the newly created super PACs, who were openly engaged in politics:  CHGO would falsely represent to the outside world that it was an organization committed to the public welfare, not a political committee subject to reporting requirements under federal campaign laws.  Organizing itself as a social welfare organization under section 501(c)(4) of the tax code made CHGO the “most advantageous vehicle for donor activity” that could promise “donor names [would] never [be] made available to the public.”  

slide 3

As the rest of the presentation makes clear, however, CHGO was far from a social welfare organization.  Rather, it would solely exist to “make a measureable impact on the election outcome” and “win Senate seats.”

slide 4

slide 5

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But to pull off this scheme, CHGO had to falsely represent itself to the IRS and FEC as a social welfare organization that would not engage in politics.  That is because federal tax law and campaign law, even after Citizens United, require organizations whose purpose is to have an impact on elections to file disclosure reports.  501(c)(4) organizations must operate, by statute, “exclusively,” or by IRS guidance, “primarily for the promotion of social welfare,” which does not include politicking.  A different tax provision, section 527, applies to “Political organization[s],” groups “organized and operated primarily for the purpose of directly or indirectly accepting contributions or making expenditures” for elections.  Those groups must disclose their donors.  Similarly, federal election law requires groups whose “major purpose” is to elect candidates to register with the FEC as political committees and disclose their contributors.

If CHGO registered as a 527 organization with the IRS or a political committee with the FEC, CHGO could not keep its promise to donors that their names would “never [be] made available to the public.”  So it did something else:  it falsely claimed to be neither and kept right on pursuing its goal of impacting elections.

According to the FEC lawyers investigating CHGO, the group spent more than $4 million in the 2010 elections, including almost $3 million on the “express advocacy” ads it promised to donors.  That represented approximately 85% of the group’s expenditures that year.  CHGO’s activities earned the attention of CREW, which filed a complaint against the group with the FEC in 2011.  But when the FEC investigated CHGO, CHGO continued to hide the truth.

When the FEC presented CHGO with those advertisements that the FEC knew the group had run and asked CHGO if it ran any more ads, CHGO falsely claimed that there were no more ads, covering up the existence of ads it ran in New York and Massachusetts that the FEC had missed.  When asked about its vendors, CHGO denied the existence of vendors who were to later provide the FEC with important information about CHGO’s activities.  When the FEC reached out to individuals connected with CHGO, they also misrepresented their roles.  Scott Reed, reportedly the founder of CHGO and former executive director of the Republican National Committee, and Wayne Berman, reportedly a consultant to CHGO and recently Marco Rubio’s national finance chairman, minimized their involvement as “limited” or purely “volunteer.”  Yet those representations were contradicted by the FEC lawyers’ investigation which found Reed had an active role in CHGO—including a role in crafting PowerPoints like the one recently made public—and revealed Berman’s role in direct fundraising appeals that explained CHGO’s real goal “to support the election of Republican candidates.” 

In fact, aware that its misrepresentations to the IRS and FEC weren’t keeping it out of the spotlight, CHGO decided to terminate itself “most quickly” because of the “outstanding matter at the Federal Elections [sic] Commission” and the “sense that we ought to shut it down to make things less complicated moving forward.”  Of course, the hasty termination meant there were loose ends:  CHGO’s vendor still had over $1 million dollars in unspent funds committed to CHGO’s future advertisements.  But rather than “refund[]” the money “to donors” or “donate[] [it] to a tax-exempt charitable entity” as CHGO had promised the IRS, Reed, Berman, and a third individual reportedly split the $1 million amongst themselves for a “fundraising commission,” leaving CHGO an empty shell without any assets to pay any future FEC fine.   True to form though, CHGO also told the IRS that, despite the handsome “fundraising commission,” the group spent no money on fundraising. 

Despite this overwhelming evidence of wanton violation of federal election law and other possible criminal violations in lying to federal agencies, the six commissioners of the FEC could not agree to pursue even a formal investigation of CHGO’s failure to register as a political committee and file required disclosure reports.  Incredibly, FEC Commissioners Matthew Petersen, Caroline Hunter, and Lee Goodman took no issue with CHGO’s obstruction and found the group’s termination ended the agency’s ability to enforce federal law, deadlocking the FEC and leading to dismissal of CREW’s complaint against CHGO.  Commissioners Ann Ravel and Ellen Weintraub, who along with Commissioner Walther voted in favor of investigating CHGO, released a Statement of Reasons shortly after the vote noting “[t]he Commission is falling far short of [its] responsibility.”  And Commissioner Walther issued his own Statement of Reasons in March excoriating the Commission for its failure, releasing CHGO’s internal memorandum and PowerPoint to underline the absurdity of the FEC’s inability to come to an agreement on CHGO.

As CREW noted in a 2012 report, “CHGO’s story is a tutorial on how to break campaign finance law, impact elections, and disappear – the political equivalent of a hit and run.”  To protect the integrity of our elections from dark money groups like CHGO, CREW sued the FEC for its refusal to enforce the FECA in a commonsense manner.  The recently released documents prove that CREW’s complaint to the FEC filed nearly five years ago was right all along:  CHGO’s major purpose was to influence the 2010 elections, and it failed to register as a political committee and disclose its contributors, as required by law.  And public documents from the FEC’s investigation into CHGO show the group stymied the agency’s investigation until the scofflaws involved could close up shop and abscond with any left over money.  CREW is seeking judicial review to ensure voters know the source of the money CHGO used to fulfill its major purpose to, in its own words, “participate directly in [the] election or defeat of candidates.”  

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