FEC investigation spurred by CREW complaint reveals Ohio dark money secrets

Thanks to disgraced former Ohio House Speaker Larry Householder’s recent conviction as part of a multimillion dollar federal racketeering conspiracy, many people are familiar with how Householder’s pursuit of the speakership in 2018 was secretly funded by special interests through a dark money group he controlled. Less remembered, however, is how Householder’s rival for the speaker’s gavel at the time, now-former state Rep. Ryan Smith, was also aided by secretly-funded outside groups. 

Now, thanks to a rare Federal Election Commission (FEC) investigation that was prompted by a complaint filed by CREW, details about the anonymous funds that supported Smith and his slate of candidates are finally being exposed. Among other disclosures, the investigation revealed how a little-known nonprofit served as a covert clearinghouse for financing outside support for Smith’s allied candidates. The FEC’s findings also uncovered how special interests in the energy and health care industries secretly funded both sides of the political rivalry between Householder and Smith.

While the FEC did not ultimately take action to hold anyone accountable for violating campaign finance law, the investigation shined a seldom seen spotlight into the shadows of political money. The FEC’s staff tracked down the original sources behind a dark money group’s super PAC contributions and published its findings, allowing the public to finally obtain information it had previously been denied about who was seeking to influence their votes and potentially influencing the decisions of the politicians that were asking for them. That, in itself, is a victory for transparency.

An actual dark money investigation

CREW’s complaint targeted an obscure company called LZP LLC that completely funded a federal super PAC, Honor and Principles PAC (Honor PAC), that ran attack ads against Householder in his 2018 state House primary. CREW’s initial complaint called for an investigation into whether LZP, which formed one day before it contributed $175,000 to the super PAC, acted as an illegal conduit that allowed the true donors to the super PAC to remain anonymous. CREW updated the complaint in June 2020 after learning that LZP was a wholly owned subsidiary of a nonprofit called Independence and Freedom Network (IFN) and that LZP had just enough income in 2018 to cover the $270,000 it ultimately contributed to Honor PAC.

In May 2021, the FEC voted to find reason to believe – essentially that there is sufficient evidence a violation may have occurred and an investigation or conciliation is warranted – that LZP, IFN, Honor PAC, and “unknown respondents” had violated the law and authorized an investigation, an action the notoriously dysfunctional agency almost never takes in cases involving allegations that corporate entities were used as conduits to make contributions to super PACs. After nearly two years of investigation, the FEC’s Office of General Counsel recommended finding probable cause to believe that LZP, IFN, and Honor PAC violated the law against making and accepting contributions in the name of another.

But in April 2023, the commission deadlocked 3 to 3 on moving forward against LZP and IFN, with the three Republican members blocking further enforcement, and voted 4 to 2 to find no probable cause to believe that Honor PAC violated the law. Two months later, before closing the file on complaint, the FEC voted to substitute the name Ohio Works for the “unknown respondents” that it had previously voted to investigate, to find no probable cause against IFN’s sole officer, and to find no reason to believe against the utility company American Electric Power (AEP). The case file containing details of the investigation was subsequently posted publicly on July 7, 2023.

The pro-Smith nonprofit behind the scenes

The FEC’s investigation determined that IFN used LZP to make contributions to Honor PAC and that a significant portion of the $270,000 IFN contributed to the super PAC through LZP came from a section 501(c)(4) nonprofit called Ohio Works. Public disclosure reports filed by Honor PAC with the FEC only reported LZP as the source of the contributions, disguising where the money actually came from (Honor PAC later amended its reports to add IFN after the FEC decided to investigate the contributions).

The timing of money transfers among the various groups shows how Ohio Works funds made it to the super PAC without its name being publicly disclosed. On March 28, 2018, Ohio Works contributed $200,000 to IFN. That same day, IFN transferred $180,000 to LZP, which then gave $175,000 to Honor PAC. Before it received the $200,000 from Ohio Works, IFN only had $79,860 on hand, meaning it could not have given the $175,000 to Honor PAC, via LZP, without the infusion of funds from Ohio Works. Ohio Works also contributed $120,000 to IFN on April 6, 2018, the same day that IFN transferred $50,000 to LZP and LZP contributed $50,000 to Honor PAC.  

After examining bank records, FEC investigators also determined that Ohio Works would not have had sufficient funds itself to make two of its transfers to IFN if it had not first received contributions from three other donors. Details in the publicly released case file indicate that the three donors were Empowering Ohio’s Economy (EOE), a nonprofit funded by AEP; 55 Green Meadows, a nonprofit affiliated with the Ohio Health Care Association; and Virginia “Ginni” Ragan, a major Republican donor. Each of their names appear in the “respondents” section of the FEC’s homepage for the public case file.

Bank records for Ohio Works that were obtained by the FEC also reveal that the group was a major funder of another nonprofit, Prosperity Alliance, which funded a separate super PAC backing pro-Smith candidates in 2018. A memo written by FEC lawyers indicates that the same three donors whose money Ohio Works used to contribute to IFN also provided funds that were used to make a $500,000 contribution to Prosperity Alliance in early March 2018.

Ohio Works’ role as a common funder to both IFN and Prosperity Alliance, who in turn funded super PACs that benefited Smith’s political ambitions, was previously unknown to the public. The group’s contributions, which totalled $352,000 to IFN and $803,000 to Prosperity Alliance, should have been disclosed in Ohio Works’ 2018 Form 990 tax return. But the IRS has no record of Ohio Works ever filing the return and automatically revoked the group’s tax-exempt status on May 15, 2020 for failure to file a Form 990 for three consecutive years.

With no real public profile and no publicly available tax returns, Ohio Works has been characterized in the press as a “mysterious entity.” Before the release of the FEC’s LZP case file, the only people publicly associated with Ohio Works were Republican fundraising consultant Melissa McNulty, who was listed as the organization’s statutory agent when it incorporated in Ohio in March 2017, and an employee of the Ohio law firm Bricker & Eckler, who received the certificate from the Ohio Secretary of State’s office acknowledging the incorporation.

McNulty told the FEC that Ohio Works was run by three individuals who had strictly delineated roles within the organization. McNulty took care of administrative functions while an individual named Tod Bowen was responsible for fundraising and an individual named Terry Donelon was responsible for authorizing expenditures. According to the FEC, both McNulty and Donelon said in interviews that after Ohio Works was formed, the three “never communicated with one another about the activities that they were engaging in, except that Bowen might inform McNulty that funds would be coming in and that Donelon would instruct McNulty to wire funds to specific parties.” Donelon told the FEC that the three of them operated like this due to “concerns that they believed they otherwise could be accused of impropriety or illegality.”

Concerns about navigating potential legal issues that could arise from the organization’s activities were apparent in an October 2017 letter Bowen sent on behalf of Ohio Works to an official at AEP who assisted EOE on board matters. The letter, which purported to provide “some basic information about the organization and the manner in which donations to Ohio Works will be used,” asserted that Ohio Works was not “registered or acting as a political committee under federal election law or any state or local election law.”

The letter insisted that Ohio Works had not been “established and is not maintained, financed or controlled by a national, state, or local party committee or a federal, state, or local candidate or officeholder” and that it did not “coordinate its activities with a national, state, or local party committee; federal, state, or local candidate or candidate’s campaign; or a federal, state, or local PAC.” It also prophylactically proclaimed that the “solicitation for this donation did not contain language that funds would be used to promote, support, oppose, or attack any clearly identified federal, state, or local candidate and was not intended to suggest such activity,” essentially preemptively denying that any contributions were requested with specific expectations that they would support political activity.

The FEC’s investigation revealed, however, that despite its public obscurity and its legalistic statements disclaiming ties to any candidates or officeholders, Ohio Works was known by some in 2018 as a group that supported Smith’s interests. For instance, EOE’s lawyers stated in a letter responding to the FEC’s inquiry that when the nonprofit made grants to Ohio Works in 2017 and 2018, its “board of directors was generally aware that Ohio Works was supportive of Ohio Representative Ryan Smith and his legislative agenda.”

This awareness was documented contemporaneously. On November 21, 2017, the same day that EOE’s board approved its first grant to Ohio Works, board member JB Hadden sent an email to another board member and a government affairs staffer for AEP, stating that “Ohio Works is the c4 supportive of Rep Ryan Smith.”

Smith also appears to have directly fundraised for Ohio Works. According to the FEC, the donor who contributed $100,000 to Ohio Works on April 3, 2018, which was part of the money Ohio Works used to contribute $120,000 to IFN three days later, claimed that she was asked to make a contribution to Ohio Works by Smith. FEC lawyers also wrote that the donor “was told by Smith that her funds would be used generally to support his efforts to become house speaker,” but denied being “told the funds would be routed through other entities and represents that she had been under the impression that Ohio Works itself was a political action committee.”

Details in the FEC file indicate that Ginni Ragan is the donor who contributed to Ohio Works at Smith’s behest. In one of their reports, the FEC staff asserted that the donor had “been a longtime public supporter of Smith and opponent of Householder and represented that she therefore agreed to support Smith by making a $100,000 donation to Ohio Works.” In a footnote supporting the assertion, a citation to a July 31, 2017 Dispatch.com story is described as “discussing Ragan’s public financial support of Smith and the competing efforts of Smith and Householder to become speaker.” The Dispatch article notes that Smith “also got a maximum $12,708 contribution from heiress Ginni Ragan.” 

Special interests secretly benefit both sides

While Ragan was an “opponent of Householder,” the other two donors the FEC uncovered as funders of Ohio Works also contributed to Householder’s Generation Now nonprofit around the same time they were directing money to the pro-Smith nonprofit.

It was previously known that EOE and 55 Green Meadows had each provided hundreds of thousands of dollars to both Ohio Works and Generation Now since both are section 501(c)(4) nonprofits that must disclose on their tax returns other organizations to which they provide more than $5,000 in grants. But the details of the timing of their contributions revealed by both the FEC’s LZP investigation and the various investigations tied to Householder’s corruption scandal illuminate how the two interest groups’ nonprofit funding appears to have simultaneously benefited both sides of the 2018 Ohio House Speaker’s race.

According to records for Generation Now made public by the Energy and Policy Institute, EOE made its first contribution to Generation Now on September 8, 2017, giving $100,000. As noted above, the EOE board approved its first grant to Ohio Works a little more than two months later on November 21, 2017, though the funds were not actually drawn from EOE’s bank account until the following January. In an even closer parallel, EOE contributed $50,000 to both Ohio Works and Generation Now on the same day in late October 2018.

Though 55 Green Meadows disclosed to the IRS that it gave $195,000 to Ohio Works in 2017 and $175,000 in 2018, the documents released from the FEC’s investigation only specified the date of one of the group’s contributions: March 14, 2018, when it gave $50,000 to Ohio Works. Just over two weeks later, on April 2, 2018, 55 Green Meadows also cut a $25,000 check to Generation Now –  a small part of the $515,000 that 55 Green Meadows ultimately gave to Generation Now between 2017 and 2020.

Political operatives work both sides

It wasn’t just these special interests who appear to have played both sides in the Ohio speaker’s race. At least one political operative who facilitated the infusion of anonymously-sourced funds for attack ads against Householder was also affiliated with a nonprofit that funneled secret funds to pay for pro-Householder ads in the primary.

Though their names do not appear on any of IFN’s public paperwork, the FEC discovered that the nonprofit was created and operated by political operatives Tom Norris and Joel Riter, who have a long history with secret political spending. They also formed LZP – without informing the concrete industry colleague Norris had recruited to serve as IFN’s sole officer and director – as well as Honor PAC. 

Lisa Lisker, the treasurer of Honor PAC, told the FEC in a deposition that she was hired by Riter and that he provided her with information about both donations to the super PAC and its independent expenditures. Riter was also the point of contact between Ohio Works and IFN, according to Ohio Works’ Donelon, who told the FEC he had a meeting with Riter in which Riter indicated that IFN shared the same broad goals as Ohio Works and that Ohio Works should give it money on that basis. Riter, however, reportedly did not recall the meeting in an interview with the FEC and suggested he did not generally fundraise for IFN. 

Honor PAC’s expenditures attacking Householder took place in March and April of 2018. At the end of April 2018, another federal super PAC called Hardworking Americans Committee seemed to answer the barrage against Householder with an ad attacking his primary opponent, Kevin Black, and other communications supporting Householder. The super PAC’s spending was primarily funded by a $535,000 contribution from a nonprofit called Citizens for a Working America.

During the Householder trial, the Justice Department presented evidence showing that $400,000 from FirstEnergy, the company that bribed Householder with $60 million paid to his nonprofit, was funneled to Hardworking Americans Committee through Citizens for a Working America and another nonprofit following a request from Householder’s fundraiser. “So working forward, I guess, you have this FirstEnergy money that is then sent to One Ohio United, which is then passed to Citizens For A Working America, which is then passed to Hardworking Americans, which then purchases the ad against Kevin Black,” FBI agent Blane Wetzel testified during the Householder trial.

At the time, Riter, the political operative who was instrumental in launching Honor PAC’s anti-Householder ads, was simultaneously the president of Citizens for a Working America, a nonprofit that served as a link in a daisy chain funding ads that benefited Householder. 

The complications of a federal super PAC spending in a state race

While the FEC’s Office of General Counsel recommended at the conclusion of its investigation finding probable cause to believe that LZP, IFN, and Honor PAC violated the law against making and accepting contributions in the name of another, the lawyers did not make a similar recommendation for Ohio Works or the donors it identified to the pro-Smith nonprofit. Instead, the FEC staff prescribed taking no further action against them after concluding the evidence they had assembled was insufficient to support a finding of probable cause. 

A major reason for that conclusion was due to the fact that the money Ohio Works and its donors provided ultimately funded a federal super PAC’s spending in a state-level election. The FEC is charged with administering and enforcing federal campaign finance law while individual states have jurisdiction over state and local election spending. The state spending in the LZP case was drawn into the FEC’s purview because the operatives behind Honor PAC chose to register it as a federal super PAC, but that narrow connection also limited the activity the FEC could act on.

The FEC’s lawyers believed that the evidence they gathered indicated that Ohio Works and its donors understood that the funds transferred to IFN “likely would support” Smith’s speakership ambitions, but did not indicate they had “reason to know that their funds would be contributed to Honor PAC specifically or to a federal political committee more generally.” As a result, the FEC’s attorneys argued that there was not sufficient evidence to establish that Ohio Works had made a contribution under the Federal Election Campaign Act (FECA) because it defines a contribution as a payment or thing of value made “for the purpose of influencing any election for Federal office.” Given that, the FEC staff argued Ohio Works and its donors at most would “appear to have understood that the funds would be used for Ohio state, rather than federal, activity.”

The federal versus state distinction was not really an issue, however, regarding IFN, LZP, and Honor PAC because as a federally registered super PAC Honor PAC “must still comply with applicable provisions” of the FECA and the FEC’s regulations, and the FEC’s Office of General Counsel concluded that the evidence indicated “IFN established LZP and Honor PAC for the specific purpose of transferring funds into LZP to be transferred to Honor PAC and thereafter did so,” resulting in contributions in the name of another. Notably, none of the FEC commissioners who voted against finding probable cause against IFN, LZP, or Honor PAC cited the fact that the federal super PAC’s spending only impacted a state race as a reason against proceeding.

Instead, the three Republican commissioners who opposed probable cause for IFN and LZP argued that the allegations against the two entities should be dismissed in an act of prosecutorial discretion because, among other reasons, they credited IFN and LZP’s claim to have acted without a “malicious intent” and the amount of time that had passed since the violations occurred. As to Honor PAC, the commissioners who voted against finding probable cause said there wasn’t sufficient evidence that the only individual who held a formal role with Honor PAC, its treasurer, had the “requisite knowledge” that LZP was a conduit for IFN’s contributions – even though Riter was involved in Honor PAC’s creation and the coordination of both its contributions and expenditures, the commissioners questioned whether he was legally an agent of the super PAC because he didn’t hold a formal title and wasn’t paid as a consultant or vendor. 

It would be easy to view the FEC’s failure to find probable cause against any of the individuals or entities involved in this dark money scheme as a failure of accountability. To a certain extent, that is undeniable. But the purpose behind the law against conduit contributions is to ensure “complete and accurate disclosure of the contributors who finance” elections. In that sense, the fact that the FEC actually investigated a dark money group, traced the funds an obscure LLC contributed to a super PAC back to its true sources, and released its findings publicly, is a triumph for transparency.