May 29, 2020
“At least $1.2 million in what appears to be untraceable ‘dark money’ was spent by three groups to help or hurt Republican candidates during the first quarter of 2018,” Cleveland.com’s Andrew J. Tobias reported in April 2018. Tobias named Independence and Freedom Network, LZP LLC, and Freedom Frontier as the three groups introducing anonymous money into the state’s elections.
Well, it turns out it was really only two groups. A new tax return obtained by CREW reveals that LZP LLC is actually a part of Independence and Freedom Network, which is organized as a social welfare group under section 501(c)(4) of the tax code. According to the tax return filed by Independence and Freedom Network last November, LZP LLC is a type of related organization known as a “disregarded entity” that is directly controlled by Independence and Freedom Network.
Disregarded entities are basically wholly owned subsidiaries that are treated as part of the parent organization for tax purposes. They are kind of like Russian nesting dolls where smaller entities are housed within a larger one.
It’s not unheard of for politically active nonprofits to have and utilize disregarded entities. For instance, the flow of money in the network of nonprofits associated with the billionaires Charles and David Koch was infamously more difficult to trace due to its use of disregarded entities, and FWD.US, the immigration-focused nonprofit associated with Facebook’s Mark Zuckerberg, appears to have run independent expenditures under the auspices of two disregarded entities during the 2014 election.
For their part, both Independence and Freedom Network and its disregarded entity, LZP LLC, contributed to federal super PACs in 2018 that subsequently spent money in Ohio state elections. CREW is not aware of another example of a disregarded entity making contributions to a super PAC almost simultaneously as the parent nonprofit contributes to a different super PAC in its own name. The effect of the multi-pronged political giving is to further obscure the source of money pouring into elections.
Previously, the only indication of ties between the two entities was the fact that the same lawyer, James G. Ryan, filed their incorporation paperwork in Ohio, roughly a year apart. Independence and Freedom Network was established by Ryan on April 13, 2017 while LZP LLC was set up on March 27, 2018.
An Apparent Conduit Scheme
At the time of Tobias’ story on dark money in Ohio, LZP LLC had given $175,000 to a super PAC registered with the Federal Election Commission (FEC) called Honor and Principles PAC. As CREW noted in an FEC complaint filed in 2018 that alleged LZP LLC acted as a passthrough, the contribution was made on March 28, 2018, just one day after the corporation was formed.
LZP LLC, which was Honor and Principles PAC’s sole donor, ultimately gave it a total of $270,000 in 2018. Honor and Principles PAC spent most of the money it received from LZP LLC on mail, media, and voter calls in non-federal elections. In particular, the super PAC ran ads attacking Ohio state Rep. Larry Householder, now the state House speaker, and endorsing his primary opponent.
CREW filed an amendment today to its complaint against LZP LLC as Independence and Freedom Network’s 2018 tax return provides further evidence that LZP LLC acted as a conduit for the money that went to Honor and Principles PAC. The subsidiary’s total income was reported as $271,000 and it ended the year with just $900 in assets after donating $270,000 to the PAC, meaning that LZP LLC used 99 percent of the money it took in to make contributions to Honor and Principles PAC.
The tax return’s schedule of contributors, which lists contributions totaling $5,000 or more from any one contributor but has identifying information redacted, discloses that a single donor gave the nonprofit $271,000. That suggests all of LZP LLC’s money originally may have come from a single source.
Independence and Freedom Network’s Political Activity
Under its own name, Independence and Freedom Network also funded a federal super PAC that sought to influence an Ohio state election, giving $850,000 to Onward Ohio on March 16, 2018. Three days later, Onward Ohio paid $776,771 to run ads promoting then-Ohio Lt. Gov. Mary Taylor, who was seeking the Republican nomination for governor.
As CREW pointed out in a complaint filed with the IRS last June, Independence and Freedom Network initially failed to disclose its massive super PAC contribution on the tax return it filed covering May 2017 through April 2018, which was a short form return indicating gross receipts of $50,000 or less. The new tax return covers all of calendar year 2018 and does disclose the contribution. It also discloses LZP LLC’s contributions to Honor and Principles PAC, which are treated in terms of the tax return as contributions made by Independence and Freedom Network.
Together, the super PAC contributions account for roughly 40 percent of Independence and Freedom Network’s $2.8 million in total spending for the year, which allows the group to contend that politics is not its primary activity. While social welfare nonprofits like Independence and Freedom Network are allowed to spend money on elections, it cannot be their primary activity—which, absent a clear definition from the IRS, is commonly defined as not dedicating more than 50 percent of total spending to politics.
It was only in the final weeks of 2018 that Independence and Freedom Network spent enough money on non-political activities to offset its super PAC contributions, and keep it under the 50 percent threshold. The group’s largest single expenditure, which essentially canceled out its political spending, was $1.1 million it gave to an entity called Security is Strength LLC that was incorporated on December 12, 2018 by the same lawyer who set up both Independence and Freedom Network and LZP LLC.
Security is Strength LLC, which shares a name with a super PAC that supported Sen. Lindsey Graham (R-SC) and former Sen. Kelly Ayotte (R-NH) in the 2016 election, is a disregarded entity just like LZP LLC. The controlling nonprofit is called the Government Integrity Fund, which is a politically-active nonprofit organized under section 501(c)(4) of the tax code that contributed more than $600,000 to super PACs during the 2018 election, including one that was active in Ohio called Ohio First PAC.
As CREW previously reported, Security is Strength LLC’s website used to describe the group as “a project of the Government Integrity Fund.” A YouTube video that had been embedded on the page also featured a disclaimer saying that “Security is Strength [is] a project of the Government Integrity Fund.”
Links to the Third Dark Money Funder
In addition to the grant to Security is Strength LLC, the information revealed on Independence and Freedom Network’s tax return suggests additional ties between the group and other dark money players, including Freedom Frontier, the third nonprofit that Cleveland.com wrote about in April 2018.
For instance, Independence and Freedom Network, Freedom Frontier, and the Government Integrity Fund all used the same accounting firm to prepare their recent tax returns, Ohio-based Total Business Solutions. All but one of Total Business Solutions’ handful of nonprofit clients identified by a text search of tax returns using the firm’s employer identification number can be tied to anonymous political spending, either by funding other politically-active entities or by using anonymous funds to run ads targeting politicians.
In addition, Independence and Freedom Network’s only other reported grant went to an obscurely-named group called MORCC. What little information is available about MORCC associates it with individuals who have been active with dark money nonprofits, including Freedom Frontier.
According to Ohio business records, MORCC is a nonprofit corporation under section 501(c)(7) of the tax code, which means it is a social club. It was incorporated in 2016 by David Langdon, an Ohio lawyer who The Center for Public Integrity described as “a critical behind-the-scenes player among the small army of lawyers working to keep secret the origins of millions of dollars coursing through the American political system.”
Langdon was recently identified in a settlement released by the Missouri Ethics Commission as being involved with the effort by former Missouri Gov. Eric Greitens’ campaign staff to steer donors to Freedom Frontier who could not, or did not want to, give directly to the Greitens campaign. He was also the assistant treasurer of the Ohio-focused super PAC that Freedom Frontier funded in the 2018 election.
The Missouri settlement also identified a political operative named Tom Norris as working with Freedom Frontier. The address listed by Independence and Freedom Network for MORCC matches a property owned by Norris, according to county property records. The same address was also used for the Government Integrity Fund when it made contributions to a super PAC called Fighting for Ohio Fund in 2016. Norris was formerly listed as the president of the Government Integrity Fund on the group’s tax returns. Norris also acted as a spokesman for Ohio Conservatives for Change, the super PAC that Freedom Frontier gave more than $1 million to during the 2018 election.
To recap: In April 2018, Cleveland.com highlighted three non-disclosing groups who injected untraceable money into Ohio’s state elections that year. But it turns out it was really just two groups. And those two groups have ties to each other. Together, they were ultimately responsible for just under $2.2 million in dark money that was spent in Ohio in 2018.
The public still has no idea about the true sources of the money. Some of that may change, though, if the FEC takes action on CREW’s complaint against LZP LLC, which could at least cause the true donor to Honor and Principles PAC to finally be revealed.