California donor disclosure case exposes how nonprofit groups can play in politics


Ann Ravel, chairwoman of the California Fair Political Practices Commission, discusses the $1 million fine, the largest in its history, levied against two political action committees for campaign-reporting violations, during an Oct. 24 news conference in Sacramento. Ravel, a Democrat, is now on the Federal Election Commission. (Rich Pedroncelli/AP)

From coast to coast, election contests are increasingly being influenced by well-funded nonprofit organizations that disclose little about their donors or how they operate.

But new revelations in California provide an unusual look at one national network of such groups that helped move $15 million into ballot-initiative campaigns last fall while working hard to hide the identities of their prominent financial backers. A pair of conservative nonprofits at the heart of the effort were together fined a record $1 million after a year-long state investigation, while two political committees were ordered to repay the state for $15 million in donations they received.

“It is clear that people are willing to use circuitous routes to avoid telling the voters who’s behind campaigns,” said Ann Ravel, a new Democratic appointee to the Federal Election Commission who helped oversee the California inquiry as a state official.

Several of the advocacy groups at the center of the California case have played significant roles in national elections, including Americans for Job Security, Americans for Responsible Leadership and the American Future Fund. Those three groups have reported more than $68 million in campaign-related expenditures during the past two election cycles, according to data from the nonpartisan Center for Responsive Politics. Because they are set up as nonprofit organizations rather than political committees, the groups are not required to disclose their financial supporters to the FEC.

The details of the California scheme, revealed in interviews and a cache of investigative documents, show how political operatives casually shuffled around massive sums with little accountability. At one point, a consultant involved sent a text message requesting $11 million. The case also spotlights the extreme measures that operatives took to skirt disclosure regulations, passing along funds through a daisy chain of organizations without knowing which groups would get the cash or whether the money would end up where it was intended.

Campaign ad money shuffled to avoid donor disclosure

The episode was set in motion by Tony Russo, a Republican political strategist in Sacramento who sought to spend $25 million on issue ads last fall in two state ­ballot-initiative campaigns without reporting who gave the money.

He turned for help to Sean Noble, a GOP operative plugged into a national network of conservative groups. The two agreed to a money swap: Russo sent money to an Arizona group that Noble ran, in the hopes that Noble would get other organizations to send similar amounts back into California, masking the original donors.

“I said, ‘Sean, you know, I have a big hiccup in California,’ ” Russo later recounted for state investigators. “ ‘Can we support some of your national efforts and, in turn, do you have groups that can help us in California?’ That was pretty much as simple as it was.”

But the plan was far from simple — or effective. In the end, about $10 million of the nearly $25 million that Russo’s group transferred to Noble’s operation never made it back to California. Outmatched by labor unions and other supporters of Gov. Jerry Brown (D), Russo and his allies lost both initiative campaigns. And many of the original donors whose identities they sought to protect were outed as a result of the investigation. The names can be deciphered from a partially redacted list of 150 donors that Russo’s attorneys provided to the California attorney general’s office as part of the inquiry.

The partially visible list reveals members of the Fisher family, who founded the clothing retailer the Gap and gave more than $9 million; San Francisco investor Charles Schwab, who gave more than $6 million; and Las Vegas casino tycoon Sheldon Adelson, who with his wife contributed $500,000. One particularly surprising contributor was real estate magnate and philanthropist Eli Broad, a longtime supporter of Democrats, who gave $500,000 to the effort. All the donors declined to comment or confirm their roles.

The interstate swap

Dubbed the “California Comeback,” the initiative campaign was inspired by the success of conservative advocacy groups in Wisconsin, which in 2011 rallied around Republican Gov. Scott Walker’s push to roll back union rights. That effort was driven in part by groups with ties to billionaire industrialists Charles and David Koch, and major donors began telling Russo that a similar effort was needed in the Golden State.

“It started with just a kernel of, ‘Hey, we should be trying to figure out how we create a voice in California,’ ” Russo told investigators. “And the Koch model was the model that they were encouraging.”

Russo, who works closely with the business community, developed the plan with Jeff Miller, a fundraiser who once headed the finance operations for the state Republican Party and Gov. Arnold Schwarzenegger.

Their goal was to raise at least $50 million to fight Proposition 30, a temporary tax-hike measure Brown was pushing, and to support Proposition 32, which would bar unions and corporations from using payroll deductions to raise money for political campaigns. Half of the money would be dedicated to issue ads, which do not require donor disclosure.

Russo and Miller, who ended up bringing in $74 million, were not charged and cooperated with investigators after receiving criminal immunity. They declined to comment for this article.

The two men told prosecutors that they enlisted the help of Stephen DeMaura, president of Americans for Job Security (AJS), a nonprofit registered in Virginia, who was willing to run the issue ads and take on California’s powerful unions.

Noble, whom Russo said he met through a Koch donor, also pitched in, hiring pollster Frank Luntz to conduct focus groups for the campaign and paying veteran GOP admaker Larry McCarthy to cut possible TV spots. Noble did not respond to requests for comment.

By the fall of 2012, Russo and Miller had about $25 million available for the issue-ad campaign. But the money had come in later than they had hoped, and DeMaura worried that running ads could trigger disclosure requirements that kick in close to Election Day, the Sacramento consultants recalled.

But then a lawyer advising the team raised the idea of swapping funds with other organizations as a way of getting the money back in the state without running afoul of disclosure rules. In California, nonprofit groups that make political donations must disclose any contributions made for that purpose, a requirement they hoped to sidestep if another group gave funds that were not raised for the campaign.

Russo turned to Noble, hoping Noble could arrange a money swap through his group, the Center to Protect Patient Rights (CPPR), a Phoenix-based nonprofit with ties to the Kochs. “The same money couldn’t come back” into California, Russo explained to investigators. “Koch, our understanding was, had a pretty significant network of groups. So that’s why we went to Sean.”

At the time, Noble was working as a consultant to Koch Industries, a position he held through 2012. But Koch spokesman Robert Tappan said in a statement that the Kochs “had no involvement whatsoever, financial or otherwise, neither directly nor indirectly, on anything to do with Prop. 30 or Prop. 32.”

Tappan said the Kochs were not aware that Noble had agreed to help Russo move money into California. “Whatever Sean Noble did with regard to those issues did not involve us,” he said.

‘A fiasco in our world’

The money swap played out over five weeks in the fall. DeMaura transferred $24.55 million from his group in Virginia to Noble’s organization. The funds were accompanied by letters noting that the money’s use was “at the sole discretion of your organization.”

Noble then dispersed a similar amount to two other nonprofits: the American Future Fund in Des Moines and Americans for Responsible Leadership in Phoenix.

In California, Joel Fox, head of the Small Business Action Committee PAC,which was running ads about the two ballot initiatives, said he did not know money would be coming from Americans for Responsible Leadership until a few days before $11 million arrived Oct. 15. The committee received assurances from a lawyer working with Noble that it was legitimate, according to Russo.

But the large sum from an obscure, out-of-state group caught the attention of Common Cause, an organization that advocates for more transparency in campaign finance. It filed a complaint Oct. 19 to the state’s Fair Political Practices Commission, and Brown used the case to decry “money laundering” by “shadowy forces” working against him.

As the commission pressed the Arizona group to reveal its donors, Noble told Russo in late October that he could not deliver the final $10 million needed in California, and he warned that he would point to AJS if investigators sought to trace the source of the funds. “He couldn’t tolerate an audit of CPPR,” Russo recalled Noble telling him.

Two days before the Nov. 6 election, the California Supreme Court ordered Americans for Responsible Leadership to reveal the source of its contribution. It named Noble’s group, which in turned pointed the finger at AJS in Virginia.

The Sacramento consultants were furious. “That’s kind of a fiasco in our world,” Miller told investigators. Russo said he was “shocked,” saying he believed AJS funds had been diverted elsewhere in Noble’s network.

After a year-long investigation, the commission and the attorney general’s office absolved the Virginia nonprofit of wrongdoing but fined Noble’s organization and Americans for Responsible Leadership a combined $1 million, a record in the state. It also ordered the two state political committees that spent the funds routed through the CPPR to pay the state $15 million.

Fox was stunned. “We cooperated with this inquiry from the beginning and were told by the attorney general’s office we were clean,” he said. Besides, he added, “I don’t have $11 million sitting around.”

Kirk Adams, president of Americans for Responsible Leadership, said in a statement that the group was pleased the matter was resolved but declined to comment on the state’s findings regarding other groups. As for AJS, DeMaura said that it “consistently worked within the law” and added that the controversy had not hurt its fundraising. “Our membership continues to grow,” he said in a statement.

One lingering mystery is the $10 million that never made it to California after Russo’s team transferred it to Noble’s operation. Toward the end of Russo’s interview, a state prosecutor asked whether he felt guilty that money he got from donors did not go where it was intended. “Well, I mean, I felt bad, but, at the same time, you do your best with the facts that you have at the time,” Russo replied, adding, “We’re trying not to break any laws.”

Matea Gold covers money in politics for The Washington Post.
Tom Hamburger covers the intersection of money and politics for The Washington Post.
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