In a colossal failure to fulfill its core duties and enforce campaign finance law, the Federal Election Commission announced Friday it would take no legal action against one of the most notorious dark money groups involved in the 2010 elections, despite overwhelming evidence the group egregiously broke the law then intentionally went out of business to avoid the FEC’s investigation.  Documents released by the FEC show inexcusable delays to investigate the Commission on Hope, Growth and Opportunity (CHGO) and a stubborn refusal by the three Republican commissioners to acknowledge that the group was a political committee required to disclose its donors.  On top of that, when the FEC finally started digging into CHGO, the investigation revealed deeply troubling conduct by the group and individuals closely associated with it – conduct for which no one is being held accountable.

In complaints filed in 2011 and 2012, CREW asked the FEC to investigate whether CHGO violated campaign finance law by failing to disclose millions of dollars in political advertisements it broadcast in 2010 and by not registering as a political committee that must disclose its donors.  (The Democratic Congressional Campaign Committee also filed a complaint against the group in late 2010.)  With regard to CHGO’s political committee status, CREW explained that the group reported to the IRS it spent a total of $4.77 million in 2010, including $4.32 million for “media placement,” $275,000 for “media production,” and $105,175 for “advertising and technology.”  Using data obtained from political ad tracker CMAG, CREW calculated that at least half of CHGO’s expenditures were for independent expenditures (ads that can only be interpreted as expressly advocating voting for or against a candidate) and electioneering communications (ads broadcast close to an election that mention a candidate and are targeted to that candidate’s electorate).

All the commissioners agreed that, by December 2013, there was reason to believe CHGO violated the reporting rules, but the three Republican commissioners repeatedly refused to authorize a full investigation into whether the group’s major purpose was federal political activity and it was thus a political committee.  Incredibly, the FEC did not begin any investigation into that issue until late 2014, and was still gathering crucial evidence in September 2015, just before the five-year statute of limitations was set to expire.

Once the FEC started digging into CHGO, the investigation uncovered facts confirming CREW’s allegations.  In the end, the FEC’s Office of General Counsel (OGC) concluded an even greater portion of CHGO’s spending was on federal campaign activity – 85 percent, according to OGC’s final report to the FEC.  An active controversy at the FEC is whether to include electioneering communications in calculating a group’s major purpose, but OGC found CHGO’s political spending was at 61 percent of its funds even counting only spending for independent expenditures.  Nevertheless, the three Republican commissioners refused to find there was reason to believe CHGO was a political committee.  In addition to disagreeing with OGC’s conclusion that many of the ads could only be seen as urging viewers to vote for or against a candidate, the Republican commissioners said taking any further steps was pointless because CHGO was defunct and had no money.

What these commissioners did not note, however, is that the FEC’s investigation uncovered that CHGO intentionally went out of business specifically to avoid the investigation, one of several troubling questions raised about CHGO and individuals associated with it.  During the final part of the inquiry, FEC investigators talked to CHGO’s officers, including General Counsel William Canfield III, President/Executive Steve Powell, and Treasurer James Warring, as well as its key vendors and consultants (or their attorneys).  Those included Michael Mihalke, principal at Meridian Strategies, the firm that CHGO paid to produce and place the ads, Scott Reed, allegedly CHGO’s founder, and Wayne Berman, apparently a fundraising consultant for the group.  In April 2012, after complaints had been filed with the FEC, Mihalke emailed Warring and Canfield and suggested CHGO be terminated “most quickly” because there was an outstanding matter at the FEC, and “we ought to shut it down to make things less complicated moving forward.”

Even more concerning, Mihalke told the FEC that he, Reed, and Berman split $1.1 million left over from the advertising budget.  When he was questioned about the fact that CHGO paid Meridian $4.7 million, but Meridian only paid another vendor $3.2 million to buy air time, Mihalke said that as the ad placement proceeded, he told Reed about the unused funds.  According to Mihalke, Reed told him the remaining funds would be evenly divided between Reed, Berman, and Mihalke to cover the cost of fundraising, and the payments would be deemed a “fundraising commission.”  The record does not indicate who, if anyone, authorized this redirection of the $1.1 million.  In addition, CHGO’s tax returns assert the group spent no money at all on fundraising, undermining the claim that this money was actually a “fundraising commission.”

Mihalke’s statements also call into question Reed’s and Berman’s statements to FEC investigators about their involvement with CHGO.  In July 2015, Reed told the FEC that his involvement with CHGO was limited and that he could not recall having any contact with anyone involved with CHGO after its formation.  When pressed, he admitted to being involved in discussions on the strategic placement of ads, but could not recall any details.  In addition to his account of the “fundraising commission,” Mihalke said Reed (and Canfield) approved the content, production, and placement of all CHGO-related television ads, and another Meridian employee said Reed edited her PowerPoint presentations about CHGO.  Mihalke’s assertion that he, Reed, and Berman split the $1.1 million also calls into question the statement by Berman’s attorney that Berman only offered informal and infrequent fundraising advice “strictly on a volunteer basis.”

CHGO clearly broke the law by not reporting its political ads to the FEC – even the Republican commissioners admit that.  CHGO also is a political committee that must disclose its donors under any reasonable interpretation of the law.  Yet the FEC moved at a glacial pace in its investigation, and in the end, neither CHGO nor the individuals behind it were held accountable for these violations or for other potential misconduct the investigation uncovered.  CREW is reviewing this disturbing case and considering what steps to take next to ensure that the FEC enforces the law and that groups and individuals are held accountable for their conduct.

Read More in Investigations