FEC Deadlocks on Nonprofit Running Pro-Tillis Ads

Daily Report for Executives provides in-depth coverage of unfolding legislative, regulatory, and judicial news from the nation’s capital, the states, and around the world. This daily news service...

By Kenneth P. Doyle

Nov. 18 — The Federal Election Commission deadlocked on whether to pursue enforcement action against Carolina Rising, a secretly funded nonprofit group that sponsored millions of dollars’ worth of political ads praising Sen. Thom Tillis (R-N.C.) in the 2014 U.S. Senate race in North Carolina.

Tillis won his Senate seat in 2014 in a race against then-incumbent Democratic Sen. Kay Hagan.

The six-member commission deadlocked in a 3-3 vote along party lines whether to pursue the case.

The FEC’s three Republican commissioners followed the advice of FEC staff attorneys to drop the case—designated Matter Under Review 6880—because Carolina Rising’s ads didn’t explicitly ask for votes for Tillis and because the nonprofit’s founder claimed he received no contributions earmarked for political ads.

Carolina Rising reported $3.3 million of its ad spending as expenditures for “electioneering communications”—targeted broadcast ads referring to a federal candidate in the weeks before an election. Contributors funding such communications are required to be disclosed under FEC rules only if their contributions were given “for the purpose of furthering” political ads.

The three FEC commissioners holding Democratic seats on the FEC voted to pursue enforcement action on the basis that Carolina Rising was, in fact a political action committee, intending to influence elections. As a PAC, it would be required to register with the FEC and report all of its finances, including its donors.

‘We Did It.’

Two Democratic commissioners, Ann Ravel and Ellen Weintraub, issued a statement noting that the head of Carolina Rising, Dallas Woodhouse, was asked on live TV in 2014 at an election night celebration for Tillis about his group spending “a whole lot of money to get this man elected.”

According to Ravel and Weintraub, Woodhouse replied: “$4.7 million. We did it.”

The Democratic commissioners said that $4.7 million was 97 percent of Carolina Rising’s spending in 2014. They said Carolina Rising “masqueraded as a ‘social welfare organization,’” organized under Section 501(c)(4) of the tax code, but it was, “in effect, a shadow campaign for Tillis, running nearly 4,000 television ads throughout the state.”

Ravel and Weintraub said that until the 2014 election cycle, “a 501(c)(4) organization would not have dared to devote its entire budget to the election of a lone candidate for fear of violating federal tax and campaign finance laws. But, as we have seen before, when this Commission leaves a vacuum by failing to enforce clear law, new organizations rush in to fill the void, knowing that they will suffer no consequences.”

Ravel and Weintraub blamed the three FEC Republican commissioners, Chairman Matthew Petersen and Commissioners Lee Goodman and Caroline Hunter, for voting not to pursue enforcement action. They said the Republican commissioners’ “longstanding unwillingness to follow the law and Commission precedent regarding political committee status has led to this particular void being filled by a new entity, the ‘single-candidate (c)(4),’ the latest but not the last innovation in shrouding campaign funds from public view.”

FEC Republicans Followed General Counsel

The FEC Republicans did not issue a statement regarding their votes. In addition, no statement was issued by Commissioner Steven Walther, a political independent who holds a Democratic seat on the FEC.

The three Republican commissioners voted to follow recommendations outlined in a report by the FEC general counsel’s office, which found “no reason to believe” that campaign finance law was violated by Carolina Rising.

The general counsel’s report noted that an administrative complaint filed by the North Carolina Democratic Party alleged Carolina Rising violated the FEC rules requiring disclosure of donors whose contributions are earmarked for electioneering communications. The complaint, however, provided “no information indicating that the donations to Carolina Rising were made for the purpose of furthering electioneering communications, beyond its assertion that the entity obtained ‘sudden substantial funding.’”

A response letter from Woodhouse said all donations received by Carolina Rising were for “general obligation purposes,” not political ads, the counsel’s report said.

“We are not aware of any other information that suggests that Carolina Rising may have obtained funds that were provided for any particular purpose,” the report added.

To contact the reporter on this story: Kenneth P. Doyle in Washington at kdoyle@bna.com

To contact the editor responsible for this story: Paul Hendrie at phendrie@bna.com

Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.