Judge Won’t Order FEC to Pursue Conservative Nonprofit

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By Kenneth P. Doyle

A federal judge has refused to order the Federal Election Commission to disclose information about or take further enforcement action against a nonprofit group that spent millions of dollars on ads opposing House Democrats in the 2010 elections.

The FEC investigated the now-defunct nonprofit Commission on Hope Growth and Opportunity (CHGO) for more than five years, but the case was dismissed after the six FEC commissioners ultimately deadlocked in a party-line vote on possible enforcement action. Judge Rudolph Contreras of the U.S. District Court for the District of Columbia said in a Feb. 22 ruling that he would not reverse the FEC’s dismissal of the CHGO matter.

Although the FEC “strong grounds to prosecute” CHGO for campaign finance violations, the judge said, the agency had discretion to drop the case because it dragged on for so long that a statute of limitations had lapsed and the nonprofit group had ceased operating.

The three commissioners holding Democratic seats on the FEC voted to follow staff recommendations and pursue enforcement action based on CHGO’s possible violations of reporting rules for regulated political committees. The three FEC Republicans, however, voted to drop the matter. The Republican commissioners’ “statement of reasons” for their votes was analyzed by Contreras as the basis for the FEC’s dismissal of enforcement action.

“Because any further prosecution would have cost the FEC more than any benefit it calculated that it could derive, the FEC argues that its dismissal was within the scope of its prosecutorial discretion,” the judge said in a 27-page ruling granting summary judgment in a lawsuit challenging the FEC’s dismissal of the CHGO matter.

FEC Probe Revealed Contributors

The judge acknowledged that the FEC’s investigation had uncovered information about the contributors who provided funding for CHGO’s political ads—information that has never been publicly released. But, Contreras said, the FEC could face a legal challenge if it released this information.

The liberal watchdog group Citizens for Responsibility and Ethics in Washington (CREW), which brought the court challenge to the FEC’s dismissal of the CHGO matter, expressed disappointment in Contreras’s ruling and suggested it was considering an appeal.

“Obviously, we disagree with the court’s interpretation and decision here,” CREW spokesman Jordan Libowitz told Bloomberg BNA in an e-mail. “Our legal team is currently weighing its options for what comes next.”

CREW’s court challenge, launched last year after the FEC deadlocked on the watchdog group’s administrative complaint, spotlighted some of the information uncovered by the FEC’s investigation of CHGO.

For example, it found that the main fundraiser for CHGO, Wayne Berman, told donors that the organization was focused on “running independent expenditures in key districts to support the election of Republican candidates.” The letter said that, as a so-called Section 501(c)(4) organization, CHGO would not have to disclose its donors.

In filings with the FEC and Internal Revenue Service, the nonprofit said it was aimed at promoting conservative economic policies and educating the public but had no interest in influencing elections.

Several ‘Dark Money’ Cases

CHGO’s case was one of several in which FEC critics have challenged the agency’s inaction against non-disclosing groups spending what they call “dark money” in recent elections. The FEC has deadlocked in many of these cases, with the three commissioners holding Democratic seats voting to pursue enforcement action and the three Republican commissioners voting to drop the cases.

Last September, Judge Christopher R. Cooper, also of the U.S. District Court for the District of Columbia, ruled in a separate case that the FEC acted “contrary to law” by dismissing an FEC enforcement case against two conservative nonprofit groups—American Action Network and Americans for Job Security— that refused to disclose their donors.

A similar, ongoing case, filed by the liberal watchdog Public Citizen, involves the FEC’s dismissal of an enforcement action against the conservative nonprofit Crossroads GPS, which is linked to prominent Republican political adviser Karl Rove.

Another judge in the federal district court in Washington, Richard Leon, held a hearing in the Crossroads GPS case last summer but has given no indication how or when he would rule on summary judgment motions.

CHGO, Crossroads GPS and Americans for Job Security have spent little or no money in recent elections, but the conservative groups cumulatively spent tens of millions of dollars in earlier years helping to elect Republicans. The funding sources for these groups have never been disclosed.

Court rulings requiring or precluding disclosure could reveal or continue to conceal who paid for earlier efforts to influence campaigns. Such rulings could also affect future activity of groups that remain active in campaigns and continue to keep their donors secret.

CHGO Helped Knock Off House Democrats

CHGO disbanded after spending about $4 million on ads in more than a dozen House races that helped Republicans take control of the chamber in 2010.

The nonprofit’s ads attacking Democratic incumbents, such as then-House Budget Committee Chairman John Spratt (D-S.C.), included a TV spot called “Song and Dance” that depicted the heads of Democratic lawmakers, then-House Speaker Nancy Pelosi (D-Calif.) and President Barack Obama pasted atop the bodies of chorus-line dancers. The ad urged viewers to “pull the plug on this song and dance” and to “fight back” with Republican challengers.

Spratt and dozens of other incumbent Democratic lawmakers lost their elections in 2010, while Republicans gained more than 60 House seats and took majority control of the chamber.

In previous court filings in the CHGO case, CREW has charged that key Republican political advisers, including Berman, Scott Reed and William Canfield, lied to federal officials and pocketed more than $1 million of the money raised by the conservative nonprofit. The three have continued to serve as top advisers to other conservative groups and Republican candidates.

CHGO Organizers Still Active

Berman, an executive with the investment firm Blackstone Group LP, was a fundraiser for the 2016 Republican presidential campaign of Sen. Marco Rubio (R-Fla.). Reed, who heads a lobbying firm called Chesapeake Enterprises, is a senior political strategist for the U.S. Chamber of Commerce. Canfield, a Washington attorney heading the firm Capitol Strategic Advisors, served as general counsel for CARLY for America, the super political action committee supporting Republican presidential candidate Carly Fiorina.

The three generally have declined to comment on the CHGO matter when contacted in the past by Bloomberg BNA. Canfield, who was the nonprofit group’s attorney, sent an e-mail to Bloomberg BNA in 2015 saying: “Haven’t been the lawyer in 5 years since [CHGO] shut-down in Spring 2011.”

Canfield sent a letter to the FEC in 2011 responding to the enforcement complaints filed by CREW and the Democratic Congressional Campaign Committee. The letter contended CHGO wasn’t required to disclose its donors because it didn’t engage in “express advocacy” for or against candidates and didn’t collect any money specifically earmarked for campaign ads.

Canfield’s response appeared to acknowledge that CHGO should have reported some of its spending to the FEC because it sponsored “electioneering communications”—television and radio ads that refer to candidates in the weeks before an election.

“If CHGO made an error with respect to disclosure reports required of ‘electioneering communications,’ such an error was made in good faith and was one of omission rather than commission,” Canfield wrote.

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

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