In what are perhaps the largest campaign finance fines in U.S. history, California's state political watchdog agency wants four groups involved in a series of 2012 mystery campaign donations to pay penalties totaling some $16 million.
"The non profits sought to exploit a loophole," said Ann Ravel, chair of the state's Fair Political Practices Commission in a news conference Thursday afternoon.
Ravel and state investigators are calling the donations part of the "dark money" in national politics, and specifically identified it as coming from groups aligned with conservative billionaires Charles and David Koch. In fact, documents collected by the FPPC and released Thursday show Charles Koch was specifically courted for fundraising help and thanked for the work of an aide from "your group."
The fines are the final chapter in a political and legal mystery that began in September 2012, when an Iowa-based political non-profit put $4 million into an effort to pass Proposition 32, last fall's unsuccessful initiative to limit campaign spending by public employee unions. Weeks later, an Arizona-based organization wrote an $11 million check to a California political action committee seeking to both pass Proposition 32 and defeat Proposition 30, Gov. Jerry Brown's temporary tax increase initiative.
After a formal complaint was filed with the FPPC by the group Common Cause last fall, the agency took the various groups to court seeking disclosure of the donors behind the money and ultimately conducted a year-long investigation in coordination with the office of Attorney General Kamala Harris.
Now, state officials say the failure to accurately disclose the source of those donations means two groups involved will each pay a $500,000 fine. Attorneys for both of the nonprofits involved in the settlement called their decision to not follow California campaign finance law "inadvertent."
But on top of the $1 million in combined penalties, the two political action committees that accepted the donations are themselves being ordered to write a check to the state treasury... for an equal sum of the actual donations.
"California has, and will, continue to aggressively pursue violations," said FPPC chair Ravel.
Those organizations are unlikely to be in a position to give the state the money. The $4 million donation from the American Future Fund of Des Moines, Iowa was placed into a California political committee that was officially closed in January. California's Small Business Action Committee PAC, recipient of the $11 million donation, reported about $754,000 in cash on hand as of this summer and a $10 million outstanding debt.
If those two organizations don't hand over the combined $15 million by Nov. 30, FPPC officials say they will pursue legal action to collect the cash.
"Not one dime of this money is still in their bank account," said Steve Churchwell, attorney for the Small Business Action Committee PAC. "It was all spent on Props 30 and 32."
The long, twisted path of the 2012 campaign donations offers a glimpse into the complexity of tracking political cash these days, as large donations are often funneled through non-profit 501(c)(4) organizations that can keep their donors a secret.
In this case, state officials say the actual donors of all the money may remain anonymous, because they did not know their money was to be used for a California political campaign; had they known, state law says the names of the donors would have to be revealed. Even so, some news organizations have tracked down a handful of the donors.
So how did the money get to California? The court documents filed by the FPPC in closing the case help tell the story.
Officials say in the spring of 2012, a California political operative embarked on an effort to raise money to defeat Prop 30 and pass Prop 32 - an effort that led to national, politically conservative groups. Part of that money was donated to a Virginia based non-profit, Americans for Job Security (AJS), with the understanding that it would be used for "issue advocacy." That distinction is important, because it would allow the donors to remain anonymous.
In all, $29 million was donated to AJS for the effort - from as many as 150 separate donors whose names "are not subject to disclosure under California law," says the court filing.
By October 2012, investigators say AJS transferred most of the money -- $24.5 million -- to the Phoenix, Ariz. Based Center to Protect Patient Rights (CPPR) - also a 501(c)(4) nonprofit organization. It remains unclear exactly what, if any, agreements were made about how the money was to be used.
From there, CPPR wrote two checks: $7 million to the Iowa-based American Future Fund (AFF) and $13 million to its Phoenix neighbor, Americans For Responsible Leadership (ARL). Both groups, like all of those involved, are 501(c)(4) nonprofits that are able to keep their donors a secret.
Most, but not all, of that money made its way to California and the Yes on 30/No on 32 effort. AFF opened its own California PAC with $4 million of its $7 million; ARL sent $11 million of its $13 million to California's Small Business Action Committee PAC.
Documents released by FPPC investigators show a continual coordination of efforts between the California-based political groups pushing the initiative efforts and the Virginia-based Americans for Job Security, the original collector of the cash. That includes details about campaign strategy, advertising, and even a press strategy once information about campaign finances was revealed.
But key to much of the internal discussion was the issue of disclosure -- and what information would, or would not, trigger a full revelation of the donors.
In a July 23, 2012 email, AJS president Stephen DeMaura tells the team that he's worried about a draft letter to donors about the campaign activity.
"Most of this is not something we are able to tell potential members," DeMaura. Later that day, Sacramento based political consultant Tony Russo writes: "Can you talk more vaguely about the California project, but not be specific in what you would do with their money?"
Again, the reason for such vagueness is that donors must be disclosed if they knew their money was going to directly campaign for the passage or defeat of measures.
Russo did not return an email seeking comment on Thursday.
And it was his interview with state investigators that seemed to reveal why so much money was routed through various channels: the fact that TV ads, which the backers assumed would be legally seen as not promoting a specific yes/no vote by the public, weren't ready to be aired until the days in the election cycle at which those ads would be considered -- by state officials -- as promoting a specific voting decision, known as 'express advocacy.' And that would begin to trigger the rules of donor disclosure.
"We had a hiccup," Russo says to investigators in a transcript of their interview. And that led to a decision to re-route the money.
For their part, the California PAC that received most of that money says it's not the bad guy.
"We violated no law," says Beth Miller, spokesperson for the Small Business Action Committee PAC. The group's attorneys believe state investigators are incorrect in their interpretation of the law, and Miller says the PAC made it clear in 2012 that the money came from an 'intermediary,' one whose real identity she says even they didn't know.
Nonetheles, donations were apparently solicited simultaneously by the political operatives for either anonymous or reportable activities.
"Donors were given a choice," says FPPC chair Ravel. "Give money to campaigns and have their identity disclosed, or hide from public view by giving to nonprofits."
Almost all of the relationships in this saga were hidden from state and public view until the day before the Nov. 6 election, where under threat of legal action the original source of the money - Virginia's Americans for Job Security - was revealed. As we reported back then, that organization has long ties back to Republican and conservative groups - the same kinds of groups that wanted to see Prop 32 pass, and Gov. Brown's Prop 30 defeated.
On Election Day, neither of those things happened.
All of this, says FPPC chair Ravel - who on Friday leaves her state post to take a seat on the Federal Elections Commission - is an example of why campaign finance laws need to be changed.
"California law doesn't provide adequate disclosure of political money made through dark money non-profits," said Ravel.
NOTE: This story was originally posted early Thursday afternoon, but was updated Thursday night with details taken from the large amount of documents provided to reporters by the Fair Political Practices Commission, and with details gleaned from further reporting throughout the day.
John Myers is News10's political editor. Check out his Twitter feed on California politics, his Facebook page, and the weekly News10 Capitol Connection politics podcast.