January 29, 2020 / 4:05 PM / 5 months ago

How ‘Scam PACs’ fall through the cracks of U.S. regulators

WASHINGTON (Reuters) - Regulators responsible for protecting U.S. consumers from potentially unscrupulous fundraisers face a bedeviling new challenge: the “scam PAC.”

That’s what critics call political action committees that gobble up most of the money they raise rather than using it for the charitable or other causes they profess to support. (See related story here on how "scam PACs" operate)

“Scam PACs” tend to slip through gaps among agencies that govern elections, charities and telemarketing, regulators say, leaving consumers exposed to misleading or fraudulent pitches.

The Federal Trade Commission, which is responsible for policing telemarketing, generally has no jurisdiction over political fundraising, said Lois Greisman, an associate director in charge of the agency’s marketing practices division. The Do Not Call law, the FTC’s major weapon in policing telemarketing, does not apply to political calls, which have protections under the U.S. Constitution.

The Federal Election Commission has jurisdiction over political spending but neither the agency nor Congress has acted on recommendations in 2016 by some of its own members to strengthen fraud protections and disclosure requirements as part of campaign law.

And while law enforcement agencies, including the U.S. Department of Justice, have hit some alleged bad actors with fraud charges, it generally is only when they have tried to conceal where the funds were going, said Adav Noti, a former Federal Election Commission lawyer and now chief of staff at the Washington D.C.-based Campaign Legal Center, a nonpartisan organization of specialists in election law.

If PACs spend nearly all of their money on fundraising and salaries, fundraisers can say they their motives were sincere and “it costs money to raise money,” he said. “It’s hard to bring these cases unless you have evidence disproving that.”

Some of the most aggressive actions against allegedly deceptive PACs and their fundraisers have come from state or local law enforcement officials.

“If you’re a PAC, and you’re raising money for one purpose and doing something else, that’s fraud,” said Elizabeth Grant, who oversees the Oregon Department of Justice Charities unit. But proving it can be a challenge, she said – when, for example, conversations aren’t recorded and callers stray beyond the boundaries of scripts that toe the line.

In Montgomery County, Maryland, the consumer protection office recently won a settlement against a super PAC called Heroes United, run by Zachary Bass of Baltimore. (Super PACs are a type of political action committee that faces no limits on spending or contributions, by virtue of court decisions a decade ago.

Bass set up five super PACs allegedly dedicated to a range of causes including veterans and firefighters. Heroes United, accused of using deceptive tactics to get the firefighter donations, agreed to stop telemarketing in the county and to refund any donations.

Bass declined to answer questions.

Eric Friedman, the Montgomery County consumer protection office’s director, said he used his county’s laws prohibiting deceptive trade practices to win the settlement. It wasn’t easy: The secretive nature of this and other fundraising operations makes them difficult to pin down, he said, and he was able to identify the many players involved only by using subpoena power.

“Here it would be virtually impossible for the consumer to do any research,” he said.

As his office pursued the money trail in the Bass investigation, for instance, Friedman said it came across an organization called Market Process Group, one of the eight fundraisers examined by Reuters.

The fundraiser – paid $11.6 million by PACs, including Bass operations, since 2017 – listed an address in FEC documents that was a mail drop business in Washington D.C. Contract information subpoenaed by investigators and seen by Reuters ties Market Process Group to firms controlled by Mark Gelvan, a New Jersey-based fundraiser. Included were a phone number used by another Gelvan firm, Outreach Calling, an address used by his operation in Montville, New Jersey, and an email linked to another Gelvan company.

Gelvan agreed to a permanent ban on raising money for charity in New York in 2004 in a case that accused him of deceptive telemarketing for a state trooper’s charity, court documents show, and he paid a $50,000 fine for violating that agreement 10 years later.

Gelvan was not accused of wrongdoing in the Montgomery County investigation. Neither he nor other officials at his company returned requests for comment.

Ultimately, changes must come at the federal level, said Ellen Weintraub, a Democrat who chairs the Federal Election Commission. She said she would like to see the panel mandate more disclosure to donors about how much of their money is going to fundraisers, as well as stronger fraud protections in federal campaign law.

Weintraub and a fellow Democratic commissioner wrote a memo to that effect in 2016. But she said the panel has been paralyzed by partisan divisions and, more recently, a lack of a quorum.

“People are getting ripped off,” Weintraub said in an interview. Fundraisers “are seeing this is just another easy way to make a buck.”

But Lee Goodman, an election lawyer and former commissioner who is a Republican, said it’s dangerous for the government to decide which committees are scams based on how much they spend on causes. That could punish well-intentioned organizations, he said.

“Federal election laws were designed to prevent corruption,” he said, “not to protect consumers.”

Joseph Tanfani reported from Washington, Jarrett Renshaw from Philadelphia; Editing by Julie Marquis

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