12/29/2013
Corrupt politics, but no charges Special prosecutor reveals Markell, others helped fuel 'pay-for-play' culture - News Journal

CAMPAIGN FINANCE REPORT  Corrupt politics, but no charges  Special prosecutor reveals Markell, others helped fuel ‘pay-for-play’ culture

By Maureen Milford  The News Journal 12/29/13

Gov. Jack Markell and his 2008 gubernatorial campaign helped donors break campaign contribution laws, suggesting to one developer that he make donations in the name of others and ignoring business details that showed one donor exceeded limits, according to businessmen interviewed during a more than two-year investigation into state campaign practices.

In one case, Dover real estate developer Michael Zimmerman told investigators a Markell campaign staff member recommended he reimburse donors for their contributions. And in another, Markell and his campaign received information from real estate developer Keith Stoltz that showed his business entities were improperly contributing, even after Stoltz sought guidance from the campaign on how to contribute legally.

A 101-page report outlining the investigation by special prosecutor E. Norman Veasey also provides evidence that Delaware candidates often failed to police contributions from limited liability corporations and other entities, in some cases supporting a “pay-to-play” culture that exists in state politics.

And Veasey said liquor executive Christopher Tigani said he believed a candidate, whom Veasey did not name in the report, knew that Tigani illegally reimbursed donors through his business. Tigani, who went to prison for the scheme, understood that “certain words used by the candidate or his agents were coded references to a shared knowledge about how contribution laws could be circumvented,” Veasey wrote in the report.

Investigators also uncovered three cases where state legislators improperly received gifts of more than $250 from Tigani that were not reported as required by law. Sen. David McBride, D-Hawks Nest, received free cases of beer and vodka from Tigani’s liquor warehouse in Milford in 2008. Sen. David Sokola, D-Newark, received tickets to sporting events in 2007 and 2008. And Sen. Colin Bonini, R-Dover South, used two paid N.K.S. employees to erect campaign signs.

But none of the public officials will face charges, Veasey said in his report. And no charges will be filed against campaign workers or donors, he said. Veasey spends much of the report explaining why he chose not to prosecute when presented with information about potential wrongdoing, including his inability to corroborate allegations, the inability of witnesses to provide more evidence and the fact that the statute of limitations expired in some cases.

Instead, Veasey suggested reforms to campaign finance laws, including banning contributions from business entities such as limited liability companies. He also suggested strengthening the Public Integrity Commission, whose counsel investigates potential ethical violations by public officials, including failure to report gifts valued at more than $250.

Markell said in a statement that his campaign has cooperated throughout the investigation.

“As I have said before, my campaign employees and I were unaware that a small number of donors made unlawful contributions. The campaign had no interest in receiving tainted contributions, and we have reimbursed contributions alleged to have been illegal,” Markell said.

“My 2008 campaign had broad support from more than 7,000 donors, and it is disappointing that a few of them acted improperly. The campaign made donors aware of the rules for campaign contributions, but given what we know now about a few of those contributors, more careful review of some of those contributions would have been advisable.”

McBride said he never received a gift of more than $250 and if he had he would have reported it. Bonini said he didn’t think he received the in-kind gift and “would have meant to report it if I did.” Sokola did not return a call for comment.

Email interaction

While Veasey has prosecuted a handful of cases related to donor reimbursement schemes since 2012, the most revealing information in his report relates to campaign contributions from so-called artificial entities, such as limited liability companies and partnerships.

Veasey was tapped by Delaware Attorney General Beau Biden in June 2011 after Tigani, who once headed N.K.S. Distributors Inc. in New Castle, pleaded guilty to federal campaign finance fraud and tax evasion.

Veasey credited The News Journal for exposing the pay-to-play culture infecting Delaware politics, noting that Tigani sought political influence over matters affecting his business –Sunday liquor sales, tax breaks and a sweetheart land deal along Del. 1.

Evidence uncovered by Veasey’s team shows that the Markell campaign failed to diligently investigate whether contributions from business entities complied with Delaware election law.

Investigators also found evidence that the Markell 2008 campaign may have had some knowledge that donations were improper.

Under Delaware law, corporations and other business entities can contribute to state political campaigns a maximum of $1,200 to a candidate for statewide office. However, when someone owns 50 percent or more of a company, the donation is counted proportionally against the person’s individual contribution limit of $1,200. When an individual owns less than 50 percent, the company’s donation isn’t counted against the personal limit.

This means a 50-percent owner of a company that contributes $1,200 to a campaign is only allowed to donate $600 individually.

Election law also requires the business to provide a written description to the campaign of the names and addresses of people who have an interest of 50 percent or more. Investigators found little evidence that campaigns asked questions about ownership of the entities making contributors.

“Obtaining the necessary information does not appear to have been a common practice among campaigns in Delaware,” the report states.

In June 2007, an email was sent from Markell’s personal account to Stoltz, a real estate developer. The email appears to be in response to a question from Stoltz involving contribution limits, the report says.

“It was good to talk to you,” Markell’s email said. “As I mentioned, less than 50 percent is the cutoff. So if entities are owned 49/49/2, or even 49.9/49.9/.2, then I can take as many of those entity checks as there are.”

Several months after the email exchange, numerous entities affiliated with Stoltz each contributed the maximum to Markell’s campaign, the report says. In December 2007, an email was sent to Stoltz from Markell’s account asking for the street addresses of the contributing entities.

Stoltz’s assistant replied by email, attaching a spreadsheet that listed the entities, their mailing addresses, the amount contributed and the ownership of property. The ownership column indicated a 50-percent ownership in eight of the contributing entities, although the report does not identify the owners.

“There is evidence that Markell, as well as several members of his campaign staff, opened the attachment and reviewed the spreadsheet, though investigators were not able to identify any evidence demonstrating whether or not Markell or any member of his campaign staff viewed the ownership column,” the report says.

Investigators found no indication the Markell campaign asked any questions regarding entity ownership or returned the contributions, the report says.

More donations

The next year, six of the entities that were identified in the spreadsheet as having a 50-percent owner again made maximum contributions to Markell.

“Yet, again, there is no evidence that the campaign made any further inquiry regarding such ownership, attributed the contributions to the 50-percent owner, or returned the contributions,” the report says.

But the report said Veasey will not prosecute because the statute of limitations has expired.

“Moreover, with respect to Stoltz and the contributing entities, for which indirect interests are implicated in reaching the 50-percent threshold, it appears that Stoltz was responding to repeated requests for contributions from Markell, Stoltz sought and relied in good faith on advice from the Markell campaign regarding the law governing contributions by entities, and the campaign may have inaccurately stated the law. The investigation found no evidence that Stoltz knowingly violated any campaign finance laws,” the report says.

Stoltz could not be reached for comment.

Markell spokesman Jonathon Dworkin said the campaign was not aware of the ownership information that Stoltz included in the spreadsheet because it was in a column that was not easily read.

“The campaign had no reason to suspect a problem with those contributions and it did not realize that the spreadsheet that was sent to it had a column that was hidden,” Dworkin said in an emailed statement. “In fact, we are not aware of anyone at the campaign ever uncovering that hidden information until Stoltz told investigators about it, six years later.”

Other instances in which entity contributions were not properly attributed involved contributions by companies affiliated with health care entrepreneurs Stephen Silver of Wilmington and Ronald Schafer of Chadds Ford, Pa. Silver and Schafer each own 50-percent of several entities, the report said.

In at least two cases, including contributions to Markell’s gubernatorial campaign, Schafer’s contributions exceeded the limit, the report said.

The report said investigators did not find evidence that the campaigns made any inquiries regarding the ownership of the entities.

Veasey said the statute of limitations on the contributions had expired on the violations. The report also said there’s no evidence that the campaigns were aware that Silver and Schafer each owned 50 percent of the entities.

Silver and Schafer did not return calls for comment.

Instructions given?

In another case, Zimmerman asked Markell in an email about the law governing contributions for a company called Zimmal LLC. Zimmerman told Markell that the company was owned by him and Dover lawyer Constantine Malmberg.

Zimmal is owned 50 percent by Zimmerman and Malmberg.

In October 2008, Zimmal contributed $1,200 to the Markell campaign, the report says. Investigators did not find any evidence that Zimmal Properties notified the campaign that a person held a 50 percent or greater interest, the report says.

Nor did investigators find any evidence the campaign asked any questions regarding Zimmal’s ownership, despite the email Zimmerman sent Markell, the report says. The campaign accepted other contributions from entities of which Zimmerman and/or Malmberg owned 50 percent or more, the report says.

“Thus, the campaign failed to make appropriate inquiries, and in fact accepted an entity contribution without proper attribution under [Delaware law], even where it had information suggesting that the contribution was improper,” the report says.

Zimmerman did not return an email seeking comment. Malmberg did not respond to a call.

The report also details the handful of cases related to donor reimbursement schemes, including the prosecutions of Tigani and Zimmerman. Under the scheme, small business owners solicited employees, family and friends to donate in their names. The businessmen then repaid the contributors.

In September, Zimmerman pleaded guilty to a single felony count of making illegal contributions to Markell’s gubernatorial campaign. Zimmerman, his relatives, his companies and his business partners contributed at least $14,600 to Markell’s campaign during that period, state campaign records show.

Someone in Markell’s campaign told him how to use the donor scheme, Zimmerman told Veasey’s investigators.

“Zimmerman told investigators that a member of a candidate’s campaign staff told him that ‘reimbursing was the way to do it,’” the report states. But Zimmerman “could not identify that person during interviews with investigators,” the report states, so the allegation was not pursued.

“This is not sufficient evidence from which to draw an inference that any candidate or agent of a candidate knew about the reimbursement scheme,” Veasey states in the report.

Payments made

Also in September, a politically connected Greenville businessman who served on Markell’s finance committee agreed to pay $15,000 to resolve a criminal investigation into donations made in the names of other people. Kemal Erkan, chief executive of United Medical LLC on Continental Drive in Stanton, was accused of using his company to reimburse six employees for contributions of $250 each that were made to Markell’s 2008 campaign. Under the civil non-prosecution agreement, Erkan and United Medical each paid $7,500 to the state.

In May, liquor executive Tigani pleaded guilty to making fictitious contributions to various campaigns for candidates running for state office. Among the offenses listed by the state, two were related to Markell’s 2008 run for governor. According to the grand jury indictment, Tigani got eight employees and related people to write checks totaling $8,800 to Markell’s campaign in December 2007 and then had N.K.S. repay them. In October 2008, six people from N.K.S. and a wife of an employee gave $7,200 to Markell’s campaign, and then were reimbursed by the company, according to the state indictment.

In 2012, N.K.S. struck a deal with Veasey to pay $500,000 to the state to prevent possible prosecution for the reimbursement scheme Tigani ran while he headed the company.

Tigani told investigators that he believed a candidate, which the report did not name, must have known about his reimbursement scheme –as did others. Tigani said the candidate or his agents asked him to raise large sums of money that he delivered as checks to the campaign. Tigani also said the candidate and his representatives spoke in a way that suggested they knew contribution laws could be circumvented, the report said. Tigani declined to comment.

Investigators reviewed campaign and contributor documents, emails, public records, campaign databases and interviewed individuals.

They “found no credible evidence sufficient to support an inference that any candidate or agent of a candidate knew about any reimbursements. The emails and other data that the investigation did uncover were inconclusive, at best,” the report says.

“And the statements of Tigani and Zimmerman amounted only to the witnesses’ suspicions, speculations, or incomplete memories,” the report says.

Dworkin said in a statement that the governor appreciates that Veasey complimented the campaign finance and lobbying law reforms that were proposed by Markell and passed by the General Assembly in 2012.

“The former chief justice makes recommendations for a number of additional reforms that certainly merit consideration and the governor is open to a discussion with the General Assembly of those proposals. As indicated in the report, there is an Election Law Task Force currently working, and that appears to be a good place to begin that process,” Dworkin says.

Contact Maureen Milford at (302) 324-2881 or mmilford@delawareonline.com.

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