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Political Embezzlement Rises as U.S. Campaign Accounts Swell

Representative Susan Davis’ latest letter to supporters said: “We have been robbed!!”

Davis, 67, is one of several California Democrats whose campaign accounts were allegedly looted during the past year by their treasurer, Kinde Durkee. On Sept. 10, Davis sent out the appeal to begin rebuilding her account.

Five days after Durkee’s arrest in Burbank on Sept. 2, Representative Frank LoBiondo’s former campaign treasurer was sentenced to 30 months in prison for embezzling more than $450,000 from the New Jersey Republican’s campaign committee.

As candidates raise more money for their campaigns, there is greater opportunity for nefarious treasurers to embezzle campaign cash from politicians accustomed to putting their careers in the hands of consultants, aides and volunteers, said Michael Toner, a former Federal Election Commission chairman.

Such thefts are “almost entirely preventable,” said David Mason, another Federal Election Commission chairman who is a senior vice president at Washington-based Aristotle Inc., a political consulting company. “Politicians still want to rely on trust. It’s a personal business.”

Election lawyers said thefts are increasing as campaign treasuries grow and candidates rely on the same person to pay the bills and track the expenses. The average House member spent $1.4 million to win election in 2010, compared with $840,300 a decade earlier, according to the Center for Responsive Politics, a Washington-based research group that tracks campaign spending.

Biden and Boehner

The list of those victimized includes then-U.S. Senator Joe Biden of Delaware, now vice president; then-Senator Elizabeth Dole of North Carolina, a former Republican presidential candidate; and Representative John Boehner of Ohio, now Republican House speaker.

The National Republican Congressional Committee’s treasurer stole more than $844,000 from the NRCC and other political committees, and the campaign manager for then-Representative Christopher Shays of Connecticut was sentenced to 37 months in prison in 2010 for embezzling more than $250,000 from his account.

“These officeholders flip over the keys to these professional treasurers in a way they would never do for their own savings,” said former National Republican Senatorial Committee general counsel Craig Engle, founder of Arent Fox LLP’s political law group and treasurer of the firm’s political action committee. “The more time an officeholder is spending going over his spending, the less effective a candidate he or she will be.”

Professional Treasurers

In the past, treasurers were often family friends or prominent local figures, Engle said. As record-keeping became more complicated, candidates brought in professionals, with no personal connections to them, to handle the job. They found them by word-of-mouth and recommendations; Durkee could sign checks on more than 400 bank accounts, including an undisclosed number of political committees, according to an Federal Bureau of Investigation affidavit.

“As politics has become a regulated industry, the need for professional treasurers, or campaign finance officers, has increased dramatically,” Engle said. “What you see on reports now are professional political treasurers who are handling the books and records. No longer is it a friend or big wheel. It’s someone who does it for a living.”

The campaigns that employed Durkee are now dealing with a breach of trust and the need to re-raise the money they’ve lost.

‘Madoff Ponzi Scheme’

Another Durkee client, Senator Dianne Feinstein, had $5 million in the bank as of June 30, FEC reports show. How much if that is still there remains unknown. The campaign hasn’t had an opportunity to review the bank records, said her chief campaign consultant, Bill Carrick.

“I would anticipate there’s been embezzlement,” Carrick said in an interview. Durkee was “moving money all over in a classic Madoff Ponzi scheme. As a consequence, no one really knows whose money is where. We’re going to try like hell to find it.” Money manager Bernard Madoff pleaded guilty in 2009 to running a Ponzi scheme in which he took money from new clients to pay earlier investors.

Davis’ FEC statement showed her with $456,509 in the bank through June 30. In her appeal for help to supporters, which was provided to Bloomberg News by her office, she said she could have lost as much as $250,000. The losses could have been worse if Davis had not moved some of her donations into a reserve account to which the treasurer did not have access, she said.

“As many of you have often said to me, ‘Please let me know when you really need my help’ -- well I do now and I am not holding back,” Davis said in her letter.

Tough Recovery

“It can really turn your campaign upside down,” said Toner, who is co-chairman of the election law practice at Wiley Rein LLP. “It becomes a lot harder to get new contributions when you’ve just been embezzled. You don’t have the money you thought you have and you’ve got to reach out to donors and say, ‘I’ve got to start over.’ ”

Stealing from campaign accounts isn’t a new phenomenon.

Dole’s former assistant treasurer admitted in 2004 that he stole almost $175,000; the same year Biden’s assistant treasurer, who took more than $400,000, pleaded guilty.

Refilling campaign accounts can take an extra step for politicians who’ve become crime victims because they must restore donors’ faith in their operations.

“Safeguards that should have prevented this were not in place,” Boehner wrote to supporters in 2004 after his treasurer stole $617,562 in campaign donations. “They are now, and to a degree not seen in most congressional campaigns.”

Prevention Tips

Election lawyers say it’s easy to prevent such thefts. Candidates can require two signatures on accounts, have different people responsible for depositing donations and writing checks, bring in a third person to review the books regularly, and keep an eye on campaign funds the way they would their personal bank accounts.

Beyond the lost cash, candidates and political committees can also face financial penalties from the FEC for filing what turn out to be false disclosure reports.

After Lockheed Martin Corp. (LMT)’s political action committee was victimized by a treasurer who stole about $160,000 and submitted false FEC statements to cover his tracks, the Bethesda, Maryland-based company paid $27,000 in FEC fines for the incorrect filings.

In 2007, the FEC issued a policy statement that protected political committees from being fined for false reports if they put in place certain safeguards, including having accounts in the name of the committee and not an individual, requiring two people to sign checks of more than $1,000, and having someone not authorized to sign checks responsible for checking the monthly bank statements.

“The last thing you need is a government penalty,” Toner said. “The challenge here is having the money to really invest in compliance.” With television advertising and consultants often ranked as top budget priorities for campaigns, “it’s tough because they don’t have the dollars to invest in these areas.”

To contact the reporter on this story: Jonathan D. Salant in Washington at jsalant@bloomberg.net.

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net.

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