Welcome to the September 2024 edition of the Political Law Playbook, which comes to you approximately 40 days before the November general election. This edition’s federal coverage features a recent legislative effort to police the political contribution fundraising platform ActBlue, and the Federal Communications Commission’s (“FCC”) decision to extend the comment period for its proposed rules regulating artificial intelligence (“AI”) in political communications. This edition’s pay-to-play coverage includes a substantial fine levied by the Securities and Exchange Commission (“SEC”) against an investment advisor for violating the agency’s pay-to-play rule and new California legislation which, if enacted, would change the state’s pay-to-play laws. This month’s newsletter also highlights the Justice Department’s continued focus on combatting Foreign Agents Registration Act (“FARA”) violations, as demonstrated by two recent indictments. On the state-level, a federal judge blocked enforcement of Ohio’s law banning noncitizens from contributing to ballot issue campaigns, and the Michigan Secretary of State released new guidance on the contours of the state’s gift rules.
Federal Elections & Campaign Finance
Senate Democrats Introduce Bill to Increase Accountability from Social Media Platforms that Host False Election Administration Content – In August, Senators Peter Welch (D-VT), Amy Klobuchar (D-MN), Jeff Merkley (D-OR), Ben Ray Luján (D-NM), Michael Bennet (D-CO), and Mazie Hirono (D-HI) introduced the Digital Integrity in Democracy Act. The Act aims to hold accountable operators of social media platforms that fail to intervene and remove objectively false election administration content after being notified of such content. If enacted, the legislation would, in part, create an exception to Section 230 (which provides immunity to online platforms from civil liability based on third-party content and for the removal of content in certain circumstances) for social media platform operators that intentionally or knowingly host false election administration information on their platforms. The bill has been referred to the Senate Committee on Commerce, Science, and Transportation.
Cryptocurrency Lobbyist Federally Indicted for Campaign Finance Violations – In August, federal prosecutors released an indictment accusing cryptocurrency lobbyist Michelle Bond of illegally financing her 2022 congressional campaign. The indictment also alleges that Bond lied to the House Ethics Committee regarding the origins of her campaign’s funds. Ms. Bond’s boyfriend – Ryan Salame, a former FTX executive – previously pled guilty in September 2023 for his role in a conspiracy to make unlawful political contributions and defraud the Federal Election Commission (“FEC”), as well as for conspiracy to operate an unlicensed money transmitting business. In the new Bond indictment, federal prosecutors allege that Mr. Salame orchestrated a sham consulting agreement between Ms. Bond and FTX. Under this agreement, it is purported that Bond was paid $400,000, which she then used to finance her congressional campaign. Ms. Bond ran as a Republican primary candidate in the 2022 midterms to represent New York’s 1st Congressional District and has been released from federal custody on a $1 million bond as she awaits trial.
FCC Extends Time to Comment on Proposed Political AI Disclosure Rules – The FCC has extended the deadline for the public to comment on the agency’s proposals to regulate artificial intelligence in political advertising. As we reported in the August Edition of the Playbook, the FCC recently released proposed rules for the regulation of the use of AI in political advertisements aired on radio and TV in an attempt to increase transparency in on-air political communications. The National Association of Broadcasters and the Motion Picture Association asked the FCC for an extension to provide comments because the planned rulemaking raises significant and novel factual and legal issues that require extensive responsive research by regulated parties. Although the Commission granted an extension, the agency did not provide as much time as was requested. The proposal’s initial 30-day public comment period was extended to September 19. Reply comments are now due on October 11.
VA Congressional Candidate Accused of Illegally Coordinating with an Outside Group in FEC Complaint – Eugene Vindman, a Democrat congressional candidate running in Virginia’s 7th Congressional District, is facing a new FEC complaint regarding his campaign’s alleged illegal coordination with a third-party political group. The complaint, filed with the FEC in August, asks the Commission to investigate Mr. Vindman, his campaign, and a federal Hybrid PAC called VoteVets. Specifically, the complaint alleges that VoteVets’ political director’s services to Mr. Vindman’s campaign go beyond those of a typical volunteer, and that he effectively is acting as the campaign’s press secretary. Under federal campaign finance law, Super PACs and campaigns may not coordinate their activities, including on communications. A Hybrid PAC is a federal political committee that maintains one bank account for making contributions in connection with federal elections, and a separate account for making independent expenditures. The second account effectively operates as a Super PAC. In response to the complaint, a communications staffer for the Vindman campaign denied that the committee has violated federal law.
Federal Lobbying & Ethics
Reps. Porter and Pappas Introduce Bill to Legislatively Codify the Office of Congressional Ethics – Representatives Katie Porter (D-CA) and Chris Pappas (D-NH) recently introduced new legislation to codify the Office of Congressional Ethics (“OCE”), the only independent internal “watchdog” office that probes ethical breaches in Congress. Currently, every two years, Congress passes new rules to regulate how the OCE operates. The bill, titled the Clean Legislating and Ethical Accountability Now (CLEAN) Act, would permanently authorize the OCE by codifying it into federal law so that the office can continue to conduct Congressional oversight without bi-annual renewal. The legislation has been endorsed by several outside “watchdog” organizations including Common Cause, Campaign Legal Center, and Citizens for Responsibility and Ethics in Washington. The CLEAN Act has been referred to the Committee on House Administration and the Committee on Rules for each committee to consider the provisions that fall under their respective jurisdictions.
Senate Ethics Committee’s Review into Sen. Menendez Closed After Resignation Takes Effect – The Senate Ethics Committee adjudicatory review of former Senator Bob Menendez’s (D-NJ) alleged violations of the Senate rules has been closed after the lawmaker’s resignation took effect in August. The Committee’s Chairman and Ranking Member released a statement asserting that a panel had been preparing a written report for the Senate with findings and disciplinary recommendations for Menendez, but because he is no longer a member of the Senate, the committee no longer has jurisdiction over him. Mr. Menendez was found guilty in July of 16 federal criminal charges including bribery, acting as a foreign agent, and obstruction of justice.
Ethics Complaint Alleges Rep. Calvert Failed to Properly Disclose Investments – A political action committee has filed a complaint with the Office of Congressional Ethics alleging that Representative Ken Calvert (R-CA) failed to disclose real estate investments near areas that benefit from federal funds he purportedly steered. Under the Ethics in Government Act of 1978, members of Congress must disclose their interests in real and personal property, including rental property, on periodic financial disclosure submissions. Additionally, members are required to disclose assets purchased or sold that total more than $1,000 on such reports. The complaint filed in the present matter alleges that Representative Calvert repeatedly failed to report the purchases and sales of multiple rental properties for a number of years in violation of the Act, and requests that the OCE investigate the matter. A Calvert campaign spokesperson denied the allegations.
OIG Report Suggests EPA Air Chief Committed Ethics Violations – A report released in August by the Office of Inspector General (“OIG”) concludes that Environmental Protection Agency (“EPA”) air chief Joe Goffman repeatedly ran afoul of federal ethics requirements by wading into regulatory matters affecting companies in which he had a financial stake. The report claims that in several separate proceedings, Mr. Goffman failed to assess whether specific parties or industries that were involved posed a potential financial conflict-of-interest, and therefore he did not seek an ethics screen and recuse himself from the matters pending the determination of that screen. According to the report, the Inspector General referred its conclusions to the civil division of the US Attorney’s Office for the District of Columbia, which initially accepted them for investigation before refraining from taking further action. The EPA has indicated that it is currently reviewing the report and that the agency has since strengthened its screening protocols for potential conflicts of interest. Mr. Goffman continues to lead the EPA Office of Air and Radiation.
Foreign Agents Registration Act
Former Aide to NY Governors Charged with Violating FARA – A former senior aide to New York Governor Kathy Hochul and former governor Andrew Cuomo – Ms. Linda Sun – was recently indicted on federal charges alleging that she acted as an undisclosed foreign agent of the Chinese government and the Chinese Communist Party in violation of FARA. The indictment describes the lengths to which the former aide allegedly went to help Chinese government and party officials. In one example, the indictment asserts that Ms. Sun secretly put a Chinese official onto a private New York state government conference call about the state’s health response to COVID-19 and its efforts to fight a rise in hate crimes targeting Asian Americans. The former aide is charged with violating FARA, as well as visa fraud, alien smuggling, and conspiracy to commit money laundering. Ms. Sun and her husband, who is charged with conspiracy to commit money laundering, conspiracy to commit bank fraud, and misuse of identification, have pled not guilty.
Two RT Employees Charged with FARA Violations – In early September, the Department of Justice unsealed an indictment charging two employees of the Russian state-controlled media network RT with allegedly steering nearly $10 million through various shell companies to launch a US-based outlet that enlisted prominent content creators to promote English-language social media and internet videos in furtherance of Russian interests. The Department has charged the two Russian nationals with conspiring to violate FARA and conspiracy to commit money laundering.
Pay-to-Play
SEC Fines TX Investment Adviser for Pay-to-Play Rule Breach – A Texas-based investment adviser was recently fined $95,000 by the SEC after an investigation by the agency found the firm in violation of the Commission’s pay-to-play rule. As we discussed in the August Edition of the Playbook, SEC pay-to-play Rule 206(4)-5 prohibits investment advisers from receiving compensation for providing advisory services to a government entity for two years after the investment adviser, or certain covered personnel, make a contribution to an “official” of the government entity. According to the SEC order issued against Obra Capital Management, the infractions relate to a $7,150 campaign contribution made in December 2019 by an individual whom the firm later hired in July 2020 into a position that made him a covered associate. The contribution in question was directed to a Michigan government official with influence over the Michigan Public Employees’ Retirement Fund, which had invested in a closed-end fund managed by Obra Capital. According to the order, the office of that government official had the ability to influence which investment advisers the fund hired. In addition to the $95,000 fine, the SEC censured Obra Capital and ordered it to refrain from future violations of the pay-to-play rule.
CA Legislature Passes Bill to Update the State’s Pay-to-Plays Laws – In August, both chambers of the California legislature passed legislation that would, if enacted, update the state’s pay-to-play laws. Under the state’s current law, an elected official must disclose contributions of more than $250 from anyone who has pending state business interests, such as a contract, permit, or housing development, before the official’s government body, and must recuse themselves from participation in the decision. If signed by the Governor, Senate Bill 1243 would, in part, raise the contribution threshold from $250 to $500, clarify that a contribution from a party’s agent that exceeds $500 will not be aggregated with the party’s contributions, and exempt from these provisions: contracts valued under $50,000; contracts where no party receives financial compensation; and the periodic review or renewal of development agreements, as specified. The legislation is now awaiting Governor Gavin Newsom’s signature.
Non-Federal Elections & Campaign Finance
NM Political Committee Ordered to Disclose Donors and Campaign Expenditures – The June Edition of the Playbook featured the New Mexico State Ethics Commission’s quest to compel a New Mexico nonprofit to disclose its donors. In August, a state district judge ordered the nonprofit, The New Mexico Project (“TNMP”), to do just that. The order requires TNMP to register as a political committee and disclose its campaign expenditures in accordance with state law. TNMP’s founder had contended that the organization was not obligated to register and comply with the law because it has an “educational purpose.” The State Ethics Commission, on the other hand, asserted that because TNMP made advertisements supporting candidates seeking election for several state House and Senate districts, the organization was required to comply with the state’s campaign finance laws. Before the ruling, a lawyer representing TNMP’s founder stated that they would appeal the ruling should it not go their way.
Federal Court Overturns IN Law Limiting Super PAC Contributions – In August, the Seventh Circuit Court of Appeals overturned a longstanding Indiana election law limiting the amount of money corporations can give to Super PACs. Sarkes Tarzian, Inc., an Indiana-based television and radio company, wanted to make a donation to Indiana Right to Life Victory Fund, a Super PAC. However, two provisions of Indiana’s election law suggested that corporate contributions earmarked for independent expenditures were prohibited. The Appeals Court found that these laws likely violate the First Amendment. The opinion states that every other circuit to have considered this issue in the wake of the US Supreme Court case Citizens United v. FEC has come to this conclusion. Citizens United held, in part, that the First Amendment prohibits the government from restricting independent expenditures for political campaigns by corporations. The Seventh Circuit granted an injunction confirming that Sarkes Tarzian could immediately make contributions to the Super PAC without fear of violating the relevant Indiana state provisions.
Local Campaign Ad Highlights Confusion in FL Election Law Regarding Partisan Labeling in Nonpartisan Races – A Florida political committee’s promotion of a “Republican” candidate in a nonpartisan school board race has brought attention to what seemingly is an inconsistency in the state’s election law. At issue are advertisements for a Pinellas County guidance counselor who is running for a seat on the board of the County’s school district. The organization distributing the communications, Empower Parents Florida, described the candidate in a mailing as “Republican.” In a complaint filed with the Florida Election Commission, the guidance counselor’s opponent argued that such labels are against the law in nonpartisan races. Specifically, the state’s statute provides that “a political advertisement of a candidate running for nonpartisan office may not state the candidate’s political party affiliation.” However, a court case has held that the statute is unconstitutional. The opponent who filed the complaint said she did not know about the court case when she filed, and that the Pinellas Supervisor of Elections had not advised her that the statute was unenforceable. The Election Commission’s Executive Director told the Tampa Bay Times that candidates should not assume their local elections office will be aware of the court’s order, as “the supervisors’ office is not responsible for enforcing it.”
SC Attorney General Suggests that ActBlue May Have Broken Laws in Handling of Campaign Contributions – In August, the South Carolina Attorney General released a letter it sent to the CEO of ActBlue alleging that the company may have broken campaign finance laws. The letter suggests that ActBlue may have split large donations into smaller donations to avoid contribution limits and may have allowed for “straw donors,” i.e., when individuals make donations on behalf of other persons. In the letter, the Attorney General states that his office found specific examples of South Carolina donors making so many contributions that it appeared “implausible and highly suspicious.” While the letter makes no direct accusations that ActBlue has violated campaign finance laws, it asks for additional information about the process that the platform uses to verify donor information and requested a response by September 6. The fundraising platform timely responded, denying the Attorney General’s allegations, comparing them to a “disinformation campaign.”
Federal Judge Blocks Enforcement of New OH Law Banning Noncitizens from Contributing to Ballot Issue Campaigns – A federal judge recently blocked key portions of Ohio’s new law restricting lawful permanent residents, visa-holders, and others from contributing to statewide ballot issue campaigns. Under Ohio’s House Bill 1, which we reported on in the June Edition of the Playbook, non-U.S. citizens who make Ohio political contributions, or candidates or campaign officials who accept such money, would face up to 180 days in jail and a $1,000 fine for a first offense, and up to a year behind bars and a $2,500 fine for most repeat offenses. They would also be required to pay a fine of three times the amount of the illegal contribution or $10,000 – whichever is greater. The bill’s sponsor had raised concerns that these provisions left the law vulnerable to being overturned by the US Supreme Court. The District Court agreed, asserting that the law’s challengers are likely to succeed on the merits of their First Amendment challenges, and issued an injunction blocking the state’s ability to enforce the legislation one day before it was set to take effect.
New CA Laws Aims to Regulate Deepfakes Ahead of the November Election – At the end of August, California lawmakers approved a bill that would prohibit the distribution of deceptive campaign ads or election communications within 120 days of an election. Assembly Bill 2839 targets manipulated content that would harm a candidate’s reputation or electoral prospects along with confidence in an election’s outcome but includes an exception for parody and satire. State lawmakers stated that the law needs to be strengthened during an election cycle in which people are already flooding social media with digitally altered videos and photos, also known as “deepfakes.” Under the bill, a candidate, election committee, or elections official could seek a court order to get deepfakes pulled down and sue the person who distributed or republished the deceptive material for damages. Governor Newsom signed the bill into law earlier this month.
Non-Federal Lobbying & Ethics
Complaint Filed in NC Alleges Nonprofit Evaded State’s Gift Rules – A new complaint recently filed with the charitable solicitation division of the North Carolina Secretary of State’s office alleges that a politically connected nonprofit organization improperly used its tax-exempt status to engage illegal lobbying and other ethics violations. The complaint alleges that the group is a “lobbying front” that provides gambling-industry officials and their lobbyists access to state lawmakers for what it calls “development events,” and uses its tax-exempt status under Section 501(c)(4) to avoid disclosure. The complaint also alleges that the nonprofit violated the state’s ban on gifts to public officials, and that it is not disclosing its relationships with lobbyists involved in its events. The legislator at the center of the allegations, Representative Jason Saine, recently stepped down from office to pursue other opportunities. A spokesperson for the nonprofit denied violating any laws. A spokesperson for the Secretary of State confirmed that the office is reviewing the complaint.
MI Secretary of State Places New Limits on Gift Giving to Lawmakers – As highlighted in the June Edition of the Playbook, the Michigan Secretary of State’s office had been asked to opine on whether the system state lobbyists used to provide event tickets to lawmakers is legal. In August, the office released a final statement interpreting the law which concludes that an exchange in which a legislator reimburses a lobbyist a certain amount for a benefit with a value over the gift limit is prohibited. Michigan law bars registered lobbyists from providing legislators with gifts valued at more than $76, but state lobbyists have allegedly attempted to work around this limit by requesting that lawmakers reimburse the price of a gift over $76. The Secretary of State’s statement provides, in part, that allowing the cost of a gift to be allocated across multiple parties, be they lobbyists or public officials, would circumvent the gift ban. Lobbyists can provide a gift to lawmakers only if they receive compensation equal to or greater than the fair market value of the items, the statement asserts. The office’s interpretation is not binding on a future secretary of state. However, the current Secretary’s term does not end until 2027.
Practice Pointers
With the 2024 general election in sight, this month’s Practice Pointers serves as a reminder that heightened disclosure requirements may apply to political expenditures made in close proximity to the November 5 elections. For example, under federal campaign finance law, any broadcast, cable, or satellite communication that refers to a clearly identified federal candidate within 60 days of a general election and is targeted at the relevant electorate is considered an “electioneering communication.” Within the 60-day period prior to a federal election, individuals, corporations, and other entities that disseminate such communications must file 24-hour reports with the FEC each time they spend more than $10,000 for a communication. Disclosure requirements on the state-level will vary significantly jurisdiction to jurisdiction, but also tend to increase closer to election day. The Dentons Political Law Team regularly advises corporations, political committees, and nonprofit organizations across the country on such matters at the federal and state levels, so please do not hesitate to contact a member of our team if you have any questions.
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