Feature

The scourge of scam PACs

Con men are using political action committees to bilk donors of tens of millions of dollars

What are 'scam PACs'? They are political action committees that claim to raise money for a candidate or good cause but spend little or none of the donated funds for those purposes. People running scam PACs either pocket the money outright in the form of salaries and perks or, more subtly, funnel the donations to a network of companies (consultants, marketers, fundraisers) in which the PAC's managers have a stake. These phony PACs have noble-sounding names like Coalition for American Veterans or For a Better America, and pretend to support good causes like firefighters, veterans, and disease victims. Some claim to support political candidates such as President Trump ("Trump Victory") or Sen. Bernie Sanders. Typically, however, 80 to 90 percent of the money raised is spent on "overhead," and in egregious cases as much as 99 percent. "The money primarily goes to the people who are running the PAC," said Brett Kappel, campaign finance specialist at Akerman LLP.

Why do they get away with it? Charities are policed by state authorities, but scam PACs are not covered by these laws and regulations. They register as political organizations, and thus enjoy considerable legal protection for their activities. In fact, said Adav Noti, a former Federal Election Commission lawyer, federal and state authorities have largely said they can't prosecute scam PACs that don't conceal where the money went or engage in other outright lies. PAC operators can always claim it "costs money to raise money," Noti said. "It's hard to bring cases unless you have evidence disproving that." That gives scam PACs a relatively free hand. "I had breast cancer, so they knew how to get me," said JoAnn Coleman, 63, a donor to a PAC called Americans for the Cure of Breast Cancer, which took in $1.6 million in donations over two and a half years and made exactly one $10,000 contribution for research over that period. "What a racket," said Coleman.

How do they operate? Most scam PACs hire telemarketing firms to contact would-be donors; these telemarketers often target retirees for the scripted calls. A recent Reuters investigation found that the fundraisers often operate out of nondescript strip mall offices in states like New Jersey, Alabama, Florida, and Nevada. These telemarketing firms often operate under multiple names, shut down, and then reemerge under new names. Alexander Lefler, who worked for one such firm, called TPFE Inc., in Alabama, said he'd been instructed to pitch whatever cause he was hawking "like it was a charity, but as quietly and quickly as you can, slip in that it was a PAC." Jason Jones, who made calls for a firm called Politicause, said, "You are not lying, but you are being extremely misleading." In one instance, Jones told Reuters, a person he called asked how much of the money would actually go to the charity. "We are proud to say it's a 90-10 split," Jones remembers reading from a script; he neglected to explain that it was his company that would be keeping the 90 percent. "We wish it was 100," he told the potential donor, "but we have to keep the lights on."

How many are there? There are dozens of scam PACs popping in and out of existence, and they raise a lot of money. Kyle Prall of Austin was recently sentenced to three years in prison for raising $548,428 for several PACs, including "Feel Bern" and "Trump Victory," while donating a total of less than $5,100 to the candidates. He made the mistake of making explicit claims to donors about how the money would be used, while spending it instead on exotic vacations, lap dances, deep-tissue massage, and even a pet-cleaning fee. In December, Politico reported that almost 20 "unofficial" pro-Trump PACs had legally siphoned off $46.7 million in donations during the two and a half years from his inauguration to mid-2019. One, Great America PAC, paid almost $1 million to a public affairs firm registered to the PAC's co-chairman. "There's nothing we can do to stop them," said Kelly Sadler, a spokeswoman for America First, the one super PAC sanctioned by Trump. "This is a problem for the campaign, as well as us, as well as for the RNC."

Who else has been targeted? One California con man focused exclusively on Democrats and progressive causes, leveraging a network of PACs to purportedly raise more than $250,000 for Bernie Sanders, Beto O'Rourke, and "immigrant children." One now-convicted swindler, Cary Lee Peterson of Phoenix, raised $90,000 for his pro-Sanders PAC "Americans Socially United," including a $47,300 donation from James Bond actor Daniel Craig, but spent virtually nothing to help Sanders. Still, successful prosecutions remain rare. Last year, a U.S. district judge struck down FEC rules barring unauthorized PACs from using a candidate's name. FEC Chair Ellen Weintraub said the ruling would "lead to confusion in the political marketplace" and "a wide opening for scam PACs to exploit."

The first federal prosecution The Justice Department is finally taking notice of scam PACs. Last year, U.S. Attorney Geoffrey S. Berman announced the department's first successful case against a "scam PAC" artist. William Tierney of Arizona pleaded guilty to conspiring to commit wire fraud after duping tens of thousands of donors into contributing more than $23 million to six PACs he founded, controlled, and operated. Less than 1 percent of the money raised ever made it to the causes he claimed to champion, including autism awareness, the pro-life movement, and law enforcement. Tierney, who admitted setting up shell companies and fake identities to conceal where the money went and falsely claiming how it was spent, was sentenced to two years in prison and ordered to pay $1.17 million in restitution. Brett Kappel, the Washington, D.C., campaign finance law expert, called it "a very significant" prosecution that "sends a powerful message that consumer protection laws apply to political fundraising." After Tierney's plea, Berman warned, "This is the first-ever federal prosecution of fraudulent scam PACs, but it won't be the last."

This article was first published in the latest issue of The Week magazine. If you want to read more like it, try the magazine for a month here.

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