Thursday, October 18, 2007

The bundling of political donations once was an innocuous play in the game book of Washington political operatives. Now, the fund-raising practice has grown so widespread, and some of its practitioners so brazen, that bundling has become the chief source of abuse in the American campaign-finance system. Read the article at the Wall Street Journal

Donor Bundling Emerges As Major Ill in '08 Race

New Campaign Favorite Spins More Cash, Abuse; Lawyers Back Edwards

Wall Street Journal
October 18, 2007; Page A1

WASHINGTON -- The bundling of political donations once was an innocuous play in the game book of Washington political operatives. Now, the fund-raising practice has grown so widespread, and some of its practitioners so brazen, that bundling has become the chief source of abuse in the American campaign-finance system.

The strange case of Norman Hsu, the textile-importer-turned-fugitive who cobbled together $800,000 in contributions for Sen. Hillary Rodham Clinton's presidential campaign, is the tip of the iceberg. Candidates for offices from county commissioner to U.S. president are increasingly turning to bundlers -- individuals who ask friends, family and business associates for contributions to their candidate of choice -- to help bring in the tremendous amounts of cash now needed to wage political campaigns.

The number of bundlers working for presidential campaigns has nearly doubled since the last election, according to a Wall Street Journal analysis of data from campaigns and watchdog groups. The volume of cash they funnel to individual campaigns, as a percentage of all money raised, has soared as well. Bundled donations account for more than one-quarter of presidential campaign contributions this year, up from 8% in the 2000 race.

Bundling is legal and has been around for years, but new forces have turned it into an election-season cornerstone. Campaign costs have surged, with each candidate's viability increasingly measured by their ability to raise cash. Recent finance reforms have closed old avenues for individuals to make big donations, making stars out of connected fund-raisers who can coax small donations from a broad network of names. Campaigns encourage ambitious bundling by rewarding top fund-raisers with perks, including access to candidates.

Knowledge about these bundlers is limited, however, because candidates aren't required to disclose information about them. While some campaigns honor bundlers by name on their Web sites or disclose the total number of bundlers working for them, others guard their identities.

In this high-pressure, low-disclosure environment, the practice has increasingly evolved into a method for disguising illegal donations. In several cases already this year, campaign bundlers have admitted to making contributions in the names of others to get around caps, or coercing employees to give.

"The pressures of unlimited, arms-race spending has put the highest premium on presidential candidates finding bundlers who can raise huge amounts of money and the lowest premium on filtering out problematic bundlers," says Fred Wertheimer, the president of Democracy 21, a nonpartisan Washington-based group dedicated to reducing the influence of money in politics. "This has opened the door to anything-goes bundlers pursuing anything-goes fund raising."

Last month, Mr. Hsu was charged with surpassing the legal limits on his own contributions by secretly reimbursing others for the donations he bundled together. Wisconsin developer Dennis Troha has pled guilty for repaying others for their donations to both Democrats and Republicans. Last week, the former chairman of Miami-based engineering firm PBS&J Corp. pled guilty in federal court in Florida for crimes related to funneling $200,000 to $400,000 in illegal donations to congressional candidates from Florida to Alaska.

More Than 2,000

For a closer look at the personalities behind this season's flow of campaign cash, The Wall Street Journal analyzed data provided by the Democratic and Republican presidential campaigns. The Journal also commissioned data and analysis from two nonpartisan groups that track money in politics. According to a study by one of the groups, Washington-based Public Citizen, the number of bundlers in presidential races has reached 2,045 so far in the 2008 election, up from 1,173 in the 2004 election. There were 269 in 2000.

Bundlers raised at least $109 million for the presidential candidates during the first nine months of the 2008 campaign. That figure is based on the number of bundlers that Public Citizen says raised money for each campaign, multiplied by the minimum amount that campaigns and fund-raisers say they are required to bring in to be considered bundlers. The actual share contributed by bundlers is likely higher, because top practitioners raise far more than the minimum -- nearly $1 million in Mr. Hsu's instance.

The funds bundled so far this election cycle represent at least 28% of the record $379 million raised overall for this campaign. By comparison, figures compiled by Public Citizen show bundlers accounted for 18% of funds raised in the 2004 contest, and 8% in 2000.

A name-by-name analysis of bundlers reveals that this year's operatives are drawn from the same pools as fund-raisers past. Lawyers account for about 27% of the bundlers named by Public Citizen, according to an analysis of that list conducted for the Journal by the Washington-based Center for Responsive Politics. Another 11% work in securities and investment and 8% in real estate. Lobbyists account for about 3% of these fund-raisers. The Center for Responsive Politics said it couldn't determine the occupations of 15% of the bundlers named by Public Citizen.

Global law firm DLA Piper is home to five presidential bundlers, including three for Mrs. Clinton, the analysis reveals. Akin Gump Strauss Hauer & Feld LLC employs five, two of them for Democrat Sen. Barack Obama. Finance, too, has its voice: Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. each employ five bundlers. Other Wall Street players with multiple bundlers include J.P. Morgan Chase & Co., Citigroup Inc. and Credit Suisse Group. The entertainment industry accounts for about 4% of the bundlers for the presidential campaign -- predominantly for Democrats -- including five at DreamWorks Animation SKG Inc.

Shared Ideology

Bundlers for major campaigns say they're following the rules. They're motivated by a shared ideology with their candidates and a desire to see them win. "The way I see it, there are two elections. The first is how many people are willing to dig into their pocketbooks to finance a candidate," says Domino's Pizza CEO David Brandon, a bundler for Republican Mitt Romney.

The bundling boom is partly an unintended consequence of prior stabs at reform. In 1974, lawmakers responded to Watergate-era political abuses by limiting the amount of money any individual can give. At the same time, to help lower the cost of campaigns and reduce reliance on private donors, the federal government offered to match money raised by a campaign with public funds, provided the candidates agreed to a federal spending limit.

In the history of campaign-finance law, well-intentioned efforts to curb abuses in one area typically open the door to those in another. The Watergate-era reforms prompted an explosion of political-action committees, which had much higher limits on how much they could receive from individuals and dole out to campaigns. PACs became the new conduit for big cash.

Meanwhile, campaign budgets ballooned. In 1976, $300 million was spent on candidates for Congress and the White House, according to the Federal Election Commission. Since then, the cost of campaigns has grown by about 40% every four-year election cycle. The 2008 elections are expected to cost $6 billion in all -- with the presidential contest, for the first time, expected to exceed $1 billion.

By the late 1990s, presidential hopefuls were chafing at the federal spending limits. In 1999, George W. Bush announced he would opt out of the federal system -- the first major presidential candidate to do so since the program was introduced 25 years earlier. His decision freed his campaign from spending limitations, but increased the pressure to raise private money to offset the waived federal funds.

Retooled Strategy

Mr. Bush retooled his strategy. As governor of Texas, he had cultivated donors who contributed $100,000 or more to his campaigns. (Texas law doesn't limit campaign contributions from individuals.) But when Mr. Bush began his first presidential campaign, those donors were forbidden under federal law at the time from giving more than $1,000. Mr. Bush created a program that rewarded individuals who brought $100,000 or more to his campaign, in increments of $1,000 or less.

He named the supporters "Pioneers," publicizing their names on his Web site and inviting them to private campaign events and strategy sessions. A tracking number was attached to the donations channeled by each Pioneer to the campaign, allowing the Bush team to tally the haul of each and foster competition among them. Mr. Bush recruited about 250 bundlers who raised at least $25 million of the $100 million he raised for the 2000 race.

Unintended Consequence

Bundling received another, if unintentional, boost in 2002. That year's McCain-Feingold Act banned corporations, unions and others from making large donations, known as "soft money," to the Democratic and Republican parties. Most of this soft money had been spent on behalf of the parties' presidential and congressional candidates, so the new law effectively closed the avenue that high-rolling campaign donors had used to skirt individual campaign limits. The rule also doubled the limits on individual donations to $2,000 for a primary election and another $2,000 for the general election for congressional and presidential candidates. (The limit is currently $2,300 per candidate per election.)

In the 2004 election, both President Bush and his Democratic challenger, Sen. John Kerry of Massachusetts, declined matching funds. Had they accepted federal money, they would have received $17 million each and been limited to spending roughly $44 million. Mr. Kerry went on to raise $215 million, and Mr. Bush raised $259 million. Each used networks of more than 500 bundlers, according to Public Citizen.

This season, nearly every major presidential candidate has declined public funding and relies heavily on bundlers.

Mrs. Clinton's campaign has awarded the title "HillRaiser" to the 223 bundlers it says have channeled $100,000 or more her way. That means the campaign's bundlers account for at least $22.3 million, or about 28%, of the $80.1 million that public records show it has raised through Sept. 30. HillRaisers include movie producer Steven Spielberg, supermarket billionaire Ron Burkle and former Democratic vice presidential candidate Geraldine Ferraro.

Sluggers and MVPs

Among Republicans, Rudy Giuliani gives baseball-themed titles -- "Sluggers," "MVPs" -- to those who have pledged to raise $25,000 to $1 million for his campaign. He sends an eight-page brochure to prospective bundlers that lists the perks for successive fund-raising levels. Those in the lowest tier, "Pitcher," get a password to a members-only campaign Web site and are included in a monthly conference call with Mr. Giuliani and senior staffers, the brochure says. For $1 million, "Team Captains" can golf with Mr. Giuliani and join him for dinner and cigars. Mr. Giuliani's bundlers include New York Yankees vice president Abel Guerra, Texas Rangers owner Thomas Hicks Jr. and Wall Street financier Carl Icahn.

Bundlers acknowledge that many people raise cash for campaigns to advance their own agendas -- from influencing public policy decisions to gaining ambassadorships or positions in a new administration. The measure of the bundler is the ability to bring in money, they say, now that campaigns and media alike use quarterly fund-raising results as a yardstick of success.

Some say this opens the door to abuse. "Whenever you have a lot of pressure to raise a lot of money there are going to be people who cut corners," says David Mason, a Republican member of the Federal Election Commission.

A Clinton fund-raising event earlier this year illustrates how campaign deadlines, and bundlers' desire to win favor, can mix. William Danielczyk, a Clinton fund-raiser who runs a northern Virginia private-equity fund, says he wanted to plan an event for Mrs. Clinton in April. "We were encouraged to do it in March," he says, so the funds would be reported under the campaign's first-quarter results.

Mrs. Clinton was then considered the front-runner in a race with Mr. Obama and former North Carolina Sen. John Edwards for the Democratic nomination. Political analysts were looking for her to demonstrate her strength by out-raising her rivals in the first quarter.

Mr. Danielczyk and Mrs. Clinton agreed to schedule a fund-raiser for late March at the Clintons' Washington home. Campaign-finance reports show that in the days around the event, Mr. Danielczyk's employees and family members contributed more than $100,000 to the Clinton campaign.

Nearly half of the money came from individuals who are Republican voters, according to election records. One of those, Pamela Layton, said that she and her husband, who is the director of information technology at Mr. Danielczyk's private equity firm, were reimbursed for the $4,600 apiece they donated to Mrs. Clinton. Mr. Danielczyk denied that he reimbursed anyone for donations. After the reimbursement was reported last month by the Journal, the Clinton campaign returned the Laytons' donations and said it would contact all of the Danielczyk contributors to confirm that they had donated their own money.

"Bundling by its very nature has the potential to be coercive," says Craig McDonald, the executive director of Texans for Public Justice, a nonprofit organization that tracks bundlers for Mr. Bush. "The money often comes from people who don't want anything except to please their boss."

The dynamic extends to local campaigns. After a top executive of an Ohio company called Check 'n Go sent emails asking employees to give at least $200 to a hopeful in a local race, one employee quit. "We were told that this was voluntary, but our understanding was that a failure to do so would impact our careers," said the employee, Michael Donovan, a district director of operations.

Yancy Deering, a spokesman for CNG Financial Corp., Check 'n Go's parent, said "the company does not consider political contributions when evaluating employee performance or otherwise making employment decisions."

Mr. Edwards has been burned twice by fund-raisers at law firms, who account for at least 54% of his bundlers, according to the analysis conducted for the Journal. The Edwards campaign considers anyone who raises money outside of their families a bundler.

This year, in Michigan, attorney Geoffrey Fieger was indicted for illegally reimbursing employees for $127,000 in bundled campaign contributions to Mr. Edwards's 2004 presidential campaign. Prosecutors alleged that Mr. Fieger and a law partner reimbursed 60 employees and associates for donations to the campaign by disguising the reimbursements as bonuses or other payments.

Last year, the Federal Election Commission fined the Edwards campaign $9,500 as part of a separate instance of straw donations from a Little Rock, Ark., law firm. The FEC also fined the law firm and partner Tab Turner $50,000 for reimbursing low-level employees for donations to Mr. Edwards. Mr. Turner says he has settled with the FEC. The Edwards campaign declined to comment.

First Step

This summer, Congress took a tentative first step toward cracking down on bundling by requiring candidates for both houses of Congress to make public the names of top fund-raisers who are also registered lobbyists. That law will not apply to presidential candidates.

Momentum is also growing for legislation that would raise the amount of public funds that candidates can access, in order to reduce the pressure to raise cash from individuals. A bill in the Senate, which is backed by Mr. Obama, would triple the spending limits for presidential candidates in important early states. Several Democratic candidates, including Mrs. Clinton and Mr. Edwards, have said they would support an overhaul in general.

Bundling's potential abuses also have spread to local races, where practitioners may enjoy concentrated influence. Wisconsin developer Mr. Troha began raising money for federal and state lawmakers in 2002. At the time, Mr. Troha, who made his money in the truck-leasing business, was the leader of an investor group that wanted to build an $800 million casino in the state. To move ahead, the group needed approval from the Bush administration and Wisconsin's Democratic Gov. Jim Doyle.

Mr. Doyle was elected governor in 2002 with 45% of the vote in a three-way race. In 2005, as he prepared for re-election, one of his campaign aides asked Mr. Troha to help raise money, prosecutors said in an indictment handed up in March in the U.S. District Court for the Eastern District of Wisconsin.

Mr. Troha had already donated $10,000 to Mr. Doyle, the maximum allowed by state law. Prosecutors charged that a few days before the June 30, 2005, fund-raising deadline, eight members of Mr. Troha's family wrote campaign contributions totaling $47,500 for the governor.

About the same time, Mr. Troha wrote a check for $50,000 to a company he owned, according to the court documents. A few days later, that company issued "loan" checks to the eight people for the amount of their campaign donations. The indictment says the family members didn't return the loans until the Federal Bureau of Investigation began looking into Mr. Troha's contributions earlier this year.

By early 2007, the Bush administration had given initial approval to the casino plan. Mr. Doyle remained neutral toward his top fund-raiser's project. In March, Mr. Troha was indicted for the illegal contributions and stepped down from the group.

Plea Agreement

Mr. Troha reached a plea agreement with prosecutors this summer, admitting to funneling illegal donations in earlier years to the gubernatorial account of the Democratic National Committee and to the Bush campaign. He didn't address the 2005 donations to Mr. Doyle and others. His attorney didn't comment on the original indictment's broader charges, saying it was overtaken by the plea agreement.

Mr. Bush and the lawmakers who received donations from Mr. Troha and his fund-raising network have returned the donations or given them to charity.

Gov. Doyle, re-elected in November 2006, kept the money. "My campaign was aware of nothing to suggest that the contributions received from Mr. Troha were in any way inappropriate or unlawful," Gov. Doyle said in a prepared statement. "In fact, by all appearances, they were indistinguishable from the many contributions received by countless campaigns, Democratic and Republican, across the state."