Your eyes on California Government

OCT. 24, 2011

By KATY GRIMES

Democrats are appealing to the Fair Political Practices Commission for special considerations to help alleviate the pain of the recent massive theft of campaign funds. Democratic campaign treasurer Kinde Durkee, arrested on charges of mail fraud, had access to more than 400 Democratic campaign, political action committees and club accounts, and is accused of wiping out many of the accounts and stealing from active campaigns.

While the party is asking for a change of state campaign rules because of the fraud, it wasn’t that long ago that Democrats told victims of financial swindles in California that they would get no special tax relief from the state — despite the help offered to victims of financial fraud by many other states and by the federal government.

SB 157, by Sen. Joel Anderson, R-San Diego, would have provided tax relief for victims of fraudulent investment schemes similar to the Bernie Madoff case, by allowing a tax deduction for losses attributable to criminal investment fraud.

But Democrats in the Senate Committee on Governance and Finance killed the bill. SB 157 is up for reconsideration in January. However, that is a courtesy offered when a bill is defeated.

Sponsored by State Treasurer Bill Lockyer, many were surprised that SB 157 did not make it to the governor’s desk.

The bill was introduced as an economic development bill in February 2011, and was amended the next month to specify fraudulent investment arrangement losses.

But Anderson’s office holds out very little hope for passage.

Democrats Ask For favor

Recently, Democrats and their attorneys have asked the Fair Political Practices Commission to take immediate action to help Democratic politicians, candidates and political committees affected by the theft of the campaign funds. By allowing campaign contribution limits to be waived “in certain cases,” and the requirements broadened for legal defense funds set up to help candidates, Democrats hope to be able to appeal to previous campaign contributors again.

Democrats also asked for an extension of disclosure filing deadlines for the affected accounts, and immunity from FPPC violations for the fraudulent reports Durkee filed.

But many ask why Democrats allowed Durkee even to be allowed to continue as a treasurer despite campaign violation fines totaling $185,000, as well as criminal investigations by the Los Angeles County district attorney’s office in 2008 and 2009, the Los Angeles Times reported.

Fair Political Practices

The FPPC recently heard testimony and received letters from those impacted by the campaign fraud case surrounding the Democratic treasurer. (Video of the hearing is here)

Federal prosecutors allege Durkee used candidate and campaign money to pay her personal credit cards, home mortgage, business-related bills and even for her mother’s assisted-living facility. Durkee is reported to have created a sophisticated cover-up scheme shifting funds from other candidates’ accounts, to cover up the theft.

“The magnitude of this campaign fraud case is unprecedented in California,” said Ann Ravel, chairwoman of the FPPC, recently appointed by Gov. Jerry Brown. “The Fair Political Practices Commission is examining how this massive fraud case could impact the democratic process. There are many regulatory questions we will take action on with as much transparency and information as possible to ensure a fair election,” Ravel added.

Democrats Want Financial Relief

Democrats want their own relief. They are asking the FPPC to be able to accept additional contributions to start rebuilding campaign accounts. However, after their denial of tax relief to victims of financial fraud, many say that the Democrats should not be allowed to have the campaign laws changed just for them.

In a classic case of legal speak, one news story reported former FPPC chairwoman and attorney Karen Getman saying, “Contributions weren’t contributions. Expenditures weren’t expenditures. It was all just bank transactions conducted by Durkee.”

But if an individual goes to his bank, withdraws cash, and is mugged on the way to his car, it’s not the bank’s fault. He cannot go back to the bank or the Security and Exchange Commission and demand funds above his bank balance. It was his responsibility to safeguard his money.

Many say that Democrats’ failed in their responsibility to safeguard their campaign money. And many are critical of the cavalier approach in asking the FPPC for the special consideration after denying other fraud victims help.

Tax Relief Bill

“The state should not gain from a criminal act perpetrated against the victims of a swindle,” said Anderson, about SB 157. “This is a simple issue of fairness –innocent investors swindled by Madoff should not be taxed as if it was just like any other business loss.

Lockyer sent Anderson a letter in support of SB 157, thanking the senator for providing fraud victims tax relief, and noting that it was a matter of fairness to those who invested in good faith unknowingly with criminal swindlers.

But some have been critical of the bill, saying that there are many victims of fraud who receive no special tax relief when swindled. But the California Taxpayer Association is also supportive of SB 157.

Democrats in the governance committee stated they voted against Anderson’s bill because “tax relief policies would decrease state revenues and exacerbate the state’s multi-billion dollar budget deficit.”

Meanwhile, Anderson sent his constituents a letter explaining that SB 157 was defeated, but may have a chance of life in January. “If passed, SB 157 would conform California law to federal law by allowing net operating loss carryover of any deduction from losses that are attributable to criminal investment fraud,” Anderson wrote.

His letter listed committee members’ votes on the bill, and asked constituents to help get one more vote by calling, faxing or emailing committee members for support.

Ravel said she expects to see the Legislature come up with a legislative remedy for this fraud issue.

Tags: California, California Legislature, campaign violations, Democrats, FPPC, fraud, government, Jerry Brown, jobs, Katy Grimes, legislature, regulations, Sacramento, waste