Millions of dollars, thousands of Robocalls and 1 loophole (2023)

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A Times investigation revealed that a group of Republican political operatives used robocalls to raise $89 million on behalf of police officers, veterans and firefighters. Today, investigative reporter David Fahrent shared how they actually spent the money and what was the loophole that allowed them to do so.

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It's Thursday May 25th.

So David, you are an investigative reporter and you cover non-profits and financial fraud in this world. You have just published an extensive study on this group of non-profit organizations. Tell me what you found. What is the history?

This story actually starts over a year ago with advice I got from a source that said, look, there's a circle of these nonprofits, not traditional charities, but political nonprofits. In the docs, it doesn't even look like these groups are related, but they are. They are all connected. And what they do together is collect big donations from common people, small donations from many common people, and when they get this money, they don't use it for anything, as they say. This piqued my interest for several reasons. First, the amount of money potentially involved, according to the notice, was quite large: tens of millions of dollars is the first address we received. The second type of nonprofit involved was a political nonprofit called a 527.

527 orphans?

So we have to dig a little deeper into the tax code. I promise this may be the only time we need to dig into this.

OK.

527 is a section of the Internal Revenue Code that creates a type of non-profit organization for political purposes. You can give them money. You will not get a charity deduction. This is not charity. But its purpose is to raise money for politics and then spend it to help politicians win elections.

Comprehension.

That's why I became interested in these groups. The other reason all of this piqued my interest was how they raised money, which was through robocalls, humble robocalls. How many times have you and I picked up the phone, realized it was a robocall, and hung up in a split second?

A lot.

In this case, these guys have raised tens of millions of thousands of donations through a robocall. How is it working? So the first thing I really had to do in this story was find automated phones. What did those automated phones sound like? What made them so effective? And the answer turns out to be really interesting. [PLAY MUSIC]

How is?

You think of a robocall, how about a robocall? Either you really hear the robot's voice, or maybe you're listening to a voice with a foreign accent. None of that is in these calls.

When you answer, it sounds like you're talking to a tired cop from the Midwest who just had a bad experience with the last caller.

They are incredibly realistic because they are recordings.

It usually starts with your name.

If you share a name like me, they wrote your name.

There is usually a joke at the beginning.

Or one of them is: You're harder to catch than a rabbit on skates.

Oh boy.

Besides, it wouldn't be that hard to catch a rabbit on skates. But the idea is this: I called you and you didn't answer.

So it really sounds like a person, but it's really just a computer.

He's the guy behind the computer who pushes the buttons to play an interview and then has enough preloaded answers to get those answers, plus things like giggles and everything about the interview, but he's just the person on the buttons. of the computer.

Okay, after this kind of dad joke, what's next?

Well, then you get to the heart of the conversation.

They present the reason why they are calling.

And these groups always talk about one of three reasons.

They help police officers, firefighters and veterans.

And then they hit you with a question.

They say the donations go to help elected lawmakers who sympathized with these groups: police officers, firefighters, veterans.

In some cases, they say that giving them is actually supporting the families of fallen police officers.

OK, and if you're still in line at the end of the field, what's going on?

They start talking about numbers and usually offer quite small amounts.

They'll say a big commitment is $50. The small one is $30. They want you to commit to a number and not try too hard to get a really high number. They will gladly give you $35 or $50.

Okay, $35, $50, pretty small donations.

Yes, very small. But when we look at the financials of this group and add up all the money they made during their nine years of operation, they generated $89 million.

They go to work?

Correct. These groups received more than 18,000 donations, most of them for less than $200. Many of the donors you see on the forms are in their 70s, 80s, or 90s. They are retired. So it worked over and over again for many people across the country. We speak with a woman named Louise McConchie who lives in Puyallup, Washington, near Seattle. She gave 35 different times to the five groups we analyzed for a total of $3,650. What she didn't know, however, was that all the money she and so many others had given, almost none of it went where she promised. The informant was right.

After speaking with Ms. McConkey, we covered a lot. We review 15,000 transaction pages. We did all this research to find out what happened to the money donated by Louise McConkey and thousands of others like her, and we found that only about 1 percent of her donations were used for something they thought she supported. 1 percent went to help politicians win elections.

What happened to the rest of the money?

It was not easy to guess. We had to find public documents submitted by these non-profit organizations explaining what they did with the money. When we found them, we realized that they had denounced 15,000 pages of documents. In some cases, they seem to have gone a step further to make their findings as difficult to understand as possible. For example, sometimes they spent $6 million in expenses in a year or half a year and reported $1 at a time.

Oh Lord.

We paid that company $1 that day and $1 to that company the next day.

Why present these small steps?

One possible reason is that it makes my job very difficult. For someone like me, it's very difficult to add up all these little expenses and get a true picture of what these groups are doing.

Interesting. APPROX.

After adding up many of them, we found out that many of their providers are shell companies. It was very difficult to determine who the real people behind these companies were. So we go through company records to find out who are the people behind these companies that are paying them. It took some time, but it turned out that about 90 percent of the spending by these groups was going to raise more money. They just spend it on more automated phone calls.

Wait, so they spent the money raised from the robocalls on more robocalls?

Yes. One analyst we spoke to described it as looking like an intricate ice cream cone that licks itself. It was this fundraiser that made it worth continuing to raise funds.

It's a huge overload. If we have to take them literally, how, ho.

Yes, this is not normal. Most nonprofits, most political campaigns, anyone who can contribute to these groups have the opposite attitude to their fundraisers. They pay a fundraiser to raise money so they can do something in the world with it. Or if you're a charity, go help the world. If you are running a political campaign to support a candidate.

It was like a fundraiser with a non-profit organization. So much of the money they raised was spent on fundraising that they had almost nothing left to pursue their theoretical goal.

Right, like a big red flag.

Yeah, if we look at other groups like this, other political nonprofits, most of them don't even spend more than a third of their expenses on fundraising.

And wow.

This is where your question, who controls these things, comes into play. Who would organize such an operation? And the answer to this question also lay in spending management. As it turns out, it all comes down to three men who got their start in Republican politics on a Wisconsin campus around 2008. And the leader appears to be one John Connors. He was a minor figure in the political empire of former Wisconsin Governor Scott Walker. He graduated from college in Wisconsin in 2008 and took various jobs at Walker. He later founded his own consulting firm. He played an important role in Wisconsin politics but had little presence in the country.

The other two boys, Kyle Maichle and Simon Lewis, were his employees. So Connors hired Lewis as COO and hired Maichle as a researcher. So these three people had that connection. They more or less coincided with Republican Wisconsin campus politics and had previously been minor players in Wisconsin politics.

So how did these three go about starting this operation you describe? Was it dark from the start?

Well, it starts with a group called the Veterans Action Network. This is a group of 527 coming to Wisconsin in 2014 and becoming customers. He begins paying John Connors' firm for his political advice. When you look at the Veterans Action Network, it almost doesn't make sense, when you look at the presentations. It claims to be a group created to help veterans make policy changes. If you look at what he actually did with his money, no. Almost all of his money went to fundraisers. He spent several hundred thousand dollars with Connors. This has not helped any candidate, anywhere, ever. As a political operation, it was a failure from start to finish. So you wonder, well, what was that about? Why did it exist? One clue comes from an email Connors sent to someone in 2016 where he said his company started the Veterans Action Network; they basically created a company that later became his client. They created their own client and started uploading it. For them, the Veterans Action Network has been a success. It made no difference in politics, but it did earn Connors several hundred thousand dollars.

And then you see the operation replicated on a much larger scale by four new organizations that started in 2017, all by people close to Connors. Those are the 527 nonprofit organizations that, like Veterans Action Network, are committed to these conservative causes: police, fire, veterans. They raise huge sums, make almost no political difference, and pay a lot of money to Connors and these other two guys, Lewis and Maichle, their partners. Ultimately, we realize that these groups, which again made no difference to anyone in the political world, made a huge difference to these three. Their companies received a total of more than $2.8 million from these five groups.

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So what you learned here: these 527 groups that raise money from ordinary citizens commit to spending their donations on something they care about, like the police or veterans, but they don't spend that money on things they care about, it boils down to a type of duplicitous citizens - not doing what they said they were going to do. It's illegal, right?

I feel like I've asked a lot of people this question in coverage of this story. And the answer is that it may not be illegal.

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We'll be right back.

So David, this sounds like a pretty obvious hoax. How is that not illegal?

Well, look, if this was a 501(c)(3) charity, a traditional charity, it could be. There are many attorneys general and others who feel it is their job to defend donors in this situation. If the donor is deceived, he can intervene, sue him, take some legal action. But in the political context of nonprofit political organizations, there really isn't a gatekeeper to fill this role. Apparently, these groups exist deliberately in the stagnation of the campaign finance system.

They found a way to be regulated by the least funded, least interested and most distributed regulator in the game, which is the IRS. The only application mechanism that could affect them is when the IRS said, listen, you have to act primarily to help applicants. You are not. These groups are basically saying that they just got audited by the IRS and the IRS told them that they were doing an excellent job.

We can't control it. The IRS will not tell us what they do with the individual taxpayer. But these groups say, listen, we've talked to the regulator. We just completed an exam with the toughest watchdog in our little world and we did a great job.

Okay, so the IRS says they're doing just fine. But why does this blind spot exist?

Basically, the idea behind campaign finance regulation is that if you're going to raise money for politics, you're supposed to want to use it to influence policy. So all vigilance, all restraint, and all transparency is about giving money to politicians, who use their money to help protect which politician from the quid pro quo. The idea that you raise money and then you don't spend it on politics, that you give it to yourself or your fundraiser, you take it out of politics, there really isn't a system to control it. And nobody thought that it would be a problem with the configuration of this system. So doing it now becomes very easy because no one really planned to keep an eye on it.

So basically, when you envisioned these kinds of nonprofits, you didn't consider using that money for something else entirely?

Correct. And these groups are very aware of that. So there's a trick in the law that says if you spend more than $1,000 helping a federal candidate, you have to report it to the FEC, which has its problems but is a more aggressive and transparent agency. If you spend more than a certain amount in multiple states, you should start reporting to those states' campaign finance regulators. These groups were very careful not to do that, just save their money or spend it on things that had nothing to do with politics. And because of that, the only real rule they had to follow was the tax code rule that they should be used first, these are the two important words, which were mostly used to define candidates' choices or to influence choices. elections. the election of unelected individuals, such as Supreme Court justices.

But do these groups pass that test?

Well, we've talked to a lot of campaign finance experts who said no, any reasonable expectation would say that if he raises $89 million and spends only 1 percent on actual politics, he won't have surgery to win the first election. place to influence But these groups say you just don't think creatively enough. It just doesn't cover a wide enough range of behavior. They say, look, everything we do, even when we ask you for money, when we call you and say, hey, the police are under attack, give us money, that's political activism in a way. Yes, we do not say the name of the candidate. We don't tell him who to vote for, but we do raise an issue that he might think about later that he could change his vote. So they say that if you define politics broadly and indirectly enough, everything they do fits that definition.

So they basically say that the calls themselves are political, even though they clearly promise in the calls that they will spend money on real candidates, and that is not the case.

It's a weird kind of circular logic where if you gave money for a service, you already received it. The calls are both for financing and for the thing itself.

Self-licking ice cream cone.

Perfectly self-licking ice cream cone.

So it's an incredibly large vulnerability that doesn't seem to protect us at all.

No, there is nothing in this system to protect donors.

So what did the three guys you told about all this say? I mean, when did you discover the connection between their companies and these 527 groups?

In short, they provided a service. These non-profit organizations trying to change the world have been paid well, and rightly so, for their services. I want to read a quote from John Connors who wrote: "Yes, I get paid for what I do. It's everyone, he says. "But my real compensation is the satisfaction of American participation in the system."

How much money did you recover?

The groups he owns have received more than $1 million.

So American satisfaction plus a million dollars.

Normal. You know, he was still in awe of this relationship. I kept thinking we were going to find something more concrete, the real impact that these groups were using with all their money, and I was still surprised that I was wrong.

GOOD.

Theoretically, the person defending the donor is the donor himself. Theoretically, there is transparency in this system. These groups must report their expenses to the IRS so that the donor does not need someone to come and advocate for them. They can look in their archives and say, OK, is this a group that I want to support or not? But what we found shows the folly of those expectations. If I were a donor and I decided, hey, I'd like to know if the Police Officers Union of America could put my money to good use. You have to go to the Byzantine tax office first, which doesn't really tell you anything about what you're looking for.

And if you can find one of his expense reports, you need to read 900 pages on how to spend $1 at a time. Trying to get a true picture of how these groups spend their money took us hours and hours with powerful computers for weeks. It's ridiculous to think that an individual donor can get a reasonable understanding of how their money will be spent in a day, a week, or even a month. So if transparency is going to be a cure in this system, that part doesn't work either.

The element of transparency is simply completely absent from the rules.

Yes, you can see all the trees, but there is no way you can see the forest.

So if we go back here, our country has really allowed almost unlimited money in politics through these 527s, super PACs and everything else. Critics feared that there would be too much money in politics, that unlimited money would corrupt our democratic system and disenfranchise voters. And that, of course, is worrying. But what you've discovered is that we have a situation where, very directly, the system abandons politics entirely, cheats voters, takes their money, and puts it in their pockets. Politics is just a cover.

Normal. Yes, the whole system is based on the idea of ​​stopping the quid pro quo or at least clarifying whether there was a possibility of a quid pro quo. He's not ready for quid pro nada, quid pro zero what's going on here. You give money to someone who just takes it out of the system and doesn't do what they promised you with it. There's really no setup here.

The irony of all this is that there are two types of victims here. There are donors whose money is drained from the system. But another victim to name are Republican politicians, some of the people who have pushed hardest for the deregulation of money in politics. Many of the causes for which these groups raise money are traditionally conservative. Many of the people they raise money from are traditionally conservative voters. So these are the people who may have given to the Republican candidates and who may have thought they had given to the Republican candidates. But instead, their money was more or less sucked out of the system. So it's an ironic result of this deregulation policy that they also allowed people to use politics as a shield, as bait, but then take all the money out of the system and not touch it at all. politicians

One copy really stuck in my mind. In 2020, apparently a year where police surveillance and defense was a huge issue and a huge topic of political controversy in America, of course, these groups raised $20 million, obviously capitalizing on the anger and emotion that spawned watching Black Lives Matter. and George Floyd protests, people who thought the police were criticized too much. They literally did nothing. These two groups have literally spent zero euros on politics this year. So if he gave money to these groups and thought, okay, I did my part to support the police in America, he didn't.

Wow. I mean, he's incredibly cynical, isn't he, brilliant, but also a coward.

Absolute.

Now that you've made this widely known, do you think this loophole will be closed? Or do you think that closing the loop somehow violates the spirit of the law, which is to allow all kinds of money to be spent in a loosely regulated way, as you've pointed out? Does anyone want to close this gap?

I hate to be cynical, but I don't think it will close. And to me, it's a sign of how little interest and opportunity there is for meaningful campaign finance reform in this country. Because if there's any low hanging fruit here, this is it. This is something where people's money is used in a way that goes against what they think, and the very politicians, the people who would change the law, are directly hurt by it.

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And are there no signs that this is going to change in the near future?

No, I haven't.

Gracias.

Thanks for including me. [PLAY MUSIC]

We'll be right back.

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This is what you need to know today. On Wednesday, The Times reported that a drone attack on the Kremlin this month was likely orchestrated by one of Ukraine's special forces. US spy agencies came to this conclusion in part because of intercepted messages from Ukrainian and Russian officials. The May 3 attack upset the Biden administration, which fears that attacks in Russia could prompt Moscow to retaliate outside of Ukraine.

US intelligence agencies and Microsoft said they had discovered mysterious computer code that they believe was installed by a group of Chinese government hackers into telecommunications systems on Guam. The discovery raised concerns that Guam, with its idiosyncratic ports and sprawling US airbase, would be an important part of any US military response to China's invasion of Taiwan.

Today's episode was produced by Mary Wilson and Carlos Prieto. It was edited by Paige Cowett and Devon Taylor, features original music by Brad Fisher, Dan Powell and Elisheba Ittoop, and was designed by Chris Wood. Our theme song is by Jim Brunberg and Ben Landsverk from Wonderly. A special thanks to Charlie Smart. So much for El Diario. As a reminder, you'll see our new Headlines show on The Daily throughout the week. We did it for you. I hope you like it. Go to nytimes.com/audioapp to find it.

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I'm Sabrina Tavernise. See you tomorrow.