Millions of Dollars, Thousands of Robocalls and 1 Legal Loophole (2023)

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A “Times” investigation has found 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 Fahrenthold on how they actually spent the money and on the legal loophole that allowed them to do it.

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It’s Thursday, May 25.

So, David, you are an investigative journalist, and you cover nonprofits and financial abuse in that world. And you just published a big investigation into this one group of nonprofits. Tell me what you found. What’s the story?

This story really starts more than a year ago with a tip that I got from a source who said, look, there’s a ring of these nonprofits, not traditional charities, but political nonprofits. In the paperwork, it doesn’t even look like these groups are connected, but they are. They’re all linked together. And what they do together is take huge amounts of monies in donations from regular people — small donations from lots of regular people — and when they get that money, they don’t use it at all in the way that they say they will. Now, this piqued my interest for a couple of reasons. First, the amount of money potentially involved, according to the tip, was pretty huge — tens of millions of dollars was the initial direction we got. The second was the kind of nonprofits involved, a political kind of nonprofit called a 527.

527 being?

So we have to get a little into the tax code. I promise this is maybe the only time we’ll have to go into it.

OK.

527 is an area of the tax code that creates a kind of nonprofit whose purpose is politics. You can give money to them. You don’t get a charitable tax deduction. It’s not a charity. But their purpose is to raise money for politics and then to spend it helping politicians get elected.

Got it.

So I was curious about these groups. And another reason this all piqued my interest was the way that they raised money, which was through robocalls, the humble robocalls. How many times have you and I picked up the phone, realized it was a robo call, and hung up within a tenth of a second?

So many.

In this case, these guys had raised tens of millions of from thousands and thousands of donations with a robocall. How did that work? So the first thing I really had to do in this story was find the robocalls. What did these robocalls sound like? What made them so effective? And the answer, it turns out to be really interesting. [MUSIC PLAYING]

Like how?

You think of a robocall, what tells you it’s a robocall? You hear either really a robot’s voice, or maybe you hear a voice with a foreign accent. None of that is on these calls.

When you pick up, it sounds like you’re talking to a kind of weary Midwestern cop who’s just had a bad experience with the last caller.

They’re amazingly lifelike because they are recordings.

It typically begins with your name.

If you have a common name, like I do, they have recorded your name.

Usually, there’s a joke at the beginning.

Or one of them is like, you’re harder to get a hold of than a rabbit on roller skates.

Oh, boy.

Putting aside that actually would not be that hard to get a hold of a rabbit on roller skates. But the idea being like, I’ve been calling you, and you haven’t picked up.

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

It’s a guy behind a computer pushing buttons to play the solicitation spiel and then with enough preloaded responses that you get those answers plus things like uh-huhs and chuckles and everything about a conversation, but it’s just a person pushing buttons on a computer.

OK, so after the kind of folksy dad joke, then what?

Well, then they get into the meat of the call.

They introduce the reason why they’re calling.

And these groups are always talking about one of three causes.

Helping police, firefighters, or veterans.

And then, they hit you with the ask.

They say that the donations go to helping elect legislators who were sympathetic to these groups — police, firefighters, veterans.

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

OK, and if you’re still on the line by the end of the pitch, then what happens?

They start talking numbers, and they will often suggest some pretty small amounts.

They’ll say the big pledge is $50. The small one is $30. They want you to commit to a number, and they don’t push very hard to get a very high number. They’re happy for you to give $35 or $50.

OK, so $35, $50, pretty small donations.

Yeah, very small. But, when we looked at these groups finances and added up all the money that they’d brought in over their nine years of operations, they brought in $89 million.

From robocalls?

That’s right. More than 18,000 donations came to these groups, most of them for less than $200. A lot of the donors you can see in the forms are in their 70s, 80s, ‘90s. They’re retired. So it worked again and again and again on a whole lot of people around the country. We talked to a woman named Louise Mcconchie, who lives in Puyallup, Washington, outside Seattle. She’d given 35 different times to the five groups we looked at totaling $3,650. And what she didn’t know was that all this money that she and so many other people were giving — almost none of it went where it was promised to go. The tipster was exactly right about that.

After I talked to Ms. McConkey, we did a huge amount of reporting. We looked at 15,000 pages of transactions. We did all this research to try to figure out what became of the money that Louise McConkey and thousands of people like her gave and found out that only about 1 percent of their donations was used for anything like what they thought they were supporting. 1 percent went to helping politicians win elections.

So what happened to the rest of the money?

That was not easy to figure out. What we had to do was go find the public filings these nonprofits had made explaining what they did with the money. When we found them, we realized they had reported 15,000 pages of documents. And in some cases, they seem to have gone to extra lengths to make their findings as hard as possible to understand. For instance, they would sometimes take $6 million worth of spending over a year or half a year and report it $1 at a time.

Oh, God.

We paid $1 on this day to this company and $1 the next day to this company.

Why are they filing in these tiny increments?

Well, one possible reason is it makes my job really hard. It makes it really hard for anybody like me to try to add up all these tiny little expenditures and get any real sense of what these groups are up to.

Interesting. OK.

And we found after adding a lot of them up, that a lot of their vendors were these shell companies. It was really hard to figure out who the actual humans were behind those companies. So after, we then sort of went through corporate records to figure out, OK, who are the people behind these companies they’re paying. That took a while, but what it showed was that about 90 percent of these groups’ spending just went to pay for more fundraising. They just spend it on more robocalls.

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

Yeah. One of the analysts we talked to described it as an elaborate self-licking ice cream cone. It was just fundraising that paid for more fundraising.

That is some intense overhead. If we’re to take them at face value, it’s like, whoa.

Yeah, this is not normal. Most charitable nonprofits, most political campaigns, anybody else you could think of who might be a peer for these groups sort of has an opposite relationship to their fundraiser. They pay a fundraiser to raise money so they can go do something in the world with it. Either if you’re a charity, to go help the world. If you’re a political campaign, to support a candidate.

This was like a fundraiser that has a nonprofit. So much of the money that they raised was just consumed by fundraising that they were left with almost nothing for their theoretical purpose.

Right, like a huge red flag.

Yeah, when we looked at other groups like this, other political nonprofits, most of them didn’t even exceed a third of their spending on fundraising.

Oh, wow.

At that point, your question becomes, well, who’s running these things. Who would set up an operation like this? And the answer to that question was also in the spending records. Turns out, it all goes back to three guys, who got their start in campus Republican politics in Wisconsin about 2008. And the leader appears to be a guy named John Connors. He was a minor figure in the political empire of Scott Walker, the former Wisconsin governor. He graduated college in 2008 in Wisconsin and took a few jobs working for Walker then set out and started his own consulting firm. He was a big deal in Wisconsin politics but did not have much of a national presence.

The other two guys, Kyle Maichle and Simon Lewis, were his employees. So Connors employed Lewis as a director of operations, employed Maichle as a researcher. So those three folks had this connection. They sort of came up together in Wisconsin campus Republican politics and then had been minor players on their own in Wisconsin politics before this.

So how did these three go about starting this operation that you’re describing? Was it shady from the start?

Well, it starts with a group called Veterans Action Network. This is a 527 group that turns up in Wisconsin in 2014 and becomes a client. It starts paying John Connors’ firm for political consulting. Now, when you look at Veterans Action Network, it makes almost no sense — when you look at its filings. It claims to be a group that was started to help veterans make a difference in politics. When you look at what it actually did with its money, it didn’t do that. It spent almost all of its money on fundraising. It spent several hundred thousand dollars with Connors’ company. It did nothing to help any candidate anywhere, anytime. As a political operation, it was a failure from beginning to end. So you ask, well, what was the point of it? Why did it exist? And one clue you get is from an email that Connors sent to somebody back in 2016 when he says that his company created Veterans Action Network — basically, that they created a company that then became their client. They created their own client and started charging it. For them, Veterans Action Network was a success. It didn’t make any difference in politics at all, but it paid several hundred thousand dollars to Connors’ company.

And what you see then is that operation is mimicked on a much larger scale by four new organizations that are started in 2017, all by people close to Connors. They’re all 527 nonprofits that like Veterans Action Network, they play on these conservative causes — police, firemen, veterans. They raise huge amounts of money, make almost no political difference, and pay a lot of money to Connors and these two other guys, Lewis and Maichle, his associates. At the end of it all, we realize that these groups, which again, made no difference to anybody in the world of politics, have made a huge difference to those three. Their companies got more than $2.8 million from these five groups combined.

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So what you’ve uncovered here — these 527 groups raising money from regular citizens, promising to spend their donations on something they care about like police or veterans, but not spending that money on the things that they care about — that amounts to a kind of double crossing of the citizens — not doing the thing that they said they were going to do. Surely, that’s illegal, right?

I feel like I asked that question of so many people in the reporting of this story. And the answer is it might not be illegal.

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We’ll be right back.

So, David, this sounds like a pretty clear scam. How is this not illegal?

Well, listen, if this was a 501(c)(3) charity, a traditional charity, it might be. There are a lot of state attorneys general and others who think their job is to stand up for donors in that situation. If a donor is being ripped off, they can step in, sue you, take some sort of legal action. But in the political context for political nonprofits, there’s really not a watchdog to play that role. These groups sort of exist in a blind spot within the campaign finance system, seemingly on purpose.

They have found a way to be regulated by the least funded, the least interested, the most distracted regulator in the game, which is the IRS. And the only enforcement mechanism that might come down to them is if the IRS said, hey, listen, you’re supposed to operate primarily for the purpose of helping candidates. You’re not. These groups, in fact, say that they just got audited by the IRS, and the IRS told them they were doing quote, unquote a perfect job.

We can’t check that. The IRS won’t tell us what they do with any individual taxpayer. But these groups say, look, we’ve talked to the regulator. We just got out of an examination with the toughest watchdog that exists in our little world, and we did fine.

OK, so the IRS is saying they’re doing a perfect job. But why does this blind spot exist?

Basically, the idea of regulating campaign finance is that if you’re going to raise money for politics, there’s an assumption that you want to use it to influence politics. And so all the policing and all the limitations and all the transparency is focused on giving money to politicians — who uses their money to help which politician to guard against the quid pro quo. The idea that you would raise money and then not spend it on politics — that you would give it to yourself or you’d give it to your fundraiser, suck it out of politics — there’s really not a system built up to police that. And it just wasn’t anything someone imagined would be a problem when they set this system up. And so it becomes very easy to do it now because nobody really intended to guard against it.

So basically, when they imagined this class of nonprofit, they didn’t conceive of the possibility of using that money for something else entirely?

That’s right. And these groups are very deliberate about that. So in the law, there’s a tripwire that says if you spend more than $1,000 helping any federal candidate, you have to report to the FEC, which has its problems, but is a more aggressive and transparent agency. If you spend over a certain amount in various states, you have to start reporting to those state campaign finance watchdogs. These groups were very careful not to do any of that — to just keep their money or spend it on things that had nothing to do with politics. And for that reason, the only real rule they had to follow was this rule in tax law, which is that they had to be operated primarily — those are the two important words — operated primarily for the purpose of influencing the election of candidates or the selection of unelected people, like Supreme Court justices.

But do these groups even pass that test?

Well, we talked to a lot of campaign finance experts who said no — that any reasonable expectation would say that if you raised $89 million and only spent 1 percent on actual politics, that you’re not operated primarily for the purpose of influencing elections. But what these groups say is that, look, you’re just not thinking creatively enough. You’re just not drawing the circle of behavior wide enough. They say, look, everything we do, even when we ask you for money — when we call you up and say, hey, the police are under attack, give us money — that in its own way is political activism. Yeah, we don’t say the name of a candidate. We don’t tell you who to vote for, but we’re raising an issue with you that you might think of later on, and that would change your vote. So what they say is just if you define politics broadly enough and indirectly enough, that really, everything they do fits that definition.

So they’re saying basically, that the calls themselves are political, even though explicitly in the calls, they’re promising to spend money on actual candidates, and they don’t.

It’s a weird sort of circular logic where if you’ve given money for the service, you’ve already gotten the service. The calls are both the funding and the thing itself.

Self-licking ice cream cone.

Self-licking ice cream cone, exactly.

So that is an unbelievably huge loophole that just doesn’t seem to protect us at all.

No, there’s nothing in this system to protect the donors.

So what do the three guys you told us about have to say about all of this? I mean, once you uncovered that connection between their companies and these 527 groups.

Basically, that they were providing a service. They were paid well, and deservedly so, for services they provided to these nonprofits that were out there trying to change the world. I want to read you the quote from John Connors who wrote to say, “yes, I am paid for what I do. Everybody is,” he says. “But my real compensation is the satisfaction of Americans getting involved in the system.”

How much money did he get again?

Groups that he owns got more than $1 million.

So satisfaction of Americans plus $1 million.

Right. You know, I kept being surprised in this reporting. I kept thinking we would find something more concrete, some real impact that these groups had used with all their money and kept being surprised that I was wrong.

Right.

In theory here, the person who stands up for the donor is the donor themselves. There’s transparency theoretically in this system. These groups have to file their expenses with the IRS so that a donor doesn’t need somebody to come in and stand up for them. They can go search their filings and say, OK, is this a group I want to support or not. But what we found shows kind of the folly of that expectation. If you were a donor, and you decided, hey, I’m interested in knowing is the American Police Officers Alliance a good use of my money. First, you have to go to a Byzantine IRS site that doesn’t really tell you anything about what you’re looking for.

And then if you manage to find one of their expenditure reports, you have to read 900 pages of expenditures $1 at a time. It took us full time with powerful computers weeks to try to get a real picture of how these groups spent their money. It’s ludicrous to think that an individual donor could get anything like a reasonable understanding of the way their money was going to be spent in a day, in a week, and even a month. So if the transparency is supposed to be sort of the cure in this system, that part is not working also.

The element of transparency is just absolutely absent from the rules.

Yeah, you can see all the trees, but there’s no way in heck you’re going to see the forest.

So stepping back here, our country really has allowed for nearly unlimited money in politics through these 527s and super PACs and all the rest of it. And the fear among critics was that there would be too much money in politics, that unlimited money would corrupt our Democratic system and disenfranchise voters. And that’s still a concern, of course. But what you found is that we have a situation where the system in a very direct way is simply dispensing with the politics altogether, is kind of double crossing voters, taking their money and pocketing it. Politics is just the cover.

Right. Yeah, the whole system is built around the idea of stopping a quid pro quo or at least illuminating if there was a chance for a quid pro quo. It’s not ready for the quid pro nothing, the quid pro nil, which is what’s happening here. You’re giving money to somebody who just takes it out of the system entirely and doesn’t do the thing that they told you they were going to do with it. There’s not really a setup here.

What’s ironic about this is that there’s two sets of victims here. There’s the donors, who’s money is being siphoned out of the system. But the other victim you could argue is Republican politicians, some of the folks who’ve pushed the hardest to deregulate money in politics. A lot of these causes that these groups are raising money for are traditionally conservative causes. A lot of the folks they raise money from are traditionally conservative voters. And so these are people who might have given to Republican candidates and maybe thought they were giving to Republican candidates. But instead, had their money sort of sucked out of the system. So it’s kind of an ironic outcome of this deregulation of politics that they’ve also allowed people to use politics as a shield, use it as a lure but then take all the money out of the system and not give it to politicians at all.

One instance really stuck with me here. In 2020 — obviously, a year when policing and standing up for the police were a huge cause and a huge subject of political controversy in America — these groups raised $20 million, obviously, drawing on the anger and the emotion that came out of watching the Black Lives Matter and George Floyd protests, the people who felt like the police were being criticized too much. They spent literally nothing. Those two groups spent literally zero on politics that year. So if you gave money to those groups and thought, OK, I’ve done my part to support police in America, you didn’t.

Wow. I mean, it’s unbelievably cynical, right, brilliant but also craven?

Absolutely.

Do you think that this loophole, now that you’ve exposed it in a big way, will be closed? Or do you think that actually closing the loophole is in some ways antithetical to the spirit of the law, which was to allow all kinds of money to be spent in a pretty unregulated way, as you pointed out? Does anyone actually want to close this loophole?

I hate to be cynical, but I don’t think it’s going to be closed. And to me, that’s a sign of how little interest or possibility there is for any sort of meaningful campaign finance reform in this country. Because if there’s a low-hanging fruit here, this is it. This is something where people’s money is being used in a way that’s opposite of what they think and where politicians themselves, people who’d be making the changes in the law, are directly hurt by it.

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And there’s no sign that’s going to change any time soon?

No, not that I’ve seen.

David, thank you.

Thanks for having me on. [MUSIC PLAYING]

We’ll be right back.

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Here’s what else you should know today. On Wednesday, “The Times” reported that the drone attack on the Kremlin this month was most likely orchestrated by one of Ukraine’s special military units. American spy agencies reached that conclusion in part through intercepted communications from both Ukrainian and Russian officials. The May 3 attack unsettled the Biden administration, which is worried that strikes inside Russia could cause Moscow to retaliate beyond Ukraine.

And American intelligence agencies and Microsoft said that they detected a mysterious computer code that they said had been installed by a Chinese government hacking group in telecommunications systems in Guam. The discovery raised alarms because Guam, with its specific ports and vast American air base, would be a centerpiece of any American military response to an invasion of Taiwan by China.

Today’s episode was produced by Mary Wilson and Carlos Prieto. It was edited by Paige Cowett and Devon Taylor, contains original music by Brad Fisher, Dan Powell, and Elisheba Ittoop and was engineered by Chris Wood. Our theme music is by Jim Brunberg and Ben Landsverk of Wonderly. Special thanks to Charlie Smart. That’s it for “The Daily.” And just a reminder, all this week, you’re going to see our new show, “The Headlines” right here in “The Daily” feed. We made it for you. Hope you like it. To find it, go to nytimes.com/audioapp.

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I’m Sabrina Tavernise. See you tomorrow.