FPPC Reconsideration

11 Oct 2017

On August 28th, the FPPC informed me that they would not take action on my previous complaint, and that if I disagreed, I could file an appeal.

Naturally, I decided to take them up on that. Below, you’ll find the appeal I filed with the FPPC. As of October 9th, they have informed me that the case has been reopened.

To: Galena West, FPPC Chief of Enforcement Division and Erin V. Peth, FPPC Executive Director

Re: FPPC Complaint #COM-07202017-01276

Mr. Sutton, in response to our first complaint, wrote "the FPPC should dismiss [our] complaint because it fails to allege any violation of law." He is incorrect.

Through the discussion outlined in our initial complaint, we have alleged that James David Stearns (Jim Stearns), through Stearns Consulting, LLC, SF Van, LLC (a voter file company Stearns owns), and the Affordable Housing Alliance Political Committee (AHA), violated Government Code §84302, Government Code §83403, California Code of Regulations §18401, and California Code of Regulations §18431.

We have alleged that Stearns, through his single-member LLCs and the AHA, has contributed substantial unreported amounts to certain campaigns, made substantial unreported expenditures on behalf of those campaigns, and engaged in behavior commonly described as political money laundering on behalf of those campaigns.

Background

During the 2016 San Francisco election, Stearns, a well-known San Francisco campaign strategist, was employed by at least twelve different committees, including:

The single largest spender in the 2016 San Francisco General Election, "No on V," a PAC funded by the American Beverage Association and commonly referred to as "Big Soda." Notably, "No on V" spent roughly $22.5 Million on that election, more than every other spender in the election combined.
The "Affordable Housing Alliance Political Action Committee," which was registered as a Slate Mailer Organization for the 2016 election.
Other PACs, including "Coalition to Save Affordable Housing", "Stop the Developer Giveaway", "Jobs, Housing, and Parks Now", "San Francisco Reform Coalition", "Housing Forward SF", and "Coalition to Save Affordable Housing."
Candidates for the San Francisco Board of Supervisors: Sandra Lee Fewer, Dean Preston, Aaron Peskin and Hillary Ronen through the PAC "Working Families for Hillary Ronen."

Between August 30, 2016 and November 21st 2016, the AHA received $389,000 exclusively for "November 2016 Slate Mailers" from:

"No on V", a Stearns client: $280,000, or 72% of total payments.
Other Stearns clients : $36,750, or 9% of total payments.
Board of Supervisor candidates endorsed on AHA mailers:$1,300, or less than 1% of total payments.
All others: $70,950, or 18% of total payments.

$364,525 of the $389,000 paid to the AHA during this period was distributed to Stearns Consulting LLC for the November 2016 Slate Mailers. Stearns Consulting LLC in turn paid $25,915 to SF Van LLC, a voter file company also controlled by Stearns, and $233,299 to designers, printers, mailers, and the USPS. The remaining balance of $129,786 was presumably retained by Stearns as compensation.

Based on this review, it appears that substantially all of the AHA's receipts and expenses were controlled or directed by Stearns, either through contributions by his clients or disbursements to Stearns Consulting, LLC. His clients provided 81% of the AHA's funding during November, and Stearns decided how 93% of the AHA's money was spent.

The Sandra Lee Fewer Campaign Committee

In the case of the Sandra Lee Fewer Campaign for District 1 Supervisor, Stearns arranged undisclosed contributions to Fewer's campaign and expenditures on behalf of Fewer's campaign by directing funds from "No on V" through the AHA. Stearns then produced slate mailers that directly benefited Fewer's campaign by attacking her only real opponent, Marjan Philhour, as seen below.

Fewer won with 39.64% of the vote, with Philhour in second place with 34.95% of the vote. The next candidate, David Lee, was a distant third at 10.73% of the vote.

Stearns laundered funds from one his clients, "No on V", through another of his clients, the AHA, for the benefit of yet another one of his clients, the Sandra Fewer campaign. The Fewer campaign could not accept those funds directly as it was publicly financed. Stearns did not report any of these contributions to or expenditures on behalf of Fewer's campaign.

Other Beneficiary Committees

Fewer was a significant beneficiary of Stearns' money laundering activities, but was not the only beneficiary. Below is a list of Stearns clients that were included on AHA mailers in 2016:

Client	Position endorsed by AHA?	Amount paid to AHA
No on V, Enough is Enough Don't tax our groceries	Yes	$280,000
Jobs Housing Parks Now Yes on O	Yes	$25,000
Coalition to Save Affordable Housing Yes on C	Yes	$6,500
Stop Developer giveaways No on P, No on Q	Yes	$3,000
San Francisco Reform Coalition Yes on H	Yes	$1,000
Rafael Mandelman	Yes	$750
Housing Forward SF Yes on C, M No on P, U	Yes	$500
Aaron Peskin for Supervisor	Yes	$250
Sandra Lee Fewer for Supervisor 2016	Yes	$250
Working Families for Hillary Ronen (Client)/Hillary Ronen for Supervisor 2016 (Candidate & Contributor)	Yes	$250
Dean Preston for Supervisor 2016	Yes	$250
Affordable San Francisco for All Yes on C	Yes	$0
4 for Reform, Yes on D, H, L, M	Yes	$0

Substantially all of Stearns' 2016 clients were supported by mailers sent by the AHA, which was in turn financed largely by "No on V" and other Stearns clients.

Relevant Memoranda and Analysis

FPPC Green Letter I-93-376

"…if a committee makes a payment to the slate mailer organization at the behest of a candidate, the committee would be making a non-monetary contribution to the candidate."

"If the payment was made and earmarked to support a specific candidate but was not made at the behest of the candidate, the committee would be making an independent expenditure on behalf of the candidate."

FPPC Sivesind Letter I-96-279

"…if a candidate or ballot measure committee pays an inflated rate to appear on a slate mailer in order to "induce" the organization to include another candidate or measure on the slate mailer, some portion of the payment will constitute a contribution or an independent expenditure by the paying candidate or committee on behalf of the non-paying candidate or ballot measure."

In the Green Letter, quoted above, the FPPC explained that payments made by a committee to an SMO are considered a campaign contribution if done at the behest of a candidate. In the Sivesind Letter, also quoted above, the FPPC explained that a donor committee's use of inflated payments for slate mailers to induce an SMO to benefit a candidate or measure would be considered a contribution or independent expenditure.

Stearns was employed by the donor committees, the SMO, and the candidates. Stearns therefore could not have acted independently as part of the donor campaign committees that funded the November 2016 Slate Mailers, the SMO that produced the November 2016 Slate Mailers, and the beneficiary campaign committees that were endorsed on the November 2016 Slate Mailers.

The FPPC has established the precedent necessary to censure Stearns' behavior. His position as simultaneous campaign consultant to multiple committees, the dramatic disproportionality of payment size to the AHA, and the preponderance of his clients on the AHA's mailers all lend significant credence to the charge that Stearns arranged the "No on V" payments for the benefit of his clients. Both the Green and Sivesind letters support the theory that these payments are in fact either unreported campaign contributions or independent expenditures.

List of Alleged Violations

The Affordable Housing Alliance Political Action Committee was effectively controlled by James David Stearns, directly and through his single-member LLCs, Stearns Consulting LLC and SF Van LLC.

Stearns, through his single-member LLC, Stearns Consulting, LLC, received $364,525 from his client, the Affordable Housing Alliance Political Action Committee, and did not properly report these payments as contributions to his clients in violation of Government Code §84302 and California Code of Regulations §18401.

Stearns, through the Affordable Housing Alliance Political Action Committee, received $280,000 from his client, "No On V," and did not properly report these payments as contributions to his clients in violation of Government Code §84302 and California Code of Regulations §18401.

Stearns, through his single-member LLCs, Stearns Consulting, LLC and SF Van, LLC, made $259,214 in expenditures for political purposes and did not properly report these as expenditures on behalf of his clients in violation of Government Code §84303 and California Code of Regulations §18431.

Stearns, through the Affordable Housing Alliance Political Action Committee, made $364,525 in expenditures for political purposes and did not properly report these as expenditures on behalf of his clients in violation of Government Code §84303 and California Code of Regulations §18431.

Stearns, in addition to violating the Government Code Sections and regulations listed above, likely violated numerous related statutes in conducting his money laundering activities. To the extent that a specific allegation has not been made above, we allege any violations of law related to the money laundering activities we have described.

We ask that the FPPC investigate these allegations thoroughly and issue a clear judgment discouraging money laundering through SMOs. The practical effect of not taking action will be to legitimize and proliferate this behavior in the upcoming 2018 election.

Regards,

Vincent Woo