By Marcus Stern, Kristina Cooke and Alexander Cohen
LAWRENCEVILLE, Georgia (Reuters) - December 2011 was a busy month for supporters of presidential candidate Newt Gingrich. The former speaker of the House had surged ahead of his Republican rivals in several polls. Suddenly he was being barraged by negative TV ads produced by Restore Our Future, a Super PAC for rival candidate Mitt Romney.
Gingrich did not have the money to retaliate. Individual donations in federal elections are restricted to $2,500. He needed his own Super PAC that could receive unlimited contributions.
Ever since the Supreme Court's 2010 decision in the Citizens United case paved the way for Super PACS, they have been a legitimate new tactic for political campaigns. As far as can be determined, Winning Our Future (WOF), the pro-Gingrich political action committee, did not do anything impermissible under campaign finance laws. But a look at its regular reports to the Federal Election Commission reveals a degree of legerdemain that appears commonplace in FEC records and makes it difficult for the public to know who ends up with the record amounts of money flowing into the political system today.
"Opaque transactions in politics undermine public confidence in the process," said Meredith McGeehee, owner of McGehee Strategies, which works on public interest advocacy, and policy director at the Campaign Legal Center.
FLYING UNDER THE RADAR
Because Super PACs are required to operate independently of the candidates they support, three longtime Gingrich allies scrambled to assemble one on his behalf. Winning Our Future filed papers with the Federal Election Commission on December 13, 2011. Texas billionaire Harold Simmons seeded it with $500,000 and gave twice more, for a total of $1.1 million. The family of casino mogul Sheldon Adelson donated $21.5 million. By the end of March 2012, WOF had raised an additional $1.2 million, for a war chest of $23.8 million.
Who received that money is difficult to discern.
Within six weeks of the Super PAC's launch, three new companies were set up to serve as vendors for WOF. (A fourth had been formed earlier in 2011, after Gingrich declared his candidacy in May, by an individual behind one of the three later outfits.) These four new companies received 84 percent of WOF's total disbursements, according to FEC records.
Some political consultants said they set up separate companies for different races for accounting purposes or to create a kind of firewall between their political work and their commercial activities. Others said the maneuver can be used to conceal work being done simultaneously for rival camps. And it can have tactical advantages.
"A new entity means they can fly under the radar for a few minutes," said one source. "Theoretically, it slows down the opposition research on their buying style." Where a candidate chooses to advertise says a lot about the issues and voters he or she is targeting.
The key word is "buying." The biggest checks written by any campaign or Super PAC go to the companies that buy ads on TV, radio and the Internet. Under long-standing industry practice, the broadcaster gives the buyer a 15 percent discount that the buyer has kept as a commission. These days, the percentage kept by political media buyers is likely to be 5 percent or less, according to various industry insiders. The rest of the discount from the broadcasters may be apportioned any way the leaders of the PAC or campaign wish.
PACs are required to report expenditures, including recipient and amount. Bulk checks to media buyers routinely run into the millions of dollars without disclosing subcontracts and other expenses. Side agreements over splitting of the discounts from the broadcasters are not subject to FEC disclosure.
"Our system is based on the idea that (Super PACs) can basically spend money however they see fit, and if your donors think the committee is not spending it wisely, then they can decide not to give further," said FEC Commissioner Cynthia Bauerly.
Tyler is a seasoned political operative who began advising Winning Our Future in December. He described in the harshest terms what he says is the common industry practice of PAC staff secretly divvying up portions of the discount: "Kickbacks … come back either to the campaign or the media vendor, in many cases the campaign manager. So you'll get a congressional campaign manager who on the surface you think is making $50,000-$60,000. The fact is he could be making hundreds of thousands of dollars - you have no idea because he's being paid separate from what you're seeing."
Total broadcast and cable spending during the 2012 race is projected to be $3 billion. That means as much as $450 million could be divvied up among political consultants and campaign or PAC staff according to negotiated fee agreements and informal side deals.
Tyler disparaged this opaque system of fee sharing as a hallmark of big-name political consultants. He didn't name any specifically, but he says WOF avoided their help. Yet it's clear that some of the pro-Gingrich Super PAC's vendors engaged in some opacity.
WOF's TV ad buys were handled by Media Advantage, which was incorporated in Baton Rouge, Louisiana, on December 6, 2011 - a week before WOF submitted its organizing statement to the FEC. The owner was listed as Laura Lancaster, of Baton Rouge, who did not return phone calls from Reuters.
The real buyer, according to Tyler, was Ken Kurson, a partner and executive vice president of Jamestown Associates in Princeton, New Jersey. Neither Kurson nor Jamestown CEO Larry Weitzner would comment for this story.
Tyler said that when WOF first approached Kurson, Jamestown said it had a conflict: It was already handling TV ads for the pro-Rick Perry Super PAC Make Us Great Again.
While media buyers have no obligation to avoid such conflicts the way law firms or investment banks do, they prefer not to advertise them. Commercial clients may not want to be linked to certain politicians, and political clients may worry about leaks inside the organization.
Political vendors sometimes work for rival campaigns because there are more candidates than companies that can execute a good national media-buying strategy, according to industry experts. To avoid disclosing their identity in FEC records and to avoid leaks within the organization, one prominent media consultant explained, they spin off a separate corporation. How separate is another matter.
Jamestown Associates "just told Ken it would be fine to set up his own company," Tyler said in explaining why Kurson established Media Advantage in December.
Kurson was behind another mysterious WOF vendor, according to Tyler. Empire Creative is shown in FEC reports as receiving $195,875 to produce ads. This company was incorporated in Delaware on October 31, 2011, by National Registered Agents Inc. An official with National Registered Agents said the company has an agreement with its customers to keep their identities confidential. The incorporation documents reveal nothing beyond a post office box number in New York City.
The name of Sam Hassell does not appear on any FEC reports from Winning Our Future, but Reuters discovered that he received the largest chunk of money from the Super PAC. Payments totaling more than $8.1 million were made to his two companies. He created Marketel Media Inc five months before WOF was formed and Intelimarc Inc just nine days before.
Although Hassell is the sole stakeholder in Intelimarc, his name is not on its incorporation documents. Two local attorneys are cited instead. Because December was so hectic, said Hassell, he had his brother's law firm do the work. WOF paid Intelimarc $1.2 million for Internet and email advertising, according to FEC records.
In recent years, Hassell sold radio ads for Salem Radio Network, a national network of stations that feature Christian music and conservative talk show hosts. He left in May 2011 to become chief executive officer of one of its clients, the Association of Mature American Citizens (AMAC), a for-profit company that offers members discounts on various goods and services. When Hassell incorporated Marketel in July, AMAC was its only client. WOF is now a second.
WOF bought $1.9 million in radio air time, according to Smart Media Group, a political advertising company in Alexandria, Virginia, that monitors political ads on TV, radio and cable outlets. According to its reports to the FEC, WOF paid Marketel at least $2.9 million solely for radio advertising.
That leaves $1 million - a third of the disbursements - that didn't show up as buys.
Hassell couldn't explain the gap or say how much his companies profited. He did say they took the "industry standard" of something less than 15 percent in commissions for the placing of radio ads.
Explanations for the gap could include Smart Media's missing some air-time purchases by Winning Our Future. Some of the expenditures listed in the Super PAC's reports to the FEC might have included money spent on something else, such as producing the ads. (Winning Our Future reported separate outlays for ad production.)
From the FEC records alone, however, it's hard to know where much of the $8.1 million paid to Hassell's two new companies ended up.
"YOU HAVE TO HAVE PEOPLE YOU TRUST"
Rebecca Burkett came to Winning Our Future from American Solutions, a nonprofit political group run by Gingrich that largely closed down when he became a candidate. The Super PAC paid her $249,505 between December and March for fundraising and management consulting. In all, Winning Our Future paid out $217,834 for fundraising, although only $1.2 million was raised beyond amounts contributed by Simmons and the Adelson family.
A vendor listed as VHH Consulting LLC turned out to belong to the wife of Lee Habeeb, who helped build up the roster of popular conservative radio hosts at Salem Radio and has had a long association with Gingrich. He also helped WOF get organized in December, including providing advice about how to handle the radio and Internet advertising eventually contracted to Hassell's two companies. Habeeb and his wife, Valerie, have consulting companies in their hometown of Oxford, Mississippi - LMH Consulting LLC for him, VHH for her. VHH received $59,235 from Winning Our Future for consulting "on strategy and branding and the ways to go about putting the ads together," she said.
Why so many longtime Gingrich associates got business from Winning Our Future is no mystery, she said: "You have to have people that you trust. You need to know who you're dealing with."
SCAMS WAITING TO HAPPEN?
Meredith McGeehee points to another tie that binds: "Any politician has a retinue of people that over time they build up, and if you're one of those consultants, one of those who provides services to those candidates, it's a great business. You can make a good living growing all the different services to the candidate or to the Super PAC."
But the complex web of shell companies effectively thwarts the transparency the Supreme Court took for granted in Citizens United, and scams or self-dealing would be difficult to detect.
"It's very hard to keep track of that and have accountability," said McGeehee.
Where she sees danger in the advent of Super PACs, Lee Habeeb sees opportunity.
"(The) Super PAC is constitutional, so it's with us for a while," he said. "To the talented will go some real spoils."
(Editor's note: The following story, focusing on media consultants, is part of an occasional series by Reuters examining the activities of the campaign industry during what is expected to be the most expensive political campaign in history.)
(Editing by Lee Aitken and Prudence Crowther)