Archive for the ‘Ethics’ Category

0Democratic Party collects February donations from ESPN and Blue Sky Studios

The Connecticut Democratic Party continued to legally collect donations from state contractors using its federal account in February, according to the most recent Federal Elections Commission filing, raising a little more than $133,000 from all sources.

Six ESPN employees contributed $500 each for a total of $3,000. ESPN is a First Five company.

The Walt Disney Productions Employees PAC also contributed $5,000. Disney owns ESPN.

Joseph Carabetta, of Carabetta Management, gave $2,500 on Feb. 3.

On Feb. 28, the State Bond Commission approved a $2.5 million loan for renovation of 4-40 Vine Street Housing, a property managed by Carabetta. The loan is for 30 years at 1 percent interest.

Three employees of Blue Sky Studios contributed a total of $4,000. Blue Sky and ESPN have benefitted from Connecticut’s film tax credits. Blue Sky also received a $3 million state loan in 2011.

Kevin Segalla, founder of the Connecticut Film Center and CFC Capital, donated $5,000.

The latest report from the Republican Party is not available yet.

1GOP donor switches to Dems after Malloy election, bond commission approves $6 million in state support

Abul Islam was a generous donor to the Connecticut Republican Party – until the state elected a Democratic governor.

Islam, as the principal of a state contractor, can only give to the federal accounts of either party. A party’s federal account cannot benefit candidates for state office like a governor. Instead, they support candidates for U.S. Congress, Senate or President.

According to the Federal Elections Commission, Islam gave $350 to Democrats in April 2004, the first of his donations in the agency’s online database. At the time, then-Gov. John Rowland was facing the corruption scandal that led ultimately to his resignation and guilty plea to federal charges.

In 2008 and again in 2009, while the Republican M. Jodi Rell was governor, Islam gave $10,000 to the Connecticut Republican Party.

On Oct. 29, 2010, he gave another $2,500.

Days later, on Nov. 2, 2010, Connecticut elected Dannel Malloy, a Democrat, to be its next governor.

On the last day of 2010, before Malloy was inaugurated, Islam gave $2,500 to the Democratic Party. He followed that up with another $925 in 2011 and $2,500 more on Election Day 2012.

Islam said Malloy’s election is why he started giving to the Democratic Party and stopping giving to the Republican Party.

“I have been a longtime supporter of Dannel Malloy from his days as Mayor of Stamford,” Islam said.

Asked if he knew the federal account couldn’t benefit Malloy, Islam said, “Yes, I know that but I have been a supporter and a friend of Congressman John Larson for years, too.”

One of Islam’s companies, AI Engineers, has done about $18.2 million of work for the Department of Transportation since January 2011, including subcontracts, according to an agency spokesman.

AI Engineers did about $100,000 in business with the University of Connecticut in 2013, according to the state’s transparency website. In 2010, the company did a smaller amount of work for the UConn Health Center.

Last month, the state bond commission approved assistance for another company run by Islam, TAROB, including a $2.5 million 2 percent loan and a $1.8 million equity investment, to develop Residences at Riverview at 3 Constitution Plaza in Hartford.

The project will include 48 rental units and 20,000 square feet of commercial space.

The Capital Region Development Authority is providing the assistance to TAROB. Payments on the loan are deferred for six years.

The bond commission also approved $8.9 million for the Westport Housing Authority’s Sasco Creek Apartments. That property is managed by Millenium Real Estate. Bruce Whitaker Jr., Millennium’s owner, gave $5,000 to the Democratic Party’s federal account in November.

2Charges against former Virginia governor offer insight into FBI investigation at state Capitol

The U.S. Supreme Court has restricted the meaning of honest services fraud since Gov. John Rowland pleaded guilty to that charge a decade ago, but the same law could be at issue in an FBI investigation of House Republicans.

George Gallo served as chief of staff under Minority Leader Larry Cafero, R-Norwalk, from 2007 until he resigned last month, acknowledging he was a person of interest in the investigation. No arrests have been made.

Cafero said the Republican caucus is “cooperating fully with the federal inquiry.”

The FBI appears to be focused on direct mail vendors used by Republican House candidates, including Direct Mail Systems of Florida and King Strategic Communications of Ohio.

“It kind of looks like a kickback case,” said Eric Jaso, a partner at Seeger Weiss and former federal prosecutor. He said investigators may also be looking for “a secret or undisclosed ownership interest.”

Jaso said it was unclear to him, based on press accounts, what federal law was violated. “It is very puzzling. You need a federal jurisdictional hook,” he said.

“It’s almost like a commercial bribery case,” Jaso said, explaining that commercial bribery is, for example, when an architect pays to be on a landlord’s list of approved contractors.

Norm Pattis of the Pattis Law Firm said authorities take cases involving public officials more seriously “because they involve violations of the public trust.”

Pattis said one defense approach is to look at whether the payments were “a commission” that came out of company profits or “are you rolling that extra cost” into what the client pays.

Honest Services Fraud

Honest services fraud is a form of mail or wire fraud. Pattis said one form of fraud involves false representations and so a defense strategy would be to ask, “Were the representations in fact false?”

“Sometimes in fraud cases there’s buyer’s remorse” rather than fraud, he said.

The problem some courts have had with honest services fraud, Jaso said, is that officials do not have “reasonable notice of what’s illegal.”

“Where does mere dishonesty end and a violation of federal law begin,” he said.

Although the federal courts from the Supreme Court down have reduced the scope of honest services fraud in recent years, federal prosecutors recently charged former Virginia Gov. Robert McDonnell and his wife with conspiracy to commit honest-services wire fraud and three counts of honest-services wire fraud.

Last month, federal prosecutors indicted a California state senator on 24 counts for allegedly taking bribes from a hospital owner and an FBI front. The charges include honest services fraud.

“The theory is that when a local or state official takes a bribe or a kickback, he or she defrauds the people of the state or locality of their right to that public official’s honest services,” the law firm Hodgson Russ wrote in an analysis of the McDonnell indictment.

The bribe or kickback does not have to violate state law, either. In Virginia, “laws apparently place no financial limit on the gifts a state or local official can receive,” according to Hodgson Russ, although there are disclosure requirements.

In order to avoid being unconstitutionally vague, the U.S. Supreme Court “limited the scope of the honest-services fraud statute to bribery and kickback schemes, as opposed to ‘undisclosed self-dealing by a public official or private employee,’” according to an analysis of Ring v. United States by the law firm Saul Ewing.

“In other words, when a lobbyist offers ‘things of value’ other than campaign contributions, the government can establish bribery, and therefore a violation of the honest-services fraud statute, without establishing an explicit agreement between the lobbyist and the public official,” according to the Saul Ewing analysis.

According to Hodgson Russ, honest services fraud “does not criminalize mere failures to disclose conflicts of interest.”

“As a practical matter, the law gave federal prosecutors the power to criminalize objectionable behavior, conflating the merely unethical with the intentionally criminal,” wrote David Rittgers, a lawyer and former legal policy analyst at the Cato Institute. “Behavior that was not illegal under state law (particularly state ethics requirements for public officials) became illegal under federal law.”

“This criminalized an employee lying to his employer, and as Justice Scalia pointed out, ‘would seemingly cover a salaried employee’s phoning in sick to go to a ball game,’” Rittgers said.

“Public corruption is already illegal. But unlike the existing federal bribery and kickback statutes, the ‘honest services’ fraud statute isn’t limited to lobbyists or those who do receive federal funds,” Rittgers continues. “Breach of a fiduciary duty between private actors falls within the statute when motivated by a bribe or kickback.”

Under Color of Official Right

The charges against the McDonnells also include conspiracy to obtain property under color of official right and obtaining property under color of official right.

According to the U.S. Supreme Court in Evans v. United States, under common law “extortion was an offense committed by a public official who took ‘by color of his office’ money that was not due to him for the performance of his official duties.”

“It can be said that ‘the coercive element is provided by the public office itself,’” according to the U.S. Department of Justice’s Criminal Resource Manual. “This theory of extortion under color of official right has resulted in the successful prosecution of a wide range of officials, including those serving on the federal, state and local levels.”

The manual also says a public official doesn’t have to have “actual authority” if it was “reasonable to believe” he or she had that power. For example, a “public official can extort money for permit beyond control of his office, so long as victim has a reasonable belief that he could affect issuance.”

“Some courts have held that private persons who are not themselves public officials can be convicted under this provision if they caused public officials to perform official acts in return for payments to the non-public official,” the manual says.

For example, the head of a local Republican Party was convicted for causing “public officials to induce a third party to pay out money.”

Private individuals who make such payments have also been charged under this statute.

The 7th U.S. Circuit Court of Appeals was not receptive to under color of official right charges against private individuals, saying “we believe that, as a general matter and with caveats as suggested here, proceeding against private citizens on an ‘official rights’ theory is inappropriate.”

In addition to federal laws against bribery, there is also a law prohibiting illegal gratuities. The difference between the two is that an illegal gratuity is offered after an official action rather than before.

1Mystic Aquarium employees contribute to Democratic Party

Two Mystic Aquarium employees donated to the Connecticut Democratic Party’s federal account in January.

As a recipient of state funding, Mystic Aquarium is a state contractor. This means certain decision-makers, known as principals, cannot contribute to state political campaigns.

However, it is not illegal for the principals of state contractors to contribute to the federal accounts of state political parties. The State Elections Enforcement Commission warned parties about the practice last month.

Vice President William Parks contributed $5,000, in what appears to be his only federal political contribution ever, according to the Federal Election Commission website.

President and CEO Stephen Coan, a regular donor to political candidates of both parties, gave $1,000.

Mystic Aquarium received just less than $600,000 in state funding last year, according to the state’s transparency website, the smallest amount in the past four years. In 2012, the aquarium received $1.5 million and more than $600,000 in each of the two prior years.

0Document Dump: FBI investigation of House Republicans

House Republican Chief of Staff George Gallo resigned last week after the Federal Bureau of Investigation subpoenaed his correspondence, among other documents.

The investigation reportedly dates back to September 2013. CTNewsJunkie has the subpoenas here.

There is not a lot of information related to Gallo’s campaign consulting firm, The Vinco Group, online. According to a 2005 report by the Office of Legislative Research, the campaigns of William Aniskovich and Mark Diebolt paid Vinco during the 2003-04 campaign cycle.

The FBI drew attention to two companies that have worked extensively for Republican campaigns in the state.

Republican campaign expenditures with Direct Mail Systems since 2008: $514,933.82. (See the list here.)

Republican campaign expenditures with King Strategic Communications since 2007: $351,312.35. (See the list here.)

The FBI also asked for information related to House Republican Office contracts with direct mail vendors. Each caucus has its own direct mail contract.

For the entire General Assembly, these mailings cost  an estimated $160,000 in fiscal year 2013. The previous year, they cost about $270,000 and $160,000 in 2011.

House Republicans used The Pyne-Davidson Company in 2011, 2012 and 2013.

Senate Democrats used the same company in 2011. They switched to ABC Printing in 2012.

Senate Republicans switched to Pyne-Davidson in 2013. Previously, they used ABC Printing and Imperial Graphics.

House Democrats used Phoenix Press in 2011 and GHP Media in 2012 and 2013.

0State auditors send General Assembly their wish lists

State auditors recently asked the General Assembly to fund five new positions for a specialized type of audit and make legislative changes to improve the integrity of state finances and operations.

Last year, the Auditors of Public Accounts conducted 43 audits and made 360 recommendations to state and quasi-public agencies, which adopted about half of the recommendations, according to their annual report.

The auditors also handled 38 whistleblower complaints. The backlog of whistleblower complaints fell from 241 in 2009 to 85 at the end of last year.

By the end of 2014, the auditors plan to bring convert all of their work papers to electronic records. “We are already noticing significant productivity improvements in our audit work, which will only increase as we eliminate the storage and handling of all paper-based work papers.”

The auditors also plan to “determine whether state systems adequately maintain the integrity of data, protect against breaches of privacy, and ensure there are proper safeguards to protect against fraud.”

The auditors recommended a number of legislative changes.

For example, the auditors recommend that human resource directors should be required to report ethics violations. “Ethics violations very often pertain to human resources or personnel-related issues. However, human resources directors are not required to report these matters when they become aware of such violations. We have identified such circumstances at an audited agency.”

The auditors also suggested improvements to the state’s policy for rehiring retired state workers, especially to make sure the policies are consistent with the Internal Revenue Code.

Retired employees can return to work for up to two 120-day stints under current state rules at 75 percent of their previous pay rate.

The auditors found at least one example of a personal services contract with a retired state employee that skirted a prohibition on such arrangements by forming a limited liability company. State contractors have hired other retirees, also circumventing the rules on reemployment.

“The Internal Revenue Code requires a bona fide severance of a retiree’s employment to allow the retiree payment of a pension allowance during reemployment if under age 62,” the auditors wrote. “This requirement is not currently reflected within the General Statutes or other regulations.”

Auditors also suggested a number of opportunities for “performance audits” in a recent report. They are seeking funding for five new positions to take on more of these projects.

“As the state endeavors to find ways to operate more efficiently, performance audits could serve as a useful tool to preserve state resources and improve state services,” the auditors wrote.

The auditors reassigned staff previously dedicated to performance audits “due to reduced resources and other demands on our office.”

They suggested looking at:

– how the state processes background checks

– whether people receiving state benefits also get them in other states

– how to maximize federal funding

– energy costs and building maintenance

– the backlog of state retirement claims

– the state’s bidding process

– overpayment of unemployment benefits

1First Five companies give back to Democrats

Two companies participating in Gov. Dannel Malloy’s signature economic development program contributed to the Democratic Party last month, contributing to the party’s significant financial advantage over Republicans.

Employees of NBC Universal and NBC Sports gave the Democrats federal account $4,600, while the Cigna Political Action Committee contributed $5,000.

NBC Sports and Cigna are participating in Malloy’s First Five program.

Other notable donors include:

– Marianna Kulak McCall, McCall Kulak Foundation, $10,000

– Eric M. Zachs, Bantry Bay Ventures and spam-software maker Ziplink, $2,500

– Daniel E. Kleinman, partner at Hinckley Allen and board chair and legal counsel to the Travelers Championship, $1,000

Paul Nunez Jr., lobbyist with DePino Associates, $500

2DOT preferred developer brings 2013 gifts to Democrats up to $90,000 with December contributions

The joint venture selected by the Department of Transportation to redevelop part of Stamford near the city’s train station gave $90,000 to the Connecticut Democratic Party’s federal account last year, including $32,500 in December.

DOT selected Stamford Manhattan Development Ventures in June to take charge of the $500 million project, including $35 million in state funding for parking garages.

Weeks after DOT told the joint venture it won, the family behind JHM Group, which belongs to the joint venture, gave $30,000 to the Democratic Party’s federal account.

Since the company is a prospective state contractor, its executives are prohibited from giving to the party’s state account, but are allowed to give to the federal account.

Executives from other joint-venture partners, including Ciminelli Development and AllPro Parking, gave another $27,500 in November.

In December, Paul Ciminelli and Dennis Penman, executives at Ciminelli Development, gave $2,500 and $10,000, respectively.

John and Raymond Gizzi, of ECCO III Enterprises, Inc., another joint-venture partner, gave $10,000 each last month, bringing the total to $90,000.

2Affordable housing industry adds to Democratic coffers

Representatives of three companies with connections to the affordable housing industry gave to the Connecticut Democratic Party in November.

Bruce Whitaker Jr., owner of Millennium Real Estate, gave $5,000 on Nov. 19.

Two days later, Gov. Dannel Malloy announced Sasco Creek Apartments, owned by the Westport Housing Authority and managed by Millenium, would receive a 4 percent loan from the Connecticut Housing Finance Authority and $5.7 million in “gap funding” from the new Department of Housing.

Employees of Viking Construction gave $3,500 in November. Anthony Gaglio Jr., the company president, donated $10,000 in July and has made large donations to the Democratic Party in the past. In September 2012, he posed for a picture with Malloy in front of a sign highlighting the “cooperation” of the state in the construction of The Heights at Darien, a Viking project.

Matthew Anderson of Imagineers donated $2,500. The company administers Section 8 housing vouchers for some housing authorities.

These donors gave to the state party’s federal account, which can accept contributions from any U.S. citizen including state contractors.

Other recent donors to the Democratic Party’s federal account include:

–         Nicholas Donofrio, recently appointed to chair the Board of Regents for Higher Education, and his wife gave $20,000.

–         Employees of a Department of Transportation preferred developer set to receive $35 million in state money for parking garages gave $27,500 in November and $30,000 over the summer, just after DOT informed the company of its selection.

–         Employees of a regular DOT contractor, HAKS Engineers, gave $45,000 in October and may have attended a fundraiser headlined by Malloy.

–         Executives at Northeast Utilities gave $17,000 in October after the company’s CEO asked his subordinates to support Malloy.

2New Board of Regents chairman and wife maxed out to party weeks before selection

Gov. Dannel Malloy publicly named Nicholas Donofrio chairman of the Board of Regents of Higher Education weeks after he and his wife made $10,000 contributions to the Connecticut Democratic Party.

The Ridgefield couple made the max-out donations to the party’s federal account in November. Malloy promoted Donofrio from member of the board to its chairman on Dec. 12.

Anita Donofrio, Nicholas’ wife, began giving to a number of Democratic candidates and party committees in 2012, but this marked her first donation to her home state party. Previously, she donated to the Democratic National Committee and state parties in Colorado, Iowa, Nevada, New Hampshire, Ohio, Wisconsin and Virginia, according to the Federal Elections Commission.

Nicholas Donofrio donated to a mix of Republicans and Democrats since the late 1990s. Although he made large contributions to the federal account of the Vermont Democratic Party in 2010 and 2012, his contribution to the Connecticut party last month was his first, according to the FEC.

Donofrio, a longtime IBM executive, has been a member of the Board of Regents since its creation last year.

The Board of Regents did not respond to a request for comment before deadline.