Wednesday, February 01, 2006

Legality of Advance America's Payments To Miller's Law Firm Questioned


Last week in reporting on the defeat of a lobbying reform bill and Eric Miller’s role in its defeat, we alluded to the fact that Indianapolis Star reporter Brendan O’Shaughnessy has in his possession evidence which at least gives the appearance that Eric Miller and his Advance America organization are evading Indiana’s Lobby Law. For reasons that remain unclear the Star has chosen not to publish this bombshell story. Advance Indiana will now share with the public what the Star is not sharing with you.

This story can be traced back to a story we first ran last May in which we reported on the self-dealing in which Eric Miller had engaged as the head of the non-profit Advance America organization. Miller founded the organization back in the early 1980s and has run the organization uninterrupted except for a brief period when he ran unsuccessfully for the Republican nomination for Governor in 2004. We reported at that time that Miller had pocketed at least $1 million in the form of his salary and benefits and legal fees he had paid to his own law firm for the period of 1998 to 2003 according to tax returns filed by the organization with the IRS.

A short time after our report ran, Advance Indiana was contacted by the Star’s Brendan O’Shaughnessy, who had just recently joined the paper as a reporter assigned to cover the city beat. Because Miller’s organization had been actively involved in defeating the Human Rights Ordinance when it was voted on the first time by the Indianapolis city-county council in April, O’Shaughnessy was interested in learning more about the organization. O’Shaughnessy had earned a name for himself uncovering corruption at the Gary Urban Enterprise Association, a non-profit organization currently under investigation by federal authorities, in part, because of his reporting for another newspaper in northern Indiana.

Advance Indiana editor Gary R Welsh shared with O’Shaughnessy the publicly available tax returns he had obtained for the organization and other information he had obtained about the organization from its lobbyist registration reports it filed with the Indiana Lobby Registration Commission. Welsh specifically raised questions with the Star reporter about the large retainer payments the organization was paying to Miller’s law firm and the inherent conflict of interest of such an arrangement, as well as the fact that the organization and his law firm shared the same office space at 101 W. Ohio in downtown Indianapolis, a mere block from the State House. Welsh expressed concerns about whether the organization might be picking up expenses which rightfully should be paid for by Miller’s law firm.

Welsh also raised concerns about why such a small organization (with an annual budget well below $1 million) would have a need to spend as much as $116,500 in a single year on legal fees. Miller, as executive director, had been regularly paid a six-figure salary, well above the average pay for executives of similarly-sized non-profit groups during the period analyzed. In just a three-year period, the organization also paid Miller’s law firm, Millers, Waters, Martin & Hall, nearly $300,000. Welsh questioned whether the firm was performing lobbying activities for the organization which were not being reported as required by Indiana law. While Advance America is a registered employer lobbyist and Miller is registered compensated lobbyist, the firm and its other attorneys are not registered to lobby.

O’Shaughnessy contacted Welsh a few weeks after their initial meeting to report that he was pursuing the story further, and that he would be interviewing Miller to discuss some of the issues. A short time later O’Shaughnessy contacted Welsh and met with him in his office to discuss what Miller had told him during their interview.

O’Shaughnessy, with Miller’s permission, tape recorded the interview, a part of which the reporter shared with Welsh. At the beginning of the interview, Miller was asked by O’Shaughnessy to defend the relatively high salary he received as the group’s executive director relative to other organizations. Miller assured O’Shaughnessy that his salary had been independently set by the organization’s board of directors, an all male group of Christian right activists (mostly ministers) who are hand-picked by Miller. Miller seemed surprised when O’Shaughnessy shared with him statistics showing he was paid much more than other non-profit heads.

Next, O’Shaughnessy questioned Miller about the purpose of the six-figure fees paid annually to his law firm. Miller assured the reporter that the compensation was not for work he had performed; rather, it was to compensate other attorneys in his firm for the work they performed on behalf of the organization. Miller then described the work they performed. He described their work as being related to the organization’s legislative work. According to Miller, they helped research, draft, review and monitor legislation. Most importantly, he told the reporter that the other attorneys would field calls from legislators about legislative issues and assist them with questions they had pertaining to legislation.

This latter admission by Miller is critical. Under Indiana law (I.C. §2-7-1 et seq.), “lobbying” is defined to mean “communicating by any means, or paying others to communicate by any means, with any legislative official with the purpose of influencing any legislative action.” A “lobbyist” is defined to mean “any person who engages in lobbying, and in any registration year, receives or expends an aggregate of $500 in compensation or expenditures reportable under this article whether the compensation or expenditure is solely for lobbying or the lobbying is incidental to that individual's regular employment.”

By Miller’s own admission, other members of his firm were compensated by the organization to perform legislative-related work, which included communications with legislators. Miller might quibble over whether those communications were for the purpose of “influencing any legislative action”, but to an independent observer, it raises the appearance Miller, the other attorneys at his firm performing the work and Advance America knowingly and intentionally conspired to evade the registering and reporting requirements such activities trigger under Indiana’s Lobby Law.

Other organizations like Advance America often employ both in-house employees and outside consultants to perform lobbying work. But in each case you will find that the organization, its in-house employees and outside consultants will each register and file activity reports with the Lobby Registration Commission. In the case of the organization, it will register and report as an employer lobbyist, which will include the compensation it pays to others to perform lobbying on its behalf. The in-house employees, the outside consultant’s employer and the consultant’s compensated employees performing lobbying work for the group will each register and report their work on behalf of the organization as compensated lobbyists.

Any person who knowingly or intentionally violates the registration and reporting requirements imposed by the Lobby Law commits unlawful lobbying, which is a Class D felony. A person found guilty of committing unlawful lobbying may also be barred from lobbying for a period of up to 10 years. Indiana’s attorney general and county prosecutors are charged with prosecuting violations of the Lobby Law.

Since Miller and his organization have, by all appearances, dutifully complied with the annual registration and reporting requirements of the law, the question is why the organization would not register and report that Miller’s law firm is being compensated for lobbying activities, and why Miller’s law firm and its attorneys would not register and report their lobbying activities on behalf of the organization? The answer may well lie in Miller’s desire to protect the organization’s favored tax-exempt status. As a tax-exempt organization, IRS regulations prohibit the organization from engaging in excessive lobbying-related activities or partisan politics. We have raised questions in the past about the organization’s practices in both respects.

Between the years 2000 and 2005, our analysis of Advance America’s lobbyist reports showed that its annual lobbyist expenditures were as little as $3,855.67 in one year and no more than $38,397.82. During this same period, the group reported on its federal tax returns that it spent as little as $25,037 and no more than $52,175 in annual lobbying expenditures under the IRS’s broader definition of lobbying. The group disclosed the work done by the law firm as legal services; it did not mention any lobbying work.

As we reported just last week, Miller sent an e-mail alert to his members on January 20, 2006 in which he represented that [Advance America's] legislative expenses will exceed $160,000" in seeking more tax-deductible contributions for the group's work. That is far higher than the group has ever reported spending on lobbying. Ironically, Miller gloated to his members over the defeat of a lobbying reform bill which would have required his group to report its grassroots lobbying expenditures, as well as its direct lobbying expenditures. He described the bill as "an attempt to stop public involvement in the legislative process."

Curiously, since Advance Indiana began scrutinizing the group’s tax returns, it would appear it has sought extensions well beyond the deadline for filing its 2004 tax year returns. While the 2004 tax returns have been available for other tax-exempt organizations required to file Form 940s for many months, Advance America’s 2004 tax return has yet to appear.

Even without considering the payments to Miller’s law firm, the group's reported lobbying expenditures seem unrealistically low given the extent of the group’s lobbying activities. Miller's $160,000 figure he shares with his members is probably closer to the mark. If you factor in the payments to the law firm and allocate an appropriate percentage of those payments for lobbying, the group’s annual expenditures for lobbying dangerously approaches or exceeds what it may lawfully spend on lobbying-related purposes without losing its tax-exempt status. If Miller is not properly reporting these expenditures on the group’s federal tax returns, not only could the group lose its tax-exempt status, he could be personally slapped with fines and criminally prosecuted for federal tax law violations.

Welsh explained to O’Shaughnessy the legal implications of Miller’s potentially damaging admission, dutifully tape-recorded by the reporter. The incriminating recording would no doubt be of particular interest to government prosecutors once the reporter aired the story to the public in the Star. Running out of time, Welsh did not have the opportunity to listen to a large portion of the recording, and he and O’Shaughnessy agreed to discuss it in further detail later.

More than six months have past and the reporter has seemingly dropped the story. At one time he said he was too busy to work on the story; another time he told Welsh it was not part of his assignment at the Star to cover such matters.

So is the Star making this reporter sit on this story? Perhaps. Remember, Christian right lawyer John Price filed a lawsuit against the Star last year in which he alleged that the paper’s top management discriminated against two former reporters with the Star because of their Christianity. The Christian right has not been happy with the decidedly more moderate turn the paper’s editorial page has taken since the Gannett Company purchased it from the Eugene Pulliam family several years ago. It’s possible the paper doesn’t want to raise the ire of Miller’s supporters at a time it’s still fighting the religious freedom lawsuit pursued by Price for the former reporters.

Whatever the Star’s reasoning is for sitting on this bombshell story, the people of Indiana deserve to have this information aired publicly. As a tax-exempt organization, Advance America’s activities are being subsidized by the taxpayers. Without the assistance of government prosecutors, we have been able to uncover substantial evidence of at least the appearance of wrongdoing by Miller, his law firm and the organization. Evidence, we would argue, cry for a full and complete investigation by government prosecutors.

Advance Indiana calls on Marion County Prosecutor Carl Brizzi to investigate the organization, Miller and his law firm for potential violations of Indiana’s Lobby Law. Brizzi should coordinate his investigation with U.S. Attorney Susan Brooks to determine if federal tax laws have been violated as well.

Several years ago the Star relentlessly pursued charges that former Rep. Sam Turpin (R-Brownsburg) had violated Indiana’s Lobby Law on much shakier evidence of a violation until it eventually pressured former Marion County Prosecutor Scott Newman into indicting Turpin. Turpin eventually won a dismissal of the charges because of the vagueness of the lobbying law, which has since been amended. It is difficult to explain the Star’s unwillingness to pursue this story with at least an equal amount of vigor.

Miller and his organization are no doubt one of the most influential lobbying influences at the State House and at the local level in Indiana when it comes to matters affecting our state’s social policies. He is a public figure who has sought election to our state’s highest office, all the time using his tax-exempt organization to advance his own personal and political ambitions. If he is abusing his status and our laws, he must be held accountable. We expect the Star, as our state’s newspaper of record, to be a full participant in that process.

4 comments:

Kevin said...

As far as The Star sitting on the story...another reason could be that Russ Pulliam is buddies with Eric. He even wrote a glowing editorial on him not too long ago.

Anonymous said...

Any why should we not be surprised?

I alway thought that Miller was more than just a crusader, he's more of a fanatic who believes the ends justify the means.

Anonymous said...

Can't you inform the IRS of the information that was uncovered?

Mack Simmons said...

Russ Pulliam doesn't exactly have the ear of the editorial page writers, much less the news side. Pulliam himself spends more time on the Pulliam Fellows selection process, which he oversees, and writing columns, then focusing on the newsroom.

More likely, the Star hasn't moved on it because like most stories in which a paper could end up being sued (e.g. the Chiquita series that ended up costing Gannett millions because it turned out the reporter garnered the information through theft), it's better to triple-check the sources for the right story instead of moving fast and ending up getting egg on one's face.

So I wouldn't assume that the Star is sitting on a story, but making sure it's doing its job right. Unlike Welsh, they have to pay for lawyers and they're under obligation to their readers to get the full story and get it right.