Federal government warns of an increase in 'scam PACs' as election nears
Photo illustration by Sara Wadford/ABA Journal
In 2017, Jack Daly and Nathanael Pendley, both North Carolina lawyers, created and ran a political action committee they claimed was designed to persuade a former Milwaukee County, Wisconsin, sheriff to run for a U.S. Senate seat. Even after David Clarke Jr. decided not to run, the attorneys continued to tell people they were raising money on his behalf.
The U.S. Justice Department went after Daly and Pendley. In 2023, the U.S. attorney for the Eastern District of Wisconsin charged both with crimes relating to falsely representing that donor contributions would support a push to draft Clarke for Congress. Over $1.6 million was raised, according to court documents.
Daly and Pendley were accused by the Justice Department of targeting elderly people for contributions to the PAC. They pled guilty to conspiring to commit mail fraud and lying to the Federal Election Commission. Pendley received a sentence of two months of imprisonment along with two years of supervised release. Daly’s sentence was for four months with two years of supervised release. Victims of the scam were paid nearly $70,000 in restitution, and both men have been barred from practicing law in North Carolina.
Their fraud scheme appears to epitomize a growing problem in the United States: Individuals are doling out their money to people operating “scam PACs”—and there is not sufficient government oversight and enforcement powers to stop them.
“We appear to be seeing more and more individuals realizing that they can get rich operating a scam PAC,” says Shanna Ports, a senior legal counsel for Campaign Legal Center in Washington, D.C. “The trends are concerning.”
Daly’s lawyer did not return repeated requests for comment. Sol Wisenberg of the D.C. office of Nelson Mullins, who represented Pendley, emphasized that his client did not plead guilty to running a scam PAC.
“What was charged here was that Mr. Daly and Mr. Pendley were remiss in not explicitly informing donors in their final two PAC solicitations of Sheriff Clark’s July 2017 radio interview comment that he was definitely not going to run for Senate,” Wisenberg says.
In the 2022 federal election cycle, there were 86 potential scam PACs preying on individuals, according to OpenSecrets, a nonprofit research group tracking money in the U.S. political system. The organization said it identified potential scam PACs as spending more than $100,000 and having at least 50% of their itemized expenditures as fundraising expenses.
Neil Reiff, who practices federal and state campaign finance law, says the increasing polarization of politics makes it easier to target people vulnerable to extreme messaging and wheedle money out of them.
“Most of the money is raised through telemarketing, which isn’t new. There have always been people who use high-pressure sales tactics for fraudulent schemes,” says Reiff, a founding member of the firm of Sandler Reiff Lamb Rosenstein & Birkenstock in D.C. “What’s new is the political conditions that have made it much easier to scam people, both conservative and liberal, using political rhetoric.”
Some say there’s a sense of urgency regarding scam PACs. In November, there will be a hotly disputed presidential election in which individuals may feel compelled to donate on issues related to their concerns or to the candidate they support. A scammer could pretend the money is going to elect Joe Biden or Donald Trump and then pocket it, says Ciara Torres-Spelliscy, an election law professor at Stetson University College of Law.
In addition, there will be elections for every member of the U.S. House of Representatives and a third of the U.S. Senate. Adding to the mix, state and local elections will occur at the same time.
“So many candidates legitimately fundraising give the scam PAC organizer cover to make their financial asks,” Torres-Spelliscy says.
Successful scam PACs often focus on “truly sensitive issues,” says Robert Maguire, Citizens for Responsibility and Ethics in Washington’s research director.
“Sometimes they convince donors their money will go to politicians who support policies that benefit injured veterans or children receiving cancer treatment or police support, raising fear about rising crime,” Maguire says. “It’s egregious to see how low some people will go to take money from people.”
The election crimes branch of the Department of Justice’s criminal division prosecutes scam PACs. The DOJ is expected to increase its efforts in the upcoming election cycle.
“The Justice Department will not hesitate to use every tool at its disposal to protect Americans’ right to contribute to political groups and activities without fear of being defrauded,” says Joshua Stueve, a department spokesperson.
While increased prosecution may deter some scam operators, there will always be more “grifters looking to grift,” Reiff says.
In 2021, the FBI released a statement telling the public to conduct research before giving to candidates and causes. The bureau suggested individuals considering donating to a specific cause or candidate look up the organization on the Federal Election Commission website to see if the PAC is registered and check their quarterly filings to see the vendors it is using.
Scam PACs tend to report that most of their expenses go toward fundraising, consulting or compliance. Another way to identify a scam PAC is when its address is the same as one of its vendors. Scam PAC operators often have personal ties to the vendors they report, according to OpenSecrets.
The Federal Election Commission has asked Congress to amend the Federal Election Campaign Act to better address, define and prohibit fraudulent fundraising practices. In its 2023 legislative recommendations, the commissioners also said Congress should examine the fundraising and spending of political committees that solicit contributions with the promise of supporting candidates but then disclose minimal candidate-support activities while engaging in significant and continuous fundraising.
“The FEC’s most recent legislative recommendations specifically request that Congress amend the federal campaign finance laws to empower the agency with civil enforcement authority over scam PACs,” says Caleb Burns, an advisory member of the ABA Standing Committee on Election Law and a partner at Wiley Rein in D.C. “This will not, however, be an easy task. It will require drawing lines between activity that constitutes fraud on the one hand and merely inefficient fundraising and spending practices on the other.”
Burns adds that the First Amendment, “which commands a light touch when regulating political association, will further complicate matters.”
Sean Cooksey, the Federal Election Commission chairman, says the commission “takes seriously its job to ensure integrity and transparency” in political campaigns for federal office.
“That means taking a tough line against political committees and individuals that file false reports, fail to provide accurate disclaimers or fraudulently misrepresent campaign authority, among other things,” Cooksey says. “At the same time, we need greater statutory authority to better enforce against fraudulent campaign-finance practices, and the commission continues to urge Congress to provide it.”
In 2022, Rep. Katie Porter, a Democrat from California, and Rep. Dan Crenshaw, a Republican from Texas, first introduced the Stop Scam PACs Act, a bipartisan bill aimed at giving the Federal Election Commission greater power to civilly investigate and fine scam PAC operators. The bill has not yet made it out of committee.
Maguire says scam PACs are one of the only issues upon which both Republican and Democratic officeholders agree. “Think about it,” Maguire says. “When you are running for office, you want the money that your supporters might give to go to you, not to a scammer.”
This story was originally published in the June-July 2024 issue of the ABA Journal under the headline: “Follow the Money: As the presidential election nears, the federal government warns of an increase in ‘scam PACs’.”
