How bingo games led to $500K fine for Michigan Democratic Party

Kathleen Gray | Detroit Free Press

Show Caption Hide Caption Democrats fined $500,000 for bingo game operations The fine is one of the biggest levied by the Federal Election Commission.

LANSING — Games of chance have always been risky, but they also just got very costly for the Michigan Democratic Party.

The party has agreed to pay a $500,000 civil fine to the Federal Election Commission — the 11th-largest penalty ever levied by that agency — after an internal investigation of its bingo operation, which was used for political fund-raising, found numerous examples of shoddy record keeping, contributions that exceeded limits and campaign finance reporting inaccuracies.

It’s a fine that far exceeds the average penalty levied against candidates and political organizations over the years. The highest average fine over the last 40 years was $179,499 in 2006, and the $500,000 penalty is the largest since 2007.

“It’s a significant fine,” said former Democratic Party Chairman Lon Johnson, who started the internal investigation of the party’s bingo game operations in 2014 and turned over that investigation to the FEC.

The fine could have been much larger — several million dollars — if the FEC had stuck with its formula of how to calculate fines based on the amount of money involved and the duration of the violations. But negotiations and the fact that the party turned over its investigation helped lower the final number.

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In addition to the fine, the state Democratic Party has agreed to hire a treasurer who is equipped to comply with all FEC regulations as well as an independent accounting firm that will review all the party's accounting processes for the next two years.

The investigation found:

Individual contributions from bingo players exceeded campaign contribution limits because of weekly visits to political bingo games.

The reporting of 12,500 bingo contributions involving $4.5 million was inaccurate.

The party understated contributions at the bingo games over 14 years by $4.4 million and disbursements of bingo prize money by $3.9 million.

The party's bingo chairpeople, instead of keeping itemized lists of contributions, created lists of a small subset of players and attributed fictitious contributions to them.

The investigation pits two former Democratic Party chairmen against each other — Mark Brewer and Johnson, who fought a contentious battle in 2013 to lead the party. Brewer, who led the party from 1995 to 2013, lost to Johnson, who subsequently started the investigation of the bingo operations that Brewer had run.

"It would not surprise me that this is an effort at payback," Brewer said of Johnson, adding, "I've been defamed. I did nothing wrong."

To that assertion, Brewer retained a lawyer, David Christensen, who on Friday sent letters to Johnson and current party chair Brandon Dillion stating that the investigation was flawed from the beginning and ordering them to "issue a full and complete retraction of any and all charges, statements and/or claims toward Mr. Brewer" by June 14. It also demands that the men "cease and desist making any statements regarding the matter going forward."

Johnson said he just went where the investigation took him and the FEC drew its own conclusions about the bingo games. Any other characterization of his actions "is just wrong," he said.

The bingo games have been controversial since they started in 1981, with Democrats using the gaming tactic as a fund-raising tool and Republicans repeatedly trying to shut down the games — even passing a law in 1994 to ban political bingo games. Voters rejected that law in 1996 in a statewide ballot proposal.

While the bingo games ended in 2014, this agreement concludes a checkered history of them. Over the years, the Michigan Lottery Bureau, which regulates bingo games, suspended licenses of a variety of political party clubs and investigated suspicious checks written to winners. The FEC also has fined other local clubs — city, county or congressional district organizations — for violations of campaign finance laws over the years.

But the $500,000 fine stands out.

Over the course of 14 years, the Michigan Democratic Party ran nine weekly bingo games to raise money for the party’s federal campaign account, raising up to $2 million a year.

The FEC agreement states that the Michigan Democratic Party contends bingo procedures "were established by longtime party leaders who occupied senior management and compliance positions. The violations came to light under (the) MDP's succeeding party leadership."

Johnson ended the fund-raising practice in 2014 and ordered the party staff to amend the party’s federal campaign finance reports.

Johnson left the chairman’s job in 2015 to run for the congressional seat that covers northern Michigan and the Upper Peninsula. He lost to Republican Jack Bergman by a 55%-40% margin.

So negotiating a settlement of the bingo game violations fell to Dillon, who became party chairman in 2015.

“We take our reporting requirements very seriously, and we promptly stopped all bingo fund-raising activity over three years ago. As our agreement with the FEC states, the previous party leadership voluntarily brought this issue to the FEC’s attention, and we have cooperated fully with the commission at each step of this process,” Dillon said. “We have taken every step to ensure what happened in the past doesn’t happen again and will continue the important work of helping to elect Democratic candidates who will fight on behalf of every resident of our state.”

But the $500,000 fine will put a crimp in the party’s budget. It must pay $100,000 immediately and then pay off the rest in quarterly installments through mid-2019. The party’s federal campaign fund has a balance of $147,915, according to reports filed with the FEC. Under state law, a political party’s state campaign finance reports do not have to include a summary sheet, which would detail how much disposable cash the party has. So it’s unclear how much money the party has in its state campaign coffers.

The fine didn’t need to happen, said Brewer, who maintains he did not know of the internal investigation or agreement with the FEC until after it was signed.

“I’ve been defamed, and all options are on the table. I’m looking at all of my legal options,” he said. “I was kept completely in the dark over the last three years until Brandon notified me on May 8.”

Brewer said Johnson and the party’s lawyers called him in to talk about the bingo operation after they took over the party “But there was no mention of a report or investigation. They were trying to get me to admit that we were breaking the law. I defended myself as best I could, and I thought that was the end of it.”

Brewer said that during his years as chairman, “we never had a complaint from the FEC or an audit under my supervision.” The party was operating under a 1981 FEC opinion that said the way bingo fund-raisers were operating in Michigan was appropriate.

But Johnson said Thursday that he received a notification from the FEC about some irregularities in the bingo operation in early 2014 and launched the internal investigation.

“In the pursuit of answering them, that’s when I found a bingo operation that was not in compliance,” Johnson said. “I stopped it, ended the bingo operation and the FEC put out their own judgment."

In a written response to the FEC agreement, Brewer said the nature of the bingo operations made it impossible to record every person who paid small amounts for bingo cards and that the party didn't need to record anything less than $50.

“At high-volume, fast-moving cash events like these, it is simply impossible to collect the names, addresses and prize amounts on that scale, and no useful purpose is served thereby,” he said in his statement, adding that was a practice that was sanctioned by the FEC.

He called the investigation shoddy and incomplete.

“The ‘investigation’ by (the Michigan Democratic State Central Committee) legal counsel here was bollixed from the beginning – failing to interview key personnel, neglecting to offer explanations or defenses of MDSCC bingo operations, and filing a Self-Report containing many unfounded assumptions and beliefs, and pure speculation,” Brewer said in his statement. “It provides no foundation for any conclusion regarding knowing and willful violations of the law.”

In a statement, Dillon said, "Both previous and current leadership of the Michigan Democratic Party reviewed the financial reporting for these fundraising activities along with their attorneys, and all concluded that they did not meet the requirements of the FEC. Our self-reporting and cooperation with the FEC has allowed us to reach this agreement so that we’re able to continue the important work of the Party and be able to serve the people of Michigan.”

But the Michigan Republican Party, which over the years helped lead efforts to get the bingo fund-raising stopped, said the fine is further proof that the state Democratic Party was in disarray.

“This is further evidence of the Democrats’ inability to represent anyone, even those willing to invest their hard-earned money. They are a party in total disarray,” said Sarah Anderson, spokeswoman for the Michigan Republican Party.

“The magnitude of the fine demonstrates that this is not a simple bookkeeping error. It appears to be a systematic mishandling of funds."

Contact Kathleen Gray: 313-223-4430, kgray99@freepress.com or on Twitter @michpoligal

Political bingo in Michigan

1972: Bingo games for charitable causes are approved for Michigan charities.

1981: The state begins offering bingo licenses to political organizations too. These are used primarily by Democratic groups.

1994: Republicans, concerned with the campaign fundraising from bingo games – as much as $2 million a year by the Dems — pass a law prohibiting bingo games for political organizations. These games account for only about 70 of the 1,800 bingo licenses in the state.

1996: Democratic-affiliated groups get enough signatures to put the issue to voters and prevail, allowing the games to continue.

Through 2014: Political bingo games suffer from periodic poor bookkeeping over the years and the state Lottery Bureau suspends a handful of licenses for Democratic clubs, particularly in the metro Detroit region.

2014: The Federal Election Commission notifies the Michigan Democratic Party that the political bingo games appear to be in violation of campaign finance laws. Former Democratic Party chairman Lon Johnson investigates the matter and provides its findings to the FEC. The games end.

June 2017: The Michigan Democratic Party agrees to pay a $500,000 fine to the FEC and employ a treasurer and independent accounting firm to ensure compliance with FEC rules.

FEC fines across the nation

Year Number of fines Average amount of fine 2017 65 $10,625 2016 148 $19,848 2015 88 $24,755 2014 132 $12,890 2013 134 $24,346 2012 77 $26,226 2011 145 $29,285 2010 135 $42,013 2009 228 $26,035 2008 71 $103,698 2007 165 $73,427 2006 126 $179,499

Largest fines levied by the FEC

$3.8 million against Freddie Mack in 2006

$1.042 million against MZM Inc. Mitchell Wade and Richard Berglund in 2007

$849,000 against Audiovox, Inc. in 2003

$775,000 against America Coming Together in 2007

$750,000 against Progress for America Voter Fund in 2007

$719,500 against International Buddhist Progress Society, DNC Services, Democratic National Committee and John Huang in 2002

$580,000 against the Media Fund in 2007

$569,500 against Gene Stipe Law Firm, Walt Roberts for Congress in 2004

$550,000 against Prudential Securities in 1994

$515,345 against Charles Kushner, Kushner Partnerships, Bradley for President in 1994

$500,000 against the Michigan Democratic Party in 2017