Federal authorities are investigating allegations that Attorney General Tom Horne illegally collaborated with an independent expenditure committee that spent more than a half-million dollars on negative ads against his Democratic opponent in 2010, the Arizona Capitol Times has learned.

A complaint filed in February by a prosecutor in Horne’s own office – and a onetime political ally of Horne – alleges that the attorney general collaborated with an independent expenditure called Business Leaders for Arizona, which received $115,000 from Horne’s brother-in-law in California.

The complaint, filed with the Arizona Secretary of State’s Office, also alleges that Horne rewarded the chairwoman of the campaign group with a high-paying job at the Attorney General’s Office.

Business Leaders for Arizona was chaired by Kathleen Winn, a real estate agent and Republican activist who became Horne’s director of community outreach after his election. The independent expenditure ran a series of attack ads against Democrat Felecia Rotellini, Horne’s general election opponent, after a national Democratic group started running ads on her behalf.

Reached today, Horne denied any wrongdoing, and said there was never any coordination between the independent committee and his campaign.

The allegations, as well as the possibility of criminal charges, cast a dark cloud over Horne’s political future. He is widely expected to seek the Republican nomination for governor in 2014.

The complaint was filed on Feb. 11 by Don Dybus, an attorney in Horne’s Tucson office who also volunteered for Horne’s attorney general campaign during the primary against Andrew Thomas.

Deputy Secretary of State Jim Drake said his office forwarded the complaint to an outside law enforcement agency, though he would not say which agency.

A source with knowledge of the investigation confirmed that the Secretary of State’s Office forwarded the complaint to the FBI. The FBI would not confirm or deny that it is investigating, which is common practice for the agency.

Dybus said in the complaint that he believes Winn, Horne, his brother-in-law, and political consultant Nathan Sproul, who worked for BLA, all violated state or federal campaign laws. In his letter to Secretary of State Ken Bennett that accompanied his complaint, Dybus invoked whistleblower protections and said Bennett should feel free to pass his contact information along to the FBI or U.S. Department of Justice.

“This is a matter of grave concern to all citizens of Arizona who should not tolerate a law-breaking attorney general. Enough of Horne already. He should not be employing, at taxpayer expense, his co-conspirator Kathleen Winn. Winn should be off the state’s payroll immediately,” Dybus wrote. “Surely Governor Brewer will select and appoint a respected, law-abiding person to serve as Arizona’s attorney general.”

In his complaint, Dybus said Winn regularly communicated and coordinated with Horne’s campaign while chairing BLA, and that Horne promised to give her a job with the Attorney General’s Office if he won the election. Winn’s salary as community outreach director is $95,505.

Dybus alleged in the complaint that Winn boasted around the office about how much money she raised for the independent expenditure.

“The person who has loudly and frequently been claiming credit for raising hundreds of thousands of dollars for Horne through BLA is Kathleen Winn,” he wrote.

Among the allegations Dybus made is that Horne worked in conjunction with Winn, BLA and Sproul, whose firm Lincoln Strategy Group, worked for BLA, to arrange a $115,000 contribution from Horne’s brother-in-law, Richard G. Newman, of Santa Monica, Calif., to the independent expenditure. Newman is married to Horne’s sister, Christine.

Horne’s contributors gave about $12,500 to the independent groups, not including the six-figure contribution made by Richard Newman, according to campaign finance records.

“The public action of Horne hiring Winn and prior coordination with the named independent expenditure committee, evidenced in many ways, including the way certain donors known to Horne were solicited and utilized, speaks for itself,” Dybus wrote to Bennett.

State law prohibits coordination between candidates and independent expenditure committees that support them. Yet Winn was quoted in the Phoenix New Times on the night of the primary election as a campaign worker for Horne, long after she had formed BLA. The independent expenditure did not engage in any campaign activity until after the primary. In late October 2010, she spoke to the Arizona Capitol Times in her capacity as chair of the independent expenditure.

In his complaint, Dybus suggested that prosecutors should give Winn immunity and get her to testify under oath against Horne in an effort to force him to resign as attorney general.

Dybus said Sproul also regularly provided campaign advice to Horne in 2010, despite his work for BLA. He also alleged Sproul secured a $350,000 contribution to BLA from the Republican State Leadership Committee, a Virginia-based campaign committee.

Sproul denied the allegations against him in the complaint.

“I did not coordinate efforts between Business Leaders of Arizona and Tom Horne, his campaign or agents of his campaign. In fact, it is just the opposite. I have never met Kathleen Winn and never communicated with her in any way. I was not involved with her in this or any other effort,” he said.

In 2011, Horne hired one of Sproul’s employees, Courtney Coolidge, as a special projects coordinator.

BLA sprang into action at a critical point in the campaign. With some polls showing Rotellini within four points of Horne, BLA spent about $500,000 on television ads attacking the Democratic nominee in late October 2010 for her opposition to SB1070, Arizona’s first-in-the-nation illegal immigration law, and her ties to labor organizations that were calling for boycotts of the state.

The pro-Horne ads came shortly after the Democratic Attorneys General Association, a national Democratic campaign committee, ran ads supporting Rotellini and criticizing Horne’s record as a state senator and state schools superintendent.

Horne won the November election by 63,298 votes, with nearly 52 percent of the vote to Rotellini’s 48 percent. It was the only statewide race in which the Democratic candidate lost by less than double digits.

Dybus alleged violations of two state laws and one federal law. He said Horne, Newman, Sproul and Winn violated Arizona law prohibiting coordination between candidates and independent expenditures. Horne violated a law prohibiting “trading in public office” by giving Winn a job in exchange for her work for BLA, Dybus wrote. Winn violated the same law because as a Republican precinct committeewoman in legislative District 19, she was an elected officer as well, the complaint states.

Dybus also accused Horne of violating a federal law that makes it illegal for a candidate for any elected office that receives federal funds – a group that includes Arizona attorney general – to promise employment for political help. That law carries a maximum penalty of one year in prison.

In addition, Dybus questioned Richard Newman’s creation of a company called Horne Consulting LLC in October 2010, the same month he provided his massive contribution to BLA.

“The purpose for Newman forming Horne Consulting LLC at the same time he is funneling $115,000 into Horne’s coordinated campaign with BLA is highly suspect and obviously requires thorough investigation,” Dybus wrote in his complaint.

Horne today denied to the Arizona Capitol Times that he or his campaign collaborated with BLA. He said he has no plans to resign and does not expect to be charged with any crimes.

In a written statement provided by AG’s spokeswoman Amy Rezzonico, Horne said: “I have not been contacted by the FBI or any other agency about any such investigation. Of my own personal knowledge I am absolutely certain that there was no such coordination, and if there is any investigation, and it is fair, it should reach the same conclusion. The fact is that extraordinary care was exercised to avoid coordination.”

However, Horne would not say why he hired Winn or whether he has advised employees of his office that they will have to find new jobs soon. Horne refused to comment on several details of the case, then hung up the phone after repeatedly telling the Arizona Capitol Times to contact Rezzonico.

Winn could not immediately be reached for comment.

The BLA ads came at an opportune time. Horne loaned his own campaign about $300,000 during his bruising Republican primary battle against Thomas, a race Horne won by a mere 899 votes. During that period, Horne and his wife sold several parcels of land on the southeast corner of 7th Avenue and McDowell that were later renovated and turned into a bustling strip mall.

But by the time the GOP primary ended, Horne’s campaign was nearly broke, with just $575 in cash on hand at the end of the post-primary reporting period. Horne did not spend any more of his own money on his attorney general campaign after the primary.

During the 2010 primary, Horne’s integrity came under question after it was revealed that the Securities and Exchange Commission imposed a lifetime trading ban against him in 1973 after finding that an investment company he owned violated numerous federal regulations.

Horne is currently using his 2010 candidate campaign, Tom Horne for Attorney General, to raise money to pay himself back for the money he loaned to himself. He has paid himself about $62,000 so far. He has also raised about $68,000 for his re-election through a separate campaign, Tom Horne 2014.

Dybus went to work for Horne in January 2011, when he was sworn in as attorney general. A photo in the Arizona Republic shows Dybus and Horne poring over vote totals on the night of the Aug. 28 primary election.

But Dybus, who has a history of fighting against political corruption, clearly became disenchanted with Horne. As counsel to the clerk of the circuit court in Cook County, Ill. in the late 1980s, Dybus implemented a code of ethics for all court employees. His appointment as counsel to the clerk of the court followed a massive scandal in which dozens of sitting judges in the Chicago area were indicted on federal corruption charges.

On Thursday, the Arizona Capitol Times first reported that James Keppel, the head of Horne’s criminal division, abruptly resigned. His departure two days earlier was being characterized by the attorney general’s office as a “retirement” to pursue new opportunities. Keppel refused to say why he left the job.

Today, Keppel would not comment on whether his resignation was related to the investigation, or whether he was familiar with the allegations against Horne.

“I really can’t comment on the situation right now,” he said.

When contacted by the Arizona Capitol Times, Dybus said he could not comment on the complaint or the investigation, though he said he filed the complaint “because of the violations of the law known by me to be committed. And I did it ethically, based on state Bar ethics.”

Five people contributed money to both Horne’s campaign and BLA.

• Businessman and former Phoenix Coyotes owner Steve Ellman gave $5,000 to BLA and $840 to Horne’s campaign.

• Attorney Mark Goldman gave $5,000 to BLA and $840 to Horne’s campaign.

• Edmund Marshall, president of E.D. Marshall Jewelers, gave $820 to Horne’s campaign and $2,000 to BLA.

• Newman, Horne’s brother-in-law, gave $115,000 to BLA and $1,140 to Horne’s campaign. He was allowed to exceed the $840 personal contribution limit because he is a family member.

• Former Gov. Fife Symington gave $840 to Horne’s campaign and $500 to BLA.

Symington said he has been contacted by investigators, but would not say which agency. Charles Diaz, of Tucson, who gave $5,000 to BLA, said he had been contacted but would not say by whom. Goldman would not comment on his contribution to BLA.

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