Armey received an $8 million buyout to step down as chairman. Inside the Armey, FreedomWorks split

Dick Armey left the deep-pocketed tea party group he helped build over a clash with a top lieutenant who Armey and others in the organization believed was using the group’s resources to pad his pockets, POLITICO has learned.

Armey received an $8 million buyout to step down as chairman of FreedomWorks at the end of last month, but the dispute between him and the group’s president, Matt Kibbe, is still straining the organization.


And the turmoil could have far-reaching implications, since FreedomWorks has been among the leading Washington, D.C., groups pressuring Republicans to take a more conservative tact on the fiscal cliff negotiations and other fiscal matters.

( Also on POLITICO: Report: Armey quits FreedomWorks)

The tensions at FreedomWorks, brewing for months, boiled over this summer when Armey balked at a deal that Kibbe struck with HarperCollins to write a book called “Hostile Takeover: Resisting Centralized Government’s Stranglehold on America,” which was released in June.

Armey was concerned that Kibbe structured the deal to personally profit from the book despite relying on FreedomWorks staff and resources to research, help write and promote it — an arrangement he and others at the group believed could jeopardize its tax-exempt status. (In 2010, Kibbe and Armey co-authored a book through HarperCollins, “ Give Us Liberty: A Tea Party Manifesto,” that was written with significant help from FreedomWorks staff and all proceeds had gone to the organization.)

So Armey declined to sign a memorandum presented to him in his capacity as a member of the board of trustees stating that the book was written without significant FreedomWorks resources and clearing the way for Kibbe to personally own the rights to the book and any royalties from it, multiple sources familiar with the arrangement told POLITICO.

Asked about his refusal to sign the memorandum, Armey, a former House Republican leader, said, “What bothered me most about that was that he was asking me to lie, and it was a lie that I thought brought the organization in harm’s way.”

After Armey’s concerns came to the attention of the organization’s board at a late August meeting in Jackson Hole, Wyo., Kibbe and the group’s executive vice president, Adam Brandon, were placed on administrative leave in early September and had their cell phones taken away.

Brandon said the board was made aware of the book project months earlier, and Kibbe maintains that the leave didn’t stem from questions about the book deal.

Rather, he said “there was a dispute” with Armey over “competing visions for what FreedomWorks should become and ultimately, the board decided that we fit the vision of the organization.”

The eight-year-old group has seen its influence and membership skyrocket since affiliating with the anti-establishment tea party. Its fundraising nearly doubled from 2009 to 2010 (the most recent year for which it would provide tax filings to POLITICO), when it raised $13.7 million, according to those filings with the IRS and the FEC, and played major roles in boosting tea partiers to upset GOP primary victories over establishment favorites.

This year, it had less success at the polls but raised more than $40 million, according to Brandon, who also pointed to its 2 million-address email list and 4 million Facebook fans. He predicted Armey’s departure wouldn’t stop its trajectory.

“Only time will tell, but I don’t expect you to notice any big changes in product,” Brandon said. “We work hard to be process-oriented so the system can deal with changes. We read Deming. We’re close to 50 employees so someone is always coming and going.”

Kibbe asserted that the book has helped the organization as a fundraising tool far more than it’s helped him. “I don’t know how many books we’ve sold so far, but the value of the contract to me is $50,000.” The value to FreedomWorks is “probably in the millions,” he said, explaining he used “minimal” resources of the group for the book.

“I wrote this book and it is my property,” he said, adding that he wrote the 416-page book entirely “on my Christmas vacation” last year. Indeed, in the book’s acknowledgements, he thanked his wife, Terry, for letting him “work through the Christmas holiday to meet overly ambitious deadlines without sacrificing the demands of my day job.”

But he also thanked “a number of colleagues at FreedomWorks whose hard work also made this book a reality. Adam Brandon, Agitator-in-Chief, got this project off the ground as he always does, by committing to the impossible. Dean Clancy, Wayne Brough, Julie Borowski, Laura Howd, Josh Withrow, and Ryan Hecker all contributed substantial research and thinking on the ‘policy’ chapters, often putting in late hours to make good, better. Patrick Hedger, Michael Duncan and Max Pappas provided detailed copy edits to the final draft.”

Pappas left his position as FreedomWorks vice president for public policy and government affairs while its top political organizer Brendan Steinhauser plans to leave to move to Austin, Texas, POLITICO has learned. Roll Call reported their departures Tuesday, as well as the resignations of two staffers in Steinhauser’s department: Amanda Shell and David Spielman.

None of the departing staff would comment.

But multiple sources who worked with FreedomWorks and had knowledge of the situation said that several staffers were asked to help research and write the book as part of their work duties. The sources contend that FreedomWorks staff time and resources spent promoting the book detracted from the organization’s ability to mobilize conservative activists ahead of the election — one of its core focuses.

“The fear is the organization will become a 5 million-member marketing organization that simply sells books and movies and T-shirts and raises money,” one source said. “And that’s not what the organization used to do,” said the source, who predicted more controversy around the organization. “It’s going to get nasty.”

Armey had suggested before the election that he might resign over concerns related to the book deal, as well as a perceived effort by Kibbe and Brandon to push him aside as the face of the organization. But he agreed to stay on until after the election as a condition of an $8 million consulting contract with FreedomWorks donor and board member Richard Stephenson, founder of the private Cancer Treatment Centers of America.

In the deal, first reported by The Associated Press, Stephenson agreed to pay Armey, an old friend, 20 annual installments of $400,000, provided Armey stayed on with FreedomWorks through the end of November.

Armey confirmed the AP report, telling POLITICO that if he left before the election, “the concern was that the story that the press would write is that the whole tea party movement was in a state of disarray. That was probably a fairly reality-based concern to have, and we wanted the organization to survive and do well and the movement to survive and do well. So that was one of the reasons why we were concerned about me leaving before the election.”

In 2010, FreedomWorks — comprised of separate nonprofits registered under sections 501(c)(3) and 501(c)(4) of the Tax Code, as well as a super PAC — paid Armey $500,000 while Kibbe earned $321,000.

In a Nov. 30 resignation email first reported by Mother Jones magazine on Monday night, Armey demanded that FreedomWorks “remove my name, image, and signature from all its letters, print media, postings, web sites, videos, testimonials, endorsements, fund raising materials, and social media, including but not limited to Facebook and Twitter.”

Kibbe and Armey used to be quite the team, lambasting the GOP establishment Armey once helped lead and teaming up on the 2010 book.

In the acknowledgements of the more recent “Hostile Takeover,” Kibbe wrote: “Since 2003, I have been the lucky beneficiary of the wisdom and mentoring of my colleague Dick Armey, a real life hero who has consistently put his principles and his commitments first, even when doing so was costly. There are few people who have accomplished what he has in Washington, D.C. for whom I can say the same. Similarly brave support has come from my Board of Directors, who have stood with the staff of FreedomWorks through thick and thin.”