The much-hyped detente between Sen. John McCain (R-Ariz.) and big Texas donors to President Bush ran into an embarrassing snag last month, prompting the Senator to return $20,000 in donations from the Wyly family after realizing they were being investigated by federal tax authorities.
McCain, whose active courtship of Bush’s financial network has been widely promoted by his political aides, gave back the checks from Sam and Charles Wyly Jr. and other relatives after his political action committee’s “vetting system” turned up multiple probes into the Wylys regarding their offshore holdings on the Isle of Man.
“There’s a government probe into some tax shelters they have,” said Craig Goldman, the executive director of Straight Talk America, McCain’s leadership PAC, explaining the refunded donations.
The courtship of the Wyly brothers was supposed to have been a symbolic cornerstone of McCain’s move away from his image as a maverick outsider still feuding with Bush allies over the 2000 presidential campaign, into the well-financed frontrunner for the 2008 GOP nomination.
That was because the brothers had financed a $2.5 million 527 group that attacked McCain during the 2000 primaries, accusing him of being weak on the environment — something McCain’s aides at the time considered a dirty trick.
But that sentiment has dissipated in recent months, as McCain — who boasts a trio of Texans among his inner circle of political advisers — has won over a number of deep-pocketed Bush donors and hired some veterans of the president’s campaigns for Straight Talk.
Sam and Charles Wyly Jr. originally were slated to be co-hosts of a major May 15 fundraiser for Straight Talk America in Dallas, which also was supposed to feature another Bush ally, Republican National Committee Chairman Ken Mehlman, as the main speaker. (RNC officials have been adamant that Mehlman’s appearance was not meant to convey any signal about his loyalties in 2008.)
But after the Wylys were vetted by Straight Talk America’s advisers in late April, their contributions were returned and they did not attend the May 15 event.
A spokeswoman for the Wyly brothers said in a statement that they understood McCain’s concerns and they made the decision not to attend his fundraiser.
“Sam and Charles respect the Senator’s position,” said Susan Tiholiz, spokesperson for the Wylys. “They were sensitive to the situation, and made the decision not to attend this fundraising event.”
Tiholiz, however, added that they expect to be cleared of any wrongdoing in the inquiry by the Internal Revenue Service, as well as a Senate probe. In the meantime, the Wyly brothers expect to continue making large contributions to politicians whose principles they agree with and who are willing to accept their donations.
“Sam and Charles look forward to fully resolving the matter of these inquiries,” Tiholiz said. “In the meantime, I expect that they will continue to support those candidates whose records of public service they admire.”
Ten different members of the Wyly family have given almost $190,000 to GOP committees, incumbents and candidates for the House and Senate in the 2006 election cycle, according to a review of donations by PoliticalMoneyLine.com.
The largest donations were $25,000 each from Sam and Charles Wyly Jr. to the RNC on Aug. 10. And Charles Wyly Jr.’s son, Charles III, gave $25,000 to the National Republican Congressional Committee.
The only other lawmaker to return any donations from the Wylys is Sen. John Cornyn (R-Texas), who returned two $3,800 donations from Charles Jr. and Dee Wyly in February 2005.
McCain’s decision to return the Wyly donations is a sign that he is taking his image as a campaign reformer seriously, not wanting to have even the appearance of impropriety for taking donations from businessmen accused of sheltering $100 million in taxes on the Isle of Man.
At the same time, the snafu carries some embarrassment for the Senator, since the Wyly investigation has been widely known for almost a year. A front-page story on Sam and Charles Wyly Jr. appeared last June in The Wall Street Journal, complete with quotes from the IRS Commissioner Mark Everson accusing executives such as the Wylys of acting “at the expense of shareholders.”
McCain’s flirtation with his former rival’s fundraising network has attracted intense interest. One liberal group, the Senate Majority Project, cited the Wyly donations on April 24 as “Tax Evaders for John McCain.”
In the weeks leading up to the May 15 event, numerous publications touted the Wyly presence as a sign of momentum building for McCain. In late March, Sam Wyly and his wife, Cheryl, gave $5,000 each, the maximum, to Straight Talk.
Then, on April 28, Charles and Charles Wyly III gave $5,000 each to McCain’s PAC.
At that point, the McCain political operation finally ran a background check on the Wylys and discovered the investigations by the IRS as well as the Securities and Exchange Commission and the Manhattan District Attorney’s office.
“We vetted the checks that day [April 28]. When we vetted Charles, that’s when we realized they were under investigation,” Goldman said.
The next day — more than a month after Sam Wyly’s donations — all four Wylys were sent $5,000 checks to refund their contributions.
According to the Journal, the Wylys — described as software and retail entrepreneurs — set up trusts on the Isle of Man, a small island between Ireland and England with loose tax and regulatory laws. The money earned from certain stock-option transactions — more than $100 million from the Wylys over a decade —were donated into these trusts, as well as dozens of other unnamed corporate executives. The IRS believes this has led these executives to fail to report income and dodged more than $700 million in taxes.
The Wyly brothers contend these are honest, legal trusts set up for their family members and charity.