Dozens of California Democratic campaigns and political committees may be facing huge legal bills, fines and other costs as they begin to unpack the alleged embezzlement by the prominent campaign treasurer who handled the finances for about 400 client accounts.
As two different regulators ó one federal, one state ó attempt to sort out which campaigns are affected, even those that have emerged seemingly unscathed could be forced to hire forensic accounting specialists, file corrected campaign finance reports, pay fines, grapple with frozen bank accounts and face lawsuits from other victims, experts told Roll Call.
"I think it's going to get really ugly; the legal morass has multiple layers of complexity," said Joseph M. Birkenstock of the law firm Caplin & Drysdale.
Kinde S. Durkee, 58, was arrested on Sept. 2 on suspicion that she used her role at Durkee & Associates to siphon about $677,000 from the election campaign of California Assemblyman Jose Solorio to pay for an array of personal expenses that included clothing, cosmetics, her cable bill and an assisted-living facility for her mother. She was released Sept. 9 on a $200,000 bond and is scheduled to appear in court in mid-October.
Though the criminal complaint focuses on Solorio's campaign, it says Durkee admitted during an interview "that she had been misappropriating her clients' money for years, and that forms she filed with the state were false." It detailed transactions between Solorio's account and those of the campaigns of California Democratic Reps. Loretta Sanchez and Susan Davis. Transfers between any of her 400 client accounts could create a "Bernie Madoff-like" web of legal liability, experts said.
First will be the campaigns that discover funds are missing. The campaigns Durkee managed that reported having the most cash on hand were Sen. Dianne Feinstein (D-Calif.), which should have more than $5 million; Davis, which should have $457,000 in cash reserves; Sanchez, which should have about $379,000; and her sister, Rep. Linda Sánchez (D-Calif.), who should have nearly $277,000, according to their most recent campaign finance reports.
Davis sent a letter to her supporters this week confirming that funds were missing from her re-election campaign.
"We've been robbed!! Upwards of $250,000 in campaign funds have been stolen from us. Our treasurer was arrested and accused of funneling hundreds of thousands of dollars (maybe millions) to herself from our campaign, and the campaigns of many, many others," an email from Susan Davis for Congress said.
A spokeswoman for Rep. Loretta Sanchez confirmed the Congresswoman's account had been nearly wiped out. Feinstein told the Los Angeles Times that her account also had funds missing, though it was not clear to what extent.
Some campaigns may not have funds missing but may have funds in their accounts that were improperly transferred from other campaigns. In these cases, the campaigns will have to file corrected reports with the Federal Election Commission and may face penalties for false filings, attorneys said.
The FEC in 2007 enacted a "safe harbor" program to protect candidates from fines in the event that campaign staffers stole funds and falsified reports, but only if certain controls are in place to prevent such wrongdoing. The FEC recommends having bank statements reconciled and reviewed for unauthorized transactions, requiring two signatures on large disbursements and having separate people handling accounting and contribution processing.
"There are a lot of federal candidates who apparently did not have those controls in place, so the FEC could very well go after not only [Durkee] personally but file complaints against the campaigns that filed false statements. That is a very real possibility in this case," Venable's Ronald M. Jacobs said.
During the past decade, Durkee has also received a number of letters from the FEC questioning her about filings, which could make it more difficult to make the case that campaigns were monitoring finances closely. Her reports on behalf of the Los Angeles County Democratic Central Committee prompted 84 letters asking for additional information from the agency, for example. Durkee also received 60 letters regarding the recently terminated campaign of former Rep. Diane Watson (D-Calif.) and 29 letters questioning reports filed on behalf of the Democratic Party of the San Fernando Valley.
Even campaigns that do not at first appear to have funds missing could find it difficult to access the money, attorneys said. Durkee's banks could freeze the funds until the candidate signs a waiver to absolve them of liability. As the FEC and the California Fair Political Practices Commission trace the transactions, they could discover that funds from one client were used to hide money stolen from another, meaning there will be a battle over who is entitled to what remains.
"She has clients that aren't all up on the ballot at the same time," Birkenstock said. "I think there could actually be legal disputes among the various victims here."
Following the speeches from elected officials, the crowd stands at long tables as they dig into BBQ, brunswick stew, cadillac rice at the Law Enforcement Cookout at Wayne Dasher's pond house in Glennville, Ga., on Thursday, April 17, 2014.