June 5, 2024 - David M. Eskew / Jarrod Schaeffer
This article was authored by Jarrod Schaeffer and was originally published in Law360’s Expert Analysis Section on June 4, 2024.
The upcoming elections across New York this year will be the first under the state’s new program, launched back in 2022, that provides public financing for state political campaigns.
Features of that program mirror New York City’s long-standing public financing program, including the provision of public funds to match small-dollar contributions.
Intended to increase average voters’ impact on state campaigns, the program also may open the door for greater scrutiny of state campaign finance violations by federal prosecutors.
Public Financing Programs in New York
Concerns over the influence of money in politics are nothing new, though the landscape has shifted markedly in recent decades. As election spending explodes, large contributions by select contributors may dwarf contributions by small donors. See, e.g., Sarah Fischer, U.S. Political Ad Market Projected to Reach Record $16 billion in 2024, Axios (Dec. 8, 2023), available here; Vanderwalker, et al., Analysis Shows Amplification of Small Donors Under New NY State Public Financing Program, Brennan Ctr. For Justice (Jan. 30, 2023), available here (“Last year, the 200 biggest donors to candidates gave almost $16 million, more than all 206,000 of the state’s small donors of $250 or less put together.”).
This shift stems in part from U.S. Supreme Court decisions cabining campaign finance regulation. See, e.g., How Does the Citizens United Decision Still Affect Us in 2024?, Campaign Legal Center (Jan. 15, 2024), available here (observing that political spending has “become a growing problem” following certain decisions “as each respective election cycle has seen record-breaking amounts of spending”). Rejecting concerns regarding large contributions in politics (See, e.g., New York Voters Support New Public Campaign Finance Program, Data for Progress (Feb. 28, 2023), available here (finding that “about 9 in 10 New York voters believe wealthy donors have more influence on politicians than the average voter wealthy donors have more influence on politicians than the average voter”—a belief that was “widely shared across partisanship, with 91 percent of Democrats, 93 percent of Independents, and 90 percent of Republicans saying the same.”)), the court declared in its 2010 Citizens United v. Federal Election Commission decision that “[i]ngratiation and access … are not corruption.” Citizens United v. Federal Election Commission, 558 U.S. 310, 360 (2010). And it has repeatedly curtailed regulation it believes could limit “gratitude” to large contributors or impede “the political access such support may afford,” as articulated in its 2014 decision in McCutcheon v. FEC. McCutcheon v. Fed. Election Comm’n, 572 U.S. 185, 192 (2014). It was not always this way. For many years, the Supreme Court acknowledged concerns that improper influence could result from large contributions. See, e.g., McConnell v. Fed. Election Comm’n, 540 U.S. 93, 143 (2003), overruled by Citizens United v. Fed. Election Comm’n, 558 U.S. 310 (2010) (acknowledging an “interest in combating the appearance or perception of corruption engendered by large campaign contributions”); Nixon v. Shrink Missouri Gov’t PAC, 528 U.S. 377, 389 (2000)) (observing that the Court has “recognized a concern not confined to bribery of public officials, but extending to the broader threat from politicians too compliant with the wishes of large contributors”); Austin v. Michigan Chamber of Com., 494 U.S. 652, 659 (1990), overruled by Citizens United v. Fed. Election Comm’n, 558 U.S. 310 (2010) (recognizing “that the compelling governmental interest in preventing corruption supports the restriction of the influence of political war chests funneled through the corporate form” (internal quotation omitted)); Fed. Election Comm’n v. Nat’l Conservative Pol. Action Comm., 470 U.S. 480, 497 (1985) (“Elected officials are influenced to act contrary to their obligations of office by the prospect of financial gain to themselves or infusions of money into their campaigns.”).
Public financing programs, like those in New York City and now New York state, are one way to address concerns about the effects of large contributions. While these programs survive, the Supreme Court has kept them on a tight leash. See, e.g., Arizona Free Enter. Club’s Freedom Club PAC v. Bennett, 564 U.S. 721, 754 (2011) (striking down a public financing program but stating that “governments ‘may engage in public financing of election campaigns’ and that doing so can further ‘significant governmental interests,’ such as the state interest in preventing corruption,” so long as such programs comport with the Court’s interpretation of the First Amendment); Davis v. Fed. Election Comm’n, 554 U.S. 724, 741 (2008) (holding that providing “level electoral opportunities for candidates of different personal wealth” is not “a legitimate government objective”).
While a state public financing program was a long time coming (for instance, last year a former co-chair of New York’s Moreland Commission to Investigate Public Corruption noted that the commission had recommended in 2013, among other things, that the state create a small-donor public financing system to help amplify the influence of average New Yorkers in the face of large contributions. Milton L. Williams, Don’t Give Up On Public Campaign Financing, City & State (Apr. 8, 2023), available here), New York City has long maintained a public financing program for municipal elections. See Friedlander, et al., The New York City Campaign Finance Act, 16 Hofstra L. Rev., Issue 2, art. 4 (1988) (noting passage of New York City’s Campaign Finance Act and
observing that “[i]n enacting this law, the city of New York has become the fourth, and largest, major local government to have instituted a mechanism for providing public funds to candidates seeking election to local office in return for the candidates’ agreement to abide by restrictions on contributions and expenditures”). A key feature of that program is the availability of public matching funds. Candidates who agree to abide by certain fundraising restrictions can receive public funds to supplement, in varying amounts, small-dollar contributions from New York City residents.
The goal of the program is to incentivize candidates to finance campaigns by engaging average voters over pursuing substantial sums from special interests. Matching Funds Program: How It Works, N.Y. Campaign Fin. Bd. (2024), available here.
The program is administered and policed by a nonpartisan independent agency called the New York City Campaign Finance Board, or CFB. About the CFB, N.Y. Campaign Fin. Bd. (2024), available here. In 2021, it distributed almost $127 million in matching funds to participating candidates. Honan, et al., Public Spending on 2021 NYC Elections Blew Away Previous Records, The City (Sept. 27, 2022), available here.
In 2020, the New York Legislature authorized the New York State Public Campaign Finance Program (Part ZZZ of Chapter 58 of the N.Y. Laws of 2020 (enacting N.Y. Elec. Law, art. 14, tit. 2), which, among other things, created a state-level funds matching program, and established a state Public Campaign Finance Board, or PCFB, to administer the program in a manner roughly comparable to that of the CFB. N.Y. Elec. Law, art. 14, tit. 2 § 14-207.
The state program went into effect as of Nov. 9, 2022 (Part ZZZ of Chapter 58 of the N.Y. Laws of 2020 (providing, inter alia, that the relevant sections “shall take effect on 11/9/2022 and shall apply to participants in the primary and general elections to be held in 2024”)), making the upcoming primary and general elections in 2024 the first to be conducted under the auspices of the state program.
As of early March, over 300 candidates had signed up for the state program (Press Release, N.Y.S. Pub. Campaign Fin. Bd. (Mar. 1, 2024), available here) which has allocated $100 million to distribute to eligible campaigns. See Alyssa Katz, State Campaigns Are About to Rake in $100 Million of Public Funding — While Also Spending All The Private Money They Want, The City (May 1, 2024), available here (“The new state budget provides $100 million for matching funds, nearly one-third of the total New York City has given candidates in the entire 36-year history of its system.”).
Federal Prosecutors and State Campaign Finance Violations
The state program’s implementation may provide new possibilities for federal prosecutors in New York. Elections are regulated through a complicated patchwork of federal, state and local laws. In some areas, such as election financing activities by foreign nationals, federal laws take precedence. 52 U.S. Code § 30121(a)(1) (providing, inter alia, that “[i]t shall be unlawful for . . . a foreign national, directly or indirectly, to make . . . a contribution or donation of money or other thing of value . . . in connection with a Federal, State, or local election”); see also United States v. Singh, 979 F.3d 697, 710 (9th Cir. 2020) (concluding that Congress has authority to regulate state elections as to foreign nationals pursuant to its broad power to regulate immigration and foreign affairs). In most other areas, however, states police their own elections under state law. See, e.g., Oregon v. Mitchell, 400 U.S. 112, 134–35 (1970) (Black, J.) (invalidating federal laws setting the voting age state and local elections to “save for the States the power to control state and local elections which the Constitution originally reserved to them and which no subsequent amendment has taken from them”).
Federal prosecutors are empowered to pursue offenses against the U.S. (28 U.S.C. § 547(1) (providing that “[e]xcept as otherwise provided by law, each United States attorney, within his district, shall . . . prosecute for all offenses against the United States”)), and are not authorized to enforce state or local statutes that undergird nonfederal campaign finance regulations.
There are, however, ways in which federal criminal charges can arise from violations of state or local campaign finance laws. Often, such charges turn not on state or local rules themselves, but on federal statutes targeting corruption and fraud. The most common examples are the federal crimes of bribery, 18 U.S.C. § 666, and mail or wire fraud, 18 U.S.C. §§ 1341, 1343. This article focuses on the fraud statutes and, unless otherwise indicated, refers collectively to the mail and wire fraud statutes “[b]ecause the mail fraud and the wire fraud statutes use the same relevant language” and courts generally “analyze them the same way.” United States v. Schwartz, 924 F.2d 410, 416 (2d Cir. 1991).
One of the most common ways prosecutors deploy those statutes is the investigation and prosecution of fake or straw donations that are used to obtain public matching funds. Such prosecutions frequently focus on efforts to obtain matching funds (although schemes to obtain matching funds are the focus of this article, they are not the only way in which federal prosecutors can bring charges predicated on violations of state or local laws. Depending on the facts of a particular case, other federal statutes may apply without any connection to public matching funds. See, e.g., 18 U.S.C. § 1952(a), (b) (prohibiting, inter alia, interstate travel with the intent to commit certain state law crimes, including “extortion” and “bribery”); 18 U.S.C. §§ 1956(c)(7)(A), 1961(1)(A) (prohibiting money laundering involving proceeds of specified unlawful activities including, among other things, inter alia, state law crimes of “extortion” and “bribery”); see also infra n. xxiv), because attempting to secure those funds makes public money the “object of [a] fraud,” to quote the Supreme Court’s 2020 decision in Kelly v. U.S. Kelly v. United States, 590 U.S. 391, 402 (2020) (quoting Pasquantino v. United States, 544 U.S. 349, 355 (2005)); see also United States v. Xing Wu Pan, 632 F. App’x 15, 16 (2d Cir. 2016) (upholding fraud convictions based on a straw donor scheme and noting that “the necessary result of the straw donor scheme was injury to the New York City Campaign Finance Board”).
In other words, federal prosecutors bring charges based on straw donor schemes that violate state or local campaign finance laws, not because those laws were broken, but because the scheme sought to “obtain[] money or property” in the form of matching funds “by means of false or fraudulent pretenses, representations, or promises” under Title 18 of the U.S. Code, Sections 1341 and 1343. 18 U.S.C. §§ 1341, 1343.
Conversely, prosecutors typically do not bring fraud charges where conduct merely provides false information — e.g., incorrect names, addresses or contribution amounts — to state or local regulators. See, e.g., Ciminelli v. United States, 598 U.S. 306, 309 (2023) (quoting United States v. Binday, 804 F.3d 558, 570 (2d Cir. 2015)) (holding that traditional property rights do not include allegations that a “scheme denies the victim the right to control its assets by depriving it of information necessary to make discretionary economic decisions”). Other federal statues prohibit altering information in ways that may be relevant to violations of state or local laws. See, e.g., 18 U.S.C. § 1519 (prohibiting the destruction, alteration, or falsification of records related to matters under federal investigation). Additionally, there may be circumstances where providing incorrect information causes inaccurate federal reporting, giving rise to other potential enforcement. See 52 U.S.C. §§ 30104 (imposing certain reporting requirements regarding contributions under the Federal Election Campaign Act), 30109 (providing for enforcement).
While accurate campaign finance information may be important, courts have held that the federal fraud statutes “protect[] only [an] … interest as property-holder, excluding protection of a governmental entity in its capacity as regulator,” as articulated by the
U.S. Court of Appeals for the Second Circuit in its 1989 decision in Corcoran v. American Plan Corp. Corcoran v. Am. Plan Corp., 886 F.2d 16, 20–23 (2d Cir. 1989); accord Cleveland v. United States, 531 U.S. 12, 20–21 (2000) (finding no property interest because “the State’s core concern [wa]s regulatory” where Louisiana law focused on “the importance of public confidence and trust” in licensed activities, ensuring such activities “are conducted honestly and are free from criminal and corruptive elements,” and “include[d] the distinctively sovereign authority to impose criminal penalties for violations of the licensing scheme” (emphasis in original)).
Since they primarily embody an interest in truthful disclosure, nonfederal campaign finance regulations likely serve a function “ancillary to … regulation, not to property,” in the words of the Second Circuit’s 1988 U.S. v. Evans decision. United States v. Evans, 844 F.2d 36, 42 (2d Cir. 1988) (concluding, in a case where defendants were charged with conspiring to provide false documents in order to obtain government approval for contemplated transactions, that the government’s right to control the future alienation of arms was not a property right for federal fraud purposes); see also Schwartz, 924 F.2d at 417 (citing Evans and concluding that “[w]hat was fraudulently obtained . . . was the government’s agreement to allow [] proposed transactions to take place,” which did not qualify as a property right because “[w]hether it chooses to use licenses or blanket rules, the government’s purpose is to control the private use of private property”); United States v. Murphy, 836 F.2d 248, 254 (6th Cir. 1988) (explaining that a state’s “right to accurate information with respect to its issuance of [] permits constitutes an intangible right” outside the scope of the federal fraud statutes).
Past federal prosecutions in New York have targeted fraudulent attempts to obtain matching funds administered by the CFB. For example, in U.S. v. Baldeo, the U.S. Attorney’s Office for the Southern District of New York charged a former New York City Council candidate in 2013 with fraud offenses based on a scheme to obtain matching funds during his 2010 municipal campaign. No. S1 13 Cr. 125 (PAC), 2013 WL 5477373 at *1 (S.D.N.Y. Oct. 2, 2013). Baldeo ultimately was acquitted of all fraud offenses at trial, but convicted of multiple obstruction of justice offenses.
The government alleged that Baldeo had straw donors complete contribution cards with their own identifying information, but provided, or had others provide, money orders or cash to fund the contributions. See id. Those cards allegedly were submitted to the CFB to obtain matching funds. Id.
Until the creation of the state program, there was no comparable federal hook regarding violations of state campaign finance regulations, because no state matching funds were available. That is no longer the case.
Providing public funds to eligible candidates through the state program may broaden federal prosecutors’ purview with respect to state campaign finance violations, since schemes that fraudulently attempt to obtain state matching funds likely seek to “obtain[] money or property” from the PCFB “by means of false or fraudulent pretenses, representations, or promises” in the same way that similar schemes sought to obtain matching funds from the CFB. 18 U.S.C. §§ 1341, 1343.
With millions of dollars in public money on the line (Rebecca C. Lewis, First $3.6 Million in New York Campaign Matching Funds Headed Out the Door, City & State (May 16, 2024), available here (noting that “[t]he fledgling New York Public Campaign Finance Board approved nearly $3.6 million in matching funds to 37 candidates last week in the first round of disbursements”)), federal prosecutors in New York may seek to leverage that possibility to combat perceived fraud or corruption.
Conclusion
As a result of New York’s provision of public funds to state campaigns, federal prosecutors may have new ways to bring charges predicated on violations of state campaign finance laws.
Only time will tell whether prosecutors seek to pursue these avenues, but responsible campaigns should consider taking steps early to avoid drawing undue federal scrutiny, including implementing a robust compliance program that looks for common indicia of straw contributions.
Jarrod L. Schaeffer is a partner at Abell Eskew Landau LLP. He previously served as an assistant U.S. attorney and as a senior member of the Public Corruption Unit in the U.S. Attorney’s Office for the Southern District of New York.
The opinions expressed are those of the author and do not necessarily reflect the views of their employer or its clients. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
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NY Public Campaign Funding May Attract Scrutiny From Feds