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Fallout from an audit of the South Dakota Democratic Party continued late Wednesday and into Thursday as the party’s leaders appeared to publicly blame prior leadership for the audit findings, while the state Republican Party criticized its rival and the Federal Election Commission took a vote on the matter.

At a meeting Thursday morning in Washington, D.C., which was live-streamed on the internet, FEC commissioners voted 4-0 to approve their Audit Division’s memorandum about the draft audit report. The approval of the memorandum will trigger preparation of a proposed final audit report, which will be circulated within 30 days.

There was no discussion or action at the meeting regarding any penalties or other consequences for the state Democratic Party, but the draft audit report says, “The Commission may initiate an enforcement action, at a later time, with respect to any of the matters discussed in this report.”

The draft audit report covers the years 2015 and 2016 and includes three findings. The first finding says the state Democratic Party initially failed to report the disbursement of approximately $2.5 million that passed through the party’s coffers en route from a joint fundraising committee known as the Hillary Victory Fund to the Democratic National Committee.

The maneuver, which occurred during the 2016 presidential campaign, sidestepped legal limits on contributions to the Democratic National Committee by using the Hillary Victory Fund to pool the contribution limits applicable to 38 state Democratic parties (including South Dakota's), plus the Democratic National Committee and the Hillary Clinton campaign committee. Thus, according to the Center for Responsive Politics, donors to the Hillary Victory Fund could write one check for up to $418,800 (including the maximum allowable $5,400 for the Clinton campaign; the maximum allowable $33,400 for the DNC; and the maximum allowable $380,000 to be split among the 38 state parties).

The Hillary Victory Fund then gave each state party its share of the proceeds. Next, because parties can legally transfer unlimited amounts between each other, each state party transferred most of its share of the money to the Democratic National Committee. Collectively, according to an FEC accounting, the 38 state parties served as conduits for $80 million from 1,500 people who had already reached their legal limit for contributions to the DNC.

The draft audit report’s other two findings say the South Dakota Democratic Party failed to disclose $46,097 worth of debts and obligations owed to vendors and received $67,182 worth of potentially impermissible contributions from unregistered organizations (which has since been reduced to $23,827, after the state party submitted statements attesting to the permissibility of some of the contributions).

The FEC has not yet publicly divulged the sources of the impermissible contributions. The memorandum about the draft audit report says the state Democratic Party has pledged to refund contributions for which no permissibility statements have been provided, but according to the memorandum, “To date, no evidence of such action has been demonstrated.”

Fourth finding proposed, rejected

Ironically, a proposal to add a fourth violation to the audit report was suggested Thursday by the FEC’s only Democratic commissioner, Chairwoman Ellen Weintraub, but was kept out of the report by votes from the commission’s two Republicans.

Weintraub said during the meeting, “This is one in a series of committees that we’ve had before us that were engaged in these massive joint fundraising committees where money changed hands very quickly between one committee and another in a way that I think raises issues under the contribution limits.”

Weintraub then said she would support a motion to add an audit finding about joint fundraising, and the commission’s independent member, Steven Walther, made the motion. It died on a tie vote, with "yes" votes from Weintraub and Walther and "no" votes from Republican commissioners Caroline Hunter and Matthew Petersen.

Weintraub offered no further reasoning for her support of the motion, but she previously filed an illuminating statement of reasons in a separate but related commission matter in May. In that statement, Weintraub said joint fundraising committees have “eviscerated the individual contribution limits” and “both sides will continue doing it so long as Republican FEC commissioners refuse to stop them.”

Democrats: Situation 'unexpected'

Prior to the FEC's Thursday meeting, the Journal reported details of the draft audit report Wednesday. On Wednesday evening, the state Democratic Party responded to the story with a news release including quotes from the party’s chairwoman, Paula Hawks, who did not occupy the chairmanship during the years covered by the audit.

“Unfortunately there has clearly been a lack of oversight in the financial management of SDDP,” Hawks said in the news release. “Moving forward this new administration has and will continue to ensure accuracy in our reporting at all levels.”

The news release also said, “The SDDP’s current financial situation is unfortunate and unexpected to this new administration and executive director.” The party’s new executive director, who did not occupy the position during the period covered by the audit, is Stacey Burnette. The party’s problematic financial situation includes not only the audit findings but also a recent cash-on-hand balance of just $3,180.70, according to the party’s most recent campaign finance report filed Tuesday.

The party’s Wednesday evening news release did not mention that the party still has the same treasurer, Bill Nibbelink, as it had during the years covered by the audit. According to Federal Election Commission literature, political party committee treasurers are “responsible for filing the committee's registration form, depositing receipts, authorizing expenditures, monitoring contributions, keeping records, signing all reports and statements and filing all reports and statements on time.”

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The Journal inquired to the state party about Nibbelink’s current and future status, and Burnette replied with a written statement: “SDDP is currently reviewing all aspects of this situation and working diligently to ensure accountability at all levels.”

GOP criticizes tactic they've used

Also Wednesday, the South Dakota Republican Party issued a news release reacting to the Journal’s story about the audit.

The news release noted that Republicans called attention in 2017 to the use of the state Democratic Party as a pass-through for the Hillary Victory Fund and Democratic National Committee.

Dan Lederman, chairman of the state Republican Party, said in the news release that the pass-through arrangement amounted to money laundering and added, “We knew it was unethical two years ago.”

In a phone interview Thursday, the Journal questioned Lederman about Republicans’ own use of joint fundraising committees and pooled contribution limits.

In 2018, for a fundraiser that featured an appearance by President Donald Trump, then-candidate Kristi Noem formed a joint fundraising committee called the Noem-Rhoden Victory Committee. That committee pooled the contribution limits of several other committees, thereby allowing individual contributors to write checks as large as $23,000. The event raised more than $500,000, and Noem went on to win the race for governor.

In other words, Noem used the same tactic in 2018 that the Hillary Victory Fund used in 2016.

But Lederman said there was a key difference between the two efforts: Money raised by the Hillary Victory Fund only passed through the South Dakota Democratic Party on its way to the Democratic National Committee, unlike the money raised by the Noem-Rhoden Victory Committee, which stayed with its South Dakota-based participating entities. Those entities were the campaign committees of Noem and her running mate Larry Rhoden, plus Noem’s federal political action committee and the South Dakota Republican Party.

Lederman said the Democratic tactics were “a bastardization of the rules.”

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Contact Seth Tupper at seth.tupper@rapidcityjournal.com

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