Politics & Government

Grand jury brings fresh scrutiny to Alison Grimes’ campaigns

Gov. Steve Beshear introduced Alison Lundergan Grimes during her U.S. Senate campaign kick-off event at the Carrick House in Lexington, Ky., on July 30, 2013.
Gov. Steve Beshear introduced Alison Lundergan Grimes during her U.S. Senate campaign kick-off event at the Carrick House in Lexington, Ky., on July 30, 2013. palcala@herald-leader.com

During her three political campaigns, including an $18 million run for the U.S. Senate in 2014, Kentucky Secretary of State Alison Lundergan Grimes reported paying $111,831 to Lexington companies owned by her father, former state Democratic Party chairman Jerry Lundergan, and $41,745 more in direct payments to him and other family members, for various services.

One Lundergan company purchased and provided Grimes with a 45-foot tour bus she used for her Senate campaign. Another owns The Carrick House on North Limestone, where she held several major events. Grimes and Lundergan also shared Lexington attorney Robert “Coley” Stilz III, who was treasurer for her state and federal campaigns and registered agent for his corporations, S.R. Holding Co. and GCL Properties.

These family ties — and the question of whether candidate Grimes properly reimbursed businessman Lundergan — are getting fresh scrutiny now that a federal grand jury in Lexington has subpoenaed records from the pair related to her campaigns and his corporations.

“It is outright illegal to use any corporate resources to fund a federal campaign,” said Craig Holman at Public Citizen, a campaign-finance watchdog in Washington. “The candidate has got to be exceedingly careful that they are paying the full market value for these resources, and they better have the documentation on hand to prove they paid the full market value.”

Through their attorneys, Grimes and Lundergan said last week that they will cooperate with the grand jury and produce the requested records. Both denied wrongdoing.

“Mr. Lundergan and his businesses made every effort to properly account for any contributions or services provided to Alison’s campaigns. We are confident that any investigation would confirm as much,” attorney J. Guthrie True wrote in a statement for Lundergan.

“Secretary Grimes is proud of the races she has run, she is grateful to those who have contributed time and money to her campaigns, and she has great confidence in the integrity and the skill of the members of her campaigns who worked tirelessly to ensure compliance with all campaign rules and regulations,” attorneys David Guarnieri and Jaron Blandford wrote for Grimes.

Federal prosecutors declined last week to comment on the case. At the state Capitol, Grimes, 37, referred questions about the investigation to her lawyers. Among Grimes’ duties as secretary of state is overseeing the integrity of Kentucky elections.

Keeping it in the family

Jerry Lundergan, a 68-year-old entrepreneur with business interests in restaurants, catering and disaster assistance, was in a good position to help Grimes enter politics five years ago.

Lundergan is a veteran Democratic Party organizer, a friend of Bill and Hillary Clinton who served twice as state party chairman. He spent the 1980s representing a portion of Lexington in the Kentucky House. But his elected career was cut short by a felony conviction in 1989 related to his taking a no-bid $154,000 state contract. An appeals court later overturned the conviction and said it should have been a misdemeanor for which the statute of limitations had expired.

Lundergan played a dominant role in Grimes’ successful bids for secretary of state in 2011 and 2015, as well as her failed attempt in 2014 to unseat Republican U.S. Sen. Mitch McConnell. His longtime allies, Democratic consultants Dale Emmons and Jonathan Hurst, were installed in Grimes’ campaigns in top posts and collected tens of thousands of dollars in fees. Stilz, the registered agent for Lundergan’s companies, was named as her campaign treasurer.

For the Senate race, Lundergan separately brought in the Clintons to stand beside his daughter. The Carrick House hosted these and other big events for her. His catering firm provided food and drink. One Lundergan company bought a large tour bus with kitchen and sleeping areas that Grimes used to travel around the state. After reporters asked about the ownership of the bus, Grimes parked it. Then she started using a Chevy Suburban and a Ford Econoline that also were registered to a Lundergan company.

At the time, Grimes said her Senate campaign was properly reimbursing her father for his assistance. Her finance reports to the Federal Election Commission listed scores of expenditures to Lundergan companies and members of the Lundergan family for rent, events, facilities, catering, signs, entertainment, security, transportation, fuel and advertising.

“We have reviewed the campaign’s methodology and agree that it complies with the applicable rules,” campaign attorney Marc Elias told reporters during the Senate race.

But in August 2014, the Republican Party of Kentucky filed a complaint with the FEC alleging “prohibited corporate contributions” to Grimes.

Even when Grimes documented her payments to her father’s companies, they were far below market rates, the GOP said, asking for an investigation. For example, the Grimes campaign paid $456 a day for a tour bus that would cost between $1,500 and $2,000 a day for “any other person” leasing from a private company, the party said. And it looked like Lundergan’s company purchased the bus for the sole purpose of serving Grimes’ campaign, the party added.

“It is unclear the extent to which any of these companies have utilized their corporate resources to benefit the Grimes campaign in ways that would create a prohibited corporate contribution throughout the course of hosting and arranging many Grimes campaign events,” wrote Steve Robertson, then chairman of the Republican Party of Kentucky.

State GOP officials said they never heard back from the FEC, other than a perfunctory form-letter response a few days later acknowledging receipt of their complaint.

Then came news last Monday — 17 months afterward — that a federal grand jury was issuing subpoenas.

Making a federal case out of it

FEC spokeswoman Julia Queen said last week that the complaint against Grimes has not been closed. But she would not be more specific.

“Enforcement is confidential,” Queen said. “I am able to verify that we have received the complaint. I can’t give you the status. It’s confidential, what goes on in the general counsel’s office.”

Holman, with Public Citizen, said he doesn’t expect the FEC to move on the Grimes complaint. Increasingly over the last decade, the FEC’s six commissioners — split evenly between the two political parties — have hopelessly deadlocked on enforcement actions when they’ve chosen to act on cases at all, he said. Since 2003, FEC votes on enforcement actions have dropped from more than 1,000 a year to well under 200.

“If they say it’s still open, that means it’s still sitting on a desk in their building somewhere. I wouldn’t assume it means they’re acting on it any time soon,” Holman said. “What we’ve seen since around 2008 is the breakdown of the entire agency.”

Larry Noble, a former general counsel for the FEC, now holds the same job at the Campaign Legal Center, another campaign-finance watchdog. Noble said he agreed with Holman’s assessment. If a federal grand jury is investigating Grimes’ campaign, it’s likely the U.S. Department of Justice opened a case based on its own information, not on an FEC referral, Noble said.

“I will say, it’s pretty unusual for the Department of Justice to look at something like this. Ordinarily they would leave it up to the Federal Election Commission,” Noble said. “The only way Justice would get involved is if it’s a knowing and willful violation of the law, not some inadvertent mistake.”

“And even then, the Department of Justice doesn’t usually get involved unless we’re talking about a large sum of money, something more than $200,000 or $300,000,” he added.

One of Lundergan’s companies previously has come to the attention of the Department of Justice.

Emergency Disaster Services, part of S.R. Holding Co., struck a deal in 2012 with Tim Conley, then judge-executive of Morgan County, to help the county respond to a disastrous tornado. Conley later went to federal prison for a bribery scheme unrelated to EDS and Lundergan. EDS and Morgan County are now fighting in court over how much Lundergan’s company is owed. EDS demanded nearly $1 million. County officials accuse the company of “price gouging” and say it charged wildly inflated prices for rental equipment during a local crisis.

All records related to the EDS deal were seized by FBI agents during their investigation of Conley's tenure, said Morgan County Attorney Myles Holbrook. The strange thing is, Conley pleaded guilty in 2014 and is serving a seven-year prison sentence, and yet the FBI is keeping those records, Holbrook said.

“Usually in these situations, once you’ve got the defendant locked up in prison, you release all the records. And we’ve repeatedly asked for them, so we can defend ourselves in this litigation,” Holbrook said. “But the FBI is still holding on to the documents. I get the sense more is going on with this. I don’t want to pretend I know more than I do, because they haven’t shared anything with me, but as far as I know, there’s still an FBI agent on this case.”

The extent of the grand jury’s current inquiry is not publicly known. The U.S. attorney’s office in Lexington said it would not confirm or deny an investigation. Of the Lundergan allies who helped run Grimes’ campaigns, Emmons declined to comment last week on what contact he’s had recently with federal law enforcement, if any, and Hurst did not return calls seeking comment. Stilz, the campaign treasurer, said he has not heard from federal authorities.

“I haven’t received any contact from the government. But if we do, the campaign is going to cooperate,” Stilz said.

Grimes should not have any legal trouble if she can provide clear evidence showing that her campaign never got a better deal from her father than it would have gotten from any other company, Holman said.

However, the smartest course of action for image-sensitive politicians is to not mix up your campaign with your family’s businesses, he said.

“If you’re not getting a special deal anyway, and you’re not supposed to be, then why not go to comparable outside companies to serve your campaign?” Holman asked. “Grimes could have avoided all of this by hiring someone else. Why she didn’t choose to do it that way, I couldn’t tell you.”

John Cheves: 859-231-3266, @BGPolitics