5:20 pm, 03/08/2012
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It’s beginning to look like New York City Comptroller and 2013 mayoral candidate John Liu is either dumb, framed, guilty, innocent, or all of the above. In six months he has gone from possible progressive frontrunner for Mike Bloomberg’s job to having even supporters suggest his days may be numbered.
This scandal involves money, though, not Weiner pics, so the details are a little less salacious and you may not be familiar with them. We’ll try to sort it all out below. Come along, won’t you?
John Liu was born in Taiwan and moved to the United States with his family at the age of five. His father worked as a bank teller and changed his name to Joseph, and his sons’ names to John, Robert, and Edward in tribute to the Kennedy family. Liu was elected to the New York City Council in 2001, representing the Queens immigrant neighborhood of Flushing. He was the first Asian-American legislator elected in New York.
In 2009 he raised $3 million in a run for city Comptroller, giving him a financial edge over Democratic primary opponent David Yassky. Liu also had the support of the Working Families Party and most of New York’s labor unions. He won 55% of the vote in a Democratic Primary runoff with Yassky. In New York City, the overwhelming enrollment advantage of Democrats makes the primary the real contest, and general elections largely irrelevant. In this case, Liu won 76% in the citywide vote.
Aside from his fundraising prowess and the support of labor and minority organizations, Liu had qualifications for the Comptroller office, having previously worked as a manager of actuaries for accounting firm PricewaterhouseCoopers. The New York City Comptroller in many ways does the same thing, managing the city’s accountants and directing New York’s financial reporting. The Comptroller, being independently elected, can also serve as a check on the Mayor’s power, and has the ability to audit all city agencies.
Because it is one of three citywide elected postions, the Comptroller’s office is seen as a possible springboard to the Mayor’s office. Immediately upon his election in 2009, Liu was looked upon as a frontrunner in the 2013 New York City mayoral race, and one of the leading progressive candidates, along with Public Advocate Bill De Blasio and Manhattan Borough President Scott Stringer.
In October of 2011, The New York Times ran an article, “Doubts Raised on Donations to Comptroller.” Liu’s 2013 mayoral fundraising campaign had announced $1 million in donations collected during the first half of 2011. Many of the donations were in amounts of $800, reflecting the lucky symbolism of 8 in Chinese culture. Roughly half of the donations came from people who had never donated to a political campaign before.
In New York City, the maximum donation that one person can make to a political candidate is $4,950. In a mayoral race, for each dollar donated per individual, up to $175, the city will contribute $6 in public campaign financing money. The Times was suspicious that wealthy New Yorkers were making smaller donations through other individuals to skirt donation limits and receive extra matching funds. They canvassed the homes of nearly 100 listed donors, and found many who were unaware that they had contributed to the campaign, or refused to answer.
“Many of the irregularities in Mr. Liu’s campaign account are tied to companies in the Chinese business community in Queens, where he has been hailed as a hero and his picture adorns the walls of shops and restaurants,” The Times wrote. In one example, Liu recieved $800 donations from the president of a Maspeth, Queens stainless steel company and eight employees. The donor cards were filled out in the same handwriting, and The Times found that, “of the eight people listed, however, at least four do not work for the company, according to interviews with them or their relatives. Two of the four told The Times that they never gave to Liu; two others were out of the country. A fifth, a scientist at Columbia University, declined to answer questions.”
Based on the article, the Federal Bureau of Investigation launched an investigation. An undercover FBI agent approached Oliver Pan, a top Liu fundraiser, and offered to donate $16,000. Pan arranged for the contribution to be made in smaller amounts by 20 fictitious donors. He was arrested for wire fraud in November.
Suggestions of Liu’s Involvement
Up to this point, the scandal was tarnishing Liu’s reputation, but he could claim conceivably that the violations had been conducted by rogue elements of his campaign. He told The Times in October that he “had personally warned many of his donors that they were not helping him if they broke the rules.”
On February 28th, though, Liu’s 25 year old campaign treasurer, Jia “Jenny” Hou was arrested on federal fraud charges, and statements by the U.S. Attorney prosecuting the case and Ms. Hou suggest that Liu was complicit in the violations.
In order to receive city matching funds, campaigns must submit donor cards to the city. Liu and Hou are the only members of his staff who have the authority to submit the cards.
In the March 9 issue of The Chief, David Sims writes, “Ms. Hou allegedly helped donors get around campaign limits by approving and submitting the paperwork of straw donors who had donated money to the campaign but were quickly reimbursed by wealthier individuals trying to donate above the legal limits. One statement she made, according to the complaint, could be particularly damaging to the Comptroller: when a campaign volunteer asked how to conceal information about straw donors from the CFB, Ms. Hou allegedly said that Mr. Liu ‘never gave me clear instructions on that.’”
According to the charges against Hou, she helped volunteers forge documents, reimbursed them for contributions, and obstructed justice by withholding information from investigators. Sims reports that she told a fundraising volunteer, “FYI, CFB auditors look very carefully at the handwriting…so if you’re doing that, just make sure the handwriting looks as close to the donors as possible. If it is too difficult, don’t take risk.”
Hou could face sixty years in prison.
Liu has quickly gone from a leading 2013 candidate to a man who may soon be forced to resign from office, or worse. How could somebody who’s job it is to oversee financial accountability get into so much trouble on his own campaign? As The Times wrote in October, “Mr. Liu said that his campaign had never heavily relied on an accountant or treasurer to handle its finances, and that he oversaw much of the operation. ‘I’m responsible for my own campaign,’ he said.”
Nobody has accused Liu of being dumb before, and his team were surely aware of the rules and the scrutiny their finances would receive. So what happened? It’s possible that in this case, Liu wasn’t the worst practitioner, he was the one who got caught. It’s open to debate whether all of the other major campaigns could stand up to full scrutiny. In the wake of Liu’s scandal, they’d better be able to, because scrutiny is coming.
As for as the larger implications, they are tougher to draw. New York City already has one of the most progressive public campaign financing programs in the country. The accusations in the Liu scandals are that Hou and Pan were using straw donors to mask large contributions from wealthy donors. By breaking the donations up into several smaller amounts, though, the campaign was able to allegedly defraud the campaign finance system as well. In this situation, the alleged crimes were caught, but not by the Campaign Finance Board, but by The New York Times and follow up investigations by the federal government.
Of course, we could always just have wealthy citizens finance their own campaigns.
What do you think, fair reader?
Tl;dr: John Liu is in a world of scandal trouble because The Times went snooping around and the Feds got involved and now nobody even knows who to trust any more.