This file contains archived live captions of the open meeting of the Federal Election Commission held on June 07, 2018. This file is not a transcript of the meeting, and it has not been reviewed for accuracy or approved by the Federal Election Commission.



>>  the open meeting for Thursday, June 7 is now in order. Good morning everyone. We have a short agenda for the day. We will get started with correction and approval of them minutes. 
>> Thank you, Madam chair. I move approval of the minutes of the open meeting of Thursday, May 10, 2018 and set forth in document 18 - 29/A. 
>> All those in favor? Motion passes unanimously.  Next on agendas audit division recommendation memorandum on Kelly for Congress A17-05.  We have the audit team joining us this morning. Whoever wants to give the presentation, proceed. 
>> Good morning Madam Chair and commissioners. Before you is the audit division recommendation memorandum on Kelly for Congress, recommending approval of two findings. To two findings presented are finding one receipt of apparent prohibitive contribution bank loan and item 2 receipt of contributions that exceed limits. We are available to answer any questions. 
>> Is there anything from the office of General Counsel? 
>> No. 
>> Thank you. Commissioner Petersen? 
>> Thank you, Madam chair. I'm prepared to support finding two which is the receipt of contributions that exceed the limits. On finding one, this deals with the bank loan. When reviewing our regulation -- the way the regulation works is that a loan from a bank is not a contribution under certain circumstances provided it's made in the ordinary course of business and the factors of whether or not alone is made in the ordinary course of business is whether it is as it says here is made on the basis that assures repayment. Our regulation states grounds on which alone is made on a basis researchers repayment and one of them is if the lending institution has a security interest in collateral owned by the candidate or by a political committee or if the lending institution obtains a written agreement and I will read the regulation whereby the candidate or political committee receiving loan pledge future receipt such as public financing payments, contributions or interest income. I will grant that the loan at issue doesn't meet either of those conditions. However there is also a third catchall provision in totality of the circumstances that says if the requirements set forth in the paragraph are not met, the commission will consider the totality on a case-by-case basis in determining whether a loan is made on the basis that assures repayment. As I look at this, the facts of the loan in if I have the facts wrong please correct me, there was a written agreement between the candidate and the bank in this case was first American National Bank. The interest rate, I don't think we quibble with the interest rate that was at issue here. I think the issue is the collateral put up to secure the loan was not owned by the candidate himself. It was owned by a third-party. I think that is a relevant consideration with respect to finding two because the same regulation also says endorsers or guarantors to guarantee a portion of a loan that exceeds the contribution limit, the excess is considered in excess of contribution. But with respect to the bank itself, our consideration is was the loan issued on a basis that reassured repayment? As I look at it, it looks like it does. That there was collateral whose value was in excess of the value of the loan that was given out. There was a written agreement. There was an individual involved. It doesn't creat -- it doesn't necessarily create a problem in one circumstance could in another circumstance because the individual receiving the loan was not putting up the collateral but a third party was putting up collateral that raises the excessive contribution issue. From the way I look at it, it looks like the bank issued this loan on a basis that assured repayment. I wanted to get the auditors or office of General Counsel, I realized this regulation was obviously crafted in a way that acknowledges we don't know every which way in which a loan can be made that would usher repayment. I think our explanation and justification for this loan spells that up. It's as it leaves open the possibility that other possibilities like loan or on the bar were signature not specified in the rules will be found to have met the standard in the specific case. So that is the way I am looking at this one. It does appear this was made from the makes perspective on a basis that ensures repayment. I want to get the feedback from auditors or the office of General Counsel if I misunderstand particulars regarding the fact that presented themselves in this matter. 
>> Office of General Counsel [ Indiscernible ]. 
>> Thank you. With respect to made on the basis that assures repayment, the two issues that we have with this is that the collateral, there was collateral here but it was not owned by the committee and the regulations 100.82 specifically requires it be owned by the candidate or committee. It also talks about even with the collateral it has to be perfected. This collateral was not perfected. You have a security agreement but no filing with respect to this collateral. With respect to there was a guarantor here, when you look at the guarantor, the guarantor, the law says the regulations are specific that the guarantor cannot exceed their contribution limit. In this case they exceeded their contribution limit. 
>> That is the finding 2 issue. 
>> That's respect to the bank that reassures repayment. 
>> I think from our -- we agree and recognize the totality of the circumstances is undefined standard that gives the commission some discretion to consider the totality of the specific factual circumstances. In our view because this particular loan did rely on collateral, the most directly applicable regulation appeared to us to be the one that talks about the requirements that apply to the use of collateral. Using the totality of circumstances exception to conclude that the collateral was sufficient when there was a specific regulation that talks about how the fact the collateral has to have been owned by the candidate would essentially seem to mitigate that requirement and that was a reason in our view wasn't appropriate to rely on totality of the circumstances. It doesn't mean that the commission can't reach a different conclusion based on the factual circumstances, but here when there was collateral used the regulations specifically talked about collateral has to be owned by the candidate and it wasn't in this particular case. 
>> I will year old for a question. I have a quick question. 
>> Either one. 
>> I would be happy to yield. 
>> The point I would make is I hear what you are saying that it seems like the bank would be in a different situation. The issue I see is if the collateral is not legally provided because it would constitute an S excessive country -- campaign contribution, was the bank a short of repayment? 
>> To me just looking at the loan itself it seems like you have collateral whose value was in excess of the amount of the loan issued. I don't think unless OGC can correct me that the loan was otherwise issued contrary to applicable banking laws of the state -- 
>> I understand the Vice Chair to be talking about the [ Indiscernible ] requirements rather than banking laws. 
>> We are not aware of any other banking or legal issues. 
>> I want to ask a follow-up from what was said a minute ago. The analysis you just set forth, I don't believe that is in the audit report or the memo that we received before. I didn't see anything in E NJ that says a provision we are talking about which is the totality of circumstances sets forth any kind of standard that says but we won't consider collateral if it was put up by someone else. It doesn't get into that. 
>> We are talking about 100.82 which sets forth the requirements for collateral which says the lending institution making the loan has perfected a security interest in collateral owned by the candidate or a political committee receiving the loan. My response was just to say -- 
>> Which subsection? 
>> That's 100.80 2E 11. That section directly addresses circumstance where alone -- where a loan is secured by collateral and given that is what the circumstances of this loan is a -- is reported to believe then that is the regulation most applicable to the circumstances. 
>> But the catchall provision says as you know under section 100.82, E 33 says if the requirements set forth in this paragraph including the one you just referred to are not met, the commission will consider the totality of the circumstances on a case-by-case basis in determining whether a loan was made on a basis that assures repayment. 
>> Correct. We don't disagree the commission has the discretion to do that and reach the conclusion that it was. We are just saying our analysis based on the fact that the bank is relying on the fact it was secured by collateral, it seems to us there weren't other -- it seemed the most directly applicable provision was E 11 and the commission has the discretion -- 
>> I agree it's the most directly applicable but there is specifically a totality of circumstances test that said regardless of that being applicable you will consider this other one. I don't think at least in the audit report there is -- I don't see any analysis of that totality of circumstances. It just says on page 6 of the audit report it mentions totality of circumstance on the second paragraph of subsection C. It talks about things you were just talking about. It says as such the audit staff concludes the totality of circumstances do not indicate the loan was made a basis that assured repayment. I think the analysis is not full. Did you have a follow-up? 
>> I would point out I understand the direction from which you are approaching this. I'm approaching it from a slightly different one. The way I view this particular subsection is I believe the security interest provision, the written agreement with respect to future receipts, I almost view those as a safe harbor. If you meet those then you complied with the regulatory provision. If you don't meet all of those, the commission considers whether or not under totality of circumstances a loan was made on the basis that assured repayment. I don't view it as if there is collateral involved that it necessarily goes into E one. That's my approach on this. To the point the Vice Chair made, I view the bank in the business of making loans and ensuring there is repayment of those loans. The concern I thought the regulation addressed is to make sure the bank isn't getting a loan that has either no security interest or nothing that assures repayment so the likelihood may be high the bank will have given a significant amount of money for free in essence to a candidate. In this case, that is not the case. I think the bank gave a loan that assured it would be repaid. I don't think [ Indiscernible ] places an additional obligation on them. But in this case as it has been in the case in other matters and I know there have been a few other matters and one I am looking at now is 5262 Tim Ryan for Congress which involved the $50,000 loan with a cosigner not known at the time and speculation about the cosigner. The commission concluded that the bank -- this was decided on the basis of the totality of circumstances provision, the bank issued a loan that assured repayment. We found no reason to believe the bank violated the law. But we found reasonably against the candidate and cosigner for the making and receipt of an excessive contribution. That is the mode in which I am approaching this. And I can understand how reasonable minds can differ on this. For that reason I am prepared to support finding number two. But I asked finding number one be put in additional issues for the post final audit report. 
>> Commissioner Petersen, Madam Vice Chair. 
>> Can I asked counsel to speak to the distinctions they see between the Ryan case and the Kelly situation? 
>> I think the totality of circumstances standard talks about looking at things on a case-by-case basis as a general matter it doesn't seem to be intended to be a precedent-setting exception rather than looking at each case on specific facts of the case. We did look at that and there were a lot of details about the record in that matter regarding representation and bank representatives about their understanding that the loan was made of a basis that assures repayment. We don't disagree there are similarities between the loan. I have explained why we approach this particular loan and I don't think it's -- I think it's not unreasonable to reach a different conclusion as other commissioners have articulated. I think our analysis is consistent with what the regulation says. That is how we approached it. 
>> If I can ask a follow-up. I hope I will be putting you on the spot but it's a long time since I looked at the commercial code. Can you elaborate on what about -- why the security interest was not perfected? 
>> Yes. They are required to do under I think it's article 9 is they would have to file with the local jurisdiction to perfect the security interest and my understanding from the auditors they did not. They did not initially receive the title to the collateral, is that correct? 
>> Correct. 
>> Yes. 
>> With respect to the question about whether it was perfected and I know Lorenzo wanted to say that because it's his favorite class in law school so good job on that., But it don't think it's required with totality of circumstances test. It is for the provision that is more related but again, the totality of circumstance provision says regardless of whether it's met over there the commission will consider the totality. There is nothing in the totality part that says and by the way when you determine this, the security -- the collateral should be perfected. 
>> Madam Vice Chair, thank you. 
>> The overall provision even under totality of circumstance test has to be -- to load -- a loan has to be made in a manner that is repaid so I think given they did not perfect  their interest in the collateral and also given that the argument could be made at the end of the day the guy could have turned around and said wait a minute, I can't actually do that because that would put me in violation of another law which I think would be [ Indiscernible ] which I think would be problematic. I'm not convinced -- I hear what you are saying but not convinced that the bank actually was assured of repayment under the circumstances. At the appropriate time I will move approval of all the recommendation. 
>> I hear what you are saying and I realize we have a different approach to looking at the totality of circumstances, but there is nothing -- if you are the guy trying to decide whether to do this, there is nothing in the regulations that set it should be perfected or that I saw in the totality of circumstances section or in the ENJ I saw. Even in the campaign guide which I know doesn't have legal authority  or precedent it says methods of assuring repayment and the provisions specifically saying other methods of assuring repayment and talks case-by-case and cites the regulation and advisory opinion which is not exactly on point. It's laid out for people to let them know there is alternate provision and doesn't put in the regulation or the guidebook or the ENJ . Madam Vice Chair? 
>> Not to belabor this excessively, but I think there is a general rule statutory interpretation that when there's a very specific provision on point and a more general provision that might apply the specific provision covers. 
>> I think that's true but it's as if the requirements set forth in this paragraph are not met so it is specifically contemplating that you don't meet the other two more specific ones. Therefore we are required -- it says the commission will consider. It's not just -- the argument that one is closer to what happened than the other dozen in my opinion fly because it specifically says even if you meet the other one you still have to look at the totality. 
>> Madam Chair? 
>> The way I interpret that is there may be other circumstances not contemplated by the regulation and that's why you have this fallback totality of the circumstances provision. If there is something we didn't think of when we were writing the regulation which was written before we were here, there is a catchall that one could rely on. This was clearly, this situation was clearly contemplated by the drafters of the regulation. I think from my own view that the better interpretation is the one that OGC is recommending. 
>> As Petersen points out there a couple  of [ Indiscernible ] not 100% on point but close they came to a different conclusion than yours. Just pointing it out. Any other comments? Audit, do you have any? Mr. Petersen. Sorry, Steve. 
>>  Concerning the protection because if they didn't perfect a loan  and it's clear they did not, I'm looking closely this morning but if we talk about the totality of circumstances is approving an unsecured loan. I don't see anything here that assures the bank has the authority to get the certificate of ownership and sign it and handed over to you I and unless the bank has security that's fine, but not taking that step, the bank is making an unsecured -- I'm surprised they did that. Must've been a good relationship of some kind. 
>> They didn't have a relationship with these people. 
>> Apparently they made the loan [ Indiscernible ] an unsecured loan so working in the future to suppress that they could [ Indiscernible ] totality included getting an unsecured loan. The amount of the security is not secured. So that's the concern I have is [ Indiscernible ] the money was paid and no harm no foul but the precedent is [ Indiscernible ] the way I look at it. 
>> Mr. Petersen? 
>> I don't know how we want to sequence. I don't know Vice Chair wants to make a global motion as to all the findings and I would be happy to make a motion as to finding 2  and finding one be placed in additional issues. I'd be happy to -- 
>> I think that was what I was anticipating. 
>> Okay. 
>> With that, let me just make one further point in support of what Commissioner Walther just said. I believe in staff correct me if I'm wrong that in the earlier case, in the Ryan case there was an ongoing banking relationship with those individuals and in this case there wasn't. Sometimes banks will for their existing customers do something they might not otherwise do. Because they have money in the bank. Having said that, -- 
>> This is the document we found and it was the vice President of the bank? It said since  [ Indiscernible ] has a banking relationship with First National Bank I told him he could bring in [ Indiscernible ] by the following week. They signed the note and forgot to bring the titles with them. Since there was a plan to bring the titles apparently, since he had a banking relationship [ Indiscernible ] loan is paid off by June 5. So I don't know where this letter came from. It said since they had a banking relationship, they did not require them to being the title right away. 
>> The guarantor had the relationship with the bank. The candidate did not. The guarantor, not the candidate. 
>> Had the banking relationship. 
>> Got it. Thank you. 
>> Thank you, Madam Chair I move approval of the audit division recommendations as set forth in the audit division recommendation memorandum Kelly for Congress A17-05  agenda document 18-30-A . 
>> Thank you. All those in favor? Opposed? Motion fails by a vote of 2-2. Vice Chair a Commissioner Walther in favor and Commissioner Petersen and I vote against. Is there another motion? 
>>  Commissioner Petersen? 
>> Thank you Madam Chair. On the A17-05 with respect to audit division memorandum, Kelly for Congress I move we approve finding 2 and finding one be placed in additional issues. 
>> Thank you . All those in favor? Motion passes unanimously. Thank you very much. Do you need anything else from us on this? Thank you. Next matter on the agenda is the approval of the rest of the meeting dates for this calendar year July through December. Is there a motion? 
>> There is met, Madam Chair. I move approval of the calendar as set forth in agenda document 18-31-A. 
>> Thank you very much. All those in favor? Motion passes unanimously. Thank you.  Mr. Palmer any other management or administrative matters we should discuss at this time. 
>> Thank you. This meeting is adjourned. 
>> [ Event concluded ]