How bingo games led to $500K fine for Michigan Democratic Party
LANSING, Mich. — The Michigan Democratic Party has agreed to pay a $500,000 civil fine to the Federal Election Commission, one of the largest penalties that the agency ever has levied.
The fine, which far exceeds the average penalty meted out through the years, was levied after party officials investigated their own bingo operation, which was used for political fund-raising. It found numerous examples of shoddy record keeping, contributions that exceeded limits and campaign finance reporting inaccuracies.
“It’s a significant fine,” said Lon Johnson, the former Michigan Democratic Party chairman who started the internal investigation of the party’s bingo game operations in 2014 and turned that investigation over to the FEC.
The highest average fine in the past 40 years was $179,499 in 2006.
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In addition, the state Democratic Party has agreed to hire a treasurer equipped to comply with all FEC regulations and an independent accounting firm that will review all the party's accounting processes for the next two years.
The investigation found:
• Excess contributions. Individual contributions from bingo players exceeded campaign contribution limits because of weekly visits to political bingo games.
• Erroneous record-keeping. The party's reporting of 12,500 bingo contributions involving $4.5 million was inaccurate.
• Inaccurate accounting. The party understated contributions at the bingo games over 14 years by $4.4 million and disbursements of bingo prize money by $3.9 million.
• Misleading lists. The party's bingo chairpersons, instead of keeping itemized lists of contributions, created lists of a small subset of players and attributed fictitious contributions to them.
The investigation pits two former Michigan Democratic Party chairmen who fought a contentious battle in 2013 to lead the party. Mark Brewer, party chairman from 1995 to 2013 lost to Johnson, who subsequently started the investigation of the bingo operations that Brewer had run.
"It would not surprise me that this is an effort at payback," Brewer said. "I've been defamed. I did nothing wrong."
Johnson said he went where the investigation took him and the FEC drew its own conclusions about the games.
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Since their beginnings in 1981, the bingo games have been controversial.
Democrats used them as a fundraising tool, and Republicans repeatedly tried to shut them down, even passing a state law in 1994 to ban political bingo. Michigan voters rejected that law in 1996 in a statewide ballot initiative.
The bingo games ended in 2014.
The FEC agreement concludes a checkered history of the games. Through the years, the Michigan Lottery Bureau, which regulates bingo games, suspended licenses of a variety of political party clubs and investigated suspicious checks written to winners.
The FEC also levied smaller fines on other local clubs — city, county or congressional district organizations — for violations of campaign finance laws.
From 2000 to 2014, the Michigan Democratic Party ran nine weekly bingo games to raise money for the party’s federal campaign account, netting up to $2 million a year. Johnson ended the fundraising practice and ordered staff to amend the party’s federal campaign finance reports.
Johnson left the party chairman’s job in 2015 to run for the congressional seat that covers northern Michigan and the Upper Peninsula. He lost to Republican Jack Bergman by a 55% to 40% margin.
So negotiating a settlement of the bingo game violations fell to Brandon Dillon, who became party chairman in 2015.
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“We take our reporting requirements very seriously, and we promptly stopped all bingo fundraising activity over three years ago," Dillon said. "We have taken every step to ensure what happened in the past doesn’t happen again."
The party — which has a federal campaign fund balance of $147,915, according to reports filed with the FEC — must pay $100,000 immediately and the rest in quarterly installments through mid-2019. It is unclear how much the party has in its state campaign coffers.
The fine didn’t need to happen, said Brewer, who maintains he did not know of the internal investigation or agreement with the FEC until after it was signed.
“I’ve been defamed, and all options are on the table, he said. "I’m looking at all of my legal options. I was kept completely in the dark over the last three years until Brandon notified me on May 8.”
Johnson and the party’s lawyers did call him in to talk about the bingo operation after they took over the party, Brewer said.
“But there was no mention of a report or investigation," Brewer said. "They were trying to get me to admit that we were breaking the law. I defended myself as best I could, and I thought that was the end of it.”
The party was operating under a 1981 FEC opinion that said the way bingo fundraisers were operating in Michigan was appropriate, he said.
Johnson said Thursday that he received a notification from the Federal Election Commission about some irregularities in the bingo operation in early 2014 and launched the internal investigation.
“In the pursuit of answering them, that’s when I found a bingo operation that was not in compliance,” Johnson said. “I stopped it, ended the bingo operation and the FEC put out their own judgment."
The repeated small donations that were not written down were one sticking point with the FEC.
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In a written response to the federal agreement, Brewer said the nature of the bingo operations made it impossible to record every person who paid small amounts for bingo cards and the party didn't need to record anything less than $50.
“At high-volume, fast-moving cash events like these, it is simply impossible to collect the names, addresses and prize amounts on that scale, and no useful purpose is served thereby,” he said in his statement, adding that was a practice the FEC had sanctioned.
With nine weekly games, a player who spent $40 each time and came to every game could have given more than $18,000 unrecorded to the party in a year. As a comparison, in the 2015-16 election cycle, individuals are permitted to give $10,000 combined to state, district and local party committees each year, according to The Center for Responsive Politics.
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Michigan Republican Party, which helped lead efforts to get the bingo fundraising stopped, said the federal fine is further proof that the state Democratic Party was in disarray.
“The magnitude of the fine demonstrates that this is not a simple bookkeeping error," said Sarah Anderson, spokeswoman for the Michigan Republican Party. "It appears to be a systematic mishandling of funds."
Follow Kathleen Gray on Twitter: @michpoligal
Political bingo in Michigan
• 1972. Michigan charities receive approval to launch bingo games for charitable causes.
• 1981. The state begins offering bingo licenses to political organizations, too. Democratic groups seek them the most.
• 1994. Republicans, concerned with the campaign fundraising from bingo games, pass a law prohibiting bingo games for political organizations. These games account for about 70 of 1,800 bingo licenses in the state but bring in as much as $2 million for Democrats.
• 1996. Democratic-affiliated groups get enough signatures to put the issue to voters and prevail, allowing the games to continue.
• Until 2014. Political bingo games suffer from periodic poor bookkeeping, and the Michigan Lottery Bureau suspends a handful of licenses for Democratic clubs, particularly in metro Detroit.
• 2014. The Federal Election Commission notifies the Michigan Democratic Party that the political bingo games appear to be in violation of campaign finance laws. Former Democratic Party chairman Lon Johnson investigates the matter and provides his findings to the FEC. The games end.
• June 2017. The Michigan Democratic Party agrees to pay a $500,000 fine to the FEC and employ a treasurer and independent accounting firm to ensure compliance with FEC rules.