Two-year probe into video sweepstakes’ campaign finance wraps up

Crystal Bryant of Lillington rubs the screen for good luck at an Internet sweepstakes parlor in Fuquay-Varina in 2010.
Crystal Bryant of Lillington rubs the screen for good luck at an Internet sweepstakes parlor in Fuquay-Varina in 2010. 2010 NEWS & OBSERVER FILE PHOTO

The influence the video sweepstakes industry wielded in North Carolina as it pushed for laws allowing it to operate here has been measured in how much money it gave key politicians.

Hundreds of thousands of dollars in campaign contributions to the governor, legislative leaders and dozens of other candidates were discovered two years ago. But last week’s disclosure that a single video gaming software executive paid more than $1 million to one law firm for “legal services” indicates the industry’s reach was more extensive than publicly known.

How much video sweepstake interests paid for legal services, what those services were, how many law firms in North Carolina represented them, and whether any campaign finance laws were broken in the process are questions expected to be answered publicly Wednesday when the state Board of Elections releases the results of its two-year investigation.

Some of the legal fees went to defend individual sweepstakes operators when they fought efforts by county sheriffs to shut them down. One recent case in Onslow County stretched out for several years and went all the way to the state Supreme Court.

“It’s very clear that these illegal video sweepstakes operators don’t mind spending significant amounts of resources on employing lawyers to defend them in court,” said Eddie Caldwell, executive vice president and general counsel with the N.C. Sheriff’s Association. “And they’re proactive: Some lawyers write letters to the sheriffs prior to any enforcement action saying their clients’ games are legal.”

Campaign finance laws that come into play include whether it was illegal for one of the leading sweeps executive, Chase Burns of Oklahoma, to make contributions from his trust fund. The watchdog group Democracy N.C. raised that question in its complaint to the elections board in 2013, saying it could be a violation if the trust fund included money that generated by illegal activity.

The Associated Press later reported that an agreement Burns signed to settle a case in Oklahoma indicated $1 million of $3.5 million he had to forfeit came from an account in the name of the trust he used to send political donations to North Carolina.

Role of lobbyists

The North Carolina investigation also examined the role lobbyists played for the industry. The lobbying firm McGuireWoods Consulting organized fundraisers at its Raleigh office, where donors received face time with then-candidate and now governor Pat McCrory, Senate leader Phil Berger or then-House Speaker Thom Tillis. Lobbyists for the Moore & Van Allen law firm helped direct checks from Burns to politicians, The News & Observer previously reported. McCrory worked at Moore & Van Allen for several years before he took office.

“I hope they uncover the extent of the political operation that the sweepstakes industry launched,” Bob Hall, of Democracy N.C., said Tuesday of the forthcoming report. “There’s a very strong odor. Just following the scent, what is the source of this smelly operation? Something has got to come out of it.”

A glimpse of what is to come surfaced last week in the form of a memo outlining an internal probe into whether one member of the state elections board improperly influenced the investigation into video sweeps campaign contributions.

Law firm payment

That member, Paul Foley, is a partner in the Winston-Salem office of the Kilpatrick Townsend & Stockton law firm, which elections investigators found received more than $1.27 million from Burns and his sweepstakes company, International Internet Technology.

Burns and his wife gave $230,000 to more than 70 state legislative races in 2012. He was later arrested in Florida on charges of racketeering and laundering more than $300 million. He later pleaded to lesser charges.

When elections investigators told the board chairman about the payments to Foley’s firm, Foley agreed to recuse himself from any consideration of the issue. But, elections staff said, Foley persisted in questioning them about the status of the investigation, as he had done since taking office in 2013, and wanted to know how much money they had found from Burns to the firm.

Foley’s questions unsettled the staff enough that the chairman, Josh Howard, called for an investigation by Alexander Peters, a lawyer with the attorney general’s office who has been a longtime outside counsel for the board. Howard, in an October 2014 memo to Elections Director Kim Strach, said the integrity of the investigation was at stake.

Noting that the elections board was bracing for criticism of its report, either because it has taken two years or because of its findings, Howard wrote that Foley’s actions “merit a fulsome and educated response if we are to defend the forthcoming results of this long-running investigation.”

Howard also noted that another board member expressed concern over “potential criticism of the board’s still-evolving findings” since Foley, as a board member, had some oversight of the case until he recused himself.

The attorney general probe determined Foley hadn’t improperly influenced the conduct or outcome of the investigation, but said whether his actions were a conflict of interest was a question for the State Bar or the state Ethics Commission.