Federalist Society’s Leonard Leo Under Investigation
The DC district attorney's office is looking into allegations of masssive tax fraud.
POLITICO (“D.C. Attorney General is probing Leonard Leo’s network“):
Washington D.C. Attorney General Brian Schwalb is investigating judicial activist Leonard Leo and his network of nonprofit groups, according to a person with direct knowledge of the probe.
The scope of the investigation is unclear. But it comes after POLITICO reported in March that one of Leo’s nonprofits — registered as a charity — paid his for-profit company tens of millions of dollars in the two years since he joined the company. A few weeks later, a progressive watchdog group filed a complaint with the D.C. attorney general and the IRS requesting a probe into what services were provided and whether Leo was in violation of laws against using charities for personal enrichment.
David B. Rivkin Jr., an attorney for the parties in the investigation, said in a statement that the complaint “is sloppy, deceptive and legally flawed and we are addressing this fully with the DC Attorney General’s office.”
The news of the investigation comes as the nonprofit that was a subject of the complaint quietly relocated in recent weeks from the capital area to Texas, according to paperwork filed in Virginia and Texas. For nearly 20 years the nonprofit, now known as The 85 Fund, had been incorporated in Virginia.
Gabe Shoglow-Rubenstein, Schwalb’s communications director, declined to confirm or deny the existence of the probe, including whether the attorney general took any action in response to the complaint.
Schwalb, who took office in January, has a background in tax law and served as a trial attorney in the tax division of the Department of Justice under President Bill Clinton.
Best known as Donald Trump’s White House “court whisperer,” Leo played a behind-the-scenes role in the nominations of all three of the former president’s Supreme Court justices and promoted them through his multi-billion-dollar network of nonprofits. Trump chose his three Supreme Court picks, Neil Gorsuch, Brett Kavanaugh and Amy Coney Barrett, from a list drawn up by Leo. More recently, Leo was the beneficiary of a $1.6 billion contribution, believed to be the biggest political donation in U.S. history.
He is also the co-chair of the Federalist Society, the academic arm of the conservative legal movement, for which he worked in various capacities for decades while building his donor base.
While the investigation of a major figure in Republican circles by an elected partisan official from the Democratic Party is naturally going to raise eyebrows, it sure looks like Leo is using the non-profit status of some of his entities to shelter profits. That naturally cries out for investigation.
Real estate and other public records illustrate that the lifestyle of Leo and a handful of his allies took a lavish turn in the course of the making of the current ultraconservative court, beginning in 2016, the year he was tapped as an unpaid adviser to Trump. Citing the report, a progressive watchdog group called on the IRS and D.C. Attorney General a few weeks later to investigate whether the groups may be violating their tax-exempt status by “siphoning” assets or income for personal use.
Anthony Burke, a public affairs specialist with the IRS, declined to comment. “Under the federal tax law, federal employees cannot disclose tax return information,” he said.
The Leo-aligned nonprofit The 85 Fund — which is registered as a tax-exempt charity — paid tens of millions of dollars to a public relations firm in Virginia which he co-chairs in the two years since he joined the firm, known as CRC Advisors.
The watchdog complaint alleges the total amount of money that flowed from Leo-aligned nonprofits to his for-profit firms was $73 million over six years beginning in 2016.
“There are questions as to whether Leo-affiliated nonprofits have diverted substantial portions of their income and assets, directly or indirectly, to the personal benefit of Leonard Leo,” read the Campaign for Accountability’s complaint.
“Such payments were generally listed as made in exchange for alleged consulting, research, public relations, or similar services. However CFA has reasonable questions about whether those alleged services were actually rendered at all or, if services were rendered, whether the payments made were substantially in excess of fair market value,” said the complaint, which covers the period between 2016 and 2020.
POLITICO reported that a total of $43 million flowed to Leo’s company over two years and that the bulk of it came from The 85 Fund, a nonprofit run by his allies which has spent tens of millions of dollars over the past decade to promote Trump’s Supreme Court picks, file briefs before the court and, more recently, used an alias to push for voting restrictions and accuse Democrats of cheating in the 2020 election.
It is now run by Carrie Severino, an attorney and former clerk for Justice Clarence Thomas listed as director in the group’s most recent IRS paperwork and is collecting massive amounts of anonymous funds: $117 million in 2021.
In discontinuing the group in the state of Virginia, the new address Severino listed is a virtual office suite in Fort Worth, Texas, shared by a “Two Men and a Truck” franchise. The office building advertises virtual and coworking spaces.
Further complicating the picture: in Texas, a new registration for “The 85 Fund” was filed on June 27 under yet a different address in a different city than the one listed on the Virginia paperwork. It is also registered in Texas as a for-profit entity.
This location is a UPS store in a strip mall next door to a restaurant called the “Snooty Pig Cafe.” As POLITICO previously reported, The 85 Fund had been using a UPS drop box in DC’s Georgetown neighborhood as its principal office address.
Beginning in 2016, Leo formed or helped reorganize two for-profit businesses — CRC Advisors and BH Group — to perform millions of dollars in services for his aligned nonprofits.
In those five years, BH Group brought in $15 million from the nonprofits. Yet unlike CRC, BH Group doesn’t appear to have advertised itself as a consulting or public relations firm, or even have had a website. During some of that time, Leo was employed full-time as a vice president at the nonprofit Federalist Society, raising questions about how he could have reasonably generated millions of dollars in consulting fees at the same time, the complaint says.
The 85 Fund’s switch to the Fort Worth office building came days after POLITICO inquired, on June 30, about certain Leo allies who may have personally benefited from millions in anonymous donations that moved through the 85 Fund over the past decade.
A number of the groups that receive contributions from Leo’s “dark money” network, in turn, hold sizable contracts with his firm, CRC Advisors. This includes the Federalist Society, the nation’s preeminent conservative debating society where Leo was executive vice president and still serves as co-chairman. Among payments the complaint flagged to the IRS and DC attorney general is $3.1 million which the Federalist Society paid to CRC between 2020 and 2021 for “media training.”
It’s entirely possible that this is entirely legal under our arcane tax laws. It’s wildly unethical, though, and certainly shouldn’t be legal. Then again, I’ve long been skeptical of the whole category of “non-profit” entities. Everything from religious groups to political activist organizations to billion-dollar college football programs and the National Football League* are shielded from taxes by claiming that status.
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*Sort of. It’s complicated. See posts that Doug Mataconis and I wrote in 2014 and 2013, respectively.
This is suspicious and of course should be investigated.
I do PR work. A small, boutique firm would not do “tens of millions of dollars” in work in two years. Most major agencies don’t have clients with that kind of budget for PR work, unless they are dealing with a major, major crisis. So, this too is suspicious and should be investigated.
This all sounds very crime-y and odd.
This too is suspicious.
Open graft and self-dealing. Is it any wonder Leo and his ilk don’t want the government to have any regulatory powers?
This is my shocked face:
That being said, the “Snooty Pig Cafe,” is rather fitting.
Ya hate to see it.
In non-profits in New York, where you are audited every year, having major vendors be deeply connected to leadership would be a huge issue. I don’t know about DC, and I’m sure that Texas does not think that’s an issue at all.
That said in my experience there can be a ‘my rich friends can afford this but I can’t so maybe I could cut a few corners and partially expense this bs boutique hotel and grand cru burgundy-laden vacation’ vibe in the elite part of the non-profit world from people making 200K a year with a partner who makes another 200K a year. A zealot like Leo, who is surrounded by lonely billionaires, is like a 12-year old boy in this environment. There’s no limit put on him, and so he gets to do anything. Conservatives all seem to be like this. There is so much money flowing in and the result is like Bari Weiss, insane judges from bible school, and not much else aside from power. No real work is being done. No real things are being built. It’s just bootlicking, power grabs, and lining pockets.
If I were an investigator, I would be looking to see where that $1.6B that Barre Seid donated went.
I know I’ve said it before but the main impact of the TCJA of 2017 was to shovel money (funded primarily by our national debt) to billionaires who laundered it into their favorite political causes.
@Jen:
Define crisis how you will, three Supreme Court justices. Sounds like they got their money’s worth.
@Scott: I’m surprised the quoted article mentions the 1.6 billion without noting that it was a tax dodge. It wasn’t a cash donation, but kind, 91 year old Barre Seid’s 1.6 billion dollar company. Apparently by gifting it to a “non-profit” which then sold it they avoided the taxes that would have been due had Seid sold it himself.
@gVOR10: I have used this technique on a much, much smaller scale, donating stock that had appreciated a lot to a Red Cross relief fund. I didn’t have to pay taxes on the gain, and the Red Cross got the full value.
However, when all is said and done, I no longer had the value. The donation was real. The lack of taxes is a sweetener, not a canceller.
So the suspicious part is the size of this donation, not the mechanics of how it was made.
@Joe:
Exactly. This is Leo cashing out for his decades of work in shepherding The Federalist Society, which is arguably the most corrupt enterprise operated in plain sight in the history of the Republic. Starting in law school billionaires spend money giving student lavish dinners and parties where “right thinking” justices are the well paid speakers. The most likely are targeted for further attention, where they are invited to luxury “conferences” at posh resorts. This pattern is repeated all the way up the chain until they were rewarded by a thoroughly corrupted Supreme Court who ruled things like, accepting the most blatant shams designed to get around laws requiring donors to political campaigns to limit their contributions and to publicly reveal themselves. So now there are billionaires who literally fund the entire campaigns of their pet politicians. Which led to their ultimate ruling: no matter how much a businessman gives a government official in “gifts” and no matter how much benefit that government official receives, it cannot be considered corrupt practices unless the tit-for-tat was explicitly spelled out and witnessed or documented.
The so-called liberal justices voted for these abominations too. They get no credit from me because they go on fewer billionaire funded luxury vacations than the Alito and Thomas – selling out more cheaply than the next guy is a poor imitation of ethics.
This guy owns the judicial system in this country. Investigate all you want. There’s as much chance of anything happening to him as there is C. Thomas.
Thoughts and prayers, Leo. Maybe he’ll be cleared of wrongdoing.
But why no investigation into the $2 billion Saudi-Kushner deal, into the still-unexplained $16 million in Chinese income on the tax returns Trump fought to hide, or into Ivanka’s Chinese trademarks before Trump moved to lift sanctions on China’s ZTE Corp.?
It’s a Politico witch hunt!
I am guessing Leo started taking some of the money because it was beginning to look suspicious giving so much to Clarence Thomas? It had to go to someone.
Steve
@steve: I think you pretty much won this comment thread with that one. 😉 🙂
My wife went to law school with Len Leo. He was a nice guy, for a Young Republican. Or a better actor then; hard to say which.
@DrDaveT: Power, I think, even more than money, has a way of changing people. Almost never for the better.