Federal prosecutors and John Edwards' lawyers argued in secret for months over how campaign finance law deals with gifts and third-party payments.
This area of the law would be at the core of a prosecution of the former North Carolina senator and two-time presidential candidate, according to new information obtained by The News & Observer. The two-year probe could turn into criminal charges this week unless there is a plea deal.
The main questions in a criminal case would be whether payments to Edwards' mistress and a campaign staffer were intended to keep his 2008 campaign alive, and whether he knew about them - substantive legal issues aside from the Edwards soap opera, which includes the affair while seeking the presidency as his wife battled cancer, conceiving a child with the mistress, and publicly denying paternity as an aide, Andrew Young, claimed it.
Two wealthy Edwards supporters had provided more than $1 million to pay the living expenses of the mistress, Rielle Hunter, and Young and his family. The money helped keep Hunter quiet and, for a time, kept the affair from bursting into national headlines.
The payments for Hunter never touched campaign or Edwards' accounts. The money went to Young and Hunter directly from the donors or to intermediaries. It was not reported on campaign disclosure forms.
But the prosecutors contend the money flowed so that the campaign could continue, and would point out that one of the donors, the late Fred Baron of Texas, was an influential and important person in Edwards' national campaigns. The other donor was heiress and multimillionaire Rachel "Bunny" Mellon of Virginia.
The Edwards legal team argues that the money was intended to keep the affair a secret from Edwards' wife, Elizabeth, and constituted legal gifts not connected to the campaign. Edwards is not the first to get help from a friend to pay a mistress, they say.
Campaign finance laws are written to limit how much any one person can influence an election, and to require disclosure of such spending. At the time that Edwards was running for president in 2007 and 2008, a person could not contribute more than $2,300 to a federal campaign per election.
Behind the scenes, prosecutors and Edwards' legal team have been in a debate about the law in what has amounted to a preview of possible courtroom arguments. Some meetings included a range of federal elections law experts, according to people involved in the discussions.
Both sides agree that the case would break new ground, though Edwards' team believes the government should not pursue charges, in part, because its legal theory is "novel" and "untested," according to Edwards lawyer Gregory Craig.
The whole matter, Craig says, is "more appropriately a topic for the Federal Election Commission to consider, not a criminal court."
Indeed, both sides have been sifting through a limited set of previous cases at the FEC - which administers campaign finance laws - to bolster their views.
Candidacy is key
The biggest focus is on an opinion from June 2000 that the FEC sent to Philip D. Harvey, founder of the Adam & Eve sex product company based in Hillsborough. Harvey also runs a nonprofit that distributes contraceptives across the world.
Harvey at the time wanted to give federal candidates $10,000 without public disclosure on a stipulation that the money was "not to be used for campaign purposes." He wrote to the FEC that he wanted only to "express my deep appreciation" to a candidate "for fore going opportunities in the private sector in order to serve his country."
"I am willing to put such restrictions as are necessary on the gift to preclude the donee from using any of the proceeds to defray campaign expenses," Harvey wrote in February 2000. "It is my intent that the gift be used solely for personal expenses. I would also be willing to make my gift anonymously so as to preclude even the appearance that I was trying to curry favor with a candidate for federal office."
A month later, Harvey wrote to the FEC that he had found two candidates willing to accept such a gift.
The FEC issued an advisory opinion in June 2000, and said Harvey couldn't do what he proposed. The FEC pointed to sections of campaign law that address payments by a third party, as well as gifts.
The law allows for "gifts of a personal nature," but only if they "had been customarily received prior to candidacy."
The law says also that payment of a candidate's personal expenses by someone other than the candidate or the campaign committee is a campaign contribution "unless the payment would have been made irrespective of the candidacy."
The FEC wrote to Harvey that the gifts "would not be made but for the recipient's status as a Federal candidate; it is, therefore, linked to the Federal election." Such gifts would have to be treated as campaign contributions, subject to all the rules and laws, the FEC said in its opinion.
Prosecutors in the Edwards case have pointed to the opinion as giving strength to their case, arguing that the payments for Edwards' mistress wouldn't have been made if he hadn't been a candidate - and thus they're subject to campaign finance laws.
But Craig, who is Edwards's lead lawyer on the case, said in a statement that the government's theory is "wrong on the facts and wrong on the law." Craig is one of the nation's top trial lawyers, and was the first White House counsel in the Obama administration.
According to people familiar with the Edwards legal team's thinking on the matter, the opinion in Harvey provides no legal basis for a proposed Edwards prosecution.
The Edwards team has been arguing that payments in the matter fall outside the Harvey opinion: The Edwards money was not intended to replace lost income from his private employment; Edwards had longstanding relationships with Mellon and Baron prior to and after his candidacy; and the payments in the Edwards matter did not ever go directly to the candidate.
The commission's vote in Harvey was 4-1.The sides also have discussed a separate FEC decision, made in 2002, about an open-ended loan given from a drug company lobbyist to U.S. Rep. Jim Moran, a Democrat from northern Virginia. The check was endorsed over to a law firm as payment for Moran's divorce attorney. Moran had also sponsored legislation that benefitted the drug company.
In reviewing that case, the FEC focused on whether the money was for the campaign or not - and decided that the loan was not a campaign donation because it was for a divorce and because it came from someone with longstanding ties to the congressman.
The FEC wrote in a unanimous decision in Moran that several factors would help decide whether so-called third party payments are actually campaign contributions: whether the money frees up other funds of the candidate to be used for the campaign; whether the money gives the candidate more time to campaign instead of pursuing his usual employment; and whether the money would have been donated if there was no candidacy at all.
Valets and haircuts
The Edwards legal team believes the FEC's decision in Moran and the Harvey opinion make a prosecution of Edwards a big stretch.
Prosecutors disagree.
The sides do agree that prosecutors would have to also show that Edwards knew the payments were being made.
One of the donors, Baron, said before he died in 2008 that Edwards did not know at all about his payments. Baron's payments are thought to have been in the range of $400,000 to $500,000, and he said his money went directly to others, such as property owners, for covering the living expenses of Hunter and Young.
It is not known precisely what Mellon, who is 100 and was a friend of Jacqueline Kennedy, might say. She is believed to have spent in the range of $700,000 assisting Hunter and Young.
Edwards reportedly had lunch with Mellon last week, and her family has made appearances at the courthouse in Raleigh while the grand jury was meeting.
Young, who wrote a tell-all book last year and would be a crucial witness in the case, wrote that Mellon became a source of money for Edwards after becoming upset at press coverage of $400 haircut bills for Edwards that showed up in campaign finance reports. Young wrote that Mellon "volunteered to pay whatever expenses the senator incurred that could not be covered by the campaign, including the employment of a valet."
Send the bills to her attorney, Young says Mellon wrote to him on a piece of pale blue paper, "and rest assured that they would be paid."
In his book, "The Politician," Young writes about keeping the affair secret to keep the campaign going - and indicates that Edwards knew about the payment arrangements. Young wrote that Hunter threatened to go to the press with evidence of the affair "every once in a while," usually when she was frustrated with Edwards. He says it would have derailed the campaign. Young has said he held on to voice mail messages from Edwards in order to corroborate his story some day.
But Young also devotes a large part of his narrative to detailing the concerted effort to hide the affair from Elizabeth Edwards, as well as her efforts to find out about it.
'A lot of money'
Young, who has been at odds with John Edwards, asserts that the gifts from Mellon were not in violation of campaign finance laws. Young wrote that Baron's money, which included some payments directly to Young's homebuilder, was a "gift."
When Hunter became pregnant, Young wrote, it became clear that the mistress "would require more attention and support than ever before, and this would cost a lot of money."
Edwards couldn't tap his own money because Elizabeth would find out, Young wrote. So Edwards asked Young to help him out, and Edwards promised to repay.
But Young wrote that he didn't have that kind of money. They thought of asking Edwards' former law partner, he wrote.
"Finally we focused on Bunny Mellon, who had made it clear she would give Edwards money for extraneous expenses with no explanation required. Edwards called her, and 'the Bunny money' began to flow," Young wrote.
Mellon wrote checks for "many hundreds of thousands of dollars," and the heiress "did not know the nature of the expenses she covered," Young wrote.
Mellon's checks were made as payments to an interior decorator, Young wrote, in an arrangement Young says Edwards expected him to follow.
Young wrote it was done that way so Edwards would have "plausible deniability."
