Last week, state elections officials released the results of their long-running investigation of political donations from the video sweepstakes industry, finding lots of smoke but no campaign finance violations.
Almost overshadowing that report was the misfortune of Winston-Salem attorney Paul Foley, whose failure to disclose that the law firm he worked for had a close connection to the investigation – and his subsequent actions – led to an abrupt resignation demanded by the governor.
The results of a probe into political contributions that reached the state’s highest offices and biggest law and lobbying firms leaves unanswered questions about who knew what and when they knew it. But Foley’s fast rise and fall offers an insight into the often invisible mix of politics and special interests.
“The long shadow from Mr. Foley across this report is a sad situation,” said Bob Hall, executive director of Democracy N.C., which first brought the possible campaign finance violations to the elections board.
Up the ladder
Foley, 37, who did not respond to emails requesting comments for this story, was on his way up the legal and political ladders in North Carolina. He graduated magna cum laude from Queens University in Charlotte in business administration, worked for an investment bank, and then earned a law degree from UNC-Chapel Hill, where he was active in the conservative Federalist Society.
Foley was hired to work in the Winston-Salem office of one of North Carolina’s largest law firms, Kilpatrick Townsend & Stockton, in 2011, and within a month was also serving in a nonpaying position as counsel to the N.C. Republican Party. He and his wife, who was also a lawyer, settled in Winston-Salem, where he still serves on the boards of Big Brothers Big Sisters and the Hospice Foundation of Winston-Salem.
He and his wife contributed to a handful of political campaigns, and in 2012 he helped with a campaign event for Pat McCrory, who was running for governor. Foley also chipped in $850 to the state GOP and $250 to the McCrory committee that year.
In the spring of 2013, as reporters and Democracy N.C. began to get an inkling of the scope of video sweepstakes political money that had been moving into North Carolina, McCrory replaced all five members of the state Board of Elections. His office said at the time the move was because their terms expired and was not related to the budding investigation.
The board must have three members of the governor’s party and two from the other party, based on nominations from the state parties. Former U.S. Rep. Robin Hayes, who was then chairman of the N.C. Republican Party, supplied five names to McCrory, who chose three from that list, including Foley. The governor has said he didn’t know Foley personally.
Hayes says he nominated Foley after getting to know him through state party functions.
“Paul is a person I have the highest respect for,” Hayes said last week. “His service was outstanding – very professional, very helpful. He put a lot of work and effort into it. I cannot emphasize how good a job he did: fair, straightforward. I still think he is. Until proven otherwise, that’s the way I see it.”
But Foley was stirring concern at the state elections office soon after his appointment to the board, where he began to regularly ask about the status of its investigation into video sweepstakes executive Chase Burns of Oklahoma, who was the source of most of the campaign donation money flowing into North Carolina. Elections staff said they had never been questioned that persistently by a board member before, according to an elections board report about an internal probe into Foley’s activities. Eventually some complained that he became demanding, according to the report, as he insisted on finding out what was going on with the Burns case.
Sweeps industry makes political inroads
While Foley’s career advanced on a path to become a partner at Kilpatrick Stockton, video sweeps executive Burns had been making inroads into North Carolina. His company was among several businesses who hired a group of law firms, including Kilpatrick Stockton, around 2009 to challenge North Carolina’s ban on the games, which was finally upheld by the N.C. Supreme Court in 2012.
The video sweeps industry, which at one point was grossing revenue estimated to be as much as $1 billion annually in North Carolina, spent hundreds of thousands of dollars in this state on campaigns. Burns at one point paid $195,000 a month to lawyers here, financed by a percent of revenue generated by the sweepstakes café owners, according to a State Board of Elections report released last week into the role of sweepstakes money in campaign finance. All over North Carolina, the video sweepstakes industry was fighting a county-by-county battle against sheriffs who were trying to close it down.
$195,000Amount Chase Burns spent on lawyers every month
The 300-lawyer law firm Moore & Van Allen in Charlotte provided Burns in 2012 with a list of how he could spend $300,000 on donations to politicians, ranking them according to importance. The money went to both parties, including to McCrory, Lt. Gov. Walter Dalton, Senate leader Phil Berger and House Speaker Thom Tillis. Burns and his wife gave about $270,000 in 2012, the biggest contributors in the state that year.
The lobbying firm McGuireWoods Consulting organized fundraisers, like the one held in February 2012, when it hosted a series of roundtable discussions to introduce McCrory to clients from various industries, according to the elections board report, including the sweepstakes industry. Democracy N.C. found in campaign financial disclosure reports that sweepstakes industry donors and the McGuireWoods political action committee gave $46,000 to McCrory’s campaign a few days later. Similar fundraisers were held for Berger and Tillis.
McCrory received more than $82,000 in sweepstakes donor money in his 2012 campaign, according to Democracy N.C.
The sweepstakes industry in North Carolina began to unravel rapidly after Burns’ arrest in Florida in March 2013 on racketeering and money-laundering charges. He pleaded no contest to lesser offenses and forfeited $3.5 million that had been seized.
That’s when Kilpatrick Stockton decided not to take on “any new matters” involving Burns or his company, according to a statement by Foley last week. He says he had no involvement with Burns.
One Kilpatrick Stockton lawyer who had worked on the Burns lawsuit, Richard Dietz, was later described by Foley in an email as “my best friend,” The Associated Press reported. McCrory later appointed Dietz to the N.C. Court of Appeals.
Last summer, the elections board investigators retrieved extensive records from Florida that had surfaced in the Burns prosecution there. When they dug into the documents, they saw for the first time that Burns and his company had paid Kilpatrick Stockton nearly $1.3 million in legal fees. While it was generally known that Kilpatrick Stockton was among the law firms that had represented the industry, it wasn’t as widely known that Burns was such an important client.
Suddenly, Foley’s questions about the status of the investigation took on a different light.
When the elections investigators made that discovery, on Sept. 29, 2014, several things happened in quick succession: They immediately notified the board chairman. Foley sent an email to elections board officials saying he would recuse himself from further involvement. An elections office attorney told the governor’s counsel, Bob Stephens, that Foley had a conflict of interest.
Chairman asks for an independent investigation of board member
“Our chief legal counsel was notified by an attorney at the State Board of Elections on September 29, 2014, that Paul Foley had a conflict of interest, he had recused himself with regards to the investigation and that the issue was already resolved,” Josh Ellis, the governor’s communications director, said Friday. “No further action was necessary.”
About two weeks later, the board chairman, Josh Howard, called for an independent investigation of Foley’s actions. In a conference call with two board members and elections office staff two days later, Foley advised that he had officially recused himself from the sweepstakes investigation.
But he immediately pressed Elections Director Kim Strach for details of where the matter stood, although Strach repeatedly told him she couldn’t discuss it with him, according to documents from the internal probe. He wanted to know what information about his law firm would be in the report of the sweepstakes investigation. He said he needed to see the sweepstakes investigation report so he could help Kilpatrick Stockton prepare a response.
The next day, Foley called an elections office lawyer. “He made it clear he didn’t want to talk about the investigation, and we didn’t,” lawyer Brian LiVecchi texted communications director Josh Lawson later that night. “But he wanted to talk all around the investigation.”
The following day, Foley called Lawson and told him he had known about payments from Burns and his company to Kilpatrick Stockton for 14 months, but he was surprised at the amount of money involved, according to Lawson’s notes.
That swirl of events last fall wasn’t made public until recently, July 10, when the attorney general’s investigation of Foley surfaced in from public records requests by The News & Observer and The Associated Press, which published stories about it that day.
Ellis, the governor’s spokesman, said Friday that the administration was not aware until the attorney general’s report became public about Foley’s persistent questions after recusal. “No one in the administration was later notified about Mr. Foley’s continued involvement in the case after his recusal until [July 10],” Ellis said.
Last week, McCrory asked Foley to step down and he refused. Hours later he relented, and said he would leave to avoid creating a distraction but that he had done nothing wrong. His resignation was announced in an elections board email at 12:02 a.m. Thursday.
Researcher David Raynor contributed.