Flemming campaign repays large loan

Stan Flemming’s campaign for Congress has repaid $150,000 of loans it took out earlier this year from a Beverly Hills company that has ties to late comedian Buddy Hackett’s family.

New financial reports filed at the Federal Election Commission show Flemming still owes at least $50,000, plus interest, as the Aug. 7 primary vote deadline nears. The Republican’s campaign says it repaid what it did because the cash wasn’t needed.

The loans are prompting questions. Two campaign finance experts say it isn’t clear whether they are allowed under federal rules, and a backer of a rival candidate suggests they were intended to make Flemming’s candidacy look more substantial than it is.

One loan came about a month before the first quarter’s campaign finance report was due and the other on June 28, just days before the second quarter ended. Loans made up the bulk of Flemming’s $245,000 in fundraising through June 30.

Flemming, a Pierce County councilman and former University Place mayor, is in a race with five other candidates in Washington’s newest congressional district, the 10th, which runs from Shelton to Thurston County and north to University Place and Puyallup.

Only the top two vote-getters move past next week’s primary election. Flemming is battling the financial frontrunner in the race, Democrat Denny Heck of Olympia, as well as Republican Dick Muri of Steilacoom, Democrat Jennifer Ferguson of University Place, Independent Steve Hannon of Yelm and Progressive Independent Sue Gunn of Thurston County.

Muri backer Dan Cathers, a former chairman for the Thurston County Republican Party, first raised questions about the loans in a Facebook post in June.

“I do believe that the entire purpose of the loans is to create a deceptive appearance of success,” Cathers, the Thurston County organizer for Muri, said this week. “Since Flemming does not appear to be willing to gamble the ($200,000) by actually spending it, there does not seem to be any legitimate reason to have borrowed it.”

Carol Cain, volunteer campaign manager for Flemming, said the money simply wasn’t needed. It was repaid effective July 5, according to a recent campaign report to the FEC.

“We had a commitment for contributions that we felt secure enough about that we paid back $150,000 of the loan,” Cain said in an email. “Part of being fiscally responsible is knowing when you need to borrow money and when you need to pay it back.’’

Flemming, on behalf of his campaign, took out the unsecured loans from Spanky LLC at a yearly interest rate of 8 percent. Spanky is registered with the state of California under the name of Sherry Hackett, who is Buddy Hackett’s widow.

Cain has said repeatedly the Spanky loans are legal under Federal Election Commission rules. She cited rules that allow loans from brokerage accounts, credit cards or “other line of credit” – saying that Spanky LLC meets the latter definition and that lawyers have said the loans were OK.

Spokesmen for the FEC have declined to speak directly about the loans to Flemming’s campaign. But they referred a reporter to the guidelines themselves, which say that contribution limits of $2,500 per election apply to “gifts of money, goods and services,” “loans (except bank loans),” and other contributions.

Two lawyers expert in FEC law had different opinions Tuesday on what might be allowed.

“Generally only banks, financial institutions and brokerage houses can make loans in the ordinary course of their business to candidates without it being considered a contribution,” said Lawrence Noble, a former FEC general counsel for 13 years who specializes in political law and advises corporations and others about campaign finance.

“Whether such loans are legal is up to the FEC, but generally individuals and other types of organizations cannot make loans to candidate without it being considered a contribution,” Noble said.

Paul Ryan, senior counsel to the nonpartisan Campaign Legal Center in Washington, D.C., said the loan “could be allowed, depending on the details of the loan.”

He said the FEC has two provisions – one explicitly dealing with bank loans and the other dealing with brokerage loans and lines of credit to candidates.

“It is that (latter) regulation that permits loans to candidates by almost any entity provided they meet two conditions,” Ryan said, basing his opinion on the plain language of the rules. “There is nothing in the rule requiring the lender to be as formal as a brokerage.’’

The two conditions for loans are that they be made on commercially reasonable terms and be made in the normal course of the lender’s business, two conditions Flemming’s campaign says are met. Ryan said he was not expert enough to say if an 8 percent rate on an unsecured loan was reasonable.

“The FEC is in the position of fact-finder here. Given the unusual nature of this loan they may take a closer look … ,” Ryan added. “There are question marks here.’’

David Loftus, who is now married to Sherry Hackett, said last week that all of the loaned money belongs to her and that although Spanky’s is not a bank, it was set up as a corporation to make loans.

Loftus said steps were taken starting last year to create Spanky’s as a more organized way of handling unconventional loans that Sherry Hackett likes to make for investment purposes. He said it has taken out at least a half-dozen loans and that steps to form the firm began well before there was talk of Flemming running for office.

Loftus, who along with Sherry Hackett has also donated to Flemming’s campaign, said he met Flemming through work raising money for veterans causes.