STATE OF MAINE COMMISSION ON GOVERNMENTAL ETHICS AND ELECTION PRACTICES 135 STATE HOUSE STATION AUGUSTA, MAINE 04333-0135

To:

Commissioners

From: Jonathan Wayne, Executive Director Date: October 25, 2017 Re:

Staff Report on the Investigation into the Financing of the York County Casino Citizen Initiative

I. Introduction This memo is to provide you with a staff analysis of campaign finance reporting by the proponents of the York County casino initiative during the period of December 2015 to April 2017. The staff’s analysis is based on a review of a large volume of documents and an August 17, 2017 interview of Cheryl Timberlake. Ms. Timberlake was the treasurer of the Horseracing Jobs Fairness ballot question committee (“HRJF BQC”). The BQC filed ten campaign finance reports between December 2015 and April 2017, disclosing the receipt of more than $4.2 million from one individual, Lisa Scott.

After the Commission staff raised questions with Ms. Timberlake and counsel for HRJF about the BQC’s compliance with campaign finance law in April 2017, Lisa Scott and two limited liability companies that she owns 1 registered as BQCs and filed campaign finance reports indicating that they had received loans totaling $4.2 million. The investigation has verified that Ms. Scott and her companies received $4.2 million from Bridge Capital, LLC (“Bridge Capital”), acting as a lender to Capital Seven, LLC (“Capital Seven”), and from Regent Able Associate Co., Ltd. (“Regent Able”). No

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Ms. Scott’s limited liability companies are Miami Development Concepts, LLC (“MDC”) and International Development Concepts, LLC (“IDC”). She is the sole member of each LLC.

evidence has been received, however, to support Ms. Scott’s claim that she or her companies received these funds in the form of loans.

As discussed in Section V of this report, the Commission staff believes that evidence gathered to date provides sufficient grounds to find that: 1) Lisa Scott and her two companies should have registered as BQCs in December 2015 and April 2016 and filed campaign finance reports disclosing the sources of funds that they contributed to HRJF, and 2) HRJF BQC filed several reports incorrectly identifying its contributors. Had these reports been filed on time, they would have disclosed to the Maine public and policymakers that Bridge Capital (on behalf of Capital Seven) and Regent Able provided all of the $4.2 million spent to qualify the initiative for the ballot.

The initiative was drafted so that one business entity owned by Shawn Scott (Lisa Scott’s brother) could receive the license to operate the casino: Capital Seven, a limited liability company formed in Nevada. Mr. Scott is the sole member of Capital Seven. Capital Seven did not have a bank account in 2016 and was apparently dormant as a business entity. The money for the first round of petitioning (December 2015 through January 2016) came from Bridge Capital, a limited liability company located in the Commonwealth of the Northern Mariana Islands (a U.S. territory). It is owned by Mr. Scott and John Baldwin, who is the chief executive officer of the company. Bridge Capital is a functioning commercial business that provides financing for construction and other projects, and has full-time legal, financial and accounting staff. Regent Able is a business entity based in Tokyo, Japan. A list of relevant individuals and business entities is attached (Attachment A).

The failure to disclose the project’s actual funders in campaign finance reports was consistent with a pattern of public relations activities by Lisa Scott in which Capital Seven, Bridge Capital, and Regent Able were never named. Cheryl Timberlake, who was compensated by HRJF BQC to track news stories and communicate with the media, 2

acceded to this approach and implemented it. Even though others were financing the project, Ms. Scott and Ms. Timberlake spent more than a year maintaining a façade to news reporters that Ms. Scott was financially responsible for the project and would be in control of the development of the casino. They routinely dodged questions from news reporters seeking to confirm whether others were financially involved.

The reality, revealed in the documents received by the Commission, was that Lisa Scott and her companies were merely conduits to funnel money from Capital Seven/Bridge Capital and Regent Able to HRJF BQC to finance the project. The documents also suggest that Cheryl Timberlake either knew or should have known that others beside Lisa Scott had financial involvement in the petitioning campaign at the time HRJF filed its campaign reports. By April 2016, Ms. Timberlake knew that an “investor” (her term) other than Ms. Scott would be funding the second phase of the petitioning. Even before then, she knew that Shawn Scott and Bridge Capital personnel were significantly involved in the petitioning activities.

The staff’s analysis of the evidence gathered to date suggests that Capital Seven/Bridge Capital and Regent Able wholly funded and exerted control over the petitioning campaign. Nevertheless, the evidence does not support finding that Bridge Capital, Regent Able or Capital Seven were required to register or file reports as a BQC.

In a separate letter that accompanies this report, the Commission’s Executive Director has informed Bruce M. Merrill, the attorney for Lisa Scott and the BQCs, and Avery T. Day, the attorney for Cheryl Timberlake, that findings of violation and late-filing penalties are now scheduled for the October 31, 2017 meeting of the Commission. The preliminary penalties based on the statutory formula are quite high ($4,751,191). The

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Commission’s Executive Director has invited the four BQCs to submit an updated request for a waiver (reduction) of the penalties. 2

The burden is on Lisa Scott and HRJF BQC to argue that mitigating circumstances are present that would warrant a reduction in the penalties. If you would like to probe their explanations of mitigating circumstances, we would recommend receiving testimony on October 31st from Cheryl Timberlake and Lisa Scott under oath due to our concerns about the accuracy of the information they have provided to date, as explained below. Both have indicated a willingness to testify. Regardless of whether they appear to testify, we suggest making a determination at your scheduled meeting on October 31st.

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On May 23, 2017, the Commission staff received a letter from Mr. Merrill requesting a waiver of latefiling penalties on behalf of the four BQCs. It was premature to present this to you at the June 9th meeting, however, in light of your decision to pursue an investigation to learn relevant facts before addressing the issue of penalties.

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II. Relevant Law and Guidance The full text of the relevant statutes and the Commission staff’s guidance is in Attachment B.

BQC Reporting Statute (21-A M.R.S.A. § 1056-B) A person, including an individual or organization, not defined as a political action committee (“PAC”), that receives contributions or makes expenditures in excess of $5,000 for the purpose of initiating or influencing a ballot question is required to register with the Commission as a BQC and file campaign finance reports. (21-A M.R.S.A. § 1056-B) Most frequently, BQCs are formed by advocacy organizations or trade or labor associations that exist for purposes other than influencing a Maine election (e.g., AARP, National Education Association, or Maine People’s Alliance), but individuals and private companies may also qualify as a BQC.

BQCs are required to disclose contributions made to the BQC for the purpose of initiating or influencing a ballot question, and expenditures made by the BQCs for that purpose. If an organization pays its staff to initiate or influence a ballot question, that counts as an expenditure toward the $5,000 spending threshold to qualify as a BQC. (21-A M.R.S.A. § 1056-B) Definition of “Contribution” in BQC Law (21-A M.R.S.A. § 1056-B(2-A)) Section 1056-B(2) specifies that a BQC is required to report “only those contributions made to the filer for the purpose of initiating or influencing a campaign.” Section 1056B(2-A) defines “contribution” as follows: For purposes of this section, “contribution” includes, but is not limited to: A. Funds that the contributor specified were given in connection with a campaign. B. Funds provided in response to a solicitation that would lead the contributor to believe that the funds would be used specifically for the purpose of initiating or influencing a campaign. 5

C. Funds that can reasonably be determined to have been provided by the contributor for the purpose of initiating or influencing a campaign when viewed in the context of the contribution and the recipient’s activities regarding a campaign. D. Funds or transfers from the general treasury of an organization filing a BQC report. (21-A M.R.S.A. § 1056-B(2-A)) 3

Exception for Donors (21-A M.R.S.A. § 1056-B) The BQC statute contains an exception providing that if an individual’s or organization’s financial activity in support of a ballot question campaign consists only of monetary contributions to a registered PAC or a BQC, then that donor is not obligated to register and file separately as a BQC, even if the amounts contributed exceed $5,000. The purpose of this exception is to avoid burdening donors with the duties of registering and filing ongoing financial reports with the Commission if they have merely made one or more cash contributions to another reporting entity.

Guidance Memo on Campaign Finance Reporting by BQCs In 2008, the Commission adopted a guidance memo to address the registration and reporting requirements for BQCs. Among other things, the memo provides answers to questions about what counts as contributions and expenditures for registration and

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The definition of contribution in 21-A M.R.S.A. § 1056-B(2-A) incorporates by reference the general definition of contribution in 21-A M.R.S.A. § 1052(3): “Contribution” includes: A. A gift, subscription, loan, advance or deposit of money or anything of value made to a political action committee, except that a loan of money by a financial institution made in accordance with applicable banking laws and regulations and in the ordinary course of business is not included; B. A contract, promise or agreement, expressed or implied whether or not legally enforceable, to make a contribution to a political action committee; C. Any funds received by a political action committee that are to be transferred to any candidate, committee, campaign or organization for the purpose of initiating or influencing a campaign; or D. The payment, by any person or organization, of compensation for the personal services of other persons provided to a political action committee that is used by the political action committee to initiate or influence a campaign.

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reporting purposes. The guidance memo explicitly states that an entity that receives funds in excess of $5,000 for the purpose of influencing a ballot question is required to register as BQC. The memo emphasizes that it is the fund-raising by the entity that triggers the registration requirement. 4

Late-Filing Penalties (21-A M.R.S.A. § 1062-A) When BQCs file a campaign finance report, the Commission is required to determine if the report satisfies the requirements for timely filing. (§ 1062-A(2)) If the Commission staff finds that a report was filed late, the staff calculates a preliminary penalty according to the formula in § 1062-A(3) and sends a notice of the preliminary penalty to the BQC. (§ 1062-A(5)) 5 Under § 1062-A(6), these preliminary penalties will become final and owed, unless the BQC submits a written request that the Commission waive the penalties in whole or in part.

Liability for Penalties (21-A M.R.S.A. § 1056-B(5)) The Commission may hold the Treasurer and Principal Officer of a BQC, and any forprofit, nonprofit, or other organization that established the BQC, jointly and severally liable with the BQC for any fines assessed.

Standard for Initiating an Investigation (21-A M.R.S.A. § 1003(2)) The Commission is authorized to receive requests for investigation into compliance with the campaign finance disclosure requirements in Title 21-A, Chapter 13. The Commission’s investigation statute states that “The commission shall review the

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“If an organization solicits and receives contributions for the purpose of influencing a ballot question and gives those funds to a PAC, the contributions received by the organization count towards the $5,000 threshold. For example, if a trade association solicits funds from its members in order to make a contribution to a PAC involved in a ballot question, the trade association may have to register as a ballot question committee if it raised more than $5,000. It is not the contribution to the PAC that triggers the registration requirement; it is the fund-raising activity by the trade association that triggers it.” Commission Guidance on Reporting as a Ballot Question Committee (effective June 30, 2008) (revised February 8, 2012). This guidance has been updated most recently in May 2017 to reflect that the same advice applies if the organization is giving the funds it received either to a BQC or a PAC. 5 The formula is explained in more detail later in section V of this memo.

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application and shall make the investigation if the reasons stated for the request show sufficient grounds for believing that a violation may have occurred.” (21-A M.R.S.A. § 1003(2)) The Commission’s subpoena power is set out in 21-A M.R.S.A. § 1003(1).

Commission’s Rule on Investigations (Chapter 1, Section 5) The Commission’s rule on its oversight of investigations states that “Once any matter is reached on the agenda of a Commission meeting, the Commission will control any further investigation or proceedings. … On a case-by-case basis, the Commission may authorize its Chair, Director, or any ad hoc committee of its members, to conduct further investigative proceedings on behalf of the Commission between Commission meetings. …” (Chapter 1, Section 5(2))

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III. Summary of Facts Gathered to Date

At a meeting on June 9, 2017, the Commission voted to investigate the financing of the York County casino initiative. The Commission issued two subpoenas on June 13th (to Lisa Scott and Cheryl Timberlake, as treasurer of HRJF BQC), and two subpoenas on June 15th (to Bridge Capital and Capital Seven). The Commission extended the response dates for all of the subpoenas. The bulk of the documents were provided on September 1 and 15, 2017. (Ms. Scott produced more than 7,500 pages of email communications on September 1st.) In response to a second subpoena, Cheryl Timberlake provided an additional 250+ emails on October 3, 2017. Some bank records belonging to Ms. Scott, MDC, and HRJF BQC have not been received, which has hampered the Commission staff’s ability to verify some information but does not affect our overall findings.

Citizen Initiative and Capital Seven If enacted by Maine voters at the November 7, 2017 election, the proposed legislation authorizes the state’s Gambling Control Board to accept an application for a casino operator license to operate slot machines and table games at a casino in York County. The initiative was drafted so that only one company – Capital Seven, Shawn Scott’s company – could be licensed to operate the casino. 6

In 2003, Capital Seven acquired a majority share in the corporation operating the Bangor Raceway and led a successful citizen initiative to permit slot machines near the racetrack. The following year, Capital Seven sold the Bangor racetrack to Penn National Gaming for $51 million before any license was issued by the Gambling Control Board. 6

Under the proposed legislation, the Gambling Control Board “may accept an application for a slot machine operator license or casino operator license to operate in York County slot machines at a slot machine facility or slot machines and table games at a casino from any entity that owned in 2003 at least 51% of an entity licensed to operate a commercial track in Penobscot County that conducted harness racing with pari-mutuel wagering on more than 25 days during calendar year 2002 ….” The licensed entity that conducted harness racing as described here was Bangor Historic Track, which operated the Bangor Raceway. Shawn Scott’s company, Capital Seven, was the owner of Bangor Historic Track in 2003.

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Early Stages of the Initiative and First Round of Petitioning (Funded by Capital Seven/Bridge Capital) Filing the Initiative Application and Petition Circulation. On October 14, 2015, Lewiston resident Stavros Mendros and five other voters filed an “Application for Citizen Initiative” with the Secretary of State’s office, along with the proposed legislation. Mr. Mendros is a political consultant who does business under the name of Olympic Consulting, and frequently gathers petition signatures for hire. Mr. Mendros received approval from the Secretary of State to circulate petitions on December 8, 2015.

To qualify the initiative for the November 2016 ballot, the organizers needed to submit a minimum of 61,126 valid signatures on petitions to the Secretary of State by February 1, 2016. This was a sizeable undertaking to accomplish in a relatively short period of time (six or seven weeks). The proponents not only needed to collect the signatures on petitions, but also to deliver the petition forms to each municipality to verify the voter registration of the signers and deliver them to the Secretary of State’s office in Augusta.

To accomplish this effort, Olympic Consulting was retained to hire and send out circulators to collect voters’ signatures. The day-to-day petition effort in December 2015 – January 2016 was overseen primarily by Lisa Scott. During December 2015, Olympic Consulting was the only firm collecting signatures. By December 30, 2015, Lisa and Shawn Scott decided to hire another company, Silver Bullet, LLC (“Silver Bullet”), to be responsible. Olympic Consulting became a subcontractor working under the direction of Silver Bullet. Two other firms also operated as subcontractors out of offices in Portland and Bangor.

Horseracing Jobs Fairness. On December 14, 2015, Lisa Scott formed Horseracing Jobs Fairness as a limited liability company in Delaware. (Exhibit 2) Ms. Scott is the sole member (owner) of this company, according to her attorney.

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HRJF registered as a ballot question committee (“BQC”) on December 16, 2015. (Exhibit 3) The registration identified Lisa Scott as its Principal Officer and Cheryl Timberlake as the Treasurer. Ms. Timberlake is a government relations consultant based in Maine, who operates under the business name of Capitol Insights. When it registered on December 16, 2015, HRJF BQC filed its initial campaign finance report stating that it had received two cash contributions from Lisa Scott totaling $28,000. (Exhibit 4 7) It later filed a 2015 year-end report on January 14, 2016, showing the receipt of another $80,000 from Lisa Scott. 8 (Exhibit 5) It would not file its next report until April 2016 (after the first round of petitioning was concluded), in which it disclosed receiving $2,955,365 from Lisa Scott. (Exhibit 6)

Shawn Scott’s Role in Approving Campaign Strategy and Funding Requests. During the first round of petitioning that occurred from December 2015 through January 2016, Lisa Scott sought her brother’s approval on key aspects of the campaign, for example: •

On December 10, 2015, Ms. Scott consulted with Shawn Scott by email about the name of the BQC, which would be the public face of the campaign. In an email response, Shawn Scott decided upon the committee’s name, Horseracing Jobs Fairness. (Exhibit 7)

•

On December 30, 2015, when the proponents decided to contract with Silver Bullett, LLC, Lisa Scott sent the contract to her brother asking him to “Please approve.” (Exhibits 8 – 9) Ms. Scott sought her brother’s approval on purchases of smaller services, as well. (Exhibit 10)

•

All funding requests during the petitioning process were reviewed by Mr. Scott or Bridge Capital’s co-owner, John Baldwin. (Exhibits 11 – 16)

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The schedules for in-kind contributions (Sch. A-1), expenditures (Sch. B), loans (Sch. C), and debts (Sch. D) have been omitted from the campaign finance reports in Exhibits 4 – 6. 8 As discussed below, the reports filed by HRJF BQC on December 16, 2015 and January 14, 2016 contained a few apparent errors in reporting certain payments as cash contributions to HRJF. In the overall context of late reporting in this enforcement matter, these errors are less serious. Some errors have been addressed in September 2017 amendments of the reports, and the Commission staff expects that HRJF BQC may file additional amendments to address these issues.

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During this period, the division of responsibility seems to be that Ms. Scott oversaw the petitioning activities in Maine, but – as the funder of the project and the political campaign – her brother provided her with direction.

Funding from Bridge Capital. During these seven weeks of petitioning, rather than having immediate access to the full amount of funds (almost $3 million) necessary for the petitioning, Lisa Scott was required to regularly (on an almost daily basis) request money from Shawn Scott and John Baldwin, the two co-owners of Bridge Capital, operating fourteen time zones away in Saipan. (Exhibits 17 – 21) Typically, Mr. Baldwin would approve a wire payment in amounts ranging from $50,000 to $200,000. From December 2015 through January 2016, Bridge Capital made fourteen (14) wire transfers to Lisa Scott’s personal bank account and the account of her company, International Development Concepts, LLC. (“IDC”) Bridge Capital made two more transfers to Ms. Scott in April – May 2016. (See table on the following page.)

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Payments from Bridge Capital to Lisa Scott Deposits Confirmed in LS Bank Date Amount Account 12/10/2015

$50,000

Yes

12/30/2015

$50,000

Yes

1/4/2016

$100,000

Yes

1/6/2016

$100,000

Yes

1/7/2016

$200,000

Yes

1/11/2016

$200,000

Yes

1/12/2016

$200,000

Yes

1/14/2016

$300,000

Yes

1/19/2016

$900,000

Yes

1/19/2016

$150,000

Yes

1/26/2016

$200,000

Yes

1/29/2016 4/18/2016 5/9/2016

$50,000 $70,000 $10,000

Yes No record No record

Payments from Bridge Capital to IDC Deposits Confirmed in IDC Bank Date Amount Account 12/21/2015 $100,000 Yes 12/24/2015 $100,000 Yes The transfers were usually just enough to cover the outstanding invoices. Shawn Scott and John Baldwin controlled the flow of funds to support the initiative campaign.

The dates and amounts of Bridge Capital’s payments to Lisa Scott and IDC that occurred in December 2015 – February 2016 are supported by online Account Activity reports for Lisa Scott’s personal bank account and the bank account of IDC. (Exhibits 22 – 23) These reports cover financial activity through February 29, 2016. For this investigation, the Commission staff requested monthly statements for Lisa Scott’s personal bank account for all of 2016 and early 2017, in order to verify reported campaign transactions 13

occurring after February and to look for unreported campaign transactions. Through her attorney, Lisa Scott was non-committal about whether she would submit these, and ultimately did not provide them.

The Account Activity reports for Lisa Scott and IDC do not identify the source of the deposits made through February 2016. The Commission staff is reasonably sure, however, that all of these payments came from Bridge Capital because Bridge Capital provided automated confirmation emails sent by its financial institution, the Idaho Independent Bank. (Three confirmation emails are attached as Exhibits 24 – 26.)

Bridge Capital Personnel Involved with the Initiative. Other Bridge Capital managers and employees were involved in the petitioning effort during December 2015 – January 2016 by providing input on campaign decisions (Shawn Scott and Philip James), facilitating payment (Shawn Scott and John Baldwin), or coordinating petitions (Philip James). Ms. Timberlake sent or received emails indicating that these individuals were involved. With respect to Shawn Scott: •

Ms. Timberlake addressed her very first email expressing interest in working on the initiative to both Shawn and Lisa Scott. (Exhibit 27)

•

Ms. Timberlake received emails indicating that Lisa Scott had checked with her brother on what should be said to the press. (Four of these examples are discussed in more detail below to illustrate Lisa Scott’s reluctance to disclose the project funders to the press.)

•

Cheryl Timberlake responded to informational requests that she knew originated from Mr. Scott or Hoolae Paoa. 9 (Exhibits 28 – 29)

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Mr. Paoa is a longtime employee of Shawn Scott’s companies. The Commission staff is unaware of his job title at Bridge Capital, but he did use a Bridge Capital email address for campaign matters, along with a personal email at aol.com.

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Hoolae Paoa operated as a contact for Stavros Mendros during the first month of petitioning, particularly when Mr. Mendros was requesting money: •

Toward the goal of receiving payments by wire transfer, Stavros Mendros sent Mr. Paoa and Lisa Scott his routing number and bank account information on December 9, 2015. (Exhibit 30)

•

On December 10, 19, 20 and 27, 2015, Mr. Mendros emailed Hoolae Paoa, Lisa Scott and Cheryl Timberlake expressing an urgent need for money to avoid bouncing checks to his signature collectors. (Exhibits 31 – 34)

Bridge Capital Manager Philip James Sent to Maine. By the end of December 2015, Lisa Scott and the Bridge Capital funders saw that progress was inadequate and that an organizational restructuring was necessary to meet the submission deadline on February 1st. Shawn Scott and co-owner John Baldwin brainstormed over who was available to send to Maine to coordinate and verify petitions. Mr. Scott emailed Mr. Baldwin: “Need trustworthy help in ME asap.” (Exhibits 35 – 36)

Philip James, the manager of Bridge Capital’s EB-5 Investor Program, came to Maine and operated as a co-manager of the petitioning effort during much of January 2016. He negotiated the contract terms with Silver Bullet, the signature gathering company that replaced Olympic Consulting as the primary contractor. (Exhibits 37 – 38) Mr. James sent almost daily updates to Shawn Scott and John Baldwin, along with requests for money. (Exhibits 39 – 41) In some of these emails, he stressed how desperate the campaign was for money. On these update and request emails, he sometimes copied Lisa Scott, Jody Jordahl, the Chief Operating Officer of Bridge Capital, and Tucker Baldwin, the assistant to John Baldwin.

Cheryl Timberlake’s Contact with Philip James. Cheryl Timberlake met with Philip James on January 8, 2016, according to an email Mr. James sent the following day. (Exhibit 42) During January 2016, Ms. Timberlake was in email contact with Mr. James 15

concerning documentation of expenses, payments to Olympic Consulting, and the signature collection and submittal process. (Exhibits 43 – 49) She emailed him using his Bridge Capital email address ([email protected]), and was copied on emails from Lisa Scott that included that same address. (Mr. James also used another email address with a different suffix.)

Cheryl Timberlake and Philip James oversaw the submittal of the collected signatures to the town clerks for verification. This was another complex and rapidly evolving operation undertaken under significant time pressure. Mr. James was compiling the petitions for return to the town clerks’ offices, while Ms. Timberlake coordinated the collection and transport of those petitions to and from the town clerks’ offices. By January 23, 2016, Mr. James was apparently no longer in Maine, and Ms. Timberlake oversaw the final collection and delivery of the petitions to the Secretary of State’s office on February 1, 2016.

Failure to Qualify for the 2016 Ballot. On March 2, 2016, the Secretary of State ruled that the majority of petition signatures submitted were invalid and that the initiative did not qualify for the ballot. The Secretary of State’s decision was appealed to the Maine Superior Court, which upheld the decision on April 7, 2016. As a result, the initiative did not qualify for the ballot in the November 2016 election, but by law the initiative proponents had the opportunity to collect more signatures in order to qualify for the ballot in 2017.

Credit Facility Agreement between Bridge Capital and Capital Seven. Bridge Capital has provided an accounting record that lists its payments made to Lisa Scott, IDC, Ms. Scott’s other company, Miami Development Concepts, LLC (“MDC”), and others. (Exhibit 50) The title of the document is “Summary of Loan Disbursements Pursuant to Credit Facility Agreement Effective November 1, 2015 by and between Bridge Capital, LLC (as Lender) and Capital Seven, LLC (as Borrower).” 16

In addition, Bridge Capital has produced a Credit Facility Agreement between itself and Capital Seven. (Exhibit 51) In the agreement, Bridge Capital agrees to lend up to ten million dollars ($10,000,000) to Capital Seven to explore opportunities for investment in gaming opportunities in New England. The agreement specifies an interest rate and obligates Capital Seven to obtain the lender’s approval for drawdowns of the funds.

The cover page of the agreement contains an effective date of November 1, 2015 but contains no date of execution. In response to a staff inquiry on October 10, 2017, Bridge Capital provided an affidavit, on September 28, 2017, from John Clay Crawford, Jr., who is its Chief Financial Officer. (Exhibit 52) The affidavit explains that Bridge Capital’s primary business is making loans. The loan to Capital Seven is considered a “relatedparty loan” because of Shawn Scott’s roles as an owner of the borrower and as co-owner of the lender. Mr. Crawford explains that related-party loans are not necessarily memorialized in written loan agreements or promissory notes. When he prepared the year-end financials for Bridge Capital at the end of 2016, however, he noticed the absence of a written loan document and recommended that one be prepared. The Credit Facility Agreement was prepared in early 2017, but is marked effective as of November 1, 2015.

Three email communications by Mr. Crawford, dated January 6, April 4, and May 5, 2016, contain language reflecting that Bridge Capital’s payments were made as part of a loan. (Exhibits 53 & 55) In the May 5, 2016 email, Mr. Crawford states that “As of today, Bridge has no loan documentation for these balances.” Even as late as the following year (May 12, 2017), Mr. Crawford was advising the Bridge Capital controller to post the “Capital Seven transactions” as a loan, although the loan documentation, apparently, was not finalized (“Post as a loan not interco – we will resolve once I get the final paperwork.”) (Exhibit 56)

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The accounting record produced by Bridge Capital indicates that it made a March 2017 payment to Campaign Strategies, Inc. for polling and as an advance payment toward “future campaign expenses.” Bridge Capital also apparently made payments to the following attorneys that it attributed to its loan agreement with Capital Seven: •

Bruce M. Merrill (April 4, 2016),

•

Norman Hanson & DeTroy, the Portland, Maine law firm which did real estate work related to the York County casino project and which employs lobbyist Daniel P. Riley) (June 1, 2017), and

•

Lackey Hershman, LLP of Dallas, Texas, which employs Deborah Deitsch-Perez, a long-time attorney for Shawn Scott (July 1, 2017).

Second Phase of Petitioning (Funded by Regent Able Associate Co., Ltd.) Toko Kobayshi. In early March 2016, Bridge Capital representatives were in contact with Toko Kobayashi or his associates. Based on subsequent events explained below, it is highly probable that the contact was made to secure additional funds for the Maine and Massachusetts initiatives. 10 Mr. Kobayashi is the Chairman and CEO of NC Max World Co., Ltd., a “Japanese owned and operated real estate development and brokerage company” located in Phnom Penh, Cambodia. 11 Mr. Kobayashi 12 owns or controls Regent Able, a Japan limited company. 13

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Question 1 on the November 8, 2016 statewide ballot in Massachusetts would have permitted a second slot machine facility in the state at a site adjacent to an existing racetrack. In 2016, it was widely reported that the advocates had identified property in Revere, Massachusetts for the potential slots facility, that was adjacent to the Suffolk Downs race track in East Boston. Massachusetts voters rejected the proposal by a margin of 61% - 39%. Three weeks earlier, on October 18, 2016, in a special municipal election, voters in Revere rejected a ballot question favored by the initiative advocates concerning the location of a possible slot machine facility within Revere. 11 http://www.ncmaxworld.com/about-us/ 12 Mr. Kobayashi was also a director of Sanum Investments Limited, a Macao company, which was acquired in 2012 by Lao Holding N.V., a company owned by John Baldwin and Shawn Scott and incorporated under the laws of Aruba, The Netherlands Antilles. 13 Basic information about Regent Able is not available online or in the various document productions. Mr. Kobayashi refers to Regent Able as his company in an email to Laurence Hamilton. (Exhibit 57) Takashi Fuyama is named as the President and CEO of Regent Able; however, there is no indication that he was a decision-maker for Regent Able in connection with the initiative. It appears that he served mostly for the purpose of signing documents and transferring funds to MDC.

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According to the privilege log provided by Bridge Capital, on March 8, 2016, Jody Jordahl, Vice President and Chief Operations Officer of Bridge Capital, sent an email to CEO John Baldwin with the subject line “Toko as partner for East Coast gaming initiatives.” On March 23, 2016, Shawn Scott sent Mr. Kobayashi an email with the message, “We could REALLY use Lawrences help in Maine!! Can he stay for a week?” (Exhibit 58) Mr. Scott was referring to Laurence Hamilton.

Laurence J. Hamilton. Laurence J. Hamilton is an employee of NC Max World. On March 7, 2016, Ms. Timberlake emailed the certificate of formation for HRJF LLC (Exhibits 59 – 60) and a copy of the proposed initiative summary prepared by the Secretary of State (Exhibits 61 – 62) to Mr. Hamilton at his email address for NC Max World. The emails do not specify Ms. Timberlake’s reason for sending the documents. However, it is not unreasonable to suppose a connection to the overtures to Mr. Kobayashi to invest in the Maine and Massachusetts initiatives. On April 13, 2016, Mr. Hamilton sent an email to Shawn Scott, John Baldwin, Lisa Scott, Toko Kobayasi, and two other employees of Bridge Capital, Jordan Sundell and Jody Jordahl, reminding them of a meeting to be held at Bridge Capital’s office in Saipan “to discuss the Maine and Boston projects with Mr. Toko Kobayashi; an investor who will be joining [the meeting] over Skype.” (Exhibit 63)

As discussed below, Mr. Hamilton was Regent Able’s representative to oversee its investments in the Maine and Massachusetts initiatives and manage many aspects of the campaigns, including financial management. All requests for funds from Regent Able for the initiatives were required to go through Mr. Hamilton.

Miami Development Concepts, LLC. Lisa Scott formed a new limited liability company in Florida on March 9, 2016 – Miami Development Concepts, LLC. (“MDC”) (Exhibit 64) At the Commission’s meeting on June 9, 2017, Bruce Merrill, Ms. Scott’s attorney, stated that Ms. Scott is the sole member of MDC. He also stated that MDC is a multi19

purpose organization and was not formed for the sole purpose of the York County casino initiative. However, the only other venture MDC was involved in, as far as Mr. Merrill knew, was the Massachusetts initiative campaign. During the time from its formation in early March 2016 until April 2017, MDC appears to have been involved exclusively in the Maine and Massachusetts initiatives.

Consultant Agreement between Regent Able and MDC. On April 18, 2016, Mr. Kobayashi sent an email to Mr. Hamilton with instructions to draft a “consultant agreement” between Regent Able and MDC. The instructions included fifteen (15) clauses that Mr. Kobayashi wanted in the agreement. (Exhibit 65) In his email, Mr. Kobayashi stated that the business purpose of the agreement is “casino referendum work in the state of Maine and the city of Boston.” Under the terms of the agreement, Regent Able would provide “working capital money” of $1.3 million “to cover referendum work in Boston and Maine and an additional $700,000 working capital shall be paid at a later stage.” Mr. Hamilton sent a draft agreement to Shawn Scott on April 18, 2016 for his review. (Exhibits 66 – 67) On April 19, 2016, Jody Jordahl sent Mr. Kobayashi a copy of the consultant agreement signed by Lisa Scott (as the owner of MDC) for his signature. (Exhibit 68)

The Commission has not received a fully executed version of the consultant agreement, and the draft agreement may have been modified. Nevertheless, the staff believes that, based on the amounts transferred to MDC by Regent Able and the email exchanges among Messrs. Kobayashi, Scott, Baldwin, and Hamilton, and Ms. Scott, the terms of the draft agreement remained substantially the same in the final agreement.

Under the consultant agreement, Regent Able would provide MDC with working capital of $1,300,000 and may provide additional capital in its sole discretion. Regent Able engaged MDC as an independent contractor to provide managerial and professional

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services in connection with the initiatives in Massachusetts and Maine. 14 MDC would receive $15,000 per month for its services. The agreement called for Regent Able to provide MDC with a full-time employee. Regent Able assigned Laurence Hamilton to be that employee and Regent Able’s authorized representative.

Cobalt Capital, LLC. Bank records confirm that Regent Able transferred funds directly into the bank account of MDC to support the Maine initiative. However, other documents produced in response to the subpoenas indicate that Toko Kobayashi, Shawn Scott, and John Baldwin formed a limited liability company, Cobalt Capital, LLC, as a vehicle to invest in the Maine initiative with each being a member of the LLC. According to one such document – “Cobalt Capital LLC – Capital Injection and Acknowledgement of Receipt” – dated December 19, 2016 (Exhibit 69), Mr. Kobayashi committed a capital investment of up to one million dollars ($1,000,000) “in exchange for 15% membership interest in Cobalt Capital, LLC and the Maine Gaming Initiative” and transferred that membership interest to Equity Worldwide Group Limited, a British Virgin Islands company.

The existence of Cobalt Capital and Equity Worldwide Group does not alter the fact that Regent Able and Bridge Capital provided all the funding for the Maine initiative as borne out by bank records and subpoenaed documents. The staff includes this information and the accompanying exhibits as further evidence that the primary movers and funders behind the initiative were Shawn Scott, John Baldwin, and Toko Kobayashi, and that they put Lisa Scott forward as the face and manager of the campaign who answered to them.

Regent Able Payments to MDC. On April 20, 2016, Regent Able transferred $1,300,000 to MDC. (Exhibit 70 – 71) It appears that $1,000,000 was intended for the 14

The draft agreement states that MDC will manage Regent Able’s interests in the “Boston Gaming Initiative (the ‘Initiatives’).” Given the transfers of funds and the conduct and statements of the parties to the agreement before and after its execution, it is reasonable to interpret the agreement as applying to MDC’s services with respect to the Massachusetts and Maine initiatives.

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Massachusetts initiative and $300,000 for the Maine initiative. (Exhibit 72) From April 20, 2016 to December 11, 2016, MDC received capital injections totaling $4,329,636 from Regent Able for both initiatives. This amount is based on bank records and the expense reports prepared by Mr. Hamilton. (Exhibit 73)

Of that total amount, between $950,000 and $1,213,100 was spent on the Maine initiative. According to the Cobalt Capital, LLC – Capital Injection and Acknowledgement of Receipt, dated December 19, 2016 (Exhibit 69), Regent Able transferred $950,000 to MDC for the Maine initiative. 15 MDC’s campaign finance report indicates that it received $1,213,100 in “loans” from Regent Able. 16 The documents show that the capital injections from Regent Able to MDC to support the Maine initiative were not loans to MDC and none of the parties involved intended them as loans.

Actual Regent Able transfers to MDC for Maine 4/20/2016 $300,000

Regent Able “Loans” to MDC Reported by Lisa Scott 4/26/2016 $150,000

9/26/2016

$300,000

5/26/2016

$180,000

11/2/2016

$300,000

7/5/2016

$25,000

12/19/2016

$50,000

9/28/2016

$300,000

$950,000

11/9/2016

$523,100

12/20/2016

$35,000 $1,213,100

MDC’s Involvement in the Massachusetts and Revere Initiatives. Regent Able’s contract with MDC called for MDC to provide “managerial services” for the Maine and Massachusetts initiatives. By the time the consultant agreement was executed in April 15

In addition to the initial $300,000 allocated to the Maine initiative, Regent Able made three additional transfers. (Exhibits 74 – 76) 16 The staff is unable to determine the cause of the discrepancy between the capital injection statement and MDC’s campaign finance reports.

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2016, the Massachusetts initiative was well on its way to being on the ballot for November 2016. In addition to the November statewide election, the backers of the Massachusetts initiative successfully put a local initiative on the ballot in the City of Revere. This initiative, if successful, would allow a slot machine facility to be built and operated in Revere at a specified location. The Revere special election was held on October 18, 2016.

According to campaign finance reports filed with the Massachusetts Office of Campaign and Political Finance, the City of Revere, and Mr. Hamilton’s expense reports, Regent Able provided MDC with funds to support the Massachusetts and Revere initiatives, engage in real estate transactions, and cover other business expenses (legal fees, rent, furnishings, etc.) as follows: Massachusetts initiative

$1,965,148

Revere initiative

$317,697

Real estate transactions

$747,028

Other business expenses

$349,763

Total

$3,379,636

Regent Able’s Control of the Maine Campaign. By April 2016, contrary to the statements by Ms. Timberlake and Mr. Merrill (the attorney for Lisa Scott, MDC, and IDC), the Maine initiative was not solely Ms. Scott’s project. Toko Kobayashi made it clear in the MDC consultant agreement that MDC (and therefore Lisa Scott) was working as an independent contractor on behalf of Regent Able and him. (Exhibit 67)

In an email to Ms. Scott, Mr. Kobayashi lays out “Rules and Regulations” for submitting invoices for payment, including that all invoices over $2,000 “must be approved by either 2 people John, Shawn and Toko” and provides a sample payment voucher for her to use. (Exhibits 77 – 78) Mr. Kobayashi had the final say in whether to authorize Regent Able’s transfers to MDC. 23

Mr. Kobayashi dictated changes to the terms of the contract between MDC and JEF Associates, the firm hired to collect signatures during the second phase of the Maine initiative. (Exhibit 79) Ms. Scott regularly sent him updates of the status of the signature gathering efforts. In late November 2016, Mr. Kobayashi directed Mr. Hamilton and Hoolae Paoa to go to Maine to oversee the submission of the petitions to the Secretary of State. In the same email, Mr. Kobayashi once again made it clear to Ms. Scott that John Baldwin, Shawn Scott, and he were the principals directing the Maine initiative and that “[w]e value your opinion and welcome your thoughts but we will have to do what we decide to do.” (Exhibit 80)

In December 2016, as the deadline for submitting the second round of petitions approached, Mr. Kobayashi expressed concerns about the way the initiative effort was handled. He sent an email to Messrs. Hamilton, Baldwin, Scott, Paoa, and Takashi (but not Lisa Scott) stating that, after the petitions were submitted on December 22, 2016, he wished to discontinue operations (including compensated activities by Ms. Scott and Ms. Timberlake) from December 30th until at least February 15th. (Exhibits 81 – 82) Mr. Kobayashi also sent an email to the individuals mentioned above (but not Ms. Scott) questioning whether Ms. Timberlake should be kept on and suggesting that they hire another person to take her place. He also suggested that he, Shawn Scott, Hoolae Paoa, and Laurence Hamilton confer at the end of the year and discuss business plans and whether to invest further in the initiative. (Exhibit 83)

The email exchanges among the principal decision-makers and Lisa Scott demonstrate that the control of the Maine initiative campaign was not Ms. Scott’s, especially during the second phase of petition gathering. Ms. Scott states that even more clearly in her own words. In an email sent to Messrs. Kobayashi, Baldwin, Scott, and Hamilton in midDecember 2016 when the fate of the initiative was uncertain, Ms. Scott acknowledges they will be the ones who “make a decision as to whether or not you would like to fund the Maine project.” (Exhibit 84) 24

Cheryl Timberlake’s Awareness of a New Investor in the Initiative, Laurence Hamilton, and MDC. As mentioned above, on March 7, 2016, Cheryl Timberlake sent the certificate of formation for HRJF LLC and a copy of the proposed initiative summary prepared by the Secretary of State to Laurence Hamilton at his email address for NC Max World. This was around the same time that Jody Jordahl, COO of Bridge Capital, sent an email to John Baldwin entitled “Toko as partner for East Coast gaming initiatives.” There is no reason to believe that Ms. Timberlake would have sent those documents to Mr. Hamilton, an employee of Toko Kobayashi, unless instructed by someone such as Lisa Scott. On March 9, 2016, Lisa Scott emailed Cheryl Timberlake’s employee, Corinna Rodrigue, and asked her to print out a copy of MDC’s articles of incorporation. (Exhibits 85 – 86)

By April 2016, if not earlier, Ms. Timberlake was aware that there was a new “investor” in the Maine initiative and referred to an “investor” or “investors” in three emails to Lisa Scott. In an email to Ms. Scott dated April 24, 2016 – six days after Mr. Kobayashi provided his first payment to MDC – Ms. Timberlake wrote, “While we have had conversations on my continued role, there are no specific details defined; responsibilities and compensation. Given the relationship with the new investor and outstanding payments still to be resolved, I prefer that we finalize ALL current obligations and move into the next phase; retroactive to April 1st.” (Emphasis added.) (Exhibit 87) This indicates that Ms. Timberlake was aware that someone other than Ms. Scott was funding the initiative campaign long before the Commission staff’s request for a meeting to discuss the HRJF BQC’s funding.

On January 23, 2017, the day the Secretary of State certified the initiative for the ballot, Ms. Timberlake wrote to Ms. Scott, “The investors need to make some key decision soon; now is the time to take the positive momentum and earn the advantage!!” (Exhibit 88)

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Later the same day, Ms. Timberlake sent an email to Ms. Scott writing, “There is work to be done here; people are craving information and want facts. Investors need to contemplate how to proceed quickly.” (Exhibit 89)

Ms. Timberlake was also aware of MDC as early as September 22, 2016, when Ms. Scott sent her an email regarding a consulting contract with JEF Associates, the company hired to gather signatures for the Maine initiative’s second phase. The email included an excerpt from an email from Mr. Kobayashi in which he wrote, “We should have MDC manager Lisa sign the agreement unless there is any problem with this.” 17 (Exhibit 90) On September 26, 2016, Mr. Hamilton copied Ms. Timberlake on an email that included the actual consulting agreement between MDC and JEF Associates (“Please find the slightly revised Consulting Agreement between JEF Associates and Miami Development Concepts.”). (Exhibit 91) In her interview with the Commission staff on August 17, 2017, Ms. Timberlake said she had no knowledge of MDC until 2017.

Other documents provide even more solid confirmation that Ms. Timberlake was aware of MDC in 2016. The first two invoices sent by JEF Associates to HRJF BQC on September 29, 2016 (Exhibit 92) and October 3, 2016 (Exhibit 93) were made out to MDC. Ms. Timberlake accepted the first invoice; however, when she received the second invoice, she directed James Fleming of JEF Associates to make out a new invoice to HRJF BQC. (Exhibit 94) She then directed him to change the name on the first invoice and then send the altered invoice back to her. 18 (Exhibit 95)

The documents also show that Ms. Timberlake was also more aware of Laurence Hamilton’s role in the Maine and Massachusetts initiatives than she claimed in her

17

Ms. Scott did not attribute the excerpt to Mr. Kobayashi (Exhibit 79). Ms. Scott’s email to Ms. Timberlake has the subject line “What we discussed…” 18 The Commission staff is not suggesting that Ms. Timberlake acted improperly in requesting that the invoices be altered. In fact, HRJF BQC did wire the payment of the two invoices to JEF Associates. However, the manner in which Ms. Timberlake handled these invoices confirms that she knew about MDC in 2016.

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interview with the Commission staff on August 17, 2017. Ms. Timberlake claimed that she did not know Mr. Hamilton’s relationship to the project or how she came to know to send emails to Mr. Hamilton. She said that she only met with him once when he was interviewing JEF Associates for a contract for petitioning in the second phase and that she knew from others that he was looking at real estate sites for a casino. She specifically denied meeting him more than once. The documents indicate she met with Mr. Hamilton at least seven times.

Ms. Timberlake and her assistant would routinely forward invoices to Mr. Hamilton for payment. (Exhibits 96 – 99) Ms. Timberlake also had multiple meetings with Mr. Hamilton in connection with the Maine initiative. On September 18, 2016, Ms. Timberlake met with Mr. Hamilton, Ms. Scott, and James Fleming of JEF Associates. (Exhibit 100) On November 22, 2016, Ms. Timberlake met with Mr. Hamilton and Hoolae Paoa in Augusta. (Exhibits 101 – 102) Ms. Timberlake met with Mr. Hamilton again on December 2, 2016, along with Ms. Scott, Mr. Paoa, and Alexis Fallon, Esq., an attorney for Scott family enterprises. (Exhibit 73) Ms. Timberlake’s connection with Mr. Hamilton extended beyond the Maine initiative. She also worked with him on the Massachusetts and Revere initiatives as explained below.

Cheryl Timberlake’s Involvement in the Massachusetts Initiatives. When asked directly by the Commission staff on August 17, 2017 whether she had been involved in the Massachusetts initiative, Ms. Timberlake said that she had not. The documents provided in response to the subpoenas show that Ms. Timberlake actively worked on a local ballot question in Revere, Massachusetts concerning expansion of gaming. 19

19

The staff was not aware of the Revere initiative in August 2017. Ms. Timberlake may have thought she could legitimately answer in the negative because she had been engaged to work on the Revere initiative, not the Massachusetts initiative. Nevertheless, given the opportunity to explain her involvement with another campaign spearheaded by Shawn Scott and others, she chose to withhold that information.

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Ms. Timberlake met with Mr. Hamilton in Boston on August 13, 2016 for a “dinner meeting with Cheryl Timberlake to close consultation services.” (Exhibit 73) On October 3, 2016, she sent an email to James Fleming stating, “I’m in Revere. I’ll be back in Maine tomorrow.” (Exhibit 103) On October 16, 2016, Ms. Timberlake wrote to Mr. Fleming, “I’m off to Revere for a special election on Tuesday. I’ll be with Lisa and perhaps we can coordinate a call.” (Exhibit 104) She also sent him an email on October 18, 2016, writing, “I’m in the field for special election in Revere but have time to review the list; please send it.” 20 (Exhibit 105)

In addition to these statements, Ms. Timberlake sent an invoice, dated November 10, 2016, for $30,889 for her services for “Gaming Initiative – Revere, Invoice #127, Professional Consulting Services for Gaming Ballot Initiative.” (Exhibit 106 – 107) The invoice was sent to Trailblazer Group, which was the primary political consulting firm working on the Massachusetts and Revere initiatives; however, the invoice was paid by Lisa Scott with funds from MDC.

Consideration of the Initiative by the Maine Legislature In January 2017, the Secretary of State determined that the initiative had sufficient valid signatures to qualify for the ballot. The bill was printed as LD 719 for consideration by the Legislature.

March 29, 2017 Legislative Hearing. On March 29, 2017, the Joint Standing Committee on Veterans and Legal Affairs (VLA) held a public hearing on the citizen initiative. The committee has jurisdiction over the regulation of gaming in Maine. The Commission staff received an audio recording of the public hearing. If any Commissioners or counsel in this matter wishes to hear the audio, the Commission staff will provide it. At the hearing, the committee members asked questions concerning basic aspects of the citizen 20 The special election in Revere was held on October 18, 2016. The initiative was rejected by the voters with 2,970 opposed and 1,574 in favor.

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initiative, such as who had funded the petitioning to qualify the measure for the ballot, and which firms would benefit from the operation of the casino.

Lisa Scott did not appear at the hearing or submit written testimony. No one from the HRJF BQC (the primary advocate for the initiative) appeared or testified. Ms. Timberlake, the BQC treasurer, listened to the hearing but was not present.

Lobbyist Daniel Riley was the only person to testify at the March 29, 2017 hearing in support of the initiative. Mr. Riley described his client – which he identified as Bridge Capital, LLC – as a high-risk finance corporation based in Saipan that has invested in gambling operations in other jurisdictions. He said that the client had been involved in gathering signatures for the York County casino citizen initiative. Mr. Riley explained that in 2016 his law firm began conducting legal work concerning the possibility of purchasing the Scarborough Downs racetrack, with the intention of moving the racetrack to York County and combining it with casino operations at the new location. He said that the Scarborough Downs owners now planned to sell the racetrack to other parties unrelated to his client. He acknowledged that the citizen initiative had been drafted to benefit one company.

Mr. Riley could not offer responses to several questions posed to him by Legislators, explaining that he had received an email at 5:15 a.m. that day, requesting that he attend the hearing on behalf of the client. He offered to receive any questions from the Committee members and to respond to them at a work session.

It was the press reporting of Mr. Riley’s statement that Bridge Capital was involved in petitioning that caused the Commission staff to reach out to HRJF BQC treasurer Cheryl Timberlake on March 29, 2017, to verify if campaign finance reporting was complete and accurate. Shortly thereafter, the VLA Committee’s Co-Chairs wrote to this Commission requesting an investigation. The Commission staff wrote Mr. Riley a letter requesting a 29

meeting to discuss the initiative and its funders. Mr. Riley responded with a letter to the Commission clarifying that his client was Universal Capital Holdings, LLC and that he was in error when he identified Bridge Capital, LLC as his client. The letter stated that his firm did not have any knowledge of whether Bridge Capital was involved in the citizen initiative, or not. He explained that the legal work conducted concerning a possible purchase of Scarborough Downs was for Universal Capital Holdings, LLC, and that he had incorrectly inferred that Bridge Capital was the parent company of Universal Capital. (Exhibit 108)

Statements to the Press As a Maine-based consultant working for HRJF BQC through all of 2016 and early 2017, Cheryl Timberlake was integrally involved in Lisa Scott’s relations with the news media. Ms. Timberlake’s firm was compensated by HRJF BQC to receive inquiries from the media, draft statements to the press, and track media articles. 21 These activities are all line items in her invoices to HRJF BQC. (Exhibits 109 – 110) She billed at an hourly rate for this work, which was in addition to her fees as the BQC’s treasurer.

As the following four interactions with newspaper reporters illustrate, Ms. Timberlake was well aware that her client, Lisa Scott, did not want Shawn Scott or other investors discussed with the press. Ms. Timberlake assisted Lisa Scott in dodging such questions from news reporters. Sometimes, Shawn Scott, himself, would weigh in on how to handle specific press inquiries.

On January 5, 2016, Cheryl Timberlake received eight questions from a reporter for a weekly newspaper based in York County, including who would own or operate the casino and “who is behind this petition drive?” (Exhibit 115) These are reasonable questions for a news organization serving a geographical area in which a casino is to be located. Ms. 21 For example, Cheryl Timberlake sent draft press statements to Lisa Scott for her review on 12/16/2015, 1/26/2016, 2/29/2016, and 1/23/2017. (Exhibits 111 – 114)

30

Timberlake passed the questions on to Lisa Scott, explaining that “FYI/The media wants details.” Lisa Scott consulted with her brother about whether they should ignore these eight questions from the local newspaper (“should we continue to ignore?”). Shawn Scott responded “No need to get involved w[ith] this at this time.” Ms. Scott instructed Cheryl Timberlake to provide “no comment” other than “we are busy collecting signatures.” (Exhibit 116)

Two weeks later, on January 22, 2016, Cheryl Timberlake received two interview requests from the Portland Press Herald, which was preparing a Sunday feature piece on the casino initiative. (Exhibits 117 – 118) Ms. Timberlake expressed her alarm about the negative publicity that could be caused by a disgruntled signature collector who had not been paid by Olympic Consulting and who had sent a highly-charged fax threatening to speak to the Press Herald concerning how the initiative was a “big rip off.” Ms. Timberlake urged Lisa Scott to let her provide a response to the Press Herald, and promised not to discuss certain topics with the Press Herald: I will not discuss the ballot question. I will not discuss the Scot[t] family. I will not discuss the funding for the effort. (Emphasis added.) Lisa Scott requested guidance from her brother about the situation, who advised her that Ms. Timberlake should respond to the Press Herald – provided that she limited her response as she had outlined. 22

On February 11, 2016, Cheryl Timberlake received an email from a Boston Globe reporter asking if Ms. Timberlake had a minute to talk, stating “I’m writing a story on the casino issues in Maine, including mention of Shawn Scott.” (Exhibit 119) Ms. Timberlake forwarded the inquiry to Lisa Scott. The next day (February 12th), Lisa Scott 22

It is notable that even the temporary field worker apparently knew who was funding the petition activities, because he addressed his faxed demand for payment to Shawn Scott (misspelled), Lisa Scott, and Cheryl Timberlake. This is yet another data point reducing the plausibility that Cheryl Timberlake was unaware that others were underwriting the petition effort. (Exhibit 117)

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proposed to her brother Shawn that she send to the reporter a press statement that Cheryl Timberlake had drafted on January 26, 2016, which made no mention of Shawn Scott. (Exhibit 120) The press statement included stock language that Ms. Timberlake would include in later draft releases, such as “Lisa will be the developer of the York County Casino. She is currently in discussions with several major gaming companies.”

Shawn Scott approved sending Cheryl Timberlake’s January 26th press release (“Good!”) to the Boston Globe reporter. (Exhibit 120) On February 14th, Cheryl Timberlake sent a brief email (“Sorry I’m traveling-”) with the language of the press statement copied into the email. (Exhibit 121) The reporter correctly perceived that Ms. Timberlake was ducking his question concerning Shawn Scott. He wrote back “OK, thanks. I will put you down as declining comment on behalf of Shawn Scott, unless you want to provide a statement or otherwise discuss [the] story ….” (Exhibit 121)

On Wednesday, January 25, 2017, Michael Shepherd of the Bangor Daily News emailed Cheryl Timberlake to request an interview with Shawn Scott because he was doing a story on Mr. Scott’s companies that have been involved in gaming. (Exhibit 122) The deadline was 12:00 noon on Friday. He indicated that he had “lots of questions about where the $4.2 million so far for the referendum has come from, especially in light of Bridge Capital’s contributions to the Massachusetts campaign through her.” Cheryl Timberlake forwarded the email to Lisa Scott, who consulted with her brother. (Exhibits 123 – 124)

Friday morning, Lisa Scott conferred with Cheryl Timberlake by email, and suggested that Ms. Timberlake call Mike Shepherd 30 minutes before the deadline and read to him Ms. Scott’s responses to his questions. (Exhibit 125) The responses that Lisa Scott conveyed to Cheryl Timberlake did not reveal that Capital Seven/Bridge Capital and Regent Able were exclusively funding the petitioning effort or answer a number of Mr. Shepherd’s other questions. In her responses, Ms. Scott claimed that she “approached my 32

brother with my plans for a Southern Maine entertainment complex and he said that I was welcome to pursue the opportunity and wished me success … I am drawing up plans now and looking at sites. … I personally plan to oversee this project and am committed to assembling a world-class team resulting in a facility that all of Maine can be proud of. …” Mr. Shepard received these statements, either from Ms. Timberlake or Ms. Scott, and published them. (Exhibit 126)

The statements to the press crafted by Cheryl Timberlake and Lisa Scott not only avoid questions about the actual funders behind the casino initiative, they also overstate Ms. Scott’s role in the project. The large volume of emails reviewed by the Commission staff disclose no evidence that Lisa Scott “was in discussions with several major gaming companies,” as Cheryl Timberlake had drafted in her January 26, 2016 and subsequent statements. Although Cheryl Timberlake stated that Lisa Scott was “the developer,” the staff has not seen any documentation (nor any indication from the privilege log that other documents exist) suggesting that Lisa Scott was in a leadership role in activities associated with developing a gaming facility, such as •

negotiating with owners of an existing facility (Scarborough Downs) concerning a possible move to another county and an expansion to incorporate table games,

•

finding or acquiring properties in York County that would be appropriate for a casino,

•

dealing with construction or architectural professionals concerning potential properties, and

•

obtaining financial backing for the project (other than her brother and John Baldwin).

Rather, the documents received by the Commission suggest that Lisa Scott was invited by the project investors to be part of a team effort. Her role was to be the front person for the project in Maine and to oversee the petitioning.

33

Similarity to Disclosures in 2016 Massachusetts Initiative The failure to disclose the funders and movers behind the Maine casino initiative resembles the activities of some of these same proponents in the 2016 Massachusetts initiative to open a gaming facility in Revere adjacent to the Suffolk Downs racetrack. A business associate of Shawn Scott, Eugene McCain, was the treasurer and chairman of the Massachusetts ballot question committee formed to promote the initiative. The committee was named Horse Racing Jobs and Education Ballot Question Committee.

In campaign finance reports filed with Massachusetts Office of Campaign and Political Finance (OCPF), the Massachusetts BQC initially reported receiving cash and in-kind contributions totaling $1,644,538 from a single source, Capital Productions, LLC (formed in 2015 in Delaware). (Exhibit 127) Television ads funded by the BQC caught the attention of the OCPF because the ads did not include the top five contributors of the BQC. After speaking to the BQC about the sources of its funding, the OCPF staff determined that the BQC had violated Massachusetts campaign disclosure laws, for which the penalties were potentially very large.

The OCPF entered into a disposition agreement with the BQC under which it agreed to pay a forfeiture of $125,000. (Exhibits 128 – 129) The BQC amended its reports on November 2, 2016 (six days before the election) to disclose that Capital Productions, LLC received its funding from four investors: •

Bridge Capital, which contributed $390,000,

•

Regent Able, which contributed $854,537.93 through Miami Development Concepts, LLC,

•

Toko Kobayashi, who contributed $200,000, and

•

Sok Chenda, who contributed $200,000.

(Exhibit 130) Among other things, OCPF determined that Capital Productions, LLC qualified as a BQC and should have filed campaign finance reports, because it solicited and received $1,644,537.93 in funds from the investors. 23

23

The documents received by the Commission do not indicate that either Lisa Scott or Cheryl Timberlake was involved in the financial reporting for the Massachusetts initiative.

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Mr. McCain was profiled in an October 17, 2016 story in the Boston Globe. (Exhibit 131) The article noted that “McCain’s approach to the Revere project has conspicuously followed a playbook made familiar in the gaming world by Las Vegas casino mogul Shawn Scott – buying properties at a race track and then financing a voter referendum to authorize gambling there.” Mr. McCain acknowledged that Shawn Scott and Hoolae Paoa joined him when he was examining properties for the project in Revere, but he said that “[Shawn Scott] is not involved and cannot and will not be involved” in the project. According to the article, Mr. McCain “declined to name the investors who have provided seed money for the project, saying that they should not face scrutiny at this stage. ‘The project will provide full disclosure if the project moves forward after November,’ he said.” (internal quotation marks added to article) At the article’s conclusion, the reporter quoted Mr. McCain as stating, “Right now, I’m the guy doing this. … This is Gene McCain’s project,” echoing the same phrase this Commission has heard in a number of contexts that the Maine casino has been “Lisa Scott’s project.”

August 17, 2017 Interview of Cheryl Timberlake On August 17, 2017, the Commission staff interviewed Cheryl Timberlake for about 3½ hours. Her attorney, Avery T. Day, was present. Executive Director Jonathan Wayne led the questioning. The Commission’s Counsel and two other employees (Paul Lavin and Benjamin Dyer) asked follow-up questions. At the time of the interview, the staff had not received any of the nearly 4,000 subpoenaed documents from Lisa Scott. As discussed in Section V of this memo, some of Ms. Timberlake’s responses during the interview are directly contradicted by the content of email communications contained in the documents produced. The following is a concise summary of her interview responses.

In October 2015, Cheryl Timberlake met with Lisa Scott after receiving either a telephone call or email about working on the York County casino initiative. They subsequently met in person to discuss the engagement. Ms. Timberlake did not enter into a written contract with Lisa Scott. Ms. Timberlake and Shawn and Lisa Scott were 35

acquainted because of lobbying and regulatory work that Ms. Timberlake had performed as a result of the 2003 gaming initiative.

In February 2016, Ms. Timberlake, as Treasurer for HRJF BQC, hired an accounting firm, MacPage, to assist with reconciling transactions (both revenue and expenses), collecting receipts, and fiscal management. The staff asked how she obtained the information necessary to report contributions for HRJF’s April 2016 campaign finance report covering the period of January through March. Ms. Timberlake explained that her assistant, Corinna Rodrigue, obtained account activity reports for Lisa Scott’s personal bank account and the IDC bank account (Exhibits 22 – 23), and provided them to the MacPage accountant, Tetiana Glebkivska.

Ms. Glebkivska created Excel worksheets for both Schedule A (Contributions) and Schedule B (Expenditures). (Exhibits 132 – 133) From these, Ms. Rodrigue prepared handwritten versions of the report for Ms. Timberlake to review and approve before filing.

Ms. Timberlake and the Commission staff discussed specific deposits of $100,000 and $200,000 made to Lisa Scott’s personal bank account during the first two weeks of January 2016, as shown in the account activity report. (Exhibits 22 – 23) Ms. Timberlake acknowledged that she probably examined the bank activity report. The Commission’s Executive Director asked what made her believe that this money came from Lisa Scott. Ms. Timberlake responded that she did not inquire where the money came from, and that Ms. Scott would always say that this was “her money.”

The Commission’s Executive Director inquired whether Ms. Timberlake had ever asked if the money was coming from other sources. She replied that she did not ask a pointed question such as “Lisa, have you gotten money from other sources?” When money was needed for petitioning, Ms. Scott provided it. When asked if she thought it was strange to 36

get so much money from Lisa Scott personally, Ms. Timberlake replied that was not her reaction.

When asked about her knowledge of Lisa Scott’s business background, Ms. Timberlake replied that Lisa Scott is a real estate developer, but she did not know of any specific projects. When asked about her basis for believing that Lisa Scott had $2.5 million to put into the project, Ms. Timberlake replied Ms. Scott had been involved with 2003 initiative and was a real estate developer.

The Commission’s Executive Director asked if she suspected that others were putting money into the project. Ms. Timberlake responded that she did not. She said that Ms. Scott was very territorial about this project. When asked if she felt that she was misled by Lisa Scott, Cheryl Timberlake paused and replied “perhaps.”

When asked why Ms. Scott would email Ms. Rodrigue on March 9, 2016, requesting that she print out MDC’s articles of incorporation, Ms. Timberlake could not provide any explanation other than that Ms. Scott was in Maine at that time. Ms. Timberlake stated that she had no awareness of MDC in 2016, and that she first became aware of MDC when meeting with Lisa Scott in April 2017 to amend the HRJF BQC’s campaign finance reports.

The Commission’s Executive Director inquired what Lisa Scott had said to lead Ms. Timberlake to believe that this was her project. Ms. Timberlake responded that Ms. Scott issued a press release. She could not recall specific conversations.

Cheryl Timberlake said that she saw no evidence in 2016 that Shawn Scott would be involved in the project, or that he was responsible for the funding. She had heard from industry sources that Shawn Scott was interested in purchasing Scarborough Downs. When asked if Mr. Scott had delegated the casino project to Lisa Scott and what their 37

relationship to the project was, Ms. Timberlake said she did not know. Ms. Timberlake said that she did not know if the Maine casino was originally Lisa Scott’s idea.

Ms. Timberlake said that she knew of Hoolae Paoa as someone who worked with Lisa Scott, but she “never dealt with” Mr. Paoa. Ms. Timberlake did not know how Stavros Mendros knew to address emails requesting money to Mr. Paoa. When asked if she had ever contacted Hoolae Paoa, Ms. Timberlake replied no.

Cheryl Timberlake said she knew Laurence Hamilton was a new associate of Lisa Scott. Ms. Timberlake did not know if he had any role in Shawn Scott’s businesses or Regent Able. When asked why she was forwarding emails containing invoices to him, she said she was not sure. She met him once when Mr. Hamilton was interviewing a new company (JEF Associates) to collect petition signatures in phase two. When asked if she met Mr. Hamilton a second time, she replied no. When asked if Mr. Hamilton stayed in Maine, she replied that she didn’t know. She had heard through gaming industry contacts that Mr. Hamilton was in Maine looking at potential sites with large tracts of land in York County.

Ms. Timberlake confirmed that she had not served as a PAC or BQC treasurer before. To become educated on reporting requirements, she reviewed the Commission’s website, received legal advice from SoltanBass LLC, and hired an accounting firm. She read the BQC statute and looked at guidance on the Commission website, but could not recall whether she saw guidance from the Commission in a question-and-answer format. Ms. Timberlake confirmed that she did have an understanding that a person receiving or spending more than $5,000 was required to register as a BQC. She was unsure whether SoltanBass had experience with campaign finance reporting.

The Commission staff asked about a July 11, 2016 email from Cheryl Timberlake to Scott family lawyer Deborah Deitsch-Perez and Lisa Scott about the reporting of 38

contributions on Schedule A. (Exhibit 134) The email referred to a previous discussion. Ms. Timberlake copied and pasted language from the Commission’s online guidance concerning “When to Register and File an Initial Report,” and which contributions and expenditures must be reported. She also copied language from the BQC statute (§ 1056B), and had attached a copy of the blank BQC reporting form to her email. (Exhibit 135) Ms. Timberlake claimed not to remember the context for the email, but she said it was around the period that Lisa Scott was in conversations about whether to continue with the petition drive.

Cheryl Timberlake said that she and her attorneys, James Bass and Charles Soltan, met with the Commission staff on January 11, 2016. Benjamin Dyer participated in the meeting for the Commission staff. It was a general discussion. Mr. Dyer discussed a new disclosure requirement for paid advertisements. Ms. Timberlake said that at the time of the meeting, she was not aware that Lisa Scott had received money from another source. They did not discuss specifically the money that Lisa Scott had contributed. (As of the date of the January meeting, the Commission had received only one report showing that Lisa Scott had contributed $28,000.)

Cheryl Timberlake said she was not involved in the Massachusetts campaign, and did not know anything about Regent Able until April 2017 when she had to amend HRJF’s reports and helped Lisa to register the three new BQCs.

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Section IV. Campaign Finance Reports Filed through April 2017

HRJF BQC. In ten campaign finance reports filed with the Commission between December 16, 2015 and April 7, 2017, HRJF BQC reported that it received $4,257,419.14 in cash contributions from a single source, Lisa Scott. Exhibit 136 contains the cover sheets for these ten reports, along with the Schedule A (Contributions) that were originally filed.

After meeting with Commission staff and counsel concerning BQC reporting requirements, on April 20, 2017, HRJF BQC amended eight of its ten campaign finance reports to indicate that some of the cash contributions it received were from IDC and MDC. Exhibit 137 contains a chart of these amended contributions, and the transactions as shown in these eight amended reports.

After these amendments, the campaign finance reports filed by HRJF BQC disclosed the following receipts: •

During December 2015 (the first month of the petitioning effort), HRJF BQC received $148,000 from IDC.

•

During December 2015 to April 2016 (roughly the first four months of the petition campaign), HRJF BQC received a total of $3,030,865.22 from Lisa Scott.

•

From April 2016 through March 2017, HRJF BQC received $1,078,553.92 from MDC.

As mentioned above, the original reports filed on December 16, 2015 and January 14, 2016 contained some apparent errors. For example: •

HRJF BQC did not report a receipt of $115,000 that the BQC received from IDC on 12/28/2015. (On September 8, 2017, HRJF BQC amended the January 2015 quarterly campaign finance report to publicly disclose this receipt of cash.)

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•

In its initial report filed on 12/14/2015, HRJF BQC reported receiving two cash contributions from Lisa Scott of $3,000 (12/10/2015) and $25,000 (12/11/2015). In an amendment made on September 8, 2017, the BQC deleted these transactions. 24

The Commission staff understands that HRJF BQC may be making future amendments to its campaign finance reports to address additional issues.

The Commission staff has determined that the following receipts of cash by HRJF BQC were originally reported as coming from Lisa Scott, but the funds were actually provided by IDC or MDC. These are the basis of recommended findings in Section V that seven of the BQC’s reports be considered late, because they did not substantially conform to the reporting requirements. Payer IDC MDC MDC MDC MDC MDC MDC MDC MDC

Payee HRJF HRJF HRJF HRJF HRJF HRJF HRJF HRJF HRJF

Date 12/28/2015 04/26/16 05/26/16 07/05/16 09/28/16 11/09/16 11/30/16 12/20/16 03/31/17 Total

Amount $115,000.00 $150,000.00 $30,000.00 $25,000.00 $300,000.00 $330,000.00 $193,100.00 $35,000.00 $15,453.92 $1,193,553.92

Report Period 2016 Jan Quarterly 2016 11-Day Pre-Primary 2016 11-Day Pre-Primary 2016 42-Day Post-Primary 2016 Oct Quarterly 2016 42-Day Post-General 2016 42-Day Post-General 2017 Jan Quarterly 2017 Apr Quarterly

Lisa Scott, MDC, and IDC BQCs. On April 24, 2017, a week after the Commission staff had met with Lisa Scott’s attorney, Bruce M. Merrill, and Cheryl Timberlake concerning whether the financial reporting to date was complete, Lisa Scott, IDC, and MDC registered as BQCs with the Commission, and filed an initial campaign finance report for

24

These transactions appear to be related to $25,000 in cash that Stavros Mendros reported receiving on 12/14/2015. Lisa Scott withdrew $3,000 in cash from the IDC account on 12/11/2015, but the Commission staff cannot verify from the bank records whether the other $25,000 received by Mr. Mendros can be traced to cash withdrawals from Ms. Scott’s personal account or IDC.

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each BQC. (Exhibits 138 – 143) Ms. Scott served as the treasurer and principal officer of all three BQCs. Ms. Timberlake (and her associate) assisted Ms. Scott in compiling the reports, but declined to serve as treasurer for any of the new BQCs.

Lisa Scott, IDC, and MDC reported that all of the funds they had provided to HRJF BQC for the initiative campaign were derived from large loans that they received from two entities: Capital Seven and Regent Able. The specific dates and amounts of the loans reported by the three BQCs were: Date

BQC Reporting Reported Lender Loan

12/11/15 01/04/16 01/15/16 04/20/16 12/15/15 04/26/16 05/26/16 07/05/16 09/28/16 11/09/16 12/20/16 03/31/17

Lisa Scott Lisa Scott Lisa Scott Lisa Scott IDC MDC MDC MDC MDC MDC MDC MDC

Capital Seven Capital Seven Capital Seven Capital Seven Capital Seven Regent Able Regent Able Regent Able Regent Able Regent Able Regent Able Capital Seven

Amount of Loans $55,000.00 $1,385,000.00 $1,570,365.22 $45,500.00 $148,000.00 $150,000.00 $180,000.00 $25,000.00 $300,000.00 $523,100.00 $35,000.00 $15,453.92

In total, the three BQCs reported that: •

Lisa Scott received four loans totaling $3,055,865.22 from Capital Seven.

•

MDC received six loans totaling $1,213,10 from Regent Able and one loan of $15,453.92 from Capital Seven.

•

IDC received a loan of $148,000 from Capital Seven.

The campaign finance reports were submitted using the Commission’s paper forms for BQCs. The loans and expenditure information were entered by hand. Ms. Scott signed

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the reports. By signing each report, she certified that she had examined the report and to the best of her knowledge it was true, correct and complete.

The reports filed by the three BQCs on April 24, 2017 did not provide an accurate picture of the financial activity that occurred in December 2015 and 2016. MDC did not receive loans from Regent Able. Rather, Regent Able invested in commercial gaming opportunities in Maine and Massachusetts by paying money to MDC, with the understanding that $950,000 would be used in Maine in the fall of 2016 for purposes of petitioning. These were described as “capital injections,” not loans. The Commission staff has received no documentation suggesting that Lisa Scott borrowed money from Capital Seven or would be under any obligation to repay any money to Capital Seven. Bridge Capital lent money to Capital Seven, but not to Lisa Scott.

The dates and amounts of money reportedly received by Lisa Scott and IDC were also faulty. The dates and amounts of money that Bridge Capital transferred to Lisa Scott, apparently on behalf of Capital Seven, are set out in a table above in this memo, and have no apparent relation to the dates and amounts of the “loans” that Lisa Scott reported receiving. IDC received two contributions of $100,000 on December 21 and 24, 2015 for purposes of petitioning, not a loan of $148,000. In Section V, the Commission staff recommends finding Lisa Scott, MDC, and IDC in violation for not registering as BQCs and filing campaign finance reports in 2016.

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V. Analysis by Commission Staff

The people of Maine have a legal right to know the identities of those who would use Maine’s citizen initiative process to make or change laws that will affect the public welfare and economy of the State. Campaign finance reporting is a critical component of this public disclosure particularly when the responsible parties are not being disclosed in the news media or other usual channels of information to the public. No one is entitled to disregard campaign disclosure laws just because the public’s knowledge of their involvement may be inconvenient or disadvantageous.

The facts presented in Section III show that the proponents of the York County casino initiative structured the financing of the campaign in a way that frustrated the public’s ability to learn who was actually funding it. Public awareness from press articles that Lisa Scott is the sister of Shawn Scott, and that Shawn Scott’s company was the only entity that could be licensed to operate a casino under this initiative is not a substitute for the full financial accounting to which the public was entitled under law. Despite the lack of transparency in initial reporting, a clear picture has emerged showing that three individuals – Shawn Scott, John Baldwin, and Toko Kobayashi – and their businesses – Capital Seven, Bridge Capital, and Regent Able – were the only sources of the money and the locus of control over the campaign to put a casino in York County. That is the information the public was entitled to know beginning in December 2015, but which was not disclosed until April 2017 (and, even then, not fully or accurately).

The Commission staff declines to speculate about the rationale for this strategy, but the pattern is clear and unmistakable. Time and again, Lisa Scott had opportunities to disclose that Bridge Capital (or Capital Seven using funds borrowed from Bridge Capital) and Regent Able were paying for the petition gathering yet she declined to do so – every time. The funders of the York County casino initiative used the same playbook in a

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gaming initiative on the ballot in Massachusetts in 2016 and were ultimately forced to disclose the true sources of funding for that campaign.

The Commission staff recommends viewing the failure of Lisa Scott, MDC, and IDC to disclose the project’s investors as a very serious violation. Meaningful information was denied to the Maine public, press, and policymakers throughout 2016 and early 2017. A strong enforcement response by the Commission is not only fair – it is necessary to impress upon these proponents and future ballot question funders that circumvention of Maine’s political transparency laws will not be tolerated and, when discovered, will result in serious financial consequences.

This was a reporting failure that should never have happened. The York County casino initiative is not Shawn Scott’s first experience with a political campaign. He has a history of influencing state laws through initiatives to create lucrative commercial gaming opportunities for himself and his business associates. He and fellow investors spent $4.2 million through April 2017 and received professional advice on campaign finance reporting from attorneys, lobbyists, and accountants – and still managed not to disclose the two funders of the effort. It is difficult to believe that this was an accident.

In 2006, the Legislature formed a commission to study three areas within Maine’s election process. One concern was insufficient information available to the public concerning advocates and opponents of citizen initiatives. Among other things, the study commission recommended greater disclosure during the signature-gathering phase of a citizen initiative: Legislation should be enacted to require that campaign finance reports by PACs organizing citizen initiative campaigns specify expenditures made as payment to petition circulators. This legislation should also clarify that contributions received and expenditures made by a PAC during the signature gathering phase of a citizen initiative campaign must be reported when current statutory thresholds are met. …

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Final Report of the Commission to Study Alternative Voting Procedures, the Citizen Initiative Process and Minor Party Ballot Access, at 12. 25 This study resulted in P.L. 2007, Chapter 575. Maine’s elected policy-makers wanted to ensure that the Maine public has a full understanding of who is promoting a citizen-initiated bill while signatures are being collected – before the bill is considered by the Legislature.

Recommended Findings of Violation Under Maine law (21-A M.R.S.A. § 1056-B), any person not defined as a PAC that receives more than $5,000 in contributions for the purpose of initiating or influencing a ballot question campaign must register as a BQC and file campaign finance reports. Subsection 2-A lists categories of funds which are considered contributions.

Lisa Scott failed to register as a ballot question committee in December 2015 and file campaign finance reports during 2016 and 2017 The Commission staff recommends finding that Lisa Scott violated 21-A M.R.S.A. § 1056-B by not registering and filing campaign finance reports as a ballot question committee. Beginning on December 10, 2015, she began receiving payments from Bridge Capital for the specific purpose of initiating and promoting the ballot question. The email communications she made to her brother and John Baldwin imploring them for cash cannot be understood any other way. Mr. Scott, as the owner of Capital Seven, and Mr. Scott and Mr. Baldwin, as co-owners of Bridge Capital, knew this was the purpose of the funding. These payments were clearly contributions as defined in §§ 1056-B(2-A)(B) & (C). Ms. Scott was required to register as a BQC on December 17, 2015 and file financial reports until she terminated her financial activity to promote the ballot question.

Based on the information presently available, the current view of the Commission staff is that Lisa Scott and IDC should have reported Capital Seven as the contributor in

25

The report can be found at http://www.maine.gov/legis/opla/electrpt.pdf.

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campaign finance reports in December 2015 and 2016 – because funds were provided to Lisa Scott and IDC by Bridge Capital on behalf of Capital Seven. Had Lisa Scott consulted with the Commission staff in 2016 about how to report this unusual situation, we would have advised that Capital Seven be entered in campaign finance reports as the contributor and proposed (in the interest of full transparency to the public) a notation in the contribution description field that funds were provided by Bridge Capital pursuant to a loan agreement.

Bridge Capital’s attorney has argued that the money provided by Bridge Capital is exempt from the definition of a contribution because it was “a loan of money by a financial institution made in accordance with applicable banking laws and regulations and in the ordinary course of business.” (21-A M.R.S.A. § 1052(3)(A)) Bridge has recently provided some information to support this view, 26 but the staff has not had adequate time to study whether the money provided by Bridge Capital qualifies as an ordinary loan made by a regulated financial institution that would exempt it as a “contribution.” Regardless, the Commission staff believes this exception does not affect the duty of Lisa Scott and IDC to report their contributions, because Lisa Scott and IDC received no loans.

MDC failed to register as a ballot question committee in April 2016 and file campaign finance reports during 2016 and 2017 The Commission staff recommends finding that MDC violated 21-A M.R.S.A. § 1056-B by not registering and filing campaign finance reports as a ballot question committee. On April 20, 2016, MDC received a payment of $1,300,000 from Regent Able. Of this total, $300,000 was intended by Regent Able’s owner, Toko Kobayashi, for the Maine

26

In addition to the Credit Facility Agreement between Bridge Capital and Capital Seven, which was provided with their document production on September 15, the staff received an Affidavit of Bridge Capital’s Chief Financial Officer on October 11th, along with certificates issued by governmental authorities in the Northern Mariana Islands, authorizing Bridge Capital to engage in the business of “lending and financial services.”

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campaign, and $1,000,000 of this was allocated for Massachusetts. Six days later, MDC transferred $150,000 to HRJF to be used to initiate or promote the ballot question in Maine. As discussed above, Mr. Kobayashi agreed in writing to invest up to $1,000,000 entirely in the Maine initiative, and paid $950,000 for this purpose. This provision of cash was clearly a contribution as defined in §§ 1056-B(2-A)(A) & (C). MDC was required to register as a BQC on April 27, 2016 and file financial reports until it terminated financial activity to promote the ballot question.

IDC failed to register as a ballot question committee in December 2015 and file campaign finance reports during 2016 The Commission staff recommends finding that IDC violated 21-A M.R.S.A. § 1056-B by not registering and filing campaign finance reports as a ballot question committee. IDC received two payments of $100,000 from Bridge Capital on December 21 and 24, 2015. The first deposit of $100,000 was largely used to make a $70,000 payment to Stavros Mendros of Olympic Consulting on December 22, 2015. The second deposit of $100,000 was a part of a $115,000 transfer to HRJF on December 28, 2015. IDC was required to register as a BQC on December 28, 2015 and file financial reports until it terminated financial activity to promote the ballot question. Moreover, when IDC filed its report on April 27, 2017, it should have listed these funds as contributions from Capital Seven, not as loans.

Horseracing Jobs Fairness BQC The Commission staff recommends finding that seven of HRJF BQC’s reports were filed late, because they did not substantially conform to the disclosure requirements in 21-A M.R.S.A. § 1056-B. HRJF BQC originally reported all contributions in the name of Lisa Scott when significant contributions came from two business entities, IDC and MDC (see table on following page).

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Payer IDC MDC MDC MDC MDC MDC MDC MDC MDC

Payee HRJF HRJF HRJF HRJF HRJF HRJF HRJF HRJF HRJF

Date 12/28/2015 04/26/16 05/26/16 07/05/16 09/28/16 11/09/16 11/30/16 12/20/16 03/31/17 Total

Amount $115,000.00 $150,000.00 $30,000.00 $25,000.00 $300,000.00 $330,000.00 $193,100.00 $35,000.00 $15,453.92 $1,193,553.92

Report Period 2016 Jan Quarterly 2016 11-Day Pre-Primary 2016 11-Day Pre-Primary 2016 42-Day Post-Primary 2016 Oct Quarterly 2016 42-Day Post-General 2016 42-Day Post-General 2017 Jan Quarterly 2017 Apr Quarterly

Lisa Scott was the principal officer of HRJF BQC and knew the source of the funds. She should have communicated this information to HRJF BQC treasurer Cheryl Timberlake and filed substantially accurate reports. If Ms. Timberlake or Ms. Scott were confused about how HRJF BQC should report the money received from IDC and MDC, they could have called or emailed the Commission staff for advice.

Bridge Capital, LLC Bridge Capital funded roughly three-quarters of the cost of the petition-gathering activities of HRJF BQC. Based on its review of email communications, the Commission staff believes that Shawn Scott could fairly be described as the architect of the project, or (at the very least) in a leadership role. He and his team at Bridge Capital were responsible for – or contributed to – many of the key campaign decisions during the petitioning phase of the initiative. Bridge Capital even sent one of its managers, Philip James, from Saipan to Maine to oversee the final critical stages of the first phase of petition gathering.

Nevertheless, in our opinion, Bridge Capital was not required to register as a BQC and file campaign finance reports. That is because § 1056-B contains an exception for contributors. Money that is contributed to a PAC or BQC does not count toward the

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$5,000 spending threshold to qualify as a BQC. In Maine’s system of campaign finance reporting procedures, Bridge Capital was operating as a source of funding – rather than as a BQC – even though in many respects it controlled key decisions in the campaign.

Capital Seven, LLC Very little is known about Capital Seven other than that Shawn Scott is its sole owner and that it is the only entity that can apply for a license to operate a casino in York County under the terms of the proposed legislation. Thus, Capital Seven is the only entity that stands to benefit directly if the casino initiative passes. Shawn Scott played a key decision-making role in the campaign, as evidenced by numerous email communications discussed in Section III above, and Capital Seven obtained the financing from Bridge Capital for much of the campaign. Even though Capital Seven did not actually receive those funds into an account belonging to Capital Seven (since it had no bank account), Bridge Capital apparently transferred the funds directly to bank accounts of Lisa Scott, MDC and IDC, as well as, in some instances, to those providing services to the campaign (e.g., attorneys) on behalf of Capital Seven. If the Bridge Capital funds qualify as a loan from a financial institution, then they are exempt from the definition of “contribution” and would not need to be reported by Capital Seven as a contribution. 27 Under this interpretation, it was appropriate for Capital Seven to be listed as a contributor – but not a lender to Lisa Scott’s BQC, and to the MDC and IDC BQCs.

27

If the Commission concludes that the Bridge Capital financing does not qualify for the exemption from the definition of contribution, however, then it is arguable that Capital Seven would have received a contribution from Bridge Capital over the $5,000 threshold thus requiring Capital Seven to register and file reports as a BQC.

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Regent Able Associate Co., Ltd. Regent Able provided money to MDC knowing that it would be used for petitioning in September-October 2016. In some respects, it operated in a parallel position to Bridge Capital – it contributed money and approved major decisions in the petition campaign in late 2016. It is possible that Regent Able was required to register as a BQC and file campaign finance reports — if, for example, it received money for this campaign purpose from another source, such as one of its affiliated companies. Such a conclusion would be speculative, however, based on the evidence currently available. Due to other important priorities of the Commission staff in November-December 2017 and the challenges of obtaining information after the November 7, 2017 election from this company based in Japan, we recommend taking no further action to explore this compliance question.

Preliminary Penalties (Before any Waiver) When a BQC or other campaign finance filer submits a campaign finance report late, the Commission is directed by Maine Election Law to calculate a preliminary penalty. (21-A M.R.S.A. § 1062-A(5)) The penalties are based on a percentage of contributions or expenditures in the late-filed report, multiplied by the number of days the report was filed late. 28 (§ 1062-A(3)) The late filer may pay the preliminary penalty voluntarily or request a waiver based on mitigating circumstances set out in statute. (§§ 1062-A(3) & (5)) In this matter, the preliminary penalties are quite high, because of a few factors: •

more than $4.2 million in contributions were not reported on time,

•

the reports were late by several months or more than a year, and

•

the Commission’s penalty statutes were amended in 2011 and 2015 to significantly increase the maximum penalty when more than $50,000 in campaign finance activity is reported late.

28 Under current law, the percentage is now 2% (first violation), 4% (second violation) and 6% (third or more violation). Before December 23, 2015, the percentages were 1%, 3%, and 5%.

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Higher maximum penalties. Through the 2010 elections, the maximum penalty for regularly scheduled PAC and BQC reports was $10,000. In 2011, the Maine Legislature considered two bills intended to increase the maximum amount, LD 1262 (sponsored by former State Senator Larry Bliss) and LD 1545 (Commission bill). The testimony received in the Joint Stating Committee for Veterans and Legal Affairs in support of higher late-filing penalties stated that the Commission’s penalties were “little more than an annoyance” and not high enough to deter misconduct. The phrase that was used by two witnesses (former State Senator Philip Bartlett) and the Maine Citizens for Clean Elections was that the Commission’s penalties were so small that they were merely the “cost of doing business.” (Exhibit 144) In 2011, the Legislature adopted the Commission’s proposal as part of a comprehensive set of campaign finance changes (LD 1545). Under this law (P.L. 2011, Ch. 389, § 49), when more than $50,000 in contributions or expenditures were reported after the deadline, the maximum penalties were 1/5 of the amount reported late.

In the next few years, advocates for governmental reform in Maine continued to be concerned that the new maximum penalty was still small enough to be considered an acceptable cost of doing business in Maine and too small to serve as a deterrent. Through the citizen initiative process, they proposed a package of campaign finance law changes that were approved by Maine voters in November 2015, and took effect the next month. When more than $50,000 is reported after a statutory deadline, the citizen-initiated law increased the maximum penalties to 100% of the contributions or expenditures reported late (whichever is greater). (Exhibit 145) With respect to all campaign finance reports filed late, the daily rate of penalty for a first late campaign finance report was increased from 1% of the contributions or expenditures in the late report to 2%.

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Preliminary penalties. In Attachment C to this report, the Commission staff has set out charts showing the preliminary late-filing penalties for Lisa Scott, MDC, IDC and HRJF. Each exhibit shows the preliminary penalties for each report filed late (upper portion) and the specific contributions reported late (lower portion). The penalties for Lisa Scott, MDC, and IDC are based on the actual cash received from Bridge Capital and Regent Able (based on the staff’s review of bank records) that was used for petitioning and should have been reported in 2016 according to the statutorily set deadlines. (The relevant BQC filing schedules are attached as Exhibits 146 – 147.) The preliminary penalties against HRJF BQC are based on payments of cash received from IDC (one payment) and MDC (eight payments) that were incorrectly reported as made by Lisa Scott in the originally filed reports by HRJF BQC. 29 BQC Lisa Scott MDC IDC HRJF Total

Contributions Reported Late $2,580,000.00 $950,000.00 $200,000.00 $1,193,553.92 $4,923,553.92

Preliminary Penalties $2,500,000.00 $910,000.00 $200,000.00 $1,141,190.78 $4,751,190.78

Next Steps in Investigation – Opportunity to Respond and Request a Waiver of Penalties; Sworn Testimony As serious as the violations are in this matter, the Commission staff recommends that the penalties be partially waived. A separate letter accompanying this report invites Lisa Scott, MDC, IDC, and HRJF to respond to the proposed findings of violation and to submit an updated request for a waiver of the preliminary penalties.

29

The penalties are based on a percentage (either 1% or 2%) of the total contributions that should have been timely filed in each report, multiplied by the number of days the report was not filed. The reports due in December 2015 were calculated based on a percentage of 1% which was in effect at that time. The reports due beginning in January 2016 were calculated at 2%, because the November 2015 citizen initiative doubled the penalty rate for first violations from 1% to 2%. The maximum penalty of $10,000 applies to reports where the total amount of contributions reported late was $50,000 or less.

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We recommend receiving testimony from Lisa Scott and Cheryl Timberlake under oath to probe the explanations offered by Lisa Scott and the BQCs. We believe testimony under oath is advisable because the respondents have heretofore provided information orally that is directly contradicted by documents received by the Commission.

Statements by Cheryl Timberlake in August 17, 2017 Interview During the August 17, 2016 interview, as discussed more fully in Section III of this memorandum, Cheryl Timberlake made several statements that appear to be inaccurate or false based on information contained in emails and other documents produced in response to the subpoenas. For example, •

Ms. Timberlake said that she did not suspect that persons other than Lisa Scott were funding the initiative, yet in emails to Lisa Scott as early as April 2016, Ms. Timberlake refers to an “investor” or “investors” in the initiative. She also had contact with managers at Bridge Capital who were actively involved in the petitioning effort beginning in January 2016.

•

Ms. Timberlake stated that she was not aware of MDC until April 2017, yet in September and October 2016, she received emails, a contract, and invoices indicating that MDC had a contract with JEF Associates for signature gathering during the second phase of petitioning.

•

Ms. Timberlake said that she did not know what Laurence Hamilton’s role was in the initiative campaign and had only met him once, yet based on emails and Mr. Hamilton’s expense report, it appears that she met Mr. Hamilton at least seven times in 2016, routinely sent HRJF-related invoices to him for payment, and met with Mr. Hamilton in Boston regarding an agreement for her to provide political consulting services in connection with initiatives in Massachusetts.

•

Ms. Timberlake stated that she did not work on the Massachusetts initiative, yet she was paid $36,889 by MDC for consulting services for the Revere initiative and was in the field for the special election in Revere in October 2016.

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Inaccurate Reporting and Explanations Provided to the Commission that MDC and Lisa Scott Received Loans The Commission staff also recommends receiving testimony under oath because of inaccurate statements to the Commission that MDC and Lisa Scott had received loans. On April 24, 2017, after her attorney and Ms. Timberlake had met with the Commission staff, Lisa Scott signed and filed a financial report with the Commission stating that her company, MDC, received loans from Regent Able. The documents received in the investigation demonstrate that this was false. Regent Able did not lend money to MDC, or provide any money with the expectation that MDC would repay the money. Rather, Regent Able made an investment in potential commercial gaming operations in Maine and Massachusetts, knowing that a significant part of the investment would be spent on petitioning in Maine.

The record is similarly clear that Lisa Scott did not receive a loan from Capital Seven in 2016, as she reported in her initial BQC report filed on April 24, 2017. Rather as discussed above, Bridge Capital apparently lent money to Capital Seven (different lender, different borrower) in order to assist Capital Seven in paying for petitioning costs. This may explain the vagueness and awkwardness of Mr. Merrill’s explanations at the Commission’s June 9, 2017 meeting as he attempted to explain the terms of Capital Seven’s “non-reimbursable loan” to Lisa Scott. He may have been at a loss to explain the loan to Lisa Scott because there was no loan to her. When asked at the Commission’s June 9th meeting where he got his information about the loans, he responded that Ms. Scott had told him this in conversations. The staff could not find any evidence in the documents produced that there was even any discussion about a Capital Seven loan to Ms. Scott.

Mr. Merrill repeated the explanation that MDC and Lisa Scott received loans in a May 23, 2017 letter he submitted to request a waiver of late-filing penalties. (Exhibit 148)

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Mr. Merrill did not provide any additional information about these loans to support the explanation.

On August 26, 2017, the Commission’s Executive Director wrote a letter to Mr. Merrill to provide Ms. Scott with another opportunity to support the statement that MDC and Lisa Scott received a loan from Regent Able and Bridge Capital (respectively). (Exhibit 149) Mr. Merrill has not responded. In the absence of any other explanation, the Commission would be justified in concluding that no loans were made to MDC and Lisa Scott.

Lisa Scott’s Defenses – Reliance on Staff Guidance and Disparate Treatment In a May 23, 2017 letter to the Commission, Lisa Scott, through her attorney, faulted the Commission staff for not providing greater compliance warnings during conversations with HRJF BQC treasurer Cheryl Timberlake and others on January 11, 2016 and when conducting compliance reviews of HRJF BQC campaign finance reports later in 2016. We briefly address those arguments here and reserve an opportunity to submit a further response if they are raised as part of a new request for waiver of penalties.

First, the factual record in this matter is not suggestive of a good faith intent to make full disclosure to the public. Rather, the evidence suggests that Lisa Scott was disinclined to name the project investors and that Cheryl Timberlake cooperated with her client’s wishes. The fault for inadequate financial reporting rests primarily on Lisa Scott and secondarily on Cheryl Timberlake. •

Lisa Scott knew from the beginning of the initiative effort that Capital Seven, or Bridge Capital on behalf of Capital Seven, would be providing the funds for petitioning. After the first attempt to qualify the initiative for the ballot failed, she was fully aware that Regent Able would be funding the second phase. She should have disclosed these facts in detail to her attorneys, SoltanBass, and to her treasurer, Ms. Timberlake, in order to receive effective compliance advice. 56

According to Cheryl Timberlake, this type of clear, detailed communication never took place. •

Cheryl Timberlake had read 21-A M.R.S.A. § 1056-B and understood that persons collecting more than $5,000 in contributions are required to register as BQCs. By April 2016, she was aware that an “investor” (her term) had injected funds to support HRJF BQC. She met with a representative of that investor at least seven times. Earlier, in January 2016, she knew that Bridge Capital managers and officers were significantly involved in the petitioning effort and that Lisa Scott was receiving large deposits of $100,000 or $200,000 into her personal bank account. In short, Ms. Timberlake knew enough to ask questions about the sources of money that Lisa Scott was contributing to HRJF BQC. It is simply not plausible that, by the end of April 2016, she still could have believed that this was “Lisa Scott’s money.”

Second, at the January 11, 2016 meeting, Ms. Timberlake did not tell Commission employee Benjamin Dyer that Lisa Scott had already received money from another source (Bridge Capital). Had this fact been disclosed to Mr. Dyer, he undoubtedly would have advised Ms. Timberlake that Lisa Scott should register as a BQC and report her contributors. Ms. Timberlake told staff that she was not even aware on January 11, 2016 that Lisa Scott had received money from another source or that anyone other than Ms. Scott was involved in the project.

The assertion by Lisa Scott’s attorney that the Commission staff had “assured” HRJF BQC that it was in compliance conveniently mischaracterizes the Commission’s procedures and communications. When the Commission staff performs a compliance review of a campaign finance report, all the staff knows is information on the face of the report. As this matter and the Respect Maine PAC investigation make plain, unless an investigation or audit is conducted, the Commission staff is no position to offer any assurance that a campaign finance report is accurate and complete – nor did we in this 57

case. It is now clear that Ms. Scott and Ms. Timberlake withheld information critical for complete and accurate guidance from the staff for nearly a year and a half. That information was necessary for the staff to gauge whether HRJF BQC was in compliance with the law. If the staff’s guidance was faulty or incomplete in any way, it was because of Ms. Scott’s and Ms. Timberlake’s failure to disclose the relevant facts. Ms. Scott and her attorney cannot now use the staff’s guidance from January 2016 as a shield against any enforcement actions the Commission may take or to absolve subsequent wrongdoing.

Lisa Scott has argued that the Commission does not have jurisdiction to require Lisa Scott, MDC, and IDC to register and report as BQCs because Maine campaign finance law does not contain an explicit definition for the “original source” of a contribution. The Commission cannot “request disclosure of information that goes beyond its legislative authority.” 30 Therefore, she asserts that even though all three entities – Lisa Scott, MDC, and IDC – obtained money from other sources to contribute to HRJF, they did not have to disclose who gave them those funds.

Ms. Scott bases this argument on an inapt comparison of campaign finance law and the lobbyist disclosure law. The lobbyist disclosure law contains a definition of “original source” 31 and a requirement that a lobbyist include information about the original source of funds used to pay for that lobbyist’s services in the lobbyist’s monthly reports filed with the Commission.32 Her argument is that since comparable provisions do not exist in

30

Letter from Bruce Merrill, Esq., dated May 23, 2017 (“Re: HRJF Initiative Drive”), in response to the request for an investigation by Sen. Mason and Rep. Luchini. 31 “‘Original source’” means any person who contributes or pays $1,000 or more in any lobbying year directly or indirectly to any employer of a lobbyist for purposes of lobbying or indirect lobbying, except that contributions of membership dues to nonprofit corporations formed under Title 13-B, under any equivalent state law or by legislative enactment are not considered contributions by an original source.” (3 M.R.S.A. § 312-A(11-A)) 32 In monthly reports filed with the Commission, a lobbyist must include: “A list of all of the employer's original sources and a statement of the dollar amounts contributed or paid by the original sources to the employer. If the original source is a corporation formed under Title 13 or 13-C or former Title 13-A, nonprofit corporation formed under Title 13-B or limited partnership under Title 31, the corporation,

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campaign finance law, there is no comparable obligation for a contributor to disclose whether the funds it contributed to a BQC were obtained from another source.

Ms. Scott has stated that she and the Commission staff have different interpretations of § 1056-B. However, the staff views her argument as based on a strained statutory interpretation: because certain words used in one title of Maine statutes are absent in a wholly unrelated title, the absence is meaningful, and, in this instance, limits the Commission’s authority. Ms. Scott’s argument would allow anyone to circumvent Maine’s campaign finance laws by using a conduit or intermediary to channel funds to PACs and BQCs. The actual source of the funds could always remain hidden. A plain language reading of § 1056-B leaves little room for such an interpretation. Section 1056-B states, in relevant part, that [a] person […] that receives contributions […] aggregating in excess of $5,000 for the purpose of initiating or influencing a [citizen initiative] shall register as a ballot question committee and file reports with the commission in accordance with this section. (21-A M.R.S.A. § 1056-B)

The bank records and other documentation provide conclusive proof that the funds received by Lisa Scott, IDC, and MDC were contributions, as defined in §§ 1052(3) and 1056-B. The funds were received for the purpose of influencing the York County casino initiative. 33 If a person receives more than $5,000 in contributions, that person is required to report who the contributions came from – in other words, the original source of those funds.

nonprofit organization or limited partnership, not the individual members or contributors, must be listed as the original source.” (3 M.R.S.A. § 317(1)(J)) 33 The funds transferred by Regent Able, and from Bridge Capital on behalf of Capital Seven, to Lisa Scott, MDC and IDC were not loans from financial institutions to Ms. Scott or her companies; thus Ms. Scott cannot claim that these funds received are excluded from the definition of “contributions” under 21-A M.R.S.A. § 1052(3)(A).

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A report required by this section must contain […] an itemized account of contributions received from a single source aggregating in excess of $50 in any election; the date of each contribution; […] the name and address of each contributor […]; and the occupation and principal place of business, if any, for any person who has made contributions exceeding $50 in the aggregate. (21-A M.R.S.A. § 1056-B(2)) The absence of the phrase “original source,” or a definition of “original source” does not alter the meaning or application of the first sentence of § 1056-B. Moreover, the Commission’s written Guidance to BQCs, as well as decisions by the Commission and the courts in the National Organization for Marriage enforcement matter in 2012-2015, 34 explained in detail the scope of section 1056-B with regard to contributions. All of this information was readily available to Ms. Scott, Ms. Timberlake and their attorneys at the beginning of this initiative campaign.

Finally, there has been no disparate treatment of Ms. Scott with respect to the application of campaign finance law. As HRJF BQC reported receiving large contributions from Lisa Scott in successive 2016 campaign finance reports, Ms. Scott was regarded by the Commission staff in the same category as other donors making contributions above $100,000 or $1,000,000. We expect that these donors are spending their own general funds for campaign purposes. We do not have a systematic practice of contacting donors to confirm whether they received money from some other sources specifically to influence a Maine election. That practice has not developed, in part, because Mainebased PACs, BQCs, and party committees would likely view such inquiries as an unwarranted intrusion by a state agency into their donors’ First Amendment activities. Moreover, except for a few cases, most PACs and BQCs do communicate with the staff

34

Nat’l Org. for Marriage v. McKee, 669 F.3d 34 (1st Cir. 2012), cert. denied, __ U.S. __, 133 S. Ct. 16, and Nat’l Org. for Marriage v. Comm’n on Governmental Ethics & Election Practices, 2015 WL 1756079 (Me. B.C.D. April 13, 2015), upholding Commission Determination In Re: National Organization for Marriage, issued on June 30, 2014.

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in good faith and provide the staff with accurate information. This enables the staff to work with the committees to ensure their compliance with the reporting requirements. In the staff’s view, Ms. Scott’s arguments of reliance or disparate treatment are unconvincing attempts at shifting responsibility.

Penalty Recommendation As explained above, this is the first enforcement matter concerning late reports of more than $50,000 in contributions or expenditures since the maximum penalties were increased in 2011 and 2015. All prior Commission penalty decisions involving more than $50,000 in unreported campaign activity were made when the maximum penalty was $10,000 per report. For that reason, prior Commission penalties for late campaign finance reports are not comparable.

With respect to the late-filing penalties for Lisa Scott, IDC, and MDC, the Commission staff recommends assessing penalties within a range of 10% to 20% of the preliminary penalties. We recommend 15% of the maximum penalty. Staff Recommends ↓ BQC Lisa Scott MDC IDC HRJF Total

Preliminary Penalties $2,500,000.00 $910,000.00 $200,000.00 $1,141,190.78 $4,751,190.78

10% of Preliminary Penalties $250,000.00 $91,000.00 $20,000.00 $114,119.08 $475,119.08

15% of 20% of Preliminary Preliminary Penalties Penalties $375,000.00 $500,000.00 $136,500.00 $182,000.00 $30,000.00 $40,000.00 $171,178.62 $228,238.16 $712,678.62 $950,238.16

The recommended penalty of 15% of the preliminary penalties represents roughly 17% of the amount spent by the advocates during the period of time examined in this investigation.

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When making a penalty determination in this matter, we recommend taking into consideration: •

the very large amounts of money reported incorrectly in this case,

•

the demonstrated reluctance of Lisa Scott to disclose the project investors, and

•

the legal and financial resources that were available to Lisa Scott through the project investors to make sure that detailed, accurate campaign finance reports were filed, as required by law.

This enforcement matter is distinct from the routine enforcement matters that come before the Commission in which a candidate or political committee has missed a couple of transactions or misunderstood how to use the Commission’s e-filing website. This is not an “oops” case, as one Commissioner has described your typical late-filing waiver requests. For these reasons, we believe that penalty assessments of 10% to 20% of the maximums are warranted.

Your penalty decision in this matter should be adequate to deter future similar behavior in Maine. More and more money is available nationally to influence state laws through initiatives and referenda. Some advocates have a natural tendency toward protecting their donors from scrutiny. However, Maine has a legitimate governmental interest in preventing the use of shell donors to disguise the true source of money used to influence Maine elections.

Thank you for your consideration of this report.

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