Political drama goes to court

11/07/2005

Case involves ex-GOP leader, donations and 2002 race for governor

BY PATRICK SWEENEY
Pioneer Press

If the long-delayed criminal case against former Minnesota Republican Party Chairman Ron Eibensteiner were a political movie, its plot line would have as many twists and turns as “The Candidate” or “All the President’s Men.”

Here’s how the script for the case, which is set for trial today in Rochester, might unfold:

Scene One. A Florida insurance company in trouble with a Minnesota regulator tries to give $30,000 to two candidates for governor, then settles for giving the money to two national campaign committees — all aimed at trying to ensure the regulator is not reappointed.

Scene Two. A Republican chairman signs a thank-you note for some of the cash. Three years later, he finds himself facing gross misdemeanor charges that he aided crimes by the company and its executives. The company and executives, meanwhile, avoid trial on their own felony charges by writing a $1 million check to the county where the prosecution originated.

Scene Three. A Democratic attorney general inquires about a Ronald Reagan bust in the home of a lobbyist he considers a Democratic loyalist, then pockets the ambiguously worded, but potentially incriminating, thank-you note from the Republican chairman.

Scene Four. Inquisitive grand jurors ask, but never get an answer, about why prosecutors seek an indictment concerning contributions to Republicans but take no action against nearly identical donations to Democrats.

Scene Five. Lawyers duel over whether money the insurance company gave to a Washington, D.C., Republican committee was improperly funneled back to Minnesota.

The next scene in the political drama is set to play out this week before an Olmsted County jury. District Judge Lawrence T. Collins of Winona last week moved the trial to Rochester because of pretrial publicity in Mower County, where the case originated.

Eibensteiner did not comment for this article, but previously he has said he is “completely innocent” and called his prosecution “gotcha politics.”

Although the case stems from the 2002 Minnesota gubernatorial campaign, elements of it are as fresh as next year’s election.

Attorney General Mike Hatch, a Democratic-Farmer-Labor candidate for governor in 2006, was a witness before the grand jury that indicted Eibensteiner, and he will be one of the first prosecution witnesses this week.

Republicans long have accused Hatch of instigating a politically motivated case, and that argument is sure to be part of next year’s campaign if Eibensteiner is acquitted.

If Eibensteiner is convicted, Hatch and other Democrats probably will argue that Republican Gov. Tim Pawlenty improperly benefited from the insurance company’s money.

The case is similar — both in substance and in Eibensteiner’s contention that his prosecution is politically motivated — to allegations that U.S. Rep. Tom DeLay illegally channeled corporate money to legislative candidates in his home state of Texas.

Although Eibensteiner’s prosecution is not a felony case, it has yielded huge legal fees and expenses.

Mower County has paid $119,000 to Earl Gray, a St. Paul criminal defense lawyer appointed as a special prosecutor to assist Mower County Attorney Patrick Flanagan. The Republican Party of Minnesota paid $116,000 in 2004 to Bill Mauzy, a Minneapolis lawyer representing Eibensteiner. A party spokesman refused to say what the party paid Mauzy this year.

Most of the facts in the case have been public since May 2003, when Legislative Auditor Jim Nobles reported on an investigation he conducted for Pawlenty and legislative leaders. But Nobles did not examine the legality of the insurance company’s contributions, and that issue is at the heart of the case.

Eibensteiner is accused of helping American Bankers Insurance Co. of Miami make illegal corporate contributions in Minnesota. He also is accused of violating another law by soliciting and accepting donations from an insurance company.

HOW IT ALL BEGAN

Eibensteiner’s case began in 2002, during the three-way race between Pawlenty, DFL candidate Roger Moe and Tim Penny of the Independence Party.

American Bankers, a division of New York-based Assurant Group, was facing a potential multimillion-dollar fine in a regulatory action brought by Minnesota Commerce Commissioner Jim Bernstein. He was an appointee of former Independence Party Gov. Jesse Ventura.

So American Bankers hired Ron Jerich, a lobbyist known for close ties to powerful legislators, especially Democrats. And the company decided to make campaign contributions to try to defeat Penny, whom it feared might reappoint Bernstein.

But there was a problem: Corporations, especially insurance companies, cannot legally contribute to Minnesota campaigns.

Nevertheless, American Bankers — through Jerich — offered $10,000 checks to leaders of the Moe and Pawlenty campaigns.

Because of the Minnesota law, the checks were forwarded to Washington-based political committees that are allowed to accept corporate money. It was not clear from Jerich’s statement to Nobles who — the company, employees of the Minnesota campaigns or state political parties, or Jerich himself — sent the checks to Washington.

The $10,000 intended for Pawlenty was routed to the Republican National State Election Committee, or RNSEC. The $10,000 offered to Moe’s campaign went, instead, to the Democratic Governors Association.

Both national committees took in millions of dollars in donations from corporations — including many Minnesota firms — individuals, other committees, unions and American Indian tribes that year. And both committees distributed part of that money to state parties.

The Minnesota Republican Party, chaired by Eibensteiner, received about $2.6 million from RNSEC in 2002. The Democratic Governors Association gave $399,000 to the Minnesota DFL Party.

Later, American Bankers wrote two more checks, for $5,000 apiece, to the two national committees.

THE REAGAN BUST

But for a happenstance, the American Bankers attempt to defeat Penny might never have become public. In October 2002, Hatch joined DFL activists at Jerich’s home for a campaign door-knocking outing to help two South St. Paul legislators.

As Hatch later told the legislative auditor, he was surprised to see a Ronald Reagan bust on Jerich’s desk. Hatch asked about the bust, and Jerich said he got it because of the American Bankers contribution to the Republican committee. Jerich then showed Hatch the thank-you note from Eibensteiner.

The note, printed on Eibensteiner’s personal stationery, became a crucial part of the prosecution case. It said, in part:

“I want to take this opportunity to say thank you for obtaining from American Bankers Insurance Company of Florida a $10,000 contribution to the RNSEC … As you know, this is a pivotal year for the Republican Party and Minnesota has been targeted as a key state. That means pressure has been put on us to raise enough money to make sure our major candidates, Norm Coleman to replace Paul Wellstone, Tim Pawlenty for Governor and John Klein (sic) to replace Bill Luther … can win.”

Hatch said he saw the note as evidence of mischief by Eibensteiner and the Republican Party. Hatch said he put the note into his pocket.

“Had he said, ‘I want it back,’ I would have said, ‘You’re not getting it back.’ … I know a crooked deal when I see it, and this was a crooked deal,” Hatch told Nobles.

THE AUDITOR’S FINDINGS

Pawlenty went on to defeat Moe and Penny. And Bernstein, the insurance company’s nemesis, was soon out of a job.

In February 2003, after Pawlenty appointee Glenn Wilson replaced Bernstein as commerce commissioner, American Bankers settled its disciplinary action. The company agreed to pay $200,000 in fines and to pay an additional $1.8 million in investigatory costs.

Nine days later, the Pioneer Press published an article that cited Eibensteiner’s note and quoted Bernstein suggesting that American Bankers bought leniency with the money it gave to the Republican committee.

The Pioneer Press article, which did not mention American Bankers’ contributions to the Democratic committee, also quoted Eibensteiner as saying that when the state party sent money to RNSEC, it was assured of getting an equal amount back.

In a 30-page report in May 2003, Nobles said he could not substantiate Bernstein’s allegation that American Bankers’ contributions bought the company a better deal.

But Nobles’ report contained a frank admission by Jerome Atkinson, the general counsel for American Bankers’ parent company, that American Bankers had hoped to defeat Penny and get a more favorable settlement in the disciplinary case.

Nobles also quoted Eibensteiner as saying the thank-you note to Jerich was a form letter, one of hundreds he signed. Eibensteiner denied there was any link between contributions to RNSEC from Minnesota and money the committee sent to the state party.

“He said he did not know, and had no way of knowing, whether any of the American Bankers money was spent in Minnesota,” Nobles said of Eibensteiner.

THE CRIMINAL CASE BEGINS

In the summer of 2003, former DFL state Rep. Rob Leighton, who once lived in Mower County, sent a copy of Nobles’ report to Lee Bjorndal, an Austin attorney who had been Leighton’s campaign treasurer.

Bjorndal passed on the document to Flanagan, the Mower County attorney, and urged Flanagan to investigate whether Minnesota’s law against corporate campaign contributions had been violated.

Flanagan enlisted Gray’s assistance and presented evidence to a grand jury. The grand jury indicted Eibensteiner on gross misdemeanor charges, and American Bankers and two Assurant executives, Atkinson and Senior Vice President Harry Bassett Jr., on felony charges.

During a pretrial hearing, an RNSEC official testified the committee scrupulously separated its accounts to ensure that corporate contributions were not spent in Minnesota or other states that bar corporate donations.

In April 2004, American Bankers agreed — without admitting guilt — to pay $1 million to Mower County to settle the case against the firm and the executives.

A trial judge later dismissed the charges against Eibensteiner, ruling that prosecutors failed to present any evidence that the American Bankers money was spent in Minnesota. But the Court of Appeals reinstated the charges in December.

WHY NO DEMOCRATS?

During grand jury proceedings, grand jurors repeatedly asked why prosecutors did not seek to indict anyone in connection with the American Bankers donations to the Democratic campaign committee.

Flanagan said in 2003 that he did not pursue the Democratic donations because no one complained about them or produced any evidence comparable to the Eibensteiner thank-you note.

“What we have is a handwritten letter from Eibensteiner,” Flanagan said recently. “We don’t go knocking on every door, asking: ‘Did you commit a crime?’ “

Bjorndal, the complainant, testified last month that he later changed his mind and urged Flanagan to drop the investigation.

“Witnesses always want to back out,” Flanagan said of Bjorndal’s change of heart. “But if there’s evidence of a crime, there’s evidence of a crime.”

Mauzy, Eibensteiner’s attorney, has repeatedly argued that Flanagan and Gray improperly singled out Eibensteiner for prosecution because he is Republican and ignored the Democratic donations. Both prosecutors denied they had any political motivation.

THE BIG ISSUE

The central issue in the case is whether the corporate money American Bankers wanted to spend in Minnesota was sent to the RNSEC and then, through a wink-and-a-nod agreement with Eibensteiner, came back to the state Republican Party.

Tim Huber, a Pioneer Press reporter who co-wrote the 2003 article that quoted Eibensteiner as suggesting there was such an arrangement, has been subpoenaed as a prosecution witness. Gray said Huber’s testimony will be key to the prosecution’s case.

Gray also said he will argue that he need not prove that the specific money that American Bankers contributed to RNSEC returned to Minnesota. “Money is fungible,” Gray said, “and the fact the money went out there poisoned the well.”

Mauzy will argue that Nobles got it right when he quoted Eibensteiner as saying he had no control over the money RNSEC sent to the Minnesota Republican Party.

“The evidence clearly shows that the money went to the RNSEC corporate account, and none of that money went to the Republican Party,” Mauzy said. “There was no quid pro quo.”