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December 11, 2008 6:48 PM

Can Blago Tap Campaign Fund for Legal Fees?

Posted by Brian Baxter

Illinois Gov. Rod Blagojevich will likely seek to use some of the $5 million believed to be in his campaign fund to help pay the legal bills connected to his defense against federal corruption charges.

While there is precedent for such an action, prosecutors could thwart that effort by going after the fund itself for alleged criminal activity. It's what they did to George Ryan, Sr., Blagojevich's predecessor in the governor's office, and it could put defense lawyers in an awkward position, especially with Blagojevich reportedly already in the hole for $500,000 to his previous lawyers at Winston & Strawn.

CAMPAIGN CASH RULES

Before dipping into his campaign funds, which are thought to be substantial given Blagojevich's relatively easy reelection campaign in 2006, the governor first needs to deal with the issue of "conversion"--whether or not he can use his campaign funds for legal fees.

Even though Blagojevich is facing federal bribery and mail and wire fraud charges, campaign finance experts like Kenneth Gross of Skadden, Arps, Slate, Meagher & Flom say the funds themselves were raised under Illinois law and are thus governed--pardon the pun--by state law.

And, it turns out, Illinois has some of the most permissive campaign finance laws in the nation, says Gross, noting that corporations are allowed to make unlimited donations to state political campaigns.

Quickly reviewing the Illinois campaign finance statute while on the phone with a reporter, Gross says that much of the state's language mirrors the federal interpretation, which generally allows campaign funds to be used for the payment of legal fees when defending against alleged illegal acts committed by an individual in the scope of his or her official duties.

"You can typically use campaign funds in connection with your duties as an officeholder, but not for personal use," Gross says. "Decisions that have come down with that type of language, which is in the federal law, would allow [Blagojevich] to spend campaign funds to defend himself for alleged illegal actions in connections with his duties as governor."

That's good news for Blagojevich, Gross says, because the governor's alleged effort to sell President-elect Barack Obama's vacant senate seat and engage in "pay to play" schemes tied to government services likely falls within the bounds of his official duties. (Had Blagojevich been arrested for drunk driving or involved in a domestic dispute, Gross says, that would be a different story.)

Still, it's not always that simple. Gross says that state courts sometimes issue their own advisory opinions that bar political figures from tapping campaign funds to pay for their defense against criminal charges. Only a week ago, a New Jersey appeals court ruled that former state senator Wayne Bryant could not access $640,000 in campaign funds to use for his defense against federal corruption charges.

FEDS MAY MOVE TO FREEZE "FRIENDS"

Aside from a ruling by an Illinois court, a more pressing concern the governor faces is whether or not prosecutors will go after the Friends of Blagojevich fund itself.

"When you read the affidavit it just screams 'forfeiture,'" says Patrick Cotter, a white-collar defense partner at Chicago's Arnstein & Lehr who worked with U.S. Attorney Patrick Fitzgerald when the two were assistant U.S. attorney's in the Southern District of New York. (Cotter worked on the trial team that prosecuted notorious mob boss John Gotti.)

Cotter says that Fitzgerald will almost certainly include a forfeiture count in the indictment he is due to file against Blagojevich and his chief of staff John Harris within 20 days. It's a common maneuver used in most mail fraud cases, says Cotter,adding that a prosecutor will usually ask the court to freeze funds derived from the illegal conduct mentioned in an indictment.

"Prosecutors have to freeze that money or defendants would immediately go out and spend it all before the verdict came in, which would be great for us defense attorneys," Cotter says. "But I just can't believe that [Fitzgerald] would file an indictment saying [Blagojevich] did all these terrible things the past six years to put ill-gotten money into an account called Friends of Blagojevich and now he can use that account to go and hire a high-priced defense team."

Going after the campaign fund is a tactic that federal prosecutors in Chicago are more than familiar with--especially in political corruption cases. In the case against Ryan, prosecutors indicted his Citizens for Ryan campaign fund. Perkins Coie partner Patrick Collins, a former supervisor of the public corruption unit under Fitzgerald in Chicago's U.S. attorney's office, worked on the six-month-long Ryan trial.

"I think it was one of the first times a campaign fund was actually indicted and convicted at trial for racketeering," Collins says. "We treated it like a corporate entity that was utilizing state resources for political purposes. They basically stole state equipment--be it paper, phones, or faxes--and used it for their campaign."

As a result, Ryan had limited funds available for his defense. Collins says the amount that was frozen--roughly $750,000, he recalls--was forfeited after Ryan's conviction in 2006.

Collins isn't sure whether Fitzgerald will pursue the same strategy against Blagojevich, but acknowledges the allegations by prosecutors that Friends of Blagojevich was a beneficiary of misconduct. "A similar theory could certainly be applied based on the allegations I read in the [Blagojevich] complaint," he says.

Excerpts from the 76-page criminal complaint unveiled against Blagojevich and Harris on Tuesday suggest that Fitzgerald is thinking along similar lines.

Prosecutors cite recordings from a wiretap on December 5 that allegedly captured Blagojevich and three associates discussing the possibility of moving money out of his campaign fund to an unidentified criminal defense attorney to avoid it being frozen by federal authorities. If the money wasn't needed for future legal fees, the FBI affidavit alleges, the attorney would donate the funds back to the campaign at a later date.

The funds do not appear to have been transferred, but Blagojevich, who by all reports appears to be in tough financial straits, could be reconsidering that decision given his history of seven-figure legal bills. While the prominence of Blagojevich's case will likely give him plenty of legal options even without the campaign fund's financial cushion, it's always preferable to rely on money already in the bank--especially if it's someone else's.

"I think every lawyer over 40 in the city of Chicago has probably done a corruption case," Cotter jokes. "But it's going to be a very expensive defense to mount. It's hard to imagine doing this case for less than $250,000."

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