NBC News’ local station flagged how state attorney general Eric Schneiderman has received large political contributions from well-heeled donors how have benefitted from his investigations, or conversely, his failure to act on investigations that got started but did not lead to prosecutions.
The NBC News report went to great lengths to stress that there’s no evidence of impropriety. But the optics sure aren’t good. And the reason for a cause for pause is that the New York Attorney General’s Office is resource constrained. So even though the firms and individuals targeted were clearly worthy, one is left with the nagging doubt: did these cases get moved to the top of the pile because these donors had better access and were in a position to get more information before the attorney general’s staff?
The headline-grabber is the odd case of $65,000 coming this January from ex Playboy Playmate Hope Smith, once Hope Dworaczyk. The mystery is cleared up by the fact that her husband is Robert Smith, the head of private equity firm Vista Partners. Smith has also donated generously to Schneiderman, over $150,000 in recent years. But what is less pretty is that most of the money came after 2012, the year in which Schneiderman said he was looking into a tax abuse by private equity firms called management fee waivers, which we’ve written about at length. Private equity firms use it to obtain capital gains tax treatment for portion of management fees waived. Those, which are paid quarterly to private equity firms for running the fund and are normally taxed at ordinary income tax rates. Bear in mind that the private equity fund managers take no entrepreneurial risk whatsoever when they waive these fees. The IRS has announced its intention to crack down on this scheme, and tax experts say it is pretty much certain to implement its interpretation of existing rules that would invalidate the favorable treatment of management fee waivers.
Some other happy coincidences in who had donated to Schneiderman versus his investigations per the NBC story:
$177,000 in donations from short sellers David Einhorn and William Ackman. Schneiderman investigated and got fines from Barclays and Credit Suisse for their high frequency trading. Einhorn and Ackman are investors in IEX, the exchange celebrated in Michael Lewis’ Flash Boys as the virtuous alternative to HFT. IEX gained volume at the expense of Barclays and Credit Suisse after the probe was launched.
Nearly $100,000 from hotel owners, who stand to benefit from Schneiderman’s crackdown on AirBnB.
$48,000 from members of the casino industry, which could come out ahead from Schneiderman’s investigation of fantasy sports venues.
Schneiderman’s office stresses that he’s lowered the boom on some big donors, like the cable industry, which gave over $100,000 to his campaign, and that he’s a big proponent of campaign finance reform. But social psychology research shows that gifts as trivial as a can of soda will predispose a listener to a sales pitch. And let us not kid ourselves: most of these big donors value access, even if the recipient tries to conduct himself in an even-handed manner. As long as big money plays a big role in politics, virtually one is going to be exempt from questions of propriety and influence.