New York State's Risa Sugarman, Enforcement Council for the New York State Board of Elections watchdog, quietly filed a lawsuit last month that could set a precedent curbing candidates' ability to accept coordinated donations through the so-called "LLC Loophole," a court filing shows.
The civil lawsuit, filed in Albany County Supreme Court on July 2, pits Risa Sugarman, against the campaign of Shirley Patterson, a little-known candidate who ran unsuccessfully for a Brooklyn state Assembly seat in a May special election.
Sugarman's lawsuit challenges the idea that donations to Patterson's campaign made though various Limited Liability Companies allegedly controlled by the same person count separately under donations limits. The suit contends that several donors exceeded the $4,100 donation limit in the race.
The suit seeks tens of thousands of dollars in civil penalties and fines from Patterson and her campaign treasurer, Renee Collymore.
Yet Patterson is only the latest in a years-long line of candidates to accept Limited Liability company donations, a list that includes everyone from Attorney General Eric Schneiderman, the state's top law enforcement official, to Gov. Andrew Cuomo, the LLC loophole's biggest financial beneficiary.
That could also make the lawsuit filed by Sugarman, who was appointed by Cuomo last year to head the Board of Elections' new Independent Enforcement unit, politically sensitive.
The suit could serve as a test case for her year-old unit, which has faced questions about its independence from Cuomo, and its ability to be an effective watchdog over what in the past has been a sparsely enforced election laws.
There is a certain irony in the fact that a Board of Elections official is probing the limits of the LLC loophole. The quirk in election law emerged from a 1996 State Board of Elections ruling that determined that each limited liability company controlled by a developer should be treated as if it were an individual under election law. In effect, the ruling has allowed each LLC to give $150,000 annually to New York campaigns, and developers to give multiple maximum donations to the same candidate.
The 1996 Board of Elections ruling relied on a federal rule that has long since been changed. Democratic Board of Elections commissioners tried earlier this year to get the full board to reconsider the ruling, but Republican commissioners' opposition left the board deadlocked.
In New York, the loophole has allowed deep-pocketed developers with many LLCs, such as Long Island-based Glenwood Management, to give millions to political candidates.
Sugarman's case, notably, does not go after Glenwood, despite the fact that two limited liability companies sharing Glenwood's Long Island address gave a total of $5,000 to Patterson on the same date in March, $900 above the limit.
Glenwood has been embroiled in the federal criminal corruption cases against former Democratic Assembly Speaker Sheldon Silver and former Republican Senate Majority Leader Dean Skelos. It has not been charged with wrongdoing in either case.
The lawsuit goes after Patterson's campaign for allegedly knowingly accepting LLC donations that exceeded limits and were not in the "true name" of donors, which would be a violation of State election law. The suit also asks the court to "pierce the corporate veil" to reveal the identities of those behind the LLCs in order to determine whether the companies exist for a legitimate business purpose, or if they are "corporate alter-egos" meant to circumvent the limits.
Sugarman's lawsuit states that a developer named Kevin Maloney controls two limited liability companies, Carroll Street Holdings LLC and Nevins Street Holding, which share the same New York City address. On the same date in April, the two companies gave Patterson a total of $5,000, or $900 above the limit an individual could give to the Assembly race.
Developers often set up legitimate limited liability companies for tax purposes and to gain legal protections for each of their developments. Landlords do it for each of their apartment buildings.
But the lawsuit alleges that Maloney's entities were used "to unlawfully make a contribution not under the true name of the contributor," and that both were actually under the control of Maloney and his development firm, Property Markets Group. The companies share common office space, an address and legal counsel, and each LLC does not "have traditional business characteristics, active salaried employees and serves no separate legitimate existence," the lawsuit says.
The lawsuit also cited $6,250 in donations Patterson took from the law office of Benjamin M. Pinczewski, in addition to $2,500 from Pinczewski and Shpelfogel LLC. The limited liability company, however, has no separate existence from Benjamin Pinczewski or his law firm, the suit alleges.
Senate Republicans, who disproportionately benefit from real estate money that passes through the LLC loophole, oppose closing it legislatively.
NYC Wins When Everyone Can Vote! Michael H. Drucker
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