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The Craig James Campaign Owes People Money

Craig James did not do well in his bid to become a U.S. senator, winning just 4 percent of the votes in the Republican primary back in May. Now the question is: will he do right by the people who tried to get him elected? His most recent Report of Receipts and Disbursements (you know it fondly as FEC Form 3), filed October 11, shows that the Craig James for United States Senate committee has debts totaling $477,725. Now, $300,000 of that is part of a loan that James himself made to the campaign. He loaned the campaign $750,000 and, before the primary, repaid himself $450,000. So call it $177,725. That’s how much James’ committee owes to various people who worked on the campaign.

The committee is making progress toward paying down this debt. The amount owed now is $560 less than it was in the second quarter.

The James For Senate committee’s biggest debtor is the New York consultant Arthur J. Finkelstein, who is owed $25,000. His campaign manager, Corbett Howard of Celina, is owed $22,000. James’ own daughter, Jessica James of Celina, is owed $15,000. His Austin-based spokesperson, Meredith Turney, who confirmed for me that James has neither eaten a panda steak nor killed five hookers, is owed $5,000.

Craig James filing

And then there is Cynthia Wiedemann, of Dallas-based Fundraising Solutions. Wiedemann, who knows James personally, is owed $5,500. But she’s more concerned about the small mail house and printing firm she used for the campaign, Valentine Direct Marketing, which is owed $3,018. Before she gets paid, she wants to see Valentine reimbursed for its expenses. And it doesn’t matter that James lost in the primary, she says. He still needs to pay his bills.

“It’s kind of like paying your vet after your dog dies,” Wiedemann says. “You still have to pay the vet bill. But, you know, your dog is dead.”

Wiedemann recently received a form letter from James. It reads, in part: “We understand there may be certain obligations that still remain to those who assisted us during the campaign. Steps are being taken to raise the necessary funds in hopes of fairly addressing these obligations. We cannot assure you that we will be successful with our efforts, but we appreciate your patience and understanding.”

James did not return calls seeking comment. It is hard to imagine, though, how he will raise $177,725, given that he’s not a candidate for anything. From individuals other than Craig James, his election committee only managed to raise $320,170. Individuals can contribute no more than $2,500.

“Raising money after you lose is virtually impossible to do,” Wiedemann says. “If you can’t write the check, then you don’t need to spend the money. It’s just like you and me every month. You have to balance your budget. With this kind of deficit, it’s going to be very hard to pay it off. People are going to be upset and angry, and it hurts his credibility.”

Still, she says, the letter from James gives her hope that he’ll pay up. And if he doesn’t? I asked an attorney with our law firm, Haynes and Boone, what happens in the case of a defunct campaign that ends up the red. You can read Michael Jewell‘s full response below if you’d like to, but here’s the short version: if he wants to, James can walk away from the debt. It’s the responsibility of his committee, not Craig James personally.

THE FULL TEXT OF THE LETTER FROM CRAIG JAMES TO DEBTORS

On behalf of the Craig James for United States Senate, a Texas nonprofit corporation, we wanted to once again thank you for your services provided during the campaign. Unfortunately results weren’t what we’d hoped for, yet we do feel good about the impact the campaign made in such a very short period of time.

We are aware that without the support of our many friends and valuable service providers, our campaign would not have been possible. We understand there may be certain obligations that still remain to those who assisted us during the campaign. Steps are being taken to raise the necessary funds in hopes of fairly addressing these obligations.

We cannot assure you that we will be successful with out efforts, but we appreciate your patience and understanding. Please direct all correspondence or questions you may to my attention.

Thanks again.

Sincerely,

MICHAEL JEWELL’S ANALYSIS OF THE JAMES COMMITTEE’S FINANCIAL STATUS

This situation shows an interesting comparison between state and federal campaign finance issues.

If this had been a state Senate campaign, and Mr. James had not set up a separate committee like he did here, he likely would remain obligated for the outstanding debts. Many state campaigns are run with no separate committee set up, just a separate bank account that allows the separation of campaign funds from personal funds. In that instance, candidates run a significant risk of being found liable for any outstanding campaign debts.

Under federal law, however, a candidate must establish a Principal Campaign Committee which is a separate entity from the candidate himself. As a result, the outstanding debts of the Committee are not debts of the candidate. (I understand that a proposal is expected to be filed in the upcoming legislative session that would follow this federal model of requiring Campaign Committees to be established.)

Mr. James’ efforts to raise money to retire the debts are appropriate. In general, a Principal Campaign Committee may not terminate itself until it has no outstanding debts and obligations. While the Federal Election Commission may administratively terminate a Committee in certain instances prescribed by federal regulations, the primary manner for terminating a Committee that has outstanding debts is for the Committee to wind down its activities as a “Terminating Committee.”

A Terminating Committee does not make or accept contributions and expenditures other than contributions for debt retirement purposes and expenditures to pay debts or obligations previously incurred. A Terminating Committee is allowed to settle outstanding debts with creditors and file a debt settlement plan with the Commission for review and approval. The plan may provide for a combination of debts paid off in full, debts paid off at a fraction of their face value, debts to be forgiven by creditors, and debts not paid due to the creditor not being found or having gone out of business. (Disputed debts do not need to be settled and are handled separately, but it is not clear whether any of the outstanding debts in this instance are disputed.) In addition, the Terminating Committee may seek discharge of its debts under federal bankruptcy laws. While a Terminating Committee is working out its debt settlement plan, and until the Commission completes its review of the plan, the Committee must continue to file reports with the Commission regarding its outstanding debts or obligations. (This obligation also applies to the Committee before it starts winding down as a Terminating Committee.)

It also is interesting to note that Mr. James will not be able to repay himself more than $250,000 of his outstanding loan (assuming he raises sufficient funds). Pursuant to Commission requirements, the loan balance above $250,000 minus any cash on hand within 20 days of the election date is considered a contribution by the candidate.