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All nonprofits should be terrified of this new court decision

By Rachel Alexander
web posted January 20, 2020

If you raise money for a nonprofit, but don’t finish all of the projects you were raising it for, you could go to prison for 10 years. This is no exaggeration. This is what happened to former Rep. Steve Stockman of Texas. Earlier this month, the Fifth Circuit Court of Appeals upheld a conviction against him for that very reason. Two of the three judges on the panel were Obama appointees. The third judge, who wrote the opinion, is 82 and was so ill he never showed up for oral arguments. Shockingly, he wrote a politically charged opinion, evidenced right in its sarcastic opening statement, making light of a serious case impacting a man's life. 

Stockman was a very outspoken conservative congressman who appears to have been targeted by the left through the legal system. But this ruling sets a chilling precedent for nonprofit c3s and c4s of all political stripes. This terrible decision, which ignored several of its own Fifth Circuit precedents, could be used against Democratic nonprofits just as easily. 

What happened was Stockman raised $285,000 in 2010 for the Ross Center, a 501c3 which he controlled. He told the donor, Stanford Z. Rothschild, Jr., that the money was to go to voter education for Jewish voters in Florida as well as a fundraiser. Meanwhile, he received a salary from the Ross Center — nothing odd about that. The Fifth Circuit opinion ignored the work he’d done related to the project, which included making a book and the fact the money was legitimately spent on a fundraiser. 

Instead, they claimed he misused the funds, because he chose to spend his salary on personal items for himself. But how he spent his salary was his own business. The opinion deliberately left out the fact he was spending money from his salary, in order to come to its twisted conclusion. The judge wrote, “He quickly diverted donor money to personal and political projects having nothing to do with philanthropy or education (emphasis added).” Even more dishonestly, the court looked at credit card statements from four years before the donations were even made to find personal expenses!

Again in 2011, Rothschild offered to donate money to be used for voter education. He contributed $165,000 to the Ross Center and to another nonprofit Stockman ran, Life Without Limits. Again, Stockman paid himself a salary and used it on various personal items, including a loan to his political campaign. 

In 2013, businessman Richard Uihlein offered to contribute $350,000 for projects by the Congressional Freedom Foundation. The prosecution honed in on the fact that one part of the project, obtaining a house called “Freedom House,” was not completed. And yet again, the Fifth Circuit opinion poured over the personal items that Stockman spent his separate salary on. 

In 2014, Uihlein gave $450,571.65 to the Post Office in order to send out an educational mailer for Stockman’s political campaign. They mailed fewer than planned, but that’s common, and applied funds raised to other legitimate nonprofit costs as well. The Fifth Circuit admitted in its opinion, “The 2014 Uihlein funds were used to print and distribute hundreds of thousands of copies of The Conservative News.” About half of the money was spent on that. But since the direct mail portion ended up not taking place, the court claimed it was a fraudulent scheme. The court also falsely wrote in its opinion that Uihlein wrote his check to one of Stockman’s nonprofits, and said that Stockman called off the mailing. The truth is the vendor could not complete the task because his shop could not handle that much mail. 

Stockman was convicted of merely process crimes which are meant to pile on, and crimes that normally are handled civilly by correcting a filing. Wire fraud and mail fraud simply mean the person used the mail and the telephone while they were committing crimes. Money laundering means there was money involved in the crimes. The campaign counts and tax return count should have never risen to the level of a crime, Stockman should have been allowed to correct the filings civilly as most people are.  

The Fifth Circuit opinion allowed the trial court’s misleading description of 501c3s and 501c4s in the jury instructions to stand. The jury instructions were confusing and gave the jury only a partial understanding of what nonprofits can and can't do with donations. 

The trial court also used an unfair standard to convict Stockman of violating campaign finance laws. Stockman did not set up an excessive contribution to his campaign because The Conservative News mailer wasn’t “express advocacy” so it did not constitute a contribution.” The literature didn’t say “vote for” or that kind of clear advocacy language, it was merely educational. But the trial court confused the jury into thinking it was express advocacy. According to the government’s own case agent, FBI Agent Spencer Brooks, The Conservative News did not contain any “express advocacy.”  

There was no precedent until recently for turning the alleged campaign violation of a coordinated contribution into a crime. The appeals panel, however, chose to disregard its own circuit precedent about independent expenditures, and therefore reached an egregious and unprecedented result on the campaign finance issue. Political speech has First Amendment protections, and regulation must be narrow. The opinion didn’t even mention the First Amendment. This should terrify any nonprofit that gets close to any political campaigns. 

The Fifth Circuit’s opinion is written sarcastically, mocking Stockman, who has now been languishing in a prison cell for over two years. Stockman did not implement “a scheme to deprive two donors of their money and property.” The donors knew exactly what their money was going to and approved of it. Rothschild admitted afterwards that he thought his money had been adequately spent. Unfortunately, he passed away before he could be called to testify at trial.

One of the key witnesses for the prosecution, Ben Wetmore, has subsequently said Stockman is innocent. He has gone over all of the charges against Stockman and explained why they were wrong.  

Stockman has an impeccable background with no criminal convictions until now. The DOJ is out of control and it’s unfortunate President Donald Trump has not been able to clean it up yet. Left wing prosecutors targeted and overly prosecuted Stockman in order to send a message to outspoken conservative elected officials: Back down or you will pay. Convicted murderers have served less than 10 years in prison. Let’s hope wiser heads at the U.S. Supreme Court agree to take this case. Alternatively, Trump needs to pardon Stockman. ESR

Rachel Alexander and her brother Andrew are co-Editors of Intellectual Conservative. She has been published in the American Spectator, Townhall.com, Fox News, NewsMax, Accuracy in Media, The Americano, ParcBench, Enter Stage Right and other publications.mericano, ParcBench, Enter Stage Right and other publications.

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