Thursday, March 3, 2011

The Genesis of the Scrushy part of the Siegelman case

The Foundation Phantom

        Today I had the pleasure of playing college professor. Jim Aucoin, the chairman of the University of South Alabama's communications/journalism department, assigned my book to one of his advanced reporting classes. Jim asked that I focus on the use of public records in putting together investigative news stories and also to touch on the abysmal national reporting of the Siegelman case.
           Though I didn't spend much time on the Scrushy aspect of my Siegelman reporting, it was, like most of the work I (and my editors) did on the Siegelman administration, reliant on public records. The jury -- or rather, the 11th Circuit Court of Appeals -- is still out, in terms of what will happen to the Siegelman case. It has always been my position that the worst of what Siegelman did (his $1.4 million or so as  legal fees while governor, the sale of his house, and much else) was worse than much of what he was prosecuted for.
            On the other hand, the "Scrushy" element of the case has been glossed over in the national reporting to the point where what has been reported bears little resemblance to what occurred. In my last "post" I presented, in whole, a chapter called, "Scrushy Plays the Lottery."
           The following is a second chapter in the book that appears much later. This chapter, and the one that follows (which I will publish here soon) tells the story of the discovery of what became the Scrushy part of the Siegelman prosecution.
             The chapter begins, I will admit, with some details that will require your attentiveness. Among my goals with the book was to present to readers how I discovered the various scandals. The narratives of the scandals, then, begin with what I learned first, and progress through the learning/reporting progress.
              The following chapter is called, "The Foundation Phantom." As with all the chapters, it begins with two quotes. At the bottom is a public information request letter I wrote to the IRS and which figures large in the chapter.
The Foundation Phantom

            “Governor Siegelman has pledged to fully disclose all contributions and expenditures
related to his effort to pass an education lottery in Alabama. Today, we are calling on
you, as the leader of the anti-lottery forces, to pledge that you and your allied groups
will do the same.”
            -- Letter from Hamrick to Steve Windom, urging the lieutenant governor to
ensure that the Christian Coalition and other groups opposing the lottery disclose all
their donors.

            “As a 501(c)(4), the Foundation may accept contributions without limitation
from individuals as well as corporations. Neither the Foundation, nor an entity
making donations to the Foundation, will be subject to federal or state disclosure
            -- Portion of Feb. 15, 2000 memo from Ted Hosp to Siegelman, regarding the
governor’s plan to secretly reform the foundation and conceal its donations.
            The first crumb on the long trail to Richard Scrushy fell on Friday, March 8,
2002. That afternoon a PAC associated with Sterne, Agee & Leach filed its annual
report with the secretary of state showing its contributions and expenditures from
the year before. Like other PAC’s and candidate committees, Alabamians for
Economic Development was supposed to have filed its report by Jan. 31. For
whatever reason, the folks at Sterne Agee missed the deadline, and because of the
PAC’s obscurity, no one noticed.
            Had Sterne Agee waited just one more business day – filing the report the
following Monday rather than that Friday -- more than $730,000 in carefully
concealed campaign donations from the likes of HealthSouth and Alfa would never
have seen the light of day. The U.S. Treasury would not have received a nice chunk
that I like to think our stories enabled the IRS to collect. Most important for this story,
Richard Scrushy would not have become embroiled in the Siegelman investigation, to
say nothing of being found guilty and sentenced to seven years in prison.
            The series of stories that exposed the secret second life of Siegelman’s lottery
fundraising apparatus started with nothing. There was no tip, anonymous or
otherwise, no street talk, and I had no idea where I was going until I got there.
The administration fought, fabricated and delayed, and in the end capitulated,
not because of us, but because of the case we made to our readers, to state election
officials and to the Attorney General’s Office that something was amiss.
            It took almost five months to break Team Siegelman and squeeze out the truth.
If they didn’t hate me before the lottery stories, they damn sure did after them.


            Without question, the Birmingham News’ reports on AFS and Trava Williams
begat the foundation stories (Blog Note: The AFS stories reported strong-arming by Siegelman to force state agencies and funds to use Sterne Agee, which had hired his personal stockbroker, Trava Williams of AFS Securities, to win contracts to manage state funds. ). As previously described, I’d hopped on that bandwagon after reading Brett and Kim’s first story on Siegelman’s stockbroker.
            On Saturday, March 9, Paul Cloos was editing the story on the police annuity
fund that was to run the next day. I was at my desk, waiting for his questions.
            With nothing else to do, I decided to see if I could locate any Sterne Agee ties to
Siegelman in addition to those involving Trava Williams. Maybe I’d find a detail
worth plugging into the story, perhaps a contribution or two to a past Siegelman
            I called up Merlin and punched in Sterne Agee and Siegelman. This produced
a November 2000 story by Jeff Amy reporting donations to the campaign to pass
Amendment One. Among them was a contribution from a PAC with the feel-good
name, Alabamians for Economic Development (AED).
            Jeff , like the good reporter he is, had looked up the PAC on the secretary of
state web-site to see whose interests it served. As a result, he was able to inform
readers that the donation was in reality a contribution from Sterne Agee. The
other result was that 16 months later, I had the name of Sterne Agee’s PAC.
            Still on Merlin, I entered Siegelman and Alabamians for Economic
Development. Up popped a run-of-the-mill donor story I’d written before
the October 1999 lottery vote. I’d reported that Alabamians for Economic
Development gave $30,000 to the lottery campaign, but unlike Jeff , hadn’t gone
the extra mile to determine the PAC’s identity. But with my failings rectified
by Jeff , I had the sort of detail – a substantial donation to Siegelman’s lottery
campaign – that strengthened the story. Turns out Siegelman had demanded
more of Sterne Agee than that it hire his stock broker.
            Might the PAC have made other Siegelman-related donations? Doubtful.
Siegelman hadn’t been on the ballot since 1998. But it would only take a minute
and until Paul finished, all I had was time. I returned to the secretary of state website,
called up the PAC’s 2000 report, and found nothing of interest. I expected
the same from the 2001 disclosure, but what’s another 30 seconds?
            Later I was to notice that the PAC’s 2001 report was filed late Friday afternoon,
less than 24 hours before I saw it. Had it not been there that Saturday – again,
had Sterne Agee waited even one more business day to file – I would have never
gone back to look for it. My interest in it was minimal. I would have assumed it
hadn’t made any donations in 2001, had no need to file a report, and for good and
forever, been on my way. I would have never spotted that telltale crumb.
            But it had filed a report, and when Adobe Acrobat completed its task, the
2001 expenditures page for Alabamians for Economic Development emerged
on the screen. There were a total of two donations for the entire year. One --
for $1,250 to the state Democratic Party -- was of no interest. The second, for
$13,500, made no sense.
            The recipient was identified as, “First Commercial Bank Birmingham FBO
(for benefit of) the Alabama Education Lottery Foundation.” A note at the
bottom of the page read: “Loan payment to First Commercial Bank pursuant to
pre-existing 1999 commitment to make a contribution to, or pay, indebtedness
of, Alabama Education Lottery Foundation.”
            The lottery foundation had closed up shop soon after the October 1999
referendum. Why, then, was Sterne Agee contributing to it in 2001? It made
about as much sense as a donation to George Wallace.
            Still on the secretary of state page, I punched in the lottery foundation’s name
to see if it had for some as-yet unreported reason continued to exist beyond 1999,
and if so, filed reports for 2000 and 2001. It had not. The foundation’s final filing,
dated Feb. 29, 2000, was a one-page form called a Statement of Dissolution.
            PACs and campaign committees must file these forms to notify the secretary of
state that they have ceased operations. The dissolution form was signed by Mobile
lawyer Richard Dorman, a long-time Siegelman friend and supporter who’d agreed
to chair the three-person foundation board upon its formation in early 1999.
            As a double-check I reviewed the foundation’s year-end annual report for 1999,
filed as required on Jan. 31, 2000. The summary page showed that the foundation
ended the year with neither debts nor assets, or as the AP reported it, the “foundation
spent $5 million and closed out the year with a zero balance.”
            So why, in 2001, was Siegelman’s dissolved and long-forgotten lottery
foundation accepting a $13,500 donation?
            I told Paul about this peculiar finding and asked if I could knock out a story
Monday. He agreed it was strange and gave me the thumbs up. For the Sunday
story on the police annuity fund, I reported Sterne Agee 1999 donation of
$30,000 to the foundation, and added that it later “made an additional donation
of $13,500.” I was careful not to date the second contribution, lest a certain pair
of readers in Birmingham notice its significance.
            I knew that a story on the contribution would present more questions than
answers, but felt it could be the start of something. On Monday I called Richard
Dorman, told him about the donation, reminded him of the dissolution statement
that he’d signed two years before, and asked if he knew why the foundation was
receiving money in 2001. Richard said he’d closed his foundation file, placed it in
storage, and couldn’t comment without first reviewing those records.
            Paul e-mailed Carrie. He took a clever approach, noting that while the
administration didn’t respond to questions for my stories, this was different.
             “Since in the past the governor’s office sought to keep comment on the lottery
foundation a separate matter, we hoped that your office could direct us to someone
who might comment on the matter.”
            The administration didn’t see it that way, so we went with the usual no comment.
Paul’s reasonable request for “someone who might comment” developed
into a thematic and to my way of thinking comic underpinning of the stories.
            The challenge over the coming 4-1/2 months was trying to acquire records and
explanations from an entity -- the lottery foundation -- that was without a physical
address or a single human willing to accept responsibility for its actions, answer
questions, and, most importantly, serve as a repository of its records.
            The word “foundation” conjures an image of something solid and stable, but
this one was gaseous, and manned by a phantom. That was the challenge to come
– squeezing the truth out of a phantom.
            The first story on the road to Scrushy ran under the headline, “Firm’s PAC
makes donation to now-dissolved lottery foundation,” and began:

            A political action committee associated with the brokerage firm Sterne, Agee & Leach
reported donating $13,500 last year to the Alabama Education Lottery Foundation, the
campaign fund used to pay for the failed 1999 campaign to pass a statewide lottery.
Records on file with the Alabama Secretary of State, however, show that the
Alabama Education Lottery Foundation was dissolved in February 2000, making it
unclear why such a donation would have been made in 2001. At the time it was closed
out, it had no assets and no debts, records show. The lottery election was over, and there
was no longer any reason to continue operating the foundation.
            F. Eugene Woodham, a Sterne, Agee executive identified in state records as the
chairman of the firm’s PAC, declined Monday to answer a number of questions from
the Register. Said Woodham, “I’m just not in a position to comment.”

            Woodham’s response, both the tone of his voice and his words, told me there
was something to this.
            The date box on the PAC’s filing was empty, so there was no way to determine
when in 2001 the money was given. I brought the report to the attention of state
elections specialist Vicki Balogh, and quoted her saying that disclosing the dates
of contributions was “not optional.”
            The story was no bombshell, and ran on the bottom of Metro front. It didn’t
make the state wire, nor had I expected it to. The $13,500 donation was then and
for some time to come an unexplained anomaly.

            Later that week I called Chuck Grainger, the general counsel for the secretary
of state’s office. I explained my concern that the PAC failed to report the date
of its donation and told him I thought it curious that the foundation appeared
to have accepted funds well after its reported dissolution. I wanted the date as a
second level of confirmation for this otherwise inexplicable contribution.
            I asked Chuck for a favor: Could he contact Sterne Agee and ask the firm to
amend its 2001 report, this time with the date of the donation. Chuck asked that I
provide him with a written request, which I did. He forwarded my letter to Brenda
Smith, a lawyer in the attorney general’s office who frequently worked on election
issues. On April 9, Smith sent Sterne Agee’s Woodham a letter asking that Alabamians
for Economic Development re-file its 2001 report, this time with the date.
            “In addition,” wrote Smith, “the expenditure to the Alabama Education
Lottery Foundation appears to be in error, because the reports filed by the
Education Foundation indicate that the political action committee was
terminated as of Jan. 31, 2000.”
            With that in the oven and baking, I set about researching the foundation,
reading old stories, looking up records, and writing e-mails, such as to Dorman
asking him to retrieve his files from storage. There had been two board members
in addition to Dorman. Both said they were unaware of any post-dissolution
activities by the foundation. Dorman gave me the names of several people who
worked as paid staffers on the lottery effort. They, too, claimed ignorance.
            I knew Dorman from my days as a sportswriter, though his involvement
in running, and later, from coverage of a monstrosity of a class action against
Masonite that he spearheaded. The wiry, mustachioed bundle of energy was one
the state’s lead attorneys in the 2003 trial that produced a $11.9 billion verdict
against ExxonMobil, later sliced to a slightly less towering $3.6 billion and
ultimately obliterated to a fraction of that by the state supreme court.
            I e-mailed Richard, saying I had little choice but to seek answers from him
since he was, “the only chairperson the foundation ever had;” and that “an
argument can certainly be made that you are responsible for, if not answering
some of the questions I have, at least providing me with access to some records
that I believe should be public.”
            “As a lawyer, I’ve never seen you show any quit, so I hope you understand why
I’m continuing to seek these answers and records, and why I won’t quit until I get
one or the other. I hope you understand.”
            Much of the next two months was spent on an exhausting and not
terrifically satisfying story about another non-profit, this one called the
Alabama Water and Wastewater Institute. Lobbyist Fred Jones operated the
institute, basically as a one-man operation. It received hundreds of thousands
of dollars from three different state agencies, which meant I had to hunt down
and review records from all three and interview boatloads of people. Jones was
a Siegelman backer and had figured in one of the computer services contracts
I’d written about.
            He was a former state senator, a one-time aide to George Wallace, and was
close to U.S. Sen. Richard Shelby. Each year Shelby routed federal funds to the
legislature, which forwarded the money to the Department of Public Health in
the form of a “pass through grant.” Public Health had no choice but to pass the
money to Jones whenever he sent one of his little letters asking for the money.
            When I first called Jones he said he was too busy lobbying. When the session
ended, the excuse became a health condition so grave it rendered him “not able to
deal with your harassment.”
            The story, really a big pain in the ass, ran on April 28, about the time things
started to percolate on the foundation front. The next day, the Sterne Agee PAC
filed its amended 2001 report. It didn’t offer much new, but was a development
just the same. The PAC reported contributing the $13,500 on Jan. 31, 2001.
            Attached was a letter from Alston Ray, Sterne Agee’s lawyer, stating that his client
hadn’t known that the foundation had dissolved itself prior to the contribution.
            The above information was reported in the second foundation story, published
on May 7, almost two months after the first. It began:

            A political action committee that donated $13,500 last year to the Alabama
Education Lottery Foundation has provided more information about the gift, but
questions remain about the contribution and the foundation’s finances.
            Chief among those questions regarding the foundation formed in early 1999 to fund
Gov. Don Siegelman’s political effort to win a statewide referendum on the lottery:
Why would the foundation -- more than a year after filing papers showing it had
dissolved -- have accepted a donation in 2001?
            Since the end of 1999, has the foundation received donations in addition to
the $13,500 contribution made by Alabamians for Economic Development, a PAC
formed by the Birmingham-based brokerage firm Sterne, Agee & Leach?

            I tried to draw more information from Dorman and Ray, the Sterne Agee lawyer,
both of whom probably wanted to shoot me between the eyes. I e-mailed Ray to
ask why the PAC paid the bank directly. The normal procedure is for a contributor
to donate to a recipient, be it a candidate, PAC or, in this case, foundation, for the
recipient to disclose it as a contribution, and then, on the expenditures page, show
the money going to the bank as a loan repayment. Sterne Agee’s paying the bank
implied that someone directed the company to do it that way.
            The story included Ray’s responses to questions I’d asked in trying to identify
the foundation’s lead actor. I wanted readers to appreciate the situation we faced
in seeking to unmask this wacky phantom.

            He (Ray) wrote that his client does not “believe it is appropriate to comment”
about who, representing the foundation, contacted Sterne Agee about making the
January 2001 donation. Sterne Agee, he wrote, suggests “that any questions you may
have regarding the foundation be directed to the appropriate foundation official.”
            When the Register then asked if Sterne Agee could identify an appropriate
foundation official, Ray responded, “Our client is not aware of who you might contact
at the foundation for information.”
            Also reported was Sterne Agee’s refusal to furnish us with a copy of its check to
the foundation. “The Register had asked it to do so -- though it is not required to do
so by law -- in order to determine who endorsed the check,” readers were told.
            Siegelman – described as having been the “public face of the foundation” who
“personally led the fund-raising eff orts” – declined our invitation to clear up the
matter of the $13,500 donation, so the story ended with the usual editor’s note.

            A letter to the IRS laid the groundwork for victory.
            Non-profits must file a type of tax return called a Form 990, and make them
available for public inspection. Most 990s can be found on a web-site called
Guidestar, but the foundation’s return wasn’t there. Public inspection was out of
the question because there was no physical address, or in any event, not anymore.
            Dorman and the other officers said they hadn’t a clue if a 990 was filed.
I had no choice but to take the slow route. Maybe they’d filed one, maybe
not. Either way it would be a story.
            I called Dan Boone, a Memphis-based IRS spokesman I’d been dealing with for
years, and explained the situation. I faxed him a brief history of the foundation, both
its names, its officers and addresses used by it. One was a P.O. Box which I recognized
much later as the box used by the never-ending Siegelman campaign. The second
was an apartment where one of the governor’s many 25-ish staffers had resided. I
went to the apartment and knocked on the door, more to say I tried than out of any
expectation of locating a 990. I think the guy had already moved by then.
            I e-mailed Dorman, and after the usual apologies, told him I was working
on another story. “The way things stand, I’m going to have to report that, despite
what I consider to be exhaustive inquiries, I can’t locate a 990 or anyone who can
state that there ever was a 990.”
            The final sub-head in the story read, “Did foundation file tax return,” under
which our 990 hunting efforts were reported, as follows:

            For several weeks, the Register has tried but been unable to determine if the foundation
ever filed or completed a Form 990. Neither Dorman, the two other foundation board
members, nor the former foundation employees contacted by the paper could provide an
indication if a Form 990 for 1999 -- and possibly other years -- had been completed.
            The Register has made a public information request with the IRS seeking a copy of any
tax returns f led by the foundation, such as for 1999, and perhaps 2000 and 2001.

            I imagine this was when sweat beads began forming on the phantom’s
forehead. Withholding information from us and our readers was one thing, but
screwing around with the IRS was another. To be told that the IRS had or would
soon be receiving a request for all foundation 990s had to be unsettling.
            Carrie declined to respond to our questions, but told Paul that the foundation’s
records would be provided “in the coming days.”
            The part about “in the coming days” didn’t pan out. Two months and with a
gun to their heads was more like it.
            But the IRS angle paid off fast. Days later I took a call from the wild-man
Cromwell Johnson, he giving me the lead on our third story:

            The Alabama Lottery Foundation raised about $5 million to promote Gov. Don
Siegelman’s failed effort to win a 1999 lottery referendum but never filed a tax return
as the law requires, an attorney for the governor said.
            “It’s a paperwork problem and a follow-through problem, and the truth is, Don
knows nothing about this,” Birmingham lawyer David Cromwell Johnson said.
Johnson – one of the state’s top criminal defense lawyers, and Siegelman’s choice to
represent him during a state and federal criminal investigation into state contracts –
said he’s spearheading an effort to locate all the foundation’s records.
            The tax return or returns will be filed as soon as possible, Johnson said, and the
return, and probably other foundation records, will be made available to the Mobile
Register once that effort is complete.
            Johnson said the governor and those he tapped to lead the lottery effort weren’t
aware of the failure to file a return until reading a story in Tuesday’s Register.

            Here again was Siegelman refusing to accept responsibility for his actions.
Cromwell Johnson’s claim that the governor “knows nothing about this” deserved
a laugh track.
            The Birmingham lawyer also introduced the defense that Siegelman continued
to parrot up to and during his 2006 trial and still, despite mounds of evidence to
the contrary: That he and others moved on to other things after the lottery defeat
and simply failed to attend to some details, like the filing of a tax return.
            Cromwell Johnson said he’d reviewed the foundation’s records and found
that its expenditures were made for legitimate purposes. “I feel like I’ve looked
at it, and no money went into anybody’s pocket,” he said, implying a level of
naughtiness we hadn’t dared suggest in the stories.
            The missing 990 put the story on the map. The AP picked it up and in a
separate but simultaneous development, Siegelman announced his intent to again
make passage of a lottery the focal point of his campaign. This meant that the
campaign-trail addict would be raising the lottery issue at the same time I was
doing my damndest to identify the secret givers to his first try.

            Within a week my initial suspicion that Sterne Agee’s $13,500 wasn’t a
solitary donation was confirmed. A Birmingham man with connections to Cromwell
Johnson was given the task of opening a back-channel line of communication
between the Siegelman camp, or in any event, Cromwell Johnson, and me. I
believe Harold -- not his real name -- had a similar relationship with Brett and
Kim that predated mine.
            He wasn’t to appear in stories or even obliquely referred to, as in, “according
to a source with ties to the governor’s legal team.” He took his role, if not himself,
seriously. Harold was a devoted Democrat and political junkie who realized that
playing confrontational Siegelman defender wasn’t going to fly. Besides, Rip was
doing fine there.
            Since he couldn’t be quoted, Harold was free to blister and ridicule Siegelman
and, as he often did, the campaign team. But he always presented the governor’s
actions in the context of politics as usual, and always on this side of criminal, even
if just barely. Possibly he was also there to gauge what I (and Brett and Kim) knew
and where I was going next, but I never suspected him of trying to deceive or trap
me. In any event, I had nothing to hide. Before the schism I’d always let them
know where I was headed, the better to draw out a response. If they got the same
type info through Harold, so what.
            We occasionally argued, usually by e-mail, with me taking exception to his
laissez faire approach to corruption, and his conviction that prosecutors were,
with few exceptions, fanatical, self-righteous weenies. Harold, for example, was
an admirer of Edwin Edwards. One day we were carrying on when he wrote that
if “government can’t be efficient, it should at least be entertaining.”
            “Here we have mediocre services coupled with sanctimonious drivel. Give me
Edwin Edwards for sheer entertainment value and Fritz Hollings for good sound
bites coupled occasionally with sound policy.”
            “Everything is a surprise to us,” Harold said during another exchange.
“Remember that more than once we had to ask you for a copy of some document
when we’d never seen it or even heard of it. The error of your premise is that there
is, in fact, organization, coordination and sharing of information when people are
supposed to be working for the same goal. In this instance, division of labor has
been taken to radical extremes – to sum up, never underestimate our ignorance.”
            It was Harold, no doubt after consultation with Cromwell Johnson, who told me
that the Alabama Democratic Party was an actor in this play. Party chairman Redding
Pitt was prepared to disclose that role and was expecting my call, Harold said.
            The Pitt-Siegelman friendship dated back to college. Pitt had worked for
Siegelman when the latter was secretary of state, then followed him to the attorney
general’s office. I knew Redding from his days as the Clinton-appointed U.S. Attorney
for Alabama’s Montgomery-based Middle District. When Gore lost to Bush, he was
out of a job, and Siegelman arranged his appointment as party chairman.
            Thin and dark-haired, Pitt has mournful eyes, a deep voice and a weathered
look. He frequently speaks in regretful tone, as if duty-bound to do things he
preferred not to do. Despite his allegiance to Siegelman – especially pronounced
since Siegelman was the party’s nominee in a governor’s race just months away –
I felt then and still that Redding recognized he had an obligation to clarify the
party’s role in the lottery referendum, even if doing so created discomfort for him
and his friend.
            He told me that in the months leading up to the referendum, the party
hierarchy had secretly agreed to provide the lottery campaign with a service known
in the political world as GOTV, which, as Redding explained, doesn’t have a thing
to do with television advertisements.
            “Get-out-the-vote is the ground campaign,” he said, in a quote we used. “It
involves phone banks, ground work identifying voters, campaign day efforts to
turn out the vote, and taking people to the polls if they need a ride. It requires a
lot of staff and it is an expensive undertaking that the party undertook in support
of the lottery, which is entirely proper.”
            Pitt – and if he said it once he said it ten times – wasn’t with the party at the
time. But it was his understanding from things he’d only recently learned that the
party had spent $700,000 to $1 million on GOTV services for the lottery vote,
and that the foundation had pledged to repay the party.
            Pitt was forced to make the embarrassing revelation that the party couldn’t
locate records reflecting how or even if the loan was repaid, though he believed it
had been.
            “That’s from talking to our bookkeeper. She didn’t have direct knowledge of
how the loan was repaid. She said that was handled by other people at the party
at the time,” he said.
            Like a PAC or candidate, political parties must disclose their contributions
and expenditures to the secretary of state, so the party’s failure to do so here, and
for an amount in the $800,000 range, was not a good thing.
            Our fourth story reported that the lottery effort cost some $700,000 to $1
million more than the $5 million disclosed by the foundation; that the state
Democratic Party borrowed the money to fund that effort; and that it had no
records reflecting the exact size of the loan or when and by whom it was repaid.
            Siegelman, as it happened, was campaigning in Mobile as I was working on
the story. Bill Barrow, who was covering the candidate, popped him with a live
question about the foundation. In such circumstances it was all but impossible
for Siegelman to invoke the anti-me rule. As ever, the governor did his level best
to clarify matters. This from the story:

            Siegelman, during a campaign stop Wednesday in Mobile at which he again
promoted a lottery as a way for Alabama to fund education, said he couldn’t say for
sure if he knew about the arrangement during the lottery campaign. “I may have been
aware of it, but what I was doing primarily was running around making speeches and
encouraging people to vote for an education lottery,” he said.
            “I’m not really sure on that,” Siegelman said, when asked about fund-raising
efforts to repay the Democratic Party. He directed an aide to find out more about the
situation, and get back to the newspaper. The aide replied that he was working with
the Register “to get them the information as fast as we can.”
            The administration wasn’t working fast or otherwise on any such thing. But
here was Rip – the aforementioned aide that day – pledging assistance from the
campaign, as opposed to the administration. That’s not to say we believed him,
but at least we had him saying so on record.
            A week later Rip e-mailed an about face. “The campaign is a completely
separate entity than the lottery foundation and is not the appropriate place from
which comment about the lottery foundation should come,” he wrote us and,
more importantly, our readers.
            Off the record, Rip told Paul that an unidentified someone was gathering the
foundation records and that this person was going to ensure that everything was
done right. This person, we were told, wouldn’t be swayed by politics. However,
it would probably be about a month before Mr. Trustworthy could complete the
task, Rip said.
            According to that timeline we could expect a full accounting by about June 20.
Separately, Pitt recommended that I call Giles Perkins, the party’s top fulltime
employee during the period in question, and Jack Miller, the party chairman
at the time. Perkins and Miller were partners in Miller, Hamilton, Snider &
Odom, one of the more politically active firms in the state, and very close to
Siegelman. Miller, for example, regularly let the Siegelmans use his place on the
Virgin Islands during Christmas holidays, and Siegelman tossed a considerable bit
of state business the firm’s way.
            Pitt made it quite clear that Miller (who died in 2009) and Perkins, not him,
were running things during the lottery campaign and the year after.
            I called Perkins. He said that the party established a separate account for the
foundation’s GOTV work, billed the foundation and that at some point, he felt
sure, was paid. As for details, he had none. Miller, who seemed as surprised to hear
my voice, barked out some bluster about the foundation deal happening too long
ago for him to remember, and hung up.
            “We keep loan records, it’s just that this particular one, we have no records of,”
said Redding, in a quote that didn’t engender confidence in the party’s financial
            The next day’s story quoted Pitt’s promise to locate all pertinent records and
file an amended disclosure with the secretary of state. It included the following
“nut graphs,” those one or two paragraphs we newspaper people use to summarize
the gist of a story and/or convey to a reader why the issue being reported is
important, or in any event, why we think so.
            These graphs, probably fashioned by Paul Cloos, our nut-graph specialist,
proved prophetic:

            Given the amount of money involved and the questions that remain unanswered about
the Democratic Party’s role, there may be numerous lottery-related donations by lawyers,
political action committees, businesses and individuals that remain undisclosed.
In the past 18 months or so, news stories in the Register and other papers have
reported that some of the companies that have received lucrative state contracts, often
without facing competition, donated to the governor’s campaign or the lottery effort.

            The Montgomery Advertiser and Birmingham News seized on the lottery loan
mystery, each publishing editorials criticizing Siegelman’s campaign promises for
a lottery without first resolving questions about his last such effort. Concluded
the News, “The governor should clear the air about the foundation’s records, or
other state authorities should step in to investigate whether the problems go
deeper than sloppy bookkeeping. Moreover, the public should demand answers,
particularly now that Siegelman has revived his push for a lottery.”

            As of May 17, I’d written five stories on the foundation. While no one with
that phantom entity had made a peep, learning about the GOTV effort and the
bank loans tipped the scales in my favor. When working on an investigative piece,
the biggest hurdle is uncertainty: Is there a story here? As often happens, and
should, continued doubt and failure to turn up corroborating evidence triggers a
decision to quit and traipse down more promising trails.
            But once I know a story’s there, I will stay on it. And by this point, there was
no question. Still, there seemed little I could do but wait for Mr. Trustworthy to
gather the records and disclose them, to the secretary of state, the IRS in the form
of 990s, and us. Trustworthy or not, this person was working for Siegelman and
wasn’t going to release the fruits of his labors until the boss gave the go-ahead. In
other words, probably not until after the election.


            The next week I drove to Montgomery to research other stories. Upon
returning I found a package in my mail slot from, of all places, Ogden, Utah, the
location, as the package revealed, of an IRS warehousing operation. A cover letter
explained that I was being provided, per request, with a photocopy of the only
990 filed by the Alabama Education Foundation.
            I was, to say the least, surprised. I’d forgotten about the request after Cromwell
Johnson’s emphatic statement that the foundation hadn’t filed a tax return.
Unbeknownst to Siegelman’s lawyer, someone had “followed through,”
though how well, or accurately, was subject to debate.
            The amounts on the 990 didn’t exactly jibe with the foundation’s 1999 yearend
report with the secretary of state. Instead of $5 million raised, $5 million
spent and a balance of zero, the return showed $4.6 million coming in and most
of it spent, with a final balance, as of July 31, 2000, of $3,043.
            One section of 990s asks non-profits to disclose relationships with political
organizations, a category that would clearly include the state Democratic
Party. Specifically, non-profits are asked if during the reported period they had
reimbursement arrangements with political organizations; loans or loan guarantees;
or “sharing of facilities, equipment, mailing lists, other assets or paid employees.”
Next to each, the foundation phantom checked the “no” box.
            I wrote a draft e-mail for Paul to send Rip. It began by asking when we could
expect the records promised us weeks before. Rip was informed that some weeks
before I’d filed a request with the IRS for the foundation’s tax returns.
            Then the strong medicine:

            Eddie pretty much forgot about this after several people, including the governor’s
lawyer, told him there had not been a 990 fi led. Also, Eddie had twice called David
Kassouf, who records show was the accountant for the foundation, but Mr. Kassouf did
not return Eddie’s calls.
            Eddie is reviewing (the 990) now for a follow-up story to run tomorrow or this
weekend, but he’s already noticed some things that he was hoping someone could
explain. On page 5 of the return, where it asks: ‘The books are in the care of,’ the
name given was Nick Bailey. Bailey, though not to our knowledge an officer of the
foundation, signed the tax return on the foundation’s behalf.

            The e-mail did not state something along these lines: “Your boss is a coward
for putting his loyal, in many ways naive aide in harm’s way by directing him to
sign the 990 rather than doing so himself.” Such was my reaction to seeing Bailey’s
name on the return.
            The e-mail pointed to several items on the 990 that didn’t jibe with the truth.
Among them: the foundation’s declaration to the IRS that it had no relationships
with political organizations, such as the Alabama Democratic Party. And: “The
990 also states that the foundation has complied with the public disclosure
requirements. This would seem debatable, given that the foundation officials and
representatives told Eddie no such record existed.”
            Rip asked Paul to fax him the 990, thus allowing the foundation to maintain
the pretext that it/him/they didn’t know it/him/they had filed a tax return. Rip
whined that he was sure our story on the 990 would put things in the worst
possible light. When Paul passed this on, I was not sympathetic.
            I called Cromwell Johnson to give him the opportunity to explain to our
readers what he really meant when he said the foundation hadn’t completed a
990. He didn’t return my calls that day or the next, but through his secretary,
asked me to fax him a copy, which I dutifully did. Me faxing the foundation two
copies of its own 990. Here was irony.
            The story as I initially wrote it focused on two components: That contrary
to what we had been told by Siegelman’s own lawyer, there was a 990; and more
seriously, that it would appear that the foundation failed to disclose hundreds of
thousands of dollars in donations and expenditures to the IRS.
            As soon became evident, the greater value of the package from Utah was its
impact on the administration.
            I was finishing the story when, with no heads up, the Siegelman press office faxed
us a batch of documents that confirmed the continued existence of the foundation,
and more. After reading them I told Paul that the new records were the lead, not the
tax return, and told him I was working at light speed to re-write the story.
He’d seen them before me, and agreed.
            The revelations were such that I was astonished they’d turned them over.
Someone deserved praise – Ted? Carrie? Boots Gale? Cromwell Johnson? Jim
Buckalew? -- for insisting that the public records law required their disclosure.
            Though legal opinions, they involved a non-public entity, the foundation, but
were in the possession of and had been sent to the governor’s office. Thus, they
were public records, though even I’ll acknowledge it was a close call. I had been
denied plenty of records that were not close calls, so seeing these was a shock.
            I suppose that one or more of the above recognized that with our possession
of a clearly falsified tax return we were about to expose possible law breaking,
and the administration owed the public, if not the Register, a dose of disclosure.
Either that or they mistakenly assumed that the legal opinions showed them being
responsible, and cleansed them.
            The memos showed that Siegelman had asked Hosp and Gale to devise a
means of reincarnating the foundation in such a way that the public would never
learn of its continued existence. To accomplish this, the pair sought counsel from
a Maynard Cooper lawyer who specialized in tax-exempt organizations.
            James Pool was a graduate of Yale Divinity School who’d subsequently
chosen law, and I imagine the inclusion of his name in the stories caused him
some pain. Far as I could tell Pool was given an impossible assignment and did
the best he could.
            The memos were in one direction – from Pool to administration officials and
lawyers. But in giving his advice – and here I sensed self-preservation at play – Pool
spelled out what had been communicated to him by Siegelman, Hosp and/or Gale,
and based his recommendations within the context of that specific set of facts.
            The first memo, to Siegelman and Gale, was dated Feb. 8, 2000. That was
eight days after the foundation filed its 1999 year- end report with the secretary
of state showing neither debts nor assets and a final balance of zero.
            Pool explained that incorporation papers for the foundation described three
purposes, all of which addressed a campaign to gain public support for a state
lottery. He proposed losing all references to the lottery and recommended “that
those purposes be broadened.”
            Only an ogre could complain about a non-profit formed to:

            • Inform the people of the State of Alabama of the benefits to be gained from
improving the schools and education of the state.
            Conduct a public campaign to gain public support for the improvement of
Alabama education and economic development.
            Perform all activities necessary to obtain the support of the people of the State
of Alabama to seek practicable methods to improve Alabama.

            A question to consider: Why would a foundation seeking to do such wonderful
things demand secrecy for itself and its donors?
            An answer to consider: Because it never intended to seek “practicable methods
to improve Alabama,” whatever that meant.
            Pool was asked to resolve two problems, one involving the size of corporate
contributions to the new foundation and the other, keeping those donations hidden
from the public. He told Siegelman that “concern has been expressed at various
times” regarding Alabama’s law prohibiting corporations from making campaign
donations greater than $500. He discussed the Fair Campaign Practices Act and
advised that the newly designed foundation could accept corporate contributions
greater than $500 as long as it didn’t participate in a political campaign.
            “Therefore, it is impermissible for the Alabama Education Foundation to ever
make expenditures related to a political campaign,” Pool declared, the italics mine.
Th e second problem was broached under the heading, “Disclosure.” Pool wrote
that the foundation would not have to report its contributions or expenditures to
the secretary of state as long as it avoided the same pitfall – that is, if it refrained
from spending money to influence a proposition or election.
            “One issue relates to whether an ongoing entity named ‘The Alabama
Education Foundation’ would, in a year in which there is no referendum planned,
attract any interest,” he continued. Though interest isn’t defined, it can be assumed
that he was referring to the likelihood of poking around by the media. If the
foundation didn’t file reports with the secretary of state, then the money it raised
couldn’t be “used to support or reject a referendum,” he warned.
            The primary recipient of this very specific advice was a lawyer, a six-time
candidate, a two-time secretary of state and former attorney general. No one on
earth had a greater claim to be an expert on Alabama’s campaign laws than Don
Siegelman. He shouldn’t have needed a legal opinion, but got one anyway. So if he
acted contrary to that opinion – as subsequent findings show he did and intended
to do all along – ignorance of the law was out as an excuse.
            Years later, and never more than after his June 2006 conviction, Siegelman
and his supporters in the national media railed on prosecutors for bringing charges
against him for crimes related to the acceptance of campaign contributions.
            In a letter to supporters, Siegelman wrote that if his verdict were to stand, the
“traditional ways of financing a campaign or referendum could be turned into
federal bribery charges on the whim of a federal prosecutor.”
            When he was accepting the money, he based the scheme to hide the donations by
making a very different argument – that the funds were not campaign contributions.
            Also among the items faxed that day were two records, both dated Feb. 29,
2000, both signed by Dorman in his position as foundation chairman. One -- the
foundation’s statement of dissolution -- I already had. The other was a document
reincarnating the foundation killed off by Dorman with his first signature.
            The “Articles of Amendment” to the foundation contained the three fuzzy,
non-lottery purposes suggested by Pool. It was fi led, not with the secretary of
state, but at Montgomery County Probate Court, where it was unlikely to attract
notice, and had not.
            The trove also contained a Dec. 29, 2000, letter from Pool to Hosp. The date
-- about a month before the deadline for filing year-end campaign disclosures for
that year – suggested that someone remained nervous about the decision not to
file a report with the secretary of state.
            Hosp had asked Pool if a contribution to the foundation “in the following
situation” was mandated by the campaign practices act.
            Pool then restated the “situation” as described by the governor’s lawyer:
The foundation had amended its articles of incorporation, “thus ending its
involvement with campaign related activities;” and since then, hadn’t engaged
in campaign-related activities “either through fund-raising or through election
related expenditures.”
            Pool’s recitation of the fantasy continued: “However, the Foundation has
incurred a debt since (dissolving) for activities unrelated to any election purpose or
any other purpose as described in the Act. An offer has been made to pay that debt,
and you have asked whether such payment must be reported pursuant to the Act.”
            The problem was that the foundation’s debt was campaign related, and no amount
of legal opining could make that go away. Hosp’s use of the word “offer” – which
implies something presented but not yet taken – was disingenuous. At the time he
sought that opinion all the secret donations but one – the $13,500 from Sterne Agee
– had been given to and cashed by the foundation, as opposed to merely offered. Even
the debt to the party had been repaid. Hosp had to know he was presenting Pool with
the impossible task of rendering legal an illegal act that had already occurred.
Pool offered what he called a “better argument” for the foundation’s position
that it needn’t report its donations. Since the foundation hadn’t participated in
political activities since amending its articles, it was no longer “a political committee
pursuant” to Alabama’s campaign laws. And since only political committees must
disclose their contributions and expenditures, it “appears that, based on these
set of facts, contributions made to or on behalf of the Foundation should not be
subjected to such reporting requirements.”
            If Pool’s reading of campaign laws was correct, then you might as well throw
the laws into a shredder. Based on this logic, a man could rob a bank, have his
name changed, “give” the stolen money to his newly named self, and not be guilty
of a crime. Pool responded to the impossible task by devising a shell game that
described what Team Siegelman had already done.
            The memos proved that the foundation had continued raising money and
repaying a loan.
            Separately, we knew and had reported that it incurred a $700,000-plus debt
to the state Democratic Party, which it had in all likelihood repaid.
            The foundation’s debt to the party and its unidentified loan were obviously
related, though I didn’t have proof of it. The following graph hopefully helped
readers connect the dots:

            While the (memos) provided Friday don’t describe the debt, or give its size, the
apparent debt to the Democratic Party, as described by party officials, was clearly
campaign related. According to state law, then, donations to repay such a debt would
need to be disclosed to the Secretary of State’s office.

            For fairness if not accuracy’s sake I added: “It may be, then, that the debt
referred to by Pool is not the same as that owed to the Democratic Party.” To
which I’d have loved to add, “It may also be that if your aunt had …..”
            Though trumped by the memos, the original lead still bore reporting. Near
story’s end readers were told that we’d received a copy of the foundation’s tax
return from the IRS and that its existence “contradicts statements made by the
governor’s lawyer that no such return was ever filed.”
            We reported that Nick Bailey signed the 990, was listed as the person
responsible for maintaining the foundation’s financial records, and that the
 “telephone number of the foundation, as listed on the return, is a phone number
for the governor’s office.”
            In the driest language possible, I wrote that both Siegelman’s lawyer and his
campaign had asked the Register to provide copies of the 990, and we’d done so.
Readers were told that Team Siegelman still hadn’t provided us with financial
records of the foundation, despite our repeated requests and their earlier promises
to do so.
            After the story, “Harold” e-mailed to apologize for Cromwell Johnson’s
pronouncement that no 990 existed. He said Cromwell Johnson had told me
what he’d been led to believe was the case, and I didn’t doubt it. It wasn’t hard to
imagine Siegelman keeping his lawyers in the dark about such details.
            Harold also complained that his and Cromwell Johnson’s recommendations
for dealing with my inquiries had “not been well received in certain predictable
            “In fact, in no uncertain terms, we have been given to understand that, in
fact, we have no understanding of dealing with the press, no sense of public
perceptions of matters such as this, and that campaign professionals need neither
help nor advice.”
            Shortly after the story I left for Slovakia to join Jana, Jerry and Eva. I was
to be gone three weeks, or plenty of time, it would seem to a reasonable person,
for the Democratic Party and the foundation’s Mr. Trustworthy to compile their
records, complete the required disclosure forms and – this time, accurately -- file
them with the secretary of state and the IRS.
            At this juncture, after two months and six stories, the name Richard Scrushy
wasn’t on my radar.

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