In the matter of:

Rep. James Moran;
Moran for Congress; and
Terry Lierman

Respondents

NATIONAL LEGAL AND POLICY CENTER, a corporation organized and existing under the District of Columbia Non-profit Corporation Act and having its offices and principal place of business at 1309 Vincent Place, Suite 1000, McLean, Virginia, 22101, files this Complaint with the Federal Election Commission in accordance with the provisions of 2 U.S.C. §437g(a)(1) in the belief that Respondents violated provisions of the Federal Election Campaign Act of 1971, as amended, 2 U.S.C. §§ 431, et seq.

The primary purpose of the National Legal and Policy Center, a charitable and educational organization described in section 501(c)(3) of the Internal Revenue Code, is to foster and promote ethic in government.  In furtherance of that purpose, national Legal and Policy Center educates the public about the "Code of Ethics for Government Service," as adopted by a Joint Resolution of Congress on July 11, 1958; and it endeavors to ensure compliance by government officials with provisions of the Code and the laws of the United States. The apparent violations alleged herein represent a serious lack of compliance with the law by an elected official, his campaign committee and one of his political contributors.
 

REPRESENTATIVE JAMES MORAN, 2239 Rayburn House Office Building,  Washington, D.C. 20515, (hereinafter "Moran") is a Member of Congress representing the 8th Congressional District of Virginia.

MORAN FOR CONGRESS,  P.O. Box 2518, Alexandria, Virginia  22302 (hereinafter "the Committee") is a political committee established to support the Congressional candidacy of James Moran.

TERRY LIERMAN, 6301 Mountain Branch Court, Bethesda, Maryland 20817 (hereinafter "Lierman") made a substantial, unsecured personal loan at a below-market interest rate to Rep. James Moran less than a week before Moran co-sponsored legislation with a great economic benefit for a company for which Lierman was lobbying Moran.
 
 

The facts supporting this complaint are all to be found in materials openly available to the public.  The relevant documents are appended to the complaint as exhibits.

Central to the complaint is a large, unsecured personal loan made to a Congressional candidate, James Moran, by Terry Lierman, a wealthy lobbyist for a major pharmaceutical firm. The loan was made on or about June 25, 1999 and was described in a promissory note executed that same day as carrying an 8% annual interest rate.  The note indicated the amount loaned was $25,000 and carried the option for Moran to borrow additional money on the same terms.  A Washington Post article stated that Lierman acknowledged that the promissory note was never publicly recorded.1 (see Exhibit 1)

According to the promissory note, the loan did not have a maturity date.  It also lacked any requirement for collateral and any fixed payment dates for the principal.  The 8% interest rate was well below the market rate for such loans.  The Washington Post article on the loan cited Bank Rate, Inc., a company which tracks loan rates, as stating that in June 1999 the minimum rate for an unsecured personal loan in the Washington area was 12.5%.

At the time Lierman made the large, unsecured personal loan to Moran, Lierman was acting as a registered lobbyist for a major pharmaceutical firm, Schering-Plough Corp.  Lierman was endeavoring to get legislation passed which would extend the patent life on a Schering-Plough prescription allergy drug Claritin.  Such an extension would be a major economic benefit to Schering-Plough in that the drug in question had brought in $2.3 billion in revenue to the drug firm last year.  The Washington Post article cited a University of Minnesota study showing that "...extending the patent could cost consumers $7.3 billion over 10 years..."

Just five days after Lierman’s personal loan to Moran, Moran co-sponsored a bill to extend the patent life on Claritin.  Moran subsequently performed other legislative favors, including the sending of a July 23, 1999 letter to other Members of Congress urging support for the Claritin legislation.  Schering-Plough’s political action committee donated $2,000 to Moran for Congress just 20 days after the Moran letter was sent.

When questioned about how the loan came about, the Washington Post wrote:

Moran said he couldn’t recall if he had directly called Terry.  It may have been through. . . my campaign manager.2

Any individual who knowingly and willfully falsifies, or knowingly or willfully fails to file this report may be subject to civil and criminal sanctions. (see 5 U.S.C. app 4, § 104 and 18 U.S.C. § 1001)

The gravamen of this complaint is quite simple:  the large, unsecured, below-market personal loan from the drug company lobbyist to Congressional candidate Moran in June 1999 constituted a contribution far in excess of the amount allowed by law.

The loan remains a contribution as long as it is outstanding.  As nothing in the public record indicates that the loan has been repaid, it is apparently a continuing violation of the Federal Election Campaign Act.

Exacerbating the case are the facts that:

• the loan was made by a lobbyist who clearly was receiving important legislative favors from Rep. Moran

• the loan carried no maturity date

• the loan had no fixed payment schedule for principal

• the loan was not properly or timely disclosed on the Financial Disclosure Statement for 1999

• the loan was never disclosed to the Federal Election Commission by Moran or Moran for Congress, either in 1999 or 2000

It is beyond dispute that a candidate for Congress may not take a personal loan in an amount in excess of statutory limits which apply to campaign contributions.  Rep. Moran’s filings with the Federal Election Commission indicate that he was a candidate during all times material to this complaint.

The Federal Election Commission has addressed the issue of loans to candidates as follows:

A loan to a candidate or political committee is a contribution to the extent it remains outstanding. Repayments made on a loan reduce the amount charged against the lender’s or endorser’s contribution limit. However, a loan that exceeds the lender’s or endorser’s contribution limit is unlawful even if repaid in full.
            FEC Campaign Guide, March 1995, Page 10

The large unsecured personal loan given to candidate Moran is a classic example of a loan which constitutes a contribution.

A leading treatise on campaign finance laws, Federal Regulation of Campaign Finance and Political Activity, by Thomas Schwarz and Alan Straus (Matthew Bender, New York, 1985), summarizes the state of the law with respect to loans to Congressional candidates as follows:

Loans, Advances, and Deposits

Except for certain bank loans made in the ordinary course of business,[35] loans are contributions.[36]  A loan becomes a contribution at the time it is made by the lender, and it remains a contribution, and must be reported as such, to the extent that any principal amount remains unpaid.[37]  The aggregate outstanding principal amount of a loan to a political committee or candidate, when added to other contributions made by the lender to that committee or candidate, may not exceed the maximum contribution limitations.[38]

Note 35:   2 U.S.C. § 431(8)(B)(vii)(Supp. III 1979); 11 CFR § 100.7(b)(11).

Note 36: 2 U.S.C. § 431(8)(A)(i)(Supp. III 1979); 11 CFR § 100.7(a)(1). See, e.g., AO 1981-20, Fed. Elec. Camp. Fin. Guide (CCH) ¶ 5610 (June 4, 1981) (joint investment of state and federal PAC funds to buy treasury note, where neither had the funds sufficient by itself to make the purchase, constituted a contribution in the form of a loan to the federal PAC). Compare AO 1981-19, Fed. Elec. Camp. Fin. Guide (CCH) ¶ 5609 (June 4, 1981) (joint investment of federal and non-federal funds by a political committee permitted where it did not yield any direct or indirect advantage or preferred treatment to the federal fund); AO 1978-40, Fed. Elec. Camp. Fin. Guide (CCH) ¶ 5341 (September 1, 1978) (loans obtained by federal candidate to pay living and personal expenses during a period of candidacy are contributions under the Act and must be reported as such; amount loaned by an individual with respect to any election may not exceed $1,000)  See also MUR 1134 (June 18, 1980) (interspousal loans considered contributions).

Note 37: 11 C.F.R. § 100.7(a)(1)(i)(B).

Note 38: Id. See also MUR 1130 (Apr. 24, 1981); MUR 896 (July 29, 1980) (excessive loan); MUR 967 (June 24, 1980) (attempt to characterize excessive loan as business transaction failed for lack of substantiation of business transactions);  MUR 1055 (July 22, 1980) (excessive loan deemed knowingly accepted by candidate).

The purpose of the loan (in this case, purportedly Moran’s personal legal bills) is irrelevant. The Federal Election Commission has repeatedly determined that loans to candidates to cover personal expenses during a campaign are still considered contributions according to the Federal Election Campaign Act. 3

There is an exception in the Act that provides that loans by lending institutions made in the ordinary course of business to candidates do not constitute contributions to the candidate or the candidate’s authorized committee.4

Not only does this exception not apply in the present case because Lierman is not a lending institution, but it is interesting to note that even if the loan in question did come from a lending institution, it would still violate the Act because of its overly generous terms.  Lierman was charging 8% for an unsecured personal loan when the market rate was more than 50% higher: 12.5%.  The failure of the note to include any fixed payment schedule for repayment of the principal further underscore the fact that the transaction was not remotely similar to any commercial loan Moran may have been able to obtain at that time.
 

Lierman’s Loan Exceeds Legal Limits

Lierman’s personal loan to Moran constituted a contribution to the Moran campaign far in excess of the $1,000 limitation allowed under the Federal Election Campaign Act.

As nothing in the public record indicates that the loan has been paid off, any amount of the unpaid balance over the $1,000 legal limit represents an ongoing violation of the contribution limits of the Federal Election Campaign Act.
 

Failure to Disclose Loan Constitutes Reporting Violation

One reason the illegal personal loan from Lierman to Moran continued for more than a year without public notice is that Moran’s political committee repeatedly failed to disclose the transaction in any of their reports filed with the Federal Election Commission.

The Federal Election Campaign Act requires all applicable contributions and loans to be disclosed in the candidates required filings with the FEC.  As such, the Lierman loan should have been reported on each and every report filed by Moran for Congress since the loan was made.

Public disclosure is one of the essential elements of the Federal Election Campaign Act.  As a Member of Congress who has participated in many elections, Moran had a duty to know the law and to seek counsel if he was unclear about the disclosure requirements.  Moreover, this area of the law is well-established and not difficult to understand.  The FEC has consistently held in its regulations and advisory opinions that personal loans by individuals to federal candidates are limited to the same amounts as contribution limits.
 
 

None of the essential facts supporting this complaint are in dispute.

Moran took a large, unsecured personal loan from a lobbyist.  The $25,000 loan was well over the $1,000 limit allowed by the Federal Election Campaign Act.  The loan was from an individual, not a bank or credit union.  Moran was clearly a candidate at the time.  Moran never disclosed the personal loan to the Federal Election Commission.

Even a cursory review of similar cases which have come before the Federal Election Commission reveals how clearly the Lierman loan constitutes a contribution in excess of the legal limit. In the Federal Election Commission Advisory Opinion 1978-40 cited earlier, for example, there was a personal loan of just $3,900 from 10 individuals to an individual, made prior to the individual’s filing of a statement of candidacy, with the strict proviso that the money just go for personal and family living expenses.  The FEC concluded that the loan was a contribution for purposes of the Act, that it had to be disclosed in reports filed with the FEC and that "the amount contributed (loaned) by any individual with respect to any election not exceed $1,000.  2 U.S.C. § 434(b), § 441a(a)(1)"

Contrast that fact pattern with a secret $25,000 unsecured loan from a lobbyist at below-market rates that is never disclosed to the FEC.  The fact that it is beyond dispute that Rep. Moran was promoting legislation for the very same lobbyist which was apparently worth billions of dollars to the company employing the lobbyist certainly underscores the importance of the public disclosure aspects of this complaint.

Given the very compelling pattern of facts present in this case, the public is entitled to a full and prompt investigation.  The public has lost faith in the integrity of its governmental institutions, including Congress, because all too often they have seen the public trust betrayed to advance personal, political and economic interests.

NATIONAL LEGAL AND POLICY CENTER
 
Kenneth Boehm
Chairman

October 31, 2000
 

2 Id.
 

3     See Federal Election Commission Advisory Opinion 1978-40.

4     2 U.S.C. § 431(8)(B)(vii); 11 C.F.R. § 100.7(b)(11).
 

1 Jo Becker, Moran Got Loan From Drug Lobbyist, Va. Congressman Co-Sponsored Bill to Help Pharmaceutical Firm, WASH. POST, Oct. 31, 2000, at A1.
 

2 Rep. Jim Moran (VA-08) Financial Disclosure Statement for Calendar Year 1999 which he filed on May 15, 2000.
 

COPY OF PROMISSARY NOTE

Home Page