Wednesday, November 23, 2016

The Danger of Large Campaign Loans: The Sad Case of Meg Scott Phipps

The Danger of Large Campaign Loans: The Sad Case of Meg Scott Phipps

In 2000 Meg Scott Phipps, the candidate for Agriculture Commissioner of North Carolina, funded her campaign with over $500,000 in loans from her family.  Those loans were the beginning of a long road that led to Meg Scott Phipps’ conviction in 2004.   Ms. Phipps won election and soon thereafter began using her new office to help deal with the loan.  According to Ms. Phipps’ indictment, she used her office to solicit illegal campaign contributions from state fair concessionaires.  In addition to serving a prison sentence, Ms. Phipps’ family eventually had to forgive the loan.



In 2016 Dale Folwell, the candidate for State Treasurer of North Carolina, funded his campaign with over $500,000 in personal loans (see, “For North Carolina’s Treasurer-Elect the Biggest Challenge is Judgment [November 18, 2016]).  As I wrote recently, Mr. Folwell hasn’t done anything illegal, and I am not predicting that he will do anything illegal to satisfy the $500,000 loan he made to his campaign.  However, Ms. Phipps’ sad saga is instructive about the pressures that can cloud the judgment of public officeholders when their personal financial houses are not in order.

The SEC has rules that severely limit campaign contributions from anyone who manages or seeks to manage pension investments.  Under those rules in-state contributors are limited to $350 and out-of-state donors to $150.  Thus, Mr. Folwell cannot readily retire $500,000 in debt directly from money managers.  However, there are plenty of financial institutions, lawyers, and other business interests that would see a great advantage in helping the incoming State Treasurer solve his debt problem.  The Treasurer’s office has contracts for various forms of recordkeeping, custody, and administration.  The Treasurer serves on many state boards, including education and banking.  While many of Mr. Folwell’s devoted followers expect little in return for their support, Mr. Folwell will have to take money from parties who make (but never admit it) campaign contributions because they expect something in return.

Campaign contributions are a necessary and corrupting aspect of politics.  However, when a candidate finances an election with a large personal loan and expects to be reimbursed, bad things have a way of happening. 




Note:  In my initial post, I said that I could not find any securities licenses for Mr. Folwell on the Investment Advisor Data Base.  Upon further investigation I learned that the SEC removes inactive licensees after ten years.  The SEC has removed my information on my registrations and presumably Mr. Folwell’s as well.  Mr. Folwell was a broker or investment advisor at Merrill Lynch and Deutsche Bank, Alex Brown.

2 comments:

  1. Once again, you are making innuendos with no basis about a candidate that has a record in political office. You know just by including his name in the article you are. What in his prior record leads you to compare his situation to that of a convicted felon? Folwell is not Phipps. Very unfair. Maybe you have but there is plenty of factual material you can expound upon on the last two Treasurers. Facts in the public record that led to the loss of public confidence in each of their administrations. I'll go back and review your blogs and see how many articles critiqued the current administration. There were certainly plenty of news worthy items to do so.

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  2. Perfect Game -- I urge you to read the many posts I published about the current Treasurer. I wrote extensively about escalating fees, the questionable value of alternative investments, the lack of transparency with respect to the North Carolina Innovation Fund, the questionable ethics of the Treasurer joining two public boards and many other critiques. I think you'll find that candidate Folwell picked up some of these themes.

    I only began writing the blog long after Treasurer Moore left office, but I did write about the questionable experiment to add alternatives to the investment mix as well as the uncomfortable interplay between investing, politics and the need to raise campaign funds. If you dig even further you'll find some critiques of Treasurer Boyles, whose equity investments underperformed the markets by wide margins over extended periods. At the same time I have defended each one of these Treasurers when I thought they did something good. I expect I'll find some positive things to say about the Treasurer-elect as he seems intent on reducing fees and simplifying the asset allocation.

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