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.