Campaign finance accusation in AG’s race

Chris KellyChris Kelly, the former Facebook chief privacy officer now seeking the Democratic nomination for state Attorney General, violated state law by taking a personal loan and using it pour $9.6 million into his own campaign without reporting the loan’s source, staffers for an electoral rival claimed today.

Lawyers and staffers for the campaign of San Francisco District Attorney Kamala Harris held a conference call today to make the claim, citing a Los Angeles Times report this past weekend and the sworn statement of economic interests Kelly filed with the state. From that LA Times report:

The case of Chris Kelly, a Democratic attorney general candidate who amassed a personal fortune in stock options while an executive at Facebook, has some campaign finance watchdogs stumped.

Kelly has found a way to use his stock options in Facebook to bankroll his political campaign even though the company has yet to go public. He is selling his shares in Facebook to a group of investors in Delaware who are willing to pay cash for Facebook stock options, perhaps gambling that they will increase in value by the time the company goes public.

The question raised by Kelly’s strategy is whether the investors are paying the market price for the options or a higher price in order to do him a favor.

Kelly’s spokeswoman and the owner of the Delaware private equity firm FBI Investments, which bought his Facebook options, both deny that Kelly got any special deal.

The candidate sold his options at the going rate, and he has already disclosed everything the law requires, spokeswoman Robin Swanson said. “Anyone else could buy and sell Facebook stock options this very same way.”

But the law does not require Kelly to disclose how many options he sold or the price. In the absence of any disclosure requirement, voters have no way to confirm his statement.

Harris’ people filed a complaint yesterday with the Fair Political Practices Commission, the state’s campaign law watchdog. Harris campaign strategist Ace Smith said today it seems Kelly’s funding “is based upon receiving a noncommercial loan, essentially a shady infusion of money into his campaign.” Smith said it’s ironic that Kelly is funding his campaign through sales of Facebook stock even as he tries to distance himself from Facebook, now embroiled in privacy concerns.

“Anyone running for AG should be absolutely above question, absolutely above board, and fully transparent,” Smith said.

Harris campaign attorney James Sutton said Kelly’s Form 700 economic interests disclosure shows a loan of more than $100,000 – it’s unknown how large it actually was – from FBI Investments LLC, a Delaware-based private equity firm, “to facilitate stock option exercise.” Proceeds from the sales of that stock went to the campaign.

But “such a loan is illegal,” Sutton said. “The law is as clear as clear can be: that a loan is considered a contribution.”

The only exception would be a loan from a commercial lending institution in the course or regular business at terms available to the general public, Sutton said. FBI isn’t such an institution, and so the contribution should’ve been subject to limits set by law and reported on Kelly’s campaign finance reports.

Sutton said Kelly also didn’t report who bought the stock, and at what price; because Facebook is not a public company, its stock prices are set not by a public exchange but by negotiation between the buyer and seller. Knowing who bought the stock and for how much is crucial to determining whether these were arms-length, above-board transactions or a “sweetheart deal” in which someone was giving Kelly more money than the stock was actually worth.

Kelly’s campaign issued a statement this morning saying Harris’ campaign has “sunk to a new low, with her consultants coordinating a publicity stunt, and that “(i)t’s clear that Chris Kelly has followed the law, while Kamala Harris has failed to uphold the law and the Constitution.

“Last Thursday, a Superior Court Judge in San Francisco ruled that Kamala Harris systematically violated defendants’ civil and constitutional rights, facilitating the release of hundreds — and ultimately perhaps thousands — of criminals onto California’s streets,” Kelly said in this statement, citing the San Francisco Police crime lab fiasco. “This is merely the latest attempt to distract voters from the fact that she’s not qualified to be the Attorney General of our great state.”

Josh Richman

Josh Richman covers state and national politics for the Bay Area News Group. A New York City native, he earned a bachelor’s degree in journalism from the University of Missouri and reported for the Express-Times of Easton, Pa. for five years before coming to the Oakland Tribune and ANG Newspapers in 1997. He is a frequent guest on KQED Channel 9’s “This Week in Northern California;” a proud father; an Eagle Scout; a somewhat skilled player of low-stakes poker; a rather good cook; a firm believer in the use of semicolons; and an unabashed political junkie who will never, EVER seek elected office.