Herman Cain’s ties to Wisconsin nonprofit raise legal questions

Adding to Herman Cain’s troubles Monday as he sought to downplay allegations that he had sexually harassed female coworkers in the 1990s, Cain also faced questions about more than $40,000 in debt that his campaign may owe to a Wisconsin nonprofit group.

The debt, first reported by the Milwaukee Journal Sentinel, may have been incurred illegally, according to campaign finance experts.

In the months before the former pizza chain executive declared his candidacy for the Republican nomination, Cain racked up thousands in debt to Prosperity USA, a Wisconsin charity that was formed by two of his highest ranking staff members, which paid for iPads and plane travel for the Cain campaign, according to the Journal Sentinel.

Asked about the report Monday morning during an interview with Fox News, Cain at first suggested that he had no knowledge of the report, but then said his staff was reviewing it.

“I’m not aware of this report,” he said. “So, my staff has not had time to go through it. And so I’m not aware of it. They’re not aware of it. We are going to look at the report and see if there is any validity. So at this point, I can’t say that there would be a modification because we don’t know at this point whether or not it’s true or not. So we’ll have to wait until we look at it. But we will take a look at it. But at this point, I didn’t even know about the report until you brought it up on the show.”

According to corporate filings obtained by the Journal Sentinel, Prosperity USA was operating as a 501(c)3 organization, which is barred from participating in partisan politics. The filing, submitted in April 2010, lists Mark J. Block as the group’s registered agent. Block is now Cain’s chief of staff.

Cain declared his candidacy on May 3, but he began accepting contributions in the begining of the year, according to disclosures he filed with the Federal Election Commission. Cain did not disclose any reimbursements to the charity and made no mention of the debt. The Milwaukee Journal Sentinel obtained the nonprofit’s financial documents, which are not required to be publicly disclosed.

“It does appear to be problematic if all these transactions occurred and none of it is showing up in [Cain’s] reports,” said Larry Noble, an expert on campaign finance, ethics and lobbying issues at the firm Skadden, Arps. “It’s illegal not to report something, and the contribution could be illegal.”

The Journal Sentinel reports that Prosperity USA was owned and run by Block and Linda Hansen, who also now works for Cain’s campaign.

According to the financial documents, Prosperity USA received $65,000 in grants in the first half of 2010 and incurred $150,000 in debt to unnamed people as of February 2010. The balance sheet lists $41,113.65 owed to the group from FOH, or Friends of Herman Cain, Cain’s campaign committee.

It also suggests that Americans for Prosperity, a nonprofit group founded by billionaire brothers Charles and David Koch, was involved in helping pay for Cain’s travel as recently as last fall. Before joining Cain’s campaign, Block ran the Wisconsin chapter of Americans for Prosperity.

The balance sheet lists receivables due from Americans for Prosperity for travel taken by Cain. And it lists $5,000 paid in September 2010 for Cain to attend a Right Nation rally in Chicago “at the request of AFP.”

In an interview with MSNBC’s Chuck Todd on Monday morning, Block said the Koch brothers had no involvement in Cain’s campaign.

“Every time that it’s suggested in the media that we’re fronts for the Koch family, I would suggest that if they are donating to us, their payments are past due,” Block said.

Larry Norton, a lawyer at the firm Womble Carlyle who specializes in campaign finance law, said the Cain campaign’s debt to Prosperity USA raises “potentially very serious election and tax issues,” particularly in the case of any assistance that was made to Cain during the time that he was campaigning.

“If they’re engaging in partisan political activity, that’s potentially illegal,” Norton said. “At the very least, if the campaign received an in-kind contribution, it should have been reported.”

It is unclear when some of the assistance occurred, and Cain did not become an official candidate until early May. The iPads that were purchased by Prosperity USA and listed as part of the debt due from Cain’s campaign were invoiced on Jan. 4, according to the nonprofit’s balance sheet. Debts incurred by a campaign committee must be disclosed to the Federal Election Commission, even if they were incurred before a candidate officially declared his intention to run.

“When you finally announce and you register as a candidate, all of those transactions prior to you registering come under the campaign finance laws,” Noble said. “Any advances made to him should have showed up as a debt if they were still outstanding.”

“As with any suggestions of this type, we have asked outside counsel to investigate the Milwaukee Journal Sentinel’s suggestions and may comment, if appropriate, when that review is completed,” Block said Monday in an email statement.

kim.geiger@latimes.com