Duke’s Political Finances Spark Investigations

The use of a dummy company by David Duke’s gubernatorial campaign to conceal nearly $200,000 in campaign payments has raised new questions about his financial practices as the right-wing Republican launches his long-shot presidential bid.

Duke’s rise from the political fringe to national prominence during the last three years has been financed by more than $5 million in campaign contributions, with much of the money solicited in sophisticated phone and direct-mail campaigns and much of it coming from outside his base of Louisiana.

Now, with Duke planning to use the same techniques to collect up to $8 million, plus seek federal matching funds, for his presidential bid, Louisiana officials are examining the sources of his money and the manner in which he spends it.

Among the allegations under scrutiny are the use of a dummy company to conceal payments in Duke’s unsuccessful run in the Louisiana gubernatorial race last month. Duke’s campaign manager, James A. McPherson, acknowledged that the company issued checks to firms who performed work for Duke but did not want to be publicly linked to him. One of the firms is owned by a Mississippi lawmaker.

In Louisiana on Friday, the Jefferson Parish sheriff’s office said it is investigating whether funds for Duke’s gubernatorial campaign were misappropriated through the dummy company. Sheriff Harry Lee, whose jurisdiction includes Duke’s campaign office, said he decided to investigate after listening to taped telephone conversations about the dummy company between Duke and campaign officials.

In addition, the Louisiana state ethics board, which monitors compliance with election laws, is examining allegations stemming from the gubernatorial race, including the role of the dummy company, according to two sources familiar with the inquiry.

The use of the dummy company is just the latest controversy concerning Duke’s finances. In the past, it has been disclosed that he failed to pay state income taxes for four years. Other charges center on the tangled financial relationship between Duke, his political campaigns and the National Assn. for the Advancement of White People, a nonprofit organization he founded after leaving the Ku Klux Klan. Opponents have charged that Duke appeared to be receiving most of his personal income through the nonprofit group and his political campaigns.

McPherson dismisses the mounting criticisms as technical matters, adding: “David Duke is not a detail man.”

In an interview, Duke blamed his problems on technicalities and said that he has been unfairly targeted by critics and election officials. He said there was nothing wrong or illegal in the use of the front company to handle payments to campaign vendors.

“We’re constantly harassed,” Duke said. “We need a lot more wherewithal, money, to handle it. . . . What it is is that we have always been underfinanced.”

Maris McCrory, a campaign-practices lawyer with the state ethics board, said Louisiana law requires that campaign payments be itemized. If money was paid to other contractors through a dummy company, she said, the law requires that the recipients be identified in campaign filings. But she refused to confirm that the state is examining any possible financial irregularities by Duke’s gubernatorial campaign.

On Friday, however, Duke’s campaign filed an amended report with the state. It listed specific payments to contractors and to Duke’s own lawyers through the dummy company. The payments had not been previously reported.

The issue first arose last month after Duke’s campaign filed a finance report showing $196,219 paid to Stirling Publishing Inc. of Jackson, Miss., for direct mailings.

Stirling is not licensed to do business in Mississippi and maintains only a rented mailbox in Jackson. When a Louisiana TV reporter asked about Stirling three days before last month’s gubernatorial election, Duke and his campaign officials seemed to become alarmed, according to two tape recordings obtained by The Times.

The tapes are of conversations Duke conducted with the campaign officials over his cellular car phone. They were provided to The Times by a lawyer who refused to identify the client who provided them. They apparently are the same conversations provided to the Jefferson Parish sheriff’s office.

Based on the tapes and several interviews this week with Duke and McPherson, it was learned that McPherson’s law partner established Stirling as a shell company a year ago.

When two companies working on direct mail for the campaign said they did not want to be publicly associated with Duke, the campaign funneled the money to Stirling, which then issued checks to the two firms in its name, McPherson acknowledged. “They asked us if we would send them checks that did not come from David Duke,” McPherson said.

Friday’s filing said $168,912 went to Cliff Kelley Inc., a printing company in St. Louis. McPherson said the Kelley firm had Jewish investors and did not want to be identified with Duke, although Duke says he has renounced his past as a Ku Klux Klan leader and Nazi sympathizer.

Another $9,500 went to Creative Concepts, which is owned by Michael and Grace Gunn of Jackson, Miss. Michael Gunn is a Republican state representative who was elected to the Mississippi Senate last month after disavowing any ties with Duke.

In addition to the hidden payments to the firms, McPherson acknowledged that Stirling paid him $7,000 in campaign funds. He said he did not know what the money was for when he received the check last May. But he now says the money was for his work as president of Stirling--a position he did not know he held until November--and for overhead at his law office related to the Duke campaign.

Another $7,000 went to Phillip K. Wallace, McPherson’s law partner, who established Stirling Publishing in May, 1990, according to records. McPherson said an additional $1,100 was used to pay Wallace’s American Express bill for administrative work connected with Stirling. Attempts to reach Wallace were unsuccessful.

While Duke and McPherson insisted in interviews that there was nothing wrong with using Stirling, the two tapes indicate that they were alarmed at the prospect of the issue surfacing so close to the Nov. 16 gubernatorial runoff election. Both conversations dwell on how to soft-pedal the story if the press pursued it.

In one of the taped conversations, both Duke and McPherson seemed uncertain of Stirling’s role.

Duke said: “The idea was, it was just a conduit to give a little money, handle it, all the expenses would be the same so there would be no tax liability.”

McPherson said: “I didn’t know I was president of it till they told me today.”

“Aw man, I can’t believe all this,” replied an exasperated Duke.

In interviews Tuesday and Thursday, Duke denied receiving any money from Stirling. He said it was used legally to pay campaign expenses.

When asked what he meant about avoiding taxes, Duke said that he was trying to explain that Stirling would be liable for taxes on the campaign money if it did not pass the funds on to the contractors.

When McPherson was asked what he thought Duke meant about tax liability, he said: “David didn’t know what he was talking about. That’s all.”

Later in the taped conversation, Duke said it was vital to keep a lid on the secret payments to the Gunns.

“You see, the thing is we’ve got to protect Mike and Grace Gunn,” he said.

He suggested having McPherson and Wallace sign sworn statements saying that none of the money went to Duke and not revealing anything further about Stirling.

Friday, however, after a week of questions by The Times and a story in the local press about Sheriff Lee’s inquiry, the campaign filed its amended report on Stirling.

In his past campaigns, the majority of Duke’s money has been raised through direct-mail appeals, a technique he says he intends to expand in the presidential race. But a significant amount of his money has come from cash donations at rallies.

Linda Melton, who was briefly an official in Duke’s unsuccessful U.S. Senate campaign in 1990, said that she attended a rally at which oyster buckets were passed among several hundred people, who then returned them filled with cash. “People were putting a ton of money in there,” Melton said.

She said that Duke later took the money to his room. A short time later, the cash was stuffed into several plastic bags and tossed into one of Duke’s vehicles, she said.

Melton said she left the campaign after she did not receive satisfactory answers from Duke and other officials about what happened to the money.

In the Senate race, Duke reported receiving $2.1 million of his $2.5 million in total contributions from people who gave under $200. Federal law does not require him to report the names of those contributors.

The Louisiana Coalition Against Racism and Nazism, which has monitored Duke closely since he won election as a Louisiana state representative in 1989, claims the cash collections are part of a pattern in which Duke plays loose with campaign laws.

The coalition has questioned whether Duke converts campaign contributions and donations to his nonprofit organization for his own use. Coalition leaders note that until Duke was elected to the Statehouse in 1989, he had never held a regular job.

Duke has denied using campaign money for anything other than legitimate expenses. In announcing his presidential bid on Wednesday, Duke said he makes a living as a writer and speaker and by selling computerized mailing lists.

Most often, the mailing lists have been rented to the national white people’s group. For instance, the group’s 1988 and 1989 tax forms show that a Duke-owned company received $84,325 in rental fees from the organization.

Patrick Thomas is a special correspondent for The Times.