The state's chief political watchdog calls it "one of those dirty little secrets" that everyone in Sacramento knows about--and no one has the power to police.
Bluntly, it's called cashing in on causes.
Find something or someone to demonize--taxes, Willie Brown, illegal immigrants. Mail out scare letters. Rake in the donations. Then, make more money renting those donors' names to someone else who wants to hit them up.
Nobody did it better than a pair of Newport Beach political consultants who called themselves the "Darth Vaders of Direct Mail."
While many peers looked on with envy, William A. Butcher and Arnold C. Forde got rich off causes led by tax crusader Howard Jarvis, president's son James Roosevelt, actress Doris Day and others.
They did it--without running afoul of any laws--by capitalizing on the broad reach, low profile and loose regulation of mail solicitation.
Butcher, who has moved to England and changed his name to Lord-Butcher, parlayed his riches into the world's largest shellfish-farming operation. His clams are traded on the London Exchange.
Forde stocked his ocean-view Laguna Beach home with a collection of contemporary art that museum curators covet.
Like explorers in a political land of plenty, they opened a golden frontier for California's direct mail consultants.
"You could almost consider them the fathers of the political initiative campaign," said Howard Adler, who befriended Butcher in the 1960s and later became chairman of the Orange County Democratic Party. "If anyone can take responsibility for where an industry started, they could."
Hundreds of groups raise tens of millions of dollars each year in California, promising to lobby legislators, propose initiatives or simply raise a ruckus about an issue. In this election year, the pleas for cash will be flooding mailboxes at an even faster clip.
Many of these political advocacy groups operate responsibly, raising money for legitimate causes and spending it on them. For donors, however, there are no guarantees.
The problem? The regulatory system, devised by politicians, is not set up to look closely at groups that raise funds for political causes.
"These [public interest groups] are cash cows for these consultants," said Darryl East, chief enforcement officer for the California Fair Political Practices Commission. "We have no jurisdiction over how they spend the money."
East and the state's attorney general are hobbled by lax laws and laissez faire court decisions. It's perfectly legal for fund-raisers to pocket as much donated money as they want.
Internal Revenue Service officials concede that the agency blesses virtually every public interest group that wants nonprofit status and almost never checks whether they are really profit-making enterprises.
The problem is not confined to California.
"Anyone with half a brain can start their own nonprofit and raise a bunch of money and--as long as they give a little bit to the cause--you can't touch them," said Steve Arter, a Pennsylvania investigator of nonprofit groups.
Generally, the financial arrangements between public interest groups and their fund-raisers are closely guarded secrets.
Butcher and Forde might have kept their secrets too, if The Times hadn't persuaded an Orange County judge to make public thousands of documents mysteriously sealed for four years.
Butcher, 59, and Forde, 54, who parted company in 1995, did not respond to repeated requests to talk about their fund-raising.
But the lawsuit documents and a subsequent Times investigation revealed that much of the money that civic-minded citizens gave to Jarvis' group--one of the nation's best-known grass-roots political organizations--ended up in the fund-raisers' pockets.
Theirs became such a profitable business, internal records show, that by the mid-1980s Butcher and Forde were paying themselves $3 million to $5 million a year, while their firm was pulling in up to $12 million in annual income.
A spinoff company earned as much as $2.25 million a year renting the names of Jarvis' anti-tax activists, as well as donors to Roosevelt's National Committee to Preserve Social Security and Doris Day's Animal League.
Butcher-Forde appears to be the only party that turned a profit from its 1987 contract with the Day group. A year after she was sold on taking her pet cause nationwide, the league owed its fund-raising firm $1.7 million more than it received in donations, according to financial records.
Butcher-Forde's fund-raising fiefdom sprang from a deal--a contract that bound the Jarvis group to them for so many years, and at such a high price, that when its terms became known years later, some industry insiders and regulators said they had never seen anything to match it.
The two had hooked up with the pugnacious tax-fighter at the inception of his campaign to pass Proposition 13.
While putting together the Yes on 13 initiative, Butcher, an early computer whiz, and Forde, a gregarious deal-maker, discovered that Jarvis' supporters would do more than mail back signed petitions. They would also send cash.
After Proposition 13's landslide victory in 1978, Butcher and Forde helped Jarvis marshal his followers into a new nonprofit group, the California Tax Reduction Movement.
"Jarvis was becoming a celebrity, [and] he believed they were largely responsible for his success," recalled Randy Goodwin, a former Jarvis board member who had a falling-out with the pair over use of donor lists. "They didn't get much interference in what they were doing."
Still basking in his newfound fame, Jarvis signed a series of amended contracts with Butcher-Forde Consulting. The last and most lucrative was called a "catalog of horrors" by Denison Hatch of Stamford, Conn., who puts out a respected trade publication, "Who's Mailing What!"
The 1983 contract gave the partners control over the group's direct mail campaigns for 19 years. Regulators and industry watchdogs say they have never heard of a contract binding a nonprofit to a fund-raising firm for that long. Generally, such contracts run three years or less.
The pact entitled them to commissions of 15% to 17.65% on campaign expenses, such as printing and postage, and an unheard-of fee of 25 cents for every letter. The more mail they sent, the more money they earned, even if no letter got a donation.
When hundreds of thousands of envelopes each were stuffed with a new dollar bill--to lure donors into at least returning the pledge envelope--they charged the group $1.1765 for each dollar bill.
"With those fees and commissions, what's the incentive to mail smart? What's the incentive to find the most efficient suppliers?" asked Hatch. "It was the quintessential rip-off of the American people."
That was a heady time for Butcher and Forde, recalls consultant Harvey Englander, who worked for them after Proposition 13:
"We were very hot. . . . We controlled access to Howard. Butcher drove a BMW. . . . Arnold drove a Corvette. And my company car was a red [Mercedes] 450SL."
While Jarvis and Englander visited Europe on the Concorde, Butcher and Forde honed their fund-raising techniques. With an unerring sense of what it took to get property taxpayers to donate, they bombarded mostly retirees with letters begging for cash to battle the legions seeking to raise taxes.
Before Butcher and Forde, Englander said, "no one had ever thought about forming nonprofit corporations to be able to use the charitable postal rate"--now as low as 6 cents a letter, compared to 32 cents for first-class.
Their contract also gave them what one industry insider referred to as the "money tree"--the exclusive right to rent the list of Jarvis' donors to other fund-raisers, again and again. Even Jarvis couldn't do anything with the list without their written permission.
Soon, the costs of raising funds were eating up the proceeds.
The Jarvis group's IRS filings from 1985 show that it raised $7.7 million. But it ran up fund-raising costs of $3.7 million, and Butcher-Forde was paid $2.5 million in fees and commissions, according to the group's internal records. Another $735,000 went to attorneys' fees and other costs, leaving slightly more than $750,000 for the cause.
The next year, the group raised $2.8 million, but incurred fund-raising costs of $3.9 million, including $1.8 million in fees to Butcher-Forde, leaving it in the red.
"In some cases, direct mail fund-raising is kind of a narcotic," said Arnold Steinberg, a longtime campaign consultant. "You keep sending more of it, and you're always in hock to the direct mailer. You're always sort of mailing letters to pay off your debt."
Butcher and Forde's growing riches came as no surprise to many colleagues, though few knew just how much money they were making.
Even before they spun Jarvis' tax-fighting crusade into gold, their shrewd business sense had attained a certain mythic status in California political circles.
"It's a rare group of political consultants who can say they have made as much money as those guys," said Santa Ana consultant Dan Wooldridge.
They burst from Orange County in the 1970s as the high-priced kings of attack-style politics, boasting of their willingness to use "every available legal method" to win.
And they did.
Former U. S. Sen. Alan Cranston hired them twice, in part, he said, to keep them from working for the opposition. "Attack politics had become a way of life, and they were . . . the pioneers," the California Democrat said recently.
One last-minute mailer that the pair sent in a hard-fought Assembly campaign falsely implied that Democrat Art Torres was not really married. (He won in spite of the attack, and later went on to the state Senate.)
In 1982, a mailer for Republican congressional candidate Johnnie Crean claimed that his opponent was facing "voter fraud, tax fraud, conspiracy and perjury charges." Only the fine print revealed that the charges were leveled by Crean.
"In Butcher's mind, right was what worked. Wrong was what didn't. He was always surprised when other people didn't see it that way," Crean said.
On a TV talk show about that time, Butcher defended his tactics: "Political consultants are not paid to decide what's right."
But public controversy over their tactics in the Crean campaign eventually forced the pair to focus their full attention on causes instead of candidates.
After their success with Jarvis, Butcher and Forde kept their business thriving by hooking up with celebrities. They signed a 19-year contract in 1982 with James Roosevelt, President Franklin D. Roosevelt's eldest son, and helped him launch the National Committee to Preserve Social Security.
Within months, critics--among them a dozen congressmen--said the group's letters "were preying on society's most vulnerable citizens" by claiming that their Social Security benefits were at risk.
But the criticism did little to slow the committee's growth. In 1984, it collected $9.8 million in contributions. Butcher and Forde mailed more than 70 million letters. From their 5-cent-per-letter fee alone, they made more than $3.5 million.
Mary Roosevelt, James Roosevelt's widow, said Butcher and Forde "did what they were asked to do--get this group started and alert people to what was going on. . . . Were they making money off bending people's emotions? Yes, they were."
But that same year, their fund-raising empire came under attack from an unlikely source.
A frail Sherman Oaks accountant, a former Jarvis sympathizer, sued Jarvis' California Tax Reduction Movement, demanding that it publicly disclose how it spent its money. Butcher-Forde was later added to the lawsuit because he suspected that the group was appealing for cash merely to pay the fund-raisers' fees.
While some solicitation letters claimed that the Jarvis group was crippled by debt, bank records revealed in court showed that its accounts were fat. When the donations came in, court documents show, the money was funneled to Butcher-Forde in a way that avoided public disclosure.
Orange County Superior Court Judge Donald E. Smallwood, who handled the case, blasted such letters in his ruling, saying the group "was still beseeching the recipients of its mailers" to take care of the debt, while it transferred "considerable sums of money" to pay Butcher and Forde a "bonus of $1.5 million."
"The court is troubled by the entire scenario, since it's obvious the recipients of the 'debt reduction' letters were in many cases being hoodwinked," he said.
An FBI agent who examined these transactions in an unrelated investigation of political corruption in Sacramento agreed. In an internal memo that found its way into the files of the Orange County District Attorney's Fraud Unit, Patrick Murphy told his bosses in 1992: "The Jarvis organization, through the acts of BFC [Butcher-Forde Consulting], defrauded thousands of people who mailed in contributions under the false pretense that the money was going to be used to pay the expenses of the proposition campaigns."
Smallwood's May 1995 ruling said that although he found Butcher-Forde's behavior "reprehensible" and believed that they had "facilitated" campaign reporting violations by the Jarvis group, he could not find them liable under the narrow confines of the Political Reform Act.
But he did find that the Jarvis group had illegally failed to report $1,362,326 raised and spent during one "debt-reduction" campaign. He awarded accountant Paul McCauley $300,000, and ordered the Jarvis group to pay the state another $300,000 and six years of McCauley's attorneys fees.
Although the group is appealing portions of the ruling, Joel Fox, its executive director, said, "It's hard for me to argue with some of the [judge's] conclusions." In hindsight, Fox agreed that Butcher and Forde had perhaps too much control and made too much money off Jarvis' supporters. "There's no question that was a lot of money . . . [but] we didn't intentionally fool anybody."
Fox said the Jarvis group never would have gotten as big as it had without Butcher and Forde.
Jarvis, in his autobiography, "I'm Mad as Hell," said the pair might have cost him more than other direct mail fund-raising firms, but it was worth it.
In June 1988, the partnership earned one last payday off its nonprofit clients. The pair sold their company and contracts with the Jarvis, Doris Day and Roosevelt groups to an East Coast direct mail firm for $11.3 million.
Fox insists that the Jarvis group is more careful about its fund-raising now, but he declines to reveal details of his contract with his current direct mail fund-raiser. He said the firm did not want them made public.
Critics say that some direct mail fund-raisers are perverting grass-roots politics. Instead of people with just causes looking for ways to raise money, people who know how to raise money are looking for causes.
"Driven by profits, it's often the [direct mail] firms who put controversial issues on the public agenda that might not otherwise be there. And the initiative process has certainly been corrupted by this," said former state Sen. Barry Keene, a Cal State Sacramento professor.
Consumer advocate Ralph Nader said that although Butcher and Forde are "notorious" for their work with public interest groups, they certainly are not alone.
The tough part for donors nationwide, Nader said, is figuring out which groups are legitimate and which are controlled by fund-raisers "grinding out" cash and gathering rentable names.
After Butcher-Forde showed others what could be done, "every consultant and his brother was looking for a Proposition 13 gravy train," said one consultant, who has worked in the industry for decades.
"Consultants had these dreams: 'I'm going to have a Proposition 13. I'm going to ban illegal immigration. . . . All I have to do is get one hot issue and do direct mail, and get rich beyond my wildest dreams,' " said the consultant, who spoke on condition of anonymity.
Making such riches is largely legal--and unregulated. It is not against the law for someone to set up a public interest group, raise a bunch of cash for an initiative or cause, and spend most of the money on fund-raisers.
By the same token, no laws would be broken if a fund-raiser seeks out someone with a promotable cause as a way to earn fees and commissions.
The state Political Reform Act requires groups engaging in political activity to file public reports after they have raised their first $1,000. How money is spent is rarely an issue for the FPPC. It is up to prospective donors to inspect campaign reports required by state law.
And don't look to the IRS for guidance.
Most public interest groups apply to the IRS for tax-exempt status--to qualify for the low charity postage rates, if nothing else. Rather than act as a gatekeeper, the IRS acknowledges that it approves 99% of the applications for tax exemptions, and in 1994 "audited" less than 2% of the nation's 1.2 million tax-exempt groups.
Even if such audits showed that a group routinely spent more than 90% of its income on fund-raising, IRS officials said that alone would not land it in trouble.
Marc Owens, director of the IRS Exempt Organizations Division, said: "There is nothing in the federal tax law that tells a direct mail fund-raiser that they can't take 100% of the money."
But he said that if the IRS is convinced that a group exists solely for the benefit of the fund-raiser, it can revoke its tax exemption--a step that it has rarely taken.
And if a tax-exempt group really wants to camouflage its fund-raising outlays on its annual returns, it can do so easily. Regulators point out that a nonprofit group could legally report virtually all costs of a fund-raising appeal as being spent on "education," if there is anything remotely educational in its letters to potential donors.
In the case of Jarvis, who died in 1986, no one doubts that he was devoted to his cause, and to beating back attempts to weaken Proposition 13.
His group still wages his battles, appearing in court to fight skirmishes over proposed tax hikes. Its ability to get propositions on the ballot shows that certain high mailing costs are getting results.
Although Butcher and Forde are no longer the innovative force in fund-raising that they once were, nonprofit watchdogs and consumer advocates do not doubt that some of their more questionable tactics have been adopted by others.
"The only thing different now is that it's perhaps worse," said David Ormstedt, a veteran Connecticut prosecutor who oversees nonprofit fund-raising. "There are more people doing it."
Next: How the political fund-raising industry traffics in donors' names.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
An umbrella organization not directly involved in political campaigns or fund-raising was sometimes used to funnel money to direct-mail consultants William A. Butcher and Arnold C. Forde. Here's an example of how the California Tax Reduction Movement, parent to Howard Jarvis' Taxpayers Voting Rights Act Committee, was able to secretly pay Butcher and Forde without disclosing the payments on the campaign spending reports filed by the Voting Rights Act Committee, which reported transfers only to the parent organization. The money flow:
1. HOWARD JARVIS' TAXPAYERS VOTING RIGHTS ACT COMMITTEE
Mails two pleas for money to retire debts left by a successful statewide initiative campaign. The letters say the entire Jarvis organization is in danger of going under because of the debts. The committee raises $1,024,573.
2. Jarvis' Committee
Jan. 13-30, 1987: Transfers $710,000 to parent organization, California Tax Reduction Movement
3. California Tax Reduction Movement
Jan. 27, 1987: Transfers $450,000 to American Tax Reduction Movement (an affiliate)
Feb. 11, 1987: Transfers $240,000 to ATRM
4. American Tax Reduction Movement
Jan. 27, 1987: Pays Butcher-Forde $455,803
Feb. 11, 1987: Pays Butcher-Forde $240,971
Source: California Tax Reduction Movement documents; Researched by TRACY WEBER / Los Angeles Times
Celebrities such as actress Doris Day, presidential son James Roosevelt and tax fighter Howard Jarvis relied on a pair of Newport Beach political consultants--William A. Butcher and Arnold C. Forde--to raise money for causes they championed. Here's what happened:
When the Doris Day Animal League found that the fund-raising costs and fees exceeded what was being collected, and that it was $1.7 million in debt to the consultants, it found a way to break the contract it had originally signed with Butcher-Forde Consulting.
The fund-raising campaign Butcher-Forde conducted for Roosevelt's National Committee to Preserve Social Security brought criticism from a dozen congressmen that their letter appeals "were preying on society's most vulnerable citizens" by claiming Social Security benefits were at risk.
The Howard Jarvis Taxpayers Assn. got itself in legal trouble for failing to publicly disclose payments to Butcher-Forde totaling hundreds of thousands of dollars. A judge also blasted the Jarvis organization for raising the money under false pretenses to pay Butcher-Forde a "bonus" of $1.5 million.
Source: Times reports