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Martha Coakley drew FEC inquiry

Attorney General Martha Coakley has declined to discuss her campaign finance issues.

Attorney General Martha Coakley has declined to discuss her campaign finance issues.

Attorney General Martha Coakley, who has come under scrutiny over the management of her political funds, also faced a potential Federal Election Commission investigation three years ago into possible violations of federal campaign finance laws.

The commission’s legal staff, after a review of a state Republican complaint, said enough evidence existed for the agency’s commissioners to authorize a limited investigation into whether Coakley and the Martha Coakley For Senate Committee violated the finance statutes in the lead-up to the 2010 special US Senate campaign.

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In September 2010, the commission cleared her of wrongdoing on one of the counts and cited prosecutorial discretion in not pursuing the second count, which pertained to the hiring of staff before the Senate race.

While making no determination about the merits of that allegation, the commission justified its decision by pointing to the FEC’s limited resources and the minimal amount of political funds involved.

At issue in this second count was whether Coakley used over $25,000 in her state campaign funds to hire staff and consultants to quietly set the stage for a pending US Senate campaign in the summer of 2009, just days before Edward M. Kennedy died and his Senate seat came up for grabs in a special election.

Federal law bars the use of state campaign funds to pay for federal campaign expenses.

Coakley has declined to talk directly about her campaign finance issues. The spokesman for her gubernatorial campaign, Kyle Sullivan, emphasized the fact that the decision by the bipartisan commission was unanimous, a rarity for a panel that has operated for the most part in partisan gridlock in recent years.

“This three year-old, politically motivated issue has been reviewed by both state and federal campaign regulators, and they both sided with the Coakley committee against the Massachusetts Republican Party,” Sullivan said.

The FEC documents underscore the difficult issues facing Coakley over her campaign finance accounts as she pursues the Democratic nomination for governor.

As attorney general, she has sought criminal complaints and filed civil suits against political figures for failing to adhere to campaign finance laws and regulations.

The Globe reported that Coakley used $6,000 in leftover funds from her US Senate campaign for her political activities when she was laying plans to run for reelection as attorney general. State law bars the use of federal funds to support a campaign for state office. Her aides said she will return most of those funds and will close the federal committee.

Her quarterly reports to the FEC since her defeat have also been in fiscal disarray. Its balance sheets are consistently unreconciled, making it impossible to determine the true value of the account.

In addition, the federal committee paid $35,000 to a Washington-based company for software to file the FEC reports and to maintain a fund-raising and volunteer database. Her aides insist that the database has not been used for her state political operations, which would be violation of state law. Her campaign said it will not release the details of its use of the database. Governor Deval Patrick rejected the GOP’s request that he appoint a special investigator to look at Coakley’s use of the account.

The FEC’s review of the Martha Coakley for Senate Committee was launched in the late fall of 2009 following a complaint filed by the Massachusetts Republican Party in the middle of the special Senate election.

The agency’s general counsel at the time, Thomasenia P. Duncan, told the commissioners in a March 2010 report — more than two months after Coakley’s loss to Scott Brown — that the legal staff felt there was enough evidence for the commissioners “to find a reason to believe” a violation may have occurred regarded the hiring of staff. Duncan was seeking authorization to subpoena records, place witnesses under oath, and compel a resistant Coakley committee to cooperate fully.

The evidence centered around Coakley’s staff hirings in the weeks leading up to the Sept. 3, 2009, announcement of her US Senate candidacy. The legal staff said in its request for the probe that Coakley and her committee offered only “cursory explanations” and did not provide sufficient information to refute the GOP allegations.

Within days after Kennedy’s death on Aug. 25, 2009, Coakley had shifted two recently hired aides — Kevin Conroy, her campaign manager, and Alex Zaroulis, a media adviser — and the two consulting firms from her state political payroll to her Senate campaign payroll.

Zaroulis was quoted at the time as saying she was originally hired for Coakley’s campaign for reelection as attorney general. Contacted yesterday, she referred all questions to the Coakley gubernatorial campaign.

The FEC’s staff complaint about the lack of cooperation echoes similar problems that occurred when the agency sent six letters over the last three years asking Coakley’s committee to straighten out the balance sheets of its quarterly reports. Coakley’s political aides never responded. The letters were e-mailed to an address provided to the agency by the committee’s treasurer, Anne Gentile, Coakley’s sister. Coakley’s spokespeople say the e-mail address was not operative, but they did not explain why the committee did not provide a new address.

The other count that was dismissed in the September 2010 decision involved an allegation that Coakley’s political operation may have violated campaign finance law when it arranged for its state committee to sell $35,725 worth of assets to her federal committee within days of announcing her Senate candidacy.

“Far from being considered a transaction conducted under market practices, the State Committee’s investment in these assets resembles an advance purchase on behalf of the Federal Committee more than an arms-length transaction,’’ the general counsel said in the report. The report said Coakley Senate committee failed to provide evidence to demonstrate the transaction met the requirement of federal campaign finance laws.

But the commissioners said the staff had not provided enough evidence that the transfer failed to comply with federal law that required the Senate committee to pay fair market value for the assets — which included a fund-raising database, a redesigned website, the purchase of domain names, and campaign paraphernalia. Because of that, the commission ruled, 5-0, that there was no reason to believe that Coakley or her staff had violated campaign laws on this count.

By not closing her federal account soon after her loss to Brown, Coakley has created minefields of nettlesome questions based on the mandates by both federal and state laws that ban any crossover of funds.

That was evident in FEC reports that show that Coakley’s sister was paid $28,245 over three years for her duties as treasurer of the US Senate committee account, but received no compensation as treasurer of Coakley’s state campaign account, a fund that was much more active and complicated.

Gentile, the attorney general’s sister, took over the books of both accounts shortly after Coakley’s Senate defeat. For the next three years, the federal account was all but inactive. It took in no contributions while it distributed the remaining funds to pay off debts and donate to political figures and groups. It also paid a total of about $35,000 for the costs of filing financial reports.

In contrast, the Martha Coakley Committee, which supported Coakley’s races for attorney general and now governor, raised nearly $1.4 million, spending most of it during that time period.

Coakley aides say the fact that Gentile serves as treasurer for both committees — with a paycheck only coming from the federal account — does not conflict with state and federal campaign laws. They said the payments to Gentile from the federal campaign funds are only for her work on that account and not Coakley’s state political committee. Sullivan has said that whatever work she does for the state committee, she does for free.

Frank Phillips can be reached at phillips@globe.com.
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