Payday lenders and the Harry Reid connection
Washington • Fearing new regulations in the aftermath of the financial crisis, payday lenders decided to make a major play for the support of Senate Majority Leader Harry Reid. They contributed more than $126,000 to his campaign as the Nevada Democrat attempted to beat back a tea party challenge, hoping that the man who controls the Senate agenda would protect their interests.
Their gambit didn't stop the creation of a new Consumer Financial Protection Bureau, which Reid supported.
And yet, it may have led to Reid getting linked to an alleged bribery scandal in Utah, involving state Attorney General John Swallow and indicted St. George businessman Jeremy Johnson.
At the heart of both endeavors was the late Richard Rawle, a Provo millionaire who built an empire of Check City locations, including more than 30 in Nevada. He was deeply involved in the federal lobbying campaign and told Johnson he could use his clout with Reid to help end a Federal Trade Commission investigation.
The cost: $600,000.
Rawle, in a deathbed affidavit, and Swallow, his former employee, say the Johnson affair was a standard lobbying effort that never got off the ground. Reid's staff said he didn't know about the plot and didn't discuss it with Johnson or try to stop the FTC probe.
Johnson, who is charged with a number of financial crimes, tells a far different story. He said Swallow convinced him Rawle was close enough to Reid to facilitate a bribe that would spare him and Johnson's I Works company.
What actually happened remains unclear. Swallow is under federal investigation and the court cases against Johnson remain in preliminary stages. The case does illustrate how well-funded interests seek to lean on legislators to get what they want, though their tactics don't always work.
Working the system • President Barack Obama has long wanted to cap interest rates payday lenders can charge for short-term loans.
These lenders feared Congress would institute such a cap in 2009 as it began work on a Wall Street regulatory bill. In reaction, they doubled their lobbyist spending and nearly doubled contributions to lawmakers, giving $1.5 million through 2009 and 2010, according to a report by the watchdog group Citizens for Responsibility and Ethics in Washington, which wants more payday-loan regulation.
The lobbying blitz was partially successful. No version of the bill ever included a cap on interest rates, but it did create the Consumer Financial Protection Bureau, charged with overseeing everything from home mortgages to credit-card rates to payday loans.
The donation push targeted mostly key lawmakers negotiating the legislation, but it also went to those who ended up supporting the reform bill, such as Reid. CREW found that the majority leader received the third largest amount in donations from the industry $43,900 in 2009 and 2010. Reid didn't make the industry's top 10 donor list that CREW compiled for the two previous years, 2007 and 2008.
The CREW study was limited to only 11 payday-loan companies and two trade groups and therefore drastically undercounted the contributions Reid actually received.
A broader Salt Lake Tribune review of Reid's contributions found that Reid accepted more than $126,000 in contributions from the industry through its executives and associated political action committees.
That's a lot of money, especially for the payday-loan sector, but it was just a small portion of the cash Reid raised for his 2010 re-election bid. He spent nearly $26Â million to beat Republican Sharron Angle and retain his seat. Not surprisingly for a Nevada politician, Reid's top-donor tally is dotted with gambling ventures. MGM Resorts provided more than $200,000 on its own.
Money and influence • The Rawle family gave $6,800 to Reid as part of the campaign, but through the years has invested far more in Utah's federal politicians, with Rep. Jim Matheson at the top of the heap. The Democrat has received $56,300 from the family behind Check City. Other notables include Sen. Mike Lee, R-Utah ($36,200), Rep. Jason Chaffetz, R-Utah ($27,100), and GOP presidential candidate Mitt Romney ($15,000).
Johnson was a regular political contributor himself, though mostly on the state level. He sent hefty amounts to former Utah Attorney General Mark Shurtleff.
On the federal level, Johnson contributed to Sen. John McCain's 2008 presidential bid, Shurtleff's short-lived Senate run in 2010 and Lee's successful campaign that same year.
Johnson contributed to just one Democrat, giving the maximum individual amount of $2,400 to Reid on July 14, 2010.
That contribution came amid Reid's tough re-election campaign and just a month after Obama signed the Wall Street reform bill. It also coincided with Johnson's attempts to escape unscathed from a federal probe into his company.
The FTC lawsuit accuses Johnson and I Works of collecting millions of dollars from tens of thousands of customers through unauthorized charges tied to online products. Johnson denies the accusations.
He turned to Swallow, then Shurtleff's chief deputy, for help, and Swallow turned to Rawle. Before joining the attorney general's office, Swallow was Provo-based Check City's legal counsel and knew Rawle had federal connections.
Rawle was on the board of payday-loan trade group Community Financial Services Association of America and suggested he knew Reid associates who could help sway the FTC.
Swallow emailed Johnson on Sept. 29, 2010, saying Rawle was about to meet with his Reid contact. Swallow suggested Johnson ask for a meeting with Reid to see if they could get him to "encourage the FTC investigators to take a close look at I Works and â¦ really understand their practices and try to resolve this matter equitably and in good faith, before litigation is started."
Deal them up • Johnson said he had heard Rawle brag about how Reid had helped him on payday-loan issues. Johnson also thought Reid might be receptive because of an interaction he said he had with Full Tilt Poker.
The online poker site had used Johnson to process its payments, an activity that resulted in a criminal probe. Full Tilt executives brought Johnson to a meeting with Reid seeking his support to make online poker legal in the U.S.
In a conversation Johnson secretly recorded with Swallow in an Orem doughnut shop last year, Johnson said those executives asked him to get a $1 million check for a company he never heard of with the intimation it would eventually get to Reid.
Johnson said the payoff led Reid to back online poker, which he suggested was not in Nevada casinos' interest. Reid's spokeswoman has called the claim "absurd," saying Johnson was clearly misinformed about the politics of poker.
The Justice Department reinterpreted a law in 2011, saying it only prohibits online sports betting, which opened the possibility of full online casinos. The Nevada gaming industry wants Congress to block all games of chance online except poker, which it argues is a game of skill. Several online-poker companies have financial deals with casinos. Reid tried to legalize online poker in 2012, but not enough Republicans backed the effort.
Johnson eventually agreed to pay Rawle to get Reid's support and, with the help of an associate, provided the first $250,000. The FTC sued Johnson several weeks after he made the initial payment.
Before Rawle died of cancer, he signed an affidavit saying the money was for lobbying and that he kept $50,000 as a fee $23,500 of which he used to pay Swallow for his help on a proposed Nevada cement plant.
Rawle spent $100,000, split evenly between two lobbyists: Jay Brown, a close friend of Reid, and Tim Rupli, a longtime lobbyist for the payday-lending trade group.
The group gave Brown a similar contract worth $240,000 annually in 2011.
Reid spokeswoman Kristen Orthman has repeatedly stated that her boss was not involved: "The allegations of bribery by Mr. Johnson, a man with a background of fraud, deception and corruption, are absurd and utterly false."
The Swallow probe
Indicted St. George businessman Jeremy Johnson, who faces 86 criminal counts, has alleged that Utah Attorney General John Swallow helped broker payoffs to enlist the aid of Senate Majority Leader Harry Reid in derailing a Federal Trade Commission investigation of Johnson's I Works business.
Swallow and Reid deny the allegations. The Justice Department is investigating.