Did John Podesta Violate Federal Financial Disclosure Laws, Or Nah?

Monday morning, in what was billed as an “exclusive,” The Daily Caller pointed a jaded finger of accusation at former Hillary Clinton campaign chairman John Podesta, intimating that he may have violated federal law on a government financial disclosure form by not properly revealing “the receipt of 75,000 shares of stock from a Kremlin-financed company when he joined the Obama White House in 2014.”

Sounds pretty bad. And if you happened to read McClatchy newspapers’ report on this matter back in October 2016, you probably already know the bad part ― it’s yet another rotation of the famous revolving door between government and the private sector, the engine that powers the Beltway’s eternally falling-upward culture, where access is a commodity and cash flows like quicksilver. As the McClatchy report notes, Podesta was in the position to furnish access to powerful policymakers, and this company made sure he got a nice payday for doing so.

But remember, that’s the old news. The Daily Caller has “exclusive” reporting to add to this story. So what’s the new news? It’s paperwork, mainly! A part of a financial disclosure form was, the Caller alleges, filled out improperly. Which could be a violation of the law, and a whole new twist of a screw that’s already impaled Podesta fairly tightly.

Unless, of course, no laws were broken. Yes, Podesta is the sort of Washington creature who breeds cynicism ― but what The Daily Caller describes as a violation of the law isn’t one. Moreover, it is further intimated that Podesta has been aided and abetted by the Office of Government Ethics, which was apparently, and willfully, looking the other way, out of a partisan bias.

The latter charge is far more unfair than any of the ones The Daily Caller levied at Podesta. It’s more destructive as well ― hurling these kinds of accusations at the Office of Government Ethics at a moment when its existence has never been more necessary will only undermine the effort to curb government corruption.

Here’s the basic gist of what The Daily Caller is on about. In 2010, Podesta joined the board of Joule Energy Technologies (which is “financed in part by a Russian firm”), and when he did so, he was given 100,000 shares of stock options. Years later, Podesta asked to serve in the Obama administration, at which point, the Caller notes, this happened:

When Podesta announced his departure from the Joule board in January 2014 to become President Obama’s special counsellor, the company officially issued him 75,000 common shares of stock.

The Schedule B section of the federal government’s form 278 which — requires financial disclosures for government officials — required Podesta to “report any purchase, sale or exchange by you, your spouse, or dependent children…of any property, stocks, bonds, commodity futures and other securities when the amount of the transaction exceeded $1,000.”

Podesta’s form 278 Schedule B is blank regarding his receipt of any stock from any company.

Okay, so this is about Schedule B of Podesta’s form 278 being “blank.” And you know what? It sure is blank. Why is that? Well, the key detail you have to remember is that while Podesta had served in the Clinton White House in various capacities from 1993 to 2001, he was considered, in the eyes of the law, to be a “new entrant” into government when he joined the Obama White House. With that in mind, check out the first page of the disclosure form:

As you can see, the instructions right on the first page of the form explicitly state that “Schedule B” is “not applicable” for “new entrants,” like Podesta was at the time he was filling out this financial disclosure form.

On the first page of Schedule B, there is a reminder:

Why did Podesta leave Schedule B blank? Because that’s what the instructions said to do. So, the worst thing you can say about what Podesta did on Schedule B of this form is ... well ― there’s nothing to say about it, really. There is no case to be made that Podesta violated the law by leaving that part of this form blank. This whole part of the story is a big, old non-troversy.

Meanwhile, Schedule A of this same financial disclosure form notes that Podesta was the owner of Joule stock options at the time he filled out this form ― however, the form notes that he was the owner of only a fraction of the original 75,000 shares of common stock he was issued.

So what became of the rest? Here’s where The Daily Caller gets around to describing the shadier aspects of what Podesta did with this stock. But this is also the point at which this stops being a “Daily Caller exclusive” and becomes “something that McClatchy reported many months ago.”

Here’s McClatchy, back in October 2016:

Podesta stepped down from Joule’s board on Jan. 4, 2014, when he joined the Obama administration. A leaked email shows he transferred his Joule shares to Leonidio Holdings LLC, a company formed in Delaware – a state favored by Trump, whose own disclosure forms list 378 companies there. Delaware’s laws allow the true owners and other company details to remain secret. The private correspondence between Podesta and Joule executives includes a Dublin, California, address for Leonidio Holdings that is also the address of his daughter Megan Rouse, who is a certified financial planner.

Records with the Delaware secretary of state’s office show only that Leonidio Holdings was established by a registered agent in Wilmington called Corporation Service Co. on Dec. 20, 2013.

John Cobb, a tax adviser for the law firm Steptoe & Johnson LLP, signed the company-formation document. Cobb’s online bio shows he works in the group’s Washington, D.C., office. Yet another leaked email from 2015, after Podesta had left the Joule board, shows his daughter telling him that she’d learned from Cobb that Joule was taking a stake in Colorado-based Red Rock Biofuels to create a biofuels refinery, suggesting the Podesta family tracked Joule developments.

In his White House disclosure records, signed in February 2014, Podesta reported owning less than $1,000 in stock and options for Joule Global Holdings and for Joule Unlimited Technologies Inc. and deriving less than $201 in income from them. He did not make any mention of Leonidio Holdings, the Delaware company, which the WikiLeaks emails suggest received 75,000 transferred shares.

“When Podesta went back to the work at the White House, he worked with White House counsel to personally divest from Joule and ensure he was in full compliance with all government ethics rules,” Josh Schwerin, a Clinton campaign spokesman, said in an email to McClatchy.

So, the short version of this is that Podesta exercised his stock options, purchased these shares at a discounted price and then transferred the lion’s share to a shell company, essentially gifting these shares of stock to his daughter, and sheltering from scrutiny the fact that he’d owned and transferred this asset.

The obvious benefit from this arrangement is that Podesta gets to potentially dodge some questions. And one of the more interesting things you learn when you compare the McClatchy piece from October to this week’s Daily Caller post, is that the former goes a lot further in describing the implications of Podesta’s involvement with Joule ― and how his access to power was potentially beneficial in “opening doors” for the organization.

But, as shady as this stock transaction may look, it was not something that Podesta was required to note on his financial disclosure form. Here is the relevant statute:

§ 2634.303 Purchases, sales, and exchanges.

(a)In general. Except as indicated in § 2634.308(b) of this subpart, each financial disclosure report filed pursuant to this subpart shall include a brief description, the date and value (using the categories of value in § 2634.301(d) of this subpart) of any purchase, sale, or exchange by the filer during the reporting period, in which the amount involved in the transaction exceeds $1,000:

(1) Of real property, other than a personal residence of the filer or spouse, as defined in § 2634.105(l) of this part; and

(2) Of stocks, bonds, commodity futures, mutual fund shares, and other forms of securities.

There are exceptions, which include the following:

(3) Any transaction which occurred at a time when the reporting individual was not a Federal Government officer or employee need not be reported under paragraph (a) of this section.

Like it or not, Podesta’s transfer of his shares to Leonidio Holdings was not something the law required him to report. As with the blank Schedule B, there’s no “letter of the law” violation to be had in this instance.

Of course, beyond the mere letter of the law, there is also the “spirit of the law,” and by that standard, there’s much to dislike in this whole arrangement, even if you do not necessarily believe that the mere appearance of impropriety is a threat to good governance. From the seamless way Podesta trades on access to power, to the convenient way the proceeds from that trade are stashed away ― none of this is ideal. My understanding is that this sort of asset transfer to an adult child is how a lot of people entering government resolve their conflicts of interest. But if we were more committed to adding some friction to that revolving door in the first place, we’d eliminate many conflicts of interests well before the point when shell entities are being created to shelter money from scrutiny.

But The Daily Caller, in this instance, cedes the moral authority to make a “spirit of the law” argument when it takes this potshot:

But OGE has also been accused of partisanship. Earlier this year OGE Director Walter Shaub publicly criticized President Trump’s plan to deal with his sprawling businesses, calling his financial reorganization plan, “wholly inadequate.” He also called for the President to seek “total divestment” of his Washington, D.C. hotel.

Last week the General Services Administration said a set of additional rules to the federal lease for the downtown Washington hotel put it into “full compliance” with governmental ethics laws.

[former U.S. Attorney Joseph] DiGenova said the office is biased and hypocritical in what cases they picked to criticize. “They have no problem tweeting out about Donald Trump’s hotels, but here on a clear violation they’re silent.”

Here we have President Donald Trump, a serial stretcher of ethical boundaries, being defended against an allegedly “partisan” Office of Government Ethics. This is a strange accusation ― so much so that you can’t help but think that it’s OGE, and not Podesta, that this story is truly targeting.

One of the odder things about accusing OGE of partisanship for calling Trump’s ethics compliance “wholly inadequate” is that all OGE is doing in that instance is making an empirically true observation. OGE has recommended that Trump fully divest from his holdings and place the proceeds into a true blind trust. There’s nothing intrinsically “partisan” about this. In fact, were Trump to comply, it would immediately disarm Trump’s partisan critics, by denying them all those anti-Trump talking points about corruption, his business entanglements, and the emoluments clause. If the OGE had its way, an entire fang would be removed from the mouths of Trump’s most determined liberal critics.

How is that “partisan?” And where’s the example of “bias” and hypocrisy? The implication here is that OGE willfully looked the other way with John Podesta, but is on Trump’s back seven days a week. But in Podesta’s case, we are talking about a part of the disclosure form that he filled out correctly. What is the OGE supposed to say about that? Remember, that Podesta’s Schedule B is blank is a) exclusive, never-before-reported upon news that theoretically only came to OGE’s attention this week, and b) has been incorrectly characterized!

Basically, what’s “exclusive” in this story is wrong, and what’s wrong with Podesta’s life in the revolving door was reported months ago in much better detail.

One has to imagine if the shoe was on the other foot, and the OGE was trying to desperately cajole a Democratic president into divesting from his or her assets and getting into full compliance with ethical standards, The Daily Caller would rightfully be assailing that Democratic president for failure to do so, and standing behind the OGE’s efforts.

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