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Ethics Issues No-Fault Ruling in Schmidt Case

Rep. Jean Schmidt has to repay $500,000 for accepting legal services in violation of House ethics rules, a Congressional panel announced Friday, even as it ruled she is not at fault in the incident.

The House Ethics Committee decided not to further sanction the Ohio Republican despite its conclusion that legal services she received from a Turkish-American interest group constituted an improper gift. The committee found that the Congresswoman was unaware of a compensation arrangement between the Turkish American Legal Defense Fund, which supplied her lawyers, and the Turkish Coalition of America, a lobbying group that was paying the lawyers.

“The Committee has found that Representative Schmidt’s lawyers failed to inform her of their payment arrangement with TCA, and made false and misleading statements to her about their relationship with TCA and TALDF,” read a statement released by Ethics Chairman Jo Bonner (R-Ala.) and ranking member Linda Sánchez (D-Calif.). “Because Representative Schmidt did not know she was receiving a gift from TCA, the Committee has determined that no sanction is appropriate in this case.”

Lawyers who claimed to be acting on behalf of the TALDF represented Schmidt in a series of cases in Ohio from 2008 to 2010. She did not pay those lawyers nor did she report their service as a gift on her annual financial disclosure reports.

The committee concluded that she was unaware — and therefore not responsible for reporting that her lawyers were being compensated for the work by the TCA, relieving her of the bills, which she said she intended to pay later.

“I welcome the news,” Schmidt said in a statement Friday. “The report vindicates what I have been saying all along: I have worked cooperatively with the Committee to ensure that I pay these bills in an ethical way. I hope this will be the end of a sideshow created by my political opponents.”

According to a report released Friday and written by the Office of Congressional Ethics, which refers cases to the Ethics Committee, Schmidt started receiving the services in 2008 in connection with disputes with Democrat David Krikorian, who has run twice unsuccessfully in Schmidt’s 2nd district. But she did not seek the guidance of the Ethics Committee on how to pay for the related legal services until September 2009.

The Ethics Committee ultimately recommended that Schmidt pay for services with a legal expense fund or campaign funds in February 2010, but the OCE’s investigators found that the Ethics Committee was unaware that Schmidt’s lawyers had already worked 500 hours on her cases and had been paid about $293,000 by the TCA at that point.

In interviews with the OCE, her attorneys said that they were under the impression they were doing the work at no charge to Schmidt, and one lawyer said he told her campaign that “we would not charge them legal fees,” according to the report. Schmidt, however, denied that the work was intended to be pro bono, telling OCE that she would pay for the legal services retroactively.

House ethics rules allow Members to receive pro bono services only if they first set up a legal defense fund, which must be approved by the Ethics Committee. Members can also pay for legal services out of their campaign funds, but that, too, must be approved by the Ethics panel as well as the Federal Election Commission.

Schmidt requested approval for a legal expense fund in July 2010 more than a month after she filed a defamation lawsuit against Krikorian seeking $6.8 million in damages.

Krikorian, an Armenian-American, has accused Schmidt of accepting funds from Turkish political interests and has filed multiple complaints to the OCE, alleging that the Ohio lawmaker improperly received free legal services from the TCA and its legal defense fund in violation of House rules. It is not clear whether his complaints prompted the OCE to take up the matter.

The Ethics Committee has demanded that Schmidt repay the lawyers for all expenses to date from a “permissible source,” amend her 2009 and 2010 personal financial disclosure forms to reflect the gift and report any unpaid legal fees as liabilities on future disclosure forms until the lawyers are fully compensated.

Meeks Investigation Continues

The Ethics panel also announced Friday that it would continue its review of Rep. Gregory Meeks (D-N.Y.), who is under investigation for a payment he received in 2007 but did not disclose.

The committee is not, however, opening an investigation subcommittee as it typically does when it accepts the OCE recommendation for further examination.

And, in a rare if not unprecedented move, the committee publicly released the OCE report detailing the ongoing investigation.

The report argues that a $40,000 loan from businessman Ed Ahmad in 2007 was actually a gift, which Members are required to report on their annual financial disclosure forms.

Meeks revealed the payment for the first time in 2010. By then, he had repaid Ahmad in full, according to an amendment to that year’s FD report.

The OCE report states that the “loan” appeared to be a gift because it lacked a set interest rate or repayment terms. Furthermore, the report states, Meeks’ decision to repay Ahmad in one lump sum at a high interest rate suggests that it was not originally a loan as defined by House rules.

“In sum, there appears to be no evidence that there were any normal indicia of a legitimate loan under House rules, precedents, and standards of conduct,” the report states.

According to the House Ethics Manual, Members are allowed to accept loans from individuals “provided that the loan is made in a commercially reasonable manner, including requirements that the loan be repaid, and that a reasonable rate of interest be paid.”

Both Meeks and Ahmad refused to be interviewed by OCE officials. In a June letter to the Ethics Committee, Meeks’ attorneys railed against the OCE’s investigation, arguing that the office did not have jurisdiction to review the loan. The OCE is prohibited from reviewing incidents that occurred before its creation in early 2008, but the office asserts in its report that because Meeks did not disclose the loan until 2010, the inquiry is fair game.

But the committee did dismiss a second charge against the Congressman relating to a subsequent $59,650 loan he received in 2010 from the New York-based Four M Investments to repay Ahmad.

That loan was deemed by the committee to have been made in accordance with House rules. The loan was recorded by written agreement that established an interest rate, collateral and repayment terms, according to the OCE report.

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