TUNE, ENTREKIN & WHITE, P.C. ous wire ATTORNEYS ATLAW foowiteumoan sume seo mvs neni ewes ass oeabenion smReET ‘ene eonce A oon NASHVILLE, TENNESSEE 37208 veneer acer TELiets)24carT0 Faxes) 2442778 ‘torn sero a oer Sik ie swiora nett” chimarontons 1omten seats “Ale 1 ed Garon Cu Ad May 1, 2017 ” Drew Rawlins Executive Director State of Tennessee Bureau of Ethics and Campaign Finance Registry of Election Finance 404 James Robertson Parkway, Suite 104 j Nashville, TN 37243 ZINd |= AVWLIOZ RE: Response of Jeremy Durham to Show Cause Letter Issued by Registry of Election Finance on 2/28/2017 Dear Mr. Rawlins: Tam in receipt of the “Board Requested Audit of Jeremy Durham” and its Attachments (hereinafter referred to, as the “Report”) disseminated by the Tennessee Registry of Election Finance (hereinafter referred to as the “Registry”) to the public on February 8, 2017. I am also in receipt of a document from the Registry dated February 28, 2017 containing allegations against Mr. Durham (hereinafter referred to as the “Show Cause”). Mr. Durham's campaign advisors and I (hereinafter referred to as “We”) have responded to every issue and sub-issue raised in each document and attempted to demonstrate various legal difficulties. with existing law which may or may not lead the Registry and/or General Assembly to pursue statutory revisions. We also vigorously defend Mr. Durham against many inaccurate assertions clearly inconsistent with Tennessee law. Thus, we submit the following Response (hereinafter referred to as the “Response”): Legal Disclaimer Although Mr. Durham provided very important facts for this Response to the Report and Show Cause, the great majority of this document was prepared by Mr. Durham’s campaign advisors. ‘Thus, not every word in this Response is directly attributable to Mr. Durham.Drew Rawlins Bureau of Ethies and Campaign Finance Registry of Election Finance May 1, 2017 Page 2 Audit Violation of Laws The audit has already violated Mr. Durham’s rights pursuant to no less than four (4) Tennessee campaign finance laws—and the Registry cannot legally effectuate any penalty against Mr. Durham other than a remedy he willingly accepts. A full analysis of these laws and their application to the audit can be found beginning on page four (4) of this Response. Reporting Accuracy the audit period, the Report and Show Cause indicate that Mr, Durham’s campaign finance reports contain over 95% of all contributions generated by his campaign. Due to a transaction being incorrectly categorized as a contribution, this figure correctly excludes the $10,000 purchase of stock from the campaign by Mr. Durham. (see Attachment 46) The same documents suggest that—despite several mischaracterized transactions—Mr. Durham reported over 87% of expenditures. At the time the corresponding campaign finance report was due, a transaction amount now known to be $15.066 was unable to be determined and is thus, properly excluded in the calculation. In fact, Attachment 49 demonstrates that Mr, Durham was still unable to secure this amount the day prior to the August 2016 primary. (see Attachment 49) Acknowledged Incorrect Transactions Any four-year audit period will almost certainly reveal a certain number of reporting mistakes and ‘we will address those related legal issues later. First, we take issue with public comments suggesting Mr. Durham had any malicious intent whatsoever regarding any campaign transaction relating to Mr. Durham’s personal account. Any funds which were incorrectly moved to Mr. Durham’s personal account represent isolated errors and in no way demonstrate a pattem of deliberate behavior. Furthermore, there are reasonable explanations for each error which occurred. There may be other transactions which Mr, Durham’s advisors fully intend that he repay pursuant to the Promissory Note/Credit Line, but the items noted in this section represent transactions we now believe are correctly addressed. Given the length of the audit period—and the $576,715.42 in transactions which occurred—any amounts mistakenly moved to Mr. Durham's personal account are miniscule, representing an aggregate total of $2,808.43 and include the following: Finding #3 section c lists one (1) interest check of $1637.50 incorrectly moved to Mr. Durham’s personal account at the same time Mr, Durham held the same type of personal investment with the same debtor entity, All other payments—including 85% of all total interest generated—were placed into the correct accounts; Finding #10 demonstrates ALEC payments totaling $570.93 which were allegedly double- reimbursed, This was simply in error. Mr. Durham has provided other records showing legislative travel expenses being correctly deducted in corresponding amounts from monthly credit cardDrew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 3 reimbursements, Had the state funds not entered Mr. Durham’s account at a time during or approaching legislative session, the reimbursements would have been more easily identified and less likely presumed to be regular per diems. (see Attachments 31 and 32), and, In Finding #9b, Mr. and Ms. Durham apparently miscommunicated regarding a $550 expense already approved by the Report and Show Cause, The seller charged $600 if a legislator used a campaign account to purchase decorative flags fora legislative office but only $550 if the legislator used a personal check, With the motive of preserving $50 in campaign funds, Mr. Durham used a personal check to complete the transaction. Mr. Durham stated the two (2) amounts for the two (2) flags to Ms, Durham who mistakenly believed two (2) separate prices were paid by Mr. Durham for (2) separate flags when in fact the prices represented the costs to purchase both flags—not each flag. Thus, the confusion led to two (2) separate expenses being reimbursed rather than one (1). Creating further confusion, Mr. Durham needed one (1) of the flags replaced and thus a third flag surfaced. (Attachment 39) Mr, Durham Reimbursed Too Little The Report also alerted Mr. Durham to the fact that, over the course of several disclosures, he reimbursed himself $416.84 too little. Mr. Dutham did not possess the required intent to make a contribution and is entitled to deduct the amount from what he owes the campaign. (see Attachment 10) Acknowledged Promissory Note/Line of Credit Transactions In the absence of a Promissory Note/Line of Credit, some items found in Finding #8 would have conflicted with state campaign finance laws. The entire four-year total represents an aggregate $4,390.31 including the following: Item 22. Prior to the expense being accrued, Mr. Durham’s advisors discussed suit purchases totaling $1807.14 and agreed that the transaction would apply to the Promissory Note/Line of Credit to be later repaid and would not represent a campaign expense, Item 15. Prior to the initiation of these transactions representing an aggregate total of $1474, Mr. Durham and his advisors were under the impression that the law for commercial property found in T.C.A 2-10-114 also applied to residential property. Although Mr. Durham’s advisors never developed a consensus on how to treat this item, the expense was presumed legally reimbursable to Mr, Durham because his campaign realized a fair market value benefit of more than $1474, However, it has come to our attention that state law treats residential and commercial properties differently. Thus, Mr. Durham’s advisors used these items in calculating the amount he repaid his campaign. (see Attachment 6) Items 31, 33, 34 and 35 represent a total of $609.17. Prior to the expenses being completed, each expense was relayed to Mr. Durham's campaign advisors who agreed that the expenses were made pursuant to the Promissory Note/Line of Credit which would later be repaid.Drew Rawlins Bureau of Ethics and Campaign Finance Registry of Flection Finance May 1, 2017 Page 4 tem 4 of $500 was made pursuant to Mr. Durham’s Promissory Note/Line of Credit. In Mr. Dutham’s text message to the recipient, he correctly explained applicable tax law and requested the recipient report his capital contribution. If someone in Mr. Durham’s position possessed less than honest intentions, he or she would not have sought to alert an accountant—or anyone else for that matter—to the transaction or recited the correct Jaw which applied to the situation. Soon thereafter, Mr. Durham discussed the transaction with his campaign advisors who agreed that it ‘was made pursuant to the Promissory Note/Line of Credit. (see Attachment 4) Cash Transactions No cash disbursements were ever used for Mr. Durham’s “personal use.” (see Attachment 6) Mr. Durham, however, made $3802 in cash deposits to the campaign for purposes of the Promissory Note/Line of Credit, and his advisors calculated this amount into the balance he paid the campaign. Check Disbursements Mr. Durham loaned the campaign $5,000 and—at the urging of his advisors—purchased $10,000 in stock previously purchased by the campaign. (see Attachments 44 and 46) Pursuant to the Promissory Note/Line of Credit, Mr. Durham took a draw of $25,000 from the campaign and quickly repaid $5,000 in a check which included the words “loan repayment” in the memo line. (see Attachment 45) Existing Invoice ‘As will be discussed later in this Response, Mr. Dutham is entitled to reimburse himself $20,000 for legal services incurred protecting his position in the House of Representatives. (see Attachment d Although not currently calculated into the formula used in the following “Balance” section, Mr. Durham is entitled to deduct the proportion of time his current attomey spends on Registry and campaign finance matters. Balance After adding and subtracting the foregoing amounts which originated from over $576,715.42 in transactions, the remaining balance represents an amount so small that it can only be considered miniscule. Excluding interest Mr. Durham will pay for certain Promissory Note/Line of Credit transactions, the balance Mr. Durham owes the campaign is only $2,980.59, and Mr. Durham has already reimbursed his campaign for such amount. (see Attachment 54) ‘The vast majority of the discrepancy amount between the Report and Show Cause vs. the amount stated in this Response is based upon additional facts and the overwhelming deference TennesseeDrew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 5 campaign finance laws extend to candidates and legislators. For the benefit of both candidates and the public at large, a complete campaign finance overhaul might be necessary to specifically outline which types of expenditures shall be permitted. Existing state laws are overly broad and ambiguous, and fail to provide the Registry with the appropriate ability to deter the conduct at issue. Before responding to individual Findings, we raise several legal challenges and overall concerns regarding the audit process through which the Report and Show Cause were generated. LEGAL CHALLENGES TO THE AUDIT PROCESS Legal Challenge #1. The Registry Violated T.C.A. 2-10-212 by Authorizing an Audit Against Mr. Durham in 2016. The first page of both the Report and the Notice indicate the audit was authorized on June 8, 2016 and conducted pursuant to T.C.A 2-10-212. Since Mr. Durham was a sitting member of the General Assembly, the timing of the audit violates state law. T.C.A. 2-10-212(b)3) provides, “Audits of members of the general assembly shall only take place during June through December during odd-numbered years." (see Attachment 17) In Mr. Durham’s case, he was a sitting member of the General Assembly yet he was audited from June through December of a statutorily prohibited even-numbered year, and then into February of an odd-numbered year, No audit could have legally taken place during the time frame in which Mr. Durham’s audit was conducted. This procedural flaw serves as sufficient grounds to challenge any punishment issued to Mr. Durham pursuant to the statutorily deficient audit. We readily agree the Registry was under a duty to conduct some form of investigation once it received the affidavit containing false information from the Attorney General, but the terms “audit” and “investigation” are used separately in statute. T.CA, 2-10-206(a)(7) states in relevant part, “The duties of the registry shall include the following... Investigate any alleged violation upon sworn complaint or upon its own motion.” (see Attachment 13) Investigation of a single transaction occurring in 2015 does not require launching a comprehensive four-year audit, and there exist far more restrained investigative methods. After determining a legal and proper solution, the Registry would have realized that the transaction in question was for $500 and not $2000. Mr. Durham and his advisors could have also explained his Promissory Note/ Credit Line investment. This fact will be further examined in Legal Problem #:Drew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 6 Legal Challenge #2. The Audit Length and Sweeping Subpoena Power Violate T.C.A. 2-10- 212 T.C.A 2-10-212(4)(1) states, “The registry shall adopt auditing guidelines and standards with guidance from the comptroller of the treasury, which shall govern audits and field investigations conducted under this section. The guidelines and standards shall be formulated to accomplish the following purposes: (A) The audits should encourage compliance and detect violations of this chapter; (B) The audits should be conducted with maximum efficiency in a cost-effective manner; and (C) The audits shall be as unobtrusive as possible, consistent with the purposes proved in this subdivision (d)(1). “(see Attachment 17) As mentioned previously, the Registry authorized an audit of Mr. Durham for an entire four-year period despite only one (1) transaction being in dispute and despite the lack of any check—or any other proof—accompanying the affidavit. The transaction amount was proven inflated by 400% and had no connection to any activity in the 2014 election cycle yet the entire 2014 election cycle was included in the audit. Each of these facts conflict with the purposes established in T.C.A. 2- 10-212(d)(1). If four-year audits were legally permissible in response to an inaccurate affidavit alleging only one (1) erroneous transaction, then this valid statutory restraint on Registry authority would serve no purpose. (see Attachment 17) If the Registry stands by this approach, the Registry should utilize the approach in response to other legislators who were recently mentioned in media reports as having allegedly misused campaign funds far in excess of the $2,000 Mr. Durham was falsely accused of misappropriating, Since Mr. Durham’s situation only required an affidavit alleging one (1) erroneous transaction to initiate a heavily intrusive four-year audit, we are happy to provide such a document to the Registry so the Registry may continue its diligence into a candidate other than Mr. Durham. (see Attachments 47 and 48) We also strongly question the necessity of issuing subpoenas for Mr. Durham's attorney trust account when the account had no connection to any campaign transaction and contained information regarding dozens—if not hundreds—of financial transactions between private parties. ‘These transactions fall under federal TILA RESPA (TRID) guidelines which take precedence over state laws. This action yielded no information relevant to the audit while violating the privacy of countless Tennessee citizens. Legal Challenge #3. The Length of the Audit Violates T.C.A. 2-10-206. Since typical audits conduct only a sample of transactions over one (1) reporting period, the decision to audit an entire four-year period represents the precise reason a higher number of errors exist. Unlike normal situations, Mr. Durham has been exposed to the broadest, most intrusive,Drew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 7 lengthy audit in the history of the Tennessee Registry of Election Finance. In fact, the length of the audit violates Tennessee law. T.C.A, 2-10-206(a)(4) includes, “Statements filed with the registry for more than two (2) years shall be deemed to be sufficient, absent a showing of fraud or the existence of an ongoing investigation related to the statement.” (Attachment 13) Since no investigation was ongoing when the audit of Mr. Durham began, the only other possible reason that disclosures filed prior to June 8, 2014 could be examined is pursuant to fraud—but no vote was ever taken to establish whether such a burden was satisfied—and even if'a vote had been taken, no satisfactory showing of fraud was ever made. Black's Law Dictionary states, “fraud consists of some deceitful practice or willful device, resorted to with intent to deprive another of his right, or in some manner to do him an injury.” (see Attachment 1) Even if the Registry had taken up the fraud issue prior to launching a four-year audit, the unreliable evidence offered by the Attorney General did not satisfy the high burden of fraud. As the fraud definition suggests, much more information regarding Mr. Durham’s state of mind would have been necessary to establish fraud. A copy of the check would have also been appropriate. Thus, the four-year audit length violates Tennessee law. (see Attachment 1) Even if legitimate showing of fraud had been made, the false information provided by Mr. Smith and the Attorney General applied only to a single transaction during the 2016 election cycle and in no way suggested deficiencies regarding any of Mr. Durham’s other transactions—especially transactions in a separate election cycle. It follows that T.C.A. 2-10-212(€)(1(C)—the statute listed in Legal Problem #2— was also violated. This statute prevents such a broad audit from being launched in response to a mere one (1) questioned transaction. (see Attachment 17) Legal Challenge #4. The Report and Show Cause Violate T.C.A. 2-10-205 and Attempt to Regulate Activities Outside the Scope of the Registry’s Authority. T.C.A. 2-10-2085 provides that the Registry only has jurisdiction to administer and enforce parts 1 and 3 of Title 2, Chapter 10. (see Attachment 16) T.C.A, 2-10-210 states, “The registry of election finance shall not establish or levy any penalty or sanction for any action alleged to be a violation of the rules and regulations of the registry unless such action is also a violation of a statutory requirement." (see Attachment 15) At the time Mr. Durham’s transactions occurred, no state law detailed how campaigns may invest funds. No law stated that investments may not occur between campaigns and candidates, their families or their friends. (see Attachment 2) No law stated that candidates must produce a signed instrument memorializing an investment agreement,Drew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 8 No law stated that candidates cannot use campaign funds to expense a meal on the same day they take per diem, The director of legislative administration confirmed this fact in Attachment 48. In fact, per diems are not even referenced in parts 1 or 3 of Title 2, Chapter 10. Due to T.C.A. 2-10- 205, it follows that legislative per diems fall outside the authority of the Registry. (see Attachments 48 and 16) ‘At the time Mr, Durham’s transactions occurred, no state law required candidates to report interest received on campaign funds. T.C.A. 2-10-105 only requires contributions and expenditures to be reported, The word interest is not even mentioned. (see Attachment 16) ‘Attempting to regulate the reporting of interest on campaign reports using broad definitions of terms such as the “contribution” definition found in T.C.A. 2-10-102 fails because the party making the interest payment did not intend to influence Mr. Durham's election. This coneept will be discussed later in this Response. (see Attachment 10) If current law required what the Report and Show Cause claim, subsection (b) of Senate Bill 377 ‘would serve no purpose. (see Attachments 14 and 2) Legal Challenge #5. The Report and Show Cause Erroncously Assume Candidate Spouses Serve No Useful Purpose and that Expenses Incurred by Candidate Spouses are Never Proper. ‘When a campaign expense is otherwise valid, the presence of an accompanying spouse should not be questioned. Tennessee Attomey General Opinion No. 05-166 cites 2 U.S.C.A 439(b) which states that the costs of travel by an officeholder and an accompanying spouse represent “ordinary and necessary” campaign expenses and does so without regard for whether the spouse served any political or governmental purpose. (see Attachment 50) Ms, Durham also was no ordinary candidate’s spouse. She personally knocked on approximately 10,000 constituent doors in Mr, Durham’s first election, The number in the preceding sentence is not in error or an exaggeration. She was essentially Mr. Durham’s unpaid campaign manager and most active volunteer. While maintaining her own professional career, Ms. Durham maintained campaign calendars, compiled voter data and lists, worked polls, organized volunteers, made GOTV phone calls, drafted and mailed personal notes, planned fundraisers and other campaign events, planted hundreds of yard signs, regularly consulted Mr. Durham on policy and strategy, represented Mr, Durham at community events, maintained social media pages, and completed ‘numerous other duties. Simply being the spouse of Mr. Durham does not alter Ms. Durham’s role as Mr. Durham's constituent and valued campaign worker. Because Ms. Durham provided countless hours of bona fide campaign services, she could have easily taken a significant salary under T.C.A. 2-10- 114(b)(2)(ED, but declined. Recent media reports demonstrate that many legislators pay family members for services performed. The fair market value of services Ms. Durham provided theDrew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 9 ‘campaign far exceeds any financial benefit Mr. Durham received from the campaign. (see Attachments 6 and 51) Since it is customary for candidates to purchase event tickets for campaign workers and constituents, Ms. Durham’s situation should be treated no differently. If this “no-spouse expense rule” were adopted, most tables purchased by candidates at various political and charitable events could only be funded by candidates personally because spouses typically attend and sit at the same tables purchased by their spouse's campaign account. The consequence of such a rule would indirectly harm local charities across Tennessee because campaigns would become less likely to contribute funds at fundraising events. This “no-spouse expense rule” also ignores reality and common practice. When Ms. Durham took time off work to attend a legislative conference in Washington, D.C., Mr. Durham was engaged in a highly-competitive whip race scheduled to take place only a few short days following the conference. His election was ultimately decided by four (4) votes. While in Washington, D.C., Ms. Durham and other spouses were invited by a member of Congress to tour various government buildings. The trip provided beneficial networking opportunities for Ms. Durham to interact with spouses of other legislators and strengthen Mr. Dutham’s relationships with his fellow House Republican Caucus members. Mr, Durham only reimbursed himself for one (1) of two (2) airfare expenses incurred related to Ms. Durham’s traveling to a total of two (2) legislative conferences. It follows that Mr. Durham could have legally reimbursed himself another $244.30 for Ms. Durham’s airfare on 7/13/13, but chose not to do so. Legal Challenge #6. The Report and Show Cause Incorrectly Categorize Many Transactions, Specifically Expenses, as “Personal Use” of Mr. Durham. For funds to be considered “personal use”—and thus statutorily prohibited pursuant to T.C.A. 2- 10-114(b)(1)—the funds must qualify as “gross personal income” under the Internal Revenue Code. Mr. Durham loaning campaign funds to “Mr. W” clearly fails this test regardless of any “friend” distinction. Further, Mr. Durham taking a loan—even a loan allowing third-party expenditures—also fails this legal test because loan principal amounts do not represent income to the borrower. (see Attachment 6) Other statutory language provides support for Mr. Durham’s investments. The definitions of both “contribution” and “expenditure” found in T.C.A. 2-10-102 each include the word “loan” and thus it seems that the General Assembly assumed some type of loan situation could occur and that such an arrangement is permissible so long as the transaction is made for the purpose of benefiting the candidate's campaign. (see Attachment 10) Interestingly enough, the “contribution” definition includes the words, “whether or not legally enforceable.” Although the “D.W.” investment is legally enforceable using copies of financialDrew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 10 instruments, this statutory language grants great deference to the intent of candidates and relies Jess on the legitimacy of documents produced. (see Attachment 10) The aggregate loan of $29,800 to “D.W.” and the Promissory Note/Line of Credit each represent a type of loan—and regardless of any credit line document executed in 2014 and regardless of any witnesses or checks containing the words “loan repayment” in the memo line which Mr. Durham ‘can readily produce to support his stated intent, the volume of funds moved from Mr. Durham’s personal account into the campaign account allows only one (1) rational theory: the aggregate transactions between Mr. Durham and his campaign represent a loan relationship between the two (2) patties. It follows that no “gross income” was received and no “personal use” distinction can be legally substantiated. The Report and Show Cause reached this conclusion when Mr. Durham Joaned $5000 to his campaign but did not reach this conclusion when the exact inverse occurred, and Mr. Durham's campaign loaned funds to Mr. Durham personally. (see Attachments 6, 44, 45 and 46) No interest payments had yet been made because no such payments were required pursuant to the governing document. Mr. Durham also does not use the accrual method of accounting. Meticulously calculating interest at the time of each payment event serves no meaningful long- term purpose and is overly time-consuming. Instead, Mr. Durham will calculate interest upon closing the Promissory Note/Line of Credit Statutes relating to campaign expenditures are used in the Report and Show Cause as if the statutes equally apply to campaign investments when in fact there existed no statutory authority governing, the structure, subject matter or parties of valid campaign investments. Pursuant to T.C.A. 2-10- 210—and basic contract and due process principles—the absence of such a statute regulating campaign investments prohibits enforcement of any penalties against Mr. Durham. (see Attachment 15) The logic employed in excluding certain investments by Mr. Durham would effectively outlaw any investment. Since investments are fundamentally different than regular expenditures, whether investment funds were used to directly support campaign purposes lacks legal significance. The Report demonstrates an understanding of this concept. “L.W.P.” used Mr. Durham’s campaign funds to aid its pharmacy business—not to aid Mr. Durham's campaign—yet the Report agrees that this transaction represents a valid investment. Black's Law Dictionary defines “invest” as the following, “To loan money upon securities of a more or less permanent nature, or to place it in business ventures or real estate, or otherwise lay it out, so that it may produce a revenue or income,” (see Attachment 8) This definition does not require the production of a written agreement nor does it preclude investment loans between “friends.” The definition also does not exclude individuals from engaging in transactions with entities under their control—a concept Mr. Durham has readilyDrew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 11 observed as an attorney. The only legal requirement is that funds are used to generate revenue or income. Investopedia defines “Personal Use Property” as, “A type of property that an individual does not use for business purposes or hold as an investment. In other words, property that an individual ‘owns for personal enjoyment.” (see Attachment 9) The first sentence of this definition precludes campaign investments from fitting the definition of “personal use,” and thus campaign investments should not be referred to in this manner. Legal Challenge #7. The Term “Ordinary and Necessary” Does Not Represent an Effective Litmus Test on the Validity of Traditional Campaign Expenses. ‘The term “ordinary and necessary” was used in Attomey General Opinion No. 05-166 to legally justify travel expenses to a campaign account made pursuant to a legislative conference—but the provision found in T.C.A, 2-10-114(a)(7) represents only one (1) of many provisions listing specifically permissible uses of campaign funds. The “ordinary and necessary” language found in T.C.A, 2-10-114 contains no prohibition on expenditures not falling within the definition of “ordinary and necessary” expenses. The provision merely represents one (1) of many different theories through which campaign expenses can be deemed sufficient. (see Attachment 6) Even if the term “ordinary and necessary” did represent an effective litmus test for campaign expense transactions, the term possesses no legal definition. Tennessee Attorney General Opinion ‘No. 05-166 states, “The statute does not define what constitutes ‘ordinary and necessary expenses,” nor has the Registry of Election Finance promulgated any rules that would provide any definition. Additionally, we have not been able to find any state or federal court decision defining what constitutes ‘ordinary and necessary expenses’ of an officeholder.” (see Attachment 50) Remember, T.C.A, 2-10-210 states, “The registry of election finance shall not establish or levy any penalty or sanction for any action alleged to be a violation of the rules and regulations of the registry unless such action is also a violation of a statutory requirement.” (see Attachment 15) Since the Registry cannot levy any penalty unless the action in question violates a statutory requirement, then—at least for punishment purposes—candidates can essentially transact with ‘campaign funds however they wish so long as their actions do not violate a specific statute. GENERAL PROBLEMS WITH THE AUDIT AND REPORT General Problem #1. The Rigid Mindset that the Mere Presence of One (1) Fact Necessarily Excludes Another Fact From Being True Causes Logical Fallacies ‘Throughout the Report But Specifically in Finding #8. Most expenses in question are legitimate campaign expenses, and we have provided clarification in Finding #8 of this Response. Several remaining expenses are simply part of a larger PromissoryDrew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 12 Note/Line of Credit which Mr. Durham executed in 2014 and then regularly monitored in coordination with at least four (4) active campaign advisors, General Problem #2. The Report is Written with the Intended Purpose of Leading the Reader to a Negative Conclusion of Mr. Durham Rather than Simply Presenting Facts. There is very little fair or unbiased information found in the Report. For instance, it is extremely important to mention the presence of the Promissory Note/Line of Credit investment document prior to listing expenditures that may not be campaign-related. ‘The entire Report fails to mention that the plain language of Mr. Durham’s Promissory Note/Line of Credit document expressly allows Mr. Durham to issue checks to third parties (much like making a draw from a bank towards a construction project). The General Assembly recently passed legislation to outlaw this practice—but the law was not in effect at the time relevant transactions occurred. (see Attachment 2 On several occasions, Mr. Durham’s campaign mistakenly reimbursed him personally Jess than the amount of campaign expenses he personally incurred—but this fact cannot be found in any Finding. What can be found in multiple Findings are accidental transactions which allegedly led to the opposite result while the transactions consisting of Mr. Durham mistakenly not reimbursing himself enough are erroneously characterized as a group of unreported contributions prior to Finding #1 of the Report and completely omitted from the Show Cause. Mr. Durham's intent does not fit the definition of “contribution” found in T.C.A. 2-10-102. (see Attachment 10) Under Finding #1, a transaction involving Mr. Durham moving $10,000 of his personal funds into the campaign account on 7/25/15 is listed as an “unreported contribution” to his campaign even though—mere months earlier—Mr. Durham used exactly $10,000 of campaign funds to purchase shares in a private company. Again, Mr. Durham did not intend to make a contribution and thus, the transaction cannot be legally considered as such, (see Attachments 10 and 46) In the section pertaining to investments, the Report omits $15,000 in funds Mr. Durham paid into the campaign, only mentioning $5,000 of the $20,000 in aggregate funds which had been paid— and this number excludes cash payments Mr. Durham personally made into the campaign account totaling $3802. (see Attachments 44, 45 and 46) self for Previous and General Problem #3. Mr. Durham is Entitled to Reimburse Ongoing Registry-related Legal Expenses. Mr. Durham often personally incurred campaign expenses while fully intending to reimburse himself, He personally paid $20,000 to acquire legal services pertaining to the Attorney General investigation with the intention that he would eventually repay himself or deduct the expense from the Promissory Note/Line of Credit balance, The campaign now holds an invoice from Mr. ‘Durham related to those legal services.Drew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 13 Since a “personal use” expense is defined as something that would be considered “gross income” pursuant to the Internal Revenue Service, this legal expense repayment should certainly be allowable. Federal case law precedent provides that even one-time expenditures may satisfy the equivalent IRS requirement that an expense be “ordinary and necessary.” (see Attachment 6) In Jenkins v. Commissioner, Tax Court Memo 1983-667, the Tax Court states, “In order to determine whether the disallowed expenditures are deductible by petitioner under section 162 we ‘must (1) ascertain the purpose or motive of the taxpayer in making the payments and (2) determine whether there is a sufficient connection between the expenditures and the taxpayer's trade or business.” (See Attachment 4) When Speaker Harwell publicly declared her intent to use the Attomey General Report as a resource in her publicly-stated efforts to remove Mr. Durham from his seat in the House of Representatives, Mr. Durham became justified in utilizing campaign funds to retain the professional services necessary to address the Attorney General and attempt to protect his elected position. (see Attachment 5) The Tax Court also discussed a tax deduction resulting from a taxpayer's belief that his failure to assume a corporate obligation would adversely affect his licensing because of the harm that would result to his reputation. (see Attachment 4) Clearly, a campaign's likelihood of success rests in no small part upon the individual reputation of the candidate—and in Mr. Durham’s situation, he obtained legal services to protect his reputation while seeking reelection. Furthermore, the proportion of time spent by Mr. Durham’s current attomey dealing with Registry matters represents an expense reimbursable to Mr. Durham. ‘The same would be true if Mr. Durham paid an accountant to perform professional services relating to the audit. Mr. Durham may also incur legal expenses in conjunction with enforcing the “Mr. W” investment. All funds recovered will be placed into the campaign account and such associated expenses made pursuant to enforcing an investment do not constitute “personal use” by Mr. Durham. (see Attachment 6) Registry staff has previously stated that such expenses do not represent “ordinary and necessary’ expenses and are thus not allowed. Legal Problem #7 demonstrates that this term lacks any identifiable legal meaning as it relates to Tennessee campaign finance and in no way represents an exhaustive litmus test of permissible uses of campaign funds. Regardless, Jenkins v. Commissioner correctly demonstrates that “ordinary and necessary” is subjective to the motive of the individual taxpayer and is not a general objective rule to apply toDrew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 14 all candidates. Such a rule must be applied to a candidate specifically facing Mr. Durham's situation—not the great majority of candidates who are not. (see Attachment 4) General Problem #4. The Report and Show Cause Take Inconsistent Positions and Repeatedly Lists the Same Transactions. The Report and/or Show Cause contain separate Findings to penalize Mr. Durham sometimes three (3) times for the same transactions—and some assertions represent mutually exclusive positions. Multiple examples of these positions appear later in this Response. Two (2) Findings in the Report (Finding #4 and Finding #12) are duplicated and contain only information found in other Findings. If individual Findings can entirely represent collections of information contained in other Findings—and fail to present any new piece of information—no reason exists to generate separate Findings other than portraying Mr. Durham in a worse light. General Problem #5. Mr. Durham Has Not Received the Same Rights and Consideration as Other Candidates Who Previously Appeared Before the Registry. Mr. Durham’s advisors were alarmed upon learning that his audit transpired in an unprecedented manner. After reviewing the Registry website, we are unaware of any previous Registry audit which spanned an entire four-year period. As previously stated, the audit violates multiple rights afforded to Mr. Durham under Tennessee law—and even if this weren’t the case—no rational basis existed for Mr. Durham being audited for an entire four-year period. Even assuming every word contained in the false affidavit had been valid, no information related to the 2014 election cycle. In fact, no information related to any activity outside the single transaction to which the false affidavit referred. Mr. Durham regrets that his campaign reports contain errors, and he is committed to correcting any errors which truly exist. It is inevitable for campaign finance reports to contain human error on at least some reports, but it is not typical for campaigns to be audited for a period longer than. ‘one (1) reporting period, The Report itself contains many errors (including the misspelling of Mr. Durham’s name on several occasions), and Mr. Durham’s primary occupation does not involve the enforcement of campaign finance guidelines. It is unfair to publicly admonish Mr. Durham for a specific number of errors—many of which are not accurate—when the Registry almost exclusively audits only a single report for all other candidates and entities. Mr. Durham has never previously been the subject of any Registry action or review, and he never had any reason to suspect that his reports were not being completed accurately. At one point or another, many of the accusations against Mr. Durham have been made against other candidates— and those accusations often involved higher amounts than the amounts associated with Mr. Durham—with the candidates ultimately correcting whatever matter or matters were of issue and— Drew Rawlins Bureau of Ethies and Campaign Finance Registry of Election Finance May 1, 2017 Page 15 receiving no further punishment, Recent media reports confirmed this assertion. (see Attachment 48) If additional punishment is rendered against Mr. Durham, each candidate listed in Attachments 47 and 48 should then be audited for an entire four-year period and held to that same standard, However, levying any such punishment would represent a deviation from prior rulings. (see Attachments 47 and 48) Audit Conclusion Since most items referenced in this section are addressed in other parts of the Report or Show Cause, we will address the remaining issue here: The Report states that Mr. Durham “failed to report” $416.85 in “contributions” by the candidate. Although the Report states tbat this amount represents funds personally expended by Mr. Durham on valid campaign expenses but not later reimbursed to Mr. Durham, the Report states, “In order ‘for the campaign account to properly show all funds used for campaign disbursements, $416.85 in calculation errors would need to be reported as campaign contribution from the candidate.” Legally speaking, a contribution requires specific intent by the contributor, and thus we cannot support this mischaracterization of the funds. T.C.A. 2-10-102(4) states, in relevant part, “Contribution means any advance, conveyance, deposit, distribution, transfer of finds, loan, loan guaranty, personal funds of a candidate, payment, gift, or subscription of money or like thing of value, and any contract, agreement, promise or other obligation, whether or not legally enforceable, made for the purpose of influencing a measure or nomination for election or the election of any person for public office or for the purpose of defraying any expenses of an officeholder incurred in connection with th formance of the officeholder's duties, responsibilities, or constituent services. (see Attachment 10) Mr. Durham merely provided his campaign an electronic payment method, Many establishments do not accept checks, and the scrutiny of this Report alone demonstrates why Mr. Durham very rarely used cash to pay campaign expenses. Mr, Durham never intended to make a contribution when he did not reimburse himself enough funds to fully cover his costs. It was in error. Perhaps this correction makes reporting increasingly complicated—but administrative convenience does not justify altering the legal definition of a transaction and transferring ownership of funds rightfully belonging to a Tennessee taxpayer. In the Recommendation to Candidate section of the Report, a list of recommendations is found suggesting Mr, Durham replace funds for alleged incorrect transactions—but when Mr. Durham expended personal credit to purchase campaign activities and undercalculated his personal reimbursement, the Report and Show Cause would have the entire $416.85 be considered a contribution by the candidate. This position is grossly unfair. The amount of $416.85 can only beDrew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 16 deducted from the aggregate funds Mr. Durham owes the campaign and reported in another manner. RESPONSES TO FINDINGS ‘We will now attempt to address each Finding individually: Response to Finding #1 Unitemized Contributions Due to the large number of transactions involved and the lack of professional services employed to handle the issue of proper reporting, errors were bound to occur. However, the $36,334.95 number found in the Report and Show Cause is not factually correct. ing to correct any disclosures that do not reflect accurate reporting of We remain more than wil contribution amounts. Mr. Durham’ s recent disclosures have been timely, complete and accurate. We anticipate no future compliance issues. Cash Deposits Cash contributions from donors should be reflected in Mr. Durham’s spreadsheet (which had presumably been received by the Registry) and would not exceed $50 per individual or $100 per couple. (see Attachment 11) Consistent with statute, Mr. Durham never accepted more than the $50 cash permitted per individual donor per election. (see Attachment 30) ‘After reviewing the information provided by the Registry, it appears that the $1000 transaction on, 73/14, the $100 transaction on 7/16/14, the $800 transaction on 10/6/14, the $300 transaction on 11/26/16, the $1502 transaction on 10/20/15, and the $1000 transaction 11/10/15 were all personal funds paid by Mr. Durham. These transactions in the amount of an aggregate $3,802 began at approximately the same time as Mr. Durham’s original Promissory Note/Line of Credit were executed and were intended to be applied towards Mr. Durham’s Promissory Note/Line of Credit arrangement. ‘The $420 transaction on 11/17/15 represents contributions of $50 or less from various individuals at Mr, Durham’s 11/15/15 fundraising event. ‘The $94 on 05/27/16 was correctly reported as unitemized contributions. Online Deposits ~ Anonymou: Mr. Durham recorded deposits in a spreadsheet presumably received by the Registry. (see Attachment 11) tributionDrew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 17 Many deposits were not required to be itemized so some names may not be shown in the spreadsheet. ‘The Report states, “Although the audit notes unsupported itemized contributions which could be related to some of the deposits, Jeremy Durham maintained no record to verify the online contributions were for those contributions." Mr. Durham recorded online contributions in the same manner which he recorded every other contribution, and the “unsupported” itemized contributions label given to these contributions by the Report is without basis. The Report correctly admits that certain online contributions could be related to the “unsupported contributions” in campaign finance reports yet still declares Mr. Durham at fault for “not reporting” the entire amount of $2806. Mr. Durham was never asked to produce information verifying such transactions which he properly reported. ‘After becoming aware of the issue regarding online contribution verification, Mr. Durham quickly secured from Rally/Piryx a spreadsheet of all online contributions ever made to his campaign. (see Attachment 12) After viewing the spreadsheet of online contributions, each transaction can be verified. The 7/7/14 deposit of $56.00/$52,92 is a combination of one contribution from “W.H.” in the amount of $50 and one transaction from Jeremy Durham of $6. The transaction initiated by Mr. Durham was merely intended to test the online platform and should be dedueted from the amount he owes the campaign. ‘The 7/14/14 deposit of $100 is from “D.R.” (not required to itemize). ‘The 10/22/14 contribution of $100 is from “B.F.” (not required to itemize). ‘The 10/30/14 contribution of $100 is from “R.F.” (not required to itemize). The 11/5/14 contribution of $500 is from “D.B.” (correctly reported). ‘The 11/6/14 contribution of $200 is from “G.D.” (correctly reported.) The 11/7/14 contribution of $250 is from “L.H.” (correctly reported.) two (2) from “MF.” The 11/13/14 contribution of $1500 is actually three (3) contribution (correctly reported) and one (1) from “R.W.” (reported under his spouse) The Report and Show Cause use the same transactions to double-penalize Mr. Durham in Finding, #1 and #2, Itemized Contributions Mr. Durham did not fail to report $24,461.95 in itemized contributions. This number erroneously includes several transactions which do not fit this description, including $10,000.00 of funds Mr. Durham paid the campaign to purchase “O.S.H.” stock.Drew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 18 (1): Considering the high number of donors and contributions, Mr. Durham only failing to report four (4) contributions from individuals totaling $2,750 for an entire four-year period is extremely accurate. Pursuant to T.C.A. 2-10-206(a)(4), the check from company “E” applies to a report filed prior to June 8, 2014. T.C.A. 2-10-206(a)(4) includes, “Statements filed with the registry for more than two (2) years shall be deemed to be sufficient, absent a showing of fraud or the existence of an ongoing investigation related to the statement." (see Attachment 13) The Registry never made any determination of fraud and there was no ongoing investigation when the audit began on June 8, 2016; therefore, the statement must be deemed legally sufficient and the transaction is not properly before the Registry. ‘The $500 check from a donor with initials “A.T.” contributed on 11/15/15 was reported under her husband’s name, “M.C.,” because he committed to make the contribution. (see Finding #2.) ‘The remaining three (3) itemized contributions were mistakenly omitted. 2) We are unsure why this error occurred. Presumably human error. (3) The $3000 check from “I..B” was reported as $1500 in the campaign and $1500 in the PAC, and these amounts are correct. Mr. Durham was never told that donors cannot contribute to separate Durham entities pursuant to a single financial instrument, but Mr. Durham will follow this concept going forward. Multiple individuals are permitted to contribute to the same entity pursuant to the same financial instrument, so Mr. Durham assumed the inverse was also true and thus that one (1) individual could make both a campaign and a PAC contribution pursuant to the same financial instrument. The issue is not that of failing to report a contribution but that of accepting contributions towards separate Durham entities funded by the same financial instrument. For accounting purposes, we now understand the desire to adhere to such a concept, but we also feel this transaction does not fit Finding #1 because the full intended contribution amount was reported and the excess amount was intended for the PAC—not the campaign. Thus, the excess funds cannot be legally considered a “contribution” to Mr, Durham’s campaign when the donor did not intend for those funds to represent a campaign contribution. The funds were intended for Durham PAC and were legally reported as such, Regardless, Mr. Durham should not be double-penalized in Finding #1 and #4, (4) Ifa $1000 check was not reported, it was merely an etror. This same situation is found in Finding #4. (5) If a $1000 check was not reported, it was merely an error. This same situation is found in Finding #4.Drew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 19 (6) Ifthis check was omitted from the disclosure, it was merely in error. (7) The $10,000 personal check from Mr. Durham to the campaign represents Mr, Durham purchasing “O.S.H.” stock from the campaign. Upon Mr. Durham's advisors realizing that the “O.S.H.” investment would not produce a retum as soon as previously anticipated, they encouraged Mr. Durham to purchase the stock (so campaign funds would be replenished) and he agreed. Penalizing Mr. Dutham for putting money back into his campaign is misguided. The money Mr, Durham put into the campaign is an important part of Mr. Durham’s defense, yet it is listed as a Finding against Mr. Durham. This transaction should be omitted from Finding #1. ‘No underlying facts suggest this transaction was a contribution. At the time this Response is being drafted, Mr. Durham has written three (3) separate checks and submitted $3802 cash to his campaign: The Report and Show Cause correctly state that $5,000 paid by Mr. Durham to the campaign account (see Attachment 18) on 8/20/13 was a loan after it was repaid by the campaign; Mr. Durham made a $5000 payment (see Attachment 19) on the Promissory Note/Line of Credit on 10/31/15 with the words “Loan Repayment” prominently listed in the memo line. Due to the ‘wording contained in the memo line, it was impossible to make any other determination than Mr. Durham was partially repaying the Promissory Note/Line of Credit; and, ‘The Report and Show Cause state that a $10,000 check written to the campaign on 7/25/15 was a contribution. This is in error. As mentioned above, Mr. Durham’s campaign had previously purchased shares of a company with the initials “O.S.H.” Mr. Durham's advisors were later informed that the investment would not generate a return for several years and encouraged Mr. Durham to purchase the shares from the campaign. This is exactly what Mr. Durham did. Since no change in value occurred, Mr. Durham’s advisors agreed that Mr. Durham would purchase the shares at the same amount the campaign purchased the shares. (see Attachment 20) ‘The erroneous position that this transaction represents a contribution ignores the aggregate facts: + No other transactions consisting of Mr. Durham writing personal checks to the campaign constituted contributions; + Mr. Durham did not face election during the year the check was written (2015); + The transaction is not listed as a contribution in Mr. Durham's campaign reports which were proven approximately 95% accurate in reporting itemized contributions; + The healthy financial status of Mr. Durham’s campaign, and, + The transaction occurred mere months after $10,000 was moved from the campaign to “O.S.H.”Drew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 20 Furthermore, for a contribution to legally occur, intent, delivery and acceptance (typically implied) must be present. And as stated before, T.C.A. 2-10-102(4) states, in relevant part, “Contribution ‘means any advance, conveyance, deposit, distribution, transfer of funds, loan, loan guaranty, personal funds of a candidate, payment, gift, or subscription of money or like thing of value, and ‘any contract, agreement, promise or other obligation, whether or not legally enforceable, made for the purpose of influencing a measure or nomination for election or the election of any person ‘for public office or for the purpose of defraying any expenses of an officeholder incurred in connection with the performance of the officeholder's duties, responsibilities. or constituent services. (see Attachment 10) Here, there can be no contribution because Mr. Durham did not intend to make a contribution. Mr. Durham merely heeded the advice of his advisors and purchased stock from his campaign that was no longer deemed suitable as a campaign investment, Response to ig #2 Findings #2 and #5 both allege Mr. Durham’s campaign reported contributions which should not have been reported. It seems logical that these two (2) Findings would represent one (1) Finding with a section consisting of multiple parts. Regardless, T.C.A 2-10-105(a) does not provide a basis upon which to levy a penalty against Mr. Durham related to Finding #2. (see Attachment 14) ‘As mentioned previously, T.C.A. 2-10-210 prohibits the Registry from levying any penalty absent the violation of a statutory requirement. (see Attachment 15) No statutory requirement was broken in Finding #2. T.C.A 2-10-105(a) states, “Fach candidate for state public office and political campaign committee in a state election shall file with the registry of election finance a statement of all contributions received and all expenditures made by or on behalf of such candidate or such committee. The statement of each candidate for state public office shall include the date of the receipt of each contribution, and the statement of a political campaign committee in a state election shall include the date of each expenditure that is a contribution to a candidate in any election.” (see Attachment 14) The statute merely requires contributions and expenditures to be reported. ‘The statute does not prevent candidates from reporting contributions and expenditures that are not valid from being reported. Thus, if Mr. Durham failed to report an item, itis potentially actionable—but reporting an item that was not a contribution or expenditure is not actionable, Mr. Durham was not made aware that Registry staff lacked the records to substantiate contributions. Most of the items in question are referenced by supporting documentation. (see Attachment 11)Drew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 21 As stated in Finding #1, the table list found in Attachment 11 contains every online contribution ever made to any legislative campaign for Mr. Durham. (see Attachment 1) Contribution (1) was merely committed and not collected. The individuals submitting Mr. Durham’s financial reports likely confused Mr. Durham’s cash submission as the uncollected commitment listed on Mr. Durham’s spreadsheet and entered the amount of Mr. Durham’s cash submission, The donor is now deceased. Contribution (2) is listed on the online contributions spreadsheet provided by Rally/Piryx and was properly reported. (see Attachment 11) Contribution (3) is a transaction not required to be itemized so the listing is best omitted from this, itemized section of the report. Contribution (4) is listed on the online contributions spreadsheet provided by Rally/Piryx and was properly reported. (see Attachment I) Contribution (5) is listed on the online contributions spreadsheet provided by Rally/Piryx and was properly reported. This transaction represents the aggregate amount of two (2) separate transactions executed within minutes of each other reported as a single transaction. (see Attachment 11) Contribution (6) is listed on the online contributions spreadsheet provided by Rally/Piryx and was properly reported. (see Attachment 11) Contribution (7) is listed on the online contributions spreadsheet provided by Rally/Piryx and was reported as the individual's spouse because this procedure was requested by the donor and Mr. Dutham believes both spouses are on the account. (see Attachment 11) Contribution (8) is listed on the online contributions spreadsheet provided by Rally/Piryx as “A.T.” and was reported as the individual’s spouse, “M.C.” The husband committed the funds to Mr. Durham so the husband is the spouse listed on the disclosure. Mr. Durham assumes both spouses are on the account. (see Attachment 11) Contribution (9) was likely committed but not collected. Much like contribution (1), this listing likely confused the person(s) submitting Mr. Durham’s disclosures. Itis possible that two (2) other individuals who committed to make contributions did not ultimately do so, but Attachment 11 justifies most of the discrepancy amount. (see Attachment 1) Contribution (10) from the PAC mentioned in the Report was reported properly by both involved parties, The check must have been lost or stolen if it did not clear the bank. Human error. Mr. Dutham’s itemized campaign contributions were extremely accurate, According to the Report, vnly $14,461.95—eorrectly excluding $10,000 Mr. Durham paid to purchase shares of aDrew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 22 third-party company from the campaign—of an agaregate $299,701.33 was not properly reported. This statistic translates to Mr. Durham’s disclosures containing over 95% of itemized contributions. Response to Finding #3 The Registry is without authority to levy penalty based upon the interest issue raised in Finding #3 because no applicable statutory provision supports such a concept. Inthe letter accompanying the Show Cause, the letter cites T.C.A. 2-10-105(a) which states, “Each candidate for state public office and political campaign committee in a state election shall file with the registry of election finance a statement of all contributions received and all expenditures made by or on behalf of such candidate or such committee. The statement of each candidate for state public office shall include the date of the receipt of each contribution, and the statement of a political campaign committee in a state election shall include the date of each expenditure that is contribution to a candidate in any election.” (Attachment 14) The statute does not require interest to be reported. Remember, as T.C.A. 2-10-210 states, “The registry of election finance shall not establish or levy any penalty or sanction for any action alleged to be a violation of the rules and regulations of the registry unless such action is also a violation of a statutory requirement." (Attachment 15) Since there was no statutory requirement that Mr. Durham report interest eared on his campaign account, no penalty can be levied, In the Report, the terms “deposit, distribution, transfer of funds, ....” contained in the T.C.A. 2- 10-102(4) definition of “contribution” are listed to cast a vastly wider net than the plain language of T.C.A. 2-10- 105(a) allows to justify reaching into a separate part of Title 2, Chapter 10, Part 1 to establish the possibility of levying a penalty not specifically required by the Code. But enforcing the reporting of “interest” pursuant to a broader interpretation of T.C.A. 2-10-105(a) through the usage of the T.C.A. 2-10-102(4) definition of “contribution” fails for lack of statutory intent found later in the statute. T.C.A. 2-10-102(4) states, in relevant part, “Contribution means any advance, conveyance, deposit, distribution, transfer of funds, loan, loan guaranty, personal funds of a candidate, payment, gift, or subscription of money or like thing of value, and any contract, agreement, promise or other obligation, whether or not legally enforceable, made for the purpose of influencing a measure or nomination for election or the election of any person for public office or for the purpose of defraving anv expenses of an officeholder incurred in connection with the performance of the officeholder's duties, responsibilities, or constituent services,” (Attachment 10)Drew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 23 Banks or other third parties paying interest to campaigns are simply fulfilling a legal or contractual duty—not attempting to influence an election. These third parties are not making a campaign contribution in the traditional sense. If making a typical contribution had been the desired objective, the third parties would have simply made a regular contribution. Regardless, when viewing the entire definition of “contribution” under T.C.A. 2-10-102(4), it becomes apparent that the Registry does not consistently enforce T.C.A. 2-10-105(a) using such a broad definition of “contribution” found in T.C.A. 2-10-102(4). Campaign reporting software does not include all the categories of transaction types listed in this broader statute. ‘Thus, the Registry does not consistently enforce the entirety of this statute as the Report leads readers to believe. (Attachments 10 and 14) Furthermore, if the Registry already possessed the ability to levy penalties based upon interest transactions, Senate Bill 399 would be unnecessary and 32 Senators and 95 Representatives would have wasted their efforts supporting such legislation. (see Attachment 2) The bill language provides in relevant part, “..Any interest, dividends, or income earned by an investment made pursuant to subsection (a) must be reported on the candidate's or political campaign committee's financial disclosure report.” (see Attachment 2) If this language had been present in the Code at the same time the transactions mentioned by the Report and Show Cause were allegedly committed, then the Registry would possess proper isdiction to levy a penalty due to interest not being reported, but this was not the case, a. Passive income such as the interest generated on Mr. Durham’s campaign account was merely overlooked. Mr. Durham recently completed his 2016 4th Quarter report and fully disclosed all interest earnings for the period. Despite the Registry’s lack of ability to levy punishment on this issue, Mr. Durham is willing to correct campaign disclosures to reflect the small amount of $486.20 in interest that was mistakenly omitted. b. Consistent with section a., Mr. Durham is willing to correct any interest which was mistakenly not reported. ¢. If Mr. Durham or a third party deposited $1,637.50 interest into the wrong account, it was simply a common mistake of human error. Clearly, this was not malicious. As the Report correctly states, all other interest checks—representing a collective 85% of all other interest payments—were deposited into the correct accounts. ‘The mistake is further understandable considering—as the Report correctly states—Mr. Durham simultaneously held a personal investment with the same company. Paragraph 3 of the Report mentions Mr. Durham’s Promissory Note/Credit Line and the campaign investment in “O.S.H.” Consistent with the cash method of accounting, Mr. Durham will report interest generated from his Promissory Note/Line of Credit after interest is paid. No earnings were made on the “O.S.H.” investment because—at the advice of campaign advisors—Mr. DurhamDrew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1,2017 Page 24 purchased the asset from the campaign after his advisors realized the return on investment was likely longer than he once believed. Therefore, the current topic should be not included in this section. ‘The contradicting positions on this issue are troubling. On one hand, the Report and Show Cause staff claim the “O.S.H.” acquisition by the campaign was a personal expense somehow designed to “enhance” a personal investment, yet the transaction is also included in Finding #3 related to unreported interest on campaign investments. These two (2) positions are mutually exclusive. Either the campaign held an investment which it later sold to Mr, Durham or the campaign never held an investment and merely extended funds to Mr. Durham pursuant to the Promissory Note/Line of Credit. Response to Finding #4 Finding #4 is entirely a restatement of transactions found in other Findings, a. As previously mentioned in Finding #1, the $3000 check from “Mr. B” was reported as $1500 in the campaign and $1500 in the PAC. And as previously stated, Mr, Durham was not aware of any law requiring separate financial instruments be utilized in making separate contributions to a candidate and that same candidate’s PAC—but Mr. Durham will ensure this concept is upheld going forward. Multiple individuals are permitted to contribute to the same entity pursuant to the same financial instrument, so Mr. Durham assumed the inverse was also true and that donors could make both campaign and PAC contributions pursuant fo the same instrument. For any contribution to legally qualify under T.C.A. 2- 10-102(4) and (6), the donor’s intent must control. The full amount of contributions intended for the campaign were reported and thus no donor legally exceeded individual contribution limits, Regardless, Mr. Durham should not be double-penalized in Finding #1 and #4, (see Attachment 10) b. As previously mentioned in Finding #1, the $5000 check from “Mr. and Ms. M” was reported as $4500 for the campaign and $500 in the PAC. Mr. Durham’s spreadsheet references the $1000 check. However, as stated in Finding #1, it seems the check was mistakenly omitted from the report. But as it relates to contribution limits, Mr. Durham was acutely aware of the law and notified “Ms. M” that her most recent check would make her $500 over the legal limit. “Ms. M” then directed Mr. Durham to instead contribute the $500 to his PAC. For any contribution to legally qualify under T.C.A. 2-10-102(4) and (6), the donor's intent must control. Thus, no individual contribution limits were broken and Mr. Durham should not be double-penalized in Finding #1 and #4. Mr. Durham took affirmative steps to follow the law, ensured that the donor was fully aware of the individual limits and secured confirmation of her intent to contribute the funds to his PAC instead. This chain of activity is the epitome of what a responsible candidate should do. (see Attachment 10)Drew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 25 ¢c. As correctly indicated in the check memo line, the $10,000 check was intended by “Mr. D” to be deposited into the Durham PAC account. Mr. Durham verbally instructed the bank teller to first deposit funds into his PAC account before executing further deposits, but it is possible the transaction was not completed properly and a legally essential step ‘was skipped. If funds were deposited as Mr. Durham and Mr. Davis intended, there would be no violation of individual contribution limits. This was simply a communication error and not an intentional violation of contribution limits. For any contribution to legally qualify under T.C.A. 2-10-102(4) and (6), the donor's intent must control and Mr. Davis intended these funds to enter Mr. Durham’s PAC. The issue of “check splitting” is, again, due to Mr. Durham believing the concept was permissible. This practice is not mentioned anywhere in Tennessee law and thus no penalty can be levied against Mr. Durham, Multiple individuals, specifically married couples, are permitted to contribute to the same entity pursuant to the same financial instrument so Mr. Durham assumed the inverse would also be true and one individual could also make both a campaign and PAC contribution pursuant to the same instrument. While no statute specifically prohibits this activity, Mr. Durham will follow this policy going forward. ‘Again, Mr, Durham is being double-penalized for the same transaction in Finding #5. (see Attachments 10 and 15) Response to Finding #5 Findings #2 and #5 both allege that Mr. Durham’s campaign reported items as contributions that should not have been reported as such. It seems logical that these two (2) Findings would represent one (1) Finding with a section involving individuals and another section involving political entities. For the same reasons listed in Finding #2, T.C.A 2-10-105(a) does not provide an adequate basis, ‘on which to levy a penalty against Mr. Durham related to Finding #5. (Attachment 14) ‘As mentioned previously, T.C.A. 2-10-210 prohibits the Registry from levying any penalty absent the violation of a statutory requirement. (Attachment 15) T.C.A 2-10-105(a) merely requires that contributions and expenditures be reported. ‘The statute does not forbid candidates from reporting contributions and expenditures that are not valid from being reported. Thus, if Mr. Durham failed to report an item, it is potentially actionable—but reporting an item that was not a contribution or expenditure is not actionable because the concept is not mentioned in Tennessee law. (Attachment 14) After the initial conversation between donors and candidates, donors often do not remember whether they are contributing to a candidate’s campaign or PAC. The intent of donors is typically to contribute towards the cause the candidate requested. That said, Mr. Durham is committed to upholding this strict memo line policy going forward.Drew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 26 Response to Paragraph #1 found in the Report: As previously stated, Mr. Durham did keep PAC contribution records separate from campaign contribution records, but individuals handling, disclosures may have not understood this distinction. If any changes are confirmed to be necessary, Mr. Durham remains happy to do this. a, The issue of “check splitting” is, again, due to Mr. Durham believing the practice was permitted—when no law says candidates cannot accept contribution in such a way. As previously addressed in Finding #4, the $10,000 check memo line cleatly indicated “Mr. D” intended these funds for the Durham PAC account. ‘Therefore, the check was written to Mr. Durham with “PAC” in the memo line. There was no check reference to Volunteer Values PAC, Mr. Durham, or a third party, verbally instructed the bank teller to first deposit funds into Durham PAC account before moving funds to their eventual destinations, Itis possible the transaction was not completed properly. Mr. Durham’s local bank does not require him to fill out deposit slips and this practice likely led to periodic ns from exactly what Mr. Durham intended. devi If the funds were deposited as Mr. Durham and “Mr. D” intended, any funds which entered Mr. Durham's campaign account would have first entered Durham PAC before being moved to Mr, Durham’s campaign. Remember, for any contribution to legally qualify A, 2-10-102(4) and (6), the donor’s intent must control. (Attachment 10) under T. This is simply an error resulting from a complicated series of transactions. Although an essential legal step was erroneously omitted, the same result was achieved. The only difference is the funds which entered Mr. Durham’s campaign should have traveled through Durham PAC first and been reported as such prior to being transmitted to their eventual destination. Once again, this is a duplicate penalty for the same transaction listed in Finding #4, (Attachment 11) b. This transaction occurred more than two (2) years prior to the Registry’s audit—which began on June 8, 2016—and must be considered sufficient. But regardless of the audit timing, and regardless of check memo lines, this transaction was correctly reported. “Dr. T. R’s” $500 check was donated at a campaign Fundraiser event on June 3", 2013. Event “hosts” contributed $500 to Mr. Durham’s campaign—not his PAC. The electronic invitation stated these intentions. “Dr. T. R.” verbally committed to hosting the campaign event and was on the host list for the $500 contribution amount. Itis highly unlikely this donor was even aware Mr. Durham had a separate PAC account from his campaign account, Her attendance at a campaign fundraiser and donation to serve as a “host” of the campaign event is indicative of her intended donation to the campaign account. While the rigid interpretation of the check’s memo line may lead to another conclusion, all other facts surrounding the transaction do not provide support to this theory. If the Registry desires the funds to be deposited into theDrew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 27 PAC account, Mr. Durham can do so, but he would need to re-open the PAC account. As ‘Mr. Durham previously did to all remaining funds in his PAC account, Mr. Durham would then move the funds to the campaign account and close the PAC account. Thus, the eventual result of such a maneuver has already been achieved. Regardless, for any contribution to legally qualify under T.C.A. 2-10-102(4) and (6), the donor's intent must control and the donor’s intent represented the legally correct action. (see Attachment 21 and 10) Response to Finding #6 ‘This entire Finding serves as an example of a rigid system which stands to allow campaigns to provide less transparency to citizens compared to the more candid information Mr. Durham provided, But if this system is what the Registry desires, Mr. Durham will follow suit. What cannot be mistaken, however, is that Mr. Durham went above and beyond his statutory obligations to prove transparency. a. The first three (3) transactions present apply to campaign reports filed more than two (2) years prior to the Registry’s audit commencement date of June 8, 2016 and must be considered sufficient. Due to the obscure names of various entities associated with Mr. Durham’s donors, Mr. Durham’s intent was to be completely transparent in reporting the individual who had given him contributions rather than reporting the legal name of a business or organization. Mr. Durham spent significant time gathering this data because he felt the information might become necessary to uphold contribution limits. Many of Mr. Durham’s donors own businesses and use special accounts which may or may not list all account holders’ names on the check header. These donations did not go unreported, and it is clear Mr. Durham was not maliciously generating false names. An accurate representation was provided on campaign finance reports of the amount given and the person donating the funds—a much more transparent disclosure of who contributed to Mr. Durham than would have been the case if Mr. Durham had simply reported entities found onchecks. But if the Registry desires the less transparent approach, Mr. Durham is willing to change the contributions reported to match the entities found on the checks given to him, (Attachment 13) This section contains details reflecting the same concept as the previous section, Mr. Durham, or a third party, tried to be transparent and listed the person who contributed the funds rather than the special account used. This contributor was mistakenly listed as the donor's father. Human error. ‘The timeline of this transaction applies to campaign reports filed prior to June 8, 2014 and must be deemed sufficient. The reported contributor is the product of very understandable human error. It is extremely unusual for a donor’s name to be found in the memo line of the check rather than the upper half of the check. The last paragraph of this very ReportDrew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 28 Finding states, “... The header of the check... will usually be the source of the funds.” We agree. (see Attachment 13) ¢. The timeline of this transaction applies to campaign reports filed prior to June 8, 2016 and must be deemed sufficient, This is not necessarily a situation involving an account with only one (1) holder. Mr. Durham is aware of accounts with additional account holders in addition to the names listed on checks and followed the intent of the donor expressed to Mr. Durham. This situation makes no practical difference because “Mr. S” could have legally contributed general election funds. The remaining $500 should simply be deemed a general election contribution. (see Attachment 13) f. This transaction applies to a report filed prior to June 8, 2014 and must be deemed sufficient. Listing a donor’s maiden name rather than her later married name is trivial. Mr. Durham reported the correct individual. (see Attachment 13) ‘The often-repeated statements in the final paragraph of this Finding are false as Mr. Durham kept records for all contributions in a document presumably received by Registry staff. If the information was not received, the fact was never made known to Mr. Durham prior to his receipt of a draft version of the Report which apparently could not be amended to eliminate errors prior to its public dissemination. (see Attachment 11) Levying a penalty for Finding #6 would seem counter-productive to the Registry’s intended purpose of promoting transparency to the public because Mr. Durham went above and beyond what was required of him to strive for greater transparency. Response to Finding #7 As stated previously, Mr. Durham did keep records. Had Mr. Durham not kept records, his reports would not contain such a large amount of correct information. During the entire audit period, the Show Cause states that Mr. Durham failed to disclose $51,140.56 of a total expense amount of $272,315.47, Although there are other claims made about Mr. Durham’s disclosures, it is very important to note that even the Report and Show Cause acknowledge that Mr, Durham's reports contain more than 81% of the expenses his campaign incurred. In addition, one (1) charge of $15,066 was impossible for Mr. Durham to accurately report at the time of the audit, so he reported the transaction upon receiving accurate information of the final amount. Factoring this expense into the equation, Mr. Durham’s reports listed 86.8% of expense transactions. (see Attachments I and 49) Mr, Durham and his campaign advisors are unhappy with disclosures containing any errors, but the exaggerated length of the audit essentially guaranteed an exponentially exaggerated number of inaccuracies compared to a normal audit, and we urge Registry members to remain mindful that Mr. Durham’s reports contain a very high number of transactions.Drew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 29 If an expense represents a transaction pursuant to an investment of the campaign (such as the Promissory Note/Line of Credit document), the item would not properly be reported as an expense. ‘As demonstrated previously in this Response, the distinctions are mutually exclusive. (see Attachment 8) Compared to the Report, the Show Cause provides greater details for verification but neither document provides sufficient information for a reader to understand what occurred. Mr. Durham's Promissory Note/Line of Credit document specifically allows Mr. Durham to issue payments to third parties. The arrangement represents the same concept asa builder using a financial institution line of credit to make payments for labor or construction materials. Many expenses described as missing in Finding #7 were discussed by Mr. Durham’s campaign advisors before ultimately deciding whether the campaign would eventually be entitled repayment. As mentioned before, if fan expense represents a transaction made pursuant to an investment of the campaign, the items need not be reported as expenses. T.C.A 2-10-206 states that reports filed with the Registry for more than two (2) years shall be deemed sufficient absent a showing of fraud—which was not present and certainly was never established by the Registry through any formal action—or the existence of an ongoing investigation related to the statement. This statute limits the reach of the Registry and effectively enforces a statute of limitations period for disclosures which was tolled upon the Registry launching an audit of Mr. Durham’ s reports on June 8, 2016. Thus, no activity pertaining to reports filed prior to June 8, 2014 is actionable and no reports prior to the Second Quarter 2014 report are properly considered, (Attachment 13) a ‘The first three (3) reporting periods mentioned were filed prior to June 8, 2014 and must be deemed sufficient. At Mr. Durham’s direction, the Second Quarter 2016 report was prepared and submitted by an accountant but somehow shows a difference of $16,471.40. (see Attachment 13) ‘The primary reason for the Second Quarter discrepancy is due to the charge of $15,066 which was later refunded after Mr, Durham suspended his campaign, creating confusion regarding the correct amount of the transaction. It is also clear that the accountant who submitted Mr. Dutham’s Second Quarter 2016 report used a different accounting method than was used by campaign volunteers on all other reports. It is important to understand that some expenditures were accrued via credit card in one reporting period but not paid— and thus reimbursed—until the following reporting period. Once the transaction totaling $15,066 was properly resolved, Mr. Durham amended his report to reflect the correct amount. (see Attachment 49) b. The Show Case states that expenses reported as unitemized transactions are included in the large number of unreported expenditures. A category deemed “unreported expenditures” does not properly represent reporfed expenditures which were merely reported in theDrew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 30 wrong category. As stated many times in this Response, only statutory violations are actionable—and transactions which are reported but not submitted into the correct category pursuant to the duties of the Registry under T.C.A 2-10-206(a) or similar statute do not fall A. 210-105. (Attachments 13 and 14) under T.CA. 2-10-105(a) states, “Each candidate for state public office and political campaign committee in a state election shall file with the registry of election finance a statement of all contributions received and all expenditures made by or on behalf of such candidate or such committee. The statement of each candidate for state public office shall include the date of the receipt of each contribution, and the statement of a political campaign committee in a state election shall include the date of each expenditure that is a contribution to a candidate in any election, (Attachment 14) The statute makes no such distinetion between itemized and unitemized expenditures. The law merely requires an expense and date be reported. Regardless of whether an expense is itemized or unitemized, the expense is nonetheless reported. The contribution date is also required, but the Registry’s online system does not provide an avenue through which a candidate can indicate the date of an unitemized contribution. Since dates are also required under the statute, any other interpretation applied to this language would effectively outlaw all unitemized expenditures reported as such. Many expenditures, which were less than $100 but accompanied other expenses from the same vendor, were reported as unitemized expenditures due to confusion regarding the requirement of reporting expenditures from the same vendor which, in the aggregate, totaled over $100 during a reporting period. Many individual expenditures totaled $100 or less but the aggregate amounts during a report exceeded $100. It is important to understand that all Mr. Durham’ disclosures—with the exception of two (2)—were generated using the cash basis of accounting. Some expenses may have already been acerued but Mr. Durham may have not received his credit card bill until the next period. Some expenses may have been correctly labeled unitemized, but they are included in different disclosure periods due to an auditor viewing only transaction dates. ‘The dates of the first 27 items listed in section b of this Finding apply to campaign reports filed prior to the statutorily permitted timeline found in T.C.A. 2-10-206(a)(4), must be deemed sufficient and are thus not actionable. (Attachment 13) ‘At least 11 items listed in this section are reported but mistakenly show a different amount than the amount provided by the Show Cause. These items likely represent mere miscalculations and are certainly not the product of any effort to conceal expenditures. Please remember that reports in odd-numbered years include reporting periods spanning the period of six (6) months.Drew Rawlins Bureau of Ethies and Campaign Finance Registry of Election Finance May 1, 2017 Page 31 Curiously, T.C.A 2-10-105 does not mention an “amount” requirement but does mention the word “date” and other requirements. Consistent with T.C.A. 2-10-210, the items which were reported but do not list the proper amounts are not actionable. (see Attachment 14 and 15) Many reports were amended prior to the audit commencement date of June 8, 2016, but the changes are not reflected in the Report or Show Cause documents. Entries made by Mr, Durham prior to the audit commencement date should have been reflected in the Report and Show Cause. We also question how the audit timeline ran past June 8, 2016. Our impression was that the Registry voted to essentially “‘snap shot” the 2014 cycle and 2016 election cycle (up to that point), Thus, any edits made by Mr. Durham would be ineffective, but the Show Cause contains transactions subsequent to June &, 2016. With such a running audit, Mr. Durham's right to amend his reports was compromised. All candidates in Tennessee possess the benefit of amending their reports, and Mr. Durham should be afforded the same opportunities as other candidates. Eliminating only the previously-mentioned $15,066 charge from Show Cause figures, Mr. Durham's reports contained 87% of all audit period expenditures. This charge alone makes up 29.5% of the $51,140.65 number which the Report and Show Cause claim went unreported. (see Aitachment 49) A striking claim made in this section is that 15 items which are disclosed as not reported are also deemed in section e(4) of this Finding to be “double reported.” This position is mutually exclusive. ‘An incorrect entry contained in the Show Cause stated that Mr Durham expended campaign funds at a restaurant in Chicago on 8/8/16 when the transaction occurred on 8/8/13. This error generated media reports stating that Mr. Durham used campaign funds in Chicago during 2016. c. Considering the volume of transactions and funds involved in the lengthy four-year audit period, 16 expenditures totaling less than $4,600 is not a high amount of incorrect expenditure amounts. However, an inaccurate amount is listed for the transaction dated 1/12/16, The amount reported was actually $3,348. Any amendments which may have altered this disclosure occurred prior to the audit commencement date. Therefore, the overall number for this section should be a positive 1193.09 positive rather negative 4,458.91. (see Attachment 22) 4. Although the item reflects activity for a report filed prior to June 8, 2014—and thus must be declared sutfficient—the first item in this section represents an aggregate total of two (2) transactions with the same vendor on the same day. (see Attachments 13 and 23)Drew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance ‘May 1, 2017 Page 32 Although the item reflects activity for a campaign report filed prior to June 8, 2014—and thus must be declared sufficient—the second item is likely the same transaction that was listed as an unreported expense in section a of this finding, ‘The expense was reported as $500 to Fairview High School rather than $300 to Fairview High School Parents Association. This is a valid campaign expense that was both incurred and reported, but the item seems to be reported as an incorrect amount and similar entity name. (see Attachment 13) Although the item reflects activity for a campaign report filed prior to June 8, 2014—and thus must be declared sufficient—the third item was an expense that was incurred and mistakenly appears to list the wrong amount. (see Attachment 13) Although the item reflects activity for a campaign report filed prior to June 8, 2014—and thus must be declared sufficient—the fourth item was incurred but listed the owner rather than the company in the “payable to” line. The recipient's statement is demonstrated in Attachment 24. (see Attachments 13 and 24) The fifth item does refer to an actual transaction but for only $500—not the $2000 which Benton Smith swore under penalty of perjury to be an accurate statement in his affidavit. However, this item represents an investment transaction pursuant to the Promissory Note/Line of Credit—not a normal expenditure—and thus cannot not be reported as an expenditure. (see Attachment 8) As seen in Attachment 25, the sixth item did oecur—but an incorrect amount was reported. Mr. Durham’s 2014 dues payment reflected an $800 expense, but the amount changed in 2015. (see Attachment 25) The seventh item is a check Mr. Durham added to his contribution spreadsheet (Attachment 11) when he mailed it to the recipient. Mr. Durham can only assume reasons the check was not cashed. (see Attachment 11) The eighth itemized expense in this section was incurred, but the organization changed its name, Three (3) separate documents composing Attachment 26 reflect Mr. Dutham’s contribution to a group, including: the cancelled check, the organization's W-9 tax identification form and a letter from the group acknowledging the contribution. (see Attachment 26) The ninth itemized expense in this section was incurred by Mr. Durham personally and is included in Attachment 27. (see Attachment 27) e. (1)-(4) All the double-reported transactions occurring during a short period can be described in the same manner. Different individuals handled Mr. Durham’s reports and the individuals apparently did not use the same accounting method. This mistake is merely human error and not the product of malicious activity.Drew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 33 Much of the confusion arises from using credit cards to pay expenses and reporting on a cash method rather than the accrual method. Many expenses were not paid until one (1) or two (2) months after they were incurred and were thus reported in a later reporting period. Parts (2) and (3) of this section state that Mr. Durham double-reported unitemized expenses when there is no possible way to prove this assertion, The very definition of “unitemized” demonstrates that the identities of transactions in this category are not disclosed and thus Registry staff would not know which expenses were reported. 15 total items within this section were included as expenses not reported in section b but are somehow included here (section e) as double-reported. This position is mutually exclusive. Expenditures cannot be both unreported and also double-reported. This section also shows that the Pre-Primary 2016 report is included in the audit, As stated previously in this Response, we held the impression that the audit authorized by the Registry covered a pre-determined time period and was not a type of perpetual audit. By imposing a perpetual audit against Mr. Durham, his normal ability to amend disclosures ‘was violated. Many items reported after June 8, 2016 were changed within a reasonable amount of time but were still listed as wrong on the Report and/or Show Cause. Other items listed in the Report and/or Show Cause were changed prior to the audit commencement. Response to Finding #8 This Finding does not contain sufficient information for a reader to understand everything that occurred. Mr, Durham’s Promissory Note/Line of Credit document specifically allows Mr. Durham to issue payments to third parties. ‘The arrangement represents the same concept as a builder using a financial institution line of credit to make payments to suppliers for construction materials, Many expenses found in Finding #8 were discussed by Mr. Durham’s campaign advisors before ultimately deciding whether the campaign would eventually be entitled repayment. For the same reason that Mr, Durham’s reports correctly did not list “LWP” and other campaign investments as campaign expenses, Mr. Dutham’s reports correctly did not list any Promissory Note/Line of Credit transactions. For correction purposes, Mr. Durham cannot in good conscience electronically swear that a financial disclosure is accurate if it includes investment transactions incorrectly classified as ‘expenses to the campaign, Many legitimate campaign expenses are incorrectly categorized as prohibited transactions: (1) Aaron and Brenda's Wedding $50: This is a valid campaign expense as a gift to a Capitol staffer and political ally. Mr. Durham has worked with Aaron on numerous political endeavors. ‘Aaron was Mr. Durham’s successor as Tennessee Young Republicans Chairman and was alsoDrew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 34 employed in the Capitol. Politics and campaigns represent the only ways through which Mr. Durham knows Aaron. According to TCA 2-10-102(6),” .a gift or anything of value made for the purpose of influencing a measure or the nomination for election or election of any person to public office” is a legitimate campaign expense. (see Attachment 10) ‘The preceding language is extremely broad and allows great latitude to candidates. Mr. Durham values Aaron as an ally and believed this transaction would only strengthen a relationship that aided Mr. Durham in his political campaigns. Since this gift was made with the intent to help elect Mr, Durham to office, the transaction fits the statute and is proper. (2) Bank wire fees $30: No dates or additional information were provided. The details surrounding this transaction are essential in determining how this expense should be treated. The expense was likely made with the intent to generate interest funds for the campaign. If so, this transaction represents a valid campaign expense but the information provided does not allow a definitive conclusion to be drawn, (3) BeautiControl Spa $43.70: This transaction represents a valid campaign expense. Mr. Durham purchased a women’s gift set from a constituent and donated the item to the Republican Women of Williamson County for a giveaway. Mr. Durham does not use women’s bath products. (4) Benton Smith $500: This valid investment transaction was misrepresented by Mr. Smith as a $2000 check in his sworn affidavit filed under penalty of perjury when presented to the Registry by the Attomey General. ‘As Mr. Durham’s text message indicated, Mr. Smith was instructed to alert the company accountant to allocate the funds as a capital contribution by Mr. Durham, The case cited in ‘Attachment 4 references this concept, stating, “The general rule is that a shareholder may not deduct a payment made on behalf of the corporation but rather must treat it as a capital expenditure.” Pursuant to the Promissory Note/Line of Credit, Mr. Durham was required to repay this amount with interest—and Mr. Durham, an attorney, properly ensured that the transaction was noted in tax/accounting records, Thus, Mr. Durham treated the transaction exactly as federal regulations require. (see Attachment 4) Because the transaction was made pursuant to investment activity, the exchange would not be properly listed as a campaign expense. (see Attachment 8) (5) Cool Springs Wine $53.52 and Spirits and Red Dog Wine & Spirits $87.38: These transactions are valid expenses. Mr. Durham purchased several bottles of “Battlefield Bourbon"—a small batch bourbon named for the Battle of Franklin and created by one of his constituents. Mr. Durham kept one unopened bottle on display in his legislative office (along with other items from his district) and donated other bottles to charity auctions, such as the Franklin Police Gala. TheDrew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 35 notation "Battleground" rather than "Battlefield" was simply in error. The bourbon transaction was not made on behalf of any company. Mr. Durham also gave at least four (4) bottles to other legislators, all at his personal expense but did not seek reimbursement. (see Attachment 52) Each of these uses satisfies the language contained in TCA 2-10-102(6). (see Attachment 10) (©) Cool Springs Eyecare $105: During the course of extensive door-to-door campaigning, Mr. Durham’s sunglasses were lost/stolen, so he replaced them. A few months later, the replacement pair was broken by a campaign volunteer, so the campaign replaced them again. Mr. Durham worked outside seven (7) days per week, making at least 5000 door-to-door contacts in the corresponding summer alone. Given the nature of Mr. Durham's style of campaigning, he also provided sunblock for workers who assisted with door-to-door campaigning. T.C.A 20-10-102(6)(A) provides broad discretion on such items, Because the eyewear was purchased so Mr. Durham could safely participate in campaign activities—and thus for a purpose of Mr. Durham increasing his likelihood of being elected—the expenditures are valid. (see Attachment 10) (7) Defined by Darla $500: These suit alterations were made to further Mr. Durham's professional appearance for both campaign and legislative activities. Mr. Durham conducted the transaction prior to entering legislative session when he interacted with hundreds of voting constituents both in Nashville and in his district. Session is the busiest time to interact with voting constituents because session represents the only period during the year when most public policy decisions are officially made. The expenditure exception found in T.C.A. 2-10-114(b)(1) only prohibits enhancing one’s personal appearance if it is unrelated to campaign activities. Mr. Durham used the finished products of this transaction during many campaign activities while interacting with voters from House District 65. The expense is therefore legitimate under T.C.A. 2-10-102(6)(A). The statute states, "Expenditure" means a purchase, payment, distribution, loan, advance, deposit or gift of money or anything of value made for the purpose of influencing a measure or the romination for election or election of any person to public office” and this is precisely what occurred. (see Attachments 6 and 10) It is extremely important to distinguish between buying clothing—which is prohibited under T.C.A. 2-10-114(b)(D)—and buying services relating to a candidate’s personal appearance which are only prohibited under T.C.A. 2-10-114(b)(I) if the services are “unrelated to campaign activities.” Clothing represents a transaction for goods which will be owned by the candidate but enhancing one’s appearance is a service rendered which may or may not have related to campaign activities. (see Attachment 6) (8) Fairview Lions Club $55; Ms. Durham often represented Mr. Durham at local events, interacting with key members of communities within Mr. Durham’s district. The club meetings were held on Monday nights, and Mr. Durham was often unable to attend during Session or due to other campaign/legislative commitments, This expense should be treated no differently than Mr.Drew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 36 Durham paying for a campaign staffer to attend these meetings/events on behalf of bis campaign. The notion that spouses such as Ms. Durham are somehow not worthy assets to candidates and campaigns is contrary to reality. Pursuant to T.C.A. 2-10-102(6)(A)-(B), this valid expense was ‘made for the purposes of furthering both Mr. Durham’s campaign and his legislative efforts. (see Attachment 10) (9) Franklin Theater for $52: This transaction represents a valid campaign food/beverage expense under T.C.A. 2-10-102(6)(A). Mr, Durham was invited to attend a charity event hosted by two of his biggest campaign donors, Another House member also attended. During the function, Mr. Durham purchased food and beverage for the group. Simply because a charity event occurred at Franklin Theater makes no difference as to whether the expense was made to further the campaign/election efforts of Mr, Durham. Networking with individuals who contributed and raised an aggregate amount of approximately $15,000 for Mr. Durham’s 2012 campaign certainly satisfies the statute. (see Attachment 10) (10) Groupon_for_WillCo_Fair $6; This potential transaction represents a valid campaign/officcholder expense, as this is the best place in Williamson County for Mr. Durham or any other elected official to interact with thousands of voters. The expenditure was not used to purchase tickets for carnival or pony rides. ‘Those tickets are purchased separately. ‘The expense ‘was strictly Mr. Durham’s entrance fee so he could communicate with hundreds of voters. Regardless, after the Groupon was purchased, a friend gave Mr. Durham a ticket, and the Groupon was never used. Mr. Durham attempted to give the Groupon to a constituent or donor, but he was unsuccessful. Mr. Dutham has provided electronic evidence that the $6 Groupon expired and was never used. (see Attachments 10 and 28) (11) Heritage Cleaners $108.84; Mr. Durham conducted the transactions prior to interacting with hundreds of voting constituents. The expenditure exceptions to T.C.A. 2-10-102(6)(A) found in T.C.A. 2-10-114(b)() only prohibits enhancing one’s personal appearance if it is unrelated to campaign activities. Mr. Durham used the finished products of these transactions during many campaign activities while interacting with voters from House District 65. Although Mr. Durham is an attorney, he does not go to court often, and his profession played no role in the transaction. Recent media reports suggest Mr. Durham was not the only legislator who understood this type of transaction to be valid if campaign-related. (see Attachments 6, 10 and 47) It is extremely important to distinguish between buying clothing—which is prohibited under T.C.A. 2-10-114(b)(D)—and buying services relating to a candidate’s personal appearance which are only prohibited under T.C.A. 2-10-114(b)() if the services are “unrelated to campaign activities.” Clothing represents a transaction for goods which will be owned by the candidate but enhancing one’s appearance is a service rendered which may or may not have related to campaign activities. (see Attachment 6) (12), (13) Herron Travel $30 x 2: As previously stated, Attorney General Opinion No. 05-166Drew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 37 cites 2 U.S.C.A 439(6) which states that the costs of travel by an officcholder and an accompanying spouse are “ordinary and necessary” campaign expenses and does so without regard for whether the spouse served any political or governmental purpose. (see Attachment 50) Regardless, Ms, Durham was an important part of Mr. Durham's campaign and it was deemed necessary for her to attend a legislative conference and promote Mr. Durham to his caucus colleagues in his then-upcoming leadership election. Serving as majority whip helped Mr. Durham promote the needs of his constituents. The leadership election in question was decided by only four (4) votes, and Ms, Durham’s presence and intuition on this legislative trip was worth the campaign resources expended. Ms. Durham has always served as a valid part of Mr. Durham’s campaign team, and her presence at a legislative conference represents a legitimate campaign expense pursuant to T.C.A. 2-10-102(6)(A). (see Attachments 10 and 50) (14) JJ's Wine Bar $252.50; This transaction represents a valid campaign expense for food/beverage which occurred on Mr. Durham’s birthday. The date of December 11th does not preclude a transaction from being a valid campaign expense. It is well-documented in photos that at least four (4) other legislators were in attendance, as well as numerous local elected officials, legislative staffers, constituents, and donors. Due to the overwhelming attendance of individuals important to Mr. Durham’s campaign and legislative efforts, Mr. Durham felt it necessary and appropriate for the campaign to provide food. Similarly, other candidates have hosted campaign events on their birthdays. (see Attachments 10 and 29) (15) Johnathan Shearon $1474: Mr. Durham’s campaign advisors insisted that he have lawncare done before certain meetings and events held at his home. Mr. Durham's primary residence was a campaign headquarters used routinely for campaign functions, as well as for storage of campaign equipment, signage and other materials, T.C.A. 2-10-114(b)(2)(B) excludes “mortgage, rent or utility payments for any part of any nonresidential property owned by a candidate or officeholder or a member of a candidate's of officeholder’s family and used for campaign purposes, to the extent the payments exceed fair ‘market value of the property usage.” The fair market value benefit Mr. Durham’s home and rental property provided to his campaign far outweighed the miniscule amount paid for residential upkeep purposes—but after reviewing specific provisions of the Code—it appears that a strict probibition is in place for reimbursements to all residential property and that the fair market value exception applies only to commercial property. Mr. Durham’s advisors had not developed a firm consensus on whether this expense should be reimbursed, but they were under the impression that a reimbursement could be done so long as the reimbursement did not exceed the fair market value of the fair market value benefit the campaign received pursuant to the property usage. Because the prior-held legal understanding is not the case, Mr. Durham’s advisors agree he must reimburse the expense with interest pursuant to his Promissory Note/Line of Credit document. Thus, Mr. Durham included this aggregate expense in the total amount he reimbursed the campaign.Drew Rawlins Bureau of Ethies and Campaign Finance Registry of Election Finance May 1, 2017 Page 38 Had Mr. Durham been aware that the law did not allow such reimbursements, he certainly would not have allowed the use of campaign funds to reimburse an expense that—in his case—is already partially tax deductible. (see Attachment 6) (16) Jos A Bank $206,50: This transaction is a valid campaign expense for a gift card given to Mr. Durham’s legislative assistant who grew up in District 65 and possesses many relationships in Mr. Durham’s district. The gift card was purchased online for $200 and the additional $6.50 convenience fee was added. One legislator has provided Christmas bonuses to his legislative assistants of up (0 $1000, and Mr. Durham should be treated no differently. Pursuant to T.C.A. 2- 10-102(6)(A) and (B), this gift was given to the recipient to further both campaign and officeholder objectives. (see Attachment 10) Gifis are legally permissible; clothing is not. Since Mr. Durham did not purchase clothing, and the employee—not Mr. Durham’s campaign—then used a gift card provided by Mr. Durham to purchase clothing, the gift is permissible. (see Attachments 10 and 6) (17) Lee’s Alterations $290.69: Conceptually the same as items (7) and (11), these alterations were made to further Mr. Durham’s professional appearance for both campaign and legislative activities, On two (2) occasions, Mr. Durham had these services performed prior to entering legislative session and thus prior to interacting with hundreds of voting constituents. The expenditure exception found in T.C.A. 2-10-114(b)(1) only prohibits enhancing one’s personal appeatance if it is unrelated to campaign activities. Mr. Durham used the finished products of this transaction during many campaign activities while interacting with voters from House District 65, Thus, the expense is legitimate under T.C.A. 2-10-102(6)(A). The statute states, "Expenditure means a purchase, payment, distribution, loan, advance, deposit or gift of money or anything of value made for the purpose of influencing a measure or the nomination for election or election o} ‘any person to public office,” and this is precisely what occurred. (see Attachments 6 and 10) It is extremely important to distinguish between buying clothing—which is prohibited under T.C.A. 2-10-114(b)(D)—and buying services relating to a candidate’s personal appearance which are only prohibited under T.C.A. 2-10-114(b)() if the services are “unrelated to campaign activities.” Clothing represents a transaction for goods which will be owned by the candidate but enhancing one’s appearance is a service rendered which may or may not have related to campaign activities. (18) Logicforce $1850: This transaction represents a valid campaign expense used to preserve data and communications for the possible defense of Mr. Durham during his campaign. Mr. Durham correctly expected to be attacked by his opponent and outside groups. For this reason, he conducted research from his personal phone to develop response content. Unfortunately, Mr. Durham was never given a fair and reasonable opportunity to share this information with his colleagues or constituents, Just as campaigns conduct research on opponents or opposing figures, this expense is no different.Drew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 39 ‘The Report and Show Cause seem to rely upon presumptions generated from false media reports in making assertions. Mr. Durham and the Attorney General never reached any agreement to share data from Mr. Durham's phone. Mr. Durham has never made any statement suggesting that the sole purpose of these transactions was any “investigation.” Regardless of any Attorney General “investigation,” Mr. Durham utilized LogicForce to conduct research on his electronic communications device that he believed would become useful in his campaign and thus the expense is valid. Even using the Attomey General “investigation” theory, the funds were still used for the “furtherance of the office of the officeholder” because Beth Harwell publicly stated that the findings of the “investigation” would be used to remove Mr. Durham from office. Since Mr. Durham used the funds for professional services related to maintaining his official position, this transaction would still represent a legitimate expense. (see Attachments 5 and 10) (19) Mona Gill_ $474: ‘This transaction represents a valid campaign expense for lodging that was mischaracterized due to rigid interpretations of check memo lines. Mr. Durham explained this fact to a member of Registry staff but the language included in the Report and Show Cause demonstrates that the item was confused with another item. ‘Attorney General Opinion No. 05-166 opines that “fact-finding” trips are valid uses of campaign funds and specifically mentioned whether the expenses would exist irrespective of the legislator’s official duties as an officeholder. (see Attachment 50) Mr. Durham attended a Gulf Shores meeting/retreat with other legislators and a school choice advocate. An itinerary was published and an agenda for the retreat was distributed to participants. Mr. Durham offered io pay the condo owner for lodging but was refused. Mr. Dutham then took the initiative of researching the corresponding rental fee on VRBO and paid an owner for lodging. The word “gift” in the memo line was merely Mr. Durham’s way of telling the owner that he or she could classify the transaction however he or she wished but that Mr. Durham would pay for lodging. Many policy issues were discussed on the trip. It was also on this trip that Mr. Durham launched his campaign for whip. He made dozens of calls to caucus members and worked to secure the first round of commitments to support his candidacy. The expense certainly would not have been accrued absent Mr. Durham’s duties as an officeholder. (20) Nissan Stadium, $54: This transaction represents a valid campaign expense for food and beverage. No statutory language prohibits an otherwise legitimate campaign expense merely because the candidate is attending a sporting or entertainment event. Mr. Durham attended the event with several constituents and donors, including “Ms. D.” Mr. Durham purchased food and beverage for her during the event, Whether a restaurant is connected to a ballpark, department store or any other venue lacks legal significance. Mr. Durham networked with constituents and donors, and thus the expense is,Drew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 40 justified, Even if Mr. Durham had purchased sporting event tickets for the donors and constituents (which he did not in this instance), T.C.A. 2-10-114(b)(2)(H) would still allow Mr. Durham’s campaign to expense the transaction. (See Attachments 10 and 6) (21) Nordstrom: $29.35. This is not a personal purchase but a valid food/beverage expense with a donor at the café inside Nordstrom, Mr. Durham has never shopped at Nordstrom. This is a valid campaign expense regardless of whether the restaurant was connected to a ballpark, department store or any other venue. (See Attachment 10) (22) eBay Marketplace $1,807.14: Prior to this occurrence, Mr. Durham and his advisors discussed these four (4) transactions as an eventual Promissory Note/Line of Credit investment expense to be repaid. (23: Physician $95: Mr. Durham sought professional services during his campaign. The doctor ‘was a constituent and Mr. Durham sought advice on many topics including how specific campaign positions might impact different types of voter demographics. Mr. Durham opted to continue to seek his counsel and paid for all future visits personally—just as Mr. Durham had done previously. (see Attachment 10) (24) Postage/Copying Expenses of $92.36; ($20.26 to FedEx, 12 payments totaling $72.10 to 5- Point Station Post Office.) Mr. Durham frequently used FedEx for campaign copy and print services. Mr. Durham also frequently used the post office for mailings to individual constituents. Mr, Durham’s business did not utilize USPS for any service other than purchasing regular stamps (he used FedEx), and he would have used his business credit card for such transactions. No logical basis is listed in the Report or Show Cause justifying these transactions not being treated as campaign-related, Simply because transactions “might” have consisted of single shipments or a copy charge does not in itself suggest business, personal or any other expense category. Mr. Durham’s campaign and legislative staff made numerous separate shipments to individual constituents, Proclamations and blue books are two (2) common examples. (25) RCGOLF $115.72: This transaction represents the same concept as item (6). During the course of extensive door-to-door campaigning, Mr. Durham’s sunglasses were lost/stolen, so he replaced them. A few months later, the replacement pair was accidentally broken by a campaign volunteer—so the campaign replaced them again. Mr. Durham’s eye doctor insisted that he not be outdoors for long periods campaigning without proper UV protection. (see Attachment 10) As stated previously, T.C.A 20-10-102(6)(A) provides broad candidate discretion on such items. Because the sunglasses were used for campaigning—and thus for a purpose of allowing Mr. Durham to increase his likelihood of being elected to office—the expenditures are valid. (see Attachment 10) (26) Southwest Airlines for Ms, Durham’s flight $541.70: Tennessee Attomey General Opinion ‘No. 05-166 cites 2 U.S.C.A 439(b) which states that the costs of travel by an officeholder and anDrew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 41 accompanying spouse represent “ordinary and necessary” campaign expenses and does so without regard to whether the spouse served any political or governmental purpose. (see Attachment 50) Ms. Durham provided bona fide services to the campaign, Thus, Mr. Durham deemed it necessary for Ms. Durham to attend the ALEC conference. Many networking opportunities were available, and Mr. Dutham required Ms. Dutham’s assistance in promoting his candidacy for whip and building relations with other legislators and their families. Mr. Durham also consulted with Ms. Durham on legislative policy—specifically tax and healthcare issues—which is the presumptive purpose of attending ALEC. Ms. Durham is well-versed on policies affecting healthcare professionals and entities. (see Attachment 10) (27) Speedway $24: Similar to other items in this Finding, this transaction represents a valid campaign expense for food and beverage. As noted on the credit card statement, Mr. Durham was invited to attend a Bristol race with several donors and constituents. During the day, Mr. Durham purchased food and beverages for members of the group. This transaction is certainly allowable while networking with constituents. Mr. Durham is no fan of NASCAR and only attended the event to network with constituents and donors. (see Attachment 10) (28), (29) TN Bar Association $125 and $145; T.C.A. 2-10-114(a)(7) specifically allows membership fees as legitimate campaign expenses. Mr. Durham is a practicing attomey, but this distinction does not require him to be a member of the Tennessee Bar Association any more so than someone engaged in Tennessee commerce is required to join the Tennessee Chamber of Commerce, Mr. Durham was never a member of the TBA until elected—and only did so after the encouragement of TBA members who visited his legislative office and attempted to build a relationship with him. The TBA is not a licensing entity, and it is completely optional to join, The transactions represent valid expenses for membership dues, similar to Rotary Club, Lion’s Club, NFIB, etc. (see Attachment 6) Mr, Durham would not have joined if he hadn't been a candidate for office. Additionally, pursuant to legislative duties, legislators receive six (6) annual continuing legal education hours out of the required 15. Thus, Mr. Durham needed 40% less CLE hours than the amount normally needed by attomeys so any collateral benefit to Mr. Durham’s CLE credits is not only statutorily irrelevant but also greatly diminished. (see Attachments 6 and 10) Prior to transactions (30), (31), (32), (33), (34) and (35) $659.17 occurring, each was deemed by multiple advisors to Mr. Durham as made pursuant to the Promissory Note/Line of Credit document with the exception of Item (32). The handgun carry permit was debated at length by Mr, Durham’s campaign advisors with no resolution being reached, but we contend that the activity satisfies state law because the distinction of Mr. Durham holding an active handgun carry permit is a definite asset to Mr. Durham’s election efforts, and he made the purchase with those efforts in mind. Thus, Item (30), representing a transaction of $50, is proper pursuant to T.C.A.' J Drew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 42 2-10-102(6)(A) and pursuant to the absence of a statute prohibiting the expense. (see Attachments 10 and 15) (36) TPAC Concessions $18; Much like various other items, this transaction represents a valid campaign expense for food and beverage regardless of the forum where it occurred. Mr. Durham ‘was invited to attend an event at TPAC with a donor/constituent. He purchased beverages during the intermission. Mr. Durham is not a fan of performing arts and would have never attended had the constituent/donor not invited him, Regardless, the expense satisfies T.C.A. 2-10-102(6)(A). (see Attachment 10) (37, UT CEO $160: Mr. Durham has a policy of personally purchasing his UT tickets, whether from the CFO office, from a friend or near the stadium moments before the game. He has also been given tickets to various UT games by friends. The date referenced was the biggest home game of the year and a game for which many of Mr. Durham’s constituents and donors rented a chartered bus to travel to and from the game. Mr. and Ms. Durham rode the bus and obtained UT tickets for many individuals riding the bus. The notion that $160 in tickets were used by Mr. Durham personally is erroneous. The Report ignores the possibility of Mr. Durham receiving tickets as a gift or purchasing tickets with cash (ither of which is far more likely). Mr. Durham also attended the game, but he does not recall exactly which ticket he used or exactly where the specific ticket originated. Pursuant to T.C.A. 2- 10-114(b)(2)(H), Mr. Durham provided tickets to constituents, donors or campaign workers on a fairly regular basis. (see Attachment 6) Furthermore, even if Mr. and Ms. Durham had personally used the tickets, $80 would still be valid. TCA 2-10-114(b)(2)(H) precludes expenses related to: “Admission to a sporting event.... unless the event is an expense associated with a legitimate campaign or officeholder activity, where the tickets to such event are provided to students attending the schools, guests or constituents of the candidate or officeholder, or persons involved in the candidate's or officeholder’s campaign.” (see Attachment 6) Itis already established that Mr. Durham was networking with constituents and campaign donors. Ms. Durham is a guest of the candidate, a constituent and also someone involved in Mr. Durham’s campaign. She literally fits three (3) separate distinctions found in the statute. Unlike the provision directly above T.C.A. 2-10-14(b)(2)(H), no statutory distinction is made for a spouse or other family member of the candidate receiving sporting event tickets. (see Attachment 6) Even if'a distinction for family members had been made, T.C.A. 2-10-14(b)(2)(G)—which is listed immediately above the provision in question—states that payments to family members are excluded unless the family member provided bona fide serves to the campaign. There is no such exclusion for family members receiving tickets to sporting events—but even if the exclusion existed—Ms. Durham provided bona fide services to the campaign so the distinction would be irrelevant and the expense would still be valid. (see Attachment 6)Drew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 43 (37) Wal-Mart $68.78; This expense represents a valid expense for Mr. Durham’s office at Legislative Plaza. Mr. Durham’s former legislative assistant and colleagues can confirm that this ‘work was performed by Capitol Staff and that Mr. Durham was required to provide the blue paint. Mr. Dutham’s house has never been painted since it was purchased in 2010. Perhaps Mr. Durham did not specifically articulate to Registry staff that legislators are afforded office space in Legislative Plaza or the War Memorial Building—but this is the case—and Mr. Durham’s legislative office is the office referenced in the conversation. (see Attachment 10) (38) Williamson County Drug Court $30: The total $60 check amount was simply a donation to the Williamson County Drug Court. Mr. Durham and Ms. Durham did not arrive until after the event ended. Although tickets were advertised as $30 each, Mr. Durham voluntarily donated $60 in campaign funds, No food, beverage, or entertainment was provided to Mr. Durham or his spouse in exchange for this donation. Pursuant to T.C.A. 2-10-114(a)(6), this transaction represents a valid campaign expense as a donation to a local charity. (see Attachment 6) Due to the reasons already listed throughout this Response, we dispute any assertion that Mr. Durham would not be justified using campaign funds to purchase a ticket for Ms. Durham who represented a significant asset to Mr. Durham’s candidacy. Additionally, 2 U.S.C.A. 439(b) states that travel expenses of a spouse constitute “ordinary and necessary” expenses of a candidate, and we see no reason why a spouse’s attendance at an event should be treated any differently. Response to Finding #9 ‘The manner in which this Finding is presented is fundamentally unfair to Mr. Durham. As the facts prove, Mr. Durham was not simply taking money from his campaign account and putting it into his personal account without an intention to repay. The “personal use” distinction found in T.C.A 2-10-114(b)(1) does not represent a never-ending sea of items which certain individuals do not endorse or desire the General Assembly to change. The term also does not apply simply because a record four out of a total 48 monthly credit card reports were missing. Unless an item fits the definition of “gross income” found in the Internal Revenue Code, this provision does not apply. (see Attachment 6) T.C.A. 2-10-31 prohibits certain types of cash transactions—including campaigns accepting cash contributions greater than $50 per person—but the statute not prohibit cash disbursements. In fact, no law exists prohibiting Mr. Durham from disbursing a refund or spending campaign funds in this manner. As previously stated, the Registry cannot punish an action in the absence of a statutory prohibition of the transaction at issue. (see Atfachments 30 and 15) Petty cash was utilized in Mr. Durham’s campaigns and legislative office. Many expenses in rural Tennessee communities cannot be made with checks or credit cards. Mr. Durham used cash atDrew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 44 certain establishments to purchase food/beverage for constituents. Parking at several community events also required cash. When possible, Mr. Durham and his staff utilized erai secure various items that became necessary to the campaign of officeholder. None of these, or any other likely use of such funds, suggests a situation when Mr. Durham utilized campaign funds for personal use. ‘No documentation was provided for the $100 check mentioned in the Report and Show Cause. If there is no name on the front or back of the check, it should have never cleared the bank. In this case, the check cleared the bank, but it did not enter Mr. Durham’s personal account. How then could the check logically be considered “personal use” of Mr. Durham? Clearly, the funds do not represent personal income to Mr. Durham. (see Attachment 6) This Finding also fails to fairly mention that Mr. Durham made several cash deposits of a strikingly similar aggregate amount: $5,216 compared to $5,750. Of the $5,216 in cash which entered the account, $3,802 represented personal funds of Mr. Durham, Furthermore, much of the cash ‘withdrawn from the campaign account was eventually deposited back into the campaign account, a. Most amounts in this section suggest petty cash or small campaign transactions. The first four (4) transactions totaling $900 are listed on reports filed prior to June 8, 2016 and must be deemed sufficient. (Attachment 13) The 10/2/14 transaction occurred during campaign season when Mr. Durham issued a partial reimbursement to a donor so the donor could involve himself directly in whichever election he wished rather than requesting Mr. Durham do so. T.C.A. 2-10-31 does not prohibit such activity. (see Attachment 30) The 11/18/14 transaction occurred following Mr. Durham’s reelection campaign. The funds could have been used to pay poll workers or sign runners, or perhaps to issue a food stipend or similar payment. The 12/22/14 transaction occurred around a time which leads Mr. Durham’s advisors to believe these funds went to a charity. Mr. Durham's advisors are unsure about the final three (3) transactions totaling $600 but two (2) of the three (3) occurred while Mr. Durham was actively campaigning. The transaction for $200 on 5/18/16 likely represents petty cash for Mr. Durham's legislative office but Mr. Durham’s advisors are not certain. b, The items listed in this section only apply to T.C.A. 2-10-114(b)(1) if such activity would otherwise qualify as “gross income” to Mr. Durham—regardless of whether an expense was correctly noted. (see Attachment 6) For all the record-keeping claims found in the Report and Show Cause, the credit card statements referenced in various Findings represent a very usefull asset in accuratelyDrew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 45 determining which expenses were reimbursed by Mr. Durham's campaign. Although human error is inevitable, the meticulous detail used in calculating campaign expenses on the monthly credit card statements represents a very sound system of documenting, reimbursements and expenses. As Attachment 30 demonstrates, campaign expenses were highlighted and calculated—even names of individuals with whom Mr, Durham dined were often listed beside transactions. (see Attachment 30) Chart I Regarding the first chart ($4,733.14 aggregate amount), Registry staff received additional credit card statements (prior to the release of its Report) which may have provided missing information, ‘The transaction made on 1/14/14 reimbursing items from the December 2013 credit card statement apply to a campaign finance report filed prior to 6/8/14 which must be deemed sufficient and thus are not actionable. (see Attachment 13) The transaction made on 7/7/14 reimbursing items from the May 2014 credit card statement is only alleged to be miscalculated by a one (1) cent. ‘The transaction made on 12/12/14 reimbursing items from the October 2014 credit card statement shorted Mr. Durham at least $1.35 too little. Because the original credit card statements could not be located, Mr. Durham's advisors used a credit card statement which had not previously been marked for reimbursements—along with Mr. Durham’s calendar—to conservatively calculate reimbursements. Other items appeared subject to reimbursement but were not counted. The calculations utilized to calculate this number can be found on Attachment 40, (see Attachment 40) After recalculating the transaction which occurred on 10/4/15 to reimburse items from the August 2015 credit card statement, Mr. Durham reimbursed himself $3.75 less than the amount of campaign expenses incurred. The critical issue with this transaction is the fact that an expense amount was mistakenly highlighted but did not correspond to the correct expense amount incurred. The word “mistake” is noted on the statement, To provide verification, the entire monthly statement is attached. (see Attachment 33) The transaction made on 3/5/16 reimbursing items from the January 2016 credit card statement only resulted in a positive 11 cents to Mr. Durham. Much like the October 2014 statement, Mr. Durham’s advisors did not possess the original credit card statement but used Mr. Durham’s calendar to conservatively calculate correct reimbursements, Other items could have been listed in this category of reimbursed expenses—but Mr. Durham's advisors were conservative and attempted only to reach the amount of expenses already reimbursed. The entire monthly credit card statement can be found in Attachment 34. (see Attachment 34)Drew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 46 The transaction made on 7/20/16 reimbursing items from the June 2016 credit card statement includes expenses incurred more recently than the presumed audit timeline. Our understanding is that the Registry voted to audit a definite time period and did not authorize perpetual revolving audit. An undefined audit period does not allow candidates a proper opportunity to amend disclosures. The Report and Show Cause contain one (1) transaction of over $15,066 which was not known at the time the corresponding campaign report was due, Mr, Durham's disclosure was later amended with the correct number, but the Report and Show Cause each contain at least one (1) Finding alleging improper reporting of this transaction by Mr. Durham. Regardless, later calculations reveal that Mr. Durham reimbursed himself 10 cents less than the amount of campaign expenses he incurred. The entire monthly credit card statement is found in Attachment 35. (see Attachment 35) Chart II. The second chart referencing 14 transactions totaling an aggregate amount of $1,346 does not reflect reimbursements made with a credit card. The expense numbers written onto the monthly credit card statement were incurred via cash or check—-but since the monthly credit card statements represented the normal reimbursement calculation and document, other expenses during the corresponding months were documented on such statements. As both the Report and Show Cause state, these amounts were typically able to be verified by checks written from Mr. Dutham’s personal account. This section represents an appropriate segment to mention the $416.85 in expenses for which Mr. Durham did not properly reimburse himself and which the Report and Show Cause deemed “contributions.” The first two (2) entries totaling $55 are included on statements filed prior to June 8, 2016, must be deemed sufficient and aze not actionable. Since information on the transactions was readily available, we have provided further explanations. (see Attachment 13) ‘The $20 transaction in February 2014 labeled “Rotary Breakfast” represents a check payment for a Rotary breakfast. Mr. Durham’s records were very useful in verifying the nature of this transaction, The amount, vendor and letters “ck 609” are listed on the credit card statement to provide guidance in locating the check in question. ‘The check was easily located and can be found in Attachment 36. (see Attachment 36) ‘The “RWWC" transaction of $35 from the February 2014 credit card statement is supported by both an electronic receipt and bank record provided in Attachments 37 and 42. (Gee Attachments 37 and 42)Drew Rawlins Bureau of Ethies and Campaign Finance Registry of Election Finance May 1, 2017 Page 47 The “FV Chamber” expense of $15 from the June 2014 credit card statement refers to Mr. Durham expending cash funds to the Fairview Chamber of Commerce or to a vendor at a Fe iew Chamber of Commerce event. The “RWWC” transaction of $47 from April 2014 is supported by bank records provided in Attachment 38. (see Attachment 38) ‘The “RWWC’” transaction of $25 from the April 2014 credit card statement is supported by bank records provided in Attachment 38. (see Attachment 38) The “FV Game & BBQ” expense of $26 refers to event during which Mr. Durham interacted with many voters and used cash. This expense represents a perfect example of why candidates must sometimes use cash, There are no checks, credit cards or receipts at Fairview High School sporting events or various other community activities—and although ‘Mr. Durham rarely used cash, such payments were often necessary during campaign activities. The “Bowie Nature Fest” expense of $23 represents a series of cash transactions Mr. Durham incurred while interacting with constituents. Event parking and various booths accepted only cash, and most of the amount was likely spent on food/beverage. (see Attachment 10) ‘The “WH MOW” expense from November 2014 represents cash expended for Mr, Durham to attend an annual gathering which includes many of Mr. Durham’s West Franklin constituents. Through this activity, Mr. Durham met numerous financial supporters and discussed many issues facing constituents. ‘The “Unknown (Couch)” expense from January 2015 represents a cash transaction Mr. Durham completed to purchase a small couch for Mr. Durham’s legislative office. A capitol police officer helped Mr. Durham move the couch up multiple flights of stairs and into Mr, Dutham’s office. ‘The “Unknown (Reftigerator)” expense from January 2015 represents a refrigerator used in Mr. Durham’s legislative office purchased from a hotel going out of business. The transaction was required to be cash. Mr. Durham’s former legislative assistant should be able to verify the expense, ‘The remaining expense incurred in January 2015 of $25 escapes Mr. Durham's advisors, but the expense likely related to a community activity in Fairview. One of Mr. Durham's ‘ advisors remembers Mr. Durham purchasing a gift card at Walgreens and the aggregate purchase including other items which were not reimbursed, This transaction likely represents the source of the reimbursement.Drew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 48 The “A.H” expense from December 2015 is reflected in Attachment 39. Mr. Durham purchased various flags from A.H. for his legislative office. The reason the memo line says gift is because “A.H.” said he hated to charge Mr. Durham, and similar to the Gulf Shores expense described in Finding #8 and labeled Item (19), Mr. Durham said “A.H.” could consider the contribution a gift if he wished. Mr. Durham was adamant that he pay. ‘The reason the check is $50 different than the reimbursement is because “A.H.” charged similar but not identical amounts depending upon whether the source of the funds was a campaign or personal account, and Mr. Durham sought to save the campaign $50. The check related to this expense is included in Attachment 39. (see Attachment 39) ‘The same as the other “WH MOW” expense, the “MOW” expense from November 2015 represents the cash expense for Mr. Durham’s entry to an annual gathering attended by many of Mr. Durham’s West Franklin constituents. Pursuant to this activity, Mr. Durham met numerous financial supporters and discussed issues facing constituents. The expense for February 2016 represents a $50 gift card given to Mr. Durham’s legislative staffer who directly interacted with hundreds of Mr. Durham’s constituents and volunteered for Mr. Durham’s campaign. Mr, Durham did not use a credit card to obtain the gift card so it would not otherwise be listed on a monthly credit card statement. The assertion that section b. (totaling $6,096.65) consisted of “personal use” by Mr. Durham is erroneous. No legitimate evidence is provided to support such a theory. (see Attachment 13) Response to Finding #10 This Finding contains two (2) parts: ALEC reimbursements and expenses incurred on days when per diems were issued ALEC Reimbursements: Other legislators have done precisely what this allegation claims Mr. Durham did and were then allowed to simply reimburse the funds with no further action. This same treatment should be extended to Mr. Durham. Although the first three (3) transactions totaling $69.58 apply to reports submitted prior to June 8, 2016, Mr. Durham will still repay the expenses if he truly was reimbursed twice. (see Attachment 13) ‘Mr. Durham never intended for double reimbursement to occur. In fact, see Attachments 31 and 32 which demonstrate Mr. Durham's advisors deducting the amounts of state-issued reimbursements when calculating reimbursements for subsequent campaign expenses incurred. If this section represented Mr. Durham actually intending to double reimburse himself, he clearlyDrew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 49 would not have deducted the amounts of other state-reimbursed funds from campaign reimbursements. (see Attachments 31 and 32) In the 2013 example, the trip occurred during the summer when legislators are not in session generating significant per diem payment payments. Thus, the subsequent reimbursements issued to Mr, Durham's bank account were casier to recognize, But in the December 2014 example, the subsequent reimbursement occurred while Mr. Durham was in session generating regular per diem payments and making confusion more likely. During Mr. Durham’s four (4) years in the General Assembly, he took a grand total of two (2) out of an allowable four (4) taxpayer-funded trips—one in 2013 and another in 2014. Mr. Durham did not accept any taxpayer-funded travel during his second term because he felt the trips were not ‘an appropriate use of taxpayer funds. ‘A recent media reports that one legislator took 10 trips during 2016—six (6) of which were taxpayer-funded. (see Attachment 48) Per Diem Issue For purposes of this section, subections exist only to serve the purpose of separating arguments: a. The overall logical concept of this concept is fundamentally flawed because the daily per diem amounts used by the Report and Show Cause represent taxable income to Mr. Durham. On page 25 of the Show Cause, the entire $173 daily per diem rate represents taxable income to Mr. Durham. Yet the same amount is used by the Report and Show Cause to scrutinize legitimate expenses by Mr. Durham’s campaign as if he received some sort of double-reimbursement, When Mr. Durham pays federal income taxes on money, it is not considered a “reimbursement” pursuant to any rational theory or legal definition. Furthermore, when Mr, Durham purchased food/beverage for donors, constituents or other lawmakers, how could that expense be applied personally only to Mr. Durham? Such expenses would certainly never be considered “gross income” pursuant to IRS. guidelines, so the expenses could never be considered “personal use.” (see Attachment 6) If legislators were required to track the amounts of per diem payments actually incurred, a formula could at least be legitimately calculated. However, there is no such requirement of legislators. b. The general concept of using a per diem system to measure actual expenses is logically flawed.Drew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 50 The IRS website provides the following: What is per diem? Per diem is an allowance paid to your employees for lodging, meals, and incidental expenses incurred when traveling. This allowance is in liew of paying their actual travel expenses. (see Attachment 43) Per diem is literally defined by the Internal Revenue System as an allowance issued “in Tiew” of paying actual expenses—not to reimburse actual expenses. (see Attachment 43) ‘The State of Tennessee does not employ an expense reimbursement system for daily legislative allowances. Therefore, the concept that Mr. Durham could be double reimbursed for his work as a legislator is erroneous. Per diems do not represent any form of “reimbursement” from the State of Tennessee, Per diems represent the amount of daily funds legislators receive for certain expenses regardless of how much they spend. The categories listed in the Report and Show Cause merely represent the basis on which legislative per diems are calculated. ‘here is no law stating candidates cannot use campaign funds to expense a meal on the same day they take per diem. The director of legislative administration confirmed this fact in Attachment 48. (see Attachment 48) 4. We cannot locate an instance when this rule was ever applied to another candidate nor can we locate a statutory exception disallowing food/beverage expenses on day’ legislators take per diem, What we have found are media reports detailing numerous examples of this situation occurring—often in amounts far more compelling than Mr. Durham’s amount— but no other candidates have faced any scrutiny from the Registry. (see Attachment 48) €. The Report and Show Cause erroneously presume that Mr. Durham never purchased the meals of third parties. Remember, per diems only pertain to incidental expenses of Mr. Durham, £. This section treats legislative expenses and campaign expenses as interchangeable. It is true that legislative expenses may form the basis of campaign expenses—but the two (2) types of expenses are defined differently and are also found in different parts of the Tennessee Code. They then should be treated separately. g. The issue of whether a campaign food/beverage expense qualifies as “personal use” and ‘gross income for LR.S. purposes has nothing to do with whether a legislator took a per diem that day. Such expenses either qualify as personal use all the time or personal use none of the time—and under T.C.A. 2-102(6)(A), an expense to promote a candidate’s campaign or officeholder duties is a valid statutory expense. (see Attachment 6)Drew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 51 TCA 2-10-114(a)(7) states that campaign funds, “may be used to defray any ordinary and necessary expenses incurred in connection with the office of the officeholder.” There is no exception for days when legislators accept per diem, (see Aitachment 6) We also raise practical issues regarding the application of this concept. h We question the accuracy of the dates used. On credit card statements, items show both transaction dates and posting dates. In his experience, Mr. Durham has found that transaction dates are not always accurate (mainly due to the time in which servers enter data into electronic systems). Thus, we question the soundness of the dates used by Registry staff. ‘The Code section outlining per diem payments to legislators is outside the scope of Registry authority and thus this section is not actionable. In fact, per diems are not even referenced in parts 1 or 3 of Title 2, Chapter 10. Due to T.C.A. 2-10-205, it follows that legislative per diems fall outside the authority of the Registry. (see Attachments 15 and 16) We question how anyone can declare with any confidence that it has accurately determined whether Mr. Durham’s per diem was expended on food, travel, lodging or other incidental costs. Since electronic banking activity does not represent a complete and exhaustive list of all transactions—and because Mr. Durham was not required to track such expenses— there is no way to know exactly how much Mr. Durham spent on these items. How would the Registry determine whether Mr. Durham expended cash for a meal? He did many times. How would the Registry determine whether Mr. Durham brought previously-purchased food/beverage items to his legislative office? He did many times—especially when trying to eat healthy. Many of the listed items are not subject to penalty because the items are listed on campaign reports submitted prior to June 8, 2014. (see Attachment 13) This Finding is not only theoretically erroneous in several ways, but it sets an alarming precedent for all audits moving forward. A recent media report demonstrates that this, practice is entirely common. Since this concept represents a Finding against Mr. Durham, we must question whether producing campaign reports of other candidates violating this same concept will lead the Registry to conduct four-year audits for each legislator who may have once violated this concept? This was the case with Mr. Durham. (see Attachment 48) To further understand what a nightmare enforcement of this notion would represent, consider this:Drew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 52 In 2016, Mr. Durham had the seventh-lowest per diem/reimbursement total of 99 legislators. In 2015, Mr. Durham had the 21st-lowest per diem/reimbursement total of 99 legislators. Contrary to repeated assertions, Mr. Durham did in fact provide records of these expenses in the form of marked-up credit card statements and, in most instances, even notated the name of the individual with whom Mr, Durham dined. (see Attachments 31 and 32) ‘Attempting to punish a legislator for allegedly not spending the entire amount of a per diem prior to generating a reimbursable campaign expense on a particular day represents a deeply flawed proposition because—among many other factors already mentioned—the accuracy of such an accusation can never be credibly verified. Response to Finding #11 T.C.A 2-10-212(e), states that candidates shall, “retain copies of all checks, bank statements and vendor receipts..” All checks and bank statements were kept for Mr. Durham by a third party. Rather than actual physical receipts, Mr. Durham maintained monthly credit card statements with remaining expense amounts added to readily view the calculations on which the reimbursements were based. Mr. Durham nor his advisors have ever heard of any candidate maintaining every vendor receipt. A Registry staff member essentially admitted the same to Mr. Durham. After speaking to other legislators—including multiple legislators who have been audited by the Registry of Election Finance—this requirement is certainly not common practice. (see Attachment 17) Mr, Durham also maintained a list of contributions and expenditures but an apparent miscommunication prevented the document from reaching Registry staff. (see Attachment 11) ‘The repeated assertions pertaining to Mr. Durham’ s record keeping are not accurate. Facts suggest that inaccuracies found in Mr. Durham’s campaign reports seem largely due to errors committed by individuals submitting the reports and not based upon a poor or flawed record-keeping system. Mr. Durham’s campaign reports contained over 95% of contributions and 87% of expenditures excluding a mischaracterized transaction and a transaction which could not be accurately determine at the time reports were due. Clearly, a legitimate form of record-keeping was employed. Although the issue was omitted from the Show Cause, Finding #11 of the Report makes an issue out of gasoline reimbursed by Mr. Durham. The idea that legislators cannot reimburse themselves for gas if they take per diem on a certain day is impractical and certainly does not represent a prevailing practice. The Registry has no way of knowing how far Mr. Durham drives in a given day. This information represents a necessary variable for calculation under per diem/gas reimbursement theory. Mr. Durham also frequently paid gas expenses of campaign staff.Drew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 53 We have previously explained why the per diem/campaign expense theory is erroneous and out the scope of Registry jurisdiction. (see Attachment 15) Mr. Durham utilized a greater amount of fuel for legislative and political purposes after he was elected Majority Whip, and that is the reason those expenses increased. The concept promoted by the Report is impossible in practice. Unless legislators become statutorily required to calculate miles for each separate trip—many of which involve multiple purposes—no process exists to accurately measure fuel costs. There is no possible way to distinguish entire tanks of gas between personal, business, legislative, and campaign purposes. Response to Finding #12 PROMMISSORY NOTE & OTHER ACTIVITY “LW. omitted from This item is mentioned in the Report as a valid investment by Mr. Durham but the Show Cause, We agree that these transactions represent valid campaign and PAC investments. a. SOSH.” The Report and Show Cause suggest punishing Mr. Durham under mutually exclusive theories. This transaction cannot logically represent both a campaign investment and an item of “personal use” by Mr. Durham. ‘The Report and Show Cause also greatly complicate the transaction. It was the impression of Mr. Durham’s advisors that—by the campaign contributing $10,000 of a $25,000 aggregate transaction—the campaign would thus own 40% of transaction shares purchased. Mr. Durham's advisors subsequently realized the investment would not generate a return on until a later time than previously believed. Mr. Durham's advisors then encouraged Mr. Durham to transfer $10,000 into the campaign account and purchase the stock from the campaign. This is what Mr. Durham did (although the transaction was incorrectly classified as a “contribution.”) The market value of these shares remains unchanged from the purchase date so this transaction is largely a moot point. Mr. Durham simply purchased shares from the campaign at the same price which the campaign purchased the shares from “O.S.H.” in the aggregate transaction with Mr. Durham, The assertion that Mr. Durham “enhanced” or somehow bettered his personal investment is erroneous, Quite the opposite is true. Mr, Durham purchased more stock than he originally wished to buy because he desired to keep campaign assets fluid and available.Drew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 54 The transaction does not fit the “personal use” distinction because the funds never represented “gross income” to Mr. Durham. The campaign investment and later sale to Mr. Durham are valid legal uses of campaign funds. (see Attachment 6) b. “DW.” Loans to a third party are not “personal use” by Mr. Durham because such transactions do not represent “gross income” to Mr. Durham. (see Attachment 6) ‘The use of the term “friend” in the memo line of the check holds no legal significance. An investment between “friends” is nonetheless an investment. An owner of “LWP” is a “friend” of Mr. Durham but the Report states that this investment is proper. Mr. Durham is committed to pursuing every action to retrieve any outstanding campaign funds—but allowing investments in campaigns necessarily acknowledges that not every transaction will accomplish the outcome desired. Due to the passage of SB 377, the Registry will likely not again encounter a similar situation. (see Attachment 2) The specific reasoning given by the Report and the Show Cause for the disbursements not being attributed to the note (or, ironically enough, the memo lines of multiple checks) was that, “the agreement was unsigned and the audit was unable to confirm any transaction with Mr. “W.” Not only is the notion that any statute requires campaign investments to be memorialized pursuant to a signed document erroneous, the Report and Show Cause have not always taken such a position. Mr. Durham never provided an investment contract between himself and the bank through which he generated checking account interest but the Report and Show Cause never disputed this activity as a valid investment. Simply because Mr. Durham is no longer in possession of a signed copy of a note is inno way determinative of whether a valid transaction occurred—and most importantly—it is not statutorily required of Mr. Durham. In fact, the definition of “contribution” found in T.C.A. 2-10-102 includes the words “whether or not legally enforceable” and seems to rely more heavily upon the candidate’s intent than the documents used. (see Attachment 10) ‘The assertion that transactions between Mr. Durham’s campaign and “Mr. W” cannot be confirmed is false. Three (3) campaign checks totaling $29,800, all of which were personally signed by “Mr. W,” prove exactly what the Report and Show Cause state cannot be confirmed. Regardless of any note, the memo lines on multiple checks clearly state that the transactions were loans. For such a rigid and undying emphasis to be placed on words written in check memo lines throughout the Report only to tum away from this hardline approach now represents a deep contradiction. As previously stated, pursuant to T.C.A 2-10-210, the Registry can only level a penalty or sanction if an alleged violation of rules and regulations also represents a statutory requirement—and there was no such requirement that campaigns only engage in certain typesDrew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 55 of investments or, in the event that campaigns do engage in investments, no requirement exists stating that candidates must produce a specific type of document. (see Attachment 15) ‘The transaction with “Mr. W.” fits the definition of multiple legal campaign transactions. T.C.A, 2-10-102(4) states, in relevant part, “Contribution means any advance, conveyance, deposit, distribution, transfer of funds, loan, loan guaranty, personal funds of a candidate, payment, gift, or subscription of money or like thing of value, and any contract, agreement, promise or other obligation, whether or not legally enforceable, made for the purpose of influencing a measure or nomination for election or the election of any person for public office or for the purpose of defraying any expenses of an officeholder incurred in connection with the performance of the officeholder's duties, responsibilities, or constituent services. (see Attachment 10) The first individual Mr. Durham met upon moving to Franklin was the spouse of “Mr. W.”. Both “Mr, W's” spouse and father-in-law were donors of Mr. Durham since his first election. By generating interest to the campaign—and also through generating goodwill with campaign allies—Mr. Durham fully believed he increased his reelection chances by loaning money to “Mr. W”. Pursuant to T.C.A. 2-10-102(6), the transaction also fits the definition of another—and theoretically opposing—valid campaign transaction. "Expenditure" means a purchase, payment, distribution, loan, advance, deposit or gift of money or anything of value made for the purpose of influencing a measure or the nomination for election or election of any person 10 public office.” (see Attachment 10) Mr, Durham made the loan to generate revenue for the campaign and thus likelihood that he would be re-elected. It follows that the transaction fits within the confines of a campaign “expenditure.” This ironic outcome represents a prime example of why campaign finance laws might benefit from legislative efforts to alter the current definitions of certain terms, nerease the Mr, Durham never said any transactions related to another promissory note. c. Jeremy Durham — Promissory Note/Line of Credit Any assertion that Mr. Durham's Promissory Note/Line of Credit is improper lacks legal justification. Consistent with our position regarding other sections of the Report, there was no statute governing what type of investments may be made by a campaign and thus no penalty can be levied. Citing a statute clearly governing regular expenses—that is, expenses not specifically designed for the purpose of generating campaign revenue directly from the other party to the investment—in an attempt to bureaucratically generate a new law regulating investments is erroneous. (see Attachment 15)Drew Rawlins Bureau of Ethics and Campaign Finance Registry of Blection Finance May 1, 2017 Page 56 In fact, the transactions in question are specifically authorized by statute. ‘The Promissory Note/Line of Credit is nothing more than a fancy loan agreement—and the Tennessee Code clearly and unequivocally recognizes and authorizes loan transactions. T.C.A. 2-10-102 contains the word “loan” in the definitions of multiple—and even theoretically conflicting — valid legal transactions. (see Attachment 10) Just as the example in the previous section fits the definition of conflicting statutory terms, the investment attangement at issue in this Finding fits the legal definition of either a “contribution” or “expenditure” because I. the term “loan” is included in both legal transaction definitions and 2, Mr. Durham’s intended monetary benefit to the campaign—through the ‘eventual interest to be paid—fits the statutory requirements associated with both “contribution” and “expenditure.” (see Attachment 10) ‘We dispute the accuracy of any Promissory Note/Line of Credit transaction(s) being treated as “personal use” because loans proceeds do not represent “gross income” to Mr. Durham or anyone else. Lines of credit are a legitimate financial product and are never considered income to the borrower. The products are also not obscure or rare in the marketplace. Attachment 41 shows an advertisement for this type of loan through Bank of America—the nation’s second- largest financial institution headquartered in Charlotte, N.C. The concept is the same with the Promissory Note/Line of Credit. (see Attachments 7 and 41) Using the cash basis of accounting, no interest would be reportable until interest is realized and thus no interest would need to be reported. ‘Mr, Durham has always held that the Promissory Note/Line of Credit must be repaid because such action is consistent with the nature of loans. The flawed notion that Mr, Durham’s Promissory Note/Line of Credit fails as an investment under the non-statutory “personal use theory” (due to Mr. Durham using the loan proceeds for personal expenses) ignores the fact that “L.W.P”—an investment deemed legal by the Report—similarly used funds from Mr. Durham’s campaign to pay expenses of its pharmacy business, In fact, virtually any investment requires third parties to exercise control over funds for their own purposes, Banks loan money to many persons and entities that are not engaged in banking but the eventual use of the loaned funds does not change the predetermined nature of the loan transaction. Our position remains that the funds were intended to generate revenue for the campaign and thus the arrangement satisfies all applicable statutes. Response to Finding #12 (cont'd) ‘The following headings refer to sections which appear in the Report but not the Show Cause: Volunteer Values PACDrew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 57 This is the third Finding to reference the same activity. Any further information represents an unnecessary restatement of information previously submitted. Durham PAC Please be clear that the $4,136.53 was contributed to the campaign account because the Report states the funds were contributed to Mr. Durham. This is untrue. RECOMMENDATION TO CANDIDATE Mr. Durham is willing to correct any errors on his reports which occurred. Due to the very broad timeline of the audit, established Registry precedent and Mr. Durham’s lack of previous dealings with the Registry, we believe Mr. Durham should be allowed to correct disclosures, pay off any Promissory Note/Line of Credit balance, place any other necessary funds into the correct accounts and receive no further action. ‘The current difficulty in amending disclosures is that we are not in agreement with the assertions found in the Report and Show Cause regarding a wide array of transactions. Paragraph 1: Mr. Durham is happy to add contributions which were missing but reimbursement amounts Mr. Durham mistakenly left in the campaign account are not contributions and must be deducted from that he owes the campaign. Anything less would be inconsistent and extremely unfair to Mr. Durham, Paragraph 2: Mr. Durham is happy to add interest that has been generated by the campaign but his campaign has chosen to use the cash method of accounting rather than the accrual method. Mr. Durham has calculated the $1,637.50 as an expense in his formula of what he must pay the campaign. Paragraph 3: Mr. Durham has provided online contribution records which should rectify much of any discrepancy. Mr. Dutham is willing to correct any contributions which were mistakenly reported but this is not the case for most transactions. (see Attachment 12) Regarding the $6,500 noted in Finding 5, the donor’ intent was for the $10,000 check from “K.D.” to first enter the PAC, The same ultimate result occurred. If the Registry so desires, Mr. Durham can transfer funds into the PAC and move them back into the campaign. The $500 check was correctly listed as a campaign contribution because that was the intent of the donor. Any other characterization would conflict with statute. Paragraph 4: Mr, Durham often went above and beyond to accurately disclose who contributed money to him but—even to the detriment of greater transparency—he is willing to make any corrections deemed necessary. Paragraph 5: Contributions in excess of individual limits were never solicited nor accepted. The only instances the Report mentions represent either a bank employee error, rigid interpretation ofDrew Rawlins Bureau of Ethies and Campaign Finance Registry of Election Finance May 1, 2017 Page 58 acheck memo line or Mr, Durham not being aware of a non-statutory and non-punishable rule that candidates cannot accept separate contributions through the same financial instrument even if the contributions are intended for a campaign and PAC controlled by the same person. We are surprised this situation did not transpire more often. Mr. Durham is aware of other candidates who accept checks written in this manner, As previously explained, the individuals listed as contributing a greater amount than legally allowed did not intend to do so and thus any excess contributions lacked the appropriate intent to be considered contributions to the campaign. Paragraph 6: We are fine with this but there are many disputed expenses/credit line transactions. Paragraph 7; We are fine with this but many disputed expenses/credit line transactions exist. Paragraph 8: We are fine with this. Paragraph 9: We are fine with this. Paragraph 10: This issue is primarily due to hiring an accountant to submit one disclosure who used the accrual method of accounting rather than the cash method. RECOMMENDATION TO REGISTRY As this Response proves, Mr. Durham has provided this situation the utmost attention, respect, and professionalism—and he deserves no less than the fairest and most consistent judgment possible for a similar candidate with zero past history before the Registry. We realize the media influence encouraging Registry members to abandon professional integrity and punish Mr. Durham in a manner inconsistent with the treatment given to other candidates— but we urge Registry members to resist such improper influence. Consistent with past matters before the Registry, Mr. Durham should be permitted the opportunity to spend countless hours correcting his disclosures and prevent any further penalty for errors which were never brought to his attention prior to the initiation of the audit. We support the notion that any interest or reimbursed funds which inadvertently were moved to the incorrect account should be returned—but please also remember the funds Mr. Durham mistakenly left in the campaign for reimbursements and deduct such proceeds from the amount which must be returned. RESPONSE TO OVERALL AUDIT PROCEDURE, REPORT AND SHOW CAUSE Despite several valid legal concerns and despite being subjected to an unprecedented four-year audit, Mr. Durham and his advisors have devoted enormous time, energy and effort, fully responding to each issue found in both the Report and Show Cause.Drew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 59 ‘With only slight corrections necessary, the Report and Show Cause indicate that Mr. Durham's reports contain over 95% of all contributions generated by his campaign and over 87% of all expenditures. Given the length of the audit period—and the $576,715.42 in transactions which occurred—any amounts mistakenly moved to Mr. Durham’s personal account are miniscule, representing an aggregate total of $2,808.43. ‘The Report shows Mr. Durham reimbursed himself $416.84 too little and is entitled to subtract this number from the amount he owes the campaign. (see Attachment 10) In the absence of a Promissory Note/Line of Credit, some items found in Finding #8 would have conflicted with state campaign finance laws—but a Promissory Note/Line of Credit existed. The entire four-year total represents an aggregate number of only $4,390.31. Mr. Durham made $3802 in cash submissions to the campaign for purposes of the Promissory Note/Line of Credit and thus his advisors calculated this amount into the balance he paid the campaign. Pursuant to the Promissory Note/Line of Credit, Mr. Durham took a draw of $25,000 from the campaign and quickly repaid $5,000 in a check which included the words “loan repayment” in the memo line. Mr, Durham planned to make further payments towards the Promissory Note/Line of Credit balance in summer or fall of 2016 but prudently awaited the conclusion of the Registry process. (see Attachment 45) Mr. Durham is entitled to reimburse himself $20,000 for legal services incurred while attempting to protect his position in the House of Representatives. This is not the same type of legal services incurred for other matters and only refers to the Attomey General investigation launched by Speaker Harwell for the specific and publicly stated purpose of removing Mr. Durham from his legislative seat. (see Attachment 5) Jenkins v. Commissioner holds that some taxpayers can deduct expenses made pursuant to protecting their individual reputations—and due to the intertwined nature of candidates and their reputations—Mr. Durham is entitled to reimburse the proportional amount of any legal services used in responding to Registry matters. The expense also fits a valid “expenditure” found in T.C.A. 2-10-102. But because the amount is not yet determinable, this expense is not factored into our calculations. (see Attachment 10) After adding and subtracting the foregoing amounts which originated from over $576,715.42 in transactions, the balance represents an amount so small that it can only be considered nominal. Excluding interest Mr. Durham will pay for certain Promissory Note/Line of Credit transactions, the balance Mr. Durham owes the campaign is only $2,980.59—and Mr. Durham has already rendered a check to his campaign for such amount. (see Attachment 54)Drew Rawlins Bureau of Ethics and Campaign Finance Registry of Election Finance May 1, 2017 Page 60 Registry members may feel compelled to satisfy media pressures and punish Mr. Durham—but such passion would be better placed pursuing stronger campaign finance laws. As this Response demonstrates, Tennessee laws regulating campaign expenditures are extremely relaxed and the subject may present a worthy cause for the General Assembly to consider. This Response should provide a workable starting point for anyone wishing to produce comprehensive campaign finance reform for the sake of providing greater clarity and accountability for future candidates and the public at large. ‘When interpreting existing laws or drafting potential campaign finance laws, it is critical to understand the importance of T.C.A. 2-10-210. ‘The law essentially states that—at least for punishment purposes—any action taken by @ candidate must be considered sufficient unless a specific statute states otherwise. (see Attachment 15) So long as this law remains in effect, the Registry can only enforce the relatively small number of specific requirements or prohibitions found in statute—and thus campaign finance laws must contain exhaustive lists of actions that possess punishable consequences. Another idea would be to alter T.C.A. 2-10-210 and allow the Registry to develop and maintain non-statutory rules which—subject to other statutory provisions— still possess the force of law but don’t require legislative approval for each individual addition ot omission, ‘The legislature has granted such rule-making authority to various other agencies. (see Attachment 15) We hope this Response is useful to both the Registry and third parties. ‘Thank you for your consideration, Sincerely, TUNE, ENTREKIN & WHITE, P.C. py AAD Pires. Peter J. Strianse ce: Jeremy Durham Attachments: as stated