Smart v. Stupid
Unraveling Cain’s money laundering scheme
Newt Gingrich does it. Ron Paul does it. Running for president in order to raise expense money isn't news. But Herman Cain has adopted an entirely new strategy for converting campaign contributions to other uses. Cain's tactic is a way to convert campaign contributions directly into personal cash — sell your product to yourself.
Bloomberg reports that the Cain campaign spent $36,511 on books and $64,000 on other expenses to a company named "THE New Voice Inc." THE New Voice Inc. is solely owned by Herman and Gloria Cain.
Of course it's not quite that simple. Herman Cain's corporation (that exists to promote Herman Cain) is selling Herman Cain's books (that were written to promote Herman Cain) to Herman Cain's campaign (which some argue was created to promote Herman Cain's books.) Sheesh! No wonder this guy speaks in the third person so much.
"They are buying my books and my pamphlets," one Herman Cain told Bloomberg of another Herman Cain. Is his use of "they" an indication of something to hide? Are we to believe no Herman Cain had anything to do with the insider deal? C'mon, Herman Cain's. Seriously?
Unraveling the nature of this money laundering scheme (which might turn out to be sort of – but not entirely – legal) requires some understanding of the book publishing industry, a little knowledge about the Federal Elections Commission, a look inside Cain's company, "THE New Voice, Inc.," and at least a dab of inference, since Herman Cain won't speak candidly about what he bought from Herman Cain.
Why wouldn't Herman Cain buy discounted author-distribution copies directly from his publisher?
In traditional publishing, a publishing house can't sell directly to bookstores – the big giants like Barnes and Noble and the late Borders don't allow it, and the cost of servicing small independents is just too high. So publishers sell through book wholesalers, one of the largest being Ingram Book Company. Ingram buys books for 35-40 percent of the cover price, marks them up 15-20 percent and order-fulfills them to bookstores. Cain's publisher, Simon and Schuster, has its own wholesale division — with roughly comparable wholesale pricing.
Here's why this matters: Every author's contract specifies a price for buying author-distributed copies. It falls somewhere between the distributor cost and the bookstore cost — 35-60 percent of the cover price. In the case of "This is Herman Cain" he can buy copies of the $25 book for somewhere between $8.75 and $15, probably closer to the lower amount since Amazon currently retails it for $15.
Cain's company offers the book for the cover price of $25 on its website. If Cain's campaign paid more than Cain's company, paid inflated shipping, or paid a handling charge, he violated campaign finance law.
Is Herman Cain breaking the law?
Bloomberg asked Bill Allison, of the electoral watchdog group the Sunlight Foundation, if the transactions deserve further investigation. "All candidates publish books and they offer them as premiums to donors, but most candidates aren't buying them from their own companies," he said. "It raises the question of his campaign contributions ending up in his own pocket." Making a profit from your campaign is a no-no.
I can't remember a recent case where the candidate was so brazenly putting money directly in his own pocket. Even that dipsy-doodle Christine O'Donnell was using it to pay her rent. Cain deliberately created a strategy to turn donations into cash. Diverting campaign donations directly into one's bank accounts represents a whole new level of audaciousness.
Is Herman Cain unaware of the law? And what happened to that resident agent guy?
THE New Voice Inc. has always listed only two corporate officers, Herman and Gloria Cain. But since its founding in 2004 and up until 2011, it listed Stefan Passantino as its resident agent. Passantino is the Washington, DC Partner for McKenna, Long and Aldridge, the firm that filed THE New Voice Inc.'s original incorporation. And yes, it's unusual for a large-firm partner to be anyone's resident agent.
Passantino, however, is not your ordinary business lawyer. It turns out he's the "head of McKenna Long & Aldridge's Political Law Team." According to the company website, he specializes in "state and federal election law, campaign finance, pay-to-play and lobbying laws, and ethics issues." Not your typical resident agent. So why, after serving Cain's company for six years, did he disappear from corporate filings just before Cain started running for office? Did this election law expert see something that caused concern? Certainly, insider dealing would raise red flags, wouldn't it?
I smell a RICO case, you crazy Herman Cain's. Don't say I didn't warn you. All of you.
Correction: An earlier version of this story said Barnes and Noble was out of business. The recently expired bookstore chain is Borders.
Jimmy Zuma splits his time between Washington, D.C. and Tucson. He writes the online opinion journal, Smart v. Stupid. He spent 5 years in Tucson in the early ‘80s, when life was a little slower, swamp coolers were a little more plentiful, Tucson’s legendary music scene was in full bloom, and the prevailing work ethic was “don’t - unless you have to.”