July 26, 2006

The Honorable George Voinovich, Chairman
The Honorable Tim Johnson, Vice-Chairman
Senate Select Committee on Ethics
220 Hart Senate Office Building
Washington, DC 20510

RE: Ethics Complaint Regarding the Public Financial Disclosure Report of Candidate Claire McCaskill

Dear Chairman Voinovich and Vice-Chairman Johnson:

This is an official complaint to the Senate Select Committee on Ethics (“Senate Ethics Committee”) regarding the failure of Claire McCaskill, candidate for the United States Senate from Missouri, to comply with the provisions of Senate Rule 34 and federal law (5 U.S.C. app. §§101-111) governing ethics and official conduct of candidates and members of the United States Senate, specifically with respect to Ms. McCaskill’s Public Financial Disclosure (“PFD”) Report(s). This complaint is filed in accordance with the statutory power vested in the Senate Select Committee on Ethics to administer the financial disclosure requirements imposed by statute and the rules of the United States Senate. See 5 U.S.C. app. §§106, 111 and Rule 2(a) of the Senate Ethics Committee governing Complaints for violations of Senate Ethics Rules and the Ethics in Government Act (5 U.S.C. app. §§101-111). I am filing this Complaint in my capacity as an individual citizen and voter in the State of Missouri and on behalf of the Missouri Republican Party, for which I serve as Executive Director.

The Senate Ethics Committee is authorized to investigate and take remedial action regarding Ms. McCaskill’s PFD, pursuant to 5 U.S.C. app. §104 (c).¹

In October 2005, Ms. McCaskill was granted an extension of 90 days to file her initial required candidate PFD, such that her first PFD report was not filed until January 17, 2006. Following the initial filing, the Senate Ethics Committee advised Ms. McCaskill on two separate occasions that her filings were incomplete in several respects and apparently requested additional information. Ms. McCaskill has not released publicly the letters sent from Senate Ethics to Ms. McCaskill, but in the now-public documents it is apparent that Ms. McCaskill did, in fact, receive two letters from Senate Ethics requesting additional information, which information was purportedly provided to the Senate Ethics Committee in April and again in June 2006. See attached Exhibit A.

This is to request that the Senate Ethics Committee require Ms. McCaskill to fully and completely comply with the requirements of federal law and Senate Ethics rules to remedy the errors and omissions that are still apparent from Ms. McCaskill’s yet incomplete PFD.

There is a basic, underlying problem with Ms. McCaskill’s PFD which undermines the very purpose of the Senate’s financial disclosure requirements. Ms. McCaskill has failed to provide even the bare minimum information regarding her family’s assets, income and liabilities, and where such information is provided at all, in many instances, it is still incomplete and is not in compliance with Senate Ethics Rules and the federal law governing financial disclosure. The complexities of Ms. McCaskill’s family holdings are more pronounced than usual because of the deliberately complicated manner in which her family’s business holdings are constructed.

In order to facilitate the full disclosure of her family’s finances and in keeping with the requirements of federal law and Senate Ethics Rules, the Senate Ethics Committee must receive the following information:

1) Specific Identification And Disclosure of Each Parcel of Real Estate. All real estate in which Ms. McCaskill and/or her spouse have any ownership interest should be specifically and separately identified, along with the use or type of the property (i.e., apartments, senior citizens housing, rural low-income housing, etc.) the ownership of each physical property, the city and state of its location, together with the percentage interest owned by Ms. McCaskill and/or her spouse, the gross, actual income associated with each physical property and the liabilities associated with each physical property, per the Senate Ethics Rules and federal law. See 5 U.S.C. app. §102(a)(3).

2) Disclosure of All Government Issued Tax Credits. Government issued and/or supported tax credits related to Ms. McCaskill, her spouse, or any of their respective assets, which may be held by those assets (or underlying assets of her family’s myriad holdings) have not been disclosed. There are public records confirming the existence and ownership by Ms. McCaskill’s spouse of such tax credits but none are identified or disclosed on the McCaskill PFD.

3) The Proper Valuation of The Real Estate Assets Held By Ms. McCaskill and/or Her Spouse, Directly or Indirectly. Senate Ethics Rule 34 and 5 U.S.C. app §§102(a)(3) and (a)(8)(d)(2) require that real estate interests be disclosed and their value reported at (a) the assessed value for tax purposes adjusted to reflect current market value if the assessment is computed at less than 100% of current value, with a description of the method used to determine this value and a listing of the actual, not the category of amount); or (b) the actual purchase price of the real property and the date of purchase (both should be listed on the form). See Senate Ethics Rule 34, Senate Ethics Manual, Chapter 5, p. 129. The reported value is required to be that established within 31 days of the close of the reporting period.

4) Disclosure of Liabilities, Including Government Financing of Properties. A substantial portion not only of the assets, but also the liabilities appearing on Claire McCaskill’s PFD derive from federal (and state) government financing programs, and must be publicly disclosed. See 5 U.S.C. app. §102(a)(4)

5) Disclosure of The Legally Required Information Property By Property. The Senate Ethics Committee must require the identification of each non-publicly traded asset by specific physical property in order to obtain from Ms. McCaskill anything approaching full and complete disclosure of her family’s financial holdings, income, liabilities and potential conflicts of interest. In order to comply with the provisions of 5 U.S.C. app. §102(a)(3) each parcel of real property should be publicly identified as required by law.

To demonstrate why it is necessary for the disclosure to be submitted according to each physical property, let us take one of the hundreds of partnerships reflected on Ms. McCaskill’s PFD, Festus Associates I, LP (limited partnership) and review the overly complex ownership of the asset as well as the failure of the McCaskill PFD to comply with Senate Ethics Rules requiring a complete accounting and disclosure of each specific asset, its value, income, liabilities and potential conflicts of interest presented.

The following outline traces the issues involving just one of Ms. McCaskill’s family assets (See attached Exhibit B):

Festus Gardens Apartments

Issue #1: Overlapping ownership(s) of entities associated with or created by Ms. McCaskill’s husband:

• Festus Associates I, LP was created on October 7, 2003.
• Registered Agent: Kenneth M. Vitor, who is the long-time business partner of Ms. McCaskill’s husband, Joseph A. Shepard.
• General Partner of Festus Associates I, LP is Festus GP LLC.
• Festus GP, LLC created/registered the same day, with Kenneth M. Vitor also as registered agent of Festus GP, LLC.
• Kenneth M. Vitor and Festus GP LLC list addresses as 103 West Lockwood, Webster Groves, MO.
• The 103 West Lockwood, Suite 219, Webster Groves, MO / St. Louis, MO 63119 is one of two primary addresses for hundreds of business entities related in some way to Ms. McCaskill’s husband; the other address used by various related entities is 17 W. Lockwood, St. Louis, MO 63119.
• Mr. Shepard formed The Lockwood Development Company, LLC, in 1995, the name of which was changed in 2001 to Capstone Development Group, LLC, and lists Kenneth Vitor, as registered agent. Both entities reflect an address of 17 W. Lockwood, St. Louis, MO 63119, which is one of the two addresses from which Mr. Shepard conducts his myriad of business ventures with Mr. Vitor.

Issue #2: Application and receipt of Missouri Housing Development Commission funding, tax credit(s) and/or loans (none of which are disclosed on the McCaskill PFD):

• On Nov. 7, 2003, the Missouri Housing Development Commission published a list of rental production proposals from various Missouri developers. Capstone Development Group, LLC (“Capstone”) submitted proposals for numerous projects, including the Festus Gardens Apartments complex in Festus, MO.
• On January 26, 2004, the Missouri Housing Development Commission announced the awarding of funding/tax credits for various applicants, including rehabilitation of Festus Gardenss Apartments, developer Capstone, in the amount of $371,929 in 4% bond/tax credits and $1.5 million in HOME financing (a federally subsidized program operated through the Missouri Housing Development Commission).
• Four days later, on January 30, 2004, the Missouri Tax Credit Fund, LP was established, with Joseph A. Shepard as registered agent. The general partner for the Missouri Tax Credit Fund partnership is Missouri Equity Investors, LLC, created on the same day as the Missouri Tax Credit Fund.
• Mr. Joseph A. Shepard is the registered agent and organizer for both entities and the address for both is the 17 West Lockwood, St. Louis, MO 63119 address, one of the two addresses from which Mr. Shepard conducts his myriad of business ventures with Mr. Vitor.
• Then, approximately four months later, on May 19, 2004, Festus Gardens Apartments were sold to Festus Associates I, LP with financing from a $5.8 million Missouri Housing Development Commission loan and an additional $1.5 million in HOME financing.
• No tax credits appear as assets related to Festus Associates I, LP on the McCaskill PFD.

Issue #3: Liabilities / debts associated with Festus Gardens Apartments publicly filed/recorded, but not disclosed on McCaskill PFD:

• July 7, 2004: The Bank of Washington in Washington, Missouri, filed a UCC-1 financing statement securing a loan to the Missouri Tax Credit Fund with collateral owned by the Missouri Tax Credit Fund, among which is Festus Associates I, LP (which owns Festus Gardens Apartments), and further secured by the tax credits granted by the Missouri Housing Development Commission related to several properties, including the Festus Gardens Apartments.
• On September 29, 2004, the Missouri Housing Development Commission filed a UCC-1 to secure its loan to Festus Associates I, LP for financing related to the Festus Gardens Apartments.
• Ms. McCaskill discloses no debt or other liabilities associated with Festus Gardens Apartments, notwithstanding the UCC-1 filings and the public records of the Missouri Housing Development Commission related to the Festus Gardens Apartments loans, bonds, and/or other financing.

Issue #4: Value of Festus Garden Apartments: The public records vs. ‘no value’ reflected in McCaskill PFD:

• Ms. McCaskill discloses in her PFD that the value of Festus Associates I, LP (which owns Festus Gardens Apartments) is less than $1,000.
• According to the Jefferson County Assessors records, Festus Gardens Apartments reflect the following valuations:

Market Value Year: 2005
Total Market Value: $ 3,847,400
Land Use: APARTMENTS (5+ UNITS)
Assessment Year: 2005
Total Assessed Value: $ 748,700

• Senate Ethics Rule 34 specifies the manner in which real estate assets are to be valued for purposes of disclosure on the PFD, yet Ms. McCaskill has ignored the rules for disclosure of the value of real estate assets.

Issue #5: McCaskill PFD reports no income from the real estate.

• On her PFD, Ms. McCaskill discloses income of less than $201 related to Festus Gardens Apartments.
• However, Festus Gardens Apartments publicly states that its 160 units are completely occupied with a two year waiting list, with monthly rent for the units ranging from $498 to $692 per unit.
• Festus Gardens Apartments generate at least $956,160 per year in revenue from its rental units, if every unit is rented only at the minimum rental amount, yet McCaskill’s PFD reflects no income from the property.

This is only one of hundreds of partnerships associated with Ms. McCaskill’s husband that own various parcels of real estate. These assets are revenue-producing real estate, with actual value and income and liabilities, but none of them are properly, clearly or accurately reported by Ms. McCaskill in her three filings with the Senate Ethics Committee.

Each parcel of real estate owned by Ms. McCaskill and/or her husband has yet to be properly disclosed to the public and the Senate Ethics Committee.

Other Violations Contained in McCaskill PFD

The example above demonstrates the lack of adequate disclosure with just one asset. Although there are numerous questions which arise from the incomplete and apparently deliberately misleading PFD and Ms. McCaskill’s public statements, the most immediate areas of concern with the report are the following:

1. Failure to disclose the valuations and income of 39 previously undisclosed assets.

When Ms. McCaskill filed her initial PFD on January 17, 2006, she failed completely to list 40 non-publicly traded assets. Nor did Ms. McCaskill disclose the existence of those assets in her 2nd filing on April 14, 2006. Only after the second letter from Senate Ethics did Ms. McCaskill disclose the existence of 39 assets. See “McCaskill Finances Examined” by Matt Stearns, (Kansas City Star, Monday, July 10, 2006). Yet, the previously undisclosed assets do not contain any income or asset valuation associated with each asset as required by Senate Rule 34.

Ms. McCaskill’s campaign’s statements as to why those 40 assets were previously not disclosed were that the assets “didn’t meet the minimum value that require reporting or were entered into after the initial filing was made in January.”

Obviously, this statement is false. Of the 39 assets not disclosed in January or April, at least 36 existed prior to Ms. McCaskill’s January filing, according to publicly available documents, including Articles of Organization on file with the Missouri Secretary of State, Kansas Secretary of State and Ms. McCaskill’s husband’s 1995 divorce records. See attached Exhibit C.

Of the remaining assets disclosed in June, but not in the January or April filings, there are questions surrounding each of those as well. According to the June amended filing, Eight Start Investors is listed as a Missouri entity and Riverton Housing is listed as existing in Riverton, Illinois, but there is no public record in either state reflecting the existence of such an entity.

Raymond James IV is identified as a St. Petersburg, Florida asset, a limited partnership engaged in “affordable housing.” However, Raymond James is a national brokerage and investment firm. This appears to be an investment fund of some type. Unless this asset is an Excepted Investment Fund as defined in 5 U.S.C. app. §102(f)(8), the underlying assets of this investment/asset must be publicly disclosed, along with the required and accurately calculated income and valuation information.

Because these assets were omitted in January and April, and no income or valuation information was included in the June filing, at present, there is no income or valuation information for any of the 40 assets not included in the January PFD report, contrary to the statements accompanying Ms. McCaskill’s June filing. The income and asset valuation for each of these previously undisclosed assets is required by law to be publicly disclosed and, to date, Ms. McCaskill has failed to comply with that provision of law. Ms. McCaskill should be required to immediately disclose the legally required information.

Finally, with respect to the assets omitted until June, there are five (5) assets identified as Missouri entities which, according to records on file with the Missouri Secretary of State, have long since been dissolved: Kansas City Affordable Housing L.P. (dissolved on December 18, 2001), Lacygrie Associates I, L.P. (dissolved March 17, 2005), Missouri Rural Housing of Pleasant Hill, L.P. (dissolved on December 23, 2004), Park Glen Echo Associates, L.P. (dissolved on December 23, 2004) and Scott City Associates II, L.P. (dissolved on December 23, 2004).

All of which raises a serious question as to what exactly is the correct information regarding Ms. McCaskill’s finances?

Filing reams of paper does not substitute for compliance with the law. At present, the filing of many pages of documents, whether or not the information is accurate or complete or legally compliant, seems to be the method preferred by Ms. McCaskill as her approach to the disclosures required by federal law. The Senate Ethics Committee must remedy this situation.

2. Ms. McCaskill has wholly failed to disclose the liabilities associated with each asset and underlying asset identified on the PFD as required by law.

One of the primary reasons for the existence of personal financial disclosure requirements for candidates and members of the United States Senate is to allow the public to know what entities and persons may have influence on a member of the United States Senate by virtue of the liabilities owed by a member, his/her spouse or dependent child to any other person or entity.

Senate Rules and federal law both require that the liabilities, specifically business liabilities associated with a reporting individual’s business assets be disclosed on Part VII of the PFD.

The only liability disclosed on Ms. McCaskill’s PFD is a line of credit valued at $1 million or more with Enterprise Bank of St. Louis, Missouri, which discloses a borrowing rate which is available only to key customers, normally large borrowers, from a banking institution. Yet, neither Ms. McCaskill nor her husband disclose a large depository account at that financial institution. Ms. McCaskill discloses no bank account at any bank and her husband’s depository relationship with Enterprise Bank discloses an account valued at between $1,001 and $15,000.

The example related to Festus Gardens Apartments clearly demonstrates that not only are there liabilities not disclosed, but further, there are obviously other public records which demonstrate that the McCaskill family fortune and income is derived in large part from programs related to state and federal loans, grants, subsidies and other programs sponsored or administered by a variety of federal agencies.

Inasmuch as Ms. McCaskill seeks election to the United States Senate, the disclosure of the exact nature of her family’s borrowings involving federal programs and any relationships she or her husband may have with any federal agency are vitally important for the voting public to know well in advance of the November election. In addition, Ms. McCaskill’s use of state and federal subsidies for personal gain merit review by the taxpayers.

Ms. McCaskill is legally obligated to disclose this information in order to assure that there is no question about potential conflicts of interest that may impact her service to the citizens of the state of Missouri. To date, Ms. McCaskill has failed to disclose this required information in any manner whatsoever and the Senate Ethics Committee must not allow her to ignore the law in this regard.

3. Ms. McCaskill has failed to properly disclose the actual income received from each asset as required by federal law.

The PFD reflects 192 assets virtually all of which own, manage, and/or operate various housing units subsidized by federal and state government financing which, according to Ms. McCaskill, have little or no value and generate less than $201 in income. See attached Exhibit D.

Presumably, these are housing units in which people live and for which premises the individuals are required to pay rent. There are loans and other liabilities associated with the properties, although not reported on the PFD. It is, therefore, inconceivable that Ms. McCaskill’s statements that no income has been received from or by these assets could possibly be true.

According to a statement accompanying the January 17, 2006 filing, the valuations and income relied upon for the PFD are the Internal Revenue Forms K-1 for the myriad partnerships identified in the various versions of the PFD. However, taxable income is not the correct amount required to be reported under Senate Ethics rules. The actual income is the amount that is required to be disclosed rather than the ‘taxable’ income which, apparently, has been calculated using depreciation and other tax provisions to reduce the tax liability on partnership income. If, as stated in the PFD, the income reported is the taxable rather than the actual income, that is incorrect and a violation of the Senate Ethics rules.

Ms. McCaskill has refused to publicly release the tax returns and accompanying Form K-1s for herself, her husband and their various interests, such that it is not possible for the public to compare the information relied upon by Ms. McCaskill for preparation of the PFD to insure that the actual income has been properly reported.

I hereby request that the Senate Ethics Committee utilize its subpoena power to obtain whatever documentation is necessary to insure that Ms. McCaskill is complying with federal law and reporting actual income associated with each and every asset identified in her PFD.

Further, the reporting period for a new candidate is “the preceding calendar year and the current calendar year through the date of filing.” If Ms. McCaskill has failed to include calendar year 2004 in her report by extending her initial filing date from 2005 until 2006, the Senate Ethics Committee should not allow such a sleight of hand to avoid disclosure of her financial information for the full two-year reporting period.

4. Ms. McCaskill has failed to identify her family’s percentage ownership interest in each of the assets identified on her PFD.

Senate Ethics rules require that all assets included in a PFD disclose the percentage of that asset owned by the filer. Filer(s) include not only the candidate, but also, her spouse and dependent children.

The seemingly complex array of interests owned by Ms. McCaskill’s husband demand greater disclosure and clarity in order to fully disclose what is owned, by whom, how much, and the other information required by law.

For instance, attached is Exhibit E, which lists the various ‘assets’ on the amended McCaskill PFD of June 2006, which are referenced more than once as owning or being owned by other underlying assets. There are 153 assets/underlying assets which appear more than once on the McCaskill PFD, nine of which appear twenty times. The PFD does not provide the information which would clearly disclose the percentage of ownership that is ultimately vested in Ms. McCaskill and/or her spouse, which is the requirement of the Senate disclosure rules.

The public has a right to know what exactly Ms. McCaskill’s husband owns and the percentage and value of his ownership in each asset. The present filings are clearly inadequate and do not comply with Senate Ethics rules.

5. Ms. McCaskill’s PFD discloses an ownership interest in an off-shore company, Rural Housing Re-Insurance Co. of America Ltd., located in Bermuda. Additional information regarding this asset should be disclosed.

According to published reports in recent years, numerous reinsurance companies have been established off-shore in Bermuda to provide tax shelters for the companies and their owners. See “Bermuda Move Allows Insurers To Avoid Taxes” by David Cay Johnston and Joseph B. Treaster, (The New York Times, March 6, 2000).

Clearly, full and accurate information regarding Ms. McCaskill’s husband’s interest in the Bermuda reinsurance company is a subject that should be disclosed to the public in the format required by the Senate Ethics Rules.

While Ms. McCaskill has failed to fully disclose to the Senate Ethics Committee complete information regarding the Bermuda offshore reinsurance company, her campaign has stated to a reporter that his ownership percentage is 6%. The McCaskill campaign advised the Kansas City Star “in an e-mail that Shepard owns less than 6 percent of the company, and that despite its high value, ‘the investment has never returned a dividend in the 20 years it has been in business.’” See “McCaskill Finances Examined” by Matt Stearns, (Kansas City Star, Monday, July 10, 2006).

Ms. McCaskill has now provided more information to the media than she has yet reported to the Senate Ethics Committee. No value, no income and no liabilities associated with this asset have been disclosed and the Senate Ethics Committee should require additional information regarding her husband’s interest in the Bermuda entity, information required of all others who file PFDs with the Committee.

Conclusion. In conclusion, it is imperative that candidates seeking election for federal office from the State of Missouri comply fully with the applicable laws governing public disclosure of their finances. In this instance, Ms. Claire McCaskill has utterly failed to properly, fully, completely and accurately disclose her family’s interests, debts, income, and potential conflicts of interest in violation of federal law and Senate Ethics Rules.

It is vitally important that this situation be remedied at the earliest possible date such that all necessary information be made publicly available to the citizens of Missouri as contemplated and required by federal law and the rules of the United States Senate.

Please contact me should you have any questions regarding this urgent request. The above and foregoing information is true and accurate to the best of my knowledge and belief.

Sincerely,
Jared Craighead, Executive Director Missouri Republican Party

Attachments:

Exhibit A: Documents Related To McCaskill PFD Filings

Exhibit B: Festus Gardens Supporting Documentation

Exhibit C: Chart of McCaskill Assets Undisclosed Until June 2006 and Documentation of Their Existence Prior to January 2006 PFD Filing

Exhibit D: Chart Of Assets Purporting To Generate Less Than $201 In Income

Exhibit E: Chart Of Assets Reported More Than Once On The June Amended PFD