By Sam Youngman
Tea Party groups supporting Matt Bevin’s bid against Senate Minority Leader Mitch McConnell said they are satisfied with Bevin’s explanation for signing a document that praised the federal bank bailout of 2008.
But lawyers who have worked with and against the Securities and Exchange Commission take issue with the explanation, expressing surprise and dismay that Bevin claimed to not have agreed with the content of a letter to investors that he signed.
Earlier this week, Politico reported that Bevin had signed a letter to investors of Veracity Funds in which he and investment manager Dan Bandi wrote that the $700 billion Troubled Asset Relief Program, widely considered the first bailout of the global economic collapse, had been a “positive” development for the markets.
Bevin, who has repeatedly criticized McConnell for supporting the bailout, responded to the report by saying that he has always opposed the bailout and that he had not written the letter but only signed it. He also said he thought it would be illegal for him to change the content of the letter.
But allies of McConnell, and attorneys versed in SEC law who are not connected to McConnell, told the Herald-Leader that Bevin could have changed the letter to investors without changing the facts and figures in the accompanying prospectus, which would have been illegal.
Additionally, similar letters to investors obtained by the Herald-Leader show that Bevin sometimes signed the letters and sometimes did not, raising questions about why he thought he needed to sign the letter in question.
Bevin’s explanation that he signed a letter to investors even though it contained opinions contrary to his own is “very odd,” said Mike Edney, a partner at Steptoe and Johnson who represents clients in SEC matters.
“These investment funds, when they issue prospectuses and semi-annual reports, like the one I saw (from Bevin), they’re meant to reassure investors and attract new ones,” Edney said.
He said Bevin had not signed just to say the prospectus was accurate, as required by law, but that he also signed the letter to investors “directly.”
“That’s really meant to put his weight behind those reports,” Edney said. “I was a little surprised he tried to pin it on his investor and walk away.”
Michael Hawthorne, a former Louisville attorney who specializes in securities law for Coburn Thompson in Washington, said Bevin certified to the SEC that his report to investors “does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made … not misleading.”
Given that the bailout improved most of the fund’s investment portfolios, it’s unlikely that one of Bevin’s investors lost money as a result of the prospectus and the accompanying letter. If they had, Bevin’s claim that he was not vouching for the validity of the content in the letter could make him a target for a lawsuit from an unhappy investor, the attorneys suggested.
Bevin spokeswoman Rachel Semmel said in a statement Thursday that “these are just more silly attacks from McConnell and his allies.” She did not explain why Bevin chose to sign some investor letters but not others. Emails sent to Bandi seeking comment were not returned.
A database search of the Federal Election Commission fundraising website doesn’t show any contributions to McConnell or his allied political action committees from either Edney or Thompson.
Publicly questioning whether Bevin really opposed the 2008 bailout fits the narrative that McConnell’s campaign has tried to build around Bevin — that he is only pretending to be a true conservative — but the revelations in Politico were ill-timed for the senator.
Just a day later, McConnell was forced to lead a handful of other Senate Republicans as they voted with Democrats to cut off debate on a “clean” debt ceiling bill, sparking the fury of Tea Party groups.
“He is pushing this now to cover up his effort to raise the debt ceiling yesterday without one cent of spending cuts,” Semmel said Thursday. “Kentuckians are rightly outraged by that vote, so now he has to go on the attack.”
Meanwhile, Tea Party groups allied with Bevin accepted his explanation about the investor letter and quickly moved on to McConnell’s vote on the debt ceiling debate. They also blasted McConnell for his decades-old recommendation to President George H.W. Bush that he appoint John Heyburn II to a federal judgeship. Heyburn ruled this week that Kentucky must recognize same-sex marriages performed in other states.
The United Kentucky Tea Party sent out a statement condemning the original story in Politico.
“After reading the Politico article, speaking with Matt Bevin and researching the facts, we are firmly convinced that the article has absolutely no merit and that this was a deliberate and unfounded smear attack by Politico,” said Scott Hofstra, spokesman for the United Kentucky Tea Party.
But Washington attorney Chuck Cooper, former assistant Attorney General under President Ronald Reagan, said when the Sarbanes-Oxley law passed in 2002, then-SEC Chairman Chris Cox said that one of its “hallmark” achievements was that it “implemented the corporate equivalent of President Truman’s oft-cited aphorism ‘the buck stops here.'”
Cooper said he is a supporter of McConnell and that the two men have worked together on issues in the past, but that “doesn’t have anything to do with how I read the black-and-white statements.”
“(Bevin’s) explanation for the inconsistencies raises gravely serious questions,” Cooper said. “In my opinion, it would be very wise for Mr. Bevin to consult lawyers before he makes any more public statements on this issue.”