Legal Magazine

Alabama Anti-Gambling Activist Faces Tax Burden, Thanks to Money Flow From Riley To Hubbard

Posted on the 22 February 2013 by Rogershuler @RogerShuler

Alabama Anti-Gambling Activist Faces Tax Burden, Thanks to Money Flow From Riley To Hubbard

A. Eric Johnston

One of Alabama's most prominent anti-gambling activists could face a substantial tax burden because about $1 million in campaign contributions were routed through his non-profit organization to companies owned by House Speaker Mike Hubbard (R-Auburn), sources tell Legal Schnauzer.
A. Eric Johnston, director of Citizens for a Better Alabama (CBA), says former Governor Bob Riley funneled the money through CBA to two companies owned by Hubbard, a long-time Riley ally. That revelation came in a report yesterday from Bill Britt at Alabama Political Reporter.
Britt hints at a rift between Johnston and his "pro family" organization on the one hand, with Riley and Hubbard on the other--even though all have been seen as prominent conservative voices against gambling.
The source of the rift is not clear from Britt's article. But our sources say Johnston's group might lose its tax-exempt status because it accepted funds that wound up with Hubbard's companies. That could leave Johnston with a sizable bill from the IRS, one he did not see coming. "People in Montgomery know that Eric Johnston is sweating," one source says.
Did Riley and Hubbard combine to double cross Johnston, exposing him to major tax liability? Britt's article hints at that:
How did then-Governor Bob Riley and Chairman of the ALGOP Mike Hubbard route almost a million dollars in Republican campaign contributions through a nonprofit and back to a Hubbard owned company?
“Someone from the governor’s [Bob Riley’s] office would call and say you’re getting a check for $200,000 and you’re going to get a bill at the same time from [Mike] Hubbard’s deal and you need to pay that, that is what that money is for.”
Those are the words of A. Eric Johnston a Birmingham-based attorney and anti-gambling advocate who explains the operational relationship between Bob Riley, Mike Hubbard and his 501c(4), Citizens for a Better Alabama.

Mike Hubbard was the politician who was supposed to bring honest government to Alabama? Sure doesn't sound like it from Britt's article:
The picture Johnston paints appears to be a brazen orchestration of campaign funds by a sitting governor to benefit his most faithful ally, Mike Hubbard.
Citizens for Better Alabama (CBA) was a Birmingham-based, tax-exempt group that was the public face of opposition to Sweet Home Alabama, and to shut down legal casinos operated at VictoryLand and Country Crossings. According to archived versions of its website, the CBA – run by A. Eric Johnston – has “been an advocate for the family since 1991.”

How did Johnston get into a potential tax mess? It appears he made the mistake of trusting Bob Riley:
Johnston said he had been fighting gambling for years without much help. “We really never had a knight on a white horse. . . . We just had to fight it in legislature and kill the bills.”
But according to Johnston in the last year of Bob Riley’s last term as governor that all change when the governor decided to fight gambling in the state.
According to Johnston, when Riley became interested in ridding the state of bingo gambling he was contacted by the Governor who said he wanted to help Johnston raise money.
“I don’t know why he [Riley] decided to do it [fight gambling] other than it was a propitious time to do it,” said Johnston. “Whatever he was doing was good. He was stopping illegal gambling.”

Riley's actions might not turn to be so good for Johnston's wallet. Here's why:
At the time it seemed that Johnston had found his white knight. But there was a problem, rather than making a partnership with a crusading knight, it seems Johnston had unknowingly entered into a potential devil’s bargain.
After aligning with Riley and Hubbard in 2010, CBA raised and spent over $1 million after never taking in over $50,000 in a year ever before.
Based on 2010 campaign finance and other records, the CBA was a crucial conduit for passing campaign cash through the 501c(4) into a potentially lucrative aspect of Mike Hubbard’s financial bottom-line. . . . 
Johnston said the money that his organization received was almost entirely for advertising, he said, “Mike was in that business and I thought it appropriate for him to handle it.”

Who was behind this financial shell game? Johnston points a finger squarely at Bob Riley. From Britt's report:
Money was being directed by Bob Riley, who told the head of the 501c(4) how the money was to be spent. Not just the large amounts but even the so-called small donations. “I would be informed by the governor’s office that I would be getting a check for 2 or 3 thousand dollars and we would have ad bills that cost that much,” said Johnston, “and that money would be for those bills.”
According to Johnston, “We ran a zero balance campaign. Whatever money came in was spent, a lot of it was coordinated through Mike Hubbard’s company.”

The Britt article references tax issues, but their implications are not clear:
Johnston supplied “Alabama Political Reporter” with a copy of CBA’s 990 IRS fillings. However, the document we received is different than the one that Johnston filed with the IRS, according to a comparison on Guide Star.
On the 990 fillings, Johnston does not itemize the over $700,000 he received from Hubbard’s Network PAC and Bob Riley’s Gov PAC. The rest of the money primarily originated with longtime big-money Bob Riley donors. Johnston, as the sole member of CBA, said, “I didn’t raise any money.”

I didn't raise any money? That sounds like the words of a man who is trying to say, "They should pay the IRS bill, not me."
That's exactly what is happening, our sources say. And Britt's report raises all sorts of questions. Did the Riley/Hubbard/Johnston scheme violate tax laws, campaign-finance laws? Did donors know their campaign contributions were going to Mike Hubbard's companies? Could this constitute fraud, money laundering, or other criminal acts under state and/or federal laws? Could Eric Johnston wind up serving as a witness against Riley and Hubbard?
As a way to unruffle feathers, and fend off a potential investigation, will Bob Riley's big-money donors bail Johnston out of a jam? Based on what I've been told from individuals familiar with Riley's business practices, Johnston probably shouldn't count on it.
Meanwhile, the CBA director might want to visit an emergency room to have his back checked for knife wounds--right between the shoulder blades.

Back to Featured Articles on Logo Paperblog