Ethics watchdog urges full probe of Senate hopeful Grayson

by Cristina Marcos - 04/05/16 3:23 PM ET

An independent ethics watchdog is calling for a formal investigation of Florida Rep. Alan Grayson, a Democrat running in a contested primary for retiring Sen. Marco Rubio’s seat.

The Office of Congressional Ethics (OCE) issued a 74-page report, released by the House Ethics Committee on Tuesday, that says there is “substantial reason to believe” that Grayson violated House ethics rules and federal law by managing a hedge fund while serving as a member of Congress.

{mosads}It’s one of several allegations made in the report, all of which led to unanimous recommendations for an investigation by the six-member OCE board.

The ethics problems could be a serious problem for Grayson’s run for the Senate.

Polls show a tight battle with fellow Democratic Rep. Patrick Murphy. The winner of their primary will face the victor of the crowded GOP primary for the chance to succeed Rubio, who declined to run for reelection in order to focus on his presidential campaign.

Establishment Democrats have been unhappy with the candidacy of Grayson, a millionaire liberal known to voters across the country for his often colorful criticisms of Republicans.

While liberal groups have backed his run, other Democrats would prefer that he drop out of the race as they seek to regain the Senate majority. Democrats need to gain four seats to take back the chamber if they also retain the White House.

Senate Minority Leader Harry Reid (D-Nev.) took the unusual step earlier this year of urging Grayson to drop out of the primary, mentioning the hedge fund controversy. He accused Grayson of using his position to “unethically promote his Cayman Islands hedge funds.”

Grayson responded by accusing Reid of bearing false witness against him.

“It’s pathetic that somebody would make a statement like that based upon a false accusation,” Grayson told The Hill.

In response to the OCE report, the House Ethics Committee said Tuesday it would extend its review of Grayson.

In addition to the claim that Grayson managed the hedge fund while seving in Congress, the OCE said the Ethics panel should prove whether Grayson improperly allowed entities linked to his hedge fund to use his name and whether they had a financial interest in legal proceedings involving the federal government.

It also says the panel should consider whether Grayson omitted information about his assets and income from his annual financial disclosure forms, used official resources to support his hedge fund, used official resources for campaign purposes, and benefited from contracts with the federal government as a partner in three energy-sector businesses.

The OCE also recommended the committee issue subpoenas for Victor Kubli, an attorney who worked with Grayson, and Lolita Carson Grayson, who is Grayson’s ex-wife. Both declined to assist the OCE with its investigation.

In a response to the OCE report, Grayson’s legal counsel, Brett Kappel, placed blame on OCE staffers for leaking information about the investigation to the media.

Grayson’s campaign said Murphy and establishment Democrats were behind the effort.

“The larger picture here is that the Washington political establishment has decided who their favored candidate is, and it’s not Rep. Grayson. This Murphy-instigated fishing expedition is just like the Benghazi Committee witch hunt, another taxpayer-funded political inquisition which Patrick Murphy voted with Republicans to set loose,” Grayson’s Senate campaign said in a statement.

Grayson’s campaign noted that the Ethics panel opted against establishing an investigative subcommittee. However, it could choose to form one later.

Grayson first served in the House from 2009 to 2011 and returned in 2013. During that two-year break, he worked as an attorney and created a hedge fund that remains operational.

The OCE reported that Grayson established a contingent fee agreement with a former partner at his law firm, meaning he could receive compensation from cases won by other attorneys while he served as a member of Congress. The report says that Grayson had a contingent fee interest in at least seven False Claims Act cases of “direct and substantial interest” to the federal government that were pending while he was in office.

Grayson’s business director told the OCE: “I don’t think any money came in, although you know they won, but I don’t think anything ever came in.”

The OCE also found that Grayson failed to disclose financial information about his hedge fund and ties to the law firms he operated. After his OCE interview, Grayson filed an amendment late last year to his 2009 financial disclosure to reflect more than $855,000 in income from a former law client. He further amended a 2012 disclosure form to include information about another $334,000 in income from his legal work.

The OCE report states Grayson’s hedge fund bore his name until September 2015, after the OCE began its review. It alleges that the hedge fund had a fiduciary relationship with multiple investors and that Grayson received compensation in management fees while serving in Congress.

Grayson maintains that “the fund has not generated income in general of any kind.”

The OCE report also found multiple instances in which Grayson and his staff mixed official congressional resources with campaign or business purposes.

Grayson’s congressional office manager also served as his business director. According to the OCE, that resulted in instances that “may have resulted in the improper use of official resources for unofficial purposes.”

For example, the staffer told the OCE that “on very rare occasions” she would ask Grayson to sign paperwork related to the hedge fund in the congressional office because it was her only opportunity to see him in person while in Washington.

The review also found evidence that Grayson participated in multiple media interviews focused on his Senate campaign from his congressional office, which constitutes a violation of a House rule forbidding the use of official resources for campaign purposes.

On the day he announced his Senate candidacy, Grayson appeared in a HuffPost Live video that was filmed from his Capitol Hill office.

Grayson’s communications director eventually acknowledged that “rules are pretty clear on it. Should not have happened.”

Two months later, Grayson used his personal cellphone to call into an interview with “The Nicole Sandler Show” that largely focused on his Senate campaign. Near the end of the interview, Grayson said “that buzzing that you heard in the background” was the sound of bells that ring across the House side of the Capitol complex to signal that lawmakers need to come to the floor to vote.

Grayson later told the OCE that “my guess is that it was conducted in the office. It was definitely conducted somewhere in the Capitol complex.”

This story was updated at 6:56 p.m.

Tags Alan Grayson Harry Reid House Ethics Committee Marco Rubio Office of Congressional Ethics