Rep. Nye challenger sells business, catches attention of ethics groups

A wealthy congressional candidate’s recent sale of part of his business is raising red flags among ethics groups.

Watchdog organizations say the sale of a division of Ben Loyola’s business, Loyola Enterprises, to a Swedish company could lead to questions about whether it represents an illegal campaign contribution. Loyola also must explain why the division sold for far more than he had estimated the value of his business, they said.

Loyola’s campaign said competition drove up the sale price and no violations occurred.

The groups said the case deserves, at least, an investigation.

“Either way, it’s not a pretty picture,” said Craig Holman, a lobbyist for the watchdog group Public Citizen. “It’s either illegal or it’s unethical.”

Loyola made a splash two weeks ago by self-funding half a million dollars in the GOP primary to face Rep. Glenn Nye (D-Va.), and his campaign has indicated that he could self-fund much more. But his personal financial disclosure report, which was filed in early August, estimated his net worth at the time at less than $1.5 million — and possibly much less.

When asked about the apparent heavy spending by the candidate, a Loyola spokesman explained that Loyola sold the spatial systems division of Loyola Enterprises to the Swedish company Hexagon last month for well more than he had estimated the value of his business. On his disclosure form, Loyola valued his business at between $500,001 and $1 million — the bulk of his net worth.

Spokesman Aaron Gulbransen said a competitive bidding process drove up the price of the division, which saw its value multiply because it was worth more to the companies bidding for it. He said Loyola filled out the financial disclosure report truthfully, “according to all the information he had at the time.”

“Ben made a business decision that he would have made eventually anyway, whether or not he was running for Congress,” Gulbransen said. “And as a result of it being extremely valuable to a few different parties, the price it was sold for wound up exceeding the value to him.”

Gulbransen declined to give a specific price for the sale and also declined to name the companies that were involved in the bidding war. He cited confidentiality agreements.

A representative for Hexagon, Agnes Zeiner, said “we cannot comment [on] purchase prices or bidding processes.”

There is little concrete evidence that Loyola low-balled the value of his company and, in fact, it is a difficult process for a private company to undertake accurately, said University of Wisconsin business Professor Terrance Maxwell, an expert in the valuation of companies.

“Values can change dramatically over time based on a lot of factors; just look at the stock market in the last year,” Maxwell said. “And in the [case] of a privately held company, no one can be sure what the value really is until the company is actually sold.”

But good-government groups said Loyola will be forced to explain himself eventually, whether it be to the Federal Election Commission (FEC) or because his election opponents make him.

“It would suggest he undervalued it, so the question is whether it was deliberate,” said Melanie Sloan, executive director of Citizens for Responsibility and Ethics in Washington (CREW). “The point of these things is to give a generally accurate picture of your financial status. Clearly, he didn’t do that.”

Holman said an improper report is a best-case scenario for Loyola.

“If it’s being purchased above market value, then it’s assumed that this is a money-laundering scheme to launder campaign contributions to the candidate,” Holman said. “That’s not just unethical, that’s illegal.”

But proving Loyola did anything wrong would be very difficult, the groups acknowledged. And Loyola’s campaign said he planned to sell the division even if he didn’t run for Congress.

Paul Ryan, a campaign finance expert at the Campaign Legal Center, said if the purchase of the division is done for the purpose of influencing Loyola, then it can be considered a campaign contribution. Since the limit for campaign contributions per election is $2,400, the contribution would far exceed the allowable amount.

“Whether or not this is the situation is heavily fact-dependent,” Ryan said. “Did the purchaser pay fair market value for the assets? Was there actual agreement that the purchaser would pay more than the assets were actually worth, in order to help finance Loyola’s campaign?”

Loyola faces businessman Scott Rigell for the GOP nomination to face the top-targeted Nye, and all three men are well-funded.

Rigell, who has raised more money than Loyola and has also self-funded some money, has caught the attention of national party officials in a way that Loyola hasn’t, though. Rigell was named Tuesday to the National Republican Congressional Committee’s (NRCC) Young Guns program for top Republican candidates, while Loyola wasn’t included.