MTPR

State Auditor Drops Fines Against Top Campaign Donor

Sep 25, 2018

Family members and employees of a Billings-based bail bond company facing fines and sanctions by the Montana Commissioner of Securities and Insurance gave nearly $13,000 to Republican State Auditor Matt Rosendale’s political campaigns in 2016.

One day after a 2017 face-to-face meeting with company representatives, Rosendale dropped the fines and dismissed two of the three allegations against Friedel LLC. The company paid no penalty under the terms of the agreement.

Kris Hansen, chief legal counsel for the commissioner’s office and a Rosendale political appointee, said in an interview Monday that it was her decision to end the longstanding legal action against the company.

“It was an extremely old and extremely contentious case that needed to end,” Hansen said.

Kris Hansen.
Credit Courtesy Photo

Citing court backlogs, staff attorney time, and legal costs, coupled with the fact that the company was no longer in the bail bonding business, it made sense to reach an agreement with Friedel LLC, Hansen said.

Hansen said she was not aware that employees and family members associated with the company had given nearly $13,000 to Rosendale’s state auditor and U.S. House campaigns in the months leading up to his November 2016 election.

Rosendale, who is currently running to unseat two-term incumbent Democratic U.S. Sen. Jon Tester, has thus far declined to comment, despite repeated Montana Free Press inquiries.

Friedel LLC’s attorney did not respond to a request for comment, and messages left at the company’s Billings office was not returned.

“The appearance is terrible”

A Montana Free Press review of campaign finance data found that family members and employees of Friedel LCC gave $2,970 to Rosendale’s 2016 campaign for state auditor between Sept. 28 and ­Aug. 27, 2016. On Oct. 6, 2016, those same individuals contributed $10,000 to Rosendale’s failed 2014 U.S. House primary campaign for the purpose of “debt retirement.” Rosendale finished third in the five-way Republican primary that year, garnering 29 percent of the vote.

All of the contributions were made in the summer and fall of 2016 while the State Auditor’s Office was engaged in a longstanding legal action against the bail bond company.

In Montana, the state auditor regulates companies that deal in insurance and securities, which is why the auditor is also known as the Commissioner of Securities and Insurance. A bail bond is an insurance product, so companies that provide bail bonds are regulated by the commissioner’s office.

Eight days after taking office in 2017 as the newly elected Commissioner of Securities and Insurance, Rosendale and Hansen met with Richard Friedel and his attorney, Bill O’Connor, in Rosendale’s office.

“Matt asked me to go to the meeting with him. I think he was concerned about what Friedel was going to ask,” Hansen said of the Jan. 10, 2017 meeting.

Hansen said Friedel and O’Connor had “piles of briefings and filings” with them at the meeting. “He wanted to tell us that the agency had been heavy-handed with him,” Hansen said. “I was very glad I was at the meeting. I wouldn’t let Matt speak, and I ended the meeting quickly when I realized what we were there for.”

Hansen said Friedel wanted a “re-review of his case outside of the standard procedures.”

“I wasn’t going to let that happen,” Hansen said. “We needed to work the case through the standard channels.”

Hansen said she was unaware of Friedel family contributions to Rosendale, and Rosendale did not mention the contributions to her.

“I didn’t know anything about the campaign contributions until recently,” Hansen said.

Hansen said someone told her “at some point” that Richard Friedel “donated to Republicans.”

“I don’t think it was at that initial meeting,” Hansen said.

Whether Hansen knew or didn’t know about the contributions is less important than the fact that Rosendale set up the meeting with a major campaign contributor just days after taking office, said Bob Stern, a longtime government ethics watchdog.

Bob Stern

Stern is the former president of the California-based Center for Governmental Studies, which researched and advocated for ethics, campaign finance, and lobbying reforms in local and state government until its closure in 2011.

Stern said it’s not uncommon for large campaign donors to seek access to elected officials and regulators in an attempt to get something they want. And, Stern said, it’s usually not illegal.

“This, unfortunately, is very typical,” Stern said. “People who want something from government give campaign contributions hoping they’ll get a favorable decision.”

Stern said it is less common for elected officials—particularly those in regulatory or quasi-judicial positions such as the state auditor—to take such actions immediately after a face-to-face meeting with a campaign donor, especially when the action involves an individual or organization directly in conflict with the agency.

“The problem is, it looks like he is making the decision in exchange for the campaign contributions. He will deny that he did, but the appearance is terrible,” Stern said. “The appearance is that he made the decision to drop the lawsuit because these people gave his campaign a bunch of money.”

Hansen, who insisted that she didn’t know about the Friedel contributions, said Richard Friedel didn’t actually get the result he hoped for.

“At the end of the day, they didn’t get what they wanted out of this case,” Hansen said.

Longstanding Litigation

The case against Friedel LLC stems from a 2012 complaint, but the commissioner’s office didn’t initiate legal action against the company until February 2014.

That’s when staff attorney Michael Kakuk filed a “Notice of Proposed Agency Action and Opportunity for Hearing,” which launched what would become a more than three-and-a-half-year administrative and legal battle.

Kakuk’s filing alleges that the company violated Montana state law by charging an 18 percent interest rate on bonds, which is 3 percent higher than the 15 percent cap allowed by Montana law. Kakuk also accused the company of charging unfairly high “recovery fees” without disclosing those fees to clients. The company charged clients $100 per person per hour to track them down if they skipped their bond or failed to appear in court, or if the company had to seize collateral, such as a vehicle. In a third charge, Kakuk alleged the company was illegally issuing insurance without being properly registered with state regulators.

A hearing examiner appointed by the state auditor heard testimony in October 2014. After some additional back-and-forth pleadings, hearing examiner Michael Rieley issued a “Proposed Findings of Fact, Conclusions of Law, and Order.” That order recommended $4,500 in fines for charging illegally high interest rates and $4,500 for charging the undisclosed recovery fees. Rieley added an additional penalty of $1,000 for selling insurance without a properly filed appointment to do so.

In April 2015, then-State Auditor Monica Lindeen heard arguments from both sides on the proposed order. On July 13 she issued a “Final Agency Decision” adopting the recommendations of the hearing examiner but lowering the $10,000 in fines to $3,500.

Friedel LLC appealed Lindeen’s decision in Helena District Court.

In a separate district court action, this one filed in Billings, Friedel’s attorney sued the state auditor’s office for legal fees, arguing that the office was slow to comply with a right-to-know request, and thus Friedel’s attorney should be entitled to collect fees associated with that request. A Billings district court judge dismissed the case, and by a 5-0 ruling the Montana Supreme Court upheld the lower court’s decision in March 2017.

The appeal of Lindeen’s order was pending in Helena District Court until Rosendale effectively settled the case following a second meeting between Rosendale and Friedel on Dec. 12, 2017.

Hansen said that meeting came after months of being hounded by Friedel’s attorney.

In a Nov. 8, 2017 email to Hansen, Friedel’s attorney proposed an agreement that eliminated all allegations against his client and determined that Lindeen’s decision against the company was made “in error.”

“That’s not what we did,” Hansen said of the final agreement.

Hansen said that after a lengthy review of the Friedel case, she determined that continuing to litigate the matter wasn’t worth the agency’s effort or expense. Hansen said she didn’t think the commissioner’s office had a strong enough case to win in court on two of the three allegations, and since the company was no longer in the business of issuing bail bonds, it wasn’t worth taking the remaining charge to court.

The final agreement, signed by Rosendale the day after the Dec. 12 meeting, eliminated the fine and dismissed two of the allegations, but included the finding that the company had charged illegal interest rates. A result, Hansen said, that was not what the company hoped for.

First-time contributors

According to documents from the case, Christopher, Douglas, Neil, and Richard Friedel are “affiliated” with the company.

Chris Friedel, a member of the Billings City Council, is part owner of Friedel LLC. In 2016 he gave 2,500 to Rosendale’s failed 2014 U.S. House campaign for the purpose of “debt retirement.”

Chris Friedel, a member of the Billings City Council, is part owner of Friedel LLC. In 2016 he gave 2,500 to Rosendale’s failed 2014 U.S. House campaign for the purpose of “debt retirement.”

According to campaign finance records, Mykel, Leslie, and Douglas Friedel contributed $2,970 to Rosendale’s state auditor campaign in the summer of 2016. None had contributed to Rosendale before, nor had they contributed to any other Montana candidate for statewide office. Each gave the maximum amount allowed by law.

A month before Rosendale won the state auditor race, Christopher, Leslie, Mykel, and Neil Friedel—all owners or employees of Friedel LLC—each gave $2,500 to Rosendale’s 2014 congressional campaign for the purpose of “debt retirement.” None had ever contributed to a federal candidate prior to these contributions.

Richard Friedel did not contribute to Rosendale’s campaigns.

Edwin Bender, executive director of the Helena-based National Institute on Money in State Politics, said the problem with Rosendale’s handling of the Friedel case is the appearance of impropriety.

Bender said political candidates, especially candidates seeking positions with regulatory oversight, have an extra burden of responsibility to separate their campaign and donor activities from their policy decisions.

“The appearance of impropriety can be damaging to the public trust,” Bender said.