This a corrected version of the story that ran in the paper. Tainted dough?

Gavin Newsom’s flood of campaign cash isn’t flowing just from San Francisco’s elite: there’s a sleazy Wall Street connection.

By Rachel Brahinsky and A.C. Thompson

WHEN HE’S STUMPING on the campaign trail, Gavin Newsom typically tries to present his run for mayor as a unifying force. He likes to point out that his campaign has received financial support from people from all walks of life and from every neighborhood in the city. He’s not lying: his donor list includes cops, architects, taxi drivers, and restaurateurs, along with many of the city’s power brokers.

Newsom’s spokesperson, John Shanley, has described the campaign – which has already spent more than $3.8 million – as a grassroots movement.

But there are some names in Newsom’s most recent campaign filing that the candidate isn’t advertising.

Many of Newsom’s top donors are players in the high finance arena: investment bankers, venture capitalists, hedge fund managers, and the like (see The King of Cash, 9/13/03). But the Nov. 28 campaign finance filing shows that 15 of those donors are executives working for firms linked to the wave of corporate scandal that has washed over Wall Street during the past two years. They include top-level employees at banks that paid $480 million in 2002 to settle charges of defrauding small investors.

And while Newsom’s money does indeed come from all over the city, more than $1 million of his local donations are concentrated in the city’s toniest neighborhoods, including the Marina, Pacific Heights, and North Beach.

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Newsom’s backers also appear to be skilled at skirting campaign finance limits. Several of his top real estate donors have given to the campaign through a web of different corporate entities, many of which share the same address. Technically, it’s legal – but the outcome is that one individual can have a disproportionate impact on the race, effectively circumventing the city’s contribution limit regulations.

Reaping ill-gotten dollars

Top-tier employees at scandal-plagued investment banks are among those bankrolling Newsom.

The candidate received donations from nine executives with Charles Schwab Co. including CEO David Pottruck. According to news reports, San Francisco-based Schwab is under heavy scrutiny by the federal Securities and Exchange Commission and state regulators for possibly violating laws governing the corruption-riddled $7.1 trillion mutual fund business.

Late last month Schwab publicly admitted its employees may have improperly late-traded mutual funds, a practice that cost small investors money. The firm could face criminal charges.

Newsom has gotten $4,725 from Schwab bosses. These are individual contributions, and the company encourages all of our employees to support causes and candidates as they see fit, Schwab spokesperson Greg Gables told the Bay Guardian.

The Newsom campaign has also received donations from three executives with financial leviathan Bank of America, whose illicit after-hours trading with Canary Capital Partners, a Bermuda-based hedge fund, triggered the ongoing high-profile mutual fund probe.

In September, Canary turned over $40 million in fines and ill-gotten profits to New York authorities, and Bank of America has acknowledged that shareholders may have been screwed by its dealings with Canary.

In addition, Newsom is backed by executives at three investment banks – Merrill Lynch, Credit Suisse First Boston, and J.P. Morgan Chase – which last year paid out colossal sums to settle charges of feeding bogus stock advice to small investors. Collectively, the three banks spent nearly half a billion dollars to make the fraud cases go away.

Merrill Lynch and CSFB dropped $200 million each, while J.P. Morgan Chase’s securities division paid $80 million to settle.

One of the most powerful firms on Wall Street, Merrill Lynch also paid another $80 million in 2003 for allegedly helping energy-industry pariah Enron hide its true financial status.

Upper-echelon staffers at the trio of problem banks have given Newsom donations totaling $850.

There’s no evidence that any of Newsom’s banking donors are directly responsible for the purported deceptions. In fact, we have no reason to believe that any of the finance-industry execs who gave money to Newsom have been implicated in any illegal or unethical activity.

And the banks, which are currently fending off a raft of multimillion-dollar civil suits alleging illegal business practices, deny any wrongdoing.

But it’s noteworthy that senior staffers with firms at the heart of some of Wall Street’s biggest scandals are such fans of Newsom.

We asked Bob Stern, president of Los Angeles-based Center for Governmental Studies, about Newsom’s donors. I don’t think a candidate should be turning away contributions from executives, Stern said. But it’s basically up to the candidate to decide whether it’s worth any negative publicity.

Of course, the mainstream media has yet to notice Newsom’s connections to the Wall Street meltdown.

Newsom spokesperson Shanley did not respond to repeated requests for comment for this story.

Maximum money, minimum oversight

When he’s not taking contributions from Wall Street’s wheeler-dealers, Newsom pulls in big donations from real estate and development firms that have learned to push campaign finance laws to their limits.

Not surprisingly, topping the list is Shorenstein and Co. San Francisco’s largest commercial landlord. Members of the Shorenstein family, headed by patriarch Walter Shorenstein, are major players in Democratic Party politics nationally and locally. Companies affiliated with the clan have given a total of at least $21,500 to help elect Newsom.

The maximum any individual or corporation can legally give the Newsom effort is $750. The Shorensteins circumvented the law by giving through several different business entities, each of which can legally donate the maximum.

(The total Shorenstein-related wad of cash is larger: another $4,250 was donated by employees of several Shorenstein-owned firms and a Shorenstein family member.)

For now, this practice is legal, but under a new city law that will take effect Jan. 1, giving through affiliated companies will be strictly limited.

Shorenstein and Co. declined to comment.

Several other real estate and development interests employed the same tactic. Companies tied to Syufy Enterprises, which operates the Century Theaters chain of movie houses, gave at least $13,500.

Real estate manager and developer Carmel Partners is linked to at least $13,000 in donations. Carmel Partners owns the Parkmerced development and South of Market’s City Lofts, making it the largest private residential landlord in the city.

Companies affiliated with Ron Kaufman, husband of former San Francisco Board of Supervisors president (and Willie Brown ally) Barbara Kaufman, gave at least $6,000. Ron Kaufman was also a major supporter of Brown in his last race.

Gonzo politics

Rival candidate Matt Gonzalez’s balance sheet is much lighter on the corporate cash. The former public defender has gotten a decent sum of money from other lawyers, but only one high-finance honcho, the boss of a hedge fund, has donated. Gonzalez has raised a little over $400,000 total.

Ethics questions have also dogged the Gonzalez campaign. First Newsom spokesperson Shanley charged that Gonzalez aide Ross Mirkarimi was campaigning while on the clock as a juvenile crime investigator for District Attorney Terence Hallinan. Mirkarimi says his work for Gonzalez was on his own time.

Now the Newsom campaign has seized on irregularities in Gonzalez’s campaign filings, saying the candidate didn’t list the employers of 115 of his donors.

According to Gonzalez’s people, the incomplete paperwork is a minor issue. The big story is not 115 donations to the Matt Gonzalez campaign, said Gonzalez campaign manager Enrique Pearce.

Instead, at a Dec. 1 press conference, Gonzalez supporters questioned Newsom’s accounting tactics, which have allowed him to raise money in larger chunks.

It goes back to a somewhat arcane twist in local regulations.

Under city law, if a candidate heads into a runoff election with campaign debt, some donors can give three times the usual limit, until the debt is paid off.

Indeed, at the end of November, Newsom’s account was deep in the red – owing $225,322 in unpaid bills.

But oddly, on the same document, the campaign also reported having quite a full bank account – with $231,548 in cash on hand. That’s more than the debt, raising the question: is the debt in part an accounting trick to allow the campaign to pull in extra dollars?

Whatever the answer, it’s not likely the Ethics Commission, the city agency charged with administering campaign finance laws, will be on anybody’s case any time soon.

According to executive director Ginny Vida, the commission is understaffed and overworked, and has an ever shrinking budget – while complaints of campaign finance violations mount.

Late last month the commission had 40 complaints pending – double the number from a year ago. Meanwhile, Vida’s investigations staff has been cut in half.

We are seriously understaffed in the area of enforcement, she said. We are stretched very thin, and we do not have adequate resources.

Research assistance by James Curnow, Alex Lantsberg, Tali Woodward, Helen Christophi, Savannah Blackwell, Steven T. Jones, and Nikki Woodard.