Much commentary has focused on the Trump Administration’s use of criminal prosecutions to gain political vengeance and enforce conformity with Trumpian policy preferences. The clearest examples of such political retaliation involve New York Attorney General Letitia James, and Federal Reserve Board Chairman Jerome Powell. In both cases, the prosecutors have been unsuccessful (at least so far), but U.S. attorneys and even the U.S. Attorney General have been replaced or forced to resign. In reality, something resembling a political purge has begun to decimate the DOJ.
Less noticed, however, has been an associated trend: In order to punish Trump’s political enemies, DOJ indictments have asserted legal theories that range from tenuous to incoherent. Once federal prosecutors were uniformly respected for their professional competence, judgement, and integrity. Now, some indictments seem startlingly unbalanced and approach professional malpractice.
This brief column will focus on only one example: the recent indictment in the Middle District of Alabama of the Southern Poverty Law Center, Inc. (“SPLC”) on a variety of fraud and money-laundering charges. For decades, the SPLC has been recognized as the leading organization in the U.S. tracking and researching “hate” groups (such as the Ku Klux Klan and various political groups associated with a “Nazi” ideology). They regularly published reports describing the activities of the hate groups and were probably the principal source relied upon by the media.
This column recognizes that SPLC’s conduct in paying informants and possibly encouraging them to steal documents from their employers is highly debatable, but the actual facts remain in dispute. Thus, it focuses on the DOJ’s legal theory, which is overbroad and would create uncertainty and confusion for many not-for-profit entities. Essentially, the SPLC indictment pleads that:
Starting in the 1980s, the SPLC began operating a covert network of informants who were either associated with violent extremist groups, such as the Ku Klux Klan, or who had infiltrated violent extremist groups at the SPLC’s direction.[1]
Yes, they hired informants. But so does the FBI and other law enforcement agencies. Worse, some of these informants were clearly hard-core racists. Still, if the FBI could hire the head capo of a Mafia family, they probably would. In the real world, if you want sensitive information, you often have to pay for it.
The indictment then moves from this allegation that SPLC paid informants to the less than shocking allegation that they paid them “in a clandestine manner.”[2] Again, the FBI and other law enforcements agencies also do not disclose such payments, as it would be self-defeating. Next, the indictment alleges that between 2014 and 2023, the SPLC paid “more than $3 million in SPLC funds” to its informants “who were associated with various violent extremist groups.”[3] Over nine years, this comes to just over $300,000 a year to an unknown number of informants (the indictment lists over 40 such informants). These were relatively small payments for a dangerous job, and the SPLC has considerable financial resources which were not strained by these payments. To be blunt, if the Mafia knew you were on the government’s payroll, they would kill you (and the Ku Klux Klan is historically no less violent). If paying informants is a strategy that can work, it will likely cost money—for both the SPLC and the FBI.
This brings us to the critical question of what theory of fraud is the DOJ using? There are two possible theories, one potentially colorable in some cases and the other dangerously overstated in most cases (including this one). But first a word of history: Until the late 1980s, any claim that behavior by a defendant flunked the Boy Scout Oath (“a scout is brave, clean, and reverent”) potentially stated a claim under mail and wire fraud statutes. As some recognized, this was an extraordinarily overbroad extension for a statute originally intended to reduce the level of clear fraud at the nation’s post offices, which had become a frequent venue for counterfeiting, gambling, and pornography. Eventually, this theory had expanded to cover anything unethical, and in 1987, the Supreme Court cut it back in McNally v. United States[4] to its core, ruling that the mail and wire fraud statutes could only be applied to behavior that caused a “property loss.”
Although news of this restriction may not yet have reacted the Middle District of Alabama, there are only two conceivable theories of mail and wire fraud that could conceivably apply to a not-for-profit charity, such as SPLC. The first and at least colorable theory is that the defendant bribed a corporate or other employee to give it material, non-public confidential information in breach of the fiduciary duty owed to its employer. This theory, first announced in Carpenter v. United States[5], was used to hold that a reporter for the Wall Street Journal breached a fiduciary duty owed to the WSJ when he revealed “confidential business information” he had learned as a WSJ reporter to a co-conspiring broker, who traded on it prior to the story’s publication—in effect, insider trading. Arguably, disclosures by SPLC’s agents of “confidential business information” to SPLC that belonged to their employer could be seen to violate the informant’s duties to his employer (even in the extreme case of the Ku Klux Klan). Many distinctions can be drawn at this point, and one recent Second Circuit decision interprets Carpenter narrowly (and probably too narrowly[6]), but nothing in the SPLC indictment shows the slightest awareness of, or interest in, the Carpenter precedent.
Instead, the indictment proceeds on an entirely different and more dangerous theory of fraud: that SPLC defrauded its donors by failing to disclose to them in detail that it was paying employees or members of racist or “hate” organizations to reveal to them confidential information about their operations. This is a sprawling, unlimited, and unsupported theory of criminal liability that is frankly dangerous (as later explained). At a minimum, SPLC’s credentials as an organization that diligently monitored and reported on racist and antisemitic organizations should be beyond question. The wisdom of paying its informants can, of course, be debated, but it is certainly arguable that to effectively monitor dangerous persons you need to make contact with them.
SPLC’s practice of paying informants began in the 1980s and continued at least until 2023. In the period between 2014 and 2023, the indictment alleges that SPLC paid informants a total of a little over $3 million. Over a nine-year period, this would come to a $333,333 annually. The DOJ has identified at least 47 agents recruited by SPLC, and the largest payments went to Agent F-9 (who was affiliated with a Neo-Nazi organization) and received more than $1 million over the period from 2014 to 2023. That may sound like a lot, but for SPLC, a very wealthy organization, it was a relatively modest sum.
What did the SPLC get in return? Here, the indictment alleges that Agent F-9 “in 2014, entered the headquarters of a violent extremist group and stole 25 boxes of their documents,” copied them and then returned them “to the violent extremist group in a second illegal entry by F-9.” Although this was clearly an act of theft (of which SPLC at some point is alleged to have become aware), it was also a dangerous act for which retaliation against the informant was possible. Little doubt exists as to how the Mafia would respond if it learned that one of its members had informed and perpetrated such a crime against it.
Although SPLC may see itself as a whistleblower, it is unlikely that it can stretch that open-ended term to reach a Neo-Nazi who receives a large payment to steal documents from his organization. Still, the indictment does not charge SPLC with theft or burglary (or entering into a conspiracy to do either). Possibly, the DOJ does not want to appear as if it was protecting a Neo-Nazi violent organization.
Still, the crime that the DOJ does allege has greater problems. Charging the SPLC with defrauding its donors uses a very uncertain standard that denies the not-for-profit organization any level of assured privacy. Some donors may have known that the SPLC paid informants with their funds. Others may have not known of the payments but still were happy to learn of such conduct. Supporters might argue: “If the FBI can pay informants, why can’t the SPLC?” Some donors mighty happily testify that they were not defrauded, but rather delighted by SPLC’s use of informants. Finally, suppose that only a few donors objected to such payments to informants. Must the SPLC obtain unanimous approval of its donors? The indictment cites no law or judicial decision establishing such a rigid prohibition.
The fact that the SPLC is a tax-exempt, not-for-profit entity places no necessary limitation on the lawful conduct in which SPLC can engage. To be sure, neither a charitable organization nor a private business can commit theft or burglary (if SPLC indeed had knowledge that its paid informant planned to steal documents). But SPLC’s status as a charitable organization has little, if any, relevance.
SPLC’s creation of bank accounts in the name of fictitious entities (which were not even incorporated in order to conceal SPLC’s transfer of funds to its informants) did misinform federally-insured banks and may have violated 18 U.S.C. § 1014. Arguably, a civil action alleging such violations may have been appropriate, but a criminal indictment seems disproportionate and looks more like political retaliation against a body that is a vocal critic of the Trump Administration.
Lastly, the indictment’s repeated claim that SPLC defrauded its donors by telling them that it wanted to “dismantle” violent “hate” organizations when it was paying informants who may have passed on some of its funds to these organizations makes little sense. SPLC is in truth a fairly radical organization and had a strategy to destroy these hate groups by revealing the truth about them. Over 30 years or more, that strategy has actually worked reasonably well, as groups such as the Ku Klux Klan have been largely marginalized, in part by SPLC’s continuing attacks. Although the SPLC may be embarrassed by some of these disclosures, the DOJ will diminish its own reputation at least as much if it continues to claim that the SPLC was “subsidizing” hate groups. The SPLC and the various racist and hate groups that it monitors are mortal enemies. The SPLC may have been overzealous in using fictitious entities, but its sincerity cannot be doubted.
Worse yet, charitable organizations of all persuasions and denominations have to be confused, challenged, and concerned by the DOJ’s novel theory that charitable organizations cannot use debatable, but lawful, means (such as paying informants) without first disclosing these tactics to their donors. Let me pose one example where this theory clearly has dangerous implications. Suppose a charitable organization runs hospitals and health centers in a conservative “red” state. To avoid a controversy, it proclaims itself “neutral” about abortion, but it will not allow abortion to be performed at its facilities. Still, it does not disclose that it pays the cost of transporting poor pregnant women out of state to other facilities where they can obtain lawful abortions. Can a conservative U.S. attorney indict this entity for defrauding its donors? Assume that it can find a handful of donors who object. These are dangerous cases that are the natural consequences of using the criminal law to punish political enemies.
So where are we? Once again, it becomes clear that power corrupts, and power over the criminal law can corrupt absolutely. Did someone once already say that?
ENDNOTES
[1] Indictment at paragraph 8
[2] Indictment at paragraph 9
[3] Indictment at paragraph 10
[4] 483 U.S. 350 (1987)
[5] 484 U.S. 19 (1987)
[6] In United States v. Blaszczak, 56 F. 4th 230 (2d Cir. 2022), the Second Circuit ruled that an entity (there, a government agency) cannot have a property interest in “confidential business information” unless the information can be “distributed and sold to these who would pay for it” (citingCarpenter at 484 U.S. at 26). I agree with the dissent in Blaszczak that this is a much too narrow theory, and possibly other circuits will not accept this severe limitation on Carpenter’s holding.
John C. Coffee, Jr., is the Adolf A. Berle Professor of Law at Columbia University Law School and Director of its Center on Corporate Governance.