By GILLIAN FLACCUS, Associated Press
SANTA ANA, Calif. -- Democratic politicians in California are facing huge challenges as they work to rebuild depleted campaign accounts ahead of next year's election after a trusted campaign treasurer was accused of looting dozens of political war chests across the state.
Federal prosecutors earlier this month accused Kinde Durkee of siphoning nearly $700,000 from a California candidate in a case that took on greater significance after she admitted to authorities she had been misappropriating money from her many Democratic clients for years.
Charges against Durkee come as top Democrats like Sen. Dianne Feinstein prepare for tough re-election campaigns in 2012, and news of the arrest has sent a number of prominent state and federal politicians scrambling to assess the damage. Feinstein and Reps. Susan Davis and Loretta Sanchez have said they believe hundreds of thousands of dollars are missing from their accounts, and Democratic strategists say dozens more cases could come to light in the weeks to come.
The growing implications of Durkee's arrest have put the spotlight on an insular political culture that allowed one person to hold the purse strings for a clientele that left no levels of the party unscathed, from local mayoral candidates and small Democratic clubs to state politicians to federal lawmakers such as Feinstein.
"Usually when there's a political scandal it's because the politicians did something wrong to normal people, but this time the politicians are on the receiving end and there really isn't much precedent for that," said Dan Schnur, director of the Jesse M. Unruh Institute of Politics at the University of Southern California.
Dozens of small Democratic clubs and medium-sized political action committees also may have been wiped out. Those clubs and committees work behind the scenes, registering voters and conducting grass-roots organizing, and most don't have the star power to recover from a hit to their finances, California Democratic Party vice chairman Eric Bauman said.
Durkee had authority over more than 400 bank accounts, including political campaigns, and got most of her clients through word-of-mouth within the party. Smaller clubs were often steered toward her independent firm, Durkee & Associates, by local party bosses because she offered grass-roots groups her services at free or dramatically reduced rates.
Durkee was charged earlier this month with mail fraud by federal prosecutors who alleged she used a candidate's money to pay her credit cards, a mortgage, business bills and her mother's care at an assisted-living facility and then shifted funds from other candidates' accounts in an elaborate shell game to cover up the wrongdoing.
She admitted to authorities that she had been misappropriating her clients' money for years, according to the criminal complaint. Durkee, who was released on bond, is scheduled to make a court appearance Oct. 19 in Sacramento. More charges are possible. Her attorney, Daniel Nixon, didn't return a call or email seeking comment.
The top priority for campaigns is assessing the damage, but getting a clear picture is proving impossible for most, said Stephen Kaufman, an attorney for many affected campaigns who specializes in election finance law.
The bank holding the accounts, First California, has asked many candidates to sign a letter holding it harmless before they can see their account balances, Kaufman said, and most campaigns have refused. Most recently, the bank sent a letter to Durkee's former clients informing them it would file a motion in Los Angeles Superior Court seeking to have a judge sort out who is the rightful owner of the money in the helplessly overlapping and co-mingled accounts.
That move could freeze the campaign accounts just when candidates need access to the money the most, Kaufman said.
"There are elections coming up, people have a right to their funds and we've been demanding access to those funds since the day this story broke. And the bank's been improperly holding onto those funds and refusing to release them to the candidates and the committees who are the rightful owners," he said. "It seems the bank is trying to absolve itself of any responsibility."
On Wednesday, state banking regulators launched an investigation into how First California handled the accounts controlled by Durkee.
Gary Horgan, an attorney for First California, didn't return a phone call seeking comment. Calls to Edmond R. Sahakian, the bank's executive vice president, were referred to a spokesman who also did not return a message seeking comment.
Feinstein believes her accounts, which held $5.2 million, were pilfered but her campaign has yet to determine the extent of the damage because of the bank's stance, said Bill Carrick, her lead strategist.
"Hundreds of thousands of dollars were being moved on a daily basis from multiple accounts," Carrick said. "There's a lot of activity inside that bank that has not been uncovered yet because obviously nobody can get ahold of the bank records."
Another issue is how campaigns can replenish their funds heading into election season without running afoul of laws that limit political contributions.
The California Fair Political Practices Commission will hold a meeting next week to address whether contribution caps can be waived and whether candidates can set up legal defense committees that could take contributions from donors who have already maxed out, commission chairwoman Ann Ravel said.
The danger, however, is that any attempt to help alleged Durkee victims could create a precedent that could be abused by future candidates with less serious issues, she said.
California's federal lawmakers who suspect their funds are missing plan to meet with the Federal Election Commission to ask for a one-time waiver on contribution limits, but it's unclear how successful such a request will be. Earlier this week, the California Democratic Party sent a letter to the commission asking for lenience as campaigns assess the damage and file updated financial reports.
"We're going to go in this week, hopefully, and talk to them and we'll see what will happen," said Sanchez, the congresswoman who believes she is missing several hundred thousand dollars. "The Democratic base, our donors and a lot of Democrats are still very in touch with us, they want to help us. I've had a lot of calls from people telling me, `We'll help and get ready from your next campaign.'"
On the local level, nearly half of the 100 Democratic clubs in Los Angeles County used Durkee as their treasurer, said Bauman, who is also chairman of the Los Angeles County Democratic Party.
The Orange County Young Democrats used Durkee because she charged them a low, hourly rate for her services and had the reputation that comes with controlling the accounts of big party names such as Feinstein, said Nicholas Anas, the group's chairman. Securing her services as a professional treasurer seemed like a coup for a group with just 180 members, he said.
The Santa Ana-based club had roughly $10,000 in its account and says all that money is now inaccessible because of First California's decision to involve the courts.
"That $10,000 is not easy to raise for a group like the Young Democrats, especially in these economic times," Anas said. "She offered the best price and we really thought she did it out of the kindness of her heart. We had no idea this was happening."