‘Substantial’ evidence suggests Palazzo used campaign funds for own use, report says
A report from the Office of Congressional Ethics says there is “substantial” evidence to suggest that U.S. Rep. Steven Palazzo converted campaign finance funds for personal use.
The OCE report, released this week, accuses Palazzo of using the campaign money to pay for expenses that may not be “legitimate and viable purchases” for campaign and political use in accordance with federal campaign finance laws and other standards and rules.
In addition, the March 1 report said, Palazzo is accused of also performing “official action” to help his brother, Kyle Palazzo.
“If Rep. Palazzo converted campaign funds from Palazzo for Congress to personal use, or if Rep. Palazzo’s campaign committee expended funds that were not attributed to bona fide campaign or political purposes, then Rep. Palazzo may have violated House rules, standards of conduct and federal law,” the OCE said in a statement.
In addition, the statement said, “if Rep. Palazzo performed special favors for his brother,” then he may have again violated House Rules, standards of conduct and federal campaign finance laws.
The OCE filed its report in September with the House Committee on Ethics, which has made the report public and is investigating OCE’s report.The House committee can decide whether to impose sanctions or dismiss the complaint as unfounded.
In a statement released Monday, ethics committee members said, “The Committee notes that the mere fact of conducting further review of a referral, and any mandatory disclosure of such further review, does not itself indicate that any violation has occurred, or reflect any judgment on behalf of the committee.”
The report detailing allegations against Palazzo was not initially made public.
The Committee on Ethics said there will be no further comment on their action to maintain the integrity of the investigation.
Palazzo’s attorney, Gregg Harper, said he felt like the OCE in its report “padded things and stretched things to put them in the strongest light, and began all of this with a very false narrative that money that was paid for a campaign office was actually spent on a farm in Perkinston.”
“There is nothing here that rises to the level of a crime,” Harper said. “The congressman has followed the rules and we are prepared to to go through the process to assist the committee to reach their conclusion.”
Congressman cooperating with investigation
In November, the Sun Herald broke the story on how Palazzo had been cooperating since June on the ethics investigation into his campaign spending.
His campaign spokesman confirmed the information.
The investigation by the OCE centered on two allegations outlined in a March 26 letter to the OCE from the Campaign Legal Center, a nonpartisan organization that specialized in election law:
- $60,000 in campaign payments to a Palazzo-owned LLC for rental of office space
- $127,933 in payments to Palazzo & Co. LLC, an accounting firm he transferred to his wife after taking office in 2011. The couple divorced in 2016 but payments continued.
“Elected officials betray the public’s trust when they convert campaign contributions to personal slush funds,” the letter to the OCE said.
Federal election law and House rules prohibit converting campaign funds to personal use.
The OCE report said that Palazzo has not cooperated with its investigation, something Harper said is simply not true.
“We provided them with hundreds and hundreds of pages of documents, but because we didn’t ‘cooperate’ as much as they wanted, they just made the blanket assertion that we didn’t cooperate,” Harper said. “That’s just not true.”
Palazzo says he’s done nothing wrong
Palazzo’s office claims he will be cleared of any wrongdoing.
In addition, Palazzo’s campaign finance spokesman said in November that the congressman’s opponents in the March Republican primary instigated the investigation from “baseless allegations.”
Palazzo was re-elected Nov. 3.
One of his opponents, Biloxi councilman Robert L. Deming III, said he found the questionable spending while he was studying Palazzo’s campaign reports to see what it would take for Deming to run for office.
Deming hired a private investigator to look into the congressman’s spending, then the information was turned over to an attorney who specializes in Federal Election Commission regulations.
The attorney wrote a brief about the questionable spending, and Deming sent the information to the Campaign Legal Center and Mike Hurst, former U.S. Attorney for the Southern District of Mississippi.
Spending campaign funds on rent
According to the allegations, Palazzo’s campaign spent $60,000 to rent office space from Greene Acres of MS LLC, a company he owns and the name of his farm in Perkinston in rural Stone County. Rental payments amounted to $3,000 a month from May 2018 to August 2019, the CLC letter said.
The CLC alleges the amount of rent was above fair-market value and that Palazzo never used the rural farm as a campaign office.
Palazzo’s spokesman Justin Brasell said in November that the office rent was paid to Green Acres because it is a management company for Palazzo properties, and not just the farm.
Brasell said the campaign office was actually in a wooded area on the Tchoutacabouffa River, known as “the river house,” that sits just northwest of The Promenade Shopping Center in D’Iberville. His research also suggested the rental payments were at fair market value.
In 2017, Palazzo bought the lakefront property in D’Iberville that included a four-bedroom home with a separate cottage and boat dock. His parents owned the property and needed to sell it but couldn’t afford the repairs to sell it.
A real estate agent discussed the purchase and intent of the congressman for the property in an email included in the OCE report.
“(Rep. Palazzo) is closing on the house (purchase from parents) this Friday ... allegedly his plan (is) to make the currently required repairs and then put it back on the market and get it off his hands,’ the email said.
After he made the purchase, the OCE report says, Palazzo used over $80,000 in campaign money to pay for repairs, rent, utilities, air conditioning and heating, landscaping, cleaning, pest control, plumbing and a security system on the property.
Those costs included the $60,000 spent on rent beginning in February 2018 after Palazzo told his real estate agent that he was having financial problems because he was trying to keep up the payments, maintenance and repairs at both the D’Iberville and Perkinston properties.
The congressman told his real estate agent his monthly expenses on the D’Iberville property amounted to about $3,000, the same amount the campaign committee would agree to pay in rent for the so-called office space there.
But Harper said Palazzo spent $33,000 of his own money on repairs at the river house.
Personal errands and helping brother out
The OCE report included allegations that Kyle Palazzo had also been living in the home on the D’Iberville property that was supposed to be office space.
The Palazzo campaign or a committee also paid Kyle Palazzo over $50,000 to work for the campaign at times.
In other allegations, the report said, Palazzo may have used his resources as a congressman to reach out to the assistant secretary of the Navy to get his brother reenlisted.
Palazzo allegedly told a former employee that he was trying to get his brother back into the military, the report said.
“Specifically, the OCE considered whether Rep. Palazzo improperly used his position as a member of Congress, or MRA-funded congressional resources, to help his brother upgrade his Naval reenlistment code,” the report said.
Other allegations center around how Palazzo since 2011 used campaign contributions to pay $127,933 to Palazzo & Co. LLC, an accounting firm owned by his wife before and after their divorce. But he paid another $76,954 to a different firm, Breazeale, Saunders & O’Neil, in 2018 and 2019 “for apparently the same services,” the complaint says.
In addition, the OCE report noted that Palazzo’s employees often used time during their work day to run personal errands for Palazzo, such as going to the D’Iberville property to check out construction work and pay crews who had completed their repairs or maintenance on the property.
During a period from 2017 on, the Palazzo campaign’s accounting expenses amounted to as much as three other Mississippi House members accounting-related costs combined, the CLC said.
Palazzo spent $68,678 while three other House members spent $71,848 combined.
A look at the witnesses and who refused to cooperate
As part of the review, the OCE requested testimony or documentation or both from the following:
- Rep. Palazzo
- Palazzo for Congress
- Patriot Political Action Committee
- Paul Breazeale, treasurer to Palazzo for Congress and the Patriot PAC
- Greene Acres of MS, LLC
- H & H Lawn Care, LLC
- Stark Exterminators, Inc., a subsidiary of Arrow Exterminators, Inc.
- Pounds Plumbing, Inc.
- North Bay Heating and Air Conditioning, Inc.
- Ball Heating & Air Conditioning
- Miss Bree’s Cleaning Service, LLC
- Cleanology Pro Cleaning Services, LLC
- American Express
- Coast Electric Power Association
- Sparklight (formerly Cable One, Inc.)
- Pine Belt Chevrolet
- General Motors Financial
- Reported Vendor and Friend
- Former Staffer A
- Former Staffer B
- Former Staffer C
- Witness A
- Real Estate Agent A
- Real Estate Agent B
- Kyle Palazzo
- Bridgette Jones, former district office manager and special projects director
- Hunter Lipscomb, chief of staff and campaign manager
- Patrick Large, deputy chief of staff
- Leslie Churchwell, youth programs director/office manager
- Michele Gargiulo, district director
The following individuals, committees or businesses refused to cooperate with the review:
- Rep. Palazzo
- Palazzo for Congress
- Greene Acres of MS, LLC
- Patriot Political Action Committee
- Paul Breazeale
- Kyle Palazzo
- Hunter Lipscomb
- Patrick Large
- Leslie Churchwell
- Michele Gargiulo
- Bridgette Jones
- H & H Lawn Care, LLC
- Stark Exterminators, Inc.
- General Motors Financial.
Some of the former employees told OCE that as part of their employment with Palazzo, they had to sign non-disclosure agreements and could not cooperate for fear of violating that agreement.
Harper takes offense at the suggestion that Palazzo has not cooperated in the the OCE investigation.
“If you notice, they claim the congressman did not cooperate but never in the 47-page report did they mention that in the middle of this that Congressman Palazzo’s dad passed away nor did they mention that the campaign treasurer’s business partner passed away,” Harper said. “Those are things they could have at least mentioned before they make the blanket assertation that he didn’t cooperate.“
The congressman, he said, “stands ready to discuss all matters and will fully cooperate.”
This story was originally published March 2, 2021 at 9:27 AM.
