[House Report 112-195]
[From the U.S. Government Publishing Office]


112th Congress 
 1st Session            HOUSE OF REPRESENTATIVES                 Report
                                                                112-195
_______________________________________________________________________

                                     

                                                  House Calendar No. 69


                      IN THE MATTER OF ALLEGATIONS
                              RELATING TO
                      REPRESENTATIVE JEAN SCHMIDT

                               ----------                              

                              R E P O R T

                                 of the

                          COMMITTEE ON ETHICS




   August 5, 2011.--Referred to the House Calendar and ordered to be 
                                printed


  IN THE MATTER OF ALLEGATIONS RELATING TO REPRESENTATIVE JEAN SCHMIDT




For sale by the Superintendent of Documents, U.S. Government Printing Office, 
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Printing Office. Phone 202ï¿½09512ï¿½091800, or 866ï¿½09512ï¿½091800 (toll-free). E-mail, [email protected].  


112th Congress 
 1st Session            HOUSE OF REPRESENTATIVES                 Report
                                                                112-195
_______________________________________________________________________

                                     

                                                  House Calendar No. 69

 
                      IN THE MATTER OF ALLEGATIONS
                              RELATING TO
                      REPRESENTATIVE JEAN SCHMIDT

                               __________

                              R E P O R T

                                 of the

                          COMMITTEE ON ETHICS




   August 5, 2011.--Referred to the House Calendar and ordered to be 
                                printed
                          COMMITTEE ON ETHICS

JO BONNER, Alabama                   LINDA T. SANCHEZ, California
  Chairman                             Ranking Member
MICHAEL T. McCAUL, Texas             JOHN A. YARMUTH, Kentucky
K. MICHAEL CONAWAY, Texas            DONNA F. EDWARDS, Maryland
CHARLES W. DENT, Pennsylvania        PEDRO R. PIERLUISI, Puerto Rico
GREGG HARPER, Mississippi            JOE COURTNEY, Connecticut

                              Report Staff

            Daniel A. Schwager, Chief Counsel/Staff Director
             Deborah Sue Mayer, Director of Investigations
              Kelle A. Strickland, Counsel to the Chairman
            Daniel J. Taylor, Counsel to the Ranking Member
                     Thomas A. Rust, Senior Counsel


                         LETTER OF TRANSMITTAL

                              ----------                              

                     U.S. House of Representatives,
                                       Committee on Ethics,
                                    Washington, DC, August 5, 2011.
Hon. Karen L. Haas,
Clerk, U.S. House of Representatives,
Washington, DC.
    Dear Ms. Haas: Pursuant to clauses 3(a)(2) and 3(b) of rule 
XI of the Rules of the House of Representatives, we herewith 
transmit the attached Report, ``In the Matter Regarding 
Allegations Relating to Representative Jean Schmidt.''
            Sincerely,
                                   Jo Bonner,
                                           Chairman.
                                   Linda T. Sanchez,
                                           Ranking Member.


                            C O N T E N T S

                              ----------                              
                                                                   Page
 I. Introduction......................................................1
II. Background........................................................4
III.Findings and Conclusions.........................................11

IV. Statement Under Rule 13, Clause 3(c) of the Rules of the House of 
    Representatives..................................................20
Appendix A: Report and Findings of the Office of Congressional 
  Ethics Regarding Representative Jean Schmidt (Review No. 11-
  6574)..........................................................    21
Appendix B: Representative Jean Schmidt's Response to the Report 
  and Findings of the Office of Congressional Ethics.............   475


112th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    112-195

======================================================================




  IN THE MATTER REGARDING ALLEGATIONS RELATING TO REPRESENTATIVE JEAN 
                                SCHMIDT

                                _______
                                

   August 5, 2011.--Referred to the House Calendar and ordered to be 
                                printed

                                _______
                                

               Mr. Bonner, from the Committee on Ethics, 
                        submitted the following

                              R E P O R T

                            I. INTRODUCTION

    The Committee on Ethics submits this Report pursuant to 
Rule XI, clause 3(a)(2), of the Rules of the U.S. House of 
Representatives (House Rules), which authorizes the Committee 
to investigate any alleged violation by a Member, officer, or 
employee of the House of Representatives, of the Code of 
Official Conduct or any law, rule, regulation, or other 
standard applicable to the conduct of such Member, officer, or 
employee.
    Since the spring of 2009, Representative Jean Schmidt has 
been involved in litigation regarding statements made about her 
by David Krikorian, an opponent in her 2008 re-election 
campaign. That dispute has involved proceedings before an Ohio 
state agency, in Ohio state court, and in federal court.
    In a letter dated September 17, 2009, Representative Jean 
Schmidt first sought guidance related to payment of legal 
services provided to her in the state agency and state court 
proceedings by lawyers associated with the Turkish American 
Legal Defense Fund (TALDF). On February 26, 2010, the Committee 
provided guidance on the possible use of a legal expense fund 
or of campaign funds to pay for legal work already completed in 
those proceedings. The Committee's letter did not formally 
approve a legal expense fund pursuant to the Committee's 
written guidance on legal expense funds, because Representative 
Schmidt had not yet asked the Committee for such approval.
    In letters dated July 19, 2010, August 9, 2010, and August 
11, 2010, Representative Schmidt sought approval from the 
Committee of a legal expense fund, a contingency fee 
arrangement, and further guidance related to payment of legal 
services provided to her in the state agency and state court 
proceedings, as well as a federal court proceeding. Since first 
seeking the Committee's guidance, Representative Schmidt has 
worked in good faith with the Committee's Office of Advice and 
Education to resolve any outstanding issues regarding the 
payment of legal services to the lawyers associated with TALDF.
    On May 18, 2011, the Committee formally received a referral 
from the Office of Congressional Ethics (OCE), recommending 
further review of allegations that Representative Schmidt: 
``(1) accepted legal services from TALDF without establishing a 
legal expense fund; and (2) failed to report the legal services 
on her financial disclosure statements for calendar years 2008 
and 2009.''\1\ Upon receipt of OCE's Report and Findings 
(Report and Findings), the Committee sent a copy of the Report 
and Findings to Representative Schmidt and offered her an 
opportunity to respond. Representative Schmidt submitted a 
response to OCE's Report and Findings on May 27, 2011.\2\ On 
July 1, 2011, the Chairman and Ranking Member of the Committee 
jointly decided to extend the Committee's review of the OCE 
referral regarding Representative Schmidt pursuant to House 
Rule XI, clause 3(a)(8)(A), and Committee Rules 17A(b)(1)(A) 
and 17A(c)(1). Unless the Committee voted to empanel an 
investigative subcommittee, those rules required the Committee 
to release OCE's Report and Findings no later than August 16, 
2011.
---------------------------------------------------------------------------
    \1\Report and Findings in the Matter of Representative Jean 
Schmidt, OCE Review No. 11-6574, May 18, 2011. A copy of OCE's Report 
and Findings is attached as Appendix A to this report.
    \2\Letter from Representative Schmidt to Committee, May 27, 2011. A 
copy of Representative Schmidt's response to OCE's Report and Findings 
is attached as Appendix B to this report.
---------------------------------------------------------------------------
    The Committee conducted an independent investigation into 
the matters in the OCE referral pursuant to House Rule XI, 
clause 3(b)(1)(B)(ii), and Committee Rule 18(a), which 
authorize the Chairman and Ranking Member to jointly gather 
additional information concerning an alleged violation by a 
Member, officer, or employee unless and until an investigative 
subcommittee has been established.
    Based on the Committee's investigation and nearly two years 
of guidance to Representative Jean Schmidt through the 
Committee's Office of Advice and Education, the Committee voted 
unanimously on August 1, 2011, to resolve the issues 
surrounding Representative Schmidt's outstanding requests for 
guidance from the Committee and the allegations regarding 
Representative Schmidt by OCE, by issuing a letter to 
Representative Schmidt and releasing this Report.\3\ The 
Committee further determined that it was appropriate to 
publicly release OCE's Report and Findings, along with 
Representative Schmidt's response to the Report and Findings, 
through this Report.
---------------------------------------------------------------------------
    \3\Pursuant to Committee Rule 3(j), the Committee will not release 
any of its letters to Representative Schmidt at this time.
---------------------------------------------------------------------------
    With respect to Representative Schmidt's request for 
guidance from the Committee, the Committee in its guidance, 
issued contemporaneously with this Report, approved the use of 
funds from the Jean Schmidt Legal Expense Trust to pay legal 
bills incurred in connection with her complaint before the Ohio 
Elections Commission and the defamation action, subject to 
certain restrictions discussed below. The Committee denied the 
use of funds from the Jean Schmidt Legal Expense Trust to pay 
legal bills incurred in connection with amicus briefs filed in 
Krikorian v. Ohio Elections Commission. Additionally, the 
Committee has determined that Representative Schmidt's use of 
campaign funds to pay for the Ohio Elections Commission matter, 
the defamation action, and the amicus briefs filed in Krikorian 
v. Ohio Elections Commission would not violate House rules, 
subject to certain restrictions discussed below. However, the 
Committee advised Representative Schmidt to consult with the 
Federal Election Commission (FEC) before using campaign funds 
for any of these purposes. Finally, the Committee denied 
permission to enter into a so-called ``contingency fee'' 
arrangement.
    With respect to the referral from OCE, it appears that, 
based on the evidence examined by the Committee, unbeknownst to 
Representative Schmidt or the Committee, Representative 
Schmidt's lawyers were not employees of TALDF, or the related 
entity, the Turkish Coalition of America (TCA), and were not 
planning to send her a bill for attorneys' fees at the 
conclusion of the matter, but instead her lawyers were outside 
counsel to TCA who have sent monthly bills to TCA for their 
TALDF-related legal representation of Representative Schmidt, 
which TCA has paid on an ongoing basis. According to OCE's 
referral, between 2008 and 2010 TCA actually paid the TALDF 
lawyers approximately $500,000 for legal services provided to 
Representative Schmidt. Neither the Committee nor, according to 
the evidence, Representative Schmidt was aware of these 
payments when the Committee provided advice to Representative 
Schmidt regarding her options for paying legal fees in the 
various proceedings.
    Despite Representative Schmidt's apparent lack of knowledge 
of this arrangement, it was in fact improper and constituted an 
impermissible gift from TCA to Representative Schmidt. Thus, 
the Committee has decided that it will not dismiss the 
allegations in the OCE referral. However, the Committee does 
not see the need to empanel an investigative subcommittee at 
this time. The Committee does not believe that further fact-
gathering is necessary, and, given the evidence that 
Representative Schmidt lacked knowledge of the arrangement, the 
Committee does not believe that any sanction is necessary. In 
addition, the Committee notes that Representative Schmidt has 
been working in good faith with the Committee since 2009 to 
ascertain the appropriate means by which to pay her attorneys.
    However, Representative Schmidt must disclose and repay the 
improper gift. Thus, Representative Schmidt must ensure that 
TCA does not pay for any further legal services on her behalf, 
and, subject to the guidance below, Representative Schmidt must 
pay, from a permissible source, the lawyers associated with 
TALDF for all legal services they performed on her behalf; 
Representative Schmidt must also amend her annual Financial 
Disclosure Statements for calendar years 2009 and 2010 to 
disclose the gifts from TCA; and finally, Representative 
Schmidt must disclose the remaining unpaid legal fees from TCA 
as liabilities on her future Financial Disclosure Statements, 
until the lawyers associated with TALDF have been repaid in 
full, for all services provided, including those they 
originally billed to TCA.

                             II. BACKGROUND

    Based on OCE's referral, the Committee's independent 
investigation, and nearly two years of guidance to 
Representative Schmidt through the Committee's Office of Advice 
and Education, the following is the background on this matter.

                 A. LITIGATION INVOLVING MR. KRIKORIAN

    Representative Schmidt currently represents the 2nd 
District of Ohio. In the 2008 general election cycle, Mr. David 
Krikorian ran for her congressional seat as an independent.\4\ 
In the final days of the 2008 election cycle, Mr. Krikorian 
distributed materials accusing Representative Schmidt of 
accepting a $30,000 bribe from the Government of Turkey in 
exchange for denying the genocide of Armenians in Turkey during 
World War I. The campaign materials also called for 
Representative Schmidt's immediate resignation from her 
congressional seat and/or her defeat at the polls in the 2008 
general election. Representative Schmidt was reelected in the 
November 2008 general election.
---------------------------------------------------------------------------
    \4\Complaint, para.3, Jean Schmidt v. Mr. David Krikorian, Ohio 
Elections Commission, 2009E-003, April 29, 2009 (Ohio Elections 
Commission Complaint).
---------------------------------------------------------------------------
    Shortly after the 2008 election, Representative Schmidt was 
contacted by Mr. Bruce Fein and Mr. David Saltzman, who 
introduced themselves as lawyers with TALDF.\5\ At that time, 
Mr. Fein and Mr. Saltzman offered to represent Representative 
Schmidt in a lawsuit challenging Mr. Krikorian's claims about 
her. At that time, Representative Schmidt expressed some 
interest in Mr. Fein and Mr. Saltzman representing her, but she 
stated that she wanted it to be done on whatever terms were 
consistent with the House ethics rules.\6\ At some point, Mr. 
Fein suggested using a contingency fee arrangement, in which 
the lawyers associated with TALDF would not charge 
Representative Schmidt for legal services, but she would split 
the proceeds of any damage award that resulted from their 
representation.\7\ However, Representative Schmidt and the 
lawyers associated with TALDF never came to a final 
understanding of how she would pay for their legal services.
---------------------------------------------------------------------------
    \5\Transcript of Interview of Barry Bennett, at 5 (Bennett Tr.).
    \6\Transcript of Interview of Bruce Fein, at 15 (Fein Tr.).
    \7\Fein Tr. at 31.
---------------------------------------------------------------------------
    In April 2009, Mr. Fein and Mr. Saltzman filed a complaint 
on Representative Schmidt's behalf against Mr. Krikorian with 
the Ohio Elections Commission.\8\ The Ohio Elections Commission 
has jurisdiction over false campaign statements under Ohio 
law.\9\ Representative Schmidt filed the complaint as a 
candidate and used her campaign committee address.\10\ The 
complaint sought: (1) a finding by the Ohio Elections 
Commission that Mr. Krikorian violated Ohio law by making false 
campaign statements; (2) a public reprimand of Mr. Krikorian; 
and (3) any other appropriate relief.\11\
---------------------------------------------------------------------------
    \8\Id. at 16.
    \9\See Ohio Rev. Code Sec. 3517.21.
    \10\Ohio Elections Commission Complaint.
    \11\Id.
---------------------------------------------------------------------------
    On August 31, 2009, Mr. Fein was deposed in the Ohio 
Elections Commission matter.\12\ Later that day, Representative 
Schmidt's then-Chief of Staff, Barry Bennett, was also deposed 
in the Ohio Elections Commission matter.\13\ Lawyers 
representing Mr. Krikorian asked Mr. Fein and Mr. Bennett about 
the arrangement for payment of Mr. Fein's and Mr. Saltzman's 
attorneys' fees for representing Representative Schmidt. In 
response to the question of whether TALDF had charged 
Representative Schmidt's campaign for legal services to her, 
Mr. Fein stated, ``The answer is no. We stated that we would do 
this and we would not charge them legal fees.''\14\ Mr. Bennett 
was asked if there was an ``ethics issue associated with 
[TALDF] paying for Ms. Schmidt's legal fees?''\15\ Mr. Bennett 
responded, ``No, not that I'm aware of.''\16\
---------------------------------------------------------------------------
    \12\Deposition of Bruce Fein, August 31, 2009 (Fein Deposition).
    \13\Deposition of Barry Bennett, August 31, 2009 (Bennett 
Deposition).
    \14\Fein Deposition at 60.
    \15\Bennett Deposition at 49.
    \16\Id.
---------------------------------------------------------------------------
    According to Committee records, Mr. Bennett first called 
the Committee on or around September 10, 2009, to ask the 
Committee's guidance regarding the payment of legal fees 
incurred on Representative Schmidt's behalf in the course of 
pursuing the complaint against Mr. Krikorian before the Ohio 
Elections Commission.\17\ In that telephone call Mr. Bennett 
discussed a possible contingency fee agreement.\18\ Committee 
counsel asked Mr. Bennett if Representative Schmidt had 
considered using a legal expense fund, and Mr. Bennett said 
that this was the first time he had considered it.\19\ 
Committee counsel instructed Mr. Bennett that Representative 
Schmidt should submit a letter to the Committee to get formal 
guidance on these issues.\20\ Representative Schmidt first 
submitted a letter to the Committee on September 17, 2009, 
seeking formal guidance.\21\
---------------------------------------------------------------------------
    \17\Committee Telephone Inquiries Log, September 10, 2009, 3:11:17 
p.m. (Sept. 10 Phone Log).
    \18\Id.
    \19\Bennett Tr. at 6-7.
    \20\Sept. 10 Phone Log.
    \21\Schmidt Letter to Committee, September 17, 2009.
---------------------------------------------------------------------------
    In October 2009, Representative Schmidt received a finding 
of fact from the Ohio Elections Commission that there was clear 
and convincing evidence that Mr. Krikorian made false 
statements with malice.\22\ Mr. Krikorian filed an appeal in 
Ohio state court seeking to overturn the administrative ruling 
by the Ohio Elections Commission, which was denied. On October 
8, 2009, Representative Schmidt's office responded to requests 
from Committee counsel by providing the Committee with 
information related to her September 17, 2009, request.\23\ 
These materials included a letter in which Mr. Fein and Mr. 
Saltzman stated that they ``have agreed to represent 
[Representative Schmidt] as attorneys . . . for a contingency 
fee of one-third of any recovery, plus out-of-pocket 
expenses.''\24\ Mr. Bennett believed it was unlikely that a 
contingency fee arrangement would be approved, and understood 
from his conversations with Committee counsel that it appeared 
that the Committee had not previously approved a contingency 
fee arrangement. Representative Schmidt subsequently amended 
her request to omit the request for approval of a contingency 
fee arrangement.
---------------------------------------------------------------------------
    \22\Email from Barry Bennett to Committee counsel, October 2, 2009.
    \23\Letter from Barry Bennett to Committee counsel, October 8, 
2009.
    \24\Letter from Bruce Fein and David Saltzman to Representative 
Schmidt, undated.
---------------------------------------------------------------------------
    On January 21, 2010, Mr. Krikorian filed a civil suit in 
federal court against the Ohio Elections Commission that 
challenged the constitutionality of Section 3517.21(B)(10) of 
the Ohio Revised Code, which prohibits a candidate from making 
``a false statement concerning a candidate, either knowing the 
same to be false or with reckless disregard of whether it was 
false or not, if the statement is designed to promote the 
election, nomination, or defeat of the candidate.''\25\ Mr. 
Krikorian also contended the statute is preempted by the 
Federal Elections Campaign Act of 1971 (as amended). He sought 
a declaratory judgment that the Ohio statute is 
unconstitutional and an injunction against its enforcement 
against him. Representative Schmidt was not a named party to 
this federal court case. On January 29, 2010, Representative 
Schmidt filed an amicus brief in the federal court action in 
support of the Ohio Elections Commission.\26\ The brief was 
prepared for Representative Schmidt by the lawyers associated 
with TALDF.
---------------------------------------------------------------------------
    \25\Complaint, Krikorian v. Ohio Elections Commission, 1:10-cv-
00720-TSB (S.D. Ohio Jan. 21, 2010).
    \26\Amicus Brief, Krikorian v. Ohio Elections Commission, 1:10-cv-
00720-TSB (S.D. Ohio Jan. 29, 2010).
---------------------------------------------------------------------------
    On February 26, 2010, the Committee sent a response to 
Representative Schmidt's September 17, 2009, letter.\27\ This 
letter provided guidance on the possible use of a legal expense 
fund or of campaign funds to pay for legal work already 
completed during the Ohio Elections Commission proceedings and 
future work on Representative Schmidt's behalf in the appellate 
case in Ohio state court. The Committee's letter did not 
formally approve a legal expense fund pursuant to the 
Committee's written guidance on legal expense funds, because 
Representative Schmidt had not yet asked the Committee for such 
approval. The letter noted Mr. Krikorian's civil suit in 
federal court against the Ohio Elections Commission, but stated 
that Representative Schmidt was ``not a named party to this 
federal court case and [did] not anticipate any involvement in 
that separate litigation.''\28\
---------------------------------------------------------------------------
    \27\Letter from Committee to Representative Schmidt, February 26, 
2010.
    \28\Id. The Committee had not been previously aware that 
Representative Schmidt's intention to participate in the federal court 
matter had changed.
---------------------------------------------------------------------------
    On June 8, 2010, lawyers associated with TALDF filed a 
defamation action on Representative Schmidt's behalf against 
Mr. Krikorian in the Ohio Court of Common Pleas.\29\ 
Representative Schmidt's complaint in the defamation action 
alleges that Mr. Krikorian made defamatory statements similar 
to those made in the campaign and republished the defamatory 
statements made during the campaign when interviewed by 
Asbarez.com in June 2009.\30\ Representative Schmidt alleges he 
made further defamatory statements in The Armenian Reporter and 
The Armenian Mirror-Spectator in August 2009 and again in a 
televised interview in September 2009.\31\
---------------------------------------------------------------------------
    \29\Complaint, Schmidt v. Krikorian, et al., 2010-cvc-1217 (June 8, 
2010).
    \30\Id.
    \31\Id.
---------------------------------------------------------------------------
    On July 13, 2010, Mr. Krikorian filed a complaint regarding 
Representative Schmidt with the Office of Congressional Ethics. 
Mr. Krikorian asserted that Representative Schmidt's acceptance 
of legal services from the TALDF attorneys may have violated 
the House gift rule, and alleged possible violations of the 
Ethics in Government Act, the False Statements Accountability 
Act, and other House Rules. In the complaint, Mr. Krikorian 
stated ``while purely an estimate on my part, I believe the 
total fees and expenses associated with the OEC Action exceeded 
$200,000 and may have ranged up to $500,000.'' The complaint 
also stated that publicly available records showed no payments 
from her campaign for the legal services or the establishment 
of a legal defense fund.
    On July 19, August 9, and August 11, 2010, Representative 
Schmidt wrote letters to the Committee seeking approval of the 
Jean Schmidt Legal Expense Trust. She sought to use the fund to 
pay for legal expenses incurred in the Ohio Elections 
Commission matter and the federal court litigation to which she 
was not a party. Representative Schmidt also resubmitted a 
request for approval of a contingency fee arrangement to pay 
for the defamation action.
    On September 27, 2010, Mr. Fein filed a motion to be 
admitted pro hac vice in the Ohio Court of Common Pleas for 
Representative Schmidt's defamation action.\32\ On October 22, 
2010, the defendants in the defamation matter filed a legal 
brief opposing Mr. Fein's admission pro hac vice.\33\ In the 
opposition brief, defendants asserted that Mr. Fein was a 
``necessary witness'' in the matter, and had potentially 
perjured himself, because:
---------------------------------------------------------------------------
    \32\Motion for Admission Pro Hac Vice for Bruce Fein of Bruce E. 
Fein & Associates, Inc., Schmidt v. Krikorian, et al., 2010-cvc-1217 
(September 27, 2010).
    \33\Memorandum in Opposition to Motion for Admission Pro Hac Vice 
for Bruce Fein of Bruce E. Fein & Associates, Inc., Schmidt v. 
Krikorian, et al., 2010-cvc-1217 (October 22, 2010).

        Mr. Fein testified under oath that the Turkish American 
        Legal Defense Fund (``TALDF'')--an entity that is part 
        of the Turkish Coalition of America (``TCA'')--was 
        paying Plaintiff Schmidt's legal fees during the 
        pendency of the Ohio Elections Commission that serve as 
        a basis of this instant case.\34\
---------------------------------------------------------------------------
    \34\Id. at 4.

The opposition brief further asserted that Mr. Fein may have a 
conflict of interest in the case because ``it is also very 
likely Mr. Fein advised Plaintiff Schmidt that their 
arrangement regarding not charging her, her congressional 
office, or her campaign was perfectly legal without any 
disclosure.''\35\
---------------------------------------------------------------------------
    \35\Id. at 7.
---------------------------------------------------------------------------
    Representative Schmidt's lawyers filed a reply brief in the 
matter which asserted that ``Mr. Fein's statements during his 
deposition were accurate and consistent with the information 
available to him at the time they were made.''\36\ The reply 
brief further stated that ``Mr. Fein has testified under oath 
that he never provided free legal services to plaintiff.''\37\ 
Instead, the brief stated that ``[t]he Turkish Coalition of 
America . . . has consistently funded Fein's representation of 
Jean Schmidt as senior counsel at the Turkish American Legal 
Defense Fund . . . for the duration of her several legal 
actions against Defendant Krikorian.''\38\ Finally, the reply 
brief stated that ``Mr. Fein did not advise Plaintiff Schmidt 
rules [sic] governing the receipt of free legal services by 
members of Congress.''\39\
---------------------------------------------------------------------------
    \36\Reply Memorandum of Plaintiff Jean Schmidt in Support of Motion 
for Admission Pro Hac Vice for Bruce Fein, Schmidt v. Krikorian, et 
al., 2010-cvc-1217 (November 11, 2010), at 13.
    \37\Id. at 14.
    \38\Id. at 14-15.
    \39\Id. at 14.
---------------------------------------------------------------------------
    Following oral argument, the Ohio Court of Common Pleas 
issued an order denying Mr. Fein's motion.\40\ As part of its 
support for this ruling, the court stated:
---------------------------------------------------------------------------
    \40\Order, Decision and Entry Denying Plaintiff's Motion to Admit 
Pro Hac Vice Bruce Fein, Esq., Schmidt v. Krikorian, et al., 2010-cvc-
1217 (April 4, 2011).

        First, the defense has raised a material issue as to 
        who(m) is paying for the legal fees for Plaintiff 
        Schmidt during the pendency of the Ohio Elections 
        Commission [sic]. In an earlier deposition, Attorney 
        Bruce Fein said that the Turkish American Legal Defense 
        Fund (``TALDF'') was paying for Schmidt's legal fees, 
        and Plaintiff Schmidt denied that same statement. The 
        issue of who is paying for these fees is material in 
        regards to the matter before the Court.\41\
---------------------------------------------------------------------------
    \41\Id. at 3.

    The Committee was unaware that Mr. Krikorian had opposed 
Mr. Fein's appearance in the case or of the basis for his 
objection. The Committee learned these facts in the spring of 
2011 from news reports.
    None of the lawyers associated with TALDF have submitted 
any bills to Representative Schmidt for any of the matters in 
which they represented her.\42\ This was true even with regard 
to the five months that the lawyers associated with TALDF 
represented Representative Schmidt before she sought the 
Committee's guidance on how to pay for their legal 
services.\43\ Mr. Bennett told the Committee that before 
Representative Schmidt initially sought the Committee's 
guidance in September 2009, she had intended to pay for her 
legal bills using campaign resources once the matter was 
complete.\44\ While this appears to be potentially inconsistent 
with Mr. Bennett's deposition testimony in the matter before 
the Ohio Elections Commission,\45\ he told the Committee that 
Representative Schmidt's practice in prior matters before the 
Ohio Elections Commission was to pay legal expenses at the end 
of the matter using campaign funds.\46\ No written fee 
agreement had been entered into by Representative Schmidt's 
campaign for payment of the legal fees as of September 2009.
---------------------------------------------------------------------------
    \42\Schmidt Letter to Committee, May 27, 2011.
    \43\Fein Tr. at 17.
    \44\Bennett Tr. at 7.
    \45\Bennett Deposition at 49 (``Q. And there's no ethics issue 
associated with Turkish American Legal Defense Funds paying for Ms. 
Schmidt's legal fees? A. No, not that I'm aware of.''). See below on 
pages 11-12 for a further discussion of this potential inconsistency.
    \46\Bennett Tr. at 17.
---------------------------------------------------------------------------

                  B. OCE AND COMMITTEE INVESTIGATIONS

    OCE commenced its initial review of this matter on January 
25, 2011.\47\ OCE voted to initiate a second-phase review on 
February 22, 2011, and voted to extend the second-phase review 
on April 23, 2011.\48\ OCE voted to refer the matter to the 
Committee on April 29, 2011, and transmitted its Report and 
Findings to the Committee on May 18, 2011.\49\ Upon receipt of 
OCE's Report and Findings, the Committee sent a copy of the 
Report and Findings to Representative Schmidt and offered her 
an opportunity to respond. Representative Schmidt submitted a 
response to OCE's Report and Findings on May 27, 2011.\50\
---------------------------------------------------------------------------
    \47\Report and Findings In the Matter of Representative Jean 
Schmidt, OCE Review No. 11-6574, May 18, 2011.
    \48\Id.
    \49\Id.
    \50\Schmidt Letter to Committee, May 27, 2011.
---------------------------------------------------------------------------
    The Committee conducted an independent investigation into 
the matters in the OCE referral pursuant to House Rule XI, 
clause 3(b)(1)(B)(ii), and Committee Rule 18(a), which 
authorizes the Chairman and Ranking Member to jointly gather 
additional information concerning such an alleged violation by 
a Member, officer, or employee unless and until an 
investigative subcommittee has been established.
    The investigations by OCE and the Committee revealed that 
TALDF was first formed around 2007, but it is not an 
independent corporate entity.\51\ Instead, TALDF is under the 
umbrella of TCA.\52\ TCA is an Internal Revenue Code section 
501(c)(3) organization, which has employed registered federal 
lobbyists under the Lobbying Disclosure Act in the past.\53\ 
Lawyers associated with TALDF have represented between six and 
twelve clients in TALDF-related matters since its inception in 
2007.\54\ The lawyers associated with TALDF have had retainer 
agreements with each of these clients, except for 
Representative Schmidt.\55\
---------------------------------------------------------------------------
    \51\Fein Tr. at 3.
    \52\Id.
    \53\Lobbying Disclosure Act filings reflect individuals registered 
to lobby on behalf of TCA in 2008, but that registration was terminated 
as of December 31, 2008.
    \54\Fein Tr. at 6.
    \55\Id. at 12-13.
---------------------------------------------------------------------------
    Mr. Fein and Mr. Saltzman are the primary attorneys 
associated with TALDF.\56\ Occasionally, TALDF will use 
additional lawyers, if, for example, the representation 
requires local counsel.\57\ Mr. Fein and Mr. Saltzman used 
local counsel in their work for Representative Schmidt.\58\ Mr. 
Fein and Mr. Saltzman are not employees of TALDF or TCA, and 
they do not receive a salary from either entity.\59\ They each 
work for their own law firms: Bruce Fein & Associates and 
Saltzman & Evinch, P.C., respectively.\60\ This appears to be 
inconsistent with the statement in the reply brief supporting 
Mr. Fein's admission pro hac vice that Mr. Fein was a ``senior 
counsel at the Turkish American Legal Defense Fund.''\61\
---------------------------------------------------------------------------
    \56\Id. at 3.
    \57\Id.
    \58\Id.
    \59\Id.
    \60\Id. at 4.
    \61\Id. at 14-15.
---------------------------------------------------------------------------
    Mr. Fein and Mr. Saltzman have never charged the people 
whom they have represented in their TALDF-related matters for 
their legal services.\62\ Instead, Mr. Fein and Mr. Saltzman 
send monthly bills to TCA for their TALDF-related legal work 
through their respective law firms.\63\ This is the standard 
arrangement for all TALDF-related legal work.\64\ Occasionally, 
Mr. Fein and Mr. Saltzman will enter into what Mr. Fein 
described as a ``contingency fee arrangement'' with the people 
whom they have represented in their TALDF-related matters.\65\ 
Under these agreements, TALDF and the individual represented by 
Mr. Fein and Mr. Saltzman agree to split the proceeds of any 
damage award received as a result of a lawsuit brought by Mr. 
Fein and Mr. Saltzman.\66\ Because TALDF is not a separate 
corporate entity, its portion of any award would go to TCA.\67\ 
In this context, however, the phrase ``contingency fee'' is a 
misnomer as Mr. Fein's and Mr. Saltzman's receipt of their fees 
is never contingent on the outcome of a matter, but would be 
paid as billed by Mr. Fein and Mr. Saltzman on an ongoing 
basis, regardless of the result of the action.\68\ It was this 
arrangement that Mr. Fein suggested to Representative Schmidt 
in 2009,\69\ and for which Representative Schmidt sought 
Committee approval. The Committee did not understand the nature 
of the misnamed ``contingency fee'' arrangement until its 
interview of Mr. Fein following the referral of the matter by 
OCE.
---------------------------------------------------------------------------
    \62\Id. at 9.
    \63\Id. at 4.
    \64\Id. at 5.
    \65\Id. at 8.
    \66\Id. at 9.
    \67\Id.
    \68\Id.
    \69\Id. at 31.
---------------------------------------------------------------------------
    Both Representative Schmidt and Mr. Bennett told the 
Committee that she was never made aware of this payment 
arrangement with TCA, and Mr. Fein confirmed that he never 
discussed the payment arrangement with Representative Schmidt 
or any member of her staff.\70\ Thus, the evidence suggests 
that Representative Schmidt did not have knowledge of the 
details of TCA's financial relationship with Mr. Fein and Mr. 
Saltzman, or the fact that the contingency fee proposal did not 
actually cover the lawyer's fees, at any time prior to the 
Committee's discovery of the relationship following the 
referral of the matter by OCE. The fact of the payment 
arrangement was material to the Committee's guidance on this 
matter, and if the Committee had given Representative Schmidt 
guidance without being aware of this arrangement, the guidance 
would not have been correct or binding on the Committee.\71\
---------------------------------------------------------------------------
    \70\Fein Tr. at 17-18; Bennett Tr. at 17.
    \71\See House Comm. on Standards of Official Conduct, In the Matter 
of the Investigation into Officially Connected Travel of House Members 
to Attend the Carib News Foundation Multinational Business Conferences 
in 2007 and 2008, H. Rep. 111-422, 111th Cong., 2d Sess. 2 (2010).
---------------------------------------------------------------------------
    Mr. Bennett told the Committee that he never viewed a 
contingency fee arrangement to be a realistic possibility.\72\ 
Instead, Mr. Bennett stated that in Representative Schmidt's 
prior matters before the Ohio Elections Commission, the 
ordinary practice had been for the law firm representing 
Representative Schmidt to not provide monthly or quarterly 
bills, but instead to submit one bill at the end of the 
proceeding.\73\ Mr. Bennett stated that he had no reason to 
suspect that the billing arrangement for this matter would be 
any different.\74\ This appears to be inconsistent with Mr. 
Bennett's deposition testimony in the matter before the Ohio 
Elections Commission.\75\ However, during the Committee's 
independent investigation, he explained that he never meant to 
imply that Representative Schmidt was not planning to pay the 
lawyers' fees.\76\ Instead, Mr. Bennett stated:
---------------------------------------------------------------------------
    \72\Bennett Tr. at 19.
    \73\Id. at 5.
    \74\Id.
    \75\Bennett Deposition at 49 (``Q. And there's no ethics issue 
associated with Turkish American Legal Defense Funds paying for Ms. 
Schmidt's legal fees? A. No, not that I'm aware of.'').
    \76\Bennett Tr. at 22.

        No. I take from [the deposition testimony] that [TALDF] 
        were clearly covering costs, like any law firm would 
        cover costs. And then you get a bill. You know, every 
        lawyer I know gets paid every 2 weeks whether or not 
        his client has paid or not. So I take that to mean yes, 
        you know, they are covering these costs or whatever, 
        and they are going to bill us for them. Now it's 
        illogical that I could ever think that they were going 
        to do this for free . . . [b]ecause it would clearly be 
        either use of House money to furtherance [sic] your 
        official capacity, an illegal campaign contribution, or 
        some hybrid of both.\77\
---------------------------------------------------------------------------
    \77\Id.
---------------------------------------------------------------------------

                     III. FINDINGS AND CONCLUSIONS 

    Following the Committee's investigation and nearly two 
years of guidance to Representative Jean Schmidt through the 
Committee's Office of Advice and Education, the Committee 
reached the following findings and conclusions.

            A. COMMITTEE'S RESPONSE TO REQUESTS FOR GUIDANCE

    Based on Representative Schmidt's statements to the 
Committee, the evidence gathered by OCE, and the Committee's 
independent investigation, the Committee approved the use of 
funds from the Jean Schmidt Legal Expense Trust to pay legal 
bills incurred in connection with Representative Schmidt's 
complaint before the Ohio Elections Commission and the 
defamation action, subject to certain restrictions discussed 
below. However, the Committee denied the use of funds from the 
Jean Schmidt Legal Expense Trust to pay legal bills incurred in 
connection with amicus briefs filed in Krikorian v. Ohio 
Elections Commission. Additionally, the Committee has 
determined that Representative Schmidt's use of campaign funds 
to pay for the Ohio Elections Commission matter, the defamation 
action, and the amicus briefs filed in the Krikorian v. Ohio 
Elections Commission matter would not violate the House rules, 
subject to the restrictions below. However, the Committee 
advised Representative Schmidt to consult with the Federal 
Election Commission before using campaign funds for any of 
these purposes.\78\ Finally, the Committee denied permission to 
enter into the so-called ``contingency fee'' arrangement.
---------------------------------------------------------------------------
    \78\The legal services provided by the lawyers associated with 
TALDF were not provided on a pro bono basis, and were not contingent on 
the outcome of the case. Thus, the Committee does not express an 
opinion on whether the services could be provided on a pro bono basis 
or under a contingency fee agreement, as the underlying facts would not 
support either arrangement.
---------------------------------------------------------------------------

1. Legal Expense Trust Fund

            a. Legal background
    Under a provision of the gift rule, a Member, officer, or 
employee may accept ``a contribution or other payment to a 
legal expense fund established for the benefit of [the 
official] that is otherwise lawfully made in accordance with 
the restrictions and disclosure requirements of the Committee 
on Ethics.''\79\ Under the Committee's Legal Expense Fund 
Regulations (LEF Regulations), a Member may not receive or 
solicit donations to such a fund without prior approval of the 
trust agreement by the Committee.\80\
---------------------------------------------------------------------------
    \79\See House Rule 25, clause 5(a)(3)(E). See generally 2008 House 
Ethics Manual at 63-65.
    \80\LEF Regulations para.para.1, 11.
---------------------------------------------------------------------------
    Under the Committee's LEF Regulations, a fund may be 
established only when the legal expenses arise in connection 
with one of the following matters:
           The individual's candidacy for or election 
        to federal office;
           The individual's official duties or position 
        in Congress (including a matter before the Ethics 
        Committee);
           A criminal prosecution; or
           A civil matter bearing on the individual's 
        reputation or fitness for office.\81\
---------------------------------------------------------------------------
    \81\LEF Regulations para.2.
---------------------------------------------------------------------------
    The Committee will not grant permission to establish a fund 
when legal expenses arise in connection with a matter that is 
primarily personal in nature, such as a matrimonial action.\82\ 
The rules governing the operation of a legal expense fund 
include:
---------------------------------------------------------------------------
    \82\LEF Regulations para.3.
---------------------------------------------------------------------------
           No contribution may be solicited for or 
        accepted by a fund prior to the Committee's written 
        approval of the completed trust document and the 
        trustee;\83\
---------------------------------------------------------------------------
    \83\LEF Regulations para.11.
---------------------------------------------------------------------------
           A fund must be established as a trust, 
        administered by a trustee who is entirely independent 
        of the Member and has no family, business, or 
        employment relationship with the Member;\84\
---------------------------------------------------------------------------
    \84\LEF Regulations para.para.5-6.
---------------------------------------------------------------------------
           Trust funds may be used only to pay legal 
        expenses, or the expenses incurred in soliciting for or 
        administering the trust;\85\
---------------------------------------------------------------------------
    \85\LEF Regulations para.7.
---------------------------------------------------------------------------
           A fund may not accept more than $5,000 in a 
        calendar year from any individual or organization, but, 
        in accordance with the gift rule, no contribution may 
        be accepted from a registered lobbyist or foreign 
        agent;\86\
---------------------------------------------------------------------------
    \86\LEF Regulations para.para.8-9.
---------------------------------------------------------------------------
           Excess funds must be returned to the 
        contributors;\87\ and
---------------------------------------------------------------------------
    \87\LEF Regulations para.7.
---------------------------------------------------------------------------
           A fund may not pay for legal services for 
        anyone other than the named beneficiary except with the 
        Committee's written permission. Written Committee 
        permission is also required for any amendment of the 
        trust document and any change in the trustee.\88\
---------------------------------------------------------------------------
    \88\LEF Regulations para.11.
---------------------------------------------------------------------------
    Once a legal expense trust agreement has been approved by 
the Committee, the Member must file an executed copy with the 
Legislative Resource Center of the Office of the Clerk, for 
placement on the public record.\89\ In addition, Members must 
file quarterly reports on the public record regarding certain 
contributions and expenditures under the LEF Regulations.\90\
---------------------------------------------------------------------------
    \89\LEF Regulations para.12.
    \90\LEF Regulations para.13.
---------------------------------------------------------------------------
            b. Analysis
    The trustee named in the agreement for the Jean Schmidt 
Legal Expense Trust is Mr. Larry Neuman, Esq., of Cincinnati, 
Ohio. According to Representative Schmidt's representations to 
the Committee, Representative Schmidt has no family, business, 
or employment relationship with Mr. Neuman. Representative 
Schmidt's representations to the Committee further indicate 
that the trust funds will be used to pay legal expenses 
incurred in connection with a legal action directly related to 
Representative Schmidt's candidacy for federal office in 2008 
and matters bearing upon her reputation and fitness for office. 
Recital A of the trust agreement indicates that the purpose of 
the Legal Expense Fund is to pay expenses incurred in 
connection with Representative Schmidt's official duties and 
position in Congress and matters bearing on her reputation and 
fitness for office. Pursuant to Representative Schmidt's 
correspondence with the Committee, it is the Committee's 
understanding that the specific purpose of the trust is to pay 
legal expenses that Representative Schmidt incurred by filing a 
complaint with the Ohio Elections Commission regarding false 
campaign statements and her amicus filing in Krikorian v. Ohio 
Elections Commission.
    The Committee therefore approved the use of funds from the 
Jean Schmidt Legal Expense Trust provided by Representative 
Schmidt to pay for the legal expenses incurred in filing the 
complaint before the Ohio Elections Commission and the appeal 
of that decision in the Ohio state courts.
    The Committee denied the use of funds from the Jean Schmidt 
Legal Expense Trust to pay for legal costs incurred filing 
amicus briefs in the federal court action. At its core, Mr. 
Krikorian's legal action was a constitutional challenge to a 
state statute. Mr. Krikorian wanted permission to utter any 
statement regarding any opponent in the course of an election 
campaign because he viewed it as political speech. As 
Representative Schmidt noted in the Complaint in her defamation 
action, Mr. Krikorian also made controversial statements 
regarding his opponent during the course of the 2010 Democratic 
primary campaign. If Mr. Krikorian's case had survived, the 
Court would ultimately have decided if the statute was 
constitutional and if it was preempted by federal law. 
Representative Schmidt's 2008 election and the statements Mr. 
Krikorian made about her were only relevant in this matter as 
factual background, and they were not part of the core legal 
issues to be decided. As a result, the legal expenses related 
to this matter were not incurred adjudicating matters in 
connection with her candidacy for office, her official duties, 
or her reputation and fitness for office, and a legal expense 
trust may not be used.
    Representative Schmidt's defamation action is related to 
her election for office and reputation and fitness as a Member 
of Congress. As a result, Representative Schmidt met the first 
criterion to use a legal expense fund under the LEF Regulations 
and House Rules. There is, however, a challenge to using a 
legal expense fund to pay expenses related to the defamation 
case in that Representative Schmidt is seeking monetary damages 
in her personal capacity. Seeking monetary damages makes it 
appear as if the suit is personal in nature. The Committee 
believes this defect can be cured.
    The Committee will approve Representative Schmidt's use of 
a legal expense fund to pay for expenses related to the 
defamation action under the following conditions: (1) any 
damages award will first be used to defray the cost of 
litigation; (2) any remaining damages award will be used to 
repay donors to the Jean Schmidt Legal Expense Trust; (3) any 
additional amount will be donated to a nonprofit organization 
organized under Sec. 501(c)(3) of the Internal Revenue Code; 
and (4) Representative Schmidt represents to the Committee in 
writing that she will receive no direct or indirect financial 
benefit from the lawsuit.\91\
---------------------------------------------------------------------------
    \91\See Federal Election Commission, AO 1997-27, at 3 (February 23, 
1998). ``For example, to the extent that the effect of the charitable 
deduction would provide more that 100 percent offset to the additional 
taxable income, that part of the deduction may not be taken.''
---------------------------------------------------------------------------
    In accordance with paragraph 12 of the LEF Regulations, 
Representative Schmidt must file a copy of the executed trust 
agreement with the Legislative Resource Center (B-106 Cannon 
House Office Building) within one week of Committee approval. 
In accordance with LEF Regulation 13, Representative Schmidt 
(not the trustee) is responsible for filing quarterly reports 
with the Committee regarding certain receipts and expenditures. 
The original version of Representative Schmidt's quarterly 
reports must be filed with the Committee and a copy must also 
be filed with the Legislative Resource Center for public 
disclosure. In addition to the quarterly reports, any 
contributions of more than $350 in a calendar year from a 
single source (other than a relative) must also be disclosed on 
Schedule VI of Representative Schmidt's annual Financial 
Disclosure Statement.

2. Campaign Funds

            a. Legal background
    The Committee has long advised Members to consult with the 
Committee prior to using campaign funds for legal expenses to 
ensure that the legal services are ones that the Member may 
properly pay with campaign funds. House Rule 23, clause 6, 
provides as follows:
    A Member, Delegate, or Resident Commissioner--
          (a) shall keep the campaign funds of such individual 
        separate from the personal funds of such individual;
          (b) may not convert campaign funds to personal use in 
        excess of an amount representing reimbursement for 
        legitimate and verifiable campaign expenditures; and
          (c) except as provided in clause 1(b) of rule [24], 
        may not expend funds from a campaign account of such 
        individual that are not attributable to bona fide 
        campaign or political purposes.
    While the rule permits the use of campaign funds for ``bona 
fide campaign or political purposes,'' it does not include a 
definition of that phrase. The Committee has long advised that 
Members have wide discretion to determine whether any 
particular expenditure would serve such purposes, provided that 
the Member does not convert campaign funds to personal or 
official uses (other than as permitted by House Rule 24, clause 
1(b)).\92\ Put another way, the rule is not interpreted ``to 
limit the use of campaign funds strictly to a Member's 
reelection campaign,'' but instead is interpreted ``broadly to 
encompass the traditional politically-related activities of 
Members of Congress.''\93\
---------------------------------------------------------------------------
    \92\See Comm. on Standards of Official Conduct, Advisory Opinion 
No. 6, reprinted in Appendix to 2008 House Ethics Manuat at 375, 376.
    \93\House Select Comm. on Ethics, Final Report, H. Rep. 95-1837, 
95th Cong., 2d Sess. 16 (1979).
---------------------------------------------------------------------------
    In accordance with these principles, the Committee has 
determined that it is generally permissible under House rules 
for a Member to use campaign funds to pay for the Member's own 
legal fees which arise in connection with the Member's 
campaign, election, or the performance of official duties.\94\
---------------------------------------------------------------------------
    \94\See 2008 House Ethics Manual at 156-57.
---------------------------------------------------------------------------
    Pursuant to the Federal Election Campaign Act, the FEC 
administers a separate set of restrictions on the use of 
campaign funds. Although our understanding is that the FEC 
generally permits the use of campaign funds and the 
establishment of legal expense funds for legal expenses arising 
out of a Member's congressional campaign and official duties, 
interpretation of FEC regulations is outside this Committee's 
jurisdiction. As a result, the Committee traditionally 
encourages all Members to consult with the FEC to determine 
whether use of campaign funds is permissible under the 
applicable law and regulations.
            b. Analysis
    The Ohio Elections Commission matter and Representative 
Schmidt's defamation action are related to her election for 
office and reputation and fitness as a Member and, as a result, 
Representative Schmidt met that criterion to use campaign funds 
under the House rules. With respect to the defamation matter, 
however, Representative Schmidt faces the same challenge to 
using campaign funds to pay expenses that she has with the use 
of a legal expense fund in that Representative Schmidt is 
seeking monetary damages in her personal capacity. Seeking 
monetary damages makes it appear as if Representative Schmidt 
would be converting campaign funds for her personal use.
    The Committee notes that in 1998, Representative John 
Boehner sought an opinion from the FEC regarding the use of 
campaign funds to pay for legal expenses incurred in connection 
with his lawsuit against Representative James McDermott, in 
which he was seeking monetary damages.\95\ The FEC permitted 
Representative Boehner to pay his legal expenses with campaign 
funds under the following conditions: (1) any damages award 
first defrayed the cost of litigation; (2) any additional 
amount be donated to charity; and (3) Representative Boehner 
had to represent he would receive no direct or indirect 
financial benefit from the lawsuit.\96\
---------------------------------------------------------------------------
    \95\See Federal Election Commission, AO 1997-27 (February 23, 
1998).
    \96\See id. at 3. ``For example, to the extent that the effect of 
the charitable deduction would provide more that 100 percent offset to 
the additional taxable income, that part of the deduction may not be 
taken.''
---------------------------------------------------------------------------
    The Committee notes that Representative Schmidt may be able 
to reach a similar arrangement with the FEC in this instance. 
Committee staff has been informed by FEC staff that that they 
do not provide the advisory opinion given to Representative 
Boehner to other individuals because it is so fact specific 
that it should not be relied on by anyone other than 
Representative Boehner. As a result, the Committee strongly 
urges Representative Schmidt to seek an advisory opinion from 
the FEC before using campaign funds to pay legal expenses 
related to the defamation action.
    With respect to the amicus brief filed in Krikorian v. Ohio 
Elections Commission, although the Committee does not perceive 
that matter as either pertaining to Representative Schmidt's 
candidacy for federal office or bearing on her reputation and 
fitness for office, this view may not be shared by the FEC and 
would not foreclose Representative Schmidt's ability to seek an 
FEC advisory opinion regarding whether one may use campaign 
funds to pay for legal expenses related to this matter. If 
Representative Schmidt wanted to proceed with using campaign 
funds to pay for this action, the Committee strongly urges 
Representative Schmidt to seek an advisory opinion from the FEC 
before doing so.

             B. COMMITTEE'S DISPOSITION OF THE OCE REFERRAL

    Based on the evidence examined by the Committee, it appears 
that the arrangement whereby the lawyers associated with TALDF 
sent bills for their legal representation of Representative 
Schmidt to TCA, which TCA then paid, constituted an improper 
gift from TCA to Representative Schmidt. According to OCE's 
referral, between 2008 and 2010 TCA actually paid the TALDF 
lawyers approximately $500,000 for legal services provided to 
Representative Schmidt. Neither the Committee nor, according to 
the evidence, Representative Schmidt was aware of these 
payments when the Committee provided advice to Representative 
Schmidt regarding her options for paying legal fees in the 
various proceedings.
    Thus, the Committee will not dismiss the allegations in the 
OCE referral. As explained below, however, the Committee does 
not see the need to empanel an investigative subcommittee at 
this time. The Committee does not believe that further fact-
gathering is necessary, and, given the evidence that 
Representative Schmidt did not know of the payment arrangement 
between TCA and the lawyers associated with TALDF, the 
Committee does not believe that any sanction is necessary.
    However, in order to remedy the actual, even if unknown, 
receipt of an impermissible gift, both disclosure and repayment 
of the gift are necessary. Thus, Representative Schmidt must 
ensure that TCA does not pay for any additional future legal 
services on her behalf. In addition, subject to the guidance 
below, Representative Schmidt must pay the lawyers associated 
with TALDF, from a permissible source, for all legal services 
they have performed on her behalf to date. Furthermore, this 
remedy will only be sufficient if Mr. Fein and Mr. Saltzman and 
any other attorney who was actually paid with TCA funds, first 
agree that, as Representative Schmidt pays them directly, they 
will repay to TCA the fees TCA originally paid to them for 
their representation of Representative Schmidt. Such an 
agreement must be in writing and submitted to the Committee. 
Representative Schmidt must also amend her annual Financial 
Disclosure Statements for calendar years 2009 and 2010 to 
disclose the gifts from TCA. Finally, Representative Schmidt 
must disclose any gifts from TCA on her future Financial 
Disclosure Statements, until the lawyers associated with TALDF 
have been repaid in full.\97\
---------------------------------------------------------------------------
    \97\It is not necessary for Representative Schmidt to file an 
actual amended Financial Disclosure Statement. Instead, it would be 
acceptable for her to submit a letter to the Clerk detailing the 
source, description, and value of the legal services. This is an option 
available to any filer when amending their Financial Disclosure 
Statement.
---------------------------------------------------------------------------

1. Improper Gift

    As noted above, Members may not accept any gift, except as 
specifically permitted by House rules.\98\ The definition of 
gift expressly includes gifts of services, and thus the value 
of legal services provided to a Member at no cost would be 
deemed to be a gift under the gift rule.\99\ Each time TCA paid 
the legal fees of the lawyers associated with TALDF in 
connection with their representation of Representative Schmidt, 
that payment was a gift to her. There is no exception to the 
gift rule that would permit Representative Schmidt to accept 
this gift, and thus this arrangement was a violation of House 
Rules. Indeed, even if Representative Schmidt had reimbursed 
TCA the next day for its payment to the lawyers associated with 
TALDF for their representation of her, TCA's payments would be 
considered a loan, and thus an improper gift.
---------------------------------------------------------------------------
    \98\House Rule 25, cl. 5(a)(1)(A)(i); see also House Rule 23, cl. 
4.
    \99\As a general matter, the amount of any discount on the cost of 
legal fees offered to a Member based on that individual's official 
status would be deemed a gift for purposes of the gift rule. See House 
Rule 25, cl. 5(a)(2)(A).
---------------------------------------------------------------------------
    However, the evidence indicates that Representative Schmidt 
did not have knowledge of the specific payment arrangement 
between TCA and the lawyers associated with TALDF. Both 
Representative Schmidt and Mr. Bennett told the Committee that 
she was never made aware of the payment arrangement, and Mr. 
Fein confirms that he never discussed the payment arrangement 
with Representative Schmidt or any member of her staff.\100\ 
Furthermore, the Committee has not seen any document suggesting 
that Representative Schmidt or her staff knew of the payment 
arrangement.
---------------------------------------------------------------------------
    \100\Fein Tr. at 17-18.
---------------------------------------------------------------------------
    The Committee further notes, however, that none of the 
lawyers associated with TALDF submitted any bills to 
Representative Schmidt. This was true even during the five 
months that the lawyers associated with TALDF represented 
Representative Schmidt before she sought the Committee's 
guidance on how to pay for their legal services.\101\ Mr. Fein 
stated that he has never billed the individuals he represents 
in TALDF-related matters, and that he always submits those 
legal bills to TCA. Mr. Fein further stated it was his 
intention not to charge Representative Schmidt for the TALDF-
related legal services, and that instead, TALDF would accept 
half of any damages award she received, as part of a 
``contingency fee'' arrangement.\102\ Mr. Bennett, however, 
stated that he never viewed a contingency fee arrangement to be 
a realistic possibility.\103\ Instead, Mr. Bennett stated that 
in Representative Schmidt's prior matters before the Ohio 
Elections Commission, the practice had been for the law firm 
representing Representative Schmidt to not provide monthly or 
quarterly bills, and instead to submit one bill at the end of 
the proceeding.\104\ Mr. Bennett stated that he had no reason 
to suspect that this matter would be any different.\105\
---------------------------------------------------------------------------
    \101\Id. at 17.
    \102\Id. at 31.
    \103\Bennett Tr. at 17.
    \104\Id.
    \105\Id.
---------------------------------------------------------------------------
    The Committee is troubled that the lawyers associated with 
TALDF never disclosed their payment arrangement with TCA to 
Representative Schmidt. Such disclosure likely would have made 
this investigation unnecessary. While the Committee believes 
that the payment arrangement between TCA and Representative 
Schmidt's lawyers should have been disclosed from the beginning 
of their representation of her, the Committee is particularly 
concerned that Representative Schmidt's lawyers did not 
disclose the payment arrangement to her even after Mr. 
Krikorian's lawyers raised the issue of TALDF providing 
Representative Schmidt free legal services, or after the Ohio 
Court of Common Pleas denied Mr. Fein's motion to be admitted 
pro hac vice.
    These legal maneuverings should have prompted 
Representative Schmidt's lawyers to have a fuller discussion 
with her regarding the payment arrangements for their legal 
services. However, it does not appear that Mr. Krikorian's 
allegations that TALDF was offering free legal services should 
have put Representative Schmidt on notice that her lawyers were 
not employees of TALDF or TCA and were instead outside counsel 
submitting regular bills to TCA. Mr. Krikorian only asserted 
that Representative Schmidt's arrangement with her lawyers was 
improper because her lawyers had not yet provided 
Representative Schmidt with a legal bill. And when Mr. 
Krikorian made this allegation in the depositions of Mr. Fein 
and Mr. Bennett, Representative Schmidt appropriately responded 
by seeking the guidance of the Committee. Thus, Representative 
Schmidt was aware that she had not yet received a bill because 
she was working in good faith with the Committee to ascertain 
the appropriate means by which to pay her attorneys. Further, 
Mr. Fein and Representative Schmidt's other lawyers did not 
state that they were not employees of TALDF or TCA and were 
instead outside counsel submitting regular bills to TCA. 
Instead, they specifically asserted that they were ``senior 
counsel at the Turkish American Legal Defense Fund[.]''\106\ 
This statement appears to be inconsistent with the fact that 
Representative Schmidt's lawyers were not employees of TALDF or 
TCA and were instead outside counsel submitting regular bills 
to TCA.
---------------------------------------------------------------------------
    \106\Id. at 14-15.
---------------------------------------------------------------------------
    The Committee notes that Representative Schmidt never 
finalized an engagement agreement with the lawyers associated 
with TALDF, including in the five months before she sought the 
Committee's guidance.\107\ Such an agreement may have provided 
further clarity regarding the relationships between 
Representative Schmidt's lawyers, TALDF, and TCA. It would have 
been preferable, in this case, for Representative Schmidt to 
have (1) entered into a written agreement with her lawyers at 
the beginning of each matter; or (2) absent such an agreement, 
inquired of her lawyers about the payment for ongoing legal 
services. It is for this reason, among others, that the 
Committee strongly encourages all Members to enter into written 
agreements with lawyers representing Members, and for Members 
to seek the guidance of both the Committee and the FEC before 
spending campaign funds on legal representation.\108\
---------------------------------------------------------------------------
    \107\The Committee notes that shortly after Mr. Krikorian's lawyers 
raised the issue of TALDF (not TCA) providing free legal services to 
Representative Schmidt, she sought the guidance of the Committee 
regarding this issue.
    \108\2008 House Ethics Manual at 157.
---------------------------------------------------------------------------
    Even if Representative Schmidt did not know that TCA was 
paying these legal fees on her behalf, the payments still 
constituted gifts to her. The Committee was not aware that TCA 
was paying legal fees on Representative Schmidt's behalf until 
it conducted an independent investigation following the OCE 
referral. If the Committee had given Representative Schmidt 
guidance regarding the payment of these legal expenses based on 
an incorrect understanding of the nature of the fee 
arrangement, the Committee's guidance would have been invalid 
and would not have protected Representative Schmidt from a 
charge that she received an improper gift.\109\
---------------------------------------------------------------------------
    \109\See House Comm. on Standards of Official Conduct, In the 
Matter of the Investigation into Officially Connected Travel of House 
Members to Attend the Carib News Foundation Multinational Business 
Conferences in 2007 and 2008, H. Rep. 111-422, 111th Cong., 2d Sess. 2 
(2010).
---------------------------------------------------------------------------
    Representative Schmidt and her staff have consistently 
stated that it is her intention to pay the legal fees of the 
lawyers associated with TALDF.\110\ The Committee has now given 
her guidance on permissible methods to pay for the TALDF-
related legal fees.\111\ While it was appropriate for 
Representative Schmidt not to pay the legal fees while she was 
waiting for guidance from the Committee, those fees must now be 
paid. Furthermore, because it is inappropriate for TCA to pay 
legal fees on Representative Schmidt's behalf and then be 
reimbursed by her, Representative Schmidt's payments must be 
made directly to the lawyers associated with TALDF for all fees 
incurred in their representation of her.
---------------------------------------------------------------------------
    \110\41 CFR Sec. 102-42.10 (2011).
    \111\The Committee notes that Representative Schmidt would also be 
permitted to pay for any of these legal services with her own personal 
funds.
---------------------------------------------------------------------------
    The Committee recognizes that the lawyers associated with 
TALDF have been representing Representative Schmidt for more 
than two years, in at least three different legal proceedings, 
and the legal fees for this work are substantial. For this 
reason, the Committee does not expect Representative Schmidt to 
fully pay the lawyers associated with TALDF immediately. 
However, Representative Schmidt must ensure that TCA does not 
make any further payments on her behalf to the lawyers 
associated with TALDF, and Representative Schmidt must begin 
paying the lawyers associated with TALDF as soon as funds are 
available. Furthermore, this remedy will only be sufficient if 
Mr. Fein and Mr. Saltzman and any other attorney actually paid 
with TCA funds, first agree to repay all TCA funds as they 
receive Representative Schmidt's payments. Additionally, the 
Committee notes that it did not approve the use of LEF funds 
for fees related to the amicus brief. Thus, Representative 
Schmidt must pay for any fees the attorneys billed and TCA paid 
for work on the amicus brief using appropriate funds other than 
the LEF funds. She must pay those fees immediately and provide 
the Committee with a cancelled check as proof of payment of the 
legal services related to the amicus brief. Until 
Representative Schmidt has paid the lawyers associated with 
TALDF for all fees originally paid by TCA, Representative 
Schmidt must disclose on Schedule V of her annual Financial 
Disclosure Statement all outstanding TALDF-related fees which 
were originally paid by TCA.

2. Disclosure of Improper Gifts

    The Ethics in Government Act (EIGA) requires disclosure of 
gifts received during the year, from someone other than a 
relative, whose aggregate value exceeds ``minimal value,'' as 
defined by that statute. For 2009 and 2010, ``minimal value'' 
was defined as $335, but gifts valued below $134 need not be 
counted towards the limit.\112\ This disclosure is made on 
Schedule VI of a Member's annual Financial Disclosure 
Statement. TCA's payment of legal services on Representative 
Schmidt's behalf was a gift whose aggregate value exceeded 
$335. These payments were not disclosed on Representative 
Schmidt's Financial Disclosure Statements covering calendar 
years 2009 and 2010. Given that Representative Schmidt was not 
aware of the gifts, it is not surprising that she did not 
disclose them. However, now that Representative Schmidt is 
aware of the gifts, she must amend her Financial Disclosure 
Statements to disclose the payments by TCA of legal services on 
her behalf.
---------------------------------------------------------------------------
    \112\Minimal value for purposes of disclosure under EIGA is the 
same as that for the Foreign Gifts and Decorations Act, 5 U.S.C. 
Sec. 7342(a)(5). Pursuant to that statute, the General Services 
Administration sets the minimal value every three years. Minimal value 
for calendar years 2008 until 2011 was $335. See 73 Fed. Reg. 7475 
(Feb. 8, 2008). Minimal value for calendar years 2011 until 2014 is 
$350. See 76 Fed. Reg. 30551 (May 26, 2011).
---------------------------------------------------------------------------
    The Committee directed the Chairman, upon providing the 
notices required pursuant to House Rule XI, clause 3(b)(8)(A), 
and Committee Rule 17A(b)(2), to file this Report with the 
House, and copies of OCE's Report and Findings in this matter, 
along with any response filed, all of which are made a part of 
this Report and appended hereto.\113\ The filing of this 
Report, along with its publication on the Committee's Web site, 
shall serve as publication of OCE's Report and Findings in this 
matter, pursuant to House Rule XI, clause 3(b)(8)(A), and 
Committee Rule 17A(b)(3) and 17A(c)(2).
---------------------------------------------------------------------------
    \113\See House Rule XI, clauses 3(a)(2) and 3(b).
---------------------------------------------------------------------------

 IV. STATEMENT UNDER RULE 13, CLAUSE 3(c) OF THE RULES OF THE HOUSE OF 
                            REPRESENTATIVES

    The Committee made no special oversight findings in this 
Report. No budget statement is submitted. No funding is 
authorized by any measure in this Report.



