Unsecured Loans Can Be Flexible and Unethical
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UPDATED: Oct 11, 2012
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People borrow loans for any number of reasons. Some of the reasons people both lend and borrow money is to fund election campaigns. Unfortunately, not all political funding is as honest and ethical as the ideals that politicians always claim to strive for.
A Manhattan Surrogate Judge has landed in hot water as a result of unethical financing. According to the findings of the state Commission on Judicial Conduct, the Surrogate Judge—Nora Anderson—should be censured for accepting and failing to report campaign contributions in the form of an unsecured loan from her former boss.
An unsecured loan is a type of financing that is not secured by any type of collateral—such as a home, or corporate property. As a result, borrowers who apply for unsecured loans will end up paying relatively high interest on their debt.
In 2008, Anderson allegedly received a personal gift of $100,000 and a personal unsecured loan of $150,000 for a total of $250,000 from her friend and employer, Seth Rubenstein. Subsequently, Anderson managed to channel these funds into her campaign to be elected as Surrogate Judge. This act circumvented the legal permissible limits on campaign donations for non-family members.
Although Anderson and Rubenstein had their charges acquitted or dismissed, the conduct commission found that there was intentional hiding of the source of funding from public knowledge. Naturally, this was unethical—especially for judicial candidates—and this circumstance resulted in the commission recommending that Anderson be censured.
“All judicial candidates, including non-incumbents running for the first time, must abide by New York’s judicial campaign rules. This decision sends a message to all would-be judges that they risk public discipline for violating those rules,” said Robert Tembeckjian, commission administrator and counsel, according to Reuters.
Anderson won her first election against two experienced opponents in 2008. In return for the unsecured loan she received for her campaign, she has repaid $14,000 to Rubenstein.
Despite her victory, the commission was unable to determine whether or not the quarter of a million dollars she received from Rubenstein had any impact on her election.
Perhaps conceding to the commission’s findings, Anderson has decided not to challenge the commission’s recommendation that she be censured.
“Hopefully this determination will put down clear markers for any future campaigns and any finance issues for future candidates. Obviously, the surrogate is happy to have the matter closed and looks forward to continuing her work in surrogate’s court,” said Anderson’s lawyer, David Godosky.
Anderson’s term expires in 2022.
While Anderson may once again sit comfortably in her judicial chair, her unethical use of unsecured loans has certainly encouraged many legal voices to share their views.
“If it was a true, unrestricted gift from Seth Rubenstein to Nora Anderson that she could use for any purpose, then why can’t she use it for her campaign? Clearly, it was a gift to her contemplated to be used for the campaign. When the election law included the word ‘gift’ in the definition of contribution, isn’t this the kind of thing they were contemplating?” said Henry T. Berger, an election lawyer who felt that the law could be interpreted both for and against this use of an unsecured loan, according to the New York Times.
Some law experts feel that this case could set precedents for campaign financing since most relevant laws are 30 years old and vague.
“If it’s determined that this type of gift is not a contribution, I think that may light a fire in Albany to finally do something on campaign finance reform,” said an election lawyer who spoke to the New York Times on the condition of anonymity.
However, while the law may be vague, the intent of Anderson and Rubenstein seems clear cut to others.
“The defendants made certain that the answers on those financial disclosure statements would hide the true source of the money,” Daniel G. Cort, assistant district attorney, told the New York Times.
While it may be common knowledge that money—even in a judge’s hands—can be abused or misused in unethical ways, it is not always common knowledge that the funding of campaigns—which should be a transparent process—can end up lining the pockets of unsecured loan lenders.
Case in point, another situation.
A pair of rival Congressional candidates in Los Angeles are making unsecured loans an election talking point. Rep. Howard Berman is claiming that his rival Rep. Brad Sherman has collected over $400,000 in interest from unsecured loans lent to many of his campaigns across several decades—a fairly damaging accusation in a city and state undergoing financial trouble.
Beginning in 1989, Sherman charged interest on personal unsecured loans made to his campaign committees. While this practice is actually legal, it is not widely used—possibly due to being considered unethical in the eyes of some election law observers.
While Sherman hasn’t collected interest on his unsecured loans since 2005, in the 17 years prior, he lent and collected interest on the personal financing. Sherman allegedly collected interest on the unsecured loans even once the principal had been repaid.
The Berman campaign claimed that they could not find another member of Congress who had collected as much interest as Sherman had.
“Is it appropriate for a member of Congress to use their campaign accounts—which is there for the purposes of getting elected and reelected—is it appropriate to also use that campaign account as an investment vehicle?” said Brandon Hall, Berman’s campaign manager in an interview with the Jewish Journal.
While it is clear that the need for law reform is paramount to avoiding repeats of these situations, it is equally clear that unsecured loans can be used in a variety of ways. Borrowers and prospective borrowers should take comfort in the flexibility of these types of financing, even if there isn’t much comfort to be taken in the manner in which public officials use—or abuse—them.