The FBI confirmed yesterday that it is investigating claims of campaign finance fraud during Michael S. Steele's 2006 Senate bid, amid fresh questions about the propriety of campaign payments to his sister's defunct company.
Steele's sister, Monica Turner, founded Brown Sugar Unlimited LLC in late 2003 as an investment company, according to State Department of Assessments and Taxation documents. She closed the business in March 2006.
Federal election records show Steele's Senate campaign paid Brown Sugar more than $37,000 in 2007 for Web and catering services that were performed after the company had shut down. Maryland law prohibits defunct companies from performing services.
The FBI has not disclosed the scope of its inquiry, but the questions come at a sensitive time for Steele as he begins his tenure as Republican National Committee chairman.
Steele has previously denied any impropriety in payments to his sister's company.
Lawyers not involved in the case questioned yesterday whether Turner was authorized to perform the "catering/web" work that campaign finance records indicate she was compensated for.
"You can't act outside" of what a company's articles of organization claim its purpose is, said Michael Crowson, who practices commercial law in Salisbury.
The transaction was highlighted in a series of campaign finance abuse allegations provided to federal authorities last year by Steele's former campaign finance chairman, Alan B. Fabian, who unsuccessfully sought a more lenient sentence in an unrelated fraud case.
Baltimore financial attorney Joel I. Sher called the campaign payment "highly unusual."
"A corporation is only authorized to act as a corporation or an LLC as long as it's properly formed," said Sher, who represents the trustee and creditors in a bankruptcy filing by Fabian.
Under Maryland law, continuing to transact business for a company "whose right to do business in Maryland has been forfeited" is a misdemeanor.
Brown Sugar, operated from Turner's Bethesda home, was dissolved March 14, 2006, according to the state tax department.
Either Turner or an agent acting on her behalf filed the necessary paperwork, paid a $100 fee and bought certified copies of the "Articles of Cancellation," which typically take six to eight weeks to process.
That means Brown Sugar would have been defunct by late spring 2006.
But Steele spokesman Curt Anderson said in an interview yesterday that Turner hosted two fundraising events, for which she hired caterers, and designed advertisements through the company in July and October 2006.
Turner is listed on the dissolution document as the only member "designated to wind up the affairs of the company," though it's unclear whether she filed the paperwork or someone else did. The signature is illegible.
Over the weekend, Steele told ABC's This Week that his sister believed Brown Sugar was "still in existence."
He said "her lawyers ... were telling her they were in the process of dissolving the company." He also said he would voluntarily provide documents to the FBI.
Fabian claims that Turner's company never performed the work she was paid for, which Steele's spokesman denied.
Steele "is being smeared by a convicted felon who tried and failed to get a nine-year sentence reduced. All of these allegations are completely false," Anderson said in a statement.
Turner, a pediatrician and former wife of boxer Mike Tyson, did not return a call requesting comment.
"It's insulting, the suggestion that somehow she was profiting off of the campaign," Anderson said in the interview, calling the doctor "a very accomplished individual."
"Someone like Dr. Turner would have been more than happy to pay for things out of her own pocket," he said, but couldn't because that would violate federal law.
When asked why she would perform services under Brown Sugar rather than as an individual, Anderson said, "I don't know the answer to that."
Ann Shaw, a bankruptcy attorney and Crowson's colleague, said the situation sounded "weird" but not shocking.
"My experience with small businesses is with most of them, this is the kind of thing that happens," she said.
"They don't really pay too much attention to crossing the t's and dotting the i's."
In confidential court documents obtained by The Washington Post, which first reported the allegations, Fabian also claims that Steele paid $75,000 to a law firm for work that was never performed, used state funds to pay federal campaign bills and oversaw the transfer of $600,000 in state campaign funds without authorization to do so.
Steele has said all the charges lack merit.