Fisher+Schwab+Broad

From left are Gap Chairman Bob Fisher, investor Charles Schwab and philanthropist Eli Broad. A state investigation found that the three were among donors who gave to groups that in turn gave to the campaigns against California’s Proposition 30 and Proposition 32. (Times Wire Services)

By Chris Megerian and Anthony York
November 3, 2013, 9:51 p.m.

SACRAMENTO — Tony Russo had a multimillion-dollar problem.

The Republican consultant and his team had raised piles of cash to use in California politics as last November’s election approached. But a wrinkle in state law meant he couldn’t spend it in the final two months of the campaign without jeopardizing the anonymity he had promised his rich donors.

So Russo turned to what he called “the Koch network.” He asked a political consultant who has worked with billionaire Republican contributors Charles and David Koch to shuttle the money through an Arizona nonprofit. That group, which is not required to reveal its donors, could send cash to California causes without names attached.

But things went from bad to worse. Although Russo handed over $25 million, only about $15 million ended up back in California. And when the money surfaced, it sparked an investigation by state authorities, who last month[ levied $16 million in penalties against the Arizona group and three others.

The case offers a rare glimpse into the shadowy world of politically active nonprofits, which have played an increasing role in elections nationwide since the U.S. Supreme Court eased campaign rules in 2010. They provide donors a way to influence elections by piping major money around the country until it resurfaces — without their fingerprints — in a campaign.

Advocates of transparency in government call it “dark money.”

Russo declined to be interviewed by The Times. But he and his colleagues detailed their experience for California investigators, conversations that were recorded in hundreds of pages of transcripts.

Those records and other documents released by authorities show a convoluted money trail. They also show the risks of operating in a political world so intricate that even Russo didn’t fully understand how it worked when he threw in his donors’ money.

“There’s all kinds of groups all over the country that I wouldn’t even know,” Russo said.

California Republicans faced two major battles last year: a fight against Gov. Jerry Brown’s tax hike and a push to pass a measure that would limit unions’ political fundraising.

Russo did not think the state party was up to the task. He envisioned an independent advertising pitch to voters that would tout economic destruction wrought by tax increases and political havoc caused by powerful California labor unions.

To read entire story, click here.