DC prosecutors probe liberal dark money network after backlash for investigating conservative orgs

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Washington, D.C.'s attorney general's office is probing the nation's largest liberal dark money network following accusations that its investigation of a conservative advocacy group was politically motivated.

Brian Schwalb, Washington, D.C.'s Democrat attorney general, launched an investigation into conservative judicial advocate Leonard Leo's network this past summer, which Leo's attorney previously told Fox News Digital was a "politically driven" attempt at silencing the Republican activist and his associates. 

The Leo investigation appears to have stemmed from a complaint from the left-wing Campaign for Accountability, which alleged he had enriched himself with consulting fees through his network. Schwalb, however, had for some time seemed indifferent to a liberal network operated by the D.C.-based Arabella Advisors consulting firm, which has a fee format comparable to Leo's for-profit and nonprofit network. 

Schwalb previously worked for a law firm that has performed work for entities in Arabella's nexus. His targeting of Leo's network — while seemingly ignoring Arabella's network — led to "political lawfare" accusations from the Wall Street Journal editorial board. 

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Washington, D.C. Attorney General Brian Schwalb is pictured on June 21, 2022. (Astrid Riecken for the Washington Post vis Getty Images)

"Attorney General Schwalb opened his investigation into the Arabella network only after being repeatedly called out for using his office to target his political opponents," said Caitlin Sutherland, executive director of Americans for Public Trust (APT). APT filed an IRS complaint against the Arabella network alleging its founder had illegally enriched himself from the setup.

"Now we learn that he has deep ties to the very network he claims to be investigating," Sutherland added. "This revelation raises serious questions about potential conflicts of interest and Schwalb’s ability to conduct an impartial and thorough investigation."

Months before Schwalb's investigation into Leo became public, The Guardian reported on a Campaign for Accountability complaint alleging Leo "misused" his network's nonprofit cash by diverting $73 million to his for-profit companies, BH Group and CRC Advisors, for consulting services between 2016 and 2021. 

The complaint appears to be the foundation of Schwalb's Leo probe, even though the Leo-linked groups are outside his jurisdiction. Campaign for Accountability executive director Michelle Kuppersmith also told The Guardian that her group sent the complaint to the IRS and Schwalb's office, asking them to examine materials and revoke the tax-exempt status of the seven nonprofits connected to Leo.

Campaign for Accountability started as a project in the Arabella Advisors network. Several individuals on its leadership team, including Kuppersmith, previously worked for Accountable.US, which the Arabella-managed New Venture Fund had fiscally sponsored in the past. 

Accountable.US, meanwhile, launched a campaign drawing attention to the Leo investigation. The group plastered signs near the D.C. headquarters of the Federalist Society, a conservative judicial group that Leo co-chairs. They also projected a graphic onto the building. 

 Accountable.US places posters around the Federalist Society building to highlight news of DC Attorney General Brian Schwalbs investigation into Leonard Leos nonprofit network on August 24, 2023, in Washington, D.C. (Paul Morigi/Getty Images for Accountable.US)

Accountable.US projects a graphic onto the Federalist Society building to highlight news of DC Attorney General Brian Schwalbs investigation into conservative kingpin Leonard Leos nonprofit network on August 23, 2023, in Washington, D.C.  (Paul Morigi/Getty Images for Accountable.US)

"Campaign for Accountability has no relationship with Arabella Advisors," a spokesperson from the group previously told Fox News Digital. "The fact that we were briefly fiscally sponsored by Hopewell Fund nearly seven years ago is completely irrelevant to any of our work. Our mission is to call out wrongdoing wherever we see it, and we hope the IRS and the DC Attorney General thoroughly investigate our complaint against Leonard Leo."

Tax documents show that the Arabella-managed New Venture Fund sent at least $2.2 million to Campaign for Accountability after it had broken away from the network. Between 2017 and 2020, the New Venture Fund's cash to Campaign for Accountability accounted for between 15% and 89% of its total reported revenue each year.

In August, Americans for Public Trust filed an IRS complaint against entities affiliated with Arabella Advisors. The complaint alleged that its founder, Eric Kessler, illegally benefited financially from its structure. Over the years, his firm has garnered hundreds of millions of dollars for its management services of the funds that are also linked to him and serve as hubs for the network.

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Leonard Leo is an Executive Vice President with the Federalist Society (Michael Robinson Chavez/The Washington Post via Getty Images)

Arabella Advisors manages a handful of nonprofits that host dozens of shadowy liberal groups. The network's web sits under the New Venture Fund, Sixteen Thirty Fund, Windward Fund, Hopewell Fund and North Fund, which act as fiscal sponsors to other nonprofits by supplying their tax and legal status to those housed beneath them. In recent years, the funds have collectively gathered around $1.5 billion annually to disburse to left-wing groups and causes nationwide.

This configuration allows the fiscally sponsored groups to bypass filing tax documents to the IRS, obscuring their financials and other information. The Arabella-managed nonprofits also do not disclose contributor information on their tax forms.

APT's IRS complaint called for an examination into the tax-exempt status of the Arabella-managed funds, which have paid the for-profit firm hundreds of millions of dollars for administrative, operation and management services. Kessler, Arabella's founder, has been closely entangled with the funds pushing consulting cash to the for-profit for its services.

APT further wrote that two nonprofits — the New Venture Fund and Sixteen Thirty Fund — informed the IRS their arrangement with Arabella would be temporary at the time of their formation, which has not been the case.

During the period that Campaign for Accountability said Leo benefited from the $73 million in consulting payments, Arabella Advisors raked in $190 million in fees from its linked funds for administrative, operational and management services, according to a review of tax forms from 2016 and 2021. The amount Arabella pulled in for its consulting services during that time was nearly $120 million more than was passed from the Leo-linked nonprofits to his for-profits.

"Arabella Advisors complies with the law and will cooperate with the District of Columbia Attorney General’s civil inquiry," Arabella spokesperson Steve Sampson told Fox News Digital. "We’re confident in the systems we have in place to ensure our business conforms with legal and regulatory requirements, and Arabella Advisors is proud of the work we do. We remain committed to helping our clients use philanthropic resources more effectively, efficiently, and equitably to accomplish their impact goals."

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Eric Kessler, president of Arabella Advisors.  (Capital Research Center YouTube screenshot.)

Leo's attorney told Politico he would not cooperate with the probe because the organizations were organized outside of D.C. The Washington Free Beacon, likewise, has confirmed the existence of the Arabella investigation. 

Schwalb and his deputy, Seth Rosenthal, also worked at a law firm with past links to the Arabella Advisors network. The pair previously worked at the Venable law firm, which has represented groups in the network on matters including the New Venture Fund and Sixteen Thirty Fund. 

Rosenthal also served as legal director of the Alliance for Justice, a left-wing dark money judicial group devoted to "transforming courts" from 2005 to 2006. During Rosenthal's time with the group, it attempted to derail Chief Justice Roberts' confirmation over his ties to the Federalist Society, which Leo co-chairs. 

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When Rosenthal was also with the Alliance for Justice, he opposed Justice Samuel Alito's confirmation on political grounds, saying he was a "movement conservative" who would march "to the conservative drumbeat on about every single issue" in a 2005 Democracy Now! interview.

The D.C. attorney general's office previously told Fox News Digital that it could neither confirm nor deny the existence of any investigation, as a matter of policy. It maintained the position when questioned on whether backlash and allegations of politicization had led to the Arabella probe.