How Ted Cruz Paved the Way for George Santos to Pocket Loans

When Rep. George Santos (R-NY) allegedly gave his campaign $705,000, he claims to have done so in the form of personal loans. And thanks to a Supreme Court ruling last year in favor of Sen. Ted Cruz (R-TX), he can still repay himself every penny.

The Cruz decision, handed down in June, eliminated the previous $250,000 cap on loans candidates can recoup with money raised after an election. It drew swift condemnation from campaign finance reform advocates—as well as the Court’s three liberal justices—who saw it as an invitation to corruption.

In her dissent, Justice Elena Kagan wrote that the ruling “greenlights all the sordid bargains Congress thought right to stop.”

Saurav Ghosh, director of federal reform at bipartisan watchdog Campaign Legal Center, told The Daily Beast that Santos is a “prime example” of why the decision poses a “major problem for democracy.”

“The ruling was egregiously bad as far as ‘the appearance of corruption,’ at a minimum,” Ghosh said, referring to one of the legal hurdles the Cruz case had to clear. “Before the Cruz decision, there’d be a limit on how much he could pay himself back after the election. But now there’s no limit, so the potential for corruption is enormous.”

That means Santos—and any other candidate—can solicit contributions that donors know will go not just to his campaign, but to his personal bank account.

“Santos can now literally tell donors, ‘I’m in office and need money to pay back loans, what can you do for me?’” Ghosh said. “The clear implication is that donors would see someone who is in Congress who they can give money to, knowing the money will end up in their pocket, so they might be able to get something in return. That’s a major problem for democracy.”

Santos has claimed that he loaned his campaign $705,000 from money he paid himself through his company, the Devolder Organization, specifying in a Newsmax interview last week that the funds came from “dividends.” (Santos’ most recent financial disclosure claims he received two forms of payment from the Devolder Organization—a $750,000 salary as well as between $1 million and $5 million in dividends, in each of the two preceding years.)

But questions linger about the true source of the money.

In fact, those questions even apply to Santos’ first campaign, in 2020. At the time, he loaned his political operation $81,250, FEC records show, while claiming an income of just $55,000 from LinkBridge Investors, with no other assets, according to that year’s financial disclosure. It’s not immediately clear how Santos could have made those loans. But in 2022, he upped the campaign loans to $705,000, along with $27,000 to his leadership PAC, while suddenly showing an income in the millions from the Devolder Organization. (Santos has so far repaid himself $25,000 from his leadership PAC and $31,200 from his 2020 campaign, in various small installments.)

George Santos Finally Tells Truth and Calls Himself ‘Simple-Minded’

In January, CLC, Ghosh’s organization, filed a complaint with the Federal Elections Commission arguing that, given the opacity surrounding the large amount of money Santos apparently made in very little time, the loans could have been part of a straw donation scheme. In other words, the “loans” could in reality be campaign donations from other people that Santos routed through his company, evading federal contribution limits.

The Daily Beast previously revealed four clients of the Devolder Organization, all of whom have ties to major Santos campaign donors. We identified a fifth major donor with Devolder ties earlier this month.

The possibility that the money wasn’t Santos’ to begin with adds another layer to the implications from the Cruz ruling—not just the potential for candidates to fully reclaim their investment, but to enrich themselves.

“When a candidate loans money to their campaign, it’s supposed to be theirs, or from a lending institution,” Ghosh said. “But we believe that Santos got that money from someone else. So one scenario here is that Santos could possibly enrich himself—basically laundering money through his campaign, and then putting that money back into his own pocket.”

Those 2022 loans came in three installments: $80,000 in June 2021; $500,000 on March 31, 2022; and $125,000 on Oct. 26, 2022.

The $500,000 donation came the same day that New York courts struck down a Democratic redistricting effort, a move that dramatically shifted Santos’ election prospects from long-shot to a strong favorite. (A Devolder Organization maxed out to Santos the same day, The Daily Beast previously reported.) And while the Cruz case wasn’t decided until June, it had been considered a fait accompli for the Court’s conservative majority months before Santos made that major loan.

New George Santos Filing Prompts Even More New Questions

But when it comes to the issue of corrupt candidate loan repayments, Santos’ case might be the exception that proves the rule. Because his extraordinary scandals have drawn national attention to his finances since his election—along with a federal investigation—he may have a hard time finding donors willing to put their name on contributions.

And two of his largest 2022 backers—entrepreneur Matthew Bruderman and insurance mogul James Metzger—have told The Daily Beast through representatives that they now condemn Santos, with Bruderman having already demanded a refund.

“Like so many other residents of the 3rd Congressional District, Mr. Bruderman and his family were fraudulently induced to support Mr. Santos. Mr. Bruderman has formally requested the return of all funds contributed by him and members of his family in support of Mr. Santos’ candidacy,” a Bruderman representative said in a statement. “He believes strongly that this kind of deceit is deplorable, undermines public trust in our institutions and Mr. Santos should have no place in public life.”

A representative for Metzger wrote that his contributions “were made in good faith,” and that “Mr. Metzger believes that the misrepresentations made by Mr. Santos to all who supported his campaign demonstrated his total lack of personal integrity.”

Metzger is one of the donors that The Daily Beast has tied to Devolder Organization clients.

Read more at The Daily Beast.

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