Liberal Dark Money Behemoth Faces IRS Complaint Over Alleged Bait-And-Switch Scheme

Watchdog asks for investigation into Arabella Advisors following Free Beacon report on group's alleged misdeeds

The IRS building / Getty Images
August 16, 2023

A watchdog group is asking the IRS to investigate the liberal dark money behemoth Arabella Advisors following a Washington Free Beacon report on the shadowy organization.

Americans for Public Trust on Tuesday filed an IRS complaint alleging Arabella and its founder, Clintonworld insider Eric Kessler, misled authorities in order to gain control of five dark money funds that have since distributed billions of dollars to Democratic pet projects. The groups secured tax-exempt status in 2006 by claiming Arabella would only provide temporary administrative support. Nearly two decades later, the funds remain under Arabella’s yoke and have paid the consultancy a combined $330 million in management fees for the pleasure.

"Eric Kessler created one of the most complex and sophisticated dark money networks influencing U.S. politics and policy today," Americans for Public Trust executive director Caitlin Sutherland said. "Now, it appears as though he misled the IRS and may have illegally personally benefited by rerouting nonprofit cash back into his own pocket through Arabella Advisors."

The IRS had concerns that Kessler was set to derive illegal profits from New Venture Fund, the largest of Arabella’s funds, when the charity sought a tax-exempt charter from authorities in 2006. Noting that Kessler controlled both Arabella and New Venture Fund, the IRS questioned why the charity didn’t seek competing bids from other administrative support contractors. But the IRS relented and approved the arrangement after New Venture Fund claimed its contract with Arabella would expire after a year.

"The Advisors are providing management and administrative support services until such time as the Organization has sufficient financial resources to make the operation of its own back office cost-efficient," New Venture Fund told the IRS in its application for tax-exempt status. "Further, the Agreement is anticipated to be temporary and, indeed, only has a one-year term. As soon after this period as the Organization has adequate funding, it would no longer require the services of the Advisors."

In hindsight, those claims are "laughable and disingenuous," Americans for Public Trust said in its IRS complaint. New Venture Fund has since gone on to pay $166 million in management fees to Arabella. In 2021 alone, the fund raised nearly a billion dollars, according to its tax returns.

"That these substantial revenue sums reported by NVF in recent years are somehow inadequate to finance the group’s in-house administrative support services is both laughable and disingenuous," the watchdog said in its IRS complaint.

The complaint comes after the Free Beacon revealed internal Arabella records showing the consultancy controls its dark money funds from the top down, contradicting the company’s public claim that it’s a humble back-office support contractor.

Arabella spokesman Steve Sampson said the complaint was "meritless," and accused Americans for Public Trust of "obviously pursuing an agenda."

"We pride ourselves on helping our clients identify efficiencies, saving them tens of millions of dollars in operational costs and allowing them to focus their resources on their intended impact," Sampson told the Free Beacon. "We are compensated in exchange for a series of robust administrative and operational services, including HR, compliance, accounting, and grants management, and our success over the years is a testament to the services and expertise we provide."