Federal prosecutors on Thursday charged former state Sen. and Democratic state chairwoman Karen Carter Peterson with one count of wire fraud, accusing her of illegally funneling tens of thousands of dollars in campaign and party funds with the help of at least four associates.
Her attorney, Brian Capitelli, confirmed that she took a plea deal, and court documents show she is scheduled to plead guilty on Aug. 1 before U.S. District Judge Sarah Vance. This day will mark her first court appearance.
Peterson and Capitelli said a persistent gambling addiction was at the root of Peterson’s crimes. Her gambling struggles became public in 2019 when WWL-TV reported that she received a felony summons for violating a self-imposed casino ban.
In April of this year, she abruptly resigned from her seat based in upstate New Orleans near the start of the legislative session, citing personal issues. At the time, she said she had “attended and successfully received inpatient and outpatient treatment for depression and addiction” and that she had avoided gambling “for a long time.”
She added: “I want you to know that this addiction and this disease is insidious. Many people suffer from it. It has the highest suicide rate of any addiction.
The next day, The Times-Picayune | The Advocate reported that Peterson was the subject of a federal investigation.
Court documents filed Thursday say Peterson misused money from her campaign account as well as the account of the state Democratic Party, which she chaired from 2012 to 2020. Prosecutors say the scheme ran for seven years old; they have not said how much money they believe Peterson stole in total.
On Wednesday, Peterson paid $53,000 in restitution to the Louisiana Democratic Party, and party officials said that amount makes them healthy.
Prosecutors say at least six of Peterson’s “friends and associates” and at least four companies controlled by people she knows were involved in the scheme. The documents say Peterson had checks from her campaign account issued to associates, then directed them to cash the payments and give her “most or all of the cash received.”
The various companies were hired by the state Democratic Party at Peterson’s direction “purportedly to provide campaign-related services,” the filings said. In fact, “the companies provide either no or minimal services” to the Democratic Party. The owners of those businesses then share the revenue with Peterson, according to the documents.
None of the people or businesses are named in the court documents. Some of them overlap; for example “Person 2” controls “Company 3” and “Company 4”.
The documents detail just one specific criminal act: Prosecutors say a $4,500 check was drawn on Peterson’s 2018 campaign account and paid to “Person 1” for what was described as “legislative assistance.” The documents say Peterson ordered the payee to cash the check and give her all the proceeds.
Peterson’s campaign finance records show a $4,500 payment on March 15, 2018, to Marquette Coleman of Mississippi for “legislative assistance.” Coleman did not respond to messages left Thursday.
Two sources familiar with the investigation said the FBI focused specifically on payments made by the party to the Jaelyn Group, a political consulting firm owned by Gralen Banks. In addition to running a consulting firm, Banks is a WBOK-AM radio host and the brother of Jay Banks, a former New Orleans City Council member and Peterson political ally.
Campaign finance reports show the Louisiana Democratic Party cut checks totaling $327,700 to the Jaelyn Group between 2015 and 2019. Most of those were for expenses related to the 2019 re-election of Governor John Bell Edwards, according to reports, including a $100,000 payment in October of that year for what was described as a “radio purchase.”
The party also sent $1,942 in 2015 to Ashcorp Holdings LLC, another firm owned by Gralen Banks, records show.
It was unclear Thursday whether federal prosecutors intended to file charges against any of the other alleged participants in the scheme.
Gralen Banks did not return numerous phone messages left in recent days.
One of the sources familiar with the investigation said the FBI is also focused on payments made by the Democratic Party to ETI, a New Orleans firm. The party’s campaign finance records show it paid the company $87,500 in four installments in late 2019, mostly for “state card distribution.”
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The company’s owner, Randall Moore, pleaded guilty in 2005 to a secondary role in a massive City Hall scheme. Moore said in a telephone interview that he had not been approached by federal investigators about the payments from the Democratic Party. He said his relationship with the party had been overstated.
Just after noon Thursday, shortly after the charges were filed, Peterson took to social media.
“Today marks an important step in my lifelong recovery as I continue to address my gambling addiction. I sincerely apologize for the impact of my compulsive behavior stemming from this addiction,” reads the first.
The second said: “I have made full repayment of the funds used as a result of my addiction and will continue to recover. Staying true to the steps of my ongoing recovery, I have been open, honest and fully cooperated with the US Attorney’s Office in their investigation.”
Both tweets carried the hashtag “#gamblingrecovery.”
Not everyone was in a forgiving mood. Eric Hall, a political operative who worked for the party during the 2019 campaign, tweeted: “Assuming the reports are true, I am furious. I can’t stop thinking about all the people who worked so hard, all the people who sacrificed so much, all the people who donated their time and money to the effort in 2019 because they knew how important it was to our country. “
Court documents filed Thursday mention Peterson’s gambling only once, and then in passing. They say she used her campaign funds “to pay personal expenses unrelated to her campaign or holding public office, including to pay gambling-related expenses.”
Dane Ciolino, a professor at Loyola Law School and a defense attorney, noted that judges sometimes give lighter sentences to defendants who suffer from drug, alcohol and gambling addictions. They can also order direct defendants to serve part of their sentence in a treatment facility.
“She will, of course, argue that her gambling addiction is a mitigating factor,” Ciolino said. “That’s something the court can perhaps consider in sentencing her when that day comes.”
Colino added that Peterson may have to spend some time behind bars.
“It’s not something that’s going to be a slap in the face for her,” he said. “She has a real possibility of going to jail.”
Katie Bernhardt, who replaced Peterson as chair of the Louisiana Democratic Party, issued a statement Thursday saying the party has taken various steps to clean up the mess and restore confidence in its financial controls. These measures include hiring a company to help with compliance and having the party’s executive committee review financial statements on a monthly basis.
“When I ran for chairman two years ago, I heard the call for a complete overhaul of the Louisiana Democratic Party loud and clear from the people, and that’s what we did,” Bernhardt said. “We are proud of the progress we have made so far and believe we are well on our way to becoming the Democratic Party that Louisiana deserves.”
Steven Handwerk, who was the state party’s executive director during Peterson’s tenure as chairman, said in a statement Thursday that he was contacted by the FBI earlier this year and told he was “either a victim or a witness of at least one crime. “
Handverk said he “cooperated fully with them. Since that initial call and subsequent interviews, I have struggled with feelings of compassion for her addiction, along with anger and frustration with Karen.”
He emphasized that he and other party officials were unaware of Peterson’s activities.
“As the evidence clearly illustrates, neither I nor my staff at the Louisiana Democratic Party were aware of the elaborate scheme orchestrated by Karen,” Handwerk wrote. “It’s unfortunate that we will forever be associated with this.
-WWL-TV’s Paul Murphy contributed to this report.
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