Soon after taking office, North Carolina Gov. Pat McCrory and US Rep. Mark Sanford of South Carolina accepted six-figure stock payouts from an online mortgage broker accused by regulators of deceiving its customers.
The two Republicans served as directors at Tree.com, the Charlotte-based corporate parent of the website LendingTree. As board members, they were entitled to large chunks of restricted company stock if they held their positions long enough. Both resigned after their election victories, which would have rendered their unvested stock worthless had the board not taken special action to provide them early payouts.
McCrory and Sanford deny they did anything improper by accepting the stock payouts, which were not fully described in their ethics statements. Their timing and total value are only being revealed now, as the result of an Associated Press investigation into the company's financial records and interviews with Tree.com officials.
Early vesting of restricted shares for departing directors is not unheard of in the corporate world.
However, more than a dozen securities lawyers and ethics experts told the AP that such stock payouts are uncommon for elected officials, and raise significant concerns. These experts gave differing opinions about whether laws were broken.
But "there is no question (this) raises a host of red flags for prosecutors and regulators," said Jacob Frenkel, who handled corruption cases as a federal prosecutor and served as senior counsel in the Securities and Exchange Commission's Division of Enforcement.
In the months after receiving his $171,071 payout of stock from Tree.com, McCrory appointed the state's banking director and a majority of the banking commissioners who regulate mortgage brokers.
McCrory spokesman Josh Ellis said there was nothing irregular about that.
"There's absolutely no conflict and nothing improper about these appointments," he said.
Some of Tree.com's payments to McCrory and Sanford weren't publicly disclosed until May 2014, when the company filed its 2013 year-end proxy statement with the US Securities and Exchange Commission. Other details — such as the fact that Sanford received his $108,539 in Tree.com stock after taking office in Congress — have never been made public until now.
McCrory declined requests for an interview. In a written statement, Ellis said the governor fully complied with state law and "continues to uphold high ethical standards."
Sanford also declined to answer any specific questions about the Tree.com stock. He wrote in an email to the AP that the company went "the extra mile in their adherence to top-notch business practices, ethics and documentation."
But the retroactive vesting of Sanford's stock could violate a prohibition on members of Congress accepting gifts exceeding $350 from non-family members, said Washington University Law School professor Kathleen Clark, an expert on Congressional ethics rules.
McCrory joined the Tree.com board in January 2009, a year before ending his last term as Charlotte's mayor. Like all board directors, he was awarded restricted company stock as a performance and retention bonus, which vested in annual installments — as long as he stayed on the board.
While no North Carolina law bars elected officials from serving on corporate boards while in office, they are prohibited from taking official actions that might benefit their personal holdings.
McCrory won election as governor in November 2012. Company records show that he filed his resignation as director the day before his Jan. 5 inauguration, but made it effective Jan. 31, 2013 — the day after the next board meeting, and 26 days after his swearing-in.
That Jan. 30, the board voted to accelerate the vesting of McCrory's 10,063 restricted shares, valued on that date at $171,071, even though thousands of the shares were not due to vest for another 16 months.
McCrory also was paid $4,375 in directors' fees for his board service in January 2013, the records show, although Ellis said the governor did not participate in the January board meeting.
And even after McCrory's departure, Tree.com paid its directors a special $1 per share cash dividend on any unvested stock they held at the end of the prior year, giving the governor another $10,063 on April 12, 2013, according to the SEC records.
McCrory's total take of $185,509 from Tree.com in 2013 far exceeded the $139,590 salary he earned as governor that year.
Tree.com founder and Chief Executive Officer Doug Lebda told AP that "he was worth it," adding 10 times the value of what he was paid.
Frenkel, now in private practice, said it is "troubling" that McCrory delayed his resignation from Tree.com, because he had a duty as both a company director and an elected official to avoid any appearance of conflict of interest.
Despite his Tree.com payments, McCrory did not recuse himself from naming the state banking director in the weeks before receiving his special dividend, or from naming eight commissioners to the regulatory agency 18 days later. In addition to licensing mortgage brokers, the commission investigates complaints, which are kept secret under state law unless they result in discipline.
North Carolina's regulators won't comment on whether LendingTree faces any such complaints in its home state, but records show the company has had issues with regulators elsewhere.
The company paid $3 million to South Carolina in 2012 after regulators said it failed to tell customers it was being paid by the lenders it recommended as having the best mortgage rates.
Tree.com also told the SEC that it has been negotiating to settle "various alleged violations" of state and federal laws with Massachusetts in a case that may be joined by up to 34 other states.
Sanford joined the Tree.com board in April 2012 after finishing his term as South Carolina governor in a cloud of ethical questions, having been forced to pay $74,000 to settle 37 state ethics charges, including using taxpayer funds to pay for flights to Argentina to visit his mistress.
As director, he was issued 5,518 restricted shares that would have vested in two equal installments in June 2013 and June 2014. But Sanford returned to politics before then, winning a special election to Congress, which prohibits its members from being paid to serve on corporate boards.
Sanford resigned from Tree.com's board effective May 16, 2013, the day after he was sworn in. Then, on June 19 — a month after Sanford took office — the company's board voted to retroactively vest his $108,539 in restricted shares, Tree.com spokeswoman Megan Grueling told the AP.
The retroactive payment was proper because Sanford's fellow directors weren't able to meet before his "unexpected" resignation, Grueling said. And because he was no longer a director at the time of the vote, she said the company wasn't required to disclose the transaction to the SEC.
All told, Sanford cleared $239,159 in stock, director's fees and special dividends in his 13 months with Tree.com, records show. Since then, Sanford has voted on financial regulations in Congress, where rank-and-file members are paid an annual salary of $174,000.
Biesecker reported from Raleigh, North Carolina.