District attorney confirms investigation of CARES Act awards to Wichita officials

The Sedgwick County Office of the District Attorney has been investigating CARES Act awards to two Wichita elected officials for several months, District Attorney Marc Bennett said Monday.

Confirmation of the investigation came one day after a Wichita Eagle report showed how Michael Capps, a state legislator, and James Clendenin, a Wichita City Council member, tapped into federal coronavirus relief aid at the federal, state and county level.

The money was awarded to two companies and a charity that were instrumental in a false attack campaign against Brandon Whipple during the 2019 Wichita mayoral race, a scandal that has resulted in a civil lawsuit, a resignation and widespread condemnation. Bennett is attempting to remove Clendenin from office for his role in the smear campaign and a subsequent cover up.

The investigation into the federal awards started a month before the release of an audio recording that showed Capps, Clendenin and former Sedgwick County Commissioner Michael O’Donnell plotting to frame former GOP chairman Dalton Glasscock for the attack campaign. The audio prompted an investigation by Bennett into whether the three Republicans could be removed from office.

As a result of that investigation, the District Attorney’s office announced it had found enough evidence to oust O’Donnell, who resigned rather than face removal from office, and Clendenin, who has refused to step down. Bennett and Kansas Attorney General Derek Schmidt have both said they lack authority to oust Capps, a member of the Kansas House of Representatives.

Bennett said he will not comment further on the full scope or findings of the latest investigation into federal awards until it is finished.

“The Office of the District Attorney is aware of the allegations set forth in the article in Sunday’s newspaper and has been investigating the matter since September of 2020,” Bennett said in a written statement Monday afternoon. “When the investigation has concluded, and a final assessment made, notice of the same will be provided. Given the ongoing nature of the investigation, the Office will have no further comment.”

Hundreds of thousands in CARES Act dollars

Together, entities tied to the anti-Whipple hit piece were awarded $495,200 through multiple funding streams meant to keep companies afloat during the COVID-19 pandemic, including the Paycheck Protection Program (PPP), Economic Injury Disaster Loans (EIDL), Small Business Working Capital grants (SBWC) and Safe Operating Grants.

The two elected officials appear to have submitted false information to get federal money to their company, Midwest Business Group LLC, an Eagle investigation found.

Records indicate they inflated their payroll, asking for money to pay the salaries of workers who did not exist.

Capps also sought $150,000 from the EIDL program to cover six months of expenses for another company with annual revenue of around $40,000 a year, according to Dun & Bradstreet, suggesting the company applied for far more than its fair share.

Capps did the same thing with a charity he controls. The nonprofit was awarded a disaster loan worth more than triple the revenue it has ever reported to the IRS in a single year. Six months later, Capps dissolved the charity. He now says he plans to return the loan.

Among the Eagle’s findings, originally published Sunday:

▪ Midwest Business Group LLC, the company owned by Capps and Clendenin, claimed eight employees to secure an $80,500 loan through the Paycheck Protection Program. The number of employees was supposed to be based on average payroll for 2019. The company had no employees under the program’s definitions that year, records show. Besides Capps and Clendenin, it has only one agent, and she works on a commission-only basis, meaning she was potentially ineligible.

▪ Fourth and Long Foundation, a Capps-controlled 501(c)(3) corporation set up in 2013 to raise money for a stadium at Wichita West High School that was never built, was awarded more than triple its annual income through an Economic Injury Disaster Loan. Those funds were supposed to cover six months of working capital. Six months after its first federal award, the Fourth and Long Foundation dissolved.

▪ Krivacy LLC, another Capps-controlled entity, was awarded the maximum loan amount of $150,000 under the EIDL program, which was supposed to help businesses and organizations overcome a “temporary loss of revenue due to the coronavirus” and was supposed to be limited to six months of working capital. According to Dun & Bradstreet, the company’s annual revenues are around $41,950 a year.

▪ Fourth and Long and Krivacy LLC were each awarded $10,000 grants that were reserved for businesses and organizations with 10 or more employees. Neither entity had any employees, according to an October court filing listing Capps’ 2019 business interests.

In addition to the federal money, Midwest Business Group and Krivacy were each awarded $20,000 Small Business Working Capital grants through the state’s CARES Act funds in November. Midwest Business Group was awarded a $5,000 Safe Operating Grant by Sedgwick County on Nov. 25.

Entities tied to smear campaign

All three entities were used to launch a video called “Protect Wichita Girls,” which posted online less than three weeks before the mayoral election to boost the campaign of incumbent Mayor Jeff Longwell.

The video featured college-age actresses who were paid $50 to pose in silhouette as statehouse interns and read from a script of quotations lifted from a Kansas City Star/Wichita Eagle article about sexual misconduct at the State Capital by Republican senators, not Whipple.

The video gave Whipple’s cell phone number and urged viewers to “Stop Brandon Whipple.”

Whipple, who won the election despite the false attack, is suing Capps, Clendenin and O’Donnell for defamation and a civil conspiracy for their roles in the campaign. He said in court documents that he received death threats because of the video.

Fourth and Long was used to funnel money for the political ad from donors to the video producer.

Under federal law, 501(c)(3) charities are forbidden from being involved in political campaigns, as it would make political spending tax deductible.

The Midwest Business Group office at 300 S. Broadway served as the set for the video, one of the actresses told the Eagle last year, and Krivacy was used to register a domain name used to launch the video online.

Capps and Clendenin did not respond Monday afternoon to questions about the investigation.

Federal investigators won’t comment

Federal investigators would not comment on any potential investigations into Capps and Clendenin’s federal coronavirus-related awards.

Sheldon Shoemaker, assistant inspector general for management and operations with the Office of Inspector General for the U.S. Small Business Administration said he will “raise awareness internally” of the Eagle report but would not comment on whether an investigation is warranted.

The SBA was responsible for the distribution of CARES Act funds to small businesses through the PPP and EIDL programs. The Office of Inspector General provides oversight for that agency and investigates potential fraud and abuse. The results of an investigation would likely be handled by the U.S. Attorney’s Office, Shoemaker said.

A spokesman for Stephen McAllister, U.S. Attorney for the District of Kansas, said the Wichita office is aware of the Sunday report but would not confirm or deny the existence of a federal investigation.